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Billflo Powers (Almost) Seamless Invoicing

Ben Kepes — Thu, 12 Nov 2009 02:18:00 -0800

Back in April I reviewed the newly launched service that billFLO provides. In their own words billFLO;

billFLO focuses on eliminating invoicing friction for SMBs. We work with the likes of Quickbooks, Freshbooks, Less Accounting, Harvest and Blinksale to enable users to send and receive machine readable invoices straight into their accounting system.

At the time of my review, I was a little negative about the concept for two reasons;

I firmly believe in open standards and open data. Any time a third party tool is required just to make two offerings “talk” to each other I get a little antsy
At it’s launch, billFLO required its users to go to the billFLO website to authorize invoices, while I understand the time savings to be made from eliminating manual entry of data, having to visit a third party site to allow importation just kind of rankles with me. As I said at the time;

I'd prefer to see billFLO automated so that users didn't need to take an intermediate step and manually click on import to get invoices into their own system - ideally once a vendor has been "approved", their invoices would come through automatically every time.

Well it seems Ian Sweeney, CEO of Anoowa, the parent company behind billFLO, was listening. billFLO is today releasing its seller API which allows any accounting system to quickly use billFLO’s invoicing functionality. By utilizing the billFLO API, any accounting system can exchange invoices seamlessly with other systems utilizing billFLO. Well kind of seamlessly - unfortunately for my “low touch” desires, the API is seamless on the send side only. The reason being that accounting systems don’t have the UI to manage the importing process. ERP systems on the other hand tend to have this ability along with workflow for approvals etc.

Currently all the billFLO services are free to use, be that sending billFLO invoices (from billFLO seller or via the billFLO seller API) or managing and importing billFLO invoices with billFLO buyer. billFLO tell me that they do plan to introduce premium services for the billFLO buyer (aka Accounts Payable users) in the future.

As Ian is so keen to point out, around 20 billion paper invoices are exchanged every year and, based on average statistics, that amounts to six hours manual entry for a small business receiving 100 paper bills a month. billFLO not only saves time, but does so in a way that reduces the chances for operator error. A screencast showing the functionality is below;

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Andy Kessler and the Rise of Feudalism 2.0

Ben Kepes — Wed, 11 Nov 2009 09:55:36 -0800

I wasn’t going to liveblog the defrag conference – I figured I’d partake more. The opening session this morning kind of changed my view of that. Andy Kessler gave the opening keynote that he entitled “Be Solyent, Eat People”

Eric Norlin, the organizer of defrag made a smart choice with Kessler – he’s brash, opinionated and pretty obnoxious. No one in the room was likely to forget the talk – the twitterstream was phenomenal – peoples hackles were well and truly raised.

Kessler’s central thesis was a taxonomy of unproductive jobs – being a Wall Street guy, his definition of unproductive pretty much included anyone who actually does anything.

He went on to suggest that anyone not involved in high level work is essentially a parasite. He called for the mass automation of jobs – the end of stevedoring, the demise of librarianship and the outsourcing of teaching.

Kessler’s talk was a typical “sermon from the pulpit”. It’s very easy for someone in his position to ignore that which he has no visibility of – that is anyone out in the real world doing real stuff. Unfortunately the problem with his theory is that it’s very hard (some would say impossible) to move blue collar workers into knowledge workers – so once we decimate the productive workforce we’re left with a society filled with disenfranchised people.

As I said the twitterstream was very aggressive, unfortunately only Stowe Boyd and myself called Kessler out in the Q&A session – I asked Kessler what place social and environmental equity had in his utopian ideal (that I’d call dystopian) and I labeled his perspective “Feudalism 2.0”.

As I said, a great choice by Eric, it certainly got everyone fired up. But I’m really fearful that messages like Kessler’s gain traction and no one advocates for those he disenfranchises – it’s a sad reflection on the world.

So I’ll not doff my cap in Kessler’s general direction – it’s what he wants but I’m kind of over feudal lords….

Andy Kessler's keynote at Defrag stunk

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Managing your Board; Give ‘em a job!

Derek Pilling — Wed, 11 Nov 2009 04:49:00 -0800

In a post last week, I addressed the notion that everyone needs someone to report to. After all, you can’t report to yourself. The reporting relationship between a CEO and a Board is critical for a Company’s success. That relationship must be based on trust, candor, and transparency.

