Creating a minimum viable product for the enterprise: No trivial task
If you intend to build and sell an enterprise solution, don't underestimate how hard it is, even to build the minimum viable product (MVP). It's just the start. Get it right from the beginning, and the reward in terms of client annual contract value (ACV) makes the effort worth it.
Some software vendors see their consumer web app or tool make its way into corporations—paid or free. Typically, it's an employee who has used the app outside work as a consumer, and they see benefits of using it in the workplace, flying below the IT department's radar. At this point, the software vendor often hallucinates that it has an enterprise solution, and the cool UX and neat features will enable the software to scale virally, inside the client company to get enterprise-level revenues.
And then they believe they can repeat this with client after client. This is a boulevard of broken dreams.
There are huge differences between a web app or tool and an enterprise solution: the scope, the architecture, the sales cycle, the requirements from corporate IT, the procurement process, and getting paid.
What is an enterprise, exactly?
The US Small Business Administration breaks down business segments by number of employees. Here are those segments and their sales characteristics.
|Annual revenue (avg)||$10 million||$50 million||$150 million||$2.5 billion|
|ACV||> $1,000||> $10,000||> $50,000||> $100,000|
|Sales Cycle||< 1 month||< 3 months||< 6 months||6-12 months|
|Payment||Credit card||Credit card||PO and chase for payment||PO and chase for payment|
As you can see from this table, an "enterprise" has more than 1,000 employees, a long sales cycle, and an ACV north of $100,000. The ACV could start lower than that with pilots and phased roll-outs, but the target is greater than $100,000 and would ideally make it into seven figures.
Time for an enterprise reality check
It's worth stepping back and realizing that no enterprise actually needs your product or service. It's not going out of business because it's not using your wares. Sure, it could potentially work more effectively, save money, or win more customers if they used it. And, if given a chance, you could develop an ROI calculation that shows the company is better off using your solution. But the enterprise is probably not out there looking for you.
In addition, selling to the enterprise is hard for a number of reasons: internal politics and the need for multiple sign-offs, IT wanting to maintain the status quo, a rigid IT strategy, incumbent IT vendors aggressively protecting their revenue stream, lengthy procurement policies and processes, the inertia of a large organization, and the list goes on and on and on.
All the time and effort it takes to get to the right buyer and close a sale means your (ACV) needs to be significant just to break even within a few years. So, you need to develop an enterprise solution, not a cool web app or tool. Your enterprise solution must enable the business transformation of a core process, such as customer relationship management (CRM), enterprise resource planning (ERP), supply chain, procurement, human resources, and IT development and ops.
To implement any enterprise solution is a significant commitment for a company. If the solution is going to generate any significant value, it requires the client to change their business processes. And we all know how difficult it is to use new solutions properly and for change to stick. So there is an implementation cost to the client for any solution, even if it is software as a service (SaaS).
The final reality check is that if the technology is purchased from the buyer's perspective, an enterprise solution offered by a startup is a huge risk, both personally and corporately. Offering your solution for free doesn't reduce that risk and probably won't make the sale any easier.
Doesn't it make you wonder why anyone would want to go though all that pain to sell to an enterprise? The answer: they do it for $100,000 to $1,000,000 ACV.
Make the MVP credible
Building the MVP for an enterprise solution isn't trivial: you need an MVP to be able to establish that there's a market. The trouble is the "M" may stand for "minimum", but it feels more like XXL compared with a building a consumer app.
The MVP for an enterprise solution needs to be:
- Multi-tenant, to reduce the deployment cost to you
- Resilient: 24x7x365, scalable, and potentially multilingual
- Secure: Meeting the client's IT and risk requirements
- Integrated into corporate IT: Single sign-on, portals
- Functional enough to be transformational and give the client a positive ROI
- Beautiful UX that matches the best consumer apps.
In addition, the MVP needs to have:
- A credible brand through its website, references, and industry analysts
- Technical support and help in the correct time zones
- Customer success and implementation support teams
It's along list, but the reward of $100,000 to $1,000,000 ACV is there for those vendors that can fulfill all these criteria. Most startups don't have founders with the right contacts, experience selling to the enterprise, or enough funding. The company has to live long enough to get to any meaningful revenue, and that could be as long as two years.
Selling to the enterprise buyer
Let's consider the buyer's perspective, when they're committing to an early-start enterprise-startup solution. If they're even considering buying from a startup , they'll be evangelists, or early adopters, using Geoffrey Moore's chasm terminology. Moore's book, Crossing the Chasm was, and still is, the definitive guide to understanding the different types of enterprise buyers. What's important about early adopters is that they can see the business benefits of your solution, even though it's not yet mainstream, fully complete, or a market leader.
So how do you find and sell to the early adopter? There's a universal buying process that most sales people are unaware of, which is driven by human nature, not procurement rules, and it's the same, irrespective of industry, country, or market. In fact, the initial sale to the early adopter that gets you into the enterprise will normally be below IT and procurement's radar. The buying process, marketing to early adopters, the implications on the sales process, the personalities and skills of the sales teams, and the metrics for driving the business are all described in detail in a book called Why Killer Products Don't Sell by Dominic Rowsell and yours truly. An abridged version focused on early stage technology companies is called IMPACT and can be downloaded for free.
What's important is that the early adopter is considering the solution because they see the potential. At this point, there's no budget, business case, request for proposal (RFP), or any formal procurement process. They're going out on a limb to fund a pilot project of your solution. The pilot isn't about showing off your cool features, and it's not about getting users to fall in love with your solution, although this may happen. The pilot is to get the metrics to build a business case for roll-out. So that means that even though it's a pilot, your solution needs to be credible: enterprise MVP, not just MVP.
Pick your path
There are two different paths to selling to the enterprise and expecting enterprise-scale ACV. The path is based on the founders' background and the company history and strategy:
1. Target the enterprise directly. You need great need contacts, domain expertise, and funding. You still go in with a pilot and adopt the "land and expand" strategy.
2. Consumer first. You sneak in with a consumer tool that is then used by consumers at work. Once inside the clients, you can understand the requirements for wide-scale roll-out and develop them over time, morphing your consumer app into an enterprise solution. You still need marketing, luck, and funding to get going—then you need even more funding to make the transition from consumer to enterprise, putting you on route one above.
But what sometimes happens for consumer apps is that we find that they're also a useful tool inside clients. They don't pretend or intend to be an enterprise solution but are happy to take the revenue from corporate users. The development and operational costs are lower, but so are the revenues. However, this approach is a delicate balance. If they get too successful in a client, they appear on IT and procurement's radar. In other words, they're on route two, if they want to continue to be used by the client.
Building an enterprise solution has big potential rewards, but don't underestimate the time, effort, and funding it will take to get there. However, migrating from a consumer app to an enterprise solution is even harder.