Granular Pricing and Event based Pricing as a Service – (Praas) #NapkinStage #WillFund

One of the things I’d like to do every week from now is to talk about problems that I know about. I am hoping I can get entrepreneurs interested in working on these problems. Of course, most of these will not be fully vetted or even viable. That’s where customer development comes in. Honing in on the specific problem set will be something that needs work.

The problem I want to talk about today, is pricing. As more software companies offer their products on the cloud, and more companies are becoming “full stack“, there is a big need to help them optimize pricing to capture value instead of usage alone. Pay for performance instead of pay for usage is not a new concept.

Pricing by usage means that as people use more, you will charge them or they will pay more. That’s typical of mobile phone plans for example, the more data you consume, the more you will pay. That’s consumption pricing.

Pricing by value or pricing by outcome are two other means. As companies get more “full stack”, it is becoming more clear that they intend to not price on standard known means. For example Uber’s surge pricing is “value” pricing based on demand. GE has started to price its jet engines on availability and uptime instead of a maintenance fee, which increases its ability to execute differential pricing. If the engine is available more, GE benefits as does the airline, which leads to lesser downtime and hence more profits for the airline. This extra profit is what GE wants a part of.

More specifically, in terms of software defined pricing, it is becoming clear to me that granular pricing, the associated billing is equally important.

The solution is “Pricing as a Service” or PraaS.

I can envision an API driven offering, which is used by the developers of any SaaS company. The offering will manage the pricing pages and the billing for the company (different from recurring billing and transaction that’s done by Recurly, Chargebee, etc.)

The API’s will also be available to customers who want to bill granular components of their product. It should provide the ability to manage pricing tiers or create “packages” and also allow for multiple SKU’s to be created from base offerings by segment of customer.

I think this is a sketch of the idea, and there needs to be a lot of work done to talk to SaaS companies to understand their problems with pricing their products.

The other part of the pricing problem is metering and billing. I know of many SaaS companies who are looking to expand their customer footprint by offering their products via public clouds (AWS, Microsoft Azure) to large customers. For these companies, new metering and billing by components, or value based is a lot more profitable than plain usage or user based pricing.

I think Pricing as a Service is an important solution, so if you have a background (been an entrepreneur – failed or succeeded before) in a SaaS company, and a team of 1 or 2 cofounder who can build large scale API based systems and have the desire to build a company, you should reach out to me. I’d love to learn more and if your team fits the bill, I’d be willing to fund this idea. If you are a solo entrepreneur, I’d not be interested. If you have not been an entrepreneur before, again, it would not fit my criteria.

Lessons from 3 founders on surviving the “near death” of your #startup

Startups were largely meant to be an experiment. An attempt to solve a problem (that may or may not exist), or to bring to bear an idea whose time “has arrived”.

Experiments, though unlike many startups, have a hypothesis, are conducted largely in test environments and have the ability to come to a logical conclusion after their period of testing.

Most founders I know have survived at least 3-4 “near death” experiences at their startup. Most of the near death experiences come within the first 18 months of forming the company. Surprisingly, they dont come in the first 3-6 months, but after that.

A near death experience is categorized, as a point where the founders believe there’s no point in continuing to build the company any more and they would like to shut down. Most times it is because they ran out of money. A few times, even when they have the money, they decide to shut the startup down since what the founders signed up for is now different from reality.

statistics-on-failure

statistics-on-failure Credit: http://www.statisticsbrain.com

I had a chance to work with many founders over the last 10 years, and the thing I have noticed about founders who survive the journey is that there are 3 things they all seem to have in common:

1. A bias for action, not deliberation. It is not as if you wake up one day and suddenly feel like your startup is going nowhere. The buildup to your closure is usually a series of events and feedback that points to inconsistencies with the assumptions you made when you started your venture. The best entrepreneurs have a very strong bias to take action on the data and quickly put new experiments in place to validate the new ideas and tactics.

