Julian101.comThoughts, Lessons, Business Tips from ProWorkflow.com’s Serial Entrepreneur - Project Management Software

I found an old email the other day with some thoughts on bootstrapping our project management software company that I’d written to a mate. I thought it was interesting reading over what I’d written, so decided to repost the thoughts here… Here goes!

Regarding bootstrapping, It’s a hard balance. We put lots of time into systems and development, but sales suffer… or we focus on sales and then development suffers… Bootstrapping is fun to a point, then if the intention is to bootstrap through to profitability, the issue is 100% correct allocation of resources between development, sales, systems and marketing.

We don’t have a lot of wasted resource, only a tight team, no flash offices and a few contractors but we do A LOT with what we have. We have a good number of dedicated servers in California and one in NZ, are in profit and have no debt. So the years of hard work are paying off. Not an industry legend yet, but we’ll get there.

LOW INERTIA
The biggest problem I see in our local market is the high number of software/SaaS co’s trying to scale, but using (old school) high inertia sales and marketing.
Ie: people having to sell, or visit companies to sell. Or going to trade shows and exhibitions, travelling etc…

All this is fine, but the underlying business model HAS to be low inertia, otherwise, it’ll scale, but so will the costs and expense… and profit will never come. This is just good sense!

MARGINS
To be in NZ and compete in SaaS globally, there needs to be minimum expense per sale, and as the revenue grows, the margins need to expand as well. If your business’s margins shrink with scale, you’ll hit a lid and have no profitability long term… Expanding margins mean you can scale faster as you grow.

SUSTAINABILITY
Some companies I know of think that ‘Speed to market’ is the key. You must grow fast! – Not necessarily true… Long term sustainability is the key. We’d rather be smaller and healthy rather than rush things with the wrong model only to find out that we’ve scaled up too fast on a bad model and the only path to profitability is to take round two funding (and lose more control).

COMPETITORS
We track our competitors (as it’s a competitive market) and probably 20-30% of the ones I track have disappeared in the past 12 months. Gone! We don’t want that to happen to us…

INVESTMENT
In my personal opinion, Founders should also take a company to profit BEFORE taking investment to scale – otherwise you simply give away too much of the company and the investment goes into R&D (Investment should go to Sales/marketing). Not only that, but it’s those bootstrap years that help you truly discover the ‘profit recipe’ of your business. You can’t spend needlessly – every dollar out must return. This thinking can be lost or clouded if too much investment comes in too early.

THE SUCCESS FORMULA
Ultimately there is one formula we ALL must adhere to to succeed long term.

Cost to Aquire Sale < Must be Less than Average Revenue from Sale

Where most companies get it wrong is on the ‘Cost to Aquire a Sale’ part. They make plenty of sales, but when you look at their model and costs, with trade shows, print ads, high sales costs etc they can blow 30x or more the monthly revenue they’ll gain.

Ie: A software company may spend (if analysed) $2000-4000 in time and company resource to land an average $100 per month sale. This means they’re not in profit until that customer has been with them 30 months. On this note, every company has a different ‘Average Customer Retention’ time. This may be 3 months or 2 years, but simple maths will tell you that if it takes 30 months to get to profit and the ‘Average Customer Retention’ time is 12 months… Guess what… you have a problem… and you’ll be chasing 2nd round funding sooner or later to stay afloat.

Understanding the key metrics around ‘Cost to Aquire a Sale & Average Revenue from a Sale’ is a key issue we all need to focus on – every day…

That’s my 2 cents for the morning… Time for a coffee!

————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

I found this over on the website www.startup.co.nz. It was very inspirational! The HP garage has long been recognised as the birthplace of Silicon Valley. The guys at Bleeding Edge TV were lucky enough to get a guided tour of the garage recently along with the “Shed” the Hewlett used to live in.  For all you Start-UP entrepreneurs currently working out of your spare bedroom or garage this video should provide you with all the encouragement you need.

