Why the next big enterprise software company will look nothing like Salesforce

Slack just became the fastest company in the history of business software to reach $100M in annualised revenues ever, accomplishing this feat in less than 2.5 years.

Number of years taken to reach $100M in ARR:

Slack is unique because of the way it almost mimics how Facebook grew virally, first amongst colleges and then everywhere. Slack too grew virally, first between departments inside a company, or when an employee switches companies or even when someone just talks to his peers and colleagues.

This lead me to think how this broadly highlights a whole new trend in the enterprise software business:

1. One where B2B products need to deliver end-user experiences as close to that of the best consumer products out there today, and
2. where the best distribution strategy also mimics that of consumer products, where adoption is driven by the end-users themselves, rather than the traditional top-down model we usually see in enterprise sales.

While traditional B2B software products have usually had ugly user interfaces, bloated feature sets and copy that seemed straight out of acorporate bullshit generator, some of the newer business software we’re seeing today are virtually indistinguishable from any consumer-grade product out there.

Exhibit A: Buffer

I have been a long time Buffer user, using it for my personal account (I tweethere; mostly on tech, football and startups to around 11K followers). And so when the time came for us to adopt a product for our business needs Hotline, I made sure to adopt Buffer here as well, even though there were cheaper alternatives available in plenty.

Why did I stick to Buffer?

1. It has a clean and user-friendly interface that pleases me no end and I just cannot bring myself to use the cluttered interfaces of the numerous cheaper alternatives that abound in the market.

Buffer is one of the best examples of a business product with a consumer-grade experience. Their thoughtful UI and cheerful copy couldn’t be farther away than most business software you usually see.

2. It has an incredibly strong brand that I love and trust. I follow the Buffer blog religiously and have an immense amount of respect for Buffer as a company.

Building a scheduling tool for social media is not exactly rocket science, which is why there are literally 100s of them in the market today. But then how many of them do $10M+ in ARR a la Buffer!

This highlights a key trend: While in the past, business software behemoths like Oracle were more of an hidden entity, bought by the IT dept and then adopted by the relevant teams; today the cycle has been very much reversed.

Your product has to be adopted by the relevant team first before it is purchased by the business buyer. While earlier it was only the ‘product’ that really mattered and touched the user’s life, today the user’s first experience is often with your brand and not your software.

While purchase usually lead to adoption in the earlier model, today, it’s adoption that drives business purchase.

A strong brand that their users identify with and a consumer product-ish approach to business software is the moat that Buffer has built, one that cannot be easily crossed with just technology.

The traditional B2B funnel is no longer relevant.

Companies typically define a marketing funnel and then align their programs and activities with the stages of that funnel, leading to revenue. It starts with awareness and general education, followed by consideration, leading ultimately to purchase and loyalty activities.

Traditional B2B Funnel:

While earlier there was just the organisational funnel for b2b marketers; where sales reps used to pitch big execs or the IT department for a sale leading to the business adopting a particular software, today there are really two different funnels:

There is a whole new funnel that you need to first cross before you can reach the organisational funnel. I’ll call this funnel the evangelist funnel.

This is the early adopter/s you need to convince and convert before the broader organisation purchases your software. This guy is the internal evangelist you need, who champions the cause of your software inside the organisation. Getting this person to believe that your solution is the best one out there is a whole different challenge to getting an organisation to make a purchase.

New Funnel in B2B purchases:

The first funnel applies to your internal champion, while the second funnel applies to the organisation as a whole?—?the traditional B2B funnel.

You need to create an internal advocate by crossing the first funnel, before that advocate sponsors you before the rest of the team and org, and it’s only then that the real sale and dollars come in.

The disappearance of the internal enterprise IT Department as the customer for software means, that attempting to sell software to the enterprise?—?emulating the enormous success of Oracle in database?—?is no longer a viable strategy. Instead, the technology must be fashioned into a “solution” relevant for and appealing to the distinct business unit customer?—?the end user?—?potentially your company’s evangelist within the business.

And the evangelist funnel looks a lot like consumer (B2C) marketing. This is where a consumer-grade product experience and a great brand become paramount.

Exhibit B: Intercom

How we ended up adopting Intercom at my previous startup where I was working as a product manager.

‘Didn’t I tell you Dribble is not reflective of the design community at all?!’

Turns out, at every team lunch, for weeks, me, the designers and the rest of the product team couldn’t help but discuss and debate the implications of each successive Intercom blog post.

Here was a set of guys who stood for the very same things that we stood for, believed in the same kind of things. They saw the world just as we did and spoke our language.

They were basically the product folks that we aspired to be one day.

We were a bunch of 20-somethings building a global product for close to 16 million users worldwide, out of suburban Mumbai. And here was a set of people, just like us, teaching the whole world what product management was all about, right out of Dublin, in downtown Ireland.

And boy, were we hooked!

We didn’t even know what the folks at Intercom actually did for a living!

We later checked out their website and realised that they had a messaging product to help us talk with our users. A month later, we had integrated Intercom into our mobile app.

