Latest / Uphoff on Media Podcast / The 25% Problem

Transcript

The 25% Problem · Uphoff on Media Podcast

• 0:01
  SPEAKER_00: I'm Tony Uphoff,
• 0:02
  SPEAKER_00: and this is the Uphoff on Media podcast,
• 0:05
  SPEAKER_00: a practical take on how technology is rewriting the way to B2B companies get built
• 0:10
  SPEAKER_00: and run and how to get ahead of it.
• 0:12
  SPEAKER_00: For those founding,
• 0:14
  SPEAKER_00: running,
• 0:14
  SPEAKER_00: and funding B2B information,
• 0:16
  SPEAKER_00: marketing, and technology companies, the businesses that run business.
• 0:21
  SPEAKER_00: Okay, let's get to work.
• 0:25
  SPEAKER_00: This episode is titled The 25% Problem.
• 0:29
  SPEAKER_00: Most enterprise software gets built to be sold, not used.
• 0:34
  SPEAKER_00: What replaces it may not be built by software companies at all.
• 0:40
  SPEAKER_00: Pendo ran a full year of usage data across 615 SaaS products and published
• 0:46
  SPEAKER_00: the number that should embarrass the industry,
• 0:49
  SPEAKER_00: a median feature adoption rate of 6.4%.
• 0:54
  SPEAKER_00: For every hundred features the team ships,
• 0:56
  SPEAKER_00: roughly six of them account for 80% of what customers actually do with the product.
• 1:03
  SPEAKER_00: Zylo's 2026 SaaS Management Index,
• 1:07
  SPEAKER_00: built from live telemetry rather than a survey,
• 1:10
  SPEAKER_00: found the average company uses just 54% of the licenses it has already paid for.
• 1:17
  SPEAKER_00: Different measurements, different years, same conclusion.
• 1:21
  SPEAKER_00: Most of what gets sold doesn't get used.
• 1:25
  SPEAKER_00: Gartner put a floor under this years ago.
• 1:27
  SPEAKER_00: Up to 25% of enterprise SaaS licenses go completely unused, not underused, untouched.
• 1:36
  SPEAKER_00: Let's call that the 25% problem, the most conservative number in the room.
• 1:42
  SPEAKER_00: Zylo's more current data says the floor was optimistic.
• 1:51
  SPEAKER_00: Ask the CHRO how much of
• 1:53
  SPEAKER_00: the HRIS systems they're running they've actually touched this quarter.
• 1:58
  SPEAKER_00: Watch the pause before the honest number comes out.
• 2:01
  SPEAKER_00: That pause isn't a training gap or a change management failure.
• 2:05
  SPEAKER_00: It's the business model working exactly as designed.
• 2:09
  SPEAKER_00: Usage is the number nobody wants printed on the invoice.
• 2:13
  SPEAKER_00: It would say more about what you're actually getting than the entire feature list combined.
• 2:20
  SPEAKER_00: Software wasn't built to be used.
• 2:21
  SPEAKER_00: It was built to be sold.
• 2:23
  SPEAKER_00: Nobody sets out to build bloat.
• 2:25
  SPEAKER_00: Look, it evolves one deal at a time.
• 2:27
  SPEAKER_00: A platform's price scales with feature count because that's what justifies
• 2:32
  SPEAKER_00: a multi-year contract and a land and expand sales motion.
• 2:36
  SPEAKER_00: The roadmap gets built for the next logo, not the last one.
• 2:40
  SPEAKER_00: Breadth is not a mistake the vendor made.
• 2:42
  SPEAKER_00: Breadth is the product.
• 2:44
  SPEAKER_00: As I argued in Enterprise Software's publisher moment,
• 2:48
  SPEAKER_00: that breadth is what gave software the best margins in the history of business.
• 2:53
  SPEAKER_00: Produce once, sell the identical version thousands of times.
• 2:57
  SPEAKER_00: The same standardization that made those margins possible is exactly why the product
• 3:02
  SPEAKER_00: in your hands was never built for your job.
