Hiya guys! Patrick (patio11) here. You asked to get emails from me
about making and selling software. Last time we talked about SaaS
pricing, focusing on people paying in the tens to hundreds of dollars
range. Today, we're going to talk about bigger fish.
A lot of folks have asked me about selling software to Big Freaking
Enterprises. Big Freaking Enterprises are utterly price insensitive at
price points you are contemplating (all amounts below $500 a month sound
like rounding error), and having a few BFE clients grants you social
proof to help sell other BFEs and smaller customers, as well. Nobody
ever got fired for picking IBM, but if nobody at IBM got fired for
picking you, then you must be good enough for Dr. Smith's office, right?
I was under a common engineer misapprehension that BFE sales requires
playing golf, inviting clients to steak dinners, and having budgets
beyond to reach of small businesses. This is not 100% true: you can
hack the BFE procurement process to your advantage. Let's dig into how.
Understanding The B2B Purchasing Cycle So You Can Exploit It
Most folks reading this have seen one-half of the B2B purchasing cycle
at their day jobs: they fill out a form or ask a manager for X (a copy
of MSOffice, a new computer, etc), and six weeks later X arrives. You
may have wondered whether the intervening six weeks required dark
rituals of eldritch power. Nope, but don't tell Purchasing, as they
treasure their reputations. Here's the typical workflow for a big
business buying something "fairly small," i.e. below six figures.
Feel free to skip this section if you're aware of it already -- there's meatier stuff below.
1. A User Needs Something.
An internal user (i.e. low-ranking peon) discovers they need something. They ask for it.
2. Purchasing Agent Looks For Solutions
Either that user or a person in the Purchasing Department identifies
something to fit the need. They'll usually do this the exact way normal
customers would: by Googling, sometimes assisted by an internal list of
Vendors We've Worked With Before And Not Had To Sue To Get Delivery.
3. Purchasing Agent Sends Out Questions
The person in charge of the purchase will ask a few businesses whether
their product fits the needs identified on their paperwork (again, quite
possibly written by a different person). This stage will often
literally involve a spreadsheet with identified requirements listed on
it. (Note how that matches up very well with those obnoxious checkbox
charts you've seen on your competitors' websites? That is right, they
know how this game is played.) Expect the overwhelming majority of
these questions to be stupidly obvious and answered on the website,
which the Purchasing Agent has not perused in its entirety because it is
much easier to have you fill in the spreadsheet than to do it
themselves.
4. Purchasing Agent Requests Quotes
Businesses which replied with a spreadsheet containing almost all checks
are asked for a formal quote. These are simply written attestations
that Product X is available at price Y, with no shenanigans going on.
(There are plenty of shenanigans going on, but this forces disclosure of
the most obvious shenanigans, or at least the Purchasing Department
thinks so.) In most cases for small purchases (again, less than six
figures), the Purchasing Agent will only bother asking for one quote.
5. Purchasing Department Generates a Purchase Order (PO)
The Purchasing Department will then create a Purchase Order (PO), which
is a paper document saying "We accept your quote for Product X at Price
Y, and request delivery, with payment to be made after delivery
according to the following terms and conditions which we'll probably
violate anyhow."
6a. Business Delivers The Product
You know this part, right? You deliver your product to the internal
user named on the documents, who may be shocked to receive it after only
six short weeks. Their Purchasing Agent may not have told them the
status of their request.
6b. (Approximately Contemporaneously) Business Invoices Accounts Payable
You send an invoice (a formal demand for payment) to the Accounts
Payable department at the business, which may or may not be the same as
the Purchasing Department, depending on the peculiarities of your
customer's org chart.
7. Accounts Payable Pays The Business
Accounts Payable will then pay the business in the manner specified on
the invoice. No, actually, they will ignore your instructions
(especially about payment timeframes), and send a check to an address
picked randomly from the set of them printed on the invoice. (Make sure
you give them one easy, obvious option for where to send the checks,
and that that mailbox is monitored for discrete envelopes containing
paper worth potentially tens of thousands of dollars. You can get a
check reissued but it will be extra pain and take another several
weeks.)
