Whenever I talk to companies about about their go-to-market strategy, no matter how big they are, I find myself going back to the same question. I call it the $100 million dollar question. For some companies it might make sense to scale that figure down to $30 million dollars, but it’s the same basic idea.
Here’s the question: When you eventually become a $100 million dollar company, what will your customer base look like? Will it be:
Whenever I ask this question, some great dialogue always ensues. But it’s really important that you place yourself somewhere on that list, and I encourage people to pick one, not cheat and find something in between. Because once you answer that question, a lot of other stuff will naturally fall into place.
When we hit $100 million at Salesforce, we were closest to 10,000 customers paying us $10K/year. Our average sales price was about $15,000 a year. That was the rough sum of 20 users times $65 dollars a month times twelve months. So we had around 7000 customers when we were at hundred million.
As a contrast, a company like Workday is much closer to the 100 customers paying a million dollars a year. I think the reality is closer to $600k or $700k a customer, but they’re definitely at a different point in the spectrum that Salesforce.
When we started Zuora, we thought we’d be more like Salesforce. So that’s how we built our business model. Turns out we were wrong.
In fact, one day, we gathered up all the top people at the company and had a big meeting at an offsite. The question we had to answer was this: Are we Box, or are we Oracle?
At first it was more of a fun, throwaway discussion, because we all knew in our heart that we didn’t want to be big and boring like Oracle. Box was the future.
So we picked a couple of people to get up there and present both cases, like lawyers presenting arguments in front of a jury. The first person presented in favor of the Box, and everyone pretty much cheered them on.
Then the second person came up and made a really persuasive case for why we were Oracle. He really got us thinking.
He pointed out that we were a mission-critical system. When our technology has issues, money doesn’t flow into the bank. Our customers expected to be on a first-name basis with our Customer Success Managers. They needed us to integrate with lots of other in-house systems, we had to be able to work with big professional service firms like Accenture, and many of them were using us to replace established ERP systems like Oracle or SAP.
So we argued. And we reconsidered. And although we still wanted to be fun, modern, easy to work with and ridiculously customer-friendly, eventually we realized that our business model was closer to Oracle’s high-touch model.
We don’t have as many customers as Box, but our customers really depend on us, because we’re important to them. They rely on our services team, and they have high expectations. We’re handling their money, after all.
We looked at the spectrum, and we realized we were going to be closest to the “1000 companies giving us $100K/year” point.
Now does this mean we only do 100k deals? Of course not, we do 20k deals, 30k deals, 40k deals. But we also have customers giving us $1M or more a year, so it averages out.
So we came out of that discussion realizing okay look — we still want to be cool like Box. We want to be easy to work with, and we want a great brand. But our core business model is closer to Oracle. So we had to come to terms with that.
Determining where you live on that list is really important. The B2C companies are going to be more on the bottom half. Facebook is rock bottom. A company like Palantir, on the other hand, is way up on top. Their price points and their customer counts really define their product and their messaging.
Where you don’t want to be stuck is in a place where the math doesn’t work out. When you realize that you’re only going to have 1000 customers, you have to have a value proposition that enables you you to construct deals at the appropriate price point.
It means your value proposition has to be worth at least a hundred grand for the whole model to work, or you have a big problem. Conversely, if you can only do $1k/year deals, you better be building a scalable model that can get you to 100,000 customers. Otherwise it’s just not going to work.
Too often you see companies hitting 5, 10, or 15 million dollars, but then they realize that their prices don’t align with their model. They’re off. They can’t scale.
So answer the hundred million dollar question as soon as you can.