• 3:05
  SPEAKER_00: It was built to be sold to everyone's job at once,
• 3:08
  SPEAKER_00: and you're paying full freight for the parts that were built for somebody else's.
• 3:14
  SPEAKER_00: That gap between what you bought and what you use is not new.
• 3:17
  SPEAKER_00: What is new is that buyers are done tolerating it,
• 3:20
  SPEAKER_00: and the correction is already showing up in the numbers.
• 3:25
  SPEAKER_00: The correction is already priced in.
• 3:28
  SPEAKER_00: Vertical purpose-built software is growing two to three times faster than
• 3:32
  SPEAKER_00: the horizontal platforms it's chipping away at.
• 3:36
  SPEAKER_00: An 18 to 32% annual clip against 12 to 15% on its way to a market north of $150 billion.
• 3:45
  SPEAKER_00: Pricing is moving with it.
• 3:47
  SPEAKER_00: Gardner expects 40% of enterprise SaaS to carry an outcome-based pricing component
• 3:52
  SPEAKER_00: by the end of 2026.
• 3:55
  SPEAKER_00: That's up from 15% in 2022.
• 3:58
  SPEAKER_00: Vendors making that shift are seeing 31% higher retention and 21% higher satisfaction rates.
• 4:07
  SPEAKER_00: In 2025 alone,
• 4:08
  SPEAKER_00: the 500 largest SaaS companies repriced more than 1,800 times
• 4:14
  SPEAKER_00: the most repricing activity in a single year since SaaS subscriptions were launched.
• 4:20
  SPEAKER_00: Everyone can see the trend.
• 4:22
  SPEAKER_00: Buyers are tired of paying for features and seats nobody uses.
• 4:25
  SPEAKER_00: Vendors are tired of selling seats nobody renews for the right reason.
• 4:30
  SPEAKER_00: The unbundling of the bloated platform into smaller, sharper tools is not a prediction.
• 4:35
  SPEAKER_00: It is underway.
• 4:37
  SPEAKER_00: Here is where most of the commentary stops, however.
• 4:40
  SPEAKER_00: Satisfied, it has spotted the trend.
• 4:43
  SPEAKER_00: It has not spotted the trap sitting inside it.
• 4:47
  SPEAKER_00: Narrow isn't a moat.
• 4:49
  SPEAKER_00: Gartner's own forecast should give the point solution crowd pause.
• 4:54
  SPEAKER_00: 35% of point product SaaS tools are expected to be displaced by AI agents by 2030.
• 5:01
  SPEAKER_00: Not the bloated platforms, the narrow ones.
• 5:04
  SPEAKER_00: The tools that were supposed to be the answer to bloat are,
• 5:07
  SPEAKER_00: according to Gartner's own numbers,
• 5:09
  SPEAKER_00: more than a third likely to be the next casualty, not the correction.
• 5:15
  SPEAKER_00: That shouldn't surprise anyone who has actually watched an agent work.
• 5:19
  SPEAKER_00: A skinny tool wrapped around a form and some workflow logic is not harder for
• 5:24
  SPEAKER_00: an agent to reproduce than a bloated platform.
• 5:26
  SPEAKER_00: It's easier.
• 5:27
  SPEAKER_00: There is less of it to copy.
• 5:29
  SPEAKER_00: Small was never the moat.
• 5:31
  SPEAKER_00: Small was the disguise.
• 5:32
  SPEAKER_00: A certain kind of shallow tool got to where right up until something got good enough
• 5:37
  SPEAKER_00: to notice there was nothing else underneath it.
• 5:42
  SPEAKER_00: Most of this discussion pictures the displacement as an inside job,
• 5:46
  SPEAKER_00: the incumbent platform bolting an agent onto its own product to defend
• 5:50
  SPEAKER_00: the seat count it already owns.
• 5:52
  SPEAKER_00: That is the smaller threat and
• 5:54
  SPEAKER_00: the one every enterprise software vendor is currently budgeting for.
