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:
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 (firstname.lastname@example.org) 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 a 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.
P.S. I always appreciate getting email from you about what you'd like to hear about next.