Some of the most difficult questions about a startup have to do with making predictions about the future. Estimates are just part of the game if you’re trying to manage the precious few resources you have at various points in the beginnings of your company. The problem is we’re all pretty terrible about extrapolations because if you’re an entrepreneur, by definition, all your estimates will be wildly optimistic.
Making mistakes about your skills and speed can lead you to hold off on a billing system until the last minute or estimate that you have 1 month to launch when you really have 4. And if you’re not careful, hubris might kick in and have you predicting a $1 million in revenue within 8 months of launch.
In this feature, we’d like to help you minimize those mistakes by dissecting 4 very different web application companies that are at varying stages of their life cycle. In addition to age and size, these companies vary in their business models, programming languages and views on approaching the web as a platform. Specifically, we’ll be sharing code line counts, business processes, conversion rates, support requests revenues per customer. It’s good stuff and we’re hoping it’ll help you identify some trends that’ll make your predictions a bit more accurate.
Here is a quick overview of the companies featured in this article:
Wufoo is our web application. It’s an online HTML form builder that helps anybody collect information over the Internet. When you design a form with Wufoo, it automatically builds the database, backend and scripts needed to make collecting and understanding your data easy, fast and fun.
Blinksale is used to invoice clients for services or products sold. Blinksale is used by attorneys, accountants, designers, IT professionals, software developers, journalists, contractors, engineers, architects, videographers, and more. Basically, if you need to send invoices, Blinksale can work for you.
FeedBurner is the leading provider of media distribution and audience engagement services for blogs and RSS feeds. Their web-based tools help bloggers, podcasters and commercial publishers promote, deliver and profit from their content on the Web.
RegOnline is one of the largest online registration systems on the web having processed over 3,537,094 registrations for more than 49,133 events worldwide. Over the past eight years they’ve invested over 20,000 development hours into the system and is considered one of the most mature and robust event registration systems available today.
Looking over the basics, everything is fairly standard. The longer a startup has been around, the more employees it has, and programming language alone will not make or break a company.
|Language||Time to Launch||Launch Date||Current Employees|
|Wufoo||PHP||6 months||July 2006||3|
|Blinksale||Ruby on Rails||3 months||July 2005||6|
|FeedBurner||Java||5 months||February 2004||~30|
The largest discrepancy is with time to launch. All companies were started with 3 or less people working on the code, but RegOnline in particular took the tough route: bootstrapping. The original founder worked a full time job, and wrote the code in his off time. This approach is definitely more demanding and requires much more dedication than receiving funding or backing by your freelance firm, but it can be done. All participants agreed that language had little to do with time to launch.
Code Line Counts
Not surprisingly, the longer a company has been around the more code it has. Experience also shows that once you are past your base set of code, the percentage dedicated to server side code starts to increase. This is primarily due to added complexity of features and other enhancements (spam protection, security, error handling, etc.) that do not necessarily have an interface element attached to them.
As far as choice of language goes, all 4 companies are satisfied with their choices. There are a few minor complaints — FeedBurner wishes to some extent that the lighter, simple web interface tasks were in a different language (but they’re just fine with the heavy processing in Java), while RegOnline is aware of the fees that need to be paid in order to use a Microsoft based development platform — but overall, everyone is happy. In the end, it seems that choosing a language that you’re comfortable with can result in less lines of code and a quicker development time.
Line Counts per Business Process
The goal of this section was to uncover any task that might be overlooked. When writing a software product, the tendency is to focus 100% on the application. Items like support, marketing, and especially billing never cross your mind — in addition to the rest of the underbelly.
While these business processes seem to only contribute towards 10% of the code base for the two most established companies, it is important to recognize that the core for the business code has to be in place during launch, if not shortly after.
Before even looking at the numbers, it is worth noting that support is more demanding than most would anticipate. While multiple things can lead to support requests (poor code, bad interface, complexity, lack of documentation, etc.) what seems to matter the most to customers is how quickly, friendly, and accurately you handle it.
