Edited excerpt from The Innovator’s Solution For SaaS Startups – The Flywheel SaaS Company by Tom Tunguz:
Many software companies disrupt incumbents by first serving the small-to-medium business and then move up-market by transitioning to serve larger enterprises with outbound sales teams. This transition is largely due to the more attractive characteristics of larger customers, namely higher sales efficiency and reduced churn rates.
But there’s another, novel way of building companies that still isn’t very well understood. In this approach, the enterprise sales team is exclusively inbound. They are explicitly denied the option of seeking business outside the customer base, and must gin up business from only existing customers. The enterprise sales team is an up-sell and cross-sell team. In fact, so is the mid-market sales team. Only the SMB marketing team is permitted to acquire new leads. In short, this approach flips the traditional idea of enterprise people as hunters and others as farmers.
The marketing engine spins a customer acquisition flywheel that captures all kinds of customers, both big and small. Some of these customers are true small businesses; others are teams or departments in companies. Over time, the product spreads from team to team, and department to department, increasing customer size and revenue to the startup. It’s the responsibility of the mid-market and enterprise teams to find, cultivate and upsell these growing accounts.
The up-sell conversation is a very easy one: “Mr. CXO, there’s no need for a trial or feature comparison. 25% of your employees are already using our product.” What better argument for success is there than internal social proof?
(1) On the “higher sales efficiency and reduced churn rates” of multi-seat deals, see Why you should add team features to a SaaS product for individuals.
(2) This model also enables lower customer acquisition costs and thus dedication of a higher percentage of your resources to value generation for users. See What to focus on to build a great subscription business.