Polychrome Developer Tools Index: Net Revenue Retention Rate

An analysis on the importance of Net Revenue Retention Rate, and Q1 update to the Polychrome Developer Tools indices

“It means that over half of the variance in YoY Revenue Growth is explained by Net Revenue Retention.”

The quarter has closed and it’s time to review our developer tools indices. Following the indices is fun, but diving into the details of these companies is how we will really learn from the exercise. This quarter, we are going to dig into Net Revenue Retention Rate. We will start by defining the metric, and then take a look at how the companies in our index fare with the metric and what impact that appears to have on their success.

Definition of Net Revenue Retention Rate

Call Net Revenue Retention Rate what you want; I call it the key to economic success for a SaaS business. So let’s dig into the metric.

Net Revenue Retention Rate is the amount of money that the customers you had in a previous period are paying you in the current period, divided by what they were paying you in that earlier period. Let’s draw that formula out for clarity:

A few notes that may or may not be clear from the formula: 

  • Most of the time this is compared year-over-year. For example Period A is 2019, and Period B is 2020. Or Period A is Q4-2019, and Period B is Q4-2020.

  • The number in the denominator includes revenue from all the customers that you had in period A, even if those customers are no longer contributing to the numerator.

  • The number in the numerator does not include any new customers. It can only be increased from the number in the denominator by expansion.

  • The number in the numerator can be decreased from the number in the denominator by churn and contraction.

This metric goes by a lot of names, but they are all calculating the same thing. You might come across: Dollar-Based Net Retention, Dollar-Based Net Expansion, Net Dollar Retention, Net Expansion, MRR Retention, or similar variations. 

Public companies even tweak the formula slightly based on their business. Particularly some businesses will split out divisions that are included or not included. A common one is for businesses to publicly report the Net Revenue Retention Rate of just their cloud business. For a new SaaS business it’s probably best to track this as an overall metric, and a metric for sub groups of your business (divisions, customer sizes, or cohorts). Play around with the sub groups and find what is meaningful. This will help you understand the business as a whole, and which parts of the business are shining or need some attention.

Why Net Revenue Retention Rate is Important

There’s lot of SaaS metrics that people like. Why is this one so important? I like this metric because it is the all encompassing measure that shows if you have a handle on churn, expansion, and contraction. That really helps you understand how your SaaS business is doing; it’s an indicator for customer satisfaction, product-market-fit, pricing effectiveness, competition, and more.

It is also extremely powerful! If your Net Revenue Retention Rate is greater than 100%, that means that your business is growing even without adding new customers. And that growth compounds! Less than 100% means that your business is default shrinking, it’s a leaky bucket you have to keep filling. Filling that bucket costs a lot in sales and marketing. 

Tomasz Tunguz wrote an analysis that illustrated how each additional 20% increase equates to a doubling of revenue in 5 years. Below I have modeled out the difference for a company’s revenue, all else equal, with 90%, 100%, and 110% Net Revenue Retention Rates over 5 years. These sound like small changes, but the impact is big!

Comparing Net Revenue Retention Rate

Since public companies share their financials and select metrics, we can use the Polychrome Developer Tools Public 20 as a sample set to learn more about the importance of this metric. Luckily almost all of them also share their Net Revenue Retention Rate. First, let’s look at the data. Here is the Public 20 chart with Net Revenue Retention Rate for each company.

* Companies who report their Net Revenue Retention Rate on only a portion of their business, or the data available is out of date.

The first thing to note is that all of these companies have impressive Net Revenue Retention Rates. It shows the power of both SaaS and Developer Tools. But there are still differences, and as explained above, a small difference in Revenue Retention can have a big impact. So let’s plot these against revenue growth rates and see if there is a correlation. For this, we have to exclude the asterisks.

The correlation, or R, of 0.734 shows how directly related the two are, something we probably naturally understood. However interpreting the R² of 0.539 is the more interesting point. It means that over half of the variance in YoY Revenue Growth is explained by Net Revenue Retention. This is amazing, over half!

