The Most Important SaaS Metric Nobody Talks About: Time-to-Value (‘TtV’)

In a world where applications are delivered via cloud and distributed across billions of Internet-connected end-points, we’ve seen barriers to entry, adoption and innovation compress byan order of magnitude or two, if not crushed altogether. Compound this by advances in application and data portability and the implication for technology
vendors competing in this global, all-you-can-eat software buffet is that customers’
switching costs are rapidly approaching zero. In this environment it’s all
about the best product, with the fastest time-to-value and near zero TCO. And
it’s this second point – time-to-value (TtV) – that I want to dig in on a bit
because it tends to be the one glossed over most often.

I’ll start
with an anecdote …

A portfolio
company of ours delivers a SaaS platform that competes with legacy, on-prem
offerings from large infrastructure software vendors. In its early days the
company had fallen into the enterprise sales trap: spending weeks, if not
months, with individual customers doing bespoke integration and support work.
About a year in when we finally decided to open up the beta to everyone, sign-ups
shot up, but activity in new accounts was effectively nil. What was going on?

Simply,
customers didn’t know what to do with the software once in their hands.
Spending months with large accounts did inform some fundamental product choices,
but at the cost of self-service. Our product was feature-bloated, on-boarding
flow was clunky and the integration API was neglected and poorly documented.

In a move
that, I believe, ultimately saved the company, we decided to create a dedicated
on-boarding automation team within product. Sure enough, in the months that
followed, usage spiked and the company was off to the races.

The takeaway
is that highest priority should be given to building software that just works,
and that means focusing relentlessly on reducing or eliminating altogether the
time investment to fully deploy your solution in production. Ideally, you want
customers to derive full value from your offering in mere minutes, if not
seconds. To do so, treat on-boarding as a
wholesale product within your offering and devote engineering resources to it
.
Find religion about optimizing TtV!

Below is by
no means a complete list, but instead a few lessons that I’ve taken away from
my experience with our portfolio that many SaaS companies should internalize in
their product and go-to-market strategies to help optimize TtV:

Simplicity
wins…be feature-complete, not feature-rich:
This is a fairly obvious but subtle
point that often evades even the most talented product teams: the defining
characteristic of a simple (read: good) product is not the abundance of features but rather the relevance of those features to its users. This stands in stark
contrast to the old Continue reading “The Most Important SaaS Metric Nobody Talks About: Time-to-Value (‘TtV’)”

Ethics of Algorithms

Slightly belated we have another topic of the over at usv.com: The Ethics of Algorithms. I have written a bunch about this topic in the past, for instance when discussing the need for an opposing view reader or the danger of information cascades. Both the people working on algorithms, such as filtering a feed and making recommendations, and the endusers of these applications need to weigh in on the discussion. So head on over to usv.com and join in.

PS If you don’t really know what an algorithm is but are afraid to ask you can find all my Tech Tuesday posts about algorithms.

Do Not Take this Software Era for Granted (Pt. 1)

We live in an amazing era of software. We walk around with powerful networked computers in our pockets/purses where we can wirelessly download millions of software titles, most for free, in under a minute. While most people can appreciate how insanely cool this is, I think there is an important secondary effect. An aspiring software […]

Don’t Contort Your Org Chart

We’ve all seen a “standard” organization chart. It has (1) the CEO at the top, (2) Four to eight Vice-presidents below, each in charge of a business function and reporting to the CEO, (3) Directors in the reporting chain below the Vice-presidents, and (4) a variety of folks with different (and non-standard) titles in the reporting chain below the Directors. 

I would claim that this “standard” org chart is actually a good template to follow in organizing a start-up through, say, the first 40 people. I’m not sure if the converse is true, but I can say (without having done a rigorous study) that, in my 35 years of working with start-ups, there is a strong correlation between (1) start-ups with org charts that were “contorted” in some way (compared to the “standard” one) and (2) start-ups that ended up with some kind of founder trouble. Thus, if there are “odd” lines of reporting, or if there are “odd” titles that don’t fit in a standard org chart, it usually raises a red flag for me. If you’re having trouble fitting one of your co-founders into a standard org chart, you should think about whether he’s the right person (or, at least, in the right role). 