• 5:58
  SPEAKER_00: The larger one is not coming from software companies at all.
• 6:01
  SPEAKER_00: It is coming from the domain expert who has spent a career inside the problem
• 6:06
  SPEAKER_00: the point solution was trying to automate,
• 6:08
  SPEAKER_00: adding a real intelligence layer on top of it and shipping
• 6:12
  SPEAKER_00: the judgment directly instead of selling it by the hour or the seat.
• 6:17
  SPEAKER_00: I wrote about the shape of that business in The Vertical Intelligence Company.
• 6:21
  SPEAKER_00: The same logic applies here, one layer down the stack.
• 6:26
  SPEAKER_00: Usage is the tell.
• 6:28
  SPEAKER_00: Here's the through line.
• 6:29
  SPEAKER_00: Usage is what tells you where value actually sits,
• 6:32
  SPEAKER_00: and most enterprise software is price, so you never have to look at that.
• 6:36
  SPEAKER_00: Charged by the seat, and the bill is identical whether a customer opens three modules or 30.
• 6:41
  SPEAKER_00: Charged by usage, and the invoice starts asking a question the vendor would rather avoid.
• 6:46
  SPEAKER_00: Why are you still paying full price for the parts you never touch?
• 6:51
  SPEAKER_00: And it's also a sharper test for what survives the unbundling than simply asking
• 6:55
  SPEAKER_00: whether a tool is narrow.
• 6:57
  SPEAKER_00: A tool earns the right to be priced on value only if it gets used the same way
• 7:01
  SPEAKER_00: against the same kind of decision often enough to prove what that value actually is.
• 7:07
  SPEAKER_00: A tool built for a single urgent moment cannot do that.
• 7:11
  SPEAKER_00: There is no repeat pattern to measure.
• 7:12
  SPEAKER_00: A tool spread thin across a dozen loosely related tasks cannot either.
• 7:17
  SPEAKER_00: The signal gets lost in the spread.
• 7:19
  SPEAKER_00: What survives is built for a specific problem that keeps reoccurring,
• 7:23
  SPEAKER_00: solved with real domain intelligence instead of a generic workflow engine wearing
• 7:28
  SPEAKER_00: a narrower skin.
• 7:30
  SPEAKER_00: Specific enough to matter,
• 7:31
  SPEAKER_00: consistent enough to measure,
• 7:33
  SPEAKER_00: intelligent enough to be worth measuring in the first place.
• 7:38
  SPEAKER_00: What replaces it?
• 7:40
  SPEAKER_00: The tools that will gain adoption are not the ones that got smaller.
• 7:43
  SPEAKER_00: They are the ones built for a specific,
• 7:45
  SPEAKER_00: consistent problem carrying judgment that cannot be scraped off a website
• 7:49
  SPEAKER_00: or inferred from a form.
• 7:52
  SPEAKER_00: The Uphoff Advisory Suite serves as a real-time case study here, not just a hypothetical.
• 7:57
  SPEAKER_00: Three tools currently in testing,
• 7:59
  SPEAKER_00: the Uphoff Value Index, the Sales Talent Matrix, the Marketing Talent Matrix.
• 8:04
  SPEAKER_00: Each one structures a single decision, not a dashboard.
• 8:08
  SPEAKER_00: How do I make ongoing decisions that drive value creation?
• 8:11
  SPEAKER_00: How do I assess, hire, coach, and manage sales and marketing talent?
• 8:15
  SPEAKER_00: That's the sliver Pendo's data says is actually doing the work isolated on purpose.
• 8:23
  SPEAKER_00: What makes it unique is what an agent cannot shortcut.
• 8:26
  SPEAKER_00: 35 years spent hiring,
• 8:28
  SPEAKER_00: coaching,
• 8:28
  SPEAKER_00: and managing sales and marketing talent through five CEO roles,
• 8:32
  SPEAKER_00: multiple transformations, acquisitions, and several exits.
