Software start-up businesses: Capital raising and ROI

What prompted me to write this article is that this year alone, we have been approached by many aspiring small entrepreneurial first time start-up founders in Australia with a great vision to be the next star tech multi millionaire with a great idea and concept for app development. From a Go to Market and feasibility perspective, much more time and conscious planning of a sales and marketing plan could be developed first and knowing your target market with a strong customer value proposition. The financial elements of your sales revenue and profit model particularly with Software as a Service or subscription models to scale in say two sided marketplaces need to be considered for B2B and B2C applications.

Read about a selection of our business owners examples we have spoken to below in hospitality, retail, legal services, trades, telecoms.

Typically they have worked in the technology field, banking or finance, hospitality or trades sectors, and have clearly seen a need for doing things differently or something which has frustrated them as an end user in this digital era.

So why not build a mobile app?  We have seen successful apps like Tinder for dating, Uber for car ride sharing, and many other disruptive business opportunities and approaches.

There has been more Australian success stories such as Canva and Atlassian and well as  Australian based start-ups of recent time, however a reality check highlights many failures also in small business that may not be highlighted with their challenges and how to overcome them.

What concerned me in talking to these business owners in early stage development, many of which who have continued working their day job, or those who have 100% committed to this idea and own self-funded capital, is that many have started building their business without many key elements that any start-up business should consider from a financial and commercial perspective.

In this customer centric and experience environment, it really surprising me why many aspiring app designers start with features and functions first before understanding who their customer is and if this is a commercial need to solve their challenge and if there is in fact a business case for their development.

The maturity of having some commercial acumen or seeking advice as an investment is an important first step. Some basic checklists should be considered first before expending any self-funded cash or investment capital cost.

Two important factors are cashflow and cashburn when you have limited funding to kick start your business. Whether it’s your own capital, crowdsourced, private or public funding sources, ROI and accelerated sales growth is needed in terms of new customers, actual revenue streams and cashflow considerations.  

We typically recommend a Digital Readiness Assessment or a Business Growth Assessment to help gain an understanding of the start-up business objectives and maturity before entering into the detail design or functional building blocks. Read our previous blog on 3 key elements on how a Digital Readiness Assessment can help clarify the right plan for you.


Some start-up and new venture scenarios we have heard from this year: 

Owner A: Hospitality Application

The two owners had come from a hospitality background and they wanted to build an app which allows restaurants and cafes to match and fill empty tables during both days and evenings, with a fee charged based on percentage of spend to onboard the vendor. Despite sharing the market with Deliveroo, Foodora and Uber Eats, they claimed their model was different. 

software start-up hospitality

The app had been built and tested already, and they wanted to focus on building the B2B marketplace to onboard customers and launch in Europe and Australia. The challenge was both marketing and sales to onboard an initial 200 customers.

It seemed to me that they had taken a back to front approach, by building the application first, before assessing if there is a valid market opportunity and developing the app to suit the market.

Upon an initial consultation, it was apparent that bootstrapping this application development cost resulted in missing key plans on the commercial go-to-market front, including:

  • Marketing and sales market analysis for each country
  • Profit and revenue model as a subscription model
  • Business strategy – how to scale and sell directly or via a referral/distribution model.

We presented an offer to look at developing their GTM strategy, however this wasn’t in their current budget as most of the funding was invested in the application development side, and therefore they could not proceed at the time.


Owner B: Industrial Equipment Hiring Application

Four business partners, all highly educated and ex-engineers, had built a two-sided marketplace B2B app to rent industrial equipment from vendors who had availability, and their platform facilitates a self-service rental catalogue listing and booking engine to connect vendor and renter.

Originally they came to us with an interest in digital marketing assistance, and upon looking at their website and type of content present, it wasn’t sufficient to take a customer centric approach as information about their target market or ability to collect customer data was unclear.

We questioned whether their pilot stage app had been tested, but they were looking to raise more private investor capital. We asked to see their pitch deck and hear about their sales and marketing plan. While there was an initial interest to engage independently first to help with their pitch deck, the subsequent response was to wait until they had raised the funds, then they can consider a marketing and digital initiative to get this off the ground.

