Startup Lessons: Tough Decisions

This is the 6th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one is a tough one to write and it is important to acknowledge that when it comes to strategy there is a lot of nuance and the fact remains that you are dealing with a complex multi-variant problem so there is no playbook you can pull off the shelf and just hit go. Having said that, a key failing of startup management teams is the inability to develop and adhere to a strategic planning process that lays out priorities and initiatives that have to be attacked in order to achieve the only metric that matters, growth.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing
5) Board Management

6) Tough decisions: Today I want to highlight is the challenge of making tough calls in a startup, decisions that may mean giving up one thing you already have in exchange for something you would like to have. You can’t have it all so you have to narrow down the range of strategies you are executing to those things that sustain the company over the short and medium term, grow shareholder value, and result in a culture of winning. The bottom line is that your resources will constantly be 120% consumed and the only metric that matters is growth, so bias every decision you make to delivering growth

Case in point during my tenure was the observation I made in late 2010 that a reliance on a feature driven packaging approach was hamstringing the company and creating a bias to the direct sales side of the business. Enterprise sales models deliver revenue and there is an extensive library of company case studies on building large businesses off enterprise license agreements but those models don’t deliver customer number growth and coverage across businesses of all sizes.

We kicked this can for a full year – we wasted a year – until we took one step in the right direction and replaced our antiquated billing system. The problem is that this is just one piece of the puzzle and it wasn’t until I took it on myself to start driving change on the pricing model itself that the product, packaging, and pricing aligned. The massively frustrating part of this work was getting people to look beyond the revenue impact in the current customer base. Once we moved beyond the protracted months long debate that centered on existing revenue streams, people got behind it and delivered a thoughtful and well presented agent-based pricing model. and then abandoned it.

This realization helped me understand the human psychology of decision dynamics more than anything else. People, rational and educated people no less, have a tendency to overvalue the thing they already have relative to the thing they are moving to. Looking at the revenue impact of customers moving from high price points to lower price points that are consumption metered misses the point that protecting the existing revenue is not the strategic priority. growing the business is. The risk in allowing the compromise to be driven by existing customer dynamics is that it is is encapsulated by the saying “a camel is a horse designed by committee”. so much gets compromised in order to protect something that you end up in a position that really isn’t much different than where you already are.

When you push out tough decisions that will ultimately never be made with perfect information you are wasting the one resource you will never get more of – time. Assumptions have to be made and decisions fully committed to, the consequences of failing are serious but equally serious consequences result from failing to act when action is precisely what is required. If the decisions and commitments were easy they would already have been made, the fact that teams struggle with tough decisions is not the exception but when you know with certainty that what you are doing today is not optimal and within your capacity to improve, there is no excuse for pushing it for the sole reason that doing nothing is easier until the point when you literally have no choice but to change.

Startup Lessons: Board Management

This is the 5th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. This one will certainly inspire a lot of head shaking around the table as anyone who has been involved with a startup can relate to this.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First
4) Marketing

5) Board management: My point here is not about criticism of investors because at the end of the day what investors provide above all else is access to capital, and point in fact their motivation is ultimately pure, which is they are in it to make money. Clarity of purpose is really a blessing but as anyone who has been involved with venture capitalists from the perspective of a startup can attest, there is a lot of complexity.

Investors do not do that much to help a company operationally, despite what they may want to believe about their contribution. They are a sounding board and provide critical objective voice on strategic subjects, but an investor is far too removed from the day-to-day decision making to be useful in an operational capacity, and if they are involved in the day-to-day then the are no longer simply investors.

Where this all comes to a head is when a company is facing headwinds. People in general tend to want to simplify things down to the just one thing moment and any problem set in the modern tech startup that can be distilled to just one thing at it’s root is an exception if there ever was one.

An example of this is having a board member say “well you should just charge more” without first considering the competitive dynamics of a market, or the product and customer perspective on value. If the challenge of running and growing a business like this is easy then anyone could do it, so for all the investors reading this right now, it would be helpful to acknowledge that people running these businesses have more knowledge than you do about the business itself. As much as you want to pattern match, that isn’t always helpful because no one person has experience with all the patterns that can be identified and patterns of the past are not indicators of future performance.

Companies and markets are highly volatile multi-variant problem sets that defy simple explanations and recommendations. What investors across the board should be doing in environments like this is helping clear the fog and applying intellectual horsepower where it is really needed, the planning side of the business. Building good forecasting models against the backdrop of fast changing performance factors is no small task, and planning is 1/2 of the planning/controlling responsibility a team is responsible for, but typical boards end up spending a lot of time on the controlling part of the equation.

