Startable – Healy Jones’ & Prasad Thammineni’s Blog

iCloud is brilliant. My team has had the chance to look through the API, and it’s going to be very useful. But it’s also going to be very good for Apple, because it will really drive hardware processing power escalation. In other words, it’s a totally device focused strategy. Very slick Apple!

iCloud API – Look out Amazon!

First of all, iCloud is a direct challenge to Amazon’s cloud services – actually, just the storage part. This is because iCloud’s API is built to allow applications on the Mac, iPhone, iPad, iWhateverIsNext to store data in the cloud and then sync across the iUniverse. Totally cool. And totally competitive with Amazon S3 (Amazon Simple Storage Service). It’s a cloud based place to store data.

Amazon offers another cloud service – Amazon Elastic Compute Cloud (Amazon EC2). This allows companies (like OfficeDrop) to upload data and have complex computational processing done in the cloud vs. on a customers’ device. This is crazy powerful, because we have not had to build out complex data centers with expensive servers to do computationally complex things like OCR or powering our document search engine.

According to my team, iCloud doesn’t really offer cloud based compute – only storage with the ability to sync an application’s data up and down.

So, if you are building an app on the iPhone and using iCloud, where does the compute happen?

iCloud drives Device Processing Escalation

That’s right, with iCloud, processing has to happen on the device. The device Apple sells you. And if some high demand new app requires serious compute that your older iWhateverWasCoolSixMonthsAgo can’t handle, guess what? You’re in line at the Apple store upgrading your device! Brilliant Apple! It’s like Wintel all over again, but without the Intel part.

Another thing to look out for Amazon!

And it doesn’t stop there. Imagine you are a new iPhone app developer. Historically you’d fire up some Amazon instances for your compute and start using S3 for storing data in the cloud. Well now, you can get “free” storage in iCloud (Ok, well, the consumer ends up paying for it but it’s free to the developer!) So you don’t need to do all that heavy lifting for the online storage part. I know, I know, Amazon is much less lifting that building out your own storage and whatnot, but now you don’t even have to do that. So getting cloud storage, for an upstart app developer, is even easier than it used to be. So are you going to use EC2 for processing stuff? Or are you just going to try to let the device handle it? Well, if you are doing the MVP thing you are probably not going to bother to build any sort of processing on Amazon and are going to see if the device can handle the processing (no ifs, ands or buts, this lowers the barrier to entry for an app startup)… And, maybe it can, maybe it can’t but still, you never had to sign up with Amazon to launch.

And that is the part where iCloud really kicks Amazon in the teeth. Now, startups don’t even have to do anything with Amazon to launch their startups, and may not ever have to use Amazon’s cloud services at all. iCloud could remove entire generations of potentially successful startups from the Amazon web services ecosystem and instead bind them to Apple.

Anyways, this iCloud thing is going to be big.

Also, if you are looking to the OfficeDrop reaction to the iCloud announcement, here it is:

The team here at OfficeDrop was glued to the live updates on Apple’s new iOS and iCloud… and we got pretty excited.

While some pundits have been claiming that iCloud will kill existing document sync, access, collaboration and sharing startups, we think otherwise. OfficeDrop CEO, Prasad Thammineni, was quoted in Macworld and conveyed our excitement about the new announcement. From the Macworld article:

Prasad Thammineni, OfficeDrop’s CEO, said he saw opportunity. Apple’s new service, he said, isn’t necessarily oriented toward business-sized customers—but it could educate those customers about the advantages of cloud storage and expand his company’s market.

“It’s going to educate consumers to say ‘I want my data to go where I go.’ That will prompt customers and small businesses to say they want to do their data the same way,” Thammineni said. He added: “So for us, we see this as a big positive thing.”

We have reason to be so optimistic about Apple’s iCloud. When Microsoft began their “To the Cloud” campaign in November of 2010, we saw our keyword “cloud” related search traffic double from the previous month. And today, this traffic is up 5x what it was before Microsoft began educating the world about the cloud. (Note that while all search traffic for OfficeDrop has grown in that timeframe, it hasn’t grown anything like cloud related traffic. And there was a very distinct, positive change in the cloud related search traffic growth pre and post Microsoft campaign.)

Apple’s iCloud efforts will help propel cloud usage to the masses (or at least beyond the early adopters.) And since Apple is so laser focused on the consumer, OfficeDrop’s target customer base of small business owners will be left searching for a solution that meets their special needs. According to research that we’ve seen, last year only 11% of small businesses were using cloud based SaaS solutions – up from 8% the year before, but still a tiny percentage. And once you go cloud you are 4x more likely to try another cloud solution. If Apple can pull this off they will be the first baby-step into cloud services that our potential customers need!

