Startable - Healy Jones’ & Prasad Thammineni’s Blog

Today I use a ton of applications on my iPhone to get the full experience of online services/sites like Facebook, Amazon, LinkedIn, Wikipedia and others. But the beauty of the web (at least on the PC) is that you don’t need to download software in most cases to get a full, awesome experience. I can just log into eBay and start trading stuff; I don’t have to wait for a download to get going.

But on the mobile phone it’s different. To get the best experience I need to hit the app store and download something. It’s a like a weird step backwards from the point where anyone could easily use any site with a browser (from your PC) without downloading software to a place where each site has its own special software that requires a download and install.

According to MediaPost:

Gartner estimates the combined installed base of smartphones and browser-equipped enhanced phones will surpass 1.82 billion units by 2013, eclipsing the total of 1.78 billion PCs by then.

But the firm warns that many sites still are not optimized for the mobile Web, even though cell users expect to make fewer clicks on their phones than on a PC. To successfully expand into mobile, publishers will have to reformat sites from the small form-factor of handheld devices.

I totally buy this argument. While one can quibble around the exact number of mobile devices vs. PCs, there is a clear and obvious trend that mobile devices are becoming an important secondary, and to a lot of people, the primary web access device.

So I wonder - will web sites just automatically be optimized for mobile viewing, or will the “app” become even more important? Is this whole app thing for using online services a real of “de-evolution” of the web - or a mere blip before mobile browsers and bandwidth become powerful enough to support the real web experience? What do people think, are mobile web apps here to say or just a strange passing fancy?

Vivek Wadhwa had an interesting post today on selling in TechCrunch. I’m learning some serious lessons on selling now that I’m the head of marketing at Pixily - although I am very much still a novice sales manager! I reserve the right to be completely wrong/change my mind on any or all of these points

1. Aspiring to a touchless sales model is great, but small business customers like to know they can reach you on the phone. Many great SaaS companies have a great sales funnel that terminates when a customer signs up online without speaking to a sales rep. I think most small business SaaS startups hope to create this type of sales cycle. After all, how can you have a profitable company if you need to have a sales person on the phone closing $15 per month sales? But, at Pixily, we’ve found that phone calls result in sales and great free to paid user conversions. We offer a free trial, and a decent number of our paying customers choose to sign up for the free trial and eventually convert to paying customers. The highest converting (free to paid) lead source is the customers who call us and who we sign up for the free trial over the phone. The convert to paying customers by over 3x vs. the next best source. (Note: “source” is probably not the right word to use, but it’s Saturday and my coffee isn’t kicking in quite yet…) Is this sustainable in the long term? I’m not experienced enough to know at this point.
2. Customer service reps make great sales people too! Vivek mentions how developers make great sales people. I’d very much agree, since our developers often drive closed leads from networking events they attend and from conferences they speak at. But we are having success with our customer service reps doubling as sales people. First of all, they know the product. Secondly, they understand how live customers are using the product. Third, when a free user calls in to ask a question it’s the time to try to sell them on an upgrade!
3. Customers do the darnedest things with the product - asking them “why are you interested in my product” is really helpful in selling. For example, one of Pixily’s products is a simple document scanning service. We happen to be pretty good at scanning documents, and can offer it profitably as a stand alone service. We had a bulk scanning customer who was a magazine publisher. He wanted to get his old magazine issues (from the 80’s and beyond) online, but only had them stored in print. Once we actually really understood how he wanted to use our product we were able to sell him - even though we were more expensive than a couple of local scanning providers in his area. We’ve sold this particular product a few more times, mainly because we “get” what the customer’s end goal is.
4. Managing a sales pipeline is harder than it looks. When you are the VC, you get to see all these pretty sales funnels at board meetings. When you are the person trying to grow the business, keeping the different campaigns and leads all moving along in the funnels is much more challenging! I guess it’s just in my nature to enjoy playing/measuring our sales channels by output, but I have to fight the instinct to not spend too much time in analytics and not enough time in selling/content creation.
5. When selling online, content is king. I’ve had a ton of luck getting great content out of a marketing intern we recently hired. Not only has he built an entirely new site dedicated to document scanning, he’s also put out some very helpful blog posts and made content upgrades to our web site. All this content is producing - both in terms of us moving up on Google, getting more traffic and improving our conversion rate.

Nielsen has a great blog post on smartphones, Droid and mobile applications. Some of the most interesting points they make are:

• Over the next several months at least six new smartphone devices (like Droid) will be released - these devices are going to have large screens, keyboards and a wide array of applications.
• More smart phones are accessing web pages vs. “dumb” phones as of Q3 2009.
• 24% of cell phone sales in Q3 2009 were smartphones; Nielson expects this to jump to 40% in Q4.
• In 2011 50% of all phone sales will be smartphones
• In 2011 120 million mobile users will be on the internet, and 90 million will be watching video on their phone.

It is clear that we are finally reaching that critical tipping point in terms of mobile internet usage. (I guess we were already there, but now even a slow person like me can see it clearly.) But I believe that phones ARE the internet/computer for many people these days, and that there continues to be opportunity developing services, apps and sites specifically designed for these users. The evidence I’ve seen recently speaks to this point; in particular several of the Techstars mobile companies have really had amazing adoption.

