In The Eyes Of The CIO
Co-Authored with Jai Das, managing director, Sapphire Ventures
Let’s say you already have one or two rounds of VC funding. Annual recurring revenue (ARR) is growing nicely, at a high double-digit or even a triple-digit clip. You’ve been growing virally from within the enterprise but want to take it up a notch. You still haven’t cracked one thing: how to sell an enterprise deal to the CIO.
When startup founders sell to the enterprise, they mentally weigh six-digit, multi-year contracts against the annoyances of building compliance, custom integrations and on-premise deployments. With a “move fast and break things” mentality, founders often see the enterprise as a slow-moving cash cow.
There is some truth to that cliché, but there are also some winning strategies we’ve seen at Sapphire that can help entrepreneurs efficiently monetize the enterprise market. As a startup CEO, this means taking a step back and seeing the world through “the eyes of the CIO”. Here are five lessons to get you started.
Lesson #1: Pick battles (and buyers) that you can win
Some organizations have already experimented with cloud services and developer tools. Others are five years from moving any kind of meaningful workload or infrastructure to the cloud. Pick companies and industries that are already moving in your direction to avoid fighting against the tide.
Companies with CIOs planning to transition to the cloud and next-generation stacks are much more likely to adopt and champion your solution if you’re a VC-backed startup. So double down on this cohort. CIOs that don’t believe the tech stack is fundamentally in transition? Leave them alone — for now anyways.
Lesson #2: Prepare for technical debt and legacy stacks
Recently, an enterprise startup that Sapphire was evaluating was in the last rounds of a pitch meeting with the CIO of a multi-billion dollar company lauded for its progressive technology strategy. It was only in the last five minutes of the CIO meeting that the startup discovered this “progressive” corporation was still on Windows XP, a platform the startup didn’t support. It was a deal-breaker.
As a startup, you might have a unique product with solid enterprise use-cases, but if it doesn’t integrate with legacy stacks or run on older operating systems, CIOs will look elsewhere. IT companies today are working to evolve their business models and their technical stacks, but they’re often swamped trying to keep existing infrastructure running.
Make sure to factor in the legacy environments typical of your enterprise target audience, as your chart your product road map. You’ll thank yourself for this when you finally get in front of a CIO to make that enterprise pitch.
Looker: Business intelligence for on-premise and cloud stacks
For instance Sapphire portfolio company Looker, a business intelligence and data platform for the modern stack, focused early on at how it could help solve problems for corporations with on-premise infrastructure.
Looker made key platforming decisions early on that allowed it to function equally well on-premise and in the cloud. Today, a solid chunk of Looker’s business comes from on-premise customer environments — revenue Looker might not have if it wasn’t prepared to address a legacy world.
Lesson #3: Familiarize yourself with the enterprise buying cycle
An enterprise deal with a CIO will rarely “sell itself.” So if you want more of these deals, you need a strategy and one that includes talent that understands how the enterprise food chain operates.
Often, this means hiring sales veterans from Oracle or SAP — people who have established network of CIO relationships and understand the nuances of budgeting and buying policy for the enterprise. These enterprise sales executives don’t come cheap, which can be hard to swallow for lean startups.
But keep in mind that every dollar a CIO would spend on your new solution is a dollar they’re already spending with an incumbent. A seasoned enterprise sales rep will know exactly where your solution fits into the CIO’s next budget.
Workday: Selling to the enterprise from day one
Founded in 2005, Workday started by selling cloud-based software that competed head on with companies like Oracle and SAP. From the get-go, Workday employed a top-down enterprise sales model.
In the beginning, it was a slow slog for market share. It took the company around six years to sign up 100 customers. The next 100 customers signed-up a year later, and the next 100 in the first quarter of the following year.
By 2012, Workday was seeing average revenue per customer hit around $500K a year, with the average contract lasting between three to five years. It’s an expensive and difficult sales model to pull off — sales and marketing costs represent around 37 percent of Workday’s revenue. However, it meant that Workday was able to rapidly grow from day one due to the large dollar size of customer contracts.
Lesson #4: Get ready for enterprise “roadmap” requirements
CIOs look for solutions with staying power that they can rely on over the next 10 years. When you sell to global CIOs, they are worrying about problems you never knew they had: scaling for tens of thousands of users, supporting dozens of languages, industrial strength cybersecurity and managing regulatory compliance.
A startup won’t meet all these requirements up-front when they first pitch a CIO. That means a CIO will examine how well you’ve planned your roadmap, whether it’s geared toward a large enterprise and your willingness to let her/him influence it. Ultimately, all this boils down to the CIO’s belief in your ability to execute.
As a startup CEO, be prepared to ace this roadmap conversation. One big advantage startups have over incumbents is their ability and willingness to modify their roadmaps to the priorities of the CIO. Use this to your advantage, especially when going up against tech titans.
Lesson #5: Find your wedge into the enterprise
Startups eyeing the enterprise can also pave their path by building a footprint on the ground that eventually leads to the CIO. Grassroots adoption of open-source or freemium products by developers and line-of-business users helps create goodwill and credibility that you can leverage once you start talking to CIOs.
Remember that tolerance for this strategy can vary a lot from company to company. Tech companies and digitally-native industries are typically fine with “shadow IT.” Banks and the public sector? Not so much.
Splunk: Land and expand
Splunk started out selling into the IT-ops and dev-ops stack. It was open source, cutting-edge, and developers loved it. By the time Splunk started talking to CIOs, it already had developer evangelists within the walls of the organization.
As Splunk grew, it moved up the value chain and started solving CIO pain points. Splunk added an array of security tools to its existing tools and helped companies gain analytics insight from large quantities of data. Seventy percent of Splunk customers upgrade to an enterprise plan from the freemium model.
To scale, look to the enterprise
The enterprise can be a huge lever for your business, helping you drive efficient ARR. Enterprise customers and CIO endorsements not only widen your customer base, shielding your business from bubbles and corrections, they also send a strong signal to the market that your solution is here to stay.
Before you make a play for that big league, make sure your playbook is set up to help you shine in the eyes of the CIO.
The information set forth herein is not intended to constitute investment advice and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire Ventures. Sapphire Ventures does not solicit or make its services available to the public and none of the funds are currently open to new investors. Past performance is not indicative of future performance.
The portfolio companies referred to above do not necessarily represent all of the investments made or recommended by Sapphire Ventures, and were not selected based on the return on Sapphire Ventures’ investment in them. It should not be assumed that the specific investments identified and discussed herein were or will be profitable. Not all investments made by Sapphire Ventures will be profitable or will equal the performance of the companies identified above. View all of Sapphire Ventures’ investments here.