While that hierarchical reporting relationship is necessary and constructive, it is far from sufficient for a company to succeed in a dynamic, ever-changing emerging growth environment. My view has always been that venture investors (and Boards more generally) need to get “on the same side of the table” with entrepreneurs and work with entrepreneurs (shoulder to shoulder) to create value. The burden of making this work is clearly on Board members, but there is much a CEO can do as well. As my Partner Jack Tankersley is fond of saying,

The CEO has to give each Board member a job.

It is my experience that Boards are often left unmanaged by CEOs and that an unmanaged Board is a dangerous Board. When smart people (the kind you typically find on venture-backed boards) are left unmanaged, they manufacture activity, because they don’t know what else to do. They create their own “job definition” whether it is aligned with the needs of the company or not. The risk for a CEO is that an unmanaged board can run roughshod over an entrepreneur. What is a CEO to do?

First, a CEO must view his/her Board as a set of tools to utilize. This starts with understanding the skills, capabilities, and relationships your Board has. Identify the strengths and weaknesses of each board member and figure out how to use their strengths to the Company’s advantage.

With an understanding of those resources in mind, a CEO can then give each Board member a job. In other words, define the Board members job and make it a job that they are both likely to enjoy and succeed at on your behalf. Here are a couple of examples:

A Board member with a deep Rolodex with potential strategic partners can be assigned to work with the Company’s business development team to generate new biz dev activity.
A Board member with a penchant for strategy and planning can be given the responsibility to help the Company prepare for an annual strategic planning exercise.
A Board member with a skill in shaping discussion might be assigned to facilitating Board level discussion.

Think about it this way; would you hire an employee without telling them what their job responsibilities are? Of course not! So apply the same management discipline you apply to your employees to your Board. The effects can be really constructive. By assigning tasks, Board members become accountable to the Company. They are forced to work with and for the CEO to help accomplish a task, ensuring alignment. This also sets boundaries for each Board member. By signaling what you want to them to work on, you also signal what you don’t want them to work on.

So if you are a CEO having a difficult time managing your Board, take this simple advice: Give each Board member a job. Your Board will be much more productive as a result, your Board members will be happier because they will know how to contribute, and your Company will be better off.

(Cross-posted @ Non-Linear VC)

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The Customers Asked, Xero Answered. FreshBooks Integration…

Ben Kepes — Wed, 11 Nov 2009 03:41:00 -0800

Go to market strategies are an intensely interesting topic of conversation. In the very early days of its existence, I was a little dubious with the strategy that Xero took – that is partnering with accounting practices and using them as the channel. I had several issues with that – the issues around revenue sharing, the conservatism of the accounting profession and doubt that many businesses take software advice from their accountants.

After this week we’ll have an excellent test case with which to see how valid my concerns where. On Friday Xero flicks the switch on one of their most requested features, integration with FreshBooks. What this lets us do is see the uptake in a market without channel partners, but with an integration with an offering that addresses hundreds of thousands of businesses.

I spoke with Xero CEO Rod Drury about this and he was pretty frank about the need for the company to learn from experience;

A big thing for us has been balancing building out the accountants network with being an ‘online product’. In the NZ, UK and Australia we’ve invested in an accountants channel which has been a great thing to do while we broaden out the product. With the richness of functionality we now have an interesting learning will be how much we can sell using an online channel before we build up the accountants network in the US. In theory the US should be more ready for it than other markets.

Xero is enabling this integration without any clear channel strategy in the US and hence will be able to test the validity of a direct to consumer, viral marketing approach. Leveraging the online network rather than the offline one.

Other commentators have urged Xero to be cautious in their US market entry approach – I believe this integration is an excellent way to test the waters without investing in people or marketing clout on the ground in the US. Xero has the ability to address a ready audience that falls nicely into their core demographic.

Xero seems to be taking a reasonably cautious approach to market entry. Those who have seen Rod speak know that confidence is something he’s not exactly lacking (which isn’t a bad thing) however on this front he’s a little more circumspect;

Lesson learned in this next phase will determine the speed we go in the US market. Again it’s balancing out our opportunity in existing markets with opening a new front.

