IT disruption stage is over

Former BEA CEO says startups should aim to serve, not beat, incumbants. Acquisition is the new IPO.

Bill Coleman, former CEO of BEA Systems and Cassatt gave some growth tips to start-ups at a Churchill Club breakfast this morning. The gist of it? A decade ago, tech startups aimed to upend incumbants. Now they need to serve them.

If you’re in a really early market that will go through a stage of disruptive innovation, Coleman said the question was how to undermine the incumbants in an industry. In this case, the game is to keep to the Peter Drucker rule: it has to have at least a 10x improvement for a customer.

However, Coleman says we’re moving beyond the disruption stage in most IT markets. “As soon as large players in a market are consolidating, you’re beyond disruption.” Semiconductors are out of that stage, software is just about through it, and Web 2.0 is in the middle of it.

This is reflected in the exit market. In this decade, 93% of the positive monetization for venture firms is acquisition; last decade, IPO was the primary monetization model for venture investors. In this kind of exit market, you will rarely be able to outflank the incumbants, he said. Instead, you need to add value to them in hopes they'll gobble you up.

What about greentech, you say? Not in a disruptive stage, Coleman says: “It is a great market, but it’s not disruptive innovation […] It’s not 10 times better than the current alternative, it’s actually more expensive.” This will be a really long-adoption market, which means the big guys have a long time to copy you.

In all cases, Coleman said early-stage companies need to calibrate their sales hiring model. Calculate the cost of a sale, and how you make it reproducible. Once you have that, you can scale your sales as fast as you scale our channel. That, he said is a science and not an art.