Funding 2.0 - SVASE

Last Thursday, I attended an SVASE event - "Funding 2.0 – How To Build A High Growth Startup Fast And Cheap." It's always interesting to check out the mindset of the Valley's newest entrepreneurs and hear what its successful members have to say.

Panel members were:

Mike Cassidy, Entrepreneur in Residence, Benchmark Capital
Matt Mullenweg, Founder, WordPress
Naval Ravikant, Partner, The Hit Forge
Peter Yared, Founder & CEO, wdgtbldr

Here are a few memorable one-liners (might be slightly paraphrased, but I think I'm close....):

Mike Cassidy on developing a strong Web 2.0 company:
"Find the lock-in effect; the network effect. That makes it hard for users to switch."

Matt Mullenweg referring to start-ups that are beginning to turn the corner:
"When you're in the green, the best times are ahead of you."

Peter Yared about outsourcing hardware:
"There should be no IT people in a software company."
"Why buy the elephant when you can ride the elephant?"

Naval Ravikant on making money on the web:
"Most money on the web comes from search mistakes."

I spoke to Peter for a couple of moments before the Panel began. Unfortunately, I didn't know of his success as an entrepreneur - our conversation was rather light. Had I known, I would have pressed him for some advice about Altos Research and our AltosCharts application...

SVASE continues to impress with their abundance and quality of events. I recommend their events to any enterpreneur that wants to get out, practice their pitch to strangers, meet people like you, and learn more about what to expect in getting your ideas from concept to realization. Must have been 150 people there.

Using Salesforce

I'm in process of migrating to Salesforce.com for our company's CRM. Here's what I know so far:

1. Salespeople there are meticulous during the sales process. I'm hoping this is because they're using Salesforce for their CRM.

2. You can get a user "seat" for about $65/month, and set up billing quarterly, semi-annually, annually, or bi-annually. Bi-annual prepayment gets you a discount.

3. I posted a "user case" on my profile, and received a call from a tech guy within a couple of days. He left me a voicemail because I couldn't take his call. I called him back and left him a voicemail. Another tech guy called me back about an hour later and walked me through the answer to my question. He was clear and thorough.

4. If you are using a contant/registration form on your website and you want to fully integrate Salesforce into your sales processes, you'll need to pull out the contact/webform on your website that exists and replace it with the Salesforce "web-to-lead" form.

That's all for now. Still haven't migrated our contact data over because of the day-t0-day fires, but I'm cautiously optimistic. Would be nice to be able to employ a consultant to handle the migration for us. But seeing that we're paying less that $1500/year, I'm not about to pay $2-3K to have someone come in and do this for us. (Though maybe I should, but cash flow is always the challenge in start-up land...)

Venture Capital - late vs. early stage

An interesting article in the San Jose Mercury News by Mark Boslet discusses the higher valuations of venture capital deals – “Venture capital funding, valuations rise.” (links to PDF file of the article on the Saints Capital website).

Some thoughts on the article to consider:

1. The investors that compose the continuum of private equity, ranging from LBOs to traditional venture capital to angel networks, are growing individually, and as a result, are creeping into each other’s territory. Look at the investment parameters of many “Private Equity” companies and you’ll see a growing number targeting later-stage companies (not the traditional LBO/MBO private equity model of 10 years ago), creating competition for the market. The article states that “too much money [is] chasing too few late-stage deals.” The result is the increased valuations.

2. Angel networks are becoming more and more sophisticated - what used to be the territory of the traditional VC companies. “Angels” used to mean people like your Uncle Bill who did well in the market before retiring and could afford to throw $10K your way. Now angel groups are targeting investments up to the $2 mln range (and higher in some cases). Even organizations like the Angel Capital Association now exist that did not 5 years ago.

The article also states that early-stage companies are forced to suffer. I disagree to some extent.

Firstly, good companies with good ideas, good products, and good managers will get funded. The market works. There may be fewer investments and funding events at the early stage, but perhaps that is better to better information availability about markets, products, and strategies.

Secondly, the wave of VC capital that was thrown at Web 1.0 companies was often spent on outrageous marketing campaigns (i.e. $1 mln for Super Bowl ads) to build brand recognition.