Furthermore, when it comes to planning the typical startup has the additional dynamic of being not well equipped to push back against investors who have an expectation of growth rates in the early stages that well exceed 100%. This is where the multi-variant challenges rears it’s head, which is that no market is static so while you are building a product, growing a customer base, facing new competitive threats whether they be other startups or incumbents who have identified you as a threat, and then hiring people to support growth in the business. well a lot of things can derail the best laid plans.

Managing for growth vs. managing for margin enters the discussion because investors want to manage cash efficiently while also proving the growth capability of the company in order to get to the next stage of financing. There is little room for error here and the capital markets are far less forgiving of pivots than they were 2 or 3 years ago.

I also want to talk about shareholder interests and the Board members positions are, typically, preferred shareholders. What is really lacking in tech startups today is a strong voice for common shareholders, the employees, in private companies. The executive members of the board are supposed to fulfill this but all too often their voice is not equal to that of the other board members when it comes to shareholder classes. Preferred shareholders are inherently conflicted in this regard because they enjoy advantages such as liquidation preferences and anti-dilution protections that give them a built-in advantage over the common class of stock.

The modern board needs to cast off the standard operating procedures of the past, in the process becoming more inclusive of shareholder classes as opposed to representing the preferred shareholders first and everyone else second. Board meetings require great structure and strong leadership, and board members need to accept that there will be pushback and dissent based on facts and information that they may not see plainly relative to executives of the company.

As a startup you have a choice, you can be subservient to the board, bending to their pre-determined points of view, or you can be a strong force that counterbalances the parochial interests and instead favoring the greater good. Lastly, boards should be focused exclusively on the substance of the company and less about the personalities of the board members and the executive team.

Startup Lessons: Marketing

This is the 4th installment in the Startup Lessons series I have been writing in the wake of my experience with Get Satisfaction. We are getting into the topics that are much more specific to Get Satisfaction, therefore I have an obligation to redact certain details that are confidential however in the spirit of shared learnings I will cover as much as I feel is appropriate.

To recap, here is the series thus far:

1) Hiring
2) Dynamic Org Structures
3) Product First

4) Marketing. and all that implies: What can you say really, if there are 2 things that a startup in tech should be good at, it’s product and marketing, everything else succeeds or fails on the basis of being good at those core activities.

Get Satisfaction was blessed – and I mean truly blessed – with the kind of brand that most companies in the space would kill for. It is at it’s core an aspirational brand message about all of the promises that the social technology revolution has presented to companies as they remake how they interact with people. I really loved telling the story of GS for this reason alone, it is about what is possible by empowering people, customers and employees, rather than saving a few dollars here or picking up some extra revenue there.

The problem with aspirational brand messages is that if you don’t back it up with hard hitting marketing that converts goodwill into revenue, you are wasting it or worse, educating the market about how to evaluate competitive products.

We did very well in 2010 and 2011 with a highly differentiated creative marketing strategy but then we had our VP Marketing leave just after the B round closed (awkward.) and the role went unfilled for the better part of a year. Actually, it was worse than that, we had a consultant that one of our investors recommended and that was a disaster that resulted in a botched website project, what I thought was a stupid book project, and a lurching repositioning of the company to traditional enterprise software. Disaster.

The last issue is particularly sensitive for me because at the time I was responsible for the freemium business and nobody was trying to understand what this part of the business needed in a website. The result was, predictably, a website that catered to the old world traditional call-to-action of “call us and talk about enterprise”. Not surprisingly, the new customer acquisition ramp for the monthly subscription business flattened out dramatically almost immediately when this site launched.

We did eventually replace the marketing consultant with a VP Marketing but by then the damage was done. Brand voice was lost, our demand gen was wonky because of the confusion we were creating around our market focus, and “shit wasn’t getting done”. Remember what I wrote about in my first post in this series about hiring and how bad hires are a cancer?

Even after putting in place a full time marketing leader things didn’t really get that much better. I think this goes to the dynamic that executives in this industry, and others for that matter, exhibit which is in times of challenge they go back to what they know. I do not believe that Get Satisfaction should have been directed at large enterprise sales opportunities as a primary revenue source, but that’s what happened and our marketing reflected that in spades.

