Burn the ship or build another ship?

Before you decide to go upmarket a CEO should answer these questions.

Your goal is to drive more revenue, bigger deal sizes, and a faster deal cycle.

You’ve had a PLG motion that got you this far. You’ve raised venture capital and have a small but growing team.

Many start-ups struggle with the decision to move up-market. I’ve heard all sorts of rationals in my 25 years in high-growth software start-ups:

• The grass is greener (in the enterprise segment)

• The VP of Sales closed a few enterprise logos and wants to pursue larger deals

• The product leader says we have a robust enterprise-grade platform

• The marketer says we have inbound leads from Fortune 500

But what is wrong with the current PLG strategy?

Is it viable? Does it need tweaks? Does it need a remodel? Or is it not working at all?

PLG not working is the easiest to diagnose. I once started as VP of Marketing at an early-stage SaaS company with PLG aspirations, but was not seeing any successful transactions. Users could not get to value because the product had jagged edges (UX challenges), and they needed admin-level access to sensitive data to get to value—sales-led growth to the rescue. And our leadership team's decision to stop PLG and start Sales-led worked big time — but that’s a different story for a different blog post.

For products in new categories or sold to first-time buyers, I prefer the learning that occurs through conversations with users and buyers. It beats data sparse website and product analytics nine times out of ten.

But what if you’ve been living on PLG for some years, have paying and happy customers? Calculating financial metrics like ARR growth rate, LTV:CAC, payback, GRR, and NRR is pretty straightforward, and any finance lead can help you through the calculations. These will help you assess financial viability.

Is PLG a GTM differentiator?

In some older software markets where most players run sales-led growth motions, a new player with similar product capabilities but a PLG GTM can build a distribution moat. However, if most players are already PLG, then perhaps Sales-led will secure different and potentially better deals.

Does PLG need tweeks?

Analyze the funnel conversion rate (lead-to-PQL, PQL-to-Win, etc), lead volume, lead quality, acquisition cost, ACV. How does this compare to benchmarks? Can your team identify several projects that can ramp up throughput?

Does PLG need a remodel?

Perhaps an unhealthy percentage of trial or open-source users are dropping off before becoming successful and paying. Maybe consider a hybrid PLG motion like a builder’s workshop, where SEs assist trial users in app via webinars or screen sharing. Or maybe use a trial as an offer and intercept them with a sales call to qualify and engage first. Maybe a proof of concept is what’s needed in markets where heavy customization is a buying requirement.

Does winning up-market require PLG?

In some enterprise software markets (like cloud data warehouses) with 6+ person buying committees, users still like to get their hands on the product. And rabidly happy users can sway enterprise deals. We know that the economic buyer (VP) or champion (director) may never actually use the product and may decide based on other non-product factors, such as total cost of ownership (TCO), risk minimization, relationships, security, etc. Maybe you don’t lead with PLG, but having it in your back pocket can help get users on your side.

Are we going to keep or kill the PLG effort?

If you decide to build an enterprise GTM, what is your intention about the already established PLG motion and team? Do you let it run independently while your attention is on the new challenge? Do you let it peter out slowly over a few quarters? Or do you need to stop doing it, fire some people to free up capital to fund your enterprise push? All of these options have risks and opportunities. The correct answer is that it depends on your specific situation and constraints.

What is required as an organization to win the enterprise segment?

It’s not just extensive product features! It’s not just asking reps to shift from selling SMB or MM deals into Enterprise. Many companies have crashed on the rocks of these assumptions.

Winning in any segment, especially Enterprise, requires all departments to fire on all cylinders. This means you likely need to meet heightened InfoSec, procurement, legal, support, partnership buying requirements.

What do we mean when we say Enterprise?

Is it?

• Enterprise logos? Fortune 500? or Fortune 5000? Big differences there!

• Enterprise motion? Long sales cycles, large buyer committees, and relationship-based sales.

• Enterprise deal size? >$100k

• Enterprise account potential? Land at $50k, expand to $300k.

I’ve been in companies where we sold to enterprise-level logos, but within a mid-market sales motion, with mid-market deal sizes ranging from $30,000 to $50,000. I’d argue that we’re not really doing enterprise deals in the traditional sense, as most people think of them. As CEO, you need to drive crystal clear definition and strategy.

Is this the right time frame to attack the enterprise segment?

I see many start-ups who prematurely want to shift to enterprise GTM after a few years in the market. It’s kind of like a blasé and overconfident attitude that takes root in founders who have experienced early success. But they haven’t been here before. They don’t know that the copy-cats are coming for them with a leapfrog move. Any hot market is going to attract more entrepreneurs and even more capital.

Founders are also surprised to find that as the company hires more people, it tends to slow down.

These twin headwinds hit a company of about 150 people and $20 million in ARR. Right after the point where companies are trying to get into the enterprise segment

Salesforce took approximately ten years to accomplish this. And they did it after cleaning up the SMB and MM segments and generating north of $1B in ARR. They had a cash cow business that could fund expansion into enterprise and other product lines (Service Cloud). They also had a crowded CRM market with some legacy vendors to displace (buh, bye Oracle, SAP, and Microsoft). They did not attempt to compete in enterprise in the third or fourth year of their existence. That would have been suicide. In most enterprise segments, competition is fierce.

So “if you aim for the king, you best not miss.” - Omar, The Wire

Is the leadership team aligned on the move to enterprise?

