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How this serial entrepreneur plans to double his margin by pivoting his business

How this serial entrepreneur plans to double his margin by pivoting his business

 | June 10, 2016 | Last Updated: Jun 10 9:00 AM ET


Tobyn Sowden is a man on a mission. The founder and CEO of Victoria-based performance marketing company Redbrick is in the middle of pivoting his business, in a move he hopes will more than double his margin. Sowden launched DeskMetrics, an online service designed to help software companies understand what customers are doing with their products, on June 8 at Redbrick’s third annual software meetup in Tel Aviv, where it does 60% of its international business.

Sowden founded Redbrick after a string of bootstrapped companies, beginning with a spell in the online lead generation business. He started search marketing company RedWillow Media while at university in 2008, later selling it to Neverblue, a performance marketing firm, where he stayed for a little more than a year. In 2010, he started an online daily deals site called Couvon, focusing on the Victoria region. It acquired a competitor, GOYAdeal, before Sowden sold it to Island Daily Deals in 2014.

While working on that business, he conceived Redbrick to help desktop software companies market and distribute their products. It used advertising to drive downloads of its clients’ software and was paid on a percentage basis for each piece of software it sold.

“Although we can get that to scale, it’s not very predictable as far as our ability to acquire users on a monthly basis” said Sowden, who wanted a business model that offered more predictable growth with a higher margin.

He decided to take the technology Redbrick was using to provide its marketing service and package it as a service in its own right. In April, he began tailoring it as an online service that would enable software developers to understand what users were doing with their desktop software products.

Clients can use the service to find out if some software features are being used more than others, and whether their software is delivering any errors to the user.

Funnel tracking is another key component, Sowden said. The service can tell his clients when and how users downloaded the software, whether they used a trial version, and what features they used, along with whether they registered and paid for it.

Vendors can also track the lifetime value of a customer, by working out what the average download is worth to them, he said.

“There are maybe only five companies in the world doing this today,” Sowden said. So rather than brand the technology himself, he bought one of them. Brazilian company DeskMetrics supplied its desktop analytics technology before Redbrick developed its own. Its founding team had left, and the software needed development.

“The technology wasn’t that great, but they had a great name and a really good position and some good earned media,” he said.

Redbrick retained just one developer from the acquisition on a part-time basis, but is now marketing its new service under the DeskMetrics name. “We weren’t that interested in acquiring shares in the company,” he added. “An asset deal made perfect sense.”

One customer, Paris-based software group Avanquest, markets more than 500 pieces of consumer software, ranging from photo editing to system utilities (programs that clean up your computer and make it run faster). The firm was using Redbrick’s performance-based marketing business, and is now preparing to use DeskMetrics, said Phil Schnyder, director of online business for Avanquest.

In its photo editing software, Avanquest has a feature called Photo Clip that can be used in two ways: to erase part of a picture, or to cut out and move parts of one.

“We market it both ways but we don’t know what people use in the product,” Schnyder said. “Should we spend our time improving the algorithm that’ll do the erase part, or should we spend more time on the cut-out part? I can have the programming team spend months to improve something and this will help me know if people are using that feature.”

He contends that by coding links from his desktop software to the DeskMetrics service, he can save on software development costs while maximizing the appeal of the software. In future, he may use what he learns from the service to repackage his products, offering specific features as premium options to increase revenues.

The challenge a company like Redbrick may experience is that the software used most often by most people – email, office productivity such as word processing and presentations, and collaborative software — is all very rapidly moving to the cloud

By shifting away from performance-based marketing, Redbrick leaves a turbulent industry beset by ad blocking technologies that make it harder to market software for its clients. The firm’s pivot is not without its risks, though, warned Mira Victoria Perry, research and consulting practice lead for collaborative technologies and business analytics at IDC.

“The challenge a company like Redbrick may experience is that the software used most often by most people – email, office productivity such as word processing and presentations, and collaborative software — is all very rapidly moving to the cloud,” she said.

“That said, there are some niche areas where on-premise software is entrenched — engineering applications and operations management are two examples.” Avanquest’s desktop utilities are another.

The desktop software clients that Redbrick is targeting are mostly older and more established, said Mr Sowden, admitting that new firms are mostly mobile or web-first. Nevertheless, he sees a rich and varied market there, ranging from 3D printing software to game development tools and hardware peripheral companies that need to maintain software on the local computer.

There’s enough business to drive a higher margin, too, he said. Performance-based marketing was bringing him margins of 18 to 25 per cent, but he’s modeling profits of at least 50 per cent for the new business.

The biggest driver, though, is the guarantee of recurring revenue, which potential investors will love. His exit strategy involves a strategic buyer — so he wants recurring revenue that any suitors could take to the bank.

Meantime, Sowden is the sole owner of a business that was profitable in its first year, and which predicts $20 million in revenue for 2016, half of which comes from Israel, a particularly strong market for the firm. He’s also planning more acquisitions and is in discussions with five potential targets. That’s not bad, for a guy who started his first company with just $500.


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