The meeting to decide which product to go with was perhaps the shortest meeting we had ever had. Intercom was the obvious way to go. There was not a doubt in anyone’s minds. No other alternative even stood a chance.

We had fallen in love with the brand before we had even had a chance to see their product!

Forget product-market fit, Intercom had problem-market fit. They had this great story that convinced that they got us, they got our problems. And we knew if they got the problem right, they could fix the product later.

“The best way that blogging has actually helped us is actually as a long-term brand building exercise. The reason it’s so valuable to us is that it builds this brand and that indelibly marks and installs your brand in people’s mind.

And so the result of that traffic then as people not only pick up this content over time but then come back to you for more quality content is that they start to recognise and know and trust the brand. So a lot of people in the early days, they only knew Intercom as a blog. The blog was where they experienced the brand first. And then later, as they started to get a little hint about what the hell this product was or who writes this blog, later when they had a problem that our product solved they would then have the Intercom name and idea on their mind.”

— Eoghan McCabe, CEO, Intercom

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Brands drive profits

Consumer research has underlined the importance and the power of brand in consumer markets since like forever, but we have always assumed, albeit falsely, that the same impact doesn’t stand true for business brands.

According to a recent report by Harvard Business Review, business decision makers are 20% more likely to consider B2B brands consumers know and feel connected to. Besides increasing the likelihood of purchase, high consumer awareness and a stronger brand was also linked to better financial performance: When the 10 most-known B2B brands examined were compared with the 10 least-known, those with higher consumer awareness had 41% greater growth in revenue.

While we’ve always assumed that B2B buyers are rational decision makers who are not swayed by emotional factors such as brands, it’s pretty clear now that this may no longer hold true.

With the cost of building software coming down drastically over the years, the typical B2B buyer is overwhelmed with numerous choices, features, benefits, data and metrics?—?way more information that any buyer can rationally evaluate?—?leading to them using heuristics to simplify their decision making.

Humans will be humans. . .

A recent study done by Mckinsey, which surveyed more than a 1000 executives across the world, found that business buyers’ purchase decisions tend to be a lot less value-driven than they like to think. In fact, the survey found that B2B purchasing decision makers consider the brand as a central rather than a marginal element of a supplier’s value proposition. Brands were seen having as much as 21% share in the purchasing decision, (while the efforts of sales teams had a share of 15%), and I suspect this share of brand is only set to go up.

The importance of a strong brand is reinforced when surveys show that 80% of the decision has already been made even before the business buyer has contacted your sales rep. When this happens, even subconsciously, much of the buying process ends up being an effort to justify the initial emotional decision.

Humans are not rational creatures. Rather, we are rationalizing creatures.

By building the right brand associations in your prospects mind, you can help “close the deal” before the selling even starts. A great brand also gives the seller all the advantages that a typical consumer brand also begets:

• Greater willingness to try out a new product offering
• Less time needed to close the sale of an offering
• Greater likelihood that the product or service is purchased
• Willingness to pay a price premium
• Less inducement to try a competitive offering

The lesson here is pretty simple: You’re now doing consumer marketing. The evangelist you need to target is a consumer too.

Make Your B2B Brand Matter

There are more tools and products in SaaS today than ever before. Ultimately, your brand is what differentiates your company and your product in the minds of your customers. Brand is what you need to focus on in order to compete in today’s crowded markets.?—?Hiten Shah, CEO, Kissmetrics

Have a nice logo, show up at popular industry events and make sure you’ve got collateral to dish out. That’s what branding has basically meant for B2B for years now. This is basically equivalent to bringing a knife to a gunfight.

Unfortunately, B2B marketers are terrible at emotional, aspirational messaging or just don’t get the importance of projecting a strong brand. In their haste to produce marketing messages that demonstrate the value of their products and services, many companies default to the text-heavy, jargon-loaded, spec-focused content they relied on back in the analog days.

Even at larger B2B companies, brand budgets are typically dwarfed by demand generation budgets, so branding never gets much mindshare or attention.

Well, if you’re using the classic B2B playbook whose tactics are non-differentiating and now seem overplayed?—?you’re basically traveling the same road your competitors: the road to irrelevance.

You build a brand when you’ve carved out a piece of peoples’ brains for yourself. In the long term, this means that your brand spreads. Because you have space in peoples’ heads, people are thinking about you, and that means they’ll talk about you and tell your friends. Most B2B marketers have to address thousands of small businesses as well as enterprise customers. And while sales teams won’t scale infinitely, building a brand will.?—? Hiten Shah, CEO, Kissmetrics

This also means that companies playing the long game and building a strong brand are gaining disproportionate gains.

This is the difficult work. The work of earning attention, earning a reputation, and mostly telling a story that takes your product out of the commodity category and into a space defined by connection, meaning and possibility instead. This kind of work with a long-term focus is easily one of the best competitive advantages to have, simply because next to no-one really does it.

Some of the best enterprise companies out there know this.

Buffer gets it. Intercom gets it. Basecamp gets it.

My introduction to Basecamp was first through the path-breaking book: Rework, written by Basecamp founders DHH and Jason Fried . The actual product was actually the last thing that I experienced in a long series of interactions with the company and the brand.

