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Swimming up stream to the Enterprise

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Swimming up stream to the Enterprise

What to know before making the journey, and how to take your lumps

CJ Gustafson
May 31, 2022
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Swimming up stream to the Enterprise

www.mostlymetrics.com

There’s an old saying:

“If you try to please everyone, you end up pleasing no one at all.”

-Not my mother or mother-in-law when we split holidays

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.

Going “up market” to the Enterprise and going “down market” to the SMB require different playbooks.

In this post we’ll use our David Attenborough voice to cover the Salmon’s journey UPSTREAM to the Enterprise.


TL;DR:

  • Segment: Define your segmentation across people and systems

  • Forecast: Budget for more expensive people and a nuanced support model

  • Hire: New sales reps and legal resources

  • Augment: Layer on, don’t tear down your existing GTM channels

  • Track: Net retention, LTV:CAC, and discounting at the segment level


bear salmon GIF
“Circle back in Q4.”

What to know going in

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

  • Segmentation will also impact your systems…

Data is the name of the game

  • You can’t react to what you can’t measure

  • This means if you are using a shitty free CRM to log sales opps, or an excel doc with external links to track your entire 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

“Yea, so I think this campaign is like 60% attributable to the Enterprise segment”

-FP&A departments all over America

Tell your investors

  • This isn’t going to happen over night, 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!!!)

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

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. More on that in this post

Change your ratios

  • Speaking of budget, Enterprise reps require greater support

  • They’re kinda like pre-Madonna’s on a sports teams - 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

Tom Brady retiring has Alex Guerrero joking about finding job
7x Enterprise Rep of the Year
  • Staff your SE’s and BDRs based on new ratios; Enterprise reps don’t share well

  • More on headcount planning here

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”

We Do It Live GIF - Bill O Reilly Well Do It Live Fuck It - Discover &  Share GIFs
  • Also, you still need people to close your SMB and Commercial business

Hire some legal people, and then hire some more

  • I spoke to a tech CEO and asked what the one thing he’d do to speed up sales cycles” and he said:

“Cut out legal”

-CEO who doesn’t like redlines

  • It’s not uncommon for half (yes, I said it, half) of an enterprise deal cycle to be tied up in legal negotiations; In fact, I once saw a deal bounce around in legal purgatory for five months…we should have been paying rent

  • And if you are new to the game, don’t expect to use your own paper - AWS is going to have you sign their stuff


What to monitor coming out

Benchmark your discounting

  • In the Enterprise you are showing up to a knife fight, but your knife is a hot dog

  • As the new kid on the block, you’re going to have to make some concessions to get larger deals done

    • The average Enterprise deal is discounted ~10% - 15% more than a Mid Market deal

Your net retention should improve

  • Big companies buy licenses in chunks

    • Boeing isn’t going to halt the production lines to roll out your software from wall to wall

  • Big companies are also less likely to buy all your products at once

    • There are generally multiple decision makers for multiple software products when the organization is more than ~1,000 people

  • Net Retention, which if you remember from our prior jam sessions, has two levers:

    • More licenses

    • More products

  • This new enterprise motion is primed to expand using both levers if you successfully deploy your software the first time around

Your CAC should be higher, but so should your LTV

  • As discussed above, Sales, Marketing and Customer Success costs will be more expensive due to the lower staffing ratios and higher comp’d reps

    • But the deal sizes should be larger to help offset the cost

  • Your renewal rate should improve

    • Large enterprises are less likely to churn by way of going out of business (like SMB)

    • They’re also less likely to rip and replace you because, well, think about how hard it was for you to make the sale


Potentially Reliable Stuff I Read at 2AM (Sources)

  • Straight off the dome, son

What I’ve Been Reading

One could say my portfolio is a tad over-indexed to high growth tech. So over-indexed, I’ve been texting people with Androids just to see some green.

Twitter avatar for @ShaanVP
Shaan Puri @ShaanVP
So tired of seeing red red red in my portfolio everyday I started texting Android friends just to see green
Image
9:13 PM ∙ May 6, 2022
1,190Likes59Retweets

In an effort to avoid looking at my brokerage account, I’ve been reading up on other asset classes.

One I wish I got into sooner was residential real estate. I’m not too good with a hammer, but I can build a tasty mortgage amortization model.

My go to is “Everything House Hacking”, a 5 minute weekly email on everything home ownership. They’re bringing an analytical approach with tactical advice to the real estate game, which I love.

Quote That Hit Me:

“Sometimes taking a risk resulted in my blowing up and failing miserably. But one thing I know for sure, not one of my best performances of my career would have happened had I not taken a big risk”

Run the Mile You’re In

By Ryan Hall, Olympian

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Swimming up stream to the Enterprise

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