Direct Sales App: Fill & Download for Free

Slack is yet another unprofitable unicorn headed for IPO, following on from Lyft and Uber earlier this year, right? Yes, but that’s about the only thing Slack has in common with the more famous consumer Unicorns. Slack is a very different kind of company, operating a cloud service rather than in the physical world, with a B2B sales model.It’s always good to consider why a company is doing an IPO now, rather than some other time. In the case of Lyft, it’s because they needed the money: they’d have been out of cash by July this year otherwise. Slack doesn’t have that problem. It has raised $1.4Bn from investors, and still has most of it ($841m) in the bank and invested in bonds. Slack has no pressing business need to go public, and preparing to become a public company has caused it to incur a lot of additional finance and legal expenses it could have avoided.Accel and Andreesen Horowitz, Silicon Valley VC firms, first invested in Slack in 2010, when it was called Tiny Speck and a games company. VC funds typically have a 10-year lifespan, so we’re right on schedule for Accel and Andreesen to be wanting to close out those funds and make returns to limited partners. Slack’s IPO will make those particular funds very successful.There’s also market timing: no-one is quite sure which way the market is going to go with Trump’s China trade war and Brexit in Europe, so going public when the market is up maximizes returns. Finally, it also makes it possible for the exec team and employees to make some money from the stock – though the Slack founders and other execs have been selling shares to investors and have already made >$13m from their stock.With that, let’s take a look at the good, the bad and the weird of the Slack S1 filingThe goodRevenue growth of 81% (from $220m to $400m 2018->2019)Paid customers grew 49% to 88k, but paid customers > $100k grew 93% to 575.Gross margin of 87%R&D spending growing far more slowly than revenue (12%, to $158m)Sales & marketing spend growing somewhat more slowly than revenue (66%, to $233m)Engineers – Slack’s core user base – love the product: 10m daily users, 90 minutes average usage per day, 1Bn messages sent a week, 500K registered developers.Net dollar retention rate is 143% (i.e., growth less churn is positive to the tune of 43%)A base of ~500,000 organizations using the free product that can potentially be turned into paid organizationsSlack’s earlier growth came from “bottoms up” conversion of free accounts into paid accounts, which is why it has continued to host free Slack accounts at a loss. It has converted about 15% of that base into paid accounts, with the result that it collects relatively small ASP (Average Selling Price) from a large base of customers. Out of ~88k orgs paying for Slack, only 575 spend more than $100k a year. This customer mix is expensive to manage and grow (as we’ll see later) so Slack is investing heavily in an outside sales team to grow its >$100k customers – that’s why sales and marketing expenses are climbing.If you’ve ever worked with engineers or other technical folks, you know that they love Slack. And no wonder: it was developed by engineers at Tiny Speck for themselves and became the salvation of the company when their game had serious problems and flopped. Slack is based on Internet Relay Chat (IRC), a 1980s open source technology that has long been popular with engineers. The customer case studies in the S1 show that initial adoption was in the technical staff of those companies, and that means other functions also end up on Slack if they want to message those people in real time. This kind of viral adoption is a strong positive for Slack.More than 450,000 Slack integrations (with other software) were used per week in January 2019. This is important because the more systems that are integrated with Slack, the harder it becomes to displace it. Also, over time, Slack becomes what every B2B product wants to be: a platform for other apps. When you have a community of third parties all developing extensions to your product, you don’t have to spend your own engineering dollars developing those and you start to gain serious operating leverage and reach. This is another strong positive, and is going to be incredibly important if Slack is to become profitable.The badIt costs Slack ~$5.54 to make every $4.00 in revenue, losing $154m in 2019 on $401m.Losses are growing: from $57m to $97m cash burn in the past 2 years, largely due to the expansion of the sales and marketing teamsUsage growth is slowing: net dollar retention has gone from 171% to 152% to 143%General and Administrative (G&A) – the least important spend a company makes – is large at $113m and grew 101% in the least year. Slack spent $158m on R&D, core product development, so G&A – admin and office space – was only 30% less than R&D. That’s not a good look.Zoom, a good compare for Slack that went IPO earlier in the year, has similar sized customer base, deal sizes, and revenue but has vastly lower costs and so is (just) profitable. Zoom did $330m in revenue but had roughly half the operating costs of Slack, allowing it to make $6m in profit. Zoom’s G&A costs are 60% lower than Slack’s.Slack is now having to spend a lot more on sales and marketing to collect each revenue dollar, as it builds out a direct sales force. The revenue benefit of a direct sales force lags the expenditure to build it – the S1 “cohort chart” (revenue contributed by year of customer acquisition) shows the leverage from the direct sales team is not making a significant difference to revenue yet.Slack notes that its base of free users is an advantage, but there is no getting away from the fact that it’s costly to deliver that free service and free customer support. If Slack’s sales and marketing costs were lower, one could argue that the free tier of service was a good marketing investment. But Slack spent $233m on sales and marketing compared to Zoom’s $185m to achieve similar revenues (Zoom also offers a free tier and has similar numbers of $100k+ deals).Slack also argues that its addressable market is large ($28Bn ARR), and that it is early on in market penetration. If that’s the case, one would expect growth to accelerate given Slack has just 1.4% of a $28Bn market. So why is Slack’s growth coming down? That suggests that Slack’s addressable market is smaller than they think it is, or they are encountering stronger competitive pressure, or both. The decision to hire an outside sales force suggests that competition is stronger in larger deals. That’s where you’ll run into Microsoft, Google and other well-funded, well-run companies with plenty of ability to execute.Slack is at pains to make out that it is a general purpose communications platform, and indeed all kinds of people use it — but its core user base skews heavily to engineers. Three of the five customer case studies in the S1 produce software as their primary product (Autodesk, Oracle and Monzo). My own personal experience, starting in the late 1980s when I first used IRC, is that Slack is a terrific fit for the kind of real-time messaging engineers do, but less so for other functions that require a lot more cross-group interaction and less time spent in front of a computer. In particular, it can be hard to find information that is scattered across scores of channels that requires reviewing pages and pages of messages. Slack’s search function is great, but having to search multiple channels to find out what is going on quickly gets old.The weirdIn general, Slack’s S1 is reassuringly normal for a silicon valley VC-funded IPO. But not completely!Insiders completely control the company through split share classes: their Class B shares have 10 votes vs. 1 vote per share for ordinary investors. This means they can effectively ignore any demands or pressure from regular shareholders.Slack has adopted anti-takeover measures, including a poison pill, that effectively prevent a hostile takeover that might be better for shareholders than it is for management.The F, G and H venture rounds and executive stock sales seem unusually favorable to investors vs. the company and employees. Remember, Slack didn’t need the money – but the management team took more money, diluting everyone and selling their own shares. Rounds G-2 and G-3 were at a lower price than G-1, so they didn’t grow the valuation of the company (dilution is acceptable provided valuation goes up). The partner at Accel personally owns more of the company than the co-founders do.The founders and management team have been selling shares. Stewart Butterfield, co-founder and CEO, has already made over $3m, and now owns 8.6% of the company. Co-founder and CTO, Cal Henderson, has sold over $10m of shares and owns just 3.4%.Slack bought a $1.4m podcast series from a company owned by the CEO’s domestic partner. It also bought over $1m of services from a PR company run by the CTO’s wife. Slack’s legal team appears to have been uncomfortable enough with this that they felt they had to disclose it in the S1.Slack is doing a direct listing – simply making shares available for sale on the day of the IPO -- rather building a book of orders with institutional investors ahead of the IPO date. While unusual, my take is that it’s good rather than weird. It cuts out the “middle men” of Wall Street institutions.The netSlack is a relatively healthy B2B business. It isn’t hemorrhaging cash in the same way as Uber and Lyft. It’s losing money, for sure, but not that much relative to its cash position and it is clearer how it could get to profitability. It is also a bona fide platform in a way that Uber and Lyft are not. That said, compared to Zoom, Slack looks like it has to do a lot of work to catch up. Zoom makes a lot more money off the same type of customer mix as Slack, and the two companies are starting to overlap (Slack now has some built-in audio and video conferencing capabilities). For value investors, Zoom has a much healthier balance sheet for the long haul.

