Ontic Oren

We decided to dip our toes into Google Adwords recently, and see if we could attract some good users. Bottom line: We didn’t. At least, not with my limited adwords-fu. The goal was to see if we generated traffic from google adwords, how does that traffic compare with our general user base. Is the quality of people who self select and come to us today via blogs, twitter, etc better or worse than what you get from adwords? This wasn’t about optimizing the lead funnel – that’s ongoing and in parallel.

Let’s leave aside the click-fraud disaster that was the content network – that’s another blog post. Let’s just look at the results from our direct search results.

Before I dive into the results – a word on how we selected the ads. We spent a number of hours looking at keywords based on existing incoming organic traffic, as well as keywords we’ve identified as potentially interesting but not currently sending traffic our way. We then setup some simple ads, and spent a few days letting those run seeing what kind of traffic we were getting. We did this running 7 ads split across the keywords, running A/B testing to figure out which words were performing best in the ads. After a few weeks of low volume limited spend to get data on decent ads and keyword matches, we had a decent idea of what ads were working. We wound up with 44 keywords across 4 ads. Since the goal here was to see the world of users, not validate the cost efficacy of adwords, we let google auto-bid for plaement, and got top 3 on almost all the keywords we went after. We included a few poor performing keywords as we thought they were important, despite the early data, and wanted to see what happened.

Keyword CTR ranged from 5%+(!!) to 0.2%, with an average of 1%.

I’ve recently started using Dave McClure’s AARRR metrics.  I like that it gives a good common basis for looking at things.  Here’s how I look at that for us:

• Acquistion: % of visits who don’t bounce
• Activation: % of visits who signup
• Retention: % of users who push code up to heroku, average time since last git push
• Referral: % of people who collaborate with someone else
• Revenue: % of people who convert.  ARPU (average revenue per user)

So, how did the adwords people do?  Terribly.

11% of our signups in December came from the Google adwords campaign.  For reference, about 1/3 of our signups come from organic searches and another big chunk from direct traffic (probably twitter).

• Acquisition.  Sadly, a SNAFU makes this hard to tell.  The analytics account isn’t tied to adwords, despite many go-rounds with google on this.
• Activation: Equal!  Same for adwords and regular users.
• Retention: Adwords users were 50% of our standard user here.  They pushed half as much, AND did it much less recently.
• Referral: Infinitely worse. :)  There were 0 from the adwords people.
• Revenue: And here’s the killer: only half the percentage converted, and those that did paid us half as much.  That’s 25% per user.  4:1!!!

The results above apply to various slices of the adwords. Even the very best performing keywords still don’t come close to comparing with the organic results. For comparison, a single good blog post would drive more registrations and engaged users than a month of the google campaign.

Next step – weed out the low performing ads and keywords, and start experimenting with the impact of various bid strategies. Iterate and see if there’s a good stream hidden in the noise here.

EDITS: Thanks to the feedback from the always awesome lean startup circle, I clarified the adwords process we went through a bit more.

6 months in at my job, and the past two weeks I started feeling odd; I’ve been busy, cranking out more than ever, but feeling a bit burned out.  At first I chalked it up to working hard, and enjoyed my time-off for the holidays.  But I came back, and didn’t feel that same passion.  What’s going on?  I doubled down, cranked out more than ever, and buried myself in working hard.

Last week, an office mate was going over our expenses, and asked me about a really LARGE charge from Google.  Big enough I’m embarrassed to even post the number here.  I logged in to adwords, and sure enough we were hitting our daily cap every day, and that cap wasn’t low!  

Some history – Two months ago, the question came up: are our users representative of the market overall?  Since we’ve done no marketing to date and all our users come from blogs and word of mouth, we weren’t sure if they were self-selecting in some non-representative way. We had the idea to get a more random sample of users by using adwords – set up a campaign, and see how the usage of people from adwords compare with our general user base.  We ran the campaign, leaving google to it’s auto-bidding thing.  We grabbed a bunch of keywords, set a super high daily cap for the experiment, and watched it closely.  After 3 weeks, we were running about $20/day in ads, and getting 1-2 signups a day.  Then I forgot about the account.

Jump back to last week, and we have our huge bill.  I quickly shut adwords down, and moved back to getting stuff done off my todo list.  A day later, in passing, I mentioned the adwords SNAFU to James, one of our founders.  His immediate question: “At least we have a bunch of people – how do they validate our hypothesis?”  SMACK.  Kick to the head.   I had forgotten the whole reason we ran the experiment in the first place!  I got so caught up in doing things, I’d missed the whole point.

