SaaS-Based Startups Must Generate Revenue

Free SaaS products don’t work. I am not speaking about free trials (a great technique) or a freemium model (though there are indications that freemium doesn’t work as well as originally thought). I’m speaking about not charging customers at all. If you have a product that does not charge customers, you are either:

1. A philanthropist with deep pockets (or have access to a big trust fund)
2. Misguided about how businesses work
3. Trying to make me the product instead by marketing other services to me or selling my behavior data to third parties

Whatever the business model, SaaS-based businesses must make money to survive.

Selling Confidence In Your Business

Many consider a B2B SaaS business as the kind of business reserved for enterprise companies. You know, the kind of company that hires a very expensive sales team and charges a five-figure or more license to use their software.  Actually, B2B describes any business or startup that focuses on executing transactions with businesses as their primary source of revenue. 

To sell your product to businesses, you have to help them gain confidence that:

1. Your business is an expert in solving their problem. If you don’t demonstrate that you understand how their business works and how your product benefits translate to their needs, you will lose them as a customer
2. The return on investment (ROI) of your product is worth their trouble of considering your product. This often involves more than price, as they often have to adjust their internal workflows and/or train the appropriate people to use your software. If it looks like it won’t provide a big return on investment, you will lose them as a customer
3. Your business will still be around in 3-5 years, since they will be as well. Why would they invest their time, money, and energy into your product, only to have to find an alternate solution when you go out of business? If you do not offer a simple pricing model that can sustain and scale your business, you will lose them as a customer

SaaS Customers Want Long-Term Buy-In

If you are building a business that has no viable way to sustain and scale itself, then you might as well not build the business. Businesses will not buy from startups that do not have a clear way to keep themselves in business. They anticipate becoming too invested in your solution and do not want to move to something new when you run out of money. This is different than a B2C business, where consumers will happily use the product, then move on to the next one when you go out of business. Don’t believe me? Consider Friendster, MySpace, and others that quickly got replaced by Facebook and Twitter.

This is why I wouldn’t become a free customer to this new startup. They currently cannot convince me that they will be around in 3 months, let alone 3 years, if they don’t start charging customers immediately. If they plan on making me the product by selling my data, that is even worse because they have a clear path to sell me their product. They don’t need to use a B2C business model for a B2B product. So, they either don’t value their product enough to charge for it, or they are scared to ask me for money and instead prefer to build a complete business infrastructure around selling me as a product to third-parties. That just doesn’t make sense.

I hope that they will reconsider their business model and come up with a nice pricing structure. If they do, I’m willing to invest my time to try their product and determine if it is a good fit for my business. Right now, I don’t know that they will.

CloudFormation Will Standardize Your Cloud Topology

The software and hardware topology for your startup defines what services need to be provided, how and from where. Often, this is accomplished with a few whiteboard sessions and a diagram, then software and release engineers get busy making it a reality. The problem with this approach is that it isn’t reproduceable.

Once you need to duplicate the environment to test a pre-release version, grow the current topology based on new customer and data demands, or launch a new product offering, things can get out of hand quickly. You may have to revisit each resource, reverse-engineering how many CPUs, amount of memory, and the kinds of disk storage strategies you used to build the current system. Good luck building a similar system, especially if you can’t remember how everything was built originally.

CloudFormation will allow for the creation of templates that define server images, databases, load balancing, and other needs into a single, reproducible script. These scripts can then be re-execution for the creation of new environments as needed. This means that your staging environment can look just like your production environment. It also means that you can quickly deploy new product offerings without having to revisit the same issues that you once visited months ago. This provides consistency and maturity to any organization’s IT infrastructure.

CloudFormation Will Capture Cloud Computing Best Practices

Included in the offering is something that should not be overlooked – best practices:

Our sample templates illustrate how to interconnect and use multiple AWS resources in concert, following best practices for geographic redundancy, scale out, and alarming.

It seems that many of the AWS-provided templates provide some great starting points based on your application needs – many of which can be overwhelming when first starting to build out a cloud infrastructure. CloudFormation provides a good starting point, allowing for the customization of their templates or complete creation of new templates that capture your unique startup needs.