Finally, our ScanDrop scanning software app thrives on scanning paper into people’s cloud based accounts, and is really designed for customers who use multiple cloud services. So one more strong cloud offering is quite good for ScanDrop, and will help our Mac ScanDrop scanner software revenue grow.

Wow, Google is ready to move people to updated browsers! This is great for the online world, and will hopefully get people off of ancient browsers like IE6 and whatnot.

According to multiple Google blogs:

For web applications to spring even farther ahead of traditional software, our teams need to make use of new capabilities available in modern browsers… Older browsers just don’t have the chops to provide you with the same high-quality experience.
For this reason, soon Google Apps will only support modern browsers. Beginning August 1st, we’ll support the current and prior major release of Chrome, Firefox, Internet Explorer and Safari on a rolling basis. Each time a new version is released, we’ll begin supporting the update and stop supporting the third-oldest version.
As of August 1st, we will discontinue support for the following browsers and their predecessors: Firefox 3.5, Internet Explorer 7, and Safari 3. In these older browsers you may have trouble using certain features in Gmail, Google Calendar, Google Talk, Google Docs and Google Sites, and eventually these apps may stop working entirely.

This is pretty kick butt. It’s time to get people off of older browsers. Supporting old school browsers is a tremendous pain for online services like OfficeDrop. Hopefully the 80 billion users of Google products will upgrade. I wonder what percent of Google users are early adopters who are already using the most updated versions vs the general internet population using outdated browsers. Only 2% of OfficeDrops cloud content management visitors are on IE6, for example. I wonder what it is for the GOOG.

Rob Go, seed investor with NextView Ventures (I wrote about NextView last month), has yet another good post, this time on Product Development – Librarians and Poets. He talks about how product management and development needs bot vision and execution/organization, and contrasts several well known startups, internet companies and founder and talks about how they played to their strengths. Good piece, check it out!

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

We’ve been having a lot of luck with our online videos. At OfficeDrop, we use them both as teasers/commercials to get people interested in using our services and as how-to videos that explain features and integrations. People seem to like them, and we see a real correlation between people who watch the videos (even a portion of them) and who sign up as customers. Here is an example of our main “teaser” intro video – I’m going to have to update it soon based on several new features that we’ve recently introduced.

I also try to use them as “link bait” i.e. putting some educational content out there and hope that other link to it based on the good info we basically give away; see our digital office page as an example. Online video is a pretty important part of our site and building and marketing strategy.

Prasad has a new post on Small Business Trends that lays out some simple tips for creating better online video. If you have a site, I’d recommend using simple online videos to promote and sell your service. Or at least make it more personal and give potential customers the chance to see what you look like and “bond” with you!

I like this post by Max Levchin entitled “On ambition.” He discusses the tradeoff between thinking big with your web startup or accepting a smaller exit and return. He is for “going big.”

I guess my thoughts go a little against his position – I believe it is OK to accept a quick, smaller exit if you’ve more modestly financed your company.

I hear his arguments – they are really well articulated. However, I think it can be honorable to sell your startup for a good but not enormous price to a larger company if that company will legitimately help you achiever your vision.

Starting a company – and especially starting a technology company – is about more than making money. I believe that every founder has visions of their target customers massively adopting their technology and using it to change how they do their business or live their lives. Nobody creates a new technology and says, “Wow, I hope barely anyone uses this!” If being part of a big company can help you get there then I don’t think getting acquired when you are small is bad.

I understand the investors may be more money focused. And founders should be thinking about that too, since many of them have the opportunity to make good money doing something less risky (i.e. just having a regular job at a good company for a salary.) And Max correctly points out that a small exit for a correctly capitalized company can really generate a lot of money founder. So that’s not all bad!

My gut is that this burst of angel financing will result in a crop of startup executives who 1) start something cool, 2) sell the company to a larger company, making a little $, 3) work at the acquiror* for a while and learn a lot about scaling a business and running a clean operation and 4) will then go off and found another set of companies, some of which will be very, very “big” ideas that need big venture capital financing.

*I like to spell it this way. But I also think pumpkin should be spelled punpkin, so…

I have just re-read for the third time Steve Blank’s awesome post on business plans vs. business models. I have been thinking about something writing along a similar idea for quite a while, but obviously don’t have the same level of experience as Steve Blank! However, since I’m currently living this I feel like I can justifiably write about it.

My startup, OfficeDrop, doesn’t have the traditional 30 to 60 page word processor written business plan. We’ve written a lot down, but haven’t created a traditional 60 page business plan to supposedly guide our growth. And the writing we do do is usually done in a slide deck.

Steve writes about capturing a business model on slides. We’ve sure got a lot of slides! They are a good way to put our thoughts together and communicate them with each other and our investors.

