April 11th, 2007

Hacking cashflow

The last time we talked, it was about the wait list. The feedback was awesome and we thank everyone for hanging around to get their hands on a Slice. The list has continued to grow rather quickly, as I’m sure new customers noticed. We’ve been working for several months to address this delay, with limited success. It’s a moving target, both customers and demand continue to grow. We’ve talked extensively with banks/lenders and due to the nature of this business have run into obstacles. At the same time, we’ve explored venture capital. It’s a long cycle and there are strings attached to VC gold :)

We started brainstorming how to hack our cashflow. We love what we do, we love the community growing around our service and we love helping you solve problems with our platform. The wait list is slowing all of that down.

Ideas bounced around:
  • raising prices – hate it. We feel our prices should be falling, not rising.
  • Slice free market – cool idea that would set an accurate price point. Kind of complex, we want signups and expansion to be simple.
  • lifetime accounts – has some pitfalls, such as upgrading Slices. We might suck in 5 years ;)
  • selling stock to customers – another neat idea, but lots of legal junk involved.
  • setup fees – hell no we won’t go!

One idea with minimal impact to our current scheme: new signups would be billed for 3 months. After that initial period, billing would switch back to monthly. Existing customers would not be affected. In time, the new billing style should help us get ahead of the growing demand curve. We couldn’t have taken this approach last year, given that we were an unknown. Now however, we are proud of our reputation and what our customers say about Slicehost.

We want to solve this problem ASAP. Jason and I have tons of cool stuff planned (new toys later this week), but are increasingly wasting time pursuing financing options. We’d rather be coding.

Current and future customers, please give us your thoughts:
  • Does this plan make sense?
  • Would it turn you off to our service?
  • Other ideas or concerns?

We feel our community is the best asset Slicehost has to offer. Let’s put that brainpower to use and design a plan to fuel its growth.

Posted by matt Filed in business

54 Comments

  1. March 17th, 2008 at 10:00 PM BZ

    Sounds good (as a current customer, doesn’t effect me).

    Maybe better to put the 3 months on the smaller slices ($20) and leave the bigger ones on a month by month.

    I am sure those are the ones everyone is signing up for.

    BZ

  2. March 17th, 2008 at 10:00 PM PickledOnion

    As an existing customer I have the ability to not have the frustration of waiting – however, I can see the sense in what you propose and, if it makes any difference, it gets my thumbs up.

    I can only imagine the frustration of people waiting for a slice and can’t see any huge objections to the proposal as it will improve the strategic viablility of Slicehost and would not be a temporary solution to ‘simply get more customers’.

  3. March 17th, 2008 at 10:00 PM JC

    I would pay 3 months in advance to have a slice right away. Anyone serious about getting their app up should be willing to front the money, after all, with setup / 1st month a dedicated server is about the same price as 3 months of the largest slice from Slicehost.

    My only concern would be if I ordered the smallest slice, paid $60 or whatever for the first 3 months, and during the 1st month wanted to upgrade, what would happen?

  4. March 17th, 2008 at 10:00 PM drow

    As someone on the waitlist, I would have been happy to prepay for multiple months. Year long contracts are the de facto standard for hosting, and people go for it. With your prices so low, three months is hard to argue with.

  5. March 17th, 2008 at 10:00 PM paul

    I signed up a couple of months ago and only had to wait a few days to get my host. It was well worth the minimal wait, and the delay didn’t bother me in the slightest.

    You guys saved me from my old host (name rhymes with “screamhost”) for a very reasonable price.

    Thanks.

  6. March 17th, 2008 at 10:00 PM paul

    Come to think of it, I pre-paid at Dreamhost for 2 years (and I still dumped them a few months in).

    The dollar amounts you guys deal in (at least for the smaller slices) are so minimal as to be non-existent for practical purposes.

  7. March 17th, 2008 at 10:00 PM Kenzie

    I think you might be underestimating the marketing value of the wait list - it’s like an exclusive club or a hard-to-find Elmo doll. :)

  8. March 17th, 2008 at 10:00 PM andrew

    3 month increments is what I was used to at previous hosting companies. I don’t think any new user would flinch at that. I know I wouldn’t have.

