Deep Dive
Why does 37signals avoid targeting large enterprise clients?
Large enterprise clients can become a burden, requiring disproportionate attention and resources, which detracts from product development and autonomy. They also pose a significant risk if they leave, as they often dominate revenue streams.
What are the hidden costs of serving 'whale-sized' clients?
These clients often demand personalized attention, require extensive support, and can dictate product features, turning the company into a consulting firm rather than a product-focused business.
How did Twitter as a client impact 37signals' business model?
Twitter, despite being a large client, initially paid a minimal fee for a service that required significant server resources. When 37signals increased the price to $5,000 a month, it created an expectation of personalized service, which was not sustainable for the company.
What are the incentives for companies to chase large enterprise clients?
The allure of large contracts and the perception of legitimacy can drive companies to pursue these clients, but it often comes with the risk of becoming overly dependent on a few customers and losing control over product development.
How does venture capital funding influence the choice of clients?
VC-funded companies often feel pressured to chase large enterprise clients to meet revenue targets and valuations, which can lead to a focus on short-term gains over long-term product satisfaction and business sustainability.
What are the differences between selling to small and medium-sized businesses versus enterprise clients?
SMBs typically have a more straightforward purchasing process, with the decision-maker often being the end-user. Enterprise sales, on the other hand, involve multiple layers of approval and often result in software bloat to meet various departmental requirements.
Why do enterprise sales cycles often result in inferior software?
Enterprise sales cycles involve non-users, like lawyers and accountants, who influence decisions. This leads to the inclusion of features that cater to bureaucratic needs rather than improving usability or functionality.
What was the turning point for 37signals in deciding to avoid large clients?
The experience with Twitter, where the company had to provide disproportionate service for a large client paying a relatively small amount, was a pivotal moment that highlighted the drawbacks of serving such clients.
What are the consequences of taking on high-maintenance enterprise clients?
These clients can disrupt product development, require extensive support, and create a business model that feels more like consulting than product creation, leading to a loss of autonomy and enjoyment in the work.
How does the type of software influence the decision to target enterprise clients?
Software that becomes exponentially more valuable with more users, such as platforms, may benefit from enterprise sales. However, for tools like Basecamp, which serve a broad range of users equally, enterprise sales are less appealing.
- Large clients become a burden and risk.
- Disparity between big and small clients creates instability.
- Over-reliance on large clients makes you beholden to their needs.
- A static business with similar-sized clients is more stable.
Shownotes Transcript