The Consumerized Enterprise is the best thing to happen to software since its name changed to SaaS

As my old boss Barry Diller always said, “Words matter” and that applies even in enterprise software. Specifically, all of the terms used to describe modern B2B SaaS — customer obsessed, PLG, bottoms up SaaS — make a lot more sense when seen in the context of the overarching theme of the consumerized enterprise (we’ll call it CE). At the most basic level, CE is the practice of borrowing principles from the best consumer businesses, and applying the same to operate your B2B business. Any one principle is important, but more valuable when seen slotted into the broader theme.

Well, why should you care about the CE? If you’re a founder, a complete view of CE will help you build a product users are clamoring for and an organization that talent is lining up to leave their well-paying FAANG job to join (follow along for a series on this!). If you’re an investor, CE blends the best of consumer and enterprise business with strong valuation multiples.

Consumer investors love the huge upside of B2C businesses. Part of this is due to the fact that consumers have an order of magnitude more purchasing power than enterprises (13x more in fact). In simple terms, this is the allure that maybe your investment may one day be on the computers and phones of billions of people. Far more often than not, however, you didn’t invest in the next Facebook. This boom or bust dynamic, alongside fickle consumer preferences, low switching costs, and comparatively low willingness to spend (vs. an enterprise) causes consumer businesses to trade at lower multiples than similar sized enterprise businesses.

On the other hand, enterprise investors prefer the predictable, recurring revenue, scalability, and capital efficiency that B2B SaaS companies offer. As a result, these companies trade at much higher multiples. The trade-off here is that historically growth has been constrained by a labor- and time-intensive lead generation and sales processes.

With the CE, investors get the best of both worlds. When done right, CEs deploying a product led growth strategy can grow like consumer business, with adoption occurring quickly by end users, not dragged out by lengthy sales cycles. As end users essentially force their organizations to adopt these tools, consumerized companies can then upsell premium offerings and generate the sticky, recurring revenue streams that make B2B SaaS businesses so compelling.

Furthermore, with the product led sales motion of a CE, businesses often have even better unit economics than SaaS companies. Traditional B2B SaaS businesses require sizable sales and marketing teams and resources in order to acquire new customers. With the product-led growth sales motion, a well built product will begin to sell itself and growth will occur through word-of-mouth to other peers, beginning a viral loop. When a product is exceptional with a clear value proposition, end users essentially act as the company’s sales reps, championing their teams and organizations to sign up and adopt a tool, driving down customer acquisition costs. With more growth potential and better margins, CE companies earn even higher valuations in the public markets than SaaS companies.

Interestingly, many VCs missed investing in the early iconic CE brands (Slack, Zoom) because these companies were reinventing an old category that had been around for decades (boring!). Who wants to compete with Yammer? Who wants to compete with WebEx? There was less funding, less competition. This meant that delightful products built for the user (vs the buyer) + pricing magic alone could drive mass adoption.

Today with the average CE business trading at 2x revenue multiple of traditional SaaS, the market has become very efficient and the secret is out. Touting a PLG growth strategy is nearly as commonplace as pitching a community, AI, or maybe launching a DAO. But for companies to win in this environment, they must aspire to the next level of sophistication in their team and practices, moving beyond a bottoms up motion alone, and adopting the full set of CE principles. These principles of building a true CE are the focus of our upcoming series of posts. Our next post will dive into the first principle of building a CE: Customer obsessed. Watch for it!