Chief Information Officers (CIOs) are increasingly looking to startups for innovation, big ideas, and flexibility. Although the startup community is large, it can be difficult for CIOs to identify the right startup partners and ensure their own organizations have systems and processes in place to nurture these partnerships successfully. One of the world's most prominent startup advisors, Jason Lemkin, shares his advice for successful collaboration between enterprise IT and startups.
CIO Strategy: How to Partner with Startups?
For Chief Information Officers (CIO) trying to make their enterprises more agile, eagerness to partner with cloud computing startups can be strong. But it’s not always clear how to decide which are worthwhile investments for enterprise IT, or how to successfully partner with startups.
One of the world's most prominent cloud computing startup advisors, Jason Lemkin, shares his advice for successful collaboration between enterprise information technology and startups.
Our conversation includes the following topics:
- About Jason Lemkin and Saastr
- How can CIOs be successful in partnering with startups?
- The “social contract” between CIO and startup
- How to make the enterprise / startup relationship work effectively?
- The enterprise startup maturity lifecycle
- Challenges startups face when selling to large companies
- How to remove friction from the enterprise / startup relationship?
Jason Lemkin started the world’s largest community for SaaS/B2B founders, SaaStr.com, and the world’s largest gathering for them, SaaStr Annual | The Biggest SaaS Event on the Planet. In addition to doing his best to help run SaaStr, he is a hyper-founder centric VC with $90m to invest in the top SaaS founders. He served as CEO and co-founder of EchoSign, the web’s most popular electronic signature service, from inception through its acquisition by Adobe Systems Inc.
Jason Lemkin: Companies do not buy software. Human beings buy software. Human beings buy startups.
About Jason Lemkin and Saastr
Michael Krigsman: How do you innovate with startups? How do you invite startups in, engage with startups, and achieve a successful outcome? Jason Lemkin is the Trusted Advisor, Founder, and CEO of SaaStr. It's the largest community of software-as-a-service founders in the world.
Jason Lemkin: SaaStr, as you noted, is the world's largest community for SaaS founders and executives. I sold my last startup (as a founder myself) to Adobe. It was called EchoSign. It's now Adobe Sign, which is a distant, but the number two in the e-signature market. Still doing $300 million in revenue today, mostly to enterprise.
After I sold my company, I just started sharing all my mistakes. Other founders and CEOs came out of it, and it grew. Folks like – we were talking about before we started – the Eric Yuan of Zoom and many others, in many ways, learned about how to scale SaaS from SaaStr.
It's exploded. We've done events. We had the first big, real-world event since COVID in the Bay Area a month ago. In the Bay Area, we had over 6,000 people come in a fully vaccinated, fully tested, enclosed environment.
We do big events, podcasts, media, but our mission and our goal is to help founders scale faster because it's all a playbook. In many ways, on the other side, for the CXOs and CIOs here, it's also a playbook for them, but it's murkier. Right?
SaaStr's goal is to help you learn the playbook to sell to bigger companies [laughter] and smaller companies as well. And so, it's a great time to talk about – I can share here what founders are seeing, what the thousands and thousands of CEOs in our community are seeing, learning, and feeling, especially as the whole world has changed since March 2020.
How can CIOs be successful in partnering with startups?
Michael Krigsman: From what you've seen, can you kind of summarize some of the challenges that you've seen companies face when they try to work with startups? At the same time, what do startups need in order to work effectively with a large organization?
Jason Lemkin: Let's step back for a minute. I think there's one special thing that a CIO, a CXO, a large company should get out of a startup.
The first one, of course, is innovation, which we're going to chat about. There's so much risk in a new vendor. Of course, there's so much risk that you have to get innovation.
As part of that, you get something special, which is, you should get the CEO. [Laughter] If you are a CIO, a CXO, you're writing what to them is a large contract.
Find out. It's a fair question. "Will I be one of your largest customers?" Find this out.
Sometimes, startups will squirm a little bit. They'll want you to think they're bigger than they are. [Laughter] But it's a good question.
That's a good thing for both sides and, if you're one of their 10 largest customers (or 20), you should be able to get the CEO on Zoom, on email whenever you want. Not just to have your questions answered, not just to complain about feature gaps, but actually to be part of that roadmap, that journey.
That's the special part is getting access to the CEO. It's special, and it's special for the founders. That's how you can get things built, done, achieved for your organization you could never get from a large vendor.
I think that's part of the social contract that's missed is getting to that CEO. You could never get the CEO of SAP or anyone on the phone unless you're a huge customer. But you should get that with a startup.
Michael Krigsman: That's an important aspect is direct access to the CEO.
Jason Lemkin: Yeah.
Michael Krigsman: Why is that so important? If you're a CIO inside a large company, why does it matter that you have direct access to the CEO of the startup?
Jason Lemkin: Well, put aside, first of all, it can be rewarding. Right? I'll more directly answer this later.
As a CIO, how many new vendors can you bring in? This is what startups get wrong.
Startups think CIOs and CXOs are buying 80 pieces of software a year. The truth is, an individual business line, they're lucky if they can do two pieces of business process change a year. Even one is a lot, right? It's a rare thing.
