Archive for the 'Uncategorized' Category

Tornado relief work in Joplin, Missouri

I flew off to Oklahoma and Missouri last week to help however I could in Joplin, Missouri. That’s where an unusually large & destructive F5 tornado hit on May 22, 2011.

I flew to Tulsa, spent a night there, rented a pickup truck, and drove 90 miles to Joplin. I figured I’d drive into town and find somewhere to be useful – a church, Red Cross, fire dept, City Hall, whatever. And that worked great… once in town, people told me to register at the nearby Southern Missouri State University.

The Central Christian Center on Virginia Street needed a guy with a truck to take food, water, diapers, peanut butter, Gatorade, etc, out to field tents where residents turn up for supplies.

I was a guy with a truck :-)

I spent the next couple of days driving around damaged parts of Joplin, looking for telltale tents where the smaller re(distribution) centers were. Sometimes they had all they needed for the day, but usually, they were happy to get more stuff.

On my 3rd and final day, they didn’t need deliveries done, but wanted me to deliver water and Gatorade in residential areas. They had everything but ice, so I found a gas station that sold ice, bought 4 bags, and was on my way.

The people of Joplin really appreciate all of the volunteers, and it was great meeting them, as well as other volunteers. I’d go to Outback for dinner and eat at the bar, and I’d always meet other folks who were there for similar reasons. One night, some Texas contruction guys paid for my dinner. That was really cool of them. I later read in the local newspaper that Outback lost one of their employees in the tornado.

Most of Joplin is fine, which is good because at least people can take shelter and comfort with family & friends nearby. I spoke with a guy from Louisianna who said Hurricane Katrina was insane because the damage was similar, but so widespread that the nearest basic civilization (electricity, water, gas, etc) was hours away. That is a truly frightening idea. Like I said, in this case, as bad as the tornado was, at least you could drive to Starbucks or Outback like it never happened.

Anyway, the trip was a great trip. It was good to be slightly disconnected – just connected enough to answer sales calls and check in now and then. Customers were very supportive when they heard where I was!

I checked Twitter less often, and given the surroundings, many of the topics seemed somehow less relevant :-)

The people were great! One guy told me that if there’s one silver lining, it’s that the people came together and work as a community.

There was a little bit of looting, but apparently very little. If there’s a Hell, any looters are going straight to it! Can you imagine? One resident wrote scripture on his house to dissuade looters. Another wrote that anyone looting would be shot. The Texas construction guys said they liked the latter :-)

One thing I noticed that’s interesting is that, given the circumstances, you’re freed from usual requirements of civility (like caring about your clothes or obeying all traffic rules), yet everyone is reasonably civilized. Some layers of expectations disappear, but there’s no mayhem.

If you can do such a thing, you should!

It’s good for you, good for the community, and good for the whole country!

I’m very glad to hear that others may do such things after hearing about this.

Chargify is a journey

It’s been 2 years since I departed on friendly terms as CEO/co-founder of Engine Yard. I started writing this blog post a few nights ago at Epicenter Cafe in SF, just a few blocks away from EY. Feels like yesterday that I was checking out 300-sq-ft condos above Epicenter and wondering if they’d survive in their semi-odd spot on Harrison.

Six months after I left EY, I found the folks at Grasshopper Group in Boston, who had been developing Chargify for a little while. I joined the team, invested some money, and helped (along with everyone!) build a great service and company-inside-a-company.

Fast-forward another 18 months and Chargify has signed up thousands of developer accounts and hundreds of running businesses on our platform, from tech startups and fitness coaches and real estate services to well-known companies like Scribd, Opscode, and Get Satisfaction.

SXSW

I was at SXSW last weekend and met a dozen Chargify customers. They’re all happy. They’re running interesting businesses, with Chargify taking care of all the stuff around… I’ll make up a term… “CLRM” (Customer Lifetime Revenue Management).

It’s just not “billing” or “charging” a card. It’s a whole lifetime of managing customers and revenue.

All of those customers from SXSW have cool ideas for us to build into Chargify. They’re giving us the feedback that helps one grow a good idea into a great idea.

We want to delight customers by giving them a great experience, from releasing improvements to answering phone calls & support tickets. But I want to do even better. I want customers to say, “Whoa, that is sexy! I never even thought of that!”