Take a moment to consider where we are with Web 2.0 and marketing:

• Long-tail marketing
• Viral Marketing
• Blogging
• User-generated content
• Google Ads

I don’t have any hard statistics to back this, but I suspect that marketing costs for start-ups are relatively lower as measured by capital than they were 7 years ago. With decreased capital costs for marketing, a significant chunk of the demand for early-stage VC capital infusion diminishes. Start-ups can focus resources on technology and product development and launch their products to market by effectively utilizing a Web 2.0 marketing strategy.

Sales Incentive Programs

I am currently working with Altos Research, a real-time real estate information service based in Mountain View, CA, in a part-time role. Currently, the sales force consists of the CEO, me, and well, that’s it. My role with Altos is to develop the overall sales strategy and long term organization.

We were discussing the longer term issue of sales territories as the company grows, deliberating over much revenue per sales rep should be the base of a territory, and then looking at how to compensate salespeople. Altos is a service with low customer attrition/turnover – probably less than 5% of the customers that sign up as paying customers cancel their service subscription, with an equal percentage that will likely upgrade their service plans, thus increasing the revenue per customer. A 95%+ retention rate! One of the reasons for this low attrition rate is the incredible level of personal attention and service that we have been able to provide to each customer. A key objective in the long term strategy is to replicate this high level of service as the company grows.

Our discussion turned to a philosophical conversation on how much to focus a bonus/commission structure for future sales representatives on new customer acquisition vs. growing a given territory base.

The key factor to remember with sales people is this – whatever compensation program that you establish for your salespeople is exactly what you will get. If your compensation program rewards new customer acquisition, then you’ll get new customers. But if you do not have a dedicated customer support team – and most start-ups rely on their sales reps to double as customer service reps - you’ll also have to deal with a higher attrition rate as your overall level of customer service will decline.

Salespeople are inherently selfish people, and I mean that in a good way. They often view themselves as the free agents in your company that are seeking to maximize their personal return – that’s why they work on commission/bonus and that’s why they are willing to take lower base salaries as a percentage of compensation than anyone else in a company. So, if your sales programs are focused more on new customer acquisition, then you absolute number of new customers will certainly increase. But at what cost? There will be a trade-off that will be evident in a higher churn rate. If your market has a finite number of potential customers, a high churn will impact the long-term growth of your company. Unless to you able to expand into new markets, you’re sales reps will eventually reach the end of their call list, and going back to prior customers that have dropped your service in the past may be a far more challenging sale.

Finally, it is important to take a look at you customer acquisition costs versus customer retention costs. If your acquisition costs are high relative to your retention costs, and your service is one that provides the ability to constantly upsell and upgrade your current customers, a sales program that drives this behavior in your sales force is probably a better option.

Tech Events - Silicon Valley/Bay Area

Launch Silicon Valley was held last week at the Microsoft Mountain View campus on June 4-5. I was pleasantly surprised by the turnout of both entrepreneurs and venture capital representatives.

Of the presentations that I attended, the Digital Media group was the most interesting to me. The presenting companies included - EyeJot, fix8, SnapJot, Yodio, and Catalog Data Solutions. The boom of applications becoming available for Web 2.0 and the influx of user-generated content was quite remarkable. Since working with Aplia four years ago, the model for USG has changed dramatically. This is obvious given the boom in personal network pages and You Tube, but it was compelling to see new companies continuing to emerge with alternate approaches to the market.

However, one aspect of the companies and presentations at Launch Silicon Valley noticeably absent was a clear explanation the sales and revenue models of their companies. Some companies appeared to integrate a mention of - "we are a SaaS model, charging a monthly subscription fee" - but few of them that announced this methodology provided a clear picture of how the revenue process would occur. In many cases, I found myself contemplating whether or not these companies had truly considered the revenue model aspect of their business, or were wed to a cool, new technology, excited about its creation and were operating over the assumption that "build it and they will come." It was an eerie flashback to 1999 in some cases. Of course, this outlook may be the product manager/business developer in me that is overlooking the fact that the presenting companies were almost exclusively operating on angel capital or bootstraps, but then again . . .