————-

————-
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

I noticed yesterday that Rod Drury - CEO of http://www.XERO.com has decided to quit blogging. Here’s a link to the post: http://www.drury.net.nz/2008/07/15/don/

Personally I think it’s a shame for any entrepreneur or tech savvy blogger to stop as we can all learn so much from each other. The more we blog, the more we learn. The more we learn, the more we grow. The  more we grow, the greater our footprint on the global stage.

I wish him all the best and know that he’ll still be hard at work, but as a software CEO myself, I can also appreciate that there is little time in the day to blog, tweet, msn, txt or chat online - there’s simply too much to do. So good on Rod for his decision.

I also saw in the comments that people were wanting to know of any other New Zealand technology or entrepreneur blogs. There are heaps, but here’s a list to get people started. (Send me any others and I’ll keep expanding the list)

NZ Blogs I Read & Recommend!

Julian101 - CEO, ProWorkflow - Entrepreneur tips, business advice from a CEO and web2.0 tech talk
Diversity - Business, Stategy, Web2.0, collaboration and more
Aardvark - Daily technology commentary and rants
ReadWriteWeb - General tech news
Make it Happen - Tim Norton, PlanHQ - Building a sustainable business and living the dream

Other Good New Zealand Tech Blogs!

GeekZone Blogs - http://www.geekzone.co.nz/blogindex.asp
Brendan Jarvis
Stuart Maxwell
Simon Young
Michael Koziarski
Miramar Mike
Bgeek
Devour
Bluespark
Rowan Simpson

I’ll keep adding blogs as I have time or as they are sent to me…

————-
Republishing Note:
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

I’ve been talking to someone today about what the software industry and SaaS game is like to work in. Just saying it’s “fast-paced” or “ever changing” didn’t quite cut it. Those of us in the industry will appreciate my description as they’ll be aware of the ever deepening layers of complexity when you consider software trends, business models, competition, social networking and all the factors that software co’s are based on - are changing rapidly - and often.

So here goes! My attempt to describe the industry:

“Being in the software industry these days is like trying to build a house on top of a train travelling at 200kph heading towards a tunnel – and the train tracks are still being built with no indication as to where they’ll lead to!

And all the time you’re trying to get people to rent a room in the house you’re building on top of the train!

And did I mention there were 50 other trains all heading toward the same tunnel?”

How’s that for an adventurous ride! I’d be keen to hear other people’s thoughts on the industry and how they’d sum it up in an ‘elevator pitch’.

I keep thinking though, how are the young kids coming through ever going to be trained sufficiently at any college to understand, be a part of, or excel in this new world? What they learn at school/tech is outdated when they leave, and you can’t guess the future trends enough to teach them.

It’s definitely going to breed some new thinkers in the coming generation. The new blood is going to have to ‘hit the ground running’ in highly competitive markets with little credibility or resources - only ideas and limited skills.

It’ll mean some really creative ideas will come through - possibly new business models, but my concern is that (in very general terms) we’re going to end up with a few ‘fad mega-successes’ or ‘mega-mergers and acquisitions’ and a huge number of struggling niche ideas with good revenue. Sustainability will become a rarity.  This is a “very general idea” of what could happen based on my knowledge, talking to hundreds of software co’s and some guesswork.

Year: 2000
20% - Struggling Software co’s
75% - Average Software co’s
5% - Successful Software co’s

Year: 2004
40% - Struggling Software co’s
56% - Average Software co’s
4% - Successful Software co’s

Year: 2008
60% - Struggling Software co’s
27% - Average Software co’s
3% - Successful Software co’s

Year: 2012
75% - Struggling Software co’s
23% - Average Software co’s
2% - Mega Successful Software co’s

Year: 2016
85% - Struggling Software co’s
14% - Average Software co’s
1% - Mega Mega Successful Software co’s

With the increase in competition, speed of new players (coming and going) and more M&A’s by Google and others… This is how I see it going. I hope I’m wrong, but time will tell…

Republishing Note:
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

About a year ago, I did a series of YouTube vids for a laugh and also to share some advice I’ve learnt along the way developing www.proworkflow.com . Although I’m a year older now, and a bit more wise and weathered, this advice still stands. Please excuse the poor quality of the sound - I was experimenting with a camera and got some lag.  But I bet Twitter wished they’d listened to the first vid!

