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I'm working on a startup that is providing web-based application. We have over 600 paying customers, which is 5% market share in that particular niche. It takes 2 persons to drive this business, but the revenue covers expenses of only 1 or 1.5. As we have been doing this for four years already the enthusiasm is starting to wear off. What to do in this situation?

  • Take an investment. There are actually no obstacles to achieve bigger market share and there is no direct competition either. But we have been doing this for four years already, maybe the problem is us or the market? We have decent CTO and CFO, but we are missing natural sales person and an executive type. And the market is adopting our ideas slowly. Maybe it's time to let it go.

  • Refresh the team. Hard to achieve. The revenue hardly pays our bills, hiring a new person seems too much risk. Its also hard to offer partnership, because we already have 4 co-owners of the company. Adding another person would require lots of negotiation between current owners and I'm not sure the resulting percentage would be motivating. Two of our partners are inactive, so buyout could be solution. But then I would need to justify this investment to myself, see previous point.

  • Sell the company. We all know, that nobody is buying piece of code from you. They are buying access to users or market share. I'm not sure, that 600 customers or 5% market share is enough.

  • Drop the idea That would be disappointing for our existing customers. Of course we could open-source the software and turn management of the service to non-profit organization.

If you are an active type like me, than you have several new business ideas every day. So you could guess, that I feel kind of stuck with current idea, which is not really bad, but is not flying either.

EDIT: Many people asked about the actual product, so here it is - it's a specialized accounting solution for condominiums (apartment houses) in Estonia. The website is http://www.korteriyhistu.net/, but it is entirely in Estonian, that's why I didn't publish it at first place. Similar softwares in US seem to be Condo Manager and The CondoKeeper. Also Strataware in Australia.

The business model is, that you can register on our website and start using the application right away. First three months are free, then it's $0.50 per apartment per month. User guides and training materials are freely available on our website to remove all obstacles from starting.

Most of our competitors are standard accounting software providers. We differentiate from them by being web-based and allowing apartment owners to access the system. We pride ourselves for transparency - apartment owners can see how their money is spent.

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Link please need to see the product – ThomPete Jan 27 '10 at 10:44
Do you really consider Excel as a competitor? From what I understood, our software deals with business rules and local legislation laws. This means someone has to create a ton of Excel macros, formulas and programming and it will be a nightmare to maintain. Which Condo manager knows how to do this or wants to hire someone to do all this stuff for him? Unless people in Estonia love Excel! :) – Abdu Feb 4 '10 at 23:56

11 Answers

up vote 11 down vote accepted

To me, the obvious starting point is your 600 customers. Do you even know why they are your customers? It seems to me you do not know what they really like about your product, and what they think could be added or improved. Do you know anything about those that did not choose your offering? It would be useful to know why they did not go with you.

I think the four options you present are premature right now. This is because what you do depends on what the root cause of the problem is, but it seems you do not know what that is.

It could be, perhaps, that your product is really targeting only a niche in that market. It could be that you are missing a critical feature in your product. It could even be something as backward-sounding as your pricing being too low. You do not say how you get revenue (ie, subscription or one-time payments, or whatever else), but 600 customers not supporting two full time employees sounds too low. You need to figure out how to get better revenue out of the deal. Sometimes people expect to pay a certain amount and discard options based on low price alone. I have certainly seen this many times: People look at the most expensive product first and then then compare based on highest-to-lowest sorting order in looking at products. They stop looking once a cheap enough product is found. The least expensive product does not even get looked at. Weird, but this could be the case, depending on what your product is, on the market, and how your product compares in features to the market leaders.

Focus on your competitors as well. What does the market leader have that you do not? How do prices and features compare? What about support, how does it compare? How difficult/expensive is it to switch to your product?

These are all very broad questions because your description of the problem is very vague (you don't even say if this is B2B or consumer product, nor what type of product it is).

Anyway, to me it appears you are not trying to diagnose the problem, it seems you are jumping to the "finding the answer" part.

