As a venture capital firm that focuses on B2B software, it’s amazing how often companies ask if we’d invest in SaaS products focused on small and medium-sized businesses (SMBs). While SMB has “business” in the acronym and thus the answer seems pretty straightforward, I completely understand the question. Is the average SMB more oriented towards consumers, enterprise, or something different altogether? Having expertise with companies that set up field sales or large outbound calling efforts might seem further afield than a traditional consumer business with a freemium model. Nonetheless, the SMB SaaS market is firmly in the B2B space.
Below are three misconceptions I commonly hear that suggest that SMBs have more to learn from the business side of the name.
1) Freemium is the Only Model
Freemium may very well be this generation’s version of the introductory offer of 10,000 free hours of AOL. That’s not to say that neither offer worked to get users, but the consumer centric freemium model isn’t necessarily the only way to attract small business customers. In the end, freemium, or the cost of hosting a free account of your service, is only a sales or marketing expense. If freemium is your only cost in these areas then it can be a scalable business model.
However, all too often freemium is viewed as table stakes to gain awareness, rather than just one of the many different sales and marketing tactics. The problem is that when you begin with a freemium pricing strategy, it can devalue the product on a psychological basis and make it very hard to get businesses comfortable climbing over the pay wall. Likewise, it will put limits on how much you can potentially charge in the future. While freemium strategies definitely work, they would not be my first recommendation.
2) Content Can Wait
At OpenView we are big believers in content marketing. By claiming the high ground of thought leadership in any purchasing decision, we think it’s a great way to appear to be a larger business than actually are. The problem is that creating valuable content takes a lot of time, and most SMBs feel strapped for resources. Accordingly, blogging, creating whitepapers, or distributing other content is pushed years down the road.
Businesses mistakenly think that they don’t need that content because the customer isn’t an enterprise buyer. We contend it is actually the opposite in the SMB space. Because the small business has even less time to think about a product that might be important to them, providing curated content in a drip marketing campaign is incredibly important so they can identify you as the provider in the space.
3) Going after Customers Directly is the Only Way to Go
For many vertical markets SMB focused software businesses serve, there are already trusted technology advisors for the potential customer base. Just like when dealing with larger enterprises, ignoring these advisors and their trusted relationship status can make sales cycles significantly longer and more expensive than expected. For instance, if you’re focused on selling an IT product to small businesses, most of them already trust a managed services provider (“MSP”) to let them know what they need.
Rather than trying to engage the customer directly, it would be prudent to divert sales resources to educate the MSP and convince them to add it to their sales sheet. Doing so can effectively leverage the MSPs sales force to work more efficiently for you.
The SMB SaaS market is incredibly exciting right now. The target customer occupies a uniquely hybrid position that’s not quite consumer yet not enterprise at the same time. Accordingly, a specialized set of sales and marketing techniques wind up working well for this segment. While the pendulum seems to have tipped towards consumer approaches, there’s definitely a lot that can be gleaned from enterprise focused software firms.
What has been your experience with freemium models? Let us know in the comments section below!