I am pleased to report that, as of today, I have joined Widgetbox as CEO.
HWVP seeded Widgetbox in April of 2006, and I have steadily grown in confidence in the market, team, and opportunity. The company is an anchor tenant in the web widget marketplace and it will be fun to stay in touch with you all as I move onto a new and exciting chapter in life.
While my six years in venture provided amazing exposure to great teams, companies, and learning, I felt compelled to try my hand, once again, on the operating side. The confluence of my personal aspirations and the quality of the Widgetbox board, investors, team, and market made this an opportunity I could not afford to pass up.
If you have the interest and time, I covered my reasons for the move via a guest post on Techcrunch today.
For those of you who read my blog for insights into the venture business, thank you for reading and commenting on my thoughts to date. From today, the blog will focus on my transition to an operating role, the consumer Internet space, the world of web widgets, and my mistakes and learnings as I look to work with my colleagues at Widgetbox in building a great company.
Brad and I are interviewed - he found Feedburner through his blog and I am very pleased to have found YieldBuild. If you are wondering why we blog, not only is it fun, an incredible forum for learning, but it is also a wonderful vehicle for meeting new people.
Guest post by Lars Leckie. Another great one and real food for thought.
Josh James, CEO of Omniture (a Hummer Winblad portfolio company), gave an inspiring talk on building a SaaS company last week at the Opsource summit. Josh walked through the history of Omniture as a case study for building a SaaS company. He talked about the need to invest in the company with a firm hand on the wheel as the recurring revenue slowly built up over time. He outlined the different stages of evolution of the company:
1) Product: build a rock solid product. Prove you can sell it as founders before moving past this step.
2) Sell: Sell like crazy, build out a team, hire some QBSRs (Quota Bearing Sales Reps)
3) Retention: focus on churn and retention issues, hire more QBSRs
4) Marketing: spend on marketing, hire more QBSRs
The next phases, not surprisingly, also included hiring more QBSRs but interestingly it is not until later that investments in efficient infrastructure and operations hit their ToDo lists. This outline displays a strong focus on finding a product market fit and then adding gas to the fire as the market opened up. The key metric that Omniture used to decide how much gas to pour on the fire was the Magic Number.
The Magic Number
The magic number ("MN") is a metric that can be used to tell you the health of your company from the perspective of growing monthly recurring revenue ("MRR"). It is a common mode metric to compare companies MRR scaled by sales and marketing spend. The MN provides insight into the effectiveness of previous quarter Sales and Marketing spend on MRR growth. Your MN will be penalized if the spend is wasted (bad marketing, bad sales execution), if your churn is high or if the market has issues (saturation, competitive forces). It also has a very high correlation with Q/Q growth rates so in general, high Magic Numbers are good.
QRev[X] = Quarterly Recurring Revenue for period X QRev[X-1] = Quarterly Recurring Revenue for the period preceding X ExpSM[X-1] = Total Sales and Marketing Expense for the period preceding X
Magic Number = (QRev[X] – Qrev[X-1])*4/ExpSM[X-1]
For example, consider a hypothetical company with the following financials Q1 Q2 Q3 Revenue (recurring total) 1M 1.2M 1.5M S&M Expense 800K 900K
Then the magic number is 1.0 for the end of Q2 and 1.33 for Q3.
Fundamentally, the key insight is that if you are below 0.75 then step back and look at your business, if you are above 0.75 then start pouring on the gas for growth because your business is primed to leverage spend into growth. If you are anywhere above 1.5 call me immediately.
Josh provided the following gas-pouring throttle chart for SaaS companies to evaluate how much to invest in their go-to-market spend. The data on the charts if from Omniture and other public SaaS companies.
Calculate yours…and get back to me if it is interesting! For fun and extra credit take a look at difference in Magic Number for some of the public SaaS companies like Omniture and SuccessFactors. I can be reached at email@example.com