Grasshopper is a 45-person, profitable company. They can invest more in Chargify, but they have a number of ideas they’re funding, and they’ve already invested a decent amount to get Chargify near break-even.

Chargify is close to break-even, so we can just stay on the path we’re on more or less forever. In fact, doing so is tempting because it’s simple and requires no change.

So it’s the age-old question of growing with profits or growing ahead of profits. Once your business is profitable, you can decide if you want to grow with profits or ahead of them. Many businesses grow ahead of profits by using credit or external investment. (In this paragraph, I’m leaving out the whole issue of how you get to profits, which takes some investment up front.)

For readers interested in what it costs to get something like Chargify going, we’ve invested enough to buy a very nice house in most parts of America! I consider our use of capital very efficient, given how much we’ve created and the breadth of talent involved. We have 24/7 support, a dev team, a web & marketing team, NOC team, PR, HR, Finance, Legal, and everything else that our customers rely upon. Being grown within Grasshopper makes this possible.

Investors have been interested for a year. Now we’re at a point where it makes sense to consider.

It makes sense because: 1) The need for our service is obvious; 2) We can continue without investment; 3) Investment would bring greater richness of ideas & experience, as well as money.

So, if you’re interested in joining us, please follow/DM me on Twitter or email me. Contact details are on the right.

And, btw, I want to call out the great contributions of people who’ve already helped us largely for free. Some great folks out there have helped us delight customers with contributions of sample code, help with support tickets, software to integrate Chargify with other systems, etc. We, and our customers, are grateful!

Pricing & Profit

Pricing is one of the harder parts of a business to get right. But it’s easier than ever, though, with a SaaS business – because you can iterate!

In the first 2 years at Engine Yard, we raised prices 3 times. And after I left, EY changed pricing a couple of times – not always raising or lowering pricing, but changing *how* things are paid for… for instance, charging for tech support by itself instead of bundling it with hosting.

As someone managing a business, at first you’re trying to find the price that gets customers at all, then the price that makes profit, then the price that maximizes profit.

When you start something new, the best you can usually do is make an educated guess that’s based on other products and companies, as well as past experience. A common fear in just about everyone is that they’ll price too high, but it can be more damaging to price too low.

As others have said, price is the strongest signal you can send to the market. Price affects perceived value! A higher price causes people to assume your product or service is better. Of course, if you go with a high price, you have to live up to customer expectations.

Price attracts some and repels others. Some people seek the cheapest solution. Some seek the most expensive. Most people are comfortable in the middle and are uncomfortable at the extremes, which is why most plan selection pages have 1 or 2 plans in the middle of the range of prices (and usually in the middle of the literal page or layout).

Chargify

I think we guessed pretty well at Chargify. We’ve kept our pricing stable for a year, and if anything, we get feedback that our pricing is a bit low.

We have a large and diverse set of merchants using our platform now. Some need more support than others, some want a Service Level Agreement, some want premium support, etc.

We want to offer the features that the majority of merchants need. And we want to offer top-notch support as well as top-notch people, infrastructure, vendors, and partners.

The cost of features is pretty obvious: we have a team of developers who make the magic.

The cost of the rest is less obvious: we all share responsibility for tech support, so the support cost is somewhat hidden. It shows up in things like feature development taking longer.

Other less direct costs include the sys admin we hired, the fantastic processing facility we moved to, and the support person we’re hiring. And one more very important layer: all the folks at Grasshopper Group who support us in many valuable ways.

So, basically, there’s a whole company to account for :-). And we need to make a healthy profit.

Profit

Profit is good, of course, because it alone allows us to continue indefinitely, to invest in people & technology, to market our services, to repay startup costs, and to make mistakes. Companies that don’t make a good profit are in serious danger from inevitable mistakes & Acts of God. For instance, we will almost certainly spend time developing some wrong features, or we’ll need to pay for insurance we don’t know about yet, or we’ll step on someone’s patent, or a flood will hit our data center, etc.

Healthy profit makes all those things less problematic.

Distribution!

