Enterprise Software's Youth Drain

31 Comments

By M.R. Rangaswami, publisher of SandHill.com and co-founder of Sand Hill Group

One need only look at the hairlines of today’s software leaders. The current wunderkinds are not looking to create the next wave of corporate computing applications, but are instead gravitating toward emerging fields, such as web 2.0, biotech, and anything “green.”

Bill Gates was 19 when he founded Microsoft (MSFT). Steve Jobs started Apple (AAPL) at 21. Even Marc Benioff was in his 30s when he founded Salesforce.com (CRM) — and at 42, he remains one of the industry’s youngsters.

Software companies need to do more to attract the next generation of business leaders who will drive the evolution of the industry for decades to come.

Software’s Aging Leaders

Here’s what opened my eyes. I looked around at the attendees of our Enterprise 2007 conference this summer and was pleased to see many of the enterprise software industry’s leaders represented, including CEOs, VCs, professionals and analysts.

But then I did a double take: The average age of this elite group (including yours truly)? 50 years old!

Steve Ballmer, Larry Ellison, Henning Kagerman, Dave Duffield…all of them are solidly in middle age. A tremendous brain trust to be sure, but who is going to take the reins and lead the industry into the next era?

The next eye-opener? In a survey given out at the conference, these highly-successful industry leaders were asked whether they would advise their college-aged kids to start a career in the software business. More than half said they would, but nearly a third said they wouldn’t!

So where are all the Gates and Jobs of today? Many young entrepreneurs continue to receive venture backing for software companies –- in fact, software regained its title as the leading venture investment category during the second quarter. Notably, however, nearly as many are receiving backing to go into biotech or greentech or other emerging fields.

And within the software space, young business leaders are choosing web 2.0, open source, SaaS or consumer applications over traditional business apps. These are all attractive fields, to be sure, but the enterprise software elephant in the corner is a $600 billion industry waiting to be fed.

The new guard of software leaders operates differently than the old guard, usually with far less capital. And they are tuned into the online culture like no 50-year-old can be: they’ve grown up with it, and as such will be able to bring the consumer online experience to the corporation with ease.

Before I get too much hate mail about age discrimination, and in light Google’s recent legal troubles, I want to be clear that I’m not advocating hiring younger people over older people. I’m talking about the need for people with new skills and new ideas who are young enough (in years) to ride out the next 10 or 20 years of industry fluctuations.

The fact is that unless the software industry receives an influx of new talent, it will be difficult for the 50-year-olds to keep their companies’ relevant in the next era.

How to Rejuvenate the Industry

It is time for enterprise software companies and their investors to take steps to make the industry a more welcoming and attractive place for young workers. Here are some of my thoughts on how to attract the next generation of leaders:

Make Room at the Top — It may be time for many longtime software company leaders to simply step aside. The same goes for members of the board. If Bill Gates can do it, anybody can.

By making a gradual transition (such as the one taking place at Microsoft) and tapping the right successors, software companies can receive the benefits of a fresh strategic perspective and a new outlook.

Mentor Young Executives — Much of the brain trust of the enterprise software industry is rapidly approaching retirement. The only way to recapture this collective knowledge is to impart it to the next generation of executives.

While it is nice to think that today’s young execs can learn by watching, the pace of today’s business environment may make it difficult. Companies seeking to preserve this insight should consider a mentoring initiative – either formal or informal – to impart to its younger execs.

Re-establish Entry-Level Positions — As the software industry evolved over the past 10 years, a wide variety of entry-level jobs in both business and engineering disappeared. Some jobs were outsourced, some were offshored, and some simply dried up during the economic downturn, never to be re-established.

There is no way that today’s software vendors will be able to promote from within and tap into next-generation thinking if they do not slot a significant number of entry-level jobs for new workers. These positions should be on both the technical and business side.

Step Up Marketing to Universities — There is a perception among college graduates that all technology jobs are moving overseas. Anyone who has recently tried to find an engineer in the San Francisco Bay Area knows that nothing could be further from the truth.

The job market for software developers is almost as tight as it was during the dot-com boom. Engineering graduates will have their pick of companies, and industries, to choose from.

The software industry associations and the major companies themselves must raise their profiles in graduates’ minds. Efforts such as job fairs and promotions at universities can help achieve this.

