SMB is the new enterprise

I've had a number of interesting conversations over the past week that has taken me to the conclusion that selling products to the enterprise is not interesting anymore. I get the large enterprise is where the money is, but still. Most folks I know that target large enterprise are frustrated and grumpy. Kind of like I was over the past 8 years. I figured it was just the road rash of spending 8 years trying to develop enterprise markets and my frustrations with grumpy customers that are never happy and take 6-12 months to make up their mind.

Nope. I think we are looking at a secular change in the go2market strategy for security vendors. Why? Because selling to the enterprise is a pain in the ass. First, you have to have a built-out offering with lots of bells and whistles. The enterprise requires complexity because their environments on complex. They require lots of features because they have big problems to solve. And they won't buy anything until it's all there. That's just the way it is.

But a combination of open source, consumer technology, more mature security channels, and the success of some vendors going the small route has given vendors hope that they can actually build a business without catering to the enterprise.

From a historical perspective, Start Up 101 had you building a big software product over about 18 months and selling it for hundreds of thousands dollars to large enterprises. At some point, maybe the mid-market would need it and then you can sell it to them for cheaper (but without changing the product). But the focus was always the large enterprise. Then Barracuda changed everything. By introducing a low-cost, mass market appliance for email security and selling a crap load of them, Barracuda showed it could be done. You also saw salesforce.com and some of the anti-spam service providers (Postini really) also go that route to market and find success, without being reliant on big enterprise deals.

This is something I've seen coming for quite a while. Back in 2002, after we sold SHYM to Authentica - I came up with the idea of a simple, cheap mass market disk-based backup appliance. Disk was getting cheaper by the day and customers hated tape. At that point, I didn't have the financial means to self-fund it, so I tried to get funding and never got it done. 2002 was a hard year to raise money and targeting the SMB was the 3rd rail of VC funding. There are a bunch of companies that do "backup appliances" now. I suspect if I had an analogy like Barracuda back then, I could have just said "I want to be the Barracuda of backup appliances" and walked out of the meeting with a couple of million bucks.

But I digress. I spoke to one former colleague who is contemplating what is next and he wants to "Barracuda" a market. Look at some set of companies selling big fat license deals to enterprises and undercut them with a cheaper alternative targeted at 80% of the requirement for 20% of the cost. That's how you spur mid-market adoption and crush existing enterprise markets.

Another friend told me he wants to start a new company as well, targeting the mid-sized business as well. He'd rather "work in a coal mine" than go after the enterprise market. I was cracking up because that's a funny perspective, but he's right. To be clear, it's not like getting to the SMB market is easy. You need a different sales model and marketing engine. Very different. But it's possible, and that's more hope than we've ever had in this space.

Forbes calls it the "cheap revolution." I call it wake-up time. On the back of large enterprise is not the only way to build a company.