2. They take an extremely short term (hours, day) view of their survival needs. There is an old saying in cricket, paraphrased – “When faced with a daunting score or a large total, instead of trying to focus on the target, focus on the next ball. Leave the rest to time. If you focus on the next ball and surviving the next ball it is likely you will worry less about the many other distractions that come with figuring out scale and other “to be solved later” problems.

3. They focus only on revenue generation activities, after cutting costs to nothing. I notice that many entrepreneurs say they cut costs to “bare minimum”. Which, in my opinion is still high. If you are spending any money at all (for development, marketing, etc.) you should cut them to zero until you have your revenue plan in place. They remove their “small office” space, eliminate “web hosting charges” but looking at creative ways to use free resources to “keep the lights on” without spending money.

 

Indian Grocery

Why has someone not disrupted the Indian Grocery store in the US

There are over 4 million Indians in the United States and this includes those who are on business, work and other visas, besides American citizens of Indian origin.

Over 50% of Indians in the US are in the top 5 states: California, New York, Texas, New Jersey, and Washington.

There are over 750 Indian grocery stores in the US as well.

The typical Indian grocery store is about 700 Sq. Ft, located in the suburb (not the major cities) and tends to operate on 21% net margins, with some items (biscuits, Indian vegetables) topping over 50%.

It is not unusual to see 100% markup on items such as masalas, basmati rice etc.

The stores are small, cramped, usually not in the best shape, in highly trafficked neighborhoods, and offer pretty poor customer services.

They all thrive though. The average ethnic grocer will experience a 29% closing ratio in the first 18 months, whereas Indian grocers experience < 10%.

The average Indian grocery store also makes about $350K to $1 Million (Sunnyvale, Santa Clara) in profits.

Most of the produce and the packaged food is rather old, some way past their sell by date and many products are rarely replenished quickly enough to categorize them “fresh”.

Indian Grocery Store

Indian Grocery Store

They all make money though, and are pretty profitable.

So why have they not been disrupted?

There are some attempts: Increasingly Wal Mart and Costco are offering Rice, some Dal and some packaged foods such as Ready to eat meals (MTR, Gits). The “Asian Foods” aisle at your local Safeway and QFC is also a good source of some spices and masalas.

There has been no large scale attempt to cut out the expensive Indian Grocery store. I can easily imagine the 100% monthly subscription model online store doing well, but of course, I am neither a supply chain expert, nor an expert in Groceries.

I am curious though, to learn why none of the ethnic stores have been replaced or are being threatened by Internet distribution and discovery.

Android ecosystem vs. the Windows ecosystem

Android as an operating system for mobile can be likened to the Windows operating system for PC’s. There are so many differences and similarities that it is worth comparing and contrasting them instead of comparing PC’s to smartphones.

While we cant call the smartphone market at its “peak” yet, there are over a billion Android users right now. If you look at the PC market, there are a billion PC users as well.

At its peak, there were 195 Windows PC manufacturers and 1400+ models of PCs.

There are 400 manufacturers (known) and 4000 models of phones and over 500 carriers in the Android ecosystem.

What’s different in the PC world vs. the phone world is the carrier.

Few of them (primarily in the US) subsidize the phone with an ongoing payment for usage of the network.

The carriers ensure that you will continue to use the phone and pay a “subscription” fee monthly for usage. In the PC world, without the “Internet” the system was pretty useful.

Without the carrier the phone is pretty much useless. You can possibly use it as a MP3 player or a screen, but trying being productive without a mobile plan.

While there were other operating systems (MacOS and linux) in the PC world, (iOS and Windows) in the phone world, the similarity is that the “winner” has a dominant market share or profit share, rarely both. Similar to Google in search, they dominated the market share and profit share for the PC OS.

Another key is is profit share.

In the PC world, the closed Windows operating system made the majority of profits, and in the mobile OS world, as well, the closed iOS operating system has made the majority of the profits.

The difference is the the “open” operating system in the PC world – Unix did not fare as well as the “open” one in the mobile world – Android.

