Reset

I spent the last month more-or-less disconnected.

I’ve done this sort of thing before, but never for this long. It’s been a rare opportunity to take half a step back and think a bit about how I use technology, and consider some changes.

Disconnected in this context didn’t mean offline. I still had access to the internet. I still used the web to search, teach myself new things, book tickets and rent cars etc. I just made myself unavailable to inbound things that would take attention and went cold-turkey on some negative browsing habits.

Email

It took me about a week to stop the tide on new messages, before I could put an out-of-office notification in place without interrupting anything mid-conversation. That, by itself, was pretty depressing. I went back into my inbox a couple of times during the month, to get in touch with people I was arranging to meet and also one time when delayed at an airport and the temptation to use the downtime productively was too great. But, otherwise, ignoring email was probably the easiest change to make.

I discovered that the badges that show a count of unread messages on the app icon and dock had at some time been re-enabled on both my laptop and my phone (presumably as part of operating system upgrades?) and that was triggering me to automatically check whenever I used my computer or phone for other reasons.

After a few days I didn’t give my inbox much more thought.

I did return to a large backlog, which will take a while to trawl through. It highlights how much noise I normally filter out using Triage (although it’s even easier to do it in one click). It’s slightly surprising how many of the threads are still relevant a few weeks later, although does show how little is as urgent as I otherwise treat it.

I realise it’s a privileged thing to be able to just say “nope, not looking” for as long as I did. Those I work with were very patient, which I appreciate. Towards the end I started getting a few txt messages from them suggesting I take a look at something urgent, but by then I wasn’t able to do much either way.

I really don’t enjoy the deteriorating relationship I have with my inbox. The anxiety it generates seems completely unnecessary. It got even worse in the second half of last year. After this clean break I’m keen to be much more strict about where and when I check for new messages and try and better batch my responses.

News

It’s a few years since we cancelled our newspaper subscriptions and stopped watching television news. Since then I’ve relied on online news sites. But, especially with Stuff and NZ Herald, I’m no longer convinced that I’m a customer of these services, rather than the product being sold by them to advertisers, and have found the signal-to-noise ratio to be getting lower and lower (with the exception of the celebrity gossip, of course). All it takes to lose confidence in the quality of what you’re reading is one story on a topic you know a lot about. You can extrapolate from there.

I need to be careful here since I’ve been warned by somebody whose opinion I respect (and normally follow) that the way I talk about this is boring. I’m not being superior. But, honestly, it was a relief to stop reading these sites, literally, first thing every morning. It’s hard to see myself re-establishing that habit.

I switched to using the Radio NZ Timeline to quickly scan the headlines, and went looking for more details on the rare occasion when that was warranted (e.g. following the Charlie Hebdo bombings) but otherwise don’t feel I missed anything.

No news is still good news.

Social Media

Lastly, I stopped using Twitter. This was hard. I knew I was a bit addicted, but didn’t realise quite how deep it ran. It didn’t help that I was doing cool things, and I constantly found myself wanting to broadcast the details.

I basically failed completely for the first week. I continued to reflexively check whenever using my phone or laptop, and, worse, when I was otherwise in the company of others. I aspire to be more Amish than that.

Even after I said goodbye and stopped tweeting I had classic withdrawal symptoms. I caught myself sending links to tweets I wanted to remember via email, rather than favouriting them, so that people wouldn’t be able to tell I was still secretly online.

I eventually got away, by deleting the account details from the apps, so I couldn’t easily check without having to login each time.

I discovered that there are basically three things I get from Twitter:

1. A place to brag.

It’s obviously important you know all about the great things that I’m doing and you are not (and vice versa), right? Otherwise how will we know who is winning?

Towards the end of the time away I dabbled with Facebook, as a substitute (the quantity of shameless bragging there is even greater than on Twitter, I found) but I just couldn’t get into it. It’s fun to share photos or videos and get comments or “likes” from people you haven’t seen in person for ages, but my problem is that the “friends” I have there are a slightly incomplete snapshot from about 2008, and I think I lack the enthusiasm at the moment to curate that list much better.

2. A place to talk shit.

It was a bit chilling to go back over a whole years worth of tweets and discover how many of them were just junk. Visiting the water cooler is fine, but somebody who spends all day there has no right to talk of being full.

I don’t think many of the just over 3000 people who follow me on Twitter will miss random tweeted song lyrics out of context, or silly arguments about incubators and accelerators, and I’ll find something much more useful and interesting to do with that time.

