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

Oct 22, 2022

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.