The startup world is all about the future. Founders talk about creating the future. Seizing the opportunities of a golden age. Never been easier to start a company. So you might ask, why bother investing time and effort in past performance?
Those board reports feel as if they are nothing but a mechanism for keeping investors and non exec directors happy. Annual accounts are even worse. They feel like ancient history. The numbers don’t make sense. For certain they don’t shine a positive light on the great things your company is doing.
Its all pain and no gain. Yet this misses some important point. Here are four simple reasons why that thinking is wrong. This stuff matters.
“I had also, during many years, followed a golden rule, namely that whenever published fact, a new observation of thought came across me, which was opposed to my general results, to make a memorandum of it without fail and at once; for I had found by experience that such facts and thoughts were far more apt to escape from the memory than favourable ones.” Charles Darwin
Four lessons from history
Any of these is a good enough reason to get some consistent reliable metrics about your SaaS. What about accounting numbers though. Aren't those for the birds?
Accounting rules are relevant
In some respects yes. The rules vary from country to country. Part law and regulation, part accounting standards. Accounting standards in turn are half local and half international. All before you get to the interpretations of well paid professionals (like what I used to be).
It can be quite hard to understand the story published accounts are telling. That is not a good reason to discard this data altogether. For a start standardisation and rules are limiting but also useful in some cases. Investors like comparing numbers. Knowing they are all prepared to the same standards adds a lot of value. And you need to be able to convince investors.
Most angel investors don’t make a big deal over this. Take a longer view and the situation changes. VCs and corporate investors want to see proper accounting numbers. The same is true for or any form of exit - trade buyer, financial buyer or IPO. Tom Tunguz wrote a good article on this exact point. Published when the accounting rules for SaaS changed this year.
Not only that, they want to know how you get from the figures you look at every day to the formal accounts. When I did due diligence, one of the first questions on the checklist was “Have the management accounts been reconciled to the financial accounts?” Its still there.
So you need to ask yourself, what happens when someone appears with deep pockets. Do you want to present the numbers with confidence? Or scramble around delating diligence until you are ready?
The Chairman's View
So numbers matter. Get the right financial information and you can make better decisions. Use your numbers to present your business with more credibility. Yet preparing and managing this stuff is still a burden. And it can feel that there is very little help out there. I plan to change that. Share your opinion and be among the first to hear how managing financial information can be faster, easier and better.
Please share your opinion - Sunstone Financial Information Survey
Business tools provide handy shortcuts and improve efficiency. Used for their intended purpose good business tools can lead to massive productivity improvements. Apply them the way they were designed and you will get results.
Enterprise SaaS companies are both builders and users of such tools. And one of the clear benefits of the SaaS model is making better, more innovative tools available to every business.
But SaaS does not overcome the biggest danger with any tool. Start using business tools for the wrong purpose and they can become an instrument of torture not a source of value.
CRM and its reporting arm sales pipelines are one of the most misused tools around today.
Your SaaS pipeline is for asking questions not making decisions
They provide an excellent snapshot of the future health of your business. Your SaaS can get a clear indicator of future revenue and with a bit of effort some good data on which sales processes or sales teams are driving growth.
However, many people take this one step too far. CRM and pipeline data becomes a tool to manage. A mechanism to make decisions. And therein lies the danger.
Good pipeline data is a great way to ask the right questions. Don’t let the data get polluted by a bias towards preset goals and targets. Good decisions flow from answering good questions not just from abstract, summarised data.
Enterprise SaaS sales - Dynamics not statics
This is most obvious for enterprise SaaS sales.
Each sale is the culmination of a long cycle with many twists and turns. Its not out of whack to spend six months building an enterprise relationship and another nine months to achieve the first sale.
And in enterprise SaaS you are also looking for upsell. Each sales opportunity is only part of a wider relationship picture.Ongoing revenue, new ideas, expansion sales, service challenges and the rest.
Your pipeline is just a snapshot at a point in time. Every stage is like an individual window that captures only those opportunities that are in a specific position at a given moment.
