B2C2B: How consumer-focused software permeates the Enterprise
Last week, David Skok posted a fantastic article about how the enterprise is ripe for companies building “consumer-grade” software applications that are easy to use. I’ve been studying the trend known as the “consumerization of the enterprise” (also known as B2C2B) for several months, and I figured it was time to organize my thoughts.
First, I should define the consumerization of the enterprise. From my perspective, this is when employees test/start using software before gaining “approval” from management. This typically involves the freemium pricing strategy, which breaks down barriers to adoption. While I hesitate to say that the end-user is in control, they certainly have more leverage than before.
Second, in my opinion, this is easily one of most exciting trends in software. For people who work in growth, this is the most lucrative opportunity right now. I see numerous growth teams for consumer-focused companies (Pinterest, Facebook, Airbnb, etc), but not so many for enterprise software. This will change. Below is one reason why:
— Marc Andreessen (@pmarca) August 13, 2014
Over the past year, Slack has been exploding, yet if you look back a couple years, you’ll see that Yammer accomplished a similar feat, permeating the enterprise in a very short time before selling to Microsoft for $1.2 billion. I have a simple theory: the growth curve for enterprise software will start looking more and more like consumer applications. In the past, enterprise software was mostly outbound sales, massive contracts, and long sales cycles. While this will continue to happen in the future, the consumerization of the enterprise adds another growth lever into the mix. Let’s dig in.
A Larger Market
The consumerization of the enterprise dramatically grows the size of the market a company can sell to. For example, Yesware has a product that a sales rep (the end consumer) can use for free, but they also sell seats to the sales manager. In the past, if Yesware was trying to sell their product, they would focus all efforts on the sales manager. Now, they can serve the end consumer, while trying to sell the boss. This is great for sales teams, as they can focus efforts on where the product is currently being used (and try to up-sell/cross-sell), instead of trying to sell to a company that isn’t using the product.
Adoption goes both ways
A fascinating byproduct of this approach is that adoption can flow both ways. For example, an inside sales rep could be selling Yesware to the manager, which could trickle down to the sales rep. The inverse could also be true; employees could love the product so much that they recommend the product to the manager, who then purchases seats for the entire team.
A byproduct of end-user adoption is that employees become familiar with the nuances of the software, and oftentimes end up pitching the product internally to other employees, or even management. In other words, you now have people inside the company selling the product for you. That’s a great place to be; it lowers your cost of acquisition, decreases the length of the sales cycle, and feels much more “genuine” compared to a sales rep pitching a product.
There may be deep reasons why employees will jump through hoops to use a particular product, but to me, the answer seems obvious. These people have seen the light. They’ve used a product that’s superior than the current solution. I’ve used plenty of products where a particular task is dreadful. If I find something that works better, I will jump through hoops to make my life easier. That’s a no-brainer.
If I had one gripe about the article mentioned above, it feels like there’s too much focus on the user experience. The user experience matters, but I’d argue that usage is what truly matters. Usage is the destination. A great user experience is the vehicle to get you there. People find value in apps they use on a frequent basis, which leads to revenue. What makes usage so powerful is that it 1.) creates habits that are very difficult to break, which 2.) increases the switching cost as employees will kick and scream if you change to a system that doesn’t perform as well. Also, if the user experience is the only differentiator, I’d argue that this is not a defensible business, especially when competition is breathing down your neck. I’ll be the first to admit that building a product for the end-user is a great strategy, but you may end up angry and confused when a competitor copies your product flows. Focus on usage instead.
From One to Many
The biggest challenge a company faces when trying to sell inside an enterprise is going from a single user to many. For example, if someone from Microsoft signs up for ACME SaaS, what makes it spread to other people inside the organization? First, it appears that the most successful companies (Slack, Dropbox, Yammer) appeal to a wide market inside the organization. These aren’t apps specifically built for HR (or another single department), but instead are products that can be used by anyone inside the org. Building off the previous point, software that appeals to a wide market needs to be simple to understand from a conceptual level. This isn’t necessarily an onboarding or user experience problem either. It’s further up the funnel. How will one employee explain your product to another? Example: Yammer is a social network for your company. “It’s like Facebook for your company.” That’s not difficult to understand. Next, going from one to many requires that your product be straightforward and simple to use. If you think your revolutionary app is going to change an entire department’s habits, you may want to consider your approach. Instead, focus on solving a simple problem, and then expand the feature-set after the product sticks. A final point – look specifically at Slack and Yammer. Both of these are communication apps. What do you need in order to communicate? Other people. This means you derive very little value from these products unless you invite other people. Some companies succeed with this approach, and others fail miserably. This is a tough nut to crack. The lesson here is to give users a reason to invite others. Give them additional product value if they invite coworkers.
This new trend is by no means a perfect solution. One particular challenge is going from a single department, to numerous departments. This can be tricky as silos exist, as well as each manager can have control over their own budget. You now need to convince more people to pay you. Unlike a single contract that lasts for years, each of these departments has it’s own “heartbeat”, and could churn at different periods of time. On the flip-side, you don’t have all your eggs in one basket (a single contract). Next, selling from one department to another requires a bit of savvy. I’ve personally received emails from eager sales reps touting that “they have Billy from sales” who’s tried the product too. It felt extremely awkward, and the separation between myself and my coworker was too great to be of any value. In this scenario, the sales rep didn’t know who the decision maker was. If he/she had known that each department had its own “purchaser”, they wouldn’t have lumped both of us together. Hint: Work with the end-user to convince the boss. Don’t be sneaky. Oftentimes, the end-user will be happy to recommend a particular product because it makes them look good.
A Hybrid Approach
If you’re a startup, I’d advise you to focus on how you can go from a single employee, to many employees within a department first. That’s a natural first step. If you get to the point where you’re trying to sell an company-wide license, you’re most likely going to need to start playing the game of “checking-the-boxes.” That’s probably the best time to hire people focused on winning those larger deals. Here’s a small section of Box’s pricing matrix to illustrate what checking-the-boxes looks like:
Implications for Growth Teams
The consumerization of the enterprise has a variety of implications for growth teams. First, the end-consumer should be viewed as the tip of the iceberg, leading to more lucrative and profitable opportunities. With that being said, It’s extremely important to create a compelling experience for the end-user, and recognize that these people are a key piece of your acquisition funnel. Next, this makes onboarding more important. Delivering a “Wow” experience within the first few minutes will become incredibly important, especially when with new entrants. Thirdly, as I hopefully harped on before, going from a single user to many users will require constant testing and optimization, and may be extremely difficult to improve for certain companies. The rate at which a specific product spreads inside a department (or organization) is something that will be measured and tuned. You should also watch this video from Aaron Levie of Box: