Selling to Enterprise Customers A Strategic Approach
Learn how to break into the world of enterprise sales, leverage your network and referrals, and position your business for success in this comprehensive guide.
After successfully establishing a thriving business with a loyal base of small and midsize customers, the next challenge is breaking into the elusive world of enterprise sales. While enterprise accounts can be lucrative and enhance your company's prestige, they also come with their fair share of challenges, including bureaucratic red tape and headaches.
Defining what constitutes an enterprise-size company can vary across sources and industries, but generally, enterprises are organizations with over 250 employees and annual revenues exceeding $50 million. These contracts are typically larger and longer in duration, making them highly desirable despite the associated efforts.
The Power of Your Network
Kathryn Rose, CEO of wiseHer, an advice network dedicated to helping entrepreneurs advance their businesses and careers, secured her first enterprise account shortly after launching her business. Rose's success can be attributed to her 25 years of professional relationships, underlining the importance of referrals in entering the enterprise market.
Peter Melby, CEO of Greystone Technology, a rapidly growing IT service provider in Denver, highlights that most of their enterprise leads come through referrals. Although Greystone primarily targets small and midsize markets, they ventured into securing deals with larger companies a few years ago. Their most valuable leads for enterprise prospects often come from former clients who now work for larger firms, as well as consultants or firms bidding on enterprise contracts that see a role for Greystone as a subcontractor.
These connections with satisfied customers and partners are invaluable. As Melby explains, “The opportunity we're pursuing now came from a previous deal. A firm placed a bid to manage all of this organization's operations, and IT was a part of that. They asked us to bid on that piece, and we won the right to be included in the overall bid.”
Even when the initial bid was lost, Greystone's efforts paid off. “We could have seen it as a failure,” says Melby, “but we made a great impression internally, so they asked if we'd be interested in being included in four other opportunities. One of them is about to close, with another hot on the heels of that.”
This leads us to the first fundamental rule of enterprise selling.
Leverage Your Network and Referrals
In the world of enterprise sales, your professional network and referrals are your most potent tools for gaining entry. Cultivate your relationships, both with former clients who have moved to larger companies and with industry consultants or firms bidding on enterprise contracts. These connections can open doors to valuable opportunities.
By following this strategic approach and understanding the power of referrals, you can navigate the complex landscape of enterprise sales and position your business for success.
Enterprise Selling Rule 1: Embrace the Extended Sales Cycle
When it comes to enterprise sales, be prepared for a marathon, not a sprint. Unlike the rapid sales cycles common in the SMB market, enterprise deals often stretch out, sometimes taking a year or more to finalize. This extended timeline results from the need to convince numerous internal stakeholders, navigate intricate procurement processes, and engage in comprehensive legal negotiations. While the ultimate reward for salespeople is a substantial commission, the endurance required for these prolonged cycles can be challenging.
Our seasoned experts recommend reconfiguring a portion of your sales team and revisiting your compensation structure to align with the demands of this extended journey.
“If you're venturing into enterprise sales, you might need to reshape your sales model,” advises Rose. “Consider bringing in specialized sales professionals who possess in-depth knowledge of the enterprise landscape and compensate them accordingly for the time it takes to close these substantial accounts. Often, inexperienced salespeople entering the enterprise realm may become fixated on closing a single account, neglecting other opportunities in their pipelines.”
Geoff Clauss, Head of Sales at Anchorage Digital, a platform for cryptocurrency investments, highlights that smaller companies and startups typically lack the luxury of creating specialized enterprise business development roles. They must set goals and compensation structures that cater to the diverse customer base each team member interacts with while also addressing the requirements of multiple internal stakeholders.
In contrast, larger companies can afford to structure their teams in a way that mitigates the risks of burnout or turnover by creating distinct roles tailored to meet prospects' needs at different stages of the sales cycle.
Clauss underscores the importance of knowledge capture in both scenarios. Successful sales teams, regardless of their size, leverage customer relationship management (CRM) systems and established processes to share information as deals progress from one stage to the next, ultimately leading to closure.
Furthermore, titles play a crucial role, as noted by Doug C. Brown, CEO at sales consultancy Business Success Factors. When dealing with enterprises, it's essential to identify the members of the diverse decision-making team and match them peer-to-peer, ensuring that your team communicates effectively with theirs.
“When dealing with extended sales cycles, your teams should be structured for peer-to-peer interactions,” advises Brown. “If one salesperson is dealing with 11 individuals who are not on the same level, it can create challenges and misalignment with the influencers or decision-makers. Consider structuring your team into sub-teams, each responsible for engaging at the peer level. Foster effective communication among these sub-teams and appoint a leader to aggregate their insights.”
Lastly, it's imperative for CFOs to grasp the financial implications of these lengthy sales cycles, both for the company and its sales professionals. Understanding how this impacts cash flow is essential for maintaining financial stability throughout the enterprise selling process.
