EOQ1 2020 Update

March 5, 2020
min to read
Francis Pedraza

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  • Hello bullet points

It’s been a while since I’ve written an update on Medium. To the outside world, Invisible is becoming less transparent, and that is against the Sovereign Will of the company. My will is to write more, and to get the company back into a publish-or-perish mindset. But so much update energy goes into preparing for board meetings, and into internal updating, both in meetings and over internal emails. Because there is a lot of client data in those updates, to publish them sometimes requires scrubbing. Also the prime directive right now is profitability, and anything that is a distraction from that is not getting time. Invisible will still be the most public, private company ever, but this year, that’s not going to be the priority. I will still do my best.

The company is pushing for profitability by the end of the year. Our burn is now below $150K, after budget cuts and layoffs this quarter. We’ve designed a new compensation framework for paying partners that goes live on April 1st, that will temporarily increase burn slightly above $160K. But the new model directly incentivizes burn reduction, process efficiency, automation and revenue growth. For every $10K in burn reduction, everyone gets a 1% raise. Our EOQ2 target is $125K burn. Our EOQ3 target is $100K burn. I am hoping for a windfall in the fourth quarter.

We recently launched new pricing. It’s simpler. Provides more flexibility to clients. Makes account management easier. Increases margins, as our base hourly prices are higher. But the annual plans are designed with Results Based Pricing in mind, where we bill in units, not hours, and where we share automation gains with our clients. Results Based Pricing is the future of our business. Our next big pricing update may be six months away, but it will be another step closer to fully revolutionary pricing. Because the business processes we build for clients are so custom, it’s hard to abstract them into a Results Based Price that is relevant for any other client. But with our new Process Builder technology, that breaks Delegations down into Steps as an atomic unit, Steps which we can price, there is a path to building a Process Store on the website or in the Client Portal that shows our full inventory in a sufficiently abstract way, and gives clients the ability to get a real-time quote after going through a Delegation UX, a client-facing front-end version of Process Builder. The Holy Grail version of this may still be 18 months away, but there are many small steps we will be able to take in this direction along the way. Every quarter I see progress towards full commoditization.

We ended last year with 45% gross margins and 0% contribution margins. We’re targeting 50% gross margins and 20% contribution margins by the end of this quarter. I do not have full visibility into where we are against that goal, because we’re upgrading our accounting systems, but I’m pushing like hell, both for visibility and for efficiency. I know that our contribution margins in particular will dramatically improve this year. The reason for this is that we’re not hiring dedicated Account Directors any more. We changed growth strategies, let go of our sales and marketing leaders, and are distributing account management across product managers and other business partners. This should allow the business to roughly triple without new hires. My EOY targets are 70% gross and 50% contribution margins. Aside from pricing, efficiency, and automation… the secret reason why such incredible margin growth is possible is actually very simple: revenue. The biggest cost components of COGS and S&M costs are actually partner salaries and other variables that do not scale as fast as revenue, so margins naturally improve as revenue improves, even without automation gains. This is partly why I expect such a windfall at the end of the year.

We’re making incredible process on account management, delivery, sales operaitons and expansion operations. I believe we have a scalable sales channel: warm intro paths. We’re much clearer on our targeting criteria. Invisible identifies all the good fit clients in my extended network. Then a sales writer writes personalized, custom pitches. Then we identify all the intro paths to those targets and approach via multiple paths. This has resulted in almost two dozen new accounts and we think our CAC will be below $1000 by EOY. By EOQ2 we’re expecting revenues to be at least $150K/m. By EOY, we’re expecting them to be at least $240K/m.

We’re primarily targeting profitable mid-market companies in traditional industries and growth stage technology companies. We make exceptions, but focus on 50 employees or greater. The sales process begins with a demo and discovery session, normally with a C-level executive, often the COO or CFO. Once they are bought in, things move quickly and we expand from one successful test use case, team by team throughout the organization. We’re finding that there is always more work to delegate, and as we take over more work, teams find more work to do — so nobody loses their job, but the company’s productivity and ROI increases.

