June 13, 2017
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In the past, to sell enterprise software you just needed to convince (😉💸😉) the analysts recommend your product, and then to convince a CIO or other exec that it was a safe bet. The execs made their decision with purely upward accountability: you pick the tool that the CEO won’t fire you for picking.
Now it’s all different. The rank-and-file in an organization have stronger opinions/standards for the tools they use, and they have more familiarity with the tools that exist (because so many of them are free to try). So, suddenly those decision makers have a new, downward accountability. If they force feed garbage software to their organization, there will be an uprising and they will pay a price. So, even with tools that aren’t adopted bottom-up, the decision-makers suddenly need to care about whether the tools they select will satisfy the people in the organization.
The “enterprise” software adoption cycle is in the middle of a massive shift right now. What is driving this? Several things:
Let’s look at a few examples of how this has impacted actual teams. Microsoft has been the major player in enterprise software for decades. They have the advantage on analyst relationships, enterprise sales DNA, distribution, and resource. But Slack had a product that people wanted to use. Fifteen years ago, when purchases were made by a non-technical buyer whose primary focus was making “safe” choices and sticking to a budget, that wouldn’t have mattered. But as Slack was skyrocketing, driven by end user adoption, having a product that people actually wanted to use was all that mattered.
Another great example is Twilio. When Twilio started investing in next-level developer evangelism, everyone else in enterprise software couldn’t care less about what software developers think about their product. Today, that investment pays dividends because developers love Twilio, and they will stand up and fight if a company tries to make them use something else.
Executives are still incentivized to make conservative, defensive decisions on software buying. But the idea of what a conservative choice is has been entirely redefined.
For the rest of this article, let’s look at how changes to the Enterprise Software buying cycle impact your customer lifecycle, and what your team can do to counteract them.
The single most common mistake founders make is charging too little.
There are a few reasons why this can be a mistake, but the main one is that it can send you confusing or misleading signals. In the early days, your goal is to build a product that’s a game-changer for some group of users. If you’re undercutting the competition on price, you’ll have practically zero market signal driving you toward that goal. If you’re charging MORE than the competition, the only way you’ll grow your business is by building the things that deliver outsize value to some subset of users. So, the market signals will be pushing you in the right direction.
Another common mistake in the early days is spending too much time on pricing. It’s very important, yes. You should put a good amount of thought into your initial pricing model. But things like A/B tests and aggressive discounting and constant changes are good optimizers when you have some scale. Until then, just focus on making a product people love.
So how should you approach creating an attractive pricing model? Well, I certainly think more SaaS companies should have transparent pricing.
Way too much energy is wasted on hiding pricing and driving different customers into different price buckets. Eventually you’ll have a VP of sales who convinces you to put “CALL US” on your pricing page…but don’t start there. And if you have transparent pricing and your competitors don’t…go ahead and flaunt that fact. People find opaque pricing incredibly frustrating, so there are opportunities to build goodwill by engaging in better practices.
It’s incredibly important to understand how your product gets adopted, and design your buying process around that. Is it the type of product that’s going to need sign off by an executive? Then make sure you give them what they want: demo calls, contracts, etc. Is it a single player product that will be instantly valuable to your target user? Then you probably want a self-service, freemium option. Let them experience it!
It’s 100% ok if customers can’t truly benefit from your product without climbing up a learning curve and/or investing time to use it properly. But if that is the case, you should make sure to foster that process, which probably means not catapulting them into your product via self-service.
Lastly: don’t require a credit card for a free trial.
Lots of people saw Superhuman’s success with 1:1 onboarding and have tried to copy it. But, many of those folks seem to be entirely missing the point. The innovation Superhuman had wasn’t simply the idea of doing customer onboarding, it was the fact that they identified with precision the user journey most likely to set customers up to get a ton of value out of their product. In their case, if someone doesn’t learn the ins and outs of the product and make a commitment to using it properly, they aren’t likely to stick around.
So, the answer is different for every product. It comes down to understanding (and talking to!) your users. The ones who love your product, and the ones who churned. Identify the learning curve, the magic moments, and the usage patterns. How do these things differ between the users who stay and the users who don’t? Once you figure these things out, you can design a unique onboarding process that gets people on the right path.
The primary function of Capiche is serving the customer-side of the SaaS market, so it’s worth noting that my opinions here are largely informed by that perspective. That said, I generally think that vendors who align with their customers interests will benefit in the long run.
There are tons of growth hacks that people use to increase conversion or reduce churn: defaulting people to annual plans, requiring a phone call to cancel your plan, requiring a credit card for a free trial, failing to give a notification before a renewal charge, hiding the cancel button, adding several redundant dialogue screens to the cancellation flow, and lots more. Don’t do this. Just don’t.
Why not? Having clear, fast customer feedback loops is one of the best ways to build a fantastic business. Any friction you put in your customers’ ability to churn causes your feedback loops to be slower and murkier.
Preventing customers from leaving your product means more revenue for you today. I can’t argue with that. And in previous eras, lock-in was incredibly powerful in enterprise software. It sustained Microsoft for many years. But today, for all the reasons discussed above, it’s easier than ever for your customers to switch to something new. So, anything you do to prevent that is extremely short-sighted.
My favorite example of this is Netflix vs. Comcast. Netflix prides itself on zero-commitment, one-click cancellation. And they should. When Netflix puts out great lineups, they see churn rates drop. When they put out crap, they see churn rates increase. The most pure customer feedback is the way they spend their money, and there’s nothing more valuable in SaaS than pure customer feedback. If you make it easy for your customers to leave, you can get fast, clear feedback by simply watching how changes to your pricing, features, and functionality are impacting churn.
On the other side of this coin is Comcast. It’s quite hard to cancel your Comcast plan. So, the feedback they get from customers gets dragged out, blurred, and even altogether blocked. Why do you think they haven’t improved their offering in the past 20 years?
Ultimately, the best long-term moat is simply having the best product.The way to accomplish that is to shorten customer feedback loops as much as possible. And, there’s a side benefit: it turns out that not being a jerk to your customers has a meaningful impact on building brand trust. It doesn’t matter how much you reduce your churn, you can’t buy that type of trust.