Enterprise Selling Rule 2: Craft Pragmatic Financial Models, Inclusive of Compensation Structures
For smaller organizations venturing into the world of enterprise sales, understanding the nuances of financial modeling, including compensation, is paramount. An error often made by newcomers is the continuation of measuring key performance indicators (KPIs) such as customer acquisition costs (CAC) and forecasts across the entire business. It's crucial to recognize that your traditional customer base and enterprise prospects represent distinct pipelines, each requiring its set of metrics.
Combining the metrics of both enterprise and SMB opportunities can lead to significant distortions in your numbers. To illustrate, in the case of Melby's IT services firm, a healthy SMB pipeline equates to $140,000 in monthly recurring revenue, while for enterprise, it's four times that amount.
Leaders should conduct a comprehensive assessment of inputs and outputs to generate precise financial forecasts tailored to each channel. Building strong collaboration between the finance department, encompassing financial planning and analysis (FP&A) and the CFO, and teams in marketing, legal, and sales is imperative. Shared alignment and accountability are essential to achieving this.
Compensation structures also demand thoughtful consideration. Sales professionals typically favor high commissions and lower base salaries, with the promise of substantial overall compensation potential. However, if the average enterprise deal takes 12 months to close, salespeople must receive a sufficient salary to sustain themselves until they earn their commission.
Greystone, in response, has devised an unconventional sales structure. Their team comprises senior individuals with extensive industry relationships who excel in navigating complex situations, resulting in higher salaries. The commission structure revolves around team targets, rather than individual performance, fostering collaboration and offsetting the extended sales cycle and the inherent uncertainty of any specific enterprise deal closing.
Melby explains, “Your typical IT services salesperson aiming for a $100,000 yearly income from closing $5,000 SMB monthly recurring revenue opportunities may lack the sophistication needed to secure enterprise deals. Additionally, as a small business, we lack the capacity for a sales representative to simply hand off an enterprise deal to our service team. Consequently, our sales teams are lean so that our service leaders can step in as sales engineers.”
Greystone's incentives are tied to company or service line growth objectives, never individual sales reps. While this approach may seem unorthodox, it enables Greystone to pursue a few enterprise deals annually, allowing the team to invest the necessary time without placing individuals' livelihoods solely on the success of a single prospect.
Lastly, it's crucial to strategize how to seize and compensate for “land and expand” opportunities within enterprise accounts. As Rose emphasizes, the potential within an enterprise account is extensive. If you establish a foothold, such as within the marketing department, you've already met significant prerequisites for conducting business with the enterprise. This foothold can grant access to other areas like finance, legal, operations, acquisitions, or subsidiaries. Recognizing and capitalizing on these opportunities requires vigilance and the ability to assert your role as the preferred provider.
Enterprise Selling Rule 3: Embrace Committee Decision-Making
Transitioning from the small-to-midsize market to the enterprise realm entails a fundamental shift in understanding the decision-making dynamics. In smaller organizations, interactions typically involve executives or C-suite individuals, but in the enterprise, the landscape changes considerably.
Here, decision-making authority can often rest with department heads, each of whom manages their budget and wields some discretionary purchasing power. However, it's crucial to recognize that these decisions rarely hinge on a single individual. In fact, experience shows that winning over five to seven key stakeholders is often necessary to secure an enterprise sale.
Melby recalls Greystone's initial foray into the enterprise market, where they found themselves in a meeting with seven different individuals. Each member of Greystone's four-person team had meticulously researched these stakeholders and their roles. The presentation went exceptionally well, and Greystone felt optimistic.
However, the process took an unexpected turn. Melby explains, “Suddenly, they came back and said, 'Hey, we really liked that. Now we want to pull in this person.' We'd been talking to a director and a VP, and now we had to engage with a senior director who didn't possess decision-making authority but played a significant role as an influencer in the process. Despite another successful presentation, two weeks later, they informed us they needed to escalate it to an SVP for approval, a figure we hadn't even heard of previously.”
Greystone had mistakenly assumed that the enterprise, being a large business, would have a well-defined, straightforward decision-making structure. In reality, the process was more complex than anticipated. While this may not be universal, Melby's experience highlights a common occurrence.
Melby adds, “What I've found is that many directors and senior directors have decision-making authority in some areas but not in others. Sometimes, they themselves aren't entirely sure about the extent of their decision-making power.”
This opacity in decision-making doesn't conclude with the buying committee. Once you secure the deal, you enter the realm of procurement, which presents its unique challenges.
Enterprise Selling Rule 4: Mastery of Procurement Demands Meticulous Attention
Many salespeople mistakenly assume that closing a deal implies the end of the journey. However, in the enterprise domain, closing the deal often marks just the beginning, particularly as you transition from selling to line-of-business employees to navigating the procurement process. This transition introduces you to a new set of stakeholders who are typically interested in scrutinizing the fine print.
While smaller organizations may prefer a more streamlined approach, where they entrust their IT functions to a service provider like Greystone without delving into detailed line-item breakdowns, enterprises demand meticulous documentation. Enterprise clients often require a comprehensive breakdown of what will transpire, when, and the associated costs. This level of detail is essential, whether the contract spans multiple budgets or aligns with corporate regulations.
