Bootstrapping To 20 Million: Replicon Co-Founders Raj And Lakshmi Narayanaswamy (Part 5)

Sramana: Was there external consulting work or was that just part of the sales cycle?

Raj Narayanaswamy: It was part of the sales cycle because the product need not meet every single need for extremely large organizations. We found that these larger organizations would give us a lot of money to customize the product to their environment. We charged consulting dollars for those customization projects. Lakshmi used the term ‘elephant hunting’ for those deals, and we were good at it. We were not that good at skinning the elephant, which is what caused the pain. As a result, we pulled back from larger deals and stopped doing customization work. By nature we began focusing on SMB business. That was a big decision.

Another major milestone was our revenue model. Originally we sold the product by license fee. Our clients bought the product and installed it on their servers internally. In 2003 and 2004 we began seeing the SaaS movement, so we began offering a SaaS version of our product.

Sramana: How did you align pricing with the SaaS strategy?

Raj Narayanaswamy: It was tough. We went from a perpetual license to a monthly fee per user. Customers always wanted to compare apples to oranges. The SaaS model was $12 per user, per month. Customers viewed that as charging more for SaaS. In 2009, we decided to stop selling the licensed version of our product and offer only SaaS. As a result, we both decided to move to Silicon Valley, and we hired senior folks from Salesforce and other larger firms. We essentially doubled down on SaaS. We are still small. We have $20 million in revenue, but we have a goal of $100 million in revenue within the next four years.

Sramana: Were you able to move beyond $29 per license before you converted to the SaaS model?

Raj Narayanaswamy: Before we moved that to the SaaS model it had reached $199 per user. We had added a lot of functionality to the product by then. The $199 fee was our on-premise fee plus maintenance.

Sramana: You have $20 million of revenue now. Did you experience linear growth from 1999 through 2011?

Raj Narayanaswamy: It was mostly linear. We had steady growth with a slight bump in 2009.

Sramana: How did your customer acquisition strategy change over time? Obviously you could not continue your partnership with Netscape forever. 

Lakshmi Narayanaswamy: We focused on online lead generation and had a telesales team to follow up on the leads. We used a lot of online marketing, including Google. We spent almost $3 million on advertising to get customers. Our payback period is between six and nine months.

Raj Narayanaswamy: Our cost structure is split between North America and India. There are a lot of sales support functions that are done in India. Leads need to be cleansed, and that happens in India.

Sramana: How do the leads come in? Is it all through Google PPC?

Raj Narayanaswamy: We have done Google PPC, search engine optimization, and just about every other online advertising media we can think of. Lakshmi built an entire process to track 900 keywords, and Google PPC has been a big piece for us. We supplemented with banner advertising, which just did not work for us. We also did email advertising, which worked well for us for a period before it stopped working. For no reason, we will find that consumer behaviors change radically. What worked last year will not necessarily work this year. We have to rapidly find what works and concentrate on that.

This segment is part 5 in the series : Bootstrapping To 20 Million: Replicon Co-Founders Raj And Lakshmi Narayanaswamy
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