“The salmon run is the time when salmon, which have migrated from the ocean, swim to the upper reaches of the rivers where they were born, to spawn on gravel beds. After spawning, all Pacific salmon and most Atlantic salmon die, and the salmon life cycle starts over again. The annual run can be a major event for grizzly bears, bald eagles, and sport fishermen.”
– Adapted from a Wikipedia definition
Virtually every B2B cloud business these days, whether in infrastructure, (application) platform, or applications-as-a-Service, is competing hard to attract and serve private-sector and government organizations in larger and more complex deals, usually involving multiple transactions over multiple years as usage grows and new business problems get addressed. But since their strategy and business model has mostly been based on low-touch marketing tactics and transactional selling of volume products to smaller organizations for years, most of them struggle to adapt. In fact, many B2B companies have emulated the strategies of B2C vendors who continue to play a game more focused on attracting eyeballs via freemium pricing models, before moving on to monetize them and attempt to solidify some form of network effect assuming that their business model permits. So the learning curve is proving challenging for many of them, as they seek to satisfy both the higher-volume small business customers and the larger, more demanding organizations.
As they move upstream, every function in the company needs to adapt itself in large and small ways to fulfill the more rigorous requirements of enterprise customers, who expect to be able to acquire and use offerings that are tailored to their needs for industrial-strength, secure, and well-administered solutions to help them address the specific differences in their workflows and business processes. In addition to stark shifts in strategy, this migration upstream often requires changes in skill-sets and key personnel in most line functions. Furthermore, executives need to modify the goals and metrics they use to gauge the success of the business.
Admittedly, the annual salmon run is a limited metaphor for my purposes here. Whereas the salmon are returning upstream to spawn their offspring (and usually to die in the process), cloud businesses are migrating “upstream” to solve more complex problems for larger organizations in order to achieve the next stage of growth in their business. Still, I guess you could say that growth is a common theme in both cases, since the adult salmon do spawn the next generation of salmon. I wanted a visual image to draw attention to the frenetic race that I see taking place among competing vendors in virtually every XaaS product category today.
Over time I have observed some common challenges and, dare I say, best practices, that these companies need to consider when attempting to make this critical transition – whether we’re talking about AWS or IBM Softlayer in IaaS, Salesforce’s Force.com or Microsoft’s Azure in PaaS, or Workday, Splunk or Zuora in SaaS. One factor is that even for those companies accustomed to dealing with enterprise organizations during the client-server and earlier eras, the role of IT is changing rapidly, and line-of-business executives such as CMOs and CEOs or COOs routinely make the decisive calls on important new IT projects in these areas, rather than CIOs or their staffs.
In marketing and sales, companies must migrate from predominantly inbound lead generation on their web site, to more proactive – and selective – outbound prospecting. One example is a fast-growing analytics company that is struggling to migrate its strategy from responding reactively to website-generated leads that come in as a natural result of their freemium pricing policy, to a more proactive prospecting approach based on targeting specific market segments in which to build leading share. One emerging best practice in this area is to hire college grads as interns and/or trainee salespeople to handle the inbound traffic from smaller or larger organizations and qualify them in or out, while asking their fully ramped and trained sales reps to focus on outbound prospecting in targeted customer segments.
Where marketing communications to smaller companies focus on building a strong web presence through which to cultivate leads, including encouraging company executives and others to write blogs and participate in influencer conferences, or producing customer-testimonial podcasts and videos, enterprise marketing needs to develop new thought leadership pieces by applying specific business domain expertise to solve complex business problems, such as the pressing need today for financial institutions and retailers and e-tailers to integrate their customer communications and commerce across multiple offline and online channels, in order to keep existing customers coming back, and attract new ones. White papers, customer case studies, and video testimonials are reasonably well understood programs, and are quite commonly used although not always as detailed nor kept as fresh and current as they need to be. Furthermore, customer reference stories do not always go far enough in describing successful business outcomes that the customer has achieved as a result of implementing the product, focusing instead on the “logo” that the vendor has signed up. Going further, marketing and sales teams need to collaborate to produce diagnostic tools and methodologies to help prove business value in the pre-sales phase, applying domain expertise in the customer’s business processes and problems to make them targeted and credible.
There is one powerful tool that by and large is under-utilized, or even not used at all. This is the “customer journey” map, or what we prefer to call the Stairway to Heaven. The model that I’ve seen work most effectively describes a succession of, say, four or five customer business problems ranging from fixing a broken process that is causing some type of hemorrhage in the business, to conforming to compliance requirements or improving competitiveness, to resetting the competitive bar. This sequence of problems will be addressed collaboratively over time, with the “easier” problems addressed first, and the hardest and maybe riskiest ones last, once the foundation has been laid. Some customers will start on Step 1, while other more advanced customers might start on Step 2 or 3. Either way, customers can identify which problem is paramount to them, and the vendor has a golden opportunity to demonstrate their understanding of the complexities that the company is facing, and eventually to describe their approach to solving it. The logic of the model is that you can’t invest in the top steps until you have solved problems lower on the stairway.