Develop Cross-Industry Recruiting Tactics — Recruiters are famous for tapping consumer packaged goods leaders to run tech companies – and for convincing former tech execs to run “green” or biotech companies. It is time for the software industry to expand its recruiting pool.

As other industries work to recruit the up-and-coming leaders that the software industry used to attract, the software industry needs to fight back. TCS is trying to overcome some of the talent crunch in India by recruiting talented non-engineers from other scientific fields for training as developers or other much-needed staff. The ramp-up is longer, but the results so far have been positive.

Make the Industry a More Attractive Place to Work — In many ways, the software industry has always been one of the best fields to work in. Today it’s even better.

The business environment is fast-paced and rapidly evolving. There is the opportunity for international travel, rapid advancement, telecommuting and financial rewards. The faster the industry can get the word out about these benefits, the better.

Set Up Internal, Innovation-Driven “Startups” — For many established vendors, incorporating the energetic and fast-paced climate of a startup is difficult to maintain as a company grows to have hundreds and then thousands of employees.

Many vendors, such as Motorola (MOT), have created internal innovation centers to foster the growth of new ideas, products and businesses. The atmosphere is more likely to attract a new generation of leaders.

I believe the software industry can do more to prevent the “youth” drain that I see happening today. What do you think? Is the software industry “older” than any other fast-growth industry? Is the entire concept of enterprise software fading away? Can vendors do anything more to attract new college grads? I welcome your feedback.

31 Comments

Kashif Shaikh

This is one of the dilemmas I face – I’m relatively young within the SW world – currently 29 and about 5 years of experience working for the storage industry. I always thinking if I should join a startup (where you need considerable investment before payout – like 3 or 4 years) or a relatively new company (5 or so years) with high growth .

One one hand I would like to join a startup, because it’s fast paced where ideas, designs, prototyping, coding, testing, move very fast. You sacrifice software design and features because you want to get “Version 1” out the door. The software I develop is very specific to the target audience. The software I develop is my baby, and I become very proud of it.

At the other hand, I want to join a very high growth company that is less than 5 years old that is going to be a multi-billion dollar company with hundreds if not thousands of employees. I am wooed with stocks and stock options, and the fact the IPO or acquisition is very real. The software development itself is Enterprise and boring to work at, and there is no real ownership of software development since so many people are working on the same codebase.

Which company do you think I should join?

Phil Crissman

Disclosure: I work for Oracle.

I think your last bullet point (internal “startups”) is the key. If companies have internal “intrapreneur” -type departments, that would be a very attractive option for those who are leaning towards leaving to join or found a tech startup.

Oracle has the folks at OracleAppsLab, who are doing some interesting stuff internally with Ruby on Rails and social networking/web 2.0-type ideas. My understanding is that SAP is trying similar things. I don’t know if it will work or not — I think it depends on whether or not these are just internal toy projects, or concepts that will be allowed to affect the companies they’re working within.

Yuri Ammosov

I would humbly disagree with just one thing. Most of the work done for consumer-centric web is simply too low quality to sell as enterprise product. Security, reliability, scalability, data control – all those were the weak spots of Web 2.0 in the past. The current quality level can pass with free riders that have no fiduciary responsibilities but corporate customers would be extremely sensitive to this for their buck, because they stand much more to lose from disruption, breach or hiccup.

Colin Kingsbury

I’m 31 and started a b2b SaaS company in late ’04, and among my circle of friends can find at least a half dozen other similar stories. All of us are largely or totally bootstrapped, revenue-generating, and living in a moderately low-rent lifestyle.

A prestige event in Pebble Beach is quite an extravagance for a company like that, especially when the odds of finding a prospective customer at the show are limited. With the types of SaaS plays that I see in my circle, you’re selling to very specific niches, and an event like this simply doesn’t strike me as having a high probability of short-term yield.

Shawn

If Enterprises actually want some young blood in their product suppliers, it will take active effort to change behaviors.

Last year we made the VC rounds, with a technology that could target enterprise or consumer, with a business plan for the enterprise. Feedback was nearly unanimous, and something we knew going in, that the hurdles were much higher on the enterprise. Two potential investors told us specifically to come back with a consumer-focused plan.

At the same time, consolidation in the enterprise software industry means the less experienced (younger) get the layoff notices.

Combine those two, no tolerance for inexperience and no money for the experienced to try something new, and I think things are going to get worse before they get better.

John Murphy

How old are you? Exactly. It takes someone old(er) to comment on the woes of the enterprise software space.

