How do you replicate the success of your last business, while learning from its mistakes?
November 7, 2014
BoostSuite Reboots for $1B Opportunity
iContact founder and now BoostSuite CEO Aaron Houghton shares lessons he's learning building and pivoting his newest startup.
This is the everyday challenge at BoostSuite, the company Aaron Houghton started after selling iContact for $169 million in 2012. After raising more than $50 million in venture capital and spending up to $2 million a month when advertising was cheap on AdWords and DoubleClick, iContact became known as a top 10 B2B advertiser in the world.
The strategy helped it win more than a million users to its email marketing platform in the late 2000s, converting more than 20 percent into paying customers. But by 2011, competitors created newer, more cash efficient models and a majority of iContact’s customers went away. Houghton called it “a race to the bottom.”
He’s gotten more conservative since then. BoostSuite still has an aggressive recruitment strategy—it already has an impressive 20,000 small business users—but spends a heck of a lot less money to acquire them. The team is lean, at five people. And the company is still funded out of Houghton’s own pocket.
Houghton believes he’s on to a $1 billion opportunity to help the smallest of companies better market and grow their businesses.
But there are some things he admits he hasn’t quite figured out.
Today’s customers are less likely to convert from free to paying, and they don’t stay as long. Those observations are fueling BoostSuite’s fourth pivot in two years.
“I blame the challenges of the business on me and our software, because we’re not connecting people as effectively as we could be,” he says.
Before we dive into the solution BoostSuite is unveiling over the coming weeks, let’s take a look at the big vision for the company, the technology behind it, and the value it offers to users.
BoostSuite makes it easy for mom and pop businesses—those typically with three employees or fewer and no full-time marketing person—to create and share content with each other and form partnerships to help market their businesses.
The model is an evolution of an original concept behind BoostSuite, to help small businesses optimize their sites to get better results on Google and other search engines.
But content marketing, says BoostSuite advisor, SimpleRelevance CEO and former iContact executive Erik Severinghaus, “is increasingly becoming important and influential for businesses of all sizes.” BoostSuite needed to evolve from being an algorithm to optimize a site for SEO to a content network for those sites (which ultimately helps SEO).
Here’s an example of how it works today. BoostSuite recently connected an organic skincare retailer with a retailer that sells Native American tea—the tea may soon be used in the skincare company’s lotions and creams.
Other companies might trade advertising space on each other’s websites, or articles written by the founders about a topic relevant to the other’s customers. It would typically require countless hours of research and meetings for these businesses to find the connections BoostSuite makes automatically.
On the back end, BoostSuite uses a company’s URL to collect and analyze more than 150,000 data points from its website—everything from native visitor data (who looked at what, what they liked and what else they searched for) to the subject matter of every piece of content on that site.
The software uses machine learning to automatically make connections for users based on matches found within the data. It also optimizes any content shared for search engines, allowing many customers to abandon their AdWords strategy. BoostSuite has 315 million pieces of data in its database today, Houghton says.
Most BoostSuite users use the tool weekly after they’re notified of opportunities through email. They typically trade one or two pieces of content per month. But the most successful have built 15 to 20 partnerships.
Says Severinghaus: “Aaron is a master at identifying the pain points that small businesses have, and then understands how to acquire those customers and connect to them.”
But Houghton admits the team has been conservative in making connections between businesses. Those made to date, he calls “rock solid,” but he recognizes that some users want to be more creative in how they connect. They’d use the software more often if they had more flexibility. Severinghaus believes BoostSuite can deliver those users a “Eureka moment” where it’s incredibly easy to see and implement partnerships and marketing opportunities.
For the last few months, that’s meant an intense focus on retooling the product so that users get many more connections. There’s a new user interface that allows them to filter, sort and look for businesses nearby geographically or in a certain industry sector or which have had partnerships with companies similar to them. Some under-used functionality will be removed.
Soon, there will be new pricing.
That’s perhaps the greatest challenge—BoostSuite has to make money but also drive rapid adoption. Houghton admits the existing premium plans didn’t make sense for most users because pricing was based on visitors to their sites, something they can’t really control. He borrowed that strategy from his email marketing background, and it didn’t work.
Houghton is a little vague about the new prices, but says they will be tied to the impact that BoostSuite has for its customers, and their overall success. And it will be based on what BoostSuite customers—most of which have annual marketing budgets of $3,000 or less—are willing to pay.
“We have to prove ourselves as valuable to them before they pay,” Houghton says. “They need low risk—try before they buy.”
One thing that stays the same is a money-back guarantee for paying customers, an uncommon offering in the software world. Houghton is proud that few have taken advantage of it so far.
Small business remains Houghton’s passion, though his offering this time around is much different than in the past. BoostSuite helps companies acquire new leads—new people or businesses to put on email lists.
His observation at iContact, which focused primarily on retaining customers through email communication, was that most small businesses need an audience before they need a way to communicate with them.
Content marketing is BoostSuite’s key strategy for getting the word out about the product this time around. His team produces content about small business marketing and content marketing to partners like Constant Contact, Hootsuite, Market Me Suite, Desk and Duct Tape Marketing. He says he’s doing manually to market BoostSuite what it does automatically for its customers. Very little money is spent on ads so far.
He’s still measuring his business on a similar metric. Customer acquisition cost vs. lifetime value. So far, his customers spend 3-5x more than marketing dollars spent to acquire them and his goal is 10-20x. iContact started at 8x but fell to 3x by the end of the business.
“That’s still good, but not interesting enough for most entrepreneurs,” he says.
Four pivots might sound like a lot for a two-year-old company, but Severinghaus believes Houghton has done much more right than he’s done wrong. And the 20,000 users, hundreds of whom are paying monthly fees, prove it. This time around, Houghton has the financial resources to figure it out as he goes along.
If he can work out the pricing model, Severinghaus says, “it’s going to be unbelievable to watch the growth rate.”
“The opportunity cost of his time is so tremendous that Aaron doesn’t do anything unless it’s going to be a potential billion dollar outcome,” he says. “And he has a personal passion for it. He loves the story of helping a bed and breakfast in western NC, where he’s from, have a cool product and expose it to the world.”
Investors have been excited about BoostSuite, despite its topsy-turvy start.
Houghton began discussions with outside investors in the spring of 2014, in hopes of raising $500,000. When interest was hot, he raised the target to $1 million and received a term sheet from a large firm in Washington D.C.
But Houghton has a luxury after building one successful company—he can be picky.
He didn’t like the terms, so he turned down the money and decided to use his own capital for the round.
At least 25 people and firms are still keeping tabs on the company, in hopes of getting into a future round. But Houghton sees a fundamental problem with investors—they put too low of valuations on SMB opportunities. It’s a strange phenomenon, he says, considering MailChimp has four million users and HootSuite 12 million.
Though he admittedly “hates investing” (despite having funded the craft beer producer Lonerider and now defunct Argyle Social, and investing with Idea Fund Partners) he sees a huge opportunity for a venture capital fund targeting startups targeting small businesses.
That dovetailed nicely into my last question for Houghton. What is next after BoostSuite?
He’ll definitely consider the creation of a fund in several years. And he’s still interested in marketing automation—his contract with iContact buyer Vocus precludes him from entering that industry for another few years. He likes internet security too (he’s sad to have passed on an early opportunity to invest in Distil Networks).
One thing he knows for sure is that he won’t be running another large company.
If/when BoostSuite reaches 150 workers, don’t expect Houghton to be at its helm.