Founder Control December 2010 Someone we funded is talking to VCs now, and asked me how common it was for a startup's founders to retain control of the board after a series A round. He said VCs told him this almost never happened. Ten years ago that was true. In the past, founders rarely kept control of the board through a series A. But not always. The replies surprised me. I feel like we're at a tipping point here. Founders retaining control after a series A is clearly heard-of. Control of a company is a more complicated matter than simply outvoting other parties in board meetings. So while board control is not total control, it's not imaginary either. The switch to the new norm may be surprisingly fast, because the startups that can retain control tend to be the best ones. A lot of the reason VCs are harsh when negotiating with startups is that they're embarrassed to go back to their partners looking like they got beaten.
SaaS Economics - Part 2: Scaling the Business This is the second part of a 2 part series that discusses the cash flow trough that happens to SaaS, or other subscription/recurring revenue businesses when they decide to scale their business by ramping sales and marketing. These kinds of SaaS businesses face a cash flow problem in the early days, because they have to invest up front in sales and marketing expenses to acquire customers, and only get payments from those customers over a delayed period of time. The first part of the series can be found here: SaaS Econonics – Part 1: The SaaS Cash Flow Trough. The greatest value from this post will come from downloading the model and inputting your own variables. Where is this applicable This model is applicable to any recurring revenue business that uses a sales force.This model does NOT apply to SaaS businesses that don’t use a sales force. Scaling the Business Ramping Sales Hiring The model shows that the worst loss is $190k per month, and that the first profit comes after 21 months.
Pearltrees Dives Into Social Curating With Pearltrees Team Content curation and mapping service Pearltrees has decided to focus on the fact that people want to do things in groups and has as of today upgraded its core product with a groups functionality, called Pearltrees Team. Now accesible just by logging in, Pearltrees Team allows you to hook up with other people in order to create a Pearltree collaboratively in realtime. Ideally this goes down as such: You really care about fashion so you search for fashion in the Pearltrees search box and are confronted with really elaborate visual cluster displays of fashion blogs, each blog its own “pearl.” If the team leader accepts, you then can see all the Pearltree curation happening as it happens as well as as comment on individual Pearltree decisions. In the same space as Storify and Pinterest, Pearltrees currently has 102,000 unique visits, 60,000 active users and 6 million pageviews monthly. Check out more on how to use Pearltrees to organize the web in the video below.
Will your 2011 Plan stand up to investor scrutiny? We have just gone through the time of year when startups present their 2011 plans to their boards for approval. In many ways, these meetings are very similar to the meetings we have with new startups that have projections for how they believe their revenue will grow. What I always find interesting in this process is looking at how the management team came up with the bookings forecast, and what steps they took to validate the number. The smart companies will have built a bottom up model that shows how making certain investments in sales and marketing will lead to the top line number that they are looking for. (For an example of how a model like this might work for a SaaS business, take a look at the model included with this blog : SaaS Economics). To help you prepare for your investor meetings, I’ll talk about how I, as a board member (or potential investor), would go about questioning you to validate your 2011 revenue forecast. Let’s look at a three examples to see how this works:
In Local, Google And Groupon Are Now Competing For The Same Dollars Was Groupon crazy to turn down Google’s $6 billion offer, or will it be worth several times that amount a few years from now? Of course, it is impossible to know right now. But if the recent acquisition dance between Google and Groupon tells us anything, it is that local advertising is going to drive a huge amount of growth on the Web—and that it is not going to look like other forms of online advertising. Google wants to buy Groupon not just for its phenomenal growth—Groupon is selling coupons for local merchants at a rate of $2 billion a year now—but also because Groupon follows a pay-for-performance model. Groupon only makes money when somebody buys a coupon, just like Google only makes money when somebody clicks on an ad. You might not think of Groupon as an advertising company, but the way most merchants rationalize offering such deeply discounted deals (typically 30 to 50 percent off) is they treat it as a marketing expense. The question is: How big can it get?