It is simpler than that. People are tired of working for someone else with reduced work/life balance. So if you are going to be forced to work for less money/benefits/balance than might as well be for yourself. THAT is what is driving away youth.

When was the last time a “cool” idea came from IBM? We read only about Oracle’s CEO, but none of their employees. part of the problem is the press (yes you Om).

steve

In the software spectrum, enterprise sw is considered the least “sexy” from
a computer science point of view.
There are no slick algorithms or data-structures. The focus is more on
“business process” and less on the
software wizardry. (The early enterprise
appln language COBOL was not even taught
in computer science curricula
http://en.wikipedia.org/wiki/COBOL leading
a computer scientist to remark
“The use of COBOL cripples the mind; its teaching should, therefore, be regarded as a criminal offense”
)

Now business process is understood only by folks who have done time in industry
(aka suits) and
not by geeks in high-school or
college.

Hence its hard to imagine geeks
gravitating to enterprise sw (building
the next ERP or HR application) for the
above 2 reasons.

Jeff

Great observation. I was just discussing this topic with a friend over dinner. I come home and see this post; awesome.

Sadagopan

MR – Thought provoking note. I think that accelarated innovation & faster adoption of advances in consumeristic technologies by the enterprise software industry is the key for success. I am optimistic about the enterprise software world embracing innovation centered around consumerism sooner than later – The impact of consumerization on enterprise and opportunities to leverage such advances are all groomed in the consumer space itself. The transition of such things into enterprise IT thereby happens automatically – in a way, advances in consumer space dictates the corresponding fallout in the enterprise space. True, but difficult to believe – right? Someone referred this phenomenon as akin to a civil war. An analysis of the past shows that in a significant number of cases the technologies that were originally focused on consumer space have made deep impact over time have made deep impact on the enterprise space – Personal computers, search, IM all are shining examples of this powerful trend. Native web companies keep coming out with a lot of full blown but trial offerings that entices lot many more consumers and many a times a revenue and utilization value evolves out of more and more usage of such offerings. In the process the consumer space gets more and richer forcing successful offering to be pushed into the enterprise –in larger numbers and faster pace.

MR is in a way definitely right – a mixture of more young people along with some of the best minds (who could be older)driving the enterprise industry would make this transition happen faster.See my note
http://123suds.blogspot.com/2007/10/enterprise-software-accelerated.html here.

mark

While it’s true that enterprise software companies are typically older, most of the startups and web-oriented companies are much younger. I also notice that many tech grads in the US are heading to consulting companies rather than the big guys.

But you could also be seeing something else: companies don’t send junior developers or managers to expensive conferences like this, and man youngsters would rather go to one of the new technology events.

Bob Warfield

There is a new generation of Enterprise leaders moving up that are young and are based around new business models: SaaS and Open Source.

Currently, there is a gap between their importance and their apparent size relative to the leaders. That’s as a result that they were only recently invented compared to the old guard. These models match risk to ROI so much better than the old models that they are growing rapidly, and they are the future.

More in my blog:

http://smoothspan.wordpress.com/2007/10/13/enterprise-softwares-youth-drain-bubble-economics-meet-the-new-business-models-saas-and-open-source/

Liam Breck

Entrepreneurs study the problems of users, and solve them in ways users relate to. In the enterprise software biz today, you don’t sell a solution to users, you sell it to IT managers, who don’t think like users, and don’t particularly care about user pain. Selling to IT Mgmt is a business for established farmers, not upstart hunters.

There are ways to architect enterprise software so it can be sold directly to users (SaaS is not one, as approval is required before company data gets sent offsite). I know of only one entrepreneur pursuing them amidst the current consumer-web frenzy.

Ron Mahoney

Okay disclosure, yes I’m 43. When I was young every IBM PC came with this thing called QBASIC on it. It was easy to be a programmer. When MS Windows took over the compiler that was included in the OS started to disappear. Suddenly there is a new programming environment included with every OS, its called javascript and its platform is the web browser and its on every PC. Some of us kind of missed that, others didn’t. Traditional Enterprise software is dead. The kids are alright.

Jason Wood

M.R.,

I think you bring up an interesting issue, and while I think your ideas for attracting and retaining young innovators are all worthwhile exercises, I’m not sure I see the problem of a youth drain.

