I'm the OP -- happy to answer any questions those of you running B2B startups might have!
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Question 1... how do you feel about the "valley of death" pricing-wise? As a startup targeting enterprise, one of the things I am hoping for marketing-wise is to price under the departmental budget line, so individual managers can buy for their own needs without setting off defensive alarms. And the product scales outward, so I can start with one department as evangelists, and then rake in more money and bigger contracts as the product spreads.
But when I think of, say, $5000/year revenues, if it's too high, I have to fight the corporate financial immune system. But if it's too low, I'm leaving money on the table when there's a ceiling on how many customers can ultimately be acquired.
I don't know the valley of death pricing you're talking about, but pricing isn't a part of the conversation for me until people have already bought in that they need it.
Pricing is not even on the list of concepts I have to consider to work through a process. I work for a very big company though.
The product scales outward thing is overrated. Startups have talked to me about this too, and it doesn't make as much sense as everyone seems to think.
You gain a foothold in an area in the company no one cares about, that doesn't mean anything. You are the least person to judge which parts of the company matter, so be careful about that idea.
I just had a company do this. They built a foothold in an area no one cares about. I had to tell them, it's about as meaningless as an organization if you had our janitors using their software.
If your evangelists are not connected and part of the decision making process, the information doesn't expand.
You should write a "Why my company isn't going to buy your startup's product" blog post. It would help quite a few people.
Another really common scenario is that the vendor doesn't offer an appealing pricing model based on the anticipated or intended usage of the product. For example, lately I've been talking to videoconferencing system providers. One of them has a really great feature that no one else has, but their only pricing option is per named user at roughly $800/yr. This is completely untenable at a 45,000 person company (even if you only consider the 20,000 of those people who are knowledge workers, or even if you only consider roughly 5,000 of them who might need VC. The problem I have is never knowing exactly who the named users should be.). Another vendor has a similar product, and offers both named user and concurrent user pricing options. A third vendor offers both cloud & in-room-hardware options where we can mix & match, with the advantage that hardware-based VC rooms don't consume a user license at all, so we'd only be paying for desktop/mobile connections. The first vendor lost a 6 figure deal just because they weren't willing to entertain an appealing pricing model.
To expand on Andy's general point, and one josh2600 made earlier, it truly pays to get to know your target's corporate culture and bureaucracy. One of the first questions experienced sales reps ask at the close of the second call (or whenever the first demo is) is something along the lines of "what is your sales process like?" or "how does your department handle budgeting, and what is your fiscal calendar?"
Oooh, before I forget, here's another big turn-off: yes, sales reps hop between companies more than engineers, but for goodness sake PLEASE keep your CRM updated so your target doesn't get repetitive cold calls from other reps at your company. This doesn't happen too often, but I still experience it about once a quarter and it leaves me fuming each time, especially if I already have a contractual relationship with the vendor.
There are a lot of reasons people don't talk about this stuff, and I shouldn't either. I'm being a bit too loose with my mouth already.
I would love to read that blog post too! It's great to understand how the other side thinks about things.
It depends very much on the individual, their company, and their role/standing within the company. Anything with too much detail will end up being too specific and not very good general advice (imho).
Thanks - that's a very useful answer. So what do you have to work through in order to get a product in the enterprise door? Especially from a startup? For a startup providing analysis and visualization for enterprise software development, on what do you think that company should invest early sales efforts in order to turn leads into actual sales?
Startups definitely go either way. If you're trying to get under the departmental budget line and then up-sell, then you might be what I call a "New Enterprise" startup. If that's the case, don't worry about the initial revenue -- you'll get more.
I wrote a blog post on how to figure out whether your startup is New Enterprise or Old Enterprise: http://brandonb.cc/is-your-b2b-startup-new-enterprise-or-old...
I think once you answer that core question, the pricing and sales model fall into place more easily.
Oh, that's excellent. Thank you! I'm definitely aiming for a New Enterprise model... partly because it's easier for a small startup, and partly because, as someone who has long worked in the target market, I've greatly appreciated the high quality products that do well in New Enterprise (Atlassian is something of a role model for me sales-wise), and had some truly horrible experiences with awful Old Enterprise products imposed on technical staff by management.
I'm interested in starting a start up that deals with SMB. I think a lot of your advice is very applicable but you would change anything for a deal size that's between $4,500 - $6,000 per year?
For SMB, you might try some of the "New Enterprise" models described at http://brandonb.cc/is-your-b2b-startup-new-enterprise-or-old.... Square is a great model to follow. For a deal size of $4.5-$6k, you can scale with inside sales and go pretty far. I'd avoid field sales entirely!
At large companies, a deal that small could be approved by tons of people. At that point, you don't even need a real decision maker.
I'm interested in becoming a consultant (but haven't taken any action yet). My first question is if your article applies to people like me. I'm not sure if you're selling a product or you're selling your skills as a service. Or, maybe it doesn't matter and your article is helpful to both groups?
This post was based on selling products to enterprises. I've never been a consultant, so I don't know for sure, but I'd suspect the rules are a bit different. For example, as a consultant, I would think many of your customers come through referrals, whereas when selling a product things like PR, AdWords, and a direct sales force are your main tools for getting business. I'd be interested in hearing your experience once you've been at it for a year or so. There are probably a lot of interesting lessons!
Question 2 - How much resistance do you find to SaaS in the enterprise? SaaS reduces the support cost immensely, but a lot of businesses don't seem to trust SaaS.
It's changing and getting better due to cost. Just have all your documents about security, compliance, sox, all of that readily available. It's the first question.
Totally depends on the market. For example, most e-commerce companies are very comfortable using SaaS and Javascript snippets nowadays, but if you try to pitch SaaS to a bank, they'll just laugh. Over time, I think more companies will get comfortable with SaaS, but it will take years.
If you're pitching SaaS to an industry that doesn't usually go for it, it sometimes it helps to avoid PII. Even banks are somewhat open to using SaaS for products that don't touch customer's names, transaction info, etc.
I have a different problem than PII... my product will contain detailed configuration information about the customer's entire system. That makes it security-sensitive. Data will be encrypted at all times, but there's a psychological problem of having configuration information in a SaaS system at all.
Good comments, plus, if you can do it, it might be wise to have a version of your product that's not SAAS. A self-hosted version, like Github Enterprise.
Be careful, though, self-hosted customers can be huge PITA's.
It's already in the business plan, albeit in a vague way. One of the big advantages of SaaS is that I can practice Continuous Delivery and be constantly improving the product while I sell it. Besides PITA customers (a problem that can be mitigated with an install process that Does Not Suck), there's a problem of supporting increasingly obsolete versions in the field.
Not seeing a link on your blog to your company. Had to go to your profile to see that. Any reason it's not on your blog?
So at what point (if ever) did you hire someone to be in charge of customer acquisition?
About two years. Honestly, that was way too late -- if I could do it again, I'd put that person in place about a year into it. As hackers we learned to sell, which gave us valuable insight into the product, but once your product is half-decent, sales becomes a full-time job, and having somebody spend 100% of their time on it is a major "step function" in growth.