Tag Archives: Internet

SaaS 101: 7 Simple Lessons From Inside HubSpot

A nice quick and very interesting read for those interested in the Software as a Service (SaaS) business model either as a buyers or investors…


SaaS 101: 7 Simple Lessons From Inside HubSpot

// It’s been a little over 4 years since I officially launched my internet marketing software company, HubSpot.  (The “official” date is June 9th, 2006 — for those that are curious about such things).  So, I’ve had about 4 years on the “inside” of a fast-growing, venture-backed B2B SaaS startup.  Quick stats:  ~2,900 customers, ~170 employees and $33 million in capital raised.  But, this is not an article about HubSpot, it’s an article about things I’ve learned in the process of being a part of one of the fastest growing SaaS startups ever. (I looked at data for a bunch of publicly traded SaaS companies, and the only one that grew revenues faster than HubSpot was Salesforce.com). onstartups saas blackboard

In any case, let’s jump right in.

7 Non-Obvious SaaS Startup Lessons From HubSpot

1.  You are financing your customers. Most SaaS businesses are subscription-based (there’s usually no big upfront payment when you signup a customer).  As a result, sales and marketing costs are front-loaded, but revenue comes in over time.  This can create cash-flow issues.  The higher your sales growth, the larger the gap in cash-flows.  This is why SaaS companies often raise large amounts of capital.

Quick Example: Lets say it costs you about $1,000 to acquire a customer (this covers marketing programs, marketing staff, sales staff, etc.).  If customers pay you $100/month for your product and stay (on average) for 30 months, you make $3,000 per customer over their lifetime.  That’s a 3:1 ratio of life-time-value to acquisition cost.  Not bad.  But, here’s the problem.  If you sign up 100 customers this month, you will have incurred $100,000 in acquisition costs ($1,000 x 100).  You’re going to make $300,000 over the next 30 months on those customers by way of subscriptions.  The problem is that you pay the $100,000 today whereas the $300,000 payback will come over time.  So, from a cash perspective, you’re down $100,000.  If you have the cash to support it, not a big deal.  If you don’t, it’s a VERY BIG DEAL.  Take that same example, and say you grew your new sales by 100% in 6 months (woo hoo!).  Now, you’re depleting your cash at $200,000/month.  Basically, in a subscription business, the faster you are growing, the more cash you’re going to need.

2 Retaining customers is critical. In the old enterprise software days, a common model was to have some sort of upfront license fee — and then some ongoing maintenance revenue (15–20%) which covered things like support and upgrades.  Sure, the recurring revenue was important (because it added up) but much of the mojo was in those big upfront fees.  The holy grail as an enterprise software startup was when you could get these recurring maintenance fees to exceed your operating costs (which meant that in theory, you didn’t have to make a single sale to still keep the lights on).   In the SaaS world, everything is usually some sort of recurring revenue.  This, in the long-term is a mostly good thing.  But, in the short-term, it means you really need to keep those customers that you sell or things are going to get really painful, very quickly.  Looking at our example from #1, if you spent $1,000 to acquire a customer, and they quit in 6 months, you lost $400.  Also, in the installed-software world, your customers were somewhat likely to have invested in getting your product up and running and customizing it to their needs.  As such, switching costs were reasonably high.  In SaaS, things are simple by design — and contracts are shorter.  The net result is that it is easier for customers to leave.

Quick math: Figure out your total acquisition cost (lets say it’s $1,000) and your monthly subscription revenue (let’s say again say it’s $100).  This means that you need a customer to stay at least 10 months in order to “recover” your acquisition cost — otherwise, you’re losing money.

It’s Software — But There Are Hard Costs. In the enterprise-installed software business, you shipped disks/CDs/DVDs (or made the software available to download).  There were very few infrastructure costs.  To deliver software as a service, you need to invest in infrastructure — including people to keep things running.  Services like Amazon’s EC2 help a lot (in terms of having flexible scalability and very low up-front costs), but it still doesn’t obviate the need to have people that will manage the infrastructure.  And, people still cost money.  Oh, and by that way, Amazon’s EC2 is great in terms of low capital expense (i.e. you’re not out of pocket lots of money to buy servers and stuff), but it’s not free.  By the time you get a couple of production instances, a QA instance, some S3 storage, perhaps some software load-balancing, and maybe 50% of someone’s time to manage it all (because any one of those things will degrade/fail), you’re talking about real money.  Too many non-technical founders hand-wave the infrastructure costs because they think “hey we have cloud computing now, we can scale as we need it.”  That’s true, you can scale as you need it, but there are some real dollars just getting the basics up and running.