1) The industry is maturing. When Bill Gates was founding Microsoft at 19, the concept of “enterprise software” was just that, a concept. Now we’re looking at software comprising 40% of IT spend; it’s only natural that the impact of any individual (or small group) of young people would be harder to see; particularly for old dogs like all of us that have grown up with the industry.

2) The lines have been blurring between enterprise software and consumer internet; where you still see really innovative youngsters (Facebook, YouTube, etc…); but there are young difference makers in software, too. You just have to look harder because they’re not making headlines on Techmeme and many of them are doing their best work INSIDE the large, mature organizations.

I penned some thoughts in reaction to your piece at Ponderings.

http://woodrow.typepad.com/the_ponderings_of_woodrow/2007/10/is-there-a-yout.html

P.S. It’s been awhile. Sorry I missed Enterprise 2007 but we were relocating our offices that week of all things. At 32, I guess I might have helped bring down the age to below 50, perhaps. :)

vinnie mirchandani

MR, great observation.

But…The buying centers for enterprise sw age wise mirror what the software industry on average presents in its face to the customer – the avg sales person or consultants in the 30s or 40s. So not as much of an issue there – if anything when I was in India last week with a client the average age of 24 in many of the SIs does bother many enterprises.

I do think enterprise software does need to reinvent itself with all the new web 20, mobile, sensory and other new technologies…that is the right way to appear young and vibrant…

Ryan

Enterprise software in general is more time consuming to develop, and requires a much larger footprint to support than the kinds of markets that young entrepreneurs are attracted to. When a 22 year old can develop a website in 3 weeks, and develop a $100M company within a year, why would they bother with the troubles of attracting corporate customers?

Also, with web-oriented companies/products, you can get away with a much smaller support staff, and in general the business models scale much more cleanly.

Eddie

I forgot to mention — there is this young guy who just hit his second home run. He name is Marc Andreessen and his company Opsware was sold to HP for over $1B USD.

Eddie

M.R., I agree with Rick. Its Enterprise Computing that’s changing (the lines are being blurred) and the youth are in areas where there is opportunity for change. I would say that you have lost touch if you have not yet met with Paul Graham (or read any of his essays) of Y Combinator. Also look at some of the open source superstars like David Heinemeier Hansson (if you don’t think his Ruby on Rails open source framework is “enterprise” enough then you are living on another planet M.R. because look at how Sun Microsystems has reacted to Ruby on Rails and they are going all out with JRuby and look at what Dr. Jason Hoffman of Joyeur is doing with Rails + Sun platforms. And you may have heard about this great shift toward network-centric computing which is being pushed by a little company named Google (what young, aspiring person in the IT space would not love to work at Google where they can create dynamic systems such as Google Maps and systems that support mashups?)

Sanjath

By looking at the first few lines I thought enterprise software would also close it’s door for the middle aged guys :-). Luckily, author clarifies it in middle.

Anyway, one thing I am not sure if the problem is with age of workforce or the practices in industry that is so old (deal making always through contacts rather than merits). There are good companies run by young people in this field (e.g: Atlassian) they don’t get attention thats all.

phil

If you look at the enterprise companies, they just acquire smaller companies, layoff the coders and outsource maintenance to india. Why would anyone want to be part of that?

Enterprise is morphing into SaaS anyway. Once the playing field is completely level (when SaaS takes over), the Enterprise companies will fade and newer models will take over – like Google, Salesforce.com, Netsuite.

Bryan Stolle, MDV

MR:

All is not lost. I noted the same lack of new blood at e2007, but that may be a reflection of our networks, not the industry.

Many of my colleagues and I have discussed the “eat our young” problem in software, especially on the sales side. There simply has not been the needed investment to train/develop the next generation. So, your ideas are good and timely.

That said, as an investor, I find myself with far more things to look at and consider then I ever expected. This is partly due to a new generation of business software entrepreneurs that have put in the requisite 10-15 years in business gaining the insights and skills needed to identify market needs, develop appropriate and economically interesting solutions, and launch them within fledgling companies.

Of the IT deals we have funded this year, easily half are led by this new generation, and many of those are B2B/Enterprise 2.0 companies.

Of course, the more we as an IT industry invest in the young talent, the more we will all gain.

Rick

Is it really Youth Drain. Or is it old Enterprise Application Drain. The youth are in newer software markets. Look at Facebook, Skype, and the front pages of Business 2.0 and Business Week. The youth are where it’s happening in software.

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