To get the CEO of that business, it's a journey you're going to be on for five years. You're going to be judged by the deployment of the software over the better part of a decade.
To have that hotline and, more important, to be able to get built what you want to get built, right? The beauty is, even a late-stage startup, even a startup doing $100 million in revenue can reorient its roadmap in a way a larger company can't.
As a buyer, you're buying a new piece of call center software, a new piece of collaboration software. There are some meta reasons you're doing that, right? To improve that functionality in your company.
There are specific needs you need, a specific feature, a specific set of functionality that probably does not exist with the legacy vendors or you would just continue using them. If you have the relationship with the CEO, you are going to get a better outcome for the one or two things that really matter to you (to you in that job and organization). That is special to be able to pick up the phone.
You may not get that feature next week or next quarter. CEOs screw this up on the other side. They're stressed that they can't release that critical feature next month, but it's okay. [Laughter] If you're a CIO or CXO, the fact that, in a year, in 12 months, you're going to get something you've been waiting 7 years for and will be a hero to your organization, that's the magic of the CEO relationship.
Michael Krigsman: What about the motivations on both sides?
Jason Lemkin: Yeah.
Michael Krigsman: On one level, it seems kind of obvious that if you're a big company, well, you want to buy innovation of some type. If you're a startup, you want their budget. But is that really the primary thing? Are there other aspects to the motivations? Understanding motivation can help us work together.
Jason Lemkin: For sure. I think some of this is fairly obvious and nothing new.
I think, on the startup side, on the new vendor, it's very important to understand what the particular goals are of your stakeholders. It's very important to map out your lead stakeholder and the three or four others in the organization and find out what really is important to their job and their role.
We are human beings buying software. For M&A, we are human beings buying other companies. Companies do not buy software. Human beings buy software. Human beings buy startups. A mistake made on both sides is not understanding what the goals of the human beings making the decisions are.
It's nothing new. It's been true for decades. But on the startup side, you have to understand what makes every stakeholder a hero. What makes Michael a hero? What makes Linda a hero? What will make Bob a hero?
As a founder, as a CEO, one of your customers will send you the newsletter, the SAP newsletter, the Qualcomm newsletter, and you'll see Michael highlighted as the hero for deploying this software.
Michael Krigsman: [Laughter]
Jason Lemkin: This ah-ha moment will go off. You're like, "I truly made my buyer a hero," so you have to understand what will make them a hero.
The social contract on the other side—if you want that CEO relationship, if you want that fast track to innovation—that's what you get from the CEO. To summarize, you get the fast track to innovation (if that's important to you).
You have to be a reference customer, you have to be direct about budget, and you have to complete the deployment in a reasonable amount of time. [Laughter] It does not have to be done in a week.
Founders think they can close million-dollar deals in a week. They learn. They learn how the cycles work. But this transparency about what is the budget, how am I doing, what are the odds this is going to happen, how is our pilot really going? This level of trust and transparency destresses the investment that the startup has to make because sometimes the CIOs and the CXOs underestimate the investments that the startups are making.
I'm also an investor, which I should have hit on. I've invested in five unicorns. My investments are 15x in SaaS over a lifetime. It's pretty good. I have my own $100 million fund.
You've heard the story a thousand times, but I invested in an early-stage startup. This quarter, they finally hit $2 million in revenue. But with $2 million, they closed their first million-dollar customer. [Laughter] That's a lot, and they know. They know that they're their first customer.
One, they're reorienting the whole roadmap around them. They're not building custom software, but they're changing the whole wrap-around. This million-dollar customer is getting what they want.
But it is the only new thing they can do for two quarters. It is the only new thing, so they cannot take another million-dollar customer for about two quarters.
I think that's emblematic of the relationship. This vendor is taking risk, and they're getting exactly what they want that they can't get from another vendor. But realize you're derailing the company.
It's a great deal for the startup, but they can't do another one of these, so you have to understand the social contract on both sides to get what you want. There can't be too much greed or too much myopia on how this synergistic relationship works.
The “social contract” between CIO and startup
Michael Krigsman: It's very interesting that you use this term, social contract.
Jason Lemkin: Yes.
Michael Krigsman: It implies a relationship that goes beyond being transactional: I pay you a certain amount, and you drop software off at my doorstep.
Jason Lemkin: Yes.
00:09:36) Yes. That's the other. The CEO relationship, here's a funny thing it took me a while to figure out.
CEOs and founders of startups have the longest tenure of anybody. [Laughter] When you're a startup founder, you're like, "My gosh! I met a senior vice president at SAP. That's so amazing," and the next year, they're gone.
If you sell into big companies, you will find that the turnover is high. In fact, it makes it very hard to sell to the enterprise because of that turnover.
One of the worst things for startups is champion change. You spend all your time building up a champion, and then they're gone.
But the founders are usually there for infinity. [Laughter] And so, that social contract, you can trust any successful CEO or founder. You can trust them.
Michael, you've interviewed hundreds over the course of this program. You're a trustworthy person.