A few successful approaches to reducing the number of requests that have worked for the above companies are the introduction of the following:
- Knowledge Base
- Documentation (with videos & screenshots)
- Useful, custom tools for support staff
Getting users is one of the more stressful aspects of a startup. Without users, you have nothing. And contrary to grand expectations pre-launch, those users are tougher to convert than anticipated. In fact, 1% is a fairly standard number to expect. So of 100 people visit your homepage, 1 person will become a paying customer.
|Conversion per 100 Visits|
Free accounts can also generate revenue through ads, awareness, and link backs, but the amount of free accounts you have does not necessarily increase the conversion rate that leads to getting paid. Blinksale has the highest conversion to free ratio (even though their signup form has 20 fields!), but they still come in at 1% paid. On the other hand, RegOnline has a very limited free plan, which shows a significant drop in free signups along with a much higher free to paid conversion.
To place more emphasis on the difficulty to convert, we can look at the conversion of beta testers and free advertisements for Wufoo. After a few months of limited beta testing, everyone who provided active feedback was given a free account. Of 7000 other testers, less than 1% became paying customers even though they were given a 50% off lifetime discount. Similar to that, ads that we place on both Particletree and on free forms result in approximately a 1% conversion to paid.
Average Revenue per Customer
The three companies listed all rely on monthly and/or usage fees in order to make money. Obviously, RegOnline is in an enviable position here. A few things that may result in their revenue is the maturity of their product (and the number of features they have available) along with their 10 year reputation. Not to mention, their customers are all making money (event registration), so they are willing to spend money in order to make money.
Wufoo and Blinksale have a similar approach in that they are trying to get a swarm of users paying less money. The goal is to reach some of the smaller businesses that are more reluctant to jump into a big purchase, and also to increase word of mouth through the volume of customers. Finding the target price to charge for your product or service is no easy feat. When Blinksale first launched, they realized they underpriced their product, and had to make the appropriate adjustments later down the road. The grandfather adjustments worked out for them, but time and programing effort had to be provided to solve the problem.
Equally challenging is how to raise the average price per customer. There are a couple of ways to attempt this:
- Keep adding features, and create truly worthwhile features that are only available to higher paid plans.
- Improve the marketing/site direction of new users, so that they are more compelled to sign up for a higher paying plan.
- Make it obvious in the application that certain features are missing from their lower paying account, without being blunt and obnoxious about it.
- Make upgrading, downgrading, and canceling as painless as possible.
- Varying levels of support.
Speaking for Wufoo, we’ve been working on these ideas for a year now, and noticed varying levels of success. The worst payoff has been premium support, but we haven’t tried throwing phone support into that package. One noted benefit of phone support is the ability to resolve an issue immediately. Adding features is definitely a plus, but nothing drastic. Actually, slow and steady seems to be the way things are, so there may be no home run solution that increases this number by 20% in one go.
Perhaps the most demoralizing thing that can happen to a first year startup is the change in sales from month to month. The only way to get through it is to go through a year and see what happens, but try to prepare yourself for the fluctuations, and to predict what months will and will not work for you.
For most web services it will be a given that December is a horrible month comparatively. To put it into perspective, RegOnline has noticed an 18% decrease of registrations compared to the annual average, and Wufoo saw a 50% decrease. And even though the 50% figure is distorted by growth, December was still 25% lower than the prior October. A best guess prediction for the drop in sales is the trifecta of budgets running low towards the end of the year, the holiday season, and money being spent elsewhere (bonuses, travel, consumer goods).
Thank You Participants!
This article is based on the panel we presented at SXSW 2007. Many thanks goes out to hours of data collection put in by all the members: John Zeratsky (of FeedBurner), Josh Williams (of Blinksale) and William Flagg (of RegOnline). We asked a lot from them and they were generous enough to help us out and share their company’s information. You can download a copy of the graphs from the presentation’s slides here.