That should make any founder step back and think if they are proportionately investing in retaining and growing their customers vs. getting new ones. The R² gives you a simple guide - it should be about half of your efforts!

Polychrome Developer Tools Indices Q1 Performance

The impressive Net Revenue Retention Rates of these companies has been a key factor to their success; and it’s a big reason we love the space. With Q1 closed, let's continue our journey following these companies through the lens of our two indices.

Polychrome Developer Tools Public 20

This list is the most valuable 20 developer tools companies, by market cap, which initially listed their stock publicly within the last 10 years - (as of Jan 1, 2021). The update we will track here is market cap, and compare the performance vs. other indices over the quarter. 

It was a tough quarter for technology, and the Polychrome Developer Tools Public 20 is down for the quarter. Take a look as compared to other indices.

The story varies a little bit when you look at the individual companies, but overall the public markets were harsh on tech in Q1.

Polychrome Developer Tools Private 30

This list is the 30 most funded developer tools companies, by dollars raised, which remain private - (as of Jan 1, 2021). This updates total funding, valuation range, and shares a few items to note.

Private companies valuations are less volatile as compared to public stocks. From the look of these companies, the quarter was pretty positive.

  • One of the companies went public! DigitalOcean had its IPO on March 24th at $47.00 per share, raising $900M, and giving it a market cap of $5B. Their 2020 Net Revenue Retention Rate was 103%, and their Q4 2020 YoY Revenue Growth rate was 23%.

  • Eight companies raised almost $2B in capital in Q1 2021, taking the total funding of the index from $7.4B to $9.3B (excluding DOCN).

I hope you enjoyed the read and have a better understanding of Net Revenue Retention Rate! Please comment on the next topic you would like to dive into.

Thanks,

Alex

Architecting Your GTM Motion: Part 3

The interview

In our second post in this series, How to set up your interview process, we discussed the importance of setting team values, how to structure your entire interview process, and what projects you can give to fully vet their skills. In this post, Carina and Julio share what traits they look for in a solutions and a technology sales person, as well as what their favorite questions to ask are in order to ensure they have the right sales humans for their teams. Carina and Julio make sure to ask questions to not only evaluate their skills and how their brains work but also to see how good of a culture add they will be. 

There are many questions that overlap no matter if your product is a technical sale or a solutions sale, but depending on the sales motion, you definitely want to dig in more in certain areas so you can learn about their fit selling your product.

Solution Sales:

Solutions sales professionals are typically more senior and have been in the sales game for a longer period of time than technology sales humans. This can mean they might be better at interviewing, and therefore asking the right, layered, questions is even more important.  In order to vet these professionals, Julio stresses the importance of digging deeper in the areas where you could see their answers are the lightest. For example, if you can see the individual is Type A, and you want to get to know them better, ask them questions such as what their favorite book is or what the last thing they learned for fun was... and if they are Type B, and you want to see their analytical side, inquire about their sales process and metrics they’ve built out. 

According to Julio, here are a few traits he looks for in a solutions sales person: 

  • Strong organizational and note taking skills 

  • Excellent at project management

  • Very curious and understands how to layer questions and use the answers to those questions to convey value 

  • Understands how to work with both internal and external stakeholders to progress deals 

  • Familiarity with demoing themselves and a willingness to jump right in and start selling 

  • Comfortable asking for big dollar amounts 

  • Comfortable asking the prospect if they are ready to buy

  • Can creatively get deals done that are both good for the business and the customer 

Below are some of Julio’s favorite questions to to better understand the candidate:

Technology Sales: 

When interviewing for a technology sale you will be looking for many similarities as the solutions sales human, but the key traits such as having worked complex deals, strong project management skills, and ability to navigate multiple stakeholders internally and externally aren’t as applicable. 

