For many of the technology start-ups I have worked in, corporate giants appear to be the natural first targets as customers, but is this really the right strategy? Is the effort involved in unlocking these sales worthwhile?
This idea of selling to giants first is based on a number of assumptions:
- It will take the same time and effort to sell to a corporate giant as it will to a smaller customer.
- An initial sale to a corporate giant has the potential to lead quickly to much bigger sales as the product or service is rolled out across the company, where a sale to a small company might be a dead end.
- A sale to an industry leader will add to the companies credibility with external parties including other customers and potential investors or acquirers.
These seem like reasonable assumptions, but hard experience of working in small companies has also taught me there are lots of difficulties associated with selling to corporate giants:
- Sales take a long time. A VERY long time. Often many times as long as expected at the outset.
- Initial sales are almost always smaller than expected, often much smaller than expected.
- New barriers appear constantly and at every stage. Skill, cunning and tenacity are required to overcome them.
- Beware the extra evaluation step appearing late in the process.
- Having at least one enthusiastic and influential sponsor is vital, but more than one is preferable as sponsors can leave or move roles at any moment, leaving you back at square one.
- Travels bans, budget cuts, spending freezes and internal re-organisations will frequently disrupt the sales process, usually at the worst possible time.
- No deal is complete until the money is in the bank. Companies can and will renege on “promised” deals at the last minute for all sorts of reasons.
- Often initial deals have confidentiality clauses (large companies don’t want to be seen to be endorsing risky start-ups) so the hoped-for publicity and credibility may not be achieved.
Sometimes, usually as my forehead bounces off my desk at yet another set-back in a sales process, I wonder if selling to giants is really the right approach? Are the assumptions that make selling to giants seem attractive flawed?
I have done relatively few deals where I have been involved in selling to smaller companies, so I can’t really judge the relative effort involved. I think those deals were faster and smoother, but then the grass is always greener on the other side of the fence.
Lean startups based on the principle of producing the smallest viable product possible and trying it out with customers quickly are gaining popularity, especially for internet based software. For companies going down this path the number of users may matter more than what companies they come from – selling to giants is probably not a relevant idea. Most of the technology companies I work with don’t really suit this approach however. For hardware and semiconductor technologies, the cost of producing the first working prototype may be substantial, and selling a very small number to “experiment” with the market is not viable.
The argument that ultimately convinces me that selling to giants is the right strategy for many startups is that a successful sale of significant value to a market leader is transformative in a way that smaller sales, even several smaller sales, don’t achieve. The combination of cash from the deal, and the investment unlocked by such a deal, and the credibility conferred by such a deal are a huge prize that is worth all the hard slog and setbacks.
I believe the effort of selling to giants is worthwhile for certain companies – as long as the difficulties are not underestimated.
Do you agree? I’d love to hear other people’s views on – please do share your thoughts and experiences in the comments section below!