Are you going to market with an enterprise app that promises to improve revenue, reduce cost or improve control? Often, these products propose to accomplish success by changing the way work is done in the enterprise.
There are many enterprise SaaS market entry attempts starting with a low price (<$25K ARR) and the expectation that the customer will love the app so much that it will expand to enterprise-wide deployment. The approach is to encourage viral expansion. Free trials, web sales and freemium models pervade.
When the enterprise expansion does not meet expectations, the response may be to bring in an experienced team for enterprise sales, marketing and support. The investment required to do this is often well north of $100M. Successful examples include Zuora, Box, Marketo, Yammer, and salesforce.com. This process is endorsed by the VC funds pumping money into the space.
The issue here is the probability of success with a low end offering when there is the requirement that work flow in the enterprise be changed. Changing work flow requires the endorsement of an executive who has the authority and political power to change how work is done. Top level executives, who have the power to change how work is done, do not spend their time on small (priced) problems. They delegate decisions these to those in the departmental ranks. Lower level managers rarely have the political power or authority to change enterprise work flow. So there is a dilemma. When your price point is low (and there is an implication that your value is commensurate) and you may have difficulty getting attention from executives who are focused on strategic initiatives.
So, the question is what are some alternative sales approaches?
Top Down Sales
In this model, the focus is on enterprise-wide adoption. The sales goal is get top management adoption of the solution. Because the deals tend to be large, sales cycles are typically long and the cost of acquiring each customer is high. The sales model is complex with committees on the customer side and multiple resources deployed by the ISV. However, the risk of enterprise wide adoption is low, assuming the SaaS solution solves the customer problem. Early customer sales may focus on the vision of the future solution rather than the current MVP capability. Customer executives that commit to this approach are visionaries with strong political power. Siebel Systems mastered this in the client-server days. Today, Workday is a leading SaaS ISV employing it.
Land & Expand Model
Here, the focus is to capture a departmental unit and expand within the corporation once initial customer success has been achieved. The goal is departmental management commitment. The sales cycles are still complex, but usually shorter and lower cost than those in the Enterprise wide model. Building strong references for the solution within the customer is key to success. There is greater risk (often due to political issues) that the SaaS solution may not achieve enterprise-wide adoption. RightNow Technologies perfected this model before the Oracle acquisition. Other examples would be business intelligence, customer success and variable compensation applications.
Bottom Up Model
In a bottom-up approach, the initial targets are individual users who will become advocates of the product. Price points are low. Selling costs per unit sale are low and sales cycles are short. However, revenue growth may be slow and there is greater risk of not achieving enterprise-wide adoption because the users do not have the authority or political will to change the way work is done. Examples include salesforce.com (in the early days), Box.net, Zuora and Yammer (before the Microsoft acquisition). To achieve sustainability in the enterprise market, the investment requirement for the bottom-up model is typically over $100M (with the notable exception of Veeva). Many SaaS solution providers trying to gain entry with a product offering that will improve productivity that requires work flow changes initially positioned as low end offerings. Clearly, this approach can be successful if the firm has the intention to raise megabucks and the VCs will back it.
What sales model are you using? One of these or more than one? How is it working?
Let me know if you have experience with other approaches not discussed here.
Contact me if you want help sorting out the alternatives.
