Swimming up stream to the Enterprise
What to know before making the journey, and how to take your lumps
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
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 - 2.5xthat of an SMB rep and1.3x - 1.7xof a commercial rep, so prepare for the sticker shockHowever, 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
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”
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.
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