CloudFormation Moves the Focus from Services to Application Solutions

I agree with Jeff Schneider:

It pulls together all of the piece-parts which Amazon has been developing over the years. Finally, the picture can be painted on how Amazon can be used for complete application solutions. I tip my hat.

I’m looking forward to building some templates that capture both the best practices and recommendations of AWS, combined with my experience of cloud application and deployment for better product launches in the future.

P.S. New to cloud computing? Check out our free introduction paper that discusses the the pro’s and con’s to cloud computing.

Kevin Koym – Kevin started TechRanch in Austin, TX to help people launch their passions. He recently wrote about  “Keeping your eye on the prize” by not letting difficult circumstances derail your progress if it isn’t core to your business. Great stuff!

Patrick McKenzie – Patrick is about to go full time with his business, after bootstrapping it for several years. He offers some great advice on how to kick start your idea in your spare time, including how to balance a full-time job with launching your idea in only 5 hours per week.

Bob Walsh – Bob has been helping companies launch startups for several years. He’s a seasoned author, developer, and bootstrapper who has a new product for organizing your startup. He recently discussed wrote “Stop hitting your Invisible Wall” about how to find the motiviation you need to get beyond those moments that block you from making progress.

Some call it the “valley of death”, Seth Godin calls it “The Dip”. No matter what you call it, there is always a point after the launch of your startup where things get difficult. Sales don’t come in as quick as you want; others in your market seem to get more attention; you aren’t as far as you had hoped your business would be.

When you get to this point, all of the motivational speeches in the world won’t help. The only thing that will help is a love of your idea. Not a love of the original vision or money, but of the core idea that your startup addresses. That mission that keeps you moving, even when your business seems like it is at a stand still.

Ask yourself what it is that you love about the idea (other than the possibility of monetary gain).

Write it down and Review it often.

Taking this step while you are excited or when you are struggling through the valley of death will help you during those difficult seasons.

Love is patient. Love is kind. Love bears all things. Love is a verb not a feeling. Let your love become action for your customers, your employees, and yourself as you go walk through the valley of death with your idea.

Step #1: Understand How They Want to Work

Some prefer to be given a firm spec and work toward it until it is done. This puts a lot on you to understand, decide, and document what you want up front. This also means that the talent you hire can be cheap, but they will only do what you ask and nothing more – rarely do they get creative or offer ideas to improve your product. Keep this in mind, as spec work depends on abiding by the rule: you get what you give.

Others (like myself) know that startups change quickly. As you begin to talk to others about your idea, you’ll find that things previously prioritized high aren’t as important and you need to shift gears. Investors might want to see something different than what you planned to develop. This requires working with someone that can take a big picture with some details, work toward implementing them, and adjusting the development plan as you learn more about what your market needs. This provides more flexibility but also means you need to find someone that can spend more time communicating with you and working with you to find new opportunities.

Whatever you do, find a way that can match their way of working. Otherwise, you will greatly reduce their effectiveness and prevent them from being effective and efficient in their development.

Step #2: Build a Communication System

Most startup development teams get into trouble when their is a lack of a consistent communication system. Here are some tips I’ve found that help create a good communication system:

1. Select a set day/time to meet over the phone or in person to discuss what was accomplished since the last meeting, what roadblocks exist, and the plans for the next meeting
2. Select a collaboration system with tickets, milestones, file uploads/attachments, source code repository, and comment systems. I prefer Unfuddle and insist that anyone working with me utilize this system. Basecamp is average but lacks many of the features needed to coordinate multiple developers and keep everything in one place (including your code).
3. Keep things out of email and in your collaboration system, otherwise you will create too many sources of information. If you and your developers will get out of sync, you’ll lose time and money. Utilize your collaboration system as a single source of information and stick to it. Leave email for private communications or housekeeping discussions, not for changes to requirements or bug fixes/enhancement requests.

