It's 1999 Again: The Bubble 2.0 And Talent Wars Of The Silicon Valley

I have been living in the Silicon Valley for a while, and sure enough I haven't forgotten the dot com days. A few days back, on my way to the San Francisco airport, I saw a billboard by aol advertising that they are cool (again!). I also observed that parking lots alongside 101 weren't that empty. I told myself "man! this does feel like 1999".

The smart people - entrepreneurs, VCs, and analysts - that I talk to, tell me that we're in a bubble. They call it Bubble 2.0. Perhaps, they're right. The company valuations are through the roof. Facebook is valued around $75 billion and Color, on the launch day, had $40 million in the bank. The angel, super angel, and incubator investment deal flow is bringing all the talent to the Valley and all these young smart entrepreneurs are working on some of the coolest things that I have ever seen. But, there's a talent side that I am worried about. What this influx of easy venture capital has ensued is companies waging talent wars. For companies such as Google, attracting and retaining talent has become very difficult. Facebook and Twitter are new Google and Quora is new Facebook. The talent acquisitions that worked in the past, such as Facebook acquiring Friendfeed, have started to fall apart since the founders realized that serial entrepreneurship is a much better option that allows them to control their destiny against trusting someone else's innovation engine.

I like the creative ways in which the start-ups try to attract the talent. When Google launched a sting operation against bing, they took the honeypot keyword "hiybbprqag" used in the sting operation to register the domain http://www.hiybbprqag.com and redirected it to the Google Jobs page. They received a few thousand resumes that week. I am seeing more and more creative techniques that the companies use to attract talent. The value proposition for a killer designer or a super-geek programmer to work for you has to extend beyond the basics in the valley. This is especially true under current circumstances where there is a stunningly short supply of designers and developers in the Valley.

The talent war is for real. It's easy to get money and get started on an idea, but a real success requires a great team composition that is not easy to achieve. But, that's the reality of the start-up world and we should recognize that the people are even more important than ever before. If you think retaining talent was hard, gaining talent is much harder. I also foresee that these new millionaires will most likely angel invest their money into new start-ups. This floodgate will result into more start-ups competing for talent and possibly with the marketing budget of the incumbents. But, then, if we believe, it's a bubble, it gotta burst one day, and when that happens, it won't be pretty.

Selling To Enterprise - Power Struggle Between IT And Line Of Business

During my several interactions with - CIOs, senior IT leaders, and Line of Business (LoB) heads - I have firsthand observed the power struggle between LoB and IT and a slow but continuous tarnish in their relationship due to cloud and SaaS offerings. IT and LoB work for the same company but they build their little and in some cases huge empires within a company. Even if the end goal of a company is to leverage technology to gain competitive advantage, they all have orthogonal goals that appear to be conflicting from the outside. In a negotiation, it's imperative to recognize that both parties never want the same thing. It's about getting to a deal that's a win-win situation. Regardless of the kind of ISV you represent and who the buyer is, I suggest you make the both - IT as well as LoB - work in your favor.

The ISVs that typically face these challenges fall into one of these three categories: 1) On-premise vendors that sell into IT find it difficult to compete against SaaS vendors selling similar solutions to LoBs 2) SaaS vendors that primarily sell into LoBs find it difficult to get pass IT 3) On-premise vendors aspiring to sell on-premise as well as their new SaaS solutions to LoBs find lack of relationship with LoBs challenging. Not only the ISVs need to understand which category they belong to, but they also need to understand the conflicting goals between LoB and IT and have a strategy and a solution to overcome that. It's not black and white and there's no prescriptive approach. It does vary across customers, their IT maturity, industries, and regions.

The LoB is always about time to value. They want a solution today and they want it now. This is the reason SaaS has a compelling value proposition - nothing to install, no software to purchase, and relatively shorter implementation cycle - to serve the LoBs. On the other hand, IT wants governance, risk management, and integration. They see SaaS solutions as silo one-off solutions popping up everywhere in the company, keeping the CIO up in the night. IT sees technology and LoB sees solutions. This is also a function of how IT operates. I have seen many different variations of the same thing. If you have a clear value proposition for LoB, do cater to them, but don't bypass IT. It's tempting, but don't do it, instead make them your friends. Bypassing IT might help in the short-term but eventually you will run into issues.

I would recommend a few things:

Help IT scale: If you believe that IT wants control and hence wants to do everything on their own, you're most likely wrong. It turns out that IT doesn't mind at all if business can perform certain functions in a self-service way, as long as the IT is ensured that they have underlying control over data and (on-premise) infrastructure. The private clouds are flourishing for very same reasons. This is great news for on-premise vendors that are struggling to sell into IT with dwindling budgets. Focus your innovation on simplifying IT landscapes and making on-premise deployments more self-service for LoBs. For SaaS vendors, this is where you win over the on-premise vendors by providing instant value to an LoB and giving IT control over data security, governance, and integration.

Don't compete based on price alone: I have heard many times that compete based on price and you will win, regardless of whether IT or LoB is a buyer. Competing based on price could be a good thing, but it's not everything. Personally, I have observed quite a few bake-off situations and learned that price alone does not determine the final outcome. The IT as well as LoB do look for things beyond a vendor offering a cheap solution. If you're expensive, you need to have an end-to-end value proposition that is far better than your competitor and if you're cheap, you have to be cheaper by a magnitude to the second cheapest competitor for a customer not to ignore you. Also, the on-premise and SaaS offerings have not-to-easy price comparison since they have different CapEX/OpEx models resulting into potentially different TCO for a customer.

Follow the money trail: IT and LoB have their own budgets. Traditionally, on average, IT spends 80% of their budget on "keeping the lights on". The rest is spent on "innovation" or "strategic projects". While this is a broad generalization, this could vary from customer to customer. The most progressive CIO that I have so far worked with has the exact opposite number - 80% on innovation. As a vendor, not only you need to understand who has the power to write a check, but which bucket has the most money left with the least hoops to jump through. In some cases, IT has chargeback (to business) models and LoB-sponsored projects. Follow the money trail and understand the aspirations on both sides and position your solution accordingly. If there's no pain, there's no gain. Spend time on finding the biggest pain-point and a budget to fix it instead of educating a customer that they may have a problem.

Happy selling!