I think the most important document in our startup is our financial model, which is build in a spreadsheet. It “memorializes” our assumptions and contains our results from operations. (I say memorializes in quotes because our assumptions change pretty quickly.) I call it our “business model.”

I prefer spreadsheets for business models, probably because of my financial background. I like the ability to put the important assumptions into a “living” sheet, so that when an assumption is changed the entire output changes and then compare actuals to our key assumptions. You don’t quite get that flow in a PowerPoint presentation or a Word doc.

We need to know how much experimenting we can do with our current pot of cash. We also need to carefully monitor the cash we gain from our revenues. As the marketing guy, I also need to understand the cost of acquiring a customer and how much they are worth – (stuff like churn rate and average monthly revenue per customer really matters to me.) A spreadsheet allows me to automatically update at the end of each month and compare against the assumptions. Oh yeah, and understanding the initial cash flows of our startup is pretty important. Spreadsheets do that, not Word docs or PPT.

Spreadsheets do have problems capturing some of the pivots a startup has to do. For example, we have just release a free desktop scanning software download that helps get paper scanned directly into Google Docs from most standard scanners. This is a pretty big departure with our current model of providing subscription scanning services and online document management. But it is a test that plays off our all of the technology we developed and all our experience in cost effectively scanning small batches of paper documents.

What is the problem with a spreadsheet as the basis for a business model during a pivot? Well, I think we understand the costs of launching our desktop software, which are captured in the spreadsheet. But the upside is a lot more complicated. The issue I find when introducing a potentially major change in a business model captured in a spreadsheet is that it takes a freaking long time to create a legitimate Excel model vs. a legitimate potential strategy captured in a PowerPoint slide. But as we test our assumptions and generate data, I’ll be sure to fill out our spreadsheet and see where the chips are falling.

On a side note:

I do think business plans have a purpose and could be useful for a traditional set of startups. If I was launching a restaurant or a law firm, I’d probably write a business plan. Obviously I like to write, and putting things down in a structured business plan could be helpful when business innovation is less important than finding a way to make an existing business concept work. The nice thing about a lot of the business plan templates floating around is that they are a bit like Mad Libs for starting a business. But I’d still build a financial model spreadsheet!

Mass High Tech is reporting that my company, OfficeDrop, has some extra office space available in our new facility in Cambridge. They are right!! While we hope to grow into this space eventually we’d like to offer desks, chairs, fast internet connections, diet coke and coffee to other startup(s) in the area looking for some month to month office space.

We’ve got four spaces available, two that are small and would be great for a single worker (but these spaces can handle two workers who are friendly!) There are also two larger spaces that can fit three to four comfortably. Probably actually three comfortably and four OK.

We are located a healthy walk from the end of the red line at Alewife. Since we’ve been here there has been well available, free street parking. A Whole Foods, Trader Joes, CVS and Chipolte are a short drive away from the space.

Ping me at healy (at) officedrop (dot) com if you are interested in learning more.

I’ve decided that the biggest threat to a software as a service startup isn’t anything sexy or mysterious. No, it’s the annoying fact that so many credit cards get cancelled by no fault of the user. SaaS companies, like Pixily, rely on retaining customers to achieve our target lifetime value and to recoup our marketing costs/costs of customer acquisition. When MasterCard or whoever cancels a user’s credit card it is a real pain to gently remind them to enter a new card number.

As Bessemer Venture Partners says, “It’s very difficult and expensive to grow subscription businesses if you have moderate customer churn– and prohibitive if your churn is high.” Pixily’s users are really important to us. We work really hard to get them and it is painful when one cancels.  When some one’s credit card fails, we email and eventually phone to follow up and get them back into our system. We’ve had customers who have been “gone” for more than a couple of months re-engage and pay for past months/bring their accounts up to date. It’s worth the effort to try to keep them in our system, even if it is a pain. But since the majority of our churn comes from credit card cancellations, everything we can do to reduce it really helps our metrics and helps the company grow. And when technically do they count as churned, if so many of them eventually come back?

I know that large SaaS companies have these problems too. I’ve spoken with the heads of very large SaaS businesses, and they have a person or even a small group in charge of trying to get customers to re-enter their billing information. This is a real issue.

I’m afraid that this problem will get even worse. It seems like credit card companies are becoming pretty nonchalant about canceling cards. I only really use two cards; one was re-issued to me this year and last year the other was. Both were canceled by my card company because one of the vendors I bought something from had a security breach. I actually think it is nice that they were able to cancel my card before any fraud could possibly have happened, but I did get some emails from the subscriptions I used asking me to re-enter my credit card information. And it was a pain, and I’m sure there were a few that I didn’t end up updating.

I hope that credit card companies don’t end up being the achilies heel of the SaaS business model. Anyone else seeing this problem with their SaaS businesses?

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.