SaaS CEOs: Measure Customer Engagement - Increase Conversions & Lower Churn The goal of a SaaS CEO should be to increase the profit they make from each customer (LTV), and lower the costs in sales and marketing that it takes to acquire each customer (CAC). Measuring Customer Engagement is a key tool that will help you achieve that goal, as it will allow you to increase your trial conversion rates, which directly reduces CAC. And it will help you lower your churn rates, which directly increases LTV. How customer engagement has changed in the on-line world In the old world, most of the ways that companies engaged with their customers would involve human interactions either face-to-face, or over the phone. There are some tools that help us judge how customers as a whole are behaving on-line, but so far those tools have not allowed businesses to analyze customer behavior at the individual level. Why should you care? You might ask why would you care about how individual customers are behaving? There are also additional benefits: How do you measure Customer Engagement?
Why is Skype Moving to The Web? Hiring Binge Explained: Tech News « Skype is hiring a whole lot of engineers. Many of them will work on the company’s mobile applications, as we reported earlier this week, and many will work on cloud-based implementations of Skype that would include working with third parties such as LinkedIn. This hiring binge is part of Skype’s big expansion in Silicon Valley, something I wrote about in July 2010. The company has leased 90,000 square feet of office space in the Stanford Research Park at 3210 Porter Drive in Palo Alto, with Jonathan Christensen, Skype’s media platform chief, heading company’s operations in Silicon Valley. A Skype spokeswoman recently told me: We’ve gone from just a few engineers here this time last year to nearly 80 engineers, and they are coming from all over, including from the big name Valley companies too. The hiring binge is mostly because of two distinct reasons: Skype for Business. Skype as a Platform for growth. Graphic by Phil Wolff via Flickr.
Multi-axis Pricing: a key tool for increasing SaaS revenue Scalable pricing is a powerful tool to grow revenue in a SaaS or software business. It allows you to capture more of the revenue that your customers are willing to pay, without putting off smaller customers that are not able to pay high prices. It also provides a great way to continue to grow revenue from your existing customers. This post looks at how to create scalable pricing using multiple pricing axes, and discusses the different types of axes that can be used. Introduction Many SaaS startups begin life with one product that has a simple pricing model. However as time progresses, they may hear comments like: “I would have been happy paying far more for your product as it provides such great value to me”“I didn’t consider your product as it was too cheap, and didn’t look like a credible option to handle our more advanced needs”“I only needed a subset of your functionality, and your product was too expensive” Let’s look at these to items separately: Emotional Willingness to Pay 1. 2. 3.
Exclusive: DST plans to raise giant venture capital fund - The Term Sheet: Fortune's deals blog There is no bigger name in venture capital right now than Digital Sky Technologies, the Russian Internet conglomerate run by Yuri Milner. It is one of the largest outside shareholders in Facebook, and also holds big pieces of companies like Zynga (both of which it bought at massive, late-stage valuations). There also are reports that it just lost out on a big new round for Twitter. The group so far has been bankrolled by a few global investors – including Goldman Sachs and Tiger Global Management – plus a Russian oligarch. No books are out yet, but multiple sources tell me that a road show is expected to begin within weeks. Attempts to reach Milner and Brown were unsuccessful.
Optimizing your Customer Acquisition Funnel This blog post focuses on how B2B companies can optimize their customer acquisition funnels using a customer-centric methodology to analyze and remove blockage points. Acquiring customers in the B2B world involves using a variety of marketing and sales steps with the goal of converting prospective customers into paying customers. The process is often thought of as a funnel (see diagram above) where you pour in suspects at the top, and various steps in the process, some percentage of prospects successfully convert to the next stage, making the funnel narrower as the process evolves. No matter how large or successful your business is, you will have at least one place that is a blockage point in your customer acquisition funnel. As an example, you may have too few visitors coming to your web site, which you see as the top of your funnel. In this blog post, I will talk about a method that I have found to be highly effective at removing blockage points. Identifying Blockage Points Concerns