3. A source of interesting links.

I really missed this. As a result I started using Nuzzel, which aggregates links based on things tweeted by the people you follow, and found that in some ways even better than the real thing. I think this is going to fundamentally change the way I use “follows” on Twitter – in the past I’ve limited myself to 100 people, and generally had a bias for those I know in real life (i.e. Q: “would I stop on the street to talk to this person?”) but now I think I’m going to change that to preference those that share the most interesting things and people I aspire to maybe meet one day.

Next?

I have no idea how well these changes are going to stick.

As Andy Lark pointed out in his first post for the year:

“One of the downsides of working in tech isn’t just that you are surrounded by seriously distracted people, but you become one over time”

That’s dark. But accurate.

Maybe publishing about this reset makes me slightly less so?

Either way, if you can convince yourself to try it, I throughly recommend some disconnected time.

s/Busy/Full

2014 Annual Report

“Beware the barrenness of a busy life.”
– Socrates

“Don’t say you’re busy. Say you’re getting lots done. If the latter isn’t true the former is irrelevant.”
— Not Socrates

I managed a whole year without using the word “busy” to describe how I was. It’s amazing how much more you can get done when you’re not constantly complaining about how busy you are!

What started so well, with a long relaxing break, mostly spent doing nothing of note, was quickly swallowed by a very full schedule. I don’t know how that looked from the outside, but from the inside trying to do a few too many things at once did eventually wear me down. Because the next thing was always hovering I didn’t always appreciate what I completed during the year, so hopefully writing all of this down helps to put that right…

Work

My work in 2014 was nearly all LLB and bugger all BSc(CompSci).

At the top of the list, it was a huge year for Vend. Deja vu!

The early part was once again dominated by capital raising. It was very exciting to close a US$20m round in March. We are humbled to have the support of some great investors, and it was excellent to add Valar to that list this year.

With more fuel on board, we doubled the team. Again! In fact, we doubled just about all of the key numbers. There are now 12,000+ stores using Vend in over 100 countries around the world. We opened new offices in Toronto, Berlin, London and Wellington. We processed more than 60 million sales through the platform during the year. It’s really come a long way, and it still feels like we’re just getting started.

There were many opportunities to dress up and accept awards – Vend won the Emerging Company of the Year and the Exporter of the Year under $5m (for the last time!) at the Hi-Tech Awards in Christchurch in May, where we surely secured the homepage spot for another year with our official photograph; Vaughan won the Technology category at the EY Entrepreneur of the Year Awards in October; and we celebrated with a table full of women working in technology; and in November we picked up 4th place at the Deloitte Fast50, with 1097% growth.

I’m relishing my role as Chairman. I’m committed. I’m learning a lot.

It was also a year which saw Timely start to get a bit more attention. So much so that it’s already nostalgic to look back at my debut in the ODT in February.

Shortly after that we announced a $1.3m capital raise. The team has more than tripled since then, with people distributed around New Zealand (in Dunedin, Wellington & Auckland) and also in new sales offices in Melbourne and London. There are now over 2000 salons, clinics, trainers and many other small business customers using the Timely booking platform. During the year they took more than 5 million appointments!

I was upgraded from advisor to director in October. I’m excited to be involved.

It wasn’t such a great year to be a Xero shareholder, but I suppose I still need to mention that here having given myself credit for backing them early over the last couple of years, as they were on on the way up. I remain long.

I invested in three new companies during the year: Atomic, Revert and Respondly. It was exciting to see them start to talk about what they are working on. Expect to hear more from me about these in 2015. I have high hopes for all of them.

I’m increasingly proud of the ventures I’ve backed, and will continue to focus on investing in the best companies, not the most companies. Overall, the portfolio doesn’t owe me anything at this point, which is a privileged position.

Southgate Labs has been the foundation for a lot of this over the last four years. Investing in Vend was literally the first decision we made together. We always talked about the possibility that one of our ventures or products would suck us all in. In the end it turned out to be a few different ventures. So it goes. It’s been a fun team to be part of and I can’t wait to see what they do next.

However, prior to that, we did finally manage to launch Dr SaaS, which we’ve been using internally with the ventures we work with for a while. Hopefully I can get a few more companies using that next year.

I work with amazing people. That alone justifies my founder-centric approach. They all do things that I can’t or wouldn’t, and increasingly haven’t, which makes it a bit odd, at times, to be an advisor. Nonetheless I enjoy my part.