The Easiest Hack Around The Purchasing Process
All internal users hate the purchasing process because it inhibits their ability to get work done.
Successful Enterprise sales is about finding an internal champion who really wants your product like they want oxygen, and then
allying with that person against their own employer. One of the easiest ways to do this is allowing them to exercise any loophole their Purchasing Department provides.
Because the whole rigamarole costs several hundred dollars in employee
salary to approve any PO, most internal Purchasing Departments have a
few enumerated exceptions. One is an upper limit on expenses a worker
or low-level manager can approve on their own authority without
ceremony, generally by putting them on a corporate credit card. This
limit is customarily $500 or $1,000.
The greatest hack the software industry came up with in the last twenty years is monthly billing,
because it lets you sell a four-figure product for $499 a month,
evading the internal purchasing controls which hamper your users from
getting their work done. This is why
substantially every SaaS business should have a plan priced between $250 and $499 a month, because corporate employees will expense it on the card. It
is not their money so it doesn't matter whether it is $99, $250, or $4999 a month, as
all those figures are literally rounding error
to this customer, which is why they don't bother controlling for
purchases that small. Accordingly, you should price to the high end of
that range.
Some businesses do not have a corporate card available and will request to pay by PO all of the time. Your policy should be
we are happy to take POs if you pre-pay for a year
(optionally with a minimum plan level specified), which gets you out of
the business of chasing two-figure POs every month, something which you
urgently do not want. Your customer will be pleased with this, because
they hate the work *they* have to do to get POs approved,
Dealing With The "You're Not Big Enough" Objection
You may be dealing with a larger transaction than the $500 exemption or
with a more conservative business than the typical megacorp. (For
example, hospitals and school systems are often very strict. Hospitals
actually have money, so it is worth putting up with their layers of
protective horsepuckey to get at it. As someone who sold to teachers
for six years let me strongly suggest pounding your own hand with a
hammer prior to selling to school districts. It is less painful and
approximately as lucrative.)
One obstacle to making these sales at Stage 2/Stage 3 is that customers
really want to see social proof, because they have the
get-fired-if-this-doesn't-work-out worry. A typical phrase you will
hear from customers at this point is "We don't want to be your biggest
client." There are a variety of ways you can smooth over this
objection, which I have stolen flagrantly from my friend Jason Cohen at
WPEngine.
The best way is to contrast the level of service you can offer with that the competition can offer. You will
always win this comparison if you phrase it correctly, regardless of whether e.g. the competition offers phone support and you do not.
The magic words are "I appreciate that you'd feel safer going with Brand
Name X, and Brand Name X will indeed have someone around to answer your
phone call at 2 AM. Unfortunately, they won't be able to do anything
for you.
Their only job is getting you off the phone
before you can speak to someone capable of resolving your problem,
because those people cost money. And you know what happens if you call
at 2 PM? You get
the same guy."
"On the other hand, when you send us an email, you may have to wait a few hours, but
you'll get your response from me, every single time, and I will do my best to fix your problem. I built this product from the ground up and I am
fanatical about taking care of you because you'd be my biggest customer, and if I don't take care of you, the business is over."
This is part of the magic founder advantage, by the way. Customers hate
speaking to salespeople: they're pushy and poorly informed. Customers
love talking to founders: they're transparently passionate about the
product and always, always have an answer at their fingertips or know
how to get one. You can press your founder advantage such that even
"We'd love to do that but for X, Y, and Z it isn't feasible right now"
sounds like a better response than "Oh, sure, we do that like we do
everything. So how much can I put you down for?" will from your
competition.
Bootstrapping Social Proof For Targeting Enterprises
Appointment Reminder,
my newest software business, is currently a one-man operation with
occasional support from freelancers. A particularly nationally renowned
hospital included Appointment Reminder in the list of twelve companies
it sent out spreadsheets to about a project it needed appointment
reminders for. (Why'd they include AR? Because I rank #1 on Google for
Appointment Reminder, and "If you're good enough for Google..."
Seriously, direct quote.)
