B2B sales · Enterprise software

Do enterprise customers actually buy from startups?

Mamie Stewart Founder & CEO at Meeteor, Speaker, Change-maker

February 1st, 2016

I am considering shifting my sales model to sell to larger (1000+ FTE) companies but currently have a beta product with only a handful of small (less than 10 FTE) paying customers. After some initial conversations with larger companies about their technology purchasing process, I'm concerned that larger companies wont buy from a startup because they are concerned that (1) we may not be scalable - different languages, customized settings, (2) we may not be able to support them with our limited staff, (3) we may not exist in 6 months - who wants to take that chance. Thoughts? Does my business or product need to reach some milestone(s) to even be considered a possibility by a larger enterprise?

Peter Johnston Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.

February 1st, 2016

But there is a simple answer. Don't treat it as a sale. Involve them in a project.

I call this my one, ten, one hundred strategy.

Identify a market with a hundred companies. Pick the top ten - the ones the others look up to and who define that market.

Find one of them who is receptive and pitch your idea that they get involved with you in developing something which will set them ahead of everyone else in that market. Make it clear that there will be problems initially with lack of support etc. but that they have the chance to shape the product around their needs and you will work with them exclusively for six months. Don't make a big thing of it, but make sure you are allowed to talk about the work you do together.

Their people will help you develop the product far faster than you would on your own. They give you a 3D view, with lots of different opinions. And you overcome roadblocks together which you wouldn't have foreseen.

At the end of the trial, hopefully you have a customer. They know you, like you, treat you as part of the family. But you also write up the benefits you've seen and make it public.

Then pitch to several others in the top ten. Use the fact you have done work for the first company and you'll find the doors are open.

Of course, once you have a track record of working with several of the big boys in that market, the little ones are clamouring to have you work for them. That's where your real money is.

Oh - and at least one of your top companies is in other markets too. They will take you across into them, where you can do the same again.

Marianna Zaslavsky COO @ SolarKal | Product @Eyeview | Business Development @ HookLogic | Consultant @ Bain & Co. | Columbia MBA

February 1st, 2016

Hey Mamie - Ive been at two startups now selling to large companies. It is not true that large enterprises "wont buy from a startup". Many will and many wont. It depends on the company. One large retailer I have worked with, for instance, is a company that is very willing to test and learn and has a special group dedicated to vetting new technology. And yet another very similar large retailer has a long and lengthy procurement process and, while not against buying from startups, tends to look for traction and ability to provide highly custom solutions. In both cases, the sales cycle as an early startup is long (anywhere from 3 months to over a year). After you get some traction in a vertical / industry, sales cycles shorten significantly to 1-2 months. You need a steadfast enterprise sales team and you may want to look at affiliate (i.e. commission based) intros if you cant get in via your own connections. 

To address your specific concerns: 1) scalability - you need to determine whether you are a custom solution provider or not. If you are custom, then you will have fewer but higher paying customers. If you are not, then large enterprises will be challenging and you should offer a very specific point solution that doesnt need customization. 2) support - fake it till you make it. Theres nothing to be said here besides that :) All hands on deck when there is an issue. CEO / other execs should play account manager until you have money to hire a full time enterprise account manager 3) existing in 6 months - if you have some initial large customers and strong backers (investors or advisors) you can ease the fears.

The first large customer will be the hardest to get. Once you have one marquee client, the rest follow. Pro tip: focus on one vertical at a time in this case to scale out faster. Happy to help further if you need. 

Peter Johnston Businesses are composed of pixels, bytes & atoms. All 3 change constantly. I make that change +ve.

February 1st, 2016

First rule of any business is empathise with your customer. From your words, it sounds like you are being self-centred and only thinking of the sale.

What if you go bust? What if you can't provide support?
These are valid concerns.

Imagine you as your customer going to their boss and telling him/her - "we don't know they're going to be there in six months and they don't have enough people to guarantee support.

