For some reason when you are selling information technology, big companies are referred to as “enterprises.” I’m guessing the word was invented by a software vendor who was trying to justify a million-dollar price tag. As a rule of thumb, think of enterprise sales as products/services that cost $100K/year or more.
I am by no means an expert in enterprise sales. Personally, I vastly prefer marketing (one-to-many) versus sales (one-to-one), hence only start companies making consumer or small business products (advertising based or sub-$5000 price tags). But I have been involved in a few enterprise companies over the years. Here’s the main thing I’ve observed. Almost every enterprise startup I’ve seen has a product that would solve a problem their prospective customers have. But that isn’t the key question. The key question is whether it solves a problem that is one of the prospective customer’s top immediate priorities. Getting an enterprise to cough up $100K+ requires the “buy in” of many people, most of whom would prefer to maintain the status quo. Only if your product is a top priority can you get powerful “champions” to cut through the red tape.
My rule of thumb is that every enterprise (or large business unit within an enterprise) will, at best, buy 1-3 new enterprise products per year. You can have the greatest hardware/software in the world, but if you aren’t one of their top three priorities, you won’t be able to profitably sell to them.
One final note: enterprise-focused VC’s sometimes refer to products priced between (roughly) $5k and $100K as falling in the “valley of death.” Above $100K, you might be able to make a profit given the cost of sales. Below $5k you might be able to market your product, hence have a very low cost of sales. In between, you need to do sales but it’s hard to do it profitably. Your best bet is a “channel” strategy; however, for innovative new products that is often a lot like trying to push a string.
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Good post Chris…I run an enterprise sales company & most of this is pretty bang on. Selling in the $5K-$100K can often be an entry point for a larger enterprise solution play. The sales process is very complex and has many sponsors, stakeholders, gatekeepers and chequ signers….NONE of which can be ignored or the entire sale is in peril. From a marketing perspective you are correct…almost ALL enterprise solutions solve at least one business problem or they wouldn't exist. Aligning your solution (or probably better said TIMING your solution) with the top 3 pain points of a business then being able to validate that through strong references is key.
YOU MUST find a way to get references and have WOM selling. NEVER leave an enterprise customer until they are thrilled with you as they are the clearest path to your next sale.
Your success ALWAYS comes after your customers success, anything less is not sustainable.
Hey Paul, thanks. Was hoping experienced enterprise guys would chime in here. I should have noted that you can have a “valley of death” price point if think you can eventually upsell to the $100K+ price point.
Hi Chris
Yes to all that
The dynamics of pushing (string?) into large organizations is weird. If you don't go in at the top, you might be at some apparently high level but actually be 2, 3 or 4 levels below the final person who has to sign off on the deal. That means your internal champion has to move the deal upwards, which means you're at the mercy of unknowable internal politics – are you displacing another product or potential product? are you making someone else's earlier decision look bad? is someone higher feeling threatened by someone lower who's going to look like an innovator? is someone trying to prevent someone else from being promoted (or vice versa), etc.
As if that weren't enough, key people in large organizations get moved around and move to other companies, etc. So your entire network of support, carefully fostered over a long period of time, can disappear literally overnight.
On top of that, you've got a potentially VERY long path to revenue – especially if your product (e.g., software) is being integrated into another. Negotiation, planning, design, specification, testing, packaging, manuals, manufacture, distribution, sales, wait til the end of the quarter, wait for the reported sales numbers, wait to be paid. That can amount to a couple of years between initial interest and the time the money starts to flow. Plenty of time for a fragile startup to meanwhile run aground!
I could say more, but I know you get the picture. Traps for younger players, as one of my cricket coaches used to say
I attended a presentation recently where Joe Liemandt (Trilogy) made a pretty good case that the 'valley of death' actually goes all the way up to ~$250K if you've got a typical outside sales force – cost of sales is actually much higher than companies think when they factor in ALL the costs of the traditional enterprise sales model.
It's also an argument for an inside- (and, to the extent customers are willing) self-service sales model for lower priced products & services.
Good stuff…
the advent of SaaS has created an interesting kind of company that didn't really exist in the client/server days — sell an enterprise product but as if the buyers are consumers. The price point is low enough for individuals or workgroups to sign up without hitting budgeting politics and approvals… and when the Saas company sees a number of people signing up from the same organization, only then might they try to go in at the top with those proof points and try to sell a site license.
