Investors are often skeptical of claims made by startup founders. Among the various types of claims that can be made, this especially relates to all forms of traction. This article describes an extremely valuable form of traction that, if executed and messaged properly, can be a difference-maker for fundraising success. I’m talking about enterprise trials.
For more information on the enterprise sales process and secrets for optimizing your effectiveness, read my article titled “Intro to Enterprise Sales“.
What’s In a Name?
I used the word “trial” in the title of this article but you will also see words like “pilot” and “proof of concept” used to describe a prospective customer taking your product out for a test drive as part of their purchase evaluation. Is there any difference between these descriptions? Actually, there is – even though you might hear many people use them interchangeably.
Proof of Concept (POC)
This is usually performed by the prospective customer in their controlled, non-production environment (ie – lab or similar). It is intended to verify the functionality shown during demonstrations and to confirm interoperability, compliance and other basic fundamentals before exposing the product to real users.
- Enterprises often perform POC’s with two or more vendors’ solutions as part of their final selection process. In this way, it could also be considered the last step in the sales process before price and contract negotiations.
- A typical enterprise POC lasts 30-60 days.
Pilot or Trial
Although some people give different definitions to these words, I see them as mostly synonymous. They are performed in a production environment, which is one key difference versus a POC. The other key difference is that real users are involved but on some limited basis. Perhaps the trial is performed with a specific department or geographic location. Or perhaps the functionality is limited in scope.
- A trial is not usually performed unless the enterprise has decided to purchase the product. However, it is possible that a shaky trial will prevent a broad rollout and even kill the deal completely.
- There is no typical duration for a trial. It lasts long enough for the enterprise to fully validate their intent for a broad rollout and to develop plans to do so.
As I mentioned, you will find information that suggests some differences between Pilots and Trials. I don’t recommend getting too hung up on text book definitions because your prospective customers will also have their own vocabulary and you want to use their vocabulary and associated processes.
Milestones of Increasing Value (Credit)
It’s clear that investors will give you full and undisputed credit for a satisfied enterprise customer that has paid for and deployed your product on a global scale. But between a verbal commitment for a POC and that global rollout are lots of milestones that deliver increasing value.
Based on the definitions provided earlier, a Trial is obviously more creditworthy than a POC. But don’t underestimate the significance of successfully starting a POC with a large enterprise organization. They don’t deploy their resources and infrastructure without considerable thought and planning. Just navigating that successfully is validating to your business plan.
You can see that within each of these forms of customer engagement there are further degrees of granular credit to achieve. Progressing as far to the right as possible will earn you maximum credit with investors.
Below are some additional nuances to consider and opportunities to pursue for even further credit.
Nuances and Opportunities with POC’s
- Project Champion
Who gave the verbal commitment? Who signed the letter of intent (LOI)? The more senior the title, the better. If the person is also the decision maker for an eventual purchase, even better.
If the POC involves one or more competitors, it suggests that you haven’t yet convinced the customer you are the best alternative to solving their stated problem. But if the POC is with you alone, it is more validating and will gain you more credit.
- Getting the Customer to Pay
If the POC involves one or more competitors, it is very unlikely the customer will be willing to pay anything. But if you are being considered in isolation, it might be possible to get the customer to pay something, anything, for the POC. It almost doesn’t matter how much they pay. Just the fact that you convinced a large enterprise to pay to test your product is hugely validating – and not easy to accomplish.
- Purchase Intent
Hopefully you understand the criteria the enterprise will use to decide if your product is worthy of moving to the trial stage. If so, and if you already have evidence of meeting the criteria, you can use that for credit. And if you are already in discussion about purchase intent (for a pilot or larger), even better. If you were able to get a conditional purchase order before starting the POC, that’s bad ass.
If you don’t already have an LOI template to use for customer trials, download mine here (scroll down to Legal Resources section).
Nuances and Opportunities with Trials
It is not uncommon to negotiate special pricing for a trial deployment (ie – deeper discounts than normal). But if you can get the customer to pay a regularly discounted price, you can get credit with investors. I usually try to negotiate the pricing for a large (even global) deployment and agree to use that price for the trial as long as the customer provides good faith intent to proceed with the larger deployment if the trial is successful.
