Build an Instagram-Powered Wallpaper Rotator with Dropbox and IFTTT
Changing up your wallpaper on a regular basis is a fun way to personalize your desktop, and there's no way to make it more personal than to use your own photos. You could download your photos manually and set up a rotating wallpaper based on those photos, but why do it manually when you can automate it? Here's how.
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Memo to this year’s YC class: It’s damn hard to build an enterprise company
Among VCs and entrepreneurs like myself, there’s a lot of talk about the recent pivot from consumer startups to enterprise software. It seems that many young founders have now decided they’d rather start the next Box, not the next Facebook.
The shift to enterprise is a bit of the “tail wagging the dog.” The poor short-term performance of a few consumer IPOs like Groupon and Facebook coincided with the strong performance of software as a service IPOs such as LinkedIn, Workday and Splunk. Since IPOs have traditionally been the main method for VCs to find liquidity, these investors have shifted their focus. When this happens, entrepreneurs, ever pragmatic, adopt new passions.
That’s not to say there aren’t great things about the enterprise. Three of my favorite attributes of enterprise SaaS businesses are: 1) There is less business model risk; 2) It’s easier to identify pain-points to address relative to ephemeral tools for fighting boredom, and 3) Buyers are usually more rational than consumers – the better product tends to win.
Gartner forecasts that the SaaS market will grow 19.5% through 2016, from $13.5 billion in 2011 to $32.8 billion in 2016. This estimate might be conservative when you consider that Oracle and SAP alone did $58.5 billion in revenue last year, although to be fair both companies are more than SaaS.
That said, enterprise businesses are not easy to build. If you’re of the entrepreneurial blog reading crowd, you’re likely familiar with the refrain: “It’s become cheaper to start an enterprise business, but it’s still expensive to scale.” True that. But in an effort to create more actionable advice for budding Marc Benioff’s, I decided to analyze 12 recently IPO’d SaaS businesses to tease out more insights about what it takes to build a big enterprise software business.
You can start a successful enterprise business without an IPO but I’m focusing on businesses that have reached an IPO for two reasons: Data availability and the fact that an IPO is still the deus ex machina in people’s minds when they invest in SaaS businesses.
Here are the companies I looked at:
For this analysis, I used each company’s first S1 filing, the logic being that’s when everyone first feels that the company is ready for primetime. The business has reached a point where it’s comfortable sharing financials with potential public investors.
Here’s what I learned through this exercise. If you start a SaaS business you will not be Kevin Systrom; you will be Sisyphus. Because building a SaaS business takes a lot of time and money. In fact, the average time between founding and IPO was 9.5 years and the median was 8 years. At a minimum you’d have to expect to spend 7 years building your business, though it could take 13 years.
Meanwhile, raising money is painful, but if you start a SaaS business you should probably learn to love it because you’ll be doing a lot of it. On average, these companies raised 4.45 rounds of funding (not including seed rounds) with a median of 4. At a minimum, these companies raised 3 rounds and many raised 6 rounds (that’s a Series F, as in “F***, I need to do this again?!”)
The average amount of money raised by these companies was $109 million, with a median amount raised of $74.2 million. The lowest amount, by far, was Bazaarvoice at $19.9 million.
The most? More than $300 million.
So why does it cost so much to start a SaaS business? Feet on the street.
Enterprise software is competitive, so the need to have smart, savvy sales reps delivering insights face-to-face to potential buyers has not gone away. There’s no click-to-buy. You need real live, breathing, resource consuming human beings. As a result, 35% of the total employees at these companies, on average, were in sales and marketing at the time of the S1 filing, with a median of 37.6%.
Given the salaries commanded by talented sales reps, this translated into major expenses. As a percentage of revenue, sales and marketing expense was 45% on average, versus 20% for R&D and 15% for G&A respectively.