Here’s the series! Have a watch and tell your friends!

Business Tip - Don’t scale up before testing!
Learn why you shouldn’t scale up you web business before testing your internal systems and processes.

Business Tip - Don’t Make a Startup!
Learn why you need to make a ‘Started-up’ rather than a startup.

Business Tip - Be Good Don’t Suck!
Learn how and why you need to be good at what you do and how not to suck.

Business Tip - Low Inertia Web Businesses!
Learn why people love to hear a physical voice behind an internet company or web based business.

Business Tip - People love to hear a voice!
Learn why people love to hear a physical voice behind an internet company or web based business.

Business Tip - Fish in the Demo Pool!
Learn how and why you should be fishing in the demo pool of your web based business.

Republishing Note:
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

One of our latest ProWorkflow customers is an effects shop in San Francisco called “Ordinary Kids”. Check them out over at their website - http://www.ordinarykids.com/. I have to say, this effects reel is absolutely brilliant - they’ll go far!

I think it’s fantastic to see some creativity. This vid should go viral and will probably do more to spread the word for them than a normal effects reel. Great stuff!

Republishing Note:
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com

Ben Kepes just posted his thoughts on the XERO end of year results on his Diversity blog. Go have a read as it’s an interesting business venture that many are following with interest:

http://diversity.net.nz/xero-year-end-results/2008/05/14/

Here’s my comment on the blog post.

What it amounts to I believe is that XERO is like no other business in the sense that, remarkable product or otherwise, to build a sustainable SaaS business just takes time and hard work (and watching the balance sheet).

SaaS businesses in the early years always looks ‘on the surface’ like they’re finding sales hard as the revenue always appears less than people expect. This is because the very nature of SaaS is many, small payments, monthly. It takes time to build the revenue, and for quite a while it seems like not a lot is happening - but then the revenue picks up. And SaaS revenue is like gold!

When you have thousands of committed customers paying monthly, it takes a major event to dent the revenue stream. SaaS becomes a solid revenue model, compared to traditional software service companies that may have only a few high paying customers. ie: When they lose a customer - there goes 250k and some jobs.

I do wish XERO all the best, and New Zealand’s tech community is watching with great interest, but what we all want to see is XERO get to the positive cash flow - covering overheads, before the cash in bank runs out. A XERO success is good for everyone…

So yes, looks like they need to ramp up fast, and they’ll know that and be working towards it… But my comment for the day (We’re in SaaS too) is don’t judge a SaaS businesses potential by it’s first years results. it’s the nature of this type of revenue stream to be low initially, then (if they have a winner product/model) it grow exponentially.

What we don’t want to see is linear growth. These business models should grow exponentially.

As a side note. It takes some balls to run a company with public financials. I wonder what comments we’d all make if we could publicly scrutinize each others business accounts?

————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

I’ve had a few good chats lately with Patrick Macfie from Start-up.co.nz about what they’re up to with the Start-up venture. This is a great New Zealand based resource for people needing startup advice, info, resources or simply to see who else in in ’startup mode’ as well.

Whilst our company ProActive Software, developers of the ProWorkflow Project Management Solution aren’t in startup mode any more, I wish this website had been around when we were. There’s a lot of  great material worth checking out. I asked Patrick to send through a bit more in-depth info about the website and what they’re doing. Here’s what he sent through.

Why Start-UP?

The idea for Start-UP came about as a result of our own online startup experience/ failure.  A friend and I tried unsuccessfully to launch an online service and in the process lost a whole heap of cash (I’m talking six figures).  During our Startup journey we spent a lot time scouring the Net looking for any information that could point us in the right direction and people that maybe able to help us. I quickly realized that there was a real lack of locally relevant content and that there were some really big barriers online companies faced to being successful here so we decided to do something about it. 

