Startable – Healy Jones’ & Prasad Thammineni’s Blog

One of my sysadmins pointed out a great post from yesterday on using a decoy on your pricing page. If done well this can be a great strategy.

I’ve used this decoy pricing tactic on OfficeDrop’s pricing pages for a while. In particular, our digital filing pricing page has an expensive plan that has nicely increased overall conversion on the page.

The main result of this decoy is increased conversion on the page. In otherwords, a higher number & percent of visitors to the page pick a plan and become an OfficeDrop user. It hasn’t really changed the MIX of plans (very few people pick the expensive plan and the same % of people pick the other plans). But I consider the decoy plan a success because it’s getting more people into our funnel.

You can see the pop here when we added a decoy pricing plan to our standard digital filing pricing page. This chart is the % of visitors who visited the page and then signed up for a plan. I.e. the conversion rate of the page. Note that there is a little dip in the beginning that has nothing to do with pricing; it’s a data error. The way to look at this w/o the data error is the two little peaks on the left are close to the pre-decoy conversion rate average; the hump on the rigth is the new average post addition of the decoy pricing plan.

What the Decoy Pricing Plan Looks Like

The decoy pricing is the “ScanPro” “ScanFive” plan on the right. (Thanks for the typo catch Pete!)

Decoy Pricing Plan

It’s designed to be expensive and to make clear that we’ve got the ability to support additional users in the plans… it’s not really clicked that often.

Anyways, check out the post I linked to above. You’ll find it very solid, and it explains why a decoy plan works.

Lincoln Murphy, the well known SaaS Marketing guy, got pretty upset at a recent TechCrunch piece on the freemium pricing strategy that posted this weekend. Lincoln says (I’m on his email newsletter list; it’s pretty good): “In a nutshell the Complete Guide to Freemium on TechCrunch is a post by someone who got lucky enough to get their post accepted so he can get a backlink to his site from TechCrunch and where he takes the results of studies and some words from high-profile VCs and weaves it together into a post for the TMZ of the tech industry.”

Ouch. That’s a little harsh. The article isn’t bad at all. The conclusion is 100% great, actually.

What is Freemium?

However, I don’t think it’s the Ultimate Guide to what is a actually a pretty complicated pricing strategy. I happen to disagree with the author’s ideas that a time based free trial = freemium. I can’t tell if my disagreement is a big deal or not – his company, FutureSimple, has a free trial offer, so it’s hard to know how much of the piece is using that as the basis for the post vs. a couple of professors he references. I disagree with the idea that a free trial is freemium so much because OfficeDrop recently made the switch from a free trial to having a free forever plan and we called it “going freemium.”

My definition of freemium is that a user will have the opportunity to use the service/software/whatever forever without having to pay for it. It may be a limited plan or limited features, it may be ad supported; whatever. It just means you can use it for as long as you’d like without paying. FreshBooks has a freemium model, but you run out of “free” pretty quickly. You can jump through hoops to keep it free, but most likely you’ll upgrade. A free trial that expires after a set number of days doesn’t meet my definition of freemium.

OfficeDrop’s free plan is driven by our mobile distribution strategy. I write a little bit about why we think apps are taking over here. But you should listen to my conversation with Lincoln – I call it “Healy Jones on Freemium.” Our free plan is a free forever plan, with some upgrade triggers baked in – search limits, storage limits, OCR limits. But it’s a pretty good product for free; we are the only company offering free high quality OCR for scanned images coupled with storage. People seem to like the plan… and they also seem to like to upgrade to paid plans. We like that part for sure!

Lincoln is putting on a webinar on kicking butt with your company’s free trials model. I think he’s got some good stuff, so I’d suggest you register!

Came across a study by a company called Comparz and found the following quote interesting:

Only 20% or less of SMBs found vendor websites and conversation useful. So what are SMB’s looking for? Over 90% of business users said that user reviews and user ratings and rankings would be the strongest help in making vendor decisions. In addition, 84% indicated that decision guides outlining what to consider when purchasing a solution and would be useful. They also seek a community where they can chat online with similar buyers.

This goes along with my mobile app marketing strategy of getting existing power users to step up and review new versions of apps in app stores.

Interesting research from Flurry again (they were the ones who put out the info that mobile app usage is topping regular web browsing). This time they have data showing that free or “freemium” app titles are generating more revenue than pure paid apps. From a MediaPost summary of the research:

Flurry shows that over the last six months, revenue from free-to-play game apps has overtaken that from paid apps. Among the top 100 grossing games in the App Store as of June, more than two-thirds (65%) of the revenue generated came from freemium games and 35% from paid games.

That’s nearly opposite the situation from six months ago, when paid game apps accounted for 61% of revenue and free titles, 39%. What’s changed since January? Peter Farago, vice president of marketing at Flurry, pointed out that Apple began counting in-app purchases toward app gross revenues at the end of 2010, reflecting the impact of that sales stream in its ranking of top-grossing titles.

