Editor’s note: Anthony P. Lee is a General Partner at Altos Ventures, a venture growth equity fund focused on investing in high-growth, founder-led software, mobile and Internet companies.
Now that we are a 15 years into the software-as-a-service (SaaS) revolution, many of us in Silicon Valley are thinking hard about the next big wave in B2B software. We’re excited about many themes, including mobile enterprise, vertical SaaS and predictive analytics, but one less-obvious trend involves people power as much as computing power.
We call it the Do-It-For-Me Revolution, or “DIFM” for short. DIFM is more than software. DIFM combines technology automation with specialized labor to deliver a complete solution to a business problem. It’s as much about people-powered customer service as it is about code-powered efficiency. DIFM is sweeping the consumer world and will do the same for the business world.
Consumers Lead the Way
Consumers have become drivers of innovation. As new technologies such as social and mobile have become mainstream consumer tools, they’ve inevitably migrated into the enterprise. Consumer social networking showed up to work dressed as Jive and Lithium, online messaging as Yammer and Slack. This trend is going to be just as true with DIFM.
If you’ve taken a ride in an Uber, ordered from Instacart, Shyped a package or enjoyed a home-cooked meal from Josephine, you are already a consumer in the DIFM economy. A whole generation of digital natives is growing up in a society where norms of ownership have given way to norms of sharing and renting. This is the first generation of teenagers that doesn’t universally wish to own their own cars, many instead preferring to be shuttled around with the help of a smartphone app. Some investors call these full service businesses “end-to-end,” or E2E.
And this isn’t just happening in Silicon Valley. Do-it-yourself standard-bearer Home Depot jumped on the DIFM bandwagon years ago as they saw consumers becoming contractors. Best Buy’s Geek Squad service has been a runaway success for the electronics retailer. A generation of consumers that has grown accustomed to relying on high-touch, people-powered services for everything from groceries to dating will take those same habits into the workplace.
No Software… Too Much Software
The SaaS generation owes its tagline to Marc Benioff, who launched Salesforce.com 15 years ago with the famous rallying cry, “No Software.” The idea was that businesses would no longer have to purchase, install and run software but could instead rent it as they needed it. Yet to most end users, SaaS software requires just as much effort to learn and operate as the old PC and client-server analogs. Salesforce’s once innovative customer relationship management system has itself become a complex data-entry monster whose user interface has barely changed in more than a decade.
But besides Salesforce, there are now tens of thousands of software companies vying for corporate attention — and wallets. One analyst recently catalogued nearly 2,000 marketing software companies alone. Many CMOs are now running 50-60 distinct software tools just to manage the marketing function. To many business end-users, all that software has become a DIY burden. DIFM makes things simpler.
Made for Small Business
In practice, big business has been relying on DIFM for decades to simplify and cut costs. They’ve just called it “managed services” or “business process outsourcing,” BPO for short. Most BPO has involved shipping labor-intensive, white-collar functions to lower-cost economies like China, India, the Philippines and Vietnam.
Led by IT outsourcing, the global BPO market is now estimated to be worth more than a trillion dollars annually. It’s largely the domain of big corporations that can afford and benefit from the scale of outsourcing massive functions.
Small business, however, remains an unconquered frontier. It’s a gigantic market: 28 million small businesses employ more than half of the U.S. workforce and nearly 200 million small businesses are registered worldwide.
It’s also a complicated market. Small businesses have complex needs, such as payments, accounting, payroll, benefits, tax, inventory and scheduling. Yet most small business owners have neither the time nor skill to learn another software tool. Look no further than Intuit — the king of small business software. The majority of business owners who purchase its flagship Quickbooks accounting package rely on a third-party accountant to run it for them.
And this is exactly where DIFM comes in. The DIFM user interface is simple and minimal; complexity is handled by technology and people in the background. Some DIFM companies operate marketplace models, while others rely on in-house talent to deliver a full service. Dozens of startups have emerged, each tackling one slice of the small business pie:
- Accounting: Bench offers a far less expensive alternative to traditional bookkeepers by leveraging clever automation and super-efficient in-house bookkeeping experts.
- Marketing: OutboundEngine combines an in-house creative team with mass personalization technology to deliver customized online marketing on behalf of thousands of independent agents and realtors. Their small business customers trust the service so much that they rarely even log into the software.
- Legal: UpCounsel operates a full-service marketplace for selecting and managing corporate legal talent delivered by small firms and independent attorneys.
- HR/Benefits: Zenefits gives away HR and benefits management software for free, instead making money on insurance commissions. The company boasts a dedicated team of in-house HR specialists and has plans to hire more than a thousand people to support its growing small business customer base.
- Security: WhiteHat Security monitors thousands of live web applications for security vulnerabilities and filters machine-generated issues through a crack team of threat research consultants. Like a vigilant home security company, they overlay technology with a human element to filter out false-positives and help customers focus on just critical vulnerabilities.
Instead of selling “software-as-a-service,” these DIFM companies are delivering “software-with-a-service.” The result is awesome customer experience that can only be delivered with a human touch. Because of the human component, DIFM startups may take longer to scale, but once they do, they’re hard to replicate and have the potential to become huge, dominant companies. After slogging through years of DIY software, the business world seems ripe for a DIFM revolution.
Disclosure: Altos Ventures is an investor in several DIFM companies including Bench, OutboundEngine and Whitehat Security.