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The New Wave of IPOs Mobile B2B and Vertically Focused Startups

By: Jindou Lee (CEO of Happy Inspector)

Recently, I read an article written by the CEO of Yammer, David Sacks, where he declared the death of Silicon Valley. His post was quickly countered by heavyweights Andreessen Horowitz’s Marc Andreessen and GRP Partners’ David Suster. Their argument was that as long as there is human creativity, "opportunities will be endless". Although I am a fan of Mr. Sacks, and hope to be as good a CEO as he is, I’m against him on this one.

Sure, the large gorillas of the current era such as Yammer, Salesforce, Zynga, Atlassian all have money and power now, but once upon a time they were startups as well. What changed? They all disrupted their domain by adopting and shaping the behaviour of a changing world. The shift from boxed software to SaaS killed the incumbents. Products could be shipped weekly, not yearly. Purchasing moved from the top down approach to the bottom up trojan horse approach. The enterprise became consumerized, and the world became social thanks to Facebook and LinkedIn.

Where is the world heading?

If I was a gambling man, I would put my money on mobile. Mobile in itself is such a vague term. It's almost like going to Vegas and saying, put it all on black! I want to go one step further and actually predict what the next 7 years of technology will look like.

I'll put my chips on companies that look like this: Mobile first, cloud enabled, B2B/enterprise, MAaaS, vertically focused.

Why mobile first?

Mary Meeker and Liang Wu from KPCB prepared a presentation about the adoption of mobile. Looking at the trends it’s scary to think that the adoption of mobile is 10x the speed at which PCs were adopted in the 80s. That's a phenomenal rate. The engagement and usage on the device is another factor why mobile cannot be ignored.

While startups have learned to build web first businesses over the last 7 years, we are in an era where everyone is still learning how to build mobile first businesses. This means that larger businesses will have to acqui-hire or change their business models to adapt to the new environment. If they acqui-hire too early, then they run the risk of not letting the acquired team go deep enough to learn how to build and understand the model. And if they change business models this will typically mean cannibalising existing parts of their business and impacting revenues. This is the opportunity for disruption.

However, it does not make sense for every startup to adopt a mobile first strategy and it depends largely on whether there is an intrinsic need to use the capabilities of mobile technology for their chosen market. This is where startups (and investors) have to really question the validity of a mobile first strategy.

What's in the cloud?

The key ingredient that is needed for disruption is the cloud. Building a sustainable business that sells B2B (and enterprise) will almost need to have the cloud to tie everything together. For your customers, it won't be about using their iPhone, it'll be about having access to "my" data on any device (iPhone/iPad/iPad mini/Android/Windows tablet/Whatever is beyond). The user experience on the device has to be amazing, but the cloud is needed to do a lot of the heavy lifting.

The deadpool of consumer and the rebirth of B2B/enterprise

As more and more consumer startups die over time, this signals some great and not so great news for B2B startups. Great because the techniques, features and acquisition strategies involved with building successful consumer apps will be key to "innovating on the distribution model" (David Sacks) when dealing with B2B and enterprise.

Yammer, Salesforce, Atlassian all changed the game when they caught on the wave of disrupting an organisation from the bottom up and creating a groundswell of "low-level" users to get buy-in from up the food chain. When it comes to mobile, there is another change looming on the horizon. It's the whole notion of combining business models like freemium, discovery on App stores, organisational changes such as BYOD (Bring your own devices) and applying them to the enterprise. We've seen it first-hand where members of the executive team, equipped with their very own iPads/iPhones would download apps themselves and then act as the champion to their team. This is a major shift in the landscape.

B2B in my opinion has always been sexy. (Ask Dave McClure)

It's now much sexier due to the hype around consumer startups dying. B2B, however, is a much trickier landscape to navigate because there are so many more layers of complexity and teams have to be much more diverse and well rounded than the conventional hacker and hustler. It requires domain knowledge, understanding of organisational buying behaviour, exceptional product development delivery, smart marketing and a strong core group of people to uphold and drive the vision of the company year over year.

SaaS Enterprise == Enterprise MAaaS

Today, Apple has educated the consumer and established an expectation of the ninety-nine cent economy. In the enterprise, SaaS has evolved to be the currency of choice for software. Over time, as the market matures, we will see a time where a new currency will evolve; MAaaS (Mobile Apps as a service). MAaaS will be the currency of choice as businesses and enterprise learn that although their usage will be on a consumer level, they will need the safety net that a subscription service offers businesses. The one off app costs will be superseded by a subscription economy as the market changes their perspective on how they should be paying for their consumption of mobile apps.

Vertical is the new Horizontal

In the last 7 years we've seen some really great businesses that have been built and funded on the premise of being platforms and being horizontally focused. This won't work for mobile first businesses. First, there are already incumbents that have more money and a monopoly on market share in their industry. Second, when you try to speak to everyone, you end up speaking to no one; Marketing and Psychology 101. Third, users consumption on mobile is very different to the web. Apps are typically purpose built for specific tasks or functions. Fourth, the cost per acquisition for targeting customer in a specific vertical is much less than going broad and targeting everyone.
He who knows which battle he should engage in and which he should avoid, will win. ~ Sun Tze

I'm not advocating to think small. I'm advocating to think big but act small. In the long term business can look to go either horizontal or vertical. For example, in the medical industry you can build a platform for doctors or build deep tools for medical on mobile. But in the short term, there is a need to focus on one specific niche at a time. This is what Sun Tze would call "choosing your battlefield" and by focusing on building better solutions for a targeted group of customers, a tiny startup can beat the large 500-pound gorillas at their game.

What are some examples?

There are a quite a few companies that fit the profile above. Notably I like what Vend, Doximity, Plangrid and Dr. Chrono are doing in their specific niches. They are all run by amazing teams, backed by great investors and are executing on their vision amazingly well.

Like all giant companies that have gone IPO, young startups need to start from somewhere. And it's important for investors to trust the team and believe in the long term vision of the founders. The companies will evolve, the product range will expand and new opportunities will appear. So it's imperative to pick a team that's smart, hungry and passionate about figuring out how to build the next big thing.

Here's to the next 7 years.

Jindou Lee is the co-founder and CEO of Happy Inspector; making inspections paperless. His previous life includes being a UX designer at Midway Games, semi-pro soccer player, two previous tech exits and a ton of other failed businesses