The three types of enterprise software

“Enterprise software” can obviously encompass a ton of different products and services, but I find it useful to break down our market into three broad categories that help inform product managers’ vision for their product:

  • Back-office products
  • Iterative products
  • Transformative solutions

One thing about enterprise software that makes it unique from consumer-facing is that its path to market and selling strategy is usually a fundamental part of the product itself. Businesses, especially in the “enterprise tier” (however you care to classify that), do not often buy, adopt or test out lots of software products on a whim; there are just too many legitimate concerns around risk, security, control, etc. Each of these categories has a meaningfully different path to market that product managers have to design for and build a product strategy around, even (or especially) if the ultimate goal is to go up-market (which – spoiler alert! – it usually is).

I’m going to talk a little about each category, how they’re interrelated, and how enterprise products can (sometimes) move between them.

Back-office products

Outside of Silly Valley tech companies, most companies’ breakrooms are pretty drab affairs right out of a Dilbert cartoon. If you’re lucky, you get some free packets of instant coffee, a water cooler and a fridge to store the lunch you bring from home. This is because most big companies just don’t see much clear ROI from investing money in cushier employee amenities.

The same principle applies to most back-office software. Almost by definition, back-office systems don’t generate revenue, which puts them right at the back of the line when it comes to executive attention. What matters most is cost and reliability, often in that order, with security creeping into that mix as well. Back-office just needs to work, but people don’t need to like it. This is why legacy products like Outlook and even Lotus Notes (!) dominate the email and collaboration market – and that’s just the stuff everyone in the company touches. Data management, CRM, commerce and huge swaths of the ERP systems market is dominated by stuff that was first developed in the 90s. (If this sounds like an alien world to you, you’re probably in a bubble.)

Back-office systems are relatively easy to innovate on but difficult to sell. Few enterprise executives are interested in burning budget on non-revenue-generating software systems that they may rarely even see or use. “Good enough” or even simply “functional” is the goal and there are often big switching costs for a new system implementation, which is why incumbents automatically have a deep moat. Taking out a competitor requires long sales cycles and big selling campaign resources, which is one reason why this realm is dominated by big companies.

While this is the conventional view, there’s another way to look at back-office systems too – as catalysts of a more efficient, effective and modern organization; that is, as transformational solutions. But very often, this amounts to little more than marketing hype. As they say, many will enter, few will win. More on this in a sec.

Iterative products

The largest swath of enterprise software products falls into this category. These are the products most focused on specific channels of business value, and possibly as a result, this is the most competitive of the three categories, because the spectrum of use cases for any one solution is typically much more limited.

What distinguishes iterative products from back-office ones is their proximity to value creation. We’ve seen this perhaps most vividly in the marketing tech world, which has exploded in the last decade due to the ability to directly link more relevant, effective cross-channel marketing with revenue. Iterative products’ routes to market are straightforward: you find out which companies could benefit from doing [X] and then go pitch them on doing [X]. If they’re already using another vendor’s product to do [X], then the fun part comes: product bake-offs, case studies, references and so on to demonstrate superior efficacy and value.

Iterative products can also allow a company to operate in a new context. Expanding personalized offers into social media from just on-site is an example of this, or adopting a customer support ticketing system instead of just letting some poor CSR handle all incoming queries. Adopting these new operational contexts builds the company’s value-creation surface, hopefully as efficiently as possible.

But all of this is still doing the same basic things, just more or better. There are many different mobile device management solutions, network security solutions, order management platforms, customer ticketing products and so forth – and despite important differences between them, and not infrequently grandiose promises, the best products in this category help their customers get just a little bit better over time. Typically, this improvement requires organizational change, not just better products (which is a topic for another post I have brewing), but the products help “nudge” the organization slowly in the right direction. This subtle organizational pressure exerted, in fact, can be a compelling part of an iterative product’s value proposition.

Understanding what exactly those drivers are that make companies in a certain industry just a little bit better, faster or more efficient is an enterprise product manager’s job. Very rarely is it obvious or easy to build or communicate.

Transformative solutions

Every company (certainly every enterprise product manager) wants to build and work on a groundbreaking, transformative product that changes the way people work and the way an industry operates. Every company aspires for its product to be the category-defining must-have tool that companies across verticals adopt to reach new heights. No surprises there.

But as we all know, this describes very few actual products in our field. In fact, when I see an enterprise product pitched as “transformational,” it typically makes me all the more skeptical.

People tend to conflate market-dominant iterative products and transformational ones. From time to time, a visionary, well-engineered product is introduced just when a certain organic technological cycle is in its upswing, and this combination of factors (along with high-quality management) can result in an iterative product becoming dominant in its market. Google Analytics, Adobe Analytics and Salesforce CRM are all great examples. Over time, some of the organizations that use these products do evolve around the new capabilities they make available, but this is more a case of adaptation than transformation. That’s partly just semantics, but the difference is meaningful, I think.

As I said before, transformational solutions can often arise, ironically, from the dustier corners of boring back-office systems. Think of Zendesk, Workday, JIRA and, yes, Slack. While these tools sometimes feel mundane, each truly does signify a step change in efficiency by utterly changing how a workflow process happens. How this works is pretty clear to anyone who has ever used Zendesk. Workday is arguably the leader of a whole industry of foundational systems automation and streamlining that makes finding and using information 10x easier for employees. JIRA is almost synonymous today with the Agile software development process, and a huge swath of software engineering teams are now literally built around its workflow structure. Slack is an interesting case that probably warrants its own blog post. While its use case is not unique (we’ve been using workplace chatrooms since AIM), its user experience, ease and integrations are hands-down superior to any other collaboration software currently available. Slack makes whole new, flattened and distributed workplace organization patterns feasible. The big question is whether industry is ready to use them.

These tools are often hard to convince executive budget holders to spend on, because the business value they represent can be difficult to neatly articulate in the same way that a product recommendations widget is. But fundamentally, the way companies continually transform into producing higher value in a non-zero-sum fashion is by continually re-imagining their processes exactly like these, which is why each one of these products has taken off in the more innovative corners of our economy.

A quick anecdote. Back when I was at IBM, I was gradually let in on a secret: the savviest of my colleagues didn’t even bother using Lotus Notes (our corporate-mandated product). Eventually, I figured out that lots of people secretly auto-forwarded everything onto gmail, or even used outside addresses primarily, in clear violation of corporate IT rules, because Notes was such a godawful mess that no one could even deal. (Your email account was frozen if you hit more than 125MB of un-archived email. In 2014 AD.) High-level executives, salespeople, engineers, everyone could agree – it was just unusable.

Yet despite this state of affairs for years on end, nothing changed, which in itself was a valuable lesson: companies invest in what they value. To that end, in my opinion, the coolest enterprise software coming into the market today is that which helps tap and organize human talent wherever it is, and overcome the barriers of meatspace with technology. Tools like these will unlock enormous new value for the companies that can transform themselves to capture it. And we’re still in the early days yet.



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