Should you sell? one large contract for one customer or many smaller contracts for many customers? It’s easy to make an argument for either one. Selling to one big account means fewer sales cycles and fewer customers to constantly support. However, selling to small accounts reduces the risk that a churned account could prove to be a material impediment to growth.
It has long been known in venture capital that B2B startups need to move to the higher end of the market as they grow. The idea is that as startups build their product or service, they can take on bigger and bigger customers.
Of course, this can lead to sales concentration, which can be a material problem in some cases. But as software customers tend to buy more over time, bringing in enterprise-scale accounts has often been a way for startups to bring in not only large chunks of new revenue, but a sustainable, self-expanding business. revenue.
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SMBs, on the other hand, have a more limited advantage when it comes to account expansion. And they may not be as interested in churn-limiting annual contracts compared to opting for monthly access. Many software companies eventually went public after selling to large companies. SMB-focused startups have that too, but they’re rarer.
Expense management provider Expensify is one such SMB-focused startup that went public, but getting there wasn’t easy. Before going public, CEO Dave Barrett told Marketingwithanoy how much negative feedback he received in the early days of Expensify when he realized that SMBs may be the best target:
There was just so much enthusiasm from the SME sector, which I was always told as an entrepreneur was terrible. It’s like, “Oh, yeah. You can’t make a small business. They’re impossible. They’re terrible customers. They churn quickly. They won’t pay money” and things like that. “Business is where it is.” I’m like, I don’t know Everyone who is excited about my business seems to be in the small business It doesn’t seem like they’re churning It doesn’t seem like they don’t want to pay I know not.
Anyway, our goal this morning isn’t to explore the conventional perspective that startups should eschew smaller customers over time and sell to large companies. Instead, we want to talk about what an SMB is and how not all small accounts are created equal.
Brex’s enlightening move
Brex’s recent decision to exit part of the SME market has caused some waves.
The fintech decacorn had a history of serving smaller accounts and collecting interchange fees for their transactions, merging the small share of transactions it allowed into rapid revenue growth.
Investors loved the company, and its vociferous success attracted high-profile competition. Airbase competes with Brex, historically with a greater focus on software than most so-called corporate spending startups, while younger rival Ramp follows some of the early Brex playbook with its own software twist.