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A few days ago, I sat down with Quentin Hardy of The New York Times to talk Open Source. We spoke mostly about the Drupal ecosystem and how Acquia makes money. As someone who spent almost his entire career in Open Source, I'm a firm believer in the fact that you can build a high-growth, high-margin business and help the community flourish. It's not an either-or proposition, and Acquia and Drupal are proof of that.
Rather than an utopian alternate reality as Quentin outlines, I believe Open Source is both a better way to build software, and a good foundation for an ecosystem of for-profit companies. Open Source software itself is very successful, and is capable of running some of the most complex enterprise systems. But failure to commercialize Open Source doesn't necessarily make it bad.
I mentioned to Quentin that I thought Open Source was Darwinian; a proprietary software company can't afford to experiment with creating 10 different implementations of an online photo album, only to pick the best one. In Open Source we can, and do. We often have competing implementations and eventually the best implementation(s) will win. One could say that Open Source is a more "wasteful" way of software development. In a pure capitalist read of On the Origin of Species, there is only one winner, but business and Darwin's theory itself is far more complex. Beyond "only the strongest survive", Darwin tells a story of interconnectedness, or the way an ecosystem can dictate how an entire species chooses to adapt.
While it's true that the Open Source "business model" has produced few large businesses (Red Hat being one notable example), we're also evolving the different Open Source business models. In the case of Acquia, we're selling a number of "as-a-service" products for Drupal, which is vastly different than just selling support like the first generation of Open Source companies did.
As a private company, Acquia doesn't disclose financial information, but I can say that we've been very busy operating a high-growth business. Acquia is North America's fastest growing private company on the Deloitte Fast 500 list. Our Q1 2014 bookings increased 55 percent year-over-year, and the majority of that is recurring subscription revenue. We've experienced 21 consecutive quarters of revenue growth, with no signs of slowing down. Acquia's business model has been both disruptive and transformative in our industry. Other Open Source companies like Hortonworks, Cloudera and MongoDB seem to be building thriving businesses too.
Society is undergoing tremendous change right now -- the sharing and collaboration practices of the internet are extending to transportation (Uber), hotels (Airbnb), financing (Kickstarter, LendingClub) and music services (Spotify). The rise of the collaborative economy, of which the Open Source community is a part of, should be a powerful message for the business community. It is the established, proprietary vendors whose business models are at risk, and not the other way around.
Hundreds of other companies, including several venture backed startups, have been born out of the Drupal community. Like Acquia, they have grown their businesses while supporting the ecosystem from which they came. That is more than a feel-good story, it's just good business.
We’re excited to announce that Acquia acquired TruCentric, a software-as-a-service company that is focused on providing personalization for websites. Earlier this year we launched Acquia Lift, which brings testing and personalization capabilities to Drupal sites. With TruCentric, we acquired not only a great complementary product that we will integrate with Acquia Lift, we also gained a great team with a long history and strong leadership in marketing automation technologies.
TruCentric uses real-time and historical data to build a deep understanding of both anonymous and authenticated visitors. Every action that a visitor takes and every piece content that they look at continuously updates this profile. TruCentric can infer a visitor's persona, interests, preferred content, and level of engagement as well as site-specific characteristics such as favorite team (for example on a sports destination), favorite products (such as on an e-commerce site), or favorite activities (for example on a travel site). This data can be married with existing customer and audience data, and tied together across multiple online destinations. Profiles can also be connected together across the different devices that a visitor uses.
Paired together with Acquia Lift, the joint solution will provide a powerful level of understanding about a website's visitors resulting in much more effective testing and targeting. Additionally, the solution will incorporate TruCentric's content recommendation and marketing offer capabilities. Content recommendations suggest and promote links to content that are most likely to interest a user, increasing engagement and time on site. Marketing offers enable the most relevant promotions, sign-ups and other types of calls-to-action to be selectively shown to site visitors, increasing conversions. Both offers and recommendations can be easily configured by site builders or marketers by selecting from a variety of rules, algorithms and filtering criteria.