Which leads us to some questions – What matters for the health of the ecosystem? What matters for the health of an individual company? If you were to project what happens in the Internet of Things world – which “OS” might win?

For a healthy ecosystem, I think both open and “closed” systems matter. The closed system tends to make most of the profits. The open one, either gets no traction at all, or tends to dominate marketshare but not margin share.

For the health of an individual company, being there first to get developer traction matters most. Developers go where the consumers spend good money, not where they use the product as a utility.

Finally in the IoT world the “operating system” will likely be the cloud. The likelihood of a dominant operating system taking both marketshare and profit share seems very high.

So I were a betting person, I would go long on AWS (Amazon Web Services) and Microsoft Azure. If there were to be a dominant system, it is likely they would be the contenders.

Most “Internet of Things” are focused right now on the Things,not on the Internet. That will change, resulting in more data driven models for IoT than device models.

What do you think?

Discovery Distribution and Engagement

Standing on the shoulder of giants – how startups get distribution done faster

The whale shark is an unusual fish. It travels an incredible 5000 miles off the cost of Caribbean each year. It does though help a lot more fish when it makes this journey. Many small fish and other sea animals live on its back and travel with it.

Intellectual pursuits have been similar. Issac Newton is quoted saying:

If I have seen further than others, it is by standing upon the shoulders of giants.

That’s one of the key items I have learned about distribution and growth hacking over the years. If there is a large “installed based” of practically any product, it is possible to jumpstart your new startup idea on its back.

Startups cannot help other startups. Except for giving advice, which is practical and practitioner-led, there’s not much a small startup can do to help other smaller startups.

The new “large” installed based in technology lead themselves to help new startups more than previous ones. While SDKs (Software Development Kit) and API’s have existed for a long time, the new age companies are helping bring their installed based to new innovations lot quicker by exposing their customers to new technologies via 3rd party solutions built on their solution. Some of them are doing so with the intent of being a “platform”, but many dont have a choice but to grow and build relationships via API’s.

I was talking to an entrepreneur yesterday about how they can improve discovery and distribution for their SaaS application.

The first part of the problem is just discovery – people getting to know about their product.

The second part of the problem is distribution – people trying their product.

The last and most challenging part of the problem is engagement – people using their product frequently.

Discovery Distribution and Engagement

Discovery Distribution and Engagement

The 3 problems are distinct enough to have different people responsible for them at your startup. Typically, the discovery is a “marketing” effort, distribution is a “sales” effort and engagement is a “product” effort.

New startups, especially consumer (eCommerce) are finding that being on the app store alone is only solving the distribution effort, not the discovery or the engagement problems.

SaaS companies are finding that discovery can be solved by SEO and SEM, and distribution with “freemium” pricing, but engagement is their toughest challenge.

Finally games have always found that engagement is their biggest challenge.

Depending on your company, and the market, there are some criteria to keep in mind when you are trying to decided where to “spend” your time and energy. Then using a large company in the space to solve that problem is the best way to grow fast.

So, if discovery is a problem, then I’d suggest listing on multiple marketplaces and directories and getting the word out via customers. If there is a large company in the space and they have an API or marketplace, list your product on both. The rising tide of customers will lift your boat as well.

If distribution, however is the problem, then ensuring easy “provisioning” on the larger company’s platform will help the most.

Finally, to solve the engagement issues, making API tie-ins to a larger company’s product – e.g. using Line’s API for new stickers or in app purchases will help.

If you have examples of how you have leveraged a larger company to make it easier to discover, distribute or get user engagement, I’d love to hear from you.

Ventures Logo

Goodbye Microsoft Ventures, 3 years of fun comes to an end

3 years ago to the month, I was at the crossroads. Having moved back to India and grown, then sold BuzzGain, I had founded my next startup and found a way to grow a new business.

I was spending more time helping entrepreneurs and was interested in starting a new company, but I realized that having a bigger impact is what I was seeking.