According to Carina, the best technology sales humans have the following traits: 

  • Highly analytical and knows how to prioritize time

  • Understands and implements high velocity frameworks based on activity and smart campaigning

  • Uses all available technology and tools as efficiently as possible

  • Looks for and improves highly scalable plays and processes

  • Knows how to eliminate friction during her/his work day

  • Knows when to include his / her manager to escalate problems or share best practices with the team

Here are some of Carina’s favorite questions to help her identify the best people for her teams: 

Here are a few additional tips for you to make sure you nail this:

  1. Have the same interview panel for each interview asking the same questions to your candidates. This way the interviewer can truly get a feel for a great answer, an ok answer, and a bad answer. 

  2. Make sure to save 5-10 minutes at the end of each interview for candidates to ask questions. If the candidates don’t have questions, this is a red flag! 

  3. Show up on time and don’t go over time (if possible). Be respectful of your colleagues’ and the candidates’ time. 

  4. Refresh yourself on the candidates’ legal rights during the interview process. 

Hopefully  this breakdown of traits and questions better prepares you for hiring the right person for your business. You can still ask the candidate to sell you that pen, but now you’ll have other questions to ask as well :) 

In the next post we’ll be outlining how best to make the offer so you can close the candidate. Thanks so much for reading and let us know what you think! 

Lost in translation: What I learned from my wife about why companies exist. 

My wife Sabine is German.

Despite my last name suggesting that I was born in Germany too, I was born in the US (Seattle) and learned to speak German after I met her. In a lot of ways beyond language, she’s made me a way better person, dad and leader. 

One example of how she’s made me better in my work is pretty simple. 

When I first met her in Germany in 2006, her English was good, but nowhere near what it is today. I was in college at the time and I’ll never forget a conversation we had. We were talking about what I wanted to do after college and I said that I’d like to start my own business. As the conversation progressed, she asked me a question I’ll never forget:

“What do you call the people that is the reason a company exists?” 

Thinking I knew so much about business, I responded back with a few answers:

“Employees!”

“Investors!” 

“Founders!?”

She looked at me puzzled and said:

“No-no. The people for which a company must exist.”

I sat there in silence and thought for a while...

Fast forward to today and I’m currently working with 5 founders of different B2B Software companies ranging in topics from an operating system for robotic fleets to cloud manufacturing as-a-service. As I get started with founders, we tend to focus on figuring out the current state of growth and where they are struggling in Go-to-Market the most. Having usually just raised a round of funding, a lot of founders are wired to quote how fast their revenue is growing or how many employees they have, but very few are able to articulate some of the most fundamental questions:

“Who does my company serve?”

“What problem does my company exist to solve?”

“Why should my company exist?”

“What problem in the world (that’s bigger than my piece of software) will be a problem for a really long time?”

When I realize that the founders struggle with these questions, I do something that almost all of the founders I work with hate. I ask them to work with me on aligning their company through organizational clarity. 

For the people out there that don’t believe in this, you might not be ready. For those that are, I’m going to try and walk you through what I believe to be the most valuable framework for helping companies unlock potential and really serve the market in which they want to exist. 

Step 1: Understanding Internal Variance

To help companies figure out how aligned they are in terms of what they want to achieve, you can create a very simple internal survey that asks all employees the following questions:

  1. What is our mission? 

    1. What is the problem that we exist to solve in the world?

  2. Who do we serve?

    1. Who is our target customer? 

  3. Define our culture.

    1. What makes working at our company special? How do we act as a team?

  4. What do we do?

    1. Elevator pitch; describe the product or service!

  5. What is important right now?

    1. What are the 2-3 key objectives that we are trying to achieve as a company in the next 2 quarters? 

Depending on the stage of the company and speed at which the company has grown to date, the responses can vary quite a bit. 

Step 2: Agree... for now.

One thing that we believe in at Polychrome is that nothing is set in stone; so things can change. 

As you get the results back as a leadership team, the emotions can range from “how are we so far off as a team!?” to “wow, that’s better than I thought we’d be.” Wherever you are at, the goal in the next 2 weeks should be to get to a collective answer on these questions that you feel great about...for now. 

A few tips about each of the questions:

  1. Mission: Don’t choose something that people can’t get behind as being realistic for what you actually do. Double check it with your engineering team (great skeptics) and customers (who you are trying to serve anyway) for sanity checks. You will likely have versions that are very lofty and very boring...aim to strike the middle, but be honest with yourself. If you don’t save the manatees...that’s all good, you can still solve a problem in the world that matters to someone. 

