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Enterprise Software Lessons: Selling Top-Down vs. Bottom-Up

ABCEnterprise software sales are always a difficult task for a startup and something that is fundamentally different from the consumer market. Traditionally, enterprise software sales developed a reputation for being a long and bureaucratic process. However, recent technology movements such as the consumerization of IT, the popularity of open source technologies or the emergence of mobile devices have opened new avenues for products to get into the enterprise.

When thinking about selling to enterprises, there are two main models that will dictate the core of your strategy.

  • Top-Down Sales: Some products get sold directly to a decision maker like a Chief Information Officer(CIO) or Chief Marketing Officer(CMO).
  • Bottom-Up Sales: As an alternative to the top-down sales model, some technologies have the capability of getting adopted within enterprises by non-decision-makers such as developers or information workers before they make all the way to a decision maker.

While the top-down approach have been the cornerstone of enterprise software sales for decades, bottom-up models are a result of the new movements such as the consumerizaiton or IT or the democratization of software. As any new and evolutionary model, it’s very tempting for startups to try to embrace a bottom-up sales model. However, it’s important to realize that both models have very well defined strengths and weaknesses and, more importantly, they have a profound impact in the structure of your sales organization.

Top-Down Sales

This model is great for generating revenue from every single customer. Additionally, a top-down sales model is essential to land large deals that need that become strategic to your customer.

The top-down sales approach typically comes at the cost of longer sales cycles that require a well-established sales force. Additionally, achieving relevant market share with this model is extremely resource intensive as your sales force needs to be involved in every deal.

Bottom-Up Sales

The bottom-up model is great for achieving volume and spread your footprint within a wide customer base. This model does not typically require a large sales force and guarantees that your sales executives only get involved with a prospect after they have evaluated the product and are truly interested.

While achieving customer volume is great, the bottom-up sales model does not necessary conduct to revenue and might put you in a situation of supporting thousands of non-paying customers. The tech startup scene is full with stories of companies that were able to attract a massive number of non-paying customers before going out of business. More importantly, embracing a bottom-up approach requires a level of scalability that can become resource intensive for any startup.

Top-Down Does Not Mean Free

When embracing a bottom-up sales model, it’s important to realize that the model doesn’t necessarily require to offer a free entry point to the product (fermium). While fermium models makes a lot of sense as a top-down approach, there are plenty of scenarios on which enterprise software startups can charge a small nominal fee as a starting point.

Deciding whether to adopt a top-down or bottom-up sales model is essential to structure your sales organizations and customer acquisition processes. For some products, top-down and bottom-up approaches are mutually exclusive. However, technologies like Box, AWS, MongoDB have proven that you can effectively developed both sales models achieving large market share while also acquitting paying customers.

 
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Posted by on December 23, 2013 in Uncategorized

 

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Enterprise Software Lessons: Is Your Product Mission Critical or a Nice to Have?

In the enterprise software world, objectively identifying the value proposition of a product is one of the hardest aspects to master by any startup. To be extremely successful, an enterprise software product does not only need to provide a tangible value but it also needs to articulate that value from the perspective of potential customers. Regardless of the dimension of the problem you are trying to solve, an enterprise will always position your software in one of two groups: either is “mission critical” or a “nice to have”.

Identifying on which group your software belongs to, will do wonders to eloquently articulate your value proposition, target the right audience and clearly understanding your customer acquisition process. While intuitively we can think that software that solving “mission critical” problems will have a deeper impact in the enterprise and an easier sales cycle; the fact of the matter is that some of the most of the revolutionary enterprise software products in this generation have are focus on solving problems that were not initially cataloged as mission critical: they were simply “nice to haves”.

Looking at some current examples: a company like Zendesk is solving a mission critical problem (read: a company can barely do business without a help desk system) while companies like Box or Yammer provide “nice to have” products (read: a company can live without them but it clearly improves certain aspects of the business)

Having built a “nice to have” product before (www.moesion.com ) and currently working on a new product that solves a mission critical problem (https://www.box.com/s/b7aaa23fc1e765b054f8 ), I can’t emphasize enough on the importance of identifying the nature of the problem you are solving from a customer perspective. There are no particular advantages to the success path of your startup whether you decide to focus on a mission critical problem or a “nice to have” one. However, either group presents drastically different characteristics on various aspects that are important to understand.

