Yesterday I had the chance to talk to an entrepreneur and CEO of a startup, in the CRM B2B space, who was building a sales productivity application for lead generation.
Over the last few years they have built the product, acquired 1400+ paying customers, and raised over $10 Million in funding.
The current product can be used as a SaaS application, standalone, and many customers continue to do so, but increasingly many sales teams are asking for an integration with Salesforce, their primary Sales Force Automation application.
The CEO reached out to me to ask for my opinion on other products in the market and the possibility to Go to market with them if the integration was completed.
In this particular case, the startup’s product was being used by the individual sales representative for personal productivity and to save time, the Salesforce CRM system was being used by the managers and Sales executives to track deals, team productivity and pipeline.
So, while there was an incentive to integrate, it would benefit company’s customers, and help their users be more productive, the likelihood of them really being displaced by another solution did not dramatically change because of this integration.
The CRM system was / is still the “system of record”, and that was not likely to be changed, but the startup’s product would live and die by individual sales representative’s ability to get value from it – a more tenuous position. The cost of integration was non-trivial as well.
I think most entrepreneurs in B2B face the challenges of “legacy” or “systems of transaction and record” in the enterprise – be it old, behind the firewall systems, or newer cloud based applications as well.
The main value(s) smaller SaaS companies see from integration are:
- Become a part of the process and system for a large company, ensuring annual commitments and increase the “switching” costs.
- Ability to increase their market opportunity by going to the installed base of customers of the legacy software solution to sell their product and showcase scenarios where it can enhance productivity for the customer.
- Speed time to market adoption by looking at Go to Market (GTM) opportunities with the legacy vendor so the installed base can be co-marketed to easily without friction.
Of these the, prioritization for the startup tends to be 3, then 1 and then 2.
For the customers, it usually tends to be 2, 1 and then 3.
For the legacy vendor the prioritization is not so clear.
If they are growing they dont see the GTM with the smaller vendor valuable at all.
If they are not growing, then having another product integrated into their existing install at a customers, furthers their “cost of switching” and ensures they will continue to be a customer, which is beneficial.
Many other criteria also are considered – if they think of the startups product as ancillary, or enhancing their product, they might actually prioritize it similar to how their customers do.
If, however the legacy vendor thinks of the product built by the startup as core, they might try to build or acquire the startup.
The key part is acknowledgement by the startup and partner that it is not always an obvious answer and in many cases the statement “Lets do what’s right for the customer” – is not well received by the party that perceives the outcome “less than optimal”.
If you were a smaller startup, integration is critical only if the user / customer demands it and your deal depends on it. I would go so far as to say don’t expect the legacy vendor to embrace you right away.
In fact, expect them to notice you, have internal discussions to “build it in-house” or “acquire” you before they decide to partner or “Go to Market” with you.