Bootstrapping First from Colorado, Then Scaling with VC Funds: Faction CEO Luke Norris (Part 3)

Sramana Mitra: At this point, the revenue that you’re making is from this product that you just demonstrated at VMWare?

Luke Norris: A third of our revenue is from that. The other third is through the sharing of networking and sharing of compute resources.

Sramana Mitra: The revenue that is coming from this product, who are the early customers?

Luke Norris: Early customers were medium enterprises. We’re lucky in that we have decent-sized logos that I can’t make public. These are in the media and entertainment business. A couple of them are in financial services. They are organizations that are trying to test what this idea of cloud and cloud services can bring to market.

Sramana Mitra: How did you find them? 

Luke Norris: By hook or by crook. This time, I’m still the only sales guy. I’m attending a lot of industry events, meet-up groups, and anything to do with technology. I’m typically sponsoring the lunches or drinks so that I can get up and present what I’m doing.

Sramana Mitra: A third of product revenue in your business off of this product comes from how many customers?

Luke Norris: Probably from 15. Let me step back. The customer acquisition model at this time is significantly through the channel. I realized that it’s hard for small businesses to do B2B transactions with a medium and large market enterprise.

I talked to local value-add resellers. These are the guys that were traditionally selling the storage boxes and either white-labling or co-labeling my service. Their ability to contract with the enterprises removes all the procurement process from me and allows me to get access to companies just from the procurement side.

They represent the bulk of my revenue at this time. The meet-ups that I talked about were their customer group meet-ups or lunches that I’m co-sponsoring.

Sramana Mitra: Talk a bit about how you were charging things.

Luke Norris: A big tenet right out of the gate was recurring revenue. I needed a base of revenue, month-over-month and year-over-year, to grow from and be able to risk into.

If I got a decent-sized customer and I know that revenue is going to come, can I hire somebody now knowing I can make their salary in a month or two. I’m not venture-backed yet. I’m having to skip my own paychecks to pay for new employees.

All of our customers were billing monthly but we had yearly and three-year contracts. I had a very sound base of revenue to grow from. That sound base of revenue helped me get some small leverage from the bank. I was able to show the bank my book of business and my contracts. That was allowing me a decent amount of  leverage. 

This segment is part 3 in the series : Bootstrapping First from Colorado, Then Scaling with VC Funds: Faction CEO Luke Norris
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