The Enterprise Software Sales Playbook for Startups24th February 2019
OK — you’ve made your decision. You have evaluated the Mission Matrix and decided that high-touch, enterprise sales is your path to success, or at least the cohort you’d like to address today.
If you are an engineer-turned-CEO-founder, you have no idea what you are in for. It is much harder than you think it is, it will take much longer to sign the deal than you think it will (by integer units of yearly quarters), and NO — you do not have the right decision makers in the room — nor will you know who they are for quite a while. So, how do you win?
Assemble your team
First, structure your team. If you have no experience selling into enterprise, your first reaction is “yeah, but how hard can it be? It’s all expense accounts and rental cars, right?”. Sure. It’s not hard, just like managing a kindergarten is not hard. But it requires a level of patience you cannot comprehend until you do it for the first time. Most likely, you are not prepared, and you do not possess the temperament to be successful. Hire someone who has been there — this is one of those rare times that the island truly can only be found by those who have already been there.
So step one, assemble a solid, battle-proven team. At least one person, your VP of Sales, needs to be this.
What sales method to use? I propose one below, but there are so many to choose from — Challenger, Solution, Shipley — all are great sales methodologies. Any and all are good, you go ahead and do you. At the end of the day, you need to be consulting more than selling, and your expertise needs to match their subject matter expert’s (SME) expertise.
For a modern approach, Account Based Sales (ABS) is actually pretty good, and offers an excellent high touch model. So let’s stick with that here. I won’t tell you how many of each to get (but here is an excellent post to that effect), but you will need the following roles:
- Sales Development Representative (SDR) — These are your deal sourcers. They will collect business cards, do a LinkedIn profile deep dive, and get people for the AE to talk to.
- Account Executive (AE) — The AE is your closer. As in, “put that coffee down!”
- Customer Success Manager (CSM) — Super critical and usually skipped in the team assembly process. You will not be successful without someone working directly w/ the customer to make sure they are happy with the product. And you cannot afford this customer to churn out…
However, the ABS model is likely insufficient, as the aforementioned SME is likely not one of the three above. If you can, get an AE that is also an SME, but you will still likely need someone dedicated to targeted and custom customer demonstrations. So, add the following:
- Sales Engineer (SE) — Luckily they can support many AEs, and the more they get around, the more canned demonstrations they can create
All in all — what ratio to go with? I’ll do another blog post for that one day, but this is something you need to figure out. BTW, your SDRs (maybe) and AEs (certainly) might be aligned along industry verticals as well, assuming you have a horizontal product.
The biggest trap you face here is that you, the CEO, likely believe you can do this yourself. You can’t, you need a team. You’ll know why if you have done this before. If you haven’t done this before, you will know why soon (*soon means after 6–18 months, assuming you are successful).
Understand Your Customer
To sell into enterprise successfully, you need to identify the following roles in your customer’s organization:
- Champion — This person is an advocate of your product and company
- Decision Maker, Business — This person is going to make the business decision to buy
- Decision Maker, Technical — This person is going to make the technical decision to buy
- Influencer — This person is a known influencer within the business
- Purchaser — This person is involved with accounts payable
- User — This person will be using our products/services
Why do you need them? See the PWIN and playbook below. But basically you need to know who you need to be talking to and convincing. Chances are, if you are talking to just one person who says “I am the decider”, they are not the decider, and they may not even be aware of their own company’s internal procurement process. They are even likely new to this.
Are there really this many people involved? Yes, at least. Remember there is typically more than one person in each role, especially as the bid value increases in magnitude.
Understand Sales Cycles and Spend Authorization Limits
Every industry has its own spend cycles, and expect to see alignment with their fiscal year. Generally that means you can expect to see rapid movement at the start of Q1 as that year’s strategic objectives are funded and embarked upon, and they will slow around Q4 because they probably spent all of their money. The time between Thanksgiving and New Years is typically dead space, especially for US companies. For European companies, summer crawls because everybody is enjoying their vacations. And for some reason, Q3 is always slow.
But when are Q1 .. Q4 for your customer? Exactly! You need to know this. Some companies may push purchasing decisions after a quarter, for instance if they want to maximize half-year or annual profits (you know the four tenets: invoice early, pay late, buy low, sell high). Conversely, companies may use quarter boundaries to negotiate discounts … which is all fair, choose whether you want the money or the timing, it is rare that you get both.
What does this mean for your sales cycle? It means often there is little that you can do to shorten the sales cycle, since there are likely corporate factors gating the expenditure of funds, especially if they are sourcing an initiative for next year’s budget. How long will it take then? Expect 6–18 months.
6–18 months? Yes. Can it happen sooner? Yes, but not likely. The only way I know to shorten the cycle of enterprise sales is to not engage in enterprise sales — make the customer buy the product like everybody else (but maybe package it nicely for them, e.g. AMI, Kubernetes, etc). However, that is not how large companies buy.
Furthermore, companies and enterprises often have spend limits associated with absolute contract value, and the higher the cost, the more people need to be involved in the decision to approve and select the vendor — and this is usually done sequentially. Translation — more time…. Here is an excellent example of spend limits that I found.
