The lean startup methodology is great and deserves the most attention. As contrasting to the lean startup, there’s the traditional heavy startup with extensive engineering along with customer discovery, large burn rates right out of the gate, and more. While the heavy startup shouldn’t happen too often, there’s still a place for it.
Here are a few ideas when a heavy startup makes sense:
- When an entrepreneur has extensive domain expertise in a market, running heavy can result in a fully assembled and cohesive team in a shorter period of time
- When a market opportunity is winner take all, and it’s go big or go home
- When a market requires more fully baked software before trying out a minimum viable product, like in healthcare or other complex areas
Heavy startups aren’t very common, but they still have a place in the startup world.
What else? What are some other ideas as to when heavy startups make sense?
There’s a debate in the startup community between the lifestyle and growth entrepreneur. Now, no one likes labels, but the idea is that a lifestyle entrepreneur optimizes for his or her lifestyle while the growth entrepreneur focuses on growth at any reasonable any cost.
Here are some ways the lifestyle entrepreneur differs from the growth entrepreneur:
- Lifestyle entrepreneurs look to company profitability for personal income, keeping in mind growth goals, while growth entrepreneurs put all the emphasis on growth
- Lifestyle entrepreneurs are averse to raising outside money while growth entrepreneurs always try to raise money
- Lifestyle entrepreneurs are more comfortable with the status quo while growth entrepreneurs are constantly looking to shake things up and reinvent their business to grow faster
Why distinguish between lifestyle and growth entrepreneurs at all? It’s important to understand ones motivations and ambitions, especially when developing a peer group and connecting with mentors.
What else? What are some other differences between lifestyle and growth entrepreneurs?
Launching a startup is one thing. To actually get it humming, and making strong momentum, it often takes two years of serious, full-time effort. Here’s how I’ve seen it play out in the past:
- First Three Months – Assemble the team and build the minimum viable product
- Next Three Months – Launch the minimum respectable product
- Next Six Months – Sign the first 10 paying customers and tighten the product/market fit
- Next Six Months – Focus in on building the customer acquisition machine while refining the product
- Last Six Months – Continue tweaking the sales and marketing mix using objective data about what’s working and sign a critical mass of customers
Startups aren’t overnight successes. Often, two years is the magic mark for startups to start humming, assuming they found a strong market with solid timing.
What else? What are your thoughts on it taking two years for a startup to start humming?
Today I enjoyed hearing Bill Nussey (@bnussey) give the commencement address at the 2013 ATDC Startup Showcase graduation. I’ve enjoyed talking to Bill over the years and hearing him speak at several events. There was one piece of advice he gave me that changed the trajectory of my career.
Way back in April 2007 we had just launched Pardot 1.0, which was a pay-per-click bid arbitrage system to generate leads for technology companies. Much like LendingTree.com, Pardot 1.0 was a platform where prospects would put in their information and vendors would compete for their business. I had reached out to Bill as I wanted to share the vision for Pardot 1.0, and he graciously agreed to meet me for lunch at the River Room on the Chattahoochee River.
We were sitting outside on a beautiful Spring day and I was selling hard on the benefits of a Pardot 1.0 platform and how they could buy higher quality leads at a lower cost. After a few minutes talking about Pardot 1.0, he shared that there was this marketing automation company called Eloqua that was of great interest to him. Eloqua focused on the B2B segment of online marketing and was a combination email service provider and micro web analytics tracking platform.
Now, at the time, I had never heard of Eloqua or marketing automation software, but the functionality sounded similar to several of the Pardot 1.0 modules we’d already built. I thanked him for lunch and returned to the office to tell my cofounder about Eloqua. We’d been struggling with Pardot 1.0 and the market opportunity of generating leads on behalf of vendors. What if we pivoted and starting selling pickaxes to gold miners instead of mining gold on behalf of vendors?
After a week of analyzing things, debating what was and wasn’t working, and researching Eloqua, we decided to pivot Pardot into a SMB marketing automation platform. We already had a good bit of the core functionality including landing pages and micro web analytics tracking. The missing pieces were CRM integration, automation rules, and email marketing. With a new course charted, we went heads-down and decided to build the updated product with the goal of a beta launch in September 2007.
Bill introduced us to Eloqua and the idea that put Pardot on course to becoming a major success. For that, I’m forever thankful.
Sharing ideas is powerful. You never know who you can help or who can help you.
What else? What are some other examples of the power of sharing ideas?
Way back in the spring of 2002 I took the FastTrac program at the Council of Entrepreneurial Development in Durham, NC. As part of the program there was a weekly speaker and one of the most memorable speakers was Scott Wingo, talking about starting and selling two previous companies followed by introducing his new startup ChannelAdvisor, then only a year old. One detail I remember from Scott’s talk was when he explained their level of scrappiness and how he didn’t want to spend $60,000/year on a sys admin, so he did it himself to save money.
