Selling to large enterprises costs big dollars no matter how frictionless your sale is

I have written a number of times about frictionless sales and how on-demand companies have a huge opportunity to reduce their sales and marketing costs and subsequently scale their business more efficiently.  Here is an excerpt from a prior post:

Frictionless sales means reducing the pain for customers to adopt and use a service/product and consequently reducing the cost of sales and marketing to get a customer and generate revenue.  As I mention in an earlier post, "The less friction you have in your sales and delivery model, the easier it is to scale. The easier it is to scale the faster and more efficiently you can grow." The lowest friction sale can be a user clicking on a web page and the content owner getting paid for it.  The highest friction sale is spending lots of money on marketing and trade shows and having a large, direct sales force of expensive reps pounding the pavement for months trying to close a large deal with an enterprise customer.  Follow that with a 3 month implementation process to get the customer happy.  There are various grades of friction between these two extreme points like open source business models, software as a service, and reseller/OEM-type models as other forms of packaging and delivering a product/service.  And of course, each of these models requires a different methodology and way of marketing and selling to a customer. Ultimately what you want is sales leverage where every $1 you spend on sales and marketing equals multiples of that in terms of revenue.

The perception that it is much easier to scale definitely holds true if you are selling to consumers, small businesses, and workgroups within large organizations.  However, it seems that many public on-demand vendors are feeling the pressure to deliver growth and ultimately need to feed the revenue machine by going after larger customers.  And what many companies are learning is that no matter how on-demand your software is, if you are selling to huge enterprises you are going to have to spend huge dollars in sales and marketing.  Sales cycles are long no matter how you slice it and even if there is no massive hardware and software installation, many large companies want to have their service customized and integrated, even lightly, with other systems.  in other words, many of these high flying on-demand vendors are starting to look more like the old software companies they are trying to replace.  As per a Wall Street Journal article today, it seems that many of these public on-demand companies are finding out the hard way that no matter how frictionless your sales process is, the bigger the company you sell to, the more it is going to cost you. 

There is nothing to install, so workers can start using online software without the aid of the tech department. That makes it easier for companies that sell online software to get into a business than their on-premises competitors.

Seizing on this, investors bought into online-software companies in a big way. During the first 10 months of 2007, shares of 15 online-software companies tracked by Thomas Weisel Partners increased in value 61%. Since then, however, these companies have lost about a third of their value.

Wall Street has realized that it isn’t enough to simply offer online software—you have to have a sales strategy that can make your offering a corporate standard. It is possible to get individuals, project teams or small businesses to buy online software through word-of-mouth marketing, but it is hard to make money from these groups—at least the kind of money necessary to become a billion-dollar company.

In order to get there, they can’t operate like an Internet start-up, letting their technology spread virally as end users hear about it. They need to sell to the same executives and information-technology professionals who made purchasing decisions before online software was an option. Businesses have a lot riding on the decision to use one product or another. And while having pockets of workers advocate for a particular piece of software is a plus, the execs who sign the big checks still want to see demos, vet the seller and do all the things they have always done when they buy software.

So if you are an on-demand vendor, either stick to your focus of scaling with SMBs and consumers which requires a completely different sales and marketing approach more rooted in traditional online budgets and telesales or be prepared to spend some real dollars if you truly want to go after the big guys. 

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This post was written by who has written 358 posts on BeyondVC.

4 Responses to “Selling to large enterprises costs big dollars no matter how frictionless your sale is”

  1. Chris Aug 26, 2008 at 1:52 pm #

    Related, but regarding services firms, how can they develop more frictionless sales cycles when the standard is for months of pre-sales interaction and then the engagement execution?

    Thanks

  2. Paul Sweeney Sep 1, 2008 at 5:58 am #

    Oh yeah. You can sing this one. Waiting for Mr. Carr and Enterprise 2.0 to see if some metrics fall out of this. It really is important to be correctly capitalised to go after the larger customers.

  3. Tom Krieglstein Sep 6, 2008 at 1:33 pm #

    We have a tech solution for schools called Red Rover and if we tried to sell the product to the whole school at once, we’d be done. Instead we started out with student activities and built our base there, and now we can expand out.

    Taking a page out of The E-Myth, if you are going after a big company, don’t try for the whole company at once, instead find the Beach of Normandy before you invade the rest of Europe.

  4. Seattle Search Engine Marketing Apr 29, 2010 at 8:43 pm #

    Ed, I came across your post when I searched for ‘frictionless sales’ in Google. It’s a neat phrase and I knew someone would be writing about it. As an entrepreneur myself, running an Internet marketing agency (very hot space, tons of small agencies, likely wave of consolidation in the not too distant future) I’ve been thinking a lot about our sales processes lately and your posts have interesting perspectives. Thanks.

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