We were a $250k ARR legacy app when we were introduced to our 900 lb. Gorilla.
A Fortune 10 Financial Services company. We signed them (for +$1M/yr, 5 yr min) and then lived the dream, then lived thru the nightmare.
It was a good move for us, but here are some things to consider:
- The legal departments of companies of these size review EVERYTHING. And they will try to prove their own internal value by negotiating every single sentence in your terms of service and license agreement. These lawyers have never even met your customer and the things they will say are "deal breakers" will boggle your mind. Getting to a "Green Light Go!" from your customer is one thing. Getting a signed contract thru the black hole of their legal department is another. ADD 4-5 months to your go live timeline for this bullshit.
- Very large companies in the US have all adopted management policies I like to call the "Wal-Mart Business Model". It goes like this :
1) Screw your employees.
2) Absolutely fuck your vendors.
3) Pass the savings along to your customers to undercut your competitors.
You will be on the receiving end of #2. Enjoy!
During license negotiations, they will ask for 'most-favored nation' status. This means that if any customer you currently have (or ever sign in the future) has lower fees than them, you agree that they will get their fees reduced to that level too. And they will want to audit you to ensure that this actually happens. Do not let them audit you.
On the go live anniversary, it will primarily manifest itself in the form of a process these big companies run called 'zero-based budgeting'.
Zero based budgeting is exactly what it sounds like: every single line item in a department's proposed next year's budget has to be re-submitted de novo, as if they were doing it for the first time and the ROI re-justified.
Because of this, every single year, your Gorilla will do two things:
1) Put your process/function/idea out for RFP or for T-Shirt sizing for their internal IT to develop their own version (now that you've shown them how to do it).
2) Tell you unless you cut your pricing 50%, they will replace you with someone else.
When this happens, (and it will) you startup puppies had better have your ducks in a row. You need biz intel on your competitor's pricing. Your need a deliverable product roadmap that their internal groups can never match. You need an impeccable customer service and uptime record. Your CEO had better have balls of steel and the voice of an angel to stand up to their demands while keeping them happy as clams.
Finally, more than anything, Enterprise customers want customization and special treatment. The reason they are going with you as a SAAS is they can't get their internal people to do it. So give them something they can't get internally: their own private woodshed. Instead of giving them volume pricing discounts, give them "funny money". For every 3 months at full $49/month pricing per user, you'll credit them $49 in arrears towards training/custom development/support/etc. Consulting margins typically run north of 50%, so this funny money gives your customer champion a load of flexibility to customize, keeps them out of arguing their internal company IT backlog, adds features to your product and keeps your margins where you want. Win-Win-Win.
I just retired after a 28 year career in mortgage technology.
Here is my take:
First, modern mortgage origination is a scale business based upon quantitative processes that depend upon collecting data of very poor quality to measure the past, present and future prospects of the borrower in order to answer a simple question :
"What is the willingness and ability of the borrower to repay the money we loan them?"
(This quote is taken directly from the Fannie Mae automated underwriting manual.)
The Past is measured by their Credit Score, i.e. how they have behaved when money has been loaned to them in the past.
The Present is measured by the appraised value, down payment size, Loan-to-Value ratios and other deal oriented metrics, including potential appreciation in a given Metropolitan statistical Area (MSA). i.e how much skin does the borrower have in the game?
The Future is measured by the Housing-to-income ratio and various
assets-after-closing metrics and custom rating scorecards. i.e. do they earn enough to make the monthly PITI payments? How stable is that income?
For your example, 2-3 years after a mortgage is funded, for a given borrower, almost all of the data used in the original underwriting decision will have changed. Jobs changed, divorces, economic downturns, bad investments, different interest rates, and on and on. The lender will definitely have changed their underwriting standards.
Just because you qualify for a mortgage today, definitely does NOT mean you qualify automatically again in 2-3 years, even if rates are lower.
Secondly, lenders today almost always immediately sell your funded mortgage either directly to the GSEs (Fannie, Freddie, Ginnie, etc.) or to Wall Street as part of a large pool of similar mortgages called a Collateralized Mortgage Obiligation. ("CMO").
A CMO is actually a corporation, into which the lender has quit claimed many, many mortgages. The corporation issues a bond, the interest on which will be paid by the interest payments of all the mortgages in the corporation. CMOs are typically over-funded to account for mortgage default risk, so a CMO that issues a $50M 3% bond will actually hold about $52M of 3% mortgages.
