Recently, I met with a startup team in the enterprise software space. I’ve known these guys for a long time and have been tracking their steady progress for years. But now, they have finally hit their stride. Sales are exploding, revenue is ramping - things are good.
As they were updating us on their strategy and sales traction, and listing new and impressive customer wins, one of the entrepreneurs paused for moment, reflected, and said, “as a matter of fact, I’m amazed we have any customers at all."
Realizing that he may have confused his listeners, he explained what he meant. Let me paraphrase him: “In our market,” he said, “the competition is so fierce, the marketing messages are so confusing, and the customers are so large and slow to adopt new technologies from new vendors - that it’s amazing that we have achieved the customer penetration that we have.”
He’s right. And I admire his humility - a humility that I think has contributed directly to their success so far. Anytime a small startup is able to get a large enterprise to write a check, it’s a minor miracle - and that got me thinking.
Can this be generalized? How do small startups penetrate the enterprise? Is there a recipe?
There is no recipe, of course, but in my experience there are three principal levers that a small startup can use to drive enterprise adoption.
These three “enterprise sales levers” are:
- operations, and
Interestingly, however, each of these levers can be used in negative and positive ways to drive sales forward. Sometimes, tactics used by startups to drives sales actually hurt their prospects for growth or - at least - reduce their ability to convince VCs that rapid scaling is going to be likely. For lack of a better term, I’m going to refer to this as “sales leverage.” Negative sales leverage refers to sales strategies that can actually reduce enterprise value even as they increase sales. Positive sales leverage, by contrast, refers to sales strategies that tend to increase enterprise value.
Let’s quickly go through the three types of levers, and look at what “positive” and “negative” leverage might mean in each case:
1. Value-based sales leverage
- Positive value leverage: Technical superiority. One of the best and most impressive ways for a startup to drive enterprise adoption is to offer something that the competition simply can not deliver. Usually, good entrepreneurial teams can fix other issues, They can improve sales teams, marketing skills, etc. But winning on technology is probably the most compelling type of sales leverage because it can constitute a significant barrier to entry.
- Negative value leverage: Below-market pricing. Startups can drive enterprise adoption by dropping prices to below market levels. While this can increase revenues and generate solid reference accounts, it is negative leverage because too much of this can suggest that the only way a startup can generate sales is by being the price leader. That can be great in the early stages, but its usually not a strategy that leads to market leadership and dominance - unless it’s coupled with enough positive sales drivers to lead to massive market share.
2. Operational sales leverage
- Positive operational sales leverage: Sales tenacity & discipline. These are two forms of positive operational sales leverage. Old-fashioned tenacity goes a long way in displacing competitors and winning the enterprise account. It’s a kind of “DNA” indicator that I consider a huge positive. Likewise, discipline in sales operations (inbound lead management, outbound lead generation, inside sales pro, and field sales) can help even the smallest company outsell its competition. Discipline and a well-oiled marketing and sales machine is a repeatable driver of sales - something that both VCs and acquirers like to see.
- Negative operational sales leverage: Relationships. All startups use personal relationships with customers to drive sales in the early stages. They’d be crazy not to. But personal relationships don’t scale - and they don’t drive the intrinsic value of a business. I’m always wary when startups have only managed to penetrate customers because of past relationships, investor ties, friends and family etc.
3. Product-based sales leverage
- Positive product-based sales leverage: Clarity of product/marketing fit: When competing with enterprise software giants, a small company can sometimes achieve disproportionate success through superior clarity around specific use cases and benefits. This can be true even when technology alone is not enough to win the day. Large competitors can’t respond to every marketing message and can’t adjust their product fast enough to stop a small determined company from reaching the market with a clear, crisp message that converts into sales.
- Negative product-based sales leverage: Custom Project Work. Small companies can often win large and seemingly impressive accounts by doing customized product work or even customized integration work. This is always seductive, but it usually amounts to a massive discount and significant defocussing. VCs (and sharp CEOs) tend to focus on the amount of pure “product” versus professional services revenue as key indicator of scalability. Too much customization can kill growth prospects and indicate that sales aren’t going to be repeatable.
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22nd May 6:36 PM