In the Empowered Enterprise 2.0, startups have the inside track to success

BYOD; BYOA; freemium cloud services; open source software in corporate IT —  the evolution of technology in business is at a critical juncture like we have not seen before. Or have we?

Thirty years ago, ambitious employees lugged personal computers into the workplace, displacing the central organization of “dumb terminals” accessing UNIX mini computers and mainframes. These PCs, along with apps such as Visicalc, Lotus 1-2-3 and Harvard Graphics, gave power to the individual and radically shifted how work got done. They created the Empowered Enterprise 1.0.

Now we are seeing employee empowerment like this again, but on steroids! Employees of every stripe are finding and selecting services from document sharing to application testing to HR solutions online or in app stores. When they can start with a free trial or make a simple credit card purchase, employees are empowered to solve their own business problems directly and they are embracing this empowerment in droves. This is the Empowered Enterprise 2.0.

This time, employees are in charge

While there are some parallels to the 1.0 era, there are significant differences that portend a different future for enterprise startups and traditional vendors. Personal computer makers initially targeted hobbyists and Wall Street power users as their early adopters. Today’s early adopters are also often business end-users who discover new applications on the internet and access them for free trials or low-priced software-as-a-service subscriptions.

The differences in how employees and IT departments are dealing with today’s new technology shift abound. At the dawn of the PC era, technology management in companies was highly centralized and the responsibility for adoption depended on the IT department. Today, we are seeing a clear shift to distributed responsibility under an umbrella of cohesion (some would argue surrender) provided by the IT department. But it is early in the shift and legacy technology systems, legacy business processes and legacy technology vendors are all creating resistance to change.

Another difference with Empowered Enterprise 2.0 is which entities are spurring innovation. Thirty years ago, with the exception of the PC ecosystem, big technology vendors and central IT led customers into the technology revolution. That continued for over 20 years. The pace of innovation in hardware, software and solutions was generally out ahead of the business unit, and end-user adoption of technology was not out ahead of business process change.

Maybe this was because the tools just weren’t there for employees to drive the change, but what’s clear is that technology vendors — not consumers or employees — were perceived as the innovators.

Today, in a world where fast and agile are the expectations, empowerment and agility go together in the enterprise. Smart devices, easy-to-use applications and real-time, collaborative communication (e.g., Twitter, Facebook, TripAdvisor) empower employees in their personal lives. Employees, in turn, expect more out of every piece of technology they touch and every customer experience. They don’t accept technology; they criticize and suggest changes and work to make it better. And they expect it to improve quickly and iteratively.

New business models empower the little guy

These changes also are shifting the way technology-driven solutions are sold. In short, the old top-down, licensed model is giving way to a bottom-up subscription model. In the past, large technology vendors had massive account-control and economies-of-scale advantage. The new patterns of adopting and selling mean that modern enterprise startups have an advantage in gaining adoption.

Today, startups can offer freemium services, learn what works and what doesn’t, and quickly innovate. Through social media and other means, they can connect directly with users and incorporate feedback like never before. Through real-time data analytics, they can see what customers are using and not using in the application, and then make agile changes to their software product, packages or services. And, these new companies find it easier to sell in small increments and create subscription-based business models.

Next-gen enterprise IT companies are faring well in the public markets.

Next-gen enterprise IT companies are faring well in the public markets.

The enterprise incumbents have a challenge in front of them. Their selling model has been top-down, on-premise or technology-specific (servers, storage, networking) for decades and the new world order must include a bottom-up approach. It’s no surprise that venture capital has been flowing to enterprise startups and that there are several high-profile, recently public companies like Splunk, ServiceNow and Tableau that are commanding high valuations. We expect that more companies that can combine successful bottom-up product adoption and sales with top down account management will over time grow revenue to become successful public companies.

We saw wholesale change in how work got done in the Empowered Enterprise 1.0. With Empowered Enterprise 2.0, we anticipate that the bigger change is on the horizon. Over the next five years, established technology vendors will need to tear down their product development models, disappoint Wall Street on revenue growth and build a new go-to-market approach in order to remain market leaders.

Some might call it the “innovator’s dilemma,” but, regardless, it is hard and not everyone will succeed. And in this era of end-user empowerment and disruption, a new generation of enterprise startups will emerge and a few will become the next big technology businesses.

Matt McIlwain is managing director at Madrona Venture Group and invests in early stage technology companies.

Feature image courtesy of Shutterstock user Dasha Petrenko.