Keeping Software Simple
Friday, July 18, 2008
Written by Stephen Nellis
http://pacbiztimes.com/index.php?option=com_content&task=view&id=174&Itemid=47
When Santa Barbara-based Citrix Online switched to a new accounting application, Brian Donahoo, a seasoned software professional and then the company’s senior vice president of products and services, started having trouble. “All of a sudden, I couldn’t fill out an expense report online,” Donahoo said. The program was so awkward that he resorted to an instructional slide show. “This was shocking to me,” he said.
The experience stuck with him, and in 2007 Donahoo left to form his own company, Santa Barbara-based AppFolio. The premise: Design software almost anyone can use, target small and medium businesses in a few key industries, and deliver the service over the Web. “Business software needs to be made simple and easy,” Donahoo said.
The key to AppFolio’s approach is its focus on “verticals.” Instead of creating software that does one thing across many industries, such as Citrix Online’s remote access software, AppFolio builds a one-stop service for small and medium-sized businesses in a particular industry. Its first product is intended for property managers who oversee 150 to 3,000 units.
AppFolio’s property management software, released in late May, can track unit vacancies, maintenance requests, work orders and move-ins and move-outs; automate rent and bill posting; print checks; generate reports for owners and integrate with Google maps. It also includes a full accounting system that can provide the detailed tracking needed for keeping renters’ deposits in trust accounts.
Investors have signaled their approval by pumping $22 million into the year-and-a-half old AppFolio. In February 2007, San Francisco-based BV Capital led a $5 million first round. In April 2008, the same firm, along with the Investment Group of Santa Barbara and Internet giant Cisco Systems, threw in $17 million.
AppFolio boasted some impressive executive suite pedigrees when it made its pitch. Donahoo and its president, Klaus Schauser, came from Citrix Online. Chief Financial Officer Karen Anne Platt came from the fast-growing Santa Barbara-based Network Hardware Resale, and technology chief Jon Walker came from Santa Barbara-based Versora, which was sold in 2006. “It’s helpful [to have strong backgrounds], but they were still skeptics,” Donahoo said of the investors. “We’re all proud of our pasts, but every one of us is on edge and pensive and not resting on our laurels. Just as many second-time entrepreneurs lose their shirt as first-time entrepreneurs.”
AppFolio belongs to a growing sector of the software business called “software as a service.” The firm’s software and its customers’ data are all stored on AppFolio’s servers, meaning the end user doesn’t have to take on the costs of IT support, data security or physically installing the software. All the small-business owner needs is a computer with a broadband Internet connection.
Donahoo believes the world of software as a service for small and medium-sized businesses is “still in its infancy.” He aims to make AppFolio, which employs about 30 workers, into a multi-billion-dollar company. “These [software as a service] companies are still growing at a phenomenal rate,” Donahoo said. “We’re really on the early part of the adoption curve. There’s still plenty of momentum left, and it’s not stopping.”
To reach the multi-billion-dollar mark, AppFolio plans to focus on just a few “verticals” and then become the industry standard. Donahoo couldn’t reveal what industry AppFolio will delve into next but said new software will come out next year. AppFolio put the bulk of its energy into finding industries ripe for its products. “Typical software companies build a product, try to sell it, and then find out there’s no market for it,” Donahoo said.
AppFolio instead sells first and then makes the product. It probes markets by asking potential customers what problems they need solved and collecting their feedback from prototypes and trials. Once it has a product, AppFolio doesn’t wait around for customers to complain. Instead of a call center full of technicians waiting for unhappy inquiries, AppFolio’s technicians call customers to ask how the product is working.
“If you build a business around a reactive services model [such as tech support call centers], you go bankrupt fast,” Donahoo said.
Donahoo is undeterred by the current economic climate. After surviving and thriving during the burst of the dot-com bubble, he sees market turmoil as opportunity. “I think those corrections are great for business,” Donahoo said. “As a more seasoned entrepreneur, I say, bring it. I know how to power through those.”
As AppFolio expands, don’t expect it to employ hundreds. Donahoo plans to keep it lean, adding perhaps 20 employees by next year’s new software release. “I really believe that today you can have a big business without a large number of people,” Donahoo said. “Small groups of passionate people can get a hell of a lot done.”