Ooops! I forgot something when I wrote this yesterday… Distribution! Wow, big oversight! Sometimes I’m a bit dense :-)

There are definitely successful businesses that are mostly (or maybe entirely) direct sales models. Maybe 37signals? I really don’t know. I suspect that many SaaS offerings (especially those aimed at smaller customers) may be direct or mostly direct sales/distribution models.

But my early business experience growing Parallax taught me that allowing others to profit by selling and supporting our products could really widen our reach. After a number of years, something like 50% of our sales came through distributors all around the world.

These distributors maintained inventory of our hardware products and they provided tech support in their local language. They also advertised our products and showed them at conferences. Imagine how cool it was when we saw our products at conferences from Hungary to Japan, fully translated in advertisements, and we didn’t have to do anything except ship product to them occasionally.

Anyway, distribution channels can definitely be a good thing. The kind I described above want 30-50% off the retail price so they can pay for the services I mentioned and make a decent profit. Radio Shack was the granddaddy and they demanded 55% off retail! They also placed really big orders!

For something like Chargify and other SaaS offerings aimed at small businesses, there tend to be fewer layers between producer and consumer, but what about affiliate programs? What about partners (as your business grows)? These parties need to have an incentive to bring customers to you, so your pricing needs to have room for them if you foresee any role for them.

Of course, you can rev your pricing as your business and channels evolve. You may start 100% direct as we did at Parallax and end up 50% thru distribution after a few years.

I love talking about this stuff because it’s fascinating and the journey never ends!

Back to Chargify

We want be very profitable and remain accessible to small startups and provide services that more established businesses need.

If you have a minute, I’d love your input on a short, 5-Question Survey that will help guide our thinking.

Merchant Accounts & Payment Gateways… Keeping the Grass Green!

I have this conversation every day, so I decided I should do a (long) blog post on it…

To use Chargify, you need to have a Merchant Account and a Payment Gateway.

Most people don’t know what these things are or how to get them, because most people never need to know what these things are until they have a business and they want to accept credit card payments from customers.
As long as this is, I tried not to go into every detail, but it should suffice for most developers and business folks who just want to know what they need.

WATER SYSTEM ANALOGY

Imagine the outdoor watering system for your typical suburban home…
  1. You have a city water supply that provides water to the homes on your street.
  2. You have have a pipe that connects your house to the city water pipe under your street.
  3. You have a set of water valves that control flow to your grass & plants. Older valves are opened & closed manually. Newer valves are operated electrically.
  4. If your sprinkler valves are electric, then you have a control box that you can program to open & close the valves on a schedule, changing the schedule for the season, giving more water to some plants and less to others, etc. And really new systems have sensers for sunlight, temperature, and moisture, so they can water exactly the right amounts at the right times and still save water.
  5. At the end of the system, you have sprinklers and other devices that provide water directly to grass and plants.
With that as a rough analogy and visualization, here’s how credit card processing works for your business…

WATER SUPPLY –> CREDIT CARD PROCESSING NETWORK

The water supply is the credit card processing network… all the banks and computer networks that process transactions. The big players in this system are Visa, MasterCard, and the card-issuing banks, which actually provide credit cards to customers.
Water flows one way in this analogy and that’s fine for purposes of illustration. Most of the time, when it comes to credit cards, money should be flowing from your customers to your business.
But the network really is two-way. Money does occasionally flow back to customers: when you issue a refund to someone or, worse yet, if your customer does a “charge-back” (this is when they call their credit card bank and say they’re not satisfied with your service, so the bank yanks the money out of your bank account, plus an additional charge-back fee that’s usually around $30).
Charge-backs are bad. The fees can add up very quickly, and you’ll be cut off from the credit card network if your business generates more than a few charge-backs per year. The best way to avoid them is to run a good business and provide your customers with many ways to contact you if they don’t understand a charge on their credit card statement. Make sure the info that appears on their statement includes a web address or telephone number (more on this in the next section).
Imagine if you were pushing dirty water back into your city’s water supply. They’d cut you off pretty quickly!

