Author: David Cummings

One of the ways we promote the Atlanta Tech Village is that it’s a community of entrepreneurs helping other entrepreneurs. Entrepreneurs are typically great at one thing — say fundraising, product development, or sales — and not as strong in other areas. Yet, entrepreneurs are almost always glass-half-full people that want to help and bring out the best in others. So, by having hundreds of entrepreneurs in the same building, they inevitably help each other with the ultimate goal: increasing the chance of success for the whole community.

Only, this isn’t unique to entrepreneurs helping entrepreneurs. Anyone can make a difference and help an entrepreneur.

Know any potential customers?

Know any potential mentors?

Know any potential employees?

Know any potential investors?

See, entrepreneurs always need help with something. The best way to find out? Just ask.

The next time you talk to an entrepreneur, ask them where they need help. Who knows, you just might have the solution.

Go help an entrepreneur. Let’s increase everyone’s chance of success.

Last week I was meeting with an entrepreneur and he described a number of projects in flight. They were raising money, launching a new product release, hiring two new VPs, and the list went on and on. We were about to drill into a few things he mentioned when he said, “With all that said, we have one main goal for the year: raise gross customer retention to 85%.” Then, he shared how everyone is driving towards that common goal.

If there are too many priorities, there are no priorities.

If there are too many goals, there are no goals.

For this startup, everyone was 100% aligned that raising their retention metrics was the most important thing.

For sales, it was was selling better-fit customers (won’t reflect in this year’s numbers but will in subsequent years).

For marketing, it was more messaging around value and ROI.

For support, it was improving customer satisfaction scores and going deeper than just resolving a ticket.

For product, it was prioritizing bug fixes and more difficult edge cases.

Every team, and every team member, was completed aligned around raising customer retention rates as the main goal for the year.

The next time the desire emerges to have more goals and more priorities, fight the urge and focus on one thing. Achieving one critical goal is more important than chasing multiple less important ones.

What’s your main goal for the year?

One of my favorite types of entrepreneur meeting is the successful bootstrapped founder contemplating how to grow faster. Partly, this is because I was in this situation in the past, and partly because it’s a nuanced topic with no easy answer. Outside of considerations like personal dreams/aspirations, capital availability, and lifestyle, the most tactical area to drill into is the financial aspects. More specifically, how to answer the question: when does it make financial sense to raise capital?

To answer this question, I imagine a business as a machine. The goal of the machine is put money into it and generate an output that’s a more than what was put in plus a return for the effort, cost of capital, etc. Taking this one step further in the context of raising money, and the corresponding dilution to the founders and the team, the value that’s created taking on the capital has to more than make up for the reduced ownership in the business.

Let’s break it down into a company valuation formula:

Valuation

• Annual Recurring Revenue (ARR) * Growth Rate (GR) * 1.5(Net Dollar Retention (NDR)) * 15 (this number goes up and down dramatically based on the public markets, gross margins, customer acquisition costs, total addressable market, etc.) = Valuation
• Example: $10M ARR growing 50% YoY with 120% NDR is roughly valued at $10M * .5 * 1.8 * 15 = $135M
• Note: BVP Cloud Index is at a 14x average revenue multiple, so this example at ~13.5x ARR is inline (this example is growing faster than the public company average but doesn’t have public company scale)

So, the primary levers are recurring revenue and growth rate with a secondary lever being net dollar retention (if net dollar retention is below 100%, it starts penalizing the valuation quickly).

For simple math, let’s peg it as costing $2 to add $1 of recurring revenue. Assuming growth rate and net dollar retention stay constant (growth rate as an annual percentage usually declines 10% per year), we now know that for every $2 we put into the business we add $13.50 in value (or $1 for $6.75 in value). A good trade! This value then compounds on itself due to the net dollar retention above 100%, making the business grow in value each year without additional investment (assuming growth rate didn’t change, which it would).

If the example startup is worth $135M and a new investor puts in $10M, the business will become $67.5M more valuable by adding $5M in new annual recurring revenue. Assuming 7% equity dilution for this new money ($10M/$145M), and a 50% increase in valuation, this is an accretive deal to the founders. Ideally, there would be a large difference between equity value reduced from dilution and equity value gained from increased valuation to account for uncertainty.

