Make 'Land and Expand' Work in B2B SaaS
Many B2B SaaS and enterprise software companies follow a ‘land and expand’ sales strategy. The concept is to sell a small beachhead into an account. Start in one department or with a limited project. The customer will be amenable to expand the usage of the B2B SaaS application once they realize the value. This could be expansion into other departments, using the application more often or using more features.
All great in theory. But these vaunted expansion goals are rarely obtained. The result is new customers with shallow deployments. Sales goals are missed and customer acquisition costs (CAC) increase. The cost to acquire a new customer is always far more than the cost to retain your existing customers. The topic of acquisition vs. retention has been written about plenty. I want to focus on exploring why the ‘land and expand’ model does not work for most B2B SaaS companies.
The ‘land and expand’ model fails because expanding an existing customer is often harder than the initial win. This is not to take away from how hard it is to land that initial win. Selling B2B software is hard. But moving from the land phase to a larger expansion is far harder than most people accept.
These are some of the top challenges to expand a B2B SaaS beachhead;
1. An expansion project has to overcome the realities of the original install. Most software deployments have problems. Many software projects fail to live up to their expectations. To expand an install, an Account Manager has to overcome a “recency bias”. The customer is going to remember all the pain they went through during the beachhead installation. The excitement of a new innovation and the promised ROI are long forgotten. Reality has set in.
2. A beachhead project is usually small (<$50K). It is sold to a mid-level manager. The buyer will have a specific type of personality. They will be an innovator and an early adopter. An expansion project, however, often needs CxO level buy-in. There will be many decision makers and influencers. Having the beachhead deployment doesn’t help that much. In fact, as described above, with ‘recency bias’ it often hurts. It is like the sales process has to be redone all over again. The original buyer, the champion, who approved the beachhead deployment, may be gone. They have moved onto something else. The CxO was not involved in the decision to proceed with the beachhead project. The expansion project will now be evaluated on the business merits. It requires a business case and alignment with business goals. The expansion project is sold to a different buyer. They have different requirements. They are not an innovator or early adopter. Their focus is on concrete results.
Despite these expansion challenges, many software companies exasperate the problem by;
1. How they compensate and measure Account Managers
The sales culture in most B2B SaaS companies distinguishes between ‘hunters’ and ‘farmers’. ‘Hunters’ have the potential to make big money and are celebrated for bringing in new customers. Farmers get paid a base salary with limited upside. Hunters go to sales club in Hawaii. Farmers are not eligible for sales club. This is actually upside down. The ‘land’ portion of a deal may come in as a $25,000 contract value. The potential expansion is worth $1.5M. Who should make more commission?
BTW - The reverence for “hunters” and diminished value of “farmers” is based on a complete misunderstanding of human evolution. The agricultural revolution of the 18th century, including inventions such as fertilizer, brought about efficient farming practices. This resulted in surpluses of food and a dramatic improvement in the standard of living for all. It set the stage for the industrial revolution. Societies that relied on hunting and gathering to survive never thrived. They were always hand-to-mouth. Following the invention of agriculture, hunter-gatherers who did not change and adapt were displaced. Or they were conquered by farming groups in most parts of the world. Does this historical context make you want to change your thinking about the value assigned to “hunters” and “farmers”?
When you measure Account Managers with the wrong metrics this causes a focus on the wrong things. If you measure your Account Managers based on churn metrics, then they are going to focus on preventing the customer from canceling their subscription. They are not going to focus on expansion and growing the account.
2. Hiring the wrong types of people to be Account Managers
B2B SaaS companies often hire Account Managers and Customer Success people who are a bad fit. If the goal is to grow an account and expand a beachhead.
The skill set and experience for a retention role is focused on customer service and putting out fires. To grow a beachhead into a much larger expansion requires a different skill set.
An Account Manager who has a customer retention orientation will struggle to sell an expansion project to a CxO level decision maker.
Expansion requires an Account Manager who can overcome the “recency bias”. They need business acumen, subject matter expertise, and sales skills.
They need all this and more because
it will be an uphill battle to drive the customer to change the status quo. Status quo is to leave the beachhead deployment as is and not expand.
There will be resistance to a bigger project, increased risk, and more change. The Account Manager needs to be a trusted advisor, not the person who helps resolve billing issues.
3. Disconnecting the acquisition and retention functions
A classic sales model for B2B SaaS companies is to have ‘hunters’ focused on acquiring new customers. As a new customer is on-boarded, ownership of the account is handed off to a different group – Account Management or Customer Success. The compensation model reinforces the clear delineation between these two groups. The ‘hunters’ are only incentivized to find new customers. They usually are not rewarded for growing existing accounts. This creates a systemic problem.
The compensation plan for ‘hunters’ encourages them to find new customers, not necessarily the right customers. They don’t have to live with the consequences of acquiring at risk customers.
The goal of a SaaS company is to attract and retain customers. The ongoing subscription model only works if customers use and continue to renew their SaaS usage. How a customer is won and what their expectations are, have an impact on their probability of retention. Yet, many B2B SaaS companies separate out the acquisition and retention functions completely. This does not setup the ‘land and expand’ model for success.
Why is expansion so important?
The seeds of churn have been sown if your fail to expand a beachhead installation.
A small beachhead deployment in the HR department has a much higher probability of cancellation than an enterprise-wide deployment used by every single employee.
Furthermore, when your Account Managers focus on retention and playing defense, this does not create advocates and referenceable accounts. The magic happens when you move from retention into expansion. Expanding means something worked. The customer realized value from the application.
If you are serious about getting your ‘land and expand’ strategy to work, then you need to make some changes. Start with the types of people you hire as Account Managers. Change how you compensate them and how you measure their performance. If you are not willing to make these changes then you will continue to get ‘land’ and not so much ‘expand’.
About the Author: Bryan Socransky is the Principal of Disruptive Consulting Group. Bryan's experience spans over 25 years in some of the most competitive B2B sectors including enterprise software and SaaS. Now he is applying this experience to help B2B technology companies sell more, sell faster. http://disruptiveconsultinggroup.com/