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Domain May be the Most Critical Success Driver in Enterprise Application Software Entrepreneurs

Nate Lentz
January 27, 2011

There are plenty of examples where successful founders lacked business model domain expertise.   Google founders and advertising.  Facebook’s founder and social engagement.  Even some highly successful founders of companies in our portfolio, focused on infrastructure and performance, know more about pure technology than underlying business problems.  Where domain is a critical success driver is in Application Software.  So often in these cases, domain trumps technology wizardry.

Many enterprise application segments began as consulting practices.  CRM in the late 80’s, SRM, Procurement, Business Intelligence – they all were emerging schools of practice that consultants sold to large corporations for millions of dollars at a shot.  As consultants did projects over and over, some entrepreneurial ones realized that they could shorten their projects and minimize their work if they made portions of the projects increasingly repeatable and thus software emerged.   This trend has continued even today and we often see new technologies emerge from boutique consulting practices – in fact we are currently under term sheet with a company with just those origins.

Does an enterprise application need to emerge from a consulting practice to be attractive?   No – absolutely not.   Does the entrepreneur need to come from the sector and understand the problem being solved and how customers will perceive the value of the offering? – In most cases, I would say yes.  Does the application have to be the most advanced technical platform out of the box?  It needs to be an innovative solution, but the embedded domain trumps the technology early on in the lifecycle.   Does the company need to have proven that corporations will buy and use the product?   We think this is key and as investors, we prefer a revenue run-rate approaching a million dollars in order to consider investing.

There is a lot of excitement today in specific investment sectors.  Currently enterprise technology investing may not be as sexy as clean-tech or web 2.0 or even biotech.  But while not sexy, certain regions are rich in opportunity.   The mid-Atlantic region where the most Fortune 500 companies are located, where the most top 25 software companies are headquartered, and where the largest amount of enterprise technology dollars are spent is one of those regions – and an often unappreciated one.  It is a region full of seasoned, experienced entrepreneurs who come from industry and who have often boot-strapped their businesses because they knew what they had to do to solve a problem they had seen growing for years in the industry they left.   Many of these entrepreneurs have the core domain DNA to drive the next wave of innovation and to build very successful companies.