An offer to develop a basic marketing high level strategy to include in their investment pitch deck was declined to help them secure the funding and demonstrate forward planning.

I asked how confident they felt about raising private capital and what approach they planned to take, and received a response which was unsure…


Owner C: Market Food Truck Application

A business owner saw the opportunity to setup a market food truck/vendor and customer app.

An initial consultation garnered interest from the venue event organiser. Capital was limited to build the app (to test stage) using an offshore web development team, and this was the first step to customise the app to get one initial customer to fund it.

After six months, I reconnected with the business owner and learned that due to the GDPR and tightening in data privacy using SSO with Facebook login accounts, the application development project couldn’t proceed due to many backend development changes and cost, and also the business partner had a change of course with his view.

The commercial and sales qualification of the initial opportunity with the market hadn’t been sufficiently completed firstly.

The actual go-to-market approach hadn’t been thought about because the functional design was launched first to solve an immediate idea of the perceived problem which wasn’t verified.


Owner D:  Billing Software Cloud SaaS Platform Application

A serial entrepreneur in the ANZ region has built and sold multiple tech start-up businesses previously. The latest venture has involved raising some capital funding directly at the US market and hiring a first team for technical and initial sales/SDR resource. software start-up technology

We proposed a go to market strategy engagement and market feasibility study for the Australian market, with our own network of consultant contacts and opportunities to explore.

When capital is raised from angel investors the drive is to achieve value for shareholders. The dependency is on cashflow for engaging this project, however a scattergun approach without an integrated strategy isn’t assisting to drive traction and capitalise on opportunities here in Australia.  The initial capital raised required a success model based on penetrating into the US market first.

The SaaS profit model for Telco/ISP and utilities as a pure play solution needs to consider the actually profitability and market positioning as part of a GTM targeted approach.

Overall in analysing the SaaS revenue model, I could see there being some challenges in their fixed percentage of revenue subscription model to be profitable.

Over 12 months later, since the initial conversation, the company is looking to raise another round of funding to sustain their current operations for traction developed in the US but not for Australia yet in a structured approach. It has been more of an ad hoc approach without investment in a solid business strategy and focus on ROI outside of their focus on the US market and shareholder expectations.


Owner E:  Legal Software Application

A prominent lawyer in Melbourne spent over $250K to build an online legal practice platform software over three years, to turn and sell off the IP and foundation.

His intention was for the purchaser to take it to market and commercialise it, with some software licence and maintenance projections to sell globally to be  compliant for all jurisdictions.

The request was for me to assist in pitching and presenting to HK prospective buyers but the founder had no sales experience.

The review of the business case and financial projections are only hypothetical with no real paying customers yet only a couple of small legal beta trial instances. There were some challenges I could see with this in developing a sustainable revenue model and especially the market feasibility with most of the software market moving to a SaaS – Software as a Service Cloud model.


Summary of challenges and considerations to make:

Mobile application developers – two-sided marketplace challenges

The cost of building an app warrants some business planning around the application first and customer profiling around usability and customer experience and processes for two-sided marketplaces.

How do you market to onboard users from both sides of the app?

What dependencies are on your third party open source apps like using Facebook or Google to login or sign up? With policy changes around data privacy for third party login and user data sharing, how does this impact on your business model if a few things change both on B2B vendor or end user side?

How do you attract loyalty digitally from not just initial sign up but actual subscriber usage of your app and continued feedback from customers with marketing and support channels?

Tip: Determine your ideal customer profile for each marketplace supplier/customer, whether it’s B2B or B2C.

software start-up customers

Part Two of this blog series contains practical guidance and tips around start-up capital raising, and what to do with the funds to achieve a solid ROI both for your business and investors.

Feel free to contact us for an initial discussion on how we can help you and your business, from start-up to growth mode, at info@alchemiseconsulting.com or @alchemise_cons or call our office on +61392255022.

Marketing and Sales ROI: How your technology and telco strategy impacts your growth

In order to drive top line growth, business owners still need to manage overhead costs and the cost of technology and telco operations is an increasing expense with people, process and systems. Time is short for planning with everyone and you are starting your last quarter already for the financial year. How can you drive more customer sales growth and increase marketing performance using effective technology and telecom services other than price driven decisions?

