Why are you still building consumer apps? Enterprise pays 4x more
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In the consumer space, you're working with averages over large quantities. The number of potential buyers is huge, so you need to build a product that, on-average, will result in more sales than non-sales when the customer reaches the point of making a decision. This decision point might happen tens of thousands of times -- sometimes millions -- a year for consumer products.
In the enterprise world, the number of sales opportunities are smaller by orders of magnitude. Every sale becomes a huge gamble, and as a result you tend to throw an immense amount of resources at every sale. This is also one of the primary reasons enterprise software ends up so bloated and unmanageable. On the front-end, the decision making process for purchasing enterprise software is driven by checklists and "due diligence" procedures that are horrible at accounting for software quality. You're more likely to win an enterprise contract by saying "sure, we'll add that feature" than you are carefully explaining how maintaining product focus results in a more usable product.
This makes enterprise software a high-stakes game. A sale results in windfall revenue, but a non-sale can severely strain cash-flows. At the end of the day, you're still trying to beat the averages, but you're working with a much smaller number of opportunities, so wins and losses move the needle in a big way. I think this is a significant incentive for small shops and independent devs to avoid the enterprise space. You need a larger bank roll to attack the enterprise market. We bootstrapped our company, and we hit several gut checks along the way. The days of writing large checks to my company are not quickly forgotten.
When we were smaller, we dealt with smaller companies. Most of the work was brochure sites. Although these bring in around 4-5x less than larger companies I found that it was easier to secure the deal and equally please the client. You can't build the same brochure site for a corporate and charge 4-5x more, it just doesn't work.
Now we are larger we deal with larger companies. The apps we build are larger and bring in greater deals. The chance of securing the deal though is a lot more than 4-5x harder. I also find the client harder to deal with. You end up dealing with people who are further removed from the people really making the decisions. You end up developing to the people you are talking to then you end up reworking projects when they actually show it to the people making the decisions.
All this process ends up costing us more but we are slowly refining processes for this. I suppose it's a learning curve in dealing with larger companies but I find each client has their own set of challenges.
We now service both types of clients. The quick and easy brochure sites for quick turnover and high profit and the higher end client who pays more but the profit is always less than if we did (x) amount of smaller sites.
Building an enterprise sales funnel is also a challenge. It takes real discipline to be able to say "100 leads->25 opportunities->5 POCs->3 deals at an ASP of 450k". With consumer apps, the volume is so much greater that you can have conversations about A/B testing the homepage to drive a few extra percentage points - for enterprise apps, odds are not enough people will ever visit your website to be able to gather enough data to A/B test anything.
And deals will fall apart for the most random reasons - a regime change at a big bank. A bigger company releases a product that uses some of the same words as yours, so the customer decides to evaluate it. Your EU channel partner gets bribed to tank a deal by a competitor. Anything can happen.
True story: we lost a deal once because the customer did a POC, and then fired the engineers who evaluated our software. With the departure of the engineers who evaluated the software, management lost the use case doc and evaluation criteria that was used by the fired engineers, so they wrote a new use case doc without telling us, scored us based on the new doc (despite never having used our software), then had a competitor come in and execute their POC with the new engineers and new use case doc. Unsurprisingly, the competitor "won". The call with the customer was amazing:
Them: You lost because of X, Y, and Z reasons
Us: Those weren't use cases in the pilot, but even if they were, we can do those things
Them: Well...we didn't know that you could do them. But it doesn't matter. We picked the other guys.
Us: Where are the people who looked at our software?
Them: We had to let them go. Unfortunately they didn't have time to write a report before they left, so we based our evaluation of your software on your user manual.
This is one of the reasons why SaaS apps are so appealing on paper. They have:
- Recurring revenue stream
- Freemium models allow leads to self-select
- Less sales friction (no need to send a sales engineer onsite, just spin them up a free 2-week trial)
But there's still a ton of money to be made in on-premise enterprise software, it's just a long, annoying, dangerous sales process.
Many companies will renew support contracts for years, even if they're not heavily using your software anymore, because the risk associated with their being out of support and then running into a critical issue is greater than the $100k it's going to cost them to renew. But if you've got 100 customers paying $100k/year to renew support, that's $10m in basically guaranteed revenue, which means that now you've got some breathing room to plan and grow sensibly. That's when the lumpiness goes away.
Selling to businesses (and governments, too) involves a lot of dealing with bullshit. Many times we've told someone we couldn't do the "absolutely must have" feature, and they still bought it. (Once the critical feature was to disable the copy protection, after which they would buy one. And when we refused they bought three.)