You talk to these people, Eric Yuan, the others, the team from Zoro. You trust these people, right? That is part of the social contract is you get this special trusting relationship, but the customer does need to deliver back. They do need to deliver back.
Michael Krigsman: Well, it absolutely has to be a two-way street or the whole relationship will not be durable.
Jason Lemkin: Yes.
Michael Krigsman: We have an interesting comment from Arsalan Khan on Twitter.
Jason Lemkin: Yes.
Michael Krigsman: Arsalan is a regular listener and he asks such great questions, so thank you for that, Arsalan. He points out; he says that large enterprises are looking for innovation, but startups may also benefit from the discipline that large enterprises are good at. To me, this raises a cultural question.
Jason Lemkin: Yes.
Michael Krigsman: Large companies do have those processes and that discipline. Frankly, in a large of large companies, it drives out the innovation that startups thrive on. You bring the two together, and it's like bang-bang-bang.
Jason Lemkin: Yes.
Michael Krigsman: How do you make that work?
Jason Lemkin: Well, first of all, some of it is a maturation process for the startups; getting used to longer sales cycles, getting used to multiple stakeholders, getting used to this process.
Ultimately, even the startup I just described that closed a million-dollar deal, all of them like that, they almost can't pull it off. [Laughter] It's so much work. It's so distracting.
Then typically what happens is you hire a real VP of sales, a real VP of customer success, like sales and post-sales, and they're used to it. They embrace these issues instead of are vexed by them. That's always been true.
What has changed in the last 18 to 24 months – and it's in flight, it's just starting, and this is wonderful for the startups and the enterprise – is we are finally productizing enterprisification. What I mean is, maybe the most visceral example is SOC2. There are now SOC2 startups doing tens of millions in revenue.
Versions of SOC2 and its predecessors have always been a critical check the box in the enterprise. Maybe I'll try a five-seat pilot without it, but if you really want me to deploy, I need it to be secure, et cetera.
Now that you can begin to productize security, compliance, all these other pieces, and it can be done as a subscription, this will dramatically make things easier for both sides to meet in the middle instead of this murkiness where everyone has their own security checklist that's 78 pages, their own RFPs, their own version of SOx2. We're only in the second inning of this, but it's magical, as you can see it start to happen.
Startups will know. It'll all be down to a set of four or five vendors they will buy on each side and a one-page document and you will be enterprisified. That's something we've never had in our lifetimes in enterprise software. It's always been one-off, and that just creates so much friction on both sides.
Michael Krigsman: It seems like a real challenge to get to the point where the startup can work seamlessly with the enterprise.
Jason Lemkin: Yes.
How to make the enterprise / startup relationship work effectively?
Michael Krigsman: Which ultimately has to happen for the relationship to work.
Jason Lemkin: Yeah, but we're getting there. I would say enterprise as a product, enterprise as a SaaS product is a super exciting theme that's just getting kicked off. I think, for the audience and others, if you're not attune to it, it's something to keep track of how all of this one-off work to ensure that new vendors are enterprise.
It's all becoming productized. As long as the vendors are trustworthy, as long as they hit their stated goals and stated outputs, this will enable enterprises to bring in two to three times more vendors than they could have before.
Little hints like single sign-on, Okta, and others gave you little tiny bits of it before, but that was only one piece (identity or others). But having all of the security be as a service, all of it, it can be epic. It can enable much more innovation to come in enterprise with less real and perceived risk.
Michael Krigsman: Certainly, that's one of the things that many enterprises are starting to try to work on is shifting to the cloud and making the decisions of which components of their stack they move onto the cloud, which they keep locally on-premises. What do you need as a startup to make me attracted to you?
Jason Lemkin: I think, for folks that are pre-brand, we should talk a little bit about how brands have changed in startups, especially since March 2020. I think it's an important discussion.
If you're pre-brand, if you're not already known to the startups, I think what startups should do is have prepackaged pilots. Pilots have worked since the 19th Century in enterprise software. Whenever we started, people have always wanted to do pilots.
I would say even now, even in 2021, 2022, there is no standard for a pilot. How long is a pilot? Is it paid? How much is it paid? How does it work?
When an enterprise buyer comes in, they don't know what's supported in a pilot. They don't know culturally. I don't see enough enterprise startups saying, "We are thrilled to do a pilot. We will do a 90-day pilot for you. It's $5,000 a month. It's just a flat rate."
"Importantly, we have a pilot team: Bob, Barbara, and Billy. This is your team, and they will ensure this pilot is a success. We have a 90% pilot to deployment ratio."
I just don't see enough startups having, embracing the pilot, especially as we're raising larger rounds. If you raised $10 million or more as a startup, you should have a pilot team in the enterprise. Otherwise, they're overwhelming and they're hidden.
Sales is waiting. "Do they need it? Can I trick them into buying a four-year contract?"
No. [Laughter] Enterprises want to pilot. They want to de-risk these things. You should set it up for them so that, in that in-bound, even on your website, you outline your pilot program. It's right there—if the buyers are doing a discovery on your website—how it works. It's no risk to you. We will de-risk the entire process.