EDIT: (In response to your edit :-) ) Actually I could make some sense of your page with Google Translate. The site looks great. The map that shows your customers is impressive.

About the pricing, this completely out of my field of knowledge, but you should really compare pricing.

What I would do at this point is do at least these three things:

  • Understand your customers. You should really be able to tell why they are your customer. Get in touch with them, and find out what you are doing right and what you are doing wrong. Improve on your current offering. Are you targeting the right customers? In apartment buildings there are owners that have 5 units and there are owners that have 500 units. Are you segmenting the market accordingly? Maybe you should create a different edition of your offering for very large owners, raise your price by a factor of 10, and then make sure you have all the needs of the 500 unit and above clients met.

  • Understand your competition. Is there something obvious you are missing? Also how much do they charge? What is the market share of the largest player?

  • Think about going into other markets. Is there a reason why you are in Estonia only? You have great momentum (600 customers in a B2B application is very respectable), why don't you carry it over to different markets? Preferably markets where you can charge more :-) Is there a reason you have not tried the US market, or the rest of the European markets?

Now I don't know about Estonia very much, but is 5% a reasonable market share to expect? In other words, how do you know your market share is not 10% or 1%? If many of your users "have no clue", is it because they are not sophisticated enough to find your offering on their own, or maybe they do not feel they need your product? If that is the case (and this goes back to "know your customer") then you may have to try different methods of approaching and selling to your potential customers.

In summary, I think you are in a very good position. You have momentum, which is very hard to attain, and you have lots of options in how to solve this.

EDIT2: The more I think about it, the more ideas that come to mind as to what you can do to fix your situation. You have many outs, as they say in Poker. You definitely should not abandon your venture just yet.

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Your answer really got me thinking. Do I know why those customers pay us? There is no single reason. Sometimes they use it because of transparency (see my edit of question). Sometimes they use because our system is easier and simpler than general accounting softwares. Sometimes it's because we provide integrated solution instead of many separate applications. Sometimes they just don't know any better. Sometimes it's cheapest solution for them, because our pricing is based on number of apartments. Should I choose one and develop it for perfection and drop other ideas? – Tambet Jan 27 '10 at 20:41
And further - yes, we are missing features in our system, which some customers consider critical. We have implemented 50% of our initial vision, other 50% needs additional investments - that's what I'm dealing with right now. And our price might be too low, but when we rise it, there is real risk of losing customers - yearly subscription fee will be more than one-time payment for general accounting software. I think market leader in our niche is Microsoft Excel :). We with our 5% market share might the next in Estonia. – Tambet Jan 27 '10 at 20:56
@Tambet: See my edit for expanded answer. Also if your main competitor is Excel, then you are in a very good position. That means you can add all sorts of features that your customers do not have right now. Just make sure you add the correct features. – Gabriel Magana Jan 27 '10 at 21:12
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@Tambet: Also, if you double your price and lose 25% of your customers, you come out ahead in the end. Finally: If you keep the current prices but add features in a new edition you create, you give the option to your users to pay more to upgrade or stay with the limited version and have no increase in cost. – Gabriel Magana Jan 27 '10 at 21:14
@gmagana: Thanks for encouraging comments. And thanks for the Google Translate tip, this might come handy, when demoing abroad. We certainly need to rethink our customer segmentation and pricing model. I've got some ideas from this conversation already. About 5% market share - I know from statistics, that there are about 12 000 apartment houses in Estonia. About going abroad - we are trying our neightbour Latvia, but it needs quite a substantial customization to adapt to local legislation etc. That's why there is no general accounting software from Microsoft that everyone uses. – Tambet Jan 27 '10 at 21:41
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up vote 6 down vote

GET A SALESPERSON. I can't believe you don't have one. Bring someone in who will sit there all week long and call up every single condo and try to get them to buy. Pick a wealthy neighborhood and work down the streets, one at a time, cold calling. Call every single happy customer and ask them to refer two others.