Is Droid, for that matter any of these other new smartphones, going to really take on the iPhone and emerge as a real alternative smartphone platform? I understand that iPhone has a real lead in apps, but I don’t think the market is won yet (although I am a pretty happy iPhone user.) Blackberry shouldn’t be forgotten about either, since their market share is surprisingly large and I think grew to 19% of smartphones recently due to their new phones positive receptions. My gut is that at least BB and iPhone are going to continue to gain share real market share. I have no idea how Droid will do, but if it got 10+% market share over the next year or so I wouldn’t be shocked. And I think it might be good for the overall market if 3 competing smartphone platforms all had real volume.

Anand Rajaram of Pixily recently posted a piece on approaching industry competitions/award programs if you are a startup. I thought that you may find it interesting.

While nothing says success like an increasing customer count, sometimes a startup can appear bigger, more established and get great free marketing from success in a prestigious industry award. The right award or two can help get a customer over the “should I trust this startup” hump!

It’s becoming increasingly clear that the generic advertising based web 2.0 business models are struggling, and I am wondering if lead gen business models are a much more effective model for the current downturn. Some of my partners are saying that 100 million in the new 10 million, as in a startup now needs 100 million monthly views to generate venture style revenue returns based off of a pure advertising based business model. While this is a bit of a cynical joke, there does seem to be statistically valid slipping in online CPMs, particularly around untargeted display advertisements. Targeting definitely helps, and some startups that I interact with are earning $25 to $60 CPMs… however, these are for highly desirable user groups. If you really think your startup has better targeting but doesn’t have huge users maybe you should consider using lead generation to do the monetization yourself.*

My general thought process is as follows:

1. Targeting requires work and advertisers can be lazy. Read the rest of this entry »
   

Prasad and I have been blogging about cloud computing and how it has sparked a massive round of new web services innovation. The advantages of using cloud computing for a startup’s backend are obvious; Prasad has touched on them before: low capital outlays; no long term contracts; Scale up and down on a whim; high availability, security and reliability, etc. However, if it is easier for your startup to enter a market due to cloud computing, then it is also easier for others. One way I’ve seen startups attempt to build barriers to entry/competitive differentiation is by using the data created by customers as a weapon.

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As a venture capitalist, I get a somewhat high level view of the economic landscape affecting startups. While I’m sure it’s not news to anyone, from my vantage point it does appear that the enterprise technology slowdown is now real. Startups that I met with several months ago have been returning with lowered plans. More sadly, several startups that were not able to raise funding from us or other venture firms have thrown in the towel based on slow revenue traction. Forrester research’s just released CIO study confirms that overall IT spending is down. My perspective is that Q2 enterprise IT spend was not healthy and Q3 will be worse.

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Pretend you are on the board of a startup. Unfortunately, this startup is not living up to its potential, and is failing to get sales traction as you and the team hoped. Why are sales not materializing? I had a brief, but insightful, conversation with one of my partners today. This partner (like most venture capitalists) is on several startup boards. Most of these startups are growing quite well; however, one of them is not.

The question is why? From a board level, it is quite difficult for a venture capitalist to determine the cause of the startup’s sales slippage. Is it the sales team? Or is it a market/product issue?

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The cost to acquire new customer/users will change over time, particularly if you are using the web to acquire users. Companies I meet with often have difficulties projecting what their cost to acquire customers will be as they first launch their product. It’s a lot like riding a roller coaster in the dark. This is completely understandable - if you are doing something truly new you’ve got to make a number of assumptions based on really loose information. Experienced executives operating in their native industries can make very good guesses at customer acquisition cost, especially if their companies have a sales force component. Younger internet CEOs are often playing in a completely new environment, so experimentation is usually required to develop better visibility.

(I’ve gotten some feedback that a few of my posts are a bit long, so I’m going to break this one up into two posts. This is part 1)

I am lucky enough to work with a number of startups over an extended period of time and I get to see some pretty similar patterns emerging around customer acquisition costs. These patterns tend to be accelerated for internet companies but also seem to hold for other technology startups. I’m sure there are plenty of examples that do not fit into the framework I’m proposing below, and welcome comments from readers! I could also be ripping off some theory I was taught in business school – if so, sorry for restating the obvious. Since this is a blog about events early in a startups life-cycle, I’m talking about the cost to acquire a new customer during the time frame of a company’s early launch.

Patterns in customer acquisition costs:

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One thing you must do before starting a new business is to talk to potential customers. Make sure you can answer the question, “who is going to buy/use this?” Figure out as much about your potential customer base early in your startup idea generation and then apply that knowledge against what you are trying to accomplish. Sitting down with and listening to potential customers before beginning your startup can help you justify all the effort you are about to expend, can help you focus your development on the exact solution that the market needs and can help you understand how to create a the right product positioning.

For some reason some consumer focused startup CEOs like to tell venture capitalists, “even my Mom/Dad will use it!” Of course your relatives will use your product; they’re your parents! Your Mom is not a focus group. Use online surveys. Find expert or passionate bloggers in the space that you are targeting and speak with them. (Yes, these people will likely talk to you, and if you’re eventually going to talk to venture capitalists about funding your business, you’d better get to them first, because VC’s will make those calls while they are evaluating your opportunity…) Talk to sales people targeting similar users. If you’re selling to big corporations, have you reached the people who will be buying your solution?

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