Selling to the enterprise: “Sell to few” vs. “sell to many”?

A key investment thesis here at Version One is that we like to invest in companies that “sell to many” over companies that “sell to few.” This preference isn’t necessarily due to market size, but rather the structure of the market: are there only a few dozen customers that might buy your product or are there thousands, or even tens of thousands of potential customers?

Practically all consumer companies fall into the “sell to many” category, but what about on the enterprise side?  How do we differentiate between B2B start-ups that sell to many vs. sell to a few?

1. “Sell to few”: Traditional enterprise sales

Start-ups in this category typically have a target market composed of dozens to low thousands of large (Fortune 500) companies. Selling into this market requires the traditional enterprise sales approach, comprised of a large ‘boots on the ground’ field sales team that works with key decision makers (e.g. CTO, VP of HR) in the customer organization. These are long sales cycles, often with multiple departments and stakeholders involved. And often, enhanced business services – such as custom product development or professional installation and consulting – are involved to complete the sale.

Startups that succeed with this approach tend to have founders with deep connections in the industry they serve, and often previously worked for one of the large incumbents in the market.

2. “Sell to many”: the scalable SaaS approach

Selling to many in the enterprise typically involves selling either to SMBs (where the owner/operator makes the decision on their own) or selling directly to end users (employees) in the organization.

Yammer and Unbounce are perfect examples of SaaS tools that are adopted directly by the end users. In these cases, employees feel a particular pain point and find a solution to address it. Based on the lower price points, these employees often pay for the product with their credit card, without asking IT for permission or assistance with implementation. These acts can often be start of a viral growth curve in the enterprise. Enterprise products that present a high-value daily utility for the people involved can have a high virality potential.

The SaaS model, with its inherent low customer acquisition costs (CAC) and ease of deployment, makes it possible for companies to be successful when focusing on the SMB market, as well as niche verticals. While traditional software monopolies needed to be “all things to all people,” cloud start-ups can focus on one area and do it extremely well.

Final thoughts

Both approaches can create large and important companies, but they require different kinds of founders and investors that understand the nuances of each approach. At Version One, we’ve identified that we’re a more effective investor when focused on the ‘selling to many’ approach.

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  • http://blog.kwiqly.com/ James Ferguson @kWIQly

    Hi Boris – Good of you to extend your investment thesis clearly (and objectively).

    I would preface by saying with our European focus we are outside your chiefly North American target. However your categorisation of models is none-the-less interesting.

    I would be interested in how in this model of “one-to-many” vs. “one-to few” you would position our proposition which is effectively “one-to-few-to-very-many”.

    We are offering SaaS services through utilities to enterprise an SMB markets.

    This means that we need a highly specialised field sales efforts to open the doors, but our metrics (once established – we are at early revenue) will be predicated on “the few” reselling to “the many”. So potentially very many end users who make independent buying decisions may buy through a limited number (ultimately perhaps a few thousands) of very large resellers.

  • http://www.7Geese.com Amin Palizban

    Nice article. A lot of startups that have an elastic product (both SMB and Enterprsie customers) have both of the approaches you mentioned. Examples are 7Geese, HootSuite, Yammer, and Salesforce. You mentioned Yammer as sell to many, but most of Yammer’s revenue comes from traditional enterprise sales rather than users putting in their credit card.
    http://bhorowitz.com/2010/11/15/meet-the-new-enterprise-customer-he’s-a-lot-like-the-old-enterprise-customer/

    In reality, sell-to-many is very difficult for a startup getting started as SaaS revenue curve takes a long time to take off. Need very deep pockets to survive.
    http://www.forentrepreneurs.com/saas-metrics-2/

    For us at 7Gesse, we focus on sell to dozens to start while our sell to many has been slowly taking off.

  • bwertz

    Agreed – but for Yammer is was “sell to many” first, “sell to few” second. They figured out that once they had a penetration > 50% in an organization, the pitch to the CTO about an enterprise license was a much easier one than before.

  • bwertz

    This is certainly an interesting variation of those two models. There are a few large tech companies that got built on a reseller / channel strategy but it is not an easy thing to pull off. I have personally never seen it work at scale but then again it is probably not my area of expertise.

  • http://blog.kwiqly.com/ James Ferguson @kWIQly

    I would agree that this is “not an easy thing to pull off”. Factors in our favour are: There is clearly identifiable market demand (selling to large multiples directly at first opens the doors to the potential resellers)..
    The added value and margins are very attractive (even at very low scale we will become revenue positive).
    The market is searching for a solution, that is transferable (as they do not want to be locked in to utility providers).
    The domain knowledge is highly defensible, and there are very few immediate competitors.
    The solution we propose (or a pre-cursor to it) “virtual energy audits” is already seeing very significant publicity in the industry and increasing M&A activity.
    Trade exits paths are very clear.

    There are also some complications as you note, but someone is going to win this race. So why not the best !

    Anyway – thanks for the article – it would be interesting to know who the VCs you know in Germany are because we are Swiss German UK based.
    Who knows which paths may cross .

  • bwertz

    Good luck with it and keep me in the loop how things are going

  • Saul_Lieberman
  • bwertz

    Great post – thanks for sharing.

  • http://www.leankor.com/ Emilio Bernabei

    I tend to agree that a SaaS B2B offering (with mobile capability) has a very good chance penetrating into both SME and departments of larger multi-nationals. Over the past 25 years I have run into many large corporations where the CIO has set a policy allowing line managers to acquire SaaS tools under their own budget, with the only caveat “no support from IT”. That sits just fine with startups and “intrapreneurs” alike :-)

  • bwertz

    Fully agreed – BYOD will accelerate technology adaption in enterprises in a big way