Enterprise Software – A Paradigm Shift

For a few years now, many enterprise software vendors have been asking themselves the same questions over and over again: Where have our deals gone? Where are those six- and seven-figure license POs? Why are my star salespeople finding it so hard to close new business? Why are my customers asking for annual subscriptions rather than buying the software up front?

The trend started well over a decade ago, with SaaS (Software as a Service) offerings, and companies like Salesforce.com leading the way. But the financial slump of the past five years has exacerbated things and forced many software vendors to look hard at their traditional ways of doing business. It has become a survival issue.

Scott Irwin, of Rembrandt Venture Partners, has been writing about “Enterprise 2.0” as the future of software enterprise sales. In a series of articles on GigaOm, he explains the new three-phase go-to-market model: freemium, inside sales and enterprise sales. This is all common knowledge to those already offering SaaS (even if the first “freemium” phase is not relevant to all vendors), but Irwin summarizes things succinctly and clearly.

Here are links to the first two articles in the series (the third has not been published yet):

Perhaps the most important point Irwin makes, concerns the use of the inside sales force to build up new business. At $100,000 to $120,000 OTE per head, a couple of reps working together with the CEO can make all the difference in the world. By selling recurring annual revenue deals of $5,000 to $10,000 per customer, they can build the business up from scratch.

Screen Shot 2013-04-12 at 1.15.39 AM

Photo Copyright: Scott Irwin

This is important because it requires no less of a paradigm shift. It’s one thing if you’re a start-up and your first sales are all SaaS-based. It’s altogether another thing if you’re an established enterprise software used to selling solutions through an expensive direct sales force, supported by a host of sales engineers, solution architects, project managers, etc. The company needs to radically change its approach to the customer, and this is easier said than done.

Having gone through this transition myself, I would like to point out two crucial elements to tackling this paradigm shift. The first is that the software product offering must be easy to download and install, and robust enough for the customer to use with little or no support from the vendor. This may sound obvious, but it is not so for companies used to solution selling. The second is less obvious: to introduce the SaaS model in phases. Pick a territory, or a market, or a family of products, and start there. Learn which SaaS methodology works best for your customers and for your company by experimenting on a defined segment of your business first, before rolling it out to other segments. Making the transition internally is going to be hard enough (less so with the customers, who are already expecting this model), so do not be tempted to go for a “big bang” approach. Paradigm shifts are revolutions that are best tackled using an evolutionary approach.

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