The particular project this hospital was engaging on did not have a six
figure budget. (It is NDAed, but let's call it a $10k sale. It isn't,
but it could be.) As a result, the sales teams for my competitors
(smelling a non-motivational commission) perfunctorily sent back their
standard data sheets and didn't persue the sale aggressively.
$10k is not a hugely motivational amount of money for me (believe me, I
never, ever thought I'd be saying that) but I really, really wanted this
hospital as an anchor client for Appointment Reminder. I wanted to be
able to use their logo on my website and use that social proof as a
wedge into the (large and extraordinarily lucrative) healthcare market.
So I
crazily overdelivered on the questions and concerns the user at the hospital had.
You can crush arbitrarily large/sophisticated competition on small deals that are uneconomical for them to pursue
with the goal of expanding into the core of the business. Clayton
Christensen calls this "disruptive innovation." I personally like to
think of the old line about how to eat an elephant: in small bites,
starting at its vulnerable underbelly.
Twelve companies, with my competitors ranging from 10-man boutique
consultancies to Fortune 500 companies, were asked whether their
products would work for the hospital's needs. They sent perfunctory
emails with just the generic attached data sheet.
I sent 2,000 word emails with paragraphs starting with "
*Multi-user account isolation: yes*"
and continuing with 200 words explaining exactly why that mattered for
the particular hospital. (Copywriting tip #1: if you're ever talking to
someone, use their name and their employer's name. Use it just a
little more than you would think would be natural. Straight out of How
To Win Friends and Influence People, still works as good as ever.) All
of my emails
suggested CCing to the internal team.
The hospital wanted a follow-up phone call with Appointment Reminder and
the main competitor that survived the feature-grid comparison. If
you're familiar with my market you can probably guess who they are, but
suffice it to say they have 8 figures of sales a year and conservatively
100 man years in their software for every one I have in mine. I
should lose on any comparison with them every single time. Their sales
rep answered the questions on the call perfunctorily and superficially,
and then went back to his more important leads.
When the hospital asked for the phone call with me, I remembered the
name of the nurse doing the purchasing (we'll call her Jill), and
thanked her for the email back-and-forth, then introduced myself as
(again) "in charge of the product." She asked questions. I told her,
every time, "I can go as deep into detail as this as you require, but I
think XXXXX is about what your hospital cares about. Would you like to
hear more?" When she got to questions which were actually hard, I said
"I don't have a good answer for you right this minute, but I will
follow-up with you over email with the specifics." Immediately after
the phone call, I sent her an email (again, requesting a CC to the
internal team) covering
every question asked on the call, with a callout on the top that paragraphs 3, 7, and 9 were the ones I had promised to follow-up on.
Amusingly, in the phone call, Jill asked "I have to ask, is this product
your baby? I mean, are you the only one there?" I said "Well, short
answer: yes." I then cribbed liberally from Jason and said "It's a
one-man company and, while I might have employees in the future, at
present I don't. I wrote the product myself, answer all the questions
myself, and do all the support myself. And, like you can imagine, I
take very good care of my baby."
The hospital had an internal meeting with ten attendees to decide which
product to go forward with. Every person other than Jill understood the
meeting as "Deciding between Appointment Reminder and whatever that
other company is", because their inboxes had had two emails with
extensive commentary from Patrick at Appointment Reminder and a PDF
filed forwarded from "some guy" which every doctor had promised to read
some day when there were no lives to be saved. The lead doctor wanted
to go with the 8,000 lb gorilla. Jill relayed the baby story, with a
strong personal recommendation.
And that's how I outcompeted my biggest competitor and won an enterprise
sale as a single guy running his business from Japan. If you're
curious as to who the hospital is, keep an eye on the Appointment
Reminder home page, as in only a few more short months I should be able
to mention them publicly.
I won't lie to you: doing Enterprise sales is long, hard work. I've
probably invested 25 hours into pushing paperwork on this one over six
months, and there have been another dozen stories which started like
this one and then ended at the select-down prior to the in-depth phone
calls. But hey, sale made and beachhead established in an
extraordinarily lucrative market segment with huge barriers to entry.