- Breadth & Depth
The larger the trial (users) the better and the more extensive the use of the product (functionality) the better.
- Expected Duration
The longer the trial phase, the later and more uncertain the expanded rollout will be. Work with your customer to define the most efficient trial possible and prepare to devote the resources to ensure it stays on track.
How Many Trials are Needed?
The theme of this article is achieving the desired credit from investors for your enterprise trials. Ultimately, you are trying to evidence desirability (ie – the world wants to solve a stated problem and wants to use your product to do it). For this goal, how many trials are needed? Well, the answer is “it depends”. A paid trial with a single Fortune 100 enterprise might be all the evidence you need and might be equivalent to 3-5 trials with smaller enterprise organizations.
Using the graphic above, you might imagine that a single trial in the “Value Delivered” phase is equivalent to two in the “Purchase Agreement” phase or four POC’s that are “Installed & Running”. You get the idea.
The other dimension that comes into play is the complexity of the trial and the amount of customer resources involved to administer it. High degrees of complexity and resource involvement lend greater credibility because the enterprise prospect will be much more calculated in their decision to start the trial.
Messaging to Stakeholders
It is critical that you correctly message your progress with enterprise trials. Below are the key things to consider:
The words you use matter. Be careful using words like “POC”, “trial” and “pilot” interchangeably because your investor might think your next step is a global, paid deployment when you’re actually just messaging a late stage POC. Also be careful with the words you use to denote your level of commitment and engagement from the prospective customer. I hear lots of entrepreneurs say things like “we’ve got a deal with ____” or “____ is one of our customers”, only to discover through interrogation that they’re in the middle of an unpaid and competitive POC process.
By describing exactly where you are with your enterprise prospect(s), you can also describe the next steps towards a significant purchase. As you progressively deliver on those next steps, you will additional get credit from investors because they know how hard that is to predict and deliver.
Your investor pitch deck surely has a Traction section in it. That’s where you will include mention of any enterprise POC’s and trials. You can also include brief mention of the associated phase of each, either verbally or on the slide itself.
You also want to mention progress with POC’s and trials in your monthly stakeholder update. Doing so allows you to show the progress from month-to-month while projecting the next steps you’re striving for. There aren’t many things that impress investors more than delivering on your predictions and promises. So make sure to slightly under-promise so that you can either deliver or, better yet, over-deliver.
Active investors have figurative attention deficit disorder (ADD) because they see tons of deals and easily lose some of the excitement they had at the end of their last meeting with you. Because of this, you’ll need to keep them “warm” in between your in-person interactions. One of the best ways to do that is to send emails when there is really good news or significant progress. As your high-value trails move to the next key milestone, that’s a great excuse to let your most interested investor prospects know.
If you have several POC’s and trials underway at the same time, create a table or graphic of some sort to help show the status and to demonstrate progress over time.
Your First Enterprise Targets
Large enterprises are really, really hard to successfully sell to. But if they’re your best target customer, you don’t have a choice. You’ve got to become a master at enterprise sales. But many founders either forget, or don’t understand, that “enterprise” doesn’t have to just mean federal government, Fortune 500, or Global 2000 organizations. The smallest of those have tens of thousands of employees and the smallest of the private sector ones generate several billions of dollars in annual revenue.
Consider starting your sales pursuit a notch or two down from these largest organizations. The lower and middle levels of the enterprise range (ie – 2,000 employees, $500M revenue) are still large organizations that can pay lots of money for your solution. It will be easier to get to decision makers. They’ll move faster in their evaluation and decision-making. They’ll be more willing to take risks on startups as solution providers. The benefits are numerable and better yet, you’ll have a chance to get multiple at-bats and hopefully some landed deals before running out of money.
To maximize your credit from enterprise trials, find the best mix of Quantity (number of simultaneous trials underway) and Quality (pushing as far to the right of the graphic above as possible). But even that’s not sufficient if you don’t message properly to investors and other key stakeholders. Think about your strategy ahead of time so that you can set goals accordingly and come up with the right plan-of-attack.