  9. March 17th, 2008 at 10:00 PM Jon Moses

    As a potential SliceHost customer (when my tiny webapps make it to the big time) I would have no problems paying 3 months on any slice.

    Would “pay 3 months now to avoid/lessen the wait” type of offer work? I know it would be hard to weight (heh, unintentional pun) the two lists (pay more now, less wait vs pay less now, more wait), but it may be “the best of both worlds”

  10. March 17th, 2008 at 10:00 PM RC

    If you thought people would flinch, you might just give people the option to pay 3 months in advance (or more) for a slightly discounted price. This solves your cash flow needs and is a win for the customer as they get a chance, possibly, to save a few bucks.

  11. March 17th, 2008 at 10:00 PM goldenlarch

    I can’t believe I’m saying this grin, but personally I’d pay a higher monthly. I’ve been unbelievably loyal to a local hosting company for 5+ years now and they just starting offering essentially the same thing you do with your 256 for 2x the price ( http://www.modwest.com/vps/ ). They are burstable to 512 and provide Plesk 30 domain license (barf) with that, but still the specs are basically the same. They also charge a $20 setup fee. I still use them for business because I have, but am stoked on you guys for my own startups.

    Anyway I guess what I’m saying is that for “serious” hostees they will pay more for quality. That’s one of the most basic tenets of business after all, “you get what you pay for”. You clearly care about quality so don’t worry so much about charging more for it.

    Honestly… the best thing about you guys is that you charge round numbers. $20, $38, $70… none of the $9.99 or $19.95 typical US psycho-babble BS!! Love it!

  12. March 17th, 2008 at 10:00 PM Ahsan

    I have couple of customers waiting for slicehost and they are willing to pay for three months. This is an excellent idea for growth. I am recommending slicehost to most of my customers due to the honest and clear communication you have kept all along. slicehost is an amazing service and I am very happy to support it.

  13. March 17th, 2008 at 10:00 PM gmlk

    Maybe you could make upfront payments more interesting? :)

    Something like: 
    
max = 1.5 
factor = 1
if payment > 250 then
  factor = 1 + (payment / 2500)
  if  factor > max then
    factor = max
credit = factor * payment

    $250: credit = $275; $900: credit = $1224

  14. March 17th, 2008 at 10:00 PM James Ellis

    I like the pre-pay 3 months idea for new customers. Totally fair.

    Another idea: I would offer customers the ability to pre-pay for an entire year w/ a discount – say, 10% off. First time customers might not go for it, but your return customers might appreciate this option as they already know and trust your company. Also, it can be helpful to pay in large chunks if the customer is looking for easy tax write-offs…

    Also, I agree with goldenlarch – you could be charging more. People are happy to pay for quality.

    There’s nothing wrong with reasonable setup fees either. If it takes you 20 minutes to provision a server, charge $20 bucks. A dollar a minute is pretty fair.

    You are already doing well to wrangle the hearts and minds of the developer community. No one’s really going to mind if you need to adjust costs.

  15. March 17th, 2008 at 10:00 PM Mike

    Given that there is no setup fee, committing to and paying for a couple of months in advance seems totally reasonable.

    I would think that anything up to six months in advance would be generally acceptable.

  16. March 17th, 2008 at 10:00 PM Andrew Conkling

    I too am waiting for a slice, and I’m happy you are trying to figure out solutions, and that you’re communicating with your community. Both are admirable, and motivate me to throw gobs of money at you. :P

    Seriously, the prepaid months idea sounds quite reasonable, and raising your rates wouldn’t be terrible (though I agree that that should be avoided if possible ;).

    Y’all are doing a great job at increasing demand. :)

  17. March 17th, 2008 at 10:00 PM Jean-Luc Henry

    Keep doing cool stuff as you do! Keep giving good feedback as you do! Keep doing good support as you do!

    And you’ll be able to ask more from your customers.

    ... And as I can see you’re already able to ask more.

    I would be a bit short to pay more for monthly bill, but would pay 3 month in advance without no problem.