PIPE TO YOUR HOUSE –> MERCHANT ACCOUNT

The pipe to your house is your “Merchant Account”. Think of your Merchant Account as your “node” on the credit card processing network that spans the world. It’s a bank account, but it’s a pretty unusual bank account. You cannot access it directly like a regular checking or savings account, but it links to one of your regular bank accounts…
Charges & refunds that are processed through your Merchant Account will be deposited into or taken out of a bank account that you specify (probably your main business checking account).
Most banks large and small can provide Merchant Accounts. You can get a Merchant Account by walking into Wells Fargo, Bank of America, Barclays Bank, Bank of Australia, etc. Or you can contact a broker who will help you get the best Merchant Account for your business.
It usually takes 1-3 weeks to get approved for a Merchant Account. The bank needs to check your credit and consider the kind of business you’re operating before they give you a Merchant Account. Why? Because dealing with credit cards is a touchy issue and everyone wants to protect the whole system from abuse, so they need to know something about the merchants who are charging customer’ cards.
The bank is literally giving you, the merchant, credit: you’ll get paid within a few days after a customer makes a purchase, but the customer can ask the bank for his money back months later. What if you’ve gone out of business and the bank can’t get the money back from you? That’s credit risk. That’s why the Merchant Account bank must charge a “discount rate” on every transaction, usually between 2-4% plus a flat fee of, say, 30 cents. There is usually a monthly minimum of, say, $30/month. The more risky the type of business, the higher the fees will be.
I mentioned charge-backs in the prior section. The only note I want to add is this: when you set up your Merchant Account, you’ll be asked for the business name as you want it to appear on customers’ credit card statements. Be sure the business name is something they’ll recognize, and better yet, make sure it includes a web address or telephone number. That makes it really easy for customers to contact you if they’re confused about a charge, and therefore much less likely to do a charge-back!
Note about Countries…
Your customers can be anywhere. It’s where your bank is located that matters below…
Your Merchant Account will be linked to your regular business bank account, wherever that may be. For the most part, your Merchant Account needs to be in the same country as your regular business bank accounts. It’s rare that banks or governments will allow these to be in separate countries, but…
We have seen examples of Dutch and German merchants getting Merchant Accounts at Barclays Bank in the UK. This makes sense, since all three countries are in the EU. I don’t know how much of this is allowed, but it seems logical.

WATER VALVES –> PAYMENT GATEWAY

The water valves are your “Payment Gateway”, which allows you to access your Merchant Account. Remember, your Merchant Account is a bank account that you cannot directly access. Your Payment Gateway is your interface.
The Payment Gateway allows you to process charges and refunds to your customers. It also provides services like fraud prevention (through card billing address verification) and secure storage of credit card data.
And just like physical water valves, you *can* operate your Payment Gateway manually. You can log into it via the web and process charges & refunds. If transactions were declined, you can view a history and see what error messages, if any, came back from the credit card network. Some Payment Gateways have simple features to handle recurring billing, too, but because their business focus is not recurring billing, they don’t have the breadth or depth of a service like Chargify. Of course, they *do* have breadth & depth in the processing of charges & refunds, fraud prevention, secure data storage, etc.
The Payment Gateway usually charges 5-10 cents per transaction, plus perhaps a monthly fee or minimum of $20-30/month. There are also usually extra fees for fraud prevention (like 5 cents per address verification) and $20/month for secure data storage.
Note about Countries…
Your customers can be anywhere. It’s where your Merchant Account is located that matters below…
Payment Gateways only work with Merchant Accounts in specific countries. Here are a few examples:
For Merchant Accounts in the USA: Authorize.Net, TrustCommerce
For Merchant Accounts in Canada: Beanstream
For Merchant Accounts in the UK, Australia, and New Zealand: Payment Express
(FYI, Braintree & VersaPay gateways will be added later this summer)

CONTROL BOX –> CHARGIFY

The sexiest part of the water system analogy is, of course, the Control Box :-). It builds upon all the other resources to do truly cool stuff, like only watering on certain days, only watering if the ground is not already wet, and allowing you to interface with it from your office computer.
Of course, Chargify does a lot more than a sprinkler control box.
Chargify allows you to define all of your products & pricing, then bill for flat-rate and metered-rate plans, do “iTunes style” billing, do software license/seat billing, automatically prorate when customers change plans, accept discount coupons from your customers, etc.
It allows you to track your signups & revenue on your iPhone. It emails your customers if their card is declined and points them to a web form to update their card info. And many other wonderful things :-).
The point is, Chargify builds on the existing systems to add a whole new layer of functionality, and that new layer gets better over time. We’re working on new features and expanding our technology and business to better suit the needs of a growing list of merchants – over 1,600 as I write this.
You’ll pay Chargify $0 as you grow their business, then bump up to $50/month when you reach 50 paying customers, etc.

