Hot on the heels of my GRC is Dead post, an associate sent me a private rant on a past experience where the investors drove his company down a similar rathole.
Here’s the thing, kids; venture capitalists aren’t there to help you build a long-term business. Their entire goal is to achieve specific returns in specific time periods by driving your company into an exit (IPO or sale). You become a slave to your investors, many of whom aren’t as business savvy as you might think, and most of whom don’t understand your particular market.
My friend is allowing me to post this since he can’t. Keep in mind that some of the biggest “GRC” pushers out there are large companies without VCs (Oracle, SAP, IBM), which thus are running under different dynamics.
The Three Magic Words (or: Why GRC won’t die until the companies do) I read Mogull’s post on GRC yesterday, and I found myself nodding in agreement with all of it. The basic thrust of the article: “GRC is now code for “selling stuff to the C-level”. It has little to do with real governance, risk, and compliance; and everything to do with selling under-performing products at inflated prices. When a vendor says “GRC” they are saying, “Here’s our product to finally get us into the Board Room and the CEO’s office”. The problem is, there isn”t a market for GRC.” This is exactly what GRC is about. But why? Why would our vendor community spend all of their time trying so hard to get into the Board Room and the CEO’s office when there’s an entire market out there of businesses to whom we could sell products? Statistics say that 99% of businesses in the USA have less than 1000 employees: that’s a HUGE market for security software and services that are reasonably priced and deliver value. Why are there almost no vendors looking to that market? And why are many of the ones who do (e.g., UTM vendors) mocked and ridiculed? Three magical words: “Average Deal Size”. I learned these magic words when I was a relative newbie in information security, working for a vulnerability management vendor whose aim it was to sell appliances into all parts of the enterprise. They believed that vulnerability management was the kind of tool that needed to be embedded into every subnet within the entire organization, and that a huge infrastructure would be built up to manage vulnerabilities. When looking at who they wanted to be when they grew up, the names that were mentioned were SAP and PeopleSoft. That the CEO should have vulnerability reports on his desk every week. And that the CEO should be reporting vulnerability metrics to the Board at the quarterly meeting. (No, I’m not exaggerating. This is what they believed.) Unfortunately, no customer seemed to care that much about vulnerabilities. Even in the FUD-laden heyday of worms and viruses (Slammer, Blaster and Nimda, Oh My!), nobody wanted to drop vulnerability management tools on every subnet and embed vulnerability management deep into their business process. It was added cost without incremental benefit. And no CEO really cared about seeing the reports. Most CISOs didn’t even want to see the reports. At the same time, another company was eating our lunch by offering to scan from the outside, on the web. They were basically giving the service away, selling little scans at $5K for anybody who wanted them. And they were rolling in cash compared to us. So, being the go-getter that I was, I put together a plan to create a competitive business within our company. Even with ridiculously conservative estimates, we were going to double revenue within a year (because it’s not hard to double an infinitesimally small number). And I took it to senior management, who summarily rejected it. I didn’t understand, and I fought hard, but their answer was firm: “No way.” I was confused and dejected. This seemed stupid – it didn’t make any business sense. The VP of sales saw this and took me aside after the meeting. He explained it to me, and it was the first time I had heard the three magic words. He would open my eyes to one of the things that makes startups do things that appear absolutely idiotic. He explained that the reason they wouldn’t compete with the other vendor was that it would lower our “average deal size”. That they would rather have a single $100K deal than 100 $2K deals, even if it was only half of the revenue. It didn’t make sense to me (it still doesn’t), so I asked him why. “Because that’s one of the big things that venture capitalists care about when they’re valuing your company,” he said. “And our board is made up of our venture capitalists.” The lights went on at that moment. Fast forward to today. The push toward GRC isn’t because it makes business sense for any of the vendors (i.e., will increase revenue or reduce costs), but entirely because the vendors in the space are worshipping the gods of VC-driven boards who are using average deal size as the metric. It’s why you see companies that are making good progress in mid-market or the mid-range of the small enterprise suddenly declare that their target is the C-level of the “Global 2000” companies. The problem with this is that most 100-person companies are entirely ill-suited to live in that environment. Large enterprises demand (to use Moore’s term) the “whole product”. A full support staff, complementary products, training, and serious hand-holding resources that a 100-person, $10M company just doesn’t have. And, having worked in startups for the majority of the last 10 years, I can say that it kills more than it benefits. The burdens of supporting large, enterprise customers are burdens that, for the most part, only large, enterprise vendors are built to support. It always surprises me when a successful company (e.g., a small consulting company) that is ideally suited to selling, marketing and positively pwning the mid-market and mid-level sales decides to turn up-market (and become a “GRC company”) to compete against companies that are built for that environment (e.g., E&Y, Accenture, IBM Global Services, etc.). Rather than taking the market that they have built themselves up to succeed at, they enter a market that they’re entirely ill-suited for, and go through multiple VPs of sales and marketing wondering why their pipeline is weak. But the three magic words are powerful. They blind men and women to smart business decisions (mostly because they are used at board meetings). And they create companies that are willing to give anything to end up at the top end of the market, even if they have to make up acronyms (GRC) and sacrifice all actual measures of business success to get there.