Using a mobile app should be like a drive in a Ferrari: fast, responsive, and no crashes.
In reality, many mobile applications have high crash rates and poor response times. Mobile app developers and operations teams are overwhelmed by the complexity of supporting every combination of operating system, mobile carrier, and underlying hardware platform.
Two years ago, when I first started learning about mobile app development, I immediately looked for a third-party APM (application performance monitoring) vendor. I was coming from a Ruby on Rails world where every server app is instrumented to monitor latency and exception. The case for deploying mobile APM is even stronger given that the developer has no access to the device on which the application runs and, consequently, no visibility into the entire environment in which the application exists.
I was surprised to find that, while there were multiple startups offering crash reporting for mobile applications, there wan’t a focused, mobile-first APM offering. By mid-2013, though, it became clear that Crittercism had identified the broad need to support mobile development teams with detailed run-time analytics and was expanding its offering dramatically.
I’ve written earlier about the characteristics ScaleVP looks for when investing in developer-oriented SaaS companies. It was immediately clear that mobile APM is a perfect candidate for an outsourced service:
Aside from an attractive market, the other half of the venture equation is a stellar team ready to capitalize on the early traction. The more I got to know the executive team at Crittercism, the more clear it was that Andrew, the CEO, had built a solid team with deep bench strength.
Many companies hit a quarter or two air pocket between identifying product-market fit and building an organization that can scale to $100M in revenue; this was not the case at Crittercism. Everyone had a clear vision for what they were planning to accomplish over the next two years. We always love to invest in companies with a strong tailwind and a clear plan for deploying new capital to maintain rapid growth.
We’re excited to be joining the team as Crittercism expands internationally, scales up operations, and continues to invest in its category-leading mobile APM service. Our belief is that over time all quality mobile apps will use Crittercism. Apps without performance monitoring are like Formula 1 race cars without instrumentation and pit crew. They either crash and burn or finish last.
Modern web and mobile applications are now sufficiently complex that code reuse is imperative. Just as software libraries once offered quicker time to market and efficient code reuse, today developer-oriented services accelerate development in SaaS applications.
The proliferation of well-defined API’s and the shift to true services-oriented architectures have created a tremendous opportunity for companies targeting developers. Below, we outline some of the characteristics for developer-oriented service companies to thrive:
Companies that target functionality required by every SaaS application have a head start. Content delivery networks are the purest example of broad horizontal functionality that every devops team makes use of. Akamai sports a $10B market cap because no web application can afford to be slow. Second, whether large or small, all applications are designed with the presumption of a global reach that only a content delivery network can provide.
Companies are rightly reluctant to outsource functionality which could be a point of strategic differentiation in the future. Entrepreneurs starting a developer-oriented service should be careful to tackle only that part of the product which is clearly common to all applications. Email marketing provides a good case study: companies like ExactTarget started by solving the email delivery problem (which offered no strategic differentiation for enterprises) and expanded their offering on the strength of that beachhead.
Services that are mission critical to customers enjoy higher ACV’s and lower churn. Billing and checkout services (such as Stripe and Recurly, for instance) are required to work flawlessly all the time. Developers love services that mask complexity in mission-critical components of their applications. No developer should have to write code to interface with a payments gateway.
Today’s startups face significantly lower barriers to entry. In many cases these barriers were destroyed by a slew of services targeting developers. Amazon Web Services used its ‘compute cannon’ to completely level the infrastructure playing field. The Open Source Software movement forded the moats and tore down the walls of the proprietary software castles. Developer services companies that invest in building a global-scale platform offer genuine value.
PubNub has built a global real-time network that delivers 3 million messages every second with 1/4 second latency. Their customers leverage the scale of PubNub’s network when they connect to the service.
Global scale can also come in other forms: Twilio has signed peering agreements with telecom companies around the world that enable the service to route voice and message traffic to any device.
Companies that seem boring often have less competition and are highly profitable in the long run. Splunk started by helping developers make sense of log files. In the software world, this is the equivalent of opening up the septic tank to look for problems. Developers would rather be working on a big data meets artificial intelligence project. Few want to work on the mundane plumbing, making it perfect to be outsourced “as a service” provided it meets most of the criteria above.
