Thursday, December 28, 2006

Future of SaaS: don't forget the data!

My colleague Philippe Botteri has an interesting post in response to a speech given by Tony Zingale at the 13th Silicon Valley Annual VC/Entrepreneur luncheon organized by NVCA. In his post, Philippe lists several reasons driving the success of SaaS (software as a service), both from the customer perspective as well as the vendor perspective. I'm going to add one more point: Benchmarking.

One of the things that I think will grow in significance for the SaaS model is leveraging the valuable data sets vendors end up having, most notably for benchmarking purposes. For example, let's take SuccessFactors, a SaaS provider of Talent Management services. If you are not familiar with SuccessFactors, they help companies manage their talent, i.e., people. This includes succession planning, compensation planning, performance reviews, etc.. If they took all the data they have, they could provide some really interesting benchmarks. For example, average salaries for certain positions across industries or cities, increases in annual salaries, demographics associated with promotions, etc.. Leveraged correctly, this data could be sold back to customers or other 3rd parties as a premium service.

I'll admit monetizing this data is no easy task. There are two important issues here. 1) Figuring out how to use the data. 2) Who owns the data in the first place?

re #1: I've spoken with a few hundred SaaS companies and only an elite handful have figured out how to effectively monetize their data. On those occasions, the CEO could barely hide his / her enthusiasm. They knew they were sitting on something valuable and unique to SaaS. Unfortunately, most CEOs don't even think about this advantage, most likely because of privacy concerns. I hope this thinking will change.

re #2: Of course this is the hot button question: who owns the data in the first place? I would be very surprised if SuccessFactors hasn't thought about the data they have and how they could monetize it already, but obviously they have to be very sensitive to the fact that they deal with some very sensitive data. Companies are still quite uncomfortable with the idea of giving away their data to someone else in the first place -- even with the assurance that it will be highly secure -- and most large companies still request installations behind the firewall. A high-profile case of a guy like selling their customers data (even aggregated, completely anonymous data) without full consent from their customers would certainly be a black eye to Software as a Service. But I hope this is something time and envelope-pushing CEOs will change.

As SaaS increasingly grows in user acceptance and companies gradually become more comfortable with having their data housed by someone else, I'll be looking out for the SaaS visionaries who will be pushing the envelope towards figuring how to leverage their customer data.

Sunday, December 3, 2006

Contempt, eh?

A lot has already been written about Guy's post, so I'll try not to echo too much. But it is worth mentioning that, while most of the readers commented on the insightfulness of the VCAT (styled after this quiz in Cosmo…), I can't help but think Guy's post is a little behind the times. No, no, I am not saying 25 year olds should be calling the shots at VC firms and casting a vote on investment decisions. But I don't think it is fair to belittle all the early 20's enterprising applicants who are interested in VC jobs. And it is Certainly not fair to advocate treating those people with "contempt".

For those who haven’t read Guy’s post, his argument, oversimplified, breaks down into 3 premises:

  1. Young ppl are motivated by dreams of grandeur to try to get into VC
  2. Successful VCs have x / y / z qualifications ("Venture Capital Aptitude Test")
  3. Young people don't have enough (if any) of these qualifications

Ergo: It is ridiculous that young people are trying to work in VC.

In essence, Guy’s VCAT is supposed to be a sobering wake up call for us youngins who lack experience (can't say I've ever been “kicked in the groin”), and are aiming for the VC scene to be a part of the sexiness associated with the industry -- corporate jets and all.

But this does two things. 1. It unfairly clumps every young person’s motivation for getting involved in VC to one motivation. 2. It assumes that a pre-MBA’s job is equivalent to a GPs job. Neither is the case.

To the first point, there are a good number of young people out there interested in VC for the broad exposure to entrepreneurship one gets with the aim, either to cross over, or leverage that experience in some other industry. Heck, there are already some great examples of former pre-MBA VCs crossing over to entrepreneurship (Charlie is case in point). My guess is that Charlies’ experiences at Union Square Ventures help inform his day-to-day at Oddcast. To the second point, pre-MBA posts are (for the most part) jobs heavy on the sourcing and researching, light on the tie-breaking votes and corporate jets.

Guy goes on to write: "entrepreneurs should view any young person who opted for venture capital over “real world” experience with contempt." I am sure Guy didn’t mean it as strongly as he wrote it, but ouch. Guy, what did you hope to encourage by that proclamation?

Contempt clearly doesn't help anyone. I agree with Guy’s claim that no pre-MBA should be calling you, expecting to know what it is like to be running your business as well as you do. Nonetheless, as funds gorge themselves on LPs’ wallets, more and more money is out there, needing to be put to use. Increasingly, to adapt, VC firms are supplementing their inbound deal flow with outgoing calls to make sure that there aren’t some good deals passing them by. Chances are, if you are an entrepreneur behind a successful start-up, you have been called by a twenty-something working for a VC. The increasing presence of pre-MBAs in VC is less “additional proof that we’re in a bubble”, and more a sign that the VC organizational structure is changing -- for better or for worse.

As an aside, I think this trend is great. Not just because it means that I get to work in VC (Whoo hoo! Corporate Jet!) but because I think it helps open the playing field for entrepreneurs who don't belong to the "old boy's network", namely women and minorities. Obviously there is still a long way to go here, but every little bit helps!

It's time to start blogging....

I've been twirling the idea of starting a blog around in my head for a while, but it took a post by Guy Kawasaki + a recent article in Slate about female ambition to finally be the motivators I needed.

Why would these two things motivate me to try my hand at blogging? Two reasons.

One, there are a lot of new “pre-MBA” positions in Venture Capital (my position included) and this category will only continue to grow. The responsibilities of these positions vary from firm to firm, but they include some mixture of sourcing (i.e. outbound calls to startups) and diligencing. But as Guy’s post seems to indicate, there is a whole lot of misunderstanding out there about why these young kids are moving into VC-land, what their motivations are, and how to deal with them. I hope to chat a little about this from time to time.

Second, there continues to be an amazing dearth of women and minorities in venture capital and start ups. For example, currently I am the only female in my firm of 30. (Perhaps Guy should have added that as one of his test questions? “If you are white / Indian / Asian, +2 pts. If you are male, +3 additional points”.) Being an empowered woman (aka feminist), and having been involved in feminist organizations in college, I am inclined (make that, starved) to talk about these things. In many ways, for me, being the only woman in my firm has been a great social experiment. It has challenged me in more nuanced ways than I originally thought it would. This really hit home when I read the Slate article on female ambition. It is a worthy read.

So that is my first entry (gasp!). A counterpost to Guy’s post will hopefully follow…. But future posts will most definitely not be limited to reasons one and two.