@RomanStanek is Right, Selling Enterprise Software is Still Old Skool
But not in all cases and not for all people.
From my experience working at one of Europe’s largest and oldest enterprise SaaS companies- we’ve been on this journey for a long time- I think there is some colour to be added to Roman’s post, plus some room for debate. I think, however, the dismissal of the lean startup theory for Enterprise software is ill advised.
The highlight of the post for me was his 6 requirements of Enterprise Software Sales Success:
1- Have a significant, monetizable value proposition. Getting people to use something is different from getting them to pay for something. From the beginning, your offering has to be something that people find so valuable that they’ll pay for it, not just play with it. Yammer, the enterprise social platform, had plenty of penetration, but it was not fundamentally connected with the business systems people used every day to do work. The company was sold to Microsoft, which could bundle Yammer’s capabilities into its Office suite and exploit its significant presence in enterprises.
This is the so-called penny gap. Ironically, in Enterprise software where the purchaser is often not “paying,” you’d think the gap would be smaller… But, even though there is a very strong correlation between use and value, the penny gap remains significant. If you can change someone’s habits so they feel like it’s a must have- you could strike gold. The challenge for vendors is: If you want a lower Customer Acquisition Cost (CAC) for your product / service you have to deliver significant value up front in the form of a trial or freemium offering to get people to change habits, but then still leave enough room for the upsell to monetise. Some might say Yammer did this very effectively, but beware- the maverick sale is often not welcomed by IT.
2- Sell the way the enterprise buys. Selling to the front office can be on an inbound basis, with relatively horizontal, lightweight, consumer-like pitches. The problem is, you’ll find that some serious company – Salesforce, Google, and Microsoft – already owns most of the desktop. Enterprise IT is used to provide significant, detailed explanations of functionality on an outbound sales basis. That means real salespeople burning real shoe leather. If you want to upsell, you’ll probably have to up-staff.
Yes- if your initial sell is to IT folks (like here at Mimecast), that’s exactly what you need to do. But if IT doesn’t have to be the initial buyer, can you first build a bridgehead then sell to IT once significant value is being delivered? A bottom up vs top down sell as Marc Andressen would put it. That’s how Salesforce got its foot in the door, as did Yammer. But don’t kid yourself- if you want to upsell, you’ll need that shoe leather, because getting past IT even when it’s being used is no cakewalk. However, in an ideal world I’d rather be upselling than prospecting for net-new names. And don’t forget you can use those vendors to sell for you in their marketplaces. Salesforces’ AppExchange is their strongest feature IMHO.
3- Meet enterprise requirements. Your technology will need to satisfy all of the enterprise’s requirements for the “-ilities”: scalability, reliability, security, availability, and so on. Enterprise IT wants to know that the software can integrate with long-established systems of record. Be prepared to answer questions about single sign-on, uptime, firewalls, recovery-time objectives, service-level agreements, and failover.
So, so true.
If you don’t have or don’t want to have the “-ilities,” forget selling to the enterprise. Although in actuality it’s more about perception than reality- if you start with the “-ilities” in mind, you can make yourself “enterprise ready” from the get-go. Reverse engineering it is much harder work. It took us a long time to convince banks to store their information with us, but now they do. Things like ISO 27001, SLA’s, monitoring, reporting and alerting help significantly. And on integration, read Active Directory. As the buyer, I want seamless integration with AD as Microsoft owns the desktop and the authentication architecture. I read a recent Gartner report saying Microsoft has approximately 80% of the business email market compared to Google’s 2%. You might like Google Apps, but by-and-large your Enterprise customers don’t.
4- Focus on targeted value scenarios or first go vertical. Because of the “crowded shelf” in the front office, your technology stands the best chance of getting an initial enterprise sales bump if it can solve a deep and irksome process problem that is a known issue across industries, or only applies to one industry. Enterprise IT often won’t buy from companies that haven’t already sold to quite a few of their peers, but you have to start somewhere. Your “land and expand” strategy might do best by starting with a nettlesome issue, deep in the weeds.
