- they want to have multiple 'demos' with 5 or more attendees which end up being hours long
- you need to work hard to find out whether people you are talking to have any purchasing authority
- they want to have PoC deployed
- they want to have a kind of reviews and special contacts: security, special contracts, special NDAs, etc.
- they never pay invoices
- they are always want to tweak how the product works
In short, enterprise sales are more about relationship and negotiation - so you need to have team dedicated for doing only that (sales, sales engineers, etc.). It is not hard - but just you need to have team and process for doing that. For example, many established companies will have "paid PoC": You want to test our solution? Great. You have to pay first to test it.
And one more: byzantine network architectures and change management procedures that take six weeks and seventeen different signoffs to get a VM provisioned or an account created.
When I'm on a call and the customer/prospect* asks for something we don't have, I push to make it concrete. Here are some of my questions:
- How are you doing that now?
- Where is that in your roadmap? Is that required for the current phase?
- When do you plan to implement/use it? Is this 3, 6, 12, or 24 months out?
- Is this more or less important than X? Where X is another project or initiative, because there always is one.
- Is that a nice to have or a must have?
* Until they give you money, they're a prospect, not a customer.
If it's expensive for you to do then you should always demand real money up front.
in other words, real companies that make real things charge their customers real money.
if there's no money, guess what, they're not a customer! move on. the business sociopath who you're interacting with at the other side of the table is more than happy to have you work for free for as long as you're willing.
Startup I worked for is approached by a large multinational corporation for a demo project, something that if integrated with their logistics could bring us a ton of money and raise our exposure. The initial outlay from the multinational was only $50k but the size of the promised follow-on contract would really validate our out-sized Series A round that had been raised years before. About half of the engineers were pulled off of their normal work of gradually improving the product and the API to build this crash project. It was a really hard slog but the team pulled through and delivered something great, but it took around two months and the end product was very specifically tailored to that client and not generally useful for the rest of our customers.
Our team presented the final product, thinking we were about to kick the door down and be showered with a fat contract . . . as I understood it the rep from the multinational ended up not having any purchasing authority, he was an ambitious ladder-climber trying out a long shot with a little leftover budget he had. He had commissioned the whole project unsolicited from his managers and when he tried to skip up the chain with his genius plan he was shot down pretty hard and we never heard from him again. Meanwhile the normal work for the rest of our tiny but paying customers was stacking up and we had half the team demoralized and fatigued. Alas.
Having a large customer means handing over a lot of power to your buyer. Although they may empower you, they can also empower your competitor. Another way I like to describe this is Australia's contractor law, which states something along the lines of: if more than 80% of your income comes from one client, you are an employee and not an independent contractor.
Most start-ups only seem to care about competitive forces relating to industry rivalry, threat of new entrants, and threat of substitution. Start-ups are usually very aware of substitution threat as companies that claim to be "disruptive" are attempting to be the substitution threat to an incumbent.
However, many overlook the power of suppliers and power of buyers. A large client demonstrates the power of buyers. The situation between Netflix and Starz shows the power of suppliers, or Spotify and the music industry. Anytime someone is trying to build a platform with vendor lock-in, they are trying to build their power as a supplier.
I hope for start-ups that when valuing an investor, a key criteria is their ability to provide a business perspective that may not be immediately obvious to a technical or sales/marketing focused founder. It may also be beneficial be for more people read up on business books/practices as they embark on their entrepreneurial journey.
The big early customer that really saved us was Intel. The saving wasn't in the money (though we were bootstrapped at the time and so needed the money) but it was early days and we were not particularly competent at anything but writing code. Intel needed an outside party to make a i960 compiler so they basically came regularly down to my house (where the company was located at the time) to lecture us on how we should be getting things done.
NASA was another key early customer who wanted us to succeed to kept us between pretty narrow rails that we learned from.
And Sun...well they just gave us cash, were intermittently demanding, and very slow to pay but fortunately our income wasn't dependent on them so we came out OK.
I'm admittedly slightly envious, as I have to work quite a bit harder for each dollar of revenue and my utilization rates are more in line with traditional professional services firms.
I do, however, take comfort knowing that my largest customer is ~8% of my annual revenue. I feel like I have a more sustainable and resilient business. And I think business development is something that needs to be happening all the time, not just when the threat of imminent starvation looms.
Another unexpected benefit of this arrangement is that I can walk away from "bad revenue". Since I'm not under pressure to grow or feed the beast of a substantial payroll, I've been able to start being more selective about the projects I take on. Once you've been in this business awhile, you can spot bear traps ahead of time, but that only matters if you're able to maneuver around them.
Which makes you even less appealing to other clients.
My solution was simple: just refuse to do all those things. To my surprise vast majority of them went ahead and still bought my product (some posed an "offended" stance initially).
I guess for that to work you really have to have the best product for their needs. :-)
Fer instance: when creating a product that depends customer design partners, small companies typically cannot afford to make the investment necessary to hold up their end. You'll lose the deal and burn a customer in the process.
