In collaboration with Endeavor Global and Stanford University, the World Economic Forum recently released a new report, “Global Entrepreneurship and Successful Growth Strategies of Early-Stage Companies.” Click here to learn more.
The report, which demonstrates the importance of High-Impact Entrepreneurship in driving economies forward, includes interviews and insights from eight Endeavor Entrepreneur companies: DocSolutions, Globant, MercadoLibre, Petfor, Pharmacy 1, Refinancia, Technisys, and Yola.
In this special series on Endeavor’s blog, we are reprinting the published interviews with each Endeavor firm. Below is the section on Yola.
Yola (initially SynthaSite) was formed in Cape Town, South Africa, in March 2007 to provide website creation tools. A key early market was the many small-to-medium-sized companies that all needed to have company websites. Since its launch, Yola has grown to over five million users by 2010. Its goal is to be the pre-eminent place on the web where anyone can go to create their own websites.
Vinny Lingham is a serial entrepreneur who grew up in a small town in South Africa. In 2003, he founded and was chief executive officer of incuBeta, an investment house that focused on the ownership and management of online marketing companies, and Clicks2Customers, a subsidiary of incuBeta, which provides performance-based search marketing solutions. In 2007, he founded Yola Inc., a South Africa- and San Francisco- based company. He is a co-founder of the Silicon Cape Initiative, which is a NGO that promotes the development of Cape Town as a technology hub. He studied information systems at the University of Cape Town, received an Endeavor High Impact Entrepreneur award in 2006, and became a World Economic Forum Young Global Leader in 2009.
What was the source of the initial idea, and how did that idea evolve into a viable high growth business venture? How did it change over time?
Lingham: “The initial source of the idea to build Yola was that it was clear that applications were moving to the web and that the transition from desktop applications to web applications represented a paradigm shift and an opportunity to disrupt. We looked at where we thought the big growth opportunities were as well as the existing products in those areas. The traditional Office suite of products – Word, Excel, PowerPoint, FrontPage – represented the largest chunk of small business software sales. Within this space, Google had just acquired Writely and were building out Google Spreadsheets. There were other players getting into the online presentation space. We felt the biggest opportunity was in the website creation space. A leading product (FrontPage) was not very functional. There was a true disconnect between the function FrontPage performed – creating websites and connecting to online services – and the reality of it being a desktop-based, isolated and siloed product. We believed that there was a better way to help people get a presence online. We also believed that many small- to medium-sized businesses often lacked the capital to pay an external company to create their own website. A company that provided them with a kit of tools to create their own website had a potentially large market opportunity. The increasing shift of software products to being on the web, as opposed to a CD, created a stimulus to us building our own product. In 2006, we started the development within incuBator, which I had co-founded earlier. I then bought the technology and intellectual capital from that company, and in March 2007 created a new company – initially called SynthaSite, and later, in April 2009, it became Yola. I decided that incuBator was stable and it was time for me to pursue my dream of building a company that had both a South African and a Silicon Valley aspect. We would do the back-end operations and services in Cape Town and do the front-end user facing applications in Silicon Valley.”
What was the initial growth vision or aspiration of the founding team? Was there a sizeable change in this growth vision or aspiration over time? If a change, please describe.
Lingham: “The initial vision for the founding team was to create a website building platform that would allow users to consume third-party web services without the constant need for hand coded integration. It should all be visual, drag and drop and in the browser. We believed that we could reach tens of millions of users and make their web creation experience seamless and powerful.
“The vision has not changed. We have however, focused on shorter-term metrics, such as making the core product more usable and functional before tackling the broader, big vision product requirements. While it’s great building amazing technology, it doesn’t help if your core product is very hard to use. We wanted to be mainstream rather than appeal to just the 5% to 10% of users that are technically savvy and smart. We wanted to solve the usability problem first and later add complexity, if that made sense from a market perspective.
“In short, we have had a very linear path, vis-à-vis our original business plan. The one thing that we shifted in our priorities was the greater emphasis on usability. We are also a little less grandiose in our aspirations. At one stage, we said we wanted to be the Home Depot of the web – a one- stop shop for website development. We are more modest than that now.”
Describe the strategy or business model that enabled your company to achieve its high rate of growth.
Lingham: “In less than three years since launching our beta version, we’ve grown to five million users worldwide. The marketing strategy has been to focus on search engine marketing. There are millions of people searching each month for our product category (web site creation tools). So far, this has been the low hanging fruit for us. By ensuring high visibility in the search engines through a process of both paid search marketing and natural search engine optimization, we have captured a large part of a fast-growing market.
“We have used the so-called ‘freemium’ business model – we offer a basic free product, but charge for upgrades and extras. A challenge with this model is the mix between free and charged products and services. Initially, I think we erred too much on the side of free. When you give your core functionality away free, the number of people who are willing to pay to upgrade is relatively small. You have to limit the core features you provide for free. The aim should be to introduce the product to the user for free, have them get comfortable using it for free, and then to start charging for it as they become active users. Giving away unlimited functionality means you do not get to capture the value you create for your users. Going forward, we will aim to charge for some core features. One help here is that there is a switching cost for users after they have gone down the learning curve with your product. We have some customers who have been using our products for three years and are only just upgrading to our premium products now. That is one reason our five million user base is such an asset, as they are all potential customers at some stage, who are down the learning curve with Yola. One benefit of our large user base is that we are minimally-affected by a small number of our users going out of business, which inevitably some do. Another benefit of the huge user base is that even those who don’t purchase can become great advocates of the product and help increase the word-of-mouth marketing around our product.”
