What's 🔥 in Enterprise IT/VC #298

Mid 😎 check in: anecdotal state of VC/startup market, IT Spending data still strong for must-have products

We’re halfway through the summer, and I thought I’d share what I’m seeing based on on a number of conversations with investors and founders. None of this is surprising, but here it is in two tweets.

Ed Sim @edsim

1/The current cycle: VCs still waiting for bottom Slowdown in ARR is coming Late stage market is dead VCs triaging portfolio FOMO is gone Seed market, still strong...but many still waiting for seed founders to adjust valuation expectations

Ed Sim @edsim

2/LPs cautioning VCs to slowdown The Good Back to Basics for healthier ecosystem Relationship building vs. Transactional investing Balanced growth > Growth at all costs Founders raising right sized rounds Hiring amazing talent easier Missionary founders continue starting NewCos

Assume things will be quite slow until September and even then this pause could last well into Q4. On the sales side, Gartner just released its latest IT Spending Report and while a downward revision, these are still enormous numbers, particularly driven by software spending which is still projected to increase by almost 10% from last year.

Global spending this year on enterprise IT is projected to grow 3% year-over-year to a total of $4.53 trillion, Gartner Inc. said Thursday, a drawdown from an estimated 10.2% increase in 2021.

But despite the slowdown in overall spending, a serious reduction in IT budgets is unlikely. “A lot of this spending is no longer considered discretionary,” John David Lovelock, Gartner’s chief forecaster, tells The Wall Street Journal's Angus Loten. “IT has moved to the front office to support revenue growth.”

Market volatility pushes CIO to cloud. Cloud computing, which offers the advantage of spreading out costs through ongoing subscriptions is one of the few areas where IT spending is expected to outpace 2021, according to Gartner. The firm anticipates $806.8 billion in spending on software, up 9.6% from last year.

Here’s also more data from Ryan Neu from Vendr: spending trends on SaaS across Q2 - h/t @ETDurbin - lots of security cos on there with Snyk, Okta, Crowdstrike, Sentinelone

As always, 🙏🏼 for reading and please share with your friends and colleagues.

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Scaling Startups

1. Pure gold from Lenny and quite the same for any PLG or dev first startup…have to zoom in to day of life of user and how to make life 10x better and expand from there…

   Lenny Rachitsky @lennysan

   One of the most counterintuitive parts of launching a large B2C business is to start with a *very* narrow audience. In part 2 of my 6-part series on kickstarting and scaling a consumer business, I'll explain why, and help you come up with your "super-specific who". *Read on*

   

2. Ideal for distributed/remote teams

   Peter Yang @petergyang

   90% of decisions can be made async instead of having to schedule a meeting. If you learn how to do this effectively, your team will love you for it. Here's my 5-step process:

3. More on what makes a great remote culture 🧵

   Andy Berman • vowel.com @berman66

   Most companies are taking advantage of the benefits of working remotely, but few are building great remote cultures. Here are 10 things I've seen great companies do to build best in class remote cultures:

4. Reminder for investors to remember their North 🌠 from one of our LPs + prolific investor in VC funds

   Hamutal Meridor @hamutalm

   Many GPs have been asking me what we @Vintage_Inv think they should learn from this market. MY answer - back to first principles! investment strategy: stage + ownership, managing reserves + having conviction to double down on winners, investment period and pace, fund size, DPI

5. 👇🏼💯 especially on zero to one PM - founders should always play that role

   Nikita Bier @nikitabier

   Things that don’t exist: • “Zero to one” product manager • Viral content marketer • Full stack engineer • Designer who can prototype If you find one, don’t fuck it up because they can start their own company. They don’t actually need you.

6. Operating efficiently at scale - bringing the founder mentality back to Coinbase, how to empower individuals, ship product, not slides and more…

   So we’re experimenting with banning slide decks in product and engineering reviews. Instead of a slide deck, you can show:

   *A dashboard with your metrics — hopefully your team is looking at this at least weekly anyway

   *Figma mockups

   *But most importantly….show the product itself and use it live!

   It’s fine to include a one page agenda to capture action items, or to link to any pre-reads like technical design documents. But the best use of time in product and engineering reviews is to share your screen and walk through the actual product on mobile or web. It could be the production version, or a staging version. The important thing is to get hands-on with the product, see what the customer is seeing (or is about to see), and make it better.

