HR TECH startups: beware the massive company deal.
This post was triggered by something I read on LinkedIn the other day
Worrying news from an ‘office half-hour chat' I had yesterday from a ML startup founder.
One of her B2B sales leads (a very big multinational firm) disclosed that they had no intention to assist her with market access.
Even though there were emails confirming as much.
Conservatively 9-months had been ‘invested’ in building the relationship.
I‘ve written before about the problems that may arise when working with enterprise customers. Let‘s imagine you have identified an SaaS opportunity in the market you think would really work well for large enterprises. Perhaps a space that the big vendors have overlooked. There are many such opportunities, and enterprises are buying more SaaS applications than ever before. Hence all the unicorns.
In the HRTECH context, I‘m going to look here at the 100,000 employee upwards company.
If you are a start up with less 1 million in ARR, my advice is to avoid those deals at this stage of your development, tempting though they may be.
1. Sales cycle is usually very long.
2. Very large organizations have a more complex MVP
3. Support demands are massive
4. It will demand so much executive time
5. Go-live will cycle is likely to be long
6. That one large company isn’t going to be as greater marketing asset as you imagine. (See quote above).
7. You usually just win a department pilot anyway.
8. The larger the company the bigger the politics.
9. Hard to get VC funding if you are too dependent a few customers.
10. It will make your pricing for smaller organizations challenging
11. You risk building a product for a market of one.
For your first customers, you are better off targeting mid-size companies with just enough complexity to make your MVP worthwhile. You really want to win several similar size organizations, so that you can actually define what you are building with multi-customer input. Most of what you learn at the 5-10,000 employee company will be valid when you hit the 100,000 employee customer, but this doesn‘t work the other way around. Even large vendors find the mega-enterprises hard to work with.
Early on, you need to establish the abilities in your product, engineering and support organizations to manage requirements and demands of multiple customers simultaneously. If you are running after your massive customer, you won‘t do that.
Even once you hit 2-3 million ARR, I would be cautious about working with the mega-enterprises. Once you have raised some serious money, have really nailed product market fit, and you are prepared to invest in the heavy enterprise sales and support, then sure, sign up the big ones. But have the courage to say no when they ask for edge features too early in your cycle. This is hard when you are successful, and almost impossible when you need to say yes to meet payroll.
Give me 10 deals of 10,000 employees over one at 100,000 every time. Create a band of users that really love your product. When you feel like you can just about cope with another couple of 10,000 employee size deals, then you have something to scale up.
As product leader at SuccessFactors, one of favourite moments was when a 100,000 employee company went live on employee Central without me knowing they had an active project. It meant that we had figured out how to scale.
I remember chatting with the founder of Cornerstone, Adam Miller, many years ago. He walked away from mega enterprise deal early on with Cornerstone. Financially the deal would have been massive, but the enterprise was demanding an on-premise version. He had the foresight to realize that doing that would undermine the business, and the courage to follow through with his conviction.
I'm a venture capitalist at Acadian Ventures, investing in the future of work.