Target practice

23 November 2005

Touch Clarity is a rarity from the Internet boom - a solid technology business with real revenues. But it also has lofty global ambitions. How did it get funding - and how is it scaling the business?

Launched from academia in 2000 with seed funding from Internet incubator New MediaSpark, Touch Clarity completed its first round of financing last July with £3.4m from Alta Berkeley and JVP. Specialising in software that automatically targets content and promotions to website visitors, it then immediately launched its operations in the US. Stephen Upstone is business development director.

You were drafted into Touch Clarity in 2003 after a stint at FirstStage Capital, with a specific remit to get the company to the point where it could raise additional funding. What was lacking at that point?

The classic problem start-ups in the technology space have is that they develop a solution without a problem or a pain point. Customers have to feel it's a necessary solution as opposed to a 'nice-to-have'. [At the same time] the key thing investors look for is proof points from customers of the value you are providing for them. They don't just want to see customers that have bought your solution; they want to see people who are really getting value from it, who will talk about it and be referenced. Why did they choose Touch Clarity? What value did they find from us? Was there a quantifiable ROI? VCs want to get down to the numbers and understand what customers have spent and what returns they are expecting.

So you want potential investors to talk to your customers. The list is impressive - MSN, BT, Ford, Easyjet. - but how keen were they to talk?

Some start-ups are overprotective of their customers. If you've done a good job for a customer, they'll be keen to say what they've done and the experiences they've had. We found that while people were always stretched for time, if they'd bought new technology like ours, they had to a certain extent stuck their neck out and this provides a validation back to them. Their success is your success. It can be a different question to have them talk in the public domain, but as a one-to-one reference for investors and other customers, it's very different.

Many start-ups stumble in the shift from early adopter status to mainstream adoption. Any tips on how you ease through that period?

That's absolutely the key challenge. With your first and early buyers, they tend to be interested in innovation or the technology [for its own sake], but those first few reference customers are very important. And ideally, your founder would have contacts to make these sales. Once the first proof of concepts and referenceable customers are in place, you carry a lot more weight in the market.

Then the key question is how you move that on. What you look for is a replicable sales model. So it's not just six sales and six customers, then it stalls - but you identify others that are just like them, the low-hanging fruit. And if you understand why they bought in the past, then you can scale it up.

If two people bought because they were interested in the technology, that's not necessarily going to be the case going forward. But once you can show where they got good competitive advantage, it's different. We as a start-up were lucky in that there are lots of ways to make returns [with targeting software] so [it wasn't difficult to demonstrate the value].

Also, if you understand the different sectors you operate in - how they are successful, how their budgeting works, get proof cases and references - you can take it on. But it's a delicate balance, because if you show too much caution, you could miss the market.

Personalisation isn't new, of course - the concept of one-to-one marketing was all the rage in web-based customer management during the Internet boom. But things didn't take off in the way companies had hoped. What happened?

There's a big step change today and a lot has changed since the late 90s. For a start, the volume of data has gone up. An old-fashioned one-to-one solution would collect maybe five or six things about the customers - Did they respond to the mailshot? What age were they? and so on. They would leave hundreds of other things uncharted. What time of day was it? What was their IP address? What other software did they have on their system? Were they a home or a business user? What are they looking at now? What did they look at before? Today, it's a much more dynamic situation.

 We're the only company that has pioneered this [kind of data mining] on a global basis, with automated real-time learning - the system continually adjusting itself based on new data that is gathered, and updating your profile every time the web site is visited. You can understand more about someone as an individual and when things have been successful from a marketing perspective. That's a step change from having to update their profiles off-line.

In addition, targeting and personalisation systems purchased from around 2000 used old technologies which had a set bunch of rules for how to treat customers. They said: 'If a customer arrives at a page displaying this set of characteristics, then this is how to treat them.' Once the set of rules was defined, they were very inflexible and difficult to change and managing the rules was a big job. [It was hard] to reflect changes in buyer behaviour or changes in the environment - such as the weather changing or a successful TV campaign being launched.

You might even be sending people the wrong things and reducing the chance of them returning. That's why old-fashioned rules-based personalisation never succeeded in a big way.

You deliberately target a blue-chip client base: why is that, and what challenges does it create for you as a relatively small company selling to these huge enterprises?

Because the technology is catalysing - it's able to drive up your conversion rate on-line - the larger you are as a customer, the more you make from it. Also in terms of the market, the larger you are, the more likely you are to have the mental space for this. We started with on-line marketing software, then we added to that the real-time self-learning piece - plus better on-line capability, and we automated it all.

We've partly done that with venture investment, but then we've needed to add proven sales individuals to take the business to that next level.

The US is of course a significant challenge but to get your first marquee accounts over there is key, and if you can take your existing customers and build a client base around them then you're onto a winner, which is what we've tried to do.

What exit do you have planned?
For large VCs, ultimately you have to build a business that has the ability to float. Businesses are just as likely to do well with those that go for big markets and big business as those that go for a niche. The key thing is you need to create a sustainable business model.

Stephen Upstone was talking to David Longworth of Webster Buchanan Research