

SEOmoz's Venture Capital Process - prakash
http://www.seomoz.org/blog/seomozs-venture-capital-process

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byrneseyeview
If I were a VC, I might be suspicious. This is a company whose clients pay
them up to $1000/hr for consulting
(<http://news.ycombinator.com/item?id=677799>), and presumably they pay their
own consultants less than that. So they have a cash flow-positive business
that scales more or less automatically (get a new long-term client -> hire a
new person; get a short-term project -> add freelancers).

So they could fund expansion themselves, but they're looking for outside
capital. One way to look at this is that they want to grow as fast as
possible. But another way to look at it is that they're abandoning a
profitable, easy-to-understand service business in order to pursue a potential
product business. Those 80% margins are for the successful companies, not for
everyone.

Which is kind of a weird paradox. SEOMoz is a better, weirder story than a VC
might expect. Rand could have more luck if he disguised himself as an SEOMoz
employee who was quitting to do his own (product) thing, and looking for
funding. That way, the risk/reward would make a lot more sense.

~~~
randfish
Hey byrneseyeview - it's funny you mention this, because we found that the
"branding" of SEOmoz as a consulting business from 2003-2006 really hurts us
in the product/software marketplace. We transitioned revenue streams in 2007,
and had more than 50% of $ that year from product - those numbers have gone
upwards of 80% in 2009. Yet, we still fight against the stereotyping that
we're a consulting company.

We're making some moves (and changes to our site) that should help with that
in the next few weeks, but it's interesting to see that even after reading the
post (where I explained the above in-depth and showed a chart with product vs.
consulting revenue), the "branding" is still so strong.

~~~
byrneseyeview
That's surprising! Do you think it was the "Consulting" versus, e.g. "Design
and Development"? I wonder if 37signals had this issue, too--the impression I
get is that they were kind of dragged away from being a service company,
because their product got so popular.

You might have that branding because people are more willing to admit that
they hired you as a consultant ("We needed SEO for our site,") than that they
bought software ("We needed SEO help to... do SEO.")

And your biggest customers are presumably on the consulting side. I can't
imagine a single organization spending $10K on SEOMoz products, but I read
somewhere that that's your minimum for consulting.

Anyway, it's definitely interesting to see how other SEO companies evolve.

~~~
randfish
Well - we certainly have many times more Fortune 500s who are subscribers to
the software than we ever served with consulting. And I'd say that getting
testimonials and word-of-mouth comes much more with software users than
consulting clients (who often like to keep things very quiet).

------
jbyers
This is mandatory reading if you're thinking about raising VC funding. The
most interesting takeaway, in my opinion, is the almost-always-neglected cost
of going down this road:

"However, I do regret the decision to seek funding - it cost our team
countless days and weeks of productivity, took our eyes off our primary goal
of delighting our members and customers and, in the end, was a learning
experience with a shockingly high cost."

