Now is a Great Time to Join or Found a Startup –says Bob Warfield, friend and fellow Enterprise Irregular.
Now what? Who is right? And the debate does not stop here, it sparked a pretty good discussion in the Enterprise Irregulars group. In fact I was facing the same dilemma advising a startup-CEO friend the other day. But I really think launching a new business as Founder or joining one as an employee are two very different animals, so I’ll split the two and talk about Founding (or join as co-Founder) here. I’ll try to some up the pro’s and con’s here:
It’s a Great Time:
It’s a Terrible Time:
It’s a Great Time and a Terrible Time - my take:
Let me expand on that last point. Unemployment is at a record high and growing. It’s close to impossible to get hired now. Anyone can get the axe, and it’s not your fault, it’ the economy. If you find yourself out of a job, and have been doing the kind of ongoing, active outbound marketing, self-branding I’ve discussed before – perhaps you already are on somebody’s wish list and get a job offer soon.
If not, and you’re now scrambling to update your resume, reach out to contacts, browse the job sites and apply for posted jobs – I’m sorry to be the bearer of bad news, but it likely won’t happen. I know you need income NOW, not some long-term solution. I know it, because I’ve been there, done that. And I can’t tell you how much I regretted looking back on wasted 6-8-10 months, chasing job opportunities that just did not materialize when I could have actually created something in that period.
So think about it this way: job search is a full time activity. You can “feel good” about doing your best, chasing phantom opportunities. Or you can have a working prototype, a service … a small business of your own half a year from now. Yes, it will require living on reserves for an extended time. But you will likely be forced to anyway – might as well make the best of it.
Both Ben and myself often talk about how lean business models provide a competitive benefit in good times, and are crucial in a downturn that we are now living through. We can keep on explaining the pull-model vs. traditional software sales again and again … or jus sit back, shut up, and let a company that actually practices it explain it with one single slide. Yes, this picture is worth a thousand words:
(From a longer presentation by Atlassian Chief Rebelutionary Mike Cannon-Brookes. His entire post is worth reading.)
Atlassian is a “different” company in so many ways… no wonder they are still hiring while the rest of the world is busy downsizing. But one thing I’ve not realized until now is they have a backup business plan. They could quit Technology tomorrow and become a Creative Agency overnight.
Need proof?
How about this video – the perfect recruiting tool, if you ask me:
More recently they launched Create and Edit, a 3-part “wiki drama”:
This from a hard-core development company. Aren’t these guys supposed to be a bunch of left-brained geeks? There must be a secret Australian bug that turned them into right-brained creative types…
Since I just wrote a piece on how your Social Media participation is your new Resume, it’s only appropriate to look at the hiring side, on a lighter note this time.
Both myself and Ben picked on a cool video produced as a side-project for Atlassian’s FedEx Day, which I’m sure becomes a perfect recruiting tool. Very inspirational, conveys the culture and every day life in Atlassian. (You don’t have to be a developer looking for a job, it’s fun to watch anyway.)
The next one is from Xobni, the startup that hired Bill Gates to demo their product (did he watch the video?). Don’t tune out seeing the suits or the stone-age equipment. Xobni is using humor, and I think it works – later in the video we get an insight into real life @ Xobni.
But don’t for a minute think that using video for recruiting purposes only works for startups. I found the Xobni movie on fellow Enterprise Irregular and HR guru Thomas Otter’s blog, and he lists a few examples from the corporate world, too.
The following Google video is a bit more scripted, but flows well, and most importantly it does not come from corporate PR, but from fellow engineers:
(Hey Google, could you not do something about that aspect ratio?)
The next one from Cisco is a professional production, but even this (sort of) comes from real people, to real people:
Finally, here’s one that I need your help with. Please tell me what Cap Gemini is trying to achieve here?
Your clue to quit came in the 5th second, as soon as the guy said he was from Corporate Communications…
Presenting a crappy blog: Central DesktopBut wait, they are one and the same. How is that possible?
