Salesforce Plays the VC Game - Empowering Companies to 'Bootstrap'

Apr.12.07 | About: Salesforce.com, Inc. (CRM)

I wrote a piece earlier called Is Bootstrapping Becoming Sexy Again? in which I made the point that, given where the Internet is today, bootstrapping companies has suddenly become very easy, and gobs of venture capital are no longer required to build the vast majority of businesses.

Now, many of the larger companies are actually trying to reap the benefits of this trend. Google (NASDAQ:GOOG) and Yahoo (NASDAQ:YHOO) have been very vocal about wanting to acquire bootstrapped companies BEFORE they take in large chunks of venture money. In this piece, I will explore how Salesforce.com (NYSE:CRM) is playing the incubation game by empowering companies to bootstrap.

At the Salesforce.com luncheon in San Francisco on Tuesday, I happened to sit next to a couple of guys from a company called Vertical Response. VerticalResponse is an email marketing vendor that is one of the most successful participants of Salesforce.com’s AppExchange program, an on-demand application marketplace where vendors can market their apps to Salesforce.com customers. This little company was built to profitability with ~$2 Million of Angel money. Since they struck the partnership with Salesforce.com, they have recruited 1400 Salesforce customers as their own customers, which now amounts to 10% of their overall customer base. By all measures, a highly successful channel.

Another model that Salesforce.com is promoting is a complete OEM offering, whereby app vendors can use their data-center, their on-demand operations infrastructure, etc. and simply invest on the innovative application that they want to build. Apttus is a Contract Management startup that is leveraging this model. The founders are two domain experts in the segment, Kirk Krappe and Neehar Giri, formerly of Nextance, a Contract Management vendor. They already have 10 customers, and are sincerely hoping to not require venture money to scale the company.

Finally, Salesforce.com has built an incubator in San Mateo, which they have invited me to visit. I have to see what’s cookin’ there sometime.

The greatest opportunity that the Company has today is to learn from working with all these innovators, see which ones succeed, and then acquire them. If you fast forward a few years, they could accumulate a comprehensive, integrated portfolio of applications that would constitute a robust company, quite unlike the disjointed enterprise software nightmare inside Oracle (NYSE:ORCL)!