We were really determined that others wouldn’t suffer the same indignity we had gone through on our startup journey and wanted as many people as possible to get access to the right info and advice and decided the best way to do that was through a mainstream media channel like TV.  We had always remarked that our experience would make great TV so I pitched the idea of a documentary television series based on the journey of a group of kiwi online entrepreneurs trying to break into the international market to a long time friend that was a TV producer.

Through the series we wanted highlight the challenges that we had faced and hopefully offer up some answers on how to do it better.  The plan was to utilize that mainstream TV coverage to drive people back to the Start-UP site where they could get access to more practical information.  So really we’re now just in the early stages of execution on our go to market strategy, the TV series went into full time production last week, the website is up and running and the community is building nicely and somehow we managed to launch a magazine in the middle of it all.

What do I hope it’ll do for the industry.

I really hope that we can draw attention to the potential that the online space has to offer the NZ economy, we’re not looking to be industry spokespeople or anything like that (I think that’s wanky in a web 2.0 world) but I do passionately believe that the online space represents the single largest export opportunity that this country has in the near future.  We want to encourage growth and investment into the sector and we want to shout about the successes and learn form the failures.  We want to provide a mainstream media channel for online startups and create a community of online entrepreneurs that share knowledge and experience for the benefit of the community that results in better online businesses coming out of NZ and impacting the World.  

Patrick MacFie
Founder Start-UP - http://start-up.co.nz

Keep up the great work guys… I’ll keep coming back and watching with interest! We need more resources like this.

Republishing Note:
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

It’s a hard balance being in the Software/SaaS (Software As A Service) industry. We can put lots of time and focus into systems and development, but sales may suffer… or we focus on sales and then development suffers… ProActive Software (www.proworkflow.com) has bootstrapped (growth through no funding, and only sweat equity) to profitability thus far and this is fun to a point however if the intention is to bootstrap through to profitability as we’ve done, the issue is 100% correct allocation of resources between development, sales, systems and marketing.

We don’t have a truckload of resource, rather a smaller dedicated team and no massive flash offices (ProActive is largely a virtual team). There are a few contractors globally but we do A LOT with what we have.

We’re up to a good number of dedicated servers in California and one in NZ, and are in profit. So the years of hard work have paid off. Revenue is looking healthy and we all earn good salaries (founders work 16hr days).

The biggest problem I see in both the local and global market is the high number of software/SaaS co’s trying to scale, but using (old school) high inertia sales and marketing.

Ie: people having to hard sell, or visit companies premises to sell. Also, trade shows and exhibitions, travelling etc…

All this is fine (if you can afford it), but the underlying business model HAS to be low inertia, otherwise, it’ll scale, but so will the costs and expense… and profit will never come.

To be in New Zealand and compete in the SaaS market globally, there needs to be minimum expense per sale, and as the revenue grows, the margins need to expand as well.
If your business’s margins shrink with scale, you’ll hit a lid and have no profitability long term… Expanding margin mean you can scale faster as you grow.

Some companies I know of think that ‘Speed to market’ is the key. You must grow fast! – Bollocks - it’s a myth! Long term sustainability is the key. Be smaller and healthy rather than rush things with the wrong model only to find out that you’ve scaled up too fast on a bad model and the only path to profitability is to take round two funding (and lose more control).

We track our competitors (as it’s a competitive market) and probably 20-30% of the competitors I track have disappeared in the past 12 months. Gone! We won’t allow that to happen to ProActive Software  ;-)

In my personal opinion, Founders should also take a company to revenue BEFORE taking investment to scale – otherwise you simply give away too much of the company and the investment goes into R&D (Investment should go to Sales/marketing). Not only that, but it’s those bootstrap years that help you truely discover the ‘profit recipe’ of your business. You can’t spend needlessly – every dollar out must return. This thinking can be lost or clouded if too much investment comes in too early.

