Ideal customer size
Churn vs. company size:
Tom Tunguz has a great post on the Innovator’s Dilemma as it relates to SaaS, in which he relates customer size to their churn rates:
SMB has a monthly churn of 3-7%, yearly ==31%-58%==
Mid-Market monthly is 1-2% and yearly ==11%-22%==
Enterprise monthly is 0.5-1% and yearly ==6%-10%==
So the bigger a customer is, the less likely they are to churn.
It certainly seems intuitively correct. Big companies aren’t worrying about survival every month, they largely have that sorted out in the short-term and are focused on value-generating activities, so they buy your offering and then get on with business. If they have 50 people using your app, they’re not going to switch because it’s too much of a hassle. A small one-man show might churn out at any time for 100 different reasons - business fails, they lose interest, they’re cutting costs, they found an alternative and ignore the switching costs, they don’t like monthly payments.
So what to do? Ignore small business?
I don’t think so. If you’ve read Crossing the Chasm, the big companies are often laggards. For a whole-company software decision, they need infinite proof that you’re already successful and will be there in 5⁄10 years. They want you to be a preferred supplier. They’re more likely to buy from a funded startup with a sales team.
So what to do? Ignore large business?
I don’t think so :) I think it makes sense to start smaller if necessary but always have a view to getting bigger customers because they’re more stable and once you have the sale, you’re likely to keep it. Basically initially target the early adopters, whose motivations for buying are very different from the late majority and laggard purchasers. Move up the food chain over time.
Still, 50 employees is probably better than 1, if you can get them. You probably can. One sale, many users, no life-draining Corporate Purchasing Policy.