The main idea is that each one of four or five business problems is matched with a solution provided by the vendor and their partners. The key is to provide positive results to the business at each step so that the customer obtains clear ROI throughout the entire journey, which might take as much as a couple of years or more to complete. The Stairway to Heaven model is best when introduced during the first meaningful meeting with the primary customer sponsor, and if used effectively it sets a positive tone for continuing discussions, leading to a diagnostic study when the executive shows interest in exploring the identified problems further. Often, the salesperson is the first to introduce this topic, or they work in tandem with someone from their “business value consulting” arm, which should be populated by experienced business analysts who, wherever necessary and feasible, have specific expertise in the customer’s industry segment (or other peer group). Once the sales and business value consulting team have built a business case, the team can introduce solution consultants and professional services (PS) to architect the solution, prove its technical feasibility via custom demos or POCs (if needed), and develop a project implementation plan.
Summarizing, by adopting this Stairway to Heaven approach you are making clear to your customer that you are not merely interested in a single transaction, but instead realize that solving complex corporate business problems requires different approaches and a steady course of action over time. Enterprise customers want to deal with vendors who know something they don’t know, who have a clear point of view and are willing to prescribe what they believe to be the best solution. Too few cloud vendors these days are prepared to do the hard thinking and provide the leadership that customers expect. So if your company and your sales teams adopt this approach, you are virtually certain to differentiate yourselves against your closest competitors in one stroke.
To complement these market and sales strategies, your product management and engineering teams need to (re)learn the practice of publishing and continually refining a reference architecture that shows clearly how your offerings integrate into your customer’s environment and/or with the offerings of other vendors. And you must play the API game effectively, always making sure to keep current with APIs to the most commonly adopted technologies. When you integrate your core product offering with third-party complementary products and pre-sales, post-sales, and consulting services, you are on the way to producing a whole product that fulfills your customer’s compelling reason to buy. This whole product architecture requires that product management learn the hybrid skills of whole product management, where they are focused as much on managing third-party elements as their own company’s core offerings.
In services and support, besides implementing your software on time, on spec, and on budget, your PS team – who, according to best practices, has been participating in the formulation of the solution and project plan from the Diagnostic/Discovery study phase onwards, well before the deal is closed – needs to provide equivalent domain expertise to that provided by your business value consulting pre-sales team, or at least they should leverage the work done by this team. This domain expertise should be resourced for the target market segments where you are playing to win, but for other segments does not have to be (entirely) in-sourced. In fact, provided that you have a small cadre of these experts in one or two industries – assuming that industry specificity applies in your case (at times, the most relevant expertise might be process- or function-related such as in marketing, supply chain management, billing, etc.), you should probably recruit the bulk of your PS resources “virtually”, via strategic and tactical partnerships with global business consulting firms or with regional boutiques. Most importantly, beyond merely implementing the solution, PS should focus on prescribing best practices to facilitate the most cost-effective implementation, and on providing ongoing user engagement services and periodic system usage audits.
The contest among fast-growing startups or publicly traded companies that are swimming upstream into the enterprise will, as always happens, produce a limited number of winners and a larger number of so-so players and losers. The majority of companies will probably not manage to adapt quickly enough, and thus will forfeit the chance to become market leaders. Some in fact, are so clearly bound in their low-touch high-volume business model that they shouldn’t fool themselves that they will be able to make the transition successfully. Instead, they should limit themselves to “majoring” with smaller customers, and “minoring” with larger ones – which in effect means that they should sell to larger organizations opportunistically, winning wherever they can.
Finally, we should say a word or two about the different metrics that apply as you go upstream. To perform well with complex systems and larger customers, you must substitute metrics that focus on achieving high volumes of users, transactions, etc., with metrics around business value such as solving complex problems, with pricing directly related to the value of removing the customer’s pain. Thus, as I’ve stated in prior articles, pricing should be opaque, in stark contrast with the transparent volume-based pricing associated with most freemium and other such models targeted at smaller organizations or individual customers. That is precisely why companies that are playing in the enterprise ask visitors to their web site to “call us for a quote” if they are interested in evaluating an enterprise-wide license, whereas all the other plans quote a specific price per user, team or some other easy-to-measure criterion on the site itself, accompanied by automated sign-up.
For companies that are migrating upstream – and the list includes everyone from Salesforce.com to ServiceNow to LinkedIn to Marketo – the worst sin is to conflate the two business modes, complex systems and volume operations. I discussed this somewhat in my last post on the fierce competition between Box and Dropbox for supremacy in file-sharing, syncing, and collaboration. Undoubtedly, at times a “mid-market” customer (if indeed such an entity exists!) will look and feel like an enterprise customer, whereas another similar-sized corporation will look and feel like a small business. Even more confusing, some mid-sized companies have enterprise-level complexity but only a small business budget. It can be tricky to do business in these situations, and usually isn’t profitable to do so. But overall, it is imperative to know what your “native” model is, and learn to play your weaker hand as well as possible without expecting it to be as smooth or as profitable as your stronger hand should be. For example, Salesforce.com began as an SMB-focused company but is now heavily focused on the enterprise. The migration has not been without its challenges, but increasingly the company’s organization resembles one that prioritizes enterprise customers. In the XaaS era, there is room for companies to play both games, eventually going as far as to separate each side into distinct operating units in order to perform effectively to different metrics.
Disclosure: Author advises various companies in the IaaS, PaaS, and SaaS spaces as part of their full-time strategy practice.