My stated preference was to point the marketing at the upper SMB and mid-market buyer, also called the departmental buyer, and qualify 100% of the business off what was coming in from the web funnel. The is what companies like Yammer, Hootsuite, and Zendesk have done, they drive the traffic to the site and skim the enterprise opportunity funnel off the top. The objective in this approach is getting people into a rich product experience and then converting them or upselling them into an enterprise buying lane, rather stating a preference or making them choose up front.

Succeeding at zero to low touch web direct sales models is not a challenge to take lightly, it requires an intense focus on web traffic generation and instrumentation of assets for funnel analytics. It also requires that people think outside of their comfort zone of campaigns, PPC, webinars, and landing pages. in fact I feel more strongly than ever that in order to be successful with this customer acquisition model that tech companies need to act more like media companies with a distinct editorial agenda and content strategy. For this kind of model to work you need a lot of traffic. paid, sponsored, and earned traffic, all of the above.

Even if we did all that I am not sure we would have been successful because at the core we were underinvesting in marketing, both people and spend. However, it is hard to fault us for not investing more in marketing because we clearly had not solidified the Magic Number math that is essential for justifying increases in marketing spend.

There was a bigger issue with the marketing performance that all companies need to be aware of. When you marketing team has as a primary objective enterprise demand generation, well what they measure is enterprise lead generation. Meanwhile, GetSat also had a line of business that was dependent on getting people into the website and into a product experience that converts into a monthly subscription relationship, therefore we had a real sync problem that would not have been resolved with more money thrown at it.

When you measure your marketing spend solely on the basis of lead generation, the slippery slope is changing the definition of lead to juke the stats and show improvement in the specific activity you are measuring. This is something I will forever be aware of, measure the result instead of the activity.

I will close by highlighting something really special I saw happen at Get Satisfaction. Based on the early product work and what we discovered as the first iterations of the business came together, it was clear that social technologies were driving a consolidation of the customer lifecycle that all companies are subject to, with customer support and marketing coming together for the purpose of serving the customers you already have while using that momentum to acquire new ones. Whether or not we did this well in the business is not the point, the fact remains that we identified an important shift in the market well ahead of competing companies. While we did not fully capitalize on this, in no way does that take away from the innovative work that was done to develop a differentiated marketing story to compliment the product.

Startups Lessons: Product First

I have covered a couple of topics in this series, the first being hiring the best people and the second organizing for success based on the attributes of the people you are hiring.

Today I want to go into territory less obvious because let’s face it, hiring the best people and creating conditions where they can succeed is the kind of startup advice that is squarely in the “stating the obvious” category. This next one is also obvious but has so much nuance that it deserves attention.

3) It all starts with the product: Companies can overcome a great many challenges with band-aids, duct tape, and bailing wire. but one aspect of a startup and/or growth stage company that cannot be glossed over is the product. It all starts with the product. Marketing and sales will be amplified with the right product or victimized by the product that falls short, and not investment outside of product will overcome that reality.

Putting forward the right product for the market is absolutely key, but don’t confuse that with putting forward the BEST product. Ultimately you need to achieve best in class but if you try to achieve that in the first iteration you will be hopelessly late. and more on point is that the best product is a result of what you learn from your customers, not what you think you should be doing.

If we did anything egregiously wrong at Get Satisfaction in the 2010-1012 time period it was to under-invest in the product with the assumption that the existing product was good enough. The early architecture conditions created what engineers called “technical debt” and that effectively became weaponized to stall significant investment in fixing the old in order to build the future. Compounding the problem is that we became victim of agile engineering in a poorly structured development organization where there were no clear teams focused on building to the user archetypes and investing in the platform.. engineers paired would jump from frontend to backend erratically at each sprint iteration.

We failed to accommodate the changing demands that are a result of market, competitive and customer dynamics, all of which conspire to put you at a competitive disadvantage when you don’t have a market footprint that legitimately reclassifies you as a platform instead of just a product. Feature development is a result of the demands of the biggest customers with the loudest voices, the platform evolves at the rate which new customer features are required, not anticipated mind you, and lastly the API development is focused on what internal developers require rather than what the partner ecosystem is asking for.

In the absence of an org structure that creates a constructive tension between the product management and product engineering sides of the house engineers will work on things that are interesting to engineers but fail to advance the business. This is where we really erred in our approach, engineering and product management all report up to the CTO, and the company fundamentally underinvested in product management as a functional area.

In all fairness, the fact that the underlying product architecture was constraining product development had to be dealt with because in order to build better product their needed to be a foundational renovation of the substructure, and after years of kicking that can it was finally addressed in 2012. With that in mind I can’t help but remain conflicted by my view on this, either we replaced the architecture and built little in the way of new product or we focused on cobbling together new functional features that satisfied immediate demands while potentially sacrificing long term gains. and by framing it as a binary choice I am perpetuating the problem in many ways. We should have been able to do both.