I worked for a scale-stage co that raised a huge round, but the leadership team was not aligned on ICP or segment. A few of the execs wanted to push into enterprise, while one of the leaders wanted to go PLG and roll out a new freemium product. Now differences of opinion happen all the time. However, in this situation, I observed one executive driving a not-so-hidden agenda through the product and marketing teams, despite most of the team believing we had agreed on targeting the enterprise segment. This kind of dysfunction will pull a company apart if left unchecked. You must get 100% of the leadership team to commit to a new strategy even if they disagree or have reservations.

Do you have the team that can crack open enterprise?

You will likely need to hire a whole new set of people who are experienced and skilled in winning in the enterprise.

I can’t tell you how many times I’ve seen good SMB or MM AEs not make it as enterprise reps. I’m not a salesperson, but after working alongside hundreds, if not thousands, of sellers, I've found that most don’t make the transition. It's just different. The amount of drive, account strategy, perseverance, and experience required to persuade 20+ people in a buying committee over the course of a year to sign a $200k deal is significantly different from completing transactional $20k deals.

Marketing strategy for PLG is often led by inbound channels like content, SEO, website, email lifecycle, and in-product growth tactics. However, the marketing strategy for the enterprise segment is typically heavy on outbound sales and marketing, including events (such as trade shows and proprietary events), partnerships, hyper-customized and targeted email, phone, and LinkedIn outreach. Content writers can’t run events. Email marketers don’t do partnership marketing.

Customer success team staffing is wildly different between SMB and Enterprise segements. Low touch to white glove. High number of accounts per rep to low number. Mass customers emails to custom communication. No account reviews to quarterly business reviews.

I think you get my point now. If you need to move up-market, be prepared to hire up-market people across all departments.

Is our product enterprise ready?

I worked for Salesforce back in the day when it was still a small and mid-market company trying to break into the enterprise. Two years prior, they had churned through a bunch of newly hired Enterprise AEs because the product wasn’t ready for prime time in the enterprise, and the pipeline was not yet developed. It was an expensive lesson in timing the hiring of enterprise reps . The product must be proven to win over a convincing number of enterprise clients before you go on a hiring spree. Workday also blew through former Oracle ERP sales reps because their product wasn’t ready. This happens all the time. Maybe because it’s easy to hire AEs, but harder to admit that the product isn’t ready or it will take the EPD team way longer than they expect to deliver on all the enterprise features, security, and governance features.

What does success look like?

Is it $1 million in revenue from the enterprise segment? Is it the number of customers? Is it an improved LTV: CAC, or a higher NRR? Revenue growth rate? What is the time frame in which the team needs to deliver these results?

What are the leading indicators that show we are on the right track?

Enterprise marketing cycles could take one to four quarters. Sales cycles can take two to four quarters. And this is after you have hired and ramped the people you need to win in the enterprise. Many companies start enthusiastically pursuing an enterprise strategy, but after six months with no incremental revenue, they become nervous and pivot back to a mid-market approach. You need to be watching for the signals of progress. In marketing, we look for the number of target accounts that are engaging with our campaigns and the level of their engagement. In sales, you might evaluate the number of qualified accounts that are progressing through sales stages. If you pull the plug too early, you could be wasting a ton of time and resources.

Do you have the capital required to build a new enterprise motion?

Building an enterprise motion from scratch requires a significant investment in hiring new people and allocating a new budget to reach a previously untapped segment of the market. The payback period will be long. In investor parlance, a deep J-curve of investment.

Are your investors on board for the ride?

When I worked in venture capital, I recall partners assessing certain big-bet investments as either likely to be a home run or a huge divot. They understood risk and reward. What they don’t appreciate is if they invested in a PLG company targeting SMB, then a few months after their investment clears the wire, they see the burn rate is suddenly climbing, with much hand-waving from the CEO in charge, mumbling about how PLG is now no good. As CEO, you need to present a strong business case to your board upfront and secure their long-term commitment to see the strategy through to fruition.

Do you have deep-pocketed investors to fund the enterprise push?

I worked at a SaaS company where we had a product, sales, and marketing team experienced in the enterprise GTM. In fact, we were already closing some enterprise deals.

However, our venture capital investors were smaller firms with smaller funds and could not allocate more capital to fuel our enterprise ambitions. The company had already given up sizable ownership stakes to raise three rounds (Seed, A, B) and had good but not great ARR growth numbers. So we didn’t have the capital behind us to drive up market.

The ideal situation would have been to bring on a deep-pocketed Series C investor. However, those kinds of investors sometimes do not consort with investors they do not consider top-tier investors. In Silicon Valley, there is a pecking order, and who you line up as investors as early funders matters a great deal in securing scale-stage VCs. There’s a secret club of relationships. You want to be on the inside of the club from the beginning.

The travesty of this story is that the two other competitors in the market tapped deeper-pocketed investors and raised substantial rounds of capital, surpassing us in a few years. They didn’t have a better product, but with two to three times the capital, they could invest faster and overtake us. I have the scar tissue.

There’s even a saying in VC circles for this strategy. It’s called “annointing the leader.” With more capital than other players, companies can hire better people, more of them, at a faster clip.

On the bright side. Big Money. Fame. Satisfaction

While these questions are challenging to answer and the charge upmarket is daunting, many companies have successfully done so. The payoff is typically becoming a market leader with large deal sizes, higher renewal and expansion rates, and brand-name customers. In software markets, the enterprise leader typically earns a premium valuation.