Selling your product at a low price point doesn’t necessarily mean you have to target the SMB (small-and-medium-sized business) market. Instead, you can permeate large organizations by selling team-by-team inside that organization, potentially unlocking massive revenue potential. I call this method the “team sale”, and it’s a trend highlighted by software company Atlassian’s acquisition this week of project-management software startup Trello.
This team-sale concept runs counter to the usual way many young companies think about software sales—first target SMBs, then move to the mid-market and ultimately end up in the enterprise. Often SaaS companies assume SMBs are their initial, natural customer base, mostly because these businesses are small and don’t have as many hurtles in the sales process to buy business software. There are playbooks for targeting the SMB market that often start something like this: “If your ASP is below ~$5k then you should….”. The problem is, there are fundamental differences between selling a product at a low price to teams at large organizations, versus selling a low-priced product exclusively to small businesses.
Intuit exemplifies the “S” in SMB with its flagship QuickBooks product, which is hugely popular among small businesses. But QuickBooks, as one example, isn’t suitable for enterprises and Intuit can only extract so much revenue out of each small business. Atlassian and Trello’s websites, on the other hand, both boast logos from very large customers: Pixar, Google, National Geographic, Toyota and Kaiser Permanente, to name a few. By all standards these customers are large enterprises, and likely offer massive revenue potential for Atlassian and Trello to penetrate. Yet these companies are buying products from Atlassian and Trello at low, SMB-like average selling prices (ASPs).
Why? Mostly because these vendors have been able to sell the products to individual teams inside these organizations, adding new teams as the products’ usage grows virally.
The Trello acquisition should enable Atlassian to continue to execute on this team-sale model outside of internal technology groups, where existing Atlassian products like JIRA, HipChat and Confluence are particularly popular. Ultimately, this approach allows the software vendors to extract more revenue from each customer.
Products that focus on collaboration, or address recurring problems that teams at large organizations face regularly, often lend themselves better to the team-sale approach. I’ve seen this trend play out in particular across companies selling DevOps tools (Datadog, OpsGenie*), design tools (InVision, Marvel), communication software (Slack) and self-service BI (too many to mention).
All of these companies may have enterprise customers, with initially low ASPs, but due to the trends around teams having autonomy over their respective software stacks, large enterprises are purchasing software in an increasingly decentralized manner. With the team-sale, I’ve seen growth from an existing customer base of 50%+ year-over-year, partly because the products being sold exhibit some forms of virality. Naturally, you can still build out an enterprise sales force, and often this is the best way to aggregate all of your teams that are using the product.
Operationally, this also has implications for companies considering how to structure their organizations and acquire customers. If you can extract more revenue from each customer over a period of time, is it worth exhausting more resources to acquire that customer in the first place? The team-sale model works best with a quick time-to-value free trial, clear team-based features to move customers to higher pricing plans, and more customer success/account management resources where individuals are compensated on penetrating the existing customer base.
Overall, as more SaaS companies find success selling low-priced viral products to enterprise customers, more of them may be talking about a team-sale vs. an SMB target market.
*Denotes a current or former Battery portfolio company. For a full list of all Battery investments and exits, please click here.