My experience at Get Satisfaction has left me with a strong appreciation for the role of product manager, which as many in Silicon Valley will point out is the most powerful role in any company. While true, this oversimplifies the challenge of the role, which is not to wield an autocratic sense of control over product direction but rather be an effective consolidator of many sources of information, from all corners of the company. Good product managers hold dear a narrative about the market that is rationalized with the realities of running the business and they are always a half step ahead of the rest of the company in bringing product capability to bear that is great than the sum of a bunch of features. Lastly, a foundational skill of great product managers is GSD.

Startup Lessons: Dynamic Org Structures

Last week I posted the first in a series of posts about my startup experience with Get Satisfaction. The first post focused on hiring and was appropriately the first in the series because hiring decisions will make or break your company.

However, it doesn’t stop there and once you have a team of smart capable professionals you have to create an organization structure that breaths and grows with them as the team accomplishes key objectives and develops an operational cadence around key business metrics.

2) Dynamic organizational structure: Not everyone will scale with the company and an essential strategy for accommodating and driving growth is continual reorganization. At Get Satisfaction we should have done more of this, moving people around as we grew and then pairing up different teams to accomplish specific objectives.

An example is that Marketing was inexorably linked to the enterprise sales demand gen requirements and while that would never go away the fact remains that other parts of the business suffered as that focus became all encompassing. In retrospect it would have been advantageous to pair marketing with a different team each quarter and set an an objective improvement in a key metric not related to demand generation, for example, working with customer support with the singular goal of improving customer communication efficacy.

As a company grows the requirements placed on individual leaders change and not everyone will make the shift so deliberate transition into different roles or out of the company is something that has to be planned. This isn’t a reflection of people failing but rather succeeding and the new demands evolving as a result.

Dynamic organizations reflect this by moving leaders into different roles not as a reaction to what is happening on the ground but as a forward motion intended to create progress in a new and emerging area. Successful startups move early executives into new roles frequently, not in an effort to sideline them but rather take advantage of their unique skills and organization knowledge to advance an area that would otherwise stagnate.

I am taken aback by how much time should be devoted to team and people issues in a startup, for a company like Get Satisfaction I would say at least half of the CEO time needs to be spent on managing this and recruiting the best people for the challenges that are currently being experienced and what lays ahead. Once you have a team of good people you need to continually optimize that for business results but also change it up keep the people you have operating at peak intellectual engagement and interest.

Part of the challenge with “the best people” is that they don’t neatly fit into the existing organization structure, and the other part is that everyone has a sweet spot of company phase that they thrive in. I am a good example of this, very large companies are soul crushing for me, the overburdened process and gravity to inertia absolutely deflates me, yet the pure play startup is equally outside my comfort zone because I don’t bring tools that are well honed for business creation. I am a best fit for a company with presence, a reasonably complete product, and customer assets, in other words growth stage or on the precipice of a growth stage buildout.

Creating organization structures for people based on their capabilities rather than your org chart and recognizing where people thrive and where they outlive their utility is essential.

Equally critical for dynamic organizations is to decentralize decision making to the nodes of the organization. This is no small challenge for companies that achieve mass after having slogged through a startup period that is an all-hands exercise. Top down decision making results in critical time lost and decisions that are inexorably compromised in order to satisfy the personalities of the team rather than the outcomes that is desired. You hire smart professionals who have, ideally, good judgment and intellectual capacity, why not lead them by getting out of the way and letting them do the jobs they were hired to do rather than managing indecision as a result of people not measured by the specific outcomes affecting the strategy and tactics required to get there?

Startup Lessons Learned: Hiring

I spent 3 years at Get Satisfaction, going from around 10 employees to 70’ish at the peak. Leaving was not an easy choice but after 3 years I needed to do something different, not better just different; I detailed my reasons and next move here. After much contemplation I decided to write a blog post in an effort to document my lessons learned about what worked and did not, in an effort to hold myself accountable for personal and professional development. I wrote it and posted it, then immediately took it down because I realized this was far too long for a single post. so instead I rewrote it as a series of posts, the first of which goes up today.

As you might imagine, I learned about more than just a business in my time at Get Satisfaction, and with the benefit of hindsight I was able to reflect on the subtle but critical lessons learned through mistakes and successes over my time there. This is not an easy series for me to write because while the thoughts are crystal clear I don’t wish to reflect poorly on my former colleagues, therefore take what I write with the intention it is written, that of self-reflection for the purpose of learning and self-improvement.