Central Desktop, the startup that makes a pretty good SMB-focused (so far) SaaS Collaboration platform announced it’s expansion into the Enterprise market today. I don’t want to analyze the actual business move, Isaac, the Founder & CEO does a pretty good job here – let’s just talk about the announcement.
I almost fell off my chair when I read the Press Release: not because of the content and style (used to it), but where it appeared. This fluffy, pompous, buzzword-stuffed classic Press Release is actually not worse then the typical boilerplate PR stuff: next-generation… in today’s economic climate... embrace the SaaS model: enough for me to tune out, I can’t read through this. Why companies keep on paying for such crap is beyond me - but fine, let’s keep PR to their own channels, dont’ let them hijack your company blog.
Just today I’ve read a good post over @ HubSpot on how Inbound is the new marketing, and Social Media is a key component in it. This PR piece is neither social media nor inbound marketing – it’s a deterrent, if you ask me.
The funny thing is, I’ve known Isaac, Central Desktop’s Founder and CEO for years – from the time when they were a bot-strapped, 2-person shop with a good product and a dream, wondering how long they can last on a few pennies. He is articulate, smart, and a good blogger – hack, he even took Google to the task. He certainly does not need such “help” – or is there a law that startups have to turn to this once they get funded?
Just as I got ready with my rant, I read the second post, this time from Isaac again. It’s clear, concise, explains the rationale behind the enterprise move – it’s exactly what it supposed to be. Isaac, I’m glad you claimed your blog back, don’t ever let those PR hacks anywhere close to it again!
Startup Entrepreneurs, remember: your blog has a voice, a personality, but only as long as it really comes from you. Don’t let PR fools hijack it – but if you have the urge to splurge (
), at least find a PR guru who actually “gets” social media.
Remember To Make It Easy To Buy: oh, yes, I agree with the points Rob Di Marco raised in his recent article – but I’m also surprised. Rob discusses Atlassian, makers of the excellent bug tracking software Jira and the enterprise wiki software Confluence as a company not easy to buy from. I’ve often been citing Atlassian as a showcase for making lightweight software, that’s easy to understand, use and buy – what have I missed? 
For one, Rob would like Atlassian’s help with ROI calculations to justify the purchase, and he my not have to wait long, as in a comment to his post, Atlassian embraced the idea. Kudos to them, that’s the level of responsiveness they are known for. But Rob has another concern: payment method. Atlassian’s preferred payment is by credit card: they really want customers to find them, try the products, then just pull out the card an purchase it. Works very well at a certain price range, as one of their former competitors said: expensable, not approvable. (Rod Boothby calls it taxi fare pricing.)
Confluence, Atlassian’s wiki may just borderline fit this range, but their other popular product, Jira starts at $$250/ months for 5 developers, or 1200 a year license – certainly outside the taxi-fare range. At that point approvals are required, and once it’s in purchasing channels, most companies prefer purchase orders:
The point is that Atlassian has done a great job in getting users aware of their quality product, but they ignore the organizational process by which their customers buy. I am confident that Atlassian is losing sales not because of their product but because it is such a pain in the ass for a developer to figure out how to justify and how to actually purchase their product.
Scott Farquhar, Atlassian’s Co-Founder, Co-CEO explains:
In order to keep our pricing down, we do a number of things that aren’t traditional… We sell our products into 106 countries (at last count), and offering POs to all our customers would mean that we would have to chase payment in 106 countries.
POs would mean we would have to employ someone in each timezone to chase payments around the world. This isn’t a particularly fulfilling job, and we strive to have all our staff in fulfilling jobs.
So Atlassian wants to be a cool company with great products (Scott actually uses the term kick-ass products) and happy customers. Their employees are mostly developers, customer advocates, marketing types .. in that order. What’s missing? General business administration – and the try to keep it that way. Do they lose potential customers? Possibly…but is that a problem? They essentially picked their ideal customer profile, serve them, and don’t worry about others. Is this arrogance, or just doing smart business?
Let’s look at another case study.
