For a SaaS company, it's easier to move upmarket than down, and this gives SaaS startups the advantage against incumbents. In this episode, David Ulevitch and our newest enterprise general partner Kristina Shen look at the SaaS go-to-upmarket with a focus on how to price for the move, including why so many founders underprice, how to think about free versus paid trials, and navigating the transition to larger accounts.
No host has claimed this podcast yet, if you are the host you can verify ownership by claiming this podcast
© All rights reserved
The content here is for informational purposes only should not be taken as legal business tax or investment advice or be used to evaluate any investment or security and is not directed at any investors or potential investors in any a16z fund for more details. Please see a16z. Com disclosures. Hi and welcome to be 16 the podcast I'm dose. And in this episode I talk sass go to market with David ulevitch and our newest Enterprise General partner Cristina shanen the first half of the podcast looks at how remote work impact sasco to Market and what the smartest Founders are doing to survive the current crisis the second half covers pricing approaches and strategy including how to think about free versus paid trials and navigating the transition to larger accounts, but we start with why it's easier to move upmarket then down and the advantage that gives us a start up against incompetence. If you have your cohort of customers are paying you $10,000 a year for your product. You're going to find a customer that self-selected they there when I leave
What is $1,000 a year to get one of those your organization will figure out how you sell to how you satisfied and support customers at that price point in that size, but it's really hard for a company that sells up markets move down Market cuz they've already baked in all that sort of expensive heavy lifting sales motion. Is there as you go down Market with a lower price point usually if you can't actually support it. Does that mean that it's easier for a company to do this go to market if there a new start up as a post if there are pre-existing SAS. It's a very very hard to give away for free that you feel like you're eating away at your own potential Revenue when you do it, so that most people who try it and they're pulling back very quickly. So competitive and compelling and so destructive against the traditional sort of sales driven test motion because if you have that great product and people are choosing to use it. It's very hard for somebody with
When the sales are in motion and all the cost is loaded into that to be able to compete against it. There's so many markets where initially we we would look at Cumby's and say oh well just couldn't possibly be bought has to be sold to the Cil. It has to be sold to the seaside or the CFO but in almost every case we've been wrong and it has been a bottom of emotion that you know, the chronicle example of slack too crazy the company because you're talking about corporate messaging and how could you ever have a messaging solution it only a few people might be using it only a team might be using but now it's like oh, yeah some example of Dropbox first started as Bottoms Up businesses try-before-you-buy but box quickly found their path and saying hey, I'd rather sell to you I T and drop off that. Hey, we've got a grade premium ocean-going and they catalyze their business around referrals and and giving away free store here storage in a way that really help dry their bottoms up business.
Is a big leap to go from selling two smaller customers to larger customers. How have you seen SAS companies with no or get the timing right on that especially since it does seem like that's really related to this idea of scaling or Salesforce. Don't try to go from like a hundred percent company to a 20,000 present company start targeting early adopters may be there late State pipl companies companies starting and talk tends to be a little bit easier because it can be early adopters going vertical by vertical can be a great strategy as well as being One customer who might be branded in that space can help yourself in that category and then all their competitors also on your part. If you do the job a lot of times people will dedicate a sales rep on Grand and reputation and know who the right customers to Target right now. You got a lot more people working remote. Does this move to remote work mean that on-premise software is dying. Is it accelerating the move?
To software-as-a-service this remote work and working from home. It's only going to catalyze more of the conversion from on-premise over at the cloud and Sass and general software spend declined 20% during an economic downturn this happen in a way. It does have a no one but if you look at the Lost down turn it o 8 suspend actually for public companies increase on average 10% which means there's a 30% spread would really shows us that there was a huge callus from people moving on premises. Corporate Network. We've been seeing that inside sales teams have been doing larger and larger deals intensely moving upmarket on the inside without having to engage a field sales. In fact, a lot of the new songs from news today brother building on a field to measure have a hybrid team where they have people that are working closing deals on the inside if they had to go out and meet with a customer they would do that could buy it by and large Michelin.
Hang up the phone number or email me over over video conferencing and all the deals Now by definition are to be done remote because people can't go visit their customers in person. So our behavior and fire Behavior change to the go to market of all or did they go to market evolve? And then you saw user in fire Behavior change. I'm curious with this move to remote work. Is that going to trigger more changes are has the go to market and Naval that changing user Behavior, even though we see that change, because of a lot of forces outside of the market the user change that catalyze everything we decided that we preferred better software and we tried a couple products. We were able to purchase off our credit card and then I T and procurement event. She said, well everyone's buying is already I might as well get a company license and get a company deals. I'm not paying as much and so obviously software vendors had to offer the products.