    Also, as a other guy said before, why not paying for a full year. But it seems to me that 10% off is too much as the prices are low, but 0-5% would still be great. 1 year payment is not only for discount but a lot for simplicity!! Look at domain names: my registrar permit 1,2,3,4 or 5 years payment WITHOUT any discount, and I love is services.

  18. March 17th, 2008 at 10:00 PM slicematt

    Thanks guys – seems like most people are on board with it. Regarding the prepayments and annual payments: you can do that now in SliceManager (with a 10% bonus for payments over $250). I think we’ll also offer that option on the new signup page.

    Again really appreciate your input, we’ve been discussing it all day – good stuff.

  19. March 17th, 2008 at 10:00 PM Alaa

    I think that you can have two lists(one with 3 months, and the current one) with the 3 months one getting priority.

    I say that because even though your reputation precedes you, i might still want to try out just 1 month to see how it goes before i commit. However, people who want to do this can afford to wait for a few days.

    Also, you might want to consider putting further commitments. Such as committing for 6 months of even yearly. Some people already know about your great service and can commit and so this would give you enough money to further procure servers.

  20. March 17th, 2008 at 10:00 PM Nick Zadrozny

    What about pre-paying the first month when reserving a spot on the waitlist? That way the longer the waitlist gets, the quicker you’re able to purchase new servers. Plus it filters out non-serious reservations that skew the estimates, and takes some pressure off having to expire signup codes (an issue that recently burned me).

    The only possible downside is managing customer expectations at that point and dealing with refunds for folks that get impatient. But, shoot, I’d totally pre-pay 1-3 months when signing up on the waitlist if it took that wait from 41 days(!) down to one or two or even seven!

  21. March 17th, 2008 at 10:00 PM Vek

    Out of curiosity, how many people have been taking advantage of the pre-pay options you’ve made available? If some existing customers were to pre-pay for a year, I suspect you could comfortably afford at least 6 months of growth :)

    As far as I’m concerned, though, a 3-month up-front payment for new customers would be fine-and I say that as someone who would have to go through that process, because I’m not yet a customer-my application is not quite ready yet for a launch.

    The idea of prioritized wait lists, by the way, makes sense to me—it would make the evaluators (like me, TBH) wait for a longer period before they manage to get a slice, but those that are serious about getting a slice could get one quickly.

  22. March 17th, 2008 at 10:00 PM Alec

    I’m on the wait list and trying to do a last minute setup so it’s frustrating to have a delay. Not so frustrating that I’m unwilling to wait for what appears to be a good service, but frustrating enough that I would absolutely pay up front for a faster turn around. Three months seems completely reasonable. Six months or a year makes me nervous and might turn me away if it were required.

  23. March 17th, 2008 at 10:00 PM Ben

    Sounds like you guys are doing all the right things. The 3 month up front sounds like the right way to go.

  24. March 17th, 2008 at 10:00 PM slicematt

    Going to cover individual responses in one big post.

    JC (#3) – If you wanted to upgrade, it would be prorated (like it is now).

    Kenzie (#7) – we’re like a cool nighclub for programmers LOL.

    Jon Moses (#9) – maybe it will be a move to front of the line type of thing, not sure.

    gmlk (#13) – we chuckled, but probably too complicated.

    goldenlarch & James Ellis (#14) – if we charge more, we’d like to offer something to justify it. If that happens, we’ll offer an explanation.

    Nick Z. (#20) – we’re hesitant to take money before providing service. I wouldn’t rule it out, but only if our wait list estimates were more accurate.

    Vek (#21) – we get a daily trickle of prepayments (which help), but not a significant % at this point. We do think it will continue to grow though.

  25. March 17th, 2008 at 10:00 PM djangojoe

    It seems many of the waitlistees have spoken re: 3-month pre-pay, so hopefully that will boost cash flow in the immediate future (if you do it).

    Vek made a good point, too, about the pre-pay option for current customers. Maybe most of the comments here are from people waiting for their first slice, but a lot of them don’t seem to be aware of that option. Perhaps you could link the blog entry about it on the home page. If I didn’t have cash flow issues of my own right now I would certainly pre-pay for 10-12 months…as soon as I can I will.

