In my last post, I was bemoaning the challenges of undertaking an enterprise software startup, especially when you look at the distribution (go-to-market) difficulties and the heavy lifting usually required on the development side. Many VCs look at these investment opportunities and see a double digit (millions) investment over 3-5 rounds. The exemplar that triggered me to consider alternative enterprise software business models was GreenPlum, a startup in our market sector that has taken at least $45 million from VCs since 2005. I’m certain they have a solid product, good team and market traction in the data warehouse / business intelligence space but the bar for a successful exit is so high that it must be depressing for the founders. I will say that I know bupkes about the company except what’s on their web site so they may very well be on the way to a $500 million exit. Cool for them if that’s on the horizon.
For veloGraf Systems, our new company, this business model is a non-starter so I crawled out of my self-imposed “build-the-prototype” hibernation and started exploring how other startups might be dealing with this challenge. Not surprisingly, there is a ton of stuff out there. Eric Ries Lessons Learned blog offer some interesting insights on “lean startups” and the Venture Hacks web site is worth visiting. However, what struck me was the very narrow focus on Internet startups. Not to diminish the value of focusing on capital efficiency, it’s a rather obvious that an Internet startup can be “lean”. This was reinforced in Babak Nivi’s interview with Eric Ries where they discussed what constitutes a minimum viable product. Eric was whinging about taking two weeks to build the final product (his debate avatars) instead of just a landing page to test interest. Jeez, Louise! A landing page as an MVP? And two freakin’ weeks for the final product? No wonder there’s a huge disconnect when VCs talk about software startups.
Nonetheless, the “lean” mantra has value and Eric’s definition of MVP is predicated on an agile development model. For enterprise software startups, I think the best “lean” lessons may come fron Steve Blank’s customer development model as outlined in his book and the preso he delivered the Startup Lessons Learned conference. The principles can be applied to any type of startup and at least Steve understands from personal experience that a minimum viable product for many software companies may actually require a small team of really good software engineers many months to deliver just the core MVP.
I don’t have the definitive strategy for how we build veloGraf Systems. I am encouraged by all the smart people in this space willing to share their ideas about resource efficiency. The end solution really extends the agile development model to “agile selling” and “agile funding”. BTW, the latter is not the brain-dead, micro-managing tranching methods used by some early-stage VCs but really looking at what it takes to iterate over the next few development and selling cycles. This is actually harder than it may seem because of the conventional VC process, legal costs for closing a round and a willingness of investors to engage in the iterations inherent to the agile model.
I’m optimistic that we can leverage many of these “lean” and “agile” techniques to provide an operating model for developing the veloGraf product and raising money. As Steve Blank makes clear, we still must find the business model that make the company viable. I’ll kick that can down the road for a couple of months as we wrap up the prototype.