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.
VC Preps Portfolio Companies for Survival Mode
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.
Entellium Wrecked by Fraud
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.
You Can’t Re-Architect Forever
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.
Ingredients of the Entrepreneur Recipe
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.
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