Free apps generating more revenue than pure paid apps

So, this research is focused on games, but OfficeDrop is betting the same will be true for our b2b SaaS app. We switched to a freemium model earlier this week, mainly driven by the feedback we were getting in the app stores. App store people just expect to try stuff for free and don’t like free trials. We can’t get them to read the app description that talks about the free trial period; they just look at stars, download and then leave a nasty review without trying the service. Hopefully this freemium experiment will pay off for us. Initial web signups are promising, but it’s too early to tell!

As I mentioned in a previous post, my company recently did a lot of cool testing during our site redesign. Anand Rajaram, OfficeDrop’s co-founder has a series of posts on Performable’s blog that talk about tips, tricks and tools that we used during the process:

Optimizing Conversion Rates Part One – Quantitative Tests

Optimizing Conversion Rates Part Two – Qualitative Tests

Optimizing Conversion Rates Part Three – Lessons Learned

One of the co-founders of my company recently posted his thoughts after attending the Startup Lessons Learned conference, from the perspective of a startup product manager. It’s worth a read!

My occasional co-blogger Prasad Thammineni was recently featured on Amex’s OPEN Forum.com, sharing four intuitive ways that he promotes innovation around the OfficeDrop office. (OPEN Forum is a pretty interesting strategy by American Express to offer their small business card owners a place to share best practices on running their companies.)

Prasad lists a few of the things we try to do at OfficeDrop to be more innovative… As with the OfficeDrop name change process, Prasad makes sure to employ all of the clever minds around the office, not just the over paid ones like mine…

Using the power of Google Analytics, it’s easy for me to see which Startable blog posts were the most read in 2009. Keep in mind that I’m merely looking at the number of views, so stuff posted earlier in the year has a distinct advantage of making it to the top.

10. The hidden cost of down rounds – the antidilution provision. When venture backed companies’ values drop, the pain is not felt evenly amongst the shareholders. With venture backed companies’ valuations falling like rocks due to the financial turmoil and bad-economy-induced-missed projections, I’m not surprised that this post got a lot of traction.

9. 4 Ways to generate business ideas. Prasad’s post on idea generation and ways to come up with innovative businesses and solutions still attracts good traffic to Startable.

8. The Entrepreneur in Residence. The first in a three part series explaining what an entrepreneur in residence does at a venture capital firm. The follow up posts talk about how to deal with an EIR and how to meet with one. I think this post will continue to get good traffic; it is actually the number one search term driving traffic to Startable.

7. MBAs and Startups.  Right when I was fresh from leaving venture capital and starting actually doing the entrepreneurial thing, I responded to a Dharmesh Shah post on 10 things MBA school won’t teach you. Now that I’ve been a “real” entrepreneur for the past 6 months, I agree with what I wrote. This post also had a bit of a TechCrunch boost.

6. Early stage venture capital valuations. Right after I left venture capital I felt that I could reveal the truth (as I saw it) on how VCs value startups. VCs have a target ownership, and the more you raise the higher valuation you startup will get. I continue to stand by this.

5. So you want to be a junior VC. My advice to someone who emailed me asking for tips on interviewing for a non-partner position at a venture capital fund.

4. Angel groups are professionalizing and I’m not sure VCs realize it. I was pretty impressed after attending a meeting of the Northeast ACA (Angel Capital Association.) This isn’t a meeting most venture capitalists get to attend, and I was pretty shocked at the level of sophistication. Angel groups are really getting good. Somehow this post got a lot of stumbleupon love.

3. The venture capital investment memo. Since I worked at a few funds, I thought it would be fun to compile the “average” investment memo put together during the investment process at a venture firm. I get good monthly search traffic to this post.

2. Leaving venture capital. Well, this is when I officially announced I was leaving Atlas Venture. I guess people wanted to read about it!

1. It’s not me it’s you, the real reason many startups can’t raise venture capital. Many, many startups are rejected by venture capitalists for the simple reason that the VC doesn’t have confidence in the founder. However, this is rarely communicated. I list some tips that the founder can use to tell if they are the problem.

Wow, so I’ve written a lot this year. Hopefully I’ll continue to have some good content going forward. I am always available over email or twitter, so don’t feel bad reaching out.

Happy New Years!!

I was invited to judge business plans being presented by students taking the Entrepreneurship and New Ventures class at the Harvard Extension School yesterday. Of all the business plans I judged, the one that stood out the most was Kiwilimon. Having had the experience of pitching Pixily over 25 times to investors in the last 8 months, there are a number of things I found this team got it right:

