Madrona Venture Group’s Matt McIlwain discusses what the enterprise 2.0 means, and what brought us to this point in software development. Learn how BYOD policies, empowerment, and other innovative strategies all contribute to the apps we can’t live without.

Noel: Hello, this is Noel Wurst with Skytap and I am speaking Matt McIlwain who is the managing director at Madrona Venture Group. I was really interested in speaking with Matt based off an article that I read that he recently wrote titled, “In the Empowered Enterprise 2.0, Startups Have the Inside Track to Success.” How are you today, Matt?

Matt: I’m doing fine, Noel.

Noel: Great. Thanks for sitting down with me today. As an English major, I first wanted to ask you what your definition was for the Enterprise 2.0, and may be how that differs from what it used to be, from the Enterprise 1.0.

Matt: Yeah, the way I think about it, is that Enterprise 1.0 was more of a top-down driven style of organization where not only parameters but decisions were made and controls were set and new types of products were identified and developed in a top-down way. In contrast, Enterprise 2.0 is an era where the bottoms-up motion of new applications and solutions being discovered is combined with the top -own motion, and they kind of coexist with an increasing amount of influence from the bottoms up.

Noel: Okay. With that bottoms-up process, I know that comes a lot with collaboration, and it’s really interesting when I was researching the evolution of this definition, I read where Andrew McAfee, who is credited with coining the phrase “Enterprise 2.0,” I read where he had to revive or he chose to revised his definition completely only 7 days after he published it because of the input he received on just other people thought the definition should mean. It’s kind of like you had collaboration from the very start, just with the coining of this phrase and it’s just grown and grown in the developing of these applications.

Matt: I actually think that collaboration is very important and I think it’s one of three core areas around Enterprise 2.0, the other two being elasticity and insight. Elasticity, meaning everything that we can now buy on-demand and buy by small increments. Obviously infrastructure as a service would be one of the examples of that but almost anything which you can buy on a kind of low-end entry subscription basis, or have a free trial and go from a premium model into something that you can buy a limited amount of is the elasticity notion.

Collaboration to me is more the overarching word that encapsulates the cloud-first designs, the mobility access capabilities that we have, and there is this notion which I think is to your point, of some of the social dimensions that things are iterative, that I put something out there and I get feedback around it or I put something out there and others improve it. That’s one of the three elements of the collaboration piece, which sits in this broader, I like to use the ICE metaphor. Insight, Collaboration, and Elasticity: the 3 key building blocks of Enterprise 2.0.

Noel: What kinds of, I guess as far as how these enterprise applications are developed to make them qualified to be considered an “Enterprise 2.0” application. What kinds of differences are you seeing in the way that these apps are actually built and the way that they’re actually developed versus the way that they were developed in the past? Is that creating any kind of difficulty for some organizations?

Matt: I think that the key insight there is that a lot of things are starting more at the edge of the enterprise. In fact it is bottoms-up idea. And people are trying to solve their problems at the edge of the enterprise. One way to think about it is that there are really three types of IT within an enterprise now. There’s corporate IT, there’s business unit IT, and there’s shadow IT. And at some level, there have always been those, but shadow IT, because they can go out and find and download, or use if it’s a cloud, back to that cloud part of collaboration, a solution—they can adopt it, they can work with it, and they can deliver solutions that solve their localized problems. That’s a motion that didn’t work the same way ten to fifteen years ago and so what you’re seeing is teams of the shadow IT level that are going out and solving your problem.

Sometimes solving your problems means they have to develop an application, and they can do that with this very elastic infrastructure, or these simple to try and then adopt software-as-a-service kinds of solutions to solve your problem—and that’s what’s very different now. Now, the other side of the coin is that within an enterprise, you can’t allow that to happen sort of willy-nilly and without any kind of governance, and policy management, and control—and that’s why that Enterprise 2.0 definition has to have both top-down and bottoms-up and how they meet together to create something that was workable from an enterprise perspective.

Noel: Do you think that agility and agile development has played some sort of role in that? With everything trying to be done faster and at a higher quality? If teams are seeing the ability to implement things like this on their own, without this approval they used to have to get in the past. Do you think that agility is helping teams deliver faster and at a higher quality, but is there still some risk involved when teams are making those decisions for themselves?

Matt: I think that it definitely helps from an agility perspective. What I would note is that one of the biggest challenges within the enterprises, is they don’t have particularly agile infrastructure. So, you’re seeing a lot of big corporations try to create more agile software development teams but their internal procedures around procuring and configuring that infrastructure are not agile. So, I think as a result back to this bottoms-up, you’re seeing teams say, “Hey I’m just going to go find some elastic, agile infrastructure and an elastic agile process and I’m going to go solve my problem that way.”

What happens though, is a lot of those types of solutions are one-offs, and once they get developed and somebody throws them essentially over the wall into some kind of a production environment—what’s going to happen then? I think that’s why you’re seeing the emergence of a new type of system that is an agile systematic approach that has a notion of continuous integration involved in it that is helping bridge this gap between these bottoms-up one-offs and the more systematic needs of enterprise organization. Because once that first solution is built, you need to continually improve it, back to the point of our collaboration, and you’re going to get feedback on what needs to be continually improved.