Here is another look at expenses as a percentage of revenue:
All of the investments in sales and marketing are there to accelerate and get to scale, but what is scale? Or at least enough scale to go public. Based on the companies I looked at, the average revenue for the most recent FY as of the S1 filing was $73 million with a median of $61 million. The smallest companies were at $36 million, the largest at $134 million.
In terms of employees, the average size was 532 and the median size was 363.
Generating the revenue needed to be at scale was not simply a matter of clicking a button to deploy software for these SaaS businesses. A significant portion of their total revenue came from professional services.
For the companies that broke out their revenue between “Subscription” and “Professional Services” the average percentage of total revenue derived from professional services was 20%, with a median of 17%. The implication is that SaaS businesses shouldn’t expect to be hands-off. Big companies demand great service, particularly from smaller vendors.
For those of you who haven’t read Valuation: Measuring and Managing the Value of Companies between Pacificos in Aruba, the central lesson of the book, and any corporate finance textbook, is that value is driven by cash flow, which springs from return on invested capital (ROIC) and growth. ROIC is simply operating profits adjusted for taxes divided by invested capital.
All of this comes together in a formula subtly titled the Zen of Corporate Finance: Value = (NOPLAT x (1-[growth/ROIC])) / (WACC – g)
Why does this matter? It matters because most SaaS businesses have little or no operating profit as they scale, so they need to grow with a capital “G” to command a good valuation.
For the companies analyzed, the average 1-year revenue CAGR as of their S1 filing was 59% and the average 2-year revenue CAGR was 75% (the medians were 55% 1-year CAGR and 85% 2-year CAGR).
These growth rates may not feel impressive, but keep in mind this growth is in dollars forked over by skeptical enterprise buyers.
Generally the more money these companies lost, the faster they grew.
There is of course some causation at play here. As I noted above, a SaaS business requires a lot of money to scale because scaling requires a big sales and marketing team, which is needed to achieve the rapid growth expected in the absence of cash flow, due in large part to sales and marketing costs. So these businesses are in a constant state of raising capital and scaling the sales team, in addition to building an awesome product and supporting it.
The circle looks something like this:
This approach is driven by two realities. These companies are pursuing large markets, with a lot of opportunity, and they are competing against behemoths and can’t show up to a gunfight with a knife.
So why go through the effort? Because SaaS business are great over the long-term. They yield powerful margins and recurring revenue. The average gross margin for these companies at their S1 filing date was 65% with a median of 66%.
The implication is that once these businesses have scaled, and more revenue is coming from renewals, the 45% of revenue spent on sales and marketing can be reduced. The result is a high margin business with predictability.
If you just spend 9.5 years raising $110 million dollars across five rounds of funding, and hire 530 employees, including a sales and marketing team of 160 people, while building a world-class product that can win in the hyper-competitive enterprise software business, to reach $70 million in annual revenue, you can create a high margin business with predictability.
Sure you don’t want to build a dating app?
Ben Sesser
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Box partners with GoodData to provide productivity and security solutions for enterprise
There’s big data, small data, and then there’s GoodData, a firm that makes it easier to digest all those numbers and statistics that are now (for better or worse) at a business’ fingertips. And starting today, the company is bundling its data analysis software with Box so businesses that already use Box’s cloud storage can also take advantage of GoodData’s business intelligence tools.
Of course, few words in the modern business lexicon are more vague than “data” so we should ask: What flavor of data does this new app (called “GoodBox Bash”) specialize in? And to what ends? Productivity and security.
“If you are a Box customer and you have lots of users,” says GoodData CEO Roman Stanek, “You want to know what file is the most shared, and who downloaded what and when.”
The service also caters toward organizations with multiple teams. It can map out the behavior of highly productive teams to help improve the productivity of less successful ones.
The Box partnership is in keeping with GoodData’s customer acquisition strategy. By partnering with firms that already serve thousands of enterprise customers like Zendesk, Netsuite, and now Box, GoodData can to some degree avoid the tough decisions many enterprise startups face in choosing whether to target end-users or employers.