At a startup, regardless of your position, you’re there because you’re a self starter.  You like setting your own priorities, figuring out the right items to focus on.  The key is, not to get trapped in the work you’re doing.  For me, it’s great to get success stories out, push some marketing activities, get customer feedback, push forward the features through engineering, and drive process improvements.  That’s what I do.  But why?  And are they the right things to do now to answer those goals.  For me, the answer was no.

I’ve now got a clear set of goals I’m working towards: Better define and optimize our funnel.  Understand our customer profile.  Validate our hypothesis around customer segmentation.  I’ve still got my list of todos (Things rocks). Now they’re hyper focused on working towards those goals, not just working to checking off todo items.

I’m so excited to go into the office tomorrow, I can’t wait.

Last night’s VC Taskforce Elevator Pitch Roundtable was quite the eye opener.  

10 CEOs each get up and present their elevator pitch in 90 seconds.  A panel of 5 VCs then spent 5 min in Q&A, followed by a 2 min critique and scoring from 1-5.  The rest of us – around 50 people total – are just fly’s on the wall.  

Two clear groups emerged: the obscure but competent idea, and the arrogant bastards.  In this group, we had  3 to 6.  Twice as many arrogant bastards.  Both the decent and the TERRIBLE pitches were really useful for me, and I pulled out a few points for any elevator pitch.  They may seem obvious, but apparently 66% of people don’t grok em, so here they are:

1. Start off with what you do.  Hi, my company is X, and we do Y.  Right up front.  Don’t set things up.  Don’t make excuses.  Don’t joke.  Don’t try and ask questions to “connect” with your audience.  Just say what you do.  NO ONE did this. Not one. At least 50% of the pitches the VC’s needed to ask during the Q&A, “Just what is it exactly?”. The rest it emerged, but it was like pulling teeth!  
2. Explain what job people hire you to solve.  Put another way, why should we care, and why does the user care?  You probably think this is obvious, and maybe 5% of the time it is, but you’re the expert, no one else is, so dumb it down.  
3. Make no assumptions.  OK, this should possibly be #1.  One guy spent the entire 90 seconds talking about “this”.  He even pointed to a physical device.  I thought it was a cell phone when he flashed it.  So 90 seconds he’s talking about bringing wireless to cell phones, and I’m thinking he’s a complete idiot.  Turns out “this” is actually a video camera.  And no one today has a wifi enabled video camera.  Ohhh….!  A bad idea still, but at least I know what he’s talking about now.  Don’t assume anyone understands the opportunity.  Don’t assume the market is clear.  It’s a hard line to balance, you don’t want to explain the basics that they get.  Understand the audience.
4. Never get defensive.  Ever.  Ever.  Ever.  If you’re getting questions, it’s a good thing!  Answer them.  SOB #1 last night immediatly assumed that the VCs were idiots, didn’t get what he was pitching, and responded to one very valid question about the company name by proudly stating that his previous company sold for $XXX million dollars.  Followed by explaining why he knew things the VCs didn’t, but couldn’t explain them.  He got all 1s. 
5. An elevator pitch doesn’t include financials, sales plan, etc.  The point is get em hooked so they can ask for more info.  What is the idea/product, the opportunity, and the problem you’re solving.  That’s it.  5 of the presenters wasted 30+ seconds talking about various internal details.

Some other random notes of interest:

• One of the VCs was concerned about a 3 year break-even.  Thought it was too long by far.  Someone, please show me what % of VC funded companies break even in 3 years, let alone 2 or less.  I’d guess it’s vanishingly small.
• One presenter dressed in jeans a t-shirt and sneakers.  Turns out, he had one of the best pitches, if not the best.  But in my mind, that initial disconnect on clothing mattered.  He overcame it admirably, but why start at a disadvantage?
• If I were a VC, there wasn’t one single idea that was interesting to invest in.    

A topic very near and dear to my heart has picked up some steam recently: Enterprise software pricing. Kicked off by ReadWriteWeb, and picked up elsewhere, the basic point is that value is not correlated strongly with per-user pricing.  All these “Enterprise 2.0″ companies are out charging on a per-user model, but that’s at odds with the value derived by the customer.

Let’s first take a step back and look at the big picture.  Business model and pricing is a means to an end.  Ultimately, as software producers, we are in a VERY strange world in which our incremental cost is $0.  As with any intellectual property sale, since their is no intrinsic cost to our product, all pricing is simply a matter of playing with funny models to make the customer feel like they’re not getting ripped off, and the vendor able to generate enough revenue to survive, and in rare cases maybe even thrive (rarer every day it seems).  As a previous boss of mine used to say – software pricing is all insane, it’s just a matter of agreeing on the insanity.

