Why Best Products Win Today
17 Jan 2021Product-led, bottom-up growth motion, later layered with top-down enterprise sales resulted in multiple best-of-breed products - Slack, Zoom, Github, and more. With the right product and execution, companies have developed a solid go-to-market (GTM) strategy that is much healthier and sustainable than traditional methods of software sale. Unlike traditional, pre-cloud GTM playbooks that were largely modeled after conventional ways of sales, the new way of enterprise SaaS GTM focuses on the end-user more than ever. What I find surprising among all this change is that the primary driver of this transformation is not a new technology or government policy but an evolution in customer buying behavior.
The Old Way
The old way of enterprise software GTM seems archaic today, filled with unnecessarily complex processes, requirements, and intermediaries who usually aren’t the decision-makers. Software was perceived more of an expendable tool that solves a laundry list of issues, plus learning curves were extremely high (not only because the product is complex but digital literacy has been relatively low). User experience was basically an unknown concept during these times, as software was purely a function of automating mechanical processes and needs.
1. High Opportunity Costs
Closing long-term commitments is crucial for top-down enterprise software to survive, yet the process to achieve that has been painfully long and risky. Simply put, the account manager and sales team carefully evaluate every client account, lots of conversations and string-pulling occur to talk to the company executives and find their budget, price is negotiated, and then all of the necessary tasks to confirm the sale (due diligence) take place while the sales engineering team begins the lengthy process of training and educating the client on the implementation and use of the product. As opposed to today’s data-driven decision making, sales cycles were heavily relationship-driven, making the lengthy process even more fragile. In a market where on-premise licensed software has been the majority, the process of buying software - composed of bidirectional (vendor ↔ client) evaluation and negotiation, lengthy implementation, software training, etc. - takes an overwhelmingly large amount of time. And because the process takes a lot of time, money, and effort, “safe” products are naturally preferred over “great” products. The opportunity cost of changing vendors is just too high once a decision has been made. Hence the software industry gravitates towards creating heavy beasts that only aim to meet all of the requirements of the largest enterprise buyer.
2. Cold, Heavy Beasts
Softwares with massive amounts of features and no consideration of the end-user are cold, heavy beasts. These beasts are a result of lengthy, toxic sales cycles that require products to check all of the right boxes of the enterprise buyer’s laundry list. Outbound sales being essential to the survival of traditional software companies, product teams were required to just add, add, and add to satisfy their clients. This leads to a vicious loop of more features → more demand/money → more features, feeding the beast to get even bigger. As the beast grows, its movement slows and legacy gradually holds the company from evolving to meet the ever-changing needs of its customers. In fact, the underlying agreement of license-based software (one-time sale) is that there will be no meaningful updates until the next version, which might take years to develop. Feedback loops are long, end-users become unhappy, and products like Windows Vista are born (no offense).
Decentralization of Choice
As digital natives entered the workforce, digital literacy increased significantly and the opinions of end-users began to weigh more. Users no longer wanted to surrender to bad products - I’m quite convinced that early startups, hackers, and prosumers brought on this wave of a generation that just didn’t want bad software anymore, so they built their own. With this change, new enterprise software companies started to experiment with a new, underdog-like GTM strategy what Peter Lauten and Martin Casado of a16z call ‘Growth+Sales’. The significance of this change is that the “complexity of the traditional sales cycle collapses into a single decision-maker: the end-user.” Think about it. The end-users don’t care how the sales pitch of the product sounds like. They don’t care about the lofty promises made by the company. The user only cares how well the product delivers on solving their problem, today. Product-market fit began to matter more than how elegant you were in enterprise sales - a decentralization of choice.
1. Users Matter: a user-centric approach
I personally believe that the user-centric approach of building products is the single largest factor in the rise of design and UX (btw check out this amazing essay on Figma by Kevin Kwok). Safe products just no longer make the cut - not to mention cold, heavy beats. Sleek design, features that precisely solve the user’s pain point, convenient accessibility, and the feeling that “your problems and opinion matter” really make products today the obvious winner over older products that only cared about the institutional decision maker’s appetite. At its core, the product development process of today’s software and older ones is very different thanks to the lean startup movement and YC. Products today are born out of the need to solve user’s pain points and needs. On top of that, it’s not just about whether the problem is solved, but “how” the problem is solved matters. The experience and emotions matter.
2. Organic Spread
Traditional enterprise industry treated end users like kids. As kids we wear what our parents get us and eat whatever’s on the table - decisions are made for us. But that’s because we literally were kids who need guidance. We’re not kids anymore (I think). Unlike traditional enterprise software which was commonly adopted top-down by default, the bottom-up approach of modern day SaaS products enables an organic spread amongst users who love the product. This naturally gives way to enterprise-level adoption once the penetration rate of employees (who are also end-users) using the product breaks a particular threshold level. Obviously, word of mouth marketing organically happens only if the end-users had an amazing experience using the product; hence such phenomenon was unlikely for traditional softwares. Consumer-style growth strategies begin being applicable
Product-led, bottom-up growth motion of enterprise software really changes everything. Everything for good. End-users being the primary decision-makers truly changed the way companies design & build their products and paved the way to more efficient company structures (i.e. product-oriented teams), healthier go-to-market strategies, and effective sales processes. It even changed how investors evaluate opportunities in the enterprise software space. Most importantly, this phenomenon places startups in the most advantageous position possible. If sales were the largest factor of commercial success in the past, ‘product’ (and everything that revolves around it) took the driver’s seat today. No doubt that traditional sales methods are still useful, but it cannot be the main driver. That’s why the best products win today.
References Growth+Sales: The New Era of Enterprise Go-to-Market by Peter Lauten and Martin Casado The “$20M to $500M” Question: Adding Top Down Sales by Sarah Wang and David George Arc of Collaboration by Kevin Kwok Product-Led Growth in SaaS: Identifying the Challenges and Opportunities by Despina Exadaktylou