These six criteria form part of the scorecard that we use at ScaleVP to evaluate companies offering SaaS services to both developers and operations teams. Our investments seldom meet all of the above criteria, but they are usually strong in many.
The Pain Point
WalkMe solves the problem that you only fully understand when you have spent thirty minutes on a website trying to extend your wireless contract or change your cable bill, only to give up in frustration and a phone call to an agent. With WalkMe, the software finds you, the user, while you are struggling on the website and provides a step-by-step guide, called a Walk-Thru, which moves with you through the website, guiding you on how to get the task done.
Many websites are not intuitive and, as much as every website would like to be Google, with a simple search bar and a single user experience, handling the banking or telecom needs of 50 million customers does not allow for the same simplicity. With many potential paths through a website, the designer has to optimize for the basic tasks, meaning that many other tasks, important to hundreds of thousands of customers, get lost in the third menu bar. The result is confusion, lost customers and expensive calls to a human operator.
The Way Things Should Be Done
When I first saw the Walk-Thru technology, I had the instant response that “yes this is the way things should be done.” I don’t want to over exaggerate or channel my inner Malcolm Gladwell Blink reflex, but I have learned that for technologies that want to straddle the business/consumer divide, the first reaction on seeing the technology should be a strong sense of relief and the thought that “finally someone has solved a problem that has been sucking energy out of my day.” I felt this when we saw Box eliminate the need to move files between home and work, and I felt it in spades when the Docusign app removed the need to ever print out a signature page again. While I may be colored by the miserable experience on the Comcast website (two domains for one transaction), I feel that WalkMe is a must have for complex transaction focused websites. Don’t tell me what to do via an FAQ, carry me over the line!
The product also works really well for corporate SaaS applications. Another personal example: At ScaleVP we have a heavily customized version of Salesforce that we use for all our deal tracking. Every time we add a field, we increase the likelihood that someone (usually a GP) fails to fill it out correctly. By adding a customized Walk-Thru that we built ourselves, we were able to guide the user to fill the data in correctly. We were even able to make sure that if key fields are not completed the record cannot be entered. This opens up the market for WalkMe to every customer of Salesforce, and any other widely deployed SaaS application that needs end-user guidance.
We are very impressed by the traction. In just six months of selling in the US, WalkMe has already landed such customers as Adobe, Amazon Web Services, Bank of Montreal, Cisco, Citrix and Kimberly-Clark. The founding team is strong technically and the core technology IP around element identification is well done. This is one of those classic technologies where it is really hard to make a tool that is easy to use but WalkMe has executed beautifully. I am delighted to be part of the WalkMe team and look forward to seeing them Scale.
As we continue to evolve our perspective on the security market, I’m thrilled to announce that we’ve brought on security expert (and my former Netflix colleague) Bill Burns to help us better understand the minds of security-minded CIOs and their Chief Information Security Officers and how they maneuver the technical and business landscape to keep their companies safe and secure. Bill has 20 years of industry experience in information security architecture and IT operations, specializing in cryptography, business processes automation, and risk-based decision making.
Most recently, Bill was the Director of Information Security for Netflix, Inc. His team supported the development of over 1,000 streaming devices, enabled Netflix members to stream over 1 billion hours of entertainment per month, and ensured audit and regulatory compliance across a global public/private cloud environment. Bill’s team protected Netflix employees and members by continuously testing and monitoring systems for vulnerabilities and anomalies. They partnered with internal customers, outside partners and innovative startups to create resilient security infrastructure and services. Bill is an active advisor to several security startups, and is member of the RSA Conference Program Committee, ISSA CISO Forum Advisory Committee and ISSA CISO Career Lifecycle Committee.
For many years now at ScaleVP, we’ve recognized security as a ripe investment opportunity and have have invested in innovative security companies like Zone Labs (acquired by CheckPoint), ScanSafe (acquired by Cisco), FrontBridge (acquired by Microsoft), and TripWire (acquired by Thoma Bravo).
A number of major business and technology trends are shifting the security landscape and invigorating innovation and focus in the security market. BYOD, public cloud hosted services and SaaS applications are moving business data outside of the corporate firewall. Enterprises are increasingly moving business workflows to cloud, with SaaS spending growing 3x faster than other applications and IaaS CAGR topping 41% growth through 2016. By 2017, Gartner predicts half of all employers will require employees to bring their own device to work. Trends in enterprise compromises indicate that traditional security controls such as perimeter firewalls and signature-based security approaches have become less effective at protecting enterprises against well-funded adversaries, malicious insiders, and growing technology complexity.