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Enterprise Tech

1. Great interview and case study of building an open source or developer first infrastructure company as told by the founder/CEO of Pulumi in the infrastructure as code marekt and Hashicorp competitor.

   Ed Sim @edsim

   Reminder: it takes a LONG time to build a developer first infra co. Patience needed. @PulumiCorp story @protocol Y1: build Y2: OSS Y3: first commercial version Y4-5: accelerate to almost 1000 commercial customers Who will emerge in next 2 yrs? protocol.com/enterprise/pul…

   

   also wedge to bigger vision:

   We started with infrastructure as code, but when it comes time to adopt cloud engineering in an organization, it goes well beyond infrastructure as code. You think of policy as code, you think of “How do I empower my developers with self-serve portals.” You think of observability, you think of all the management tasks — so compliance and auditing and security, enforcing best practices. How do we enable the cloud engineering team — that's developers, infrastructure teams and security experts — to just collaborate in the most seamless way?

2. Great 🧵 on how SaaS cos could potentially flip the switch from growth at all costs to free cash flow - yes, this is all based on sales math which is ramping up GTM 6-12 mos in advance based on the time it takes for a rep to hit full quota. In addition, as each new rep is hired it adds strain on the rest of the org as you need more leads, inside sales, presales, support, etc…

   Buck @BucknSF

   There has been a lot of discussion about SaaS margins and margin potential over the last couple of months. I’m going to weigh in with a case, highlighting my POV that for the right business margin expansion can happen very quickly.

3. For OSS founders, how Jana helped build the Hashicorp community

   Jana Iris @janaboruta

   Having had a few months to reflect on my 7 years at @HashiCorp helped me realize how special our approach to community building was. With encouragement from friends, I wrote down our approach. Anyone building developer communities should read this: bit.ly/3yXHZtK

   

4. 💯

   Matt Turck @mattturck

   🎯

   

5. How Slack went from local to remote development environments as it scaled (ht: DevOps Weekly). Many of the developer first startups we see are all building towards a cloud-first future and this is a great read on how Slack rolled this out and measured adoption.

   As a developer productivity team, we noticed this pain through our user surveys and metrics, and desperately wanted to solve the problem. We explored moving the entire development experience to remote environments, from code intelligence to type-checking and builds. Engineers would no longer have to maintain code or dependencies on their local laptops. They could get a fresh isolated environment on demand, ready to be used within a couple of minutes.

6. What’s happening in the markets - risk on or risk off - great overview on how the asset allocators think - Risk Capital and Markets: A Temporary Retreat or Long Term Pull Back? Aswath Damodaran - NYU professor on valuations

   Aswath Damodaran @AswathDamodaran

   The big question for investors and businesses is whether the risk capital pullback is temporary like 2020 or longer term, as it was in 2001 and 2009. My guess is that it is the latter, since inflation has neutered central banks & governments.

   

   bit.lyRisk Capital and Markets: A Temporary Retreat or Long Term Pull Back?A blog about markets, finance and all things money related.

7. 🤯 First image from the James Webb Telescope and just a reminder of how big the universe truly is…

   Hank Green @hankgreen

   Everything in this image that doesn't have spikes coming off of it is a galaxy. Every. Single. Dot.

   

8. Oh yeah!

   LEGO @LEGO_Group

   This set should be awarded a Dundee for Best Build Ever. Available for pre-order now!

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Markets

1. Recession or not? JPM and Morgan Stanley released earnings and despite slowdown, CEOs relatively upbeat

   “The consumer right now is in great shape,” Dimon said on a conference call discussing his company’s second-quarter results. “So even if we go into a recession, they’re entering that recession with less leverage and in far better shape than they did in ’08 and ’09.” 

   Gorman, on his bank’s earnings call, said a deep or dramatic recession in the US is unlikely, and Morgan Stanley is “long the US” in most of its businesses. “The US is a great region to be in the world.”

2. The first book on investing I read was One Up on Wall Street by Peter Lynch where he talked about buying what you love and introduced the concept of ten baggers - here’s his 20 golden rules

   Compounding Quality @QCompounding

   20 golden rules for investing by Peter Lynch: