How do I do a market pivot while retaining revenue from current product?

My startup created an enterprise product, and within 3 months of beta had signed up 3 high profile customers, the revenue of which covers our basic operating costs (but not salaries).

Since then, we have discovered that our enterprise offering doesn’t have enough revenue potential to be worth the long sales cycle and enterprise feature demands (certain companies demanding that you build out specific features before they will work with you, etc). At the same time, we have been getting a lot of inbound sales from SME and individuals, and it appears that a consumer product with an enterprise option may actually be a better revenue source and market for us, and actually has HUGE potential. 

The problem is, we are bootstrapped and essentially out of resources, and we need to maintain and add critical features to the enterprise product so we a can keep our high profile enterprise customers, while essentially forking and refactoring our enterprise product into something with SME onboarding and a different marketing approach.  It’s critical that we keep our high profile customers during this process because they will greatly aid us in getting more small customers.

I want to try to get funding for this, but not sure how investors would react to the complexity of maintaining an enterprise product while building the more promising product. I’m not sure what other options we have – I’m cash poor from bootstrapping the business for a couple of years, so am about to take freelance work and hoping to use my income to pay developers, but not sure if that’s the most efficacious approach because we need more than one or two part time developers to keep things running. Because we’ve been around for a while, I’m not sure I can tempt people with equity anymore.

Any advice or suggestions?

 


  • Well if you get funding then you don’t have to support your enterprise customers anymore. If you’re concerned about them bailing when you don’t support them anymore, then give it to them for free after you get your funding and focus on the SME version.

    You mentioned you bootstrapped a few years – so it took you a few years before you went to beta?

    • It took us about 8 months to get to private beta, which was in august last year, and then we launched with our high profile early customers in november. That’s a good point on giving it to them for free – though I’d be more inclined to give it to them at cost (it’s a fairly expensive to run tool), which is maybe good enough.

      • Interesting so what happened between then and now? If it took you only 3 months to sign up 3 large customers, thats pretty good.

        • We’re in a really specific vertical and the customers we got initially were red herrings in terms of how quickly they signed up and revenue potential. I’m new to enterprise so that was on me, I really didn’t understand that the speed with which our early adopters signed up was unusual. We still have good leads, but the real enterprise sales process is kicking in now with the others and we’re at 6mo, 8mo kind of sales cycles with very high touch and lots of demands, some of which would cost us more to deliver than these folks are worth revenue wise. Can’t explain too much more without giving a lot away.

          • In the meantime though, we have been signing up a healthy amount of non-high-profile customers, even individuals. So that’s where the lightbulb went off.

            • Ah I see. So the enterprise customers were kinda “warm leads” – ie folks who knew you guys before hand?

              Have you considered outsourcing parts overseas? I find as a developer its easier to do that since I’m able to monitor code quality whereas someone non-technical would have more trouble executing this.

      • “Well if you get funding then you don’t have to support your enterprise customers anymore”

        which really says:

        “once you get money to ignore your early adopters, you can screw them over and ignore every promise you’ve ever explicitly or implicitly given them about your company and product”

        That’s a real dick move.

        • So you’re saying you have to go broke to support unprofitable customers.

          What school did you get your MBA from buddy?

  • Pivoting to SME is absolutely the right choice in 95% of these situations. If the 3 enterprise clients are not bringing in enough money to pay salaries, how much are they really paying? Because it sounds like you’re losing money on those enterprise sales if take all your expenses into account.

    So focus 100% on SME, and raise money for that if you can. Fund it through freelancing if you think you can get to profitability that way within the next 6 months or so. Stop working on the enterprise product altogether. It’s a dead end and a money sink.

  • You may look at other software that has the three typical software distribution categories.

    Freemium as a business model comes to mind.

    Offer a free, possibly opensource version that has SME support for a fee, and SME features for a fee.

    Then leave your enterprise as top billing and feature-rich option. If your free and SME version can be deployed as a SaaS product and your Enterprise version can be either a on-prem or SaaS version all the better.

    Here’s why; freemium open-source will get you the developers for free that submit code that you choose to deploy into your enterprise code as hardened code, while the opensource space figures out the problems and interesting new features.

    Enterprise clients are not easy to come by, but ask anyone with Lotus Notes, Windows XP, or IE9 if their enterprise likes change.

    Also, opensource with a closed-source enterprise option is a good way to get into international government software delivery, too. As the IT girl/guy will try before they buy, and quickly escalate to enterprise tier once your product is commonplace in their day-to-day. As such, make the transition from each tier as seamless as possible, but no more.

    In the immediate term, look at online resources for seed financing, as well as contact local software clubs to see if they’ll work on one of your toughest problems for sponsoring their next get-together (hackathon maybe). Or contact a local university to see if they want to work together on a capstone project where MS CompSci and MBA students work on converting your enterprise business into a freemium mixedsource organization.

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