David Cummings on Startups

Author: David Cummings

  • Good Ideas Come From Internal Challenges

    One of the best ways to come up with entrepreneurial ideas is to look at internal challenges. Every company has problems and opportunities that aren’t being met, some more obvious than others. Here’s a simple exercise: take the three smartest people in your organization that you have good rapport with and ask them about their three biggest challenges. With these nine challenges in hand, whittle them down to your three favorite. Now, reach out through friends and acquaintances to do customer discovery (example guide) as to which one has the most opportunity. Voila, there’s a potential business idea.

    Here’s how my entrepreneurial endeavors evolved:

    • Built websites in high school and college and couldn’t find a good content management system, so Hannon Hill was born
    • Had limited visibility into sales and marketing effectiveness at Hannon Hill, so Pardot was born
    • Had a tough time connecting Pardot to other cloud-based apps to exchange data, so Kevy was born

    The next time someone says they want to be an entrepreneur but don’t have a good idea, take them through this simple process.

    What else? What are your thoughts on good ideas coming from internal challenges?

  • Writing as Another Muscle You Develop – An Example Routine

    One of the more popular questions I get is “How do you write a blog post everyday?” I think the “why” question is more interesting, but the “how” comes up more often. Here’s my routine:

    • Keep a list of possible topics on my iPhone (I usually add 1-2 topics per day)
    • Major news or announcements immediately become top priority (like Salesforce.com buying ExactTarget/Pardot)
    • Review the list of potential topics and take the one that is most interesting (weekends are toughest since professional conversations are where most of my ideas come from)
    • Time box the writing of the post to 25 minutes — crank it all out and let it marinate a bit
    • If traveling, write a few posts in advance, otherwise write each post on the day it’s published
    • Find a rhythm and stick to it (my original goal was to write one post a week and I found it easier to do it daily)

    After writing daily for a month, things become much easier and it felt like I was developing a muscle. With a few years under my belt, I don’t think too much of it anymore.

    What else? What are your thoughts on writing as another muscle you develop?

  • The #1 Thing Entrepreneurs Don’t Want to Hear

    Entrepreneurs love challenging the status quo. Every problem is a new opportunity. For entrepreneurs, the most exciting part is creating a solution — building a new mobile app, delivering a breakthrough service, or reinventing a stodgy industry. Energy, excitement, and focus are all on the solution. Only, that’s the easy part.

    The real challenge is sales and marketing.

    The number one thing entrepreneurs don’t want to hear is that they have to become an expert at building a customer acquisition machine.

    Think about it: how often do you hear an entrepreneur, upon announcing failure of the business, say it was a product issue vs a sales issue? Failing due to a lack of sales dwarfs all other reasons combined.

    The next time an entrepreneur excitedly shares an idea with you, ask how much time, effort, and money they’re going to put into building a customer acquisition machine.

    What else? Do you agree that the number one thing entrepreneurs don’t want to hear is that they have to become great at sales and marketing?

  • Are we in a tech bubble?

    Last week a colleague asked me if we were in the middle of a tech bubble and I immediately said “no way.” He theorized that five years from now things will have settled down and tech would not be getting the attention it gets now. I fumbled through a response and thought to myself that I needed to better articulate why we aren’t in a tech bubble.

    Here’s why the tech renaissance is going to last:

    • Fast internet access is prevalent everywhere — both wired and wireless
    • Widespread smart phone adoption means most people have a powerful computer on their person at all times
    • Costs to build and deploy a web/mobile app have gone down significantly due to open source, cloud computing, and new technologies
    • Startup funding, especially outside of Silicon Valley and New York, has been relatively steady, if not declining, meaning we aren’t seeing an unsustainable level of investment like in the late 1990s
    • Development of startup communities is more well understood, especially the concept of startup density, serendipitous interactions, strong networks, and more
    • Methodologies like the lean startup and customer development help de-risk part of the equation
    • Software-as-a-Service (SaaS) is a real phenomenon driving down the cost of IT while improving adoption and effectiveness

    Overall, we’re only scratching the surface with how the internet and mobile are changing the way people work and live. We’re not in a tech bubble and the future is bright.

    What else? What are your thoughts on a current tech bubble?

  • HubSpot as the Next Mainstream CRM

    With all the talk about Salesforce.com buying ExactTarget, there’s another company that needs to be mentioned: HubSpot. HubSpot is a great inbound marketing software company based in Boston. Early on, HubSpot was focused on being a blogging platform with related search engine optimization tools. Over time, they morphed into an all-in-one marketing platform with blogging, SEO, email marketing, marketing automation, and social media marketing. So, how does this fit in with Salesforce.com?

    Well, Salesforce.com is an investor in HubSpot and HubSpot is a Salesforce.com AppExchange partner. HubSpot is emphasizing marketing automation and is moving up market, going from micro seven person companies with no dedicated marketing person to the SMB segment with dedicated marketers and a CRM. Their most common CRM integration is Salesforce.com. So, if you’re moving up market and your investor/most common integration partner buys a company that does amazing marketing automation (and soon will be the de facto standard), it’s time to think hard about the long-term strategy.

