Atlassian is about to go public in what might very well be the best Enterprise Tech IPO since Workday. On top of great products and profitability, the headline of this IPO is their sales model; or better stated – there lack of a sales model. Here is the paragraph of their F1 that everyone is talking about. I have added the highlights for emphasis:
We founded our company on the premise that great products could sell themselves and we have developed a unique approach to the market that is centered on this belief. We begin with a deep investment in product development to create and refine high-quality and versatile products that users love. We make our products affordable for organizations of all sizes and we transparently share our simple pricing online. We pursue customer and user volume, targeting teams in every organization, regardless of size, industry or geography. To reach this expansive market, we distribute and sell our products online without traditional sales infrastructure where users can get started in minutes without the need for assistance. We focus on enabling a self-service, low-friction model that makes it easy for users to try, adopt and use our products.
Wow! Talk about disruption They are selling $319M or Software and SaaS with no traditional sales force!
As a result, Atlassian sales and marketing expenses are only 12-21% of their revenue. Compare that to other Enterprise SaaS companies who spend between 50-100% of revenue on sales and marketing. See Redpoint Ventures Tomasz Tungus’ excellent analysis of Atlassian’s Superior SaaS metrics.
Now let’s look at Box.com who went public this spring and is doing quite well. Revenues are growing at 38%, losses are narrowing and profitability is on the horizon. That having been said, they are the polar opposite of Atlassian. Sales and marketing expenses are still 81% of Box revenues and at times they were spending an astounding 200% of revenues on sales and marketing.
So, can we all just copy the Atlassian flywheel model. Can we finally dispense with a golf playing, wine drinking, first class flying, face to face field sales force and let the computers do the work?
It’s easy to look at the Atlassian and Box numbers and declare Atlassian the winner on not only efficiency, but in effectiveness. It is a larger company than Box ($319M vs @280Mish in trailing 12 months revenue). And Atlassian is growing faster (46% to 38%)
But before we rush to any conclusions, it is also worth noting that the undisputed heavyweight champion of SaaS, Salesforce.com, uses a “sales heavy” model and is fact now headed by Keith Block and Tony Fernicola. These Oracle alumni are industry veterans of the “sales heavy model”. And it’s not just Salesforce and Box. Most of the leading Enterprise SaaS companies use a “Sales heavy” model. Workday, ServiceNow, Netsuite, Marketo, Eloqua, Concur and Successfactors all employ a lot of salespeople. And even companies who target the lower end like Hubspot spend a lot on sales and marketing.
As for other good examples of “Sales Light” models, we should look at Amazon Web Services. They have sales people now, but a lot of their business was built in the low cost frictionless sales model. Another example would be the Google At Work unit,that I ran for eight years. We certainly had lots of salespeople, but large sections of our business were designed to be low touch frictionless sales and mid market and enterprise units were run below industry average expense levels. The other non-public examples of sales light model would be Github who has grown to 10M users worldwide. But even they hired a VP of Sales 18 months ago and stated that their latest $250M fundraise will be used in part to expand sales.
So, what is right? “Sales Light”, like Atlassian or “Sales Heavy” like Box.com and Salesforce? The answer of course is: “It Depends” and “You may need more than one sales model”.
But I am not going to cop out with the ubiquitous “It Depends” answer. Let me give you 5 factors to consider when making your decisions about your sales model
Factor 1: What is your target customer’s buying process?
We talk a lot about sales process in Enterprise Tech, but in a hyperconnected world where buyers possess access to almost infinite information, we need to think about how customers buy, not how we sell. You need to ask how they have traditionally bought and how they are buying in the new normal.
Small businesses have usually bought quickly and with smaller levels of consideration. Frequently there is a single decision maker and they are focused on ease of implementation, low cost and end user simplicity. They are not often interested in competitive evaluations unless it helps drive price down.
Large enterprises have traditionally bought slowly with very high levels of consideration. There are many stakeholders involved in buying technology. They often have established and cumbersome procurement rules that must be navigated. They will have very complex decision criteria and will focus more on total cost of ownership and ability to integrate with existing complex infrastructure. They will almost always require a competitive analysis as part of the buying process that involves significant dollars.
Medium sized business is traditionally a mix of the above- more than one decision maker, but not hoards of people; Some structure in the buying process, but not too much.
Buying processes also differ by industry and region in the world. Buying processes in government and regulated industries (Finance, Healthcare, Pharma) are even more stringent. European buying processes can differ from American ones and Asia Pacific buying processes are clearly different.
So, the general rule is, if you target large companies and regulated industries you will trend towards sales heavy and if you target smaller companies and less regulated industries, then you can trend towards “Sales light”.
Lastly, you should consider who your target buyer is within the company. The sales light model has worked well for Atlassian partly because they target engineers and developers. This target buyer is highly skeptical of salespeople and marketing claims. Taking them golfing is not likely going to help the sale move along. They want to see the product, look at the nuts and bolts and decide based on hands on work. Furthermore, developers can often choose tools individually or in small groups without engaging with a large team of stakeholders. And once, you convince an engineer or developer about your product, they are likely excellent sources for word of mouth referrals. If you are selling compliance software to the CIO or Chief compliance officer, you are much more likely to need spend a lot more sales time doing belly-to-belly meetings.
Factor 2: How Mission critical is your product?
Every company wants their product to be called mission critical, but be careful for what you wish for. Mission critical is often defined as “Will the business stop if this application is down” or “Will there be significant impact if this application is down“. ERP software for manufacturers is mission critical, Patient record systems are mission critical to hospitals; Websites and ecommerce systems are critical to online companies. Points of sales systems are critical to retailers. Email and Payroll systems are usually mission critical for everyone. But there are a whole host of important software that is not mission critical. If you are selling “succession planning software” or “recruiting software” or “e-meeting software”, then you fall into the important, but not crucial category.
