The Enterprise Sale for Start-ups

When I was selling software in my first start-up (Dynamic Mobile Data – wireless dispatch and vehicle location software), the world of software was very different from when it was today.  Other than small consulting projects around my software, I was never selling anything for less than $200,000.  The idea was to have few clients each year at a high dollar amount.   I sold to Fortune 500 companies a large enterprise-wide solution.  This included desktop software, server software, database set-ups, and more.  Each of my software sales had an 18% annual maintenance which included product updates, phone support, and more.

I will admit, when the whole ASP (what we now call SaaS) revolution started, I was quite resistant to the change, and certainly did not see the immediate path to success in an ASP mode.  This feeling was for several reasons:

  • Having years of product development on a desktop application, I wasn’t exactly hot on starting over on a web based solution.
  • Web technologies such as AJAX and all of that were not yet available and my competition’s products that were evolving were insipid in comparison
  • The companies that I sold to were not yet warm to the idea of having their data external to the enterprise.  They still wanted to have all the data within their own data centers.  (Something that has changed considerably.  Most companies are comfortable with this now)
  • And most importantly:  it was hard to leave that enterprise sale!  Getting a big six or SEVEN figure check from a client to go to a model where you get a LOT less was something I was having a hard tim wrapping my brain around.

Nonetheless, I knew this was the inevitable direction of all software, so I worked hard to figure out how to get moving with adding a SaaS solution to the mix.

What we did was to take our desktop application and remove the “client-server” communication guts, and replace it with web services, so we ultimately were selling a desktop application that communicated across the internet.  We sold it for $35 per user per month – which was actually an acceptable price to our new prospective client base.  (Market research showed that $100 per month was the threshold and our software plus a mobile device lease plus wireless service totaled about $100).  The new prospect list was not only the Fortune 500 companies, but also every small business that had field service reps: every landscaping business, every delivery business – essentially anything with a dispatch function.

We were mildly successful with this approach and would have been more successful with it as time went on; however, the market crash of 2000 happened so, like today, finding funding partners was extremely difficult.  As many companies today are aware, in order to build an SaaS business, you need a lot of customers.  That means that you have to do a lot of marketing and a lot of sales.  It takes a while for the recurring revenue to get to a level that supports your business – so you need funding in order to bridge that initial gap.  What I did in my company, was to fall back into enterprise sales.  I could fund my company for many months if I could close a $500,000 sale – and I could weather out the storm.

Its 2008, and while I’m no longer at my start-up, the company is still alive.  The company has been able to fund itself through the enterprise sale and with the recurring revenue of maintenance contracts.

So.. this is a long story to get to my point.  I am NOT suggesting that companies abandon the SaaS model NOR am I suggesting that you forget the business of getting lots of customers at a low or free price, but perhaps it is time for many start-ups to start thinking about the enterprise sale again – bring it into the mix.  Is there a way for you to package up your offerings, or increase them, and as a large bundle sell a large ticket item to a Fortune 500 company?  I think that for many companies there probably are – but just as I had trouble thinking initially about the web 2.0 sale, I’m sure many start-ups will have trouble figuring out the enterprise sale – but I’ll bet its there.

Here is an example: I have a start-up client that makes software that is typically charged on a per-use basis.   Corporations sign-up for an account – but they are not charged unless they use the service.  In 2007-8, this was not necessarily bad because you were increasing your client-base and increasing market share which you planned to turn into revenue later (or not depending on what your exit strategy was).  In 2009 and beyond, this won’t necessarily work..  because you need cash in the bank.  So….in my sales-plan design session with this client, we talked about how to turn this into an enterprise sale.  How?  By going to a corporation and offering them an unlimited-use package for up to 3 users, in exchange for a twelve month paid contract.   We don’t know if this sales method will work yet, but initial reactions from the larger organizations is positive.

While organizations (and individuals alike) loved getting cheap and/or free services and software, I also believe that in this unstable economy, if a larger corporation is going to consider using a start-up service, they will feel better too knowing that you have some cash to survive through their contract.  Therefore, your enterprise sales pitch should show how you have thought through how you are going to service them for the long haul – and that the enterprise sale is the way to that end.

The customers will expect more from you because  they are paying more – but you will get richer adoption from the customers that elect this method.   You may get fewer clients with this approach – but ALL will be cash-flow positive for the company.

  • Mark- I currently work at a Fortune 3 company but my passion is startups so I feel like I have a decent insight to how these two worlds could combine for a mutually beneficial relationship. Dealing with sales to huge companies like this is a dangerous world…I've witnessed first hand the bully mentality that corporations have coming to the table so it is important that startups attempt to move quickly and realize early on if there are real opportunities or if the corp is just dragging them along…

    Good thoughts. I definitely agree that actually selling product vs. just getting eyeballs may be the only way to survive through this economy. I look forward to web entrepreneurs getting back traditional biz models…sell product, collect money, re-invest.

    Take care.

  • Mark I LaRosa

    Ryan,

    What a great comment. I neglected to elaborate on the fact that you can't let the enterprise bully you around. “Flexibility” as I talk about, does not mean, let them walk all over you. You need to understand your limits, but when you have identified a win-win, thats when you can allow for some flexibility.

    I wrote a post on No Free Trials (http://www.quotacrush.com/index.php/2008/05/12/…) where I talk about one of the strategies that I used to get enterprises to commit.

    Its a fine line… you want their money… but I agree, not at any cost.

  • Mark- I currently work at a Fortune 3 company but my passion is startups so I feel like I have a decent insight to how these two worlds could combine for a mutually beneficial relationship. Dealing with sales to huge companies like this is a dangerous world…I've witnessed first hand the bully mentality that corporations have coming to the table so it is important that startups attempt to move quickly and realize early on if there are real opportunities or if the corp is just dragging them along…

    Good thoughts. I definitely agree that actually selling product vs. just getting eyeballs may be the only way to survive through this economy. I look forward to web entrepreneurs getting back traditional biz models…sell product, collect money, re-invest.

    Take care.

  • Mark- I currently work at a Fortune 3 company but my passion is startups so I feel like I have a decent insight to how these two worlds could combine for a mutually beneficial relationship. Dealing with sales to huge companies like this is a dangerous world…I've witnessed first hand the bully mentality that corporations have coming to the table so it is important that startups attempt to move quickly and realize early on if there are real opportunities or if the corp is just dragging them along…

    Good thoughts. I definitely agree that actually selling product vs. just getting eyeballs may be the only way to survive through this economy. I look forward to web entrepreneurs getting back traditional biz models…sell product, collect money, re-invest.

    Take care.

  • Ryan,

    What a great comment. I neglected to elaborate on the fact that you can't let the enterprise bully you around. “Flexibility” as I talk about, does not mean, let them walk all over you. You need to understand your limits, but when you have identified a win-win, thats when you can allow for some flexibility.

    I wrote a post on No Free Trials (http://www.quotacrush.com/index.php/2008/05/12/…) where I talk about one of the strategies that I used to get enterprises to commit.

    Its a fine line… you want their money… but I agree, not at any cost.

  • Ryan,

    What a great comment. I neglected to elaborate on the fact that you can't let the enterprise bully you around. “Flexibility” as I talk about, does not mean, let them walk all over you. You need to understand your limits, but when you have identified a win-win, thats when you can allow for some flexibility.

    I wrote a post on No Free Trials (http://www.quotacrush.com/index.php/2008/05/12/…) where I talk about one of the strategies that I used to get enterprises to commit.

    Its a fine line… you want their money… but I agree, not at any cost.