1) Hiring decisions will make or break you, sometimes all at once: The axiom that great companies are built with A team players could not be more true. There are 2 dimensions to this that are worth highlighting, hiring the best people and then structuring them to succeed, which will be addressed in a later post.

It’s not my intention to backstab people after the fact but the fact remains that we hired some people who were simply not up to the task that was in front of us. A worse failing than hiring the wrong people up front was keeping them in place after it became evident that they were not succeeding and taking the rest of the company down with them.

This dynamic is interesting to explore and reflects the challenges of hiring good people in Silicon Valley but more critically reflects the sense of ownership that the executive management team has over top level hires, and the subsequent desire to not have bad hires exposed for what they are, a failing of process and judgment. It happens, everyone is human and in the final equation it is better to just acknowledge a bad hire and move on rather than stick with someone who will impair the business the longer they stay in place.

A bad executive hire is like a cancer and the treatment for a cancer is to get rid of it, not get rid of it and replace it with something else, just get rid of it. I wrote a post about fear shapes personal behavior that was directly in response to my frustrations in dealing with a colleague who was failing in his role.

What makes a good executive hire? If I had to pick one thing in particular I would say good judgment is what is missing in every executive hire gone bad. People skills, execution capability, cross team collaboration, and many more skills essential for the modern executive can all be learned and adapted to different teams, but good judgment is as much a function of DNA as it is education and discipline. Good judgment trumps all because it brings with it focus, confidence, and optimal outcomes relative to execution effort.

Staff hires are no less critical and again the tendency to stick with people who are not A or even B team quality just to have a body in place reflects the challenge of hiring people in the Valley. However the fact remains that if you have a D team member and your aspiration is to bring them up to a C level, what exactly is your strategy? A and B quality people don’t just contribute disproportionately to the success of the company, they inspire other people of similar quality to join as a result of them being there while D quality people drive away the highest quality people you will attract.

In the spirit of full transparency and disclosure, hiring is something I do not consider a particularly strong point in my favor. My personality tends to attract to people who have similar “strange attractors” in their own character and for better or worse I tend to evaluate people on my gut level reaction to them. This has made me more attuned to my own judgment and forced me to be very strategic and deliberate about hires, at any level. Time will tell if I am getting better at it but without a doubt I am more conscious of the consequences of bad hires and looking beyond resume and personality when considering prospective hires.

I have 7 additional posts to publish over the coming weeks, detailing everything from fundraising to product/competitive strategy to managing your board of directors. Stay tuned.

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Jive Comes Around, Focus on Customers

Social communities are instrumental to both social media and customer support strategy

Jive’s announcement this past week to focus more on Social Customer Service is further validation that customer communities are instrumental to both social media (marketing) and customer support strategy. Employee collaboration software offers an array of benefits for companies but increasingly what they are finding is that if they want to deliver not just on behind the firewall ROI but change their business in a way that can deliver sustainable competitive advantage, then they need to put the customer front and center.

It’s not enough to give your employees a better way to work… leading companies in every sector are discovering that they also need to deliver on a better way to collaborate with their customers!

If you will excuse me for taking a minute to pitch Get Satisfaction, this is exactly what we are entirely focused on, a better way for companies and customers to engage each other online.

People often ask me “why don’t you guys offer a help desk system?”. The answer is that while we offer a product that a business buys, the primary user is a customer and we don’t believe that pushing more stuff into a ticket based system, with the heavy workflow and attendent costs, is what will deliver a better company-to-customer experience.

I’m tempted to say that our mission is to make the help desk system less important to you, as a business, but in reality we hope to make it more important by focusing it on the issues that defy self-service help and customer-to-customer interaction.

With Get Satisfaction your customers get something better, and it’s not focused exclusively on complaints and problems. Instead of customer service around issue management we offer customer service through relationship management and what that means is that problems get resolved – certainly, this is a primary need – but questions get answered, positive feedback means doing more of what works, and questions get answered, by you, your advocates and other customers.

Get Satisfaction has as it’s core DNA that concept that a customer is at the center or a customer community. We offer a better, faster, and cheaper model than traditional enterprise software solutions, and perhaps most strikingly, we have delivered a platform that meets the needs of the very largest of companies, while also remaining approachable and productive for the smallest of startups.