Step #3: Given Them Time To Work

Just remember – software development is different than many other services you’ll need for your startup. Unlike accountants and attorneys, software development is creative and requires interaction between the founders and the developers constantly. Sending a spec over the wall is generally unproductive and leads to a fallout between the developers and founders.Give them room to work without interruption. Don’t constantly call them or interrupt them using your favorite instant messenger or Skype. Schedule communication times in advance and work with their preferred off-peak time, leaving their best time of the day for being productive.

1. Do you want a staff programmer (employee), a freelancer/solo contractor, or a development team?

Having an employee means putting in the infrastructure for benefits, making sure you have enough salary to cover at least twice as long as you think it will take to break even (possibly longer), and more paperwork. The upside is that they are someone that you are working alongside without giving up equity, or at least as much equity as you would give up in a full partnership.

A popular choice for many startups is to locate a freelancer that can help convert your idea into a product. Freelancers vary greatly in their skills and hourly rate, so spend your time doing research to determine the right range of rates for your idea. The upside is that you don’t have to manage benefits, pay your half of social security, and other responsibilities as you would an employee. You can also control your budget by managing their hours through prioritizing your feature list. The downside may be a lack of skills needed to build certain features that emerge later (e.g. iPhone development in addition to Ruby on Rails skills).

Depending on your need and budget, you may find that a development team can provide the flexibility of the skills you need. For example, your SaaS may need a part-time iPhone developer, a part-time designer, and a full-time Ruby on Rails developer. If you can’t find a single person to do everything, you may need to find a team that can provide both sets of skills to your team.

To find a staff programmer or freelancer:Visit a local user group, such as a Ruby on Rails user group. Any kind of group that attracts developers is a good place to find some that are looking for freelance work or looking to join a startup full-time. LinkedIn can be used to reach out to your network as well.

To find a development team: Local user groups, perform a Google search for development teams using specific technologies in your area (e.g. Ruby on Rails Consulting Austin)

2. Is your startup ready for a v1.0 product or are you looking for a prototype to close more complex sales?

If you need a rapid prototype to get something up-front before you start full development, your choices may be a little different. Prototypes can often be put together on-the-cheap using any technology that someone is familiar with, allowing for rapid throwaway code until you are ready for starting development of version 1.0.

The downside of taking this approach with cheaper help is that you will likely be required to do more up-front spec work, as lower-priced developers often work in a “do what you say” mode rather than a more creative, brainstorming mode. If you need more creative types that can help you work through business and technology issues, consider finding a local development team or experienced freelancer.

To find a prototype developer: Local user groups, friends-of-friends that have built a web application before, or web designers that can write Javascript to make a free-standing prototype for offline laptop demos.

3. Are you open to bringing on a development partner in exchange for a share of the business?

While some founders are partner adverse, sometimes a great development partner can help push a startup past the initial hurdles needed to launch a startup. They may be a developer, in which case they will often be able to build a prototype, a rapid first version, or steer to the product to v1.0 and beyond. Alternatively, they may have a technical background and capable of removing much of the burden of managing outside or inside developers for your startup.

To find a development partner: Locate networking events in your area that focus on technology. Talk with other technology founders that may know someone that is looking for a new venture. Search your LinkedIn network for entrepreneurs that are in your friends’ network.

Once you locate one or more candidates for your startup, be sure to revisit our article called How To Select a Development Team For Your Startup to help guide you through the process of finding someone with the right fit.

Cloud computing has been a popular topic lately, including the discussion of various cloud computing solutions such as Amazon AWS, Google App Engine, and Salesforce.com. Many of the discussions revolve around the enterprise world, but few are talking about what this means for startups.

Download the FREE eBook “Cloud Computing For Startups” now and find out how your startup may be able to take advantage of cloud computing as a new approach to launching your startup quickly!

Want to know more about cloud computing and how your startup might benefit?

Questions answered in this eBook include:

• What is cloud computing?
• How can my startup take advantage of cloud computing to gain a competitive advantage?
• Is cloud computing a good fit for your startup?

Already know about cloud computing but not sure if it is a good fit for your startup?

In addition, you will:

• Get answers to common myths about cloud computing
• Be guided through the decisions required to prepare your startup for taking advantage of the cloud
• Learn tips on how to move your existing startup to the cloud

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Download the FREE eBook “Cloud Computing For Startups” now and find out how your startup may be able to take advantage of this new approach to launching your startup!