You don't need to do free pilots. Free pilots are a horrific idea in the enterprise. They're terrible for both sides.
If you can't budget $5,000 or $10,000 a month for 3 months for a pilot, it is not important to you. It is simply not important.
That's a mistake startups make. They give away these free pilots and it's stressful.
No. Create a program that is fair to both sides and has limited risk. I think your conversions will double in the startup, and the enterprises will immediately know this is the type of startup I want to work with.
They understand risk in the enterprise. Most founders do not understand risk in the enterprise. They do not get it. They do not understand it.
The perfect pilot, I think, can double the odds. The startup gets the deal and can double the odds. The CIO, the CXO is comfortable trying out a new vendor.
I've thought through everything for you on the pilot. I've thought through deployment, onboarding, segmentation, security, everything. It's done for you. It's $25,000, it's $50,000. Just write me that one-off checks and we're off to the races next week.
Michael Krigsman: Yeah.
Jason Lemkin: No one does that. No one does that and they should. It's magical on both sides.
Michael Krigsman: Yeah. It's a really, really good point, which gets to the issue of, in general, do you think that startups understand how to simplify their offerings and their user interface as a company so that they're easy to buy from?
Jason Lemkin: Startups come from one of two backgrounds. You could make everything binary. They either come from the bottom-up, and they are products like Slack that start off very feature-poor but are very easy to use. Or they start off enterprise, and they immediately solve large problems and get large checks.
The ones that start off enterprise never have that wonderful user interface. [Laughter] Certainly, they don't have wonderful onboarding, this piloting, because freemium products have to make the onboarding elegant or you just won't use the free product. It has to be as easy to use as Zoom that we're on (or easier) or a freemium will never work.
In enterprise, you don't even need to be able to have automated onboarding because you just have Michael do it. You can afford to pay Michael for that million-dollar contract.
I actually think, ironically, enterprises think startups have the better user interface in their legacy system. It's not always true, but they tend to do the next generation of something much better.
You have to have a 10x feature to be a startup. You have to do one important thing, one important thing ten times better.
Zoom, syncing audio and video in real-time in a session like we're on, that seems obvious today in a distributed world. It was not obvious when Zoom came out. It was not obvious compared to WebEx or Skype or Citrix that syncing this audio and video in an effortless way was so important, and people missed that innovation in Zoom. That was their 10x feature.
Michael Krigsman: I think one of the challenges also that startups face is not understanding the sales cycle, the enterprise sales cycle.
Jason Lemkin: Yes.
Michael Krigsman: That can be very long and winding and torturous.
Jason Lemkin: Yes.
Michael Krigsman: In the middle, your executive – you alluded to this – the person you're working with now leaves and you have to start over again.
Jason Lemkin: [Laughter] Yes. It is tough.
Again, if you start at the high end of the market, you just learn it. If your first customer is SAP or GE, you learn it. Or if you came out of that environment (for software), you learn it.
If you come up from the bottom, if you come up from an SMB or a self-service environment, startups go through a phase transition. The beauty of these SMB products is they're always easier to use and more elegant than the enterprise product. The downside is they're generally feature-poor – easy to use and feature-poor.
Then the pattern for time eternal – including Zoom, Slack, and everyone else – is the enterprise sees this. They see that it's useful for a certain group or functional area. Even though it's feature-poor, they bring it in, and you start to get leads. You start to get inbound.
"Hi. This is Linda from SAP. I'd love to talk about your product."
"Oh, you're so excited."
"Yeah, we're thinking about rolling it out in 2024."
You're like, "Oh, my God." [Laughter] Next—
But you take a few of those calls and then, eventually, someone is willing to roll it out in 2021. You just have to decide, culturally, if you want to embrace that brutal phase change or not.
Some startups do it aggressively. They aggressively go upmarket. Some do it in a more measured fashion. And some, like Dropbox and others, classically resist the bit for the better part of a decade.
Dropbox was like, "We're doing so well in the low-end of file storage." It was a decade before Dropbox went enterprise.
I've learned it's very much a cultural thing. Do the founders want to go upmarket?
I think, at the end of the day, what it really comes down to – it's funny – for founders, it's like, when the inbound comes in, when the inbound email comes in and it says Google, Facebook, or SAP, does the company get excited or do they groan?
You laugh, but there's a culture. When you close that Google logo – and Google is a big company – the company gets excited. You have a retreat. Oh, my God. We love Google. We love when you close Zoom.
There are other cultures that are like, "They're going to ask us to do a lot of crap. They're going to ask us to do a pilot. Another audit?! We just did the security audit. They're so stupid. The questions are so dumb."
Literally, the startups that groan should not go upmarket. That's what you have to know as founders.
Michael Krigsman: Yeah. It's such an interesting point that you're making. It's almost hard to imagine (if you're a startup) having that level of combined arrogance and lack of understanding of how large organizations function.
Jason Lemkin: Yes.
The enterprise startup maturity lifecycle
Michael Krigsman: If you want to be successful, you must; you must understand how your partner works and what they need and why.
