You are a Cloud Service provider. You have successfully developed your first minimum viable product offering...
Now you want to sell and grow. With or without Venture Capital. What are the steps towards rapid growth? What are the costs? Here are the answers
Let us assume, you have managed your seed phase. You have a product, you want to make it fly. (If you want to read more on seed phase and general product management approachs in the Internet age, have a look at our articles on Lean Startups and Venture Management). But let us assume, Seed is successfully done.
Indicators - you have a ready product. Now starts the important phase: Growth. As resources are limited, be focussed, do not try offer too many different things in one go. Many successful companies like Dropbox or Twitter focus on one single service offer, and optimize all the factors around.
Our Focus in this article: Online Sales
Most of the SaaS solutions have a mainly online sales approach. That does not exclude offline sales like Trade Shows or Conferences. In the contrary, depending on the market, these activities are complementing your marketing-mix and important.
But they are normally rather in the periphery of your activities.
So how do we grow our product sales successfully. Here is what you need to consider.
Success rarely comes over night. Reserve sufficient budget for our online marketing strategy. It should be inbound and outbound in the same time. You may need some ramp up costs between 5.000 and 20.000 EUR. To achieve sustainable growth you need monthly budget. Our experience shows that the following figures are reasonable at the lower end. You can always invest more, but you should not burn money.
A reasonable monthly budget for a startup would be inbetween 4,000 EUR and 9,000 EUR including:
1.1 Inbound Marketing Services: 3,000 - 8,000 EUR p.m.
- Continuous market analysis and keyword management
- Buyer journey and buyer personna design and evolution
- Buyer requirement elicitation (not only your products but the general: what are their painpoints)
- Website design and evolution
- Writing of blog articles and white papers
- Social Media Management (important are Twitter, LinkedIn and Google Plus)
- Google adwords management and ad optimization (no Google fees included)
- Continuous analysis
1.2 Marketing Infrastructure and Fees: 200 - 2,000 EUR p.m.
- Content Management System
- Online Analytics Suite
- Blog Management and Publication
- Social Media Management
- Analytics and Control Center
- Live Chat Plug-in
1.3 Google Adwords: 300 - 2,000 EUR p.m.
- Monthly Google Adwords Fee
1.4 Featured Articles: 1,000 - 2,000 EUR p.m.
- Writing a featured article in a market segment journal (4 per year)
- Publishing fee (4 per year)
1.5 Final Thoughts on these fees
There is always the discussion ongoing whether to outsource or not. David Rockefeller used to say: "I delegate everything where somebody else is better than I am". Being a serial entrepreneur, I used to be regularly confronted with that question. The good thing if you source out a service like the inbound service: It is cheaper than a marketing person (salary, charges, computer, phone, office space, ...), and you can bundle experts from several domains. I personally never regretted two groups of service expenditures: those into marketing services and those into lawyers. The first group makes sure you are successful, and the second makes sure nobody will maliciously cream off the fruits of your work, once success is there ...
There is always the discussion on whether to use Google Adwords. Our experience says that it makes sense to use it in a targeted ways, meaning in targeted markets (E.g., B2B Fintechs focus on adds in New York, London, Tokyo, Frankfurt, Paris) and always within a campaign with continuous performance evaluation.
And do we really need featured articles? There is lots of lousy journals in the market, where you would simply burn your money. But, given you are a Fintech, and you place a well-researched article in a serious banking online journal, with the deal to get a defined number of contacts, e.g. from banks and financial institutes that would make sense. But my experience is: if another call-center from
2. Domain Authority and Keywords
Now let us try to understand why people come to our site in the first place, and even more important, why do they return.
There is some nice market data which is interesting: More than 60% of the prospects have visited the suppliers' Web-site before they talk to any of the suppiers' sales person for the first time. And in the case of many SaaS companies, most customers do not talk to sales persons at all anymore.
Also interesting is the idea that prospects on a Website have to be "Sales-ready" before they will purchase. This means they have to have trust in a supplier. Do reach that point, they need to have spent a certain time on the site. Some sources say the potential customer of a value product has to have spent around 7 hours on the Website or should have returned around 11 times.
Ouch! How do we bind a prospect to our page, and how do we make him find us in the first place. We call this phenomenon "Domain Authority". Prospects consider you the knowledge authority in a specific subject area and go to your site to find answers on this subject matter. And even more important: Google also ranks you like this (Read the detailed article on Domain Authority). Those prospects and Google will associate a certain keyword to you. Big Mac is McDonalds, Star Wars is George Lucas and now Disney, and Adwords is Google.
What about you? What would you want to be associated with?