This is classic “Crossing the chasm” advice, which speaks directly to the first rule of having a “significant, monetizable value proposition.” I think however, it should be split into two seperate issues. If you want to sell to or through IT, then solving something niche and nasty is the way to go. However, the front office is not nearly as crowded as Roman asserts. The whole BYOD and Cloud revolution has proved consumers (i.e. “front offices”) desperation for more tech in their lives, not less. I don’t know of a single IT department with enough time on their hands to satisfy every user’s requirements. If consumers can solve their problems without IT’s involvement, in a safe and future “-ilities” passable way, then much the better for the customer and vendor. But if you rely on the consumer sell and can’t pass the “-ilities” test, you’re going to be in trouble as soon as IT finds out. And you’ll likely be the recipient of a big boot. That topic however is a minefield and a series of posts on its own, but suffice to say a careful balance has to be negotiated.
5- Have some patience. We like to say, “selling to the consumer is about selling positive emotions. Selling to the enterprise is about suppressing negative emotions.” Enterprise IT is not a culture of early adopters. “Ain’t it cool?” is not enough. Enterprise IT sales cycles are often months long and you should prepare to be met with skepticism. Consumers usually ask, “Is it awesome?” “How much does it cost?” Enterprise IT asks, “What if it doesn’t work? Will I get fired?”
This is spot on and speaks once again to the “-ilities.” If you flunk the “-ilities” tests, then IT immediately thinks about the “What if it doesn’t work? Will I get fired?” questions. But, equally, consider how your system can be implemented to deliver value without risking all of those factors. Can you do something non-trivial that delivers value at low levels of risk to IT or users to build trust?
6- Establish a control point. With enterprise IT, being the first to market is not always the winning scenario. What’s more important is having a gambit that puts your technology’s hooks in an organization’s fabric – a “control point” of sorts. Your technology has to have some aspect that will prevent customers from moving to the nearest competitor tomorrow. Salesforce and LinkedIn sell dozens of products based on their control of customer data, which can be aggregated and, importantly, monetized, because they reveal important trends in business. Yammer’s control point was its community of thousands of people in an organization, which made it difficult to replace, though ultimately, it could not capitalize on that proposition alone.
This sounds more sinister than need be- Instead, I would write “Establish a position of persistent value.” Deliver persistent value and Enterprise customers won’t want to swap you out. Ever. You don’t want to become a tax. And first to market is often not the winner- Microsoft grew their business by building arguably the best, not the first products- a fast-follower strategy. The famous expression the first pioneer up the hill is the one with the arrows in their back is never truer:
|Innovator||First to develop or patent an idea|
|Product Pioneer||First to have a working model|
|First Mover||First to sell the product||47% failure rate|
|Fast Follower||Entered early but not first||8% failure rate|
Also, having competition validates the market, which is especially important in Enterprise Software.
However, I disagree about the Yammer comments. A $1.4bn exit does not strike me as a company that “could not capitalize on that proposition alone.” IMHO Microsoft’s acquisition cements Yammer’s position in the Cloud Social Software space, probably making it the de-facto choice for Microsoft shops worldwide.
And, finally, on Lean Startup- I’ve been a big proponent for many years of the test and data driven approach to solving unknown unknowns to create products people actually want to buy. To advocate against it flies against what is now conventional wisdom.
This model just won’t work in the B2B space. New products, especially those aimed at IT, must usually be sold. If you don’t have both the technology logic and the business logic of your product worked out, the founders and early investors are in for a rough ride.
That makes the assumption that you’re right about your assumptions, a belief system that surely has been debunked by the Lean Startup movement?
You need to design your value proposition and product in a way that enables you to iterate your way to success without alienating the Enterprise software buyer. No mean feat but an absolutely essential one, if you are to succeed in Enterprise Software. Start with the “-ilities” and focus on solving pain. My experience is that the buyer is delighted to be involved in a process that iterates to solving their problems.
Net-net, if you’re looking to sell to the Enterprise, you better start investing in some shoe leather. But think long and hard about how you can get software into users’ hands before IT to help IT buy. Ultimately, lowering your Customer Acquisition Costs is the holy grail and hallmark of a successful SaaS company. Nobody says it better than David Skok: Startup Killer: the Cost of Customer Acquisition.