Why Enterprise SaaS Deals Don’t Close
January 22, 2019
At this point early in the new year, chances are that you’re either (still) celebrating after closing some of the large enterprise sales deals that you had in your Q4 pipeline, or lamenting one or more deals that slipped into the new fiscal year or – perish the thought – just fell out of your funnel.
If this past year-end you fell short of your forecast, there’s almost certainly some explaining to do at your next board meeting, and some commitments to make regarding how to fix whatever shortcomings you identified. If by chance you met or exceeded your forecast, you may now be worried about how to deploy the agreed solution for each customer with minimal problems. In either case, you probably need to figure out how to increase your win rate and generate a larger number of qualified opportunities in future quarters, in order to meet your ongoing growth targets.
Whether your company’s sales process consists of six neatly defined steps (in theory) or sixty less predictable steps (in practice) as in the cartoon above, what I’m seeing in the marketplace today is that the vast majority of tech companies of all sizes today struggle mightily to close their most significant new enterprise Saas deals within the forecasted quarter. Given the lumpiness of many startups’ and scaleups’ growth trajectory, this problem can prove to be an existential rather than merely tactical threat. And when companies start flailing at the problem rather than understanding and addressing the root causes, the VP of Sales gets fired, and then it’s a question of time before the CMO or CEO lose their job.
So let’s review some of the most common issues causing deals to slip, go to a competitor, or get deferred indefinitely? And let’s agree that we’ll only look at sales opportunities from the point at which a field sales person or sales team begins to engage the prospect on the way to some kind of close, whether this be a buy decision, a buy-someone-else’s-offer decision, or an NDI (No Decision Incorporated). I am not going to address issues related to marketing’s hits or misses in generating genuinely qualified opportunities, although this also is a fertile area to examine on another occasion.
Whether you are a $1m startup, a $10m-$30m scaleup, or even a $100m+ growth company, the large enterprise organizations that you are targeting may never have heard of your category before you walked in the door, let alone heard of your company. So their sense of risk regarding the unknowns that you represent may extrapolate any perceived risks or costs of not solving the business problems that are troubling them.
Top Three Causes of Delayed Sales Cycles
Having learned from my own successes and failures in the past and since then advised major players such as Netsuite and Salesforce as well as tens of midsized and smaller companies, the following factors represent my top three causes of delayed, downsized or failed sales closes.
1. Selling to the wrong audience
The most common failing here is to address your principal sales arguments to the individual or team that agrees to meet with you, rather than to the individual who is actually accountable for ensuring that the problem you have identified gets fixed. The reasons why sales teams get this wrong vary widely. They may not who the authorized sponsor is. They may not have asked, or they may have asked and the people they currently have access to are not willing or able to facilitate access to that person. In other situations, the people they are dealing with in the customer organization don’t themselves know which functional or other executive the problem rolls up to. Take the example of social customer care, a relatively new Saas category; is this the province of the VP of customer care, or the chief digital officer? Not every organization has sorted this out, so it’s not easy for the sales team to figure out either.
One way or another, the team needs to be curious and tenacious enough to “follow the money”, i.e., to find out through their own due diligence and investigation how important the problem is, which functional group is most seriously impacted by it and by default might be responsible for fixing it. If the company is suffering brand damage enough to affect its market share or its stock price (or both), then even the CEO or COO might be the appropriate sponsor. Identifying the right sponsor is one challenge; gaining access to them comes next.
But none of this matters if the sales rep or team insist on trying to pitch and propose without first developing a point of view about the case for action. More on this point toward the end of this post.
2. Lack of an agreed business case articulating “the Three Whys”
This is probably the most common, and most “fatal” of the flaws on this shortlist. Most sales teams are much more comfortable pitching their product or service before they attempt to build a case for action, if they ever get this far. When they do focus on the customer’s problem they are generally way too glib. Their default is to produce a generic “value calculation” using some stats downloaded from the internet and inserted into an Excel spreadsheet.
The problem with this approach is that most enterprise customers, who have to gather input from different colleagues or departments as part of their evaluation process, make a buying decision at least partially based on consensus. They also need to feel confident that the chosen vendor understands what they are committing to and will be able to follow through on their promises. For this to happen in a way that serves both the vendor’s interests and those of their customer, it’s far better for the sales team to build consensus around an agreed case for action – what I sometimes refer to as the Three Whys: Why Act?, Why You?, Why Now?.
To summarize, the winning vendor is generally the one that best articulates Why the customer should do anything beyond what they are already doing today, Why they are better equipped than any competitor to help solve the identified business problem, and Why the company needs to act now, because the executive team and/or the board will inevitable ask these questions before approving a new hundred thousand-dollar or higher commitment in ACV. It’s much better that the sales team proactively builds such a business case than that they depend on it happening without their input.
Not only is it important to present a strong business case, but it’s far better to do so before you try to make the case for your product. If you get into the product-vendor dynamic first, you just feed your prospect’s tendency to conduct a product bake-off, which can go in any direction since customers often don’t have a clear idea of why certain features are more important than others. From there, to get into a business case discussion on the right terms can often be quite tricky because you’re already in an evaluation driven by your prospect, on their terms. To obtain access to your real target customer at this point may create some resistance among the middle managers or individual contributors with whom you are already engaged in the product bake-off process.
So, in my experience, the best mantra to follow is “business case first, technical feasibility second”. And make sure you answer the Three Whys.