At the end of the day, all that really matters is what $ amount changes hands.  A total $ vs. value graph for these Enterprise 2.0 companies looks very different:

In this graph, value still goes up quasi-exponentially with the users.  Total cost also scales, but it’s quasi-logarithmic. Instead of being inversely proportional, we’re now just looking at a gap in the middle. Further, it’s a gap that companies are used to paying.  Yes, I’m ignoring all the capped deployments and models that are “packaged” vs. per user, but in general the vast majority of scaling 2.0 business models net out to the above graph. 

Our entire life experience, plus all previous experience, tells us that the more you buy, the less you pay per item, but the more overall it costs.  Trying to go against this is probably impossible.  Software pricing is about putting a framework in place that makes your customer feel like they’re not getting ripped off, and enabling you to run your business.  Everything else is just hand waving.  Make sure the general curve of your overall monetary exchanges is correct, and focus on the value in the product.  Pricing is necessary, but not sufficient.  It’s easily possible to setup a pricing model that’s so broken it kills your business, or doesn’t scale to support where you need to go.  On the other hand, you’re not going to make your business through a pricing model (as proven through Sun’s numerous attempts with Project Orion, network.com, etc…).

Come up with a model that scales.  Something that if your assumptions work out, enables you as a business to succeed.  Then focus on the business and value to the customers.

Ah, the corporate overview.  The staple of every web site, and the key piece of many presentations.

We’re in the proess of putting such collateral together here at Replicate.  Not wanting to reinvent the wheel, I consulted the oracle for any keen insight or best practices.  After 45 minutes of searching, I’m surprised to find nothing on what makes a good/bad overview, or thoughts in general.  I did find some amazingly, painfully, searingly bad examples (I’ll be kind, and not link, but a quick google search for “corporate overview” will send you crying for some good clean smut).

Obviously, the goal is to convey answers to the standard 6 questions as applicable – Who, what, when, where, how, why.  I think we’ve all been trained a bit too well on these in that order.  Is who really the most important part of any pitch?  Unless it’s to your mom, I don’t think so.  Keeping in mind who we’re trying to convey this information too, most people who haven’t heard of us don’t want to know about the company, the want to know why they should even care in the first place.  To steal from Jerry Weissman, WIIFY (what’s in it for you)?  The WIIFY will vary depending on your target audience.  In our case, we have a few, all rather obvious:

• The customer: “If you buy our product, you’ll solve a ton of problems and get to go home and spend time with your family”.
• The partner: “If you work with us, you will keep and gain many happy customers”
• The investor: “If you invest in our company, you’ll get a great return on your money”

In all these cases, talking about our company seems like the last step, not the first.  Identify their problem, talk about solution, then explain why you’re the one to solve it.  I’d take those favorite six questions and reorder them:

• Why: What’s the market problem
• When: I’m gonna care about this when?
• What: What is the solution?
• How: How will you help solve it?
• Where: where can I find the solution?
• Who: And who are you to actually do it?

Any other thoughts on outlines or best practices?  What’s key in a good corporate overview doc or presentation?

photo credit: David Reece

If you follow me on twitter, you may have noticed that I slipped in my resignation from Sun. Today, March 14th, is my last day.

I’m embarking on the riskiest of all options – a tiny new startup. We’re looking at how we can address some issues that arise with the use of virtualization and network management. I’ll be doing product mangement, plus whatever it takes (markeing, cooking, cleaning) to make sure we’re a huge success, and maximize the reward side.  [If I've 10x my risk, but also 10x the potential reward, I guess my risk/reward ratio remains constant? I guess I've probably 10x the risk for <10x the reward.]

So why jump now?  For the first time in my career, I’m not running away from an old job. The Sun xVM team, and especially my boss, are doing an amazing job. They are building a great team and a great product. I’ve even managed to recruit two new people to the team in the past week, in spite of my departure! I have no doubt that I’ll be talking with the Sun xVM team shortly on how we can work together.

Proving just how random our lives truly are, I found this job through one of those serendipitous moments. A colleague of my wife asked if she knew anyone for a certain position at this other small company, just in passing, and a month later I’m resigning!  The team, the opportunity, and frankly, the risk, were all to good to pass up.  I’m excited to be scared sh-tless and I’m excited to make something from nothing.

Rich, Rich, and Ken – I can’t wait to join you and the rest of the team on this adventure.