Bill sees two main transitions that are impacting security:
Companies are moving from point solutions that address specific threats and vulnerabilities to a more holistic and automated approach. These provide a better understanding of business risks and add visibility in order to put better controls around them.
Much like the focus of Bill’s team at Netflix, InfoSec teams are empowering the entire enterprise to be security-aware, so everyone thinks about security.
“Business is about taking risks and InfoSec teams need better tools to help companies take smart risks. Security teams can no longer focus on a ‘protect the castle’ mindset - corporate data AND infrastructure are now outside the firewall, and employees are doing meaningful work from their own devices. Rather than try to keep everyone out, security models have evolved to ‘assume they are going to break in’ and have a plan for what to do about it. Security teams are shifting their budgets from largely preventative controls to a mix of prevention, sophisticated detection and coordinated response in order to keep the organization more resilient.”
We’re thrilled to have Bill join the ScaleVP team and we remain excited about new opportunities in security that help enterprises address these new trends. If you are building new security solutions that address these trends, we would love to talk to you.
This column was originally published in Entrepreneur.
Compensation is a mysterious process at many startups. Once an organization has scaled beyond a few people, some form of hierarchy is established — even if the org chart is flat, someone (or some people) decide who gets paid what.
Fortunately, the web has brought more transparency to the process. For instance, Startup Compass posts some data for founders’ pay, but that data aggregates founders across all positions, levels and regions. Also Payscale lets individuals benchmark specific positions and locations.
But for those entrepreneurs running venture-backed companies that need a little more light shed on the subject, read on.
Forming a compensation committee
Typically, after a couple of investment rounds the board of directions forms a compensation committee to determine cash and equity pay. Milestones that signal a compensation committee is needed include: hiring powerful new executives from the outside, increases to the stock option pool off-cycle from a financing round, granting fresh equity to founders, compensating outside directors and significant transitions such as changing CEO from the founding executive team.
Usually a compensation committee will include the largest investor board member, another investor and an outside director, who is an experienced operating executive. The logic is that the largest shareholder is most keenly sensitive to use of capital and dilution. The operating executive is experienced building, retaining and motivating teams and is sensitive to asking management for extraneous detail.
So how does that committee operate behind the curtain to set pay for executives? The magic is in balancing objective data from outside “market comparables” and the specific company and individual situations. As companies progress toward an IPO, compensation becomes more formulaic, though the eye-popping pay of public company CEOs show the formulas can definitely slant in management’s favor.
Big companies hire consultants to come up with specific pay data from “comparable” public companies’ proxy statements. Private companies have to rely on private data sources. One of the best is the Venture Capital Executive Compensation Survey published by Advanced-HR. The data isn’t publicly available but sponsoring VC firms, such as mine, can share the information with their portfolio companies.
The blog post from Startup Compass I mentioned earlier provides average data for founders, regardless of position, but pay for executives vs. individual contributors, or even for various executive positions, varies widely. An important data point that Startup Compass did not address is that founders make much more compensation in equity than similar executives who come later. (see example below)
VC Executive Compensation Survey — Median data for U.S. Technology Startups
As the above chart shows, founders make roughly 75 percent of the cash compensation as hired-in executives in these jobs but enjoy a larger multiple of ownership share.
The data above also show that more senior executives (i.e. the CEO) have more leverage in their compensation, meaning their total target pay is bonus- or incentive-based. Their pay number is bigger, but they only earn it if the company hits its objectives for the year.
Figuring out bonuses
VCs and other directors want to reward performance because that means the stock is likely increasing in value. So bonus plans also have leverage — the more a company performs, the higher the pay increases (disproportionately in some cases). Similarly, missing key objectives doesn’t just result in the same percentage hit to the bonus, it might mean no bonus at all. The table below shows a simplified form of a typical scaling startup annual bonus plan.
