Recently, I caught up with two great entrepreneurs/CEOs, both doing a few million in ARR and growing quickly. Doing well.
Both had a roughly similar make-up of customers, split between:
More or less like this:
Both asked me where they should place their bets. On the one hand, their largest customers were very important and creating six-figure deals. On the other hand, they weren’t the majority of revenue and were a ton of work.
The first showed me his customer list, ranked by revenue. His largest customer, a Fortune 500 leader, was paying him $100,000 a year. I told the CEO I was pretty sure, given the importance of the problem he was solving, and its impact across the enterprise, that this #1 customer could pay them at least $300,000 a year. It’s a heck-of-a solution.
The CEO turned to me and nodded his head. “Amazing! In fact,” he said, “they told us just the exact same thing the other day. We were worth $300,000”.
Boom! That’s me, Mr. Clairvoyant.
Actually, it wasn’t very hard. Because what he had with his SaaS company is something you may have too with yours. An application that can be used by businesses of every size. And if you do, you’ll want to decide if you’re selling a Tool — or a Solution.
It’s not always obvious which way to go. And the 40/40/20 ratio you see above is surprisingly common. It’s basically what we had. It’s also basically what WebEx had, back in the day. It’s what a lot of apps have that can be used by businesses of all sizes.
But once you are at even $1m in ARR, you’ll need to make a primary bet. Which segment do you put as your top priority in marketing? Which segment is the #1 orientation of your sales team?
Of course, if you have multiple segments with 10% or more revenue, you need to service them all in some fashion. Let them atrophy, and you may regret it if 12-24-30 months later you’re trying to find a layer to grow your business another 10%! 😉 More on that here.
But one segment has to be #1. And so as you see this segmentation develop, you have to decide. Am I mainly DropBox, or mainly Box? At least for now. Am I mainly like Hubspot, or Mailchimp, or am I Marketo? Because maybe you could go any way at this time.
At the end of the day, I think there are two main considerations:
An example of the difference, for us: EchoSign’s both a tool that lets you sign a contract on the internet. And it’s also sold as a very sophisticated solution that completely automates the process of creating, signing, routing, and managing millions of contracts made up of thousands of dynamic documents automating hundreds of business processes for an entire enterprise. Same core set of functionality, but a very different set of edge features and support. The first is worth about $15 a month. The latter may be worth $1,000,000 a year.
So I’m not telling you which way to go, if you have a pan-enterprise mix of customers.
But what I can tell you is the math says — it’s easier to get to $100m in ARR and an IPO on the backs of enterprise customers who can pay $100k+ a shot. You only need 1,000 of them then to get to $100m in ARR, after all. And to get to the six and seven figure price points, you need to sell a solution to a big problem, not just a tool.
In any event, at least … Don’t Fear the Solution. Don’t Fear The ProServ Team, or the Solution Architect, or the Sales Engineer. Look, deep down, most of us would prefer to sit at our desks or in front of our iPads and just watch the customers come in with no human interaction required. And if you can get 1,000,000 paying customers that way, that’s probably the way to go.
But whatever you do, don’t do all the work to provide a solution — and just get stuck at a tool price point. That’s the kiss of death.