In 2002, my dad took me to walk our dog, Nas, and gave me “the talk". I was in my second year of engineering school (out of 5) and had plenty of time ahead of me. Or so I thought.
Dad - You're almost done, and soon you'll have to make a decision. I know you like to program and do geeky stuff, and if that's what you want to do for the rest of your life, that's great. But you need to know that if you invent something, someone with a business background -who will have spent fewer hours in the library than you- will likely take your invention to market, profit from it, and likely take the credit.
Me - ...
Dad - So you need to decide if you want to pursue the geeky career, or become the business person. Those are very different paths.
I was 20 years old, had a young wire-haired dachshund pulling on my leash, and a probability and stochastic processes problem set to go back to. That future seemed so far away. This conversation chased me for the following 5 years and defined who I was to become.
Who is your customer?
One of the early decisions of the latest version of Olapic became what segment of our customer base we were going to go after.
In B2B software companies, you broadly categorize the market between two groups: the large enterprises, and the rest (aka, the long-tail). The trade-off is simple: do you want a few large customers that pay you a lot or a large amount of very small customers that pay you very little.
The new entrepreneur may say both! Unfortunately, that's an option that is not really available. Fundamentally both segments are very different. The enterprise is needy, usually requires support and different set of features to “fit” their internal policies. They also have a fat checkbook to get things done. The long-tail is “anonymous”, self-served, with simple, yet unique problems that need solving, and not much time to dedicate to them. Ah! And they are also cheap.
Going after one or the other will determine everything: the product features you develop, the pricing model you pick, and, more importantly, the organization structure you build. Going after both, is very difficult, as it would require you to juggle both product roadmaps, pricing strategies, and build different teams. You must pick one!
But how do you pick?
I'd argue that the main driver for this decision is the context of your product/company/market. In the simplest terms:
1) if you are an innovative company, creating a new product, a new market that not even your customers know they want: go for the enterprise.
2) if you are a creative company, with a revolutionary, better product for a category that is already established and has incumbent players: go for the long-tail.
In our case, at Olapic, we decided to go for (1) for a few different reasons:
Category leaders in adjacent spaces had gone enterprise first. We looked up to Bazaarvoice and Buddy Media. Both owned the best brands, the largest enterprises as customers. And both had the best/largest outcome as a company.
It fit our business model. At Olapic, we increased our customers’ conversion rate of e-commerce companies by 5-7%. As a result, we were able to increase their revenue by the same amount. What we were able to charge (roughly 1/10th of the revenue increase). So we decided to look at the distribution of the e-commerce sites by volume of sales. After some number crunching thanks to wolframalpha.com and some basic algebra and calculus, we determined that the bulk of e-commerce sales (aka. 90%) was attributed to less than 10,000 sites. Globally. If our revenue was going to be 10% of their revenue increase, we might as well go after the first 10,000. Enterprise it is.
The drag-along power of famous brands. When we launched Olapic, our idea was cool at best. But few wanted to implement it. We needed some serious market validation for it to be adopted. We imagined that if Adidas or Amazon were to use Olapic, others would have fewer questions and larger budgets. Going after the enterprise would help us gain trust. Fast.
Converting end-consumers. Our product is genuinely useful to shoppers. It allows them to see products in a different, more authentic, light. It helps get conviction in the purchasing process. Our initial problem: end-consumers didn't know this was an option. Our final reason for going for the enterprise: they had the reach. With one customer, we would get millions of end-consumers to experience a better customer experience. In turn, they would request from other brands to implement similar programs.
Not everything is perfect
One thing we did not foresee in our strategy were moats. The main problem the enterprise has is: there are few of them. SaaS companies’ main moat are broad/large customer bases (count of customers) as you can spread development costs amongst a large number of customers and charge very little (economies of scale). The enterprise market is not a large number of customers, so you will be exposed to low-cost copycats that will drive the market of your product category down.