NetSuite stops selling to smaller businesses. Congratulations

Bob Scott says:

NetSuite is ignoring the girl that brought it to the online technology dance, the sub-$10,000-a-year customer. That was the message delivered today by Ron Gill, the CFO, in remarks at the Pacific Crest Technology Leadership Conference. "We simply stopped signing new business in that business. The small customers represent about 6 percent of revenue and 40 percent of customers.

The Twitterverse starts getting its knickers in a twist. Why?

NetSuite stopped actively selling to the sub-$10K market a while ago. As it should do. It is exactly the right thing for NetSuite and its customers.

Regular readers will know that in 2007, I was receiving a regular email bag of complaints about NetSuite customer service and support. I still get a few of those kinds of email trickling through. Today, I spoke with a business that moved from NetSuite about a year ago because of customer service issues. Almost immediately following that call, I spoke with a very happy NetSuite customer. If that's the case then why is this an issue?

Back in the day when NetSuite was trying to figure out what it wanted to be, the low end of the SME market seemed to be the right customer. The problems arose as the business scaled up. The company quickly found that while it was great to talk about adding customers, in the background they were having horrendous service issues.

About two years ago the company stopped talking about acquisition numbers because - quite frankly - it had become an embarrassing millstone. As quickly as NetSuite was growing and adding revenue, smaller customers were leaving by the back door. Net-net, it was not growing the customer base in absolute new signings but it was scaling up the deals.

In short, NetSuite had outgrown its customers and could not find a good way to solve the problem. Part of that was to do with the sales led culture, epitomised by Zach Nelson, CEO. The escapee I spoke with today said that culturally, there really wasn't a good fit between NetSuite and itself. "When you buy a software as a service solution you kinda expect there to be some service, not more upselling when you take them a problem."

That may sound like a harsh indictment but that's reflective of much that I have heard over the years from disgruntled customers. In deals where NetSuite could be a player, one of the first questions I ask: "Can you manage on your own or will you need a good amount of NetSuite support?" That's because even now, NetSuite's service record counts against it in many of the deals I see.

Contrast that with Sonny Jelinek. Last year his Canadian cork distribution and light manufacturing business quite literally went up in smoke. At the time he was contemplating moving his company's systems to the cloud. The fire and resultant melt down (sic) in the on premise solution was the trigger to him buying into NetSuite. "When people talk to me about data security then I say that moving to the cloud was the best thing I did. We're expanding, have NetSuite in three of our subsidiaries and will move others over the next year or so. I get a single view of what's going on and I can work from anywhere." I know Jelinek is an extreme case of desperate circumstances forcing change but you cannot deny the benefits the company is seeing. I specifically asked about service and he said: "We couldn't be happier." From our extended discussion, and bearing in mind what NetSuite says about average deal sizes, Jelinek represents one of those 'sweet spot' customers the vendor can profitably service.

NetSuite will slowly whittle those small customers away - or they will grow and become the kind of customer that fits NetSuite's preferred profile. It is a transition that is good for NetSuite and good for customers.

In the meantime, and despite the angst the service has caused, I give Ron Gill credit for coming clean on a topic that has simmered just below the surface for far too long.