Commercial Interruption: ZERO TO ONE MILLION

I'm not big on plugging products, etc, but I'm making an exception in the case of Ryan Allis and his new book, Zero To One Million.

Ryan is CEO of iContact, one of my firm's portfolio companies. iContact is a high-performing company, and at just 23 years old Ryan is a high-performing guy. He's also an extremely genuine, altruistic young man who operates far beyond his years in both business and philanthropy.

Zero To One Million is Ryan's effort at sharing what he learned while building iContact from the ground up, and given his deliberate, focused approach to success I highly recommend a read for entrepreneurs and for those that aspire to be such. You can find it on Amazon, among other places.

Never Stop Selling

In an world where the means exist to engage customers (nearly) constantly, why is it that so few companies Never Stop Selling?

Every successful On-Demand/Software as a Service (SaaS) business I've seen has a highly efficient sales process, measuring every move its components make and doing its best to expand the gap between Customer Lifetime Value (LTV) and Customer Acquisition Cost (CAC). The best know that nothing is more inefficient than finding qualified leads...so it's critically important to give the opportunity to become a customer to anyone engaging with the company at any time, anywhere - on the web, in person, whatever. Naturally the web is one of the most efficient means of all, yet it remains grossly under-utilized by many as a means to convert a Browser into a Buyer.

This shouldn't be limited to SaaS businesses, or those focused on consumers, by the way. There's no reason why, in any software company, be it targeted at the Enterprise or the SMB, that Marketing can't meld with Sales to become a massive lead generation engine. So say good-bye to old-school brochure web sites, and hello to a call to action on every page. "Click here to sign up for our weekly webinar", or "Go there to talk to someone now". If you bring customer support, online developer communities, and other aspects of the business into the game and incent them appropriately, you'll get results.

And the engagements need not be obtrusive...simply give the customer, each and every time you touch them, the chance to say "Tell me more" or "Let me have one of those."

I'm not breaking any ground here, just observing that something so easy is a lot less prevalent than you'd expect.

Online Marketing, From The Men In The Trenches

Today we (Updata Partners) held our annual LP meeting in Reston, VA. In addition to the typical performance and portfolio review, our investors had the chance to see presentations from a several of our CEOs.

One particular segment, a panel on the evolution of Marketing on the Web, was particularly compelling. Mark Walsh, formerly of AOL, VerticalNet, and Air America Radio, did a great job moderating.

As a firm we've spent a considerable amount of time getting to know and investing in the online marketing stack, and collectively and individually our CEOs from this segment represent the best of what's happening there. Ryan Allis (iContact), Anand Subramanian (ContextWeb), and Larry Freed (ForeSee Results) participated on the panel. These three cut a wide swath across the online marketing spectrum, from advertising to on-demand communications, to online customer satisfaction management. And they serve a diverse set of customers, too--from enterprise to the "S" in SMB. Each is a thought leader in his segment and I value their opinions very highly; getting them together made for an education mind-meld.

Despite their playing in separate pieces of the same value chain and in separate customer pools, all three were impressively in synch, delivering a compelling macro message that underlines why their broad market is an attractive one. That is, in today's web-enabled world, the customer is in charge and connected (or at least is very well informed and highly measurable). That may not be earth-shatteringly new news, but it's an approach that has been validated by the success of these three companies in three distinct portions of the online marketing world.

In a nutshell, today's message was that information is everywhere, transparency happens whether suppliers want it or not, and the social aspects of the web can provide a layer of trust/validation that might have been missing from early review or recommendation sites. Perhaps more importantly, to a great extent customers can pick when, where, why, and how they will interact with a supplier. URLs, RSS feeds, opt-in emails, and pop-up blockers are all examples of how we can initiate or terminate interaction with a supplier at will. However, the same technologies that give consumers that power give marketers new and substantial power too. As we visit sites, subscribe to feeds, join forums, and subscribe to email lists, marketers get the ability to measure, track, correlate, and analyze everything.

Ultimately this creates a win-win for both sides of the consumer/supplier equation. Of course consumers get a greater amount of control...at the same time suppliers can better target their focus and messaging. This in turn means they can give consumers what they what, when it's wanted, versus giving them what you think they want, or (yikes) want them to want. In the end what you get is dramatically more efficient interactions aimed squarely toward developing deeper and more meaningful relationships with constituents/customers. To paraphrase Larry Freed on the panel today, this is somewhat contrary to what you'd expect on the web, where switching costs are low and barriers for new competition are relatively small.