    Since I no longer have a dog in the fight, here’s the answer: HubSpot needs to parlay their powerful system into being a full blown CRM and remove Salesforce.com from the equation. Businesses want the best tools to sell more stuff, and want it at a reasonable price. Salesforce.com is crazy powerful, but at $700 – $1,200 per user per year, it’s the most expensive system in the market (add another $1,000/month for marketing automation capabilities from Salesforce.com). There’s a real opportunity for a CRM priced in the $120 – $240 per user per year range with all the corresponding marketing automation capabilities. The right system can and should support both sales and marketing.

    Outside of adding more CRM capabilities to the basic contact management they already have, the other big missing ingredient is third-party integrations. Looking at the HubSpot App Marketplace, there’s a handful of integrations, but not much compared to the Salesforce.com AppExchange. Connecting with a few integration-as-a-service providers will really help expand the number of potential integrations.

    So, I see three changes for HubSpot to make:

    • Turn the contact management functionality into a full CRM (opportunity pipeline, call logging, scheduling, etc)
    • Put more resources into the App Marketplace and ensure the top 50 cloud apps used by 80% of the customers have a great integration
    • Add an additional per user pricing option in the $15/user/month price range with metered pricing on web traffic and email sends (right now all pricing is based on marketable database size and functionality)

    This changes the focus of HubSpot while helping them get closer to their value proposition: helping companies make more money. More tools, more systems, more user interfaces to learn adds more complexity. Companies just want great tools to close more business faster. HubSpot can do that. Salesforce.com needs a mainstream CRM competitor.

    What else? What are your thoughts on HubSpot as the next mainstream CRM?

  • Pardot as the World’s Most Widely Used B2B Marketing Automation System

    In last night’s post Thoughts on Salesforce.com Acquiring ExactTarget/Pardot, I missed making the most important point: Pardot will shortly become the world’s most widely used B2B marketing automation system and be the defacto standard. Much like QuickBooks dominates the market for SMB accounting software, Pardot will dominate the SMB marketing automation market.

    As an entrepreneur, the goal is to change the world. With Pardot, it’s amazing to think that the product we helped birth is going to be the most popular product of its kind and will be used by millions of people around the world. Pretty awesome!

    Salesforce.com has 130,000 customers. Marketo has 2,100 customers. Pardot has 1,400 customers. Eloqua has 1,200 customers. What percentage of Salesforce.com’s customers, growing at a rate of 4,000 per quarter, will become Pardot customers over the next 1 – 2 years? How about in five years? The opportunity for Pardot to have tens of thousands of customers is readily apparent. What’s my guess as to the percentage of Salesforce.com customers that eventually become Pardot customers? Answer: 15%. And, as Salesforce.com grows its customer base, so too grows the Pardot customer base.

    Man, it feels good to have a product become the standard in the market.

    What else? What are your thoughts on Pardot becoming the world’s most widely used B2B marketing automation system?

  • Thoughts on Salesforce.com Acquiring ExactTarget/Pardot

    Wow! Earlier today Salesforce.com announced it was buying ExactTarget (which includes Pardot) for $2.5 billion in cash (yes, cash). This is a great acquisition for Salesforce.com as they have a strong sales and service cloud but a weak marketing cloud (Buddy Media and Radian6 are social media marketing but not core marketing). Way back in 2009, I was pitching VCs to invest in Pardot (we didn’t raise money) and one of the most common questions was “What’s the exit strategy for Pardot?” My immediate response was that Salesforce.com was the most logical acquirer and that every CRM customer should also be a marketing automation customer. Well, the idea will finally come true.

    Here are a few thoughts on Salesforce.com acquiring ExactTarget/Pardot:

    • ExactTarget has an amazing culture (called “Orange”) with strong mid-western values whereas as Salesforce.com is typical Silicon Valley
    • Email marketing has been the #1 most requested feature for Salesforce.com on their idea exchange for as long as I can remember (ExactTarget is more for the mid-market and enterprise, but will finally allow Salesforce.com to check off that feature)
    • Marketing automation vendors like Marketo and others have real challenges ahead of them since over 80% of their customers use Salesforce.com (Salesforce.com will keep integrating with all the marketing automation vendors but now Pardot becomes the default standard)
    • Cloud marketing software as a fast-growing opportunity has really been validated lately with all the large acquisitions
    • Pardot has an opportunity to be a billion dollar a year business for Salesforce.com within 5 – 7 years due to how complimentary it is to their core sales offering

    Overall, it’s been amazing to be part of the marketing automation industry and I’m excited that Pardot ended up with the cloud leader.

    What else? What are some other thoughts on Salesforce.com acquiring ExactTarget/Pardot?

  • Strong Employee Loyalty as an Atlanta Startup Strength

    When thinking about startup strengths for Atlanta, everyone knows the common ones like low cost of living, great Georgia Tech talent, abundant young professionals, and general excitement in the community. There’s another Atlanta startup strength that needs more coverage: strong employee loyalty.

