The Problem with Enterprise Software

Chartio is building an analytics solution for businesses. People often assume we are targeting enterprise companies and are shocked to find out we are not. So I decided to blog about why we target SMBs -- and why virtually every B2B startup should do the same.

It boils down to the fact that B2B companies are ultimately shaped by the need to make money from their customers. If a startup sells to an enterprise it has a big customer - but it's only one, and they will be beholden to the demands of the one. Big companies dislike surprises, move cautiously, and like to take advantage of their leverage [who doesn't?]. They are happy to work with startups so longs as startups either build a product specifically for them (and customize it as and when they want) or build a product that is exactly like what they were using before only [much] cheaper.

In the analytics space that means companies are forced to build cheaper versions of IBM tools, SAS and the like. In advertising it has forced companies as big as Google to bend to the will of buyers who demand guaranteed placement and brand advertising that perform worse but mirror buyers experience with print ads. Overall, it forces unprofitable pricing and developmental incrementalism, two of the worst enemies of a tech business.

Price wars crush margins and commoditize products. Commoditization at ultra low prices only makes sense in two cases. One case is if you are rich and dominant so that you can use it to starve competitors that depend on product differentiation to preserve their margins. The second case is if you are commoditizing a complement to another part of your business. Google is arguably a master of this. They commoditized phone software in a way that is undercutting Apple, pre-empting Microsoft, and nicely complementing their online ad business (gets more people online). They are trying to do the same thing with operating systems (Android, Chrome OS) and Office apps, and may well succeed.

Incrementalism might be even worse. It crushes creativity and big innovations by pushing people to safe local maxima. At Chartio we want to push the envelope of what's possible with SaaS analytics. We want customers who want to try a new experience and reap huge rewards. SMBs are the best candidates for that.

And the best part about SMBs? They can move quickly, appreciate added value when you produce it, and at least some of them will get bigger...

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