“It’s much easier for startups today because, only 5 years ago, if you wanted to sell to enterprise, you’d have to sell your startup to (a big company like) HP,” Stanek says.
As for how Box benefits, it’s about more than offering customers a few new analytical tools, though Box CEO Aaron Levie did have plenty of nice things to say about GoodData in today’s press release. (Something about “actionable intelligence” amid “a deluge of data…”). Stanek says GoodBox Bash offers a new way for users to engage with Box as a product, thus creating “better customers.” But will customers who are only accustomed to using Box as a cloud-sharing service be ready to embrace GoodData’s tools?
Stanek is confident that they will, though he admits it’s not always easy to convince clients that “business intelligence” doesn’t have to be limited to Excel spreadsheets. People like what they know.
Last July, GoodData raised $25 million in Series C funding before launching three new business intelligence tools the following September. At that time, Stanek told Michael Carney he planned to take the company public within two or three years.
[Disclosure: Andreessen Horowitz has invested in GoodData and Marc Andreessen is a personal investor in PandoDaily]
David Holmes
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Kloudless Saves and Shares Gmail Attachments to Dropbox, Box, and More
Chrome: Kloudless is a free web service that can automatically move any email attachment you get to the cloud storage service of your choice, including Dropbox, Box.net, Google Drive, and more. You can also share and upload files on those services to emails you send with a few clicks.
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Bitium nets $2.4 million, rolls out an elegant solution to provisioning SaaS apps in the enterprise
As companies have moved more and more areas of their business to cloud-based software, a number of things have gotten easier and more efficient. One thing that has gotten more complicated, however, is provisioning access to all these tools. For example, when hiring a new employee, a typical company may have to give them access to upwards of 40 software platforms. Worse, when firing an employee, all this access must be revoked – often rapidly. Now multiply this across tens, hundreds, or thousands of employees. Royal. Pain. In. The. Ass.
Los Angeles-based startup Bitium calls itself a SaaS operating system, but it could probably call itself a software butler given that it solves this massive problem. The company graduated from the Amplify accelerator in Spring 2012 and has been refining its product with 30 beta customers for the last year. Today, it’s pulling back the curtain on its commercial product and announcing $2.4 million in Seed funding.
The company’s financing round was led by Resolute VC, with participation from Double M Partners, Social Leverage, and Karlin Ventures, as well as prominent entrepreneurs and angels including Desk.com founder Alex Bard, Buddy Media co-founder Michael Lazerow, Real Networks founder Rob Glaser, former Microsoft SVP Hank Vigil, KISSmetrics co-founder Hiten Shan, and Qualaroo founder and former Dropbox growth hacker Sean Ellis, among others.
Bitium offers both end user employees and company administrators a single platform to interact with and manage all the SaaS software used by their organization. The platform currently integrates with over 300 popular Web apps like Box, Dropbox, Gmail, Salesforce, Yammer, and Zendesk. For the user, rather than visiting the website and logging in for each individual product, they simply begin their day at Bitium.com where every tool can be opened with a single click and no further authentication.
For the Administrator, the product organizes every piece of software used across the organization, as well as every employee, and allows access to be turned on and off a simply as clicking a checkbox. Further, access can be managed at the group level, meaning that whole teams or departments can be quickly given access to a suite of tools. Driven by the trend toward the consumerization of IT, in many cases employees will be given access to a variety of tools and allowed to choose among them.
“Our vision is to change how people and companies work by fundamentally changing the way they interact with software,” Bitium co-founder and CEO Scott Kriz says. “We’ve created an open system that’s self-organizing. It’s like letting people pick what they want off the menu rather than telling them what’s for lunch.”
In addition to managing access, Bitium gives enterprises analytics on software usage and offers a consolidated messaging platform so employees can bookmark and share deep links into apps. In other words, a user can share a URL linking to a particular file, record, or piece of data within a software platform to other employees with access, making collaboration more efficient than would otherwise be the case.