If the salesperson doesn't pay for himself/herself within a month or two, fire them and bring in someone else.

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Oh, I feel like being touched by God :). But to the point - yes, that's what we have been trying to do, but it's not easy to find a person who is smart, likes to communicate with people, knows IT and knows something about accounting. We have been trying few people with no success. But recently we got a guy who just yesterday made first two phone calls and both successful. I have high hopes in him. No wonder - he got his skills by being book salesman in US :). – Tambet Jan 29 '10 at 7:50
up vote 3 down vote

Pretty much the same thing happened to me (the technology guy in the company). We ended up closing the company and released the source code to the customers. I ended up continuing to do for the existing customers for changes / enhancements / support, but it only requires a fraction of the time than before than when my effort was on cranking out new features / releases. Also, I actually make money as a consultant, rather than costing me (in opportunity cost and actual dollars) as a founder.

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I'm currently doing consultancy work too to make living. But it can get quite stressful if you work on 3 projects at the same time... I'm trying to reduce the number of simultaneous projects, that's why I have to decide - rise money or drop. – Tambet Jan 27 '10 at 21:12
up vote 1 down vote

Look for another company in the same segment (the remaining 95% of the market must go somewhere) that is willing to merge with you, or buy your 5% of the market. Or maybe you can just increase your prices to cover the costs?

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I would say, that market leader in our niche is Microsoft Excel. We with our 5% might be the next in Estonia. Rising prices is hard to justify, when our yearly subscription fee grows more than one-time fee for general accounting software. OK, our software is better and our support is free, but these are soft values. Currently most of our customers are through accounting companies or real estate management companies, who are usually paying for the software. If only we could make the condominium itself pay, then rising price wouldn't be so scary... – Tambet Jan 27 '10 at 21:08
up vote 1 down vote

I agree with some of the other answers.

  • Can you get more revenue from existing customers? 600 paying customers seems pretty valuable. If you can solve some more problems for them, maybe they would be excited to pay more.

If you don't see the opportunity or are tired, look for a competitor to sell your customers to and get out.

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up vote 1 down vote

Is it a consumer product ? 600 seems like a lot of customers for a business to business product. Perhaps you could create a premium version with a higher price tag or resegment the market for a specific niche ?

EDIT:

  • Would it be an option to expand and target the English speaking market?
  • Your price tag seems a little bit low. Maybe you should rework your pricing scheme? What about a base fee for access to your app. + 0.50$/apartment ?
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We have been looking into other markets, but it seems that we should aim at low-hanging fruits first - there are enough potential customers in Estonia. I've been told, that going to other markets is huge step and it should not be taken half-hearted. About price - 60% of our clients are through accounting and real-estate management companies. We charge those companies instead of condominiums (home owners associations?) directly. If we could restructure our payment model so, that we are charging condominiums or even apartment owners directly, then we could raise our prices. – Tambet Jan 29 '10 at 7:39
up vote 0 down vote

You are in a tough spot. The think I would do is sit down with your partners and figure out what you guys want to do with the business. Have a brainstorming session along the lines you just outlined. Once you have several ideas, make a 3 month, 6 month and 1 year plan. Then, either sign up to do it or sell the business.

It sounds like you really do need some fresh perspective. Maybe hire someone to facilitate this brainstorming session to help you through some of the sticky issues. At this point, you really do need to do something, anything, to move the business forward or just sell it off.

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This is not the first time I get advice "You don't need money, you need a business advisor". But there so many people with MBA and no real business experience - how do you find a useful one? – Tambet Jan 27 '10 at 21:15
Until I read "The Four Steps to the Epiphany" by Steve Blank, I was very skeptical about MBA/business consultant types. However, the case studies in this book made me realize how valuable an experienced advisor can be. One way to get one could be through funding a by forming an advisory board. – Olivier Lalonde Jan 27 '10 at 23:52
If you were in the US, I would say go talk to SCORE (score.org). Finding a useful one can be tricky. My advice would be to ask people you know and trust for a recommendation. Oli makes an excellent point about the advisory board route. – Jarie Bolander Jan 28 '10 at 0:22
Advisory board is a great idea. If I ask 4-5 senior business people to a dinner once a year, then the gains would certainly outweight the cost :). – Tambet Jan 28 '10 at 8:47
I would recommend doing it a little more once a year. You can even make it a formal thing and offer them a little bit of equity so they have a vested interest in your success. That's what we do at my company and it valuable. – Jarie Bolander Jan 28 '10 at 13:23
up vote 0 down vote

Would you customers benefit from exchanging knowledge about your product?