Perhaps Slack gets it better than any other enterprise software company out there today. If you haven’t read Stewart Butterfield’s internal memo to his team before launch, you should drop everything else and read it now.

“Instead of marketing to the CIO gatekeeper in the past, software companies should go straight to the line-of-business folks and address their emotional pain points.

Unfortunately, you’d go to some IT company’s website and have no idea what they were doing. You’d go through all these pages and finally you’d see, oh, it’s just a software solution or be very much verbatim. Then you’d see a lot of other brands like Nike with its aspirational message Just Do It that links the product to the experience. B2B marketers today are starting to take a page out of that book.”?—?Sameer Dholakia, CEO, SendGrid.

Old marketing is interrupting people and telling them about your product.Finding new and clever ways to interrupt people won’t work anymore. The future of marketing is leadership.?—?Seth Godin.

Exhibit C: Medium

When I discovered Medium around a couple of years back, I used it primarily to discover and read content from some of the brightest minds in the business. Later, when I started to publish my own thoughts and opinion pieces, the results blew my mind. The stuff that I wrote was read over 100000 times with virtually zero distribution on my part. I connected with more like-minded people in my 1st year on Medium than during all my previous years put together. Then, when the time came to start publishing our own content here Hotline, there was no doubt in my mind where we should go.

Coming back to Slack. . .

Slack doesn’t have any salespeople. This is practically unheard of in enterprise companies. Ninety-seven percent of its new customers are referrals. People hear about how great Slack is?—?from friends who have it in their offices, or from co-workers who used it at their last job, or from people they follow on Twitter-?—?try the free version inside their teams, then get so hooked on it, the corporate IT buyer is obliged to purchase it.

That Slack users feel an emotional attachment to the brand is no accident. Slack has always had a tone and personality to it that instantly separates it from any other enterprise software out there.

From its earliest days, Butterfield and his co-founders have sought to ensure that, besides useful, Slack, the product and the company, would be fun, thoughtful, and humane. When you open the app, it greets you with a welcome message like “What a day! What cannot be accomplished on such a splendid day?” or “You look nice today.”

In fact, Butterfield himself went about creating hundreds of these messages. When the CEO himself places such emphasis on a strong brand and personality, the mandate is pretty clear for the rest of the company to follow.

“It’s very, very, very quick for anyone who interacts with Slack to consider Slack, the entity, their friend. That’s super weird. That never happens for any business software.”?—?Harper Reed CEO, Modest.

A brand is the sum of every experience a customer has with your company, and a strong brand always generates long-term growth and revenue. It’s important to relentlessly improve every interaction customers have with your company.

Marketing is often the first interaction a prospect has with your company and you need to be cognisant that you are delivering a great experience. We want to use the best of B2C marketing.

I’ve often thought of lead gen as short-term lead creation and brand as long-term lead creation. Maintaining focus on the longer-term horizon allows you to build up brand equity?—?a powerful differentiator and competitive moat?—?and motivator for word of mouth referrals.

- Slack CMO Bill Macaitis.

Why is this important?

By 2020, millennials will hold 80% of the purchasing power in organisations globally (translates into more than a trillion dollars in purchasing power). And we’ve been conditioned to expect nothing less than a consumer-grade experience cutting across work and play.

This is especially important as our working and private lives are no longer separate, meaning trends in consumer industries are crossing over to the business sector. Our expectations of B2B products are now powerfully influenced by the best B2C customer experiences.

“When you’re not at work, work bleeds into your personal life; so now [prospects] set the same expectations that they have in B2C marketing as they do in B2B.”?—?Sheryl Pattek, VP, Forrester Research.

Companies around the world are embracing flat organisations, which means that there is no longer an IT dept head who you can contact to sell your software anymore. The solopreneur and the SMB market is going to overtake the enterprise market by 2025, where decisions will made by small, flat teams, and you’ll need an evangelist within each company to sell your product and drive adoption.

The lesson to B2B companies is clear:

Embrace consumerization. Build a recognisable brand. You’re selling a product. That’s great, but what’s your story? What do you really stand for?

While traditional B2B companies believed that a superior product = $$$, today product alone is no longer enough. Consumer companies have always known this: That product is just one part of the entire customer experience.

Your customer experience spans the entire experience a user has, at each point in his interaction with your company or brand, be it through a blog, a podcast, your website, or an advertisement. Focus on nailing customer experience, not just feature sets.

Consumer markets have learnt that it is not the best products that win. It is products that resonate with users. And it’s time that B2B companies learnt that it’s never code that resonates with users, it’s stories. Yes, obsessively focus on your product, but not at the cost of falling down in distribution and marketing.

This trend in enterprise offers not only huge upside for end-users and investors, but also powerful implications that Saas incumbents cannot afford to ignore.

It’s also why it’s so much easier for a consumer-product company to get into the enterprise software business today. Their core strength of creating great end-to-end experiences plays well in the evolving B2B market.

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As someone rightly said, in the future, all companies will be tech companies, whether they now know it or not.

Likewise all companies are essentially consumer companies, whether they now realise it or not.