In my last company we had one particularly large customer that really put us on the map. It was grindingly hard to get things to work but fortunately they had a problem they really needed solved and just enough patience to let us solve the teething problems of new software. Once we had them as a reference it made a huge difference both in terms of product quality as well as validation of the company.
- cash to invest into growth, especially if you can derive a higher profit margin than average from the customer
- increased stability ("battle tested") in the eyes of other large companies
- pushes you to build a scalable and secure product earlier on
In my experience with Codevolve (where we prefer to work with multi billion dollar companies) I've found there is a balance between how much they need you vs how much they are willing to bend to your startup mold. If they want you enough, they'll concede certain points to you. Some important things to stick to your guns on are:
- included support (you want to provide as little as possible, and get paid for it as much as possible)
- non competes (you don't want them to get one, or at least not for very long)
- pricing (leave yourself room to grow the account, especially if you have a product that can be used across multiple departments, and you're just starting with one)
The best way I've found to do this so far has been to go "bottom-up": find a champion in the company who will actually use your product. They're much more likely to work with you than an exec.
"Greetings, X. I have many millions of dollars I'd like to spend, and I'm willing to give you a share. To facilitate this, you need only devote 50% of your company to me for a year. Please start working on features Y and Z immediately, so that I can make you rich."
Yeeeeaaaahhhh, not so much.
I'm just starting out trying to get a new product off the ground but finding I have an issue just getting one customer as it's something most suited to organisations with large numbers of employees. Either I get my own big one or I'd imagine the product gets a slow death.
I suggest that your experience is not universal, and might even be anomalous. Please, look at other comments on this story. A significant majority of the stories people are telling involve long lead times, expensive POCs, unpaid invoices, and so on. There's at least one mention of a "customer" who it turned out lacked the budgetary authority to make the purchase - something I've seen myself at two companies that fell into this trap. This is the same pattern I've seen every other time or place this topic has come up. Large companies are often more risk-averse because of internal politics and policies. Their systems and procedures are often the thing that make the sales process slower and more difficult. And they will use the carrot of that ever-in-the-future big sale to wring every last bit of free work out of a desperate startup. I think it's great that you've had a different experience, but only in the same way I think it's great if someone who walked into a den of lions got out alive. I wouldn't present it as the normal case.
The key is dealing with them properly, which this article implies is impossible. It may well be impossible for a start-up without employees who have dealt with these relationships before, but it's business as usual is the corporate world.
The most important thing to remember is the distinction between a product company and a consulting company. When dealing with large customers you need to draw the line and stay firm. As a start-up, you're almost certainly a product company, and you should not customize your core product for anyone under any circumstances. If they want something customized "that bad" offer to sell yourself to them. Walk away with a bunch of money to start your next adventure and a corporate friend that's probably willing to do you some favors.
That said, if they're going to throw money at you, might as well find a way to take it. This is when you build a stellar API, or even better, build your whole product on top of an API and offer blessed access... For a price. Your best bet here is to either partner with a consulting company or divide your company into two parts, one that makes the core product and the other that makes customizations.
The rest of my advice is a few general things for dealing with big companies that startup land might not know.
Number one is to make sure you're charging enough money. I worked at a rapidly growing consulting agency once and we had the problem of too much work. We simply could not hire and train fast enough to keep up with our sales pipeline. We could have done the naive thing and paused our sales pipeline. Instead, we charged more money. Twice as much per hour at first, then almost 3x. Any new work coming in had to be at a vastly increased rate or we simply didn't take it. Our reasoning? We were honest, we had too much work and the premium was to pay for overtime to get your project finished. We ended up vastly more profitable, we could offer more for the job positions, we could hire more experienced devs that didn't need training, and afford even more marketing. It's been less than 2 years and that single dev shop is now ten full time devs and still growing rapidly. A side benefit, we started working with bigger companies with deeper pockets because they were the only ones that could afford us. Not sure if there's an economic theory on this but it seems like the middle market is where all the competition is. If you're either at the bottom or the top it's a lot easier to make money. Remember this when making you're SaaS. Serve the bottom with your boilerplate product and the top by building stuff on the side for the big dogs. It's much harder to lose this way.
The other thing about big companies is that sales are more personal, not less. Large companies are more stratified, more organized. At a big company the decision of whether to buy your product likely rests with one person. Make sure this person likes you, a lot. When meeting with them send the guy he likes the most even if it's the janitor. At big companies the chance that the person buying your product is the one who will use it is minimal. While the quality of your offering still matters the most important thing is whether the guy buying it is going to enjoy dealing with you for the next ten years.
This ended up a long diatribe but I disagree in practice that having big customers is a bad thing at all, and argue that it's actually the exact opposite as long as you know how the handle them. I have worked at small companies with big clients and the name value alone (if they like you enough to allow you to use them as a reference) is enough to open most doors. Nobody questions your product or team if one of the largest most prestigious companies in the world is your client. It's the business version of getting a 4.0 at Harvard.
We never got fucked by a single client more than maybe 1k. Not once. Because we stopped working when we didn't get paid.
That is, you were under high demand so your prices went up. Instead of, as you said, artificially restricting your own demand.
I love the closing.