David Cummings on Startups

Author: David Cummings

  • The Atlanta Tech Village Verified Program

    One of the initiatives we’re working on at the Atlanta Tech Village is the Village Verified program. With the initiative, our goal is to identify potential startups that have achieved some modest level of success and are poised for greater growth. Having 140+ startups in the same facility is amazing, but we need a way to funnel extra resources and programs to a smaller number of companies.

    Here are a few details on the Village Verified program:

    • Membership is for startups that have raised at least $100,000 from investors OR have at least $100,000 in revenue (either trailing twelve months revenue or $100,000 in annual recurring revenue)
    • Provided $10,000 in credits from Amazon Web Services, $24,000 in credits from Rackspace, and several other special deals at no charge
    • Domain-specific peer lunches and roundtables (e.g. for engineering, sales, marketing, etc)
    • Special meetings with VIP guests (Village Verified companies had a special lunch with the Mayor of Atlanta as well as other executives and investors in town)
    • Must complete a One Page Strategic Plan and review it bi-annually

    With the Village Verified program, we want to find a balance with our large, all inclusive events while providing more attention and resources to startups that have differentiated themselves. As with everything we do, we’re constantly experimenting and looking for ways to make things better. Check out the Village Verified program and help spread the word.

    What else? What are your thoughts on the Village Verified program at the Atlanta Tech Village?

  • Betting on Teams and Markets

    On a weekly basis I receive several requests from entrepreneurs to talk about their idea. Typically, I’ll reply back that I’m not a good judge of the quality of an idea and that customer discovery is a much better approach. Rather than discuss ideas, I’m much more interested in discussing execution and what’s working and what’s not working. Overall, especially from an investor perspective, I’m more interested in betting on teams and markets as compared to ideas.

    Here are a few thoughts on betting on teams and markets:

    • Rarely is the initial product direction the best (see Pivoting is More Common than Expected), so a team in a great market will find a better opportunity
    • Timing is critical (see Timing a New Market), and a strong team with a strong market is more likely to get it right
    • Markets are incredibly dynamic, making strength of team so important due to the huge of number decisions that have to be made on a regular basis

    When entrepreneurs talk about ideas, listen, but spend more time drilling into the team and market, as that’s a stronger bet.

    What else? What are your thoughts on betting on teams and markets instead of ideas?

  • Joint Webinars as a Top 10 Lead Generation Tactic

    One of the best ways to generate new leads is through joint webinars with partners. Webinars, as a seminar delivered over the internet using a tool like GoToWebinar or ReadyTalk, are great because of attendee interactivity and the ability to interface with a large number of people all at once (great economies of scale for delivering rich content). By combining with a partner to do a webinar, there are a number of benefits:

    • Cross promotion of the webinar drives more registrations (e.g. social media, blogging, emails, sales reps, etc drive signups for the event)
    • Counter-part at the other company is a resource to collaborate with on the content, review slides, etc
    • Sales reps are always looking for a good reason to reach out to prospects (e.g. join us on our XYZ webinar next Tuesday at 2pm)
    • Ability to share in the credibility and social proof of the other company (e.g. a startup can earn some credibility by associating with a more established company)

    Joint webinars are one of the best ways to generate leads and deliver fresh content. Startups and marketers would do well to incorporate them into their lead gen mix.

    What else? What are your thoughts on joint webinars as a top 10 lead generation tactic?

  • A Few Data Points on Domain Name Prices

    Entrepreneurs that have been in the software world since the dot com days love a good domain. Now, we’re seeing more .co and .io domains but .com domains are still the the most sought-after and most expensive. Over the years, I’ve purchased several domains at auction and helped other entrepreneurs acquire domains.

    Here are domains I’ve purchased or been an angel investor in the startup at time of domain purchase along with their price:

    • terminus.com – $10,000
    • kevy.com – $4,000
    • atlantaventures.com – $1,750
    • inspirational.com – $14,000
    • chipshot.com – $12,000
    • salesloft.com – $1,000
    • rivalry.com – $10,000
    • rigor.com – $4,000
    • clickscape.com – $750

    Using a marketplace like Sedo.com and budgeting ~$1,000-$10,000, there are still a number of quality .com domains available for purchase.

    What else? What are some other example prices for domain names?

  • Lead Generation as the #1 Challenge for SaaS

    Continuing with yesterday’s post on SaaS Company Premium Valuations, there’s an important point about the SaaS business model that isn’t well understood. With all the talk about finding product/market fit followed by building a repeatable customer acquisition process (see the 4 Stages of a B2B Startup), it’s regarded that with enough time and money, both of these tasks will be accomplished. Assuming there’s sufficient need in the market, and enough resources, product/market fit can be achieved. Only, it’s the repeatable customer acquisition process that’s also capital efficient and profitable where there’s even more difficulty. Customer acquisition that’s capital efficient and repeatable starts with lead generation.

    Here are a few thoughts on lead generation as the #1 challenge for SaaS:

    • Cost of customer acquisition relative to the first year’s customer revenue is one of the driving metrics for building a SaaS business, and lead generation is the top of the funnel for customer acquisition
    • Company size upper limits are determined by the number of new customers signed relative to customers that leave (churn) and is also accentuated by the law of large numbers that makes growth more difficult at scale
    • Acquiring customers in a manner that is scalable and profitable isn’t always possible, which is why many entrepreneurs give up on building out a sales team due to repeated failure (the lower cost and higher volume of leads can be generated, the greater the chance for a profitable and repeatable customer acquisition process)
    • Top of the funnel lead generation is the most difficult to plan and control for — once a lead is in the pipeline, automated nurturing and human selling is very controllable

    The next time an entrepreneur talks about how hard it’ll be to scale the service for a large number of users or get the user interface just right, ask the harder question about how they’ll generate a huge number of marketing qualified leads.

