Moving Upmarket: What It Is And How You Can Do It
In 1999, a customer relationship management software called Salesforce was founded. It catered to small and midsize businesses (SMB) and continued to do so for almost two decades.
But in 2017, during a recap of the community-led event called the Salesforce Analyst Summit, the company’s lead engineer did not mention adding any SMB company. It would appear that Salesforce has shifted its focus from SMBs to enterprise clients.
And true enough, Salesforce’s growth in revenue over those years was driven largely by enterprise-level companies, not SMBs. Due to this massive change in its target market, its revenue has grown considerably.
This is an example of moving upmarket.
But before we dive deeper into its very concept, let’s look at some terms and some SaaS history.
What Is SMB SaaS?
SMB stands for small and midsize businesses. The most common measurement used for evaluating the size of a company is the number of its employees.
Those that have no more than 100 people in their workforce are considered small businesses. Meanwhile, enterprise-level companies have more than 1000 employees.
Most businesses of this size use enterprise software to run its daily operations. These are software that they buy and then install in their own in-house server.
Now, most SMBs do not have this kind of IT infrastructure. That’s where SaaS comes in.
Subscribing to SaaS solutions works more like “renting” it rather than buying it one time.
And instead of having your own server, you share it with other organizations that are most likely small or medium in size. The software is hosted in the cloud and is accessible using the web.
A Little Bit of History: Enterprise Supremacy
Here’s a summary of the SMB and enterprise SaaS markets.
Previously, the goal for B2B software providers was to acquire deals with big companies.
This makes sense from a financial standpoint. Enterprises have large budgets for their software needs, which leads to high annual contract values (ACV).
What’s more, it’s relatively easy to find these types of companies as they’re in the news, the stock market, and in the Fortune 500 list.
The churn rate for enterprise clients is also low. Once they start using your software for their systems and workflows, they’ll soon rely on your solution.
That makes it more difficult to replace your service. This is doubly true if your software has features that aren’t offered by other SaaS products.
Moreover, this reliance means you can form long-term relationships with the company. This increases your chances of upselling more features with them in the future.
At the time, software startups wanted to transition from the SMB market to big companies as soon as possible.
SMB clients meant more resources are spent in finding and nurturing leads. On top of that, they bring smaller contract values due to their limited budgets. And since SMBs are more likely to go out of business, there is also a higher churn rate.
But as technology progressed, the market quickly evolved with it.
The Rise of SaaS
The SaaS industry has made significant leaps in the past 20 years.
As internet access became increasingly efficient and affordable, web hosting solutions became ubiquitous and advanced.
This reduced the need for businesses to have an in-house server for their software.
Moreover, a lot of startups have emerged, many of which are SaaS businesses themselves. With thousands of ambitious startups on the rise, SaaS found greener pastures in the SMB market.
New businesses began selling to other startups. The result? Skyrocketing growth.
Since then, SMBs became a viable market for SaaS businesses. And throughout the years, there have been many reasons to focus on the SMB market.
One would be the quicker sales cycles.
Unlike enterprises where it’s difficult to directly talk with executives, SMB founders are easily reachable. This makes the sales process easier as you can directly talk with someone who makes the final company decision.
Another reason is that SMBs have simpler needs. They don’t usually require complex data migrations or integrations. As a result, SMBs can become early adopters, especially if your product solves the exact pain point they have.
One of the trends that emerged when it comes to the growth of SaaS companies is the T2D3 framework. An investor by the name of Neeraj Agrawal came up with the idea.
Put simply, the T2D3 framework says that a company’s growth must triple in annual revenue every year for the next three years then double per year in the next two.
Companies following the T2D3 framework can grow its revenue from $1 million to $100 million in just five to six years.
That speed accelerated the SaaS industry’s expansion. Companies like Salesforce, Zendesk, and Quickbooks have become trailblazers in their own fields.
But even though the SaaS market was once lush and green, saturation quickly became an issue. Cutthroat competition, price wars, and a host of other problems turned the landscape red.
Thus, SaaS companies began eyeing long-term clients to secure its growth, both for the short- and long-term.
And what brings high-value and long-term contracts? That’s right—the enterprise market.
Moving Upmarket In SaaS
Moving upmarket simply means starting to sell your products to people with more money. In the B2B SaaS context, it means scaling your market to the enterprise level.
Huge companies have bigger budgets for their software needs. They bring in higher annual contract values. And they usually take multi-year deals.
In short, they bring a much higher customer lifetime value (LTV).
How To Move Upmarket
Sure, there are different strategies for the growth of each business and market. But what proven steps can a SaaS business take to go from an SMB market to acquiring enterprise-level clients?
Here are a few that you can start with.
1. Know Your Target Market
The key to successfully moving upmarket is to know your new target market.
Identify what problems they are trying to solve. Discover what they like and don’t like about the software they are currently using. Is there a way for you to further smoothen their workflow?
By collecting insight into your target market, you will know what kind of product they need and how to market it effectively.
