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Exactly - at my last startup, revenue "lumpiness" was the worst part of the whole thing. In the early days, we'd have $0 in bookings one month, and then next m

Exactly - at my last startup, revenue "lumpiness" was the worst part of the whole thing. In the early days, we'd have $0 in bookings one month, and then next month, a check for $800k would come in. Building an enterprise sales funnel is also a challenge. It takes real discipline to be able to say "100 leads->25 opportunities->5 POCs->3 deals at an ASP of 450k". With consumer apps, the volume is so much greater that you can have conversations about A/B testing the homepage to drive a few extra percentage points - for enterprise apps, odds are not enough people will ever visit your website to be able to gather enough data to A/B test anything. And deals will fall apart for the most random reasons - a regime change at a big bank. A bigger company releases a product that uses some of the same words as yours, so the customer decides to evaluate it. Your EU channel partner gets bribed to tank a deal by a competitor. Anything can happen. True story: we lost a deal once because the customer did a POC, and then fired the engineers who evaluated our software. With the departure of the engineers who evaluated the software, management lost the use case doc and evaluation criteria that was used by the fired engineers, so they wrote a new use case doc without telling us, scored us based on the new doc (despite never having used our software), then had a competitor come in and execute their POC with the new engineers and new use case doc. Unsurprisingly, the competitor "won". The call with the customer was amazing: Them: You lost because of X, Y, and Z reasons Us: Those weren't use cases in the pilot, but even if they were, we can do those things Them: Well...we didn't know that you could do them. But it doesn't matter. We picked the other guys. Us: Where are the people who looked at our software? Them: We had to let them go. Unfortunately they didn't have time to write a report before they left, so we based our evaluation of your software on your user manual. This is one of the reasons why SaaS apps are so appealing on paper. They have: - Recurring revenue stream - Freemium models allow leads to self-select - Less sales friction (no need to send a sales engineer onsite, just spin them up a free 2-week trial) But there's still a ton of money to be made in on-premise enterprise software, it's just a long, annoying, dangerous sales process.

mattzito 13y ago
Self-replying to add: The other thing to think about with on-premise enterprise software is that while it's a huge pain to sell, it's incredibly sticky. If you build up a sufficient volume of customers, you can basically fund operations off of renewals, and invest all of your net new income in new R&D and development. Many companies will renew support contracts for years, even if they're not heavily using your software anymore, because the risk associated with their being out of support and then running into a critical issue is greater than the $100k it's going to cost them to renew. But if you've got 100 customers paying $100k/year to renew support, that's $10m in basically guaranteed revenue, which means that now you've got some breathing room to plan and grow sensibly. That's when the lumpiness goes away.
- greenyoda 13y ago
  Having a predictable income from support contracts is also a buffer against seasonal sales cycles. The company I work for sells software to large enterprises that tend to go on buying sprees during the fourth quarter, when departments have to use up their yearly budgets or lose them. Many years we don't know if it will be a horrible year or a great year until we've hit the fourth quarter.
danielweber 13y ago
You should feel lucky they even told you the truth. I've had customers lie to me directly over the phone about how they used our product and found it unsatisfactory, and when it was returned we found the CD-ROM was still sealed in its original plastic. Selling to businesses (and governments, too) involves a lot of dealing with bullshit. Many times we've told someone we couldn't do the "absolutely must have" feature, and they still bought it. (Once the critical feature was to disable the copy protection, after which they would buy one. And when we refused they bought three.)
incision 13y ago
As a (too) long time enterprise guy, this post and the parent are incredibly true to life. I think you've hit the nail on the head with the appeals of SaaS. Something else I would add to that from my "inside" perspective. * People tend to be less territorial about SaaS as regimes and responsibilities change. It makes sense, premise stuff is a tangible reminder of someone else's influence and there can always be question about the quality of the implementation. Not so much with SaaS, it's regarded much more like a utility - no need to fire the existing ISP or power company when you take charge and no need to drop the SaaS contract. * Less implementation friction. SaaS tends to be smartly designed with working around and through traditional barriers in mind. When all you need is a web browser and an innocuous configuration change or perhaps a lightweight agent or appliance to get started it's faster to get to the point of convincing adoption through demonstration as opposed to talking about it. * No complications from folks who "buy" a product, but won't pay for ongoing maintenance creating mine-laden islands of trapped expense. >"But there's still a ton of money to be made in on-premise enterprise software, it's just a long, annoying, dangerous sales process." Yeah, I see it being particularly tough on an individual vendor. If you're addressing something apparent enough for one of the big monstrosities to notice they'll be looking to acquire/claim a solution to push you out. If you're addressing something emerging, forward-thinking enough that the cartels haven't caught on to it, you'll have a steep uphill battle convince anyone what it is and how why they'd actually want it.

mattzito 13y ago

Self-replying to add: The other thing to think about with on-premise enterprise software is that while it's a huge pain to sell, it's incredibly sticky. If you build up a sufficient volume of customers, you can basically fund operations off of renewals, and invest all of your net new income in new R&D and development. Many companies will renew support contracts for years, even if they're not heavily using your software anymore, because the risk associated with their being out of support and then running into a critical issue is greater than the $100k it's going to cost them to renew. But if you've got 100 customers paying $100k/year to renew support, that's $10m in basically guaranteed revenue, which means that now you've got some breathing room to plan and grow sensibly. That's when the lumpiness goes away.

greenyoda 13y ago
Having a predictable income from support contracts is also a buffer against seasonal sales cycles. The company I work for sells software to large enterprises that tend to go on buying sprees during the fourth quarter, when departments have to use up their yearly budgets or lose them. Many years we don't know if it will be a horrible year or a great year until we've hit the fourth quarter.

danielweber 13y ago

You should feel lucky they even told you the truth. I've had customers lie to me directly over the phone about how they used our product and found it unsatisfactory, and when it was returned we found the CD-ROM was still sealed in its original plastic. Selling to businesses (and governments, too) involves a lot of dealing with bullshit. Many times we've told someone we couldn't do the "absolutely must have" feature, and they still bought it. (Once the critical feature was to disable the copy protection, after which they would buy one. And when we refused they bought three.)

incision 13y ago

As a (too) long time enterprise guy, this post and the parent are incredibly true to life. I think you've hit the nail on the head with the appeals of SaaS. Something else I would add to that from my "inside" perspective. * People tend to be less territorial about SaaS as regimes and responsibilities change. It makes sense, premise stuff is a tangible reminder of someone else's influence and there can always be question about the quality of the implementation. Not so much with SaaS, it's regarded much more like a utility - no need to fire the existing ISP or power company when you take charge and no need to drop the SaaS contract. * Less implementation friction. SaaS tends to be smartly designed with working around and through traditional barriers in mind. When all you need is a web browser and an innocuous configuration change or perhaps a lightweight agent or appliance to get started it's faster to get to the point of convincing adoption through demonstration as opposed to talking about it. * No complications from folks who "buy" a product, but won't pay for ongoing maintenance creating mine-laden islands of trapped expense. >"But there's still a ton of money to be made in on-premise enterprise software, it's just a long, annoying, dangerous sales process." Yeah, I see it being particularly tough on an individual vendor. If you're addressing something apparent enough for one of the big monstrosities to notice they'll be looking to acquire/claim a solution to push you out. If you're addressing something emerging, forward-thinking enough that the cartels haven't caught on to it, you'll have a steep uphill battle convince anyone what it is and how why they'd actually want it.