So be sure to account for this appropriately in your time to revenue predictions (assuming you win the business in the first place).
Large companies are often going to have procurement procedures related to authorization limits as well, such as procurement exercises larger than a certain amount require an open solicitation process. Impact? More time, and now your competition is notified. Know these limits, and do your best to stack the requirements in your favor.
In fact, as my former boss and mentor used to tell me, “If you didn’t write the requirements, you already lost.”
Perfect the Enterprise Trifecta: Product — Integration — Training & Support
What makes Enterprise sales unique is a lot of things, but what all enterprise deal generally have in common is a complex buffet of deliverables. Those are generally going to include the following:
- Product — This is your primary product(s). Hopefully you are not doing a pure services play. These are the products that you sell to many customers, not just this one enterprise customer. This you are going to price according to your usual product pricing strategy. You will also keep this IP.
- Integration — Your enterprise customer is going to need to integrate against their own systems and data lakes. This is where you customize your software for use in your customer’s environment. Hopefully you architected your product to accommodate this, and remember that you may have a on-prem, pure cloud, or a hybrid requirement from your customer. This is going to be Non-Recurring Engineering (NRE) that you will price on some sort of Time & Materials (T&M) method. See my notes on labor pricing below. You will likely not keep this IP, and you certainly won’t keep your customer’s data.
- Training & Support — Your enterprise customer will never RTFM. You will need to assemble a team to come in and show your customer how this all works, how they will use it in their daily lives, and answer their daily issues. This can be priced on a per unit basis, e.g. $20k for one week to hold training for 20 people, or $1k per 10 issues filed per year with 1 week response time, $10k per 10 issues filed per year with 24 hour response, etc.
Yes, this was really four items, but trifecta was much more poetic, agreed?
Develop a PWIN Calculator
Enterprise sales requires an objective measurement methodology to gauge the “doneness” of the deal or proposal. For table stakes, every sales opportunity becomes an opportunity only when you have established Need, Schedule, and Budget (NSB). But not every NSB looks the same, so how to you compare two opportunities? Enter the Probability of Win (PWIN) Calculator:
I put together an example for you. In combination with the playbook below, you will subjectively score yourself in each of the categories, and from that, you’ll start developing an objective score across multiple opportunities. That’s right — I can’t remove all of the subjectivity, but I can make it objective as possible. It is a delightful trick that actually works quite well by aligning effort across your sales team and designing a common scoring system. After all, it’s not a sport unless you are keeping score.
I purposefully left out a detailed description of the categories in the example. The spreadsheet holds the formulas, you should be able to reverse engineer them. Don’t stress on the specifics, develop your own PWIN calculator that makes sense for you.
Develop Your Playbook
OK, we are finally at the main course! What is the playbook? Well … you have to develop it. This is one I have used, and it works well. It is an iterative process where you gather information, analyze information, create/adjust proposal, adjust PWIN, send to customer, repeat.
You can read all about it, but here are the key takeaways:
- Leads are leads until you have identified Need, Schedule, and Budget. You have to have all three. If you do not have all three, you do not have an enterprise opportunity. If you can’t explain what Need, Schedule, and Budget are, you have the wrong team in place.
- Assess and adjust PWIN at each stage of the process. Use that as your data-driven approach to sales. Your process will benefit as you gain experience scoring an opportunity, and you can also bring this up in sales meetings and say “hey, I have a two here I need to increase — any ideas?”.
- This is very important — build in a mechanism to drop the bid at any moment. You have to be aware when winning will be destructive to a useful, generic product for all of your customers. Keep an eye out for signs of you being column-fodder (meaning a customer is trying to get a price from you to negotiate down the real company they want to do business with). Beware customers who will not sign an NDA! Especially as your proposal process progresses. That is a huge sign that you are column fodder, or just informing their own iR&D group.
- When assessing the competition, realize that often internal R&D of your customer is your biggest and most direct competition! Learn how to recognize that, and how to counter it as well.
- Don’t forget to analyze each proposal at the end — regardless if you win or lose. There is a tendency to never speak of lost opportunities, but you should, in order to strengthen your next proposal or bid.
But you are going to have to develop something, the process will be iterative and lengthy.
Option 1: Pick a number. $100/hr. Done.
Option 2: Calculate a number. This is going to follow a formula such as:
Hourly Pricing = S * (1+GA%) * (1+OH%) * (1+P%)
S = Salary per hour
GA = General & Administrative costs as a percentage of revenue
OH = Overhead costs as a percentage of revenue
P = desired profit
Joe earns $90,000/yr. He is paid for working 52 weeks a year, 40 hours per week, so 2080 hours total. (This includes the vacation time he is also paid to take). Your company’s G&A is 75% and OH is 12%, and you want 30% profit. Therefore your hourly rate is going to be:
90,000/52/40 * (1+0.75) * (1+0.12) * (1 + 0.30) = $91.87/hr
If you go the route of Option #2 (which I highly support, since it ensures a certain level of financial sophistication), then use a role-based salary average from some accredited source instead of Joe’s actual salary. (Yes, you’ll find terms like G&A, OH, etc., used in US government contracting guidance, but don’t let that scare you off the concept, they are wonderful tools).