The Quick Look
:
What do I need to consider? 

technology-and-telco

Here are some areas to have a think about and analyse with performance versus operation cost impact analysis for each area of your current technology and telecommunications services budget:


The Bigger Picture:
How does this impact me? 

Are you proactive or reactive to technology market changes? If you aren’t keeping up with the technology market developments and adjusting your strategy accordingly, you will be caught behind your more progressive competitors.

The commoditisation of services and products in your industry sector is hurting many industries to continue growing and sustaining profits. The spread of disruptive technology driven initiatives is causing change with fundamental traditional business models to continue to stay viable, sustainable and competitive.

If you don’t have a strong competitive advantage derived from the benefits of the right telecommunications and technology solutions you will become irrelevant to your customers no matter how great your historical relationships have been.

These decisions then become a cost conversation around financial and business investment in technology changes such as assessing the move to cloud services or change in telecommunication service providers whilst finding ways to improve customer experience and return on investment.

start-strategyGiven the wider range of choices in the market for telecommunication and technology solutions and service providers, where do you start to assess what is right for you and what budget you should allocate for technology decisions based on business enabling outcomes?

 

What can I do? Increasing ROI through business strategy…

We typically encourage starting at the business strategy and objectives level to determine your real needs with technology and telecommunications requirements. If your sales and marketing strategic initiatives utilise MarTech, FinTech, AdTech, Sales Tech, then the return on investment becomes even more important to select the right telecommunications provider and solution to help deliver your business outcomes.

Technology ROIWhen was the last time you talked to your sales team about customer acquisition and retention strategy in order to establish how to best serve your client needs and growth plans?When was the last time you talked to your marketing team to determine what insights they have on customer interactions and digital channel engagement to support your sales teams?

Perhaps getting an independent view on your gaps or strategy can help uncover or drive more clarity on your position or requirements for technology investment decisions.

It is important to establish the link for how the right technology investment in the right areas can drive your sales and marketing results forward. Of high priority should be how you measure your ROI and also understanding the right metrics to use and relevant data reporting available.

This may be used for considering IT cloud services, telecommunications and internet services or you may be evaluating sales and marketing cloud tools such as Salesforce CRM, Marketo, Eloqua, Pardot, Adobe or HubSpot marketing automation platform.


What are some areas of potential challenge?

  • Telecommunications services (including NBN)

Telecoms strategyYou still have choice other than the large players with telecom providers. Do you need the most agile or responsive customer service or a customised plan that suits your billing cycle

There are many new technologies coming in which are being offered with new services from the telecommunications market. SDN (Software Defined Networking) and SD-WAN technologies are terms you may have heard about in service provider circles from Optus and Macquarie Telecom recently.

If you are looking to connect NBN services, the multitude of NBN resellers in Australia must be mind boggling if you don’t come from the telecoms industry to understand all the options and jargon involved for business decisions.  The time it can take to review and research through all the changing service plans to make an informed choice can be onerous without having sufficient experienced resources or telecoms knowledge to look at this.

An example of this changing landscape is in Australia with the recent NBN plans/pricing changes.

What does this all mean in telecommunications terms and how do you start to review your providers and process involved cutting through all the marketing and technical details which can be unclear what your investment is accessing?

Could having 5G Mobile Internet Access strategy be more cost effective than using NBN for your business needs?

The role of telecommunications and faster high speed broadband is becoming more pressing in terms of robustness, reliability and speed of access (including the 5G mobile coming) with an ever increasing internet data usage pattern due to the explosion of cloud application subscriptions and user access required for many business opting to move to cloud services.

Do you know how your clients choose to interact with you digitally and if your employees can respond anywhere anytime in real time?

The value of obtaining an independent, holistic perspective on your telecommunications investment cannot be underestimated, particularly when you consider the potential sunk cost, time and user impacts of making the wrong decision about your service provider or solution.


  • Cloud-based applications

cloud-based-applicationsThe rapid progress, interest and uptake of cloud services need to be measured in terms of cashflow, cost/benefit and ongoing investment cost of moving to the cloud. Recently a marketing campaign we ran for an leading IT services organisation identified that one of the top concerns of moving to hybrid cloud services is cost control with the CFO when selecting Microsoft Azure or Amazon Web Services for example.  If this was your consideration, how would you start to budget for your connectivity costs in order to have an effective sales team and marketing team to keep bringing in the forecast revenue. How would you select the right telecommunications provider to ensure they are a right fit for your business requirements.

