From On-Prem to SaaS – How Has Enterprise Sales Changed?
July 29, 2022
“Plus ça change, plus c’est la même chose.” (= The more things change, the more they remain the same.)
– Jean-Baptiste Alphonse Karr, 1849
As mentioned in my last blog post, “The Unique Mentality of Top Enterprise Sales Pros”, I recently interviewed a dozen experts on sales-related matters. This group included former CEOs, sales leaders, major-account sales reps, and a headhunter who specializes in hiring for enterprise sales roles including CROs.
Besides discussing the special qualities and essential skills to look for in a world-class enterprise sales professional today, I asked them to comment on what’s changed in the enterprise sales business as a result of SaaS replacing on-prem as the predominant business model in software.
The gist of this new post is this: While certain aspects related to customer adoption and buying behavior have undoubtedly evolved as have the corresponding strategies and tactics adopted by vendor sales teams, the essential dynamics of engaging with corporate and government customers have remained fairly similar. Plus ça change, plus c’est la même chose, indeed.
As any veteran of tech in the 70s and 80s will recall, during those first few decades adoption of mainframe or minicomputer systems and the corresponding infrastructure and application software was mainly the domain of mid-sized to larger corporate organizations. They had both the needs and the means to acquire hardware and software and, through their IT staffs, implement the new systems with support from the responsible vendors.
Following the PC, internet, and mobile technology waves of the 80s/90s/00s, adoption in B2B environments happened the other way around. Since everyone now had their own personal, connected compute devices, the minimum unit of adoption was one or two users - for an app like Docusign or Dropbox - or a department - for a product like Slack or Salesforce.com.
As SaaS offerings began to multiply, adoption initially occurred in an “SMB” (especially single-user or departmental) mode even in larger organizations, often completely bypassing the IT department. Correspondingly, deals were much smaller than in the on-prem days, switching costs were much lower – virtually negligible in some cases - for business users, and so churn was naturally higher than in a traditional B2B context. For this reason, Volume and Velocity became key watchwords in every B2B SaaS sales organization, the idea being to grow the number of (paying) users faster than they would churn, and sufficiently to be able to grow at, say, 35% or more net annually in order to remain attractive to private and public market investors as well as to customers.
Only in the past 5-10 years or so has it become increasingly common for large enterprises and government agencies to sign up for corporate-wide multi-year commitments, making enterprise-wide deals a reality for many SaaS vendors. Thus, at the higher end today – particularly above the mid-market - B2B SaaS doesn’t look too different in terms of contract values, with many deals reaching millions or even multi-millions of dollars on an annual subscription basis.
That said, one key change in some instances is in how enterprise customers choose to buy these days. Overall, when they engage with vendors they are already much further along in their selection process than in the old days. The pervasive availability of online vendor/ product information, analysis, and reviews has significantly compressed the initial evaluation phase of every customer’s decision process.
In fact, so empowering is this massive availability of information that some enterprise customers prefer to buy in a transactional manner more along the lines of a mid-market or SMB purchase, eschewing any relationship-oriented approaches from vendors eager to engage. One of my interviewees, Randy Walker, formerly global MD for IBM Sales and Financial Services, cited the example of a household-name global insurance customer whose procurement department systematically buys products online from different vendors on a P.O. by P.O. basis, and explicitly rejects the idea of having their account “managed” by IBM’s - or any other vendor’s - sales team.
Another change in customer buying behavior, described to me by Paul Limbrey, formerly a successful major-account executive at Cisco and later SAP, and for the past several years managing director of global ad agencies and partners at Google, has been that the prospect’s designated change agent is often lower in the organization than used to be the case. Departments representing groups of business users have their own IT budgets, and there is often less rigor in the business case, so proof of value is not so clear. One possible outcome is considerable deal slippage, or churn later on, basically because the customer fails to realize anticipated benefits that may well not have been defined in sufficient detail for both sides to agree on.
On the vendor side, Limbrey and other interviewees highlighted how, during the past two decades the customer engagement process – from demand creation through sales to PS, customer support, etc. - has been deconstructed and put back together again, as an increasing number of software apps and sales methodologies such as MEDDIC and Challenger have been deployed, and supported by automation, to enable Volume/Velocity growth objectives.
Consequently, in many companies today Marketing develops MQLs which it hands off to SDRs in Sales to turn into SQLs; Sales converts these SQLs into closed deals, and months later CSMs pursue contract renewals and expansions, and so on. Limbrey points out that one challenging by-product of this change is that there are more and more handoffs to manage between different departments and players, and consequently more opportunities for things to fall between the cracks.
Rich Nieset, CRO at PolyAI, a developer of voice assistant solutions for customer service, and an accomplished sales leader at several companies during the past two plus decades, told me about what he sees as the SaaS demo trap: “There is a tremendous pressure to go from hello to demo almost immediately and SaaS makes committing this sin much easier. The solutions are online, and often don't require a lot of set-up. On prem used to take more prep so by definition there was more preambulatory discussion. It's pretty standard for vendors to cold-call to set a demo appointment, or have a click to demo web button.”
Nieset goes on to point out that prospects share the blame in this regard: “Buyers are guilty of perpetuating it too. Sometimes they are educated and their desire to cut to the chase is warranted. Other times the demo is a complete waste of time showering needless functional capabilities onto the wrong stakeholder and doing more to inoculate against further engagement as opposed to enabling it.”