A few examples may make this clearer: 

(1) “Founder” is a ceremonial title, not a functional one (such as CEO, Vice-President).  It has no legal significance, and should not appear in an org chart, even for a start-up.  Beyond the very early stages of a start-up, it does not describe a job role.  All co-founders should give some thought to what they’re “real” job is when their start-up grows beyond, say, 8-10 people and starts to need some organizational structure.  Said another way, if your title is “Co-founder”, you need to be “Co-founder and Something Else”, where the Something Else describes a job with a business function attached.

(2) almost no start-up needs a “Chairman”; the office has no real meaning in a setting where most of the board members represent major stockholder interests (including holders of founders’ stock); rarely, it might make sense to give the Chairman title to an outside board member who brings particular prestige and gravitas to the Company, and who is “active” in helping the Company in some way. My advice to founders: avoid extraneous uses of Chairman. 

(3) Almost no early-stage start-up seeking VC funding should ever have one founder as the “CEO” and another as “President” or “Chief Operating Officer” (and, God forbid, per the immediately preceding point, certainly no Chairman!). This is almost always a sign of title inflation (usually to assuage/massage someone’s ego). Almost guaranteed, any start-up that has a Chairman and/or a CEO and/or a President/COO has the wrong person in one (or more) of those roles. This sort of title inflation and proliferation is almost always – like most other “contortions” of the standard org chart – a red flag to VC’s. It will Continue reading "Don’t Contort Your Org Chart"

I’d like a combined ebook/audio book product

Just finished reading about a fairly stupid new book scanning product from Amazon and it reminded me of a product I’d actually really like to have – books that comes in both ebook (text) and audio formats, with tracking and the ability to switch back and forth at will.

I read most of my books on my iPhone 6 plus now. Before that was an iPad. I also listen to audio books in the car and on walks. But sometimes it takes me months to finish a book in the car @ 13-20 hours of audio, and whatever book I’m listening to there in the car is of course a different book than the one I’m reading on my iPhone.

I’d pay a big premium for a combined book format that had both text and audio and allowed me to switch back and forth while reading/listening. Seems like a no-brainer Continue reading "I’d like a combined ebook/audio book product"

I’d like a combined ebook/audio book product

Just finished reading about a fairly stupid new book scanning product from Amazon and it reminded me of a product I’d actually really like to have – books that comes in both ebook (text) and audio formats, with tracking and the ability to switch back and forth at will.

I read most of my books on my iPhone 6 plus now. Before that was an iPad. I also listen to audio books in the car and on walks. But sometimes it takes me months to finish a book in the car @ 13-20 hours of audio, and whatever book I’m listening to there in the car is of course a different book than the one I’m reading on my iPhone.

I’d pay a big premium for a combined book format that had both text and audio and allowed me to switch back and forth while reading/listening. Seems like a no-brainer to me.


Walden closes eighth fund, adding $107M to its war chest

treasure chest
Want to master the CMO role? Join us for GrowthBeat Summit on June 1-2 in Boston, where we'll discuss how to merge creativity with technology to drive growth. Space is limited and we're limiting attendance to CMOs and top marketing execs. Request your personal invitation here!

Walden Venture Capital has closed its eighth fund with a total of $107 million, which it will use to pursue investments in digital media and cloud companies. (Disclosure: Walden is an investor in VentureBeat.)

Walden focuses on what it calls “sprout stage” investments — a cute way of describing post-seed companies that have “sprouted” and are showing some customer traction. The firm typically invests $1 million to $4 million and prefers to take the lead investor position.

“I saw a marked shift in attitude toward venture capital” compared to 2008 and 2009, managing director Matt Miller told VentureBeat. “Back then, there was little appetite Continue reading "Walden closes eighth fund, adding $107M to its war chest"

Is your startup cash efficient?

With cash now running rampant in the startup and venture world, cash efficiency is often overlooked for pure focus on revenue growth. Yes, revenue growth is critical in startup growth and proving product/market fit – Brad Feld had a great post recently tying revenue growth and levels to product/market fit milestones for startups – but what […]

These are the top 10 corporate venture firms that could invest in your startup

Google Ventures office Google Ventures
Want to master the CMO role? Join us for GrowthBeat Summit on June 1-2 in Boston, where we'll discuss how to merge creativity with technology to drive growth. Space is limited and we're limiting attendance to CMOs and top marketing execs. Request your personal invitation here!

Updated at 3:42 p.m. Pacific to add context about Salesforce Ventures.