It doesn’t matter whether you use the categories I outlined a few weeks ago in Simple SaaS
Or adopt a more conventional structure. Your pipeline is a valuable yet static view.
An enterprise relationship is like a dynamic living organism.
Think of it like comparing your turnover to your growth rate. Turnover tells you how well you have done but its a static figure. In the past. Growth is dynamic. A much better indicator of where you are going.
Manage enterprise SaaS customer one by one
Relationships are dynamic and unique. Each relationship needs to be treated as a special case and managed as such. More accurately, for enterprise SaaS we are talking about the group of relationships that forms you customer contacts for each enterprise organisation.
Customer A and Customer Y may be in the same “pot” from a pipeline reporting point of view. But they will have arrived there by very different routes. The account team will be planning their own specific next steps. And value of the relationship will depend on how those plans are executed.
“Strategic” sales choices like: “lets push all of these to the next stage this quarter” or let’s make sure every customer is offered this special new feature” are counter productive. They distract from a focus on customer need and they risk upsetting the delicate balance of the relationship.
The Chairman's View
Sitting on Boards, pipeline is one of the first things I look at each month. It gives me a great pulse check on the business. And it help find the right questions to ask the management team.
But I also like to listen to the CEO or the Sales Director talk about the market. This gives me a much better feel for the dynamics than the report.
When I ask my questions, I am not looking for simple answers. I want to hear specifics. Plans to convert important relationships. Actions to address customer problems or concerns. Change to strategy in response to the customer’s business dynamic.
All about a unique approach for each enterprise SaaS customer. Designed to maximise the company’s chance of developing a strong relationship that generates value for both sides.
This has lots of implications regardless of the type of customer you are targetting. The gulf between product and service buying for an enterprise SaaS customer is especially wide.
I want to point out a couple of key things in this piece.
Enterprise ready is an entry fee not a sales pitch
Another excellent article which caught my eye was a product manager’s guide to moving up market from Tom Tunguz.
I can’t improve on the list of product features your SaaS product needs to be enterprise ready. If you ever enter into an enterprise procurement process, covering these bases will save you a lot of heartache. And likely prevent your bid falling at the first hurdle.
But don’t be deceived into thinking this is anything like enough. As the title says this is just for a product manager. Selling SaaS to the enterprise has multiple dimensions. Meeting certain technical standards and the preconditions set by procurement is only the entry ticket.
Your SaaS needs to convince buyers not just procurement
Last week someone asked me to share the basic proposal structure I used to use when selling complex professional services. Writing this down reminded me of a fundamental truth about selling services.
Every sale needs its own unique selling point.
Most entrepreneurs will be familiar with the idea of a USP. A clear and distinctive advantage that set your SaaS apart from the competition.
The implication is that there is a clear USP which will appeal to a range of potential customers. Services are not like that. Services are personal. So each customer likes to feel that the USP is designed from them and them alone.
Back in the day, we used to refer to this as the killer slide. Every proposal had to have one page that made the buying decision for the client.
Your SaaS needs to be beyond compare and score
Achieving this when you are selling to the enterprise needs a couple of things.
First, this will never appear on the procurement agenda. Procurement’s job is to get specific answers to a whole range of standard questions. This allows them to do like for like comparisons and score your SaaS against its competitors.
Winning this type of scoring is an art form in itself. But it does not touch on USP. By definition this defies comparison. To figure this out you need to talk to the real buyers. The people in the enterprise that will benefit from your SaaS.
Your USP for a specific customer needs to be couched in the benefits that key people within that enterprise will realise if they use your SaaS. (Note use it, not just buy it.)
The Chairman's View
The service mindset is the key to enterprise SaaS. Building a product with the right operations and support to deliver behind it is a core essential. You can take account of these needs from the outset of your startup.
Once you engage with customers, you have to get on the business benefits agenda.
Satisfy procurement and deliver the wow factor the business buyers. away. Or, click the Write button and compose something new.