Nice post, and interesting concept re the “valley of death.”
I have a few years of enterprise sales experience, and definitely agree with what you are saying. There is another angle I'd like to add though.
If there is market precedent for your enterprise solution, where there is existing budget and customer resources dedicated to managing the solution, a new entrant can win business with superior innovation and/or cost advantage.
This doesn't have to be a top-3 priority area for a BigCo (although that certainly helps).
That's exactly right. Some very nice business models are built around grass-roots enterprise adoption. Basically, you get your client's employees to do your sales for you…
One thing I'd note is the relevance of organizational requirements.
If an organization has a requirement for a certain solution, and your product is a potential fit, it is important to understand the various criteria associated with that requirement, and message how your solution 'checks the check boxes' so to speak.
Where this can get interesting is when you may attempt to help an organization define and instantiate a new requirement for a solution set that your company may be able to deliver at the best value and most expeditiously.
Organizational requirements are a good way to use process to your advantage; by understanding corporate requirements you are directly grokking your customer's actual value system, which can be priceless in helping them meet their needs.
One point you left out is risk. I worked in technology for a large investment bank. When it came time to select a vendor, managers would normally gravitate towards older, established players. Few people wanted risk choosing a startup out of fear that they may not be able to execute / deliver or even be around in a few years.
The best way I saw startups getting around this was to name drop other enterprise clients (when possible). If they couldn't do this, they would try pricing the project based on the max amount a manager could approve without sign-offs from higher-ups.
You raise a key point regarding the low number of new “enterprise” products purchased by a large customer in a given year. So it's worth noting that rarely, if ever, does a technology company successfully sell their product alone to an enterprise; particularly smaller vendors. There will typically be a host of “influencers” involved in the buying decision, from boutique firms aiding with “vendor selection” to large systems integrators, selected separately, who will implement the technology and associated process and programs.
In short, know and know how to influence the influencers. Enterprise sales processes among the 1-3 per year you mention will almost certainly be part of a formal RFI, RFP and vendor selection process, so understanding the entire landscape is key.
These days the valley of death is a bit more complicated. It used to be that to get to the customer you had to have a traveling, relationship focused, field sales force. You needed enterprise account managers to build relationships, field sales engineers to handle complicated hardware & software installs, and when customers had problems you rallied the troops and flew everyone and their mother on-site to make sure the customer stayed happy. This is hard, and I would agree with Chris Selland that the valley of death, given those constraints, actually goes up to $250k–or even higher.
These days, however, there is an alternate route. SaaS deployments allow us to keep our field sales force at home and ease of demonstration allow for an emphasis on inside selling rather than top down big-bang relationship selling. The overall the cost of sale is dramatically reduced because customers can see value quickly–an enterprise software demo in 30 minutes!
I would think of something like this. A given “enterprise software” company's personalized valley of death will be a function of:
(1) the type of product they are selling: does it require a lot of back end integration, complicated personalized setup, deep understanding of the business, etc before a customer can realize value.
(2) product install and pricing scalability: can the product scale down so that it can grow from within: Atlassian is a great example of this. Their products are very much enterprise software, but they grow from within at the team & departmental level eventually being deployed as standardized solutions across the enterprise.
(3) culture and organizational design: going after the “enterprise” with an “un-enterprise” model like this requires an organizational design that fits with the goals. You have to hire a sales team that is consistent with the selling and pricing strategy. You have to build a support team that understands how to support large demanding customers without just throwing people & money at problems. And, most important, you have to build a product that enables both of these things to happen.
It is possible to sell to the enterprise but have a much smaller valley of death, but not if you go-to-market with the traditional enterprise model.
I saw a presentation by David Heinemeier Hansson a while back, who made a great point about enterprise sales.
If a $100,000-client has a problem, you better pick up the phone. If a $100-client has a problem, you can get back to him after you're done surfing.
To your point, Chris, this is why at VMware, it was always such a big deal when Goldman Sachs would come out with their CIO Report signifying what the top technology investments CIOs were making for the next year, and what the gainers and losers were, and Virtualization would be a top priority AND VMware was signified as a top gainer.
So, first, your problem has to be up there (Server Virtualization? Desktop Virtualization? Storage Virtualization? WAN Acceleration?) and THEN you as a vendor have to be in the consideration set (in the correct quadrant of Gartner's Magic – upper right…).