    1. Example of a company that we run: Flagsmith.com

    2. Mission: Empower any engineering team to ship faster and continuously improve their products. 

    3. Why: we chose not to mention the product, feature flags, but rather the problem we exist to solve for our customers. That problem exists before and after our product and allows us to solve more problems with content, products and services down the line that they are facing. 

  2. Who we serve: A lot of founders are forced to get honest with themselves that the people their company exists to serve are pretty different from themselves. This is especially true as you grow beyond early adopters. If you are struggling, find a way to be genuine to yourself while still serving your customers or your market...and hire people on your leadership team that augment your weakness here. 

  3. Define your culture: if you haven’t already, one good idea here is to send a separate survey to all of your employees. Ask them to highlight their colleagues and the values that they have and how that represents your company. You’ll LOVE reading this stuff and your team will love celebrating these values. 

  4. What do we do: Ask customers to explain how they would describe your product and why they bought it. You might be surprised that it’s different from what you think. 

  5. What is important right now: Some are big into OKRs, others aren’t. I’m a fan of whatever is lightweight and gets people focused on the day-to-day. The most important thing is that everyone on the team understands how their work supports what the company exists to accomplish. 

If you don’t love the answer you arrive at for one of these topics, agree to revisit them as a leadership team in 3 months. Push your team to agree on something that is close, but not perfect and commit to the process of improving it over time. 

Now that you’ve agreed on these five critical questions as a leadership team, it’s time to get to work! 

Step 3: Go!

Now that you know the answers to these questions, take a quick inventory of your efforts as a company. Are you living up to those answers? How are you reinforcing that in your day-to-day? Here are some simple ideas on how to start aligning your company:

  1. All-Hands: If you have a regular Friday meeting to wrap-up the week, highlight things you noticed people doing that support the reason why you exist and how you want the team to be acting day-to-day. 

  2. Marketing: Take a look at your homepage. Does it speak to the people that you exist as a company to support? If you aren’t ready for that, look at the last 5 pieces of content that your team produced. Do they line-up? 

  3. Sales: Is your sales team doing outbound? If so, do they have educational content that helps the people in your space improve even if they aren’t ready to buy your software? Remember - Flagsmith isn’t a feature flagging company. We are a company that helps engineering teams ship faster and continuously improve their products...we can help customers with content & thought leadership just as much as with our software. Once they are ready to use feature flags and they feel that we’ve provided value in their work life, I’m sure they’ll consider us. 

  4. Product: Look at which customers and prospects your product team is interviewing for feedback on the next product release. Is it the person that you exist to solve problems for? This can be extremely painful to make these trade-offs, but if you have chosen the right person/industry to solve problems for, your company will build amazing products. 

  5. Hiring: When you look at the next 5 hires you are planning, do they move you closer to being the company in your space that solves important problems? Are you staffing for experts in your field to go deeper? Does your org chart align to this?

If you find an area in your business where the answer is “no - this doesn’t align”, adjust those efforts and work towards that together with your team. Hold your team and yourself accountable to living up to these new standards. BTW - if you are having issues between teams (marketing & sales, product & go-to-market), this misalignment is often the root cause. Let these answers be the tiebreaker.

My experience with this in my career

When I joined Amplitude, we didn’t really have a common focus externally except to beat our nearest venture-backed competitor. In choosing a competitor as our benchmark, we were basically saying to our team that “we exist to provide incrementally better analytics than what the market is currently using”. While this type of a focus definitely helped the company in the early days, it didn’t set the direction for where we wanted to take the market long-term. The good news was that our CEO, Spenser, invested a ton of time and energy with the leadership team at off-sites to get our alignment right. We talked about it regularly until we got it to a point that we could act on it. After a while, we decided as a leadership team to choose a problem in the world to solve that was bigger than our competition...our mission became to “Help Companies Build Better Products”. Sounds pretty basic, right? That’s the best part! 

