The Go-To Market Shift for B2B Enterprise Tech
In our latest session, we hosted a discussion on how go-to market strategy is changing for both early and later stage startups selling to B2B enterprise customers. Joining Shuly this week were Lonne Jaffe, managing director at Insight Partners, a leading venture capital fund that invested more than $700 million across 15+ Israeli startups, and Jocelyn Goldfein, managing director at Zetta Venture Partners, an early-stage venture capital fund focused on intelligence enterprise software who recently announced their new $180 million fund.
Lonne and Jocelyn shared perspectives on the long-term effect of the 2020 pandemic on B2B go-to-market conditions, and how this will change the global enterprise tech investment environment.
We have a recorded session or you can read a summary of our conversation below:
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When was it that you realized that your portfolio companies would have to change what they’re doing and what has that process been like in terms of go-to market?
Jocelyn: When shelter in place hit, this was immediately obvious this was going to be a major disruption and that a deep recession would likely follow. So there were two different things to plan for — the immediate disruption and the long term effects. So for us it was a company by company re-plan effort. Most realized quickly this would not be business as usual. Almost every company in our portfolio has made a significant reduction in costs. Most have elected to do salary reductions to avoid layoffs in the spirit of coming together. But the go-to market side is different across all our portfolio companies. Buying cycles got put on hold and only just started to come back in mid-May. The other thing was that shelter in place forced companies to seek software to help them serve customers remotely. So some segments really saw a surge because of this.
Lonne: In a broader macroeconomic sense, there is an extent to which “scaleups” the leaders in a high growth area that have pure tailwinds. But that’s a pretty small percentage of overall businesses. Most are facing headwinds and so you’re seeing expense management stuff across the board. What might seem like 24 months of runway might actually be more like 12 months in practice. All spend categories are being re-evaluated. Externally, there are a lot of products that have cost-saving components to them that aren’t always used for their money-saving capabilities. Building out those functions can be extremely useful these days. For a big company that’s a customer, that’s a crucial value prop. Machine learning and automation-driven software is increasing. It’s also a buyer’s market for talent right now. One of the best environments it’s ever been. Growth stage companies are also using equity rather than cash to acquire companies.
What about for early stage companies who are just now developing their products and need customer feedback and validation…what will that process look like going forward?
Jocelyn: For direct enterprise sales companies — the first 1–5 customers, your reality probably hasn’t changed all that much. Because those first few customers come from warm introductions and mutual connections, which can all still happen in a remote world, so that process doesn’t have to change. Those introductions are the best early way to get customers, but that obviously won’t scale. It won’t carry you all the way, but it will get you to the point where feedback happens and then you can retool and grow from there. Most people are just trying to resume right now. Budgets are being reduced, but if you can tap into how your product is so relevant and fundamental to customer needs, you’ll be ok. It’s so risky for larger enterprises to work with your small startup…they have to be desperate. So you have to rise above the noise and really tap into their raw, visceral need to work with you.
Events and conferences aren’t going to happen for the foreseeable future so that’s not an acquisition strategy anymore. So many startups in the 5–20 customers range are trying to make email work for them as a channel and pitch cost savings, but enterprises are being bombarded with that and getting fatigued. We’re seeing a lot of experimentation but it’s clear there are no silver bullets.
Are company entry points changing? Now that you have to evangelize your product in a different way, how are you seeing sales strategies change?
Jocelyn: Bottom-up approach has a lot of things going for it right now and is a lot less impaired. But picking your strategy isn’t really a choice you get to make. You have a certain product market fit that demands a certain strategy. If you are torn between bottom-up or top-down, because either could work conceivably, then you should always try bottom-up first because it always becomes the top of the funnel for a direct sales strategy.
Lonne: Companies with built in virtual, distributed R&D and sales teams are the platonic ideal right now. You need to architect your product in such a way that you can make a material portion of it for free or at low cost but also leave a path to something bigger to upsell to. But you have to strike the right balance between what you offer in the free version and making it meaningful. When marketing to sales engine is hitting on all cylinders, there is a whole supply chain that is at work in qualifying leads and pricing things. But the lack of conferences cuts that supply chain and ability to fill the pipeline in a dramatic way.
Lonne: Sales incentive structures are also interesting right now. Many big corporates want to buy from startups but don’t have any money right now. So they’re asking if they can pay you 6 months later..this can be a great way to get adoption from big logos, but you’re also obviously not bringing any money. You don’t want to give away too much, but you also don’t want to not close deals just because people don’t have money.
Jocelyn: Companies with a lot of dry powder or very low burn can feast right now. Corps want to buy right now and want to close deals…and downstream investors are still going to want to see you close those deals. Enterprises are looking for better cash terms from startups.
Talent shift in terms of what kind of people will be essential for early stage startups to hire. What are your thoughts on how companies will hire or adopt new processes?
Lonne: From a feature perspective, the number one thing you have to have in your pocket is products that work remotely. Any infrastructure that allows you to deliver access over the Internet is going to be in-demand. Talent is a resource too. This was already a shift too — the big tech companies that can’t give equity in the things that employees are working on are going to lose their talent. This was already a trend and it’s only going to accelerate now. Google, FB and Amazon are already seeing this. If you have enough capital on hand, it’s a good time to hire top talent.
Are you seeing new market opportunities accelerating in any particular domains?
Lonne: Healthcare and other sleepy industries are getting their act together and moving toward adoption of technologies they always knew they needed but weren’t moving rapidly to adopt because of long cycles or because they view it as a hassle. Because if they don’t do it now, they won’t exist in a few months. We’re seeing a removal of inertia for the near term in that respect. The data moat businesses are also helping to crystalize what everyone is best at. If you’re not sure what you’re doing, this climate will help make that killer case really clear and help businesses focus specifically on what they do best.
Jocelyn: Digital transformation to sleepier industries, like manufacturing, — we’re seeing demand for that. Same with logistics and e-commerce. I think even as shelter in place relaxes, people are going to prefer to do things more remotely, so I think we’re looking at a prolonged e-commerce boom. On the other side, we’re approaching other industries like martech with caution. Same with companies using AI to match seekers with jobs — there are a lot of those right now.
How do you think this will impact startups globally? What would be your advice to early stage startups outside their markets?
Jocelyn: The startup world is a growing pie, so there is room for startups to thrive all over the world. It’s possible to raise money remotely and the ability to build a distributed team makes it possible to start anywhere. I still want to invest in markets where there is some opportunity for me to see the team once planes start flying again, but it’s less important than ever. It’ll be a long time before we have the same in-person expectations that we had in 2019.
Lonne: We also are focused on investing in companies that have to think about expanding internationally from the beginning, like a company in Israel that has no local market.