Finally Rod gives FreshBooks a vote of confidence, saying;

We see Freshbooks as another leader in this space. We are both lean, internationally capable, customer centric and fast moving. As companies like Freshbooks and Xero start to connect together the real power of Web 2.0 against traditional vendors starts to play out. I think 2010 is looking like a step up in the industry as the collective benefit of what we’re doing surfaces.

It’ll be interesting to see…I’ve long thought it a little strange that FreshBooks don’t do full double-entry accounting (and yes I’ve heard the arguments about “just being an invoicing offering”). It seems (at least in my mind) more sensible to use one vendor for invoicing and accounting rather than two separate vendors – time will tell how much shift FreshBooks sees over to full service offerings once there are some with scale in the US.

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Enterprise 2.0 Conference Gets All Social in Its Call for Papers

Hutch Carpenter — Wed, 11 Nov 2009 01:23:00 -0800

The Enterprise 2.0 Conference has opened its Call for Papers for the Boston 2010 show. And boy, it’s changing things up. In a good way.

The Conference is using Spigit to manage the collection and selection of proposals for sessions at the Boston event. What this does is make the whole process more transparent, shareable and collaborative. More on that in a minute. First…

Anyone remember what it was like to go through the session proposal process?

We’d submit our proposals into the SurveyMonkey tool. We then didn’t see them for a while.
Couldn’t get community feedback to improve your proposal prior to the start of the voting.
Once the voting began, there were 16 pages of proposed sessions. And each page had like 20 proposals on it. You couldn’t page ahead, so taking the survey was an onerous process.
If you have an interest in a specific category, it was impossible to drill down to just those proposed sessions in that category.
You couldn’t share specific proposals with others (“um…page forward to page 13…yeah, middle of the page…you see it?”).
You had to be ready to decide on every one of the proposals during your one login session, otherwise forget it.

My guess is that most people taking the survey read less than 25% of them. Just too painful.

The Enterprise 2.0 Call for Papers was clearly in need of some…Enterprise 2.0.

Now This Is How We Do It

Much is different in the Boston 2010 Call for Papers process. It’s a much more Enterprise experience for participants. In fact, let’s examine the new process under the FLATNESSES framework, introduced by Dion Hinchcliffe.

Freeform: Each proposed session is entered into an initially blank description field. It’s up to each person what to write. Links and formatting are available. Now there is some structure, as the Enterprise 2.0 Conference has some information it needs for every submission.

Links: Each proposal has its own link, making it shareable on Twitter, Facebook and other social media sites. Individuals will also have their own social profile, with a unique URL. Links can also be embedded inside each session proposal.

Authorship: All contributions – proposals, comments – on the Call for Papers are linked to the person who made them. This makes it easy to find people with relevant interests.

Tagging: Each submitted proposal can be tagged for extra context. These tags then become part of a tag cloud, and are individually searchable.

Network-oriented: In his blog post, Dion describes this element as “fully Web-oriented, addressable, and reusable”. That describes the proposals for Boston 2010 versus what they were in SurveyMonkey. RSS feeds allow users to follow the action off the site as well.

Extensions: “Extend knowledge by mining patterns and user activity.” The Spigit platform tracks myriad interactions among participants and content. These interactions are part of the wisdom of the crowd used in advancing proposals through the selection stages. The system will also let you know if a proposal potentially matches one you’ve entered.

Search: All proposals and users are searchable. In fact, there are numerous ways to search for proposals: keywords, tags, category, selection process stage, submitter, modification date and others.

Social: Every contribution is associated to a user, a great start for social transparency. Participants have their own profiles on the platform, making it easy for others to understand their background. Commenting is threaded, allowing different conversations to occur. Individuals can connect with one another on the platform, and see an activity stream for all their connections. Individuals can email one another through the platform (while not revealing the source email addresses).

Emergence: The entire philosophy of the platform is emergence. First, session proposals are posted from around the world, subject only to individuals’ initiative. The community then provides feedback, both extrinsic and intrinsic. The crowd rates the proposals (starting January 2010), which is lets the top proposals emerge for selection to the Boston 2010 Conference.

Signals: Following content and users is an important feature for the new Call for Papers process. RSS feeds can track categories, discussion forums and individual proposal changes. The activities of your social network of tracked, making it easy to jump in. Email notifications are also used to track these areas, in case that’s you preferred signal tool.

