As a follow-up to the company pitch that ran earlier this week, StartUp Beat conducted a Q&A with Stonefield Software CEO Mickey Kupchyk.  Comments are welcome below!

SUB: What is Stonefield’s business model?

Kupchyk: There are two dimensions to our business model.  Stonefield has a range of different products. We have built custom versions of our software for some widely distributed commercial CRM and ERP applications.  The business model there is to sell the custom versions through an established dealer network.  We demonstrate and work with those dealers to ensure those customers get the right fit.

We do some direct sales to this market, but we prefer to “push” these back to the dealers so they can make money from these customers.  If there is a dealer in the area of the customer we pass it on to our dealer.

Our second product, our main product, is our Stonefield Query SDK software.  It is pretty much sold directly by Stonefield since there is no direct dealer channel to handle this.  With our SDK there are two types of customers.  The first are those who purchase the SDK for internal use and incorporate it with “in-house” data applications for business intelligence and reporting.  Some of these clients include NASA, the U.S. military, and government agencies, Goodyear, and other large organizations.

Our other type of client is the ISV, or Independent Software Vendor.  These customers have developed their own commercial applications and are looking for a custom Business Intelligence reporting solution to enhance their offering.

SUB: How do you solicit or use customer feedback in your product development process?

Kupchyk: Since day one we have always listened to our customers.  We build a product, we market the product, and then we solicit feedback from our customers.  They are the ones who tell us what is good, what is bad, and how Stonefield Query could be better.  Many features have shown up in the product thanks to the customer feedback.  We do come up with our own ideas, but I estimate that 90 percent of the ideas come from our customers.  When customers talk to Stonefield, we listen.

SUB: How does Stonefield make money?

Kupchyk: By developing and selling great software, that’s the bottom line.

We want to make sure that we take care of our dealer channel.  I’ve seen a number of dealer programs through the years.  Everything I liked in other programs has been incorporated into ours.  Anything I didn’t like is out.  Some examples are: high dealer margins—40 percent; no dealer sign up fees—I don’t believe we should charge our dealers a fee to sell our software, as they are our sales force; free dealer training—we want them to be able to support their customers.  If our dealers are making money, then we are making money.

Maintenance renewals are an important source of income.  For most software companies, maintenance renewals are the engine that keeps the company going.  That means you have to take care of your current client base.  New software sales typically are what generate the profit.

SUB: Why do you consider Stonefield Query a startup?

Kupchyk: We’re just coming out of the startup phase right now.  There are a couple of things that determine this—profitability and picking the right market.

We are finally starting to become profitable.  It’s taken a long time to get there.  The cash burn rate for R&D and marketing is pretty high.  One of my key success indicators is revenue per employee.

Originally, when we started, we thought that if we keep the price low on our software then everyone would buy a copy.  Boy, were we wrong!

We found that by pricing our product low people merely perceived it as cheap.  As time went on, we increased the price, which surprisingly resulted in higher unit sales.  It also meant that we were now dealing with a more sophisticated clientele with much larger budgets.  This in turn means we have more money to spend on R&D to meet their needs.

SUB: Where do you see Stonefield Query in six months and a year from now?

Kupchyk: Basically we are budgeting to double our revenue from the previous year.  We are looking for exponential growth from here on out.  We are looking at doubling revenue annually for the next few years.

Last year the downturn in the economy hurt many businesses.  Fortunately, the impact on Stonefield was minimal.  In fact, sales were up 40 percent, even in this bad economy.

SUB: How do you market Stonefield Query?

Kupchyk: Over the years marketing has changed dramatically.  At first, we relied entirely on trade shows.  Next we worked hard on improving our website, not only for visual content but also for SEO web optimization.  If you aren’t on page one of Google, you are nowhere.

Most recently we’ve hired both a full-time PR manager and full-time marketing manager.

We still have a long way to go.  For example, one of our largest recently signed customers is Goodyear.  After the deal was done, they flat out told us: “Why had we never heard of you guys before?”

SUB: What are the challenges you’ve found as a startup operating internationally?

Kupchyk: The biggest issue of dealing internationally for us was the issue of time zones.  Supporting dealers and customers around the clock is difficult. 

We have been signing m
ore international distribution deals.  Most recently we signed with SAGE Australia for distribution of our software in Austral-Asia, including Australia and New Zealand.

SUB: What lessons have you learned that you would pass on to entrepreneurs in their early startup stages?

Kupchyk: Lots.  The first thing for new startups is to stick to your knitting.  You had better understand the market and know your product inside out.  We started by trying to be everything for everybody.  That didn’t work.  Focus on the one or two things that you are good at then try to be the best.

Another important fundamental is budgets, budgets, budgets!  I’m reminded of the joke about the airline pilot who announces on the intercom: “I have good news and bad news.  The bad news is we are lost.  The good news is we are making great time!”  Bottom line, if you don’t have a budget, a plan, as to where your business is supposed to be at a moment in time, then how do you know if you are on track or just spinning your wheels?

Proper staffing levels are key to a profitable company.  I believe you should run your organization lean and mean.  Stonefield has never let any employees go due to a lack of work.  In fact, during this recent recession Stonefield was hiring.  Always be on the lookout for good talent.

Finally, you have to determine what market you want to be in.  Do you want to be like Walmart or Nordstrom?  Are you going for high volume at a low price or a low volume at a high price?  Both models work.  Build your business around the market you want to be in.

Stonefield Query – www.stonefieldquery.com