As CMO of Nextiva over the last year, a cloud communications company that sells to the SMB, I shared some insights and learnings from the experience in the first post More on How to Build a Business on the SMB Without Going Out of Business (Part 1). This first post covers the nature of the SMB and acquisition strategies, and builds on insights from the original post, How to Build a Business on the SMB Without Going Out of Business.
In this final post, we’ll cover how to scale and sustain a large SMB business, including upsell and add-on strategies, powerful packaging and GTM approaches. But first, we’ll wrap up acquisition strategies with one critical additional piece
As mentioned in Part 1, you want to build a highly mechanized sales and marketing machine for your SMB acquisition engine that encompasses all digital channels, the website, clear and compelling pricing, rolled into cross-channel integrated campaigns and supported by a very tight sales and marketing partnership.
One other critical component of this acquisition engine that is also equally important for scaling up the business is a crisp and clear value proposition that can be flawlessly delivered repeatedly by every member of the organization.
Remember that the key decision-makers of most SMB companies are small business owners and/or executives who dedicate most of their waking hours to running the business, which means juggling a dozen balls daily to keep things moving. They don’t have a lot of extra time for vendor meetings or technology evaluations. Consequently, your value proposition to them needs to be crystal clear in terms of what you can do for their business and why you are better than any other solution on the market. And unlike larger companies with teams dedicated to vendor management and technology evaluations, you won’t have a lot of time to deliver this pitch. Count on five minutes to the key SMB stake-holders to get your point across. Forget about the slides (you can send those later) and you probably won't have time initially for a demo (maybe in a follow-up). You need to get your point across in those five critical minutes if you want to have a shot for the business. If you do it well, you’ll likely get more time with key stake-holders and other support people. If you don’t, then your opportunity is done and it’s time to move on.
So how do you nail those five minutes? The core of a good value proposition and messaging platform is covered in this previous post, Why Company Messaging is Critical to Igniting Company Growth. In addition to what is contained there, it is important to set the table before you even have a conversation. This means you need to be presenting your value proposition before you even have the conversation. It needs to be clearly communicated on your website, in your campaign messaging, in your content, brand advertising, social posts and everywhere else your prospects may visit. So that by the time you actually get them on the phone or in a video meeting, you are reiterating what they have already seen, and filling in the blanks for their specific situation.
Also, your phone call may be the first time the prospect has heard of your company, and only afterwards will they visit your website and check out your content and social channels. Same rule applies. Consistency in message through all channels is critical to getting your point across.
To do this well, you need to have a super-connected sales and marketing team that are in total sync on what they are communicating to prospects and customers. Message drift is inevitable as more people get involved but you have to instill message discipline to keep everyone on the same page to be most effective.
Also if your transaction size is on the small side, like less than $500 a year, you need to have a very high percentage of one-call closes for most of your business. So set up your sales team to make a 5 minute pitch, get key value points across, and then go for the close with a special, one-time only, just for you, type of deal. With this small transaction size, you won't have time to let things drag out over multiple calls.
Scaling an SMB Business
Now that you know how to acquire SMB customers efficiently and effectively, how do you scale up an SMB business at SMB deal sizes? In addition to what we already covered in How to Build a Business on the SMB Without Going Out of Business, some additional thoughts below.
The easiest way to scale an SMB business is to sell more to the customers you already have, assuming of course that you have a fair number of customers. Acquisition costs of new customers are much higher than selling into the current customer base, where you have no or very low acquisition costs. There, you have an established, ideally positive reputation with your accounts. And you likely will have no competition in the deal. The biggest problem of course, is that SMBs are small and often don’t need any more product. So you’ll need to get creative in many cases. There are at least three ways to sell more to existing accounts: more users, more products, and new pricing and packaging.
