How Every Consumer Tech Company is an Enterprise Company in the making
How do most consumer tech companies make smart investment decisions? The key to making more money often depends upon how these companies can reach out to its customers.
As a startup guy who has spent time at the big blue-chip IT companies (read: HP, Sony) I’ve always used my learnings there as a foundation for my expertise in startups. Having experience in the enterprise space (both startup & corps) I’ve always found it interesting how consumer tech companies delay entering the enterprise world for lack of getting to 1 billion (consumer) users and that IPO.
I believe by having an enterprise offering as well as a consumer one, companies can unlock hidden value and a potentially lucrative revenue stream.
The Consumer Cap
SaaS companies today seem to offer services based on a freemium model. The average conversion rates we witness are between 3–5%. However, there is a problem when we want to only reach out to customers.
With time, we will see that the organic growth will stabilize. And while companies can increase their conversion rates by as much as 5% as they get established, there will be a cap sooner than later.
Dropbox for instance, a business with 300 million users is probably tapped out at 500–600 million users in their lifetime. With a 5% conversion ratio, it translates to around 30 million paying customers. With cloud storage becoming a commodity, in order to grow, Enterprise sales (where everything is transforming to the cloud) is a no-brainer.
Why Enterprise Solutions Score Big?
Enterprise has way more upsides and potential revenue drivers and is on a growth curve. What if Dropbox could offers its solutions to enterprises as well?
It’s fair to assume that Hilton Hotel is going to need more cloud storage than they did last year — meaning 12–15% annual growth per enterprise account. If Dropbox could tailor its solutions to meet the needs of Hilton Hotel, they would be able to expand their paying customers. Most organizations are on a cloud growth spree, and enterprise solutions could help Dropbox expand from its current customer growth significantly.
So, where is the problem?
Enterprise solutions can also mean a lot more headache. In fact, enterprise deals can take up to 6 months to sign anything, and the initial investment is a lot. If you are a startup, and I say this from my experience of working for a number of companies, I can say this — it will take time to develop the right approaches but you need to know just when the time is right.
It’s Enterprise time — The Decacorn
Crunching in some numbers and analyzing them, I found that most consumer startups end up making the switch to Enterprise when they’re worth $5 Billion and have amassed serious scale on their consumer front.
This is usally down to a few things:
1. Companies worth more than $5 Billion have enough revenue to do things that aren’t their core, for instance investing in an inside sales team or having more engineering resources that aren’t focused on fundamentals.
2. They get inbound requests or get calls saying “do you have Enterprise plans,” this is a great indicator of enterprise demand.
3. Many users have become evangelists of the product and brought it into their workplace (a la Box), and you can effectively turn them into company ambassadors increasing word of mouth publicity. In case you didn’t know, word of mouth publicity still exists, just that companies have forgotten about it while concentrating on other marketing methods.
Making the switch
From a consumer business, making the switch to serving enterprise customers requires an acute level of discipline and operational planning. Generally, enterprises want management and admin tools to give selective access to employees so controlling tasks and abilities become easier. The solutions also need to be enterprise standard, and be safe and secure. Enterprises also need to be able to host the solutions easily and 24/7 enterprise level support is a must.
However, as a tech startup, you will need to know just how you want your enterprise solutions to be. The big switch often is needed in mentality from an engineering and business standpoint. Building a sales organization is a must, and having enterprise processes like RFP, customer success and account management makes all the difference when you’re trying to grow that side of the business.
Here are companies that made the switch —
After getting to over 1 billion daily users (active) and an IPO, Facebook launched Facebook for Work, its enterprise social network — bringing the familiarity of Facebook into the workplace.
Dropbox started heavily investing in sales & marketing for their Dropbox for Business, following the success of Box’s IPO and similar growth with corporates.
Weebly, a company with over 30 million users has slowly been adapting its platform to fit enterprise use. If you thought Weebly is too basic an option, remember, PayPal is one of its customers.
Slack, although always pegged to be an enterprise product, had so much growth in the consumer space that people were practically using it at work anyway, so CTO’s had to sign up to control the conversations.
Airbnb, the sharing economy sweetheart has dipped its toes into offering enterprise solutions as well. It is trying to vie for business customers that spend up to $6B annually on business travel.
Being a Consumer & Enterprise startup
Enterprise solutions need to be able to tailor to the needs of the organizations. If you are looking to offer enterprise solutions, ask yourself how employees would actually be using your product. Enterprise offerings may need to be tailored differently than how you offer it to normal consumers. Dropbox for instance, offers different plans for its enterprise customers with different benefits than what it offers to normal consumers.
As a startup, you will need to be able to have a customer base that can continuously increase. Limiting your startup to focus solely on consumers isn’t a good idea when you can reach out faster by offering exclusive enterprise solutions.
Growing the next big consumer business is hard enough without having to worry about getting the infrastructure, legal complexities, sales organization or engineering allocation, but if your product has market fit on the consumer side and market fit on the enterprise side — you should be doing both. Admittedly, spend more time and effort on what the VC’s got excited for, but do not forget to offer solutions for the other audience.