Because of the simplicity, everyone remembered it and it narrowed our focus to Product Managers...the people inside of companies that struggle to do this day-in and day-out. As a company, we agreed that we wanted to be thought leaders to help PMs and Product Teams improve at their job...regardless of whether they bought our software or not.

Take a second and compare the breadth of topics that we could talk about with the competitor analytics mission vs. the build better products mission. As a company, we could really invest into the problem of the customers that we existed to serve vs. just building an incrementally better product. 

This alignment permeated through the company and showed up in everything we did. Instead of us outbounding prospects to take a demo of our incrementally better product, we now created full experiences focused on Product Managers learning and invited them to attend events with industry peers. Our content transformed into detailed playbooks and how-tos on topics that were tangential to analytics, but critical to creating better products. We were living up to what we wanted to be in the market. The results spoke for themselves and the company is still executing on a version of this mission today. 

One of the coolest experiences as a leader at Amplitude was when we would ask the company “why does Amplitude exist?” and just about everyone at the company would respond in unison “to help companies build better products”. 

In the end, everyone that spends 8+ hours a day on anything wants it to matter and wants it to be about something more than just the product they are selling. After working in companies for the last 15 years, I now know what my wife was trying to ask me way back then... it’s the customers and their problems that allow a company to exist. By getting everyone in your team aligned on that fact and by de-prioritizing the noise of your last fund raise, I’m sure you can have a similar story to tell.

-Matt Althauser

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About Polychrome:
Polychrome is a new type of investment firm. Our mission is to help companies unlock the next level of growth through our GTM expertise. Check us out at polychromecapital.com

Architecting Your GTM Motion: Part 2

How to set-up your interview process

Introduction

“It’s so hard to hire salespeople...they all interview so well!” - every early stage founder

In Part 1 of this series, we discussed the profile of the first salesperson you should hire for your startup. Before you can determine the profile of the person, you need to decide whether your sales motion will be a solution sale or technical sale. Once we know the ideal sales motion, we can determine the profile we want to hire and begin sourcing and interviewing target candidates. 

In Part 2, you’ll learn everything you need to know about setting up the right interview process for your business. In order to get a new perspective we’ve collected additional input from our good friends, Carina Brockl and Julio Bermudez. Carina is currently the VP of Commercial Sales at Box, and has built high performing technology sales teams at scale. Julio, is the VP of APAC and LATAM at Amplitude where he has built solutions sales teams globally. Both Carina and Julio have interviewed thousands of sellers in their tenure, and in this post they share their favorite interview projects that they use to fully feel confident in their vetting process. 

Let's get started with making sure you and the team are aligned. 

Questions to ask yourself and your team before beginning the hiring process

As a startup, you don’t have the same financial resources as the big companies have to attract talent. One of the easiest ways to stand out is to provide an incredible interview experience that blows candidates away. You’d be surprised how many companies mess this up by not preparing for an interview with well-informed and thought-provoking questions, setting wrong expectations, not getting back to candidates in a timely manner, or being way-off on compensation levels. 

In order to stand out, it’s important to streamline the interview process before candidate sourcing begins. To prepare, you should consider the following questions: 

  • Who will be on the interview panel? Do they know what questions they should ask? 

  • What values do we want the candidate to have?

  • Are we asking the right questions to get the best candidate for the job we are hiring for today?

  • How long do we want the process to take from the initial interview to offer acceptance?

  • What is the compensation package and quota?

  • How long will their ramp be? 

  • How do we plan to onboard them?

Once we have the answers to the above questions, sit down with the interview panel and set expectations with everyone. Once that is set, you and your team should be aligned and ready to discuss team values. 

GTM team values 

If you don’t already have company or team values, that’s ok since many don’t at this stage. But once you have a sales person (or people) representing your business, it’s important to have some guiding principles for how you want them to act internally (with colleagues) and externally (with prospects and customers) and that’s where values are pivotal. Your values need to take the lead. 