I think you've hit the nail on the head with the appeals of SaaS. Something else I would add to that from my "inside" perspective.
* People tend to be less territorial about SaaS as regimes and responsibilities change. It makes sense, premise stuff is a tangible reminder of someone else's influence and there can always be question about the quality of the implementation. Not so much with SaaS, it's regarded much more like a utility - no need to fire the existing ISP or power company when you take charge and no need to drop the SaaS contract.
* Less implementation friction. SaaS tends to be smartly designed with working around and through traditional barriers in mind. When all you need is a web browser and an innocuous configuration change or perhaps a lightweight agent or appliance to get started it's faster to get to the point of convincing adoption through demonstration as opposed to talking about it.
* No complications from folks who "buy" a product, but won't pay for ongoing maintenance creating mine-laden islands of trapped expense.
>"But there's still a ton of money to be made in on-premise enterprise software, it's just a long, annoying, dangerous sales process."
Yeah, I see it being particularly tough on an individual vendor. If you're addressing something apparent enough for one of the big monstrosities to notice they'll be looking to acquire/claim a solution to push you out.
If you're addressing something emerging, forward-thinking enough that the cartels haven't caught on to it, you'll have a steep uphill battle convince anyone what it is and how why they'd actually want it.
You could call it "politics" or you could call it "people." Ultimately the world (even the technology world) is about people, more than about technology or economics. That truth often seems lost on HN.
In the world-facing project there might be millions of potential decision makers (i.e. customers). You can make the technical decisions you believe make the best product knowing that if you are correct you will gain more new users than you lose of old users.
In enterprise, sometimes you have to make whacky irrational choices because there might only be hundreds of potential organizations to sell to and they might have only 1-2 decision maker(s) each.
No one wants to lose customers. But at the end of the day if you know feature x is best for your application, you might make it even if it costs you 100 customers.
In enterprise its harder to make these choices because its harder / takes longer to recover.
However, it so often happened that a sale was made before a feature could be actually added as programmers were swamped.
It was common to add a feature years after it actually appeared in the product manual. Call it vaporware or deception but it was not uncommon. Internally, company hated the practice but every other company was doing it. It also shows how quirky client demands could be if some feature could go missing for 2 years and no one would notice.
I guess you could call it feature-on-demand-programming...
0. A monthly profit makes a business that can be sold (growth helps but is not required). 1. Same issues getting clients. 2. After some years, you have a steady income. 3. Some initial problems with cashflow (so we did consultancy also to earn money. Now we don't). 4. Provide a useful service with some customisation. Clients can't be bothered to change unless you are causing pain.
- Selling costs are high.
- Sales cycles can be long.
- Harder to MVP and iterate.
- Domain expertise required.
I think the last one is the biggest challenge. To be successful with any product you need to understand the customer. Usually that means, you are the customer. With a consumer app, it's easier for you to be an example of the customer. With an enterprise app, you need to know that sort of enterprise -- its ostensible and implicit product needs, but also the decision-making processes and culture and so on.
As a result, you probably need to be an ex employee of that sort of company. Who became ex only after having been there long enough to understand the business and to make enough contacts at that company and its industry. And who became ex on sufficiently good parting terms.
So I would guess that's the "funnel" narrowing who can pull this off?
How does a 6 month sales cycle sound? What about expensive skilled sales reps?
When three or four deals, with a 6 month lead time turned into an 18 month lead time, as things got pushed into next year, it meant we simply ran out of cash.
And with such a long and intensive sales cycle, we couldn't afford to have a large number of fallback leads at the same time.
Building something to help manage clinical trials of drugs? Heck, you better have a ton of specialized expertise in the drug research vertical in one way or another.
Building a generalized platform that allows you to store legal records or other sensitive data in a secure and standardized fashion? Well, you might want to build custom sales plays based on individual verticals, but then you just hire a domain expert consultant to put the words in the right order and structure for that vertical.
One of the other benefits of the enterprise is that if you get the right enterprise, they will work with you to build your application. You have to find the right champion at the customer, someone with enough balls to take a risk, but basically you work out a deal:
- they will give you money for a product that barely works/barely exists today
- You will become their roadmap bitch for 12 months
- They will pay a comparatively cheap price for the software
There's a ton of risk associated there too - enterprises sometimes make irrational decisions that you're now bound to abide by, and it can make your product more of something custom as opposed to a general purpose application you want to sell.
However, it is a way to get an MVP out the door and get some money.