Let’s go through a simple list

Number of Problems

The number of mission critical problems that are common across most enterprises is relatively small. Even without being an enterprise software expert, you can name most of the mission critical software’s a company use: ERPs, CRMs, Help Desks, HR Systems. Finding a new type of mission critical problem to solve in the enterprise is far from being an easy endeavor and most of the disruptions in the space have been a consequence of technology revolutions that have redefined the problem from a different perspective. In that sense, the cloud computing movement made possible for companies like Salesforce.com or RightNow to provide innovative solutions to mission critical problems in the enterprise. Contrary to mission critical problems, the number and diversity of “nice to have” problems in the enterprise is extremely large and offers an easy room for innovation and disruption.

Commoditization

The functional similarity in “mission critical” enterprise software products naturally translates into the commoditization of the space until the next disruptive product arrives. Products that are not mission critical can enjoy a larger innovation cycle that allows them to fight commoditization.

Competition

Firerce competition is part of the enterprise software DNA no matter what type of problem you focus on. Having said that, the small number of mission critical problems in the enterprise translates into more intense competition in the space. As an example, a company like Salesforce.com faces a more intense competition than a company like Huddle which solves a “nice to have” problem.

Sales Cycle

Because of its increasing commoditization, mission critical enterprise software products typically have to go through long sales cycles that traditionally demand the involvement of the IT department in an organization. Contrary to that, “nice to have” products typically enjoyed shorter sales cycles and can be acquired by different entities within an organization without always requiring IT involvement. To use an example, the sales cycle of an enterprise social networking product like Yammer is exponentially simpler than an ERP product like NetSuite.

Pricing Model

Because of the important nature of the problem they solve, enterprises expect to pay substantial amount of money for mission critical products. Quite the opposite, “nice to have” products typically need to rely on alternative pricing models such as fermium/subscription based that allows them to acquire customers in a simpler way.

Customer Volume

“Nice to have” enterprise software products typically enjoyed simpler customer acquisition processes which directly translates in a potential bigger customer base. Mission critical enterprise software technologies often find themselves competing in a highly fragmented market which makes it extremely hard to acquire customers at a small cost.

Innovation

Because of the clear definition and the small number of “mission critical” problems in the enterprise, is really hard to continuously find disruptive innovation in the space. Quite the opposite, “nice to have” enterprise problems offer a broader room for innovating and disrupting specific areas of an enterprise.

As an enterprise software startup, my advice is to clearly identify the characteristics of the problem you are solving. In the enterprise world, “mission critical” does not directly translate to relevant. If you think about it, most of the disruptive companies the enterprise software world are focus on solving “nice to have” problems. Also remember that as technology evolves, there is the potential that the “nice to have” product of today will become the “mission critical” products of tomorrow.

 
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Posted by on July 3, 2012 in Uncategorized

 

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Does Enterprise Software Needs Sales People?

The sales staff is one of the traditional elements of enterprise software companies that has been heavily questioned by the new generation of companies in the space. A lot has been written about the new software acquisitions models in the enterprise and how companies today don’t need to rely on traditional sales mechanisms. Companies like Atlassian claim they have acquired tens thousands of customers without a single sales executive and passionately promote that model as the cornerstone of the new generation of enterprise software.

These days, enterprise software sales staffs are associated with the old boys, the Oracles, IBMs and SAPs of the world. Sales guys are not cool, they think about money and not about changing the world and they are expensive. These days, enterprise software can spread viraly, purchased with a credit card on subscription basics. Factoring all this, do we really need sales people in an enterprise software startup?

The answer is: ABSOLUTELY YES!

I have thought about this problem for a long time and tried different models. At this point, I couldn’t be blunter about my opinion on the subject. To achieve scale, an enterprise software startup MUST have a sales staff. What we do need is a different type of sales guys and new and innovative sales models.

Let me try to explain.

While you can certainly establish an enterprise customer based without a sales staff, it’s almost impossible to achieve a decent scale following that model. Selling to large enterprises can be a lengthy and complex process that needs the patience and dedication of a sales executive. When selling to large enterprises, you need to deal with procurement departments that have been trained to get any possible discounts in your software, IT departments that tend to be adverse to changes and new technologies and rigorous compliance and policies that most of us find ridiculous. Having a solid sales staff can and will help to win those large accounts that, otherwise, will require the full attention of the management team.

Having said all that, I do believe that effective enterprise software sales are fundamentally different from the traditional models. Market phenomenon such as globalization and economies of scale, technology movements like software as a service, software distribution models such as app stores, cultural movements such as the “consumerization of the enterprise” are just some of the factors that we can leverage in the new generation of enterprise software sales. As an enterprise software company, there are a few tips that might help you improve the dynamics of your sales organization in this new world.