To get some ideas flowing, here are a few values that we hold in high esteem: 

  • Diversity 

  • Creative problem solving 

  • Open communication 

  • Receptive to feedback

  • Team players who empower each other

  • Holistic understanding, i.e., the better the business, the betterment for all

  • Strong work ethic

  • Positivity

  • High integrity  

  • Makes business decisions by putting the customer first, then the business, then themselves

Once you name your values, we’ll be in a great position to build out the interview structure that we will be able to use, not only for this hire, but for all hires within the GTM organization moving forward.

Structuring your interview process 

Every company is different so this isn’t a one-size-fits-all structure.  As well, no matter the seniority of this hire, it’s important to be thorough. The structure below offers you and the team enough opportunities to vet the candidate as a professional and as a human. We also get a few tips from Carina and Julio about which projects are their favorite to ensure they fully vet the candidates one last time before making an offer. (Always remember, time kills deals - and interview processes - so this process from end to end should take no longer than 2 weeks per candidate.)

  • Stage 1: 30 Minute Phone Screen- w/ Direct Manager

-If the candidate seems like a great fit, you can let them know on the call or via email (no more than 24hrs later). When telling them the good news, make sure to tell them next steps and what to expect. 

-If the candidate does not make the cut, make that clear on the call and provide feedback, or tell them after via email (24hrs) with feedback.  Always provide feedback! 

  • Stage 2: Small Project: 

    • Example: Have the candidate watch a recording of a demo, take notes, and send you a recap of the call in a follow-up email. 

-If the candidate passed, quickly set up a time to come onsite. 

-If the candidate does not make the cut, the same holds true as above.  Feedback required! 

  • Stage 3: Onsite interview (three- 45-60 minute Interviews w/IC’s/founders and one -60 min w/ hiring manager focused on different criteria that allows your team to get an understanding of the candidates skills, values, and culture fit): 

    • Individual Contributor/founder/manager (45-60min)

    • Individual Contributor/founder/manager (45-60min)

    • Individual Contributor/founder/manager (45-60min)

    • Hiring Manager (60min)

After the first onsite interview

Following the first onsite interview, each interviewer puts their feedback in the Applicant Tracking Software before talking to each other. We recommend scoring on a scale of 1-4 and adding notes as to why they chose that score ahead of the team talking about the results. Below is what the scale means:

  1. I will fight for this person not to be hired 

  2. I don’t want them to be hired but I won’t lose sleep if they are 

  3. I want them to be hired but I won’t lose sleep if they aren’t

  4. I will fight for this person to be hired 

Once all the scores are in the ATS, the team should meet the same day or first thing the next morning to review the feedback and determine if the candidate should progress.  

Here’s a few pieces of advice for when you meet as a team to provide feedback:

  1. CEO/co-founder goes last. This way all others feel comfortable sharing their feedback. 

  2. When hiring your first salesperson, you want a minimum of two 4’s. 

-If the candidate passed, the hiring manager calls them to congratulate them (24hrs or same day) and tell them about the final presentation. Manager to send presentation criteria. 

-If the candidate does not make the cut, manager calls and provides feedback (24hrs)...always over the phone

  • Stage 4: Presentation (60 min)- examples from Carina and Julio

  • Carina’s favorite interview presentation format is to get the candidate to think critically about how they plan (logical path) to get to their quota. She provides the interviewee five variables: 

  1. Quota 

  2. ACV

  3. Sales cycle duration

  4. Inbound / outbound ratio

  5. Win rate 

Once the candidate is provided the above numbers, they are asked to present a logical path to achieve their quota. 

The goal of this simple exercise is to analyze how the interviewee prepares, asks additional questions, style and optics of presentation, and most importantly is the interviewee capable to logically break down how they will achieve their goal. Great candidates showcase a model down to the number of calls, demos, discovery calls, and emails per day. They will include partnerships, SDRs and other cross-functional teams. They understand that out-bounding is a constant in a sales role and also communicate clearly during their presentation.

