Despite all of my years in the enterprise technology industry, every time there is a large enterprise purchaser, I am surprised and reminded of just how difficult it is to get a deal across the finish line with a big company. Big companies develop a kind of procurement arrogance that hobbles their ability to move forward efficiently. Internal politics and fiefdoms, and legal and IT mandates create numerous hurdles in the path of progress. The businesspeople know what they want, but the arrogance of procurement, legal, and IT leads those groups to assume they know better, and they are the self-styled protectors of the company intent on slowing down purchases and insisting on their pet requirements, regardless of whether they make sense in the context of the business.
Our prospects are operational businesspeople, and they do not routinely buy technology products. As a result, they don’t really know how to buy technology, or more importantly, how their organization buys technology. That naivety leads us to face two sales cycles instead of just one. The first cycle is to convince the business buyer that we have the platform they want. The second cycle is to help the business buyer sell the purchase internally, and it requires us to navigate the gauntlet of all the procurement influencers and decision makers to finally get a deal signed. The business buyer, and frankly many salespeople, are often surprised by some of the crazy demands, hurdles, and minutiae that pop up when IT, legal, and procurement get a hold of a deal.
Fortunately, an experienced enterprise sales team knows what to expect. They are adept at educating business buyers about the process early in the deal. They tell them what is likely to happen and encourage them to get ahead of it: engage IT early, start working with legal early, line up signers and inform everyone that the transaction is coming. Despite our best coaching, however, some corporate bureaucracies are just insurmountable and simply must run their course. These procurement machines become an unstoppable force - they have their “process” and nothing is going to change it.
The good news for a SaaS business is that while we measure bookings, meaning signatures on contracts, we really focus on adding to our Annual Recurring Revenue (ARR), and we report actual revenue according to generally accepted accounting principles (GAAP), which follows a different course than bookings. We count the full value of the deal as a booking, but we typically recognize and report license revenue over the duration of the deal. That means a week or two delay in signing has a big impact on whether the booking is in one quarter or the next, but from a reported revenue and run-rate ARR perspective, it doesn’t have that much of an impact on a go-forward basis. This is not to say we are indifferent to a booking being delayed from one quarter to another. In fact, we typically manage ourselves based on quarterly bookings, and we hold our sales team (and everyone else) accountable for the bookings targets and forecasts in each quarter. What it does mean, however, is that the most important thing is to win the deal, collect the cash, and add the customer, because that is what drives our business and revenue growth. SaaS businesses can tolerate a little variability in when a buyer signs as long as they do in fact sign. The sales skill is to learn how to forecast accurately when you don’t know all of the procurement hurdles that have to be cleared. Too many sales people forget about the second sales cycle and stumble trying to forecast when a deal will actually close. Our sales teams need to discover the hurdles early, educate the business buyer as to what is ahead of them, and together with the buyer, manage the second-cycle as early as possible in the transaction.