Noel: Absolutely. To go back to your article where you mentioned that the relationship between bring your own device policies, distributed responsibility, and enterprise 2.0, but you also brought up one other thing that I thought was really great. It was that, when employees become empowered in their personal lives through their devices that they use on their own time. Whether it’s a smart phone, or a tablet, wearables, or anything else that’s coming out these days— that expectation of that empowerment moves into the workplace as well.

They’re expecting that empowerment, I think you used the phrase “out of every piece of technology they touch”—they’re expecting it work as well. That’s a connection that hadn’t really been made before I don’t think. In the past, you expected to get the same out of your devices at work than you did at home.

Matt: Look, I’m a big believer that human beings like the feeling of freedom and empowerment. That smart connected device that they use in their personal lives is in a sense sort of a personal remote control that connects their physical world with their digital world. It allows them to have access not just to the device but all the applications and solutions that are often digital first but increasingly interacting with the physical world. Take Uber for an example and so with that the expectations that brings, they simply go, “why can’t I have that in my work context?”

Whether I’m a consumer or services in the work context, the knowledge worker, the business workers that are within the business units wanting to consume services in a more agile way. Having that same kind of personal smart phone remote control experience in the office with apps like Concur, which is a SaaS kind of app, or SalesForce, and so and so forth, or they’re the teams that are developing the next generation of solutions within the enterprise. And because those expectations have been raised so much, the enterprises are now following rather than leading. Fifteen to twenty years ago, really the enterprises had the resources to go buy the big iron compute technology of the day, and systematic approaches of the day and develop solutions in that. That’s no longer the case.

Noel: In another article that I read on the same topic, the author mentioned that the startups that are producing really innovative enterprise software are receiving a lion’s share of venture capital because the software is “usable.” While I really like that that’s that’s a goal they have to create something “usable,” it almost seemed like it came up a little bit short. In your story, you’re explaining how these enterprise applications aren’t just usable—they’re really enjoyable. They’re fast, they accept and welcome feedback, they benefit the employees and the businesses, and I feel like it goes beyond the definition that we once had of just what “usability” was.

Matt: I’ll come back in a second to the usability point. I think that the link there is actually that when people have empowerment, they have freedom, and they’re also often willing to have accountability and say, “Hey, okay I got the freedom. I got to go do the things I wanted to do, but what did I deliver as a result?” Whether I’m a team, part of a team that’s going to deliver a next generation product or I’m part of a business team that because I got to pick my apps, I was expected to deliver a better marketing solution, or a better sales solution or whatever it might be within my organization.

I think that that’s a key piece, and it does start at some level with usability. Let me give you a very “non-enterprisey” example. In the last month, this organization, Code.org, put out this idea of an idea of “an hour of code” and invited anybody, mostly kids, to develop their first software program. 20 million people, mostly kids, did this in the last month and I know, I’ve got a 10-year-old son. He feels so empowered now about, “Hey I can develop software. I did it on this particular service that was online. I want to learn more about this. I want to build a mobile app now.” And so, you kind of lean in with that freedom and that experience, and it starts with usability.

Code.org at its surface was very simple and easy in how you learn to do basic building block kind of software development, but now you want more. A lot of times, good usability is actually abstracting away and masking the complexity that’s underlying it. Somebody has to be able to build the stuff that’s complex, and extract a way up into the level of usability and that’s where you need systematic approaches.

That’s why the bottoms-up piece will have its limits, because you need systematic approaches. Whether it’s how you manage all this new bottoms-up empowerment, or how you create a level of accountability and control for, “what are we going to do in the future once these things are becoming standardized within our organization.” I think usability is a wedge into getting adoption of innovation.

Noel: That is very interesting. I hadn’t thought of that. It is almost like usability is, kind of like the enterprise used to exist in this 1.0 fashion, is now at 2.0. I wonder if, one day, usability is going to carry an entirely new meaning. Not just being enjoyable, but delivering those results as well. Even if it’s usable, there’s still a business goal there to deliver value to the customers that this app is essentially serving.

Matt: I’ll give you one example from one of our portfolio companies. Lots of people use these top-down things like SharePoint, and Project, to manage work. But if they’re hard to use, and they’re kind of kludgy because you’ve got to integrate different pieces together—you might go looking for something else. We’ve got a company called SmartSheet that has tens of thousands of paying customers. It’s a very simple, bottoms-up, project management, “get stuff done” application. It’s cloud first, it’s mobile first, it’s very broad-based in its capabilities and it’s basically replacing emails, spreadsheets, and SharePoint in big companies. Big companies like, well, someone I shouldn’t say, but shockingly big companies in the tech world.

Noel: That is very cool. Thank you so much for sitting down with me today.

Matt: Well my pleasure, Noel. I enjoyed having the conversation.

Noel: Definitely. Everyone, this again is Matt McIlwain who is the managing director at Madrona Venture Group and again, that article that Matt recently wrote is titled, “In the Empowered Enterprise 2.0: Startups Have the Inside Track to Success”. Thanks so much, again.

Matt: Thank you.

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