Could be soft serve user started to realize they have the power. They wanted to use that are software. They paid with their credit cards and now software vendors are forced to change to go to markets actually suit that use case if that's the case that one user Behavior has changed its 10 to be the first catalyzing driving force of bigger changes in the go-to-market. What are some of the changes you may be for C4 SAS? Because the world has changed to this new reality of remote work and more distributed teams need a 9 to 15 months. You're going to find out which absolutely essential to helping a business operate and run and which ones were just nice to have in may not get renewed. I think on the customer buying side, you're very likely to see people push back on big annual commitments and prefer to go month-to-month where they can or you'll see more and sentence from the south start ABS to offer discounts for annual contracts. You're going to see people
I want to push back. They might find in your contact. They may not want to pay upfront and then they prefer to meet her the cash out ratably over over the term of the contract vanness companies had an empowered and allowed budget Authority down organization Authority get pulled back more scrutiny on spending and likely a lot of Sasquatch Nock ever knew that turned out to not the essential Runway to continue to exist and they're doing that in a couple ways that are preserving cash. They are making sure if you want to make sure that you have a fishing or profitable customer acquisition don't spend a great assistant customer base with pricing and packaging for SAS for a moment. What are some of the different pricing approaches that you see SAS companies taking
Bundle everything together make the present super-complex. You don't have to understand what you're paying for your Force to purchase it because you need one component of the product new modern sauce by saying keep it simple. Keep it tied to value and make sure solving one thing really really. Well sometimes Skylanders will try to over engineer their pricing model simple pricing around is biting the most common that most people know about is TPM or per employee per month while you're charging basically for every single seat another really calming bottles, like the freemium model self. Think about like a Dropbox or in a sauna or Skype where it's sugar base. You try the product for free but we hit a certain amount of storage or certain other users and it converts I would have paid and the
You also have the time trial where you get the full experience the product for some limited time. And then you're asked if you want to continue using the product to pay and then there's okay. If you go one particularly pay-as-you-go as a usage model so black will say the case. Your users are actually using the product this month. We want I should charge you for it. You think they don't pay for it? That's very very friendly way to make it easy for customers to give you money. If so, I came up with a price amount of this like based on number of messages or number of API integration calls like to have no idea what that means or phone call that you make on the platform any given month. And so they make money or lose money goes the pricing is very line your productivity. So if you think of a company like databricks where they're charging for storage or like a man
DS3 service is very line with a customer but it also strategically alliance with the business because they know the switching costs very high that Sharon is very low and generally in those presents as you're only going to storm or data as they can charge based on usage or volume of data. The revenue in addition to their employer subscription Revenue. So you look at like Shopify for example more than 50% of their revenue is Ashley payment revenues are actually making money every single time you purchase something off one of the shopping cart website when you're working with a founder or a SAS startup how have you seen them find the right pricing model for their product for their Market step one is just talked to a lot of customers try to figure out like what is the market pricing for possible alternatives are competitors understand their pain points.
List of pay just throw up rice out there. You have to have a starting point in order to actually testamentary particularly it in the SMB or the bottoms of business you need to step one is to just go out there and talk to customers to as as double your prices. I don't think there's ever been a great company with a great product that's falling apart because their pricing was wrong. I think they've left money on the table for sure. Will Otis a startup Founders really really underpriced. You don't want to find out two or three years later that you were 200% underpriced a very common thing. That's ask companies. Do don't have the basic package that either is free or low-cost that you can just sign up online for the have a middle package when they show some pricing and then know how the Enterprise package we have to contact sales to find out more and that way they don't accept the package and that gives the salespeople the flexibility to adjust pricing on a provisional basis.
I don't know how much value they're delivering relative to only cost me $100 a month to provide. The Outlander price is essentially a proxy for outsourced it you're spending money on a staff service to not have to pay to develop something internally or to have to pay it to support something that's more complex on Parkways much cheaper than people generally the price point to be much higher is the beauty of the South model in Cloud Model that you can iterate and push code immediately and the customer Ulysses value. So a lot of times people have the same price point from the first customer sold to three years later are there in 200 customer they sold and delivered so much value along the way that your price point should have gone up a lot of people discount for suppressing a lot as a move upmarket.