I’m looking to forward to seeing how the Enterprise 2.0 community leverages the FLATNESSES goodness in the new Call for Papers process. And you can read more about the different Enterprise 2.0 features of the site here.

So get hopping. Enter a proposal or take a look at what others have already submitted.

(Cross-posted @ I'm Not Actually a Geek)

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Yes, Microsoft Can Become The General Motors Of Software

Krishnan Subramanian — Tue, 10 Nov 2009 14:40:41 -0800

Recently, Jay Galbraith wrote an article on Fortune Brainstorm Tech asking "Will Microsoft become the General Motors of software". He was pointing out to the complex politics inside the software giant, especially the middle managers in the desktop division. It is a great article to read. He even doubts whether the Azure efforts will get punctured by the desktop people inside Microsoft.

Microsoft also suffers from the incumbent’s curse during a technological transition. The curse is well described in Clayton Christensen’s research. Cloud computing, in which software and other applications are housed in a central location and delivered over networks to end users, could lead to a shift away from desktop-based computing and from complicated operating systems. As Microsoft adapts to it, will it promote cloud computing or protect Windows? Will the team leading Microsoft’s Azure cloud computing business have the freedom to cannibalize the desktop? Or will it be integrated into Windows, where the desktop mafia will slow, modify and dilute the efforts to convert to a new business model?

I have always pointed out in this space that Microsoft is important for the very proliferation of cloud computing, especially for pushing the public cloud concept to the enterprises. Let me make it clear that even though I was against Microsoft as a company in the desktop era due to my allegiance to open source and everything open, I am in favor of Microsoft playing a fair game in the Cloud marketplace. I don't want Microsoft to fail. If I have to use a parlance that is going around in the political world, Microsoft is too big to fail. Having said that, my answer to the question posed by Mr. Galbraith is

Yes, Microsoft can become the general motors of software.

It is not the (lack of) technology that will fail them. It is their attitude that could harm them in the long term. They are not playing the cloud game sincerely. They are still hoping that they can have their way in the IT industry even after the level of success we are seeing in the cloud. Let us see how two IT giants from the previous era are approaching the cloud. Both of them had too much to lose due to cloud computing. Both of them were reluctant to enter the Cloud game and did their best to resist it. Both of them jumped in when they realized that there is no going back in the cloud market. Where they differ is how they approach (PR or otherwise) the cloud game. Let us check out the story of the two giants and make some speculations that could stir up passions on both sides.

IBM, the reluctant giant, embraced the Cloud eventually and, now, they are trying everything possible to put themselves as the face of Cloud Computing. Starting from their private cloud offering to SaaS applications to public cloud offerings in the future, IBM is trying to be at all places. Even their support for the doomed Open Cloud Manifesto shows that they are very keen to be the major player in the Cloud marketplace. Even though IBM critics will point out that this as plain PR, IBM CEO Sam Palmisano gave a rare interview to Bob Evans of Information week, in which he went on to portray as if their moves in Cloud Computing and Business Analytics were well thought out long term strategy. I don't want to go into whether he is right or he is just spinning out some PR but I am pretty impressed by how strongly they have embraced and accepted the shift in computing from the traditional world to the current era of Cloud Computing.

"We've been very conscious of the value of information, and we knew the market behavior was going to shift from the bad economy and budget pressure," Palmisano said in an exchange at IBM headquarters in Armonk. "So we sold things because we knew the old model was going to end, and we turned around and made acquisitions where things were going to grow and you know the numbers—100 acquisitions for $20 billion.

Again, as I told above, this may not mean much beyond PR soundbites but he makes it pretty clear that they are ready for the cloud game and they intend to compete for a long time to come.

Compare this attitude with that of Microsoft. Whether it is their "hang on, we are coming" attitude or their recent dismissal of Google and Zoho (disclaimer: Zoho is the sole sponsor of this blog) as Fake Office Suites, it is pretty clear that Microsoft doesn't want the cloud game and they will be happy if the whole concept of Cloud Computing crumbles big time. Their reluctance to leave the cash cow of today for cash in the future is pretty obvious in their moves. Recently, Microsoft released a position paper titled "Privacy in the Cloud Computing era: a Microsoft perspective". It is a very good document and their emphasis on the new privacy paradigms and governance models are very important (something we have highlighted here at Cloud Ave on different posts). However, Dave Rosenberg of CNET points out to a section which I also noticed. He talks about how Microsoft is taking a hand waving approach on privacy of business users.