Another way you can go about this is to track your fastest-growing customers. Your SMB clients can grow into enterprises themselves.
While it can be tempting to ignore low-value contracts and immediately go after big players, do not completely ignore them.
Always monitor the growth of your customer base.
Better still, try helping them reach enterprise level.
Moving upmarket as a result of your clients’ growth sends a clear message of how valuable your product is.
Moreover, as you turn into an enterprise-level SaaS solution, they will be your first customers. And loyal ones, at that.
2. Develop Your Product
If you did your due diligence on your target market, you’ll know what kind of solutions would solve their prevalent problems. Develop your product around that and create a product-market fit.
Enterprise solutions in SaaS are usually customized based on the client’s specific needs. There would be a lot of third-party software integrations and data migrations. Not to mention priority customer support and dedicated account managers.
We’ll explore those last two things later.
For now, let’s talk about the developments you could make to your service.
Enterprise needs are much more complex than SMB’s. If you are going to let your new clients customize their plans (which is common in enterprise SaaS), there is also a need to produce and propose quotations.
While features vary for different niches, here are common things that are included in enterprise SaaS plans:
New or scaled features: The very soul of product development is scaling your features and introducing new ones. Build your new features around the problems that your new target market has.
User permissions: Enterprises have a considerable number of employees in various departments in different locations. They will need varying levels of user permissions for their more complex organizational structures.
Admin tools: Big companies usually need admin tools for managers. These types of users don’t need to use the primary features. But as admins and supervisors, they need to be able to access data in their respective teams and departments.
Third-party software integrations: Enterprises are already using a lot of different software for their needs. They will require your SaaS product to be able to integrate data and functions with that software.
Having native integrations requires agreements with those other software providers. But most software also gives their customers access to their application programming interface (API). This allows their clients to customize their own third-party software integrations.
GDPR compliance: Data security is one of the most important things for large companies. Enterprise-level SaaS products must adhere to the General Data Protection Regulation (GDPR) to assure your customers that their data is secure.
But to balance all this, you need to stay true to your product roadmap. Yes, there is a huge opportunity to address a wide range of problems in your new market. But you always need to go back to your value proposition.
Pick only the changes that are in line with your product roadmap. Otherwise, the costs could far outweigh your potential profits.
3. Double Down On Marketing & Sales
This is already a huge part of any kind of business growth, not just moving upmarket. But now that you’re switching from one sector to another, you need to make a big fuss about it.
There are different factors to consider when planning your marketing and sales strategy.
One would be your pricing.
Your SMB pricing most likely doesn’t include multi-year plans or high volumes of users. As such, you need an on-point price range to attract customers that would still reflect the value of your product. That’s why it’s important to come up with the right pricing model and strategy.
Another thing to consider is your branding.
You have a new target market with new demographics and preferences. You have new customer personas to base your strategies on.
That means different keywords and distinct approaches for content marketing.
Enterprises pay more attention to the nitty-gritty content like white papers and case studies. So have salespeople who are ready to tell them all they need to know.
Speaking of sales, negotiating deals with huge companies will take longer. Sales cycles may take up to a few months, or quarters, or even a year.
As such, you need a strong sales team on board. Enterprise buyers won’t just go to your website and click buy.
They will look for someone who can answer their questions and meet their unique requirements. You will need to provide extensive demos and product tours, among other sales efforts.
4. Improve Customer Support
Enterprises have more on the line compared to SMBs. They have more customers and more data all across a wider geographic territory. The slightest malfunction could cost them hundreds of millions in revenue.
This is why moving upmarket needs a strong support team in place. Customer retention is of premium importance in the enterprise market.
They bring high ACVs to the table. And that makes churn even more painful.
One of the common support concerns in enterprise-level SaaS products is customer onboarding.
Clients probably have hundreds or even thousands of employees that would use your product. And you need to be able to show all of them the ropes.
The onboarding process is also your chance to make a good first impression on your new clients. If it goes well, they will know that they can rely on you, especially when they encounter problems along the way.
Enterprise-level SaaS solutions usually provide dedicated account managers to their customers. They are responsible for building relationships with current clients by addressing their concerns and training them on using new features.
They can also find opportunities to upsell and ultimately increase the overall ACV for that customer.
5. Find Potential Partners
Who says that you have to do it alone?
Moving upmarket, or just growth in general, also involves finding strategic partnerships. These are growing SaaS businesses whose products may not compete with yours but are operating in the same space.
Partnerships give way to native integrations and exclusive deals. These would also help your marketing and sales efforts.
Long-lasting success is the goal for any business. If done right SaaS companies starting out in SMB markets can grow up to a hundredfold in five to six years.
If you sustain that growth, there will come a time that you will need to level up your target market from SMBs to large companies.
Moving upmarket is a risky move, but is definitely a good goal for growing SaaS businesses.
It costs a lot of money. It needs heavy manpower. And it takes a lot of planning.
But if you do it right, the rewards are worth all of that.
For more strategies on growing your SaaS business, click here.