Do founders move into enterprise too early, underestimating how much runway remains in the SMB market?

Harry Stebbings · published Jun 13, 2022

Startups are rushing to move upmarket to enterprise far too early, while they are still massively undersaturated in SMB

At under $1M ARR there is enormous remaining SMB opportunity, so there is no need to rush

Scope: based on his own portfolio companies

30:36 20VC: Hubspot Co-Founder Dharmesh Shah on The 3 Risks All Startups Face, Angel Investing Rules; No Founder Meetings and No Due Diligence, SMB vs Enterprise; Lessons on Pricing, Distribution and Why You Should Resist Going Enterprise

Harry Stebbings · published Jan 24, 2024 · hedged

A lot of companies try to move into enterprise far too soon — e.g., at around $1M ARR, when the SMB market is still much bigger

The SMB market is a lot bigger than $1M of ARR

41:51 20Sales: How to Scale Into Enterprise Effectively and the Biggest Mistakes Made When Making the Move From PLG to Enterprise, Why Discovery Today is F***** & The Biggest Lessons on How to Do Sales Team Compensation with Sean Murray, CRO @ Greenhouse

Harry Stebbings · published Sep 11, 2024

One of the biggest mistakes founders make is expanding customer segment too soon instead of doubling down where they are already strong

The existing segment is far deeper and richer than founders think — often only 1% penetrated

Scope: applies to moves both up into enterprise and down into SMB

29:08 20VC: Scaling ServiceNow to $5BN in ARR | Leadership Lessons from Doug Leone, Frank Slootman and Bill McDermott | VC Value Add: Is it Real and Why the Worst VCs are "Seagull VCs"

AJ Tennant · published Oct 23, 2024

The worst mistake an early-stage sales organization can make is segmenting too early and moving all sellers far upmarket

If every seller only chased the Fortune 50/100 you would generate no revenue for nine to twelve months while reps still need to be paid

Scope: early-stage companies

15:28 20Sales: Biggest Lessons Scaling Slack from $6M to $1BN in ARR | How to Build a Customer Success Machine and Where Most Go Wrong | The Framework to Hire All Sales Reps: Take-Home Assignments, Hiring Panels and more with AJ Tennant @ Glean

Harry Stebbings · published Jun 23, 2025

Founders move into enterprise too early and underestimate how large the SMB market is

HubSpot built for fifteen years on SMB, showing the segment has far more runway than founders assume

37:18 20VC: The Wild Story Raising $450M From Masa and Softbank | Why My Biggest Mistakes Came From Listening to VCs | Why 100 VCs Turned Us Down | Why European Founders Are Tougher Than US Founders with Johannes Reck, GetYourGuide

Harry Stebbings · published Aug 4, 2025

Companies often move into enterprise too early, and long enterprise sales cycles make it harder to judge whether a rep is succeeding

Enterprise cycles are longer, so closure signals arrive much later

46:59 20Sales: $0-$3.7BN: The Databricks CRO's Playbook to Build the Fastest GTM Engine in SaaS History | How Databricks Beat Snowflake | How To Build a Sales Org of 5,000 and Close $190M Deals with Ron Gabrisko

Tom Blomfield · published May 13, 2024

Post-AI, the old advice to sell to other startups is now bad; B2B SaaS companies should start mid-market and move upmarket as fast as they can

Big companies are more willing to spend on this than ever because every manager is being asked by their boss what AI will do to the company and most have no good answer, so they are looking to startups for help

Scope: DevTools startups selling to startups may still be an exception; much of it starts as innovation budget and proof-of-concept spend

45:59 20VC: Behind the Scenes at Y Combinator: The Interview Process | What the Best & Worst Do in the Program | Do the Best All Raise Pre-Demo Day & YC's Fundraising Advice to Startups | Why the Value is in Application Layer AI with Tom Blomfield

AJ Tennant · published Oct 23, 2024

Early-stage companies should start in the middle market rather than trying to sell to both the Fortune 100 and SMBs at once

Trying to sell to everyone at once means failure; the middle market gives you more cycles and at-bats to reach product market fit

Scope: applies when first going to market

7:42 20Sales: Biggest Lessons Scaling Slack from $6M to $1BN in ARR | How to Build a Customer Success Machine and Where Most Go Wrong | The Framework to Hire All Sales Reps: Take-Home Assignments, Hiring Panels and more with AJ Tennant @ Glean

Paul Graham · published Sep 2001 · hedged

Intranet software will continue to thrive despite probably being a bad idea, simply because it is more expensive to sell; startups should therefore target smaller customers first.

A large part of what big companies pay extra for is the cost of selling expensive things to them, so nothing can be done about the conundrum.

source The Other Road Ahead

Paul Graham · published Mar 2005

A startup competing on better technology should sell to smaller companies first, because it can out-engineer incumbents but cannot outsell their sales forces.

Selling to big companies is so lucrative that incumbents spend heavily on sales; you can outhack Oracle but not outsell an Oracle salesman.

Scope: for startups whose advantage is technology

source How to Start a Startup

Harry Stebbings · published Jun 13, 2022 · hedged

Startups often move to enterprise as a desperate search for a market when they lack product-market fit, and the same pattern drives premature second products

35:39 Premature enterprise moves and premature second products reflect a desperate search for pmf not strategy

AJ Tennant · published Oct 23, 2024

The signal to go fast upmarket is delivering clear repeatable success in the middle market plus two or three successful experimental deals in the 5,000–15,000 employee segment

Once you can repeatedly get customers to value and success at that size, you should accelerate

11:37 Repeatable middle market success plus pilot deals signals readiness to move upmarket

Paul Graham · published Sep 2001

Rich customers tend to buy expensive solutions even when cheap ones are better, because vendors of expensive solutions can afford to spend more selling them.

Viaweb lost high-end merchants to consulting firms selling half-million-dollar custom stores; at $300 a month Viaweb couldn't afford authoritative sales presentations.

source Vendors of expensive solutions outspend cheaper better competitors to win rich customers