• 8:36
  SPEAKER_00: That judgment gets tested against the Friends of Tony expert panel, CMOs, CROs,
• 8:42
  SPEAKER_00: recruiters, VPs of HR and investors who provide expert input on features and usage.
• 8:48
  SPEAKER_00: That group earned its keep recently.
• 8:50
  SPEAKER_00: It flagged that a sales rep's practical use of AI in selling had become
• 8:54
  SPEAKER_00: a first-tier signal, not a later stage nice to have.
• 8:58
  SPEAKER_00: A hire
• 8:58
  SPEAKER_00: who shows demonstrated AI selling proficiency reaches impact three times faster than
• 9:04
  SPEAKER_00: a hire who doesn't.
• 9:05
  SPEAKER_00: The attributes for sales talent changed on the spot.
• 9:10
  SPEAKER_00: Pricing has to match what the tool actually does.
• 9:13
  SPEAKER_00: Usage told you Where the value sits,
• 9:16
  SPEAKER_00: pricing on anything other than that value, seats, logins,
• 9:20
  SPEAKER_00: monthly access, is pricing that is deliberately looking away from the answer.
• 9:25
  SPEAKER_00: The old services trap was one expert, one engagement, finite hours.
• 9:30
  SPEAKER_00: The reason, consulting firms average under 10% EBITDA while software runs at 60 to 80%.
• 9:37
  SPEAKER_00: As I wrote in SoloScale, agentic AI is what breaks that ratio.
• 9:41
  SPEAKER_00: It is the reason a domain expert can now build and ship the tool directly instead
• 9:46
  SPEAKER_00: of writing the same advice into a deck for the hundredth client.
• 9:49
  SPEAKER_00: Building the tool got cheap.
• 9:51
  SPEAKER_00: The judgment inside it did not.
• 9:54
  SPEAKER_00: And pricing needs to reflect this shift.
• 9:57
  SPEAKER_00: I did not hire a product team to build the Uphoff Advisory Suite.
• 10:00
  SPEAKER_00: I built it the way I would have written a diagnostic for one client,
• 10:04
  SPEAKER_00: except this time the diagnostic became software instead of a memo or a presentation.
• 10:09
  SPEAKER_00: Each tool encodes a single piece of judgment I would otherwise deliver face-to-face,
• 10:14
  SPEAKER_00: what a business is actually worth building toward,
• 10:17
  SPEAKER_00: whether a rep is worth the offer, whether a marketer is ready for the next level.
• 10:22
  SPEAKER_00: Three to four years ago,
• 10:23
  SPEAKER_00: before Agentic AI,
• 10:25
  SPEAKER_00: that same build would have needed a product manager,
• 10:27
  SPEAKER_00: two or three engineers,
• 10:28
  SPEAKER_00: and a designer,
• 10:30
  SPEAKER_00: six to nine months of development in a budget somewhere between $250,000
• 10:34
  SPEAKER_00: and $500,000 before the first version ever touched a client.
• 10:38
  SPEAKER_00: That team and that budget were never available to a one-person advisory practice.
• 10:42
  SPEAKER_00: The judgment stayed locked in the practitioner's head, delivered one meeting at a time.
• 10:48
  SPEAKER_00: Agentec AI is what closed that gap.
• 10:50
  SPEAKER_00: The actual build history?
• 10:52
  SPEAKER_00: Look, I'm not an engineer.
• 10:53
  SPEAKER_00: I simply described the decision I wanted structured in
• 10:56
  SPEAKER_00: the same plain language I would use in the room and rebuilt it
• 11:00
  SPEAKER_00: against real client work until the logic held.
• 11:03
  SPEAKER_00: If I can do that, the CFO who has priced 40 deals can do it.
• 11:07
  SPEAKER_00: So can the recruiter who has placed 200 VPs.
• 11:11
  SPEAKER_00: That's not false modesty.
• 11:12
  SPEAKER_00: It's the honest version of the threat every enterprise software company should be watching.
• 11:16
  SPEAKER_00: The barrier that used to protect them from domain experts just came down,
• 11:21
  SPEAKER_00: and most domain experts have not noticed it yet.