Quick exercise: Talk to other SaaS companies in your peer group (at your stage), that are willing to share data.  Try and figure out what monthly hosting costs you can expect as you grow (and what percentage that is of revenue).

It Pays To Know Your Funnel. One of the central drivers in the business will be understanding the shape of your marketing/sales funnel.  What channels are driving prospects into your funnel?  What’s the conversion rate of a random web visitor to trial?  Trial to purchase?  Purchase to delighted customer?  The better you know your funnel the better decisions you will make as to where to invest your limited resources.  If you have a “top of the funnel” problem (i.e. your website is only getting 10 visitors a week), then creating the world’s best landing page and trying to optimize your conversions is unlikely to move the dial much.  On the other hand, if only 1 in 10,000 people that visit your website ultimately convert to a lead (or user), growing your web traffic to 100,000 visitors is not going to move the dial either.  Understand your funnel, so you can optimize it.  The bottleneck (and opportunity for improvement) is always somewhere.  Find it, and optimize it — until the bottleneck moves somewhere else.  It’s a lot like optimzing your software product.  Grab the low-hanging fruit first.

Quick tip: Make sure you have a way to generate the data for your funnel as early in your startup’s history as possible.  At a minimum, you need numbers on web visitors, leads/trials generated and customer sign-ups (so you know the percentage conversion at each step).

You Need Knobs and Dials In The Business. One of the great things about the SaaS business is you have lots of aspects of the business you can tweak (examples include pricing, packaging/features and trial duration).  It’s often tempting to tweak and optimize the business too early.  In the early days, the key is to install the knobs and dials and build gauges to measure as much as you can (without driving yourself crazy).  Get really good at efficient experimentation (i.e. I can turn this knob and see it have this effect).  But, be careful that you don’t make too many changes too quickly (because often, there’s a lag-time before the impact of a change shows up).  Also, try not to make several big changes at once — otherwise you won’t know which of the changes actually had the impact.  As you grow, you should be spending a fair amount of your time understanding the metrics in your business and how those metrics are moving over time.

Quick advice: If you do experiment with pricing, try hard to take care of your early customers with some sort of “grandparenting” clause.  It’s good karma.

Visibility and Brakes Let You Go Faster. One of the big benefits of SaaS businesses is that they often operate on a shorter cycle.  You’re dealing in days/weeks/months not in quarters/years.  What this means is that when bad things start to happen (as many experienced during the start of the economic downturn), you’ll notice it sooner.  This is a very good thing.  It’s like driving a fast car.  Good breaks allow you to go faster (because you can slow down if conditions require).  But, great visibility helps too — you can better see what’s happening around you, and what’s coming.  The net result is that the risk of going faster is mitigated.

Quick question: If something really big happened in your industry, do you have internal “alarms” that would go off in your business?  How long would it take for you to find out?

7 User Interface and Experience Counts: If you’re used to selling client-server enterprise software that was installed on premises, there’s a chance that you didn’t think that much about UI and UX. You were focused on other things (like customization, rules engines and remote troubleshooting).  That was mostly OK, because on average, the UI/UX of most of the other applications that were running on user desktops at the enterprise sucked too.  So, when you got compared against the other Windows client-server apps, you didn’t fare too badly.  In the SaaS world, everything is running in a browser.  Now, the applications you are getting compared to are ones where someone likely spent some time thinking about UI/UX.  Including those slick consumer apps.  You’re going to need to step it up.  In this world, design matters much more.  Further, as noted in #2 above, success in SaaS is not just about selling customers, it’s also about retaining them.  If your user experience makes people want to pull their hair out and run out of the room screaming, there’s a decent chance that your cancellation rate is going to be higher than you want.  High cancellation rates kill SaaS startups.

Quick tip: Start recruiting great design and user experience talent now.  They’re in-demand and hard to find, so it might take a while.

—-

So, what do you think?  Are you running a SaaS startup now?  What have you learned?  Would love to hear about your experiences in the comments.

You can follow me on twitter @dharmesh.
//

via SaaS 101: 7 Simple Lessons From Inside HubSpot.