  26. March 17th, 2008 at 10:00 PM Craig Ambrose

    Excellent article there Matt. I think the 3 months up front is a good option, and I really like the way that you’re approaching the problem.

  27. March 17th, 2008 at 10:00 PM Lucas

    Same here, also a potential customer, and I would definitely front 3-6 months if that meant I wouldn’t have the wait. Knowing that once your app is finished, you can immediately launch is pleasant.

  28. March 17th, 2008 at 10:00 PM Jim

    If it will help you guys, and get me my slice faster, I’d gladly pre-pay for 3 months!

  29. March 17th, 2008 at 10:00 PM Pero

    I’m also willing to pay 3 months in advance. Find it reasoble.

  30. March 17th, 2008 at 10:00 PM hwa

    I too am a happy resident in the Slicehost subdivision; it’s a nice community with a great staff and cool place to live.

    Making new customers prepay for 3 months sounds like a fair idea, it gives you a little more money to work with without charging a setup fee.

    And although I’m a happy customer I’m used to the price I pay and therefore will frown on a price hike suggested by others. Not that the service isn’t worth it, but competition isn’t far off, albeit not as good. But still.

    Growth is great and I’m happy that Matt & Jason’s adventure is working out. One concern I have is that the more Slicehost grows the more M & J are sucked into keeping the place going and open. Besides hardware, does growth also include more people? New customers are important, what about continuity for current customers? How many servers can M & J handle before things spiral out of control?

  31. March 17th, 2008 at 10:00 PM Ratchetcat

    I would also happily pre-pay for slice hosting here. Thanks!

  32. March 17th, 2008 at 10:00 PM machee

    I am game for paying three months in advance. I love the idea that this is done by developers for developers.

    Well the price might have something to do with my interest too.

  33. March 17th, 2008 at 10:00 PM slicematt

    hwa (#30) – we’ll be adding to the support team soon.

  34. March 17th, 2008 at 10:00 PM paul k

    Slicehost is doing an open-source business plan! :-)

    I like the 3 month pre-pay.

    A modest sign-up fee might be fine too, and I don’t quite understand Matt’s strong objection to it. Especially in the case of a month to month contract, there’s just so little financial commitment here.

    For other revenue sources, how about some additional add-on services besides Backup? SMTP, database and file? Spam and shared db access are problems so how about a SAN to start with? As I think about adding more slices I’d like good fast file storage accessible from multiple web servers.

    But that’s all more work…

  35. March 17th, 2008 at 10:00 PM michael d.

    I wouldn’t mind paying more at a time at all for a small discount, for instance at my old provider they offered a quarterly payment option and it was auto billed. In fact i would prefer that over a regular monthly cycle. That would give you guys the capital that you need to grow this outward.

  36. March 17th, 2008 at 10:00 PM stubblechin

    I’d love to prepay and move up in line.

  37. March 17th, 2008 at 10:00 PM Tristan

    Looks like most of the people in line are okay with the prepay, so i take back what I said in the forums and agree that it could work.

    If you need funds now you should tap your existing customers for prepays as well just to boost things. Just announce a discount or benefit or something and people will go for it. I’d prepay up to a year right now if you just asked nicely!

    I wrote more on the forum thread as well.

    Also want to say how great (and incredibly SMART) it is that you’re even discussing your billing so openly with the community. You guys get it bigtime, and it shows. Rock on.

  38. March 17th, 2008 at 10:00 PM jason

    Pretty please with sugar on top…

    All existing customers can prepay now via the SliceManager under accout->recent payments.

  39. March 17th, 2008 at 10:00 PM skippy

    +1 for pre-payments.

    I’ll gladly pre-pay for several months (3, 6, or 12) when my slice becomes available.

  40. March 17th, 2008 at 10:00 PM Tristan

    Done! I’ll pay more whenever I can.

  41. March 17th, 2008 at 10:00 PM jonathan

    I’m on the wait list and have watched it grow from 14 to 47 days. I’d happily pay a larger chunk upfront to have immediate service. So far, reviews of slicehost are positive which not only stokes my desire for my slice but increases the value of any reasonable fee (3 months, 6 months, etc. prepay) for your server.

