The problem is that they’re outliers.
Their growth mechanisms are not like those of most other businesses and it’s very risky to attempt to replicate them unless you’re prepare to spend and lose a lot of money and then fail anyway. The chances of success are vanishingly small and the road along the way is littered with the skeletons of companies who have tried and failed.
For the rest of us that don’t aspire to the level of Twitter, it’s not all doom and gloom though. In fact, the chances of success can still be pretty reasonable and the rewards can be high. And in technology – especially internet-based software – there’s never been a better time to build a high-growth business. The barriers to building and delivering web-based products are lower than ever and the reach that the internet provides makes even relatively niche markets worth building for.
Our company, FreeAgent, builds and sells an online accounting service for freelancers and small business. And our market is hardly niche: there are over 4 million micro-businesses in the UK alone and all of them need to stay on top of their business finances and file tax returns.
The strategy we’ve followed for creating and growing our business may seem fairly simple or just plain old common sense – but it’s surprising how many otherwise-smart people miss critical elements when it comes to their own businesses. And there’s a big caveat of course: our strategy is based on running Software as a Service Accounting Software business – so if you’re running anything else, which is likely, there may be other factors to consider.
But essentially you need to:
• Build a product
• that customers want
• for which they are willing to pay
• more than it costs to service them
• which generates more than it costs to acquire them
• (faster than you lose them)
• in a repeatable way
• and in a scalable way
When we created the very first version of the FreeAgent system in 2007, we were very much led by our own painful experiences of managing our business finances. The three company founders – myself included – had all been freelancers and we’d found it incredibly difficult trying to use spreadsheets to balance our books; so we decided to build the kind of software that we wished had been available to help us.
As building internet-scale software is relatively cheap and easy, we didn’t need a massive initial investment to get our idea off the ground. Furthermore, as the infrastructure to write and deploy web-based products is also as close to free as makes no odds, we were able to develop iteratively to continuously evolve a product even when it was in the customers hands – a major reason we’ve been able to evolve our service and grow our company in recent years.
But we also had to avoid falling in love with the technology we were creating and being caught in the “if you build it, they will come” mentality. Every business has to carefully tread between implementing their vision and being purely customer-driven – so we tried to focus on making better product decisions by being our own customer (i.e trying to solve problems that we’d personally faced as freelancers), while at the same time being aware of what was technically possible.
Like any fledgling business, we faced the issue of picking the right price for the product we were creating. Pricing is a black art and you need to be clear on where you want to position yourself in your market – especially when your competitors are offering everything from one-off product fees and costs for individual upgrades to monthly subscriptions and even freemium models. It’s argued that there are only three strategies in business: ‘Low-cost’, ‘Differentiated’, and ‘Focussed’, and how you think about price is pretty much determined by your choice here.
Since choosing our pricing structure, we’ve had to pay attention to the ‘direct costs’ of each customer – i.e what it actually cost to provide our product or service – as well as working out our real Customer Acquisition Costs (CAC), to make sure that what we agreed on is sustainable for the business. In just five years, we’ve expanded our customer base to more than 25,000 users from across the globe, so we must have made the right choice!
We’re also trying to ensure we maintain the customers we have – and a key metric for our business is Monthly Churn. The fewer customers who cancel each month the longer the average customer lifetime and the higher the Customer Lifetime Profitability (CLP) will be – and it’s by driving CLP up and CAC down that we can generate the economics of growth.
And of course, we’re also working hard to attract new customers in order to grow the business further. We now have more than 50 staff working in our Edinburgh HQ or remotely across the UK, including fully-fledged marketing and business development teams who are experimenting with new acquisition methods to see which ones can be optimised for the best CAC. Whether that’s paying to improve our Search Engine Optimisation (SEO), placing adverts in key publications and websites or forging partnerships with accountancy practices and high street banks, we’re trying to make sure as many small businesses and freelancers are introduced to FreeAgent as possible. After all, without effective SEO, branding, support and field-sales, we’d only open ourselves to someone else’s inferior product coming in and out selling ours.
And like many ambitious tech companies, we’ve been fortunate to attract external investment to help us achieve our growth plans. The £4 million we’ve raised so far has not only helped us bring the best talent into our workforce, but also enabled us to make our first acquisition in the United States – and we’re now looking to forge new partnerships across the Atlantic to promote our US-specific version of the FreeAgent system to millions of American freelancers.
Of course, there’s still a long way to go. Our ultimate aim is to grow our subscriber numbers to the point where hundreds of thousands – if not millions – of people around the world are using FreeAgent. And we want to ensure that our system continues to grow and evolve in order to provide small business owners and freelancers with the best method of managing their business accounts.
Hopefully all of the hard work we’ve put in so far has set us on the right track.
