Dear SaaStr: How Do Enterprises Decide Which Software Vendor to Sign a Deal With?
75%-90% of the time, enterprises have already made a tentative decision which vendor to choose before they pick up the phone or hit the Contact Me button:
- In an established category, customers will pre-pick one of the Top 2–3 vendors based on brand, market share and research. Well before they even talk to a sales rep. The one they will tentatively decide to go with is the one they have the most positive experience or association with going into the calls.
- The #2 choice really can steal a deal from the #1 choice if they do a much better perceived job solving the prospect’s problem. Sometimes, if you’re the #2 choice, it’s just a CYA call. But a lot of times even if there is a bias toward the #1 choice, the discovery is real. This is where a great rep at the #2 choice can steal a deal from the de facto #1 choice.
- Price rarely wins per se. They may go with their #2 choice based on price … but generally only if they view the top 2 vendors as mostly fungible. Going in low alone is unlikely to win a deal in the enterprise. If you are the high-priced vendor, they will just tell their procurement department to negotiate it down.
- They will explore other vendors besides their pre-pick, but those other vendors really have to have something unique to offer that solves a big problem better. Otherwise, the risk from not going with the established leader in a segment is not worth it.
- In an emerging category, they will pre-pick the one with the most perceived momentum that also is most focused on solving their particular problem. The 10x better solution for 1 particular big problem.
Usually, if they do an RFP (Request-for-Proposal/Quote), the winner is essentially pre-awarded before the RFP even goes out. But … not always.
RFPs are often mostly CYA and paper exercises, as well as ammunition for procurement to negotiate prices down.
Every once in a while — not usually, but once in a while — an RFP also creates a significant new learning for a prospect/customer. That a vendor that hasn’t planned to pick has a significant competitive advantage in an important area (e.g., a key integration, or function, or set of analytics, etc.).
That’s a shot to steal the deal. If not then, then 2–3 years down the road on the renewal.
And if you lose an RFP (which you likely will, if you weren’t pre-picked) … it’s small consolation. But it also can set you up to win the next bake-off in 2–3 years if you evolve and become the pre-picked solution by then.
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Jason Lemkin, Khareem Sudlow
