I wrote a while back about Room at The Bottom, and how once a space gets big enough (~$100m) or so … the biggest guys end up abandoning many of the smallest customers and segments in their space.  And once a space is at, say $100m in market size, that can open up a $10m hole for new small guys at the bottom of the market.   As the space grows further, that hole and room at the bottom gets bigger and bigger.

Screen Shot 2014-03-16 at 3.29.46 PMNow imagine we’ve talking about a much bigger space, like CRM.  Salesforce alone will be at $10 billion ARR in just a few years.  $10 billion.

Now at that scale, Salesforce is now working on as many $100m+ deals as it can try to close.  Because once you adding > $1 billion in ARR a year, you need a few Really, Really Big Enterprise deals to move the needle.  And a handful of $50m-$100m deals are, by definition, the new target to really move the needle at that scale.

Given that … does it make any sense to pursue the $9 a month market?  Or the $2000 ACV market?  I mean, not really.  And Salesforce isn’t.

So the bottom 10% of this $10 billion market, or $1 billion, isn’t even being addressed by Salesforce.

And the next bottomest 10% of this $10 billion market, maybe is being addressed, but isn’t being prioritized.  It can’t be.  There’s too much to do to get to $10 billion in ARR.

>> So what that means is there are 10-20 $100m+ ARR opportunities in CRM that exist, either today, or Will Very Soon.

We’ve seen Veeva IPO as a Pharma-specific CRM.  But that unicorn didn’t even come from the bottom of the market, but rather, an adjacent piece of it, a vertical.  We’ll see SugarCRM IPO this year, but while that’s partly the bottom of the market, it’s really more of a vertical (open source + highly customizable + international) play in a sense.  And Zendesk will IPO this year, a CRM focused on supporting existing customers instead of potential ones.  All three are already > $100m ARR.  And we haven’t even seen a Bottom-of-the-Market play IPO yet.

And we’ll see another 10-20.  It’s just the basic math of the $2 billion in market space that Salesforce isn’t really addressing.  And with today’s multiples — All 20 Can Be $Billion+ Market Cap Unicorns.

CRM got a little sleepy for a while.  It seemed pretty tapped out around ’08/’09, in fact.  But the interesting thing is it turns out it’s just Getting Good.

My take-aways:

  • The Idea There is Only One Big Winner in a Space in SaaS is getting Pretty Dated — Even If It’s True.  Maybe Salesforce will continue to capture 70-80% of the market cap value in CRM over time.  But goodness, even if that’s true, the other 20 all can be $1 billion+ Unicorns.  The fact that all SaaS markets are exploding means there are far more ways to get to $100m in ARR than ever before.
  • Never Quit if you have Real Customers in a Good Market and Something Potentially Great.  Because TAM is What You Make of It.  Everyone thinks TAM is smaller than it ends up being — if you have a great and long-term committed team.  You’ll add features, extensions, new product lines.  Salesforce grew into Marketing Cloud and Service Cloud, and finally grew Force.com into a $1 billion business on its own.  Where will you grow?  Probably somewhere great over the long-term.
  • You Don’t Have Dethrone the Winner to Win.  Got a better take on Box?  Don’t fear its $10 billion IPO and $200m run rate.  Relish it.  Because just the wake behind that can create another Billion Dollar (Market Cap) Winner.  You don’t even to take anything away from Box.  Just win in the Bottom 20% of the market, and/or ride the next wave in the segment.  Again, because it’s just a huge market.  See, e.g., Egnyte which is now killing it.
  • All These Categories Are Going to Turn Over Again.  Secret and Medium are just the next versions of Twitter and Quora, Tumblr supplants Blogger and grows perpendicular to WordPress.  You can see new players in a space evolve relatively quickly in consumer, with a new spin each time the web changes (mobile, social, etc.).  The themes change much more slowly in the Enterprise, but they do change every 3-5 years.   Mobile is, for example, eventually, going to totally change CRM.  It’s starting to happen already.  And that will create huge new opportunities for new players.  Etc, etc.
  • Net net my #1 point: Judge Yourself By Yourself.  There’s more than one way to Build a Unicorn — at least these days.  It used to be there was only one unicorn (if any) in a space, in enterprise software.  But today, the SaaS markets are simply exploding.  We’re only in the second or third inning of an incredible change in the way enterprises buy and use software.  You can build a $100m ARR and Billion Dollar (Market Cap) Business by riding the next wave.  And Salesforce, DropBox, Successfactors, whomever — they really can’t do anything about it.  They won’t even really care.

Carpe Diem, my friends.

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