We’re also engaging corporates seriously for the first time, and we’re competing aggressively against traditional BPOs. The sales cycles are much longer, but the deal sizes are much larger.

The platform is upgrading rapidly. Our new Process Builder technology is now live within our Digital Assembly Line, providing atomic structure to all work that we do, laying the groundwork for automation. Agent Pay will soon be instant, automatic and performance dynamic, aligning incentives with results. Our new Client Portal is now live: a far more beautiful, useful and fast way to see all of your delegations, assistants, users and billing in one place. We’re going to be adding Messaging, Delegation UX, superior reporting and team management, and more.

We’re also successfully automating processes using both third-party software and automation tools, as well as building our own. For example, we’ve automated 60% of $5K/m of work that we bill out. This is already providing margin lift and we’re just getting started.

One of the secrets of our success has been investing heavily in analytics. We have built extensive dashboards, instrumenting every part of our operations. We continue to ask questions and generate new views to give us insights, which we then use to drive performance and ask new questions.

I am raising just $2M this year, on a SAFE, instead of raising a Series A round. As we intend to be profitable by the end of the year, most of this money I don’t intend to use, it will strengthen our balance sheet. Even at our current burn rate, it is over a year of runway. We’re focusing on angels, family offices and small funds. After we’re profitable, next year we’ll look for a long term strategic capital partner to provide liquidity to early investors, consolidate the cap table in the team’s favor, and be our partner on secondary transactions moving forward. Even as we grow through 2021, the plan is to keep the partnership small and elite, and to retain majority ownership and control. This seems to us the best strategy to attract and retain talent and to align incentives with long-term value creation.

If I felt we had direct competition, this might not be the right strategy, but as it is, I feel that our business is hard to replicate, and will become more defensible over time, not less.

The two primary uses of capital in a venture financing would be engineering and marketing. For engineering, we are increasing our engineering velocity by hiring engineering agents, paid hourly, and managed on our Digital Assembly Line. They extend the leverage of our senior engineering partners. One of our clients found out that we are doing this for ourselves, and is now also paying us to trial this service in beta. We expect this to be a business in the future. For marketing, we already have a scalable sales channel, and so we are focusing our storytelling and design resources on building collateral and improving the website, rather than spending money on various paid channels. For both areas, we already have the team we need to get to profitability, and we can reinvest profits in these areas long term… Any large infusion of capital would be distorative. Invisible is an efficiency business. Infusions of capital make it more difficult to be efficient. Almost all capital transactions moving forward will be secondary, as we consolidate the cap table in the partnership’s favor, making room for a single long-term capital partner to replace early investors.

What else is there to say; did I hit everything?
— Marketing. Upgrading collateral and website.
— Sales. Scalable salesops channel working. CAC target $1000. Better targeting resulting in much bigger accounts. Expecting to 3X the business this year.
— Expansion & churn. Net negative churn. Expansion healthy and usage strong on all key accounts. Cohorts improving. Improving delivery, account management and expansion further.
— Product. Both client-facing and operations-facing platforms upgrading rapidly. Automations improving margins. Analytics giving us detailed understanding of the business. Getting closer to real-time financial reporting. Becoming increasingly defensible.
— Performance. Expanding to 70% gross, 50% contribution and 0% net margins by the end of the year, on a minimum of $240K/m revenue.

Invisible outsources and automates knowledge work — slashing a business’s costs and multiplying the value of the talent on their books. The secure service feels like having a competent assistant that can get weeks of work done in days. A client put it best: “Invisible feels like having an extension of me.” Processes run 24/7 and start at $14 dollars an hour; automations improve our margins and client ROI over time. Delegate to Automate.

Overview Deck

Fundraising Deck

Hayley Darden Marketing Invisible Technologies
Francis Pedraza
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