Does your staff spend a lot of time doing support?

Why not open a knowledge exchange site using stackexchange? Just like fogbugz or Litmus did. This can create a common place for all your customers and your staff to discuss bugs, possible improvements, tips, etc. This can open the door to many opportunities. The amazing thing is that you can have customers helping each other using your product... (which reduces the workload for your staff).

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Yes, we are planning to use StackExchange for condominium management related problems, once we get over the localization issues. – Tambet Jan 27 '10 at 21:44
up vote 0 down vote

How are you reaching your customers to make then sign up?

Do you do events, mailings, advertising on the web, a combination? Is there no need or are the users not aware that your system exists and what it can mean to them? I noticed that you have a large contentration (1/3) of users in Tallin. Can you tell us why it worked better there, what did you do different? Something to be learned from that?

Anyhow, I'd not go abroad unless you've got things sorted out locally. Unless you see a real good reason why the situation is so different in another country.

And if I'd ever decide to sell, I'd look for a complementary buyer. Someone who justs continues the business pays the same as it's worth to you. But in a situation where 1+1 > 2, the value might be higher to them.

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We often get our customers through free training sessions. Those are in computer classes (sometimes in schools) and last 3 hours. You can't explain all benefits of complex application in one phone call or brochure. If they themselves work through example, they see how those things that they are spending days are done in minutes. To get people to those training sessions we use mailings and advertising. The main problem is, that there are no good channels to reach condominium managers. So we recently decided to try cold-calling - I have high hopes on that one, first tries have been successful. – Tambet Jan 29 '10 at 8:01
up vote 0 down vote

Not the answer to your question, but we have something similar but for small "self-managed" condo associations, and we launched this as a free service last year -- myCondoBooks. It allows them to track their units, condo fee collections, expenses, etc and helps them keep the transparency. I wish we knew you had a product in another language! Very exciting.

I am not sure what other features exist in your product, but perhaps, you can think about adding more features like managing documents, announcements, service requests, dashboard, etc. to get more associations. We have a sophisticated service provider directory that continues to grow.

EDIT: I had forgotten to add the link: myCondoBooks

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Great to see, that there are others in that niche. You know, if you don't have competitors, then probably there is no money... Our first idea was also to provide service for self-managed condo associations. But we have found more adoption among accounting and real-estate management companies. We have been thinking how to provide our service free, but then we need alternative source of income. I see that you get sponsorship from service providers - are those accounting companies who use your application or other service companies, ie plumbers, electricians? Very interesting... – Tambet Jan 29 '10 at 8:15
We have a lot of service providers in our directory. We have not manually populated the directory - we let the service providers register themselves, which then adds them to the directory. Condo associations can view the directory, search for a plumber, landscaping company, insurance brokers, etc. That way service providers are directly marketing to the customers who are looking for them. Send me an email if you want some ideas on the features you might want to develop - if you do decide to do any further development. – Puneet Gangal Jan 29 '10 at 18:40
up vote 0 down vote

Maybe Estonia is a tiny market and you can't grow quickly and as much. So maybe you need to go into your neighbors' markets.

I suggest you make the website/software customizable by the customer, not by you the programmer. Meaning the customer can create their own business rules and enter their country's laws, taxes and formulas. Let them do the work and maintain it and relieve yourself from that burden. You can't possibly learn each country's laws.

or license it to a VAR in each country and let them do the customization work and resell and you get royalties.

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