Good deck here: http://www.scribd.com/doc/7737986/Goldman-Sachs...
Another important factor for selling to enterprises: you MUST know the fiscal year and the buying cycle of your target customer. You can't expect to make a sale or even get a meeting if it doesn't align with your customer's budgeting and buying process. You might get lucky and have a customer with the flexibility to make out-of-cycle budget decisions, but it's more likely that your customer spends a year planning such purchases, works out a budget, and then signs the purchase order. To make it even more tricky, these practices vary by country and by industry. This is why it's important to have a channel or a salesman who knows your target industry extremely well.
People talk about network effects in consumer web, but there are network effects in enterprise marketing land too, even if as low-tech as each incremental customer is a customer that, if happy, can be fully leveraged to drive closure of further customers.
VMware had a fully staffed customer reference team who were essentially post-sales relationships managers, and spent all their time making love connections between excited existing customers, and prospects.
This extended to pretty much all marketing events and programs, such that VMworld would pretty much always consist of showcasing customer success at every juncture. The IT personnel who were the internal champions of these sales (if perhaps not the check signer or business owner) loved it, because it made them heros (which was great, because this jibed with the software, which made their lives suck less).
No way the Valley of Death should go that high and if it does shame on us.
Discipline in the sales process means that you qualify opportunities and you do it thoroughly. The reason any of us qualify is so that we can align the resources($$$ and people…both of which are limited) in opportunities where the prospect of closing business is REAL. One of the things we do to 'manage' the Valley of Death' is we have a fairly well but not rigidly defined sales process that has resources to be applied at different stages and very specific EXIT criteria. For example:
You don't get to an on-site sales rep+demo guy meeting until you have established WHO your sponsor is, what the buying process is, is there budget, what is the buying timeline, what specifically is the business problem and how specifically do we solve it, who is in the audience you want to go onsite for, have you got to a C level, have you talked to IT or are they going to be there, etc etc.
The point is that you CAN sell POC's, you can sell some services, you can sell a module, you can engage in the valley so that it is not all give and cost (and you show your expertise and build trust) and the VP Sales, CEO whatever need to manage the business such that $250K is not being invested in a sales cycle
Great point to remember Mark….You are engaging in a BUYING cycle NOT a SALES cycle….don't confuse the two!
Love the analogy at the end.
I think of that one when trying to convince others to reach the same decision as I come to. Everyone has an entirely different “database” so bringing them to a congruious conclusion based on relevant data feels like trying to push a wet noodle (where I originally heard it).
As to enterprises and related sales. That business is likely under some heavy transformation as individual emloyees find more freedom in choosing their own solutions, and free data exchange becomes a real option. Except for IP or other security reasons, why not switch your business email or office docs to Google which is far cheaper than microsoft? Why not use Octave or Scilab instead of the costly Matlab?
I wouldn't enter enterprise, I don't think it's a good place to be.
Excellent inside comment. Do you see any major shifts in the enterprise market, and in particular in your business sector?
I'm wondering if media's disruption will have any after shocks through enterprise solutions (aka bigger isn't always better).
Great post and comments on this subject. I would add: I have sold products from $500K down to ~$1000 and found the lower cost items are not always a slam dunk. Sure you don't have a “team” that makes a decision, but you still have to be a “priority” with a good value proposition for that one person to pull the trigger on his/her $1000.
Hmm. Valley of Death. This is very useful information…
now aren't you glad you paid the cdixon.org subscription fee?
Excellent observations Chris and Paul (and others). For those with $MM products/services, the valley also represents a fertile opportunity to grow credibility, rapport and reciprocity of action through consultative assessments and other intermediate value-creating activities (that clients will pay for). As the old saw notes, how we sell is an indication of how we solve, and enabling a client to experience this in incremental steps and prior to facing a $MM decision goes a long way towards accomplishing effective discovery and achieving client goals.
Sounds like a line straight out of Crossing the Chasm. Good to know.
Joe Liemandt is the man. Stanford has a podcast of him telling their founding story that is just f'ing amazing: http://itunes.apple.com/WebObjects/MZStore.woa/...
Yes, I think this is especially important for startups selling to especially “risk averse” / highly regulated customers (e.g. financial firms) and/or selling “mission critical” products. If your sales tool goes down for an hour its painful, but if your backups fail it could kill you.
