This is a topic I’m going to be writing about a lot more in the coming months (including hopefully a short ebook). I’d love to get your feedback as well as any areas you’d like to see me cover going forward.
And the ebook:
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Interesting. My own experience with enterprise customer pretty much matches your characterization - departmental sales in a larger enterprise, not sales to the entire enterprise. I sold SaaS project management software into a few pretty big companies, but with specific departments using it (e.g. the graphic design department). Made very few changes for them, other than allowing some generic customizations that would benefit every customer.
A previous business I co-owned on the other hand had the deadly 20% risk (more than 20% of the business tied to one large customer), and that ultimately did not work out well, even though it grew revenue really well for a year or two (big enterprise kept adding seats). It’s like a punch to the gut when a very large customer cancels a subscription (in this case it was about $3K monthly revenue). Ouch.
Generally, I’d say small / solo businesses can reasonably offer point solutions for enterprise customers (departmental sales), but will have a much tougher time with “affects the entire enterprise” sales, especially in more mature markets with well-established competitors.
But there are worse ways to make money fast, especially in SaaS, than having large customers giving you thousands per month, as long as you are prepared for the downside risk, and don’t hire or grow ahead of the more stable revenue.
I might even make a rule: Safe Revenue vs. 20% Revenue. Only count Safe Revenue in plans for growth, hiring, etc. Just think of 20% Revenue as a windfall.
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I think the level is more like 5% before I’d start to get nervous and at 10% I’d be very concerned. Early on of course you may have it be more lopsided if you get lucky with a big customer early (and it will be luck!). I have some stuff on this it my book outline I’m working on.
I guess it depends what you are selling… I was selling GIS products in the electric utility market… especially the large ones.
What really killed us was the long sale cycle…up to 2 years… (year one you talk to them, get them interested… then you miss this year’s budget and have to wait for next year’s money…lol )
Naturally, cost of sales goes up with time and especially in our case travel. However, you get one and it is big enough to bank roll you for the next couple of years…(our biggest deal was 6M over 3 years…which ended up closer to 10M with add ons) It’s a model that favours larger companies or deep pockets…
I always thought that a small nimble company like ours could find ways around the red tape… but no… we got very few deals as sole source, needed to wait for RFP/budget cycles… and all that jazz…
So I would say it is like any business decision, you have to gauge the cost/benefit for your particular situation… Our solution was built for them, we had little choice…
Would I ever start a company that relied exclusively on large corp sales? NEVER…! lol
Hope this helps…
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My bootstrapped company does rely (entirely) on large corporate sales, and you’re spot on about the pitfalls, @ian and @serge. Not an approach I would recommend.
That said, I think there are some cases where proper enterprise sales are worth considering for a bootstrapper.
First, my working definition of an enterprise sale: one which is complex (takes 6 months+ of regular work to close) and high value (~six-figures and up). It’s likely to involve quite a bit of effort for both you and the customer, but the upside is that the customer is unlikely to churn once they’re getting value from your solution.
So before you even start, you need to know if you can justify a high enough price to warrant investing the time and effort. There are two things required to justify a high price:
- You need to generate a lot of value (extra revenue or cost savings), and
- There needs to be high barriers to entry so you don’t get undercut by competitors.
If you find yourself in the position of being able to tick both boxes, then you really ought to pursue enterprise sales. By definition, though, entering a market with high barriers to entry is difficult - that’s certainly been my experience. And there’s the rub: there are far easier ways to make money.
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Hi Ian, Looks like this link is broken. Can you please share alternative link where I can see this ebook? Thanks.
You can find the blog post here:
Ian’s book “Securing The Five-Figure Sale” can be found here:
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