You need to be focused. That means if you are a Fintech, do not go for the Keyword "Fintech". That is too broad. And too difficult. What about the long-tail keyword: "Bitcoins for Hotels" or "Hotel Management Fintech". Finding the right keywords needs a lot of investigation. And continuous tweaking to optimize it and to adapt to changes in the search behaviour. When I started talking about Cloud Computing 10 years ago almost nobody knew what I talked about. Now it is one of the most researched keywords in Google. Things change. And you need to change with it. Keywords are not just buzz words, they are the core of your business model, your value proposition. Communicating keywords is a by-directional process. Based on the reception of the keywords in the market, you have the opportunity to optimize you business models and service offerings ( Read more on strategies about the optimization of your services through "Venture Management"),
These keywords need to be fertilized and taken care of. Focused blog articles, white papers, adwords, etc. There needs to be a sound strategy behind the keywords. And growing in the Google ranking takes time. You have to be persistent. This is why it is better to stretch your budget over a longer period of time rather than powering everything into the first couple of months. We call the latter a "Pump and Dump" strategy. This rarely pays off (only for dubious investors who pump you on the first page of Google with Adwords just to sell you rapidly before the whole house of cards collapses).
3. Network Effects and Critical Mass
Network effects are in fact causal loops, inciting virial growth, if implemented properly (and if the market reacts as wished). And those network effects are latently immanent to Cloud Services. However, you need to activate them.
The whole idea of network effects was initially brought up by MIT Professor John Sterman. I did a lot of research on this at my time at IBM's and KIT's co-operated Karlsruhe Service Research Institute, applying it on Cloud Platforms and Cloud Service companies. The quintessence of our findings can be summarized as:
- Virtal Growth Effects - Cloud-based services can grow virally (until saturation) if you build in control mechanisms to incite and orchestrate network effects. Network effects are growth effects where a quantity of service users or service providers can incite more users or providers to join the ecosystem.
- Network effects - can be
- consumer-sided, e.g., the more users use a certain block-chain payment means, the more it is attractive to others to join the user community
- supplier sided, e.g., the more suppliers are on a Cloud platform, the more other suppliers might be motivated to come in to benefit from synergies
- cross sided, e.g. the quantity of suppliers has positive impact on the quantity of users
- Network attractiveness and critical mass - the attractiveness of a service depends on 3 factors (which are operating within an expontial function):
- The sensitivity: how sensitive is the market on quantities. There might be service constellations, where the user base does not have any impact, others react rapidly.
- The critical mass: A telephone network makes only sense if a big quantity of users are involved. Dropbox or Trello were able to design constellations where a critical mass of two was good enough to make the chain reaction of viral growth ignite.
- The quantity of users - The quantity of users which are actually part of the user group is important.
- Control Area - A provider has more scope of freedom and of control, if the service activity happens within the provider's control area. This is, e.g., why Microsoft - after buying Skype, completely re-engineered the Skype architecture from a Peer-to-Peer concept to a Server based concept.
4. The Right Scalable Company Structure
A Cloud Company entering the growth phase needs to be conceived for scalable growth. This concerns human resources and IT architecture. We start with the IT architecture and then look at human resources.
Make sure that the IT infrastructure is optimized on elasticity and scalability. Elasticity is the system's capacity of adapting on workload changes. Resources need to be provisionned on demand at each point in time and automatically. Scalability is the system's and network's capacity to handle a rapid growth of users, traffic and workload. Scalability cannot be one-dimensionally defined with the provisionning of resources. Software, database, network and compute resources need to be conceived in a way that they can grow rapidly and generate the right mix between Consistency, Availability and Partition Tolerance (the right mix depends on the nature and requirements of your specific service offering).
Dimensions of scalability are system management, function, geographical availability and load. When developing a solution that shall scale cost-effectively, is is important to build on the concepts of Multitenancy. This means in short that a single software instance running on a server can serve multiple tenants (user groups) without information leaking from one user to the other.
Many companies that I worked with had nice scalable IT architectures but Humans in the critical pass. Humans that start a contract, Humans that initiate a process, Humans that release a customer, or Humans that communicate with the customer.
Folks, the Cloud does not work like that!!!
The critical path has to be fully automated. There is no way around this. Unless you are a slow growing process with 100.000+ EUR per transaction. Humans are important to supervise quality, to be available as online service people (through chat software with pre-fabricated stencils of answers), as technical and sales support hotline.
But keep your precious employees out of the critical path. If you keep this in mind, costs will grow under-proportionally, as few people can handle an increasing amount of customers.
5. The Right Inbound Partner
Cloud services, whether it is SaaS, a Cloud portal or PaaS are product and part of the distribution channel in the same time!
Inbound marketing happens inside and outside the product. The people who help you boost your growth phase should understand what you are doing, understand your customers and the very nature of your product.
Therefore, do not place inbetween you and your customers people who come from non-technical or non Cloud related marketing. Your partners need to be perfect marketers and Cloud Architects in the same time.
VentureSkies is a team of experts, optimized and experienced on making Cloud services fly. Contact us to find out whether we would be the right match. for you A team of experts, for lower fees than one inhouse marketing employee.
Further Reading and References
- Selected articles for Startups in Cloud Computing by Dr. Ulrich Scholten and Alex Cosper
Image: Growth, Courtesy of Adam Selwood, Flickr (CC BY 2.0)