Ultimately there is one formula we ALL must adhere to to succeed long term.

COST TO AQUIRE a Sale
   < Must be Less than
AVERAGE REVENUE from a Sale

Where most companies get it wrong is on the ‘Cost to Aquire a Sale’ part. They make plenty of sales, but when you look at their model and costs, with trade shows, print ads, high sales costs etc they can blow 30x or more the monthly revenue they’ll gain..

Ie: A software co may spend (if analysed) $1000-2000 in time and company resource to land an average $50 per month sale. This means they’re not in profit until that customer has been with them 30 months. On this note, every company has a different ‘Average Customer Retention’ time.
This may be 3 months or 2 years, but simple maths will tell you that if it takes 30 months to get to profit and the ‘Average Customer Retention’ time is 12 months… Guess what… you have a problem… and you’ll be chasing 2^nd round funding sooner or later to stay afloat.

Understanding the key metrics around ‘Cost to Aquire a Sale & Average Revenue from a Sale’ is a key issue we all need to focus on – every day…

That’s my 2 cents for the morning… Time for a coffee!

Republishing Note: 
Anyone is welcome to republish this article as free online content, provided that the paragraph below is included in the full form as shown.
————-
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
————-

Cleaning out a desk in the office I came across an old memory - My old CV. Now this is a legendary work of art! It’s made of 5mm griptred aluminium, galv steel gate hinges, is wonderfully semicircular and has semi translucent pages. I made this when going for a job as an effects animator many years ago at WetaDigital in Wellington. I thought “Well, it is visual effects, so I should make my CV stand out”. This took about a week to construct, and all the time I was putting passion in my work, sweating over the band saw, late nights formatting the pages, lovingly polishing the CV’s bulletproof pages!

I got the job, but my current employer made an even better offer so I stayed put, which was the right move as I’d probably now be a specialist in creating realistic Hobbit toe hair strands in prep for the greenscreen 3d digital matt overlays in post production. Cool job, but probably not very transferable skills. Instead I’m now CEO of a successful global software company.

Getting to the point though, looking back, I have never in the past 10 years seen a CV that showed even a glimpse of creativity or would stand out in a pile of CV’s. Mine would, it’d be the paperweight on top! And if put further down the pile, other CV’s would fall off it!

I just don’t see the passionate creative spirit that a lot of early Gen-X’ers bught to the table in the early days. We used to fight for our jobs, put the effort in so we knew the name of the interviewers dog! We’d be there on time, I even wore an orange suit once just to stand out! My first two jobs I proactively approached and offered to work for free just to get a foot in the industry. And then I bought and sold motorbikes and cars to make profit to cover the travelling money until I was proven and put on a good wage.

Two things I’ve noticed over the last decade. People aren’t passionate or creative in getting into employment and they seem to want jobs handed to them for little work or effort.

Have jobseekers lost their creative spirit?

Also, thinking about LinkedIn, and other online profile services, are we heading towards a time where ALL CV’s are a basic formatted print of a web page? Not even on a decent watermarked, textured paperstock? How will we ever really sort the people with ‘true heart/life passion’ from the ones that ‘manufacture’ passion online? There’s no way to tell if someone’s ‘online presence’ is really a reflection of them, the social networking fad of the time, or whether their online presence was developed by a $12 developer in Romania to make them look good.

I’m hoping we aren’t losing our true creative spirits to the Internet. Just remember - creativity isn’t in the medium, it’s in the person and everything that person does should reflect their passions, even a dull old CV! You want to know a person? look at a mundane item they’ve made like a CV and see if they’re put heart into it.

I’m still waiting for someone to knock on our door and say “I must work for you - I’ll make it happen!”. We’re a leading SaaS company in New Zealand playing on the global stage daily and would be a great company to work for to get a true taste of where the web is going…

No knocks on the door yet… We’ll just keep on keeping on!

——–
About the author:
Julian Stone, CEO – Project Management Software visionary for: ProActiveSoftware.com, ProWorkflow.com & Julian101.com
——–