Great points. Do you guys have any examples of companies that are doing this well?
I agree, but the exception is if you're the golden child (VMware) or if you're the one with the disruptive solution. I think the enterprise is fertile territory if you're coming in to displace a product that costs 5X or more what yours does.
Hey Chris- Good post as always. At DocVerse we actually pursued both, SMB (directly) and enterprise (indirectly).
This is much more involved topic, but here's a few thoughts to mull over.
* I think the world of $5K – 100K is changing as “department level” solutions become more common. Many “enterprise” products are now being deployed within departments 10, 20, 50 people at a time, even though it's inside a large company. This can be very simply a direct model (the same way you would pursue the SMB market). In fact, I think SMB and department level solutions have more in common than not. Your product may still only make sense for “enterprises”, but the key thing here is to address a need that the “enterprise” has created a department for.
* In our world, collaboration is an interesting example of a horizontal product that can be adopted at the department level as well as the enterprise level. Email used to be this way before it became business critical.
* Shareholder.com or Workday.com or Salesforce.com are great examples of department level solutions that I would still classify as “Enterprise” products (but are adopted by SMB all the same).
* Department level solutions do expand to site wide deployments, but still require all of the complexity of the big elephant sale you describe above. But multiple department level sales help get that buy-in you are describing.
* If anything, I believe a new trend in “enterprise” software is emerging and will grow stronger over the next 5 – 10 years where by much software is adopted by the “employee” first and then pushed to IT, rather than the other way around, which has been the status quo for the last decade.
* I absolutely believe that for startup companies trying to sell to enterprises, a channel is necessary. Almost every successful mid-stage enterprise startup company (defined as $30 – 100M) had some channel. Even our channel partners started out with the same strategy before they built out their direct sales force (which is costly, expensive and requires hiring people that are very difficult to qualify).
- Shan
I would say there are too many to list. The most common technique is to monitor emails from the same domain. When the number of users exceeds a certain percentage threshold of a company's employees, a salesman offers a premium (if free) or discounted (if paid) package for the service.
Email on the Blackberry is a classic example.
This also underscores how important it is to really understand your customer's business and buying processes when you're making your plan – if you don't understand how your customers buy, and what things are indications of the sales process moving forward, and how much it's going to cost you to make sales, you're going to be in for a series of nasty shocks as you discover that everything takes more time than you'd budgeted for.
This is part of why it's so valuable to have actually made a couple of sales early on, before getting into seriously pursuing funding – If you've made a few sales already, the question you're asking is 'is the sales process we've already gone through typical? Do we know how to compress it?' rather than asking the question 'will anyone buy this product at all? How do we sell it?'
Depending on channel sales is tricky, because you generally can't sell through a channel effectively until you know how to sell your product sufficiently well that you can teach your channel how to do it on your behalf. I don't know how many times I've heard someone say 'and then we'll use our channel to reach the customers that we can't, and that will grow our sales to make up for the lack of success of our inside sales team,' and that always ends in tears.
Selling hard-core software and hardware priced b/t 5K and 100K may be a valley of death, but there are plenty of successful companies who have sold tech-enabled or web-based products b/t 5K and 100K to the enterprise. Corporate Executive Board, Google AdWords for Enterprises, Salesforce.com seat-based licenses, Bloomberg terminals, etc.
What gums up the enterprise sale is the multi-stakeholder decision-making process, which is why core software and hardware for the enterprise is such a sticky sale (sell the business user AND the skeptical laggard IT Buyer).
If your product can be fashioned cleanly for a pure business customer (i.e. the head of corporate development or the corp dev team or the sales VP) and the web is simply the medium through which the users consume the products/services, you can take the 1-year enterprise sales cycle and collapse it.
Peter – That's a really good point. A related point would be that it's probably easier selling top line products (increase revenue) than bottom line (reduce costs). I think that for example there is an interesting opportunity in info security to start selling top line products for perhaps the first time (e.g. services that make people more likely to spend money online).
Having either started (Mi5 Networks) or been the first VP of Marketing/Product (Epiphany, Vontu) in 3 enterprise startups, I concur on the Top 3 priority/pricing rule of thumb.
