Why Direct Sales Always Matters in the Enterprise

0/ Traditional enterprise GTM strategies are being eaten from the bottom by bottom-up adoption (SaaS, open source, dev tooling) and from the top by services.

1/ This is a big change, and has broad reaching implications, from business strategy to organizations to fund raising. This thread talks through some of the more salient issues.

2/ Bottom up: It’s increasingly difficult for a direct sale of a product without some existing relationship between the customer and the product.

3/ Many of the fastest growing companies in the valley are drafting on the bottoms up pull from the market (Slack, Netlify, Airtable, GitHub, ClearBit, etc.).

4/ The first stage of these companies is building an organic enterprise growth engine. The second stages is treating growth as top of funnel marketing and layering on sales.

5/ For the growth phase, we believe these companies follow a different (often slower) growth trajectory than consumer companies.

6/ Yet whatever money is needed to grow users, must be recouped in the sales motion, and considered when calculating unit economics. Lower growth and more CAC = higher ACV.

7/ If you’re going bottoms up, the product must be simple. And the really successful companies are incredibly savvy on how they can use the product to drive engagement and customer growth.

8/ The primary GTM mechanisms for the growth phase include SEO, product growth and engagement features, freemium offerings, and content marketing.

9/ The second stage is layering on sales. We’ve seen companies be equally successful using inside sales as well direct sales, depending on the ACV and buyer. But low ACV + direct sales rarely works. And high ACV + inside rarely works.

10/ However, We’ve seen *very few* companies who were able to get exciting revenue growth (convert usage to revenue) and increase margins without layering sales on top of the bottoms up motion.

11/ For young companies taking a bottoms up approach, we’ll rarely invest unless we have some visibility into how the growth engine is working. And for later stage companies, we focus far more on the sales economics than traditional consumer metrics.

12/ The second force impacting enterprise GTM is services. More and more customers are tired of buying complex products that they have to hire into or train their teams on.

13/ In many verticals, for every dollar a customer spends on product, they spend two or more on services. This is usually from the services arm of a large vendor (IBM, Cisco, …) or an integrator (Infosys, Cap Gemini, etc.)

14/ Many startups trick themselves into believing they have a product company, when they’re really giving away tons of services in founder, SE, SA, and engineering time.

15/ As a result, we have a hard time believing or even determining gross margins because so much heavy lifting is involved in the sales an implementation process.

16/ AWS bills for compute intensive and data intensive (particularly AI) workloads further erode margins.

17/ Yet, we’ve found a number of companies overcome both by leaning in to services, charging for them, and then driving for a higher ACV (typically $300k or more)

18/ Contrary to traditional VC opinion, we find this to be a perfectly suitable approach to building an enterprise company, and is more inline with what many customers want.

19/ Summary: More and more, simple products and bottom-up growth, or sophisticated products and services are dominating the enterprise. In both case, direct product sales are important. But in neither case are they sufficient. Plan accordingly πŸ™‚

20/ Thanks for reading πŸ™‚