What CIOs want (and why startups don’t give it to them)

February 10, 2011 Appirio

Ryan Nichols

I spent a very interesting morning yesterday listening to Jennifer Beck, an analyst at Gartner who specializes in how to sell to the CIO. We saw a preview of Gartner’s 2011 survey of over 2,000 CIOs in 50 countries, spent time analyzing their priorities, attitudes, and, at the end of the day, what they look for from their vendors.

In some ways, the findings are obvious: CIOs want to work with people they trust. They want to work with companies who are flexible in how they do business, because the business they support is demanding that same sort of flexibility from IT. They want to work with vendors who are going to deliver solutions, not just raw technology that gets dumped on their doorstep, or abandoned right after go-live. CIOs want vendors who help them say “yes” to the business, after decades of being forced to say “not enough time, not enough budget” to every business request.

Unfortunately, typical Silicon Vally technology startups get a lot of pressure to go in exactly the opposite direction. It’s not “cool” to sell complete solutions these days — everyone wants to be in the business of offering click-to-install apps. It’s not even “cool” to sell to the CIO these days — everyone talks about how their real buyer is the line of business. Startups are encouraged to turn the CIO into the enemy, the nay-sayer, the person who will prevent the business from moving forward with our solution. Which of course, is a self-fulfilling prophecy– that’s exactly the reception that many startups find in the enterprise.

Why this disconnect? Why don’t Silicon Valley startups give CIOs what they want? I think there are three misperceptions that Silicon Valley start-ups have to overcome before they can give CIOs what they really want.

Myth #1: Making CIOs happy isn’t profitable.
Security, reliability, flexibility… it’s clear to any vendor that giving CIOs what they want is hard work. And most Silicon Valley business plans don’t factor in very much hard work– it’s impossible to get to the 80% gross margin business we all dream of when you work that hard.

Here’s the problem — the 80% gross margin enterprise business is a complete myth. SAP has great margins on its maintenance revenue, but spends a fortune on sales and marketing. Same with SaaS delivery models: Salesforce.com has fantastic margins on existing customers, but spends a fortune getting them.

At the end of the day, there’s no magic formula to having a profitable enterprise technology business. Profitability is achieved by creating value for customers and then capturing that value by delivering it at a low cost and differentiating yourself from competitors.

Can making CIOs happy be profitable? Absolutely. Is it obscenely profitable? Probably not. It never has been, and never will be… at the end of the day, today’s trend of cloud computing probably represents a net transfer of value from the vendor community to the customer community. But (and this is just one example) there’s a lot of money to be made in helping enterprises create value in making the shift to cloud computing. That’s the opportunity we started Appirio to capture.

Myth #2: Making CIOs happy isn’t scalable.
Even start-ups who find a nicely profitable way to create value for enterprise customers are told that “it will never scale.” And indeed, selling and delivering enterprise-class technology solutions often requires good old-fashioned, real-life people.

But you don’t need a “click to install” interaction with your customers in order to have a scalable business model. The same technology that has completely automated business processes in the consumer market can be used to nearly automate those same business processes in the enterprise market. Take what solutions like Marketo have done for enterprise sales and marketing: is there a person involved in the enterprise sale? Absolutely. But technology can be used to apply that “human touch” at just the right moment in the sales cycle.

At Appirio, we use technology to enable every people-based process involved in delivering enterprise solutions, from our “cloudsourcing” library for cloud migration and development to our CloudWorks technology, for cross-cloud applications.

And that’s just the begining– startups need to apply just as much innovation to the people-side of enterprise solutions as they do to the technology. We’ve invested a lot here at Appirio in building a people-based business that can scale– screening tens of thousands of resumes, interviewing thousands of people, and hiring hundreds, all while delivering world-class utilization rates. And we’re continuously looking for ways to improve the scalability of our services business– stay tuned for more news from us on this topic next week.

Myth #3: Making CIOs happy is only for the big guys.
This is probably the biggest myth of all– that all enterprise CIOs have a “nobody-ever-got-fired-for-hiring-IBM” attitude towards start-ups.

Do these CIOs exist? Sure. But they are a dying breed, and most have been thinned out after the last two economic cycles. Those that remain are what Gartner calls “CIO Survivors”– they’ve made it by thinking about business results instead of IT benchmarks. They think about their company’s real customers, not internal stakeholders. And they wake up thinking about how to finally start saying “yes” to the business. And they’re complemented in other enterprises by a new breed of CIO that actually grew up in the business.

This kind of enterprise CIO loves working with innovative new solution providers. Startups are the only type of partner motivated to help them achieve their ambitious goals vs. just maintain an expensive, inflexible status quo. For example, in our recent survey of enterprise cloud adopters, 85% were looking for help making the move to the cloud, but only one third of those thought that their traditional global SI was up to the task.

Needless to say, solution providers like Appirio love working with this type of CIO. We gathered nearly 30 of these CIOs and their lieutenants in Q4 of last year for our “Cloud Leadership Summit.” These are the type of CIOs who say things like:

“We’re asking how we can differentiate ourselves from our competitors. It’s our belief that these cloud technology solutions will help us do that. The key is the speed with which we can move, because we’re cloud-based. It’s not just a growth strategy, it’s the transformation of our company.”

Dick Escue, CIO RehabCare
Do I think we can build a profitable, scalable business making CIO’s like Dick Escue happy? Absolutely. And I’m probably glad that more Silicon Valley startups aren’t delivering what CIOs want.

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