Selling to the enterprise: “Sell to few” vs. “sell to many”?Entrepreneurship
A key investment thesis here at Version One is that we like to invest in companies that “sell to many” over companies that “sell to few.” This preference isn’t necessarily due to market size, but rather the structure of the market: are there only a few dozen customers that might buy your product or are there thousands, or even tens of thousands of potential customers?
Practically all consumer companies fall into the “sell to many” category, but what about on the enterprise side? How do we differentiate between B2B start-ups that sell to many vs. sell to a few?
1. “Sell to few”: Traditional enterprise sales
Start-ups in this category typically have a target market composed of dozens to low thousands of large (Fortune 500) companies. Selling into this market requires the traditional enterprise sales approach, comprised of a large ‘boots on the ground’ field sales team that works with key decision makers (e.g. CTO, VP of HR) in the customer organization. These are long sales cycles, often with multiple departments and stakeholders involved. And often, enhanced business services – such as custom product development or professional installation and consulting – are involved to complete the sale.
Startups that succeed with this approach tend to have founders with deep connections in the industry they serve, and often previously worked for one of the large incumbents in the market.
2. “Sell to many”: the scalable SaaS approach
Selling to many in the enterprise typically involves selling either to SMBs (where the owner/operator makes the decision on their own) or selling directly to end users (employees) in the organization.
Yammer and Unbounce are perfect examples of SaaS tools that are adopted directly by the end users. In these cases, employees feel a particular pain point and find a solution to address it. Based on the lower price points, these employees often pay for the product with their credit card, without asking IT for permission or assistance with implementation. These acts can often be start of a viral growth curve in the enterprise. Enterprise products that present a high-value daily utility for the people involved can have a high virality potential.
The SaaS model, with its inherent low customer acquisition costs (CAC) and ease of deployment, makes it possible for companies to be successful when focusing on the SMB market, as well as niche verticals. While traditional software monopolies needed to be “all things to all people,” cloud start-ups can focus on one area and do it extremely well.
Both approaches can create large and important companies, but they require different kinds of founders and investors that understand the nuances of each approach. At Version One, we’ve identified that we’re a more effective investor when focused on the ‘selling to many’ approach.
- The SaaS Manifesto: Navigating the Departmentalization of IT (blogs.wsj.com)
- Why Internet Companies Don’t Buy From The Enterprise Kings (techcrunch.com)