Getting word out, scale are obstacles for software startup
A couple years ago, while working for a large engineering consulting firm, Kristen Carney was hired to complete what she thought was a straightforward analysis: directly connect two roads that were currently joined by an intermediary road. More than 100 hours later and thousands of dollars over budget, a frustrated Carney felt there had to be an easier solution.
The Austin, Texas entrepreneur complained about her ordeal to friend and software whiz Anthony Morales, who offered to design a program that could drastically reduce the time it took her to gather and format her data. Morales’s software worked so well, they founded Cubit Planning, a Web-based platform that provides cut-and-paste ready environmental data.
“A lot of people say, ‘Hey, you’ve lived my nightmare,'” said Carney, who launched Cubit last year with just $2,000. She said their open-source technology operates in similar fashion to that used by stock websites. “They go out and they grab information from a bunch of different resources and they compile it nicely for you, so you can make a decision based on that data. That’s what we do, but for environmental engineers.”
Originally Carney charged $199 for each report, but just recently introduced a monthly subscription-based model, which ranges from $499 for five reports to $999 for up to 25 reports. The one-off cost has increased to $250 and Carney also said they will deal directly with each individual subscriber to work out a price for unlimited reports.
Carney said her biggest challenge is to bang the drum on Cubit’s new technology and get it in front of the environmental engineers, policy makers and college students that comprise her target audience. “This is an older industry, it’s a stodgier industry and it’s going to take some time to talk to people and build those relationships.”
Carney admitted business has been slow as the recession has led to fewer infrastructure projects being built, but she believes when the economy picks up again Cubit will be well-positioned to take advantage.
“The short term is very negative for our outlook,” said Carney, who pointed out that in 2008 there were 66,000 National Environmental Policy Act (NEPA) reports commissioned, adding the Obama Administration has pledged $1.5 billion in grants for new federal infrastructure projects. “When the money starts to shake loose, there could be a huge demand for this kind of time-saving product that we’re offering for engineering firms.”
TAKING IT TO THE EXPERTS
Jeff Bussgang, a general partner with early-stage Boston venture capital firm Flybridge Capital Partners, was impressed by Carney’s ability to put herself in the customer’s shoes in creating her service-oriented business. “Kristen clearly ‘gets it,'” said Bussgang, who acknowledged that too often entrepreneurs are too “theoretical” when it comes to meeting the needs of their customers.
Bussgang also liked that Carney had moved to a subscription-based model, which “are wonderful once they achieve some scale, as you can predictably count on year-over-year growth so long as you retain your customer base.” He added that another plus about subscription businesses is that “the customers pay you up front, so you can have the business customer-financed rather than investor-financed – the best solution for everyone.”
He did predict it was going to be a “tough obstacle” for Carney to get the word out and to succeed she needs to develop “strong inbound marketing techniques as well as word-of-mouth referral incentives, so that her happy customers end up being her best salespeople.”
Bussgang estimated a total available revenue market for Cubit of $66 million – based on Carney’s figures of 66,000 NEPA annual reports and Bussgang’s predicted average sale price of $1,000 per customer – which he said was “a nice market to build a solid, profitable business in, but only if it’s capitalized very efficiently, ideally with less than $1 million in total capital raised.”
Jeff Fagnan, an early-stage technology company investor at Atlas Venture, agreed with Bussgang that Carney could have a nice niche business with annual revenues of between $5-10 million, but it would be tough to scale beyond that, unless Cubit offered additional products.
“I think what becomes hard is to charge people significant money for publicly available data,” said Fagnan, who added Cubit needs to offer its target audience of environmental engineers something more than time savings in order to achieve a broader appeal. “I think it’s a community that is very hard to change behavior – just like software developers – and I think that time savings itself is not going to be enough of a value proposition for mass adoption and keeping price points up there.”
Fagnan said instead of a free trial, Carney should instead offer a basic package completely free and try to get users “addicted” so she can “upsell them to other interesting features, functionalities or other pieces of data.”
Fagnan said he would not invest in Cubit as is, because it doesn’t fit the bill for what he looks for from a data-services business: “Widespread adoption where you have lots of people paying a little bit, or something that’s so valuable that you’re delivering it to a small audience, but you’re able to charge them a lot of money for. This doesn’t fall within either one of those categories.”
Peter Adriaens, an environmental engineering professor at the University of Michigan, said Carney should tap her audience of environmental engineers to help her pinpoint Cubit’s real value to customers.
To do this, Adriaens suggested Carney seek feedback from “strategic clients from a core market” to determine what specific value proposition drives their pricing model. “Time, user interface, or middleman cost?,” queried Adriaens, who noted the subscription service allows Cubit to compete with the long-term contracts clients sign with engineering services firms such as Sigma Engineering and EDM.
“The advantage for Cubit is a rich library and customer feedback that will allow them to tease out a target segment that values the service Cubit brings, and will provide insights in the value of the service and tools.”
Adriaens said Cubit is part of a crowded field of niche competitors, all accessing widely-available Geographic Information Systems (GIS) data and open-source technology, and Cubit’s challenge will be to “gain visibility and rise above the noise.”