This post is by guest author Patrick Lowndes, Senior Manager, ITAM Product Management at ServiceNow
Since the acquisition of VendorHawk last year, I have been taking mental notes of things I’m learning working at a large enterprise software company, ServiceNow. I’m writing these couple of posts in an attempt to bridge two worlds of startups and enterprises and show what each one can learn from the other.
If you’re running a startup, pay attention to the lessons about product scale, serving enterprise customers and doing things the right way instead of just minimally.
In the second post, if you’re working at a large enterprise, you would benefit from peering into the agility and leanness of the startup world to find better ways to serve customers.
Part 1: Startups - How to Build for and Sell to Enterprise Customers
Disclaimer: What we’re about to say is most relevant if you plan on selling an enterprise-grade product to enterprise customers (with more than 5,000 employees). If you sell to consumers, startups or SMBs, this will be less relevant for you. I’m assuming your product is sexy, has a beautiful interface and is making customers drool when they see it. If it’s not, focus on delighting customers, and getting the revenue engine up and going first before the things we’re going to share.
Enterprises customers want customization, so allow for it.
Every startup must battle the temptation to productize every request coming from early enterprise customers. The key is to listen for the trends (ruling out the signal from the noise) and optimize for a one-solution meets all. At VendorHawk, our customers often told us about the many custom fields they wanted to add. We could have just built each new field and chase an endless list of use cases. Instead, we responded by creating a “form designer” concept, allowing customers to add several different types of custom fields to track whatever they wanted. It allowed us to always have an answer from enterprises who would ask, “What about a field for X or Y?” Find ways to build flexibility without optimizing for tons of out-of-the-box niche use cases.
Enterprises customers expect integration and automation, so provide it.
Since enterprises operate at such a large scale, many customers have an expectation that your product should easily integrate with their systems and processes. If it doesn’t, you’re going to be in trouble. Start by opening up your API so customers can begin using it to integrate. It’s your job to learn what use cases must be solved first. The more you can enable “out-of-the-box” automation for your enterprise customer, the happier they’ll be.
Enterprise security teams need to check boxes, so help them out.
Depending on what data you house in your application, you’ll likely interact with the security group at your enterprise customer (and a questionnaire with hundreds of questions on it). To get ready for security, and be more on the offensive, there are three things you can do to be prepared: two are free and one costs money:
Create a nice-looking and robust Application & Data Security overview document to share with customers. Use your network to find a security professional to pre-vet it and provide feedback so it will answer many of the questions you’ll get asked.
Create and document your internal IT security policy and require your employees to sign it. This should cover policies like, what we do with customer and sensitive data, how we physically secure our devices, password management and complexity requirements, how we buy and use company software (and standards for multi-factor authentication) etc. These all demonstrate how serious you are about running a secure operation.
Get third-party validation on your product security, even though it can be expensive. You can start by building up a robust set of automated tests that your code must pass through to show internal audits are in place, but eventually you’ll want to get a penetration test (about $10,000 – $20,000) and maybe even a SOC Type 1 or 2 certifications (about $25,000 – $50,000) depending on your stack.
If you have your security game together and well documented, your customer and their security team will feel safer doing business with you and extend you their trust.
Enterprises require scale that could be out of your league, so perf test.
Does your product even work at the size of your larger enterprise prospects? The issue for most LEAN startups is how quickly do you invest in getting your “M” in MVP to the truly viable state for robust enterprise use cases. Do you ever run performance tests to see how much data you can process, or at what speed?
At VendorHawk, we evolved our tech with each larger customers that forced us to level-up, but scaling takes an engineering leader who understands compute, cost efficiency and speed to ensure you are achieving the right mix. The reality is, your first couple large proof-of-concept is going to break your technology. The question is, how fast can you respond and adjust to meet their needs of scale. But be wise when you invest, remembering to double down on what’s working (which might be mid-size customers) and don’t get caught up swinging for the fences and “betting the farm” for a few large customers.
Enterprises want “proof of concepts”, so qualify them first.
Unlike SMB deals, enterprises expect a chance to kick the tires and build a business case before buying. Proof-of-concepts “PoCs” (sometimes called Proof of Value or “PoV”) certainly help customers see the value in your product or promised ROI that strengthens their case. But before jumping head-long into a potential waste of your precious startup time, make sure you have these five things first:
Customer-acknowledged specific pain
Business case (why & how you can solve the pain)
Executive sponsorship (a champion to get the deal done)
Available budget (within a reasonable timeline)
Agreed upon definitions of success for the PoC
If a PoC is required, propose something that shows the most immediate value for the littlest effort from you and from the customer.
At VendorHawk, we even used a sprint to build a feature that helped us PoV more effectively. In a 30-minute call, we could quickly show all the un-used software licenses a customer was paying for and potential savings. We redacted the list of stale users so we didn’t give away all of the valuable insights before customers paid us.
Enterprises expect heavier discounts, so plan accordingly.
Even after you show amazing value, enterprise customers will definitely negotiate. A common mistake for startups is to undervalue their product and be timid about pricing. Enterprises often pay six figures for a product they perceive is highly valuable. Do your market research so you can be thoughtful about how to position your product in the market. If you’re building a premium product that has a demonstrably higher value, those higher prices are justified. Enterprise customers (especially in procurement) will expect somewhere between at 30 and 60% enterprise discount from “list” price, so avoid getting too optimistic about your pipeline thinking you’ll close massive deals with little to no discount. So set your “list” price to be high enough to take the enterprise discount hit that will likely be negotiated.
Enterprises will negotiate legal docs, so efficiently manage redlines.
I’m assuming you’ve standardized your sales process and have a consistent and professional way of proposing deals to new customers (usually an Order Form and a Master Services Agreement) where the Order Form changes per customer specs, products/needs, but the MSA remains unchanged. Expect that enterprises will mark-up or “redline” changes or complete re-writes of your contract. To be prepared, I’d recommend hiring a contracts lawyer who is willing to review redlines on a project-based fee, not hourly. I used lawtrades.com and found a great lawyer, paying them far less the cost of what my corporate counsel would have billed to do the same work. Also, the more you work with a commercial contract lawyer the more they can help you adjust your MSA and agreements to avoid continued pushback from customers on the same sections. You’ll have to be willing to give on sections to land a big fish, but your lawyer will help you measure risk so you don’t take on bad contracts with risky terms.
In conclusion of part 1, startups often overlook these things when trying to swing “up-market” and sell to enterprise customers. This list is far from comprehensive but provides seven areas that can really help you land more enterprise customers with an enterprise-grade product. For more information on building enterprise products, I really like this site, enterpriseready.io, which guides you through even more requirements enterprises love.
If you’re working in an enterprise, the next post is for you to learn from how startups operate - stay tuned!