At earlier stages, bonuses might also be given for shipping a new product or securing new customers. In those early years, plans are fluid and keeping people motivated and feeling successful is an intangible goal of the compensation plan. But as the company matures, not only is the bar higher but the margin for missing it is much tighter. In the table above, hitting 80 percent of a $5 million goal in a company’s second year is a good result, but hitting 80 percent of a $100 million plan in its seventh year is a huge miss and probably shouldn’t be rewarded at all.
Eric Tilenius recently concluded his Executive-in-Residence stay at ScaleVP to become CEO of BlueTalon. We loved having Eric with us—he brought great energy, insight and contacts to us. Eric sourced a lot of early stage companies that we will be keeping on the ScaleVP radar screen. And his network identified a small but crucial M&A opportunity that helped one of our portfolio companies expand its business in a meaningful new way. Thank you, Eric!
Eric and I got to yacking about how his insights from our side of the table will bear upon his new role leading BlueTalon in its mission to improve data access and collaboration across enterprise boundaries.
Sharon Wienbar: How did your time at ScaleVP help you assess potential companies when looking for your next leadership role?
Eric Tilenius: I certainly gained a finer appreciation for the point at which a business is prepared to scale. The partners at ScaleVP understand the rapidly changing nature of enterprise SaaS and software companies, the evolving business models that power them and the changing technologies that impact them. Seeing companies accelerate at this inflection point was clearly one of the most exciting times for the companies that ScaleVP supports. That honed my focus on finding a company that had a solid product, operating in a strong market, with a capable management team, “ready to scale” quickly.
Sharon: Now that you’ve been on the VC side of the table, what will you do differently as CEO?
Eric: I learned a lot about balancing vision and execution in a startup. While I was looking for an opportunity with huge upside, I also came to appreciate the value of continually validating the company as you go, by finding small wins and proof points early. Now, while we’re keeping an eye on the long-term vision, at any given point I want to have made tangible progress toward value-creating milestones. I also learned how critical it is to build predictable, repeatable revenue sources—that a lot of small customer wins are better than one big random one that may not be able to be replicated.
Two other business lessons were also reinforced: use great metrics to make fact-based decisions, and hire people with the specific domain expertise that our company requires. On that note, BlueTalon is hiring! I welcome talented individuals to contact me personally on LinkedIn.
Sharon: What do you see in BlueTalon that attracted you to the company?
Eric: BlueTalon operates on the cusp of the next phase of big data services — the challenge of internal and external collaboration. Box is one of the ScaleVP portfolio companies that impressed me greatly. BlueTalon strikes me as having the potential to do for database data what Box has done for business documents. By securing enterprise data and enforcing access policies across an organization and its network of partners, BlueTalon is driving productivity and efficiency for businesses in verticals like healthcare, retail, and financial services. These are complex industries, driven by massive Fortune 500 corporations that must collaborate efficiently with partners while remaining compliant with an increasingly complex regulatory environment. What a great opportunity to deliver innovation! The technical and management teams at BlueTalon impressed me by having built the leading solution for secure, policy-compliant data collaboration in such complex markets. I’m equally impressed that BlueTalon has earned the trust of early customers like Lilly, Optum & United Healthcare — all companies that see the value in data collaboration.
This column was originally published in Entrepreneur.
Angels, venture capitalists, private equity firms and mutual funds all evaluate investments on the same four basic criteria. At the various stages of a company’s evolution from brilliant-insight baby to billion-dollar behemoth, those investors will weigh your attributes differently.
When you pitch your company for funding, focus on these four topics:
Our strategy is sustainably differentiated. Demonstrate what’s special about your company and how you’ll keep that strong position. Is your offering fresh and different with a unique solution for the customer? Are your costs structurally lower or your service super fast because you invented incredible algorithms? Show that you have something different from the pack, and that is what your target market wants. Some businesses grow and thrive with execution being their main differentiator: think high-volume selling or complex logistics businesses. If execution is your pitch for why you’re different, be sure your track record backs that up.
We are the right team for this endeavor. For early stage companies, the team is the most important aspect an investor considers, as your market and product may not exist yet. What unique combination of skills and experience makes your leaders the potential winners? As you scale your business, your execution will demonstrate why you’re right for the job.
