Why Enterprise Endures: Q&A With General Catalyst’s Larry Bohn.

We invited our board member and investor, Larry Bohn from General Catalyst Partners to share his perspective on enterprise software and discuss the biggest trends he sees shaping up this year. Larry believes interest in the enterprise is continuous and compelling given the enterprise software’s ability to generate value for businesses. Read the Q&A to get insight into what we should expect for the enterprise in 2013 and beyond.

We Are in the Middle of a Big Revolution.

Q. General Catalyst has invested in a number of enterprise-focused companies even when the enterprise market was out of favor among venture capitalists. Why did you invest in the enterprise market when most VCs were exclusively chasing consumer investments?

A. Enterprise companies have always tended to be enduring. In Boston, early examples included Lotus, Interleaf, ATG, and Akamai — companies that built good, disruptive technologies that could help businesses become more productive and competitive in their industries.

Companies that create transformative technologies tend to be very enduring. That’s not to say that companies on the consumer side, like Facebook and Twitter, aren’t transformative — it’s just that there are very few of them. But there are a lot more on the enterprise side. In every part of business — from sales to support to manufacture to design — there are handfuls of leading companies that are driving innovation.

Q. What trends do you see that are now, or will soon become important in the enterprise space?

A. The great consumer technologies — from Google Gmail, to Facebook and Twitter  — have set a high bar for how people should interact with software. There’s now an expectation that business software should be self-service; that you should be able to learn it without documentation; and that it should work quickly, work well and be similar to how consumer software operates. That’s made it so companies can adopt a lot more technologies without the concomitant costs of IT groups supporting it. The big trend in IT— whether it’s bring your own device (BYOD) or the cloud— is for the business groups to be self sustaining, and that has lowered the overall costs in delivering advances to companies.

Ten years ago, the IT organization owned the whole stack of  technologies in the data center, and it had all of the control and all of the responsibility to deliver solutions. But today’s forward-thinking CIOs have seen the cloud and SaaS as the opportunity to free up parts of their business, and move more of their systems to an on-demand model using the cloud. But for a variety of reasons — maybe it’s security or regulatory — there are things they aren’t comfortable doing just yet, and that’s why many have set up private clouds. This approach gives them a way to standardize application deployment, management and compliance.  I think it’s a very positive trend and a very disruptive one. It means that a company can follow industry trends rather than having to invent its own, but still have the control they believe they need.

Q. Do you expect VCs to continue to invest in business-focused companies? Or will VCs lose patience given the deeper investments and longer timeframes B2B companies need to gain traction in their markets?

A. I think interest in the enterprise is continuous and compelling. While there has been fascination with the consumer space, many of the consumer-focused startups don’t have much compelling value. And at the end of the day, people pay for value. Investing in the enterprise takes longer, requires significant amounts of capital, and you often don’t see the results of that investment for some time. But if the companies are producing significant technology advantage, business buyers are ready buyers because they can see the value directly in their business.

Q. Common wisdom has always held that large customers don’t want to buy from young companies because of fear the supplier won’t last. How does an enterprise startup overcome that concern?

A. Large companies, like Oracle and IBM, have become distribution systems. Their innovation level is minimal, but their distribution capabilities are enormous. So when customers are looking for innovative technologies, they tend to be more willing to work with startups. One of the results of the Web 2.0 phenomenon has been that even very small companies can service big customers and address worldwide markets. Hubspot, for example, is a small company that addresses a worldwide market of small- to medium-businesses. Fifteen years ago it was hard to get technologies into the hands of those businesses. A customer might have had to spend $1 million to set up Siebel to get only some of the same capabilities Hubspot offers. But today, customers just pay a subscription, and the service is sold in an on-demand model. That’s why we see a lot of enterprise-focused companies selling cost-effectively through a SaaS or cloud model utilizing inbound marketing techniques.

Q. What do you see as the most important trends in the enterprise market?

A. The big trend I see is the dramatic movement of SaaS across business functions. GoodData is a great example. Ten years ago I ran NetGenesis, a leader in the high-end web analytics market. Customers would buy our software, an Oracle database, ETL software and consulting services. It was an erector-set approach that could cost as much as $1 million just to find what your customers are doing. Today you subscribe to GoodData, download customer information into the cloud, and the great user interface lets you start generating reports right away. The time-to-value is a fraction of what it used to be. And because of that— along with the fact that it no longer requires specialized IT expertise —speeds customer adoption.

Q. Are you worried about potential backlash from IT organizations concerned about being disintermediated?

A. IT has moved from being a control organization to a service organization. The revolution has already happened. IT is now focused on providing the right level of infrastructure, networking, bandwidth, the strategic systems that businesses need to own and operate themselves, and the platform to distribute those systems. Businesses are outsourcing many of the applications and functions they formerly controlled, and the ones that are doing a good job of it are seeing massive results.

Q. What problems do you see that beg for solutions? Or have technology companies already solved business issues, and the trend is now one of evolution, rather than revolution?

A. I think we are in the middle of a big revolution around how IT is organized. The cloud is very disruptive and still at a very early stage of adoption. It is fundamental; it is changing what we can do and the methods we use. The new frontier in the cloud is to improve the levels of security, performance, reliability and manageability of the cloud environment.

The other big trend that everyone is feeling is the whole avalanche of big data. Every business has the ability to capture so much data about customers, processes, and operations that just managing and analyzing all that data that is an overwhelming challenge. Innovation in this area is not coming from Oracle or IBM but rather from many early stage companies building new big-data technologies like HBase and Hadoop. These new technologies are providing new platforms for applications that can handle volumes and speeds that were unthinkable just a few years ago. Just like relational databases changed how businesses worked in the 90s, these new technologies are changing the way companies can operate; more efficiently, more competitively, and more globally.

And we’re just getting started. I’m reminded of what Winston Churchill said at the Allied victory of El Alamein: “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. “

In other words, this will be a long journey; we can now see how the landscape is forming but  we’re still early in the transformation. The entire world is now wired, and the enterprise market is enormous. It’s an exciting time to be investing in these great B2B companies at a time when some of them can grow to become the pillars of the future economy.

Share your thoughts with Larry and us — what do you think it’s in store next for the enterprise?

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