Entrepreneurs should consider a formula that takes into account valuation, dilution, and valuation changes due to capital deployment in an effort to assess if it makes financial sense to raise capital. When the engine is working well, it often makes sense. When the engine isn’t working, it’s time to fix the engine before raising money, if possible.

In the last All-In Podcast, David Friedberg laid out a great rubric for business value creation. While visionaries get excited by a future state and entrepreneurs get excited by an idea, it takes all that, and more, to create real value.

David Friedberg’s rubric for value creation in a business All-In podcast episode 62 (at the 50 minute mark):

1. Can you make a product?

2. Do people want to buy your product?

3. Can you make a positive gross margin selling the product?

4. Can you make a return on the marketing dollars you have to spend to
generate the gross profit?

5. Can you scale the amount of money to grow your business such that
as you grow the return goes up, not down?

6. Can you transition to being a platform (multi-product company)?

This articulation of the business value creation journey is the best I’ve ever seen. Share this with every entrepreneur you know and ensure they think through it on their journey.

Last week I was looking at the pricing plans for a startup and it screamed complexity. Tons of plans, tons of upsells, tons of dimensions — it felt like optimizing for the business as opposed to the consumer. Of course, we see complexity on a regular basis (healthcare invoices, etc.), unfortunately making them feel more acceptable.

Instead of having 50 questions on the quarterly survey, have the 10 most important.

Instead of having six pricing plans, have three and a “call for custom” option.

Instead of providing a four page menu, have a two page menu with the best items.

The simplicity tradeoff is worth it.

Yes, some money might be left on the table. Yes, some options will have room for more variability.

Fight the urge to optimize. Fight the desire to add more complexity.

Instead, focus on reduced friction. Focus on higher effort to value for everyone involved.

Erring on the side of simplicity is worth it. Similar to the famous quote, “If I had more time, I would have written a shorter letter”, take the time to cut out the complexity and make it simpler.

After an entrepreneur has achieved product/market fit, I like to ask about their execution methodology. What do they use? Why? How did they select it? What parts do they like? What parts don’t they like? Quite often, I get a response that they don’t have an execution methodology and they are interested in learning more.

An execution methodology is simply a framework for getting things done personally and in your organization.

Early in the entrepreneurial journey it’s easy to keep everyone on the same page due to the continuous interaction and iteration. Only, as the organization grows, complexity grows exponentially. Systems and methodologies provide a way to scale in a maintainable, elegant manner.

Here are a few execution methodologies entrepreneurs use and their main categories of focus:

Scaling Up / Mastering the Rockefeller Habits

• People
• Strategy
• Execution
• Cash

Traction / Entrepreneur Operating System

• Vision
• People
• Data
• Issues
• Process
• Traction

The 4 Disciplines

• Focus on the Wildly Important
• Act on the Lead Measures
• Keep a Compelling Scorecard
• Create a Cadence of Accountability

And, of course, one my personal favorites for ease of use is the Simple Strategic Plan.

Whatever the case, pick an execution methodology. Embrace the core concepts and help your organization scale.

Happy New Year!

Christmas came a few days early this year when we announced Vista Equity acquired a majority stake in Salesloft. Salesloft powers the modern revenue workspace for digital selling, insights, and coaching. Think of software that helps sales team significantly increase their effectiveness at selling and is directly in the path of revenue.

Salesloft is partly a story of major pivots. 10 years ago the initial product was a job change alerts app that notified sales reps when a contact joined a new company. That idea failed and the company morphed into a contact scraping and leads database. While the prospector product took off and generated millions of revenue, it was eventually shutdown. From there, the final pivot was to a sales engagement platform that achieved the proverbial hockey stick growth and recently hit $100M in annual recurring revenue. Prior to the Vista Equity acquisition, Salesloft had $246M of funding (Crunchbase) and 762 employees (LinkedIn).

Salesloft is mostly the story of the will, determination, and grit of the entrepreneur Kyle Porter. From a full reboot of the business in the early days, to multiple pivots, and recently navigating the pandemic, Kyle has endured the high highs and low lows of entrepreneurship many times over. And, one of his super powers is recruiting an amazing team starting with Rob Forman. Rob was introduced to Kyle through a chance encounter at a local event. From there, the two hit it off and developed one of the strongest yin/yang partnerships I’ve ever seen. The team grew to include incredible leaders across all the functions including Ellie, Sydney, Scott, Chad, Steve, and many others.