• 11:25
  SPEAKER_00: Which is also why the tools aren't sold by the seat.
• 11:28
  SPEAKER_00: They're actually not sold at all, not separately.
• 11:30
  SPEAKER_00: They come bundled into the advisory engagement, priced the way the decision itself is priced.
• 11:35
  SPEAKER_00: Because a tool that structures one decision is part of the work of making
• 11:39
  SPEAKER_00: that decision, not a rentable dashboard sitting next to it.
• 11:42
  SPEAKER_00: That is the pricing model this whole genre needs, priced to the decision it replaces.
• 11:47
  SPEAKER_00: What a hiring mistake costs,
• 11:49
  SPEAKER_00: what a mispriced exit costs,
• 11:51
  SPEAKER_00: not what a monthly per-user line item can be padded to justify.
• 11:56
  SPEAKER_00: Most of what is currently rushing into the unbundling gap has not figured that out yet.
• 12:00
  SPEAKER_00: It is still charging platform prices for point solution software,
• 12:04
  SPEAKER_00: hoping nobody notices it,
• 12:06
  SPEAKER_00: kept the old pricing logic after it dropped the old feature list.
• 12:11
  SPEAKER_00: Every domain has one of these practitioners.
• 12:15
  SPEAKER_00: Here's the bigger bet.
• 12:16
  SPEAKER_00: Every domain has its own version of a practitioner sitting on decades
• 12:20
  SPEAKER_00: of judgment nobody else has.
• 12:21
  SPEAKER_00: The controller has closed the books at a dozen portfolio companies.
• 12:25
  SPEAKER_00: The general counsel has negotiated over 200 vendor contracts.
• 12:29
  SPEAKER_00: The operator who has run a dozen supply chain turnarounds.
• 12:33
  SPEAKER_00: Until recently,
• 12:34
  SPEAKER_00: that judgment had exactly one distribution channel,
• 12:36
  SPEAKER_00: their own calendar, one client at a time, capped by the hours in a week.
• 12:42
  SPEAKER_00: Agentic AI breaks that cap,
• 12:44
  SPEAKER_00: not by replacing the practitioner's judgment,
• 12:46
  SPEAKER_00: by letting the practitioner ship it as software cheaply enough to be
• 12:50
  SPEAKER_00: a real product instead of a slide deck.
• 12:53
  SPEAKER_00: That is SoloScale's mechanism carried one step further.
• 12:56
  SPEAKER_00: Solo operators will not just run bigger services business,
• 13:00
  SPEAKER_00: they will build specific use software out of
• 13:02
  SPEAKER_00: the judgment those businesses were already selling by the hour and use it to scale
• 13:07
  SPEAKER_00: the service itself.
• 13:09
  SPEAKER_00: Watch for this pattern well outside B2B talent and valuation.
• 13:12
  SPEAKER_00: What eats into enterprise software from here will not be smaller platforms.
• 13:17
  SPEAKER_00: It will be specific use tools informed by real domain intelligence solving
• 13:22
  SPEAKER_00: the same specific problem often enough to prove it in usage built by practitioners
• 13:27
  SPEAKER_00: who already know that problem cold and price like the value they produce,
• 13:32
  SPEAKER_00: not the seat they fill.
• 13:34
  SPEAKER_00: These tools structure the thinking.
• 13:36
  SPEAKER_00: The decision is still yours.
• 13:38
  SPEAKER_00: That was always the point.
• 13:40
  SPEAKER_00: It's about to become a movement.
• 13:45
  SPEAKER_00: Well, that's it for this episode of the Uphoff on Media podcast.
• 13:49
  SPEAKER_00: If this was useful, please do one thing.
• 13:51
  SPEAKER_00: Follow the show on Apple or Spotify and leave a rating or a review.
• 13:56
  SPEAKER_00: It's the single best way to help another operator find this.
• 14:00
  SPEAKER_00: I'm Tony Uphoff, back at it next week.