Of course! Lots of great apps, marketplaces & software-based businesses from London reach a global audience: FanDuel, Skype*, Qubit, Huddle, Skimlinks, Transferwise, Lyst, Truly Experiences, King games... just off the top of my head.If your service requires a direct sales force, you'll need to have people on the ground in the US, and this is a major hurdle. But if it's self-serve signup, or can be sold via phone sales, that can work. The UK is a good place to start a company, because there's a lot of funding on offer, and fewer good companies competing for funding (than the valley). However, if this is your first startup, you'll want to surround yourself with experienced mentors, and they are somewhat easier to find in the valley.One very important caveat - if your main customers are in the US, you'll need to be "close to them" to understand them. US consumers and businesses are different from UK ones, they have different criteria for purchase decisions, different usage habits, different needs - don't underestimate that. So you and your team will need to find a way to stay very close to the needs of your American customers.Good luck!* Skype isn't technically UK-founded, but ran their operations out of London during their growth phase

Digital marketing refers to advertising your brand/ product/ service on digital channels such as search engines, social media, email and mobile apps. The question now is how to use digital marketing to promote a product. The success of your product depends on the DM strategies. Use these strategies correctly to get higher sales, new customers, and long-term growth. Some of the strategies are given below:Social media campaign: Minimum 2.6 billion people around the world are actively using social media, according to statistia. With the growing number of users on social media can help you reach most people to promote your product. Following are some of the ways you can use to promote your product.1) Create a Memorable Hashtag to categorize your product to make it stand out from the crowd. With this, people will be able to find relevant information about the product.2) Update your followers with short ‘behind the scenes’ videos or a series of images. Uploading them will bring your potential customers closer to the product and will make them excited about your product.3) Also, add photos and videos, you can write a new post talking about the features that your products have.Content marketing: 70% of consumers would learn about products through content medium rather than traditional advertising. It is not easy to get people to spend money on something they haven’t heard of ever before. So, you will need content that will educate your audience about your product. Use Infographics and Gifographics to talk about your product.You can also write some amazing and intriguing articles about your product. But what is the point of those articles, if it is not reaching the right audience. For that, you can simply connect with high-authority websites who have a forte for guest posting and/or product features.FATbit Technologies is one of the best digital marketing agancy that has a good reputation in product marketing and business promotion and can help you to promote your business and products.Email marketing: 66% of consumers have made a purchase as a direct result of an email marketing message. Sending newsletters through E-mails is a great idea. It allows you to easily share news, latest photos & information of your product with your customers. You can also send exclusive discounts, offer and promotional deal to your audience.Conclusion: Digital marketing is one of the best technique used for product and business promotion. Use the above-mentioned ways to promote your product and you will succeed in converting your audience into sales.