Last year, venture capital funding hit its highest level since 2000, coming in at $47.3 billion, according to CB Insights, a startup that keeps tabs on private companies. And more than a quarter of that money came from companies’ venture arms.

That’s according to a new report out today from the firm.

The report says corporate venture investors made 656 deals, altogether shelling out $12.31 billion. That dollar figure is up 76 percent over 2013, and the deal count is up 25 percent. One interesting factor: Corporate venture firms are making

CB Insights
Continue reading "These are the top 10 corporate venture firms that could invest in your startup"

Alibaba vs Google & Amazon

Having felt like I was reading about a new investment every month from Alibaba, it got me thinking about how rapidly they are expanding their reach outside of China. While many have written about this recent frenzy, I had not seen anything comparing Alibaba’s investing activities in the US to that of Google and/or Amazon in China.  As the digital platforms move towards true global competition, I got curious about the data.

Thanks to the folks at CB Insights, I looked at the data of investments made in the US by Alibaba and in China by Google and Amazon as far back as the data went.

Capture

By number of deals, Alibaba has a substantial lead, but by investment value (shown below), the difference becomes staggering.

The data is fairly stark.  If you look at the individual deals, Alibaba is investing in all the areas you would expect — mobile, gaming, ecommerce — and even some you would not, expanding their sphere of knowledge and influence as they chart their inevitable global push.  For Google and Amazon, is the difference deliberate and due to different strategic choices or is it because China remains a more difficult and protected environment to enter and invest?  If it’s the latter, does that put the leading US platforms at a structural disadvantage competing in the global stage? We are entering a new era of the digital Game of Thrones and this will be interesting to watch play out.

Some notes on the data:

1) Investment dollars reflects total round size, as a reasonable proxy for invested dollars, as well as acquisitions. Some deals did not have any announced round size and are included at $0.

2) This is solely focused on investments and does not include capital associated with local operations in country.

Thanks to my colleague David Rogg for assistance pulling this post together.


Tagged: Alibaba, Amazon, e-commerce, Google

Data Snapshot: VC-Backed BioPharma M&A 2014

Similar to this time last year, when IPOs were capturing everyone’s attention, M&A in biotech has been delivering real value.  This morning HBM Partners released their outstanding report on BioPharma M&A in 2014 (here), and the conclusions are in line with the positive cadence and tenor of today’s excitement in the biotech market.

Last year in early February, I posted on the “fourth straight year of impressive results” in M&A in the biotech space; with this post, lets make that five straight years.

In fact, according to HBM, “2014 was the best ‘exit year’ for VC-backed biopharma companies over the past decade”.

As I’ve done in past years (here in 2011, and here in 2014), here’s a look a few of nuggets of their 2014 M&A report, with a focus on the VC-backed biotech returns (as their report covers all BioPharma M&A, public and private equity backed returns included); I’ll call out a few conclusions, echoing what the messages they state very nicely in their report:

First, while the number of VC-backed M&A xits is in line with prior years (~25 per year), the value both in terms of upfronts and full “biobuck” potential have reached new highs, topping over $5 and $8 billion, respectively. The percentage of deal value in the upfront has steadily been between 40-50% for most of the past five years.

HBM1a

 

Second, the average values per deal are steadily escalating – even though the average invested capital required to get there has remained steady. This chart below shows overall, upfront-only, and invested capital average values in the VC-backed cohort of annual M&A deals.  Nice to values tracking in this direction, and that the average capital intensity in biotech (at least for these exits) has not been increasing.

HBM2a

 

Lastly, these trends have led to a very robust and positive return trend. HBM uses, appropriately, the proxy of total deal values divided by total invested capital to come up with the weighted average return multiples on an annual basis. This is the key chart. Return multiples have almost tripled since 2005-2007 on overall deal multiples, and have more than doubled on the upfront multiples.