Clauss emphasizes that navigating procurement involves both art and science. The science encompasses understanding the buyer's processes, identifying key decision-makers, and anticipating the various layers of negotiation. The art involves skillful negotiations and the creation of a streamlined process.
Establishing peer-to-peer relationships during initial sales interactions should extend to the procurement and billing phases. Consistent communication with each member of the procurement team ensures that orders progress smoothly and efficiently.
Melby underscores the importance of forming strong relationships with procurement, stating, “Our business manager establishes close relationships with these individuals, and they provide valuable insights into the hoops to jump through, payment timelines, and more. Sometimes, the most effective way to navigate bureaucratic obstacles is through these subject-matter relationships.”
Procurement serves a vital role in ensuring adherence to proper processes and company guidelines regarding suppliers. For instance, an enterprise may have a mandate requiring 25% of its suppliers to be minority-owned businesses, or specific insurance thresholds that must be met. They also monitor the delivery of contractual commitments.
However, Melby's experience reveals a twist—enterprises may approach procurement with either a highly specific list of desired SKUs or with limited subject matter expertise, often requiring guidance on sourcing the necessary items. When Greystone managed IT services, enterprises may initially opt to source hardware and software internally, only to realize later that it makes more sense for Greystone to acquire these items. This change in approach necessitates multiple quotes, vendor restrictions, and complex procurement decisions, which can further complicate the process.
In Melby's estimation, closing a procurement deal with an enterprise is approximately ten times more challenging than with smaller organizations, primarily due to the multitude of stakeholders involved.
“There are so many cooks in the kitchen,” Melby observes. “As soon as they need approval, everyone has an opinion about where they should buy, or how they should proceed, leading to substantial confusion.”
To streamline this process, Greystone's procurement team developed a list of essential vetting questions that must be answered before progressing to a quote. These questions clarify aspects such as ultimate approval, vendor restrictions, and the number of required bids. This approach has been effective in reducing delays caused by multiple quotes.
Rose acknowledges that the procurement process can sometimes appear designed to hinder deal closure. However, she emphasizes that proactive engagement with procurement, meeting their requirements, and posing standard questions can turn procurement into your ally. Understanding that procurement's role is to scrutinize every charge ensures transparency and helps to navigate the intricate landscape effectively.
Enterprise Selling Rule 5: Embrace the Slow but Lucrative Pace
Selling to enterprises comes with a unique financial dynamic. By the time you've navigated the protracted line-of-business discussions and endured the extended procurement process, you might find yourself 12 to 18 months into the sale without seeing any revenue. This is the reality of enterprise sales, and it's essential to incorporate this into your financial model and strategic forecasts.
Furthermore, many enterprises adhere to a standard net-90 day payment schedule, which means you're shouldering costs for three months and constantly striving to catch up with cash flow. However, there's room for negotiation in this area, as Melby points out.
For Greystone's initial enterprise contract, when the company was earning just a couple of million dollars a year, it was incurring $100,000 in cost of goods sold (COGS) each month, with the client paying after a 90-day delay. This resulted in a $300,000 cash flow impact.
Fortunately, the client was satisfied with Greystone's services, and when it came time to renew the contract, Melby successfully renegotiated the payment terms. Now, the client pays Greystone in six-month intervals, transforming that cash flow hit into a $300,000 benefit. This adjustment had a profound impact on the business's financial stability.
Melby underscores that, unlike dealing with smaller clients, it's seldom a question of whether the enterprise can afford to pay. Instead, it's a matter of navigating through bureaucratic red tape.
“There are strategies to leverage this situation, as departments operate with budgets. Understanding how to secure earlier payments within the budget cycle or even receiving payment for the entire budget year and reconciling later can provide substantial advantages to small businesses,” Melby explains. “As long as there's no financial risk, and the client won't seek a refund, getting paid earlier can significantly bolster cash flow and create a cushion.”
The Bigger Picture
Rose, CEO of WiseHer, highlights that accumulating big-company logos on your client list can substantially ease the sales process for various reasons.
“Firstly, social proof and references hold significant weight with enterprise customers,” she notes. “Secondly, it demonstrates your solution's readiness for the enterprise, your capacity to support large clients, and last but not least, the valuable lessons you've likely learned about the sales process, including pricing, commission structures, and procurement navigation, can be instrumental in setting up and streamlining your enterprise sales strategy.”
Selling to enterprises presents small and midsize companies with immense growth opportunities, but it also comes with complexities that must be acknowledged. Long sales cycles, involvement of multiple stakeholders, the need to restructure sales teams, complex pipeline management, and cash flow challenges are common hurdles.
However, this should not deter you from pursuing the enterprise market. A single substantial enterprise sale can profoundly impact your organization's sales revenue, annual recurring revenue (ARR), monthly recurring revenue (MRR), growth trajectory, and brand reputation. The key is to embrace these complexities, maintain meticulous documentation to avoid relying solely on memory, and employ creativity in your approach. With the right strategy and perseverance, the enterprise market can be a lucrative and rewarding endeavor.
Olivia Martinez
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