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Note: If you’re going to Dreamforce 2012, please stop by the Pardot booth.
This morning I had the opportunity to listen to the keynote presentation at salesforce.com’s Dreamforce 2011 right near the front as part of the Executive Summit. Dreamforce has turned into a massive software and cloud computing event taking over the entire Moscone Center and surrounding hotels in downtown San Francisco. Each year gets larger and larger with this year being a considerable increase over last year.
Some notes for the Dreamforce conference:
- 45,000 sign ups — largest software/cloud conference in the world
- Social contacts native in the app with links to social networks, social profile pictures, etc (Pardot has had this for a long time but it’s good to see it as part of the native CRM functionality)
- Jigsaw is now data.com with added data from D&B
- HTML5 at touch.salesforce.com for a better mobile/table experience with all core production functionality
- More social media and collaboration tools to connect with employees, partners, and customers
The cloud expo show floor has been especially packed, showing signs of strong growth and spending in the cloud computing category of technology.
Dreamforce has been a big success so far and I’m very impressed.
What else? What are your thoughts on the show and announcements?
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It’s that time of year for the salesforce.com Dreamforce conference at the Moscone Center in San Francisco and I find flying to be a great time to reflect. Thankfully, this year’s conference is early enough on the calendar to align with Q4 budgetting and budget cycles, so we expect an ROI in a shorter period of time compared to previous years that occurred around Thanksgiving. The marketing automation market continues to heat up and serves as a good case study for startup founders to think through when analyzing potential markets for their ventures.
Here are a few thoughts on the marketing automation market:
- Small, fast growing greenfield market with less than 2% penetration (which are my favorite)
- Core group of strong competitors that are increasingly distancing themselves from the rest of the market (here’s an overview of marketing automation vendors at Dreamforce courtesy of @marksmithvr)
- Well-funded competitors in the market are spending heavily on sales and marketing helping create market awareness for all vendors in the space
- Software as a service is the accepted distribution model, providing several benefits like recurring revenue, strong gross margins, and predictable cash flow
- Readily demonstrable return on investment (think about candy, vitamins, or pain-killers)
- Complementary eco-systems around leading CRM vendors like salesforce.com, SugarCRM, NetSuite, and Microsoft Dynamics CRM
Startups should think through these categories and others when identifying market opportunities. One of the most important tasks, and most difficult, is timing the market. The marketing automation market is now saturated, but a few years ago it was wide open.
What else? What other thoughts do you have about the marketing automation market?
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Pivot entered the startup vernacular a few years ago when Eric Ries popularized it on his blog with Pivot, don’t just jump to a new vision. Previously, I’ve espoused the benefits of iterating and believe it’s important to differentiate between the two. Each term has its place in the startup world and should be used accordingly.
Here’s how I look at pivoting and iterating:
- Pivoting – A wholesale change of the current business model in an attempt to capitalize on a different market opportunity
- Iterating – A minor change of the current business model in an attempt to capitalize on a closely related market opportunity
Pivoting is simply a much more drastic form of iterating. When I talk to entrepreneurs and they tell me how they’ve pivoted recently, most of the time they actually mean iterated. Iterate is something you can roll out quickly and casually. Pivoting is a wholesale change to the business and typically takes much longer to execute.
What else? What do you think of the differentiation between pivoting and iterating?
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With all the recent S-1 IPO filings by SaaS companies it’s great to the see the growth and market awareness expanding for the business model. One area that isn’t talked about frequently is how a growing SaaS company can actually be in bad shape due to declining bookings. That’s right, the business can have its top-line revenue increasing year-over-year while the business is actually eroding.
Here’s how to analyze a growing SaaS company that might have declining bookings:
- Look at each year’s new customers as individual cohorts (e.g. the 2007 cohort, the 2008 cohort, the 2009 cohort, etc)
- Analyze the renewal rates and up-sell/ARPU growth of each cohort
- Look at incremental bookings growth of each year’s cohort (bookings are monies to be received based on customer contracts)
- Understand if once the individual cohort renewal rates are teased out from the overall renewal rate there are trends not seen before (e.g. legacy customers might be sticking around but customers signed in the last couple years are leaving at a significantly greater rate indicating a serious problem not seen by looking at the generic renewal rate)
- The end result, in a bad case, is that the business shows revenue growth due to the layering of new revenue each year, but the underlying business is eroding faster due to customer churn, so declining revenue is on the horizon
The SaaS business model is great due to recurring revenue, strong gross margins, and predictable cash flow. It’s important to understand the lifecycle of more specific customer cohorts and distinguish positive or negative trends that could result in growing SaaS companies with declining bookings.