I would add that another way in is to take from an existing subscription/project budget. At Epiphany, we took dollars away from big consulting firms (e.g. KPMG) doing long data warehouse projects. At Vontu, we were a new project, but were able to tap into compliance budgets. And at Mi5, we were able to tap into their Websense/SurfControl renewal budgets, giving them more capabilities for their dollar.
a great example of a company that does its sales primarily to employees but then goes for “enterprise-wide adoption” afterwards is Rally Software.
At a firm I worked, my team started using their free trial (10 employees or fewer) without any corporate buy-in. After we outgrew the trial, the employees who started it on my team had to justify the tool's cost based on our experience with the 10-person trial.
I have personal experience that you're exactly right. For some reason, products that can add 10% to revenues get 2X or 3X the notice over products that can cut costs 15%.
Also, its easier to sell aspirin that it is to sell vitamins
of course this kind of company existed before SaaS: beginning in 1996, WebLogic, Inc. (pre-BEA) sold at the developer/project level and moved up the food chain till we got 7-figure deals. Some people even bought our products on their person credit cards.
And the best source of leads was not the sign-ups, but support email. people would download the 30-day trial off our website, then asking questions on the support list. Based on the questions, we knew who was using and who was not.
I've sold enterprise products, above, below and inside the “valley of death”, and I'd say you're absolutely right.
I would add a couple things:
- in my experience, what is a “top priority” is not what you would think out of hand; this is where a great salesperson is a tremendous advantage; unlike what many people think, sales aren't about pitching, they're about *listening*; what makes a great salesman isn't delivering a great pitch, it's *identifying the other person's needs*; selling an enterprise product is therefore all about finding these opportunities.
- outside of being a “top priority”, there's another class of enterprise product that sells: products that directly add to the top line or the bottom line; of course everyone packages their product as saving money or making money, but if you can make a credible case that your product does so directly, you're 90% of the way there. Of course such products are rare.
Another saying (in reference to competition) is: “buy for parity, build for advantage.”
But I would argue that many enterprise customers will buy from a startup for advantage, because they know their competitors are buying older, often last generation, products.
You'll find many enterprise companies have a fiscal year that ends 31-January, just to put them out of sync with their customers.
It's true, but margin is margin. I always like adding sales volume, but if I can cut costs and increase my advantage over competitors, I can invest in more salespeople to add sales volume.
Vitamins don't sell as well because the absence of getting sick is difficult to detect.
Having done a LOT of enterprise work, the Valley of Death is a VC-specific perspective. Paul, Louis, et al, do a nice job of addressing how the valley is shrinking with SaaS and modern sales management, but that's only half the issue.
You can easily be breakeven at almost anywhere along at price scale — and always could — unless you are also trying to grow rapidly enough to create VC-scale returns. If you take institutional funding and have too low a price point, you become VC living dead. And that's their worst scenario.
The problem with selling bottom line products is that you have to build a compelling ROI justification, and in enterprise IT, that justification is almost always HEAVILY based on soft costs (OPEX). These are the costs that are hardest to quantify and usually the ones that are most controversial/political from a customer perspective-because often they are tied to labor costs.
Someone mentioned VMware before as a great example of network effects within enterprise sales models, but I actually think they are an even better example (full disclosure: I worked there from 2003-2006 so I am a bit of a fan boy) of what kind of bottom line products sell. VMware's ROI business case was a slam dunk-buy our stuff and you can massively reduce your IT CAPEX over the next several years. OPEX reduction was just the gravy on top, and even if the customer thought the OPEX numbers were inaccurate, the CAPEX savings was so clearcut that it didn't matter.
Saw the same preso (were you at the HCP sales 2.0 conference?) from Joe L. as well. They have an interesting business model at Trilogy, and there are plenty of walking dead software companies out there to make it work. BTW I think (maybe I misheard) that he had said the valley actually went up all the way to $1MM.
Re: your comment on inside sales, clearly you can get some great efficiencies if you can build that kind of machine. However I would also add that products that will sell well as inside sales need to be designed for that kind of sales model. In other words, if you are selling a behemoth enterprise software package that crosses multiple IT siloes and takes $400k of consulting to implement, it will be very tough to sell via inside sales only. However, take an easily downloadable software tool that has a quick time to value, with a low pricepoint, and maybe you have a good fit.
If you want to take this from SMB -> SME -> Enterprise -> Carrier you simply add another 0 on the end of whatever number you have in mind. The 0 stratifies to a subset of telecommunications providers or the core infrastructure teams (horizontal) within the largest of Enterprise segments.
