On ecosystems and the future of work

Working with the incumbents. Berlin and a bit of theory.

In Enterprise software, start-ups often partner with incumbent / mega vendors. When done well, these relationships can really accelerate the growth of the start-up, done wrong it is a Kafkaesque bureaucratic nightmare. I spend a good bit of time with our portfolio companies discussing how to navigate, embrace or avoid these relationships, and sometimes our network connections with the incumbents are useful for our portfolio companies. Ecosystems are a thing. I’ve seen this from both sides in my career.

A bit of theory

I find dipping into academic research useful to shape my thinking. It sometimes challenges me, and helps me take anecdotal experiences and organize them into to something a bit more useful. I’m also interested in the latest academic research into partnering and ecosystems, so if you are I’d suggest you have a look at Teppo Fellin’s latest paper.

The idea that you have to have a specific theory of your firm is a really powerful concept. In every VC pitch I ask lots of questions about what the founders believe: “What’s your theory?” The founders we fund always have something they are convinced about that others think is irrelevant or absurd.

Teppo’s latest research builds on his theory of the firm research, and applies it to ecosystems. Understanding the specific theories of firms enables you to actually understand why ecosystems form, thrive and fail.

Our central point is that the notion of a theory-led firm enables the introduction of much-needed heterogeneity in the form of firms with different theories, hypotheses and conjectures about potential sources of value—also pointing to unique and idiosyncratic complementarities and structural configurations and possibilities

You might also find Jacobides’s work on ecosystems useful. See this HBR article for intro.

Participating in an ecosystem requires an outward-facing culture and the ability to manage relationships with a host of complementors. Those skills don’t come easily to established players….

If you have read something interesting about ecosystems, do send it my way.

Berlin

I was in Berlin for a couple of days this last week, meeting other VCs, a couple of start-ups and LPs. I also attended the SAP.iO Future of Work demo day. It was nice to meet a couple of old friends from my SuccessFactors days, and also catch up with founders and other VCs that have an interest in Future of Work.

The SAP.iO programme in Berlin is now well established and excellently run by Azadeh Ghahghaie and Pia Krause. It provides a useful method for Series A size ventures to nail robust SAP integration, and establish relationships, both formal and informal with SAP sales, marketing and product teams. Trying to navigate partnering with a 100,000 employee vendor can be seriously challenging, and this programme does peel away multiple layers of that complexity, both organisationally and technically. Doing this as Series A companies makes more sense than doing it with earlier stage ventures. Engaging deeply with enterprise vendors too early in the company life cycle is not wise.

It makes sense for SAP, as it strengthens the broader ecosystem, and means that it can offer a broader functional scope to its customers. It creates a sense of openness too. Back in my days at SuccessFactors, Dave Ragones was a big advocate of the SuccessFactors store, and it is great to see his vision now humming along nicely.

The cohort of companies were Cobrainer, WorkFlex, gradar, Rolebot, shyftplan GmbH, Onwards HR, and Fifty.

We are an investor in Fifty (This case study explains nicely what they do). Here is Jeremy, the CTO and co-founder in action.

SAP isn’t the only enterprise / mega vendor offering these sort of accelerator / incubator services, but as an outside observer, they are doing a good job of executing on the plan.

Advice for founders

This sort of programme might make sense for you if

• Your ideal customer is often a committed user of the mega-vendor’s products.

• Your customer IT oftens demands certified integration, and having this would significantly improve win rates and speed up sales cycles and deployment times.

• A deeper technical and functional integration would significantly strengthen your value proposition (beyond the single-sign on or simple data stuff).

• A closer relationship with the vendor’s sales and marketing would significantly increase your pipeline generation and quality.

Things to be aware of:

• Be very clear why the mega-vendor is partnering with you, and what you and they want out the relationship. How does this relationship reinforce your theory?

• Examine the benefits of the programme through eyes of your customer (ask them). Will this help reduce buying friction?

• Don’t ignore your relationships with the mega-vendor’s competitors. Just because you have integrations and connections with Vendor A, don’t stop engaging with vendor B. Develop diplomacy skills. Partnering with A will often encourage B to work with you too. Almost always, you can and should play in multiple ecosystems.

• Strengthen your lead qualification processes and demo capabilities. If your product catches the imagination of the megavendor’s salesforce, you may be overwhelmed with demands for demos and deal support. Develop materials and simple demos that enable the enterprise vendor to show the basics. Not all the demo requests will make sense for you, so learn to qualify correctly. You will need to educate their sales force. More than once. Check out tools like Reveal to manage your partnerships, and establish a partner management lead.

• Founders should delegate the ongoing relationship management to a partner manager, as large vendors love lots of meetings. Don’t get dragged into every middle management vendor zoom meeting or status update session.

• Develop and leverage a proper marketing plan. Make use of the status to differentiate. Use joint customers to position success stories. Use the vendor events and conferences to your advantage. Understand what the marketing opportunities are early on, as you are only a new cohort once.

• Make technology decisions (middleware, API design etc) that suit you, not just the mega-vendor.

• Shape your roadmap based on your customers and your vision. Don’t let your business become a mere extension of the mega-vendor.

• Have a plan for if the relationship doesn’t work out, or you need to shift things.

Every time I’m Berlin, I think of this Bowie song. The German version is geil.