It's funny, but it occurred to me that in a lot of ways what we have here is the technical instantiation of commerce before the Big Box model boomed, before malls, back when Main Street ruled. Commerce was local..your neighbor's recommendation meant as much as 100 glossy ads or roadside billboards...the regular feedback loop was a face to face discussion with the butcher, the baker, the candlestick maker, etc, when the customer was always right and merchants acted like it...

Customer Sat Is Where It's At

Note: this entry is a reprint from a May 1, 2007 post I put up on my firm's blog. I'm re-posting it here because I have received several questions about our investment in ForeSee Results following recent survey results highlighting changes in Yahoo and Google online customer satisfaction.

THE CUSTOMER IS KING. It’s a Universal Law, right? Like Newton’s are to physics, this one is to business. That’s why I’m a really big fan of our latest investment, a company in Ann Arbor, MI called ForeSee Results.

Lots of companies devote heaps of money to trying to understand how customers interact with—and ultimately perceive—the business. In an offline world, where service providers, customer service reps, cashiers, and a host of other folks observe and talk to the customer 1,000 times a day, every day, it’s hard enough to get good, measurable, usable information. But in an online world, the waters get really muddy.

Plenty of tools exist for watching what the customer does when he or she visits your web site. Such “behavioral web analytics” tools have been around almost as long as the web itself, and they are great for determining which pages a customer viewed, how long he lingered on a particular page, or which page he was on when he decided to leave the site altogether. Throw in some number crunching capabilities, and these tools can give you a great view of the macro trends and behaviors taking place in your slice of the online world. Imagine being the manager of a real world store and watching everything that happens there through a one way mirror. With a clip board and a calculator and a stopwatch, you make some nice flow charts and spreadsheets and ultimately your observations will generate good predictions of what will (or won’t!) happen in your store going forward. You might even be able to postulate how a few changes could make a positive impact on sales or at least the time customers spend in your shop.

Now, if you were this manager, what would you do next? Would you really jump right from the spreadsheets and flow charts to rearranging the store, or changing the mix of products on your shelves, just because you found out that people tend to spend more time in Aisle 3 than in Aisle 7? I bet not. In fact, I bet that once you had all that data, you’d head down to Aisle 7, march up to that customer, and say, “Hello, Mrs. Customer, do you really like Aisle 7 more than Aisle 4? Is Aisle 4 easy to find? Not lit well enough? Are you afraid of even numbers?” My point is, knowing WHAT is happening in your store is nice, but it’s pretty hard to effect positive change without knowing WHY those things are happening.

ForeSee Results provides online customer satisfaction measurement to web site purveyors around the world. In a nutshell, they tell you how much customers like your site, and the reasons behind their opinions—the WHY that you don’t get from the web analytics WHAT vendors. However, ForeSee takes the WHY two steps further—far beyond what other survey-based systems can do—because it’s powered by the same technology that underpins the American Customer Satisfaction Index, the go-to source for info on customer satisfaction around the world. For step 1, ForeSee can tell you how important various pieces of the satisfaction puzzle really are to your customers, allowing you to determine what kind of impacts you will get from potential updates/changes/improvements. POWERFUL STUFF—going back to our offline example, that store manager probably would love to know if spending $1000 to repaint the store would have a bigger impact on customer satisfaction than installing $100,000 worth of self-checkout kiosks! And for Step 2, ForeSee gives you a wide range of benchmarking information, so you can compare your customer sat scores to the rest of your industry…always nice to know if you are keeping up with (or blowing away!) the Joneses…

Like I said, I really like this investment. It’s about gathering data, crunching the data, and pushing useful info out the other end, along with actionable, value-added recommendations…a model and value prop that I could get behind in several industries and verticals. ForeSee does that very nicely, delivered via a SaaS model that is chugging along like a locomotive, and with spectacular customer satisfaction of their own. With this great product, proven management team (several consecutive years of high growth), and profitability, what’s not to like?

Go Vertical - Making Markets Online

Online vertical marketplaces have been the object alternately (and sometimes simultaneously) of love and hate practically since the dawn of the World Wide Web. On the simplest level they facilitate and/or simplify connections and transactions between buyers and sellers; in many cases they create liquidity where previously none existed.

I personally find vertical markets pretty attractive as a potential area for investment. I have been very interested in how they can generate value beyond market-making since tackling a group project in business school under the supervision of Clay Christensen (of Innovator's Dilemma fame). We spent a year studying the dynamics of a REALLY inefficient market, one that I still believe would benefit mightily from a focused market-making web application (local government, but more on that in a future post).