Posted by Dharmesh Shah on Mon, Jul 19, 2010

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NASA and Rackspace Open Up the Cloud | CIOZone.com

Very interesting market play. I’m speculating that they are betting on “viral marketing” to propel them into becoming the 800 pound guerrilla in this domain.  If enough geeks and hacks dive-in, we may be looking at the next Tomcat/Apache…

… July -19 – 2010

NASA and Rackspace Open Up the Cloud

Posted by meggebrecht in Rackspace, OpenStack, Nebula, NASA, Lew Moorman, Jim Curry, Cloud Computing, Chris Kemp

Rackspace announced Monday that it is open-sourcing its cloud computing platform, making a bid to bring some sorely needed interoperability to the cloud with the launch of the OpenStack project.

First up is the software behind the company’s cloud storage engine, Rackspace Cloud Files. You can freely download early code at the OpenStack site under the Apache 2.0 license — meaning of course that you can do pretty anything you want with the code. The full release is expected in mid-September, according to the site.

In mid-October, Rackspace will release OpenStack Compute, code based on its Cloud Servers technology and the Nebula platform operated by NASA, which is partnering with Rackspace on the project.

So basically, anyone will be able to download the software behind two massive cloud computing platforms and build their own. And NASA and Rackspace have pledged that their engineers will continue to develop the technology — they kind of have to, considering that both organizations will be powering their clouds using OpenStack. Rackspace also says that it will commit money and manpower to supporting enterprise and service provider adoption of OpenStack….

via CIOZone.com – Professional Network for CIOs and IT Professionals – NASA and Rackspace Open Up the Cloud.

Ford SYNC: stream Pandora and tweet hands-free in your Ford

As they say: “It’s not your father’s Ford.”

A few weeks ago, I did a post about the automobile becoming a new application platform.  Take note in this article that the package includes “OpenBeak for safe and hands-free tweeting while driving“.

For those of you in the corporate tech world.  What will your road warriors and traveling executives expect? (Well,  your execs may not be driving Fords but I’m sure that the other manufactures will follow suit very soon.)

Ford SYNC Will Soon Stream Pandora Radio

//

Jennifer Van Grove 21

2010 is shaping up to be the year Ford SYNC forever alters how we experience digital content in our vehicles. Today, the automotive company is breaking even more ground with the news that the next evolution of SYNC will support third-party mobile applications. Get ready to stream Pandora and tweet hands-free in your Ford.

Ford is essentially paving the way for running SYNC-supported mobile applications in your car, courtesy of the Ford SYNC API. It will start with support for Pandora () for streaming online music, Stitcher for listening to podcasts in your car, and OpenBeak for safe and hands-free tweeting while driving. The bottom line is that you’ll be able to wirelessly control your smartphone applications in your car via the SYNC system with voice commands and steering wheel buttons.

The remarkable development — scheduled for release in 2010 — is ground-breaking when it comes to technology made available in cars, and certainly outshines the $1,200 Pioneer device with Pandora support. It’s all made possible thanks to Ford’s SYNC API, which will spawn support for the apps mentioned above and also eventually create a much larger application ecosystem.

The development also marks the sophistication and evolution of mobile applications. It seems like a dream to envision all our favorite apps functioning in our cars, and yet it’s a reality that Ford is bringing courtesy of its SYNC system.

via Ford SYNC Will Soon Stream Pandora Radio.

5 Web Apps To Keep Your Startup Organized [on a shoestring]

I also like YUGMA as a free alternative to GoToMeeting; have not used DimDim.

I’ve played with the Zoho CRM app and its an excellent Salesforce.com knock-off.

I just looked at an open source business intelligence application last week but the name escapes me.  It was really impressive.  If I find the name, I’ll add it here.

Throw MySQL and Linux into the mix and its amazing how much you can do on a shoestring.

5 Web Apps To Keep Your Startup Organized

Written by Chris Cameron / January 6, 2010 9:30 PM /

In a world where emails, phone calls, texts, and Tweets constantly bombard us, it is getting harder and harder to manage the firehose of data and information being thrust our way. For young companies to succeed this environment, it is imparitive they become organized and efficient lest they fall behind and quickly become overwhelmed.

While there is no shortage of online solutions, it can be hard to know which one is the right tool for the job, so here’s a list of five web applications to help kick-start your company and keep it organized without breaking the bank.

googleapps_logo_jan10.jpgGoogle Apps – Google’s collection of web apps includes solutions for corporate email accounts, calendars or contacts, but its best use for a new startup is with document sharing. Using Google Docs to collaborate on text documents, spreadsheets or even presentations is far more efficient than sending a file in an email attachment.

