Developreneurs: Don’t miss the next $1B opportunity

The world’s fast-iterating web and app companies have created more than a cottage industry for startups that help increase the speed of delivery of code from development to operations. That’s because developers can now rely on developer-oriented services to get to the finish line faster to become the next Snapchat, WhatsApp or Box.

It wasn’t always this way. Go back a little over a decade, and times were much different. Software was primarily shrink-wrapped discs sold in brick-and-mortar stores. The cloud changed that. As a result, companies can update code at a dizzying pace and push it out live to users. This has compressed development times and forced a fundamental shift in how software developers work and the tools they require to accelerate commoditized processes.

This developer-oriented services movement has been long in the making, further fueling cloud competition. Component stores have emerged, providing building blocks for developers to dramatically cut production times. What’s more, the ubiquity of well-defined application programming interfaces (APIs) and the shift to services-oriented architectures have created a rising business opportunity for those startups targeting developers. It’s the logical next step to “productize” these often ad-hoc tools that have gained significant traction — creating new services businesses — and value in the markets they serve.

There’s now a growing investment category focused on servicing a cloud-based selection of companies whose members, and needs keep growing. Companies such as Stripe, Twilio, and New Relic are just a few of the standout developer-oriented services startups that have piqued investor interest of late.

But for every great startup success, there are 100 that fail. Developer-oriented services startups are providing the pickaxes of this next digital gold rush, but they are not without their perils. For the budding “developreneur,” here are some of the biggest missteps to avoid when launching your developer-oriented services company.

Solve a big problem for a small group

Targeting functionality that only addresses a small set of cloud-based companies narrows the market opportunity. This may seem obvious, but some assume that just because it works for one developer, it may have broader appeal. Be sure that what you’re developing services the needs of a broad range of cloud applications companies. Akamai offers a great example of a company whose services offer broad appeal, because no web application of any kind can afford to be slow. Overcoming specific obstacles is the right approach, but to build a successful company, make sure you tackle a problem that everyone has.

Build the easy stuff

Don’t be easily replaceable. Many scrappy startups have a build-or-buy mentality, so make sure that you have a wide enough technology moat to keep your service from being easily cobbled together in house by a savvy developer team. Services that are utilitarian must-haves and absolutely necessary to businesses’ agility enjoy a higher annual contract value (ACV) and lower likelihood of churn, but choose one that is complex. Billing and checkout services such as Stripe and Recurly, for example, are required to work flawlessly all the time. No developer should have to write code to interface with a payments gateway. That’s why this has staying power as an add-on code component. Developers love services that mask complexity in such vital business components of their applications.

Make clunky technology for techies

Want to lose customers quickly? Don’t sweat the details of making it dead simple to use, and you will watch them flee in droves. To grow a customer base, and your revenue, offer simple functionality right out of the box. The service that’s easy to use at the right price wins. Every developer knows the joy of copying and pasting a few lines of JavaScript or bundling a Ruby gem and unlocking 100 man years of functionality. Popular monitoring companies like Crittercism can be deployed in an hour with instant results, for example. Services offering clean plug-and-play code are easy to demo and much safer for customers to buy.

Start small and stay local

Just because you are a small company, don’t assume that your customers will be. The web transcends borders; consider the worldwide market from day one. Amazon Web Services used its “compute cannon” to completely level the infrastructure playing field. The open-source software movement tore down the walls of the proprietary software castles. Today, developer-oriented services startups that invest in building global platforms offer far more value. PubNub has built a global real-time network that delivers 3 million messages every second with quarter-of-a-second latency. Their customers leverage the scale of PubNub’s network when they connect to the service. Global scale can also come in other forms: Twilio has signed peering agreements with telecommunications companies around the world that enable the service to route voice and message traffic to any device. To compete in a global economy, you have to think global from the start.

Do the sexy software

If your company tackles the shiniest bells and whistles for developers, chances are, you’re not alone. Functions that are “unsexy” from a developer’s point of view — the plumbing — often offer the biggest opportunity. Additionally, companies that seem “boring” often have less competition and are highly profitable in the long run. Splunk, for example, started by simply helping developers make sense of log files. In the software world, this is the equivalent of opening up the septic tank to look for problems. Developers would much rather be working on a big-data-meets-artificial-intelligence project. Few want to work on the mundane functions, making them perfect fits to be outsourced “as a service,” provided it meets most of these criteria.

Andy Vitus is a partner at Scale Venture Partners. Formerly an engineer, Andy is a technology tinker who thoroughly uses everything he invests in. He joined Scale Venture Partners as a partner in 2003. The criteria above form part of the scorecard that Andy and Scale Venture Partners use to evaluate companies building cloud services aimed at devops teams.