    In other words, if the reliability and value is there prepaying is a no-brainer.

  42. March 17th, 2008 at 10:00 PM Stuart Moore

    Also on the wait list. 3 months prepay seems reasonable to me; I’d be less likely to if it was 6 months.

    Go for it.

  43. March 17th, 2008 at 10:00 PM MikeH

    I am willing to prepay as well. When I got on the list it was at 39 days.. Now it’s up to 47.

    It would be great to maybe have a weekly status email, to see how many days are still left for you..

    Can’t wait..

  44. March 17th, 2008 at 10:00 PM lethe

    If banks don’t want to lend you money, you might try prosper.com. It’s a pretty neat site.

    Anyway, as to your questions. I love slicehost, and I would be happy to prepay. But I guess what’s more relevant is whether I would have been willing to prepay 3 months when I was a new customer. Well, I didn’t know much about slicehost, I’d just gotten a recommendation from someone in a ruby irc channel. I already had a vps with canaca with 3 months left to go on that contract. I can certainly say that the low price and commitment made me more willing to act immediately. In other words, if I’d been facing a 3 month/$60 commitment, rather than a 1 month/$20 commitment, I probably would have waited until my contract ended.

    I still probably would have come over in the end though.

  45. March 17th, 2008 at 10:00 PM Ralph Corderoy

    Sorry, I’m new here, but if you’ve a customer waiting list, and you’re buying capital assets that have re-sale value, then why won’t a bank look at these two facts and give a short-term loan?

  46. March 17th, 2008 at 10:00 PM tom@m7sys.com

    How about rejigging the discounts for prepayments to something like a (1.0005**x)/100 for prepayments upto $7k ?

    That would be like borrowing money of your customers, the interest being paid in hosting. Not sure what the best form of the relationship is. Something along those lines where you get capital upfront from existing and new customers prepaying, they benefit from discounted hosting and we both win.

    It’ll need a big push and a followup to get us to think about and commit. It could be especially interesting for your larger customers where multi $k bills re present reasonable time periods.

    good luck.

  47. March 17th, 2008 at 10:00 PM Calamitous

    I’m with everybody who’s mentioned the 3 mos. upfront == no waiting, while still putting 1 mo. $ signups onto a waiting list. With your guys’ kickass setup, those of us who’ve already drunk the kool-aid would be more than happy to plunk down the extra cash. :)

  48. March 17th, 2008 at 10:00 PM slicematt

    Ralph – banks don’t consider servers a securable asset and assign it very little value.

    Tom – have something similar in place now, basically a 10% bonus for large prepayments.

  49. March 17th, 2008 at 10:00 PM Woodyuk

    As someone in the waitlist when it was 21 days, I now see its 49! :) I would happy to pay 3 months prepay. The only feature I am keen on is OpenSolaris as a disto. :)

  50. March 17th, 2008 at 10:00 PM Woodyuk

    another point, in the UK you can get “factoring” from banks. http://en.wikipedia.org/wiki/Factoring_(finance) Is this not possible in the US ?

  51. March 17th, 2008 at 10:00 PM Chris

    You could do what companies like Textdrive did and offer a limited number of expensive lifetime accounts (like their original VC 200). I realize you would have to cater to these people over time, but it would bring in a lot of cash flow and may possibly help in financing later, showing banks that you have “investors”.

    I’d be willing to invest, buy a lifetime account, etc.

  52. March 17th, 2008 at 10:00 PM Urijah

    What about leasing?

  53. January 22nd, 2009 at 06:22 AM Florida Programmers

    Wish you would have sold stock… Cause I’d be rich. Rackspace baby.

  54. January 28th, 2009 at 04:07 AM Piers

    I understand price hikes are often inevitable, especially these days with the financial mess being waht it is. I reckon you could rise prices a little AND charge for three months upfront. Any customers who do not think they’re getting value would move on, freeing up capacity, leaving higher value customers, which probably helps with the bank too. A key feature IMHO would be OpenSolaris kernel availability. Rock on SliceHost

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