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Startups and the Enterprise Vortex

Published: December 10, 2016

I have a friend who recently wrote me with some questions about whether their startup should “start selling to enterprises”. Sharing my response below.

I’ve found that startups get sucked into the enterprise vortex prematurely, and not as a result of a premeditated strategy (although we pretend there is). It “just happens”. Like most things, it feels right initially, and the costs are less visible.

  1. Enterprise deals are enticing, but they are a breeding ground for the sunk cost fallacy. It’s hard to walk away from a deal you’ve spent ten months cultivating. What’s “right” for the company (and product) is routinely sacrificed for the “big deal” and short-term growth. This is rationalized, of course, but with flimsy, bias-driven arguments about reusability, strategy, and optics. Why exactly couldn’t you close five deals totaling the same amount with far less hassle?
  2. I’m all for a mid to later stage startup expanding into the enterprise, but only with *intention. *Startups slip into an enterprise strategy, instead of really thinking it through. In most startups that “go big”, the shift in direction is highly reactive. Deal size is too small. Smaller companies with limited budget don’t see immediate value in your product. There’s something structurally off in your approach. Instead of addressing those problems, you opt instead for the beauty of the big relationship sell. That becomes your salvation.
  3. It is a self-fulfilling prophecy. When you go big, you close big deals (if your product has a modicum of promise). You close big deals with entities that have lots of money to play around with and experiment. You are literally an experimental buy. Suddenly, your team reports “seeing traction with bigger customers, and the average deal size increasing”. Each quarter you bank on closing one or two of these to make the quarter. That manifests in rationalizing an enterprise approach. The question remains … did you really, really give the original approach a fair chance? A common excuse I hear is something like “well, our product is SO unique that it requires a high-touch approach”. Sometimes that is true. Oftentimes it says more about your implementation of the product. Simplifying the above. There are a million reasons why you’ll rationalize the shift into the enterprise. Attack each one. Have you given the less capital intensive, more organic, more product-centric approach a real shot?
  4. “Land and expand” is another one of those things that looks great on paper, but it rife with bias. All too often it is codeword for “let’s basically give away the product to a small department, deal with all the bureaucratic hassles, handle all sorts of custom requests and kid-glove them, and cross our fingers.”
  5. (Many) enterprises are laggards. This is a huge generalization, but the people who work in large orgs are typically less savvy, have less experience with modern tools, and are more easily impressed. They’re craving ANYTHING that works. Their IT departments are swamped. This is great on one level — they need help — but it also means you aren’t getting as many critical eyes on the product. Back to the generalization … some large companies behave like small companies. Are you targeting them also? Do you have traction there?
  6. Attacking the enterprise is distracting and lengthens feedback loops. The deals are higher touch. You need more people around to tie up the loose ends. There’s more cognitive dissonance. Suddenly, your CTO is spending half of their time completing massive security reviews. Most importantly, it becomes harder to see through the fog. It is more difficult to innovate, react, and pivot when 80% of your revenue is coming from six big players.
  7. It is harder to go backwards. The nature of org systems dictates that it is always easier to go up-market, than it is to structure your org around “going backwards” and offering a more mass market option. Targeting the enterprise impacts your organization in a way that is difficult to unwind, and even more difficult to run concurrently with a more self-service approach. I mention this above, but the hardest thing to tackle here is that “going big” is a self-reinforcing loop. It will challenge every fiber in your body once you start tiptoeing in that direction. Start, and you will almost certainly rationalize: enterprise reps, new biz dev hires, custom services, custom training, customer-specific features, poor UX, and the customer/user dichotomy (well, the people paying don’t use it so _______ ).

I realize how hard it is to be running on empty. It is terrible and scary. I also realize how hard it is to resist the lure of big deals, and to resist the cognitive biases that start to kick in. The best I can offer is to strategize with intent, and to act based on experiments with sound experiment design. Fight the urge as long as possible. I’m not saying it is “bad” or “good”, but that startups *tend *to go that direction prematurely. There’s plenty of time to tackle the enterprise.