Martin Casado Contributor Martin Casado, is a general partner at the venture capital firm Andreessen Horowitz. He was previously the cofounder and chief technology officer at Nicira, which was acqui| Techie World
Martin Casado, is a general partner at the venture capital firm Andreessen Horowitz. He was previously the cofounder and chief technology officer at Nicira, which was acquired by VMware in 2012.
Here’s more on why enterprise startups should not dismiss services so quickly, particularly in pre-chasm markets…
Now comes the hard part… How do you know when you have the just-right amount or timing of services, or that it’s an albatross around your company’s neck dragging down your unit economics and preventing you from scaling the business as you grow? When are you doing too much — or that it is too late to do services?
Here’s the thing: Customers often WANT to pay for services. Enterprise buyers know what it means to adopt technology from a startup and are realistic about product maturity; they understand that there will be integration time as well as educational and operational hurdles. If you’ve made the case that your product is core to their strategy, and they are engaging with you, then it’s likely they’re deeply motivated to make absorbing your product into their enterprise successful. One of the very few actions the customer can take to de-risk the effort is to throw money at services. I’ve been in multiple situations where companies effectively demanded services precisely because they were keen on investing in the new product’s success.
So services are a good way for startups to engage with targets. The reality is that with most complex software products, you’re going to have to do the work anyway, and you might as well also collect services revenue to raise your top line and provide the business (and channel partners) more incentive to lean into the product. But this is where the truisms about services on the surface are also, well, true — relying on services can be risky and even be a fatal distraction. How can you tell the difference between a good services scenario and a bad one?
There are some pitfalls to be aware of, that can help avoid going down a fatal path:
Of course, many startups today do have a small services business. The standard advice is to keep services to less than 20% of total revenue. While that works for some products selling to some verticals, I’ve seen many successful enterprise products have services that accounted for over 40% of revenue early on.
As always, my point here is not to give formulaic, one-size-fits-all advice. If you can get by without the operational pressure of building out a services organization, that’s great. Less complex products — or those that don’t drastically change costumer behavior — can for sure get by with relatively little services. But that blanket advice doesn’t fit every startup. So if you’re in a place where more services would help, I’d think seriously about being more aggressive with them… as long as you’re being disciplined about how you do it, and when to stop. I certainly won’t judge you; heck, I may even view it as an asset when implemented at the right time and with the right strategic planning mindset behind it.
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