Why do Enterprise companies make SMB plays, and how?

Jul 24, 2023

Not many people would argue with you saying "Microsoft is built on sales-led strategy" because it really is, now. Microsoft leans into bundling to win in categories like chat and video conferencing, where Zoom and Slack are their fierce competitors.

But back in the day, Microsoft sending users a disk to install with spreadsheet, document, and presentation apps was the start of product-led growth.

To this day, I've never gotten on the phone with someone from Microsoft if I'm having an issue with Office. This is a Product person's dream:

  • Next to no customer service expense

  • The product upsells itself

  • Few people can realistically live without it.

It's just easier to buy Microsoft Office than to hard-headedly avoid it. 

It's all roses owning the Enterprise chunk of the market. But a legacy company like Microsoft, Oracle or Cisco, might want to make play into the small and medium business market or SMB.

Downstream, there's an opportunity to capture small clients and grow them into enterprise-sized companies, so how can they do this?

How can legacy companies go downstream?

There are two ways a company can make an SMB play:

1.Buy into the segment

A legacy company would have the cash behind it to buy an existing product-led company. If IBM purchased Docusign or Calendly tomorrow for example, I'd assume that's their play.

This is expensive, and can be risky. You're tying yourself to that brand, essentially, because a successful rebrand would likely wipe out any financial benefits of entering the category. For me, this strategy of buying into the SMB segment makes sense if you simply want to wipe out the competition.

Cisco did this in 2017. The tech giant bought out BroadSoft, a cloud services telecom firm then Perspica, an application analysis firm to keep up with rising cloud-focused SaaS.

2. Build a product for SMB

This is harder, but more sustainable. Implementing a product-led (or PLG) strategy means giving users the ability to make their own adjustments to your product. This is empowering for customers.

When you go downstream well, it brings in more users on both ends of the spectrum. They stay longer, they don't miss product calls, and one other massive thing happens: Expansion revenue comes in 2-3x faster.

The thing is... Legacy companies tend to make a PLG play for profit. That is an uphill battle, ironically because they want to go downstream...

Product-led growth: What legacy companies do wrong

Having decided they want to go downstream with product-led growth, there's a stumbling block awaiting legacy companies — the mental shift.

The mentality to switch from sales-led growth to a primarily product-led strategy successfully needs to be: We're going to improve the UX by empowering users.

What's the mistake most companies make when going after PLG? Hunting for profit.

YES, an awesome product play will bring profit.

YES having both sales and product-led growth reinforces a company's longevity, but profit can't be the motivator.

I can't say this enough: If you go downstream, chasing PLG, and your only metrics are conversion and ACV — you're going to be sorely disappointed.

What's the best combination of sales-led and product-led growth for your business?

If you're asking: How can I make more revenue with less? Then product-led is the engineer's dream: DIY sales and "easy" growth.

However, I compare product-led to long-term investments: You have to put a lot in before you just leave it to do magic. Sales-led growth can be more intensive, but founder-led sales in particular is what I recommend to early-stage startups.

What should big companies with no SMB offering do? I definitely recommend diversifying your portfolio. Now that you have a share of the market, instead of pumping more money into the same, choose the opposite of your main investment as a diversification strategy.

In short: If you're running a product-led growth strategy, add sales-led. Founder doing all the sales? Develop product-led growth using their knowledge.

Find out what's perfect for your company's stage and industry

Reach out to me and the SellingSaaS team to get a deep-dive analysis of your ideal growth plan. I'd be thrilled to do a free strategy session with you or you can listen to the SellingSaaS podcast if you just want more info on product-led and sales-led growth.

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