What's 🔥 in Enterprise IT/VC #312

🙏🏼 celebrating 6 years of What's 🔥...Customers don't buy TAM, they buy products which they can't live without - how Data🐶 intense focus on 1 product in early days led to $1.6B revenue run rate

Whoa…It’s been 6 years since I published my first What’s🔥 and I wanted to thank everyone for joining me each and every week for my observations, thoughts and rants about all things enterprise infra and VC. I’ve met a number of interesting folks along the way and also learned a ton from many emails from this great audience. Here’s to sharing more together 🍻.

So on to the news…this week I’d like to share some data points on why I remain bullish on enterprise IT despite forecasts for a recession coming in the next 12 months.

The Gartner 2022 CIO Survey is out and no surprises here as the data is consistent with what I’ve shared in past from the Goldman Sachs and Morgan Stanley surveys.

The survey revealed that CIOs’ future technology plans remain focused on optimization rather than growth. CIOs’ top areas of increased investment for 2023 include cyber and information security (66%), business intelligence/data analytics (55%) and cloud platforms (50%). However, just 32% are increasing investment in artificial intelligence (AI) and 24% in hyperautomation. 

Here’s more from WSJ CIO Journal

In the study, in which Gartner asked CIOs whether they planned to increase or decrease their investments in a range of areas, 66% of respondents said they planned to increase investment in cybersecurity.

By that measure, it was the top investment priority for CIOs, beating business intelligence and analytics, in which 55% of respondents said they planned to increase investment. Other investment priorities included cloud computing platforms, application modernization and artificial intelligence.

Gartner forecasts that worldwide information security and risk-management spending by end-users will reach $188.336 billion in 2023, up 11.3% from the current year. Gartner estimates that spending on security will grow 7.2% this year compared with 2021. The company says spending on security grew 14.3% in 2021 compared with 2020.

These are massive numbers, and while they won’t help multiples for enterprise value over next twelve months revenue, at least the spending is here to stay. It’s also always fun see what Gartner says is the future which includes opportunities for AI Security and Platform Engineering.

Another data point regarding IT spend and growth can be found in Datadog’s Investor Day Presentation from this past week. There are a few 💎 in here.

First, many of you have seen charts like this, but if you believe we are still in early innings of cloud, then here you go, 18% penetration of overall IT spend.

Second, as I like to say, more cloud spend = more spend on dev tooling, infrastructure, and devops software. This slide depicts it well - complexity increases so need more tooling.

Finally, at least once a month I will repeat my mantra…

Ed Sim @edsim

It’s not about the total addressable market (TAM) that a company starts with but what they exit with. U can’t sell platforms. On day 1, focus on microscopic - how u can make one user’s life 100x better with your software than without - then teams, orgs, enterprise + new products

Notice the patience and focus!!! First 2 years, Datadog built it’s data platform to enable infrastructure monitoring in which it started super narrow with hosts and clouds and took over 6 years before it started adding more products. Of course it accelerated after that and 2nd and 3rd product attach rates are through the roof.

Be patient founders and investors. You need to find your initial wedge or entry point into a developer or user’s daily workflow, show 10x value, and grow from there. You can’t skip steps and as a startup you can’t sell a platform or end-to-end solution as that’s what large enterprises expect from large incumbents. If you’re interested in diving deeper on the importance of narrow and deep in the early days, read this earlier newsletter.

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

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Scaling Startups

1. Keep going…

   Ed Sim @edsim

   Mission driven founders are...relentless. Here's an email from a founder in the @Boldstartvc portfolio where years later he finally won over BigCo. The first few years were brutal as way more NOs than Yeses...but now... We get some version of this email every month from him

   

2. 💯

   Ed Sim @edsim

   Like when you think you have product market fit and you don’t and end up prematurely scaling. So hard to be honest with yourself. Problem magnifies as you have more capital sitting in the bank as there is this feeling you need go faster. Go slow to go fast. https://t.co/VjThJMlDUF

   

   Adam Grant @AdamMGrant

   Confirmation bias is twisting the facts to fit your beliefs. Critical thinking is bending your beliefs to fit the facts. Seeking the truth is not about validating the story in your head. It's about rigorously vetting and accepting the story that matches the reality in the world.

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Enterprise Tech

1. A ray of light from Microsoft’s head of cloud, Scott Guthrie

   “I’ve not seen the current situation cause people to pause cloud,” said Guthrie, executive vice president of Microsoft’s cloud and artificial-intelligence group, in an interview with CNBC.

   “Are we seeing people accelerate to the cloud because of the energy crisis? I think the answer is definitely yes,” Guthrie said. “Similar to Covid, I think what we saw with Covid at the beginning, in particular.”

2. One of the 🔥 areas for infra founders and investors which I’ve written about before is WASM - here’s a market map from Sapphire

   Sapphire Ventures @SapphireVC

   1/ WebAssembly (aka Wasm) has been hailed as the “JavaScript killer” and the latest attempt to lead developers to the promised land of “write once, run anywhere." Sapphire's @aranum, @jtliu_, & David Carter are taking a closer look at the Wasm landscape👇👀

   

3. Generative AI…again…market map from Sequoia - here’s more on my rant on Generative AI from a couple weeks ago (On shiny new objects…) - pay attention is this is all you’re hear about in the next 6 months. And here’s an Information article “Venture FOMO Returns as Investors Chase Artificial Intelligence Deals” if interested in more.

   Sonya Huang 🐥 @sonyatweetybird

   Introducing the @sequoia Gen AI Market Map!🌎 We’ve decided to map out this emerging frontier, thanks to all the contributions and feedback we’ve received. This space is moving quickly – this map is a living document, so keep the suggestions coming! Who else should we include?

   

4. Insane in the brain!

   captain nemo 🌙 @TheCaptain_Nemo

   crazy that any startup with any traction using an openai api is able to raise millions right now even if they have zero moat

5. And the race is on - want to have blog posts generated for you and more? Great story as well…and yes Jasper is built on top of OpenAI’s GPT3 - regardless, read this 🧵 as I do respect the founders’ persistence and journey to get here.

   Dave Rogenmoser ⛳️🤖🦄 @DaveRogenmoser

   Welp, Jasper just raised a $125 million Series A at a $1.5 billion valuation. From launch to unicorn in 18 months. 🦄 We’re one of the fastest-growing startups of all time, but our journey to this point was FAR bumpier than you may think. A thread… 🧵

6. Developers still active in crypto despite token price drop (report from Alchemy)

   

7. State of cybersecurity 🤣 and everyone is an advisor

   Chet Dorn, Global CISO @chetdorn

   When a cybersecurity vendor asks for some time with me, I don't send them my Calendly. Instead, I send them an OpenTable link to make a reservation at my favorite steakhouse. Really narrows down who's serious.

8. This is 🤯

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Markets

1. The State of U.S. Early-Stage Venture & Startups: 3Q22 (Angellist & SVB)