Unlike our consumer business, in which Microsoft has a direct relationship with consumers and directly controls the policies that govern their data, our cloud services for business customers defer to the policies of those customers. In this case, Microsoft has no direct relationship with the business's employees or the customers to whom the hosted data may pertain. Policies relating to the business's handling of this data in the cloud environment are controlled and set by that business rather than by Microsoft. Our role is to handle and process the data on behalf of the business, much like third-party telephone call centers process customer inquiries, orders, and data for their business customers.

Dave Rosenberg raises a very valid point here. I tend to agree with him on this. It is true that business customers want to have more control on the privacy issues but, instead of reassuring them on how they will work with them to implement their policies, Microsoft takes a hand waving approach and positions their cloud service as something like third-party telephone call centers process customer inquiries, orders, and data. If you dig deeply, I wouldn't say such a comparison is entirely wrong. However, when you are trying to enter a new market, an approach like what Microsoft has right now is not a sensible one. Trying to portray the emerging model as something that is inherently weak makes me wonder if Microsoft is really serious about the Cloud business. Now if you add the absence of an offering equivalent to the "private cloud" into the equation, it is pretty evident that Microsoft is not ready for serious cloud business. They are still holding on to the hope that the status quo will stand.

If I were the CEO of Microsoft, I would be making noises like Mr. Sam Palmisano. In fact, Microsoft is better positioned to make bigger noises with their leverage on consumer segments and mobile. Instead, Microsoft is taking a "let us see how far can we go" approach. If they continue with this attitude, yes they will become the General Motors of software.

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SAP’s First Official iPhone Application

Guest — Tue, 10 Nov 2009 09:11:42 -0800

(Guest post by Timo Elliott, who works for SAP but authors the SAP Web 2.0 blog on his own)

Not What You Might Think

No, SAP’s first official iPhone application is NOT the BusinessObjects Explorer iPhone Application that Marge Breya demonstrated during the keynote of SAP TechEd Vienna, and which Alexis Naibo of the SAP BusinessObjects Innovation Center used to win the Demo Jam contest.

That application isn’t quite yet available on iTunes (but will be shortly). For more information about this forthcoming application, check out the demonstration video on Vimeo and Craig Cmehil interviewing Alexis in Vienna.

SAP BusinessObjects Explorer on IPhone ! from SAP Innovation Center on Vimeo.

Stuck in Brisbane traffic? This App’s for You

The first official SAP iPhone application is already available on iTunes. So why haven’t you heard of it? Well, it’s unfortunately not much use to you unless you live in Brisbane, Australia.

But the free application, created by the folks in the SAP Research center who brought you the Google Wave / SAP “Gravity” prototype, is a wonderful example of what Web 2.0 technology can do in today’s increasingly wired world.

Here’s the blurb from the application’s page on iTunes that gives an overview of the application:

Stuck in traffic? An event at Suncorp Stadium clogging up William Jolly Bridge? An accident on Gympie Road? Wish you simply took the other way? BNE Traffic is here to help — life is too short to be stuck in traffic!

BNE Traffic is a research prototype created by SAP Research, the global technology research unit of SAP AG, acting as your personal crystal ball for the streets of Brisbane. Before heading out, make an informed choice of routes by viewing what others have already encountered — we leverage the information of hundreds of users. The application shows a map of the greater Brisbane area and displays information about current traffic conditions. Pins on the map allow you to easily recognize where obstacles have been identified. Based on the information associated with these pins, you can adjust your route accordingly and avoid traffic jams. With the help of BNE Traffic, you do not have to be late for that movie, important meeting, or dinner date again.

Features

Displays traffic incidents around greater Brisbane graphically

Leverages information from hundreds of users through the Twitter platform (#bnetraffic)

Works in read-only mode and therefore does not transmit any of your private information

Uses cutting-edge text analytics technology

And here’s a video that gives an overview of the application and the technology used: it extracts tweets tagged with “#bnetraffic”, then uses the SAP BusinessObjects Text Analysis technology to extract the geolocation information and place the information on the appropriate place in a Google map. And the whole thing is hosted using Amazon’s cloud technology. Interestingly, the researchers claim that the application took only three days to put together (but getting authorizations to put in on the iTunes store took another three months).

