Is your strategy enterprise-first and is your market red ocean or blue ocean? April 26, 2014Posted by Bernard Lunn in Corporate Strategy, Enterprise Sales.
Tags: blue ocean, enterprise sales, red ocean, strategy
This is # 2 in a serialized book called Enterprise Sales for the Digital Age. You can get value from each in isolation, but if you really need to understand enterprise sales it is worth readinging the whole series. You can buy an improved version, neatly printed and bound, for $6 from Amazon.
There are four market strategies:
1. Consumer. Any selling will be done by inside sales teams sitting in call centers. This series does NOT address consumer markets.
2. SMB (Small Medium Businesses). Very few companies get the SMB market right. It is hard. Each small business looks at the purchase as critical to their company. They want to take as much time as a large enterprise in making a decision, want the same amount of support and hand-holding; the problem is that the $$$ at the closing are a tiny fraction of that enterprise sale. There are only two ways to sell to SMB. You either a) scale back an enterprise solution or you b) scale up a consumer solution. The latter, scaling up a consumer solution, has usually worked best. This series does NOT address SMB markets, although some vendors selling to the top end of the SMB market can sell based on an enterprise approach and scale using channel partners.
3. Enterprise-first. This series addresses solutions that are sold to enterprises. The enterprise market is usually given a title such as Global 2000 or Global 5000 (as Fortune 500 is too small a market and is too US centric). The Global 2000/5000 moniker is loose, it just signifies big. Some people use Fortune 100 or Global 100 to signify really, really big. Enterprise-first vendors are usually agnostic on cloud vs behind the firewall, they will implement whatever the cutomer wants. Enterprise-first vendors are usually also flexible on licensing, using monthly per user (like SaaS), or annual or perpetual based on some other usage metric. More importantly, Enterprise-first vendors focus on solving enterprise-wide solutions; from day one they aim to get a significant sized order that solves a significant problem for the enterprise. The end goal is to be a globally approved vendor within large enterprises, but one does not get there in a single step. Most startups use a “land and expand” strategy; you sell to one department or business unit first and then use that as an internal reference to get the next department or business unit. Then you are in a position to become an approved vendor so that other departments or business units find it easy to order from you.
4. Agnostic. Many vendors have adopted an agnostic approach. Products such as Box and Evernote can be used by consumers, SMB and within an Enterprise. This strategy has clearly been working well. You get enough traction within Enterprise one user at a time that the IT folks want to talk to you. This is when you negotiate volume discounts and implement features that help Enterprise IT to integrate your product with all the other products that they have. This is when you need enterprise selling skills (or sell your venture to a big company that has an enterprise sales team). The agnostic strategy works best in red ocean markets, whereas an enterprise-first strategy works best in blue ocean markets. Get clarity on this score before creating any kind of execution strategy. A “red ocean” market is an existing market. It is red because there is a lot of blood in the water and the sharks are circling. Full frontal assaults on red ocean markets (eg trying to sell 100% functional match against incumbents at 20% lower price points) almost always fail. VCs used to “throw money” at the problem, but no longer, it was a very expensive mistake. Red ocean markets are where an 80/20 strategy works. You sell 80% of functionality of the incuments for 20% of their price (ie for 80% less than the incumbents). This is where single feature ventures such as Box, Evernote or Yammer score. You gain traction one user at a time just like you do in consumer markets, ignoring the jeers and put-downs of the incumbents saying “it’s not enterprise-worthy”. A “blue ocean” market is a market that does not exist yet. That sounds crazy, why would anybody go after a market that does not exist yet? What I mean is that the market has not yet been blessed with a name by the analyst firms. It is not yet a “space” in VC speak. What does exist is a) a serious pain point and b) a disruptive technology innovation that enables a solution for that pain point. The beauty of a blue ocean market for startups is that it allows you to get established before the big vendors notice that there is a market. The best strategy in red ocean markets is to use product-driven marketing, using a consumerized product that gets adopted one click at a time. This is where you use Freemium and, if it goes viral you are golden. If you want to avoid ever employing sales people, get enough traction using these techniques then exit to a big incumbent. Or get enough one user at a time traction that the CIOs want to talk to you, raise a big round, hire a sales team to sell to the CIO and become the new incumbent. In blue ocean markets, you can bootstrap using modern tools and frameworks and the “three projects to a product” methodology: Project # 1: Sell a purely custom solution, get paid and learn. “Once means nothing.” Project # 2: Productize a bit, turn specific features into configurable parameters. “Twice is coincidence.” Now you are ready to talk to everybody you can find who will tell you about their ideal future requirements. Project # 3: Build a product that fits those ideal future requirements. Sell it and license it like a product. “Three times is a trend.” Now you are ready to launch, tell the world about your product, hire sales people, scale. If you choose the red ocean consumerized strategy, serious sales skills can be postponed until later and you may be able to exit before you need them. If you choose the blue ocean three projects to a product strategy, you will need serious sales skills – real thought leadership selling – from day one. The founder has to either be equally comfortable in a tech and a sales role or more likely the venture needs two co-founders, one tech and one sales.