A 1-ton boulder weighs as much as one ton of sand, and both weigh the same as a ton of rocks. Revenue is similar -— $1 million from small accounts, transacted efficiently, can be a better business than a $1m deal in an enterprise, and similarly 10 $100k sized deals may be the best business for a technology company.
Is your focus on the enterprise hindering your revenue growth?
Technology companies have an almost genetic drive toward boulders — toward enterprise customers. Every pitch deck has a list of big names or some impressive statement on the percentage of the Fortune 500 that they are doing business with. Quarterly investor calls inevitably revert to a single question: how the company is doing in big accounts?
But all this pressure to focus on the enterprise can lead companies, unaware, onto rocky ground (pun intended). So what's the key to finding the best deal size for your business? The answer is simple: take a look at the difference in revenue quality and flow rate of rocks, sand, or boulders.
In this metaphor, sand is the run rate re-order business for your product — for software, this is the expansion of licenses that come from additional users or capacity and for hardware, this is translates to the replacement rate from the installed base. Both are typically bought, not sold, and the top partners are the ones that are most efficient at delivering product to customers quickly. The 'sand' business is also purchases by tactical buyers driven by word of mouth - critical in products that are adopted by technicians, such as systems management and infrastructure tools and expand into a platform, versus top-down sold products, such as email or ERP systems.
A slowdown of revenue in this segment is a big warning sign. It means that customers are delaying expansion or have moved off your product as their standard choice, or word of mouth references are slowing down. As a small startup, a lack of flow of this business means that you have no organic traction with accounts. As a result, you see a higher cost of sales as you push slow-moving enterprises to buy and simultaneously fight the 'who are you' fight.
These are your channel-led projects that are departmental wins that presage an enterprise win. Often the vanguard into the enterprise, these are the projects where buyers seek innovative or revolutionary technology for a disruptive advantage in the market. If your volume of 'rock' size deals starts disappearing, you aren't just going up-market, you are losing your channel demand generation engine for your business decision-makers into the enterprise. Many times, this collapse comes right as the Boulder business seems to be taking off and the root of this is a conflict that comes between direct sales reps looking to maximize account value and partners looking to drive project value. This conflict is the source of many companies' channel collapse and takes great care to avoid winning the enterprise at the expense of a stable, healthy business.
In our metaphor, the boulders are the large deals that drive the quarterly narrative in many companies. The retooling of a sales organization to capture this segment can lead to some unexpected rough patches - the urgency to gain traction in the enterprise, the culture of direct account control with enterprise sellers, and the external and internal focus on the big 'named' deals drive attention, often creating active conflict with the channels that created the opportunity in the enterprise or creating a scenario of 'benign neglect' where investments shift rapidly to the enterprise customer segment and away from channels and renewals.
The over-focusing on boulders isn't just a hyper-focus on enterprise sales — it can also manifest itself in pernicious ways in the SMB sector with vendors. Many SMB vendors fall into the trap of imitating boulders — they're still sand, just packed into a boulder shape — by working only with distribution or internet retailers who do volume as a proxy for the smaller reseller and small business customers. In doing so, they run the risk of mixing insights that are designed to serve the bottom line of the sandstone at the expense of the engagement of the sand itself.
Now take a look at your sales landscape. Revenue analysis is a critical step towards figuring out where you are winning and where you are losing. Balancing your resources for growth by increasing your flow of sand, starting the landslide of rocks, and lifting the bigger boulders with ease requires a balanced view of where your business is trending.