With an Enterprise, you often have to sort through a huge pile of legacy and potentially unknown dependencies. Substantial existing hardware assets (mainframes, etc.); massive, valuable databases in obsolete, proprietary, or even flat-out badly-designed formats; internal processes or audit requirements that conflict with design ideals.
Once you're established though, the difficulty of creating an MVP becomes an advantage, because it makes it much harder for competitors to enter your space. If your product is an iPhone game, then a couple of college kids can compete with you. If your product is enterprise software, your competitors need to raise tens or hundreds of millions of dollars just to have a chance to compete for your customers. The risk is that if your market segment becomes too large, it may attract competitors that are huge, well-funded companies like Microsoft or Oracle.
They copy once an idea shows traction, but having not done the legwork themselves, they won't necessarily understand why the idea was successful in the first place. This is why you see huge companies like that wasting tons of resources trying to catch up or, if they're smart, simply acquiring the team with the winning idea.
There are two things about the change which are very refreshing.
First, we're talking with people who want to pay us money and the amount doesn't even really matter. We're priced 10-100x over what we were charging consumers.
Second, the support overhead of supporting a crapton of free uses has dwindled and we're now able to provide significantly better support to paying business customers. We do phone support even.
All I've ever done in the past have been consumer startups. I don't think I'd ever do one again.
Edit: It's no silver bullet by any means. But it just feels much saner than the homerun derby which is the consumer Internet.
I've blown my proverbial load on Enterprise, and while I appreciate the money to be made, I've found that my psyche is more suited to 100 small wins than one win worth 100x the others. In short, enterprise isn't for me, at least, not if I'm involved in the sales process. The sheer arbitrary-ness of it was so mentally exhausting that it affected my productivity.
I can work on enterprise software, but if I'm in any way involved with the sales channel, it's a hardship.
For me, the happy middle ground is vanilla B2B, e.g., the same general demographic that 37Signals sells to. You still have customers that want to pay you money, but while cost is a factor, it isn't usually the driving factor -- there's likely little difference between $25 a month and $125 a month, assuming you're solving a problem that isn't cost-centric, and you're saved from the mental turmoil of enterprise whale-hunting.
We haven't ruled out enterprise but I hope and imagine that our sweet spot is B2B.
As you said it has much of the benefits of consumers (little friction to get in the door) and enterprise (willing to pay).
I have a friend, we'll call him Jon. Jon has been making apps for the past three years. He never learned to code, or design, or market, but he somehow managed to pickup xcode and started making fun apps for his nieces and nephews.
Eventually a day came when his sales skyrocketed, roughly $5,000 in a single day (a figure I made up, but he has stated before is realistic for him). Seemingly by chance. As Jon dug around a little he realized that a school -- who regularly provide iPads to students -- had bought his app in bulk.
Now, years later, he specializes in developing apps not for children or parents, but explicitly for schools. That's where the money is right now, he tells him.
You can make a lot of decent money selling quality apps or tools to consumers, but if you want to make boatloads you have to think in terms of those who would buy what you make via bulk purchases; from organizations large enough who need the thing you've made.
Isn't this how 37signals found their way?
sounds to me like he was never taught how to code, design or market. he sure did learn it though.
>The joke of it is, big companies protect themselves so well against the risk of buying something expensive that they actually drive up the cost of the expensive stuff, from $1000 to $75000, which mostly goes towards the cost of jumping all the hurdles that they set up to insure that no purchase can possibly go wrong.
Personally, I'm just not interested in playing that game.
*Edit: Yet. Not interested in playing that game yet.
Those tasks, tasks (a) and (b), are probably what's really brutally hard about enterprise sales. When an inexperienced founder/manager hires a direct sales team, the sales team sets to work on selling the founder/manager instead of the customer base.
An alternate path to getting a beachhead in an enterprise market is consulting. It's much easier to sell services to bigcos than products. Delivering services to someone gets you ~60% of the way to being able to sell products to them. The other 40% you can do on your own. That's worked for us (to greater/lesser extent depending on the specific offering we're talking about). But "consulting" is toxic to the species of startup we talk about on HN.
This made me spit out my coffee. I've never heard it expressed that way, and it's a hilarious image, but come to think of it I've observed that situation more than once.
Can anyone recommend some resources for learning to manage direct sales teams?
FWIW, we grew out of a consultancy into a more HN-compatible startup through precisely the path you describe. Most of our investors, who are traditional get-big-or-go-home investors, see our "consultative sales" as an asset, not a liability. In particular, having that as a backstop is very useful for achieving PG's prime directive of startups, i.e. "don't die". My understanding is that Heroku's origin story was similar (growing out of a Rails-app consulting shop). So there's definitely room for interpolating between the two if one is so inclined.