Jason Lemkin: Maybe. Maybe. There are certainly companies like Asana and Slack that waited to go upmarket. We're talking about Steward Butterfield and Dustin Moskovitz here. We're talking about some of the greatest builders of software since the Stone Age. [Laughter]
It's not necessarily hubris. It's more if you have enough customers in your denominator, you have to be careful where you're going to place your bets.
What happens is software that has wide use cases, you always get a small, medium, and large distribution. Even in the early days of Zoom when security was limited, you're going to get enterprises that take that bet. You're going to get pockets. Maybe it's a sales team. Maybe it's someone.
As you get to usually even your first 100 customers, and especially several hundred, you will have an organic distribution of small, medium, and large. When I meet founders, I always put in a pie chart. I'm like, "Okay. How many customers do you have?" They'll say 100.
I'll say, "Okay. Small, medium, and large: how many in each category?"
They'll be like, "What do the categories mean?"
I'm like, "I don't care. You just tell me." [Laughter] "I'm peering into your brain small, medium, and large."
When the large category is like 40% early on, they're going enterprise, aren't they? When it's 10% or less, it's immaterial. It's that gray area in between – 10%, 15%, 20% of your revenue is enterprise, but the rest is small – that's when you have to be careful, as a founder, that (of your 11 engineers) you don't put them all on that 15% wedge or you'll lose the 85% that's the rest of your customer base.
Michael Krigsman: Well, you also raise another really good point, which is, there is a lot of overhead dealing with big companies.
Jason Lemkin: Lots of overhead. Yeah. Yeah.
Michael Krigsman: Everything from procurement – all of it.
Jason Lemkin: Mm-hmm. Basically, I would say no startup below $20 million to $30 million in revenue actually secretly can handle it. I don't think anyone below $20 million or $30 million has enough extra resources, can put teams on these things.
That's why I'm telling you; do the pilot team even though you don't have enough resources. Find a way to go enterprise because you'll beat the competition.
It's not just money. It's bandwidth. Until you have 50 engineers, you can't put 5 on something. [Laughter] Until you have ten people on your customer success team, you can't really put three or four on your enterprise group. You could put one.
It is every enterprise customer, until even $30 million in revenue, is going to stress the organization to their limit. They either embrace it or, ultimately, the enterprise buyers will often choose the vendor that is more enterprise. It's natural.
That's what we saw after March 2020. We saw the flight to trusted startups, to trusted brands. We saw Zoom, Talkdesk, and others that were number one in their category, Slack, they got all the benefit.
If you look at the market share in Zoom, Zoom got almost all the benefit. If you look at enterprise contact centers, Five9 did great, 8x8 did okay, and then Talkdesk came out of nowhere to triple at $200-something million in revenue.
We saw this generally across venture and CXOs. The definition of startup has gone later and later stage. Ten-millionaires are seen as a risky startup to work with whereas, ten years ago, a one-millionaire startup was seen as risk, so the bar is up everywhere.
You should trust brands. Brands are a proxy for quality, and we only have so much time to do due diligence. In some ways, it's harder and harder to break out if you don't have one of those brands as a startup.
Michael Krigsman: We have a couple of questions stacking up on Twitter. Let's hit a few of those. Wayne Anderson – who works for Microsoft, so he is a very experienced enterprise guy – says, "What are the signs that you see in a startup that say to you," I'm paraphrasing, "that you're ready? You the startup are ready to work with an enterprise and make the kind of strategic collaboration with guys that will work for an enterprise."
Jason Lemkin: Yep.
Michael Krigsman: If I can rephrase that from the point of view of a CIO, what are the characteristics of a startup that are good signs, basically?
Jason Lemkin: I'll tell you. It'd be great if they had this pilot program. It'd be great if they had all that stuff in place.
I'll tell you the number one thing that is the cheat for this CIO/CXO. It's the number one hack for the founder. Ask to go over the roadmap with them, the product roadmap. People don't do this often enough.
You find the vendor interesting, but you're not sure. You've only sort of heard of them. They're in that up-and-comer area of Gartner. [Laughter] Their Google looks good, but there are only so many logos on the website.
You're talking with the CEO or the founders. You like it. The product is cool. It's slick. Ask them to do a roadmap presentation.
The ones that have figured out they want to go enterprise will be able to give you at least a two-year roadmap because they've already done this work because they're already sequencing out these chunky big features over the next two years. When you see a roadmap that's even partly aligned with your vision, that's a vendor you want to bet on because you're making a multi-year bet.
By the same token, the number one best thing a CEO can do (for both a prospect and, importantly, an existing customer) is do roadmap reviews. People have finally figured out how to do QBRs, which are so great (quarterly business reviews – customer success).
If you're not getting QBRs from any of your enterprise vendors, they're failing you. QBRs used to be one-offs. Now they've become productized across the vendors – quarterly business reviews.