Longer term, I'm particularly excited about the impact of Acquia Lift (with TruCentric) on e-commerce. Many brands and corporations today offer fragmented and poorly integrated shopping experiences that confuse the customer, are difficult to manage, and ultimately, leave money on the table. Top e-commerce brands have proven that content-rich product stories with the deep personalization and seamless e-commerce integration increase conversion rates significantly. We believe that building a software platform that uses the world’s best personalization practices in combination with the best possible content management capabilities presents us with a really big opportunity.
We've got great news to share today; we are announcing that Acquia raised $50 million, the largest round of financing we’ve ever completed.
The round is led by New Enterprise Associates (NEA), one of the world's top investors in our space. They have made various great investments in Open Source (MongoDB, Mulesoft, etc.) as well as SaaS companies (SalesForce, Workday, Box, etc.).
With the new funding, we can continue to go after our vision to help many more organizations with their digital platform and digital business transformation. In addition, Acquia is charting new territory in the world of software with a very unique business model, one that is rooted in Open Source and that helps us build a web that supports openness, innovation and freedom.
We have such a big and exciting opportunity ahead of us. This vision will not come to life on its own and the proprietary competitors are not resting on their laurels. We'll use the funding to double down on all aspects of our company; from increasing our investment in products to deeper investments in sales and marketing.
In addition to lead investor NEA, other investors include Split Rock Partners, and existing investors North Bridge Venture Partners, Sigma Partners, Investor Growth Capital, Tenaya Capital, and Accolade Partners. The new funding will bring Acquia’s total fund-raising to $118.6 million.
Of course, none of this success would be possible without the support of our customers, the Acquia team, our partners, the Drupal community and our many friends. Thanks so much for supporting Acquia!
I've long been convinced that every well-run Drupal agency of 30 people or more can afford to hire a Drupal core contributor and let him/her work on Drupal core pretty much full-time. A healthy Drupal agency with 30 people should be able to do $5MM in revenue at a 15% net profit margin #1. This means they have $750k in profits that can be invested in growth, saved as reserves, or distributed among the owners.
There are many ways you can invest in growth. I'm here to argue that hiring a Drupal core contributor can be a great investment, that many Drupal agencies can afford it, and that employing a Drupal core contributor shouldn't just be looked at as a cost.
In fact, Chapter Three just announced that they hired Alex Pott, a Drupal 8 core maintainer, to work full-time on Drupal core. I couldn't be more thrilled. Great for Alex, great for Drupal, and great for Chapter Three! And a good reason to actually write down some of my thoughts.
The value of having a Drupal core contributor on staff
When Drupal 8 launches it will bring with it many big changes. Having someone within your company with first-hand knowledge of these changes is invaluable on a number of fronts. He or she can help train or support your technical staff on the changes coming down the pipe, can help your sales team answer customer questions, and can help your marketing team with blog posts and presentations to establish you as a thought-leader on Drupal. I believe these things take less than 20% of a Drupal core contributor's time, which leaves more than 80% of time to contribute to Drupal.
But perhaps most importantly, it is a crucial contribution that helps ensure the future of the Drupal project itself and help us all avoid falling into the tragedy of the commons. While some core contributors have some amount of funding — ranging from 10% time from their employers to full-time employment (for example, most of Acquia's Office of the CTO are full-time core contributors) — most core contribution happens thanks to great personal sacrifice of the individuals involved. As the complexity and adoption of Drupal grows, there is a growing need for full-time Drupal contributors. Additionally, distributing employment of core contributors across multiple Drupal organizations can be healthy for Drupal; it ensures institutional independence, diversified innovation and resilience.
Measuring the impact of a Drupal core contributor on your business
While that sounds nice, the proof is in the numbers. So when I heard about Chapter Three hiring Alex Pott, I immediately called Chapter Three to congratulate them, but I also asked them to track Alex's impact on Chapter Three in terms of sales. If we can actually prove that hiring a Drupal core contributor is a great business investment, it could provide a really important breakthrough in making Drupal core development scalable.