Of course, Kyle was the visionary all along. Through a strong focus on organization health, never ending love for the customer (#saleslove), bold acquisitions of several companies, and masterful fundraising, Kyle operated in one of the most aggressive, yet thoughtful, ways imaginable.

I’m going to miss being on the board of Salesloft for the next stage of the journey but Kyle and the amazing team at Vista Equity will take it to new heights. Being on the Salesloft journey for the last 10 years with Kyle and his team was one of the highlights of my career and I’m incredibly humbled and appreciative to be a small part of it. Onward and upward!

Last week I had the opportunity to join a panel with Lisa Calhoun and Kyle Porter moderated by Godard Abel of G2. Near the end of the audience Q&A session, someone asked for advice we’d share with entrepreneurs and Kyle offered up the best answer: personally grow faster than the startup. While it sounds easy at first, it’s incredibly hard.

Everyone focuses on startup growth. What about this sales and marketing strategy? What about a freemium model? Should we invest more in this? While that deservedly gets attention, when startup growth is working, even more attention needs to be paid to personal growth.

So, how do you grow faster than the startup?

Invest in yourself.

Invest in a peer group. Join the Entrepreneurs’ Organization or the Young Presidents’ Organization. Search Meetup for local startup and tech groups. Ask your local Tech Village equivalent for organizations in the area. Seek out groups of other people that want to grow and get involved.

Invest in learning. Find entrepreneurs you admire and read their books. Find authors that write about topics you care about and read their blogs. Find conferences and programs where you can immerse yourself.

Invest in a coach. Find a business coach that you meet with regularly. Commit to a program and process. Let someone else help you maximize your potential.

Invest in yourself in a systematic way. Carve out the time. Put in on your schedule. Make the commitment.

Growing personally is one of life’s great joys. Doing so in a way that keeps you ahead of your startup’s growth is one of the secrets to success. Put a plan in place and ensure that personal growth is faster than startup growth.

In today’s world of abundant capital and frothy valuations, it’s easy to think this is the new normal. While that could be the case, it’s likely that we’ll see some reseting of valuations to a lower normal in the next five years, but who knows if that’s three months from now or three years from now. This especially comes into play with exit expectations and capital raised.

Remember this: startups generally need to exit for 10x the capital raised for everyone to be happy.

Raise $2M more, raise the exit bar another $20M.

Raise $10M more, raise the exit bar another $100M.

Raise $100M more, raise the exit bar another $1B.

Last week I was talking to an entrepreneur about this very topic. Do they raise a huge amount at a big valuation and set an incredibly high bar, or do something more modest and maintain more optionality? There’s no right or wrong answer, but the financial return goals are an important consideration.

Entrepreneurs should understand the trade-off between more capital and higher exit expectations. When raising capital, consider an exit of 10x the funding as a standard.

Balaji Srinivasan has an excellent Startup Engineering paper titled Market Research, Wireframing, and Design that serves as a Startup 101 guide for entrepreneurs. The big idea is that starting a startup without deep thought, research, and exploration in advance is a poor way to do it. So much depends on the market, execution, and timing that more intentionality is needed upfront. From startups vs. small business to economies of scale to market sizing, there’s much more to selecting a great idea.

An excellent breakdown of the stages of the entrepreneurial journey:

Stage	What’s required to complete?	Min Time
Idea	Napkin drawing of billion dollar concept	1 minute
Mockup	Wireframe will all user screens	1 day+
Prototype	Ugly hack that works for single major use case	1 weekend+
Program	Clean code that works for all use cases, with tests	2-4 weeks+
Product	Design, copywriting, pricing, physical components	3-6 months+
Business	Incorporation, regulatory filings, payroll, …	6-12 months+
Profits	Sell product for more than it costs you to make it	1 year+++

Srinivasan then takes the reader through ways to do market research using Google’s Keyword Planner and Facebook’s Advertiser Tools combined with landing pages, ads, and SEO. So much of what previously was guessing and gut checks can now be assessed and analyzed fairly quickly. Again, entrepreneurs should do the work before choosing an idea haphazardly.

Finally, the author goes through how to think about pricing and packaging, wireframing, copywriting, and design — all critical elements that traditionally don’t get enough attention.

Part high level strategy and part tactical ideas, every entrepreneur that isn’t already scaling their business should go read Market Research, Wireframing, and Design.