What were the major growth accelerators for your company in its high-growth years?
Lingham: “Gaining important distribution deals via partnerships with one or more of the PC manufacturers certainly would be major growth accelerator and one we are committed to achieving. We believe Yola has much to offer in such a partnership over and above a very well received product. Yola can offer a large PC manufacturer or other large partners agility – we can customize our products for our larger partners in the shortest possible time. Yola can turn its whole organization around to make sure we deliver what the partner needs. The partner is core to our revenue stream. You have to walk a fine line here. You do not want to turn your business model upside down to satisfy a large potential customer.
“My past experience with start-ups and their early growth challenges meant I had a road map of some key likely challenges. That was very useful. Putting people in the right places is a key growth accelerator in start-ups. In my prior companies, I erred too much on the side of not giving people enough room to use their own judgment. In the early years of Yola, however, I probably over-compensated and gave people too much discretion. Now I am trying to strike the right balance between stepping back and still monitoring what is going on. The CEO has to be a key guardian of the vision, but you cannot be the only one working on its execution.”
Briefly describe the financing of your company and how this financing impacted the growth of your company.
Lingham: “We had an initial challenge. The few South African venture capitalists did not buy into our business concept. The US venture capitalists were not interested in investing in a South Africa-based company. We initially had Angel funding of only US$ 500,000 – this resulted in a low burn, low staff count, and very focused product development. I planned on it taking three to four months to raise significant financing. It took closer to nine months. Luckily, I had money and I also sold some shares in other companies to keep Yola afloat. Our main investor has been the Swiss-based Richemont Group run by Johann Rupert, a leading South African industrialist.
“We used Series A and Series B money to build growth. With the Series A (2007) funding of US$ 5 million – proof of concept delivered, scaling up customer acquisition and adoption and building a large core team. With the Series B (2009) funding of US$ 20 million – rapidly scaling up the platform to deal with increased customer acquisition forecasts. Focus on internationalization and creating core functional units within the company to deal with product, marketing, customer support and engineering.
“In 1996, I was privileged to become an Endeavor company and Endeavor entrepreneur. Endeavor helps early stage companies in multiple ways, one of which was linking us up with a Harvard Business School student (Brian Elliot) who helped write our business plan and helped with the post-funding business plan.”
What were the major challenges your company had to handle in its high-growth years, and how were they managed?
Lingham: “Major challenges faced were largely linked to building out offices in two countries – Cape Town, South Africa and San Francisco, US. Two issues dealt with time zone issues, and cross-functional reporting.
“We deal with the time zone issues by using online collaboration tools such as Jira, Skype and Google Docs. We also created application ownership areas, which were geographically located to ensure that there were minimal interdependencies between the two offices.
“Hiring the right people as we ramped up from 20 people to 70 people was a big issue for the company. We are hiring in both South Africa and Silicon Valley. We have a lot of our back office in Cape Town. Both our call centre and customer support are run there. One challenge there is the lack of depth in the South African labour market. In Silicon Valley, a high flyer can grow by hundreds of people every three months and still keep hiring quality people. In Cape Town, it is not yet possible to scale that quickly. A challenge in recent years in Silicon Valley is the tremendous number of quality companies hiring. We have been recruiting in a Twitter/Zynga/Facebook hiring festival. Notwithstanding that, we have kept to high standards. It’s better not to hire than to hire the wrong person. We have also become far less tolerant with non-performers – opting to remove them sooner rather than later from the organization. This is essential in a start-up. Feeling sorry for people and giving them multiple chances does not cut it in this business.”
Give examples of dark moments or negative periods that your company or you faced as part of your journey as an executive with this company.
Lingham: “From 2007 to 2008, we had just a free offering. Then in 2008, we switched to the ‘freemium’ model. My darkest moment was associated with this switch from a free product to a freemium product. We always knew that we had to start charging for upgrades. However, in our initial budgets we expected a much higher conversion and monetization rate. When we first started charging, our conversion rates were dismal and very disappointing for what we believed was a great product. However, we had to believe in our business model, and through that process we continued to iterate and evolve our product offering. Since that first day of launching, our conversion rates have increased over 500% and are much more in line with our expectations. Our beliefs in the business were not unfounded, but our expectations of the effort required to get it there were simply unrealistic, given the timeframes.”
What are the key lessons about entrepreneurship and successful growth strategies you take from your company experience?
Lingham: “Key lessons:
1. Trust your gut, as an entrepreneur-although sometimes you will be wrong.
2. Don’t be afraid of taking risks-that’s why you’re not working in a corporation.
3. Follow the money-find where customers are looking for you and go to them.
4. Always raise more money than you think you need-you will need it.
5. Hire the right person fast-but fire them faster if they’re not what you expected.