Our business model will make money. Money — profits and cash flow — are ultimately what create value. On your way to profitability, your company may become strategically valuable, and might be acquired early or IPO when public investors believe you will become profitable soon. You have to show how your business model — the costs to acquire and serve customers — will be profitable. Understand the margin structure of comparable companies, and show how you will track versus their paths.
Later-stage companies and investors focus on the financials. Public investors might screen almost exclusively on your financials, looking for expanding margins and profit growth. For younger companies, your target model and cash needed to break even are foremost concerns.
Related: Here Is How to Get a VC’s Attention
Market size. Investors want to know that your company has plenty of room to grow. “You can’t make a big company in a small market,” was one of my first VC lessons. For the nascent markets startups try to create, there is no current market size, so focus on the total addressable market. TAM measures the potential annual revenue for your industry — it is NOT an estimate of your company’s potential.
Markets can be sized “bottoms up” or “tops down.” Try both methods to check if your assumptions are reasonable. Typically, tops down-sizing crudely estimates a market by analogy or relative sizing, e.g., “Product X is a management solution for customers using technology Y. Technology Y is a $1 billion annual market, and an add-on management solution deserves 20 percent of the core target spend, so the TAM for Product X is $200 million.”
Here’s how Scale Venture Partners created a bottom’s up TAM to assess our investment in online marketing company Omniture: We counted websites by traffic volume, assigned an annual revenue potential to each size category and added it all up to over $1 billion a year of annual addressable spend. This work was done when Omniture had only a few hundred customers, not the many thousands of potential clients we counted in our TAM.
As a long-time venture investor, and previously the head of investor relations for two public companies, these four factors are the pillars of successful pitches — and investment decisions. Clearly communicate your company’s market, strategy, model and people, and you’ll be speaking your investors’ language.
During the last ten years, while venture capital was supposedly dying, the venture backed companies that went public or got acquired in that decade, achieved a combined valuation of $1.25 trillion as of Dec 31st 2013. Today, I wrote a column for Re/code explaining this. Check it out here. This companion post has the detail backup and an explanation of how the companies are categorized.
Here is the complete list
What the Categories Mean
We divided all Companies up into the three obvious sectors based on where venture capital dollars flow: Information Technology, Healthcare and Other. Within IT, we think about businesses in terms of who is the customer, broadly defined. We have observed over the years that while technologies change, customer categories are more persistent. The CFO who bought mainframe financial software thirty year ago, SAP software fifteen years ago and Workday today, is the same person with the same purchasing process, despite all the technical change to the product. The process is still sales call, product review, Proof of Concept, Considered Purchase etc.
IT Categories Based on who the Buyer Is
We see four buyers types within the overall IT industry: the Enterprise IT buyer, the Enterprise Line of Business buyer, Individual Consumers and the Components buyer. Enterprise IT and Enterprise Line of Business are fairly straightforward Categories. IT buys databases, routers and PCs and the Line of Business buyer buys applications. The total of these two buyers is the overall Enterprise Technology business. In one sense Consumer is a misleading title. Most companies in the consumer category generate revenue by selling advertising against free consumer eyeballs, and thus strictly speaking the consumer is not the customer, the ad buyer is. However, we believe the core competence in an internet consumer company is the acquisition of vast numbers of end users by offering a compelling consumer product. Once you have done that, the monetization is fairly straightforward. So, while the “buyer” is not an accurate description, practically speaking it conveys the idea that the value is created for the company by attracting and pleasing the consumer. Finally, Components companies typically sell to a deeply technical buyer, building an electronics product that will embed the component, with either no attribution or at best an “Intel Inside” moniker. Most of these are semiconductor companies.
Dividing IT up Further
Within some of these Buyer Categories we have done a further analysis. While at first it felt like overkill, we found that we wanted to know the answers to questions like, “are the big wins in Enterprise IT Hardware companies or software companies?”. Thus for Enterprise IT, we broke it out into software/services companies on the one hand and hardware products on the other, recognizing that the distinction is not hard and fast – because everyone wants to say they are a software company. The answer BTW is hardware and software exits above $1BN are about equal in quantity over the past ten years. For Line of Business, we wanted to know how dominant SaaS is ? We broke out the companies into SaaS vendors and the rest. All but 2 were SaaS. Within the Consumer market we broke the companies into Ad Supported Models, Marketplaces and a few other categories. Almost all the value has been in large ad supported consumer focused internet companies which took the number one, two, three and five slots across the entire venture industry for the past decade.
