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Why most Saas companies can't be successful with both enterprise and SMB customers ?

by Paul
in Startup

The purpose of this article is not to explain you how to create a successfull company, there are already too much articles about that. Instead we are going to see why chosing the type of customers you want to sell to is a very important decision as it will have a big impact on the structure of the company

What is Saas, SMB and Enterprise

SaaS (Software as a Service) is way to sell a software in which the customer doesn't need to host anything and intreractions with the the software are done through a customer dashboard or any kind of API. Most of the time this kind of sofware is sold with a recurring monthly or annual licence fee, wich is a good way for the company to have predictibility of revenue and for the customer the cost of the product is spread on time instead of having to pay a big fee at the beginning.

SMB (Small and Medium Business) means a company which is smalled than a certain number of employee/revenue, somewhat until 250 employees. In this article a SMB is a company in which one or two person are going to be involved in the sales cycle.

Enterprise business is a very large company, usually more than 1000, but in this article this is going to be a company in which more than 5 people are going to be involved in the sales cycle.

If you take the definition I've given you can note that some company can be SMB-like for some products ( a note taking app of a small team inside the company) and enterprise for other products (a CRM for the whole company)

Examples of SMB and Enterprise companies :

SMB customers of Saas products

Usually the way SMB customers look for a product can be summarized in two points:

  • It should be the cheapest as possible
  • It should deliver the functionalities needed

Customers know what they are looking for, they usually want to fix one issue that they have experienced and they probably don't have a lot of budget. As a result you will see that most Saas companies that sell mainly to SMB (Mailchimp, Google, Slack, Twilio, ...) will have common characteristics:

  • Transparent pricing, offer a free plan and usually a cost calculator and has self service onboarding
  • Very clear website with a list of all the functionalities of the product
  • Most of the employees working in marketing, product and engineering
  • High churn
  • No engagement
  • Product minded company

The main challenge of a Saas companies focusing on SMB is efficiency, you need to be efficient to acquire your customers, they will (individually) not bring you a lot of money (low LTV) so they should take the less of your time as possible : No CSM, no Sales, extensive product documentation, automated marketing, mass feedback traitment. If you are not efficient you will never be profitable, if you are not able to show your ability to scale your processes it will be harder to raise more money.

The second thing to tackle is to not let churn be too high, to decrease your churn you need both to keep your prices low and your customer happy about your product, so you have to be agile about your product (or don't have any competitors, as it is easy to onboard, it is also easy to change), if you don't take into account customer feedbacks, some customers will churn because there is one feature that they (think they) dream about that another player can offer them but you need to balance that need of new features with a high scalability so your platform needs to stay as much generic as possible. That's why product and engineering teams are very important

Enterprise customers of Saas products

The way enterprise customers look for a product is very different, they usually think long term, they know integrating with a new products takes times, sometimes several months, and every one in the company is figthing to get implementation ressources, they are often less agile and they usually get taught on how to use a new software and get quick support to solve their HUGE problems (which most of the time are not, but they want someone to talk to). So as result what they are interested into is :

  • Find a company with a similar long term vision as themselves
  • A sales person to who they can explain their problem and have the insurance that even after the sales cycle someone will listen to them
  • A product that somewhat answer their challenges but above all, they need to feel during the sales cycles that people are competent and will help them implementating market's best practices

They most of the time don't really know what they are looking for, but they know they have issues. Budget is something you talk about at the end of the sales cycle, because this is not so much the most important thing. And also take into account that it is frequent that the one who is going to invest on your product is not the same one who is going to use it. Thus a lot of enterprise oriented saas companies will have those characteristics:

  • Sales, CSM, and Marketing account for most of companies staff
  • Product doesn't look good, is not easy to implement and not easy to use but can be customized very deeply
  • Low churn
  • Prices are not public and are often discounted depending on customers
  • Long term engagement (1 year -10 years)
  • Sales/Marketing minded organization

The most painful things when you run an enterprise oriented company is the the duration of the sales cycle, it starts when you are doing marketing events in popular conferences of your market or by chasing some identified customers by your business development team, then a long process divided into different steps owned by a salesperson and finally after the signature the CSM/Implentation/teaching people will try to make the customer live as fast as possible, during this process you probably discover that one of the use case of the customer is not handled byt the platform so there is this influence game between the product team and the sales team to try to make it happen, as a result the product is often not generic and it is frequent that some features works only for some customers. This process with repeat itself when it is time to renew the customer.

Why selling successfully to both customer types is hard ?

Because you need to be good everywhere, your product team needs to create a product roadmap taking into account sales request but also take into account aggregated needs of smaller customers at any time. Your CSM team needs to know how to prioritze their time to only entreprise customer but still communicate to smaller customer, your support team needs to be able to handle different types of SLA depending of customer, your CEO needs to not micromanage anyone (which is very hard to find nowadays), your finance team needs to have automated billing in place but also being able to manually dun enterprise customers. Most of your teams needs to be good at both jobs, because if you are not, you will always find an average company that is able to be better than you in one of these areas.

My advice is to not focus too much on it, if you feel like you are able to manage efficiently at the company level the two customer types then do it, but if you are already struggling a bit doing one, you will not succeed doing both.

As a side note, I have met a lot of people that think that when an enterprise oriented company is facing efficiency issues it is a good idea to start selling more to SMB because that will force people to be more efficient, that's just plain wrong. If you have efficiency issues it is because of the way the company is organized and not who you are selling to, going that path will put the company in a risky position