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Mastering POCs as an early-stage startup - 5 key learnings from our portfolio companies

Image by: Fabrizio Conti, @conti_photos

If you’re an early-stage SaaS startup selling to enterprises, POCs (Proofs of Concept) are most likely part of your sales process. That’s neither good nor bad. It’s a fact - and you have to make the most out of it.

For an enterprise, a POC serves the purpose of evaluating the feasibility and value of your technology. Especially if you are an early-stage startup, stakeholders in the buying process may be concerned that you’ve really got what it takes. You may lack the reputation, certifications, features and experience that heavyweight SaaS companies already have in place. And quite frankly: They might also wonder if you’re still around in 12 months from now.

The good news is: Enterprises have a tremendous pressure to evaluate new technologies. Plus, if you’re successful with your POC they will pay you a good amount of money every year - with loads of expansion potential. The bad news is: More than 50% of POCs fail.

So, the main question on the table for you is obviously: What can you do to become more successful in your POC conversion? To answer this, I’ve spoken to some experts in our portfolio, such as Conor McGrath (Head of Clients UK and Nordics at parcelLab), Simon Barth (VP Global Sales Operations & Enablement at LeanIX) and sales consultant Ben Miller from Miller Growth Advisory - because they simply know it better than just me as a VC ; )

1. Don’t sell “just” a POC - sell the bigger vision

True, selling a POC first and the full implementation second (after you’ve demonstrated your value) might make sense to get your pilot started faster. However, one key learning several of our portfolio companies have made is: POCs that are embedded into a bigger vision are more likely to convert to a productive implementation than POCs that are sold standalone.

“Enterprises do not seek to buy a POC. They are on the lookout for a business partner to help them become more successful. As such, you’re better off pitching the beginning of a long-term relationship right away - and the POC as an affordable first step therein to help them understand that they’d like to work with you”, told me Conor from parcelLab.

That said, try to flip the idea of a POC upside down: Instead of selling a POC first and a long-term partnership in a second step, you could rather negotiate a long-term commitment right away with an option to cancel in case of a non-successful POC. Simon from LeanIX suggested:

“You could for example start with a two-year contract, of which the first 3 months are considered a POC or pilot with the ability to cancel if the enterprise partner is not satisfied with the results of the POC.”

Also: If you frame your sales pitch around your long-term vision with the client, you’ll quickly find out if the prospect is really committed to do serious business with you. If it turns out that this is not the case, that’s certainly regrettable. But: the sooner in the process you learn this truth, the better.

2. Agree on what a successful POC is

Sounds obvious? It’s not. We at Capnamic have screened a good amount of startups selling to enterprises in the past couple of months which had no clear success criteria for their POCs defined. And to be fully transparent, also some of our portfolio companies only learned this the hard way. Hence, Simon emphasized:

“Keep in mind that enterprises do a POC to understand your potential to help them solve a specific problem. Make sure you really understand their issue and if they already have an idea of what they need to succeed. Then frame the success of the POC around it using clear goals with measurable impact. In best case, you are able to agree on what will happen once these criteria have been met.”

Thus, having 2–3 measurable success criteria defined can make a big difference: it allows you to (1) validate your impact on the specific problem they are experiencing and, in best case, (2) get their “go” for the conversion to a productive implementation already before starting the POC.

Of course, finding “the right” success criteria is difficult - especially if you are still an early-stage company, which operates more hypothesis- vs. evidence-driven. Because of this, sales coach Ben Miller recommends to jointly work out the success criteria with the prospect.

“Make sure you and your prospect have the same understanding of how to measure success. If the prospect is asking for goals which you believe are simply not achievable, your alarm bells should ring. Then take a step back together with the client to refine the goal and scope of your engagement. Only if you are pursuing the same objectives, can your long-term partnership become a success”, he said.

3. Orchestrate the process with all stakeholders aboard

Rule of thumb: A POC doesn’t work if the prospect just plays around with your solution. A successful pilot requires high commitment and clear accountabilities - on both sides. Agree on a timeline, discuss mutual dependencies, schedule regular checkpoints and make sure to stay closely involved. Understand the process as an opportunity to excite the prospect. Simon puts it this way:

“As a startup, you have one advantage: you can be fast and demonstrate that you are willing to go above and beyond what other vendors do. See the POC as a chance to walk the talk.”

Another priority for you is to get all relevant stakeholders aboard. According to Ben, a key challenge for many early-stage startups selling to enterprises is to understand and cope with the complexity associated with mobilizing the buying center. He recommends:

“Always be clear whom you’re talking to, what his or her contribution to a successful partnership is, and who else you need to get aboard. Keep in mind that your initial point of contact, buyer and user may not be the same person.”

Especially when you’re initially talking to the innovation department, this point is crucial as innovation departments typically have the brief to try new tech but not necessarily to buy it. If you’re not making progress with the innovation team, try alternative routes - and then keep selling both ways until one of the routes materializes.

4. Focus your energy on the right POCs

A POC can be a valuable proof point for your technology. But: an unsuccessful POC can equally have the opposite effect. Thus, make sure that each prospect indeed is a good fit for a POC. One way to do this is to come up with qualification criteria for your POC pipeline. The more information you can get regarding the client’s needs, the better these criteria will be. Or as Conor puts it: “Try to get as much color as you can.” Dig deep to understand why your prospect is looking for new tech and which drivers you can refer to in your sales pitch. Especially large enterprises (even better if they’re publicly listed) publish a lot of content about their innovation and corporate strategy in the public domain. You could for example look at annual reports to identify innovation initiatives and hence the best angle to approach that enterprise. Then, frame your sales pitch to that prospect and off you go.

5. Last but not least: Know your value

This article wouldn’t be complete without touching the holy grail of sales: pricing. Luckily, in this case it’s quite simple. Don’t give your POC away for free. If a potential client asks for a free POC, he or she may not (yet) realize your value. Conor shared his view on free POCs like this:

“Pretty much all enterprises have budgets for POCs in place. However, as part of a hopefully longer partnership you can be a bit more flexible on the pricing though. I often try to find out which price for a pilot might work for a client and then customize our suggestion to that price.”

Simon added: “In case a prospect keeps bargaining, be confident enough to limit the scope to one key problem the prospect seeks to solve.” Also, you should try to agree on a win-win. For example, you could offer a discount on the POC to get their approval to use their logo on your website or do a case study together. That way, your content marketing attracting new clients can make up for the money you did not earn on this deal. You could also agree on a performance-based pricing, or include the price for the POC in the first-year fee in case the POC converts. Be creative.

Lastly, from a VC’s perspective I can say: The more “conversion proof” you can generate before your next fundraise, the better. But also with first validations “just” in POC stage, you still have pretty good chances to close your round. Focus your energy on VCs that really understand what it takes to sell to enterprise-grade clients and excite them with your structured approach to mastering POCs. All else will follow in the course of the process.

And now: Happy closing!

Thanks to my colleague Philipp for reading and refining drafts of this post

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