Startable - Healy Jones’ & Prasad Thammineni’s Blog

Cloud computing is evolving as quickly as you’d imagine it would - a technology with only one place to update, upgrade, re-engineer (vs. standard installed software that needs to be updated on desktops/servers throughout the land…)

I’m getting to live this first hand at OfficeDrop. We have changed our strategies and service rapidly over the past year. With this change comes a pretty major change on how we view cloud computing.

I’ve just published a blog post on OfficeDrop’s website called “OfficeDrop: All About the Cloud,” where I talk about how we see SMBs using cloud based SaaS - and some of the surprising learnings we recently gained as we rolled out our digital office, cloud content management platform and cloud filing cabinet.

My bit take aways are:

1. One of the biggest advantages of the cloud is the ability to easily connect different SaaS systems with each other, allowing small businesses to move their data and information in between different best of breed services as needed.
2. With SaaS in the cloud, small businesses don’t have to have as much tech expertise in house, since upgrades, maintenance, equipment, etc are all done off site by the various SaaS providers.
3. Here is the surprising one to me: SMBs like using apps to interact with the cloud. I’m not going to claim that the browser is dead, but apps seem to be the thing right now that is driving adoption!

Along the lines of my recent series on what makes a good platform (part one, part two) Shaival Shah has a post on how Hunch uses its API to drive growth.

This is my second post on what makes a good technology platform company, from the point of view of the companies that integrate into the platform. (I’m calling these companies “platformees.”) Here is a link to the first post, “So you want to be a platform? part one.” Again, this is focused on SaaS applications.

Good communication with partners on your platform. In my previous post on what makes a good platform I mention “consistent strategy.” The world is not perfect and companies do need to make changes sometimes! Solid and early communication with platform partners is the best way to prepare your platformees for change. Email seems to be the  best way to manage this, from my experience. It is also very helpful when the platform itself has good internal communication. When a startup (like mine) has a conversation with a member of the partner team at a platform we use that conversation as a basis for making important decisions (like committing time or effort to developmental or marketing plans.) If another person on the partner team at the platform then does something that destroys the effort we’ve spent it is very costly to us. Companies that want to be platforms need to realize that startups have very, very limited resources. We can’t afford to waste effort, because if we are not growing then we are dying. As an addendum to this, I would add that having a person or team that manages the relationships with your platformees is very helpful.

Reliability. When a big platform app goes down and the customer can’t use the little SaaS company’s integrated offering… well, the customer tends to blame the little guy. Telling a customer who is trying to access critical business data that “so-and-so big company is experiencing technical difficulties again and there is nothing I can do” really doesn’t help him/her have confidence in your app. Secondly, if new users can’t sign up then it means I’m not growing through your channel when you are down. Third, and I think a lot of SaaS companies tend to forget about this - we are still early in the adoption curve for SaaS. Most small business owners and many consumers are still not entirely comfortable with using/storing critical applications online. No one is going to be comfortable switching to online services if they are prone to outages.

I’ve got a few more points that I will try to make in the next post on platforms. Until then, happy integrations!

There was a good piece by Scott Austin, the WSJ’s venture writer, on how the three venture investors in 3Par have held onto their shares since the company’s 2007 IPO. While the company was buffeted by the difficult stock market over the past few years it was unclear what their eventual return would be - but now it’s looking pretty good! The company is on the good end of a bidding war between Dell & HP, and looks like it will be picked up for almost 2x its IPO price.

The key take aways here (in my opinion) are that sometimes patience is a major advantage, and that is still possible to make money post-IPO for VCs.

3Par is a digital storage manufacturer.

One of OfficeDrop’s growth engines is our integrations with other SaaS services, like 1) Google Apps or Evernote, 2) with more traditional software offerings like Intuit, etc or 3) that work on particular hardware -i.e. Apple’s iPad. These players are positioning themselves as “platforms.” With open APIs and dedicated means of pushing their existing customers to these integrated services via marketplaces they trying to increase the stickiness/usefulness of their own services while creating an ecosystem of developers who expand the power of their offerings.

In other words, companies like OfficeDrop create  stuff that works with the platform’s service and the platform company helps OfficeDrop sell the integration.

Our platform growth strategy is working; on some days half of our traffic comes from the 3rd party platforms we work with. And this traffic converts!

Now that OfficeDrop has integrated with a number of platforms I think I’m starting to notice some patterns. Some of these integrations totally on fire, driving great traffic and conversions. Others are not really doing that much and were not worth the development effort that we put into them.

I have been writing and rewriting this particular blog post for over a month. It’s getting pretty long, and continues to evolve, so I am going to publish it as a series of posts. I was prompted to actually get this series started by the recent Facebook move to replace application boxes with tabs, which I will comment on below.

Here is my opinion on what makes a good platform from the view of a platformee. (I made that word up.)