And if you ARE in Brisbane, note that BNE Traffic isn’t the only SAP technology that’s helping you speed towards your favorite surfing spot. IBM and SAP worked together to provide a “motorway that thinks” for the Queensland Government:

…Queensland Motorways identified the toll plazas on the Gateway and Logan motorways as a major pinch point. The need to have vehicles either slow as they passed through the toll plazas using electronic tolling or to stop and pay with cash at a toll booth was significantly slowing the speed of traffic.

“Free-flow tolling was seen as beneficial for two reasons,” explains Phil Mumford. “First, if we could automate the tolling process and eliminate the need for drivers to stop, it would immediately increase the average speed of traffic flow, improve safety and the traveling experience of motorists. Secondly, the solution would allow us to digitally capture and analyze information about the vehicles that use our roads, which would help us make dramatic improvements to traffic management in the future.”

The roadside solution replaces the traditional toll booths with a Thales/Vitronic road-side gantry that utilizes video cameras and dedicated short-range communication technologies to capture information on passing vehicles. Vehicles are identified either by an in-vehicle tag or by analyzing footage of their number plates using two optical character recognition (OCR) engines, one at the roadside and a Dacolian engine at the central system.

The vehicle data is then matched to the appropriate customer account, and an IBM-developed rating engine assesses how much money is owed. The billing information is passed to back-end SAP ERP Financials and SAP Customer Relationship Management (CRM) applications, which either deduct the total from a prepaid customer account, or generate an invoice. Business reporting is handled by SAP NetWeaver Business Warehouse, and integration by SAP NetWeaver Process Integration.

“The whole process is automated and instantaneous, and there is no need for drivers to stop to pay their toll,” explains Phil Mumford. “Moreover, except in certain cases where a vehicle cannot be identified by OCR, there is no need for manual intervention by our staff. This not only improves traffic flow – it also cuts down the cost per transaction, which will help us offer better value to our customers.”

More importantly, the introduction of the SAP CRM application is leading to a fundamental change in the way Queensland Motorways interacts with its customers. Now it can see what vehicles are using the roads and how often and at what times they use the roads. In the future, Queensland Motorways will be able to tailor its services to individual drivers – with a profound effect on both customer experience and traffic management.

“With SAP CRM, we have achieved a better understanding of who our customers are,” says Phil Mumford. “In the future we’ll be able to offer customers useful information about the transport network. For example, a customer making regular trips to the airport on a Monday morning may want to receive congestion reports direct to their phones. The whole experience has the potential to be much more personalized.

“The idea is to have ‘a motorway that thinks’ – a more intelligent solution that will give our customers a better range of options for their journeys.”

Surfer photo by “d.i.”

(Cross-posted @ SAP Web 2.0)

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Facebook Hacked for Real This Time

Dan Morrill — Tue, 10 Nov 2009 07:14:52 -0800

Control your info has taken administrative rights to hundreds of groups on Facebook this morning – which is going to prompt a stampede of fear across the Facebook landscape. Looking at the security of social networking – this is going to be a bad day for many groups on Facebook.

The group Control your Info has taken over a large number of groups (some reports of upwards of 300) overnight to highlight the security issues with the Facebook system and administration of pages.

Which of course means that the people who are using those Facebook pages are not happy about what is being done to their pages; the comments from the subscribers are priceless.

We can talk about the security of systems, but in the end, we are dealing with a messy human designed system where security is not going to be job one. Facebook security is tending to become the Achilles’ heel of the web site much like Aaron Greenspan proposed on CNET back in February 2008. As we see more and more issues like this coming from Facebook, including the simple to fix but dreaded crossdomain.xml file which is also something that has been talked about since 2008. These things are not new, we know about them, but major web sites are quietly accepting easy fix high risk implementations of information security that are putting millions of people and their business models at risk.

