Hi Shelia,

Yes I'd agree, it is worth spending money on external people for PR. Not just for ideas but access to their networks.

It's also great fun. Chris from Sputnik is always coming up with great ideas for us.

We like the retainer model rather than one off projects as I think you need to take a longer term view and bring your PR advisor into your management team for a period. PR is a slow burn.

Over time you'll build our own confidence and be able to do more yourself but it's still good to bring the experts in every so often.

Rod

Hi Paul, I can't think of any any examples of small companies being able to afford to buy brand through traditional advertising spend. We've done newspapers, some radio and have very, very low measurable response.

We also hear lots of advice that in these times every dollar has to work for you so everything you do should be measurable.

The reason traditional media is so cheap is that the big boys are shifting advertising budgets from magazines etc to online for measurability.

So yes there is an opportunity, but going big on non measurable advertising would be very risky.

I think you can still create brand (which is hard to measure) by being clever rather than spending big.

Here are some ideas to think about:

1. PR and doing newsworthy things
2. Social Media - creating an online conversation (like we're doing here)
3. Viral campaigns - e.g. 42 Below flash cartoons
4. Starting a media conversation - e.g. the broadband issue
5. Becoming a source of expert data/opinion. E.g. TradeMe are often putting out interesting metrics on house sales metrics

There are smaller sites that you might be able to cost effectively work with to build a long term presence. For example we sponsor http://accmanpro.com an influential commentator site in our industry.

Any other ideas?

Rod

People who know me know that I've always had a stutter. So getting out in public was absolutely terrifying for me. (Still is).

So you actually can learn to get out there. It's baby steps and getting more and more comfortable. If I can do it, anyone can do it.

Rod

Sorry for the delay in replying, have been at the jobs summit all day

@ange

Great idea on the EFTPOS receipts. I'll escalate that to the IRD.

To the subject of this post. I wanted to share that opportunities come from rethinking processes.

In our space it seems crazy that accounting for 100ks of small businesses is so broken - so changed the model.

This is a two edged sword.

1. You have to convince people to change their processes - which can be a big sell.
2. The rewards for that are significant if you can make this change because you intrinsically get significant benefits over what was done before

AfterMail was similar. It seemed nuts that email wasn't in a relational database so you could ask 'what has anyone in my company said to that company lately'?

Approaching seemingly mature markets with a different approach can allow you to create exciting opportunities with minimal capital.

AfterMail was a low capital business. We funded it by not paying salaries for the first year to founders. We also presold 10 licenses for 20k giving us $200k of potential cash when we delivered. The deal was something like

1. 20k for unlimited use (say that might be $50k of value) if we has a real product
2. No maintenance for 2 years
3. No cost for implementation services - it was a sunk cost for us and we knew we'd need to do it anyway
4. Pay us when you're happy

This de-risking was compelling enough for us to book $200k of revenue early in the business and obtain our first reference customers.

@Gareth

Yes. SaaS is huge up front investment.

You need to be able to fund the revenue ramp, as you only get a a small amount each month, rather than lump up front revenue. You may also be educating the market which takes time.

As well as a great product you need a big investment in back office processes. The server needs to runs the business so you can be a low cost operator.

You need bizdev skills. Getting bank feeds for us was a massive investment in time that most small companies just don't have

You need a big team. Dev, QA, Customer Care, Sales, Finance, Ops etc etc. We thought 50 pax. AfterMail had 23 and it wasn't enough to do things properly once we have 130 customers and were operating globally.

That is why we had to raise a big chunk of change up front to do it properly. That obviously creates a barrier to startups. So we are starting to see some other accounting systems on the web in the US but they are 5-10 person shops with a fairly thing feature set and minimal biz dev capability and back end process support.

In the SaaS world access to capital is a major component of your strategy. It is a key part of Xero. The need to raise that capital on an idea was why I pumped my personal PR up during AfterMail as I needed to get from the tech pages to the business pages so people would give us money.

Entrepreneurship is a serial activity, each experience hopefully give you more capital, networks, and the platform for the next thing.

So what should you do if you want to build a SaaS business.

There will always be exceptional companies but my advice would be to focus first on Department or Enterprise opportunities where there is an opportunity to get lumpy deals up front to help with cash flow. 10 companies paying 10k a month and an implementation fee requires a much smaller company than 10,000 customers paying $10 and you could possible bootstrap or angel fund that.

Doing a public company is scary fun but when you want to go big your capital strategy is integral to your business strategy.

Great question.

@SimonP well spotted that we need to do marketing.

To explain:

We made a conscious decision not to do marketing (yet) because marketing to small businesses is hugely expensive and we think ineffective. We could have blown a lot of dough with minimal results. We did test a few things like newspaper and radio and didn't get a measurable return.

Like most new products we had to initially start off with hand to hand combat - direct selling - to first reference customers and to gain customer insights.

Then we had a stepped approach to light up accountants. We need them as gate keepers and validators. We also need accountants so there is expertise and capacity in the market when small businesses start coming in on their own.

We firstly sold with accountants, so that they see the benefits and we build trust with them. So we asked them to provide some of their customers we could sell to.

Now we are focussing on enabling the accountants channel to be able to sell themselves. That is now starting to work.

We also need to build a brand so that the 10000s of small businesses think about Xero. MYOB have done a great job of many years being the brand you think of for accounting.

Our strategy has been to put our resources into piggyback marketing with partners that are already spending big $ talking to small businesses and have direct relationships with large numbers of customers. These include banks and carriers.

If we are successful in that, you'll start seeing Xero alongside already trusted brands, helping them tell a more relevant story to their customers.

Hope that makes sense.

Rod

Hi guys,

Sorry this article was out of step.

Great idea to do a profile building story. I'll write one of those over the next week.

Funny thing is we don't think we've started marketing Xero yet it's just been PR. In small markets like NZ it can be a very effective way to build buzz.

More later.

Rod

I'm often stuck in a provincial city with an hour or so to kill with no space and just a bit long to hang in a cafe for. I've found calling up and asking business advisors we use (lawyer, accountants, bankers) if you can camp for an hour or so in their office normally gets a positive response.

We try to 'pay that forward' to others as well. Especially if they come into Wellington. So we have a visitors network so that people can connect and clear their email etc without being on our network.

It's also great having a mobile data card. That way you can connect from anywhere and catch up.

It would be great if each local body would put a free business wifi connection in a cafe near the council offices and promote it as a place where out of towners can get a connection. It would be a greta point to connect to all of those travelling business people and them interacting with local businesses and services.

Rod

I was watching the Charlie Rose interview with Netscape founder Marc Andreessen last night.

Marc was commenting in the credit crunch for tech companies. He had some great quotes around this time being the tail of the dog but the best quote was something like ...

Tech companies are normally funded by equity not debt.

http://www.charlierose.com/view/clip/10096

Simple stuff when said but actually a very useful insight. I suspect many small business owners are like that as well and have minimal debt in their companies and don't have ongoing debt dependency because it has been traditionally very tough for small business owners to get debt in the first place.

Rod