  • Julio’s favorite interview presentation format is having the candidates run a simulated sales meeting; either selling the candidate’s current product, or the product of the company where they are applying. What Julio is looking for here is the following: 

    • How the candidate sets the agenda and expectations of the meeting

    • The questions the candidate asks and if they layer the questions 

    • How the candidate uses the answers to the questions they asked to run the meeting and drive next steps 

    • How they quantify impact 

    • How they drive next steps 

    • Do they include everyone in the room and speak to each person about what they care about

Once we have the structure of the interview process, we can then think about the questions we want to ask the candidates in order to best vet them. In the Part 3 of this series we will do a deep dive into both Julio and Carina's favorite questions, and what traits they look for in a technology and solutions sales person. 

Exploring Marketing Channels: Podcasts

How (and why) to set-up a podcast for your B2B Software company.

Greg, Alex and I recently launched Polychrome Capital. We are a small team that not only invests into B2B software businesses, but also act as operators to drive growth within them. 

A few months back, we invested into a Feature Flagging company called www.Flagsmith.com. As we’ve dug into the day-to-day, we have been doing tons of hands-on work to drive growth and awareness to the business. So far, we’ve been able to double revenue within 3 months and are starting to get consistent gains on leads/sign-ups. 

It’s been fun to get into execution roles again, but it’s also a reminder of how much I appreciate the talents of the people I’ve worked with in my career to date. As we start to encounter new challenges, our goal is to share different tactics that we are working on to drive growth to the company. In this article, I’ll be covering the topic of launching a podcast. 

Why launch a podcast if you have a B2B SaaS company?

Ok - I know, I know. You’re probably thinking, “Not another podcast?!”. We originally thought the exact same thing, but after we started to think about it more and more, it started to make sense as long as we had something interesting to talk about. 

As a small software company, we need to make the most out of every hour and dollar we invest into the company. One of the biggest ROIs we’ve seen at companies in the past has been content. If done right, content becomes an extension of your product (education) and brand (quality association) that can have an amazing compounding impact over time. That rate of compounding impact increases and decreases with quality. As you think deeper about content, you realize pretty quickly that it comes in different forms, is shared through different channels, and serves very different goals. 

To drive this point home, we quickly “scored” different content types on a few dimensions to help us prioritize future content investments (TOFU = Top of Funnel):

After thinking through the different channels and benefits, here is what we loved about podcasts:

As a relatively new product/company in the market, we are trying to drive awareness and sign-ups. For us, Top of the Funnel (TOFU), was a clear priority. The other important benefit to the podcast was the cost of incremental episodes. Once the infrastructure was built out, we could then make it easy for each additional episode. All we need to do is find interesting guests and invite them to the show, record the interview, promote and repeat. And last, perhaps the most important scoring criteria that wasn’t added onto this matrix is what I’ll call the “X-Factor”. As a small company, it is hard to get great links for SEO and to have access to other company’s mailing lists for awareness. Because we chose a topic (Open Source software) that has a great grassroots community and speaks to the people we want to work with; we are able to have relatively large projects and companies share the podcast with their audiences. 

What are we going to talk about?!

Ok, so now we had the content medium that we wanted to go after in Podcasts...but the questions remained; how does a B2B software company choose topics that are actually interesting and serve the needs of the business at the same time? 

I think this is key and where lots of startups/companies get stuck and create the dreaded “keyword” content. This is usually just a series of blog posts that people believe is on-point, but really isn’t. In short, our point of view is that people typically get too focused on converting direct channels vs educating their audience and establishing authority. Investing is too broad of content is a really hard thing to justify as a startup, so I’ll do the 10,000 ft example of our framework and how we came to the topic/justification for the investment: 

  • Target Audience/Target Customer: Software Engineers (we are actually more targeted in who we want to work with, but we will keep it simple for now) 

  • Our Mission: Empower software engineering teams to ship faster and continuously improve their products.

  • Our Product: Our product is a feature flagging and experimentation platform available as open source (which means that people can use it for free), On-Prem (which means that people can license our product and deploy it on their infrastructure), and as SaaS. We support a ton of languages/technologies, so just about any team can adopt us. 

