What's 🔥 in Enterprise IT/VC #164

Understanding the true cost of delivering enterprise software

Top of mind this week was Martin Casado’s tweet on enterprise software margins for companies in the 30-40% range. I highly recommend diving deep into that thread. My two cents are that he is spot on with the idea that we have to reframe what enterprise software margins are in the world of SaaS. That being said, 30-40% is low and companies need to understand their true COGs and properly adjust how they charge customers to bring back to a much higher number.

Back in the day when software was created and licensed, margins were in the high 90s as there were no ongoing operating costs since the customer had to manage on-prem. In todays world of SaaS, it’s important for companies to know what the true cost of services are. While it sounds straightforward, it gets much more complicated with API connections and distributed services to track and then if you layer on trying to understand how much each customer is costing you, it turns into another deep exercise. Segment wrote a great article about how they tracked true cost and improved gross margin by 20% in 90 days- it’s messy and and gives you an idea of what’s needed. 🤔 who’s going to build software to help do this automatically?

Happy Holidays to all and I’ll be back next week with my year in review and what’s next for 2020 in enterprise!

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Scaling Startups

1. 🚀 Inspiration - Patrick Collison from Stripe shares a list of “people quickly accomplishing ambition things together” - Eiffel Tower, Apollo 8, Disneyland

2. Jerry Colonna, one of the top CEO coaches, shares what it means to be a leader. I’ve known Jerry for many years since we served on a board together in the early 2000s, and all I can say is he’s fantastic to work with. He’s currently coaching one of the boldstart founders and he’s made a huge impact. Some folks can dismiss CEO coaching as soft, but what I can tell you is the transition from engineer to founder to CEO is difficult and for many, leadership does not come naturally. It can be a learned trait and one that we should all be working on continuously.

   “How do you know if a leader’s character warrants following?” I asked him.

   “You ask yourself, ‘Do they say what they mean? Do they mean what they say?’ and ‘Can I trust them?’

3. A players - stretch for them!

   

   Ed Sim@edsim

   when hiring, stretching for great talent will always pay dividends down the line, especially as top talent always brings in other talent

   12:56 PM · Dec 19, 2019

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   3 Reposts · 29 Likes

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Enterprise Tech

1. Martin Casado from Andreessen Horowitz nails it when discussing gross margins for SaaS companies today versus in the first generation. I highly encourage you to read this thread as we see this across the board in our portfolio companies.

   

   martin_casado@martin_casado

   0/ Is there an Enterprise Margin Crisis? It's not uncommon to see software startups with surprisingly low margins (30-40%). We believe there is a broader trend going on here, which I explore in this thread.

   4:15 PM · Dec 12, 2019

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   206 Reposts · 802 Likes

2. Where are we in the DevOps and Cloud adoption curve? Read InfoQ’sSoftware Trends 2019 report. Of note for those following emerging areas like Chaos Engineering, the authors have moved Chaos into early adopter territory and added “Resilience Engineering” as a new category in the Innovators section. SRE is an area getting lots of attention as of late from the venture community.

   

3. What’s top of mind for CISOs? Read YL Ventures Q4 Summary on the biggest pain points and where $ are being allocated. It’s no surprise that cloud security, data security, and privacy and regulations are some of the top concerns, esp. as CCPA kicks in on January 1.

   

4. NeurIPS recap - machine learning at scale is hard, we’re still have a long way to go to be truly human, more discussion on neuromorphic computing or mimicking biology to for more breakthroughs

   But he noted that the technique yields highly specialized results; a system trained to show superhuman performance at one videogame is incapable of playing any other. “We have machines that learn in a very narrow way,” Bengio said. “They need much more data to learn a task than human examples of intelligence, and they still make stupid mistakes.”

   Bengio and Aguera y Arcas both urged NeurIPS attendees to think more about the biological roots of natural intelligence. 

5. Tremendous insight at the Uber Engineering blog year in review, companies like Chronosphere in the observability space have recently launched from open source software developed at Uber; also a great example of how tech companies use content marketing for recruiting top engineers

6. While this newsletter is about enterprise tech, I did want to share this Star Wars trailer with you. What’s fascinating is this was debuted inside of a video game, the Fortnite community. It’s mind-blowing to think of this as a compelling and new distribution mechanism inside of a video game. It’s all about power of community and engagement.

   

   Jack Appleby@JuiceboxCA

   Star Wars just had 10+ min event in Fortnite that included: - an exclusive movie trailer premiered INSIDE the game - a custom game scene w/ the Millennium Falcon - a live interview w/ JJ Abrams - PLAYABLE LIGHTSABERS Quick thread + analysis:

   

   10:06 PM · Dec 14, 2019

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   553 Reposts · 1.94K Likes

7. There has been lots of discussion around security shifting left at point of creation and development versus after the fact. Some call this Sec DevOps and others just call it DevOps. I highly encourage listening to Guy Podjarny of Snyk’s interview on Software Engineering Daily if you are interested in understanding how to secure the software supply chain from cloud infra to APIs and open source. I’m biased as I’ve been an investor since Day one but this is a must listen.

8. What are the Top 47 Enterprise Startups to work for in 2020 according to Business Insider? Great to have two of the boldstart portfolio cos among the esteemed group, Snyk and Front.

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Markets

1. Deep read from The Information on Google’s Deadline to beat AWS and Azure in cloud by 2023…or lose funding

2. Semil Shah from Haystack picks Superhuman (a boldstart portfolio co) as his Breakout Tech Company of 2019 citing unbundling of G-Suite, huge TAM (total addressable market), and Prosumer growth