I am glad to see Jive recognize that the Social Customer is an integral part of any social business. This won’t be easy for them or anyone else to deliver on, enterprise software doesn’t easily translate into strong customer experiences because it is a solution designed around a business process and employee experience first… but acknowledging that the Social Customer is the foundation is a good first start.

 

Freemium Mechanics

I read an interesting blog post by Ruben Gamez titled Why Free Plans Don’t Work. If you are interested in freemium business models or any of the variations on the theme, this is well worth reading however I take issue with a couple of points.

First and foremost, Gamez uses a statistics breakdown (in %) to highlight the disparity between free and paid plans. Whenever someone does this they invariably open the door to the question about what their customer numbers because a percentage breakdown without knowing what the denominator is will lack the proper context. Knowing that 1% out of 100 customers are paid versus 1% out of 100,000 is a fundamentally different discussion to have… and there is no discussion about the cost to serve free product customers.

Gamez points out a number of well known freemium companies and the transitions that they have made between free products and free trials. This is an interesting discussion and the body of work that can be studied is relatively small and fluid given the immaturity of freemium as a business model. However, a couple of things are increasingly apparent for people who are running these businesses.

You can have a freemium business that depends on a free trial process instead of a free trial and a free product option at signup, there is no debate about this, and you can have an exclusively paid product that depends on a free trial process for acquisition and onboarding. This is a smart decision in my opinion and at Get Satisfaction we are constantly tinkering with and evaluating the options relative to placement and purchase path for the free product. The idea here is to route every website visitor who becomes a prospect into a funnel that exposes them to the full product before downgrading them to a free product.

In 2010 we relaunched our website with a new “plan picker” page, which over the course of the year went through 2 significant updates that are very relavent to this analysis. Initially we had Free placed as a promo box on the sidebar, separate from the monthly subscription plans but highly visible nonetheless… this is the control group as best I can provide one because with each subsequent change to the plan picker page we changed more than just Free product placement.

In April of this year we elevated placement of the Free product to equal standing with the monthly subscription plans. Almost immediately the number of new communities created through the free product jumped substantially (and for the record, I am not going to disclose actual customer numbers so I’ll do my best to avoid putting up percentages, following my own advice above). At the same time the number of new trials created for our monthly subscription products remained flat and in some months declined materially, however the number of free-to-paid conversions for customers who were net new (not a previously paying customer who canceled) went up.

The net result was still a decline in new customer conversions and our churn rate (turnover of all paying customers in a single billing period) stayed constant or declined slightly so I would have to say that elevating Free to first world status did not improve the business.

In August we changed the plan page again and pretty much hid the Free product option. The resulting decline in Free product signups was dramatic but offset by the trial signups and associated trial conversion rate, however churn went up as well so the net effect was offset by customer cancelations in the first 90 of total life.

Churn is a really important consideration in freemium models and not just because of the financial impact. The raw churn number is obviously important because that represents the size of the hole you need to fill each month before you can start adding customers, however when churn happens is often overlooked.

You should be doing a cohort analysis each month on cancelations to determine what the survival curve is for each customer segment, which graphically represents how quickly cancelations are happening in the customer lifecycle as represented by the 25th, 50th, and 75th percentile groups.

This first example is basically a bad curve because it shows that over a proscribed period of time a large percentage of your customers fall off. It’s basically telling you that you are attracting the wrong kind of customers and you are going to invest disproportionately in replacing lost customers.

 

 

 

 

 

This next curve is a pretty good one, the drop is initially steep but then levels out and after 12 months you still have over half of the customers you acquired in any single cohort. What this curve is telling you is that you are losing customers who are not a good fit for you very quickly and then cancelations stabilize.

 

 

 

 

 

In the context of freemium this information is very valuable because it is a consequence of how prominently you are positioning free vs paid product options. If you are hiding free in order to stimulate take-up rates on paid, then you have to expect that cancelations rates will go up as a result of people converting to paid that otherwise would not if presented with a prominent free option.

This leads to the next topic I want to discuss, which is the methodology you embrace for the trial process. In the interest of being honest and transparent, the way we do it at Get Satisfaction is not the optimal way to do trials because we provision trials as a time based variant of a specific product instead of having a single trial where everything is turned on and then have the prospect select the product they want to convert into at the end of the trial process.

The second problem we created for ourselves is that we require the web visitor to create an account and give us their credit card information in order to create a trial account. This is an obstacle for trial creation first and foremost but also orients the trial experience to people who are pre-disposed to buying you before they even enter the trial process… so in effect you are giving them a free period of service for something they would pay for.

