Thomas the Tank Engine, Dandelions and working with startups. Buying software sensibly: Part 2.
The second and final excerpt from HR Tech Europe talk.
I promised the second part of my HR Technology Europe talk, so here it is. It may help to read the first part for context. Post embedded below.
Disruption, ambidexterity and English lit. Buying software sensibly: Part 1.
I was at HR Tech Europe last week at the RAI, in Amsterdam. These industry events are useful and often fun, especially because of the people I bump into. I also attended two excellent VC events, a dinner with Endeit Capital and a breakfast with Rubio Impact, No Such Ventures and Mediahaus Ventures
TL;DR: In the first part I basically tell HR buyers of large enterprise software to understand the adversarial nature of working with multi-billion dollar companies, and don’t be naive about what suites can do for you, and what they cost.
When working with startups, I see the opposite problem. The large corporates inflict the buying behaviours that they use with large vendors on startups. When working with startups, corporates need to develop an experimentation approach, with a clear path to deployment, or ending the experiment. Create clear guardrails, and experiment boldly within these.
Large organizations have different cultures and behaviours when engaging with software companies, and I have a metaphor I use to explain this.
The sunflower: large core, small petals. These organizations commit to a suite vendor as their dominant provider. They have to use the suite unless it clearly is unfit for what they need. IT is normally quite powerful, and factors such as integration, suite vendor partnerships, joint GTM, certifications etc are important. Start-ups will need to collaborate with the suite vendor to be successful in these companies.
The daisy: small core, large petals. These organizations use their suite vendor as the system of record, but they rely on niche vendors for innovation. They are easier to sell to, especially at the LOB level. Start-ups compete by differentiation, not integration. Winning deals is easier, but gaining enterprise wide traction and stickiness is harder.
The cactus: This is an anti-pattern. These companies only use the suite, even if the suite fails to meet their needs. These organizations are impossible to sell to. They have lots of shadow processes in Excel and the like.
The Dandelion: This is the most dangerous anti-pattern. These companies very quickly pilot software, do lots of POCs, but they never actually deploy stuff. They waste the time of startups and they frustrate their end users with lots of half baked stuff. I see these companies on every pitch deck.
My advice to large organizations is be clear who you are. If you are a sunflower, you will have long sales cycles but you are prepared to commit for a long and meaningful commercial relationship. If you are a daisy, you can move fast to buy, deploy and replace. If you are a cactus or dandelion, get therapy.
Now this doesn’t mean that suites are evil and startups are goodness. Everything has a context. For most large enterprises will look for a niche or startups to solve a specific business problem. Sometimes startups themselves play in multiple niches. There is nothing wrong with this, but once a startup starts behaving like an incumbent, treat it like one. Let the rottweilers of procurement loose.
I call this the platform proliferation problem. We need many applications that solve specific business problems. Don’t need 1000s of platforms. As a child and a parent I was very fond of Thomas the Tank Engine, Edward, James, and the controller. The book wasn’t called Thomas the Platform.
Beware of startups pitching platforms.
As a buyer of HR sofware, you need to develop a coherent strategy for integration and data quality. The tooling to help you manage integrations has improved dramatically (in part thanks to AI…check out our investment in Kombo.dev).
Your ability to deliver great HR processes and experiences is not going to be determined by how beautiful the UI is of any given application. It will be determined by the quality of your data. (If you are interested in the software industry, please read James Governor. I learn so much from him).
When large vendors and startups pitch AI at you, you might find how we think about AI as investors useful. Most of what you will see are features, even if the vendors think they have a product.
And to summarize both parts.
I’ll do what I usually do, and end with a song or tune. This is goody.
If you don’t know about the West-Eastern Divan orchestra, check it out. It is a remarkable story.
And a bonus: I recently was introduced to Saul’s work. It’s excellent. He is also a fan of exploit and explore.
"Beware of startups pitching platforms." it's a super interesting point. Parker and Rippling have shown the power of compound startups, albeit the massive expense of building them early. And almost everyone at scale ends up there someday (Datadog and HubSpot great examples in general).
But does it work for others in the sub-$50m ARR phase? I think 95 times out of 100 it's not a practical strategy.