Technology startups of all stripes have been on edge lately as financial markets have whipsawed, and many investors have become more discerning about the companies they fund.
But a recent survey of large technology buyers offers some positive news for enterprise-focused startups: Though big companies are changing some of their tech-spending habits in light of the current, volatile economy, most don’t expect to shrink their overall technology budgets this year–meaning savvy startups, particularly in sectors like cybersecurity and data, can still find a way to make critical enterprise sales.
The Battery 2022 Cloud Software Spending Survey, conducted in early August via an independent research firm, queried 100 chief technology officers, chief information officers, chief information security officers and other buyers across industries ranging from financial services to healthcare to manufacturing, among others. Together, the respondents control roughly $29 billion in annual technology spend; 85% of them work at companies with more than 1,000 employees.
Fifty-eight percent of the respondents currently spend $100 million or more annually on cloud infrastructure, application software, data platforms and machine-learning tooling, which are core focus areas for many of today’s highest-profile enterprise startups.
So how are these sought-after tech buyers thinking about their tech stacks today, and how receptive are they to experimenting with new startup technology tools? Our survey holds several key takeaways:
Tech budgets are not as elastic as you might think
We found 35% of survey respondents expected their overall tech budgets to stay flat in 2022, while a surprising 54% expected their tech budgets to increase. Less than two percent of the respondents expected their budgets to contract by more than 10%. All of those more-cautious buyers were at companies spending less than $100 million annually on technology.
That finding is somewhat counterintuitive, but perhaps not surprising. After all, cloud, DevOps, and other software-related technologies can bring significant efficiencies to organizations today—efficiencies that can often help companies control costs in an inflationary environment. Our Battery General Partner Dharmesh Thakker wrote about this trend recently, noting that strong, recent earnings reports from public data companies such as Snowflake and Elastic show that corporate customers are anxious to move on-premise data stores to the cloud to boost productivity and cut down on unnecessary labor and capital expense. Next-generation cloud, data, machine learning and other B2B technology can also help companies better target customers, increase sales and boost revenue.
The good news for software sellers improves even more when you look five years into the future. Looking out over the next six months, fewer than 10% of respondents predicted decreasing their tech spending across four major budgetary areas–security, data, development tools and artificial intelligence/machine learning. In the next five years, respondents reported strong indications of budget increase in all areas. Specifically, 92% of respondents expect their security budget to increase, 84% expect data budget to increase, 69% expect increased spending in dev tools and 79% expected budget increases in AI / ML.
The “land and expand” sales model will get tougher
While overall tech budgets aren’t contracting, our survey unearthed some important new nuances in how corporate customers are purchasing new technology today, and some accompanying lessons for enterprise startups trying to sell to them.
Product-led growth (PLG) has gotten trickier as way to enter the enterprise. Bottoms-up technology adoption is still happening, of course, About 75% of the companies we surveyed allow engineers to self-select and procure technology in a bottoms-up way and install it in a “sandbox” environment, particularly in certain industries like retail and manufacturing. But only 14% allow such procurement for the production environment.
Our takeaway for software sellers: The hurdle to enter the enterprise sandbox can be quite low, but it’s considerably more difficult for new technologies to expand into the production environment. And production is where true and sustained adoption begins—so vendors need to be able to prove a product’s value to the larger enterprise.
Indeed, IT budgets may be increasing, but that’s not the same thing as corporate spending strategies, which may be shifting right now. Spending strategies encompass how an enterprise deploys budget to meet its priorities: vendor consolidation, expansions, new vs. ongoing initiatives, hiring, and so forth. Not all of these will be weighted equally, and priorities may be changing in the current environment. Founders should understand where their product fits within these strategies and priorities. Stated another way: It’s not sufficient to know if there is budget for your product. It’s more salient to know where your product’s priority level falls as well as how it might fit into the overall IT spending strategy of the company.
Top tech-spending priorities: Enterprise security and data warehouse
Data and security remain top spending priorities for enterprises: 31% of respondents named security as their number-one priority, and data warehouse and data operations together claimed another 31% of our respondents’ top-priority slots. SaaS vendors also made a strong showing, particularly those with technology that improves workflows and increases automation. We discuss each individual category in more detail in the attached report.
Hiring trends: Good news for full-stack engineers, DevOps, security and data engineers
Technology layoffs have gotten plenty of media attention in recent months as the tech markets have faltered. But our survey reveals strong and sustained tech hiring in the areas prioritized for future tech spend. The more immediate reaction is for CXOs to consolidate vendors as a way to simplify software spending and the resources needed to support tools and technology.
Despite some hiring freezes, tech buyers are still interested in hiring for critical roles they need, especially those in core infrastructure and data engineering, where new, cloud-native technologies are being adopted at a rapid pace.
When hiring, the “plumbers” of technology are most in demand. The top three tech roles companies are the most eager to fill are DevOps engineers, security engineers and data engineers. Thirty-nine percent of respondents listed full-stack engineers as one of their fastest-growing job segments, while back-end developers and front-end developers were cited by 17% and 14% of respondents, respectively. Our takeaway: Engineers focused on building pipelines and infrastructure are in higher demand than those building applications and analyses.
Enterprise technology buyers are still buying–but their spending priorities have changed and clarified in ways that software sellers should take note of. Data and security rank supreme among buyers’ spending priorities, both in terms of vendor solutions and hiring focus. Best-of-breed vendors that consolidate various functions will likely carry the day as budgets reallocate and shift. If your technology is deployed inside an enterprise’s sandbox environment, that’s promising–but you need to demonstrate clear value fast to make the case for moving to the production environment. AI and ML aren’t disappearing as long-term enterprise priorities – quite the opposite, in fact.
And tech spending across all major categories is likely to increase over the next five years–which should be encouraging for enterprise-focused software sellers, including the early-stage founders.
View full report here:
State of Cloud Software Spe… by Battery Ventures
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