For the most part, mortgages in the United States can be pre-paid at any time, like if you move or win the lottery.
This however, creates a problem for the bondholder of the CMO your mortgage is in. They were counting on your 3% interest to pay its part of the interest on the $50M bond for 30 years, but your mortgage is now gone. Its payment stream has to be replaced.
The owner of the CMO acts as trustee of the corporation and has the authority to replace your pre-paid mortgage with one of "like quality" and payment streams.
This great when interest rates are rising because they can replace a pre-paid 3% mortgage with a recently funded mortgage of 6%. This is awful when interest rates are falling because they have to replace your pre-paid 6% mortgage with multiple 3% mortgages.
This creates a reverse incentive to NOT help you refi when interest rates are falling, IF THEY ARE STILL ACTING AS THE TRUSTEES OF YOUR CMO. However, if they sold off your CMO, they WILL help you to refi, but because someone else owns your original mortgage, they have to treat you as a brand new customer, and as such, charge you all the usual fees for origination, so again, no auto-refi is possible.
The best solution of what you are looking for is in the Danish mortgage market.
If interest rates rise, the street price of a bond with a lower interest rate drops. Why would I buy a $50M 3% CMO originally issued two years ago when I can buy a $50M 6% CMO bond issued last week? To reflect the difference in income streams, the price of the 3% bond drops, so you can buy the $50M par value 3% CMO for only $41M. The yield to maturity on both bonds will be the same.
This is where the Danes got really clever.
In Denmark, in addition to pre-paying your mortgage when interest rates fall and you refi, you also have the right to 'buy' your mortgage out of the CMO bond when interest rates rise and the street price of the bond falls. The price you pay is whatever percentage your mortgage is of the total par value of the bond.
So if you have a $500K mortgage that is in a $50M par value 3% bond and the street price of the bond drops to $41M, you can "buy' your individual mortgage out of the pool for ($500k/$50M) $41M = $410K
This is a pretty sweet deal for the consumer, which unfortunately has zero hope of adoption in the US.
We did too.
We were a $250k ARR legacy app when we were introduced to our 900 lb. Gorilla.
A Fortune 10 Financial Services company. We signed them (for +$1M/yr, 5 yr min) and then lived the dream, then lived thru the nightmare.
It was a good move for us, but here are some things to consider:
- The legal departments of companies of these size review EVERYTHING. And they will try to prove their own internal value by negotiating every single sentence in your terms of service and license agreement. These lawyers have never even met your customer and the things they will say are "deal breakers" will boggle your mind. Getting to a "Green Light Go!" from your customer is one thing. Getting a signed contract thru the black hole of their legal department is another. ADD 4-5 months to your go live timeline for this bullshit.
- Very large companies in the US have all adopted management policies I like to call the "Wal-Mart Business Model". It goes like this :
You will be on the receiving end of #2. Enjoy!
During license negotiations, they will ask for 'most-favored nation' status. This means that if any customer you currently have (or ever sign in the future) has lower fees than them, you agree that they will get their fees reduced to that level too. And they will want to audit you to ensure that this actually happens. Do not let them audit you.
On the go live anniversary, it will primarily manifest itself in the form of a process these big companies run called 'zero-based budgeting'.
Zero based budgeting is exactly what it sounds like: every single line item in a department's proposed next year's budget has to be re-submitted de novo, as if they were doing it for the first time and the ROI re-justified.
Because of this, every single year, your Gorilla will do two things:
When this happens, (and it will) you startup puppies had better have your ducks in a row. You need biz intel on your competitor's pricing. Your need a deliverable product roadmap that their internal groups can never match. You need an impeccable customer service and uptime record. Your CEO had better have balls of steel and the voice of an angel to stand up to their demands while keeping them happy as clams.
Finally, more than anything, Enterprise customers want customization and special treatment. The reason they are going with you as a SAAS is they can't get their internal people to do it. So give them something they can't get internally: their own private woodshed. Instead of giving them volume pricing discounts, give them "funny money". For every 3 months at full $49/month pricing per user, you'll credit them $49 in arrears towards training/custom development/support/etc. Consulting margins typically run north of 50%, so this funny money gives your customer champion a load of flexibility to customize, keeps them out of arguing their internal company IT backlog, adds features to your product and keeps your margins where you want. Win-Win-Win.
Good luck!