The start not the end of a customer lifetime
All that aside, a different thought struck me as I was driving home. In my mind, these guys are already a customer. They are busy people with high pressure jobs that are literally life and death. And they gave up 3 hours of time between them to help me out.
Since I have gained value, I must owe them more value in return. Its an obligation plain and simple.
Retention first not acquisition first
That took me back to thinking about this article from Price Intelligently which argues for a retention first mindset rather than an acquisition first approach. The authors have approached this from a metrics standpoint. And they demonstrate clearly that reducing churn can be a straight path to rapid growth.
But metrics are outcomes not strategy. Churn and its relative LTV are good examples. They capture an important concept. Yet they result from measuring customer lifetime at the end not from the beginning. That can’t be right!
Nonetheless, I liked the principle when I first read the post. I was also a little bit doubtful to be honest. Retention first sounds very attractive to someone who prefers building relationships to cold sales. So was I just playing to my own preferences?
My customer meeting has put that niggling doubt to bed. Good business works on human relationships. Not just transactional benefits.
That’s why numbers and benchmarks are useful tools but no way to run a business.
B2B SaaS - relationships not pipeline
So for me, retention first is a simple principle. One that applies to any B2B SaaS from day one. And it works like this:
Until recently, I worked for one of the leading professional services firms in the world. The organisation had fantastic depth of human talent. And an unrivalled client base amongst the leading companies across the globe. We all made a ton of money.
Yet as leaders we could never escape the feeling that something was missing. Every client engagement was different. A team of smart people would think through a complex business problem and use their experience and a bit of innovation to develop a specific solution.
If only, we could capture the essentials and repeat the same solution over and over. What a business model that would make!
Alchemy - Turning service gold into product margin
For years we struggled to turn gold plated, world leading services into products. Every leader was adamant this was the way forward. I well remember one senior partner literally thumping the table in a 3 Michelin Star London restaurant. Barking “Repeatable solutions” at us in his most stentorian tone.
The SaaS struggle to dismantle every product
Contrast this with the startup world today. SaaS is the business model of choice for software.
By definition, it takes a product (software) and turns it into a service. And technology enables this mindset to spread far wider than just software. As one of the leading thinkers in the industry, Ben Thompson of Stratechery, put it recently, we are now in a world of “everything as a service.”
It looks like the leaders in services are desperate to become product businesses. While those who make a living from products are striving just as hard to turn those into services.
What is going on here? No doubt part of the answer is “grass is always greener” mentality. On a more positive angle, both attitudes show a bit of an innovation mindset which can only be a good thing for customers. But in the end, I don’t think we will see an outright exchange of business models. Services will win.
As customer we love to be treated to excellent service. Delivering services is more painful for most people. As technology overcomes that particular barrier, expect to see a service mentality take over (almost) everywhere.
If you are building a product or running a product company, remember selling and delivering services needs a different approach to success.
You are working through a complex never ending sales process for a big enterprise opportunity. Its the most important thing for your B2B SaaS right now. Ever find that your CRM system just doesn’t reflect reality? (Or ever wonder why a sales pipeline tool is called customer relationship management for that matter?)
Sorry I digress. This is not a process problem. Leads and various other clear and specific data are all recorded neat and precise in CRM. Yet all the things that matter seem to be missing. Or hidden in notes and free text fields.
There is a simple reason. CRM systems are designed for selling standard repeatable solutions. To customers with similar needs and predictable buying processes.
SaaS: You are selling a service not software
Unfortunately none of these things exist in the world of B2B SaaS. You are selling a service not software. (Check out this excellent article from Darmesh Shah for more). Customers will frame their needs in a different ways. Cultural factors will warp the style and method of adoption for your SaaS.
Layer on top of this the spaghetti medusa that is enterprise procurement and buying processes. There are a thousand different ways to SaaS. (Another small sidebar: Do yourself a favour and ignore any book/ article/ advice that offers a standard model for business procurement. These things are peppered with terms like influencers, decision makers and hierarchies. Its all rubbish. Every large organisation is different. Most don’t even know their own process very well.)