Leverage Fremium Models

As I mentioned in a previous article, fermium models do work in the enterprise. A fermium model will help you increase your customer population while allowing your sales team to focus their attention on those customers with the potential to convert to a paying model.

Selling to the Buyer

One of the main problems in enterprise software is that the people testing the product are not the ultimate buyers. Involving the decision makers early on in the evalution process will do wonders to expedite your sales.

Make it Simple

I know it sounds cheesy but, as an enterprise software company, you need to obsess to make your software as easy to acquire as possible. A simple and transparent sales model will streamline the software acquisition processes for your customers.

Disclose Pricing

Complimentary to the previous point, part of making a sales process as simple as possible is to provide your customers with all the information they need in order to evaluate the product. Pricing is one of those aspects that a lot of companies tend to only disclose after they have gotten in contact with the potential buyer. That’s completely ridiculous, disclosing your pricing model will make it easy for your customers to evaluate your software and will avoid unnecessary negotiations.

Find a Champion in IT

In any enterprise software sales process, there is a huge difference between sales that require the involvement of the IT department and the ones that don’t. Rightfully so, IT groups tend to be extremely conservative when adopting new technologies and can be very demanding from the software compliance and policy standpoint. However, IT groups can also be your biggest champion if the value proposition is clear enough. If your sales process requires IT involvement, my advice would be to get then involved at the very beginning of the process and find a few champions within the IT organizations that can help you navigate the complexities of the process.

 

 

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The Half Ass Consumerization of the Enterprise: Flexible Pricing Models

In a previous post, I detailed some of the main elements needed to transform the ”consumerization of the enterprise” into a mainstream movement. This time, I would like to focus on one of the most important aspects of the new generation of enterprise software: pricing models.

For years, selling software to enterprises has been a privilege of the traditional enterprise software vendors. Armies of professionally-dressed, not very tech savvy sales people and ridiculously long sales processes is what we’ve known is required to convinced organizations to adopt your software. Those dynamics has drastically change in recent years with the initial renaissance we are experiencing the enterprise software industry. Technology movements like software as a service and efficient software delivery mechanisms such as application stores have provided organizations with the necessary flexibility to embrace the new generation of enterprise software packages. However, there is an essential ingredient that is required to simplify the software acquisition processes in the enterprise: flexible pricing models.

Capitalizing on the more efficient software distribution models at our disposal, the new generation of enterprise software has adopted new pricing structures based on the combination of two fundamental elements: subscription-based and fermium models.

New Enterprise Software Price Model = Subscription-based + Fremium

This formula seems to make perfect sense, whether the fermium model allows organizations to adopt the software at no cost the subscription based structure enables them to scale as the use of the software increases. I talked about the advantages of the fermium model in the enterprise in a previous post. While both the fermium and subscription-based elements should be foundational to new enterprise software packages are far from being sufficient to convince customers to adopt your software. Thinking otherwise, is clearly underestimating the complexities of the software acquisition processes in the enterprise.

At the end free is just free and cheap is just cheap ;)

Establishing the correct pricing model for you and your enterprise customers is far from being a trivial endeavor. I’ve spent a lot of time thinking about this problem and I still manage to make a few rookie mistakes. While there is no direct pricing formula that guarantees success, there are a few key recipes that any successful enterprise software price model should include:

  • Find a way to acquire customers at a minimum cost: If you are going to offer your software for free, it is vital you find different engines of growth to acquire customers at minimum expenses. See my post about engines of growth in enterprise software for more details.
  • Provide a clear conversion unit and value: In order to convert your fermium customers to a paying model, you need a clear unit of measure and an easy transition path. Additionally, it is important that there is a clear value proposition for customers to upgrade to a paying edition.
  • Answer all questions and mitigate risks up front: If you want enterprises to give you money for your software you need to provide a clear and easy way to answer the traditional concerns with enterprise software packages in areas such as security compliance and other traditional policies in the enterprise IT.
  • You are going to need a sales staff: The no sales guy organization is one of those fantasies in the new generation of enterprise software that has no foundation. If you want to acquire big customers and are serious about becoming a winner in the enterprise software world, at some point you are going to establish a sales organization that can help navigate the complexities of the enterprise software process.

Certainly the elements listed above are not exclusive but I believe you will find most of them as  part of any solid enterprise software pricing model.

 
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Posted by on June 11, 2012 in Uncategorized

 

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