moving upmarket from smb to happy enterprise customers

Given the low barrier to entry, most technology vendors initially target SMB customers and develop a product to meet the specific needs of those customers. As revenues grow, vendors leverage SMB focused customer acquisition and marketing models to try and build a large customer base. Ideally, the product improves, large customers show interest, and vendors hire an enterprise sales and marketing team to sell to enterprise customers. Vendors such as Box, Expensify, and Zendesk have successfully transitioned from SMB to Enterprise customers. However, most SMB focused vendors are challenged with maintaining sustained revenue growth with a product that has limited features and a low Average Selling Price (ASP).

Take the case of Acme, a technology vendor that provides SaaS Document Management Solutions for contracts, proposals, eSignatures, and quote management. Since 2011, the vendor has 6000+ customers and generates $7+ Million in annual revenues. Acme has captured market share and mind-share in the SMB space but wants to grow at higher rates and sign additional customers with higher ASP. This creates a scenario where the CEO has to decide between expanding growth in SMB or move upmarket.

Like Acme, vendors face continuous challenges of customer churn and unpredictability within SMB, which impacts Annual Contract Value (ACV) or Annual Recurring Revenues (ARR). Similar vendors expect enterprise customers to sign 2-3 year deals and pay more for the product than SMB customers would but enterprise needs are very unique and specific. From a technology perspective, vendors need to fit within the constraints of existing infrastructure, buyer needs, and specific use-cases. At the same time, the leaders at enterprises expect to achieve greater business results, expect no interruption to their processes, and want a pre-determined set of features and capabilities. Hence, an enterprise buyer expects more from vendors, which puts additional pressure on vendors to deliver.

Buying decisions at enterprises are different and more complex than SMBs. Per CEB, there are 6.8 stakeholders in a purchase decision. Therefore, the Go-To-Market (GTM) for enterprises cannot focus on product features alone and vendors should consider stakeholder buying criteria, the right marketing and sales assets, and a different customer support model.

Step 1: Identify a specific market segment

When pivoting from a SMB solution to an Enterprise, vendors must focus on the success of the initial product and its adoption. Hence, the plan must limit any distraction and increase chances of success by identifying best ways to get traction in the market first. Identifying the right market segment is essential. While the inclination would be to conduct a detailed market analysis to determine the right segment, it would be beneficial if vendors leveraged existing customers to develop a baseline market segment. This allows vendors to learn from the existing customer base and help identify impact of current product offering within enterprises.

Identify the most important 1%-2% of the customer base, not by revenue but by complexity of business problem and processes. The objective is not to resolve the needs of every enterprise customer but rather to focus on the key decision criteria that enterprises use to determine a good product fit. Spending time with the identified (1%-2%) customers helps determine why they are happy and will continue to pay for the product. Focusing on a broader customer base could be a worthwhile exercise but there is risk of creating a very generic requirements list.

While determining the market segment, vendors should pay attention to choosing the right enterprises that the market perceives as high-value enterprises, thought leaders, opinion shapers, and even trend setters. This could help vendors as future GTM tactics are identified and implemented. Therefore, include the sales and marketing leaders early in the process to validate and finalize the list of potential enterprise customers.

Step 2: Focus on core customer problems

Assuming zero-sum game where additional investment and resources are not always available, completely customizing the product to meet enterprise customer needs is not realistic. Therefore, the strategy should be to focus on only 1 of the top 3 problems of each target customer. This identifies common problems enterprises have and any customization can be quickly crystallized. If vendors can find common business problems between SMBs and Enterprises, it’s an added advantage as additional feature investment will build on the strengths of the SMB product offerings. Mapping enterprise needs to the product roadmap is critical and the product management leader should take charge in understanding the client requirements. The product development leader should be part of this discussion to ensure technical viability and subsequent execution.

Enterprise customers will expect vendors to customize their product offering to meet their specific needs and will insist on a set of features before they agree to purchase the product. Sometimes the features list could be very specific but the product management leader should consider roadmap features that solve an existing need and should consider bringing the timeline forward. Since the vendors’ solutions must fit within an enterprise’s existing technical infrastructure, 3 technical requirements must be addressed: Role Based Access, Security, and Privacy. This increases the chance of success and adoption within the enterprise.

Step 3: Invest in the Customer Development Process

The “Customer Development Process” is an integrated and well-defined approach that runs parallel with product development and creates a deliberate validation of market needs with an emphasis on learning and discovery. This requires leaders from product management, product marketing, sales, and product development to work together to ensure success, although operationalizing the entire process could take anywhere between 0-18 months.

Customer Discovery Phase

The emphasis in this phase is to ensure the success of customer segmentation and customer discovery process. Any customers identified during this phase are termed as “alpha customers”. The product management leader must work with these customers to determine if the top business and technical problems are solved by the product.

Early success in identifying alpha customers may lead vendors to believe in a true market segment and therefore tempt sales leadership to start selling. CEOs should resist the temptation of larger deal sizes and avoid overpromising the success of this product since initial implementation success still needs to be proven. Avoid hiring an enterprise success team without a proven product. Instead, CEOs should consider hiring a seasoned enterprise sales leader that could help vendors navigate the complexity of the enterprise sale.

During this phase, which could take 0-6 months, vendors should consider involving marketing and product management team to create a “Business Value Calculator” (BVC) to validate customers’ business benefits. This could be helpful in creating sales and marketing collateral in the future.

Customer Validation Phase

To maximize the effectiveness of the solution, vendors must ensure the right product features are built and are validated by the customers and meets the originally identified needs. There is a risk of over-investment in features if the scope of the original requirements is expanded. Hence, product management leaders must focus on the requirements of no more than 5 customers. These customers termed “beta customers” will help strengthen the product offering and will increase the chances for vendors’ product development teams to execute the solution. There is some benefit to crafting a separate sales contract for beta customers that includes provisions for marketing commitment such as customer participation in case studies and white papers.

Market Launch Phase

As vendors gear to launch the enterprise-ready product, it is more than likely that the product will meet most of the needs of only 1-2 customers. These customers are essential for the future success of vendors; therefore CEOs should create a small “Customer Success Team”, consisting of product management and product development leaders. The goal of this team is twofold: first, to ensure successful implementation of the product and second, to deliver on the business and technical requirements customers asked for. Considerations must be given to providing 3 months of post-implementation support as it gives a chance to all concerned parties to fix any underlying issues.

The success of the lighthouse customers is a good inflection point for vendors to hire an enterprise sales team. The enterprise sales leader should consider adding 1-2 more resources to the sales team. Since the sales team is relatively small at this stage, product marketing teams should leverage existing marketing assets and BVC assets for sales enablement. Until the sales team is ready, vendors should expect CEO and the enterprise sales leader to lead future sales discussions.

Note: Common reasons for contention between vendors and beta/market launch customers are specific requirements about security, data privacy, extensibility, integration, and scalability. Therefore, it is imperative for the product development leader to deliver on those technical requirements. CEOs should consider creating a Customer Success Team for beta customers as it helps not only the customer with additional support but also helps vendors build a better product that meets business and technical needs. CEOs should own all the relationships during the initial “Customer Development Process”.

Summary

Enterprise sales are unique and very different from selling to SMB customers. Therefore, vendors wanting more predictability in their revenue growth should consider a different playbook for pivoting to enterprise customers.

I would love to hear your thoughts and comments.

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