How SaaS is triggering the rise of mid-market companies

This is a guest post by Robert Abbott, general partner at Norwest Venture Partners.

The mid-market — companies with 50 to 2,000 employees — is a sleeping giant about to be energized by productivity-boosting software-as-a-service (SaaS). There are huge opportunities for innovative software vendors who can build agile SaaS solutions designed from the ground up for a mobile, social workforce.

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The mid-market is still extremely fragmented, served by a multitude of highly specific software solutions for certain business types. For example, there are hundreds of different software solutions designed just for physician groups. Additionally, many vendors in this mid-market segment target specific geographic regions due to the complexity of their solutions and limited sales resources.

In the mid-market, traditional software requires significant capital and operational expenditures in order to install and manage those solutions. This client-server model is crumbling as an increasingly app-savvy workforce armed with ever more powerful smartphones creates a “BYOA” (bring-your-own-application) IT culture.

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This BYOA paradigm is a natural extension of the BYOD phenomenon that has brought handheld devices into businesses through the back door. It is no more welcome by IT departments, and even less desirable. The combination of mobile technologies and cloud-based infrastructure is producing a highly individualistic and even anarchic environment with major implications for both customers and software developers. Smaller businesses should find it easier to embrace and harness this anarchy than their larger enterprise counterparts who still have large IT hierarchies struggling for control.

SaaS: native vs. retrofitted

Startup software vendors can take advantage of new technology and infrastructure better than decade-old vendors in this new reality. They have an immense advantage over established players struggling to adapt legacy web 1.0 products to the new paradigm.

As Salesforce approaches its 15th birthday, the SaaS market it pioneered so disruptively is itself feeling disrupted. How businesses view and adopt technology is changing along with how vendors go to market as upstarts like Blue Jeans Network and Xero insinuate themselves into territory previously claimed by the likes of Cisco and Intuit. [Disclosure: Blue Jeans Network is an Norwest Venture Partners portfolio company.]

These newcomers are ushering in a new class of applications inspired by smart mobile devices. Today’s knowledge workers want to use smartphones and tablets to access enterprise data — whether or not their companies have the appropriate policies and security measures in place. The amount of information now available to mobile knowledge workers in real time is staggering, and this is changing the speed at which businesses can react.

Mid-market poised for SaaS migration

Mid-market companies are poised to benefit disproportionately from this trend. By discarding expensive and inaccessible computing infrastructures for cloud-based solutions, they can achieve a much higher level of business process automation for the same or even less IT investment. Risk management is easier, too, with cloud-based backup and disaster recovery solutions.

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Businesses implementing these next-generation SaaS applications report major benefits, including:

• Highly flexible and customizable — adapting readily to changing business practices
• Very scalable — expanding easily to accommodate growth
• More intuitive — end users can do things that used to require a programmer
• Consolidates information — providing more visibility across the business
• Streamlines business processes — freeing up employees and resources
• Enhances communication — more collaboration internally among employees and externally with partners

But perhaps the most powerful capability stems from keeping real-time information at the fingertips of mobile workers. Equipped with this knowledge, they can answer questions on the spot and make decisions faster. An executive in a meeting with a key client can send follow-ups to employees back at the office who can be acting on them before the meeting ends.

Shaking up the software business

This offloading of infrastructure into the cloud similarly frees up software vendors to focus more on the actual business needs of their customers. They are able to automate higher levels of business complexities while not having to focus on the underlying hardware technology.

The SaaS paradigm also reduces the cost of selling to mid-size businesses.

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Since products are web-based, they can easily be demonstrated remotely. In addition, search engine and social technologies make it much easier for customers to find software vendors. These inbound tactics combine synergistically with outbound e-mail and telemarketing campaigns, eliminating the need to send a salesperson to each company.

Wrap up

Small and medium-size businesses are the economy’s biggest growth engine, and they stand to benefit disproportionately from this new generation of SaaS offerings. The fragmented mid-market in particular has been struggling well behind the IT curve as it labors under the burden of infrastructure-heavy niche applications or lack of general IT resources.

New cloud-based solutions designed for a mobile and social workforce can lower the cost of IT dramatically and enable a whole new level of efficiency for mid-market businesses. This in turn can give a disproportionate boost to economic growth — and provide an enormous opportunity to nimble and innovative software startups.

Robert Abbott is general partner of Norwest Venture Partners. He is focused on a wide variety of investment categories, including mobile, cloud, and IT infrastructure. His current investments and board seats include Act-On Software, ClariPhy, ClearDATA, Elemental, mBlox and Zenverge. Robert has nine years of operational experience in various roles, from engineering to marketing and product management. Before joining NVP, he was at Silicon Graphics. Prior to Silicon Graphics, he worked at IBM-ROLM Systems.

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