The Harsh Reality Of The New Enterprise World
“And we’ll never be royals (royals).
It don’t run in our blood,
That kind of luxe just ain’t for us.
We crave a different kind of buzz.”
Lorde – “Royals”
It’s getting harder in the B2B world. That’s the bottom line. A board member of mine recently told me a story about the “good old days” of enterprise software. He said he remembers a software company in the 1990s where they were looking at doing a deal with a big customer. The vendor quoted more than $100 million for the product. The customer wanted to spend $90 million. The vendor held firm and won. A great case study in discipline and persistence, right?
Every SaaS CEO should be rolling their eyes at this point. In the cloud world, most of us have “never seen a million-dollar deal in the flesh” to paraphrase Lorde, let alone a nine-figure one.
Siebel Systems, the most epic 1990s software company, hit a billion dollars in revenue seven years after it was founded. That’s nuts. Salesforce.com, our era’s equivalent legendary tale, took 10 years — and that’s with massive losses along the way.
Nearly every big legacy tech company is changing its CEO, splitting up or reporting very disappointing numbers. And while the next generation of companies is very exciting, most upstarts and IPOs aren’t nearly as profitable as their predecessors.
And technology isn’t the only industry that’s getting harder. In advertising, in the era of Mad Men, martini lunches and long-term relationships kept multi-million-dollar marketing relationships going easily. In the new advertising world, your relationships last a few milliseconds — as long as the last real-time bid.
Indeed, some of the hottest vendors out there are companies that help you optimize the post-sale customer lifecycle. The customer experience management world is super-hot with vendors like Medallia and Qualtrics on the high end and SurveyMonkey in the broader market. Zendesk’s IPO showed a renewed interest in the next generation of customer support. Intercom.io is changing the way companies engage with their clients. Even Salesforce.com rebranded itself at this year’s Dreamforce as the customer success platform.
In short, caring about customers is cool again. So what’s happening under the covers?
Competition Is the Norm
While Peter Thiel has done a great job articulating why competition is overrated, differentiation and monopoly is getting harder and harder in the B2B world.
With the lowering of fixed costs to start a business — whether you talk about leveraging SaaS technology, on-demand manufacturing or cloud infrastructure — every incumbent has an upstart a few steps behind.
Because of this, nearly every Fortune 500 B2B CEO has a Y Combinator startup hoping to put them out of business. ZenPayroll is gunning for ADP, while Zenefits disintermediates the legacy healthcare insurance brokers. If you’re a big company leader and a company that starts with “Zen” gets into your space, you’re not feeling very calm anymore.
Stickiness Is a Thing of the Past
A lot of the great legacy business models depended on customers getting stuck.
You bought the multi-million-dollar enterprise software product and spent tens of millions of dollars to deploy — and now have second thoughts? Good luck switching.
You spent a year implementing physical security devices in every network around the world and worry they’re not catching the right things? Start working on your LinkedIn profile because your company’s going to switch you out before they can change hardware.
In contrast, in the new world, your competitors are only an electronic signature, a DNS change or an API call away.
Lifetime Value Comes Over Time
Again, the old days were good. If your customer paid you millions of dollars upfront, you could use that money to invest in growth and R&D, and still deliver great profits to your shareholders. And since your customers paid so much, you knew they’d be with you for a while.
In the new world, your customers are paying you per year, per month or even per transaction. Yet, you still have to make the same long-range investments in sales, marketing and R&D to grow for the future. So now you’re making those bets on your own dime. Hence the losses.
What To Do?
As with most changes, everyone in the B2B world is going through stages of grief:
Denial – “These changes won’t affect my industry. Valet, please get my Bugatti!”
Anger – “This sucks; I want the 1990s back! Someone play Creed for me right now!”
Bargaining – “Maybe we can just add ‘cloud’ to our name and we’re good? Right?”
Depression – “Get me some Zima stat!”
Acceptance – “It’s all getting harder…”
Once leaders reach the last phase, they’ll realize that everything about their companies will need to change things, including metrics, organization and culture, to adapt to this new, harsher world.
Metrics. In the new world, with subscription and pay-as-you-go pricing, you can no longer get by just by measuring new sales. Measuring client retention and lifetime value is essential. Subscription billing vendors like Zuora, Recurly and Aria are helping companies across SaaS, digital media and cloud computing to maximize their recurring revenue streams.
Organization. As a CEO, you can’t keep running your company assuming it’s just about building the product and selling it. You have to have an organization responsible for the long-term success of your clients and make that organization a core part of your leadership team. Many businesses are setting up customer success teams for this exact reason. Even the big consulting firms like McKinsey have picked up on this trend.
Culture. Finally, you can no longer send the message that the “hunters” in sales are all that matter. The initial sale is only the beginning of your customer relationship and you have to resell your customers every day. So you need to celebrate all of the moments beyond that initial sale.
So have a stiff drink, open your eyes and accept that it is harder. This is the new world, and as long as we live in it, we need to embrace it.
And, as Lorde would say, we can keep driving Larry Ellison’s yacht in our dreams.