What else? What other aspects of SaaS companies do you look at to see if there are declining bookings?
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It’s been a great week for venture-back companies filing to go public, especially in the SaaS category. After talking about Eloqua’s S-1 and Jive Software’s S-1, I want to talk about BazaarVoice’s S-1. BazaarVoice provides technologies to help companies manage user reviews and associated content like photos, videos, stories, etc. Think about what Amazon.com provides to build a community of content around their product listings, but now supply everything but the actual ecommerce engine and you end up with BazaarVoice (Amazon.com develops their own social commerce technology and doesn’t use BazaarVoice, but 587 other companies do use BazaarVoice).
Here are some notes from the BazaarVoice S-1 IPO filing:
- Revenues (pg 2):
2009 - $22.5 million
2010 - $38.6 million
2011 - $64.5 million (net loss of $20.1 million)
- Estimate that there are 10,000 companies with at least $50 million in online revenues that can be served by the platform (pg 3)
- A team of people moderates content 24/7/365 in 27 different languages on behalf of clients (pg 4)
- Growth strategy: expand sales force, up-sell clients, greater customer insights, expand internationally, innovate with the platform, selective acquisitions and partnerships (pg 5)
- Accumulated deficit of $40.8 million (pg 5)
- Many potential clients are hesitant to use the software because they don’t want to display negative reviews about products or services (pg 11)
- Client retention rates ranged from 84.4% to 89.4% for 2009 to 2011 (pg 12)
- Largest 100 clients represent 57.3% of total revenue (pg 13)
- 494 full-time employees and 132 part-time content moderators (pg 15)
- Some product development, QA, and system operations are outsourced to Ukraine and Costa Rica (pg 19)
- Only consumed $11.1 million of capital since inception (raised $23.6 million) making them very capital efficient since they are able to use unearned income from clients pre-paying annually to fund the business (pg 42)
- 2008 cohort of new customers acquired represented $2.3 million in 2008 revenue and $17.4 million in 2011 revenue — extremely impressive up-selling (pg 43)
- $10 million line of credit (pg 57)
- VCs and investors own ~63% of the company (pg 124)
- Founder owns 14.3% (pg 124)
The BazaarVoice S-1 was straightforward and detailed without any surprises regarding their business model.
What else? What do you think of BazaarVoice’s S-1 IPO filing?
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Mark Suster has a great hour+ video interview of Bill Gross, the founder of Idealab. In it Bill Gross talks about the mail order business he founded as a teenager, the successful audio speaker business he had in college, and a number of other businesses he started — the consumate serial entrepreneur. Once he realized he liked coming up with the idea for the business and getting the right team in place to run it, he started Idealab to try out a new idea once a month. He’s helped launch 75 companies and several have sold for over $1 billion dollars. Hear these stories and more in the video.
Here are choice Bill Gross quotes from the interview:
- Starting a mail-order business as a teenager was hugely valuable
- Focus on one thing, unless that one thing isn’t working
- I keep coming up with new ideas but our companies are focused on a single idea
- I love tracking, listening to our customers, and feedback loops
- I went to my board with the idea for CitySearch and they said it didn’t fit, so I hired a CEO from McKinsey to do it and six months later I started Idealab to do more of my ideas
- 7 of the 10 (original) ideas we funded raised money and some went on to be wild successes
- All 10 ideas were mine originally
- We started looking at 10-20 ideas per month and choosing one to do
- All of the ideas come from personal want
- When you are starting a new idea you have to be 10x better than the competition in some dimension
- I call MVP (minimum viable product) sense and respond
- How many times can you turn on ideas (as compared to turns on inventory for manufacturing)
- Will people actually open their wallet and give you the cash? (the cashectomy moment)
- The Yellow Pages model is where this idea came from (pay per click advertising, which he invented and now powers the main way Google makes money)
This is a great video interview of Bill Gross and I recommend it to entrepreneurs to hear the first-hand stories of success.
What else? What did you think of the Bill Gross interview?
Yesterday I went through a few notes from the Eloqua S1 IPO filing. Today I want to look at the Jive Software S1 IPO filling that came out this week. Jive provides business collaboration, community, and social software in both on-demand and installed offerings. The easiest way to describe it is as community forums for places like ESPN.com as well as private Facebook-like communities internal to companies.