My old college buddy, Dave Beisel (also a VC, currently at Venrock), seems to share my interest in the space, as you will see here. In his post Dave points out that the eBay approach to the market-making business model--taking a chunk of each transaction completed through the service--should serve as an example for all those entering the market. Certainly this is the most viable of economic models in this space.

But in my experience, there is one more lesson that we should port from eBay to other market making applications. Just as eBay has created a true sense of community for its users, so must any new, vertically focused cousins. After all, a community is a place for people to come together for interaction, to exchange information, to build trust and credibility, and to trade goods and services. That's how it works in the community where I live, and that's how it should work in my online communities as well...I socialize with and buy things from people and businesses I know and trust, people who I know will give me quality, honest advice, especially if I am pondering a complicated transaction in an area I don't know well (e.g. remodeling my house). Why would I behave any differently on the web?

I also want to emphasize the need for real focus within the vertical markets they target. Previous instantiations of web-based vertical market-makers failed because they actually were far too broad-based. Essentially they provided nothing more than a very targeted eCommerce application...think stores where Plumbers, or Carpenters, or large enterprises could go to get everything they needed. Sure, convenience can be a great motivator, but there was nothing really ground-breaking here, right? A vertical market should be about more than an aggregated channel for targeting a specific group of buyers...it should connect people with items/services/sellers to which they previously has no (or limited) access, or it should enable/enhance transactions that were previously inefficient/impossible/impaired. Said another way, vertical markets should help mitigate market inefficiency created by imperfect access or imperfect information.

So to sum up, the vertical markets I am looking for will:

1. Create liquidity by connecting me with a qualified, fragmented base of purveyors of some highly specific good(s) or service(s).
2. Facilitate transactions between me and those same sellers.
   
3. Allow me to interact both with the people from whom I may buy, and with other buyers contemplating transactions similar to mine.
4. Help me make an informed decision about what it is I might buy, or educate me when I must enter into a transaction about which I do not feel a comfortable familiarity.

If you see one of these, please send them my way...

M is for "Metrics"

M is for Metrics. I think I am going to get that tattooed on my forehead. Or at least I am going to get it embroidered on a nice golf shirt that I can wear to due diligence.

As a growth stage investor, I spend my days looking at businesses that most likely have grown up into real operations, with real products, processes, and customers. And operations are systems, and systems can be observed and measured. METRICS. If entrepreneurship is the intersection of ideas and execution, then metrics are the traffic light. So I am really surprised at the relatively large number of entrepreneurs and managers that pitch us with only a surface view of the metrics that will tell them when to slow down or when to rev the engine.

I am not saying that these folks aren't good entrepreneurs, or even good managers, but very often they are leaving at least a little of the inherent value in their businesses on the table, because they are not as in tune as they can be.

It's no coincidence that, when you look at the last three investments Updata Partners closed, you'll see three crack management teams that know the inner workings of their businesses like the backs of their hands. Every question we launched about the businesses--whether about historical or projected performance or plans--met with quick, informed answers backed up by measurement/data. I know it might have seemed like we were playing a twisted game with them..."What's your MRR? How many customers did you sign in January? If three customers leave and I add four more then defer their revenue, how much Gross Profit will you have in April 2008? Dance! Dance!"...but we need to know that entrepreneurs know which levers to pull to steer the ship, and how sensitive the ship will be to each lever. Believe me this command of the vessel inspires quite a bit of confidence in the people who are thinking about writing the check; the transparency and visibility that results makes it a lot easier for us VCs to give the advisory help that comes along with investment.

Show me the numbers and show me that you can track all the steps on the path to success, and we'll help you do the things that get you on your way. Then show me that you'll know when things start to head off the tracks, and we can more effectively manage risk together.

This came to mind today because I spent an hour on the phone with a CEO and CFO who are driving their ship like a couple of really seasoned sailors, and it made the time both interesting and productive. Hats off to you, Gentlemen, if you read this...

Hello World

After nearly a year in the VC ranks, I'm throwing my hat into the Venture Capital blogger ring. Realizing that it's a forum where there are opinions aplenty, I'm eager to add my perspective to the collective dialogue. After 10+ years in and around the software industry, with a few truly unique experiences, I hope that you find value in my input, and that you be willing to add your own thoughts as well.


For a growth-stage investor, this is a thrilling time to participate in the entrepreneurial whirlwinds around software and software-enabled-services. Here's to hoping some of that excitement comes through in the posts that follow!