So your standard pipeline definitions are of no more than marginal relevance. You need to think about your enterprise sales pipeline a different way. Let me offer you a simple and flexible model which will help.
I claim no credit for this. I learned it from a lovely man and good friend, Carl Erickson the CEO of Beacon Worldwide. I have been using it for 10 years and it has never failed me. It unites people with 100% opposite approaches to sales. It drives intense debate about all the right things. And as a business leader it kept me informed and in touch with future growth prospect like nothing else.
A brief explanation of each step. And more important the simple test for moving an opportunity from one stage to the next.
0 - Development
Here you have the basics of your marketing plan. Which segments are you targeting? What is your value proposition? How do you reach the right audience? Nothing is specific at this stage. Its a way of capturing your market strategy.
Move after: A lead moves from 0 to 1 when you have direct contact with a named organisation.
1 - Identify
Inbound or outbound this is where you capture live leads. At this stage you only need to be able to name the organisation. If you can identify the key individuals or at least the department so much the better.
The key question: Is this the right type of customer? Deciding whether it is worth investing in the pursuit is the next stage. For now, you only need to know if this organisation would benefit from your SaaS. And figure out if they are the right fit for your company.
Move after: You have had a direct person to person communication. You have identified the customer business issues. You have confirmed the date of the next meeting/ discussion. (Note: you need to meet all of these criteria.)
2 - Qualify
This is where the toughest decision lies. Now that you are taking to someone, how much time and effort should you invest in the opportunity. The key to answering this question has nothing to do with business value. Instead you must answer three questions:
Note: For an established company with time to wait, question 3 is part of the evaluation stage. A startup can’t afford this time so answer it early.
Move after: You know you have access to power. No exceptions.
3 - Evaluation
Now you are in the traditional phase of enterprise sales. Responding to requests for information, completing bid documents, checking out the competition, agreeing budgets and so on.
This is expensive. And it feels exciting and important. But observe that the most critical decisions have already been taken. Your SaaS is a good fit for the customer’s business need. You know who makes the decisions and you are talking to those people (almost never one person). You also know that this is the right time for the customer.
I hope its clear why you should have this stuff sorted before you start heavy investment in an opportunity.
Move after: You have verbal confirmation that you are the chosen supplier.
4 - Selection
Read that last sentence again. When the call or email comes through to tell you you have won, the sale is not made. So don’t hold the party. Don’t pay commission. Don’t bank the money. Don’t count your chickens.
There is a whole load of contractual stuff to resolve. Most times, there may also be a bunch of interested parties inside your customer’s business who get involved for the first time. You know people who might use your product, that sort of thing. It can be a painful journey.
Contractual questions tend to dominate. But never lose sight of the need to deliver value to your customer organisation. A beautifully framed contract has an ARR of Zero.
Move after: The contract is signed AND you have a clear plan to install your SaaS with the customer.
5 - Win: Now Celebrate!
Keep the customer name on the column for a little while to remind yourself of success. But don’t think its over. Now is when real customer relationship management starts. Procurement's job is to sign contracts. The buyers are the users, managers and leaders who see the value your SaaS delivers every day.
Its become fashionable to call this Upsell. In reality its plain good business. Selling more to your existing customers rather than spending money acquiring new ones. A fundamental since forever.
The Chairman's View
For many B2B SaaS enterprise sales are the key to growth and success. There is a tremendous quantity of bad advice available in this areas. And the whole process is often built on the worst named IT category ever - CRM.
Despite the apparent complexity and the repeated insistence on structure, process and experience, its quite simple: Listen to the customer; Learn how your SaaS can add value; Remember you are always dealing with people not companies.
Am I alone in finding something a bit weird about the rise of equity markets since Brexit/ the election of Trump? Its true there are financial dynamics at work. Increased spending on infrastructure and the fall in the pound have some immediate benefits for some large companies.
