How To Succeed As An Enterprise Startup
Founders at Retain.ai, MemSQL, Flatfile and Tulip Retail talk to us about what they wish they’d known when they first launched their enterprise startups.
Enterprise is one of the most challenging markets a startup can try to penetrate. The problems are complicated for small teams to solve, the scale is massive, and the incumbents are entrenched. To succeed in enterprise, founders need to call upon unique skills, and internalize lessons that might not be intuitive. But to those founders who can overcome these challenges, the potential for growth and success are practically endless.
To learn more about what it takes to succeed in enterprise, we spoke to founders at Retain.ai, MemSQL, Flatfile, and Tulip Retail to get their key insights about how to find good customers, how to price your product, and how to vet quality investors who understand enterprise.
Early On, Learning Is More Important Than Revenue
The first thing to know about the enterprise market is that it’s complicated. That’s why, in the early days of a startup, learning opportunities are more important than revenue. The faster your knowledge bank of the sector your company is targeting grows, the faster your business will too.
Eight months after cofounding MemSQL, Eric Frenkiel closed the company’s first customer, a startup building a social network around celebrities like Lady Gaga. But there was just a slight problem: “at such an early phase of development, we only had the basics in the database, not even a way to interpret ad hoc queries yet.” The solution? Engineers hardcoded the query plans to access MemSQL’s in-memory datastore, and even implemented rudimentary replication to ensure nothing would go wrong for the millions of Lady Gaga fans at launch. But this approach, while initially onerous, helped MemSQL to mature quickly and build out the technology it needed, landing its first enterprise customer Zynga just a year later.
“Closing customers early in a startup’s life is essential to avoid building in a vacuum.”
“Closing customers early in a startup’s life is essential to avoid building in a vacuum,” he says. “A startup’s first customers are amazing design partners who will validate or invalidate all your design theories and product assumptions. Very rarely does it make sense for B2B software startups to keep their products behind a veil until launch.”
Going After The Right Customers
One of the most common mistakes for enterprise start-ups is targeting companies that are too small. Most of the time, you’re going to be better off going after the big fish.
David Boskovic, CEO at Flatfile, says that contrary to what you might expect, smaller customers are often paying a lot less per minute of your time than your larger enterprise customers. “The time spent closing a big contract is not exponentially larger than closing a small contract, and often there’s a negative correlation between time spent supporting small customers as well,” he says. “And smaller customers often have more time on their hands, so they’re the ones asking you for new features and expensive customizations, whereas bigger companies just have so much more going on, they’re less likely to bother you with this stuff.”
“If you try to pursue the $10,000 contract and the $100,000 contract at the same time, you have to build two different companies at the same time.”
Ali Asaria of Tulip Retail, which counts brands like Chanel, Michael Kors, Coach among its customers, agrees. “We did multi-million dollar deals right from the start,” Asaria says, noting the iOS payment platform’s average deal is north of $100,000. “If you try to pursue the $10,000 contract and the $100,000 contract at the same time, you have to build two different companies at the same time.” It’s better to invest your time landing the big fish then spend all of your time scooping minnows from the sea.
Obstacles Are Part Of The Conversation
When you’re building out an enterprise-scale product, there can be a lot of unexpected roadblocks that pop up. But don’t panic, says Eric Chernoff of Retain.ai. In enterprise, roadblocks are just the start of a conversation.
Take, for example, regulatory hurdles. “If you don’t pass a security test or privacy screening on the first pass, you’re usually given another chance to correct, or else to figure out a compromise, like ’OK, you’re not SOC 2 compliant, so when will you be?” The important thing to remember, Chernoff says, it’s that your customer’s security and privacy teams ultimately don’t want to stop anyone in the company from innovating, or dictating which products they can or can’t use — especially if you have a champion who is excited. IT understadably wants to make sure there’s not a data breach and that they don’t lose their job.
That makes it your job to partner with your customers to find a way for all parties to be comfortable and even excited. In Retain’s case, Chernoff says that early security and privacy concerns from its customers were diffused through storytelling. “We explain that our founders are from LiveRamp and that we built Retain from the ground-up with security in mind.”
Learning How To Price (And How To Make Exceptions)
It doesn’t matter what you think your product is worth. In enterprise, chances are, you’re not pricing yourself high enough.
“There’s this natural tendency for all of us as founders to undervalue our software, which leads to product pricing that is too low for the long term health of the business,” says Eric Frenkiel of MemSQL.
In enterprise, chances are, you’re not pricing yourself high enough.
Instead, it is useful to understand a customer’s budget, current spending with incumbent vendors, and resulting business value gained from switching to a new product or service. How? “Just ask!” Frenkiel says. “Early adopters want to see you succeed as a sustainable business. Customers have a vested interest once they are benefiting from the software you’re providing.”
Having said that, enterprise software sales is rarely a rosy experience. Once a customer’s procurement department joins the negotiation process, be prepared to “haggle.” This is another risk if you are pricing your product as low as you can, since you don’t have any buffer for procurement officers, who are sometimes measured on how steep a discount they can win.
Bottom line? It’s better to charge twice what you think your product is worth and then let customers negotiate you down than to underprice in the first place. “If your customers aren’t balking at first when they ask what it costs, you are likely under-pricing the product.”
Find Investors Who Understand Enterprise
Not every VC understands enterprise sales.
Ask Ali Asaria of Tulip Retail. “The metrics of success in the enterprise space looks very different than in the SMB space,” he says. “So we prioritized working with investors who understood enterprise sales and made sure there was alignment between their expectations and what success looks like in an early stage enterprise software company”
“Talk to other founders who have worked with investors you are considering, and ask them to tell you about their biggest disagreements.”
Taking on investors who don’t ‘get’ enterprise can introduce chaos and uncertainty in the boardroom, so it’s important to choose your VCs carefully. “Talk to other founders who have worked with investors you are considering, and ask them to tell you about their biggest disagreements,” advises MemSQL’s Eric Frenkiel. A little forewarning will save you a lot of stress later on.
The bottom line, says Asaria, “it’s crucial to have patient investors who get enterprise and understand the challenges. I think finding good investors, qualifying them and asking them about their enterprise experience may be the most important thing I could recommend.”