Enterprise Software Startups Should Use Pilots as their North Start Metric in the Early Days
“If this is something that a small group of people really wants, they should purchase it without a free-trial”. That’s what I was saying a month ago. However, what this way of thinking might cause is that you surrender on an amazing idea that needed just a little bit more of time.
B2B SaaS products targeted towards SMBs have a higher-velocity sales system, lower quotas, and in general less implementation risk. If a startup is targeting SMBs, it makes a lot of sense to think that you need to close on the first meeting that you have with the champion of a sales qualified lead. There’s not a lot of risk in using a piece of software that costs $30 USD per month.
In enterprise sales, there is more than one champion involved, there is more due diligence and more risk in general. This makes the sales process way longer than you would like, and it’s something that you just have to accept. In From Impossible to Inevitable, Jason Lemkin says, “getting a prospect to speed up a decision-making process is like trying to speed up a traffic jam”.
The upside of all this is a higher quota and a higher customer life span. Assuming a 15% conversion from pilot to revenue, an annual churn rate of 5%-7%, and basically any enterprise-level price; we can conclude the expected value of running a pilot is relatively high. For this reason, pilots should at least be tried. This is especially true if the product has a competitive advantage of having an easy installation process and having a value that can be captured in days.
YC partner Anu Hariharan explains this idea really well on this Startup School lecture:
So when companies do focus on enterprise, you usually start with a pilot. But the pilot could be something like it’s a six-month pilot or it could be a three-month pilot. In those cases, you don’t report them as bookings or revenue. You just say it’s a pilot. At the end of the pilot, we visit whether we can get a contract. And the phase that you’re in, usually you will have only one or two customers over the course of 12 to 24 months. That’s okay because the ACV, if it works out, the annual contract would be really huge and that’s expected.
If you would like to learn more about our startup journey or just cope emotionally with us, please follow me on Twitter.
If you’re an online payments/cybersecurity expert and would like to give us some feedback, please email us at info@safetalpa.com
If you want to learn how your company can maintain PCI compliance in a cost-effective way, please email us at sales@safetalpa.com
