Bottom-Up: The Next Wave in B2B Software
By: Esteban Reyes
Tags: Bottom Up, Founders, Venture Capital, B2B, Software

By Esteban Reyes, Founding Partner at Las Olas VC (a.k.a. LOVC)

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.