CEOs should do at least annual roadmap reviews with their top customers. When you can do them in person, which you can again now, they're epic. If a CEO shows up for a roadmap review at whoever, at Dell, there are going to be 50 people in the room. It's a great way for the vendor to get buy-in and collaboration and it's a great way for the CIO, for the buyer, to see, "Is this the right journey for me?"
The product today barely matters in the enterprise. It's the product next year, the year after. You may not even fully deploy for 12 months, so most important is the product 12 months from now. [Laughter] Twenty-four months is probably the second most important. The product today is probably the third most important.
Again, to summarize it, ask the vendor for a roadmap review. If they can't do it, if they don't have a roadmap, I would pass. In the enterprise, I would pass. Just pass.
Michael Krigsman: That's really smart. Yeah, and you're absolutely right that it's not just the features and the functionality of our product today, but it's actually what is the trajectory of our startup and, if you're a CIO, to ensure that that trajectory is aligned with where your organization, where your vision for enterprise technology is going into the future.
Jason Lemkin: Yes.
Michael Krigsman: That's really smart.
Jason Lemkin: That's the simple one. I would say, if you're a sophisticated buyer, then I would also squint. If you can even get the roadmap and you trust the roadmap, that's enough. That's the vendor I would pick.
In today's world, then I would also try to figure out how agile are they. How often do they do releases? How much can they get out?
We're seeing the most agile startups just pull away from the rest. There's a compounding effect in revenue with high recurring revenue, but there's a compounding effect in features.
If one vendor can build four features a quarter and another can build two, not that big a deal in one quarter. But think about eight quarters. Now it starts to grow and it starts to compound.
These agile vendors, again, it's just fun to talk about Zoom because we're on Zoom. When March 2020 came, you could argue Zoom was not that enterprise. There were a lot of questions about security and authorization.
Now, look where Zoom has gone since then. This has got to be one of the most secure applications because collaboration is very hard to make secure. This is got to be one of the most secure collaborations on the planet. Those are the vendors you want, not the ones that (two years later) can barely get out these features.
If you can get the roadmap, that's enough. But then squint. How agile is this company? That's what you should get from the best startups is agility so that (in two, three years) it's almost unrecognizable the number of workflows that you get. The UI make look the same, like Zoom, but the workflows become powerful.
Challenges startups face when selling to large companies
Michael Krigsman: Yeah. These are absolutely great points. We have another couple of questions that are stacking up here on LinkedIn and on Twitter. If you're watching, keep asking questions. We're going to get to everybody.
Arsalan Khan comes back, and this is a really interesting one. He says, "Sometimes large enterprises hold back when dealing with startups because these startups might be considered as competition." I'm thinking internal competition threatening.
Jason Lemkin: Yes.
Michael Krigsman: Arsalan asks, "If you're a startup, what should you do? How do you handle that?"
Jason Lemkin: First of all, to some extent that's fading away. There's always build versus buy. There's always competition with existing tools and systems.
But the amount of acceleration we're seeing into Cloudify, the enterprise, I mean our jaws drop. Gartner just raised the amount of cloud SaaS spend they predicted for next year another 20% (the other day). [Laughter] I mean hundreds of billions.
Some of that is fading away. People want to put everything in the cloud. Not literally everything. But having said all of that, it's still going to happen. It's still going to happen. There's going to be internal competition.
As a startup, that is a job for remarketing. When there is internal competition, you're going to get that customer. It's just going to take two years. That internal product, that 12-year-old product, if they've already reached out to you, that's because they know it's not working and it's dated.
It's not closed, lost. It's just closed, not for now. It's closed for later. [Laughter]
You should have a customer marketing program or a lost marketing program. This may or may not come under customer marketing. It might come under demand gen. But you should be constantly remarketing to these leads because it just means that they have a longer sales cycle. They're not lost.
There's nothing better than "we built it ourselves," but they inbounded. [Laughter] Why did they inbound? Well, it's not working so great. You will eventually get that deal, or at least you might. It's not lost. It's a good sign.
Competition is always good. Competition is always good. It's only bad if your rate of innovation is declining. Otherwise, it's always good. It grows the market and it generates leads for you. Even the generated leads for you is a plus as a vendor.
Michael Krigsman: Again, great advice – born out of lots of experience working with startups and the enterprise. We have another question. You can see I prioritize the questions that come in, in front of my own, for sure. This is from LinkedIn. Carter Hostelley—who is one of the most experienced influencer marketing people that I know—says, "Changes from the pandemic in terms of sales, so beyond the Zoom sales call."
Jason Lemkin: Yes.
Michael Krigsman: "Are there any other fundamental changes in how to approach the startup to enterprise sales and marketing relationship?" How should sales teams strategize that enterprise relationship now, beyond Zoom? Do you think things will go back to "normal" in 2022?
Jason Lemkin: There may be a lot of questions underlying that question. Maybe I'll pick a couple of pieces.
One is, how is relationship building with enterprise customers may be changed since March 2020? I think a couple of things. First of all, I think, at first, it seemed great. At first, it seemed like, "Wow. We don't have to put on a tie or a jacket and go anywhere anymore." It was great.