Bitium has a unique pricing structure. Companies can manage unlimited users and unlimited apps for free, with a single administrator. Advanced tools such as reporting, IP whitelisting, two-factor authentication, and integration with Google, Salesforce, LDAP, and Active Directory are available in two tiers priced at $399 and $699 per month that offer two administrators, with each additional admins costing $50.
Bitium will be compared to single sign-on solutions like Okta and OneLogin, but differs in key areas according to Kriz. While the three products offer feature parity, Bitium is focused more on the end user, while competitors focus more on admins. Kriz believes that latter strategy has hampered adoption of these product because it doesn’t give employees an incentive to use and advocate for these platforms. Bitium, on the other hand, is extremely popular with both employees and admins, according to its CEO, because it makes their lives appreciably easier.
The startup has signed six contracts since finalizing its pricing earlier this month and is in the process of converting the remainder of its beta users to paying customers. According to Kriz, the magic number for making Bitium a must have is 50 – employees. At that point, provisioning and authorization management becomes a significant pain point. The faster these companies are hiring (or firing), the greater the need.
The other factor that his customers seem to share is that their companies are all less than 10 years old, meaning they are more likely to use a high number of SaaS tools and are likely more receptive to modern solutions. According to Kriz, it’s more often the case that Bitium’s potential customers have no solution – other than a crude excel spreadsheet managing passwords – than they are using a single sign-on alternative. In either case, it’s highly probable that they are miserable and desperate for a better option.
The Bitium team has grown to 12 people, with nine engineers, one product manager, and one person each in business development and sales. With the new funding and the product now available widely, the plan is to grow the sales and marketing team in both inside and outside sales capabilities.
SaaS software is growing more and more prevalent in the average workplace, meaning that managing access is growing more difficult and time consuming for employers and employees alike. With no sign of this trend slowing, Bitium’s solution is entering a wide open market at the right time.
Michael Carney
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JBara becomes Gainsight, raises $9M to help SaaS vendors manage customer success
There are an abundance of software tools that help companies acquire customers, including marketing automation (Marketo, Eloqua, etc) and CRM (Salesforce, SugarCRM, etc.) platforms. But once customers are acquired, there are few, if any tools that help manage and optimize customer retention, or what many companies call customer success.
Gainsight, which until today was known as JBara, is a four year old customer success management platform that aids B2B companies in reducing customer churn, increasing up-sell, and driving overall customer success. The platform acts as a system of record, centralizing data from all customer interactions, monitoring satisfaction and product usage, and predicting customer behavior. Gainsight’s early customers include a who’s who of SaaS companies such as Marketo, Jive Software, Informatica, and Eloqua, among others.
Today, Gainsight is announcing $9 million in Series A funding led by Battery Ventures and the addition of former LiveOffice CEO Nick Mehta as its new chief executive. In conjunction with the news, founder Jim Eberlin will become Gainsight’s president, while Battery’s Roger Lee will join the company’s board of directors.
“Far too many companies ignore the wealth of data available to help them understand their existing customers and proactively manage their success,” Mehta says.
Gainsight leverages big data analytics across sales data, usage logs, support tickets, surveys, and other sources of customer intelligence to arrive at a customer health score, and preempt customer churn. For example, a company may receive alerts when a customer’s usage drops by 30 percent, when it is regularly late paying its bill, when it leaves a series of negative help desk comments, or amid a combination of such events. The inverse is also true, in that thriving customers can be identified as potential candidates for up-sell opportunities, or as likely to provide a positive reference.
The key in all cases is that this data be made available across all departments, including customer success, sales, marketing, product management, and finance to enable more informed decision making.
Battery recognized a shift to recurring revenue business models that was taking place in its portfolio and across the software industry. With this shift came an increased emphasis on customer retention and success. When the firm looked to make an investment in the category, it found that a number of its portfolio companies (including Marketo) were already using Gainsight.