That said, in a Carrier grade/space solution you'll want to avoid ever referencing the Enterprise space in anything other than the toehold against how you set up your pricing model.
Happens often in the quick-service (e.g., McDonalds, Wendy's, etc.) point-of-sale. There will be a number of corporate stores and a number of franchise owned stores. Corp starts evaluating solutions which is often a long (1+ year) process because there are many people involved in the buying decision. In the meantime, the leaner franchise groups pick a solution and deploys it. If they're happy they tell other franchises and they deploy. Eventually corp decides to standardize on the solution because it works well in production for the franchises…it's a proven product.
The VAR channel is a nice way to handle the 'small deal' / valley of death issue as well, particularly if the sale is of an enterprise product that usually requires some level of customization or configuration. The VARs will take these small deals all day and will be able to make a nice business out of it whereas it might not be profitable for the vendor.
As David said, tons of examples. I hear this is working very effectively for google as they try to push adoption of Apps. Yammer is another interesting example (I happen to think it's a great tool for distributed startups)
Yes, that was the presentation – it wasn't an apples-to-apples comparison because Joe was primarily talking about reviving unprofitable enterprise software companies (specifically the ones Trilogy had acquired) and he didn't specifically reference 'the Valley'. However the fundamental point was that a deal <$250K sold via traditional outside sales was unprofitable. If I recall, $1M potential was his threshold for dedicating a team to a deal.
And yes, the product certainly needs to fit the sales model – but if it doesn't then either the selling model needs to change, or the product does. giffc makes a good point above about the SaaS model playing a big role in that change.
great comment bob — I had been thinking about the SAP/i2/Siebel/Trilogy world of bigger applications installed in the data center. I liked your note about support emails, and totally agree that you need to prevent sales conflicts. I do think that taking this kind of strategy has become MUCH easier in the era of SaaS and LAMP, and many enterprises are finally getting over fears here.
Yeah. Joel Spolsky wrote about this stuff in his essay on pricing: http://www.joelonsoftware.com/articles/Camelsan... :
In other words, there's a natural price delta between end-user software and “enterprise,” or whatever you want to call it, software. People seem to keep rediscovering this over and over again.
One way that my current company (an enterprise play) has made some headway is by using services bundled with products. It helps as you mature the products, a good service team not only provides value (and puts your price out of the “dead zone” if it wasn't already), it also helps to smooth the rapid rate at which startups tend to need to release new software. The services team can increase usability in the face of a lack of proper training and user documentation that sometimes accompanies new products.
Not big enough to support a services arm or don't want to? Find a good services company to become a channel partner.
You have to be a little careful though. If a product has too low of an entry point, you won't have the right executive sponsorship. The model's fine for a tool like SalesForce that one salesman can pick up make use of and spread. However, it's not as good for a piece of monitoring software that isn't effective until most of the servers in the environment are using it.
I know that's an old saying, but in reality aren't vitamins a bigger & better business than OTC pain killers?
I agree with the valley of death from my experience.
http://codemonkeyism.com/6-reasons-why-my-vc-fu...
We tried to sell enterprise software, our main problem was missing sales (duh!) and the very long sales time of several months. Companies do not buy enterprise software with a decision time of a week.
Cheers
Stephan
Great that you posted on this. It's not fashionable or hip to talk about the enterprise market but its still a huge one.
My 1st startup was in this market. It was a tough go for many of the reasons you mentioned (in fact 10 years later they are still trying to make a go of it).
Building a direct sales team is expensive. And very hit or miss.
I now work almost exclusively with web services companies. And for the ones targeting business users, we use a back door or “maverick” sales approach. We let individual users who want new stuff to bring us in. When we have enough individual users in one company or department we can then approach (or get approached by the controller) about volume pricing.
Yeah. I'm not really rediscovering it. It's an old adage in the business. (And Spolsky is very smart – I've linked to his posts many times) Just the first time I've blogged about enterprise.
Good post. I think Gartner came up with the term 'Enterprise' in 1990:
http://en.wikipedia.org/wiki/Enterprise_resourc...
In my career, I first heard it applied to ERP software, then gradually it came to be applied to any software of that scale.
i was being a bit irreverent/snary but interesting to know actual origins.
I'm a language geek
[...] Selling to enterprises cdixon.org – chris dixon's blog (tags: sales enterprise startups) [...]
