3 ms·

Re: the animal analogy... If you want to extend the sales-lingo, the term is "rats and mice" not mice and flies. Jests aside, I like this kind of abstract stra

Re: the animal analogy... If you want to extend the sales-lingo, the term is "rats and mice" not mice and flies. Jests aside, I like this kind of abstract strategic thinking process. It reminds me of the "1000 true fans" writeup from the last decade. But, it's important to remember this is scaffolding for thinking strategically, not a blueprint. Often, the winning tactic is to break such "rules." But, thinking within a framework like this can focus the mind. It's useful to realize you're breaking a rule when trying to break it. For example: "1,000 enterprise customers paying you $100k+ per year each" There are lots of examples of sub-enterprise sized companies (even small businesses where everyone can still fit in a jumbo taxi) paying this much... for something. A big example is advertising. Plenty of businesses spend 10% or more of their budget on advertising. How many software startups pay google/fb most of the money they raise from VCs? This applies to lots of businesses from SAAS apps to dental clinics. There are ad-management apps that charge 5% of ad spending. Services that charge 15%-20%. Another example is "franchises." Mcdonalds corporate's business model is to make $100k+ from small-medium businesses. It's not a very startup-ey example but an example nonetheless. The uber-of-x business model is kind of a reverse example of franchising. Uber charges the customer, and cuts the driver their share. If the customer were to pay drivers and the and the drivers paid uber... you have the mcdonalds model. It's debateable whether this counts as "selling to consumers" or "selling to businesses," but there're specific examples in both camps. So, it's possible to sell 100k software to a $1m-$10m businesses... But it is very useful to realize that this is rulebreaking. An enterpirse pays $100k+ for lots of things. A small business will only pay that much if it's absolutely core to their business model. Usually this means it's absolutely indispensible to gettng customers.

notahacker 8y ago
> So, it's possible* to sell 100k software to a $1m-$10m businesses... But it is very useful to realize that this is rulebreaking. An enterpirse pays $100k+ for lots of things. A small business will only pay that much if it's absolutely core to their business model. Usually this means it's absolutely indispensible to gettng customers. This is a very good point, especially when you force yourself to define "absolutely core to their business model" (if you're selling franchises it literally is their business model, but you only sell franchises if you've worked out how they can make much more revenue from selling to people further down the chain...). And remember that services like Google Ads only ended up absolutely core to some businesses because they didn't start off with the ambition of getting 100k contracts but let people start as small as they liked to prove its worth.... Thinking you might get 100k licenses from the $10m per annum businesses theoretically encompasses a lot more companies than "large enterprises", but in practice the sort of software and marketing channels companies are willing to decide to spend 1%-10% of their annual revenue on up front tend to be either (i) super specialised solutions you've developed to make/save demonstrable amounts of money or completely run operations in their niche, which might well be a niche smaller than the "large enterprise" space anyway or (ii) services where they get the perception they're paying for a lot of your time to make it work for them, in which case your margins aren't so impressive. They're probably not expanding their IT budget or dedicating most of their marketing budget for a generic CRM system or user monitoring service, even if you have a very good pitch about why yours is better than the ones with attractively low rates for medium sized enterprises.
- dalbasal 8y ago
  True. In the simple/pure examples of "selling software" directly via liscencing... The scale in the article makes sense. A simple "hack" is to combine software and services. They mightn't pay 100k for accounting software, but they might pay if it comes with an accountant. But... I do think that imagining exceptions to these is a great exercise. It helps to draw the box you're trying to think outside. There are even "pure SAAS" examples that make elephants out of rabbits. The ad-management software imentioned above is one. They charge 5% of budget. A small agency might be managing anywhere from $1m to $100m budget.
- goatherders 8y ago
  My company has multiple $50k/year clients that gross only 5-10million a year.
  - notahacker 8y ago
    Sure, I've sold five figure licenses to companies turning over well under $1m when they've needed the service enough. But there's a difference between sometimes doing that and big sales to small companies being the main route to reaching 100m ARR. (And your business looks like its pitch is much closer to the "use us instead of hiring a marketing person" than "better SaaS" in my example anyway, and I guess your pricing strategy is more results-based than up front licensing cost-based)
  - moorhosj 8y ago
    You would need 2,000 of those customers to reach $100 million ARR.
    - goatherders 8y ago
      Absolutely, and I don't think that's a realistic goal for us. Was just pointing out a single data point to contribute about lower revenue companies investing 1%+ of their revenue into a tool.

notahacker 8y ago

> So, it's possible* to sell 100k software to a $1m-$10m businesses... But it is very useful to realize that this is rulebreaking. An enterpirse pays $100k+ for lots of things. A small business will only pay that much if it's absolutely core to their business model. Usually this means it's absolutely indispensible to gettng customers. This is a very good point, especially when you force yourself to define "absolutely core to their business model" (if you're selling franchises it literally is their business model, but you only sell franchises if you've worked out how they can make much more revenue from selling to people further down the chain...). And remember that services like Google Ads only ended up absolutely core to some businesses because they didn't start off with the ambition of getting 100k contracts but let people start as small as they liked to prove its worth.... Thinking you might get 100k licenses from the $10m per annum businesses theoretically encompasses a lot more companies than "large enterprises", but in practice the sort of software and marketing channels companies are willing to decide to spend 1%-10% of their annual revenue on up front tend to be either (i) super specialised solutions you've developed to make/save demonstrable amounts of money or completely run operations in their niche, which might well be a niche smaller than the "large enterprise" space anyway or (ii) services where they get the perception they're paying for a lot of your time to make it work for them, in which case your margins aren't so impressive. They're probably not expanding their IT budget or dedicating most of their marketing budget for a generic CRM system or user monitoring service, even if you have a very good pitch about why yours is better than the ones with attractively low rates for medium sized enterprises.

dalbasal 8y ago
True. In the simple/pure examples of "selling software" directly via liscencing... The scale in the article makes sense. A simple "hack" is to combine software and services. They mightn't pay 100k for accounting software, but they might pay if it comes with an accountant. But... I do think that imagining exceptions to these is a great exercise. It helps to draw the box you're trying to think outside. There are even "pure SAAS" examples that make elephants out of rabbits. The ad-management software imentioned above is one. They charge 5% of budget. A small agency might be managing anywhere from $1m to $100m budget.
goatherders 8y ago
My company has multiple $50k/year clients that gross only 5-10million a year.
- notahacker 8y ago
  Sure, I've sold five figure licenses to companies turning over well under $1m when they've needed the service enough. But there's a difference between sometimes doing that and big sales to small companies being the main route to reaching 100m ARR. (And your business looks like its pitch is much closer to the "use us instead of hiring a marketing person" than "better SaaS" in my example anyway, and I guess your pricing strategy is more results-based than up front licensing cost-based)
- moorhosj 8y ago
  You would need 2,000 of those customers to reach $100 million ARR.
  - goatherders 8y ago
    Absolutely, and I don't think that's a realistic goal for us. Was just pointing out a single data point to contribute about lower revenue companies investing 1%+ of their revenue into a tool.