I met with Amaresh, at an event called Think Next in May and he was a very nice, humble and wicked smart guy was my impression. When he started talking to me about the Microsoft Accelerator program, I was keen to help. He then offered to get me on board full time and I was (as was everyone else) very surprised. I agreed because I thought the money and resources that Microsoft had, directed at the right places to help the startup ecosystem would go a long way to help India.

At about the same time, Rahul, Neda and David started the Bing Fund, with similar interests – to help entrepreneurs by investing in startups. Similar initiatives were started by others in other locations. A small, but passionate crew at Microsoft were keen to engage the startup community and help entrepreneurs.

Microsoft Ventures was formed in March 2015, when we brought all the startup resources into one single organization. We announced it in June 2013. It was going to comprise of an ecosystem program – BizSpark, accelerators to help startups grow and a fund to help startups scale.

From 2012 to 2014, I was in India, and built some great relationships there with investors and entrepreneurs. Microsoft Ventures was name the #1 accelerator in India by Economic times.

Microsoft Ventures and American Family Insurance presented 10 inMicrosoft Ventures and American Family Insurance presented 10 in

Microsoft Ventures and our demo day

Late last year, I decided to move to Seattle to take on a bigger responsibility, but also to bring the startup culture to the large corporate Microsoft entity. After Satya became the CEO, it was more acceptable than before to be entrepreneurial at Microsoft.

Microsoft is big, large and great at many things, and is learning to be nimble and move quick, is my sense, after being here for a year in Seattle.There are many folks who have been here for over 15-20 years who are resistant to change and many folks who are very open to change as well.

Nonetheless, I had a lot fun, I think we had some impact and we certainly made a lot of friends. We helped many entrepreneurs and not a day goes by when I dont get an email from someone who wants to work for Ventures or be funded by the organization.

I think I will miss the entrepreneurs I interact with daily, the most, as part of Ventures, but I suspect I will continue to work with startups. Mostly I will miss working with an entrepreneurial team of folks who care deeply about startups.

The Modern App

The modern app developer

Two interesting things came to my attention yesterday. The rise of coding schools (NYTimes piece) and the most popular languages used at hackathons.

As I had written before, coding schools are graduating close to 20K students in the US – almost 1/3rd of the # of graduates from all computer science programs. Most of these students are from fields outside of programming, computer science or engineering. Many studied political science, history or literature and were pizza delivery folks, baristas and even Uber drivers.

While many of their starting salaries are about $60K, even 6 figures are not unheard of salaries for “data scientists”.

Over the last 6 months, I have noticed that these students make up nearly 10% of startup development teams. Many are hoping to get 1-2 years of experience to either a) go independent or b) get a much better paying job (read $150K) at a hot startup with stock options.

The modern apps have 3 characteristics that is changing the way apps are developed.

1. First, since there is a rise of Dev Ops and No Ops, many more developers are developing apps purely on Javascript and some Swift, with Python, Java and C++ taking the back seat. With the simultaneous rise of Javascript libraries and frameworks, it wont be too long before we see more Javascript only developers who focus on building interfaces quickly with little backend code.

2. The rise of composers instead of coders. Many app developers focus a lot of effort on coding skills and writing monolithic applications that are self contained. The future of apps and hence app developers is microservices which use many 3rd party API’s. This will result in coders and developers becoming more composers who snag code snippets from other places and spend more time building an experience end-to-end and less time on systems programming.

3. Finally given the rise of consumer apps and their influence on enterprise apps, many app developers will start to incorporate images, video, and other media elements (voice) into their apps and have “voice enabled” assistants in their apps to replace the standard productivity and ERP / CRM apps that are developed for the enterprise. Many enterprise apps are expected to have a “longer” life cycle than games and consumer apps, which are constantly in fashion and out, but the shelf-life of enterprise apps will reduce thanks to consumerization of work-apps.

The Modern App

The Modern App

Increasingly the skill that is needed more than architecture and coding is identification of key API’s, rapid prototyping and experimentation and very few people who are going to help “scale and grow” the apps.

I wonder if you are seeing the same?