Discover more from The Breaking Point
Going Up-Market Will Not Solve Your Problems
Larger customers with larger contracts seems like a solution to all of your problems, but they are not.
If you liked reading this, please click the ❤️ button on this post so more people can discover it on Substack. Thanks!
I’ve worked with hundreds of companies over the years, and I’ve noticed a very common failure mode that goes something like this:
We’re going to sell to consumers! Actually, consumers are expensive to reach and don’t spend as much so…
We’re going to sell to small businesses! They look a lot like consumers to us and they will spend more. But, it’s still expensive to reach them and they don’t spend enough so…
We’re going to sell to enterprises! They look a lot like small businesses (just bigger) and they spend more. But, it’s slow to sell to them and they aren’t spending enough so…
We’re going to sell $1M deals to Fortune 500 companies! They spend a lot and will solve our problems, despite the very long sales cycles and heavy competition.
Some companies start at 1, some at 2 and others at 3, but wherever you start the progression is very common. The idea is that fewer customers that spend more will solve your business model problems! If a consumer would only spend $1, a small business might spend $100 and an enterprise might spend $100,000. That means I can sell one enterprise instead of 100,000 consumers which sounds much easier.
Unfortunately, this doesn’t work.
The Breaking Point is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
There are many reasons, but here are my top few:
The more someone pays the longer it takes them to make a decision. A consumer might take 30 seconds deciding to spend $1, while an enterprise might take 9 months to decide to spend $100,000. That longer time is your sales cycle, and it ends up eating most of the business model gains you thought you would enjoy by going after bigger customers. Additionally, since there is a lot of competition for those bigger purchases there is a higher likelihood the deal falls through the longer it takes.
The needs of larger customers are very different. You might believe that your product is equally valuable to large customers as it is to small ones, but it’s unlikely to be the case. The biggest companies value things like compliance, security and reliability while smaller companies likely don’t care much about any of those. There is a reason that few companies succeed in selling to both small and big companies at the same time! Your product needs to change significantly to meet the needs of different audiences.
Shifting your business takes a lot of time. It might seem easy to shift to selling to larger customers, since you’re just targeting a different set of targets. However, in practice it takes a long time to update your marketing, sales process, and in many cases team. Even if your product remains the same, the company around it needs to change! For example, when shifting from small businesses to enterprises you move from needing customer support to needing customer success, which are two very different skill sets.
This might seem like an obvious trap and something easy to avoid. However, when your business is struggling and you are desperate for growth it seems like an attractive short cut. I have met with many CEOs of unicorn companies who believe going after larger contracts will solve all their problems. It has never actually worked in my experience.
If you are looking for bigger contracts to solve all your problems, what you are really doing is avoiding your problems. Those problems likely include slow (or no) growth, lack of capital and negative margins. If you can’t solve those problems with your existing customers, a set of larger customers will not make them better.
Now, there are times when going upmarket is the right move! There are times when going downmarket is the right move as well. In those cases you will be pulled in those directions because larger (or smaller) customers really want to buy from you. If that’s the case, then lean into the demand! In these cases you aren’t looking to solve a problem, you are listening to the signals from the market.
In the end, there are never easy solutions to big strategic problems. If your business isn’t growing fast enough, trying to sell bigger customers won’t solve that for you. Take a hard look at your problems and get to the root causes, and address those directly.
Most of the time, your customers aren’t the problem. So, fix the real problem!
For more on Sales & Strategy, see:
When Customers Attack it’s an opportunity.
Do you have a question you’d like me to answer? Have a topic you’d like me to cover? Let me know by filling out this 30 second form and I’ll do my best to cover it in an upcoming issue.