1. Passion: The most important element of a great pitch is passion. Presenting with passion will demonstrate how much you believe in what you are bringing to the market and also has the positive side effect of grabbing and maintaining the attention of the audience. Passion is something that you cannot put on but is something that comes from  your heart. It is ironic that a passionate pitch is not spontaneous but one that is practiced. If you practice enough times and make sure you keep improving with each pitch, you will start exhibiting passion. Like they say, if you say it enough times, you start to believe in what you are saying.
2. Simple, Short and Concise: A great pitch is one that is simple, short and concise. Of all the pitches that I made, the best ones were those that lasted no more than 10 minutes. Yes, it is possible to pitch your entire business plan in 10 minutes. If the investor does not get your business in 10 minutes it is very unlikely they he/she will get it in an hour. Of course, you need to have a lot of detail and backup information but that is something you can address when questions are asked. Make sure the appendix has all the slides you need to support the details.
3. Pictures are worth a thousand words: The best pitches I have seen are those that tell the story using pictures. With pictures, people can easily and quickly relate to the problem and how you plan to solve it. They tend to remember the details well after the pitch is made. With Google images and  micro-stock sites, you can find pictures for everything that you want to convey.
4. Convey what your business is in 90 seconds: Even though this is obvious, not everybody gets this right. It took a good five minutes before we got what one of the pitching teams was selling. Identify the problem/need and how your solution is the best there is in the first 90 seconds. If you cannot convey what you are selling in that time, you will start to loose your audience.
5. Keep text in a slide to no more than three lines: If you cannot use pictures, make sure you do not include more than three lines of text. Anymore than three lines will take much longer to go through and makes it harder for the audience to remember. With more lines of text, the audience is reading ahead of what is on the slide and not listening to the story you are telling. You want the audience to pay attention to you so that they can get how passionate you are about the business.
6. Target market and market size: As you are defining the need, define the target market. Knowing and conveying whom you are selling to is an essential element of a good business. If you can backup the market need with either primary or secondary research, your story will be even stronger. The size of the market is very important as it tells the audience how big the market potential is.
7. Marketing: These days it is much easier and cheaper to build the product and is much harder and expensive to market it. Spend a lot of time thinking about how you are going to sell the product, what channels you are going to employ, the partnerships you are going to create, and how many customers each marketing program would bring in. For the pitch, focus on the go-to-market strategy and the marketing strategy in the first year.Leave the mid to long term marketing strategy to the appendix.
8. Competition: Research your competition thoroughly, list the top three competitors, what makes them a success and identify why your solution is better than the competition. Also, make sure you are prepared for the “Barriers to Entry” question.
9. Product: If you have defensive intellectual property, make sure you identify it early on. If not, focus on the proprietary technology you have built or what makes your product unique. If you have customer testimonials, this would be a good time to share those.
10. Revenue potential: Identify all sources of revenue, how much they would bring in each year and over five years. Obviously, you are making a lot of assumptions to build this model but you will prove or disprove those assumptions as time passes. Do not be conservative when demonstrating revenue potential. Remember, investors are going to discount whatever you say by at least 100%. At the same time, do not be overly optimistic as the investors will not believe anything you have said.
11. Costs: Identify all the operational and non-operational costs including salaries, data center costs, product manufacturing costs, inventory costs, and customer acquisition costs. Make sure you show which of the costs reduce with scale.
    
12. Team: In a 10 minute pitch, I recommend that you leave the team slide to the end. In the team slide, quickly describe the background of the founding or management team and demonstrate why you are the best team to execute on the plan.

Kiwilimon got all these elements right and delivered the pitch flawlessly. I hope the lessons that I learned first hand and from others  will help you in your pitches. If there are others that I have missed, please feel free to share.

There was some great news this past week for the New England startup scene – TechStars recommitted to another season in Cambridge and The Founder Collective officially announced that they’ve got a $40 million fund to make early stage/seed stage investments in New York and New England. I’ll talk about the Founders Collective tomorrow, today I’m going to focus on TechStars.

TechStars is coming back to Boston!

I was lucky enough to participate in TechStars Boston this past summer. It is a great way to launch an internet company, with solid mentors, great media exposure and a super-crappy office filled to the brim with passionate + smart technology entrepreneurs.

I can’t emphasize enough how great the mentors were for the TechStars program. The companies that had the best experiences at TechStars were the ones that took advantage of the one-on-one time that different mentors offered. These mentors were people who have successfully built real technology businesses. They opened doors for the entrepreneurs by introducing them to distribution partners, technology experts, journalists, etc. They provided strategic and operational advice. They beta alpha tested the heck out of the companies’ products. You can’t get this level of mentorship anywhere else that I’ve seen – not from a venture fund, not from a school – no where.

My advice is to apply to the program if you are a young, first time entrepreneur who has a grea idea and the ability to get it going fast, for not a lot of cash. TechStars is accepting applications now, so get on it. Remember that they are looking for you to show traction with your business during the application process, so set developmental (and if possible customer acquisition) deadlines over the next few months, mention this in your application and hit them.

One of the greatest things about TechStars being in Boston is that it brings talent in from other parts of the country. TechStars recruits from everywhere, and some of the great entrepreneurs from this past summer’s program has stuck around.

The change from the summer to the spring doesn’t really surprise me, but I do wonder if this will cut out some potential student founded companies from the program. Boston does have great entrepreneurial-driven cultures at places like MIT, Babson and other schools. It will be hard for some of these students to commit to full time company-founding during the spring if they are supposed to be in school. I guess they could potentially take a leave but this is cutting it pretty close to the spring for some registrars’ offices I bet.