In Praise Of UnSexy Businesses

Posted on July 1, 2012
Filed Under Business, Crowd Stupidity |

There is money in unsexy. Really, there is. You wouldn’t know it from the hype. If you read tech blogs you might think the only things that get funded are new mobile social viral apps that let you find new music or new restaurants. But one of the things that is eye opening about becoming a venture backed CEO, about getting on the inside of the companies that get venture funding and meeting other CEOs of venture backed companies, is understanding the difference between what really happens in VC backed startups compared to the inaccurate-consumer-focused-hype-driven world of startups presented by tech blogs.

Backupify is a perfect example. Backing up SaaS applications like Google Apps and Salesforce isn’t the most sexy business in the world. When I explain it to most people, their eyes glaze over. Unless of course they are I.T. managers at large companies, in which case, the idea of moving to the cloud and still maintaining their own backups is pretty damn sexy.

When we used to pitch for funding back in the early days, 2009 and 2010, I always felt like we were less interesting than all the cool hip companies that would also pitch at the same events. But over time many, if not most, of those companies, have gone away, while we have raised $10.5M, grown to millions of dollars in revenue, 30+ employees, and a marquee customer list.

There is sizzle and there is steak, and in the early days of a company you have to sell the sizzle. But once you get revenue, you can sell the steak. And the steak can be a powerful attractant. Every six months I go around and update a dozen VC firms on our progress, whether we are raising money or not, and as unsexy as our business is, I still get a really good response because it turns out that backup has some really good economics.

For one thing, customers rarely leave. If you choose a backup provider, you stay with them a long time. It’s a pain to switch, and the provider has all your data and you don’t want to risk losing something in a switch, and it’s really cheap - usually costing less than 1% of the value of the data created to protect that data. And like most backup businesses, our customers don’t login and use us every day, in fact, only a few percent actually lose data and need the service in any given year. But at those moments they need us, the ROI on our service is in the hundreds or thousands of percent. When you translate this to economic terms, it means that for a SaaS company, we have very very very low churn rates. We have churn rates that, at multiple VC meetings, elicited a verbal “WOW” from VCs.

My two former attempts at web companies were both sexy. They were focused on the cool trends at the time, and they both failed. Backupify is not very sexy. But I’ve come to realize that unsexy can make money. Unsexy can actually make a lot more money than most sexy businesses. Unsexy doesn’t attract dozens of competitors, so as a result, we play in a market that really only has 3 players, and if this market turns out to be as big as I believe it will be, all 3 of us are going to do really really well.

So, beware of what you read. The companies that appear to be successful aren’t always the ones that really do well over the long term. If you are thinking about a startup, be careful of the allure of sexy. Unsexy can be very lucrative, and at the end of the day, the steak matters more than the sizzle. Don’t be afraid to be a little unsexy.

Comments

2 Responses to “In Praise Of UnSexy Businesses”

  1. Will E. on July 1st, 2012 12:26 am

    Rob, I completely agree with this post. Personally, I’m proud to work on software that helps real SMBs do better, even if it isn’t in a “sexy” space like social or photos.

  2. Brendan Schwartz on July 5th, 2012 7:12 pm

    Great post. I think there’s also something to be said for un-sexy businesses that have fun with what they’re doing and aren’t afraid to show some personality in their marketing. I think Mailchimp’s a great example of this. Email service providers are generally far from sexy, but Mailchimp infuses a ton of energy into an otherwise boring space.

  • About Rob

    Rob is co-founder of Backupify.com. He likes value investing, the Rolling Stones, college basketball, artificial intelligence, economic history and people who think independently.