We had a SaaStr event called Bridging the Gap, right after COVID hit. Bridge the Gap in Tough Times, so we had one of the top sales executives from Salesforce come, from midmarket sales. He was like, "We can do ten times the sales calls." [Laughter]
We could. It's great. And what has changed across all sales processes, including venture capital – it's very interesting – is it may have changed permanently when you do the face-to-faces. We may no longer go back to where discovery calls and meetings are done face-to-face. That may be too efficient for vendors and venture capital will never go back to that.
Venture capitalists always made you schlep to Sandhill or south Park for that first meeting. The first meetings will never happen in person ever again. That similarly happened in sales.
Every vendor I work with that has gotten back out on the road has seemed to be magical with their customers. That hasn't gone away. It's just that I think it will be further down the sales cycle when we do the in-person, and we will be more thoughtful in customer success how we do them.
The pendulum will go back into the middle. We learned better how to work as a distributed world and, therefore, we've learned to maximize our in-person time.
This is what I learned from SaaStr. Annual core events are more important than ever because we don't see people as often. Meeting that prospect before the deal closes is critical. Meeting the prospect (the first time they inbound) maybe just give them the demo. [Laughter] Then have the CEO get on the plane and go back. I think it's just evolving to the time for the face-to-face meetings will change and they will be used more effectively. That's part of it.
The second part is I do think, though, that the fact that these face-to-faces are later in the cycles or different, again, it behooves you to get a brand to get over a hump because the folks that are going to benefit most from that first discovery call are the folks that you've heard of. They don't have to be the most established vendors, but those are the ones that are benefiting.
Again, in my portfolio, Zoom, Slack, and other examples, you see the leaders pulling away during these times. I don't think that's going to change.
We used to kind of mock brands when the Internet came up. But now we've realized, "My God, brands are one of the most powerful things in the world at scale." We need brands more.
As the number of SaaS vendors has explored 100x in the last 5 years – 100x in the last 5 years – brands become more important than ever. There are too many vendors out there. There are just too many vendors, and you don't have time to qualify more than two to three.
No matter what anybody says, you can only truly qualify two to three vendors max. That's something the founders miss. You've got to find out, do you have a shot at this deal? Then realize that means you really have a shot because, unless you're the number one vendor, you're lucky to be in that deal because no one has time to pilot vendors 9, 10, and 11. Do they? No CIO has ever piloted 11 vendors at the same time. [Laughter]
Michael Krigsman: Well, let's turn this around a little bit.
Jason Lemkin: Yeah.
Michael Krigsman: If you are a startup founder and CIOs are courting you—
Jason Lemkin: Yes.
Michael Krigsman: –they're coming to you, what are the characteristics of large companies that will make those companies, make me as a CIO, attractive so that you choose me?
Jason Lemkin: The number two question out of most sales executives' mouths makes you squirm a little bit as a founder but, over time, you learn it's great, which is, "Is this budgeted?" It's what you want to know.
As founders, most of us feel like that's a rip-off question. We just want to help. As founders, we're creators. We're bringing products to market, and we're great at talking about our children and sharing the features.
Founders are the best middlers in the sales process. We're not always great at marketing, and we're sometimes mediocre at asking for the money, but we're great in the middle: bonding, sharing, doing the demo.
We think this is a sleazy question or a salesperson question, but it's not. "Is it budgeted?"
"Okay, it's not."
"Okay. What's your timing? When can we get it?"
You just want to know where this stands in the initiatives because there are only so many. I think that's what I'd want to know as CEO. Is it budgeted? If it's not budgeted, that's okay. Where does it sit? When would you like to get going?
We kind of forget – because, as founders, most of us haven't done it – budgets are very important in the enterprise. They're fixed. It's very hard to change your annual budget, but it's also not your own money.
If I've got a $50 million IT budget this year, and I've got $500,000 budgeted for this category of software, maybe I'll tell you it's $300,000 so that I don't get the rip-off deal. [Laughter] That's okay. But it's okay for both sides to know if it's budgeted or not. That's what you want to know, so you know where you sit in the stack. It's just a great conversation to have, and it's not a cheesy question for either side.
A great enterprise salesperson does the enterprise buyer's bidding. Great CIOs and CXOs always have a sales rep or two (over the years) they love because they do all the work for them. You set up the pilot. You go get the pricing. You go negotiate. You go do this. You go figure it out. You go do it all for me.
My budget is $500,000 and your job is to get me everything I want [laughter] for $500,000. Founders miss that that's a gift for the buyer. They miss that that's a gift for the buyer. You do everything for me, and my budget is $500,000.
Michael Krigsman: You know I think, from the startup perspective, really what you're saying is that the more the enterprise person can make the nature of the expectation straightforward, simple, and clear—
Jason Lemkin: Yeah.
Michael Krigsman: –that's going to make life easier for the enterprise and make it much easier for the enterprise to want to do business with that company and to be successful at it at the same time.
Jason Lemkin: Absolutely. Ask the questions. It's okay to ask them in a customer-centric fashion. What are the expectations? What is your timing? These are not cheesy questions. They're important questions for both sides.