But this window dressing obscures a fundamental underlying message. A big part of the populism that is driving today’s political agenda is rage against multi nationals. In the US the talk is of trade barriers that will disrupt low cost global supply chains. In the UK and Europe Governments and citizens demand “fairer” tax contributions. Extracted from the profits generated by global companies. Used to prop up public spending.
In every country and all sides of the political debate, inequality is seen as the defining economic and social challenge. And nothing represents that inequality more vividly than the pay of Fortune 500 CEOs and their ilk.
2017 will be the year when some of this anger translates into real challenges. Corporate giants are right in the cross hairs. The US President’s remarks about the pharmaceutical industry are a straw in the wind. The actions of the new US administration and the fallout from the UK leaving the EU will have consequences for big companies.
Hitting the enterprise where it hurts
In a sense these are symptoms of a wider trend. Anger and frustration at the profits of global corporations is widespread. Business practices and networks are also in the spotlight. This is an issue which appeals to all politicians. One of the few areas of common ground between left and right, populist and technocrat, democrat and dictator.
Expect meaningful action in areas like:
The SaaS opportunity
Your view on the politics and economics of this is not important. Enterprises large and small are entering a period of unprecedented disruption. At a time when there is also severe pressure on profits. For a B2B SaaS company this is a once in a generation opportunity. Global corporations need to change. Improved adoption of digital technology must be part of that change. This broad theme was reinforced by McKinsey this month in Measuring B2B’s Digital Gap.
The enterprise software landscape is also shifting on the ground. I was fascinated by Tom Tunguz’s $100m ARR Deal. The headline number is eye catching. His analysis of the implications for Workday is interesting in its own right. But for me the big message is that this was a straight fight between the SaaS alternative ERP company and SAP. No better sign that SaaS will be a big part of the solution for enterprise companies.
The Chairman's view
These trends are important for setting the scene. Yet the big picture offers no direct link to revenue growth. Generalisation can help you identify targets. Winning deals depends on specifics. Enterprise sales depend on three things:
Success with enterprise customers is not about a high volume of leads and conversion rates. Nor is a brilliant sales team the key factor. Focus on qualifying which opportunities to go for. Analysis and insight followed by patient pursuit is the winning formula for enterprise SaaS.
The value of the biggest B2B SaaS companies has been growing. But not at the epic rates experienced by B2C software. At the same time, the number of B2B SaaS startups also keeps rising. Is there enough potential revenue in the market to justify the level of SaaS investment?
Jason Lemkin wrote a fascinating piece on SaaStr a couple of weeks ago about the SaaS Decacorns we need by 2021. His conclusions were optimistic. He believes both that the market as a whole is big enough. And that there are companies there with the potential to become the mega leaders of the future.
I am not going to comment on the latter. But I share his optimism about the overall market. We are only scratching the surface of the opportunity for B2B SaaS. Reaching this potential demands great products which solve real business problems. SaaS companies must also help customers execute change to realise the benefits. All in the face of strong resistance from multiple vested interests.
It will not be enough just to wait for the market to come to you. B2B SaaS companies need to take the lead in finding strategies to overcome these challenges.
The scale of the opportunity
The simple fact is that traditional on premise, licence based revenues still account for the bulk of the enterprise software market. You can fill your boots with various projections and analyses of this topic. For starters check out this Forbes collection.
However you look at the numbers this makes no sense. SaaS is an ideal platform for innovation and increases the speed of change. It offers much greater flexibility and agility. Integration allows for rapid adoption of best in class. And its cheaper.
The question is not whether the market opportunity exists. What bugs me is why progress is so slow.
The one word answer is change.
SaaS does not bring any of the benefits listed above to business. It provides a tool or a platform to improve a business. To realise the gains, the business must change. Businesses of any size find it hard to execute change. An established business is different from a startup in two major ways:
Your customers internal opponents are not the only losers. Growing SaaS by a factor more than 20x will do damage to the traditional software business.