Another challenge in startups and scaleups today highlighted by Nieset relates to a generational shift in who does the selling: “SaaS is sold mostly by millennials, as opposed to on-prem that was being sold mostly by baby boomers. Add to that the younger founders, and you wind up with teams that don't have formal sales training or much selling experience. Not surprisingly, some of them tend to plow headfirst into a customer-led sales process where each turn is a new surprise to manage. I'm not saying the on-prem generation was better at this per se, but companies used to put a lot more effort into formal sales training, sales tenure was longer, and the gap in age between customer and seller was narrower.”
A further change is that over the past decade or so Customer Success has become the new holy grail, reflecting the acknowledgement of SaaS company leaders and marketers that the subscription model requires a constant focus on helping customers to realize value from their technology investments, or risk losing them to competitors.
However, for one reason or another many CEOs and sales teams are still fixated on chasing new logos, finding it difficult to convince themselves to allocate sufficient resources to drive account expansions as well as renewals. A recent survey by TSIA, the customer services and support advisory firm, revealed that only 61% of companies claim to have a specific charter to grow expansions vs 88% that are chartered to grow adoption. To my mind, this imbalance favoring new logos is still holding the industry back, because it’s misaligned with what customers most care about – i.e., the success of their investment over the long haul.
Richard Goat, an angel investor and board member for the past two decades in several UK-based startups and scaleups, and previously a successful account executive, sales leader, and CEO, believes that to some degree, “SaaS has muddied the water”. He goes on to say: “Some salespeople think that the land & expand model means that they just need to get the client on the first step and the CSM will do the rest. This often breaks down because Customer Success is usually populated by mid-level ‘consultants’ with very little sales experience. They think that by doing a diligent enough job, their customer will automatically renew, and that Net Revenue Retention at 100% is good business, but this doesn’t really bear scrutiny.”
What Hasn’t Changed?
Despite all of these changes, my belief is that a lot has remained constant, particularly in terms of the dynamics related to what it takes for sales teams to successfully engage with large organizations, whether corporate or state-owned. There are still (at least) a half-dozen stakeholder roles in different parts of the customer’s organization to deal with; buying decisions are still beset by complex political, financial, and technical considerations; and helping the customer to achieve critical business outcomes is, more explicitly than ever, a vital objective in any productive vendor-customer relationship at this level.
What I observe to be broadly true is that there are enough “Fortune 2000”-size corporate and government organizations – as well as thousands of complex mid-market businesses - that still prefer to deal with vendors who take the time to understand their business problems and systems/process requirements, and are willing to field teams consisting of sales rep, solution architect, PS consultants, and customer success staff to ensure that their implementations run smoothly and that users adopt the technology successfully, resulting in a tangible ROI.
So, yes, a lot has changed in terms of the business model (subscriptions or usage fees vs up-front license fees), the delivery model (multitenant public cloud infrastructure vs private data center installation and operation). But, in terms of the skills required to match the product to the prospect’s business problem, to combine the right set of products and services to help the customer address that problem, to orchestrate different stakeholders with different agendas toward a buying decision, and to work with customer personnel to successfully adopt the new solution and generate the agreed target outcomes – this inherent complexity remains for sales, technical, and management staffs to address.
In a phrase, “plus ça change, plus c’est la même chose“.
Back in the 1960s and 1970s it was common practice in multinational systems companies such as Burroughs, Honeywell, IBM, and Xerox to put recruits into technical and other roles before considering them after a few years for a possible sales role.
These companies also established professional training schemes lasting anywhere from six months to two years before putting an AE on quota. Furthermore, while reps were on quota continuing education would occur for a minimum of, say, six or eight weeks a year, often including technical, managerial and/or financial courses where an AE would be paired with a key customer exec, such as the CFO or IT manager. This form of comprehensive technical and operational “apprenticeship” helped to provide future sales reps with sufficient skills and seasoning to prospect successfully and handle the challenges of managing complex large accounts.
With the emergence in the 1970s of mainframe/minicomputer ISVs such as CA, SAS, McCormick & Dodge and Cincom, followed in the 1980s by companies such as Oracle, Sybase, Cisco, and SAP, sales became more of a transactional activity than a relationship-building one, with dealmaking winning out over patiently nurturing a series of well-considered buying decisions over a period of time. This was also the heyday of contractual “innovations” such as the ELA (Enterprise License Agreement) usually designed to cover multiple years and paid-for upfront.
Most of the experts I consulted for this article have had careers spanning the 1980s to today, so they’ve seen pretty much what I’ve seen, and most agree with the desirability of having more formal sales training and career path development by HR and recruiters.
While I would like to believe that sales in tech might once again be treated like a profession – as it is treated in other industries such as finance, agribusiness and pharmaceuticals - I’m not convinced that today’s leading B2B SaaS companies such as Salesforce, ServiceNow, Workday, Splunk or Snowflake will see fit to make the necessary recruiting and training investment. The mentality of most of CEOs and execs in tech just doesn’t seem attuned to this need. Nor can academia be relied upon to pick up the slack, even though the companion function of marketing is regarded as a subject worth teaching at MBA and even PhD level.
My thanks are due to the following people who were generous enough to provide their input on this topic: Ken Bado, Todd Clyde, Pete Daffern, Piers Fox, Steve Glass, Richard Goat, John Hamm, Paul Limbrey, Marty McMahon, Rich Nieset, Peter Vanderfluit, Randy Walker, Paul Young.