Option #2 also gives you a range to use in your discount tactics (see above) that you can trade for value-in-kind. e.g. if you remove your profit, your raw cost for labor is $70.67, which you can’t charge less than. But, you could give them a 5% discount to get those marketing rights…
Or more specifically, line-item discounts. Enterprise deals are big and complex, and there is a natural human desire to discount in volume. Read these next lines closely:
DO NOT DISCOUNT.
If you must:
Only offer line item discounts, that you offer to all of your customers. In fact, you should probably publish them along with your price list.
You have worked hard to earn the right to close this deal. 10% off the price isn’t going to make it (or break it), unless you need to price match your competitor, but then you are likely just column fodder, because your competitor will see and raise your discount. Instead, do the following:
- Offer standard discount schedule for specific volumes, and then only for the portion that exceeds that volume. e.g. Labor rates are at 100% cost for first 2080 hours, 95% for next 2080 hours, etc. Don’t price out your profit!
- Offer a standard discount for the right to market the relationship, drawn from pre-approved material.
- Offer a discount for closing within a certain timeframe
Generally, I don’t like these discounts to add up much beyond 30% of the total cost, for obvious reasons. There must be specific value for you to give up money, and it must come as trade-in-kind. In the examples above:
- You discounted on labor volume because it solved an operational issue by ensuring you don’t have extra (non-revenue generating) capacity.
- You discounted the right to market the relationship because pedigree sells.
- You discounted to pull in the schedule because you needed to hit numbers and your QBR is tomorrow, and, well, you love that commission check.
If you get to this stage, congratulations! You could be as little as three months away from closing the deal! You will need to work with your legal team and their legal team to negotiate the minutae. Here is what you should do:
- Agree on high level business details with your customer first.
- Ask your customer for their standard contract. Trust me on this one — this is a battle of inertia that you will lose because their m is much bigger than yours. An enterprise customer is NOT going to use your contract, ever. But .. ask them for theirs and get our your red pen, you can make it bleed. This is actually going to be much easier than you think it will be!
- Have your lawyer translate these details into an enforceable contract, don’t bother doing it yourself, you’ll save time. It will take you ten hours at least to do what a good lawyer can do in one hour, and if you are lucky, yours will be half as good.
- Have your lawyer review their indemnity, liability, and warranty clauses. Enjoy! You will find them unacceptable but you will need to be steadfast and specific in your request to mitigate or change them. Also, negotiate down the liability limits on those insurance riders, but realize you are going to have to start carrying some sort of formal insurance policy with your named enterprise customer as additional insured. You will not get out of this one. Luckily, these are also much easier and cheaper to obtain than you think they are. Also, most companies I have dealt with are sensitive to your predicament as a startup, so go ahead and try to negotiate those liabilities to a number less than your ARR, but $1M is generally going to be a hard bottom limit.
- If you are going for co-marketing rights or press releases, have the baseline version negotiated as part of a contract appendix and included in the signed documents. Too often have I seen this pushed out after contract and then it never happens, despite assurances “of course, we won’t withhold permission unreasonably and it will be taken care of soon”. Read: yes they will, because unreasonable is subjective, and soon means never.
Companies to Seek Out
If you are doing this cold turkey, you must have a rolodex already populated with close contacts in the industry you wish to sell into. Perhaps you are a former executive, otherwise your VP of Sales is.
Additionally, look for companies that have strategic investing arm or innovation center. This generally means that the company (a) recognizes and publically acknowledges they have need for product not developed by them; (b) recognizes their procurement procedures are onerous and anathema to startups; and © have formally funded and organized programs to bring technology from small businesses into their portfolio by removing obstacles in the procurement process.
Automotive companies are a great example of this, several that I work with have innovation centers whose charter is this specifically.
Use a proper Customer Relationship Management (CRM) system that is designed to manage your sales pipeline and customizable against your sales playbook. Your VP of Sales should tell you what she used in the past, just go with it. CRMs are worth every dollar you spend. You wouldn’t ask your engineers to work without an IDE, would you? Don’t get cheap on your sales team — saving pennies here will cost you pounds later. (There are many options available to you, my advice is to index on functionality, not cost).
There is a lot to unpack above. Your VP of Sales should walk you through all of the above. It may come to be that the instructions above give you reason you reverse your decision to sell to enterprise directly. Perfect! Find a channel partner instead! I highly recommend this.
Also, is the above post applicable only to certain types of products? Sure, probably. My background is enterprise software, so I know it applies there. But the sales methodologies I mentioned in this post are product agnostic, and they all generally take the same approach. So I think you’ll be fine if you use this to guide your playbook creation.
I will update this post from time to time, so please come back. Looking forward to your feedback!
I am an Executive-in-Residence (EIR) at Vonzos Partners. I would love to hear your thoughts, feedback, and insights. Get in touch at:
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