In recent years, Zoho has become an increasingly competitive enterprise alternative to Google, even adding integration with Google Apps. Zoho has also introduced more features that help it stand out against Google Apps, including their own CRM solution that aims to compete with Salesforce.com.

basecamp_logo_jan10.jpgBasecamp – We here at ReadWriteWeb use Basecamp on a daily basis for managing ongoing projects and reviewing edits of our stories. Developed by 37signals, Basecamp offers a great interface with an easily read dashboard of the latest activity, as well as to-do lists, milestones and email alerts.

For the on-the-go entrepreneur, there are a handful of mobile Basecamp apps ranging in features and price. Personally, I recommend using Insight for iPhone, which was rebranded from Encamp and recently recommended by 37signals.

dropbox_logo_jan10.jpgDropbox – Whether it’s large financial spreadsheets, or Photoshop mockups of your website-to-be, you are going to need somewhere to store all your files. Dropbox makes all of these easy and relatively inexpensive, offering up to 100 GB for $20 a month. But it’s not just storage.

Dropbox can automatically sync with folders on your desktop, creating an offsite backup of your vital startup files in the cloud, which any member of your staff can access. An alternative solution would be to use Box.net, however their pricing plans are higher than Dropbox’s and are aimed at larger corporations.

dimdim_logo_jan10.jpgDimdim – The next time you find yourself struggling to explain an intricate concept to your coworkers through a text document or presentation, check out Dimdim and use the power of screen-sharing to make your point crystal clear. One of Dimdim’s best features is that their product works entirely from within your web browser without the need to download or install any extra software.

Screen-sharing services like Dimdim can save a young company hundreds if not thousands of dollars in travel expenses by providing a much more efficient way to meet and share information. Also a notable service in this space is Citrix’s GoToMeeting. However, like Box.net to Dropbox, its pricing is much higher than Dimdim’s.

mindmeister_logo_jan10.jpgMindMeister – Between the last two semesters of graduate school, I worked on a collaborative ten-week reporting project, and used online mind-mapping app MindMeister extensively to stay organized. The application is a great way to keep those more abstract ideas organized in an easy-to-understand way.

Countless startups have mapped out their product ideas and business plans on giant whiteboards, and now the whiteboard has gone digital. MindMeister makes it easy to create and share mind maps and flow charts, and best of all, its free to get started.

Photo by Flickr user simax.

Microsoft BizSpark is a startup program that gives you three-year access to the latest Microsoft development tools, as well as connecting you to a nationwide network of investors and incubators. Click here to apply.

via 5 Web Apps To Keep Your Startup Organized – ReadWriteStart.

Live Flight Tracking on Google Maps

Something for the frequent traveler…

Live Flight Tracking on Google Maps

Casper is a brilliant mashup that displays movement of incoming and outgoing flights on a Google Map live.

Flight Information The airplanes are colored based on the name of the airline to which they belong but you can also change their colors based on the altitude at which they are currently flying or the flight type (whether it’s an incoming flight, outgoing or in transit).

You can also click the icon of a moving airplane to see speed and height at which it is flying in real-time.

And if you are checking this service at a time where there isn’t flight traffic at Schipol Airport, just select one of the past days from the drop down to replay the entire flight movement for that day on your computer screen.

Casper is currently tracking flights that are flying in and out of the Amsterdam Airport but we do have similar services for visualizing air traffic at the Zurich Airport and RadarVirtuel that tracks flights for most European countries in almost real-time. GmapTracker tracks incoming flights for US airports of New York, San Francisco, LA, Atlanta, Boston and Chicago. [via]

via Live Flight Tracking on Google Maps.

Samsung E-Books Let You Read And Write: Remember the Apple Newton?

I have an Apple Newton in the basement from circa 1995.  Glad to see that Samsung et. al. are catching-up. Except that my Newton did not need a QWERTY pad.  Newton was an example of a great platform with no application (at the time) which means no market demand.  To put it in perspective, at the time I was using Mosiac to surf the web via my dial-up account.  Netscape was just gaining traction and AOL was king of the hill.  Lucky people lived close enough to a central office to get DSL.  ISDN cost a fortune.  After writing this, I have an intense desire to put on some REM or INXS.