Especially if you're a founder, you make it known, "We're here for you in 2025. We're here for you in 2030 and 2035. Just in terms of prioritization, where does this rank on your priority list? Just tell me? And is it budgeted?" It's a great conversation to have. You'll learn so much.
Michael Krigsman: Jason, final thoughts? We're just about out of time.
Jason Lemkin: Yeah.
How to remove friction from the enterprise / startup relationship?
Michael Krigsman: Final thoughts and advice, both for startups and for enterprise folks who want to attract and work with those startups.
Jason Lemkin: I think if I had to distill our whole conversation down, it's both sides relentlessly remove friction from the process.
Startups, have a pilot program. Have the answers. Have these discussions. Make it effortless for the enterprise because it's not effortless to buy products in the enterprise, as we know, Michael.
Make it effortless. Take friction out of every step. Take friction out of your marketing site. Take it out of your presales, your sales, your post-sales. Take friction out of it.
You get your team together. Every quarter, you can take some friction out of this process as a team. You know how to do it.
I'm not sure enterprise buyers think about it this way enough, how to remove friction on their side. But if you're struggling to process it, do the same thing. Have clear sets of expectations. Share what vendors you've already looked at. Share your timing. Share your expectations for all these things up front. Remove friction on both sides so that their team, their sales team, the founders, whoever, can get back to you and meet your needs.
This is the age of transparency. We've all bought hundreds of SaaS apps. We cannot run the playbook from 2011 when you could kind of hide stuff a little bit and maybe you only bought a few.
This is what I'll end on. We're all SaaS buying veterans today, now. We've all bought hundreds. If you've bought hundreds, that means you've looked at a thousand.
Everyone should treat each other as a veteran, as a SaaS buying veteran, and get together like old veterans and old pals do. Skip all the games and go straight to the heart of it, as veterans do. We know we've done this before. Stop treating this (on either side) like some sort of brand new adventure or brand new journey because it's not.
Michael Krigsman: I'll just add a comment of advice for CIOs, which is this. If you are approaching startups to support your innovation efforts—which you should be doing because, let's face it, innovation is happening in startups a lot more rapidly and with greater proliferation than inside large organizations—find a way to make it easy for them.
Jason Lemkin: Yes.
Michael Krigsman: They're not just mini enterprises. They're a different type of organism. If you don't make it easy for them, they will not serve your needs. Don't try to turn them into an image of yourself with processes and bureaucracy because you'll drive the innovation out.
Jason Lemkin: Yes.
Michael Krigsman: Jason, do you agree with that comment?
Jason Lemkin: Yeah, I think there's so much more that could be done. Why do some of the larger venture capital firms like Andreessen and Sapphire, and crap, why do they have these innovation centers, and why do CIOs even bother to go to them? Why do they participate in these programs? It's because it's not organized.
How do I get a structured set of next-generation startups and find out who are the good ones? I think the best CIOs do it themselves. Have your own bake-offs. Have someone on your team that is constantly bringing in 20 startups a month. Have your own pitch.
Don't just do venture pitches. Have pitches to you. Have someone on your team's job. The third Wednesday of each month, we're going to spend two and a half hours. Linda is going to bring in 20 startups for us to meet.
The startups will take that meeting. They'll take that meeting, and it's Linda's job to source 20. That's 20 a month. That's 200-and-something a year.
You don't have to buy from them, but at least those folks know how to do this pitch. The startup gets 10 or 15 minutes or 10 minutes. You get questions. You just move on to the next one.
Productize this stuff. We need to productize buying, and we need to productize selling. We're still early on that journey.
Michael Krigsman: There is no doubt that the best CIOs that I know do what you're describing.
Jason Lemkin: Yes.
Michael Krigsman: They have these innovation days themselves. They invite startups in. They go out to meet startups, but there's a constant seeking of relationship, just as you're describing.
Jason Lemkin: Yes, but it's still one-off. It's still handcrafted – at least that I see. That's okay, but if you can productize it, that's how you can seek out the true innovation.
If it were me, as a base, if I had someone on my team, I'd be like, "Just read the press. Read Tech Crunch. Anyone that's in our area of interest that has raised north of $10 million, I want to find out if they're interesting to my company."
It's just a signal. It's a signal. Then if they've raised more than $10 million and you do a quick discovery and it's potentially of interest, I'd bring them into my pitch.
Michael Krigsman: Great advice. Well, unfortunately, we are out of time. Jason Lemkin, thank you so much for sharing your insight, your experience, and your wisdom of startups with us. I really, really appreciate it.
Jason Lemkin: Thanks for having me back, Michael. Thanks, everyone, for listening or watching.
Michael Krigsman: Everybody, thank you for listening, as Jason just said, and especially those folks who participated and asked such great questions. Now, before you go, please subscribe to our YouTube channel. [Laughter] Hit the subscribe button at the top of our website. We'll send you our newsletter. Tell your friends and check out CXOTalk.com.
We'll see you next time. Take care, everybody. Bye-bye.
Published Date: Nov 05, 2021
Author: Michael Krigsman
Episode ID: 729