Interestingly, after you have a beachhead, broadening it is a hundred
times easier. In addition to the next "But you're so small" objection
being answerable with "I'm good enough for $NAMEDROP_LIKE_A_PRO but if
you're still concerned...", it turns out that the hospital was using the
service with several partner hospitals, all of some reputation. I
essentially picked up eight customer logos for the "price" of one.
Customers Sometimes Want To Opt-In To Enterprise Pricing. Let Them.
Your pipeline is to high-touch sales as your funnel is to low-touch
sales via your website. That's how I've always seen at it, coming from a
low-touch background. Sales guys see it as something like "You become
aware that a hundred prospective customers exist. You winnow your list
down to 20 of them who are qualified leads, the ones with the best
prospect of purchasing your product. You call them and get meaningful
interaction with 10 decisionmakers. You get three product demos. One
of them converts into a sale, and you get a commission check."
You will eventually want to get past the point where all sales comes
from one of the founders doing a time-intensive song and dance yourself.
This desire eventually results in the dreaded Defined, Repeatable
Sales Process. You can hack your way around needing to have one of
those (and/or a sales team), though. These strategies also transition
perfectly well to doing Enterprise sales "for real."
Your self-service low-touch software/SaaS product, for example, can
serve as a source of extraordinarily qualified sales leads for a higher
level of offering. For example, a big company happily using the $250 a
month plan could, quite possibly, be happy to upgrade to a $5,000 a
month contract if you offered them the right incentive. (Twenty times
as much, you ask? No, transitioning from "pocket lint" to pennies.
Stop thinking like a human. Think like a corporation. Corporations are
like humans whose smallest increment of currency is the largest
paycheck you've ever received.)
How would you segment folks who need a higher offering? In many cases,
they'll self-segment by asking you questions, such as "Does the software
have auditing capabilities?
There are three easy answers to this question:
- No, it doesn't. Sorry.
- No, it doesn't, but we can build that for you.
- Yes, it does. We just have to do the X and the Y and the Z and, bam, auditing.
Smack yourself if you ever say any one of these answers.
Auditing is one of several Enterprise pricing trigger words.
(See also: "compliance", "administrator", "permissions", "firewall",
"multi-lingual", "contract", "SLA", etc), If you sincerely care about
auditing, you have more money than God. Accordingly, the right answer
is some variation of "We make auditing available to our Enterprise
customers. When would you like to have a call about your needs?" You
then close that sale at an unpublished enterprise price point, which
will probably be thousands of dollars a month.
This is important:
Enterprise pricing is discontinuous with normal pricing.
If the $250 a month plan entitles you to 500 foozles and an Enterprise
needs 5,000 foozles, that costs thousands or tens thousands of dollars
per month. If an Enterprise only needs 500 foozles, that costs
thousands or tens of thousands of dollars per month. If an Enterprise
only needs 50 foozles, that costs thousands or tens of thousands of
dollars per month. This is partially justified by the amount of pain
you're signing up for by doing an Enterprise sales process, but is
mostly just pure, naked price discrimination.
Enterprises are not price conscious*. Don't attempt to sell them based on your price. (* For prices customarily contemplated by software companies.)
I meet a lot of developers who learn about pricing primarily through
reading other people's SaaS pricing pages. Like we discussed in the
email on SaaS pricing, even if the pricing page doesn't explicitly say
it, there is *probably* an option to pay an arbitrarily high amount for
any SaaS you have ever heard of. I know of companies who have policies
against doing this sort of thing (37signals famously does, for example)
but there are many successful SaaS companies who have a magic lever
available to make your experience of them totally disconnected from
their standard offering. The existence of that lever is not often
disclosed.
Here's an example I know won't rub anyone wrong: Github has Enterprise
pricing available, and the magic segmenting feature is "behind your
firewall." Did you know you can trivially pay
five or six figures a year for a Github account?
Quick, guess, where does Github make more money: all of their $7 a
month personal accounts put together or their largest single Enterprise
customer? I know which one I'm betting on.