More users or seats is pretty straight-forward: find more people within the account that need your product or service. This can be either within the same department or new departments or locations. If you sell to marketing, try to find some people in sales that need your solution. If you sell to IT, find others in product or development who might benefit from your solution. Turn your current users into internal advocates and have them help you tee up other users in the interest of lightening their work load or spreading the joy of your solution to others within the company. If your solution is good, and the customer is happy, there are always others who can benefit from the service.
Selling more products to existing SMB customers is a little more complicated as there are a number of ways to achieve this, including minor add-on products, whole new products, premium packages, and advanced customer service levels, to name a few. In each case, the challenge is much the same: your customer is presumably happy using some of your products and now you need to convince them that they’ll get a whole lot more value out of these new additional products.
For SMBs, which are typically budget-conscious, a really strong argument is that adopting some new products will allow them to let go of some other solutions they are already using or considering acquiring. In other words, upgrade to our integrated analytics solution, for example, and you won’t need to buy all those business intelligence tools that you use sporadically. In larger companies this argument is harder because someone somewhere always turns out to be a religious user of the product you are trying to replace, which is why big companies have dozens of overlapping solutions (and they can afford it). SMBs can’t afford duplicative solutions and will like the consolidation and easier to use angle of an integrated solution.
You can track ARPU and ARPA to see what kind of progress you are making at selling more into your customer base, although in my opinion, ARPA is usually the most important metric as it tells you the whole performance of the account. Caution: it is really easy to start making ARPU and ARPA projections, like “if we just increase ARPU by 10% in half our accounts this year, our growth rate will double!” That may be true but be wary of easily getting that big of a revenue bump that quickly. These things take time.
Packaging is critical in the initial sale, and is just as critical, although often overlooked, in add-on sales to your customer base. It can be a key element in scaling revenues from the SMB. Ideally, you want to see existing customers adopt more product by easily sliding into new packages that map to their use cases and customer journey. To do this, you’ll want to map out the most common customer paths in terms of where they start, how they progress and where they ultimately wind up in use cases and product usage. Think through the most critical pain points customers will face, and how they can realize the most value. Then you want to design your packages to mirror this journey and most likely paths. Make it super-simple for customers, particularly SMB customers, to upgrade to new packages which they will obviously need. A la carte options on top of the packages can be a very effective tool for customers that want to move more slowly, or have a very specific need and don’t need all the functionality in the next package.
Beware product people who are allergic to customer input yet think they know the right use cases and required packages because that’s how the product was designed. Use cases don’t always follow the initial design thesis of the product, in fact they rarely do. Let your customers be your guide. Your sales and customer-facing people will probably have the best idea of which starter packages and which additional packages make the most sense for the most common use cases.
These upgrade paths should also be highly mechanized with sales and marketing working together to move customers to new levels of service or capabilities over time. Create clear value props and simple pitches, fair pricing and make sure all customers are aware of the options through on-going communications.
Combined with packaging, an effective way to scale up your SMB business is to periodically raise prices. But be careful not to raise prices too much, as you might just price yourself out of the market. As mentioned in Part 1 of this series, happy customers won’t churn over a minor increase in pricing. In my experience, most price increases are much more palatable when customers realize that either 1) they were on promotional pricing that was not going to last forever, or 2) they get something else with the new higher price. This is where new packages come in. If it’s just a straight price increase with nothing in return, then it helps to have really happy customers, be in a really strong market position compared to the competition and/or have very high switching costs to minimize churn. Bottom line: happy customers won’t churn over a small and reasonable price increase.
Dedicated Customer Sales
In order to effectively drive add-on sales, you’ll need a sales team whose job it is to drive add-on sales. This can often be a point of confusion within the sales organization and they can get torn between new business (following up on new leads and opportunities), and additional add-on opportunities with the customer base which also need attention and nurturing. Customer sales are a different type of sale than new business and many reps are better at one versus the other. And don’t expect your customer success people to fill this role of selling into the customer base. It is typically not in their DNA to sell back to customers. To do this right, you’ll need a dedicated team focused on selling back to customers and not distracted by new accounts. The challenge is how best to organize this as the new business reps will initially have the account contacts and know how to transact within the account. Plan on a transitionary period where the new business reps can bring in existing customer reps and transition over account contacts and knowledge. Nothing works better than focus and clear goals when it comes to organizing sales, accounts and territories.