Play

It was a great year of #sportsball. This started out as just a conscious attempt to get along to more live sport, which is something I love doing. But, it ended up taking on a life of its own. It was fun to see it embraced by a wide group of people, some of whom might have even surprised themselves.

I did see some great live world class sport: ASB Classic Tennis in Auckland, Black Caps Cricket v West Indies in Nelson, Speedway, Australian Open Tennis in Melbourne (where I was thrown a real live sports ball!), Black Caps Cricket v India in Wellington, A-League Football in Melbourne and also with the boys in Wellington and then Phoenix v West Ham in Auckland, Sevens in Wellington (more, more), Dragon Boats (more), AFL on Anzac Day in Wellington, Super 15 Rugby in Wellington and then All Blacks v England enjoyed with some old friends in Dunedin (although my choice of wardrobe had me sticking out a little) and even MLB Baseball in Toronto. Thanks to everybody who came along and enjoyed these with me.

Where I couldn’t get there in person, I soaked it up on the big screen, and there was a lot to take in during the year: the Winter Olympics, the Masters, the Football World Cup, the Commonwealth Games, the FA Cup (although the crowd didn’t exactly go wild for Arsenal), the US Open Tennis, and the Baseball World Series.

Of course, there is a lot more to #sportsball than sitting and watching…

In February a combined Vend/Southgate (+ some ring-ins) team ran around Lake Taupo, finishing the relay in 14h 3s (3 seconds, grrr!)

In March I ran the X-Race with my oldest son (an event at the intersection of endurance running and Lego which was great fun – we’re looking forward to the 2015 edition) and also ran the length of the Abel Tasman track with my brother, over two days (it was worth every kilometre just for this great photo).

And lots more: Skiing in Nelson Lakes, Queenstown, Wanaka (including a great day cross country at Snow Farm), Table Tennis in Toronto, Tennis in Wellington, Golf in Otaki, Ice Skating in Wellington, Mountain Biking up and down at Kaiteriteri and just down at Rameka, a couple of Sea Swims, Putt Putt in a few different places, including Picton and Paraparaumu (I honestly cannot recommend the latter to you unless very hung over), Pheasant Shooting with Rathmoy in Te Para, Rangitikei (there was some debate about whether this qualified as #sportsball, but we eventually settled on #sportsbang), and Sailing on San Francisco bay.

Towards the end of the year I got a bit more serious about training. I ran a new personal best time of 21m 22s for 5km in Wellington in August, more than 2 minutes faster than I’d previously run, thanks to some great pacing from Nick. And in December I ran The Goat from Whakapapa to Ohakune in 3h 11m.

Thanks to all of that I finished the year fit and weighing less than I started for the first time in a couple of years, which feels good.

We’ve enjoyed some good family holidays. Before Christmas we rode with a big group from Mt Cook to Omarama on the new Alps2Ocean Cycle Trail. We spent a great week on Hamilton Island with a different big group. And we end the year skiing in Whistler in Canada.

I spent a lot of time playing and listening to music, and in January we finally got along to our first (and last?) Big Day Out.

I also logged 104 movies. I don’t read much fiction, but I do watch it.

Home

We purchased the rest of a tennis court, burnt down one old house and made plans to build another. If only we were brave enough to film it, our ongoing project would make an epic episode of Grand Designs.

I installed iBeacons and tinkered with ambient status lights. It is quite fun living in the future, when I’m there.

Sadly few of the things above happened in Nelson, so doing so much meant a lot of time I wasn’t. According to TripIt I was away for 186 days during the year, which is an inauspicious new record. Just adding up the time I spent on planes and at airports represents a pretty significant opportunity cost.

Looking forward to 2015, I don’t think my schedule has ever been so well planned so far in advance. It’s definitely going to be another interesting one.

Beyond that, this is, I think, the penultimate annual report. Life goes on, but perhaps gets documented slightly differently. I still struggle to answer the “what do you do?” question that triggered this whole series of posts, but for entirely different reasons now.

Of course, there are pros and cons to a “full” life too. The pendulum swings back and forth. My new definition of luxury would be not feeling rushed.

Next year, I resolve, there will be more slack.

Promise.

Previous Annual Reports:

An odd little distorting sliver

As has become the New Years Eve tradition here, some 140-char musings I’d like to remember, selected from a total of 3,204 tweets from the last 12 months.

