Much has been written about the marvels of SaaS (News - Alert) enterprise software versus traditional on-premise enterprise software, and although refuting those claims would make for good press fodder, it’s simply not the case. So what are the keys to winning with SaaS at large Enterprises? In our experience, it comes down to two broad categories: Infrastructure and Sales.
Carrier Grade Reliability: Reliability and uptime should be a minimum of 4, 9’s for mission critical and core solutions. Consider that Amazon Web Services (News - Alert) (AWS) only offers 99.9 percent (3, 9’s) which equates to 8 hours and 45 minutes of down-time per year. Imagine the business implications if mission critical applications are off-line for up-to 8-hours. Application hosting data centers need to be a minimum of Tier III (according to Uptime Institute definition) with disaster recovery and site replication absolute musts.
Hybrid Cloud: Although the benefits of leveraging a public cloud architecture could be plentiful, develop a hybrid cloud solution to gradually on-board enterprise customers to a cloud based solution. Transitioning a large enterprise to a public cloud architecture from a cold start for core and mission critical applications is quite a technology feat. Even if you know a public cloud is the optimal architecture, respect your customer’s desire for a path of least resistance. A gradual migration with a hybrid cloud solution allows for baby steps until there’s sufficient comfort for an all cloud based solution.
Inside vs. Outbound Sales: Selling a software package to a large enterprise solely with an inside sales effort is misguided and unrealistic. Figuring that large enterprises are inundated by vendors selling goods, being on the ground to ensure product review, ROI evaluation, contract review and contract execution stays on-pace is invaluable. As I referenced in my blog about why I relocated to San Francisco [hyperlink], nothing beats being in-person to build rapport and closing deals. Hopefully the suggestion of an outside sales force for enterprise deals isn’t revolutionary for most, but it’s still surprising to meet large enterprise focused software companies that believe they could handle sales entirely with an inside effort.
Achievable Commission: Perhaps counter-intuitive, but setting achievable sales goals such that most (not all) account executives are paid commission is vital. Let’s face it - sales people are highly-competitive if they believe success (commission) is attainable. Setting high stretch goals that few (if any) account executives achieve is un-motivating and has a negative overall impact. Start sales goals low and ratchet them up gradually.
Sales Cycle Forecasting: Whether it be due to multiple stakeholders required to sign off on contracts, longer list of higher order priorities, or just shorter work days, large enterprise software deals have LONG sales cycles. For example, we surveyed dozens of companies to find that sales cycle for smaller ARR deals are 14 days to 90 days, while large enterprise ARR deals have sales cycles of 180 to 400+ days. If selling to large enterprises, plan accordingly because defying the sales cycle is a herculean task.
Multi-year Contracts: As just noted, enterprise sales cycles are long, hence replacement and churn for established vendors are therefore low. In situations where vendor replacement is a viable option, multi-year lock-in is pragmatic. But in situations where replacement is a massive undertaking and multi-year lock-in is implicit, a multi-year contract only eliminates future options for pricing negotiations. Furthermore, before barreling forward with a massive, multi-year contract, figure out signers that would be required to execute the purchase order. If a C-level executive is required to execute the PO, could a smaller contract with fewer auto renewals achieve the objective… remember churn commentary and multi-year contracts
Customer Success: A new buzz word in the world of enterprise SaaS that’s going to drive the next growth curve. No offense to all my IT friends, but selling an enterprise SaaS solution through IT and expecting them to successfully promote and market the solution internally is naive. IT organizations lack internal marketing prowess to effectively drive adoption of new applications. Just like marketing to new customers, SaaS vendors should take-on, in a collaborative fashion, internal marketing and adoption at large enterprises.
Adjust Margin Assumptions: traditional SaaS margins for SMB and corporate customers don’t translate uniformly to Enterprise SaaS; remember carrier grade, long sales cycle, dedicated account team, direct sales, etc.
SaaS has truly disruptive attributes for software delivery, but approach large enterprise clients with a sober mindset. Countless companies have already succeeded at large enterprise SaaS and many more will in the future, but rules of the road requires adherence. Let’s learn from those that have come before us and embrace Infrastructure and Sales best practices.
David joined Comcast (News - Alert) Ventures in 2006, and is responsible for identifying, executing and managing new investments while supporting existing portfolio companies. Prior to joining Comcast Ventures, David was a business development manager at Flarion Technologies, where he played a pivotal role in the company’s fundraising activities and ultimate acquisition by Qualcomm. He was also a communications and media investment banking analyst and asset management associate at Lehman Brothers (News - Alert).