The CEO of a very successful company that provides Web based tools to small businesses told me how he plans to re-allocate his marketing spend. They’ve made all the right moves to establish a good brand, have a fairly large, growing and loyal user base. However, their key target market is not the TechCrunch 53,651 (even if it’s 1M now), but the tens of millions of small businesses in the real world, outside the Tech echo-chamber. This much larger customer base can be reached via more traditional methods, through trade associations, vertical trade shows, magazine (paper!!!) ads, printed brochures, partnerships. Printed Brochures… OMG – the last time I touched those was in the 80’s :-)
But joke apart, while the CEO clearly sees where the bulk of his potential market is, I disagree with the more traditional (and expensive) approach. Who says he has to cover the entire market all at once? By virtue of what he offers, the initial customers will be the more web-savvy small businesses, and there are a few millions of them. Why not just go for the low-hanging fruit first, that are easier to reach directly via the Internet (one of the beauties of the SaaS model), strengthen their brand and reputation, turn happy customers into advocates, and leave the hard-to-reach prospects for a much later stage in the company’s development?
I’ve presented two cases, one for internal reasons, the other for market realities, but they have one thing in common: they both have to decide if they are on a mission to serve their entire potential target market, or whether they cater for those that are convenient to reach for one reason or another.
What do you think? Is choosing your customers a sign of arrogance, or smart business?
The New York Times presents the perfect showcase for what I've been preaching in my recession / business models mini-series here:
The showcase compares Twitter vs. Yammer and their categorically different approaches to business.
Twitter is the leading micro-blogging service – they have a strong brand, even if you use a competing service you’ll likely say you’re tweeting. Wired magazine declared blogging dead since we’ve all moved to Twitter. Have we, really? The NYT says 3 million users have tried it – compare that to the 133 million blogs Technorati keeps track of. But numbers aside, Twitter is clearly the leader in popularity. What it does not have is revenue – not a single cent. They live off VC funding, to the tune of $20M, and have recently hinted they would announce their business model early next year.
One concept is to charge companies who use Twitter to reach out to customers. I’ve already said I’d pay a buck or two, if that’s what it took to keep twitter alive – although it’s unlikely they would charge consumers. And of course there’s always the classic exit: get acquired.
So one could clearly characterize the Twitter approach to business the classic VC-backed, growth-oriented Web 2.0 formula: get big, then figure out how to make money.
Copycat Yammer is following the exact opposite model: they focus on revenues from Day One. Their twist on the Twitter formula: they focus on businesses, providing domain-based closed groups to tweet chat within. Many Twitter fans were sceptical when Yammer launched, saying Twitter could put them out of business in a second by launching private groups. I somewhat agreed:
But Twitter has not added groups, so Yammer is growing happily and virally (we’re using it here @ CloudAve), albeit not to Twitter’s level: they have about 60,000 users in 10,000 companies, of which 200 companies are already paying for 4,000 users. This isn’t hyper-growth, but stability.
Let’s be fair though: Yammer could not have grown virally, had Twitter not laid the foundation for them. Twitter had first been a weird concept, not even the founders could have predicted the wild popularity they gained. By the time Yammer appeared on the market, they had no explaining to do at all, the “aha moment” was there: “aha – this is Twitter for Business”.
The two companies represent two different approaches to business, both of which were valid when money was flowing free. The NYT quotes Paul Kedrosky:
“Now it doesn’t matter if you want scale first because you just can’t have it,” said Paul Kedrosky, a senior fellow at the Kauffman Foundation. “You have the luxury of being able to decide between small and focused on revenues or large when you have capital. When there isn’t money, there’s no choice.”
But I am not. Which is why I don’t qualify for this all expenses paid trip to Boulder:
And the pitch:
Boulder Needs More Kickass Developers
Want a FREE trip to beautiful Boulder, Colorado? The Boulder tech scene is growing like crazy. Twenty of our top tech startups (you can see a few in the sidebar) have banded together to fly in one hundred top software developers, programmers and engineers from across the country, all expenses paid. You can apply to be one of the hundred.