I guess it depends on what the product is. I've initiated contact in a bunch of cases (mostly situations where the product is a public SaaS or already well-liked) and in others, evaluating a product stems from of a conversation at a meetup or conf.
IMO, the best thing anyone can do is make the product discoverable. If it has competitors, write blog posts and clear feature comparisons (they don't all have to be positive, either). If performance matters to whatever it is, write objective benchmarks and discuss performance aspects/tradeoffs. If it is something with an API, try to ensure there are a variety of platforms supported. This stuff is all good-to-have anyway, but many companies might not realize that people from large companies are browsing their sites and leaving unsatisfied.
I think developer-evangelist roles actually play a big part in this. Having someone set up real-world use cases and blog about them or post code somewhere can really help a customer out who just wants to try something but doesn't want to spend a lot of time doing it.
If the product is private, maybe have an easy way to generate an expiring VM image with some kind of demo setup so that you can quickly send it to leads. There's not a single person on earth that wants to do rounds of conference calls and in-person visits to just play with something.
> It's much easier to sell services to bigcos than products.
I've found the exact opposite, but maybe it depends on what you're referring to exactly. Carving out budget dollars for "3 people @ X/hr" is much harder and more scrutinized than product. "Product" is a loose term, though. "1-yr license" or "1-yr maintenance contract" are products, not consulting, even though the company selling them might not view them that way.
When it comes to SaaS products, we typically want to buy an appliance (read: VM image) that just works, deals with some form of standard authentication/authorization tech (LDAP/AD, OAuth, SAML, OpenID), and x-yr support contracts. Per-seat licenses usually involve more effort. Purchasing professionals are looking to mitigate risk. They don't want to enter into a purchase that has an attractive up-front price, but open-ended potential rate hikes down the road.
Regarding consulting: yes, 3 full-time consultants as staff aug is hard to sell. But most consulting projects aren't like that. Our typical project is 2 people, 2 weeks; we scale down to 1 person/week easily. A 1 p/w project isn't hard to sell at all.
I love having a sales pitch being as simple as: my product saves you this much money and time or gets you this much profit.
It's a gigantic numbers game. Aside from that, get an internal project champion to gather all the necessary stakeholders necessary to make a sale. (Yes I just threw out a lot of buzzwords there, sue me) Those are usually how you speak to bigger customers though. If you want, internalize the lingo as something you'd think of it as( a guy on the inside who becomes my sales guy!) .
This may take a while, so budget your cash flow accordingly.
I've found if your product offering is compelling enough you 'll get calls returned.
Many people just try to throw a bunch of buzz words out there to random people working at a place and think that's sales.
Talk to the right people who would want to use your product and build up internal evangelists. The rest will play out in the form of meetings and other random exchanges.
Typical SaaS businesses also seem to think that you can just put up a pricing page and expect that to close a sale.
There will be contracts going back and forth, custom pricing negotiations, SLAs being signed, among other things.
I typically attribute the sales cycle being similar to freelancing. Just replace that with a product.
The takeaway I feel here is that if you are considering working at an enterprise-focused company (or especially startup), try to get a feeling for how well connected the leadership is, because that will make or break a lot of deals.
The most successful companies I've worked for have no contacts and sell directly. The most politics-filled and most likely to fail enterprise products have always been sold via the "old boys networks".
If your product is able to solve a problem of theirs, you'll have evangelist within the company and they'll spread the word within the company. And eventually their product will reach somebody with purchasing power.
Plus, the corruption. Without "sales comissions" you can't even get the foot in. And you need to know people, and give them vines, go to a fancy restaurant, etc.
IF exist a enterprise somewhere that just do this: I need x, you can do it, let's do it, then I love to get in. I'm not afraid of "boring" CRUDs apps and that stuff.
But without the social connections and bribes,is a not start for me.
This is IMHO a false dichotomy, there are lots and lots of opportunities between these extremes. I'm currently in a project at the intersection of software and shipping, it sells like hotcakes, we currently have a conversion rate (inbound prospects to signed clients) of more than 75%.
This is far from easy to pull off, and there are a few points I'd like to make based on my current situation (we're pulling a gross margin of $500 to $5000 by client):
* Selling pure software is hard. At the most basic level, we sell shipping rates and the accompanying software is the cherry on top (I'm saying this even tough I run the technical side of things). We're doing well because our target market understands the value proposition even better than we do, we manage to offer a free product and make money on it.