Customer sales must be highly mechanized just like new acquisition with a concerted and coordinated sales and marketing effort. Customer add-on sales do not happen by themselves. In my experience, most customers are not even aware that you have other products that might be useful to them. Make sure you have an effective customer communications program letting customers know of all the additional capabilities you have that can help them run their business.
The 2nd easiest way to scale an SMB business is to acquire more larger customers that are either larger SMBs at the higher end of the market or ideally mid-market (MM) sized customers. These larger accounts will purchase larger deals initially driving up ARPA, have more potential for additional upsells and add-on sales down the road, and will churn less frequently than SMBs because they are more stable companies. But it won’t be easy to move upmarket as larger accounts typically require significant product enhancements and advanced support capabilities compared to the SMB. The needs of larger accounts are usually very different than SMB accounts. And you’ll likely need a whole new GTM motion as MM deals have much different sales cycles, and vendor evaluation and decision processes. This is typically such a significant departure from what SMB accounts need that you are probably better off hiring in new people who are experienced in selling, supporting and building products for larger accounts. In my experience across numerous companies, it can be a tough transition for an SMB-savvy team to figure out what it takes to succeed in the MM and larger accounts.
New SMB Acquisition
Of course the most common way to scale an SMB business is through more new SMB customers. See More on How to Build a Business on the SMB Without Going Out of Business (Part 1) for effective acquisition strategies. But new SMB acquisition can become less cost-efficient over time, making it hard to scale quickly on new acquisition alone.
The reason new SMB acquisition can be hard to scale is that as you get larger, you’ve already scooped up all the low-hanging fruit of customers who know about you and/or are looking for your solution, and you need to extend further and further away into areas where your product is not as well-known or in as high demand. This results in lower conversion metrics and a higher cost of acquisition. This may be ok if you still have a large market opportunity to attack. But most companies that sell to SMBs ultimately look for better strategies than just running faster on the SMB treadmill. In my experience, that new acquisition treadmill can only sustain rapid growth for so long, until you need to find an alternative strategy to fuel growth.
New geographies can also represent untapped markets that need your SMB product. But bear in mind that new geographies often require new GTM motions, particularly if you are targeting international markets for additional growth. Prepare to invest more time and money into new geographies than you might expect. They always take longer to ramp than you’d like them to.
Additional distribution channels can also be an effective way to scale new SMB acquisition. New channels can reach into markets that your direct sales team may not be able to access. Also large channel partners often have a large base of customers that they are already selling other products to. It can be super-simple to add your product to the mix. But remember that channel partners are typically a fulfillment vehicle; they are not going to create demand or ever effectively sell against strong competition. You have to do that for them. Their value add is reach. Leverage that to get the most out of them.
It can be really hard to scale in the SMB (or any market) if you don’t have very strong customer retention. And SMB customers will naturally have higher churn than the mid-market or enterprise due to being smaller companies that are more financially vulnerable. This puts more pressure on the new acquisition engine. If customers don’t renew, not only do you have to spend more to fill the revenue gap you just lost, but also you’ve lost accounts for potential upsells. And those accounts that churn due to dissatisfaction can blast you on social media and review sites, hurting your brand. Obviously this has to be a big focus of the whole organization. Although it is probably too lengthy a subject to do full justice to here, suffice to say you won’t scale rapidly with high churn, so make it a core part of your growth strategy to track it, understand its causes, and keep it to a minimum.
Now you know how to build and scale a business on the SMB! Most of the concepts above work in concert with each other. So ideally, you’ll craft a growth strategy consisting of many of the above components all working together to drive the growth from the SMB market. Don’t try to do them all at once, but phase in these components of growth over time to most effectively drive your SMB growth engine.