    What else? What are your thoughts on lead generation as the #1 challenge for SaaS companies?

  • SaaS Company Valuation Premiums

    Valuation is one of the favorite topics of conversation when it comes to Software-as-a-Service (SaaS) companies. While normal companies might be valued at 4-6x their profits, unprofitable fast-growing SaaS companies are often valued at upwards of 10-14x revenue (e.g. see ChannelAdvisor trading north of 12x revenue net of cash on hand). Jason Lemkin, a partner at Storm Ventures, highlights a number of solid reasons why SaaS isn’t a bubble, even if it’s overvalued.

    Here are a few reasons why people are paying a premium for SaaS companies:

    • Generational shifts are taking place within the software industry where everything is moving online, and the vast majority still isn’t web enabled
    • Few companies are growing fast, let alone experiencing hyper growth with no signs of slowing down
    • Subscription (recurring) revenue combined with strong gross margins and high renewal rates results in one of the best business models anywhere
    • Opportunities to consolidate competitors and create more economies of scale abound
    • Most SaaS companies spend a disproportionate amount of revenue on sales and marketing to fuel growth, and can turn it off (with some pain) such that they’d become extremely profitable

    While I believe SaaS companies are overvalued due to a lack of growth companies in general, there’s still tremendous growth ahead that bodes well for the sector. With strong growth rates and renewal rates, SaaS companies are going to get a premium over their peers.

    What else? What are some other thoughts on SaaS company valuation premiums?

  • Time to Shut Down a Startup

    Last week an entrepreneur emailed me that he’s shutting down his startup and moving on. After working hard, spending many months on the idea, and over $100,000 of personal savings, it was clear that the business wasn’t going to be successful. There were a number of signs leading up to his decision.

    Here are a few indicators to evaluate if it’s time to shut down a startup:

    Deciding to shut down a startup is a difficult decision. Once the decision is made, and the trigger is pulled, the result is a major sense of relief.

    What else? What are some other indicators when deciding to shut down a startup?

  • How to Decide if Inside Sales Makes Sense

    With all the talk about sales and cold calling, it’s important to step back and run some simple math to see if inside sales even makes sense. Most entrepreneurs fail with their first sales rep for a variety of reasons and really should just hire a sales assistant. Assuming the sales assistant is already in place, let’s run through some logic to see if it makes sense to hire an inside sales rep:

    • Take the average gross margin in the business (e.g. 30-80% based on the type of company — let’s say 70% for a Software-as-a-Service business)
    • Grab the average deal size in the first year (e.g. $1,000)
    • Evaluate the cost of salary and commission to hire the caliber person required to be successful (e.g. $35k base and $75k on target earnings)
    • Figure out how many deals are required for the gross margin to match the fully loaded costs of the sales rep
    • If the gross margin of the first year is greater than or equal to the expected output of the sales rep, hiring a sales rep makes sense
    • Here’s the math for the example above:
      $75,000 + taxes for the sales rep = $85,000
      70% gross margin times $1,000 per deal times X number of deals = $85,000
      121 deals at $1,000 per deal = $121,000 times 70% gross margin = $85,000
      121 deals are required for the sales rep to make sense.

    So, run the numbers based on educated guesses and see if it makes sense to hire an inside sales rep. Generally, as the average customer value goes up and the sales cycle goes down, inside sales makes more sense.

    What else? What are some other thoughts on how to decide if inside sales makes sense?

  • Plan for Three Years of Personal Runway

    For years I thought that entrepreneurs should plan for two years of personal runway to have sufficient time to iterate on an idea and get to break even. Looking back on it, I was wrong. After starting a few companies and investing in several more, I now believe entrepreneurs should plan for three years of financial runway.

    Here are a few reasons why entrepreneurs should plan for three years:

    • Pardot took three years and Hannon Hill took four years to clear $1 million in revenue ($1 million is a great milestone for sustainability as well as the ability to pay a decent salary for the founders)
    • Almost all successful companies go through at least one pivot (see examples)
    • Finding product/market fit often takes 1-2 years and building a repeatable customer acquisition process often takes 1-2 years, making the prospects of solid revenue in less than three years unlikely (see the 4 Stages of a B2B Startup)

    So, when thinking about taking the entrepreneurial plunge, budget for three years of personal runway. Building the base of a successful business is a long, hard process.

    What else? What are your thoughts on planning for three years of personal runway?

  • The 10x Improvement Challenge

    Entrepreneurs have an innate ability to solve problems and continuously find ways to make things better. I, like many entrepreneurs, have a tendency to look for incremental improvements e.g. let’s figure out how to shorten the sales cycle from 43 days to 42 days. Instead, entrepreneurs need to challenge themselves to find 10x improvements.

    Here are a few examples of potential 10x improvements:

    • Cold Calling – Say your reps are doing 30 dials per day and getting three conversations per day. What if you implemented a service like ConnectAndSell and did 300 calls per day and had 30 conversation per day per rep?
    • Marketing – Say your cost per marketing qualified lead (MQL) is $200. What if you truly invested in great content (not average content) for inbound marketing and drove the cost per MQL to $20?
    • Support – Say your customer support team processes 100 tickets per day. What if you revamped the product’s user experience and associated help/training materials such that customers had a much better experience and support tickets dropped to 10 per day?

    The next time you want to improve something, stretch your brain and look for ways to make it 10x better and not 10% better.

    What else? What are your thoughts on the 10x improvement challenge and what are some more examples?