By Philip Lay, Senior Advisor, The Chasm Group LLC
The formulation of the problem is often more essential than its solution, which may be merely a matter of mathematical or experimental skill.”
– Albert Einstein
“The problem is not the problem, the problem is the way we see the problem.”
– Saji Ijiyemi, Don’t Die Sitting
In my work with CEOs and their teams in B2B SaaS scaleups as well as mid-sized and larger companies I am constantly surprised by how many of their sales teams are closing small deals of $50k or so in ARR with enterprise-level organizations instead of developing much larger opportunities. One consequence of this apparent lack of ambition is a much slower growth rate for the company, and another is that it can take twice as long to build a profitable revenue engine. In fact, I believe this is partly why B2B SaaS companies tend to take a decade or more to build a profitable revenue stream.
In some cases, this problem occurs because AEs are spending much of their time selling to middle management or even lower — whether in IT, line functions, or procurement — to address tactical problems or respond to RFPs. In other cases, it might be because they haven’t really taken the time to connect the dots between departmental problems and larger problems that jeopardize their customers’ overall business performance. Unfortunately, this even happens with customers they regard as “major accounts”.
So how can companies and sales teams build revenues faster?
A Story of Two Companies — Company A and Company B
The best way of illustrating what I’m getting at is to relate the story of two companies marketing similar products but that experienced very different degrees of success in monetizing their business.
Company A, a developer of collaboration software targeting the real estate sector, focused their market strategy in part on helping procurement managers in divisions of large U.S. real estate developers to request bids from subcontractors, select the winning proposals, and commission the required services or acquire the necessary supplies and building materials. The software replaced an unwieldy and inefficient combination of excel spreadsheets, emails and even (e)fax communications, which apart from being slow was highly error-prone, causing bids to have to be continuously revised, change orders to be manually added, and myriad other costly and wasteful inefficiencies.
The result of their sales efforts was that two years after launching the business, Company A had closed deals with hundred or more different purchasing departments at average prices of less than $50k in ARR.
Company B adopted a different strategy, marketing its collaboration software to C-level executives in major real estate development organizations — particularly those which were building multi-use development projects around the U.S. — to help them solve the painful problem of delays in completing construction due to inefficient subcontractor bid management. After much thought and after interviewing staff and procurement agents in some customer organizations, the CEO and marketing and sales teams of Company B deduced that this broken bid management process was causing havoc in the C-suite.
First, it was preventing leading real estate development companies such as Lennar and Trammell Crow from completing projects on time and thus getting paid for homes and commercial units they had partially pre-sold; second, the delayed project completions were preventing these same companies from competing for choice plots of land for new development projects. As a result, they would end up having to buy less desirable — or more expensive — plots to build on, thus losing pace with the leaders in an industry where big was better.
The result for Company B was that, eighteen months after launching its marketing strategy, Company B had closed a significant number of $1m. and larger deals with more than twenty of the leading North American real estate development companies, generating rapidly increasing revenues.
Yes, Company A had more customers though almost entirely at a departmental level. But Company B had enterprise-level customers who were more committed to the investment they were making and had made much more significant investments. This resulted in radiating references and considerably greater stickiness, thus further accelerating market adoption of Company B’s online collaboration solution.
Here’s the punchline: Company B was Company A — just two years later and with a new, more strategic, marketing and sales strategy.
The Key Difference — How Company B Cracked the Problem
The key difference between the company’s initial approach and its more successful strategy was that the team decided to set aside their product-centric approach — “we make collaboration software that helps purchasing agents to deal more effectively with sub-contractors” — and instead undertook the ‘hard labor’ of figuring out what strategic, multi-million dollar problem they actually helped customers to solve.
Instead of limiting themselves to automating parts of the subcontractor bid management process and selling their solution one by one to purchasing managers in separate divisions of real estate development corporations, they decided to do some serious homework to see what other unacceptable consequences were occurring as a result of bid management being out of control.
As a result, they were able to establish a direct cause-and-effect connection between broken bid management in the procurement department and its dramatic impact on critical business outcomes for each real-estate developer corporate customer. Armed with this line of reasoning and (over time) an increasing number of customers who were buying in to the argument, they were able to get meetings with senior executives in each corporation without much difficulty.
In essence, they had demonstrated that they knew something important about how bid management impacted the bottom line that their prospects and customers didn’t grasp sufficiently, and furthermore that they, the vendor, knew what to do to solve the problem. Having a strong point o view based on carefully thought-through insight put them in a unique position to guide customers toward solving a painful problem – and being handsomely rewarded for doing so with much larger contracts.
This also gave them a mandate from the C-level to work with the procurement staff as well as IT management to solve the bid management problem in every division of the company around the country, rather than having to go from one purchasing department to another via separate sales cycles.
To be fair, the achievement outlined here is nothing more or less than enterprise-level market and sales strategy executed with diligence and conviction. That said, it does take deeper thinking, a degree of diligence with practical field research — interviewing executives, managers, and some front-line staff. And it requires inquisitive account execs, plus one or two domain experts here and there to dive into the business issue that each customer organization is grappling with.
But just imagine how much quicker your subscription-based SaaS business would achieve your ambitious goals if you and your sales teams were to just take the trouble to ask and answer the hard questions, on the way to solving a problem of strategic importance to each customer.
What You Can Do to Accelerate Your Revenue Growth
One way of taking action on this challenge might be to take a look at your top five to ten largest existing customers and ask what problem you think you were helping to solve when you first landed them, versus what problem(s) they are solving now – it can be quite enlightening to see if anything has changed.
Check this by asking individuals at different levels in each customer organization what problem they think they are solving. Be prepared for surprises: You might think you are solving the bid management problem, while ignoring a much larger problem that you didn’t realize you were helping to address.
Ask if your sales teams are operating at a departmental or enterprise level, and if they are addressing a functional problem or a company-wide one.
If you are dealing with a departmental issue, ask who else in the organization cares if the problem is solved, and/or what additional (larger) problem might result from this issue not being resolved. Then ask how to engage with these other stakeholders.
Companies whose CEOs and sales teams undertake the extra mental work to figure out the most impactful problem that they help customers to solve tend to become winners in their competitive set.