VentureBeat ran an interesting article today about how startups are learning that the “Dropbox Effect” is a myth. That is, corporate IT departments will not adopt a consumer-driven solution just because users like it. There are too many issues around security and support for CIOs to be swayed by consumer products, no matter how sexy they are.
In this article, CEOs from very hot Silicon Valley startups are talking about the need to add executives with enterprise experience, from established companies like IBM and EMC. My question is whether, if going after the enterprise requires traditional enterprise approaches — security, support, sales & marketing — does that mean that we’ll see a move away from the 25 year old entrepreneurs who are currently the rage in Silicon Valley? I don’t know; part of the reason young folks can make good entrepreneurs is that they are willing to break the product mold, and that can be just as valuable in the enterprise as in the consumer market. But as the VentureBeat article points out, and as our QWERTY keyboards remind us on a daily basis, the best products don’t always win. If the way to sign enterprise customers is to have an enterprise-ready organization, maybe entrepreneurs will need to have enterprise experience.
I went to a very interesting panel discussion last week on cloud computing, in particular on go-to-market and sales strategies for cloud and SaaS (two terms that I will use interchangeably in this post) companies. The panel taught me about how cloud company executives view their business, but mostly it reminded me that most businesses are pretty similar: they hinge on cost-effective ways to bring in paying customers. No matter how high-tech your product is, you need to reach potential customers and then turn them into actual customers.
Listed below are some of the key lessons from the panel, split into the few that are cloud specific, and the rest, which could generally apply just as easily to a ball bearing manufacturer.
- The product has to work. Since lots of cloud businesses are spread via word of mouth, the application needs to work early. Compare this to selling big software packages to enterprises, where bugs and customization are expected
- Customers that might use a cloud product probably want to try it online, rather than get a visit from a rep. This is because they are, by definition, tech savvy. But of course you should adjust this for geography and age
- SaaS products tend to have lots of upsell opportunities. So just get customers in the door, even with a small initial usage. This is why freemium works so well in this space. Note: this is really hard for traditional enterprise sales guys to adjust to. They always want to work for the giant sale
- As a consequence of the above: don’t charge by the seat. That sets up barriers to increased usage. Let everyone use it, but charge by feature
- Silicon Valley is developing camps: HP v. Cisco v. Oracle. Be aware, because this means that sometimes your backend technology choices might influence who you can partner with
Points that apply to all businesses
- Your distribution channel must match your customers. E.g. Big companies like P&G are unlikely to buy via self-service model
- Find a keystone/reference customer, especially one who can lead to other target customers. E.g. Accountants led Quickbooks to small business customers
- SMB is a bad term. A 15 person company is totally different than a $500M company
- Look at who is using your product, then target more of them. E.g. If you see that 3 ski resorts are using your product, then plan a marketing campaign targeting ski resorts. This is generally true in business, but it’s easier with online products where you can see who the end user is
- Understand your business model: Cost to get someone in the door. Cost to get them to become a customer. Conversion rate. Revenue per customer. Margin. Productivity per sales rep. Online businesses have more data, so it should be easier to do this. But still, this is basic business knowledge. Revenue per customer needs to be greater than cost per customer. Revenue per sales rep needs to exceed compensation per sales rep
- Don’t throw your venture money at the market by hiring too many sales reps too early. Develop your sales force as your model develops. Reps will always try to game the system, and the better you understand your model, the less they can game it
- A better product makes for an easier sale. Duh! This is true everywhere. But here is an interesting, tech only metric that was postulated: aim for an a-ha moment within 10 clicks
Hat tips to all the people involved:
- Chad Lynch, who put together the panel as part of the Total Access educational program at the law firm Orrick
- Greg Heibel, a partner at Orrick, who moderated the panel