So here we go, getting our daily dose of layoff news, while Boulder startups are in shortage of talent. Good developers are still worth gold … somewhere. (They mine gold in Colorado)
Developers. Not Management, Marketing, Sales – not the MBA’s. And that’s the clue to understanding a lot of the differences between the startup world we have today and during the late 90’s bubble.
Back then startups got VC-funded and part of the deal was bringing in “pro” management teams: the MBA-types and former corporate Executives who flooded the Valley in the hope of IPO-riches. Founders found themselves in VP / Director positions, or got pushed out, if not, they were left wondering how their little baby got to hundreds of employees so fast and just what all these new managers were doing with their company. Then the bubble burst, and the imported Exec’s rushed back to the safety of the corporate world leaving the wreckage behind.
Today most Web 2.0 startups are run by the original Founder, often a developer him/herself. This is now the age of the technologist, not the business manager. The roles are reversed. These CEO’s, Founders, team members won’t jump ship – the ship is theirs, and there’s nowhere to run back anyway. One more reason to be optimistic about their survival.
In the meantime, here’s a preview of what it’s like to work in Colorado (also home of TechStars and Defrag).
Today I’m continuing a mini-series started 3 weeks ago with the intro: How Software Can Be Resilient to Recession which I wrote before the bottom fell out of all markets in the world, and recession-doom-talk became popular. Since one of the key conclusions in the first piece was for software startups to turn towards business, offer value and charge for it, it only made sense to follow up yesterday by a more detailed post on How to Sell to Enterprises in a Recession.
Yesterday in a corporate context I used Rod Boothby’s Taxi Fare metaphor, i.e. flying in below the radar screen, at prices that are expensable, not approvable as the recipe for ongoing enterprise sales in a recession. But today we’ll look at revenue-generation on the consumer market, where the taxi-fare is too expensive… we better find a new metaphor. How about lunch-money? Nothing fancy, just cheap fast food.
But wait, you can’t charge consumers, web 2.0 is about getting it all for free, isn’t it? While I never particularly liked it, let’s face it, the free, ad-supported model worked for a while – but it’s about to come crashing down fast. That leaves us with the fundamental rule in business: deliver value, get paid.
The genius in the Freemium model is that it allows new services to gain traction, essentially using us, free users as the marketing vehicle, then is we get hooked, we’re likely upgrade to enhanced services for a fee. This is neither “free” nor “bait-and-switch” – a completely acceptable, normal business model. In fact I think – especially in bad times like now – a switch by a popular service after their beta period to a fully paid model is also reasonable, albeit not easy.
Josh Kopelman @ Redeye VC laid the difficulty out in his excellent post, the Penny Gap, arguing that that assuming consistent price elasticity is a trap: going from $1 to $5 or $5 to $20 is easier than getting the customer to pay anything at all:
The biggest gap in any venture is that between a service that is free and one that costs a penny.
Perhaps. Or not. The case he cites, that of the pay-per-download music sites of the late 90s vs. Napster or Kaza certainly proves him right, but I believe business or productivity-focused applications are different. Different, because we need them every day. If I am hooked enough on a good service that I really don’t want to lose, there must be a price point low enough to entice me, and another one where paying for it becomes a no-brainer. For mass appeal, it should not be a “business decision”. Do you think twice before grabbing a coffee at Starbucks, or grab a quick sandwich for lunch?
Would you spend lunch-money (or just the price of a coffee) on a service you “can’t live without”?
Random examples:
The list could go on, and I’m sure most of us has a shortlist of 5 (10?) services we just “can’t live without” and would rather pay than lose them.
Now let’s consider this from the Web startup’s point of view:
So, if you are a user of Web 2.0 services (and who isn’t?), would you spend your coffee change to save your favorite ones?