Startups Must Start Strong

Starting strong is not a problem for most people. Those that start strong often have a strong vision, a passion to create something new, or a passion to fix an existing problem. There are those that struggle with starting strong, however.

These are the ones that have a strong vision but start to lose their motivation and may even give up before they have fully engaged into the startup. Perhaps they get stuck in “analysis paralysis” – they spend so much time researching, planning, and analyzing that they never take action. Perhaps they get overwhelmed because they can’t break down a big task into smaller milestones and work toward them.

People that have difficulty starting strong must keep moving past the difficult steps of getting started. They must learn to break big tasks down, create quick wins, and constantly strive for progress. Seeking a partner with these complementary skills and attitudes can often lift them up when they are struggling during this phase.

Startups Must Finish Strong

For those that find it easy to start a project, they may find that it is harder to finish. Finishing isn’t easy – it requires discipline and the ability to get beyond setbacks.

When a carpenter finishes a piece of furniture, they often have to sand it with an increasingly fine sand paper until it is smooth. Then they may stain it, add a protective layer, hide nails and seams, and make it complete.

For a startup, the same thing applies. Finishing a startup requires paying attention to details. It means iterating over the product until it is polished and ready for customers. It also means knowing when to say ‘stop’ and launch.To finish strong means that you have spent the time to determine how you want to present your product to your customers. It means making trade offs. It may mean removing a feature because it isn’t complete or releasing it early to select users for feedback.

If you are a starter, make sure your team includes those that know how to finish strong. Find people that pay attention to details and know your startup’s audience so that you know where to make trade offs.

Startups Must Launch Strong

Launching isn’t easy. Even if you have finished, you haven’t launched. I’ve seen many startups fail to launch because they get stuck trying to improve their product. They keep finding new areas to fix or new features to release, certain that “unless we have this new feature, customers won’t buy our product.”

Launching strong means making the decision to call a product “good enough” and put it out there.

Launching strong means being willing to take criticism that a product “isn’t quite there.”

Launching strong means being willing to step aside from the mode of creation and into the mode of selling and support.

Launching is only the beginning of the journey. Without a strong launch, your product won’t sell. You must be ready to launch strong. You must be prepared for the launching marathon, because it isn’t a one-time event. Launching is really just Start Strong, Finish Strong, Launch Strong all over again as you launch, listen, learn, refine, and re-launch your product.

It is through launching strong where businesses are really built. Are you ready to launch strong?

• Devote two hours a week to this effort. If, out of the 60 hours an average person works, you can’t find two for this, reconsider how you’re running your day.
• Pick small groups of like-minded people that you want to stay in touch with. List them in some way (in your contacts, on a spreadsheet, in a Twitter group – maybe all of those).
• Think the following whenever thinking about this group: “you are important. I care about you. I want to help you grow.”
• Reach out to these people once a week, if you can. Try not to make it about nothing, but do keep in touch, even if it’s in small clumps (I’m using Google Wave for that).
• Keep their names close at mind for when someone mentions they need/want some kind of help. I made two referrals in one meeting to people I think will appreciate them.
• Keep abreast of these people’s news via Facebook, LinkedIn, Twitter. Check in from time to time. Congratulate them on their success, and commiserate with them over their failures.
• When attending events, make SOLID plans to connect with the people attending that you want to deepen a relationship with (Jeff Pulver taught me all I know about planning my experience at events. I fail this sometimes, but he taught me well).

Read the full article and explore all of tips on deeping your network from Chris

Also, check out “Love Is The Killer App” by Tim Sanders and mentioned by Chris in the post – it is a great book!

Donating money to a charity should be as quick and easy online as it is to stuff a few coins in a collection pot on the high street. It should also be apparent what the money will be used for.

With these two things in mind, it is surprising how often charities miss the mark when it comes to their online donation screens. Fiddly pull-downs, peculiar microcopy, trillions of steps, and minimal transparency.

They also link to another article for those designing (or redesigning) their non-profit website called “8 tips to design a charity website” (from the Webdesigner Depot).

Read the full article