Leadership

Four Pitfalls for Software Startups

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We launched our startup, iCharts, at the TechCrunch Conference in 2008. One week later, I was sitting in a venture capital firm’s office, waiting for my appointment, and I saw the headline that Lehman Brothers was bankrupt. The market crashed and, along with it, venture capital funding for new startups went away. Suddenly my company was thrust onto a circuitous path over the next three years that took us in a completely different direction than what I’d planned.

Chances are your startup won’t face the same scenario that hit me in 2008 when the economy crashed and spun into a recession. However, reality often invades best-laid plans with situations that cause upheaval. Knowing how to effectively respond to such circumstances will keep you on a course for success.

What follows are some of my lessons learned over more than two decades, the challenges I encountered while building my software-as-a-service (SaaS) company, iCharts, and my advice for avoiding four pitfalls that await software startups.

Pitfall #1: Lacking conviction

In a nutshell, iCharts is about making data insights social and is the only fast, simple and affordable way to create and share interactive charts online with zero programming.

Much of my background is from SAP, where I was intensively involved in data visualization and processing data. SAP hired me because I was early into customer relationship management software, software as a service, and new markets. Prior to SAP, I had worked for Compaq, then saw a big opportunity with a start-up in the customer relationship management software space in Germany.

Then I joined an American company, Asera, a Kleiner Perkins funded company SaaS company (although back in 2000, it was referred to as e-business on demand). For two years I evangelized Asera and the new paradigm of software as a service in Europe, which added to my knack for new markets.

I worked closely with the board and chief strategist at SAP in helping to reallocate a percentage of the annual R&D budget from current to future products. The work involved turning data across the entire organization into charts with highly condensed, high-level insights that drove the board decisions. But creating charts for data visualization was a cumbersome process, and it required going offline to create the charts and then converting them back to online to share the data. Seeing the need for a solution, I left and worked as a consultant while working on my iCharts concept.

We incorporated the company in Silicon Valley, launched in 2008, and then came the downturn. People ask me how I managed to remain positive and move forward at that point with the VC funding disappearing. I think brutal optimism has to be part of an entrepreneur’s core in order to weather everything that hits when trying to build a business. But more importantly, you must have unwavering conviction regarding what you’re doing. Otherwise, you’ll be thrown off course when new realities come into play.

In my case, I had an unwavering conviction that there needed to be a service for creating Web-inherent charts. Recession or not, the need would still be there because everything is moving online. Actually, my conviction also led me to view the recession as an opportunity. I figured if I could ultimately find some way of funding iCharts, then I would be in a pretty good position since VC funding had dried up and there wouldn’t be tons of startups that were trying to do the same thing.

Pitfall #2: Choosing the wrong business model

Today our iCharts business has both a B2B and a B2C component. We built a robust platform that serves market research firms and large companies. It also includes a free service for consumers, launched earlier this month, for journalists, bloggers, and small to midsize businesses who want to quickly take a spreadsheet and visualize that data on a website.

We started out with just the B2C business model. But that model required venture capital funding, which was not available because of the market crash.

As a startup, it’s essential that you understand how you’re going to fund what you’re building. While you may think that funding should depend on what you’re building and the opportunity you see, the reality is that it depends on the stage of your business. VCs and angel investors are not a continuum and don’t fund in the same way. For example, VCs today will not fund a direct-sales model, but angel investors absolutely want a direct-sales model.

Having a direct-sales model is not always the best strategy. It’s how we started – picking up the phone and hunting down potential customers and getting them to sign on for initial pilots. It’s a great way to get started, but only in the very early stage. You cannot scale the business on a direct-sales model; and if a company can’t scale fast enough, it won’t get funded.

There are companies that succeeded through direct sales. But if you choose to go that route, then you need to understand that the only way to get it funded is organically and through angels.

If I had it to do over again, I would have switched earlier to a partnership model and a 100 percent online sales model. For instance, iCharts regards all market research firms as partners. All blogging platforms such as WordPress also make great partners for us. A partnership model enables extending the scale.

It also became clear right after launching that we couldn’t focus on both the free consumer model and the high-end B2B model at the same time without compromising one of them.

Salesforce.com is a company I absolutely admire. At iCharts, we’ve just gone through two years of figuring out our pricing model and our business model. Salesforce.com understood how to go from a very low-end model to a very high-end model and how to do that in a linear fashion. They’ve managed to build a billion-dollar business on that, and that’s something to aspire to.

Pitfall #3: Inability to make radical decisions

We launched iCharts’ free consumer service at the TechCrunch conference in 2008 and had fast interest and 2,000 users right away. It was clear the consumer demand was there. But due to the economic crisis a week later, there was no VC funding for new startups. So I made a radical decision to shut down the portal and consumer service. I decided we needed to focus on the high-end B2B component first and then shift to the B2C component later on.

Startups must be able to make radical decisions when extremely unexpected turns occur. I based my decision on what I knew to be true: I needed a fast route to revenue from the iCharts service. Obviously the free consumer model wouldn’t work at that point in time. I started engaging early on with the angel investors to understand what they wanted and would be willing to support in spite of the economic situation. They were willing to fund a service that fulfilled a clear need and would be able to generate revenue. There was a big need for businesses and market research organizations to process survey and market data and turn it into insights for presentations and create all kinds of charts to get information to clients faster.

So I decided to switch the initial focus to servicing B2B customers, the high-end of the data ecosystem. We’ve since raised over $3 million in funding from private angels, which gave us a strong foundation to launch a rich consumer-focused free version this month.

Pitfall #4: Not investing in visibility

We channeled our investments into building a robust platform and also in building a great initial customer reference base. We didn’t invest in an online presence and visibility in the market space until later. Of course, one has only so much capacity and has to determine where to focus energies. But looking back, I think we should have focused on our visibility earlier.

The foundation for confidence in decision making

You never know what’s going to be successful and what won’t succeed. The question we often asked after I made the radical decision was “Is this the right path?” But we’re successful today and it’s clear that we have been on a good path.

However, startup execs can spend endless sleepless nights over their decisions if they don’t have the right foundation in place. I think there are two critical components to the foundation.

One is something I learned a long time ago when reading “The Razor’s Edge,” a book by Somerset Maugham. It’s a very unconventional story of how to create a better world and a meaningful way to do that. In my particular case, making data something that can be shared easily and visually online links me to that quest. My advice is to make sure that the foundation for your business is something more than building a highly successful, growing business; make sure your business is doing something that has a larger meaning.

The second part of the foundation is your basis for the certainty or confidence in the route you take in your business model. In my case, I attribute that to my interactions with consumers, business end users. I had an idea of what to launch; but at the end of the day, only they know what they need and what will be successful.

Everybody has interesting data in their business or whatever they’re doing. The business customers told me they wanted to be able to tell a story about their business – but with facts from data – and use that as a branding and marketing instrument. Media users told me they constantly search for interesting facts to write about and need a way to turn that data into interesting sharable insights. So their feedback, which I’ve sought from day one, has been essential in helping me figure out what the iCharts service and platform is worth and what types of users would want it.

In a nutshell, I had a clear opinion of what the iCharts business model should be, and I did not trust it to external interests. I trusted the feedback from consumers and business end users and my team. It’s a great foundation.

Seymour Duncker is the founder and CEO of iCharts.

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