Bottom-Up: The Next Wave in B2B Software
Billions of dollars are invested behind startups looking to build the next generation of enterprise software. This includes full stack applications, platforms, and the various building blocks engineers use to develop better software, faster and cheaper. Many great enterprise software products are built and marketed top-down, yet very few succeed commercially. There are fundamental changes to how enterprise software is being adopted.
According to Symantec, enterprises on average use up to 928 cloud apps but their CIOs think their organizations are using just 30 to 40 apps. Individuals and teams have become the curators and purchasers of best-in-class, SaaS applications, which they mesh into operating systems that are tailored to their specific needs. Teams within large organizations want flexibility and agility despite the added complexity. As a result the CIO office is shifting focus from procurement to assuring security, compliance, and interoperability across enterprise systems. A number of other sources suggest that 48% of enterprises reported nearly all of their applications were SaaS in 2018. However, 86% of enterprises expect to have largely shifted to SaaS apps by 2021. I call these two forces combined the “the Bottom-Up wave.”
What’s unique about bottom up is the tight feedback loop with users. Unlike in Top-Down where the buyer is not always the user and adoption requires long, heavy implementation, in Bottom-Up you provision users within seconds and track usage along with purchasing patterns to gain an asymmetrical understanding of your customer. This enables targeted investment to rapidly increase user value, reduce adoption friction, and expand across organizations. Understanding how to effectively build and market products to individuals users within the enterprise is a very powerful lever for B2B founders.
Future Outlook and Opportunity
Bottom-Up isn’t a silver bullet for building a great business. My observation is that it’s a powerful model that hasn’t been exploited enough in the enterprise, and that we’re excited to see how founders take advantage of it. There are massive markets that are unexplored as it relates to applying bottom-up as a strategy.
Key questions for founders to think about:
- What problems are poorly solved for large, enterprise team populations?
- What massive, fragmented markets can be corralled through a Bottom-Up strategy?
Markets we like at LOVC:
- Developer teams: +20M developers globally
- IT services teams: +$1 trillion opportunity
- Logistics teams: +$10 trillion opportunity with 8.7M truckers and non-trucker workers in the U.S.
- Healthcare teams: 8.8M healthcare practitioners in the U.S.
- Business teams: 8M business and financial operations workers in the U.S.
- Design teams: 2.6M architecture & engineering workers in the U.S.
Some non-obvious, yet interesting markets:
- Small farmers: +$2.8 trillion market
- Religious groups: +$1.2 trillion market
I believe many leading, B2B software startups will be built Bottom-Up, and I’m very interested in learning about founders who’re building them.
Case Studies of Successful B2B, Bottom-Up Startups
Atlassian -> Enterprise teams
Atlassian enables digital teams to work better. Its product suite allows various kinds of business teams to start collaborating within minutes.
With a tight user-feedback loop Atlassian can develop a better product, faster, and achieve viral adoption.
Atlasssian has taken it several notches further by ignoring traditional enterprise sales models (i.e. top down field sales) and instead investing heavily in R&D to increase the value to the actual software user. This has become a core competitive advantage (i.e. low CAC, fast adoption, high LTV).
On January 9th 2017 Atlassian acquired Trello for $425M, at the time one of the fastest project management services with 19 million users and 100 employees. Trello shows another example of how Bottom-Up can be a powerful growth lever. Despite Jira already offered “Kanban” like features, Trello better served the needs of project management teams in that regard. Today, almost two years after Trello has unlocked a large SMB market opportunity for Atlassian, and provided their enterprise team customers with improved project management functionality within Jira.
The overall outcome has been impressive — see below recent three year period boasting almost 200% growth reaching $620M ARR:
See full Atlassian investor presentation here
Twilio -> Developer teams
Twilio started with basic products (voice and SMS API) enabling developers to incorporate messaging into applications with just a few lines of code. Today the company is disrupting business communications targeting an addressable market of $1.4 trillion dollars (per Gartner).
Deep understanding of developer teams enables Twilio to create awareness and bottom up adoption; it all starts with developers.
This in turn has enabled Twilio to expand within the enterprise horizontally, vertically, and geographically.
And even today developers are the “champions within customer accounts”.
This has allowed Twilio to scale rapidly and efficiently (22% S&M) into ~$600M ARR as of June 2018
See Twilio investor presentations here
Note: figures above are accurate as of December 2017. Twilio announced 61,153 active customer accounts Q3 FY18. Twilio has not shared updates for the other two customer metrics publicly.
Dropbox -> Business teams
Has redefined cloud storage into team content collaboration — a living workspace for digital content, which is a $50Bn+ addressable market.
Following a bottom-up adoption approach DropBox has built a community of 500M+ users and 12.3M paying customers, and this is just the beginning.
A user-driven approach catalyzed integrations across a multitude of SaaS applications, deeply embedding DropBox within the modern enterprise software fabric.
Surpassing $1.1Bn ARR in 2017 while achieving profitable, 31% YoY growth and launching a IPO in 2018.
See DropBox’s investor presentations here
Zendesk -> customer experience teams
Launched with a helpdesk product targeting SMB, and now has turned into an omni-channel customer experience platform with massive scale.
Bottom up approach enabled them to achieve escape velocity to pursue adjacent customer segments and markets.
The key lies in offering a product for a specific customer delivering immediate value via self-serve.
This enabled Zendesk to accelerate user adoption, grow revenues, and further invest in product to move upmarket and transform into an enterprise platform.
Ultimately unlocking a larger market opportunity.
See ZenDesk’s investor presentations here
B2B, Bottom-Up Expert POV
Bottom-up isn’t just a marketing gimmick. For it to work you have to embrace it as the method for delivering value to customers.
Bottom up is more than a sales motion, it’s a driving force for companies to implement best of breed technology.When employees are empowered to choose their own tools, we see higher levels of productivity, commitment & ownership.