Published 2006-06-23.
Time to read: 3 minutes.
I got an email today from a friend, an innovative engineer:
Hi Mike,
The other day, I had a reasonably good idea for a startup. And I ran it by a friend, who said "Why would the enterprise buy that?"
I replied "Much better than existing solutions."
He said "Unless it’s a 10x, nope. And, while it is better, it’s not a 10x."
I thought "That’s gotta be wrong."
But then it occurred to me. In spite of having worked as a consultant to enterprises, and in spite of having run professional services for an enterprise software company, I still don’t have a very good model of enterprise software adoption. To wit:
- What makes a new piece of software or IT infrastructure compelling for the enterprise?
- When do enterprises decide to upgrade or change infrastructure?
Do you know of any references or models?
Here is what I told him:
A 10x return on investment applies to investors (although 7x works too). If the sales pitch is predicated on cost reduction (optimizing operations), then 5-10x would apply and is most interesting when the client’s business is relatively mature.
Increasing client sales (optimizing business development) needs to be presented along the client’s strategic direction, which might be a moving target. 2x or 3x return would suffice if the timing between a vendor’s presentation and a client’s view of their strategic direction aligned. This would be difficult for the vendor to guess without incredible intelligence on specific targets.
CIOs are risk-averse, so solutions that do not require vetting new servers and client-side software are easier. When selling into a datacenter, a 10x return might not be enough if security issues are not mitigated. On the other hand, repurposing existing investments are much easier to sell: a 2x or 3x return might be sufficient.
In other words: inertia is a dominant force of nature that also applies in IT.
If you consider trends to be acceleration (positive or negative), then the net force driving the inertia is composed of external and internal factors.
Those factors might be political, economic, technical, etc.
Newton’s F = m * a can be restated in entrepreneurial terms as:
or, more to the point:
The investment (mass) a client has made in developing and deploying their intellectual property; training personnel; capital investment in infrastructure; and intimate knowledge of the current system. ("The devil you know".)
For entrepreneurs that want to convince clients that a new technology that is worth adopting, continuing our physics metaphor may be illuminating. Let’s equate profitability with speed, and technology platform with direction. Thus velocity is the cost-effectiveness of a given technical platform.
It follows that in order to change a company’s direction, and increase their profitability (speed), the client will need to experience a strong enough net force over a long enough period of time to overcome inertia and justify the risk and the investment.
In addition, the prospect will only understand new information in their current context, which might not use the same dictionary that an entrepreneur uses, since they tend to live in the future.