Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan (Part 6)

Sramana Mitra: We are huge believers in content marketing. That’s the only kind of marketing that we do.

Patrick Kerpan: We clearly lost some opportunities but for a small company, we would never hear from customers until they were POC complete. They’d go to Amazon. They’d use the free edition. They had tried it and they probably have something up and running. Now, they needed to grow it. We put in place a mechanism where we didn’t want to hear from a customer unless they were close to completing proof of concept. Rather than having big, wide funnels, we would have 15 leads at 60% probability.

Sramana Mitra: In general, any kind of inbound leads are very good news. If it’s an inbound query or request, you’ve won half the battle.

Patrick Kerpan: Right, but you don’t have that kind of pipeline where you put everybody you’ve ever met in the pipeline and they’re all a million dollar deal with 10% probability. You just get killed with all that talking. The other thing that’s different is I think we got the pricing right. There’s some competition now.

There’s two ways that people price in the cloud. One is unrealistic. Cisco is the equivalent of putting the Cisco ASA in a virtual machine. It’s called the Cisco Cloud Service Router. If you log that on Amazon, it’s $4 an hour. That’s $36,000 a year. Then the other people have priced to within tens of cents of every one of SKUs on a monthly or annual basis.

What we did is in the metal world, the software is the same. When you buy the bigger box, it costs more. If you buy the little Cisco, it costs $1,100. If you buy the big Cisco, it costs $50,000. In some ways, the software is the same, but you’re being charged more. They had to spend more on parts and in theory, it gives you better performance. Let’s talk about our core subscription. While we charge just 20 cents an hour, Amazon charges around $12 an hour for its quintuple extra clustered Amazon thing.

Our pricing is based on your network topology. I think we got the marketing and pricing right. Our customers are people who are writing applications that are going to be run on the cloud. Whether it’s a mutual funds company and they’re moving a part of their operations to the cloud or an African telco SMS switching company, they’re all building their business to make money in the cloud. Our pricing makes sense within the context of application architecture and not traditional network pricing.

I don’t know how this fits, but one of the coolest customers we have is EM TECH Limited based out of Nigeria. Can you imagine being the bright entrepreneurs of Nigeria who go, “We want to offer a service.” It’s not like here where if I send you a text, I don’t’ have to know what network you’re on. Telco companies there are so fractured.

So many of the people don’t have smartphones and full Internet connectivity. A lot of advertising is done via SMS. If you’re an advertiser and you want to get the messages across Africa, you have to do deals with 20 to 30 carriers and integrate to their systems. This entrepreneur from Nigeria said, “We’re going to build an SMS switch and we’re going to do deals with these different carriers. We provide SMS switching and pairing between the carriers. For advertisers, we become a single source of contact for putting your SMS advertising campaign to the African market.”

To do that, you have to look like a telco. These guys approached us five years ago. They’ve got this great business. Their telco system flawlessly talks to their telco partners through Cohesive Network’s VMs. That, to me, is cloud and network virtualization. There’s no way you can build raised floors in Nigeria in any affordable way. You’re not going to have the networking kit.

This segment is part 6 in the series : Successful Pivot to $5M in Revenue from Chicago: Cohesive Networks CEO Patrick Kerpan
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