GREEN GRASS –> YOUR BANK ACCOUNT

When things work properly, money from your customers flows into your bank account, much like water onto your lush, green grass.

HOW TO GET STARTED

  • You can go through a broker that handles everything. Brokers can usually get you better pricing and they typically know which Merchant Account banks will be friendly to your type of business. Check the Chargify page on Merchant Accounts. TransFS is an automated broker, much like LendingTree for mortgages… they take your application and submit it to multiple Merchant Account banks. I’m not sure if TransFS will also get you set up with a Payment Gateway, but I think they do. Millennium Bankcard is a human-powered broker, much like a real estate broker… they take your application and push the process through until you’ve got your Merchant Account and Payment Gateway.
  • You can walk into your favorite bank and ask about a Merchant Account. Most banks will be happy to sell you one, and they’ll help you get set up with a Payment Gateway, too. Just make sure they give you a Payment Gateway that works with Chargify.
  • You can also contact any of the Payment Gateways directly and most of them will be happy to help you find a bank for your Merchant Account, too, or they may even resell Merchant Accounts themselves.

SUMMARY

This is a long post and it may seem that there’s a lot to know, but getting your Merchant Account and Payment Gateway are actually pretty easy.
Plan on waiting about 2 weeks and then be delighted if it gets done sooner. I’ve seen it as short as 3 days (USA) and as long as 6 weeks (UK).
If you have decent credit and can put up with a bit of paperwork, it’s really not that bad. If you want to save time and potential hassles, use a broker. I’ve also heard good things about Wells Fargo, but in general, large banks seem to take a bit longer to work with, especially if you’re starting a new business.
It does cost money to have this structure in place. You’ll pay a minimum of $70-100/month for your Merchant Account & Payment Gateway, and then $50/month when you reach the first paid tier at Chargify. So you need to generate enough profit to keep your grass green after paying these expenses, or you need to plan to cover the bill for these things until your business generates enough revenue.
I hope this helps!
I really do like seeing new merchants get started every day in every different business, in every different part of the world.
I’ll update this as it becomes clear what needs clarification.

Find a niche. Don’t shoot for the moon.

A saw a retweet the other day that I think was originally from one of the top guys at Twitter. It was something about “not shooting for the moon, lest you end up a corpse floating through space” or something like that.

I think his point was that if you shoot for the moon, most of the time you will end up with nothing. There is some irony in this coming from someone at Twitter, but I think his point is valid.

This reminded me of a discussion I had a couple of weeks ago with a great group of guys in Portland, Oregon. One of the guys and I got into a discussion about whether or not one should aim, in business, to change the world. He thought ‘yes’ and I thought ‘no’.

If you want to change the world, start a religion or a political/economic system. Start the next Christianity or the next Capitalism. Follow the footsteps of Gandhi or Mother Teresa. Work to increase crop yields or basic sanitation. Or design really inexpensive water pumps that are powered by solar or human energy (that’s a real one, by the way, that’s really cool!)

We talked about great, hugely successful companies like Google, Apple, Microsoft, Amazon, Oracle, etc. Now, I don’t know this for sure, but I bet most of those companies did not start out to change the world. I bet they started out to fill a market need and to make money… or maybe to take over the world in at least some of those cases :-).

The whole conversation started because of something I find great: small businesses that fill niches across our economy. Through Chargify, I talk with people who run small businesses that you’ll never hear of, that start small with revenue of a few hundred or a few thousand dollars a month, that grow to cover the mortgage, then allow the person to cut back their consulting or job hours, and eventually provide a good living for their family and employees.

I met a guy who developed a simple web/email-based service for a decidedly non-tech niche that he enjoys. It generates $3K/month, which pays his mortgage. I won’t be surprised if I ask him in 6 or 12 months and he’s up to $4K or $6K or even $10K/month. But even if it stays around $3K/month, it’s still great, because it’s one of several things he’s doing and it’s already paying a large expense for his family.