The big enterprise vendors are the tip of a large iceberg. They are the visible part of an ecosystem that includes consultants, systems integrators, lawyers, training providers, independent software vendors, project managers, change leaders, corporate IT careerists and a raft of other specialists who have carved out a niche that is built on SAP, Oracle and the rest.
The strident voices of direct competitors are easy to deal with. Corridor whispers by trusted advisors and “independent” experts are much more insidious. So be careful. Resistance is everywhere.
The Chairman's View
I share Jason’s optimism about the scale of the SaaS opportunity. That’s one of the reasons I love working with B2B SaaS companies. The winners will have great products and fantastic teams led by brilliant leaders. They will also have an effective strategy to overcome the barriers to change.
Each market opportunity and in some cases each deal will need different specifics. The outlines of any successful approach will include:
And do it all with confidence. The market is moving toward B2B SaaS. Let's help it along.
I seem to have spent most of the last week in various stages of finding suppliers. From formal pitches to writing an initial brief and several points in between. In all cases the companies I was working with were looking for professional services. Or buying in skills and expertise in some similar form.
Finding trusted suppliers is another on the long list of hard choices a startup leader has to make. In the early stages you might use external suppliers for anything. From building your product to traditional services like legal and accounting. The wrong choice can cause extensive damage. Getting it right is about looking beyond price to find the right talent. Someone with the skills you need and the courage to tell you what you don’t want to hear.
Its Never just price
Let’s start with the biggest bugbear. Price is a terrible way to choose a supplier of anything. And for services there is no worse measure of value. At least with commodity style goods you can compare like with like. When a service is delivered by a skilled team, this is impossible.
Even when a service is described as a commodity (basic accounting or legal for example), the comparison is not so simple. Professional advice is like an insurance policy. When everything goes well it doesn’t matter who you choose. But when a problem (or a claim) arises, the pain caused by having the wrong advisor will be terrible.
So price is never the only factor. If you can’t see any other difference between suppliers, you need to look harder.
The Kakocracy Trap
Noun: kakocracy - Rule or government by the worst of the people
The first step in finding the right supplier is making a list that includes the best options. There are two regular ways of doing this:
Both techniques are useful. But someone also needs to do a bit of research. Scan the internet. Think about whether your job is one that needs a local supplier. Don’t be afraid to go global for some things. The test is the skills you need and the quality of communication.
Talk to people you know. Especially those who don’t come forward with recommendations. This is an area where the startup ecosystem adds a lot of value. And silence is not golden but red for danger.
By all means speak to advisors as well. Only remember there is a lot of back scratching in these networks. Advisors and mentors can be helpful but they are also the prime source of the trap.
There is a cost in time to making a good list of suppliers. It will be outweighed by the benefits of making the right choice more often.
The jobs to be done mirror
The absolute foundation for buying any type of service is to be clear about the expertise you are buying. Its the precise reflection of the jobs to be done framework for evaluating a startup idea. Before you spend any money, understand the job you need done and the skills it requires. Choose a supplier based on those critical areas of expertise.
In some ways its like hiring. You want to find the right talent. The big difference is that you only need this talent for the short term. This means you select a supplier for experience and track record. Whereas you should always hire for potential and fit.
However, track record is not the same as finding someone who has done the same project 10 times before. No two projects are the same. When you look at supplier experience focus on the core skills needed for your project. Take up references. And ask about expertise not just the results.
Take market research as an illustration. Don’t bother about someone having researched the same market you want to look at. What matters is the ability to reach the right audience. Skills in asking the right questions and probing for the real answers. And an intelligent evaluation of the responses.
Be clear about the things your advisor does that you cannot. And agree a scope of work that is defined by those key areas of skills.
An outcome not a result
You are buying an outcome but not a result. A good professional supplier gives you and honest and independent assessment. Often this is not the result you wanted. Get over it. And understand this in advance. Choose a supplier who will give you a great outcome. Don’t try to buy confirmation of your own opinion.
The same principle applies to skills outside the traditional professional arena. There is no point in outsourcing software development because you can't code. And then restricting the developer by your own limited knowledge of the subject.