I am a big fan of Marc Andreessen's “Moby Dick theory of big companies”
http://pmarca-archive.posterous.com/the-pmarca-...
(and a big fan of Chris too!)
In my dealings with enterprise software services, our companies had much better success avoiding IT until absolutely necessary. It was critical to build up operating level support for the product and *then* go to IT. If you started with IT, you hit the black tar pits, wasted time and money struggling to get out.
I certainly have a lot of respect for the people commenting in the article, but having done start-up sales to enterprises for 20 years, I cringe when I hear people equate enterprise sales to $100k and above. Actually, it is the well-held beliefs in this article that I sell around, and why I've managed to get a lot of enterprise sales for small companies. I say this not to toot my own horn, but to crush the beliefs held that stop great products from being sold into the right places. Great salespeople can make anything happen, and I've worked with a lot of great ones.
First, corporations buy significantly more than 1-3 new enterprise products in a year, and there is plenty of room to sell your solution into that. What do you need to do? You need to find the pockets of budget and justification in order to get your solution in. Then, you need to include an upsell path to get that project in a larger way. That may be the user adoption method that is descriped in some of the comments, but there are many, many other ways to do it. I recently wrote a post touching on this: http://www.quotacrush.com/index.php/2009/12/10/...
Second, Your product does NOT… I repeat NOT… need to be on their priority list to be considered. In fact, when you go after the RFP, committee decision projects, you will more often face death (as Chris alludes to). Find the off the path solutions that you fix, and there will be budget and there will be an easier decision path.
Third, it is absolute fiction to believe that unless your product is a six figure product, you can't do direct sales/enterprise sales profitably. I've, over and over again, done the successful route with a moderately priced product. The comp plan needs to be designed correctly, the travel considered, and all the other costs brought into play, but when you consider a software product, built for easy customization and integration (or requires no integration), that requires little on-site selling, there is no reason that it can't sell for less than $100,000 and be profitable for the company. And, if you can sell on volume (and combine with some channel/biz dev deals as Chris alludes to), it certainly can be done. I'm not saying this is easy… but give me a “valley of death / push a string” challenge any day because at that price point, its an easier sell into corporations, and, as evidenced by the comments in this post, a lot of people run away from.
[...] From cdixon.org [...]
Great post. Another useful “rule of thumb” metric is that 90+% of the IT budget is used to pay for “keeping the lights on” (keeping existing stuff running/maintained/etc) and 10% is for “new projects.” This is where the “3 purchases” derives from.
The word enterprise, to my knowledge, was an IBM creation in the late 1970s / early 1980s design to include both “corporations” and “government.” Mystery resolved.
I'm not sure it's the price point that defines the “valley of death,” but the scalability of the sale.
I've seen companies get traction in enterprises by selling (or giving away) a few seats. Then a few months later, they sell ten thousand seats at $50 each to the same customer with little incremental effort. The key thing was that it *made sense* for the enterprise to buy a few seats and try things out; the application worked in that mode just fine. Then it was easy to just sell more seats for a slightly discounted price.
This is just one pattern that can work.
Adwords is one more positive example. It's easy/cheap to try. And it's easy to scale up the spend as ROI is proven. The model scales up nicely. This is great for a new, unproven product type.
There are anti-patterns too:
There isn't a clear path to scale small initial sales up to larger revenue figures, but the effort to sell is high and you have a new kind of product that is unproven. Each sale is a loss, and you get clobbered with support costs to make the customer happy and prove success.
I imagine that CRM sales were a bitch when CRM was a new product.: Everyone in an org. has to buy in and it's hard to try things out on a small scale. Now that this is an established category with “must have” status in large organizations, things are more tolerable.
SaaS is interesting, and often good at breaking the departments down or as sf.com like to call it – “land & expand” Once you have enough departments, say 3 – with 2 or more in the pipeline, you can talk to the enterprise upsell or longer term commitment.
I also find that the SaaS approach is good at eliminating some of the buy in you may need from busy or non supportive stakeholders – however proceed with caution, rogue departments rarely win, you may get a short term win, but it may not support yo in the long term unless you can build momentum in other departments.