HBM3a

 

HBM further calls out two spectacular wins – Seragon’s purchase by Roche/Genentech for $725M upfront and $1B in earnouts; and, Alios’ acquisition by J&J for $1.75B. Both exits should have returned over 20x returns on a handsome amount of capital

As I noted in last week’s post on the state of VC-backed biotech today (here), the exit environment has been very positive – and I fully expect the M&A component of this environment to continue to be attractive as the fundamentals of more collaboration between Big Continue reading "Data Snapshot: VC-Backed BioPharma M&A 2014"

In Defense of Global Thought

Yesterday evening I participated in an interesting meeting at Columbia University to talk about the efforts of the Committee on Global Thought. While the name does sound somewhat ominous (vaguely Orwellian? Stalinist?), I believe it is important to call out “global” explicitly. The three most pressing challenges of the world are global in nature: technology’s impact on the economy and society, climate change and infectious diseases. These each have wildly varying local impacts but are fundamentally global in their nature.

Reading this morning about Obama’s budget and proposed corporate tax reform was an immediate reminder of that. Companies operate globally and avail themselves of vastly different tax regimes across countries to minimize their overall tax rate. The net result has been that US companies have accumulated a vast trove of cash overseas. Apple alone has close to $150 Billion of cash overseas and in the meantime is issuing bonds in the US in order to avoid bringing that cash back (where it would be taxed).

Put differently: as technology facilitates global operations of corporations, taxation goes from a national issue to a global issue. As long as some countries offer super low or non-existent corporate tax rates, companies will figure out how to accumulate their profits there. One of the common schemes involves the transfer of intellectual property to such a country, then charging business units worldwide for the use of that IP and thus moving profits to the IP business unit (Apple does this extensively).

In the extreme, companies will decide to move their domicile entirely. This has been particularly popular recently among pharmaceutical companies. US pharmaceutical companies have been acquiring UK ones and then flipping their domicile to the UK in a trick known as “inversion.”

One way a program such as Columbia’s could have an impact is by bringing together responsible parties from across the globe on an issue such as corporate taxation, fostering a dialog, and proposing some standards that countries should adhere to. This would also be an opportunity to call on the leaders of US and multi-national companies who claim to be interested in corporate tax reform but then don’t seem to like any of the proposals.

The Internet is a Meritocracy

If you own a typical physical store, almost all of your customers live or work within a few miles of your location [1]. Even for big ticket item like cars, 80% of purchases are made at dealerships that are within 30 miles of the buyer's home [2].

Because of physical restrictions on how far most people are willing to travel, building a successful offline business doesn't mean being the best in the world at something, it means being the best option within five or ten miles -- or sometimes being the only option within five or ten miles.

Unless your company has a strong physical component (e.g. Uber or Homejoy), building a business online is completely different. Instead of competing against similar businesses in the same city or same county, you're competing against similar businesses everywhere. That's right, everywhere. This is why VCs ask founders questions like: "why is Continue reading "The Internet is a Meritocracy"

The Internet is a Meritocracy

If you own a typical physical store, almost all of your customers live or work within a few miles of your location [1]. Even for big ticket item like cars, 80% of purchases are made at dealerships that are within 30 miles of the buyer's home [2]. Because of physical restrictions on how far most people are willing to travel, building a successful offline business doesn't mean being the best in the world at something, it means being the best option within five or ten miles -- or sometimes being the only option within five or ten miles. Unless your company has a strong physical component (e.g. Uber or Homejoy), building a business online is completely different. Instead of competing against similar businesses in the same city or same county, you're competing against similar businesses everywhere. That's right, everywhere. This is why VCs ask founders questions like: "why is Continue reading "The Internet is a Meritocracy"

The Internet is a Meritocracy

If you own a typical physical store, almost all of your customers live or work within a few miles of your location [1]. Even for big ticket item like cars, 80% of purchases are made at dealerships that are within 30 miles of the buyer's home [2].

Because of physical restrictions on how far most people are willing to travel, building a successful offline business doesn't mean being the best in the world at something, it means being the best option within five or ten miles -- or sometimes being the only option within five or ten miles.

Unless your company has a strong physical component (e.g. Uber or Homejoy), building a business online is completely different. Instead of competing against similar businesses in the same city or same county, you're competing against similar businesses everywhere. That's right, everywhere. This is why VCs ask founders questions like: "why is your team the right team to build this product?" and "how will you maintain your lead against other competitors?" Implicit in these questions is the assumption that most online business categories will have one big winner, and that there's no physical moat against competitors.

This is the scary side of competing online: there are no physical barriers to limit your competition. You have to be the best at something, otherwise you'll eventually fall.

