Morphing to Scale in a B2B Enterprise

Recently I have spent time with two newly public companies, both still focused on riding the initial wave of disruption that brought them to prominence. Each is growing nicely, but not quite as nicely as they expected. Moreover, the predictability of their forecasts is deteriorating, and a disconcerting percentage of their salespeople—in general, quite competent sellers, the kind who are naturally attracted to a hot new company—are failing to make quota. Both leadership teams are concerned this may be a failure of execution, but I have a different read. I think they are “going through a phase.” Here’s why.

Both companies got their start selling relatively atomic offerings that leveraged next-generation technology to solve a well-understood problem at a time when that problem was escalating in importance. One is in the security space, the other in content management, both areas garnering a lot more customer interest because the rise of digital systems of engagement has put unanticipated stresses on traditional IT architectures and solutions. Uptake in both cases was relatively quick and straightforward, typically beginning with a departmental sale, thereafter tracking to the now-familiar land-and-expand account development model. Selling was transactional and very efficient, and things scaled pretty smoothly.

Then an interesting thing happened. A handful of more visionary customers began to see a much broader application for this same software infrastructure, one that could tackle a much bigger and more valuable set of use cases. The solutions to these use cases are still evolving, but tackling them sooner rather than later can be worth a very great deal, and this has led in both instances to a series of somewhat eye-popping mega-deals. Each of these deals is at least an order of magnitude greater in size than the normal ones, and many of them are with flagship customers whose logos are the kind that put companies on the map. 

This development, in turn, led both companies to develop a platform narrative wherein a whole suite of next-generation applications, leveraging a common set of facilities and APIs, could be envisioned. Because such platforms provide leverage for attacking a wide range of problems in a coherent and integrated way, market interest is understandably high, but it is still early days, and the marketing and sales motions required to prosecute this emergent class of opportunities are a far cry from the ones that drove the initial wave of success. (For a deeper dive into the dynamics of this issue, see a prior blog entry, “Two Different Sales Motions….”).   

The good news in all this is that revenue growth in both companies accelerated dramatically, enabling each to go public. The bad news is that it has also challenged them to support two different go-to-market playbooks at the same time. Inevitably this creates confusion and stress around resource allocation, opportunity prioritization, lead generation and qualification, proper selling skills, and deal forecastability. How are you supposed to sort this sort of thing out?

Well, the first thing to understand is that you are dealing with two very different market dynamics, one following a familiar bell curve, the other a power law curve, as illustrated below:

A random distribution describes the dynamics of a transactional marketplace. In this model, each sale can be treated as an atomic event that is basically independent of every other sale. The size of each deal can vary quite a bit, typically based on the number of units that particular prospect can consume at that particular time, but when aggregated as a group, the total volume of sales plotted by size creates a predictable bell curve, readily described by its mean and its standard deviation. Transactions within one standard deviation of the mean are taken to be normal, and by building a playbook to prosecute such opportunities, one can create a “sales machine” that delivers its numbers on a highly reliable basis, quarter after quarter. This is a beautiful outcome, based largely on execution discipline.

Once, however, you add a handful of mega-deals to the mix, they represent a highly disproportionate percentage of total bookings. This is best described by a power law distribution. The transactional revenues have not gone away, but the normal distribution that describes them has gotten flattened by the power law curve, and now just looks like a long tail. This is a critical point: The bell-curve model is not underperforming—it is getting marginalized. All the action now is on the far left of the graph, not the mid-point, and all eyes are on the number of mega-deals per quarter or per year, because that has become the new driver of future growth. If the number and size of these deals can continue to scale, the power-law distribution can, in effect, become the new normal, creating its own template for forecasting future returns from the business. That is what has been happening at Salesforce, for example, over the course of the current decade, as it morphed from a $1 billion challenger taking share in the mid-market to a $10 billion market leader deeply ensconced in the world’s largest enterprises and institutions. 

The dicey part, not surprisingly, comes when you are actually in the midst of this transition. This is your “moment of morphing,” except that, as with your adolescence, it seems to go on interminably, exacerbated by a painful lack of synergy between your current and your future state, each making conflicting claims on your increasingly frazzled resources, and you thrashing as a result. In a business context, none of your heretofore proven go-to-market mechanisms work optimally anymore, and everyone is feeling marginally incompetent, even though by many standards you are still crushing it. 

In the short term, the best coping behavior is to bifurcate your go-to-market efforts to address the power law and the bell curve separately. This means:

• 2 different sales orgs—the power-law one focused on consultative sellers serving named accounts clumped into vertical market segments, the bell-curve approach organized around transactional sellers covering geographical territories.
• 2 different pipeline generation systems, the first focused on getting rifle-shot referrals into individually targeted line-of-business executives, a critical success factor for any power-law deal, the other taking a shotgun approach to generating a high volume of leads into purchasing transactions that are already budgeted and actively in play.
• 2 different sales cycle models inside your CRM system, one based on an account-based-management sales cycle, the other on prosecuting a sales funnel.
• 2 different customer success models, one following a project-centric approach with heavy emphasis on professional services, the other a product-centric approach leveraging third-party service providers and community support.

Such a bifurcation should create a marked improvement in the status quo. However, the overall lack of synergy makes it too expensive to be a productive long-term solution. This is why large enterprises like HP, Motorola, Nokia, and the like, decided to split in two. Unfortunately, in each of these cases, management waited too long, and the company suffered for it. Thus, the sooner you can complete your transformation to the power-law model, the better. 

In the context of the morphing we are discussing here, you should be looking to transition your transactional bell-curve business to an indirect sales channel. This entails packaging up your playbooks for the “long tail,” identifying channel partners for whom the transactional business model is a good fit, certifying those partners, investing in making a subset of your products “channel ready,” and creating a channel-success model that will substitute for your current customer success programs.  Meanwhile, back at the ranch, you want to focus the bulk of your in-house resources on getting better at prosecuting the bigger deal power-law business opportunities. This entails investing more heavily in alliances with the major systems integrators, developing thought leadership marketing programs that target line-of-business executives, and spending big on sales enablement programs that guide your salespeople toward a host of consultative, trusted-advisor, relationship-marketing practices (beginning with not giving the corporate pitch or doing a product demo on the first call!).

Oh, and just in case you get too comfortable, realize that even after you complete this transformation, you will still be left with a tweener segment to deal with—too big to outsource, but too small for the concierge treatment that mega-deals get. What, did you think this was going to be easy?

That’s what I think. What do you think?

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Geoffrey Moore | Zone to Win | Geoffrey Moore Twitter | Geoffrey Moore YouTube