Would you think it reasonable for him/her to send you away to rethink?

I've you haven't covered all the objections, you haven't a right to think you deserve a sale.

John Norman Agile Engineering Leader and Technology Consigliere

February 2nd, 2016

Yes. Just a few I have engaged with, for very significant payments:

IBM
Microsoft
Cisco
Bank of America
... and a couple more recent that I shouldn't name.

My caution is that a really big Whale can be overwhelming if your other customers are small. The Whale can be demanding and distort the product; or, because of their contribution to the bottom line, if they withdraw for any reason, you may have to deal with layoffs, etc.

My biggest case-in-point is IBM. They were a customer at Elytics. IBM closed the division that was our customer. Oops. Really hurt.



George Parrish Founder/President

February 1st, 2016

Total Cost of Ownership.  Every Fortune 100, 500 or 1,000 is always on the lookout for a better, less-expensive, more robust product, Enterprise, ap, platform.

And if they're not, you don't want to do business with them whether you are in StartUp mode or an Established player.

Anonymous

February 1st, 2016

My sense is that blue chip customers, in general, are much harder to get but are worth a lot more as a reference. I'm at an earlier stage than you and have decided against spending my time courting big guys. But if you already have a cash flow and a repeatable sales model, than it's a simple matter of being ready for a 18-month courtship, that will take a ton of someone's time.

Some of the risks they try to manage can be alleviated. For instance, offer to put your source code in an escrow, so that if you're are in fact gone in six month and they have invested serious money in implementation, they can obtain the source code and continue on.

And I wouldn't offer anything for free. Certainly not to enterprises: the cost is the last of their worries.

Marc Cowper Founder of Recomazing, Non Executive Director at Fishburners

February 2nd, 2016

Hi Mamie, 

Absolutely! We sold 6-month subscriptions upfront to quite a few big brands before we had any type of beta in market (including category leaders Virgin and Open Colleges). 

There were two key factors for us:

1. Trust (and this is the most important!) 
The foundation for any customer relationship is trust (eg what makes them trust that you are capable of delivering, what makes them trust that you have the vision to drive incremental value for their business?) Is it your team's experience, is it the fact that you know someone they know, is it the fact that you are already delivering a great product and can show traction? Is it the fact that their smaller competitors are already your clients? Is it the fact that you have been covered in press and are seen as an expert? (Whatever it is that is going to drive trust in your pitch, use it!) We have found a lot of value in breaking down all our approaches to brands via our calls, emails and presentations into how each sentence is working to drive trust - if you aren't creating trust in the first sentence of your call and emails or the first slide of your presentation you are already starting at a disadvantage. Trust is what makes them buy from you. 

2. Increase the reward and lower the risk
Big brands are risk averse - even the innovation teams don't want to be seen internally as a group of people who just throw money at new tech without any ROI. They too are responsible for meeting objectives and growing the value of their company. 

We have found it very helpful to actually have a slide addressing these two factors transparently - there is no point dodging the issues that you know are going through their head and sweeping them under the rug so talk about them in the open. Put points in your presentation anticipating the challenges they may have around the risks of your business and how you are addressing them to lower their risk. It will show them that you appreciate their POV and are smart enough to have addressed them already. 

Then put points down about how you are rewarding them for coming on board as early partners. Early bird discount, capped price extensions, promote them in your PR, provide them additional insights, give them direct access to your development feedback cycle etc. 

As other people have mentioned, having enterprise case studies to refer to makes your job a hell of a lot easier. So address the risk and reward factors and the more you sign on the less these factors even matter. 

Obviously this assume you have first done your research around your target market and exactly which key contact/department within the client is most likely to champion your product internally. Hope that helped. 

Marc




Ivar Plahte CEO & Co-founder at OnRelay

February 2nd, 2016

It is possible to overcome these objections, and never forget an enterprise often is willing to buy from a small company because they are fed up with poor and expensive support from a large established supplier, whereas they expect the startup to bust in support. So be ready to jump when they say so.