I asked my team at Acquia to start tracking the impact of the Drupal core contributors on sales. Below, I'll share some data of how Acquia tracked this and why I'm bullish on there being a business case.
For Acquia, high quality content is the number one way to generate new sales leads. Marketers know that the key to doing online business is to become publishers. It is something that Acquia's Drupal developers all help with; developers putting out great content can turn your website into a magnet. And with the help of a well-oiled sales and marketing organization, you can turn visitors into customers.
Back in December, Angie "webchick" Byron did a Drupal 8 preview webinar for Acquia. The webinar attracted over 1,000+ attendees. We were able to track that this single piece of content generated $4.5MM in influenced pipeline #2, of which we've managed to close $1.5MM in business so far.
Even more impressive, Kevin O'Leary has done four webinars on Drupal's newest authoring experience improvements. In total, Kevin's webinars helped generate $9MM in influenced pipeline of which almost $4MM closed. And importantly, Kevin had not worked on Drupal prior to joining Acquia! It goes to show that you don't necessarily have to hire from the community; existing employees can be made core contributors and add value to the company.
Gábor Hojtsy regularly spends some of his time on sales calls and helped close several $500k+ deals. Moshe Weitzman occasionally travels to customers and helped renew several large deals. Moshe also wrote a blog post around Drupal 8's improved upgrade process using Migrate module. We aren't able to track all the details yet (working on it), but I'm sure some of the more than 3,200 unique viewers translated in to sales for us.
Conclusion: investment returned, and then some
Obviously, your results may vary. Acquia has an amazing sales and marketing engine behind these core contributor, driving the results. I hope Chapter Three tracks the impact of hiring Alex Pott and that they share the results publicly so we can continue to build the business case for employing full-time Drupal contributors. If we can show that is not just good for Drupal, but also good for business, we can scale Drupal development to new highs. I hope more Drupal companies will start to think this way.
#1 I assumed that of the 30 people, 25 are billable and 5 are non-billable. I also assumed an average fully-loaded cost per employee of $125k per head and gross revenue per head of around $180k. The basic math works out as follows: (25 employees x $180k) - (30 employees x $125k) = $750k in profit.
There are 365 days per year and about 104 weekend days. This means there are 260 business days. If you subtract 10 legal bank holidays you have 250 days remaining. If you subtract another 15 business days for vacations, conferences, medical leave and others, you have 230 business days left. With a blended hourly rate of $130 per hour and 75% utilization, you arrive at ~$180k gross revenue per billable head.
I confirmed these numbers with several Drupal companies in the US. Best in class digital agencies actually do better; they assume there are 2,000 billable hours in a year per head and maintain at least a 85% chargeability rate (i.e. 1,700 billable hours per head). Many companies do less because the maturity of their business, the market they are in, their geographic location, their ambitions, etc. It's not about what is "good" or "bad", but about what is possible.
#2 "Influenced pipeline" means that the content in question was one factor or touch point in what ultimately lead potential customers to become qualified sales leads and contacted by Acquia. On average, Acquia has 6 touch points for every qualified sales lead.
In a world where innovation is only accelerating, shackling employees with non-competes doesn't make sense anymore. At Acquia, we believe that innovation is about openness and collaboration, and that working together is based on trust and loyalty, something that was born out of our Open Source background. It's been a long time coming but we decided to kill our non-competes. It is the right thing to do. Here is what we just sent to all Acquia employees:
From: Tom Erickson <firstname.lastname@example.org> To: Everybody at Acquia Date: Friday, May 2, 2014 Acquians, We have an amazing team, it's the thing I am personally proudest about. When asked by others what's the best thing about our company, I don't hesitate to answer "our team". There are many things to value in each of you, from your commitment, your integrity and certainly your passion! The goal that Dries and I have always set was to have a company where everyone is challenged, has the opportunity to grow and has some fun along the way. Most of the time we're successful at that as a company, though sometimes we fail. Yet even when we fail, we want everyone to continue to do the right thing and sustain mutual respect. To this end, the exec team has decided to eliminate non-competes from our employment agreements. We believe its the right thing for our team members, for the company and for the industry. There are many reasons why companies have used non-competes in the past, but we believe that times have changed and individuals today value the companies who value them. This may seem contradictory .. "value me, but let me go to a competitor" .. but we believe that a company who respects our team members in this way will actually be a better magnet for talent. While we are getting rid of non-competes, we are not eliminating other terms, notably the non-disclosure. So while we do not want to restrict free movement of talent, it's important that company confidential information remains just that, confidential. We do not plan to change existing employment agreements, as that would be an administrative burden, and we have many other issues to deal with. This email should suffice as an assurance that existing non competes below the executive leadership level will not be enforced. All new hires, with certain exceptions at the executive level, will not have non-competes. Viva Acquia! Tom
Background in business is a 'nice to have', not a 'must have' for an aspiring entrepreneur. I had no solid business background when I founded Mollom or Acquia (I launched them roughly at the same time).