The sales model implications are as follows. Mission critical software requires a more sales heavy approach and important, but not mission critical software can trend more towards sales light.
Factor 3: Is your first sale a “Bunt single” or a “Grand Slam”
Certain software sales are an “all or nothing’ sales proposition. Customers decide once. There is usually a large upfront sale for all users. If you win, then you are golden. If you lose then you are likely out of the account for a very long time. Salesforce.com is a good example of this. People make decisions about CRM, Service and Marketing automation once and then work very hard to succeed with it. They do not revisit that solution every year, nor do they allow departments or divisions to deviate from the corporate decision
Other software is bought is small chunks. It can be bought by a department or as a corporate trial. Customers make a small purchase, they watch how adoption goes and then expand use over time as they see value. File sharing software from Box.com, Dropbox would be a good example of this. E-meeting companies like Webex and “Go to Meeting” are another example.
If you are a Grand Slam company, you will trend more towards Sales heavy and if you are “Bunt Single” company, you can trend more towards sales light. But be aware if you are sales light, you likely need to invest more in customer success than the Grand Slam company.
Factor 3: How Viral is your Product?
Viral is an overused and poorly defined term. But I will use a simpler definition. How much effort is needed by your company to spread usage of your product? If it a lot, then you are less viral, if it is almost none, then you are very viral. Some products are not naturally viral. ERP and Patient Record systems are not viral. They take a large amount of resources to “get live” and then the company mandates them. No viral success needed. Other technologies like e-meeting software are more viral. Customer buys some limited amount of licenses, they start hosting meetings, people have to have access to software to attend meeting. Other departments or divisions see you using software and want to come on board. This is a really good model if you can make it work. Unfortunately we have many potential enterprise software categories that are viral in nature, but whose products are not user friendly enough to go viral in a big way. I mean have you ever left a Webex meeting and said “Wow, that was great, I can’t wait to do that again.” So be careful here, if you want to get the effects of viral distribution you have to have the right product and it has to “delight users”, not just meet requirements. Another way to say this is that you need “Net Promoters” at the end user level- people who rate you 8 out of 10 and above. And it has to be at the end user level, not the IT or support level. Most Enterprise companies are doing net promoter stuff now, but they are surveying the wrong people-Central IT or Project Management staff. You need to survey the end user.
So bottom line on this factor, if you are viral, you can trend toward more sales light. Use a sales force to land the big account and let the product and customer success teams/process take it from there. But be careful, if you are not truly delighting end users, then you will need heavier investments in customer success than your CFO will like.
Factor 4: How competitive is your market?
Every market is competitive, but some are more competitive than others. If the customer has many alternatives in your space, then the sales model will need to be heavier. Customers who perceive that they have many choices, fear making the wrong decision and want to make sure they get the best price. If your product is a newer category, where customers perceive uniqueness, then you can be more sales light. To use a consumer example, If you want to buy a luxury sedan, you will feel required to look at BMW, Audi, Mercedes and then likely Infiniti and Lexus, GM, Ford and Chrysler. But if you want a luxury electric vehicle, you will stand in a (virtual) line in a get a TESLA.
Factor 5: How hard is to implement your product and What is the time to value?
Products that require lots of professional services to get started are tough to sell in sales light environment. If the customer cannot take some very quick steps to get live and start getting value, then you will need a much heavier customer engagement model. Some products are naturally heavy in implementation services because they require configuration and business process design. These products usually fall into the “Grand Slam” category because customers cannot “trial implement” them or adopt them in chunks. You will need a sales heavy model to assure customers about your solution because it will cost them money and time before they see value. There is higher risk, so they need more belly-to-belly time. On the other hand, solutions that can be quickly implemented and do not require a lot of expense to get value, can trend towards a sales light model because customers will perceive lower risk. If it doesn’t work or users don’t like it, we are not out much…so let’s just buy it”
Please note that as you move up the stack to sell to the largest companies it is not likely that you will be “full self service implementation”. You will be required to integrate into to the customer’s proprietary environment like directories, single sign on systems, mobile security systems and archiving systems, just to name a few.
There is no one right answer to the Atlassian vs. Box.com question. But there are clear questions that you can ask yourself to determine your sales model. Further, if you plan to tackle the whole market from small to large and across many industries and geographies, then you are likely to have more than one sales model.
I also recommend that you stretch the boundaries of the sales light model as far as you can. Sales light can be used beyond small business and there is evidence that it can work much further up the food chain, so don’t default to sales heavy too soon.
You can also deploy hybrid models. In the mid market in Google Apps , we used a sales light model for the first step of the buying journey, but deployed a team based field approach to the final step of the sales process. That change had a big impact on our close rates.
Lastly, your sales model is not a standalone business strategy. It is very closely linked to your product strategy. The simple fact of the matter is that Enterprise software has been so horrifically bad that sales light was not an option for most companies. If they saw or understood the software without a thick and expensive sales force translating it for them, then there was no chance of a sale or adoption. We simply must make better enterprise software.
Your sales model strategy is also tightly tied to your customer success strategy. In the past,we didn’t call this customer success, we called it support. We published a 1-800 number, we fixed bugs and we let third parties implement our product. We are now developing robust customer success departments that do implementation, end user adoption, project management and support. And we are learning to do customer success functions in a high velocity, frictionless environment as well. If you are a “bunt single company” that depends on land and expand, then you will often need to invest more in customer success than your “grand slam company” and you will have to work hard on your product to ensure sales expenses are simply not replaced by customer success expense.
So there you have it. Picking your sales model is not black magic. It also should not be a religious war between the wine drinking golf playing, first class flying old guard and the “all on line” new guard. Answer these five questions and pick the right blend of sales models for your product and target markets.