3. Over-promising on deliverables and outcomes
The commonplace tendency of Saas vendors to over-promise, leading almost inevitably to under-delivering in some important area, is something that most customers try to sniff out before they confirm a buy decision. Seasoned managers can usually “smell’ this on the vendor’s Powerpoint slides. If you don’t understand the full implications of what you are committing to deliver and exactly what problem you will be solving, because you haven’t had the patience to do your due diligence, how can you be surprised if you get into trouble once your prospect starts asking the tough questions, such as how quickly will we be able to fix the first part of this problem? Who from your organization is going to help us? What do they know of our business? And so on.
One way of avoiding this risk is staggeringly obvious but commonly neglected: Get your professional services or Customer Success team engaged early enough in the sales/evaluation process to gain an understanding of the business problems and what it will take to solve it/them. This gives them a priceless opportunity to develop a draft implementation plan to include the pre- and post-sales services they will need to provide in order to help the customer make a confident, well-placed decision with minimal risks of failure. Pre-sales services might include a diagnostic study to assess the problem in detail, accompanied by a relevant customer reference, followed by a project plan to establish a timeline and resource allocation. Post-sales might include training, onsite/online support, implementation, testing, and periodic audits to confirm results achieved.
Alarmingly, most salespeople fail to involve their implementation and customer success colleagues early enough in the sales process to warrant this degree of confidence on either side. Why on earth do tech sales teams take such idiotic risks? The reasons vary, ranging from us vs them silo behavior between sales and post-sales (or sales and management), a lack of implementation or customer success resources to draw on, or a fear that that engaging them will somehow “slow the deal down”. Although nonsensical, this latter pretext is nonetheless cited frequently by AEs as an obstacle to inviting colleagues to assist them on a hot deal.
The more attentive customer executives and purchasing managers try to sniff out potential downstream problems before they sign on the dotted line. When they do sense problems, they generally take action to either slow the process down or regain control by downsizing the scope of work involved to a level they feel more confident about before signing up with the chosen vendor.
To be clear, although I’m pointing out here the common failings of sales reps (or AEs) and their colleagues in the field, this reckless sales behavior is more often than not aided and abetted by an antsy VP of Sales or a hard-charging CEO. Boards are not free of guilt in this regard either.
Behind all of these failings is a failure of strategy: If the company’s culture – for which the founder/CEO and the executive team are responsible for setting the tone – is supposedly “customer-first”, this mantra quickly deteriorates into doing absolutely anything to “please” the prospect in order to close the business. In which case it is no surprise that salespeople will do somersaults to close deals, including telling prospects one or more bald-faced lies. This approach is more of a vendor-centric than a true customer-oriented approach, even if the management team claims that they practice the latter. But truth be told, tech is still primarily driven by vendor-centric behavior.
Underpinning this failure of strategy is a misconception about how and why customers buy or choose not to buy. The conventional belief among sales teams that they are the ones to “close the deal”, implying that they manipulate customers into accepting their proposal (sometimes at any cost) is a part of a vendor-centric perspective enshrined in their “pre-sales” and “post-sales” processes. It’s okay if your sales process is aligned with your customers’ buying process. But you are only in a position to be sure of this if you take the trouble to analyze their actual business problem, what they’ve attempted to do to solve it in the past, why their attempts have failed or only partly succeeded, leading to a point of view about how they can leverage your technology to finally crack the code. It’s also helpful to understand the key steps in your customers’ decision-making process from their perspective and align your proposed plan of action to this. Unfortunately, few sales reps or teams in today’s instant gratification world actually take the time to do this homework.
A related issue is that most companies are so enamored of their technology and offerings that they remain rigidly product-focused in all of their marketing and sales communications. Sure, they talk about addressing customer problems, but only within the scope of their product capabilities. Thus, when they ask the prospect about the problem they are trying to solve, what they’re really after is the earliest possible excuse to promote the virtues of their product functionality.
One final obstacle is one of business design: Because many vendors have begun life by targeting small or medium business customers, they are now playing catchup to become “enterprise-ready”. So instead of knowing how to serve enterprise customers by design, they are obliged to learn on the fly to identify the main differences between enterprise and SMB customers, many of which are non-trivial.
Here are a few examples of what enterprise customers expect from enterprise-grade vendors:
They expect you to have a point of view about their industry peer group, and about how they compare against their peers.
They expect you to be able to deploy some level of expertise in the domain of their business processes and IT infrastructure, not just in your technology. They also expect you to push back if they are off-base in their expectations and offer them a coherent path to success.
They expect that, if you express a wish to meet with any of their executives, you will have the diligence to draw their attention to a critical business issue that you suspect they have been perplexed about before you showed up, and that you will offer a new insight on how to fix it that they might not have considered before now.
They expect that, because you (supposedly) have other comparable customers, you know more about how to successfully deploy your products and services for their benefit than they do.
They expect you to know how to fit into their existing IT environment with minimal disruption.
Perhaps above all, enterprise customers really appreciate it if you can propose a ‘stairway to heaven’ consisting of logical, sequential steps they should adopt in order to first fix some basic remedial issues, then integrate any fragmented systems they have today to eliminate friction and waste, then expand utilization to create results for other groups or regions of the company, then innovate with a better process or new services so that the company remains competitive with its peers, and eventually disrupt their own competitors with new offerings or business models of their own.
Committing with some seriousness to help your customers to solve complex, hairy business problems in logical steps seems more feasible and believable than if you try to sell them everything in one go. Either the problem you are addressing isn’t that complicated, or they won’t be able to digest everything you throw at them at once – either way, this latter approach puts enormous pressure on your post-sales teams, why not make it easier on your colleagues and make your customer happy at the same time?