David Cummings on Startups

Author: David Cummings

  • New Year’s Resolutions and SMART Goals

    New Year. New goals. Welcome 2017! I’ve mentioned it before but it’s worth repeating: set SMART goals. Too often, I hear goals that are vague and ill-defined. At a minimum, make them measurable with a defined due date.

    From our friends at Wikipedia, here’s the original definition of SMART goals:

    • Specific – target a specific area for improvement.
    • Measurable – quantify or at least suggest an indicator of progress.
    • Assignable – specify who will do it (alternatively, use achievable to denote goals that can be accomplished).
    • Realistic – state what results can realistically be achieved, given available resources.
    • Time-related – specify when the result(s) can be achieved.

    Take each New Year’s resolution you have and make sure they follow the SMART goals format — it’s worth it. Here’s to a great new year.

    What else? What are some more thoughts on New Year’s resolutions and SMART goals?

  • Values Reflection at the End of Year

    With the end of 2016 near, it’s time to reflect on the very core: values. Values are how we act when no one is looking. For the Atlanta Tech Village:

    • Be nice
    • Dream big
    • Pay it forward
    • Work hard/play hard

    Check. Check. Check and check. Those core values feel right.

    At a personal level, my company core values:

    • Positive
    • Self-starting
    • Supportive

    Definitely. I want to spend time with people who are positive, self-starting, and supportive. A quick review of the values and everything feels right.

    Here’s to closing out a great 2016. Happy New Year!

  • The TechRise Addition to Atlanta’s Startup Community

    Urvaksh broke the news earlier today with his article 100,000-square-foot startup hub ‘TechRise’ planned for Buckhead. Atlanta entrepreneur Greg Benoit sold part of his SaaS physician scheduling company QGenda earlier this year and founded TechRise Ventures to invest in startups. Now, he’s purchased the building next door to the Atlanta Tech Village, 3405 Piedmont Rd., and added another 100,000 feet of space to Atlanta’s startup community: TechRise.

    TechRise is geared towards startups that have raised a Series A or have at least a million in recurring revenue (often 15+ employees) and want a shorter term lease (typically one year) in turn-key space. This is perfect for companies that graduate from the Atlanta Tech Village as well as other co-working spaces in town.

    More startup space in town is great for all the right reasons:

    • Density – Clusters of like-minded people that help each other and share ideas increases everyone’s chance of success. Now, this one section of Buckhead in Atlanta has more startup space in a city block than almost anywhere else in the United States.
    • Community – Educational events, networking, and programs are all important elements of building community. Now, there’s even more scale to the community.
    • Giving Back – Greg’s continuing to set the tone as a community that gives back and helps pay it forward for the next generation of entrepreneurs.

    Congratulations to Greg on the purchase of TechRise and here’s to the continued success and growth of the Atlanta startup community.

  • Notes from the AppDynamics S-1 IPO Filing

    AppDynamics, a fast-growing application performance management software company, just filed their S-1 IPO filing to go public. AppDynamics has raised a huge amount of money ($300+ million) and is growing super fast (>50%), making it one of the higher profile B2B software companies to file recently.

    Here are a few notes from the S-1:

    • The integrated suite of applications monitors the performance of software applications and IT infrastructures, down to the underlying code, and automatically correlates them into logical “business transactions,” such as booking a flight in a web browser, transferring money on a mobile device, getting directions through a car’s navigation system or locating physical goods in an inventory system. (pg. 1)
    • 1,975 customers (pg. 2)
    • Revenues (pg. 2):
      • 2014 – $23.6 million
      • 2015 – $81.9 million
      • 2016 – $150.6 million
    • Net losses (pg. 2):
      • 2014 – $68.3 million
      • 2015 – $94.2 million
      • 2016 – $134.1 million
    • Industry Background (pg. 2):
      • Enterprises are Undergoing Digital Transformations
      • IT Investments are Moving to Customer-Facing Software Applications
      • Velocity is Critical
      • Accelerating IT Complexity
    • Internally estimate that the total addressable market for the solution is approximately $12 billion (pg. 4)
    • Revenues nine months ended October 31, 2016 (pg. 12):
      • Subscription $110 million
      • License $32.6 million
      • Professional services $15.7 million
      • Total: $158.4 million
    • Accumulated deficit of $476.8 million as of October 31, 2016 (pg. 16)
    • Mix of time-based licenses, SaaS subscriptions and perpetual licenses and the mix of applications sold (pg. 23)
    • Competition for people in our industry, especially in the San Francisco Bay Area is intense and often leads to increased compensation and other personnel costs. (pg. 29)
    • Federal, state and foreign net operating loss carryforwards (NOLs) of $182.1 million, $199.8 million and $94.7 million (pg. 42)
    • Cash, cash equivalents and marketable securities of $142 million (pg. 57)
    • SaaS subscriptions and time-based licenses are typically one or three years in duration, and are bundled with software updates and customer support services (pg. 67)
    • As of October 31, 2016, we had more than 165 customers with a life-to-date total contract value greater than $1 million, an increase from just over 20 such customers as of January 31, 2014 (pg. 70)
    • We have increased our sales and marketing headcount from 157, as of January 31, 2014, to 485, as of October 31, 2016 (pg. 70)
    • 2016 dollar-based net retention rate of 123% (pg. 71)
    • In the fiscal year ended January 31, 2015, we recognized the settlement costs of $10.0 million related to our litigation with CA, Inc. (pg. 75)
    • Founder/Chairman equity: 14.2% (pg. 153)

    I think AppDynamics has the scale and growth to have a well received IPO but I think the heavy losses and high percentage of license and services revenue relative to subscription revenue will make it less desirable compared to equivalent SaaS companies.

    Congratulations to the entire team at AppDynamics for building a large, fast-growing company.

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

  • Seven Spectrum of Outcomes for AI

    Ray Wang has an interesting post up titled Understand The Spectrum Of Seven Artificial Intelligence Outcomes. From the post, here are the seven:

    1. Perception – What’s happening now?
    2. Notification – What do I need to know?
    3. Suggestion – What do you recommend?
    4. Automation – What should I always do?
    5. Prediction – What can I expect to happen?
    6. Prevention – What can I avoid?
    7. Situational Awareness – What do I need to do right now?

    rwang0-spectrum-of-outcomes-for-ai-1440x800

    Just think of how artificial intelligence is applied to every B2B SaaS application using these seven questions as a thought exercise — there are so many amazing possibilities.

    It’s a great time to be an entrepreneur.

  • 8 Questions to Ask at an Annual Financial Plan Review

    After reviewing a number of annual financial plans, both department and company-wide, I’ve created a list of questions to ask in an attempt to help think through the high-level topics and generally make sure things make sense. A financial plan is a detailed financial model incorporating a number of elements like assumptions (e.g. ratios of account executives to sales development reps), budget line items, and specific targets (e.g. sales).

    Here are eight questions to ask at an annual financial plan review:

    1. What are the top three takeaways from the plan? What’s the big picture?
    2. What are the biggest risks? What are the biggest differences from the prior year results?
    3. Are the ratios and assumptions in the range of other similar startups (e.g. percent of company in product development as compared to other SaaS startups)?
    4. Does the burn rate and the corresponding revenue growth make sense (e.g. the growth in recurring revenue should at least be larger than burn, if not a multiple of it)?
    5. Is the hiring plan achievable? Is there a pipeline of candidates already in place?
    6. What financing has to take place during the year, if any? Is there enough time to run a process?
    7. What product enhancements need to happen to achieve key targets like renewal rate and average revenue per account?
    8. What do the key metrics like revenue, revenue growth rate, gross margin, and churn rate look like? Are they trending in the right direction?

    Annual financial plans are critical for startups, especially post product/market fit. Ask these eight questions and work to understand the big picture.