People that the best validation of your product have a great product Market fit is your ability to hold your price point. I would try to resist that as much as possible especially for a spectacle Founders. So tempting to get in there and Fiddle with these knobs how do you know when it is time to experiment with your pricing and packaging if you're looking at your business and you see that you are doing more deals and they're closing faster. You should raise your pricing and you pay attention to how long it takes to close deals and whether they've lost in the number of deals are staying consistent as he do that and some point you're going to find out when you're losing deals on price. I think I'm going to wear companies have to serve plan ahead and try to avoid having to course-correct as a rule out massive pricing and packaging changes which are pretty natural as companies move upmarket, but how they navigate that transition to larger accounts and how they either bring along or or eventually move away from those smaller earlier customers who got them to where they are.
And to be really important because I can get a lot of noise on Twitter and get a lot of blow back from their customers is zendesk of the company where they rolled out a major change in the early customers. They got a lot of pushback. I'm very quickly. They put out a blog post and they said hey, we know we hear what you're saying. We appreciate you building the business that we become today. We do need to have a package for the future. But all the people they're going to customers so far will be grandfathered in for Lisa. Of time into the old model features and all kind of works out but you have to go through a big grandfather change. I tend to lean towards treating your early customers really really well. They adopted when you weren't a big company yet. They probably could build the Park Avenue in many ways. And so it's great to get more dollars out of your customer base, but you're like us are there any other failure modes that you see startup freely falling into around pricing and packaging?
Write a common mistakes that they make it where the model of their pricing in their product relative to their cost of actually giving sales and doing marketing and doing customer acquisition in the customer perspective in order to pay for the outbound cost and all the conversion price matching is compared to what you are going to Market lotion is matters a lot. I see people guess the ramp time of sales rep wrong and Ranch. I'm really ties to of the segment of customer selling into it. It tends to be
That you're selling it to the Enterprise ramp time for sales reps because sales Cycles are so long tend to be much longer as well could be 6 months plus to be a year while you're selling more into this as a mirror midden get the ramp time to get a wrap up and running to be much shorter three to six months because the cell cycles are shorter. They just iterate much faster in the ramp-up much more quickly velocity is a really important component to figuring out how many reps you should be hiring where they should be inside wraps or field wraps if it takes you 90 days to close a deal that can't be a $5,000 a year. Do you have to be a $50,000 or even $150,000 a year deal customer acquisition cost?
Can a year and that means you can put into it. Anyway you want let's say you ain't a dog has really affected for you. Then you can spend for Porsche unless on sales reps vice a versa. If you have a great inbound engine you are she can hire a lot more sales reps and spend more on sales headcount with all formulas one. It's guide rails. If you have customers that retain really really well. It's a surprise and you got like a 90 or 95% annual return to the length of your feelings SMB unless they teach her and is 2 or 3% monthly would end up being like 80 to 90% annual reception looking at 6 to 12 months. How should you think about doing a free trial verse paid trial?
It is extremely powerful on the other hand. I've started to try to think about how I advised companies when they are thinking about free trial for some of them might cost $100,000 a year for the customer has a year. Do we do a paid pilot that has some for the contractual obligation that we meet them. They turn into a commercial engagement and give him a try the entire experience with product for free and they fall in love with that a certain percentage will confirm that works really really well for products that can Self Serve when you start moving markets more complex products part of the challenge with doing trials is it takes work on the company size for implementation customers at self-serve ability. We just so amazing the trial of page.
Money to actually deploy the trial you're selling to bigger customers. They associate value when they have to pay and once a customer has to pay you then if you would need to make the project successful and dust day will on board schedule things give you data and access sucks that the only difference between a pilot and an actual customer is just the signing of a contract to me. That's very powerful force you to have a really good presale ocean to make sure that you can deliver on the promise you made your customers when companies don't have a great product in a paper over it with Professional Services and sales engineering and post sales support not paid pilot thing doesn't work because the experience I can get enough. So I think it really is incumbent on the SAS company that doesn't pay the pilot to make sure you have a great experience and are able to deliver on that experience.
And one emerging Trend recently is people signing annual contract with a 1 or 3 months out as a replacement to the paid pilot because it's kind of the best of both World company that selling the product gets a higher level of commitment and the customer gets the optionality of opting out in the same way as a trial without any call back and it really comes down to our procurement Falls and sometimes procurement is at the beginning of that decision which makes it more like an annual contract and have your permit is at the 1 or 3 month opt out. Which means the customer had a great experience love the product as an easier way to convert procurements actually sign on it until the second year when the revenue actually record. I think I really am the first 3 months to get a customer up and running in to fix it.
Stop selling expansion don't want to find out in the eleventh month that the customer never actually deployed. I never logging in awesome. Thank you Christina. Thank you, David.
Yeah, a lot of fun great topics and our favorite thing to talk about.
Login to see and leave a comments
No host has claimed this podcast yet, if you are the host you can verify ownership by claiming this podcast