The consumer category and subcategories is where is where you see start to evidence of “disruption” of the non tech economy. Consumer internet ad supported companies are taking old media ad dollars, marketplaces are taking share away from old ways of purchasing rental houses. In the next decade here is where companies like AirBnB and Uber will show up. This is the “Digital Disrupts Analog Trend’. It shows up as companies, focused on either the Consumer or Line of Business, that are not selling technology but instead using technology to disrupt an existing business. Many consumer facing businesses have already been disrupted but B2B has not seen the same effect. It will be interesting to see if that changes.
Comments welcome, and in particular any missing names. We run this exercise internally and call it the GED, the Great Exit Database. Don’t want to miss anything.
What’s Your SaaS Revenue Model?
You’re a SaaS company with a hot product everyone wants, but you need to make money. You have great options, but you need to make the right choice for your business – paid, freemium, free trial or free forever. How to decide?
First off, your model is dependent upon who will be using your product. Secondly, you need to decide if your goal is to maximize adoption or revenue. Third, when you do a good job of segmenting your audience, you can successfully manage multiple revenue models.
Which model works best for which kind of company? Let’s run through the advantages and disadvantages of each option.
When a vendor offers a paid version of its software, it charges from the first user. An application that is available only as a paid version typically involves some configuration and set-up.
Workday follows the ‘paid’ model. Workday’s Human Capital Management software, for instance, connects to third-party software: payroll systems such as ADP, time-tracking products like Kronos and onboarding tools like E-Verify. Integrating third-party software programs take time and resources, yet Workday’s program won’t be fully functional without connections to these separate software programs.
A free trail won’t work for companies such as Workday because a user needs to buy the software for the integration to take place.
For the vendor, charging each user for its product is the most lucrative approach. But, getting customers to sign on and adopt the software requires marketing and direct sales teams, both are major cost areas – especially for a startup. A company considering the paid model will need to decide if the eventual revenue trumps the slow and expensive pace of adoption.
Sometimes, you want to give prospective customers a chance to try the product before they buy. In a free trial, a customer can use the software free for a set timeframe. You hope that, during the trial period, she becomes dependent on it, and signs on.
Free trials work best when the customer must make a “considered purchase” — she’s determined the software solves an immediate and critical need. The downside? Free trials invite a lot of “looky-loos”—prospective customers who check out the software but don’t make a purchase.
This is a smart option for high-growth companies that have an easy-to-use product that doesn’t require hardware or technology integration. This approach also helps a company find qualified leads and provides an entry point for sales.
A Freemium software vendor offers its software at no cost, initially, but upsells a paid version. This approach works best for vendors, who want to maximize reach and generate leads. Often the first users are individuals, who like the free features but want more – what’s available in the paid version. At the same time, the company’s IT department wants and interface it can access for user support. These two mechanisms move companies toward the paid version. Two of our portfolio companies – DocuSign and Box — and SurveyMonkey are establishing solid, fast-growing businesses with the freemium product approach.
The primary challenge with pursuing a freemium model is determining what users get for free and what features are only available in an enhanced or premium version.
Finally, a vendor can offer a product free — forever. It’s easy to acquire users with this method, but to survive a company must have both a large number of users and alternative revenue streams. Advertising revenue alone won’t cut it. A free product can introduce another product that the vendor collects revenue on. Spiceworks, for instance, offers free network management software but has other revenue sources with advertising, marketing services and co-selling other products. Similarly, LinkedIn’s service is free but the company sells advertising, premium services, and recruiting tools.
Case Study: DocuSign, Free Trial to Freemium
DocuSign, a provider of cloud-based electronic signature technology initially offered its solution via a freemium product. The company’s goal was broad adoption. It felt a freemium approach was the best approach was to get DocuSign into the hands of as many users as possible.
DocuSign’s pushed its freemium offering online and was, as Robin Joy, VP Online and Mobile at DocuSign, explains, “very generous”— to a fault. The freemium version gave users almost everything that they needed; users felt no need to upgrade to a paid version.