I remain confused about the payback for the 2,995 people who choose to follow, to be honest. Mostly it was song lyrics (old and older), or ranting about accelerators and reality television. C’est la vie.

 

And, while I’m at it, some of my favourites from others from the last year:

I’m @rowansimpson on Twitter, if you would like to join the conversation.

Xero visits Dr SaaS

A few weeks ago Xero released their latest interim report for the six months ended 30-Sept.

I thought it would be interesting to plug these results into Dr SaaS, to see what the diagnosis shows us about how they are tracking.

Most of the details we need are in the report which is available on the investor centre section of the Xero website.

Revenue

There were 371,000 subscribers at 30-Sept, and total operating revenue of $54.295m. They report average monthly customer churn of 1.3%.

Starting with 284,000 subscribers at 31-Mar (from the previous annual report) they added 87,000 new subscribers net. So, if we assume a churn rate of 1.3% that works out to be ~109,200 new acquisitions offset by churn of ~22,200 subscribers.

xero-revenue

Based on these values Dr SaaS calculates growth of 3.91% per month, and and ARPU of just over $27 per subscriber per month (which is slightly less than the $29 value they include in the report).

Dr SaaS also estimates the average tenure of a new subscriber to be approximately 53 months, or nearly 4.5 years, which is pretty sticky! If you’re interested there is more information available about how Dr SaaS estimates tenure.

Profit

Next, we split out the acquisition and service costs. This is all done for us in the report – the total “cost of revenue” was $18.016m and “sales and marketing” was $38.329m.

xero-profit

Based on these values Dr SaaS breaks that down as $165 per new subscriber and just over $19 per month to service each subscriber. The profit margin is calculated to be 17.86%, which is to be expected given the focus on investing in growth.

Runway

To calculate the runway we need to also include the other revenue and expenses that don’t relate directly to subscribers.

Again the report includes all of the details we need – “other income” was $1.48m (this is a combination of government grants and rent received), “interest” was $4.128m and “other expenses” were $27.35m (mostly the cost of software development etc). The cash balance at 30-Sept was $170.8m.

xero-runway

Based on these values Dr SaaS calculates the break-even point (based on the current burn rate) to be around 944,000 subscribers. The runway is just over 43 months (again, based on the current burn rate).

Diagnosis

Based on all of this Dr SaaS gives Xero a pretty good diagnosis:  “you’re bleeding a little, but you’ll survive”.

Overall the lifetime value per subscriber is positive – total revenue per subscriber of $1428 offset by acquisition costs of $165 and service costs of $1008, leaving a gross profit of $255 per subscriber.

xero-diagnosis

See the full summary

This is obviously a pretty rough and inaccurate analysis. To do this properly you’d want to understand a lot more detail about growth and performance in each of the different markets where Xero operates, as well as the trends in terms of ARPU, churn, and acquisition costs for different channels etc. However, as a quick exercise it’s useful to give a high level overview.

You can try Dr SaaS for yourself, using either your own numbers, or (if you just want to have a play) using the public details from one of many listed SaaS companies. Hopefully going through the process will teach you a little about the SaaS business model.

http://drsaas.md

We’d love to hear what you think.

The Goat

This weekend I raced The Goat, which is a ~20km mountain run from Whakapapa to Turoa, along the western slopes of Mount Ruapehu.

It’s a beautiful but brutal course – a lot more scrambling, scree, and rock climbing and a lot less packed trail than I had mentally prepared for. I managed to get around with only one face plant and tagged knee. The last 5km climbs from 1233m at Mangaturuturu Hut to 1624m at the ski field finish, including the final 2km “mamas mile” up the road, by which point everybody was looking pretty broken.

I was stoked to finish in 3h 11m, in 135th place overall. The data file from my watch recorded 1163m of vertical ascent (and 2402 calories burnt, yo!)

I don’t normally bother with official race photos, but this one taken half way up the famous “Waterfall” was just too good to pass up:

The Goat 2014

If you look closely you can see there is one small spot on my shirt which isn’t soaked in sweat. It took me a while to work out this is just the thick part of my heart rate monitor strap.

More photos:

It’s a great event, and I throughly recommend it to you.

There are only 600 places available each year, so keep an eye out for registration for the 2015 race soon!

 

The Quiet Ones

In 1997 Apple launched a new advertising slogan: Think Different, celebrating the crazy ones like Picasso, Gandhi, Einstein and others. In hindsight this may have been the turning point, as they recovered from being lost and near bankruptcy to become one of the largest and most iconic companies in the world.

