• Mukund Mohan

    Starting with an SMB focus vs. enterprise for SaaS companies. Which is better?

    branches&creatures (1)In the initial days of your SaaS startup, when you are doing user development, you may find that your product will help both SMB (Small Medium Business) users as well at Enterpriseusers.

    There’s a tendency to then focus more on the “customer” development than the user. Assuming you have spent enough time on the user, there is a serious possibility of getting distracted from your mission by doing “both” at the same time.

    Here is a dichotomy for entrepreneurs – Knowing that the milestone of Monthly Recurring Revenue (sans Churn) is the most important metric for SaaS companies, many entrepreneurs try to take the “relatively” easy route to try and get more larger enterprise deals for their product, if that’s what they know.

    I have found that most entrepreneurs with an enterprise background end up finding 5-10 early customers who are willing to pay for a good product, but in the bargain they end up flexing their enterprise sales” muscle instead of building the “SMB marketing” muscle.

    There is nothing wrong with choosing either market, but there is a big enough difference between both.

    The enterprise SaaS market will end up with longer sales cycles (even if you know the decision makers), larger deals and request for integration with many existing tools and processes.

    The SMB SaaS market will end up with smaller individual sales, an inbound marketing driven “self service” approach to vending and a extreme focus on seamless “on boarding” of users (sans training).

    Many entrepreneurs also convince themselves that they can do both at the same time.

    Which cannot be farther from the truth.

    So, the question I usually get asked is “Which one do investors prefer“?

    The answer is either one, since investors care about quality and quantity of revenue, but above all they also care about empirical evidence that they money they invest in will generate the consistency in the business for the chosen model.

    Inconsistencies kill fund raising cycles.

    So, if you chose to say you will build an enterprise sales model, you need to show your financial, product, hiring and operational model to support that type of business.

    If, however you say your company will build a try and buy model for SMB sales online, with minimal or zero human touch from your side, driven by digital marketing, you need to show evidence that you can do that over a 3-6 month (or more) period.

    I have seen many entrepreneurs confuse any revenue with good revenue. Consistency matters.

    You have to show investors that you have done what you want to do.

    Empirical evidence trumps theories.

    So, my suggestion is to pick a model, stick to it for some time, before you decide to pivot if that does not work for you. Before you raise money, showing that the model you are choosing is one you have relevant expertise and knowledge in running is going to be critical.

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    Apr, 20
    2015
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