Here are some perhaps not so obvious issues to be aware of:

-- Some enterprises have 'early technology' groups that are little less than an exec alibi to appear innovative to the market. The procurement process from a trial to real production with these groups can be very long, so make sure you have real users and champions from a real business unit engaged from the get go. And never forget it is live production use that really counts, not trials.

-- If you are disruptive to an existing supplier, their sales team will do and say anything to get rid of you. This includes copying your feature list and making it their own 6 month roadmap (which is never delivered), taking your champion's boss family to the Caribbean for a 'meeting', buying someone a Harley as a customer appreciation gift etc etc. The best protection is probably having someone involved in your company who knows someone high level at your customer.

-- As someone mentioned above, account concentration is a real risk. In order to support a large contract appropriately, your small team will only be capable of handling a few accounts well, and a customer management change or similar can therefore be a disaster. You are an easy target for a new boss who wants his / her predecessor to look bad. And the longer the procurement process to get from trial to production, the higher the risk. In my experience customers that start fast continue fast, and those that start slow continue slow (similar with investors, btw)

-- Don't be overly mislead by 'fake' revenues from large up front payments. You may think you are further along than you are, and that you need more people than you really do. Rather manage these up front payments as you would investments, and keep scaling your operations based on actual live user uptake, product readiness and customer satisfaction.

Anonymous

February 5th, 2016

I have a bit of a different experience than a traditional startup. I bought this access. Typically the sales cycle for a large enterprise client is very long, perhaps years. That's a lot of overhead. We bought an IT Hardware Distribution business whose only real asset was the client vendor numbers. I think what we paid was comparable to what you would pay a year salary to a qualified sales executive nurturing five or so leads.

I would really love to say that quality, product, customer relationship is what sells but I have found that a lot of buyers don't want to deal with a new vendor number, approval process involving ten people to sign off, onboarding new vendors to their systems. If you can jump the line to the vendor number you have a big advantage. 

You may actually consider buying from a retiring baby boomer if you need to get close to one of their clients.

Rob G

February 1st, 2016

Mamie, enterprise customers certainly have different evaluation criteria than SMBs... or at least they think they do. 1) did you design and build your product for use by enterprise scale customers?  2) what is your product? - easier to provide actionable feedback if we know what you are building. 3) who (which group(s) are you talking to at these enterprise-scale companies? The objections you list are pretty commonly expressed by enterprise IT people and procurement. You can't ignore them, but unless they are your user-buyers you need to be talking to others - USERS FIRST. The typical process for a startup to grow in the enterprise space is a trojan horse approach - get a small group/division of USERS to try your product. Users drive the bus, not the mechanics.  The mechanics will have input to purchase decisions (they can say 'no'), but they don't drive purchase decisions.  The push back you are hearing is common and every startup has to learn to handle these objections.  So, how do you address them?.... carve out a small group of USERS so that scale is no longer an obvious issue - this lowers their perceived risk.  Money is rarely THE issue - more commonly it is looking bad to management.  So help them look good. understand their needs. Smother them with support.  work with them on a small scale to address all of the issues you are hearing then leverage them as internal champions to grow to new groups/divisions.  as long as your product (code? ) doesn't need to be installed in their data center (yes, many still roll their own) then you don't need IT support to work with a small group of users. Once the users and their management are sold they will help you overcome the issues from IT and/or procurement.  Remember, IT and purchasing can rarely drive a deal, but they can always kill it. Don't make them your enemy, but don't let them drive the bus either. 
re: "Does my business or product need to reach some milestone(s) to even be considered a possibility by a larger enterprise?" I
t's not that binary.  This is an organic process at this stage.  Once you have a few enterprise customers under your belt then it will be more binary - either you have the bases covered to support them at scale or you don't.  for now you clearly don't, but don't let that stop you.