    What else? What are some questions to ask at an annual financial plan review?

  • Final End of the Year Review

    Now that we’re in the last week of the calendar year, it’s time for one last end of the year review. As an entrepreneur, there are so many things going on that it’s easy to not stop and take care of the basics. Here are a few ideas to put on your end of year review:

    • Thank your friends and family for all the support they provide
    • Tell your employees and team members how much you value them
    • Reach out to your board, advisors, mentors, and coaches and tell them what they mean to you
    • Polish your Simplified One Page Strategic Plan one last time
    • Plan you New Year’s resolutions (and implement a plan to stick to them!)
    • Review the year and ask the start, stop, continue questions

    The end of the year is a great time to reflect and review. Take a few minutes and make it count.

    What else? What are some more end of year items to review?

  • Merry Christmas – Creativity, Inc.

    Merry Christmas! Here’s a fun talk on Creativity, Inc. by Ed Catmull. Enjoy!

    From YouTube: Ed Catmull, president of Walt Disney and Pixar Animation Studios, shares some of his formative career experiences and offers a glimpse inside the working culture of Disney and Pixar. In conversation with Stanford Professor Bob Sutton, Catmull offers additional insights from his book, Creativity, Inc., including lessons learned from his longtime working relationship with the late Steve Jobs.

  • Finding a Work/Life Blend

    Recently an entrepreneur asked me for ideas and tips about work/life balance. I replied that balance implies that they’re constantly aligned, which I don’t think is the case. Things regularly ebb and flow, requiring a work/life blend with some guidelines around them.

    Here are a few strategies I use for work/life blend:

    • Written plan and expectations with spouse (alignment is key)
    • Limit morning and evenings events to one per week average over the course of the month (e.g. if I have two evening events one week, I’ll work to have none the next week)
    • Limit work travel to 5-10 nights per quarter (often for tradeshows or visiting a customer/partner)
    • Weekly date night (key is to get out of the house without the kids)
    • Quarterly family vacation (go out of town for a long weekend or on a week long trip)
    • Continually ask the start, stop, and continue questions

    A work/life blend is personal to everyone’s unique situations. After years of refinement, this approach has worked for me.

    What else? What are some more thoughts on finding work/life blend?

  • Thinking About SaaS Run Rates and Renewal Rates for the New Year

    One of the great things about SaaS is that the new revenue layers on top of existing revenue such that the new year starts with a baseline of business even if nothing new is sold. As I talk to entrepreneurs and ask about 2017, they like to talk about revenue going from X to Y next year (e.g. $1M to $2M). Then, I ask about their annualized renewal rate, which is often in the 70% – 90% range (anything above 90% is amazing). Taking that annual renewal rate and multiplying it by the end-of-year run rate is a better way to think about the starting point for the new year.

    Here are a few thoughts on the SaaS run rate for the new year in the context of the renewal rate:

    • Most of the time, the renewal rate with existing customer expansion revenue layered on is well below 100% (meaning, if no new deals are sold in a calendar year, the company would shrink as opposed to some startups which are great at growing existing customers and continue to grow even if they didn’t sign new customers)
    • Thinking about the run rate times the renewal rate as the starting point creates a more realistic baseline for the new year (e.g. $10M run rate and 80% renewal rate with a goal of hitting $15M by the end of 2017, it’s better to think of starting at $8M and needing to add $7M of new revenue to get to the 2017 goal even though it’s conservative since the 20% that cancel won’t do so on day one)
    • Talking about the new year run rate with a renewal rate context drives home the importance of product development, customer success, support, etc. in delivering an amazing experience where customers will not only renew, but they’ll also want to expand

    Entrepreneurs would do well to incorporate renewal rates into their high level thinking about going from revenue run rate A to B for the new year. Often, the delta between the two is higher that what’s already contemplated.

    What else? What are some more thoughts on incorporating renewal rates into thinking about run rate goals and the new year?