The phrase has been coined by Gordon Ritter, a Silicon Valley venture capitalist with a track record of spotting seminal trends in enterprise cloud applications. His firm, Emergence Capital, invested $1 million in cloud giant Salesforce in 2003, when the company was valued at just $140 million — a far cry from its current $80+ billion valuation. After this lucrative bet on horizontal cloud applications, Emergence went on to invest in a new wave of vertical industry cloud providers, including Veeva Systems, the first Salesforce-native ISV to go public.
Now Emergence is investing in a third wave of cloud ventures, one that Ritter believes could be bigger than both previous waves put together. That's in part because they go far beyond the transactional data that is still at the core of enterprise software today, he told me when we spoke recently. He explains:
My prediction? There'll be a new set of software leaders that are born out of a different data set than the ones that started the software industry.
Instead of being built around records in a transactional database, coaching networks are enterprise applications that collect and analyze human behavior, and then guide their users toward behaviors that achieve better outcomes. The network element is the collaboration and computing framework that enables the collection and analysis. The coaching component is the iterative improvement that stems from applying that analysis. For more background, see Ritter's Slideshare presentation posted last year on the rise of coaching networks.
The secret sauce of coaching networks
Ritter cites a handful of examples from Emergence portfolio companies that give some glimpses of this new paradigm in operation. Augmented writing platform Textio helps recruiters write more effective job listings, by analyzing millions of job posts and their outcomes each month, and then providing guidance to recruiters as they write new job posts. Recruitment chatbot provider Mya Systems uses artificial intelligence to automate large-scale applicant screening and tracking, learning from each interaction.
Probably the most advanced is sales call assistant Chorus.ai, which records, transcribes and analyzes conversations between sales reps and customers. As well as providing an instant record and summary of an online meeting, sales teams can also use the platform to identify high-performing behavior and content. Chorus.ai can then provide automated real-time feedback to guide the sales person with suggested next steps and what to say throughout each customer call.
The secret sauce of coaching networks is this feedback loop between humans and machines. Far from AI replacing humans, this is about a symbiosis of the two.
It's a big step forward from the one-way predictive analysis used by the likes of Facebook and Instagram, believes Ritter. These social networks are constantly gathering data about our behavior for machine analysis, but only so that they can sell us ads that conform to our existing interests. "It's just homing in on our biases," he says. In contrast, the coaching network can suggest new ways of behaving that we may not have thought of:
This new world of coaching networks is going to replace the consumer wave of the Internet with a 'Let me help you' wave of the Internet — let me help you advance in your goals as a human.
Think different to excel, advises Ritter
As such, the coaching network replaces the idea of AI and humans as adversaries or competitors with a mutually beneficial collaboration that plays to the strengths of each. For all the impressive feats that machine learning and artifical intelligence can show off today, AI is still just a pattern recognition engine. It can extrapolate, but it can't make imaginative leaps, which are the unique contribution that humans bring to the coaching network — the creativity that says, 'OK, why not try this?'. That's where people add value, says Ritter:
The human is the only mutation engine in this world of AI. AI itself can't evolve, except with some random number generator that tells it it should maybe ask some new question.
In the best Silicon Valley traditions, that means that in Ritter's world of coaching networks, it's the people who think different who are most valued. Here's how he expressed it in an interview with Arik Hesseldahl last month:
In an age of AI-driven processes, being an outlier may be the most important quality a human being can possess. 'The only way for you to have value as a human is to think originally,' Ritter says. 'If you don’t stand out in some way, you fit into the established models, which means the AI system is already done with you. If you do things the same way every time, the coaching network learns nothing from you.'
New ventures in enterprise software
The nascent industry of coaching networks is still in its earliest phase. The examples Ritter cites from his own company's portfolio show results in highly constrained spheres such as recruitment and sales calls. One of the big challenges for early adopters is collecting and analyzing the data, which comes in all kinds of unstructured forms — voice, text, video, perhaps also sensor data as people interact with their environment. Then it has to be analyzed and fed back to users in a way that offers useful and iterative coaching. Ritter sums up the challenges:
The machine learning and artificial intelligence in this coaching networks concept is actually the least important part. The most important part is gathering our habits and behaviors ...
The hardest part is gathering the data. Then that new UI, that gets you to not only strive but also be innovative.
But with so much data to collect and analyze across any number of markets and industries, the potential for new ventures to carve out their own space is huge. That's why Ritter predicts coaching networks will ultimately produce a new generation of leading enterprise software companies.
It's important to remember that it's Ritter's job as a VC not only to perceive emerging trends, but also to cast his portfolio companies in the most flattering light. But even so, I think there's a lot in his notion of coaching networks. There are plenty of other companies that Emergence isn't investing in that are pursuing similar paths.
In fact, I think the coaching networks concept is helpful for making sense of several different trends that I've been writing about over the past few years in the enterprise applications space. In a follow-up post, I'll discuss those five digital enterprise trends and how they fit into the coaching networks picture.