Update (10/30): Here we go now, just as predicted:
Three weeks ago when I wrote How Software Can Be Resilient to Recession I was very careful using the “Big R” word – since then the bottom fell out, the doomsday-chorus started. On my personal blog I suggested we should Turn the Doom-talk into Constructive Business Model Ideas, and that’s what I intend to do now. Here’s the gist of my intro piece:
The Web 2.0 economy went sideways, focusing on things that were:
Here’s what works (as has always worked) instead:
So let’s talk about that last part – how do you deliver software and get paid for it. Selling to the corporate world has just become a lot more difficult, if not impossible. The standard knee-jerk corporate reaction to any downturn is freeze, freeze freeze: hiring, travel, and spending on new contracts all get frozen. These blanket freezes are blind: it does not matter how innovative your solution is, how much it increases productivity, or -most importantly in a downturn- how much cost it saves, you can’t get in as a new vendor.
Fellow Enterprise Irregular Anshu Sharma’s advice to ISVs is to partner with anchor tenants, i.e. vendors already in contract with your target customer and try to get in under their umbrella. Sage advice, probably works for larger organizations, but partnering with the biggies can be quite painful.
What else then? You may want to revisit your pricing, and also how, and to whom you’re selling. Just as I was thinking about this post, we had a lively discussion in the Enterprise Irregulars group about Forrester’s report predicting the dramatic fall in price for Enterprise 2.0 applications. Jive Software came up as the obvious example: everyone loves ClearSpace, everyone hates the price.
Ironically, just as we were discussing how Jive’s prices will have to come back to Earth, news of Jive’s dramatic layoff came in: the company let about a third of their workforce go. Within minutes the CEO of competitor Atlassian announced they were still hiring, in fact he invited the ex-Jive team to check them out.
They are in the same market, so how come one fires while the other hires? Since I don’t have a crystal ball (or inside information), I can only speculate:
But I don’t want to get into a Jive vs. Atlassian game here, especially since I really don’t know the details – let’s just stay on a general level for now. Update (10/18): Fellow Enterprise Irregular Bob Warfield asks: Why Are Startups Running at a Level Where They Can Lay Off 1/3? I think it’s clear that only the VC-funded ones (some? more?) are.
Another Irregular, Rod Boothby had a good writeup which is now two years old yet every word is valid: The Taxi Fare Secret. His key point:
Sell Directly to the End User at a Price They Can Expense…
How do End Users Pay in an Enterprise Setting?If you charge $9/user per month, but bill for the whole group, the bill for 30 people would be $270. That requires sign-off, which requires approval, which gets you back to the CTO / CIO.
If you charge $9/user per month and make each end user pay their own way, then each person has to get the company to cover just $9 in expenses.
$9 is cab fare.
Taxi cab fare doesn’t require approval.
or… $9 might be just cheap enough for people to be willing to cover it themselves.
Very well said – and similar to my own experience of flying in below the radar screen, at prices that are expensable, not approvable. That’s the recipe for ongoing enterprise sales in a recession. Next we’ll look at revenue-generation on the consumer market, which will likely take us from the realm of taxi-fares to lunch-money … in fact cheap fast food.
Just because I wrote How Software Can Be Resilient to Recession doesn’t mean I’m naive enough to declare that all SaaS businesses are recession-proof – they just have a better model to weather the storm, which is now inevitable.
OM Malik, who is now a VC Partner himself reports:
Sequoia Capital, arguably the smartest venture capital investor in business, is sounding the alarm and asking its portfolio companies to buckle down for what could be the worst economic downturn of their relatively short lives.
Senior Sequoia Partners got their portfolio CEO’s together and warned them the downturn would be worse than they might expect, then proceeded to lecture them on how to cut costs, business function by function.
In other words, Business 101, which probably many other startup Founders should take quickly. You see, it’s one thing to call yourself CEO in the good times, living the fun startup lifestyle on your VC-funded salary in what’s your first real job, and it’s entirely different thing to manage a business to survival in tough times.
But it’s not Game Over, as today’s sensationalist titles would suggest: IT’S OVER! POP GOES THE BUBBLE, Sorry, Startups: Party's Over. No, times are officially tough, but the truly strong businesses will survive, and I also trust some of the whiz-kid baby-CEOs will come out of this as battle-hardened Entrepreneurs.