  • Our Goal for the podcast: Drive broad awareness for our company and open source project! 

All companies in software are leveraging some sort of open source software and the people that care about it...are engineers. Those engineers tend to be passionate about specific technologies and are eager to share their stories and knowledge with the community.

Put all these inputs in a blender (or brainstorm), shake well...and out comes “The Craft of Open Source”: a bi-weekly podcast where our CEO, Ben Rometsch interviews the best minds in the Open Source community. Also - huge shout-out to Ben on being willing to be the host of the Podcast. He hasn’t done this before, but has very quickly gotten into the groove and does an amazing job with the guests. 

How you can arrive at these inputs merits a longer discussion, which we will write about in the future…or feel free to drop us a note. 

The Work

Now that we had the target audience, goals, and content medium picked out, it was time to figure out how to do this. 

After looking around online, we were able to find a company that guides you through the podcast process and all of the necessary materials to get it up and running. If you haven’t done this before, having a team that has done it is valuable. We found the company we used to be “ok”. The biggest benefits they brought were: providing syndication to all of the major platforms, transcribing/editing episodes, creating intro/outro music & voiceover, and project managing/coordinating. 

To provide you with a list of what you need so you can do it on your own, here are the assets we created:

  1. Podcast Art (amazing design by my talented wife, Sabine Althauser)

  2. Show Description (look, we’re live on Apple Podcasts!)

  1. Hosting/Syndication Platform - There are a ton out there. This software does two main things:

    • Gives you a player that you can embed in different places as well as analytics for your listens/downloads.

    • Adds and updates your episodes on the different platforms like Spotify, Apple, etc.

  2. Podcast Homepage (optional, but valuable for sharing):

  3. Podcast Episode Template (which we host on our blog CMS):

  4. Intro & Outro music w/ voice over:

    • Getting a voice recording of this with music added is critical. It’s amazing how much that up-levels the recording. 

  5. Recording Software & Hardware:

    • Zoom

    • Nice Microphone

  6. Editing:

    • There are a ton of providers out there that can help you with editing your show. Some do just audio, some will provide a transcript and others will take your production to a whole new level. The key here in our opinion is getting written, video and audio content which gives you many more distribution options. We ended up paying ~$179/episode which includes video, transcript and links from the episode.

  7. Guests:

    • I know this seems obvious, but really think about choosing a topic where this will be easy for you over time. As the saying goes in journalism: “Spend one hour on the article and two hours on the headlines”. The guest that you choose as a bootstrapped startup will dictate your headline, reach and engagement. 

Depending on your current team, existing infrastructure and talents, you can probably get this off the ground on the low end for $2,500-$5,000. Trust me, you can spend way more than we did, but remember, we are still exploring the channel. We launched the effort with 3 episodes, just pushed another live and have ~15 recorded beyond that. If we stay at a bi-weekly cadence, we have content almost through Q2 2021.

Pro-Tip: Having this backlog of pre-recorded shows makes it way less stressful to find quality guests. 

The nice thing about this infrastructure for us is that each additional episode can be produced for less and less over time as we amortize the infrastructure costs. We can also create supporting content/articles out of the topics over time. If you compare that with written articles and remember...the better the guests, the higher the impact...this seems like a good bet on paper. We’ll see how it plays out.

We just launched the podcast last month. If you haven’t checked it out, feel free to listen to it wherever you get your podcasts, or visit www.flagsmith.com/podcast...and please, provide feedback so we can make it better. 

So now I’m guessing you are all rushing out to create a podcast of your own. If you are and you haven’t done the work to evaluate the other channels and whether it makes sense for your business; slow down and do that work. What we do for our companies won’t make sense for yours. The goal of this article is to help you think about your business more effectively. 

If you have questions or would like to provide feedback on how we can do a better job with our efforts, have something you’d like to share or just want to connect...drop us a note! 

Thanks,

Matt Althauser

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About Polychrome:
Polychrome is a new type of investment firm. We help our portfolio companies unlock the next level of growth through our GTM expertise. Check us out at polychromecapital.com

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