Monday, October 6, 2008

Enterprise vs Consumer plays

Article: Moving From Enterprise To Consumer.
Posted on Silicon Valley Product Group Newsletter – October 6, 2008. I couldn't find a link online.

Another good article on the topic -

Article: Moving From Enterprise To Consumer.
Occasionally a company starts its life as one type of business but then finds that they need to change into another type of business. The most common such transition I see is to start by building products for very large companies (enterprises), but then decide you need to switch (or expand) to sell to consumers and/or small businesses.

Even before the recent turmoil in the financial services industry, I was often asked by enterprise CEO’s how can they change course to a consumer company. Or, I would be asked by product managers how to make the move from product management in an enterprise company to product management in a consumer internet company.

There are many potential reasons for this.

It may be because the company has saturated the enterprise market. Or because they determine that there simply aren’t enough companies out there with pockets deep enough to pay what they would need to survive. Or because their investors point to the dramatically larger market of consumers and small businesses and say that’s the new objective. Or sometimes companies simply tire of their fate being driven more by deals on the golf course, rather than the fruits of their product efforts.

For whatever reason, if your company decides it must evolve from an enterprise business to a consumer business, then I’ve learned that there are several things that you can do to increase your chances of success.

I will warn you however that changing your company like this might sound easy but let me assure you it’s not. In fact, most companies don’t survive the transition. Unfortunately, often this transition is necessary, so the business may not have any choice but to try to change.

Note that much of this also applies to product managers that wish to transition from working in an enterprise software company to a consumer software company.

Corporate DNA

First, realize that whether intentional or unintentional, your company is surely populated by many people that have spent their career in enterprise businesses, and that’s the world they know.

There are clues to this all over the office. Do you see anyone with ties on? Do you have a direct sales organization? Does the company have a box at the local arena to entertain clients? Do you have a customer briefing center? Is your company name along the side of some race car or sailboat? Is the role of marketing at your company to support the sales force? Do you see a lot of specials? Are there a handful of very big customers that cause the entire company to bend over backwards?

At a superficial level all of these things may seem easy to change, but they stem from deep down beliefs about how to run a business and how to attract and retain customers.

Start at the Top

The CEO must tackle this DNA issue head on and take a hard look at the culture and the organization and consciously set the new tone. This will almost certainly require some new blood on his or her staff with the new DNA.

But it’s also almost certain that there will be people in the company that will resist these changes, and push back hard. Many of them see the writing on the wall and know they are fighting for their jobs. Fortunately, many of them have long wanted to make the switch to consumer but with their enterprise experience have had trouble finding a company to take them. If your company is willing to teach them what they need to learn then they can often become strong supporters. But honestly those that don’t want to move will need to be moved out of the way.

Consumer Companies

I’ve written earlier about what makes a great consumer internet service (see so I won’t repeat that here, but I will emphasize a few key points:

- You only survive if you create a product that hundreds of thousands if not millions of people want to use.

- With consumer products, every customer is a user, and as such, every user makes the decision to purchase or use.

- It’s all about scale – the ability to scale the software, to scale the marketing/customer acquisition, and scale the customer support processes.

- In an enterprise company, it’s really mostly about sales and the sales organization. In a consumer company, it’s all about product, with a good dose of online marketing challenges as well.

- Because you can’t depend on training classes, online tutorials, or an SE to hold the hands of the new users, the product has to be dramatically easier to learn and use. This means building out a user experience team that knows how to design this type of software, and a product organization that knows how to work with this team to define, design, build and run this software.

- In an enterprise sale, you may have charged on average say $100K in license fees with $25K in yearly maintenance, and of course the marginal cost of the software is essentially zero, so there’s plenty of room for the sales rep, the SE, the big dinners with the client, the time required for custom RFP responses, the special visit the engineer makes to customer to help get the software working, etc. But for a consumer or small business sale, for say $25/month/user (and realize that most consumer or small business revenue is actually significantly less per customer), you obviously have no room for such luxuries on a per customer basis. Even at $250/month per small business you have no such room.

- In consumer products, the software absolutely has to actually work. No more leaning on professional services or SE’s or integration partners to glue things together for the customer. It has to work, work well, and work immediately. Exceptions to this will destroy your customer service costs and erode your margins.

Back to the Culture

Much of what I’m describing above has to do with skills and best practices, but a lot of this is really about the culture, and I think that not enough companies attempting to make this transition pay enough attention to the cultural aspects.

Remember that in the consumer software company culture, it’s not about ties or sales or big customers, it’s about how many people are loving the product, how do you make the product even better, how do you get people to engage even more with the site, and how do you continue to get the message out to others that will love the product.

Once companies truly get this, they usually end up significantly reducing the size of the sales and sales support organization, and significantly increasing the size of the product and marketing organizations.

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