Big Companies Can Own You Without Buying You
We were automating CPA offices for the very first time. Being at the forefront of such an exciting market opportunity was a rush. It seemed like everyone wanted to talk to us. The market moved past the tipping point. We started thinking, "Let's go after the big companies."
Like many startups, we started selling to the middle market. In time, we achieved brand awareness and deal momentum. This opened up opportunities to the high-end CPA firms. The big companies.
We looked like we knew what we were doing. The truth is, we were in the early stages of the package software business. Every day we were learning something new. Every day the market was learning something new. Every day we were faced with critical decisions on product development, marketing, customer service, and pricing. It was a hockey stick experience, a wild ride.
When a big company came knocking, we were thinking big software license fees and lots of services. Yes. Big money, lots of cash. I'll never forget the anticipation of that first meeting. I'll never forget the sinking feeling I experienced during that meeting. I'll also never forget the "Oh sh_t" moment as the big company prospect walked out the door.
Early stage tech companies dream of big companies as cornerstone clients and big revenue. These companies promise instant market credibility and enormous momentum. Their endorsement makes their competitors real prospects instantaneously. But all this comes with a price for a small company.
The price is this. The big company will own you. Why? There are three reasons.
Your whole company may become their dev shop.
I realized the software package we offered was just a start in meeting their needs. And this realization was the cause of my "Oh sh_t" moment.
They were smart, sophisticated, and visionary on how they operated their business. They had processes led by hierarchies of really talented people. They knew where they were and where they were headed. They were operating at a scale I couldn't even envision.
The sinking feeling continued when they described their geographical requirements. They were all over the place, and that meant we needed to be all over the place. That also meant I would need to be their full time account rep and project manager. And where I would go, our small team of developers would follow.
In effect, this big company would be our whole company priority.
You become a slave to their revenue.
And they would continue to be our priority. The revenue and cash flow would be amazing. The problem would be, this one account would comprise over sixty percent of our revenue. This would take a lot of pressure off us financially. But at a high cost.
In effect, this revenue would cost us our strategy. We would be their slaves more than they would be our client.
You lose out on broader market opportunities.
And we had a strategy based on our vision. We aimed to be the #1 software vendor in the CPA marketplace. We wanted to have thousands of CPAs using our software. This would make us the standard in the marketplace. If we achieved these goals, we would have staying power and great value.
But the big company as a client threatened all of these exciting goals. The biggest issue was most of my mindshare and the mindshare of our most talented people would be focused elsewhere. Not on the broader market, but on them and only them.
We passed on the deal.
I remember the call we made to the big company prospect after that meeting. Here we were living hand to mouth. We were borrowing money from banks. My founding partner had every thing he owned in the business. I collected every receivable I could every day. We were working seven days a week.
We told them, "We are not the right solution for you. If you want to use our package software as is, then we would be a fit. If not, we need to end our discussions." This was the last time we ever talked to them.
Big companies have big and complex requirements. Big companies have the resources to pay for them to be met. Small companies have talented people and need cash. But small companies also have a vision. In our case, vision won!
Lesson learned in business over the last forty-five years, revenue isn't free