We are going to make changes to the trial process to address the two issues I raise, however I can’t do much about the account creation requirement simply because my product requires a named user to be the administrator of it… no user registration would mean I would have no account to attach the administrator rights to. My recommendation to you is that you create a free trial process that downgrades to a free product at the end of the trial period if someone doesn’t enter their credit card details and select a plan, instead of offering a trial experience in addition to a free product.

Annual billing options are a game changer in the freemium model, arguably the single most effective strategy for reducing your churn rate. Typically the way that annual billing is presented is 12 months of service for the price of 10, a 16% discount.

You can also use a buy-it-now option to bypass the trial process, offering something like a discount or promotional offering in order to pull forward demand that exists in the trial pipeline, and in the process isolating true prospects who are won or lost in the trial. I’d like to do this at Get Satisfaction as part of our structural changes to the trial process.

Having a freemium business model is dependent on a number of strategies but one that often gets overlooked is how well you identify potential demand and feature marketing inside the free product for free to paid conversion and inside the various monthly subscription products for paid-to-higher-paid conversion.

Ultimately the freemium model is a strategy that increases the catchment of leads as a result of using your product as the primary marketing vehicle through which you deliver a funnel to. Take care to structure your website so that every aspect of the content you are creating is designed to deliver a site visitor into a product experience or isolate them for followup through a traditional enterprise sales process.

It’s also worth pointing out that if you have a product that you are primarily selling to businesses, and the product itself has a multistep onboarding process, then you really have to have a higher touch sales process where you are nurturing the free and trial accounts at a higher level than if you were, for example, Evernote.

For me the mechanics of a freemium business are some of the most interesting to be involved with in a modern software as a service company. The implications of billing and provisioning system dynamics, how you structure your website content, surface funnel analytics, build upselling cues into your application, and manage high volume sales nurturing processes are incredibly complex but increasingly normal for the B2C and even B2B markets.

Get Satisfaction Wins CRM Idol!

I will apologize in advance for the length of this post… there is a lot to write about the journey.

Back in April I read on Paul Greenberg’s ZDNet column that he was organizing a competition called CRM Idol for companies in the social CRM market space. He had pulled together an impressive roster of judges who evaluate and score 40 companies in the U.S. and 20 companies from outside the U.S.

The criteria for inclusion was pretty straightforward, you had to secure a demo slot when the call for companies was announced, only companies under $10m in annual revenue qualified and customer references had to be provided. Check, check and check… Get Satisfaction met all the initial criteria.

Profile information had to be provided so that the CRMIdol website could be fitted out, and the judges called on customer references to verify their authenticity, and I assumed to gather additional information.

Keep in mind that we had just come out of a fundraising cycle so I had a pretty tight pitch deck put together and had a nice demo featuring our customer communities. I estimated that we would easily qualify for inclusion and could make it through the initial round, which narrowed the field to 13 companies (I love the number 13, a lot of really good stuff at Get Satisfaction has featured this number, including the Friday the 13th that we closed on our A round).

I did the pitch with Brent Leary, Denis Pombriant, and Jesus Hoyos and it played out just like a VC meeting. Our lead presales guy did the demo and we answered questions. All in all I thought we did well.

When the semi-finalists were announced I was pleased to see that my calculations were correct and we had qualified as well as made it to the semi-final round. In reviewing the list of semi-finalists it was clear that we had some work cut out for us in order to proceed… Paul and company had assembled a really impressive roster of semi-finalists.

Next up was a one-on-one interview with Brent Leary. I appreciated this because Brent focuses on SMB market segments and is someone I had read for a while but not had the chance to meet. The interview with Brent was the highlight of the competitive process for me, we covered a wide range of topics that ran the gamut of market perspective to the culture of the company we were building.

Then the finalists were announced and I was super excited to see that we had made it. At this point I was declaring victory because when I started the process I had a modest goal, make it to the semi-final round and just hope we could stretch into the finalists. Now we were 4 and the competition was daunting, including Assistly, Crowdfactory and Stone Cobra. Start sweating and wait for the final round instructions…

With a mere 3 weeks to deliver we were tasked with submitting a video that would be voted on in popular vote fashion, the results of which would be ½ of a final score with the other ½ coming from the cumulative judges vote. Did I say 3 WEEKS?

Fortunately, creative content has always been a strong suit for our team so we set about writing a script that would highlight the “buttoned up but untucked” nature of our brand, entertaining for the popular vote while dealing with the serious side of why you or anyone else should care about what we were doing.