Now, 11 years later, it’s with great pleasure that I get to read the S-1 IPO filing from ChannelAdvisor Corporation. Here are my notes:
- ChannelAdvisor has a Software-as-a-Service (SaaS) application that enables optimizing products across multiple online channels (pg. 1)
- Customers processed over $3.5 billion in gross merchandise value in 2012 (pg. 1)
- Over 1,900 customers including 27% of the Internet Retailer 500 (pg. 1)
- Customer contracts include a base fee and a percent of the transactions (pg. 1)
- Revenues (pg. 8)
2010 – $36.7mm
2011 – $43.6mm
2012 – $53.6mm
- Losses (pg. 8)
2010 – $4.7mm
2011 – $3.9mm
2012 – $4.9mm
- Accumulated deficit of $79.5mm (pg. 11)
- Some customers pay for a managed services offering where ChannelAdvisor runs programs on behalf of customers (pg. 13)
- Seasonality of revenue with Q4 always being the strongest (pg. 15)
- Total redeemable convertible preferred stock – $90.5mm (pg. 36)
- $28,050 average annual revenue per customer (pg. 40)
- 189 employees in sales and marketing (pg. 43)
- Reasons for the growth of ecommerce (pg. 66)
- the availability of a broader selection of merchandise online;
- consumer convenience and ease of use;
- more competitive and transparent pricing;
- increased functionality and reliability of e-commerce websites;
- the emergence of mobile connected devices and specialized websites; and
- the proliferation of online distribution channels.
- Competitive strengths (pg. 71)
- Industry leader
- Channel independence
- Network effects from customer base
- Economies of scale
- Global presence
- Key platform functionality (pg. 73)
- Inventory and order management
- Product matching
- Business rules and templates
- Price optimization
- Reporting and analytics
- Developer ecosystem
- 405 employees (pg. 81)
- Venture capitalists own 67% of the business (pg. 102)
- The two co-founders own a combined 19.2% (pg. 102)
This is an interesting one because the SaaS company is based on the Southeast, has good but not amazing growth, and the cofounders still own a solid share of the business — many unusual characteristics for a recent tech IPO filing. Overall, I’m optimistic for the company and looking forward to another successful SaaS IPO.
What else? What are your thoughts on the ChannelAdvisor S-1 IPO filing?
Seed capital is a small amount of money to help get a startup off the ground, often provided by the three Fs — friends, family, and fools. Seed capital is almost always different from venture capital in that there’s less dilution, less control, no timelines on a return, and overall more passive of an investment. 99.9% of startups shouldn’t raise venture capital but seed capital does make sense for many startups.
Here are some thoughts on raising seed capital for a startup:
- Focus on smart money where the investor can add expertise to the startup in addition to money
- Asking for money is always better if you have an existing relationship as people like to invest in people they know, trust, and enjoy being around
- Making measurable, objective progress in the form of customers, users, revenue, etc is the best way to earn a strong valuation
- Think about the desired milestones for the startup and how much money it will take to reach them — use this to help determine how much to raise as well as to paint a picture of the projected progress to a potential investor
Raising seed capital often makes sense for startups, especially when the goals of the entrepreneurs and investors are aligned. A key takeaway is to find the best investors possible — don’t settle for ones that will write a check without adding additional value.
What else? What are your thoughts on startups raising seed capital?
Last week Tableau Software filed their S-1 with the SEC as part of the process to go public. Tableau, a business intelligence enterprise software company, is different from many of the IPO filings mentioned recently in that the company is already profitable, has been incredibly capital-light for their level of success, and is based in Seattle.
Here are some notes from the Tableau S-1 IPO filing:
- Common business intelligence use cases include increasing sales, streamlining operations, improving customer service, managing investments, assessing quality and safety, studying and treating diseases, completing academic research, addressing environmental problems and improving education (pg. 1)
- “Land and expand” business model that starts with a free trial and then grows from there (pg. 2)
- Over 10,000 customers (pg. 2)
- Revenues (pg. 2)
2010 – $34.2mm
2011 – $62.4mm
2012 – $127.7mm
- Profits (pg. 2)
2010 – $2.7mm
2011 – $3.4mm
2012 – $1.6mm
- 17% of revenues are outside the U.S. and Canada (pg. 6)
- Growth strategy (pg. 6)
- Expand customer base
- Further penetrate existing customer base
- Grow internationally
- Innovate and advance products
- Expand distribution channels and partner ecosystem
- Foster passionate user community
- Cultivate exceptional culture
- 749 employees (pg. 16)
- Sales and engineering groups have the most hiring growth (pg. 16)
- 239 orders over $100,000 in 2012 (pg. 20)
- Using NetSuite for financial management and salesforce.com for CRM (pg. 24)
- Currently does not offer a SaaS product (pg. 25)
- Limited use of indirect sales channel partners (pg. 25)
- Class B common stock has 10 votes per share and is concentrated among officers and directors (pg. 38)
- 321 people in sales and marketing (pg. 55)
- Transactions over $100,000 take over three months to close with transactions below that amount taking less than three months (pg. 56)
- 25% of purchase price for maintenance and support contract (pg. 57)
- Insiders took $32mm off the table in 2010 by selling shares to existing VCs (pg. 122)
- Co-founders own 49% (pg. 125)
- VCs own 44% (pg. 125)
Tableau has had amazing growth, especially considering they’ve only raised $15mm total from venture capitalists ($15mm for growth and more than that for insiders to sell their shares). The big wild card is their ability to transition from installed software to cloud-based software. If they can do that, they’ll have even more upside potential.