When you are choosing a supplier, the best test of this is how they set expectations. Look for someone who questions your project objectives. Not just blind agreement. And choose a supplier where communication of changes and new ideas is embedded in their approach.
A word about incentives
Once you get people involved, the psychology of incentives is an inevitable part of success or failure. (I sometimes think Alan Turing over complicated matters. The test of true artificial intelligence will be when a machine offers an emotional reaction to an incentive.)
A key area of incentive when choosing suppliers will be the pricing mechanism. There is no right answer but think about these three things:
The Chairman's View
Finding and buying services from suppliers is a bit of monster. Big corporations devote entire departments to getting it right. And still make mistakes every day. Its an important job for a startup leader. Yet its not critical. For me I want to see a CEO who contains the risk. I don’t expect you to get it right every time.
So think about:
I am going to continue my current theme of selling to the enterprise. (See my posts on SaaS Sales and SaaS for the Enterprise). By definition this is a subject for B2B SaaS companies. And this makes it important because SaaS has the potential to disrupt big business for the better.
This disruption comes in two forms. Replacing the traditional business software model with a cheaper, better and more flexible approach. Or driving change by enabling more efficient and effective business. In both cases, many B2B SaaS companies offer a proposition based on cost reduction.
It is straightforward to make the business case for such cost reduction. Yet the proposition suffers from a simple structural disadvantage. Cost reduction is a tough sell. Always.
There are two reasons for this. Cost reduction is an uncomfortable and challenging subject for any business leader. And radical cost reduction strategies carry genuine risks. Your chances B2B SaaS success will be better if you are aware of this backdrop. And address these concerns by designing a patient and more subtle sales culture.
The elephant in the room
At various times in my career I have found myself sitting opposite a leader from a business in genuine trouble. Perhaps in a struggle for survival. Or enmeshed in the legal process of administration or insolvency. In these circumstances, eliminating costs is an absolute imperative. Yet there is still resistance.
There is some obvious psychology at work here. Costs are not a fun or sexy subject. Growth and making money have far more appeal. Remember this in any sales conversation. You may be excited about the opportunity. But you are talking to someone who is facing a bill. Not the same mindset.
That mindset runs a bit deeper. Suppose you present clear evidence that your SaaS will save money at a rate 10X the purchase price. (Please don't with the “no brainer’ cliche.) In the mind of your customer you are laying down three other challenges. Sending these messages to your potential customer:
Beyond psychology, the real business risk
Any buyer is likely to be in defensive mode. Framed by the list above, their arguments may seem unreasonable. And a good sales pitch will set out to counter. Presenting rational analysis of real benefits.
You need this in your armoury. But don’t allow the emotional to disguise the true business risk your customer faces. Adopting any B2B SaaS requires business change. When the objectives involve cost reduction, there will be losers from business change.
It could be your competitor products. Or it might be people of power and influence within the customer organisation. At the lower end of the scale, an innovative SaaS might eliminate information barriers. The type that protect silos within large businesses. Scale up the impact and budgets, departments and jobs come under threat.
The result is that change is harder for business to implement. And it brings downside risks of negative disruption or reputation damage. A responsible customer will want to weigh these risks before buying your SaaS. You need to respect that view and help. Not just challenge it hard.
The Chairman's view
None of this means cost reduction is not a great value proposition. An essential function of innovation is to improve the efficiency of existing businesses. And the Fortune 500 is full of stagnating companies. Struggling to make good returns in a world of flat revenues. Entrepreneurs will build some great B2B SaaS businesses on the back of this opportunity.
But you need to understand that this is a difficult and sensitive sales process. At the extreme end you will be offering your customer a live grenade to blow up their existing business processes. This requires more subtle culture and content for your sales proposition:
Enterprise sales are a long process. When the main customer benefit is cost reduction, the path is both longer and tougher. You can fight this. Or you can understand the psychology and the business risk. And build a sales process that leads to long term success.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.