While it is possible to get hold of Facebook security, you have to wonder what their web penetration team (if they have one) is doing. Are they taking huge lunch breaks or are they just simply ineffective? I would vote for ineffective right now because many of the hacks that are being exploited today were talked about last year. If it takes a year to fix something very simple, then there are issues with the internal security group, and there are structural issues with the organization as a whole. It took the fear of predators and children to bring down MySpace, it will be the fear of hackers that will bring down Facebook eventually unless they somehow manage to get it together and start taking a serious systematic approach to information security.

Beyond the fake scammy games, beyond the hackers, and beyond the predator issues that also crop up on Facebook, web 2.0 needs to get security right. They are dealing with a lot of private information, and they are dealing with people who trust Facebook to do the right thing and help keep them safe while using the web site. At this point, we have to question if Facebook can get this right, or if they need to find a highly competent security team that will tear the web site and code apart, and then help Facebook put it back together again. There are some awesome companies that will help do this, and it is time that Facebook gets serious about security, and their reputation.

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The math of SaaS revenue growth

Derek Pilling — Tue, 10 Nov 2009 07:02:26 -0800

A conversation with the CEO of a SaaS company today reminded me of the importance of the rule of 78s. What is this “rule”, you ask. If you run a recurring revenue business, it is the most important number you have never heard of.

Back to my conversation with the CEO. We were talking about the use of proceeds for the financing she is trying to raise. In her case, the business is break-even, but has the opportunity to grow into some oncoming market demand. So I asked a classic VC question; “Assuming you close the financing in Q4, 2009, what will your 2010 revenues be?” Simple question right?

Lets say that this company ended 2009 with $3 million in run-rate revenue and that the Company has two sales reps. Each sales rep. has a quota of $10,000 of incremental monthly recurring revenue (“MRR”) bookings per month. Sales reps. historically produce at 75% of quota in this company, so the incremental new bookings per month, per rep is $7,500. At its current level of sales and marketing resource and productivity, this business can expect to generate $1.17 million more in revenue in 2010 than it generated in ‘09. To get there, just multiple the $15k per month of incremental revenue the two sales reps. will generate by 78. Why 78? Because 78 is the ”sum of the digits” for revenue producing months in a year. Incremental revenue added in January will produce revenue for 12 months; incremental revenue added in February will produce revenue for 11 months; …; incremental revenue added in December will produce revenue for 1 month. The sum of digits for 12 is: 12 + 11 + 10 + … + 2 + 1 = 78. So the baseline revenue projection for 2010 should be about $4.17 million.

Now lets talk about the enhanced growth opportunity. The Company wants to hire two additional sales reps. who can be expected to produce at the same $7,500 of MRR as the two existing reps. For purposes of the example it will take a quarter to recruit and hire the two new reps and another quarter for them to build a sales pipeline given the sales cycle. Conservatively, these two new reps. won’t begin generating MRR bookings until June. Lets say there is a one-month install cycle so that June bookings convert to revenue in July. So what kind of incremental growth will these reps. generate in 2010? We don’t get to use the rule of 78 this time; no, because these reps. will produce for only six months during 2010, we use the sum of digits of 6, which is 21. That is a lot less than 78; that six month delay between making the decision to hire two new reps and getting them on board and productive really hurts. In 2010, the two new reps. will generate only $315k of incremental revenue. The business can be expected to generate $4.485 million of revenue in 2010; not meaningfully more than the base scenario without additional investment.

While this looks like meager growth, it doesn’t tell the whole story. Remember, this business came into the year with a $3 million run-rate. Without hiring the two new reps, the business should end 2010 with a run-rate of $5.16 million. By hiring the two new reps. that can be increased to $6.24 million, even though the two new reps. are productive for only six months. That incremental run-rate of over $1 million makes a huge difference and sure makes hiring the two new reps. look a whole lot more attractive than the meager incremental revenue they will generate in 2010.

Here are the key takeaways:

1) Get the Base Right: Recurring-revenue businesses are great because they are highly predictable. Applying the rule of 78s and with a little understanding of your sales resources and their productivity, you should be able to estimate your baseline next year revenue with a high degree of confidence.

2) Scaling Takes Time: The most common mistake I see recurring-revenue entrepreneurs make it to underestimate the time it takes for increased sales and marketing resource to impact the top-line. Hiring new sales people today probably won’t move the needle on your next twelve month revenue. More likely, an investment in sales and marketing won’t have meaningful impact until the following fiscal year.

