Category: Strategy

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 Scot 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)
• Co-founder/CEO owns 10.6% (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?

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?

Finding the right balance between market/customer feedback and your own vision for the future is tough. Very tough. There’s no shortage of input from different constituents like customers, prospects, team members, investors, partners, and analysts. When starting out, balancing input is even more important because it’s so difficult to get people to talk with you — it’s tempting to take everything to heart from the first couple discussions.

The risk is that the feedback group is too small of a sample size and doesn’t represent the market. Real customer usage is oxygen for a product, but early on it’s especially hard to achieve much since the product is so early in it’s development. Finding the right balance of input while focusing on what you believe is directionally correct, while having an open mind, is so important.

When you receive your next piece of product feedback, ask yourself where it fits in with your vision, and whether or not it increases or decreases your market focus.

What else? What are some other thoughts on balancing product input with focus?

Earlier today I was talking to a technology investor and I asked the question, “what types of startups and opportunities are you looking for in the area?” He stopped, looked up, and said he characterizes things in three buckets by betting on the horse, jockey, or course:

• Horse – the specific business idea
• Jockey – the entrepreneurs/co-founders/management team
• Course – the market or vertical for the business idea

Of course, I’d heard the horse and jockey concept many times before but this was the first time “course” came up and I really liked it. When evaluating a specific idea (horse), the market or vertical (course) is extremely important as most of the time the idea that becomes successful isn’t the idea that the team started out with. The horse and course need to be evaluated together as much as they are evaluated apart.

What else? What are your thoughts on the terms horse, jockey, or course?