“As most industries are migrating to a ‘X as a service’ model, and are no longer being paid in full upfront, there is more incentive than ever before to ensure customer success and in turn a long term, durable relationship,” Battery’s Lee says.
The timing couldn’t have worked out better. The firm proactively approached Eberlin at a time when he was finally confident his angel funded company had achieved product market fit and was ready to step on the gas. Further, the founder was willing to bring in a professional CEO to manage that process. At the time, Mehta was an entrepreneur in residence at Accel Ventures.
The round closed in February and Mehta immediately began assembling a team and a strategy to bring the Gainsight product to the broader market. His first hire was former Marketo head of customer success Dan Steinman, an avid Gainsight user, who is now the company’s chief customer officer.
Together, the two men have architected a thought leadership-based strategy for introducing the category of customer success management to the masses. Later this spring, the company will host Pulse 2013, its first annual customer success conference, an event featuring speakers such as Box founder Aaron Levie and dedicated to creating discussion around industry best practices.
Gainsight is available as a SaaS solution, with pricing based on a per user, per month model. The onboarding can range from a few days to a few weeks, depending on the size and complexity of a company’s business. The process typically constitutes integrating the company’s existing SaaS tools, such as its marketing automation, CRM, and help desk software, and then establishing rules around Gainshight alerts.
With Eloqua selling to Oracle for $871 million and Marketo filing its yet-unpriced IPO earlier this month, there’s evidence that the opportunity to build a big company in this category is real. Competition in the category could come from a number of directions, including existing marketing automation, CRM, and help desk players, as well as other upstarts. But Gainsight has given itself a sizable head start in terms of developing its product and understanding the market.
The company’s biggest challenge, according to Battery’s Lee, is continuing to attract the right team to execute its ambitious vision, and further educating the market as to the value of customer success management. Eventually, this is likely to include moving beyond the SaaS market to other B2B industries, but the company’s current focus is on cloud-based software vendors.
The SaaS model has fundamentally changed the alignment between software companies and their customers. No longer are vendors paid upfront. Rather they collect only a few percent of the lifetime value of a customer upon sign up, and the balance over multiple years. The result is that it is more important than ever to ensure customer success, and thus retention.
It may have taken longer for the industry to deliver the caliber of tools in this category that have long been available for customer acquisition, but expect this to be an incredibly hot sector in the coming years. Similarly, expect Gainsight to have play a large role in dictating where the category goes.
Michael Carney
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ZenPayroll targets accountants with new dashboard, hopes to make service providers an influential ally
Payroll is one of those things that is a necessary evil of business, but that no one really enjoys – even the people who get paid to manage it for a living. For the last five months since its launch, cloud-based ZenPayroll has been making this process easier and more enjoyable for early stage startups and small businesses, including Y Combinator (where it was a member of the W12 class), Clever, SendHub, and SwiftType. Today, the company is announcing ZenPayroll for Accountants, a centralized dashboard for managing the payroll of multiple companies concurrently.
Of the six million companies in the US that require payroll, 3.7 million have less than five employees. The majority of these companies find themselves managing payroll manually or outsourcing it to an independent bookkeeper or accountant, rather than suffering through dealing with costly and frustrating “enterprise-grade” vendors like ADP, Intuit, and Paychex. Every year, one third of US small businesses are fined for doing payroll incorrectly, resulting in more than $5 billion worth of penalties in 2011. (This is not surprising that businesses in California have to pay 12 different state taxes alone.)
ZenPayroll aims to eliminate this by bringing the power of modern software to these small companies and their service providers, while further disrupting the 40-plus-year-old incumbents by working from the long-tail up-market toward the enterprise.
The company’s new dashboard allows an accountant or bookkeeper to add multiple clients seamlessly in a matter of minutes per account, as well as maintain a list of pending tasks for each company, create individual payroll reports in just a few clicks, and review company statistics and status all from a single screen. For a multi-person firm, the software also allows multiple admin and user credentials. Most importantly, ZenPayroll for Accountants is entirely free, with each individual client company, rather than the accounting firm, paying for their respective license much as they would for complementary accounting software like Quickbooks or Freshbooks, or Bill.com.