Samsung E-Books Let You Read And Write

By Charlie Sorrel Email Author | January 7, 2010 |9:18 pm

LAS VEGAS — Everybody is showing off new e-readers at CES this year, and Samsung is no exception. But there is one reason for you to keep reading this post. With Samsung’s e-book, you can write on the pages.

We knew e-books would be a hot item at this year’s show, but the surprise is that there are so many large format readers. Samsung’s small range tops out with a 10-incher, which joins the Kindle DX in its new international clothing, and Plastic Logic’s enormous 8.5 x 11-inch Que proReader.

Samsung’s e-books, the E6 and E101, look just like any other black and white e-ink device. When you’re done reading either of the 6 or 10 inch books, though, you can pull out a stylus and start scrawling. These sticks come in various thicknesses and use “electromagnetic resonance” to draw lines on the page.

The smaller readers also have secret, slide-out controls hidden behind the screen, and an on-screen, soft QWERTY lets you type real text — your stylus scribblings remain just that, and are not automagically transformed into actual text. Still, its a lot easier to jot notes on top of your pages than to do it the Kindle way and tortuously tap out text on the chiclet keyboard.

The readers grab content over Wi-Fi (no 3G) and can display PDF, ePub and plain text files. I played with them briefly at Samsung’s stand (“No pictures, sir. It’s our policy this year.”) and took some pictures. The e-ink screen is much the same as any other, but when using the stylus to navigate, the local refreshing that draws menus is cleaner (but no quicker) than, say, the Kindle.

The navigation itself is clunky, and you never know whether you should be pressing an actual button, touching the stylus to the screen or using a finger (hint — fingers don’t work). Drawing, though, is responsive, and just like using a real pencil.

The e-readers need some work, and feel like the prototypes they are. Hopefully there will be some additional polish before these go to market, otherwise it will be yet another rushed product hoping to grab some sales from the flawed leader, the Kindle. Also, a quick question to the visitor at the Samsung stand who asked “Just what is the main difference between this and the iPod Touch?”: Are you serious?

$400 or $700, depending on size. And don’t say “Magna-doodle”. The pictured prototype with a hardware keyboard does not yet have a price.

via Samsung E-Books Let You Read And Write | Gadget Lab | Wired.com.

Ford cars to become Wi-Fi hot spots | CNET News

This could another revenue stream for car rental companies as well.  They can do the same thing that they with the Garmin.

I might save this one on the 2010 Techie Geek Holiday Gift List.

Ford cars to become Wi-Fi hot spots

December 21, 2009 8:33 AM PST

Ford cars are about to become true mobile hot spots.

The carmaker announced Monday the next generation of its Sync system designed to let Ford owners plug a USB modem directly into a car’s built-in Wi-Fi, creating broadband Internet access to all passengers. Those in the car can jump online through any Wi-Fi-enabled device, from smartphone to laptop.

Brad Garlinghouse

Credit: Microsoft

Ford said that this factory-installed capability will be available next year on certain Sync-equipped cars and that no extra hardware or subscriptions will be needed outside of an existing broadband modem, which the customer supplies. Ford’s Wi-Fi system will include WPA2 security, ensuring that only people in the car will be able to hop onto the network.

“The speeds with which technology is evolving, particularly on the wireless front, makes obsolescence a real problem,” Doug VanDagens, director of Ford’s Connected Services Solutions Organization, said in a statement. “We’ve solved that problem by making Sync work with just about any technology you plug into it. By leveraging a user’s existing hardware, which can be upgraded independent of Sync, we’ve helped ensure ‘forward compatibility’ with whatever connectivity technology comes next.”

Design by Ford and Microsoft, Ford’s Sync lets drivers make calls, play music, get directions, grab news and weather, and search for businesses and other information, all using voice and text-to-speech technology. Ford’s new Sync edition won’t be the first Wi-Fi technology to give people on-the-road Internet. Similar devices have popped up over the past year, some dealer-installed and some independent.

Autonet Mobile designs similar hardware for cars, as does a company called Waav. Autonet does require a subscription fee for its service–$29 a month for 1GB of data or $59 a month for 5GB. But it’s an independent device designed to work with different makes and models (though currently available as dealer-installed for Cadillac), while Ford’s Sync only comes with certain Ford vehicles.

via Ford cars to become Wi-Fi hot spots | Wireless – CNET News.