DocuSign realized that to push customers towards a purchase, users needed have skin in the game and be motivated to use the product. The company changed course and decided that all paid search-related marketing efforts would lead the consumer to a free trial. DocuSign wanted motivated buyers. As Joy explains, “People who search for our product have an immediate need and are easy to convert. The expiration date puts them at a decision point.” These users are much more motivated to pay for the product when the trial ends.
Although free trials are now the biggest revenue driver, DocuSign still offers a freemium version. This method takes advantage of Docusign’s “amazing viral element and helps grow adoption,” remarks Joy. When someone receives a DocuSign request to provide an electronic signature, the company offers to set up an account to store the signed document. Since the signer doesn’t necessarily have an immediate need for the product, DocuSign doesn’t time-limit the trial. The conversion rate from the freemium version isn’t as high as that of the free trial offered online. However, these freemium offers have generated millions of new accounts that DocuSign then nurtures through email and other marketing tactics eventually converting them to paying customers.
DocuSign has succeeded in managing two revenue models: one for reach and one for revenue. Joy admits that perfecting the revenue model is “A never-ending process. We can continually improve and reevaluate.” Her advice to vendors that need to determine a revenue model is to focus first on the target customer segment and understand its needs and propensity to buy.
What we’re seeing in the market is a focus on a free trial approach rather than a freemium model. While the freemium model gives the user a lot of flexibility, vendors struggle to determine which features should be free and for which features they should charge. Free trials, on the other hand, when directed at users at the right time, lead to engaged and loyal users.
It takes a passionate and driven individual to be an entrepreneur, but what happens after the company is launched? How does an entrepreneur go from an idea to building a long-term successful company? As part of our Scaling Q&A Series, we dive into growth strategies and successes from our rising stars.
Describe RingCentral in one sentence?
VS: It’s a cloud-based communications platform for business of all sizes.
What inspired you to start the company?
VS: My prior company dabbled in the software communications space a bit and it was apparent that there was a need for next generation communications system.
Communications is a huge market, traditionally manned by stagnating incumbents. I was inspired by the possibility of creating disruption in a giant market and building a significant company in the space.
What is the biggest lesson you’ve learned through the process of starting a company?
VS: That it is a living organism and you need to adapt. It is important to hold your own and the values that are important to you, but you also need to be flexible and open to new opportunities as the company grows and expands.
What advice would you give other entrepreneurs looking to start a company?
VS: Don’t do it (laughs). But seriously, you need to jump in with both feet, you have to believe in the company, what you are doing and what you are trying to achieve. It is really hard work and if you aren’t enjoying the process of building the company, then it isn’t worth it.
Once you get past that mark, it is important to keep the end goal in sight. Think about your goals for the company long term – what do you want it to look like in 10 years and how can you build to that while staying focused. As I mentioned above, you need to be flexible but you don’t want to be chasing the latest shiny objects. Stay true to what you want to create.
RingCentral has experienced a tremendous amount of growth? What’s your secret?
VS: There are three main ingredients to building a big business 1) a sizable, meaningful market 2) a market that is ripe for change 3) a better mousetrap than the other guy. If any of these components is missing, you don’t have a chance.
After that, you need a strong team on both the technical side (to build the product) and the marketing side (to bring said product to market). Bringing on the right people to help grow your business is crucial and worth the investment. One strong player is better than 100 mediocre players.
Lastly, there is a certain degree of risk tolerance you need to be comfortable with to go big.
Who has helped along the way?
For me, a group of advisors has been useful. You can’t have multiple hands on the driving wheel steering the direction of your company, but it is important to appreciate the past experiences and external value that your strategic partners and board members can provide. We were very selective in choosing our board and they have been helpful in providing resources, business advice, growth strategies, intros for key hires and an overall external point of view on the business.
What do you do for fun?
VS: I try to find balance and spend a lot of time outdoors, snowboarding, wakeboarding and my latest obsession kite boarding.
Has it influenced how you run your company?
VS: Absolutely – especially kite boarding, there are a lot of analogies between the sport and running a successful business. First, you need to accept that there are powers out of your control that are infinitely stronger than you and figure out how to manage that environment – knowing when to fight it or let go. Second, you need to be respectful of your environment and adapt to changing conditions. Third, you need to look where you are going and remain focused. Don’t panic, ever! Otherwise really bad things can happen. And last, but likely most important, is to have fun!