Here are some notes from the Jive Software S1 IPO filing:
- Revenues (pg 6):
2008 – $16.9 million (losses of $11.3 million)
2009 – $30 million (losses of $4.8 million)
2010 – $46.3 million (losses of $27.6 million)
2011 first six months – $34 million (losses of $30.6 million — an impressive amount for six months)
- Growth strategy: Add customers, up-sell customers, add products, extend eco-system (pg 4)
- Q4 is strongest quarter for billings and renewals (pg 11)
- January 2011 hosting outage that affected some customers upwards of 14 hours (pg 13)
- 9-12 months for a new sales rep to be fully trained (pg 17)
- Debt of $29.6 million (pg 31)
- Renewal rates are over 90%, but only measured for customers paying at least $50,000/year (pg 40)
- 15% of billings over the past 18 months have been for contracts greater than 12 months (pg 51)
- OffiSync was acquired for $23.3 million (pg 55)
- Proximal Labs was acquired for $1.2 million (pg 55)
- Filtrbox was acquired for $1.7 million (pg 55)
- Employee count breakdown as of June 30, 2011 (pg 78):
358 regular, full-time employees
15 in hosting
27 in support
51 in professional services
122 in research and development
105 in sales and marketing
38 in general and administrative
- VCs own ~40% of the company (pg 109)
- Co-founders own 15.8% and 15.8% (pg 109)
Overall, the IPO filing was as expected providing great detail about the Jive Software business.
What else? What other thoughts do you have about the Jive Software S1 IPO filing?
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Eloqua, one of our main competitors, filed their S1 today to go public and raise a proposed $100 million. Being in the industry, I’m very interested to dive in and learn everything I can. Here are some quick notes from the document:
- Revenues (pg 8 )
2008 – $32.9 million
2009 – $41.0 million
2010 – $50.8 million ($3.6 million from services)
2011 – $60 million+ run rate currently
- Accumulated deficit of $148.6 million (pg 11)
- Sales seasonality with Q4 being the best (pg 14)
- Single data center in Toronto serving all customers (pg 18)
- Pardot LLC is mentioned as a competitive lead management software vendor (pg 21)
- Two patents pending (pg 25)
- Customer count (pg 67)
712 on December 31, 2009
896 on December 31, 2010
- Annual user conference cost $600,000 (pg 72)
- Substantial portion of cash provided by operating activities is deferred revenue (pg 74)
- IDC predicts that the marketing automation market will grow from $3.2 billion in 2010 to $4.8 billion in 2015 (pg 81)
- Each client gets their own database with a common schema (pg 96)
- Executive salaries are between $215,000 and $310,000 (pg 112)
- Executive target bonuses were focused around net monthly recurring revenue, cash balance, customer satisfaction, sales qualified opportunities, and product development (pg 113)
- Equity ownership percentage for the remaining co-founder is 5.5% and investors is ~81% (pg 132)
Overall, there’s nothing too surprising in the filing other than one item: I’m surprised salesforce.com entering the marketing automation market wasn’t listed as a threat.
Reading S1 filings is always interesting, and this one doesn’t disappoint.
What else? What do you think of the above information?
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Yesterday I talked about some of the pros of having parallel startups including shared back-office, cross pollination of teams, and more opportunities to time the market. Doing multiple startups at the same time is difficult, and it’s important to address the unique challenges. Today I want to talk about some of the cons of doing multiple startups at the same time.
Some cons of doing parallel startups:
- Potential lack of momentum on any one idea to get the point where it’ll be successful
- Insufficient resources to make the biggest possible impact with any one startup
- Perceived lack of focus and direction
Talking through these challenges and understanding the drawbacks of doing parallel startups is important in the quest for success. There are many different pros and cons of having parallel startups with most successful parallel startup organization being Idealab in Pasadena.
What else? What other cons are there to doing parallel startups?
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One of the questions I get on a regular basis when talking to other entrepreneurs is “why do you have multiple companies?” In general, I’m against having parallel startups because it takes so much time and energy to make one successful, let alone several. For me, the opportunity presented itself because my first company was in a great spot with a management team that had worked together for several years and complemented each other well. This freed up my time to explore new product ideas to solve problems I had encountered — there were many itches I wanted to scratch.
Here are some pros of having parallel startups:
- Ability to work on wider range of projects and challenges
- Centralized back-office for HR, accounting, and office management
- Shared office space for better economies of scale (e.g. great internet connection, snacks, games, etc), pseudo co-workers, and more
- Increased idea and experience sharing among the startups
- Better likelihood of getting the market timing right, which I believe is one of the most critical elements
- Startup-specific stock option pools
Tomorrow I’ll talk about the cons of having parallel startups, the biggest of which is that without sufficient resources and dedication by team members, a startup won’t make enough progress to become viable. Having parallel startups can work well with the right pieces in place, the most important being either a successful startup with a complete management team or extensive resources to fund the ideas for extended periods of time.
What else? What are some other pros of having parallel startups?