What else? What are some other thoughts on the Tableau S-1 IPO filing?
Several days ago I wrote a post Expensive is Better than Cheap When it Comes to Pricing where I talked about my preference for focusing on the best experience knowing that it’s almost always more expensive as well. There’s another corollary to it that can be disconcerting to pleasers that look to make people happy: being expensive means saying “no” to many prospects.
It’s so hard to generate leads and when someone comes calling, as an entrepreneur, it’s difficult to not get so excited that you throw up all your great information on the person. But, then, pricing comes up and the prospect wants everything you have, only at a much lower price — a big let down. When offering the best possible service, and therefore commanding a higher price, leads have to be turned away.
Looking around, many of the best services are also the most expensive in their class:
- Amazon Web Services – the most expensive cloud computing platform is also the best and most sophisticated (I recommend it to all tech entrepreneurs)
- Rackspace – the most expensive managed hosting company has the best customer service and people, so you get what you pay for
- Regus – the most expensive office suites at a cost typically 2.5x the equivalent space in the same building, but the ease of becoming a customer, number of locations, and consistency of services in unmatched
Now, sometimes prospects do come along that are a good fit in the long-term, but don’t have the cash in the short-term, and there are ways to address it. Some companies offer special pricing for startups, many colleges offer scholarships, etc., so there are ways to have a premium product and still accommodate a handful of key customers. Being expensive still means saying “no” to many prospects.
What else? What are your thoughts on having a premium product and saying “no” to many leads?
One of the trends we’ll be seeing this decade is more intuitive reporting and real-time dashboards. At Pardot we employed LED Scoreboards whereby we had a large TV mounted on the wall with our current quarter’s goals displayed in a Google Spreadsheet that was manually updated daily. From a technology standpoint, we had looked into real-time business dashboards but hadn’t gotten around to implementing one.
Here are the real-time lightweight business dashboards I’ve seen on the market:
- Geckoboard -
$19/month for 20 connections
12 employees on LinkedIn (source)
- Cyfe -
$19/month for unlimited everything
1 employee on LinkedIn (source)
- Leftronic -
$42/month for 2 dashboards
10 employees on LinkedIn (source)
- Ducksboard -
$25/month for 3 dashboards
9 employees on LinkedIn (source)
At a glance, it looks to be a small but competitive market. Real-time lightweight dashboards will become even more common as more and more businesses switch to products in the cloud with open APIs. I’m looking forward to trying them out.
What else? Do you use a real-time lightweight business dashboard and what do you think of it?
Pricing is a common question that comes up with first-time entrepreneurs. My preference is being on the expensive side rather than the cheap side so that the product is viewed as a premium offering, more money is available to provide the best experience, and to have some pricing flexibility in special deals (it’s always easier to offer a lower price than it is to offer a higher price when negotiating a deal).
Here are a few examples where the product is more expensive and why:
- Pardot is more expensive than many of it’s SMB competitors because we believed in providing the best product and service possible at the $1,000/month price point, and this resulted in extensively staffing up our engineering and services team ahead of our sales team, contrary to what our competitors did
- The Atlanta Tech Village is viewed as an expensive coworking space (thanks Lisa for the comment), compared to others in town, because our goal is to be the best available, so we’re in a Class A midrise building with 12′ ceilings, free food and drink, fiber internet (~$40,000/year), a top-of-the-line Meraki wifi network (~$70,000 up-front), and more
- Tesla’s first car, the Roadster, was an expensive $100,000+ sports car, based on a Lotus, used to prove an all-electric car could be great, and pave the way for progressively building more affordable cars
Better, faster, cheaper — pick two — is a common saying for entrepreneurs. I prefer the first two and not the third. Expensive is better than cheaper when it comes to pricing.
What else? What are your thoughts on being more expensive, all things equal, for pricing?