B is for Budget
Budget in the World of Early Stage Venture Backed B2B Startups
This is a companion piece to Early Stage Enterprise Deal Qualification and Management
Budget is not as important during the first few stages of the deal when you are at an early stage startup. This is because there likely is no budget for your solution. If what you do is an existing budget line item, you might not have created something radically unique in the market. Early adopter purchases are rarely budgeted for. Early adopters find budget to make their initiative a reality, a chase they sometimes enjoy.
In the beginning, your pricing is a work in progress. Use this to your advantage. Be flexible and opportunistic. As you bend your pricing to take advantage of the budgetary realities of your most important prospects, you may stumble upon a highly effective and scalable pricing model. When you are acquiring your first customers, your pricing is usually the intersection of your value and the budget your early adopter champion can cobble together in the next 3–6 months.
Get creative. Find your common leavers and operationalize around them.
Respectfully and Professionally Gain Budgetary Situational Awareness
Early on, make sure you and your prospect are on the right planet so you don’t waste anyone’s time. This usually involves communicating some sort of wide range such as $1,000 per month to $50,000 per month. This allows you to gauge whether or not your point of contact feels as though the business need being discussed is worth spending somewhere between those two ranges. When you push a big range out, you need to also articulate the factors that drive the delta between the low and high. Once this information is on the table, you can start to determine who has the authority to approve such an expenditure. You can ask questions such as, “when making this kind of acquisition, what kind of process is followed and who gets involved?”
Uncovering budget reality is often times not a one and done endeavor. It can take 5+ conversations. Be patient with budget, but keep your eye on it until you have full situational awareness. It is best to focus on Need and Mandate first. Then, use the narrative around Need and Mandate to justify budget.
“Budget” in the BMANTR Framework
Documenting the Budgetary reality in BMANTR can be as simple as answering the following three questions. Having more is usually a distraction. Document budget concerns in Risk.
Who Controls the Budget?
What process is followed to access the requisite budget?
How much budget is currently available?
Budget as a Risk
Thinking, assuming, hoping, and sometimes even believing that someone has budget and/or signing authority creates Risk in deals. It can be shocking to learn that the Chief Revenue Officer at a 2,000 person company is not able to spend more than $3,000 on operating expenses without an approval from the CEO. Lower level prospects that don’t have much power or authority often times enjoy creating the illusion that they have budget and/or signing authority. Assuming that someone has budget authority will only get you in trouble. Be patient, persistent, and thorough when seeking budgetary situational awareness.
Helpful Budget Fundamentals
Internal Controls: rules and procedures implemented by your prospect to ensure accountability and prevent fraud. It is ok to ask about the rules and procedures required to get your deal funded and procured (signed). It can be helpful to position your inquiry very matter of fact. For example, you can ask “What is the process you follow when buying solutions like ours?” If someone is not willing to disclose this information, it is likely that they either don’t have the authority or even worse they don’t know how your solution would be purchased at their organization.
Budget Authority: Every employee of an organization has between $0 and unlimited spending authority. It is sometimes surprising to learn that the CEO or COO can’t spend more than $400K without Board approval. Or, to learn that the Senior VP of Strategy has $0 in spending authority.
Signing Authority: It is more common than uncommon that more than one person will need to sign off on contracts over $9,999. Often times there are informal sign-offs. For example, one can have the authority to spend $100K at an organization, but not feel comfortable doing so unless their boss or someone with expertise informally signs off.
Budget Expense Type: Understand, control, and leverage your Budget Expense Type. Is your solution an Operating Expense, Cost of Goods Sold, Capital Expense, Discretionary Funds, etc? Each one comes with their own pros and cons. Your solution as a whole can oftentimes be wired into more than one expense type and/or separated into parts that allow it to fit in multiple categories. For example, you can allocate your implementation services to one type of expense and your technology to another. It sometimes makes sense to talk with your prospect about the Expense Type that would be easiest for them to work with and to be flexible on your end to conform to that path. An extreme example of this would be an executive spending $9,999 a month on a subscription and putting it on their expense report.
Incumbent Line Items: Even when you have created a very innovative product, you are often times taking over incumbent budget line items. It is possible to operationalize around and get good at attacking particular incumbent line items. For example, if you find that attacking the formerly human-oriented operating expense budget line item with your subscription service, get good at that conversion by managing the expiration dates of the incumbent’s contracts and running standard plays prior to every incumbent renewal cycle. This has the added benefit of distracting and weakening your budgetary competitors.
Fiscal Periods: As an organization approaches the end of a fiscal period, they can be in a state needing to allocate “use it or lose it” funds. They can also be in a mode in which they want to accumulate expenses as much as possible for a deliberate “down” period. These two conditions give you leverage and allow you to use the impending end of the fiscal period as a forcing function to get your deal signed.
Payment Terms: Alternatively, your prospect may have no money and is waiting for the next period to purchase your solution with future budget dollars. In this situation, you can offer “sign now, deliver now, pay later” payment terms to get the deal done. Note that this can create a collections issues if not managed properly. However, if customer acquisition is your primary objective this practice is likely worth the Risk. Offering monthly, quarterly, or custom payment terms within an annual contract structure can also accelerate customer acquisition and expose you to the aforementioned collections issues. Creative payment terms can also reduce friction by allowing your prospect to remain below certain spending thresholds. For example, converting your $100K up-front payment into 4 payments of $24,999 could allow your prospect to avoid several internal controls. Custom payment terms can also accommodate a scenario in which your prospect needs to allocate current and future period funds to get the deal done.
In summary, it is important that you patiently, professionally, and creatively align with your prospect’s budget reality.