There's an encouraging side to competing online, too: being the best in the world at something will yield massive rewards. While a local candy store or barbershop or car dealer are very unlikely to scale up globally no matter how fantastic they are, a great online product can gain market share quickly and (relatively) cheaply. Furthermore, mechanisms like Twitter and Facebook and social sharing and online reviews all serve to aid great companies and punish mediocre ones. Even if you operate in an vertical with some cultural barriers -- for example, India and China each have their own versions of companies like Amazon -- you have a shot at capturing a large share of the global market.

The important thing to remember is that the internet is a meritocracy. You won't win by being the only choice in town, you'll win by being the best choice. Not necessarily the best in every way, but the best in some way, to some group of customers. If you can't find a group of people who would prefer your service to everyone else's, then it might be time to step back and reassess your value proposition.

[1] http://www.signs.com/blog/the-benefits-of-signage-infographic/

[2] http://www.autonews.com/article/20131019/RETAIL/310219854/consumers-are-traveling-farther-in-search-of-the-perfect-car

Thanks to my partner Chad for feedback on this post.

20 VC 009: Red Flags, Becoming a VC and Saas with Joe Floyd

Screen Shot 2015-02-02 at 17.48.10

On today’s episode of The Twenty Minute VC, I am hugely excited to welcome Joe Floyd to the hotseat. Joe is Principal at Emergence Capital Partners. His expertise in building cloud startups has evolved over 10 years of advising and investing in startups. Prior to Emergence, Joe worked in American Capital’s technology group where he focused on fast growing internet companies. At American Capital Joe was involved in their investments with the likes of PeopleMedia and HomeAway.

Items Mentioned In Today’s Show

What you will learn in today’s show:

20 VC 009: Red Flags, Saas and becoming a VC with Joe Floyd

On today's show I am hugely excited to welcome Joe Floyd to the hotseat. Joe is Principal at Emergence Capital Partners. His expertise in building cloud startups has evolved over 10 years of advising and investing in startups. Prior to Emergence, Joe worked in American Capital's technology group where he focused on fast growing internet companies. At American Capital Joe was involved in their investments with the likes of PeopleMedia and HomeAway. Items Mentioned In Today's Show   What you will learn in today's show:

Apple on privacy, security and identity

One of the things I noted in my post on Apple Pay was that Apple tends to deploy key building blocks for new strategic moves as smaller, stand-alone products in preceding years. Hence Touch ID (and Passbook) was already there before Apple did payment. They served their own use case first, and worked properly, and then Apple added Pay a year later. This, of course, prompts the question as to what other building blocks have been deployed today that will turn into something else in a year or two. 

I was reminded of this recently when looking at the way Apple has started to talk about privacy. This isn't just show - it deliberately avoids collecting user data even in some cases where it would be a tool to create a better product. But as a piece of marketing, it's not clear to me how useful privacy really is. Yes, it's easy to say 'if you're not paying, you're the product', but people clearly understand that about Google and Facebook and keep using them (though they may change how they use them, especially for Facebook). There's a small group of people who care deeply about this, and it varies a fair bit by country, but Microsoft tried the 'scroogled' campaign and got nowhere. Why would it work better for Apple? Tim Cook has suggested that there may be a catalytic event that will change attitudes. Perhaps. 

However, it may also be that as our phones go from sharing pictures to unlocking our front doors, privacy becomes a much more valuable selling point. This might be one reason why Nest is being kept semi-detached at Google. Worrying that Google knows what you search for has always seemed to me rather like worrying that your bank knows how much money you have, but Google knowing when you get out of bed or unlock your front door might be different (though of course it gets a fair bit of this through Android). So, perhaps Apple is talking about privacy not because of its current products, but because it thinks privacy will be a real competitive advantage for future ones. Not the iPhones, but the Watch, or other wearables, or the connected home. There's an interesting question here - is the big data dividend worth the privacy implications? Is it better to let Google know when you flush the loo for what it can tell you about your bowels, or would people really rather not? 

The other piece of string to pull on here, I think, is identity. It does seem clear that the 1970s model of a unix system user ID and password doesn't scale that well to billions of normal people, all using 12345 as their passwords and saving them in a file called 'passwords', Continue reading "Apple on privacy, security and identity"

The idea maze for AI startups

An “idea maze” is a map of all the key decisions and tradeoffs that startups in a given space need to make: A good founder is capable of anticipating which turns lead to treasure and which lead to certain death. A bad founder is just running to the […]