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Innovation Showcase Lessons

At the past two Enterprise Connect conferences, I’ve had the pleasure of directing the Innovation Showcase, which recognizes younger firms that are innovating in enterprise communications. In past posts, I've focused on the selected companies, but here I thought I would devote this post to some observations about the startup opportunity for enterprise-focused firms.

There's Room for More
Startups are hot, and it seems harder and harder to go a day without learning about a new one. One might incorrectly assume it's too late to start. There's a perfect storm hovering over the startup opportunity: the cloud is enabling instant and low cost infrastructure; the mobile environment has put underutilized, always-on, geo-aware super-computers in everyone's pocket; and economic conditions and shifts in attitudes are creating a supply of human and financial resources willing to invest in startups.

Companies are forming and getting noticed like never before, particularly in the consumer sector. To reach the million-user milestone, it took AOL 9 years, Facebook 9 months, and most recently Draw Something 9 days. Just six weeks after Draw Something launched, it had over 20 million downloads, was generating $100,000 per day, and it was the number one app in 79 countries. This type of explosive growth and distribution was simply unheard of just a few years ago.

While the vast majority of these rockstar apps we hear about, such as Draw Something and Instagram, are consumer oriented, the same conditions exist in the enterprise space with much less competition. The enterprise world is watching, and even uses the term "consumerization" as code for bypassing IT, yet few startups see the opportunity. The aforementioned conditions that are favoring startups are also creating favorable conditions for startups to sell to the enterprise, and it’s not a crowded sector. The barriers to entry into the enterprise have never been lower.

Consumer App or Enterprise App?
Every year, the Innovation Showcase judges wrestle with this distinction. It's is not an easy distinction when considering the service itself—think about some well-known web services such a LinkedIn or Skype which can be construed as both business and consumer services. The other approach is to determine the buyer: IT or direct end users. But that model also provides inconsistent results. The way we address the dilemma for the Innovation Showcase is to let the enterprise decide, by requiring each applicant to provide a large customer reference. If a large company is willing to try out the product or service in a pilot, that’s a sufficient indicator of enterprise suitability.

It's amazing to us what gets through this filter, echoing the point above that enterprises are hungry for new ideas. There are two paths into the enterprise: via IT and not--and both are accepting better mousetraps. When apps go through the non-IT door, they are labeled consumer apps, but that doesn't mean they have a consumer focus. Consumerization really just means selling directly to the users of the product or service. There's a lot more purchasing going on at an enterprise than corporate purchasing managers would care to admit.

Consumerization is the buzzword, but IT is still buying, too. IT departments are under pressure to provide more intuitive and cost effective solutions. Consistently, IT departments are evaluating and buying new solutions that enable a more mobile, distributed, workforce--including cloud services, collaboration tools, security solutions, and wireless infrastructure.

Support Matters
We have a mixture of backgrounds among the judges, but always try to include some enterprise CIOs. What stands-out with CIOs is they tend to look at supportability first and technology second. Supportability refers to a broad range of factors including how intuitive the product or service is, its reliability, and of course the vendor's support mechanisms. From a judging perspective, this is difficult because we simply are unable to truly test or compare these factors.

Instead, we get glimpses, and the CIOs are unforgiving of any cracks in the supportability armor. Telltale signs such as a failed demo, an evasive response to a question, or a poorly constructed website can significantly hurt how an applicant is perceived. Based on my casual observations, CIOs are far more likely to become unemployed over unstable good solutions than reliable bad solutions.

Ready, Fire, Aim
The current startup environment is a Bizarro World. In a Bizarro world (from DC Comics), everything is the opposite of how things are on Earth. For example, on normal Earth, we evaluate, justify (ROI), and then buy. But in the Bizarro App world, services get implemented, and then come the evaluations of suitability and ROI. This is largely made possible by pay-as-you-go and freemium services that eliminate significant up-front investments.

There is no quicker way past the enterprise reception desk than the Freemium model. By completely eliminating the approval process associated with expenditures and expense reports, startups can get right to the users that may later become their champions. The enterprise will have no problem purchasing proven technology and solutions. Freemium also allows entrepreneurs to experiment with feedback. The web offers numerous ways to test pricing and service bundles with near-immediate feedback.

Keep it Cheap
The startups that are making a difference are generally approaching communications in a different way--peer to peer, inter-organizational, and mobile. That might be enough to gain some attention, but an equal (if not bigger) factor is cost savings. Most Enterprise software solutions are relatively expensive to purchase, maintain, and support. Startups that build better mousetrap functionality at a fraction of the price are getting noticed.

You Got Some 'Splainin' to Do
It is absolutely amazing to the judges how often startups are completely ineffective at explaining what they do. I had heard once that one of the many things incubators do is teach the startups how to pitch--which used to strike me as silly. Now I understand better: Every year, we have multiple applicants that leave us totally perplexed about their business.

For example, on this last round we had one applicant that we didn't understand if it is a was product or service. We asked for additional information, and their response still left us perplexed. Innovative companies, by definition, can’t describe themselves by referencing an identical company, which means they’d better get their pitch down. And although many entrepreneurs have highly charismatic personalities, that won't help them if they can't get their written application past the first round of judging.

What is Enterprise Communications?
It is impressive how broad this category has evolved: voice, video, email, vmail, faxing, searching, presence/IM, and texting. The mediums keep growing, and the aids to existing mediums are also flourishing (ruggedized tablets to video backdrops). How and where we work are in flux, as are how we acquire technologies and where we want them to reside. Our endpoints and devices are work phones, mobile phones, tablets, and computers connected over a variety of mediums using both private and public technology. The point is there is a lot of shift going-on, and that creates a lot of opportunity. Hard to believe Grandpa relied primarily on just the phone and the US mail for business communications.

There is a lot of excitement with startups. Not only is current technology moving quickly, but the half life of market leaders also appears to be getting shorter. The established players in enterprise communications are becoming fewer due to industry consolidation. This all equates to perfect conditions for new enterprise-focused startups.

Dave Michels is a Contributing Editor and and independent Analyst at