I’ve seen other stories that start similarly, but if you leave and come back 5 years later, whoa, the business is generating $25K or $50K or $100K a month, employing people, providing a good living and maybe building savings.

I love these stories because I think of them as the real economy, the online and offline backbone that generates a large chunk of our GDP – maybe a majority of it.

These entrepreneurs and SMBs aren’t shooting for the moon, but I bet they have a much higher statistical chance of success versus those who do shoot for the moon. Almost by definition, these folks notice a need and aim to fill it. Need is a big prerequisite to success. We’ve all been infatuated with an idea that we thought was really cool, even when there was no real need.

There’s a lot of attention given to the TINY, TINY percentage of hugely successful consumer-oriented tech companies. While we can learn from these successes, I think dwelling on them is akin to planning to be the next Derek Jeter.

Most of us are better off targeting a niche and growing from there. There’s nothing wrong with a “boring” niche business that few will ever hear of in the media, and in fact, I think it’s wise.

Some people say my viewpoint deprives us of the benefits of shooting for the moon. We need great breakthroughs, great athletes, great musicians, and literal trips of discovery. I don’t disagree.

I just think most people contemplating a business are better off starting with something more attainable and then building on that success. The irony is that most of them will be better off in 10 years than those who aimed for the moon.

Do you notice the single mom in line?

I tweeted this an hour ago and thought it worthy of a blog post…

Do you notice the single mom in front of you in the grocery line who has to put back the mixed beans because she can’t afford them? If you can afford it, buy it for her. It’s really appreciated and it teaches a great lesson of unconditional giving.

Random acts of kindness are really cool, much better than (or at least a great augmentation of) official charities. It’s pretty easy to write a check or have an automatic debit for this or that charity and that’s a great idea. But personal & instant is really cool.

Just pay attention to your surroundings and you’ll see opportunities to help someone with a simple gesture. Those beans were like $2 or less, but the mom & her daughter & the checkout woman all really appreciated it. In turn, they’ll be in a better state of mind and will probably help someone else in the coming days.

I grew up in an economically poor household for a few years. I know we were occasionally helped by a stranger or someone who worked at a business we frequented, etc.

Pass it on.


Fun Stuff & Business History


@lancewalley
lwalley@chargify.com

Motorcycles
Birds
Espresso

I co-founded Parallax in 1987 with my best friend. We were both fresh out of high school. We grew from a bedroom operation to a $3M/yr business.

I learned a TON at Parallax! We strugged for several years to find a market we fit, but once we did, were were able to "pivot" (today's term!) into that market and then execute on manufacturing, marketing, and distribution. We didn't even know the term "VC", so we *had* to make money! We took $20K from friends & family and had day jobs to bootstrap those early years.

As I left Parallax in Winter 1996, Radio Shack started carrying our BASIC Stamp computer.

I spent a few years trying to make money in the mobile-messaging space. Unfortunately, I learned lessons about how to spend all of my cash chasing a market that simply was not yet developed enough. I wish I had known about VC :-)! I closed up shop and put up a notice saying "goodbye" to my customers.

Which led to a San Francisco VC-funded startup in 1998. They were in the mobile-messaging space and were on the normal VC route as everyone else back then. Unfortunately, it didn't end pretty, but my friends and I learned a lot through the CEO, who was nice enough to tell us how things worked with his Board, the investors, etc.

I got laid off along with most other tech folks in SF in 2000. What does one do at a time like that? Start Quality Humans, Inc. as a way to offer my programming services to clients. QHI grew to employ 8 guys working around the USA.

My friend and QHI consultant, Tom Mornini, saw Ruby on Rails coming over the horizon, so we started offering Rails consulting. Within a few months, Tom noticed that Rails clients didn't want to worry about details; they just wanted to deploy their apps.

That led me to co-found Engine Yard in 2006 with Tom, Ezra Zygmuntowicz, and Jayson Vantuyl. We built a great business and then took VC after a year from Amazon, Benchmark, New Enterprise Associates, and others. I served as CEO until Jan, 2009, when we started building an executive team who can take EY up a few more notches.

I reflected on major pain points we experienced at EY, and recurring billing was one of them. That led me to Chargify.

In Chargify, I joined great folks from Grasshopper. It's been very cool working with the team as we grow Chargify in 2011.

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