Tag Archives: Technology

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

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.

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.

Light Touch turns any surface into a color touchscreen display

Ok, this cool but the real use for one these.  Well, let’s think about it.  Physical keyboards weardown and are easily vandalized.  They get very dirty. When was the last time you sanitized your keyboard?  Even if you do it daily, do you get under the keys too. What about kiosk keyboards?  When do they get cleaned? …and so on…

Have any applications come to light? I have a few.

Here’s one.  What about in “dirty” work environments?  Dirty as in: 1) harsh climates – e.g. temp, humidity; 2) airborne contaminates – e.g., dusty; or 3) biohazard ; etc…  Just project the keyboard on a hardy surface and wipe that clean with some bleach and you’re done.  There’s so much more…

Light Blue Optics’ Light Touch turns any surface into a color touchscreen display (video hands-on)

By Thomas Ricker posted Jan 7th 2010 8:29AM

Ever heard of a small company called Light Blue Optics? Probably not. But it’s companies like LBO that make events like CES truly worthwhile. Tucked away in a small suite overshadowed by the million dollar spreads owned by industry giants like Samsung and Sony is a tiny startup looking to attract the attention of OEMs with its full-color holographic laser projection technology. The Windows CE-powered Light Touch represents the company’s very first effort to create an interactive projector that allows users to interact with the displayed image as they would a modern touchscreen display. Despite our skepticism, we came away suitably surprised — impressed even. Granted, our hands-on was performed in a lowly-lit room on par with the lighting you might find in a fine restaurant. Still, the 15 lumens were effective at lighting videos and the touch sensitivity was far more accurate than we expected — so good that we were quickly typing out phrases on the QWERTY with few mistakes (admittedly taking a reasonable amount of care to strike the right “key”). The projector only supports single-touch at the moment though multi-touch is just a software tweak away. See the video after the break and prepare to be suitably amazed at watching a laser projector create a touchscreen display.

via Light Blue Optics’ Light Touch turns any surface into a color touchscreen display (video hands-on) — Engadget.

Google Smart Meter App Not Ready for Finals | Wired Science | Wired.com

Good thing that I’m not paranoid otherwise I’d  start thinking that Google is trying to take over the planet.  Not sure how smart meters fit into Google’s business model.  If I were a  stockholder, I would be seriously concerned about discipline.  Is there any or does everyone get to dabble in whatever strikes their fancy. Ahhhh…it’s so good to have money to burn; isn’t it?

Well, all gravy trains arrive at the end of the line eventually.  It will be interesting to see how management and the company reacts when that day occurs. Until then, I hope that they enjoy the ride. Myself, I love all the free toys and gadgets–keep it coming.  But then, I’m not a stockholder either.

Google Smart Meter App Not Ready for Finals

The Googles are coming! The Googles are coming!

Monday night, Google announced it is developing a software utility, PowerMeter, that allows you to track your energy usage. By communicating with an as-yet undeveloped set of hardware devices, the smart meter software could provide you with granular, real-time data about your energy usage.

In the tech world, everybody used to break into hives at the slightest hint that the all-knowing, all-seeing Google was going to enter their business, providing free tools and doing everything better.
But slowly people realized that Google isn’t the best company to do everything. They don’t always win, and they may well not win here either.

First, where’s all that data going to come from? Sure, Barack Obama’s stimulus plan calls for 40 million more smart meters to be installed, but as we noted last year, the functionality of these little devices varies widely. Some track things in real-time, others don’t.

And they’re expensive. The sensors required to track all of the major appliances in your home would be hundreds of dollars and Google isn’t just going to send you a kit with all of the smart devices.

Absent the data gathering ecosystem, all Google is really offering you is a graphing utility. And we’ve already seen plenty of companies, including the guys who made Flash, offer up similar or better products.

To become the de facto window into your energy usage, Google will have to use their size and weight to bring some standardization to smart metering practices. To do that, they’ll need hardware manufacturers to come out with very cheap Google-ready devices and then they’ll have talk dozens of utilities into eschewing their own smart meter plans to follow Google’s lead.

Or they’ll have to get the government to mandate that Google’s approach is correct. This could be where Google earns its money. Some utilities aren’t really interested in helping consumers cut their usage — what they’re really after is just simply knowing how much power people are using at any given, so they know when they have to fire up their expensive, dirty peaker power plants. Smart-meter makers have responded with products that aren’t always consumer friendly or even consumer facing.

Google, on the other hand, has a vested interest in making sure that information is freely available in real-time and that it can be tied to real-time electricity pricing information. That’s a very consumer-friendly approach — and we’re glad to see someone pushing that agenda.

They are already making their case in California. Expect them to apply legislative pressure all of the U.S., if they are really serious about controlling, err, organizing, your energy data.

via Google Smart Meter App Not Ready for Finals | Wired Science | Wired.com.

Unflattening Touch Screen Buttons

Alright, now this is super cool technology.  My mind is racing with potential applications.

Unflattening Touch Screen Buttons

24-11-2009

Ever wish the flat touch screen buttons on your phone felt more like physical buttons?

Chris Harrison and Prof. Scott Hudson at Carnegie Mellon have developed a simple technology that turns touch screen buttons into physical buttons by using pneumatics.

The technology consists of a flexible surface area with a hard backing that acts as a mask for the button shapes. An air chamber behind the backing can be pressurized or depressurized using pneumatic technology, in this case fan-based pumps.

When positive pressure is applied, the buttons pop out. When the pressure is neutral, the screen is flat. When negative pressure is applied, the buttons pop inwards.

Images are displayed on the surface using a projector behind the device, turning the surface into a display screen. Button presses are detected using an infra-red camera pointed at the front of the screen that detects reflections of light from a fingernail. When your fingernail gets close to the screen, a button press is recorded. This technology cannot easily distinguish between a finger touching the screen and one merely close to the screen, so a press is not recorded until the finger presses down on the surface and causes a detectable change in pressure in the air chamber.

It is also possible to have the positive and negative forms take different shapes.  Additional parts are added to the mask, except these parts have no adhesive holding the latex down.  When positive pressure is applied, only the mask parts with adhesive are effective.  When negative pressure is applied, all the mask parts are effective.

Applications

Instead of pressing images that look like buttons on your phone, this technology could allow all the dynamically drawn button images on your phone to actually pop out like real buttons.  (One change that would be needed is making touch sensing based on capacitance technology, as current touch screens do, rather than a camera aimed at the screen.)

The pop-inwards feature is also pretty cool.  You could be playing a driving game on your cell phone and have the car’s dashboard pop inwards to appear like a real car’s.  Or, when you displayed the stopwatch on your phone, it could be displayed like a real concave stopwatch.

Limitations

With a single air chamber, all the buttons must popped in or out at once.  However, it is straightforward to create separate air chambers, thereby allowing only certain elements of the UI to pop in or out.

An unavoidable limitation is that the mask itself is static, meaning that new shapes cannot be created dynamically.  The technology only allows controlling whether the shapes pop in, pop out, or remain flat.

via Unflattening Touch Screen Buttons « SciTe Daily

A Visual Guide to Computer Cables and Connectors

 

 

 

 

If you can’t tell these three apart, this neat little guide is helpful.

A Visual Guide to Computer Cables and Connectors – Identify The Right Cable Easily.