The Lie Founders Tell Themselves About Selling to SMB

Last week, I had an interesting discussion with a friend of mine - Branon Hanono of Petvisor- about selling SaaS subscriptions to SMBs. It is well-documented that smaller customers (SMBs) churn out quicker than larger customers. The most obvious reason is that smaller companies statistically go out of business much easier than larger companies.

In startup land, SMBs are the initial customer segment because even though they churn quicker, they also can be sold faster. They have lower price points so that sales velocity can occur. Users will onboard and give feedback on your product at a much higher rate. This is important for founders, as they need to get a signal on product market fit, but also because it shows potential investors that they have "traction."

After a couple of quarters, these customers will churn out, and the founder will undoubtedly blame the customer's sophistication or the business's lack of maturity. They will seek advice, and everyone will tell them to go "upmarket." As you will get stickier and more sophisticated customers.

Although I like more mid-market and enterprise customers, for this reason, it is essential to become intellectually honest about oneself before one goes upmarket. First and foremost- startups only do something consistently based on the nature of their business. So blaming the customers should be the last reason to identify why a customer churned. Here are some steps to identify your customer's lifecycle.

1. What promise did you say your software would solve when selling your product?

2. How did you tell your customer that you were going to onboard and train them how to use the product?

3. What was the transition from the sales process to the implementation process? Was the experience as you sold it to them?

4. Did you follow up with the customer shortly after to see if they were using the product to identify if it was solving their pain point?

Generally, the answer is no; the reason is that you were focused on bringing on new customers to show traction. So before blaming customers for being unsophisticated or too small, ensure your house is in order.