    Here are a few thoughts on strong employee loyalty as an Atlanta startup strength:

    • Part of Atlanta’s Southern culture is a focus on people and relationships, which results in more emphasis on the team and less on jumping ship to the hotter startup down the road
    • Tech talent is at a premium and there’s a real shortage of software engineers, making strong employee loyalty more important than people realize
    • Training a new employee often costs 10 – 20% of first year’s salary, making it an expensive proposition that increases the value of employee retention
    • Referrals are the best source for new hires and loyal employees are more likely to recommend friends

    Of course, things like a great corporate culture, awesome mission, and competitive wages are a pre-requisite for strong employee loyalty regardless of location. Strong employee loyalty is an Atlanta startup strength compared to the top high tech centers in the country.

    What else? What are your thoughts on strong employee loyalty as an Atlanta startup strength?

  • Opportunities for More High Density Startup Buildings in Metro Atlanta

    One of the more common questions I get about the Atlanta Tech Village is regarding opening up other locations. My response is always that we’re focused on making our current building the flagship facility for technology entrepreneurs in the Southeast and the country, and aren’t currently looking at any other opportunities. Is there room for more high density startup buildings in Metro Atlanta? Absolutely!

    Here are a few thoughts on opportunities for more high density startup buildings in Metro Atlanta:

    • Buckhead – I believe ATV will satiate all the demand for open coworking, private rooms, and modular suites for tech companies and startups under 25 people while there is opportunity for another building for growth startups that have “graduated” from ATV
    • Midtown – There’s plenty of opportunity in Midtown, evidenced by the ATDC having a waiting list, Hypepotamus being full, and the success of the Biltmore
    • Old Fourth Ward / Inman Park – A tech co-working space with plenty of private rooms would do well in Ponce City Market or a place nearby due to all the creative professionals in the area
    • Downtown – 200 Peachtree Office is a co-working space in a great location downtown with many amenities
    • Perimeter – With a few MARTA stations, GA 400 and 285, as well as a number of tech companies like AirWatch, the necessary ingredients are in place to support a facility with coworking, private rooms, and some modular suites.
    • Suburbs – Tech heavy suburbs like Marietta, Alpharetta, and Norcross should be able to support a small-to-medium sized facility, especially if there’s a public/private partnership arrangement

    Overall, there’s an opportunity for a number high density startup buildings in the 5,000  – 20,000 sq ft range. One of the biggest challenges is that a large number of members is necessary to support having a dedicated staff, which is required for a successful community, and that makes smaller facilities often unworkable. I’m looking forward to more high density startup buildings in Atlanta.

    What else? What do you think of the opportunities for more high density startup buildings in Metro Atlanta?

  • Notes from the Textura S-1 IPO Filing

    Curiously, I recently saw a report of a Chicagoland Software-as-a-Service (SaaS) company called Textura filing their S-1 to go public with only $21.7 million in sales for fiscal 2012. ChannelAdvisor just had a successful IPO with only $53.6 million in trailing twelve months revenue, which is considered low by IPO standards, but it was well received nonetheless. Now, $21.7 million in sales in significantly lower than other SaaS IPO filings, so I had to dive and learn more.

    Here are notes from the Textura S-1 IPO filing:

    • Provides on-demand business collaboration software to the commercial construction industry (pg. 1)
    • Specific modules for payment management, document management, project bid management, contractor qualification, and environmental certification processes (pg. 1)
    • 12,000 commercial construction projects have been managed with the system (pg. 2)
    • Revenues (pg. 2)
      2010 – $6.0 million
      2011 – $10.5 million
      2012 – $21.7 million
    • Losses (pg. 2)
      2010 – $15.9 million
      2011 – $18.9 million
      2012 – $18.8 million
    • Accumulated deficit of $146.2 million (pg. 12) (Note: Take ~$40 million in losses from 2011 and 2012 out of the accumulated deficit and that leaves you with ~$100 million being burned to get to the point where the business generated $6 million in revenue in 2010)
    • Ten largest clients represented 41.5% of 2012 revenue (pg. 13)
    • Largest client represented 10.8% of 2012 revenue (pg. 13)
    • Sales cycle of a year or longer to secure a new client (pg. 15)
    • $8.1 million of the new proceeds will be used to repay debt (pg. 29)
    • Already built their own 63,000 sq ft corporate headquarters with a $11.9 million loan and tripped their mortgage covenant (pg. 67)
    • 287 employees (pg. 92)
    • CEO/co-founder 2012 cash compensation was $1,145,000 (pg. 100)
    • CEO/co-founder owns 9.1% of the company (pg. 120)

    Overall, this SaaS IPO filing is unusual due to the small amount of overall revenue and high revenue concentration among a small number of clients. Add in the fact that the company already built their own corporate headquarters and it doesn’t feel like the usual SaaS IPO. Textura has a big market opportunity and a great growth rate, so it’ll be interesting to see how it does in the public markets.

    What else? What are some more thoughts on the Textura S-1 IPO filing?