I think its also important to note “nice to have” versus “need to have solutions”. Is this something you could do with out our something that will stop us doing business – ie compliance solutions or Payment processing. If your company cant do without these, then price point is less relevant (you still don't want an enterprise sales person selling 5k solutions). An example in the UK right now is PCI Compliance – Payment Card processing for regulated businesses. If you are not PCI compliant, then the banks can withdraw your capability to accept payments. This is a big problem for Contact Centres and many other environments.
I would agree with this – $500k to a large company is often easier to secure than $5,000 from a small company.
Depending on the solution, the sales cycle is often the same length – if you are investing months in securing new logos, the focus points should be clear – again, depending on your objectives – if early on, you need to build your reference base out quickly.
I'll then dis-agree with myself straight away! and refer back to my previous point – re Sf.com and rightnow, both landing and expanding successfully..
Interesting post & comments, thank you. I would love to hear your thoughts on developing a channel strategy. So often partnerships look great on paper and deliver very little. I realise there are so many variables, however, what are the top few things which you would try to get right to give a partnership the best chance of delivering sales?
[...] post the other day about selling new software products to “enterprises”. The big boys. Here is the link. He makes several good points. If your firm is going to invest heavily in developing these kinds of [...]
Or … reduce cost of sales. Now, a few precentages won't make a difference, you will have to rethink how you sell completely. I like the concepts around sales 2.0 (even if I am not so fond of the name itself). Patrik von Bergen concluded the main points in a few slides here: http://tinyurl.com/yd3y282
Another couple of truisms from the Trilogy world:
1. if your product requires culture change, the price has to be high enough that important people lose their jobs if it fails. You want heads to roll and not just your own software.
2. you'd rather have a small number of very profitable deals at very high price points for exactly the reason @cdixon mentioned: companies only buy their top 2-3 priorities each year – when you find yourself being in the top 3 for a company, you want to capture as much revenue as possible. The higher margins allow you to reinvest in your product.
3. you have to tackle something difficult and valuable (both) to defend your price-point. Its easy to find difficult problems with no value, and its easy to find valuable problems with lots of solutions or lack of difficulty.
@ mark i larosa & david (one day ago)
Yep, that's been my experience. It really is rubbish to talk about an enterprise 'valley of death' and that a product/service has to be priced in the six figures to get going.
Btw, my understanding was that the word “enterprise” had evolved to include any organization – for-profit, non-profit, government, startup to smb to large corporations. Could be wrong!
Great post Chris. One thing about the “valley of death” is that since SAAS model evolved it allowed companies to effectively sell (mostly by phone) products in the range of $5K-$100K and justify the cost of sales mainly due to the recurring nature of the revenue in SAAS. For example – you can buy 10 salesforce licenses at less than $10K (annualy) but the sell is still being done on the phone mostly.
You can read my take on channels –
http://www.yanivnizan.com/2009/08/referrals-res...
One of the best examples of this is SolarWinds, whose network management software included a free version that has received this type of grass-roots adoption in the enterprise, and has in turn driven enough business to yield a $1.3 B market cap. Not bad for a company whose revenues were only in the $30-40 M range just a few years ago. Having client employees doing the sales for you shows up in the economics as well; I think you'll have trouble finding another SAAS company with 50% EBITDA margins on only ~$120 M revenues. A truly remarkable success story.
Great post Chris. One thing about the “valley of death” is that since SAAS model evolved it allowed companies to effectively sell (mostly by phone) products in the range of $5K-$100K and justify the cost of sales mainly due to the recurring nature of the revenue in SAAS. For example – you can buy 10 salesforce licenses at less than $10K (annualy) but the sell is still being done on the phone mostly.
You can read my take on channels –
http://www.yanivnizan.com/2009/08/referrals-res...
Great point in your post. No matter how great the ROI on your product, how important is this relevant to other priorities in the prospect's business? This is often the real “competition” – other initiatives that are more important than yours.
Absolutely agree. People will happily spend money to make make. I have found that sales leaders are the BEST possible prospects. They are always looking for an edge, can sell it to get approved and can always fall back on the “I need it to hit my numbers” argument.
One of my mentors always asks “is it a ceo level problem?” i.e. are you solving something that the CEO of an enterprise is thinking about on a regular basis? If it is, then you have a chance of being one of the 1-3 solutions they buy that year.
It's a surprisingly simple, yet very accurate test for the potential of any enterprise software.
Good test. What's the best way to figure out what is CEO level (besides asking CEOs)?