Going up market
Lessons from companies who have made the leap from SMB to the Enterprise
Cloudflare, Hubspot, and Gitlab are multi billion dollar tech companies. And they've all successfully evolved their sales motions (and supporting infrastructures) to go "upstream" from the SMB to the Enterprise sales segment.
It’s nearly impossible to build a product that literally every size of business wants to buy off the bat. Companies typically get initial traction in one segment, which we’ll broadly classify into three buckets: Small Business (SMB), Mid Market (Commercial), or Enterprise.
But eventually they hit a saturation point where they need to either build more products to sell to that same cohort of customers, or figure out a way to get companies of different sizes to buy their stuff.
In this post, we focus on the latter.
Going “up market” to the Enterprise and going “down market” to the SMB require different playbooks.
Here are 7 lessons from studying the successes (and failures) of other companies who have made the leap:
1/ Define your segmentation
Make it clear how you are drawing the lines between segments. Segmentation should be linked to the end user of your product.
Total Employees?
Sales reps?
Developers?
HR Professionals?
Marketers?
This will impact the territories you draw.
The goal is to draw lines wide enough so all your reps can eat, but not get too fat.
Tangent: We had this guy named Jesse at this company I used to work at in Sales Ops. He used to “draw” the territories each year during annual planning. But we didn’t know what he did the other 87% of the year. So behind his back we used to all call him “The Cartographer”. We imagined he drew Christopher Columbus’ initial map to the new world.
Segmentation will also impact your systems…
2/ Data is the name of the game
You can’t react to what you can’t measure.
This means if you’re using a shitty free CRM to log sales opps, or an excel doc with external links to track your marketing funnel, you’re bound to fail when the dimensions of your data suddenly change.
You also want to set up your accounting system to track costs at the segment level.
You’ll want to compare Customer Acquisition Cost across engines. Most companies fall victim to “peanut butter spreading” costs after the fact (I’ve been guilty of it on many occasions).
3/ Tell your investors
This isn’t going to happen overnight, so you’ll want to gauge their expectations.
You are going to want their support for budget (please approve this expensive operating plan!!!) and customer intros (please introduce me to Portfolio Company XYZ!!!).
4/ Layer on, don’t tear down
Remember you are augmenting your salesforce, and layering on another route to market. You are not tearing down the existing channels of distribution. In fact, you need the existing channels to subsidize this expedition. The contribution margin from the Enterprise will be weak for a while, and payroll comes twice a month.
5/ Prepare your budget
The fully loaded cost (OTE + Benny’s) of an enterprise rep is roughly 2x - 2.5x that of an SMB rep and 1.3x - 1.7x of a commercial rep, so prepare for the sticker shock.
However, their quotas should reflect this uptick in spend and play out in their contribution to the business.
6/ Change your ratios
Speaking of budget, Enterprise reps require greater support. They’re kinda like pre-Madonna’s on a sport team...
Yes, they can throw the ball 72 yards on a frozen rope, but like Tom Brady, they’re going to want to bring their own personal trainers (or System Engineers) to games.
Staff your SE’s and BDRs based on new ratios; Enterprise reps don’t share well.
7/ Promote some, but not all
Yes, some of your best SMB and Commercial reps should follow their career progression up the ladder to the Enterprise.
But remember - they’ve never done this type of sale before, so you can’t have your entire Enterprise sales force comprised of people “doing it live.”
Also, you still need people to close your SMB and Commercial business.
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Run the Numbers
Also on Spotify / Apple
I interviewed the Michael Jordan of pricing and packaging - Jason Kap. He’s the founder and CEO of Blue Rocket, a world renowned pricing consultancy for top enterprise tech companies, like SalesForce, Cisco, PagerDuty, Brex, and Gitlab. Jason gained invaluable experience working at Microsoft for Bill Gates for over a decade, where he worked on the canonical anti trust case that many might recall, forcing the company to consider how it bundled it’s Office software with the operating system.
On this episode we cover
What the vibe was like at Microsoft in the early 2000’s under Bill Gates
How pricing is a series of strategic decisions a company makes
Where in the org pricing should sit
How often companies should update their pricing
Jason’s philosophy on discounting and how CFOs can better work with Sales teams to find the right range
And how framing and psychology play a role in how a deal is presented and priced to the end consumer
While this is a podcast on pricing, it may as well be one on corporate strategy and buyer psychology.
Quote I’ve Been Pondering
“This is why I laugh when people copy Google’s management practices. Twenty billion dollars of free cash flow fixes a lot of managerial mistakes. Google may have the best management in the world, but how do you control for the fact that the company can also fund its own space program?”
-The Innovation Stack, by Jim McKelvey