Once inside an individual company account, the software offers the same benefits that have already earned it the business of hundreds of clients. The user can quickly add pertinent details like employee hours, overtime pay, bonuses, reimbursements, garnishments, benefits, etc. The platform then automates payroll tax calculations and payments, and enables direct deposit and paperless filing of payroll-related government documents. Employees get persistent access to their personal profiles, even after changing employers, where they can change payment settings, access paystubs and employment documents, manage personal and financial details, and review pay and benefits data
“We have already processed tens of millions of dollars in payroll, and are currently processing several million dollars each month,” CEO Joshua Reeves says. The individual tasks might not be “sexy,” Reeves concedes, but he aims to make the overall experience of managing payroll through ZenPayroll “delightful.”
Reeves considers accountants one of three primary constituencies that ZenPayroll serves, with the others being small business owners and employees. The idea is not to disrupt or replace these service providers – although the fact that there’s 1.8 million accountants and bookkeepers in the US surely makes for some dry dinner conversation. Rather, it’s to allow them to spend more time advising and consulting their clients rather than buried in mundane and value-robbing tasks like processing payroll.
“Based on feedback, we’ve found that accountants are thrilled to be armed with a better product they can use to keep their clients from fleeing to larger competitors,” Reeves says.
Y Combinator switched from Paychex to ZenPayroll nearly a year ago while it was still in beta, according to the accelerator’s head of backoffice Kirsty Nathoo. “The key for me was the speed and flexibility of being able to run payroll on my own timeline, and not have to wait for a call from Paychex,” she says. “The fact that they send me cute facts like ‘this month’s payroll is equivalent to X pounds of bananas’ is just a pleasant bonus.”
ZenPayroll is currently available in California only, although the company plans to add several new states per month beginning at the end of Q2 this year, according to Reeves. The SaaS product is priced at $25 plus $4 per employee per month up to ten employees, with additional employees priced at $2 per month thereafter. This means that a company of five pays $45 per month, and a company of 10 pays $65.
Reeves has grown his team to 13 people, following a splashy $6.1 million Seed round announced in December 2012 (the round actually closed in April), the largest in history for a Y Combinator grad. Backers include Box CEO and co-founder Aaron Levie, Yammer CEO and co-founder David Sacks, Dropbox CEO and co-founder Drew Houston, YouTube co-founder Jawed Karim, Yelp CEO and co-founder Jeremy Stoppelman, Badgeville CEO and co-founder Kris Duggan, SugarCRM CEO Larry Augustin, and Zuora CEO and co-founder Tien Tzuo, as well as Google Ventures, Data Collective, Sherpalo Ventures, and Salesforce.com.
Despite its pile of cash, ZenPayroll is understaffed and underfunded given the $50 billion worth of market cap owned by its three largest competitors (ADP, Intuit, and Paychex). The startup is relying on its ability to move quickly and think differently, while these giants grapple with the innovator’s dilemma. It wouldn’t be the first company to unseat a decades old oligopoly, but the task ahead remains a monumental one.
This risk is compounded by the challenge of targeting the long-tail of the market. ZenPayroll has a small inbound sales team, but no outbound sales efforts. Rather, it’s focusing on being a payroll knowledge repository via its help center and on forums like Quora and elsewhere, according to its CEO. “Our philosophy is all about helping,” he says. SMBs may be the customers most in need of an alternate solution, but identifying and then converting them to customers can be a costly and highly inefficient process.
Today’s announcement of the ZenPayroll for Accountants is a big step in the right direction. By more directly targeting this market, the company can add a powerful advocacy and inject leverage to its customer acquisition machine. There is little doubt that the payroll market is in need of disrupting. With a strong pedigree and a deep bench of leading tech CEOs as investors, ZenPayroll is well positioned to take on the challenge.
Michael Carney
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