The past months have changed the way we live, work, and play. Companies of all sizes, including those in Origin Ventures’ portfolio, are re-assessing their internal processes. The focus on capital efficiency shifts the focus from rapid sales growth to sustainable sales. Now is a good time to redesign go-to-market strategy in the increasingly competitive SaaS market. Shake up the sales team, focus on customer personas, redefine territories, or build a new channel. Companies that seize this opportunity to redefine their go-to-market strategy in a way that uniquely fits their business will be the best positioned to survive, and thrive, in a post-COVID world.
As an influx of capital has increased competition amongst B2B SaaS companies, bottoms-up sales has become the low-cost, scalable method that provides a quick way for SaaS companies to engage users quickly. By selling directly to ground-floor product users (rather than executive teams), bottoms-up works best when the software is inexpensive or free to start, doesn’t need to be tailored to each customer, and has clear value propositions for small groups of employees.
While bottoms-up sales allow companies to sell more with fewer resources, these solutions must be implemented with guiding strategies in times of economic turbulence, when companies don’t have the luxuries of cash and time to maintain inefficient sales processes. COVID has ushered in a sales environment with substantial headwinds for SaaS sales teams. Bottoms-up sales afford users a low-cost way of validating products before including them in their increasingly tight budgets, but that can also have costly consequences including increased customer service and decreased retention. Sales and executive teams building SaaS solutions must therefore embrace several best practices of the bottom-up sales strategy: focusing on rapid adoption, identifying internal champions, and decreasing churn.
Then and Now
The ubiquity of B2B SaaS companies is no secret. But as little as a decade ago, software solutions ran on hardware customized to each customer. This meant high contract values with long implementation times and server management. SaaS solutions can be built and scaled more quickly, resulting in their widespread adoption today. Moreover, they cost substantially less, which is paramount to attract SMB customers as well as enterprise.
The Bottoms-Up Way
Bottoms-up approaches give SaaS companies a quick and low-cost way of proving their value and building a tight feedback loop with the product’s end user. The speed of sale and adoption allows for more straightforward and flexible sales forecasting. As opposed to top-down selling, bottoms-up selling doesn’t require highly experienced enterprise sales professionals, nor does it require lengthy implementation cycles, product rollout, maintenance, or support through the sale.
This shift in purchasing processes has led to increased demand for SaaS apps, which, coupled with technological advances, has led to a sharp increase in SaaS applications on the market: the average number of SaaS apps used by organizations doubled from 2015 to 2017 and continues to grow. COVID-19 shifting workplaces towards decentralized remote work will only further speed up the demand for SaaS applications.
Where it Works
Bottoms-up B2B selling works best when the user of the product is the purchasing decision maker. Selling to end-users, rather than to executives, has underscored the importance of identifying whose work and life will be drastically improved by a product – the “champions”. These champions are users within client organizations that truly need the product and have budget control and influence over their teams. Identifying these true champions allows organizations to achieve product-market-sales fit, a concept Jyoti Bansal, CEO of AppDynamics, discusses in this a16z Podcast episode.
DialogTech, a conversation intelligence platform for marketers, is a product well-suited for a bottom-up sales process. DialogTech reps sell directly to sales and marketing teams in SMBs and enterprise companies, demonstrating the product’s value and identifying potential champions through short-term trials. Since DialogTech’s product is a clear revenue generator, its champions at client organizations have no trouble defending it in budget conversations and scaling it across the organization.
This process works better in higher-margin industries than lower-margin ones. In low-margin industries, such as hospitality and manufacturing, end-users are more hesitant to purchase SaaS products because there is little room for experimentation with new products. As restaurants’ survival was threatened, sales of Tock’s new takeout and delivery platform took off, largely because the risk profile of the decision was different. By designing a takeout product that solved the restaurant operators’ critical needs during COVID, Tock was able to prove its value and make sales quickly to the end users. The market conditions made it possible to quickly sell to the users as the product directly increased profitability.
When it Doesn’t Work
Unfortunately, bottoms-up selling can intensify and complicate a critical SaaS metric: churn, or previous customers that have cancelled or downgraded their contracts and stopped using a product. Churn rates increased year-over-year for 30% of SaaS companies in 2019. Selling to end-users can lead to higher churn rates, because the same conditions that led to the sale (low barrier to entry, free trial, crowded market) also lead to low switching costs. This makes customer success and engagement increasingly critical. Chatbots, blog posts, videos, and a seamless onboarding process can help drive early engagement and satisfaction. These tools and products such as Pendo can help drive early success and speed up the feedback loop.
The bottoms-up method is a tempting way to achieve rapid user growth but can fail when high-priced trials, complex implementation processes, and strict budgetary hurdles prevent scaled adoption across an organization. SaaS companies have been casting a wide net in their sales processes, resulting in a lot of churn. Increased churn during COVID is putting pressure on companies to find ways to increase customer value while remaining cost efficient. In a time where SaaS application turnover is higher than employee turnover, how do you keep your product sticky?
