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:
- 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.
- 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.
- 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!
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!
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
- 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.
- 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!
- 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.
- 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.
- 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.
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:
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
I’ve completed the second step of my recovery from being a venture capitalist* and am now the head of marketing at Pixily, an online document management service focused on the small business customers. (Yes, it’s Prasad‘s company!) I’ve had the opportunity to get close to a number of startups since I left Atlas earlier this year, and have loved a bunch of them – particularly some of the ones over at TechStars. But I found myself slowly spending more and more time at Pixily, from a few days a week to 30 hours a week to 60 hours a week plus lots of brainstorming time in bed at night when I was supposed to be sleeping. Eventually Prasad and I decided that I might as well take the plunge and go full time.
I’m really excited about working with Prasad and the team at Pixily for a bunch of reasons:
- We are growing, and growing fast. Guess what – growth is fun! Even more fun on the inside of the company vs. being an investor looking in from the board level.
- It’s new to me. I’d been an investor/finance type for my whole career. But marketing is totally new. I think I’ve got a feel for what I want things to look like from a high level from my days as an investor, but actually getting there is the challenge.
- I still get to play with numbers, since marketing is now a metrics driven function. I always liked running different scenarios for potential portfolio companies – now I just get to do it in real time…
- Working at Pixily has really stepped up my passion level. Passion matters more than when I was an investor. One of the greatest investors I worked with was a partner at Summit Partners. He had the uncanny ability to dispassionately evaluate every little detail of a deal, and had no “sunk cost” fallacies. If an important part of a deal didn’t check out he would walk away, regardless of the amount of time we’d spent working on it – even if we’d spent a year and a half and had spent hundreds of thousands on due diligence. I think that is part of the reason he was such an amazing investor. But when you are company trying to grow, you can’t be dispassionate. You have to believe that what you are doing is going to work, even when little things go off the rails. So, while the ups are great, it is the excitement I feel for the company’s potential that keeps me chugging on through the occasional setback.
- It’s really cool to do something that actually, directly helps customers. I’m getting a lot of the passion I just mentioned from customers. It was after taking a few customer support calls that I really “got” the problem that Pixily was solving. Small businesses really like this service and they are changing the way the work and integrating Pixily into their everyday processes. There is a real, unmet need in the market – small companies are still paper-based and a new generation of business owners want to manage their businesses’ information online, not in filing cabinets, and from their phones, not from their desktop. Helping people make this change is really exciting!
There are a ton of other things I’m finding really fun – but the one thing I do miss (besides the deep, peaceful slumber of the money man) is having time to blog more. I hope to pick back up the blogging pace, since I’m experiencing all kinds of new things and want to share and get people’s opinions.
Finally, sign up for a free trial for your startup! Send us your paper documents, upload your digital files, and start using Pixily as a search engine for all of your companies’ paper! And you can use the “HJ2009″ coupon code for $5.00 off when you sign up for a paying plan.
*The first step was acknowledging that I had a problem