One of the first challenges any B2B company faces when they think about how to initiate or accelerate growth is which market to target: the enterprise, the mid-market (MM) or the SMB. This is a question you want to answer before you start building product, or maybe when you are prioritizing your roadmap for future product directions. Because the product needs of an enterprise vary vastly compared to the needs of the SMB for pretty much all products.
In my experience as CEO and CMO for B2B tech companies that sold to the enterprise, mid-market and the SMB, I would choose the enterprise as my target market every time. Why?
Follow the Money
When you look at B2B tech companies that reached $1B in sales, a success by any measure, you’ll find that the great majority of them get the bulk of their revenues from sales to enterprise accounts. Of course, many companies like Apple, Google, Amazon and Facebook serve all B2B markets well, and often have significant B2C businesses. But very few companies have been able to scale to $1B+ on the MM or SMB alone. It is not impossible, as Intuit has shown. Microsoft and Salesforce in their early days were primarily SMB and MM focused, before expanding to the enterprise. But the majority of $1B+ tech companies found that the successful path to rapid growth leads thru the enterprise.
10 Reasons Why You Should Target the Enterprise
So I decided to come up with 10 reasons why you should target the enterprise if you want to grow quickly. Unfortunately, I could not come up with less than 15. (Sorry, but I keep thinking of more!) Why is the enterprise a better market to target? Let us count the ways:
- They have a lot of money. Enterprises are large, well-funded organizations with large budgets for pretty much everything. The smallest company in the Fortune 500 is $5.5B in revenues. The smallest F1000 company is $1.8B in revenues. Forbes’ Global 2000 are the largest companies in the world based on a composition of Sales, Profits, Assets and Market Cap. The smallest 5 average $5B in revenues. And those are the smallest ones. The enterprise is filled with multi-billion dollar companies. They have a lot of money and can afford whatever you are trying to sell them.
- Deal sizes are larger. Because they are large companies with large numbers of employees and customers, enterprises have large needs in terms of users, usage, data or almost any other measure. As a result of broader and heavier use, deal sizes are larger than the MM and SMB. Larger deal sizes grow a company faster than smaller ones.
- They are more stable. Big companies don’t go out of business very often, and if they do, it takes a long time. The biggest reasons SMB’s churn so much is because they either go out of business, get acquired or hit tough times. When an enterprise company hits tough times, it may have layoffs, it may have cutbacks. But it is still a huge company with deep pockets.
- They get acquired less often and are more stable after an acquisition. Big companies are harder and more expensive to acquire. Only larger companies can afford them, and even then it’s a complicated integration challenge. Even if acquired, enterprises are more stable, and typical personnel and technology transitions or consolidations are gradual compared to SMB’s and MM companies. Often an acquired enterprise is so big and has so many integration issues, they are left completely alone for a long time. Meaning if they are a customer, your solution won’t be immediately exposed to potential churn or consolidation.
- They are easy to target. There are only 500 companies in the Fortune 500, so you know exactly who to target. As a result, your lead gen campaigns can be highly targeted and cost less overall than broad-based “shotgun” campaigns to the MM or SMB.
- They have more areas to target. Enterprises are big and have a variety of needs in many areas, increasing the chances you’ll find a group that needs your solution. If one group is not interested, there are likely other entry-points that you can call on to see if they are interested. Other divisions, acquired companies, different departments, or numerous sales, marketing and LOB teams provide a target-rich environment. Very few solutions will be deployed across an entire enterprise.
- They like multiple vendors. When tech companies get big and powerful, they try to push around large enterprises in terms of pricing, terms of service, data privacy, etc. Enterprises do not like this and will typically have at least 2 and often more vendors to provide key services. They do not want to be beholden to any one vendor as that leaves them vulnerable with little leverage to negotiate more favorable terms. An attractive alternative will get their attention.
- More expansion upside. Once you have established a foothold in an enterprise account, there is much more upside to expand to a larger engagement typically by adding more users for your solution or upgrading to higher levels of functionality and higher ACV’s.
- More cross-sell opportunities. Enterprises are large and have many needs. Once you have established yourself as a “trusted” vendor providing one solution, there will be more opportunities to cross-sell other products to the enterprise. These can be to the same group you are currently selling to, or a different group. Enterprises generally try to work with fewer vendors overall rather than more (but not just one for a critical service as noted above), so if you can solve more than one problem for them, it’s fewer vendors for them to manage.
- They have a lot of resources. Enterprises can hire people if needed, spend money to train their staffs to learn how to use your product, or they can pay someone to do it for them. Money is always an issue but unlike many smaller companies, it can be overcome if it is for a critical solution. They have the resources; it’s just a question of how they chose to spend them.
- They are more likely to be a successful deployment. Given the resources of an enterprise, their experience in deploying and managing large complex solutions, and their ability to bring in whatever domain expertise they need, it is more likely they will be successful with whatever solution they are deploying. They can buy a successful implementation, when smaller companies may be reliant on a few experts (who may leave) or be limited in how much they can spend on external consultants.
- This is not their first rodeo. Enterprises have purchased a lot of things already. A lot of things. So they typically have clear, organized and well-understood procedures for evaluating and acquiring technology solutions. This means the road is well understood. It might be a long road, and have many stops along the way. But it’s well understood by all parties in terms of how to get a transaction done. So you have a roadmap to success.
- Once you are in, you are in. Enterprises don’t throw things out very readily. Things have to get really bad before they take this drastic measure. And it is drastic because large numbers of users have been trained, admins are up to speed and keeping things running, processes have been established around the solution. And other priorities demand attention. If your solution is working, meeting their needs, and adding value to their operations, they are very unlikely to want to move in a different direction.
- They are great reference accounts. Assuming that your enterprise account is happy with your product, they can become very powerful references for future business. Not only is their deployment probably more ambitious than smaller accounts, brand names matter to future business both as a customer success story for Marketing, but also for direct reference conversations with future prospects. A thumbs-up from a brand-name enterprise account goes a lot further than one from a smaller unknown company.
- Enterprises follow Enterprises. Once you have proven that you can serve the needs of several enterprises, other enterprises will follow. They are a few enterprises that are early adopters that want to drive innovation and will be the first to try out new technology. But there are many more enterprises that are followers that want to see proven success at the early adopters before they adopt something new. Once you have proven yourself, the floodgates will open.
The enterprise is a great market to target if you want to grow fast. But that does not mean it is going to be easy.
Their demands and expectations of service are high. Prepare for a long and difficult slog that will tax your sales, marketing and customer success teams. But if you persevere, you can find success in the enterprise. It will be well worth the investment and can drive growth for many, many years.
If you are not convinced, or not able to sell to the enterprise and want to succeed in the MM or SMB, follow my next post on How to Succeed Selling to the MM and SMB.
Al Campa is Founder and CEO of Rocket Scale, which advises companies on how to accelerate revenue with powerful go-to-market strategies. He can be reached via www.rocketscale.net.