The best way to avoid churn is to capture the right customers in the first place. When selling from the bottom-up, you need to find champions. As companies become decentralized, teams are becoming the curators and custodians of their own software tools. Find users with some budget control and influence on their teams, and understand their unique needs and engage them. Develop customer personas based on title, geography, seniority, and industry vertical for each bucket of users to customize your sales process to their specific needs. Make your product a habit and you will find true champions – users that will scale your product across their organization and any future organization they join.
Segment your customer base by their use case, ARR, and engagement with the product to distinguish between different customer persona’s value add from your product. Establishing strong product-market fit has traditionally been the key to unlocking a company’s potential; however, it’s product-market-sales fit is the trifecta that allows companies to reach a tipping point.
Targeting end users gets tricky when the potential champion pool is much larger, like with project and people management tools. 15Five is a performance management tool that allows for organizational transparency. Like most performance and people management tools, it offers per-user and enterprise pricing options, and sells into any industry. It’s easy enough at a single-digit per-user price to convince someone to try your product, but what makes these tools sticky is selling them to the right person that will champion them to the entire organization. Reach out to the users who will benefit most from your product, engage with people that are asking questions and referring others, and find advocates that engage with your social media channels. Current users that offer feedback on the product can be a gateway to valuable new customer referrals. By focusing sales and marketing efforts on targeting a true champion, you increase the chances of product engagement and virality in the organization you’re selling to.
ARR Isn’t Everything
While annual revenue (ARR) remains a key growth metric, companies with a bottoms-up sales strategy must also focus on long-term customer success to ensure revenue retention. Racing to a $1mm ARR and a Series A financing could backfire if retention takes a hit down the line.
Grow your user base through true champions, even if they start as free users or cheap trials, who will convert to paying customers which will scale their impact. SaaS companies need to focus on the customer journey and recognize that the sale isn’t over once a user is on board. What will it take to engage the user and establish the product as a need-to-have? What features are they asking for? Will they add more users or buy product upgrades as they grow? Tracking user engagement will highlight the tipping point of usage at which customers are likely to upgrade, renew, or churn. It’s critical for everyone within your company to understand the customer journey and build marketing, sales, and success plans around maximizing that experience. A clear customer journey can catch the problem before it starts and define a strategy for ARR growth.
COVID has set the bar very high for spending on new products. But instead of slowing down your sales team, this is a great opportunity for SaaS companies to establish and test customer success journeys by engaging potential champions, proving the product value, and converting starting users to paying customers. Meanwhile, shifting sales efforts towards categories experiencing positive tailwinds from COVID, such as e-commerce and telehealth companies, could pay off.
Fixing What’s Broken
The hardest part of developing an effective bottoms-up sales process is managing a larger, more dispersed sales team that has less incentive to focus on any single customer. But training and incentivizing sales teams to become customer experts, in addition to product experts, will help SaaS companies weather the storm. Use data and key metrics unique to your business to track sales success and analyze areas where things are not working now. Understanding what makes a customer tick will not only attract more “sticky” customers, but will reduce cycle times and losses at late sales stages. Digging deep into reasons for losing a sale will uncover the nuances of your customers’ pain points. Overall, shifting from a product-focused sales culture to a customer-focused sales culture will pay dividends in a challenging sales environment.
While building a bottom-up sales engine by developing the product-market-sales fit and understanding of customer journeys is critical on its own, it will also help companies credential themselves as they look to weave in larger top-down sales to large enterprise customers. In general, this shift towards efficient bottom-up sales driven by internal champions must be coupled with a focus on cost-efficient spending to help companies weather the COVID storm. This means executive teams focusing on increasing customer lifetime value (therefore decreasing churn) and ensuring their sales teams are selling to users who truly need their product.
Cost efficiency is going to be just as critical as revenue growth on the road to becoming a successful company in today’s COVID-19 impacted world. That is something that SaaS companies lost sight of in the capital-rich environment that investors provided in the last decade. As the pendulum swings back from low cost of capital and a focus on rapid growth to slow and steady cost efficient growth, investors need to take part in guiding their companies to an effective and cost-effective sales strategy.
While some companies may look towards enterprise, top-down sales with large toplines to help weather the COVID storm, chasing high value contracts with long lock-in periods isn’t going to solve an inherent lack of sales strategy. In fact, the lengthened sales cycle times in these deals make it harder to identify broken sales processes. Companies must instead manage capital efficiently to ride out the impact of COVID-19, focusing not just on raw ARR growth, but on increasing logo retention – which means acquiring the right kind of logos in the first place.
Software sales in our current environment is about people allocation, time allocation, and opportunity costs. It can be tempting to chase down any possible revenue, but the big winners after this crisis will be the ones that find targeted product-market-sales fit and come out of this ready to sell to the right customers. These are markedly trying times for young businesses; however, these are also the times to take the broken pieces and rebuild, from the bottom-up.