Who needs a financial crisis, “smart” Executives can wreck the business on their own…
On-demand CRM provider Entellium’s CEO and CFO gave a new meaning to double-entry bookkeeping: they had one (real) set of books for themselves, and another (fake) one to show their Board and investors. The Board believed Entellium had annual revenues of close to $4 million, while the real amount was $582,789. The CEO and CFO are now facing prosecution, and some of the $50M in VC funding still has not been accounted for.
There have been rumors of Entellium trying to sell itself for a while – now it’s down to a garage sale, potentially selling assets and some IP. I feel sorry for the honest employees, but mostly for the customers.
I strongly protest the sensationalist title found @ InsideCRM: Entellium execs charged; is SaaS next to go on trial? Entellium’s demise had nothing to do with their business model. This company was wrecked by two crooks, period. No reason to taint the entire SaaS sector.
This company clearly did not falter due to the recession: two crooks brought it down. This can happen in any industry.
The next two stories are not failures … but something isn’t quite right.
The InfusionSoft blog, where I first saw the Entellium news also cited NetBooks, which halted new customer registrations. This is my post title from February 2008: NetBooks: Integrated SaaS Suite for Very Small Businesses. Almost. Almost being a key word.
Other than missing a few key business processes, their UI wasn’t just boring, it had shortcomings that rendered the whole system quite useless. CEO Ridgely Evers reached out to me, we met, he revealed future development plans and showed me screenprints of the revamped UI. I was optimistic, and really liked the concept of giving small businesses an integrated system (mini-ERP) at $20 per user, a fraction of the next step up, NetSuite. I also liked Ridgely’s deep passion and understanding of small businesses. Not only was he the guy behind the original Quickbooks, but he ran an actual small business along with his wife. Finally a business owner bringing solutions to his own…
So receiving Ridgely’s email response (which he says got nuked by the InfusionSoft blog’s comment spam filter) was a surprise:
The reason we stopped was that we discovered some pretty deep flaws in the software architecture, flaws that would not allow us to scale. Rather than subjecting new customers to what would be a less-than-positive experience, we made the tough (and, I think, correct) decision to stop adding new users while we re-tool.
As you might imagine for a product with the scope of NetBooks, re-tooling is not a simple process, and will take another quarter or two. But rest assured, we're in this for the long haul and will absolutely be back -- better than ever!
I hope they will be back. But how can you discover deep flaws in your architecture after years of development?
This story reminded me of another conversation I had with Dean Carlson, CEO of ViewPath, an On-Demand Project Management tool company, in preparation to my Office 2.0 Panel. I was surprised to find they had been in business for 7 years, yet hardly any information is available and their competitors barely know about them.
As it turns out the first few years were spent developing the original product, then a year or so went into trying to sell it when they realized their architecture woudln’t scale. You can guess the rest of the story: back to development for another two years or so, and now, finally the launched ViewPath 2.0.
The first look at the product is promising, in fact we will cover it later in our PM 2.0 series. So this is not a failure story – or is it? I can’t help but have some doubts about the company’s ability to execute, if it took them years to discover the architectural flaw, and altogether 7 years to bring a real product to market.
The common thread between ViewPath and NetBooks: both are founded, run, and funded by former Executives who are passionate about their business, but probably not too hungry. Unlike the whiz-kid baby-CEO’s I was somewhat teasing early in this post, this is not the big break they need in life – and it shows. It shows on the pace of business. I whish them success, but am worried they will be left behind.
If you’ve been wondering how all these stories are related together, well, there’s one common thread: the Founder / Entrepreneur often makes or breaks business. I think these stories bring up a list – a very incomplete one – of traits a Startup Entrepreneur needs to have – or shouldn’t have. But instead of spelling them out, I leave the conclusions to you. They are all in the stories, after all.
Update: Want to get off the "Sky is falling" treadmill? Need inspiration? Find it here.
Even better, get really inspired at Defrag. Use discount code zoli1 to get $300 off.