Then Assistly got acquired by Salesforce and I was really happy that Paul had declared that the finalists could not spend more than $10k on the video. However I still had a problem, with Salesforce’s formidable market presence the Assistly team could deliver a really strong popular vote which meant I would have to over-deliver on the judges ballot in order to come out on top. This was not going to be easy, Assistly has a good product and a brand that is a lot like ours… however we did have a weapon in our arsenal that none of the other companies could match, we have a robot.

The thing to remember about online video is that most of the viewers will click away in the first 45 seconds and if the video is more than 3 minutes in length they typically won’t even stick around that long. Our charter was no more than 10 minutes in length but there was no way I was going to subject anyone to that much video so we went with a sub 3 minute video and decided to feature our loveable mascot JarGon in the first segment.

We had another decision to make about the video and that was how we would feature customer examples and if we would do it in their own words. I felt it was important to have our CEO, Wendy Lea, and one of our founders, Thor Muller, featured in the video to emphasize our ownership of the content rather than deferring to customers. It was a risky move because conventional wisdom is that telling your story through your customers is generally a winning strategy.

Our video producer shot the video on a Friday and spent the next week editing it to a draft cut, which then went through 2 more iterations before submitting it on the due date with time to spare.

When the finalists videos came out I instantly second guessed my decision to not use customers… several of the videos had some compelling customer interview segments that I could not help but be envious of. Well it was too late to hand wring over it, you dance with whom you brought and that is all there is to it.

Our promotional campaign was pretty simple, every couple of days we would push out in social channels a “hey please watch our video and vote for us” message and I worked my influencer channel, which was tricky because many of them are also CRM Idol judges and I did not want to appear unseemly so in the end influencers ended up not being very influential for us because we exercised a high degree of self-restraint. I was happy with our video and felt that it strongly portrayed what we believe in as a company. Nuff said.

On Monday the winners were announced and I will be really honest and tell you I was shocked to see we had won. I did not enter us into this event with the preconceived notion that we would be here today basking in the honor of having won it all. The other companies were that good and I am glad that I don’t have to compete against most of them.

In the EMEA category a company I was not familiar with, BPMOnline was crowned the winner and that underscores why this competition was important and we are grateful to Paul for organizing it. The social fill-in-the-blank market is incredibly noisy and just getting attention is a challenge, much less mindshare.

CRM Idol put a spotlight on companies that we otherwise would not read much about, not because they don’t deserve ink but because they, like us, are small companies that have limited means to do the traditional activities that bring attention to products and solutions. Traditional analyst firms have an annual revenue threshold for inclusion in formal research, like Gartner’s Magic Quadrant. What this means is that sub-$10m annual revenue companies won’t get included in the analyst research that is important for gaining mindshare in the market, and what Paul did was provide theatre that companies like us could take advantage of.

Paul used his considerable influence in the market and a long list of relationships to bring together people who could evaluate these companies on their merits. The competitive process was rigorous and we are better off for having gone through it.

It’s been a good couple of weeks, we won CRM Idol and just last week one of our original customers, Intuit’s Mint group, won a prestigious Groundswell Award from Forrester Research for their work on social support.

The End of the Beginning

Today Get Satisfaction announced that we have successfully closed a new round of financing, led by Bruce Cleveland at InterWest Partners. It’s a validating moment for all the hard work that the team has undertaken, particularly in the last year and a half.

Despite the fundraising process being a major MBO for me over the last 3 months, I find myself surprisingly “not in the moment” in terms of celebration. I think this is a result of realizing that closing the financing is not an end point but a starting point, and when you are at the stage we are in the expectations on us are focused exclusively on execution and competitive position. There simply isn’t a lot of time to celebrate what we did yesterday.

In other words, we’re past the point where figuring things out is a primary focus… and to the credit of our entire team this is why we had such a smooth fundraising process that closed in a reasonably short period of time. We have developed the business to a point where we know what we are selling, how our customers derive ROI, and we have a strong perspective on the market today and tomorrow along with where we fit.

We are no longer a startup… this most recent round of financing affirmed that we have crossed over to growth stage. This is a great accomplishment and represents an enormous collective effort by every single person in this company, and the company is a lot bigger, approximately 40 people up from 12 at this time last year.

From here on out we need to continue executing as well as we have been, establish an externally accepted competitive profile in a defined market, land-and-expand in our major customer accounts while we also continue driving customer growth on our zero-touch web channel, develop more distribution channels, deliver on a significant product roadmap for this year and next, and lastly, continue building a world class team.

“Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
Sir Winston ChurchillSpeech in November 1942

 

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