Scaling Your Sales Pipeline Up
Sometimes customers won't come out and tell you "Hey, I'm price
insensitive, please charge me 20 times as much." They can often
demonstrate it through behavior, though. For example, let's say you
hypothetically wanted to get people to talk to you about their auditing
requirements. You could put Call Us copy on your pricing page. Many of
your customers (because they know how the game is played) will
correctly read that to mean "We have Enterprise service available and it
is, as you would expect, expensive." Where else can you collect that
lead, without requring ongoing involvement from the founding team?
Have you considered asking for it in your application? For example,
just drop a setting in the Account Settings menu. "Auditing: turn on".
If someone clicks it, display a message saying "Your plan level doesn't
include auditing but we'll be in touch. Click here if you don't want
to hear from us." If they don't click that link, fire yourself an email
saying "Bob Smith (bob@example.com) was interested in: Auditing." Then
follow up with Bob personally. You just turned 5 minutes of engineer
time into the start of a repeatable pipeline for getting six-figure
deals. Good on you.
(If you're discomfit by that idea, you can write microcopy which you'll
be more comfortable with, like "Auditing: click here to schedule a phone
call about Auditing with our sales team." But that's extra work and,
believe me, you care more about the difference than your customers do.
This is not their first rodeo -- as an Enterprise, they have institutional experience of dealing with Enterprise sales thousands of times.)
Another method: send your customers a sequence of
emails, often called "drip marketing", with a mixture beginning with
straight-up education as to how to use the software to solve their
problems. Gradually, you can transition the emails from less education
and more selling on the benefits available of transitioning to your
Enterprise model. (If you want to be really sophisticated, send this
only to folks whose accounts suggest possible enterprise-ness about
them. Myself, I'd be inclined to suggest e.g. "A one-month email course
on getting the most out of X" to everyone at signup, making sure the
typical customer would enjoy the first few emails, and then giving
everyone a one-click opt-out if the Enterprise sales material doesn't
ring their bell.) You can pitch the benefits of your Enterprise
services, such as e.g. dedicated support staff or a Service Level
Agreement or what have you. Your happy internal customer might
recognize the benfits of upgrading to these or (the same for your
purposes) be required to take advantage of them by internal rules, and
accordingly those emails might spark fruitful conversations with your
sales teams.
Not sure what I mean by "internal rules"? Consider a Pricing Department
which, having been burned on a software purchase before, has a
bullet-point "All software purchases must include one year of
maintenance with a minimum service level guarantee of tier two support
being available within 6 hours." You know what that means from your
perspective? "This Purchasing Department will reject any PO for the
$250 a month plan and require that our customer upgrade to the $5,000 a
month plan, if it is communicated to us that the $250 plan does not come
with an SLA." This strongly adding the following line-item to quotes:
"Support: Email support on a best-effort basis. No SLA purchased;
available separately. price: (included)" That line will virtually
never torpedo as purchase, but will sometimes result in 20x-ing the
purchase price.
Still another method: You've got a dashboard with
everyone who signed up in the last day on it, right? (RIGHT?) If
someone with an email address ending with e.g. boeing.com signs up, make
sure they get a hand-written letter from the founder or project manager
offering to talk about their concerns. (I see no particular reason why
you can't give everyone who signs up the same letter, but I'd devote
more of my concentration to making sure a conversation actually happened
if a customer was from boeing.com versus a generic gmail address.)
Anyone Can Do Enterprise Sales
One of the most common objections I hear from folks thinking about
moving upmarket into the enterprise is that they're not cut out to be
Sales Guys. Guys, believe me, I used to play World of Warcraft and
still often stare at my own shoes while talking.
Nobody is less
qualified to be a Sales Guy than me. It is a skill, though, like any
other. Try it. Fail a few times. You'll get better at it, eventually.
I had maybe a 5% hit rate when I started out doing sales on
Appointment Reminder, if that. It is 20% now, which (when you multiply
by the
formidable budgets of companies in the space) works out to
be quite a bit of money. As my father always counselled me with
regards to dating advice: "Don't come up with reasons for them being out
of your league. Make them come up with them. Someday, someone --
perhaps someone surprising -- will say Yes." (n.b. Equally good advice
in the original context.)
Until next time.
Regards,
Patrick McKenzie
P.S. I always appreciate getting email from you about what you'd like to hear about next.
Source:
Patrick McKenzie
