At Yavvy, we did not make a real attempt to take vc funding. So much so that I hardly ever approached any investor on my own and I answered very few of those “We-would-want-to-know-what-you-are-doing-?” phone call requests.
While my reasons for not taking vc funding will be the subject of another post, this posts discusses whether not seeking funding was the right thing to do?
Short Answer: I don’t think the decision to not seek funding was wrong. However we started behaving like a funded company when we did not have the maturity or the resources to do so! We did not play to our strength and that did cause us some grief!
Until Jan 2012, we were reasonably comfortable in our cash flows. While the team wasn’t deriving stellar compensation, we were at 95%tile range of what Infosys and TCS paid. Developers were getting ~25+% YoY hikes and the company would sponsor an occasional lunch for everyone.
We were running Yavvy as a solutions business (instead of a pure product play) and therefore deriving implementation and customisation revenues. It kept us going and growing (albeit very slowly).
Unfortunately, in Jan 2012, we decided to change the model. We realised that implementations and customisations aren’t scalable unless we invest in hiring, training and retaining more resources. Also it did not comply with the SaaS product play that we had in mind. We wanted to aggressively capture market.
All in all, in Jan 2012, we wanted to be a pure-play SaaS product. You signup for a free trial, you use the app, fall in love with it and eventually pay! All of it in a low touch model! We reduced our prices and adjusted it against the competition and we moved from a sales-driven model to a marketing-driven model.
Marketing unfortunately is a capital-intensive activity. You need to spend on advertisements, you need to spend time writing blogs and designing landing pages with clever call-to-actions. You have to A/B-test your messages and ensure that you don’t lose the visitor before he sign-ups.
We were hiring designers, consulting marketers, going to workshops; and reading blogs. And all this time while I was focusing on my marketing funnel, my sales funnel was drying up.
It took us about 6 months to reach a position where our visitor to signup conversions started picking up (about 15% on organic traffic). We were now getting a good number of signups and it looked like we had made it! This was entirely inbound and our ad-words spends were zero!
Unfortunately we now stumbled upon our next big hurdle – Activation! We needed the self-signed-up user to use our product, fall in love with it so that he’ll be willing to pay! Until then, we weren’t getting any money in our pockets!
Activation is probably even more capital intensive than marketing! This one requires writing user-manuals, creating videos, building wizards, presenting users with analytics and content that keeps them coming back to the application (until they’ve conquered the learning curve) and investing in support-staff who can help them if they gets stuck!
It was in the middle of this phase that we ran out of resources. This is the time when I wanted to hire more resources but did not have enough cash to sustain the growth!
We were in the thick of the battle and we ran out of ammo! We had to retreat and we ended up losing some of the ground that we had covered!
So here’s my two cents – if you haven’t got vc funding, it’s okay! We were doing pretty well without investments. We were growing slowly but surely! We were entering into deals that made sense! The problem happened when we started imitating a funded startup, started competing with them, on their turf.
Funding is like steroids. It helps you with the stamina and the muscles to slug it out! But if you don’t have steroids, you’ll have to work out, hit the gym, do the extra bench press and keep at it before you are ready to enter the ring!