Other than the standard things (an idea, passion and the willingness to act), the most important thing that aspiring entrepreneurs need is the understanding that 80% of entrepreneurship is sales and marketing. If as a founder, you're not obsessed with sales and marketing, you're a liability rather than an asset.
You don't have to be the best sales and marketing guy (I am far from that), but you better enjoy getting other people excited about your project, company or product. It will help you not only with finding customers, but also with recruiting a world-class team, raising venture capital, and more. So if there is one thing you should learn before starting a company, it is "sales and marketing" (in the broad sense) — and you better be passionate about it, because you'll invest years of your life to selling and evangelizing to make your company a success. Without customers or a team, you won't need any other skills, because you'll be out of business.
You need to be talking about your idea all the time. Too many entrepreneurs believe that if they build a killer product, customers will come. It almost never works like that. Smart entrepreneurs do it backwards; they find customers first and build their product only when they have customers ready to start paying. Not testing the market by selling from day one can lead to months, if not years, of wasted time and money. So stop being so secretive about your idea. You will never find your product-market fit by keeping your idea secret until it is perfect. If you're afraid of people telling you that your idea is stupid, chances are you may not be ready to be an entrepreneur.
This blog post is on purpose, Open Source, profit and pie. This week I had an opportunity to meet Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum. I was inspired by the following comment he made (not his exact words):
"Because companies strive to have a positive balance sheet, they take more in, than they give out. However, as individuals, we define success as giving more than you take. Given that many of us are leaders as individuals *and* also leaders in our businesses, we often wrestle with these opposing forces. Therein lies the leadership challenge."
I’ve seen many Open Source developers struggle with this as they are inherently wired to give back more than they take. Open Source developers often distrust businesses, sometimes including their own employer, because they take more than they give back. They believe businesses just act out of greed and self-interest.
This kind of corporate distrust comes from the “fixed-pie concept"; that there is only so much work or resources to go around, and as pieces of the pie are taken by some, there is less left for everyone else. The reality is that businesses are often focused on expanding the pie. As the pie grows, there is more for everyone. It is those who believe in the "expanding-pie concept" who can balance the opposing forces. It is those who believe in the "fixed-pie concept" who worry about their own self-interests and distrust businesses.
Imagine a business that is born out of a desire to improve the world, that delivers real value to everyone it touches. A business that makes employees proud and where team members are passionate and committed. A business that aspires to do more than just turn a profit. A business that wants to help fuel a force of good. That is Acquia for me. That should be your employer for you (whoever your employer is).
The myth that profit maximization is the sole purpose of business is outdated, yet so many people seem to hold on to it. I started Acquia because I believed in the potential and transformative nature of Drupal and Open Source. The purpose of business is to improve our lives and create value for all stakeholders.
Acquia's growth and capital position has given me power and responsibility. Power and responsibility that has enabled me to give back more and grow the pie. I have seen the power that businesses have to improve the world by accelerating the power of good, even if they have to take more than they give. It's a story worth telling because business is not a zero-sum game with one winner. I believe Open Source companies are in a prime position to balance the opposing forces. We can do well and do good.