I’d like to throw out an idea for discussion, especially as it applies to startups selling into the enterprise:
Small buyers of technology, acting early in the technology adoption life-cycle, are motivated by hope (hope == ROI, opportunity, etc). Large buyers of technology, acting late in the life-cycle, are motivated by fear (fear == risk of loss or punishment).
A good example of this can be found in the typical upgrade cycle. Early, individuals and small groups upgrade to new hardware, operating systems and applications because they hope that access to new features and capabilities will be more than worth the effort and disruption of the upgrade. Large groups don’t upgrade until much later, even if the benefits of doing so are dramatic; they often wait until the fear of loss of support from vendors forces a transition.
I remember experiencing this dichotomy in the major changes to the practice of information security as the commercial Internet grew in the mid 1990’s. Security shifted from an operational part of IT, where purchases were motivated by fear of loss rather than ROI, to a source of enabling technology for new ways of doing business. Within startups and large existing enterprise, small teams tried to figure out how to build online businesses. Along the way, they pushed the nascent Internet security product companies into building the right pieces to enable and protect the new ecommerce ventures.
Today, it seems like information security has largely returned to the operational state: anti-malware technology is a cost of doing business online, regulatory requirements drive new security spending, and fear of public outcry and regulatory enforcement prompts increased scrutiny on the handling of customer data.
It is likely that large organizations will miss much of the benefit of web 2.0 technologies as well, as they wait for incumbent software vendors to deliver later in the adoption cycle, when they will buy out of fear of being left behind by competitors. Most of the startup companies I see trying to sell innovative technologies into the enterprise today through the IT organization haven’t really figured this out.
A few companies, however, are dealing with this really well. Most are SaaS plays, and Salesforce is among the first of the good examples. Salesforce established small, dedicated groups of customers who bought the service with company credit cards rather than purchase orders, and used it without the authorization of central IT. Companies like 37 Signals, Zoho, ConceptShare, and countless others are using roughly the same model.
Going back to the idea of hope vs. fear in the acquisition of technology, I think there are a few things these startups could be doing differently to scale sales to big organizations.
The freemium pricing plans offered by the three startups I mentioned above are structured in a way that makes sense for small teams, but breaks for very large ones. They all offer some kind of free trial, and then price their services based on the amount of use (number of users, amount of storage, etc). Within a large company, this means that a small number of initial users can evaluate the product, and probably pay for ongoing use on a credit card, but growth becomes more difficult at that point. After the trial period, new users typically can’t be added without moving up to a pricing plan that supports them. The team footing the bill, however, is only willing and able to pay for its own use, not the much higher prices that come with larger plans.
I think there could be an enterprise twist on the freemium model, with the following characteristics:
- Free trial for each additional user within a company
- Easy options for billing/payment by user or group, rather than for the whole company
- Premium options for IT
The last of these, ‘Premium options for IT,’ is the most important. Knowing that IT won’t make early technology buys to support their users’ hopes for opportunity and improvement, the startup should support broad grassroots adoption of their products at lower levels. When the motivators that drive IT purchasing, such as fear of losing central control over data, backups, users, access control, and management complexity, kick in due to the grassroots use, the startup needs to be there to directly support IT with purchase options.
For a SaaS product, these IT premiums might be things like onsite, appliance-based offerings of:
- Directory services integration for user accounts
- Enterprise backup integration
- Data integration with reporting, dashboard, data warehouse and other systems
There are plenty of examples of enterprise IT banning the emerging technologies that come onto their radar when they don’t have a way to mitigate their fears. The best way I can think of for the startup to deal with this is not the traditional attempt to convince IT that their fears are unfounded, but rather giving IT a way to purchase that mitigation in the way they are used to and comfortable with.
This isn’t a big shift for most startups. The model still provides early revenue and a short sales process, but also offers a level of scale previously available only to those selling to a central organization. From a product perspective, this approach requires some thinking about the needs of IT and perhaps some new development; chances are that the thinking and planning will have benefits for internal SaaS operations if done early, and the development can be done at the right time to fit in with the adoption and growth of the product. If startups continue to deliver these innovative SaaS products with direct application in the enterprise, there may even be a Feedburner or Mashery model here: a company could focus on providing the IT premium layer for SaaS offerings.