It is time for another Intacct Industry Insights interview. We recently spoke with Brian Jacobs, co-founder of Emergence Capital, a Silicon Valley venture capital firm that invests exclusively in early and growth stage technology-enabled services, including SaaS and cloud applications. Brian has more than 20 years of venture capital experience, including previous investments in BigFix, HireRight, WebTV, nQuire, Lexar and many others. He currently serves on the boards of Intacct, YouSendIt, InsideView, Bill.com, Janrain, and Donuts.
Our conversation with Brian covered a variety of topics, including changes in the SaaS market over the past 10 years, go-to-market strategies for cloud vendors, and trends in the cloud financial applications space. Here are the highlights…
INTACCT: Emergence Capital has been focused on SaaS investments since its founding in 2003. What have been the biggest changes in the past ten years?
BRIAN JACOBS: Our firm has grown up with the SaaS industry. Our first investment was Salesforce.com. There were a lot of challenges back then. Customers were worried about security, reliability, and controlling access to their data. People didn't think it was possible to integrate cloud applications with traditional on-premises applications, because most were behind the firewall then. I remember when the Dreamforce conference had just 500 attendees.
All of that has changed. Last year, Dreamforce had 90,000 registered attendees. The cloud has become the standard for applications of all types. Fortune 500 companies are entrusting SaaS vendors with their most important data. They realize that they are getting the best reliability and security possible, much better than they can achieve on their own. Cloud apps are now connected through simple APIs to more sources of data and other applications than we ever thought possible.
INTACCT: Have you been surprised by how the market has developed?
BJ: The move to the cloud has happened a lot faster than we expected. We never guessed that the shift would accelerate and be the standard just 10 years after we started Emergence Capital.
We were surprised at how slowly the large incumbent software vendors have been in the move to the cloud. It's easier to build a SaaS business if you are a start-up with no money, then if you are a huge vendor with tens of thousands of customers. Those giants have to figure out how to migrate customers, without completely cannibalizing existing revenue in the process. It is very hard to transform from a product business to a service-based business. The big guys are being forced to buy SaaS vendors, because they can't transform their businesses fast enough.
The architectural shift is delivering further innovation that was hard to foresee initially. We now have seen cloud companies bring social connectivity, such as Lithium or InsideView, or mobile technologies, like Veeva Systems or ServiceMax.
INTACCT: Which big company has handled the transition better than others?
BJ: SAP has worked hard to write its own cloud applications from scratch. They had to restart the effort a few times, but they appear determined to succeed. They have also completed two multi-billion dollar SaaS acquisitions, Ariba and SuccessFactors. Wall Street thinks these were smart choices. The real test will be if they can avoid ruining these companies, by allowing them to grow organically. The best way for a big software company to move into the cloud is to buy strong startups and then leave them alone. It is very difficult to integrate a SaaS business into a large on-premises company, because they require different strategies to succeed.
INTACCT: What channel and go-to-market strategies will be critical in 2013 for Cloud and SaaS players?
BJ: Salesforce pioneered the use of telesales software. That was disruptive at the time and helped them become the market leader in CRM. Telesales is now a proven SaaS strategy, but the best companies are innovating further. Some have developed powerful channels to expand their market coverage. Intacct has demonstrated a lot of leadership here. VAR channels are used to the on-premises model, so it takes a lot of education and hands-on partnering to help them learn how to add value to a subscription service.
Freemium is another new model for selling business software which takes advantage of the consumerization of enterprise applications. Companies like Yammer, Evernote, and YouSendIt have succeeded by appealing to individual workers. Employees learn about technology in their personal lives and bring those solutions into the workplace. When they can easily share pictures and videos on Facebook, they wonder why it’s difficult to share simple documents with co-workers. As a result, enterprise developers are placing far greater focus on the user interface and intuitive design.
INTACCT: When it comes to cloud financials, what trends or developments are you seeing right now?
BJ: People are sensitive about their financial information and processes, so initially, the move to the cloud was slower than any other category. However, we've now reached the tipping point. Financial executives have seen other departments benefit from cloud applications and they realize that robust cloud financial applications, like Intacct, will lower their total cost of ownership and provide more security and reliability than their on-premises installations. It is really hard to develop a new general ledger because it takes years to mature and test. Intacct launched over 10 years ago and has been used by thousands of customers in hundreds of industries.
Nobody wants to change their general ledger, but until now, growing companies have had no choice. Because cloud apps scale better than traditional software, companies never need to migrate from system to system as they grow. Intacct has customers that have grown from start-up through IPO, and they've been able to stay on the same financial system the entire time.
INTACCT: OK, now a few questions just for fun…
How would you spend a perfect Saturday?
BJ: Cycling in the mountains. During the week, I have a crazy schedule, sitting in board meetings and meeting dozens of entrepreneurs. I need some time to myself to think through what I learned during the week. Time on my bicycle helps me see the broader patterns.
What is the last book you read that you couldn't put down?
BJ: I just read “The River of Doubt” by Candice Millard. It chronicles Teddy Roosevelt’s journey down an unexplored river in the Amazon rain forest I am inspired by the accomplishments of historical figures who didn't have access to the technology we have today.
If you could get front row/VIP tickets for any sporting, music, or other event in the world it would be?
BJ: That’s an interesting question, because the front row isn't always the best place to see a game, but it’s a great place to sit in a theater, and I like to watch ballet. The dancers are really athletes that create art with their bodies. It is team sport, because their balance depends on the movements of their partners. Strong dancers can be breathtaking to watch.
To stay connected with Brian, you can follow him at Twitter (@brian_emcap) and follow the Emergence Capital blog. You can also follow Intacct on all our social media channels, including Facebook, Twitter, and LinkedIn. To network with other people interested in cloud financial applications, be sure to join the Intacct Cloud Accounting group and the CFOInsights group on LinkedIn.
Do you have an idea for someone you think has interesting industry insights we should interview? Send us your suggestions for consideration.