What makes a good SaaS platform - a view from the bottom up

1) Developer support. Having a working API is table stakes… at this point if you want to get busy, smaller SaaS companies to devote valuable development resources to getting on your platform you need to make it easy to write to your service. Documentation, good forums, and if you really want to make it work you need a developer support team will answer questions. A great example of this was the Evernote team; they really helped us get our system working with theirs. Although OfficeDrop was one of the very first companies to integrate with API it worked from day one - mainly due to the high level of support and fast response times their API dev team gave us. This is our listing in Evernote’s trunk.

2) Consistent strategy. Facebook’s move made me think of this today (see the following write up on the box to tab change they are making.) When smaller players integrate with a larger company’s platform, they smaller company makes assumptions about how the platform will work going forward. The decision to spend valuable time integrating and then promoting an integration is based on these assumptions - and for a smaller company this is a very big deal. At OfficeDrop we have limited development and product dev resources; every hour is precious. When a platform makes any change it has an impact on the ecosystem. Technical changes, like Apple’s decision to no longer support flash, can make months of development effort worthless (thankfully this did not impact us - we were thinking of using flash to do drag and drop in our iPad app, but picked a different way.)  From a marketing perspective, anything that makes it harder to install or find installable apps is a dangerous change to the ecosystem. I wonder if Facebook’s recent decision will make it harder for people visiting a friend’s page to discover new apps… if so, this is just as dangerous as a massive technological change.

I will post some other thoughts on what makes a good platform is subsequent pieces! Would love to hear thoughts. I’ve got five or six (depending on how I group it) other points I’ll share soon…

I’ve had great luck at OfficeDrop using the “crowd” to help us with important decisions. We very actively survey our customers on new features, pricing changes, etc. Our most important use of the crowd was when we changed our name from Pixily to OfficeDrop. This name change was an important step for us, since we wanted to reposition ourselves from a document scanning company to a digital office provider. SmallBusinessComputing recently quoted me on using crowdsourcing; check out the article!

Quick link to some interesting recent stats on technology M&A as the “new” exit paradigm on gigaOM.

Dan Primack, the face behind peHUB - the must read gossip/news/it blog for the VC/PE industry - has just announced he is moving from Reuters to Fortune. He’s been with Reuters for five years (well, he was with the same employer, but Reuters made some acquisitions that brought him into the fold.) Dan started the peHUB newsletter in 2002; I discovered it that year when I was working at Summit Partners in Palo Alto.

For some strange reason, Dan’s move has made me think about my own career since 2002. Although I’ve met Dan a couple of times at large events, I’ve never really had more than an “how ya doing” type conversation with him - but somehow he’s been a very consistent part of my professional life for almost 8 years! And in that time I’ve had full time jobs with two funds, two internships with two others, completed a full time MBA and joined the executive team of a startup, OfficeDrop. Maybe he’s been the most consistent part of my professional life, actually…

Good luck to Dan at Fortune; hopefully his new newsletter/blog will be just as interesting as peHUB. And hopefully peHUB will continue to produce good content too! Although, I hope Dan gets a new profile picture… his current one looks like a mug shot, with him wearing an orange prison jumpsuit:

Dan Primack's Mugshot

peHUB has an interesting interview with Aydin Senkut, a West Coast angel investor who is at the forefront of angel investing. There has been a ton of chatter about the “angel investing bubble” and the idea that “angel investing is where venture capital was 20 years ago.”

Aydin’s new angel fund, Felicis Ventures, seems to be the new face of where the angel market is headed. He has just raised a $40 million seed fund from institutional investors (mainly fund of funds) and intends to invest mainly in startup companies seed rounds, which some reserved for follow-ons in later rounds.

Aydin says:

we have a seed-stage bucket out of which we’ll continue making investments like before. We also have an allocation for Series A deals, including for companies that we haven’t had a chance to discover at the seed level. And we have a Series B allocation, based on my positive experience of [investing in the personal investing site] Mint [which sold to Intuit last year for $170 million, after raising $31 million over four rounds in two years], so we can keep our pro rata portion of a deal…

At the seed stage, we’ll invest between $100,000 to $500,000. At the Series A stage, we’ll invest between $500,000 to $1 million, and at the Series B stage, we’ll invest between $1 million and $2 million. These are definitely smaller amounts, and it’s intentional.

I hope this strategy works. I realize there are a lot of angel investors out there, and I’m sure some of them will not be successful. But as someone interested in seeing new ideas tested quickly and as someone who love seeing new entrepreneurs getting funded these types of funds will hopefully be very positive.

Other angel investors can learn a lot from the reserve allocation strategy proposed by Felicis Ventures. Keeping capital on the side to support good companies through their subsequent fund raising rounds can significantly boost returns - assuming the investor is disciplined enough to stop backing companies that are having problems!

According to a short piece in the WSJ the startup financing environment is looking up for startups that are seeking a subsequent round of venture financing. Read the piece here, but the key take away is that 55% of companies are raising capital at an UP valuation!