3) Run-Rate Matters: You will see the impact of an investment in sales and marketing in run-rate much faster than in top-line GAAP revenues. If you are asked about what your revenues will be next year, answer the question directly, but also include a description of the difference in the run-rate you expect to end the year with under the no-growth and growth scenarios. The run-rate difference will impress much more than the top-line difference.

By the way, the CEO of the SaaS company I was speaking with got this analysis dead-right. Well done!

(Cross-posted @ Non-Linear VC)

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Is the Cloud Going to Kill Conventional SaaS?

Ben Kepes — Tue, 10 Nov 2009 06:23:40 -0800

Longhaul flights are sometimes useful in that they allow one to ruminate over some of the issues that the daily deluge of data doesn’t allow. On this partiuclar flight I’ve been ruminating over a post I read recently from Yobie Benjamin. In the post he interviewed the CEO of SugarCRM, Larry Augustin. The gist of the post was the assertion by Augustin that what he calls cloud computing is going to render traditional SaaS obsolete.

First some clarification – what Augustin is really saying is that IaaS will prove so compelling that it will force SaaS vendors to either move to IaaS or fall by the way side – in other words SaaS vendors with their own infrastructure will find it increasingly impossible to compete. In Augustin’s words;

Cloud computing is obsoleting SaaS as defined by SalesForce, NetSuite and similar single-vendor solutions. The distinction between SaaS and cloud computing is an important one. Cloud computing gives companies the ability to scale out computing resources on-demand. Rather than building data centers that can serve peak capacity for all of their applications, they can instead build data centers (private clouds) that serve the typical capacity of their mission-critical applications and then overflow to external clouds as necessary.

But to support this, applications must understand the cloud computing model and be able to scale across internal (private) and external clouds.

The next big opportunity is around interoperability and portability across the many cloud services out there (Amazon, Google, Rackspace, etc.) so customers can consume services without fear of lock-in and the high costs of being dependent on one vendor. This is where legacy multi-tenant SaaS applications like SalesForce begin to fail. They run in only the vendor's data centers, not across public and private clouds. They are unable to take advantage of cloud computing.

This assertion would seem, at face value and somewhat unintentionally, to be backed up by a slide that Phil Wainewright used in a recent Whitepaper, Redefining software platforms — How PaaS changes the game for ISVs (the writing of which, by way of disclosure for both Phil and myself, was supported by the Intuit Partner Platform who is a client of both of ours). The diagram (see below) shows the increasing duplication of infrastructure, and hence increasing inefficiency as one moves from shared infrastructure, to dedicated SaaS and through to on-premise.

It’s a powerful diagram and one which, by extension supports Augustin’s contention.

Jumping into the sphere of the discussion, if a little peripherally, comes a survey from Avanade. Hat tip to GigaOm for finding it and making the comment that the survey found that;

By a ratio of 4:1 (2:1 on a worldwide basis), respondents said they would prefer to have their applications delivered as services from internal platforms. Is SaaS the “killer app” for internal clouds?

But I came away wondering if Augustin was looking at the issue completely as a binary argument, when clearly it is not. It’s a reasonably well accepted, if seldom mentioned, fact among the clouderati that large SaaS vendors often offer their products to large enterprise customers as “private SaaS” that is SaaS applications installed on private datacenters where organizations can feel better about their qualms over security, reliability and all the other barriers corporate IT puts up to justify apprehension about SaaS.

So like many of these things, it’s very much a question of horses for courses. In the same way that Augustin’s own product, SugarCRM is available on-premise, via IaaS or any combination of the above, so to will other vendors slice and dice their products to meet the particular requirements of their customer base. For the SMB set, much more important than the on-premise/on-demand debate is the ability to utilize web apps with their existing workflows and product choices – this is where offerings like the IPP with it’s built in connection to QuickBooks on the desktop comes in. For larger customers the imperatives are different, security and reliability are top concern and, whether rightly or wrongly, their perception is that internal infrastructure gives them the best results over these metrics.

So the takeaway here is one of flexibility – as an industry, and given the nascent nature of cloud computing and it’s triumvirate of categories - IaaS, PaaS and SaaS – we do ourselves a disservice by being too dogmatic about these things.

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