In 2010 Derek Sivers gave a great short TED talk, called How To Start A Movement, about the importance of first followers. As somebody who has never really started anything of note, but has been lucky enough to be an early follower a few times now, I was encouraged and inspired.

This is my juxtaposition of the two: Here’s To The Quiet Ones

Please share this, using the hashtag: #QuietOnes

These are the people featured in the video, many of whom are my heroes:

This is the text of the voiceover:

Here’s to the quiet ones.

The co-founders, the assistants, the collaborators.

The round pegs in the round holes.

The ones who see things as they are.

They work behind the scenes, helping the crazy ones with their rough edges.

You can overlook them, disregard them, trivialise or underestimate them.

But as you ignore them they quietly get on and change things.

They push the human race forward.

And while some may see them as the quiet ones,

We see genius.

Because they are the people that know that what matters most is what you achieve,

Not who gets the credit.

Enjoy!

Estimating Tenure

The key number that Dr SaaS needs to calculate in order to diagnose your SaaS business model is average tenure, or, if you prefer, the life expectancy of a new customer when they subscribe to your service.

To calculate the lifetime value of a customer (LTV) you just need to know how much you earn on average from them each month (ARPU), how much it costs you on average to acquire a new customer (CAC), how much it costs you on average to service a new customer (CTS) and how long you can expect them to remain a customer (Tenure). ARPU, CAC and CTS are all easily derived from your financial statements. But, tenure is not so straight forward.

The way this is typically calculated is using the current churn level, which is the rate at which existing customers currently cancel:

Churn = Cancelled Subscriptions / Total Subscribers

For example, if you have 500 subscribers and 12 cancel during the month, then your churn rate is 2.4% per month.

Then:

Tenure = 1 / Churn

For example, if your churn rate is 2.4% then your average tenure using this formula is just under 42 months (or 3.5 years).

This sort of makes sense: if you have 12 cancellations every month then after 42 months all 500 subscribers will have cancelled.

However, in practice this approach often ends up over estimating the actual tenure, as Jason Cohen (aka A Smart Bear) explains in his great blog post on this topic:

“It’s impossible to see ahead to timeframes beyond a few years for a young company and perhaps 4-6 years for a mature one. In those timescales you expect drastic changes in market conditions — a strong new competitor appears or dies, the economy slumps or soars, a disruptive technology changes the landscape, etc.

That in turn will cause material changes in pricing, retention rates, reorganized customer segmentation, usage levels, service levels, and so forth.

Computing expected months with the ad infinitum approach leads you to over-estimate the total revenue you can depend on.”

This skew is especially evident if your churn rate is low as the inverse value increases rapidly at this point:

Alternative Tenure Calculations

So, what to do about this? Jason suggests two alternative approaches – either capping the number of months or using a discount rate.

Tenure = 1 / (Churn + Discount)

This option does product lower estimates of churn when the churn rate is low (and as he points out who cares about what it does if the churn rate is very high, as in that case you likely have much greater problems to deal with than what tenure formula to use!)

Alternative Tenure Calculations

In Dr SaaS we use a third option which gives values somewhere between these two extremes when the churn rate is less than 2%, but lower values when the churn rate is higher.

Tenure = ln(0.5) / ln(1 – Churn)

While this looks complicated, it’s just using the churn rate to work out how many months it takes before half of the new customers in a given cohort have cancelled.

Consider the example above, where tenure is estimated to be 29 months (compared to 42 months for the simple formula):

Month 0: We start with 500 subscribers
Month 1: 500 * 2.4% = 12 cancellations, leaving 488 subscribers
Month 2: 488 * 2.4% = 12 cancellations, leaving 476 subscribers
Month 3: 476 * 2.4% = 11 cancellations, leaving 465 subscribers
Month 4: 465 * 2.4% = 11 cancellations, leaving 454 subscribers

Month 28: 259 * 2.4% = 6 cancellations, leaving 253 subscribers
Month 29: 253 * 2.4% = 6 cancellations, leaving 247 subscribers

At this point, 50% of our original 500 subscribers remain, so we take this as our average tenure.

You can see how this looks on the graph:

Alternative Tenure Calculations

If you want to try this out with your own subscriber numbers, check out Dr SaaS:

http://drsaas.md

What do you think?

How are you currently calculating tenure? How does it change your results if you use this formula instead?

We’re interested to hear any suggestions.