During the last 12 months, sales and marketing cloud technology providers Marketo and Salesforce have both had outages which impacted the productivity for clients and the reliance on the data centre, disaster recovery plan or network connectivity.Has this been an issue for you and how did you deal with this in terms of opportunity cost and sales?

What could this mean for your business sales and marketing campaigns if your telecommunication services or connectivity is unstable, insecure or at risk of downtime in a 24 x 7 digital environment where responsiveness is expected?


  • Business revenue risk and technology impact 

Business Technology RevenueWe usually suggest a simplified approach to translate this into the best business technology decision strategy for you. 
We know you don’t have the time to cover every base within the ICT services and telecommunications market. If you run a tender process or encourage many proof of concepts this takes significant amount of cost and time to review.

Are your sales team or marketing initiatives delivering strong results due to digital transformation or using cloud services to exchange, communicate or market to your clients?

If your Salesforce CRM and Office 365 users all require internet connectivity for your staff to be productive then it is important to review your cost structures regularly.  The contract review of your service provider and their ability to add value such as real time billing access or flexible contract terms might influence how you choose a new provider or whether to keep your existing provider.

Do you have the right telecommunications and technology strategies in place to deliver your sales and marketing plan?

We believe it’s more than just employee productivity and operational efficiency gains from the use of technology and automation. There is an intrinsic cost factor but also external cost impact for your clients if you can’t service them or respond quickly or on demand via multiple digital channels. Whether you provide communications connectivity via mobile, internet, voice or other digital channels all require a robust solution and a strategic based approach from your provider.


  • Customer experience strategy

customer-experience-call-centre

If you run a call centre either inbound or outbound and drive an omni-channel skilled agent team to improve customer experience, reduce churn or perhaps a work on a retention policy, do you have an effective way to analyse the metrics of customer engagement and sales?  This may come from getting visibility of inbound voice call behaviour as part of an inbound marketing channel report?
Typically the metrics are typically for operations but there are ways to increase and measure your digital marketing customer effectiveness with your telecommunications services  – i.e. 1300 number and inbound contacts.

What would that mean for your customer engagement and business effectiveness if you can observe the inbound user behavior that links to your CRM and marketing automation platform?

If you can lower your operational costs from the bottom line, what will that mean for your investment and top line performance within driving more effective digital marketing engagement and sales? This can take some time and industry experience to perform some specific analysis and reporting back the the CFO and COO.


In summary… Why sales and marketing performance depends on how you manage your technology and telco services strategy?

strategic-technology-reviewMany organisations spend about 20% to 30% of their operational costs on telecommunications and also energy expenditure on a broad scale.

You might wonder what is the connection between telecoms, ICT and marketing and sales functions. It’s all about top line growth for businesses? If the bottom line is loaded and high in overheads for technology services then the ability to scale and increase your revenue and profits may be hampered if the incorrect technology and telecoms partners are selected.

Let us review your technology and telecommunications cost strategy to see if we can free up operational cashflow whilst improving your telecommunications service levels. We then focus on your ability to deliver better customer experience and to help determine the best digital channel strategy to implement for sales and marketing teams to help deliver better ROI.

If you are a business owner currently spending at least $10,000 per month on telecommunications (voice, mobile and data plans), we want to talk to you about driving up your marketing and sales engagement while reducing your technology services costs.

Reducing customer churn and finding ways to increase your customer lifetime value are all contributing factors to your profit and revenue growth targets. Often we end up talking to the Chief Operating Officer rather than just the Chief Sales Officer or Chief Marketing Officer.

If you need a review or validation, allow us to independently review your strategies to help drive down your telecommunications provider costs and increase your sales and marketing effectiveness and performance. 

Once we run through a review of your strategies as independent consultants, we can guide you from our market insights to help you make an informed choice of which telecommunications or technology services providers best suits your needs and customer outcome.

Surely a review is worth an initial 1 hour of your time to meet with us to hear our insights.