* Co-founders matter. I couldn't even have had the idea on my own, much less the resources (contacts, skills, ...) to launch the business. I'm very fortunate to have met co-founders that are beasts on the business and shipping & logistics sides of things, we form an awesome triptych, which is a very delicate balance to have.
* Everything takes much more time than you expect. You're at ease in the technical domain, this won't be much of a problem while developing your core product. But selling will take much of your time, it's is a time-consuming activity and you don't know anything about it. Plugging your product in your client's systems will take time, either because your client hasn't any in-house developer or they're less than half as skilled as you are.
If you're a solo hacker selling pure software in the B2B space, you are, I believe, in for a rough, rough ride.
Salesforce is a great example of a company that's widely successfully and their products are critical in enterprise, but I've never personally heard an Enterprise consumer say "Oh I love the Salesforce software." By contrast, I've heard people rave about apps like Pinterest, Instagram and Snapchat even though none of them are profitable businesses.
For me, If I wanted to build a money making product, I would go enterprise, but I choose consumer because I want to make a great product--very rarely do I find great enterprise products.
I think there is a certain inevitability to these things when you compare software that people are required to use as part of their job, and software they choose to use in their spare time.
It strikes me as a vicious cycle. People don't enjoy using enterprise software, so developers don't enjoy making it.
The incentives are all wrong, the purchasing decisions are made by the wrong people, for the wrong reasons, and it's near impossible to avoid locking yourself into a particular solution or provider. Welcome to enterprise software.
Working on an enterprise application/system tends to be process heavy and requires lots of QA before shipping. It's driven not by the engineers or designers working on the product, but by requirements outside of their control.
If you're someone who just wants to work on hard problems, then enterprise is a no brainer. Though the common theme I hear amongst startup folk is that they want to be part of the decision making process too. They aren't interested in being handed a list of requirements and just asked to make it work.
Which means the options for getting a product into their hands would be either to work with them, wait for them to change, or create something they don't know how to categorize and hope it captures the interest of their executives/board?
No, it isn't. It's about marketing to them, selling to the decision-maker, working through existing competition, wining and dining, proving your value with an on-site sales team, proving your integration...
and most of all, proving beyond a shadow of a doubt that you will not fail or disappear in the next 5 years.
The problem with getting into Enterprise is not product-related. You can imagine all kinds of better products than what exists today. It's easy to build that better product that solves the same problems but prettier and with better UX. And make a great demo for it. Sure. I've done that.
The hard part is proving that your startup will be around in 5, 10, 15 years and won't leave them high and dry, proving that you will have a support team serving their every need, and ensuring you have the ability to implement and customize to the specific company's process and requirements (because every large company is so different and with such ingrained processes that it's not them that will change, but you. Or else.)
It seems easy, but it isn't. This isn't even a problem of the "build it and they will come" fallacy—it's on an entirely different scale. And you'd have to be ready for all of that if you want to enter into enterprise.
But then, on the other hand, we see that making something unique does often propel the "build it and they will come" mentality. Because it works.
What marketing have you seen from Snapchat (not directly related to the enterprise discussion though)?
I'm reminded of the words of the great Steve Martin: "Be so good they can't ignore you."
It this always the case? Absolutely not, which is where I do agree with you. But when an executive walks into a quarterly meeting and asks: "I keep hearing about xyz app/tool, are we using that?" you've won a huge part of the battle. Possibly with no marketing.
Make something unique, something a good majority of people will want to use and talk about, and your marketing/selling is half-way done for you.
Each sale was supposed to bring in around $50k for a two yearly contract. A dedicated team of 25 people could barely make 20 sales per year. Bringing around $1m in revenue.
Remember the salaries of these 25 people ended up being the biggest cost component which made the entire business into a loss making proposition.
it's all about the dps, baby.
note: that metaphor obviously assumes "A little over 12% of the money-making developers" means that it's 8x easier to actually make money in the consumer space. not that 80% of consumer plays make money. not to mention it's way, way easier to build a company with 10 people than 45.
It seems to me that the enterprise app development space is a low-margin business. At least over here in Germany. There seems to be quite a lot of competition in this space.
You have to find out where a business is willing to invest no matter what the price. I know it exists, unfortunately each industry (and each subset of each industry) is going to have a different area where price is no concern.
All this, passion, solving a problem to die for, disappears by doing B2B and you're only going for the money again.
Of course there are exceptions, but that's the difference between B2B and B2C.
Not to mention there are too many legalities around B2B sales some of which might threaten the very existence of your business.