One of the challenges for SaaS company leaders is deciding when and how to move upmarket – graduating from small/medium businesses (SMBs) to enterprises.
The attraction of moving upmarket is clear: greater revenues, longer contracts, more prestigious logos, and more valuable customer feedback. Another advantage is a more stable customer base, which translates into greater profitability. Best-in-class customer retention in the enterprise is 95 percent, while in SMB it’s 85 percent. That 10 percent difference can greatly impact your ability to grow profitably. At the same time, dealing with enterprises has plenty of challenges, including longer sales cycles, more stringent contract terms, and heavier support requirements.
Over the past 15 years, I have worked for, or been an investor in, nearly two dozen SaaS companies. In that time, I have seen varying degrees of success (as well as failure) in moving upmarket. Based on that experience, I offer these five lessons.
1. Face it: you’ve got an uphill climb ahead
My friend and former colleague Julie Iskow is a pioneer and highly respected leader in the SaaS field. She’s helped companies penetrate enterprise markets and scale revenues from the tens of millions into the hundreds of millions. She knows what it takes to succeed – and is frank about the scope of the challenge:
“These enterprise customers can be brutal. They’re demanding. They use your products like they’ve never been used before; they go to the boundaries. They have unique processes and workflows. They challenge you. But they also inspire you and make you better.”
A key piece of advice from Julie is to make moving upmarket a total company-wide effort. “Going into the enterprise is a team sport. This is not about building a product and getting your sales team to close enterprise deals. Everyone in the company needs to know where you’re going and what it will require. You’ve got to talk about it all the time.”
2. A charter customer is more valuable than gold
One of the most valuable resources a startup can have is a “charter customer” who believes in you so deeply that they’re willing to help you refine your product. “You want to get their input, understand their workflows, and understand how they’re going to use it,” Julie says. “In addition, you want to understand what they need from you and your solutions. Give them easy access to testing environments. Let them see your roadmap. Even better, let them contribute to your roadmap.”
A charter customer often is a thought leader in their industry, recognized for applying innovative technology solutions to business challenges. They appear at conferences and in trade press articles and analyst reports. They pride themselves on their expertise and vision. Collaborating with one or two customers like this can mark an inflection point in your company’s growth trajectory.
Legion, one of my portfolio companies, started down-market as an HR platform for hourly workers and noticed a land grab in the enterprise as customers were moving off legacy on-premises solutions. Seizing that opportunity paved the way for them in the enterprise and helped land some charter customers like Dollar General and Rite Aid.
3. Don’t waste your time customizing products … yet
Let’s not mince words; enterprise customers are demanding and difficult to please. If most of them had their way, every product would be custom-built to their unique specifications. That’s why many enterprises build their own data centers and applications — although fewer do so these days thanks to cloud computing and SaaS. However, young SaaS companies must resist the temptation to customize their products to attract enterprise customers. The time and resources you put into tailoring a solution for a single customer will seldom generate a positive return. Provus, a portfolio company that offers QTC solutions for enterprise and professional-services companies makes sure to ask their customers why they need certain functionality three times. Organizations aren’t snowflakes, but once you have a customer base and a reputation, then you can offer customized solutions for a price that reflects the value you deliver. But that’s down the road.
If there are gaps in your product offering, you must identify what’s table stakes and what’s aspirational. Once you’ve determined this, focus on delivering table stakes. Over time, your offerings will grow, which is why a product and technology roadmap is so critical. Your enterprise customers want to know they can grow with you over time. That’s why positioning your product offering as a platform can be an effective way to communicate long-term growth in capabilities and value.
One more tip: don’t avoid the CIO, you won’t get that far. Each enterprise is complex and you need to understand the nuance. Salesforce used to avoid IT and then evolved to include their own CIO in sales engagements 50 percent of the time.
4. Treat your customers like family
It’s seven times easier to sell to an existing customer than to find a new one, according to Forbes. Propel, one of my portfolio companies, does a great job at landing in a department or geography and expanding from there.
So, work hard to build long-lasting relationships that not only produce greater sales but enhance your reputation through word-of-mouth and references.
Here are three techniques I highly recommend:
- Form a customer advisory board to formalize the process of obtaining feedback and suggestions, sharing your roadmap, and evangelizing your vision. Often the best product doesn’t win, but the best distribution does. Spiff, a commission management software, does a great job of leveraging their ecosystem such as their board and partners such as Salesforce. Failing to do so could cost you, just look at Bic and Harley Davidson as examples. Bic made a pencil just for women (I know, right) and Harley made a cologne that flopped. If they’d engaged their customer advisory boards, they might have avoided those product flops.
- Assign each of your top executives up to 20 customers who will have their direct phone number. For goodness’ sake, don’t make a senior-level enterprise customer use an 800 number! Enable, another portfolio company, said it perfectly when they told me, “talk to large customers twice a week for the first year so that you’re proactive, not reactive. Your end goal is not implementation, it’s adoption.”
- Help build your customers into thought leaders. Publish case studies about their use of your product. Give them prominent speaking opportunities at your user conferences. Share the podium with them at trade show presentations. Distribute their references to market analysts. Workato, an enterprise automation platform, was the first startup in 20 years to debut as a leader in the Gartner Magic Quadrant as a result of sending their top 20 customer references to Gartner. Even today, they keep the steady drumbeat alive with customer references.
5. Get a Firm Grasp on How Enterprises Work
Enterprise customers aren’t just bigger than SMBs; they operate very differently. You need to understand those differences and be prepared to accommodate them.
For example, enterprises have plenty of resources and experience in negotiating contracts. You’ll need your own team of finance, contract, and legal professionals. And enterprises tend to have more stringent requirements for security, data privacy, availability, and promised mean time to repair (MTTR) in case of failures.
Multinational enterprises will need localization and support. And configurability is also highly desired (not to be confused with customization as discussed above).
None of what I’ve said here implies that targeting SMBs isn’t a valid strategy. After all, there are vastly more SMBs than there are enterprises. And the customer-acquisition and support costs can be lower.
But the potential rewards of moving upmarket are huge: higher revenues, lower churn, longer contracts, greater customer involvement, and enhanced reputation. Is it going to be hard? Absolutely. But the adage “no pain, no gain” certainly applies.
Want more tips for moving upmarket? Watch mine and Julie’s SaaStr session that covers this very topic.