Finding a Startup Idea

Last week I was talking to an entrepreneur and the topic of finding a startup idea came up. It got me thinking about the different ventures I’ve been a part of and where the ideas originated. Let’s take a look at a few.

Freelance Consulting

When I was in high school and college the dot com boom was in full effect. As a self-taught programmer, I built dozens of websites and received a recurring question: how do I update my site? The aha moment was to solve this problem and build a web content management system — Hannon Hill.

Internal Business Opportunity

At Hannon Hill, it was a journey in scalable entrepreneurship with an emphasis on building, selling, and servicing a product. Eventually, I focused in on sales and marketing in an effort to accelerate growth and realized the B2B marketing tools were insufficient. This lead to the idea for Pardot and building a marketing automation platform.

Business Challenge

At Hannon Hill and Pardot, we’d move subleases every 18-24 months in an effort to save money and have short lease terms as we didn’t know how fast we’d grow. A desire for more community, plus the fact that moving offices is a huge headache, inspired the idea for the Atlanta Tech Village. The Tech Village has now been home to thousands of startups over the years.

Customer Request

At SalesLoft, Kyle’s first product was lead intelligence whereby the system provided information about contacts changing jobs. While this product didn’t work out, customers said they really wanted leads, and then a way to authentically communicate. This feedback lead to the current SalesLoft Platform, and, eventually raising a $100M round at a $1.1 billion valuation.

Personal Friction

In the How I Built This interview about Calendly, Tope shares his personal story and frustration scheduling appointments with prospects as an enterprise software sales rep. This personal friction around meetings sparked the idea for Calendly, and now it’s one of the most widely used scheduling tools in the world.

Conclusion

Clearly, startup ideas come from many different places. Ultimately, the best ideas come from simply listening and looking at friction personally and professionally. Opportunities are all around us. Quality selection, and excellent execution, are the most difficult challenges.

High Growth Startup, 0 Employees

An area I’m especially fascinated with is the future of work. Of course, the pandemic significantly broadened that interest through forced remote/virtual work and many discussions of how the office will change going forward. Last week I read one of the most incredible examples of a high growth startup scaling successfully with zero employees. Yes, no employees, eight figures of revenue, and almost a triple digit growth rate. So, how does it work? Let’s dive in.

No Meetings, No Deadlines, No Full-Time Employees by Sahil Lavingia, founder of Gum Road, is fascinating. A few of the highlights:

  • Overarching personal goal for the founder is “freedom at all costs”, meaning he runs the business, the business doesn’t run him
  • No meetings — everything is done via extensive writing in tools like GitHub and Notion
  • Everything is managed as Tasks in Notion
  • No goals or OKRS, just a single North Star: maximizing how much creators earn (Gumroad is a platform for creators to get paid)
  • Product roadmap is public
  • Minimum viable culture with no “forced” socializing
  • Everyone is a contractor paid highly competitive hourly rates ($50/hr – $250/hr)
  • Hiring is done via a form, multi-hour unpaid assessment doing a hypothetical project, then a paid few-week trial
  • Internal document for all employees that shows hourly pay and hours worked
  • No perks — just cash and flexibility (no healthcare, no technology stipend, etc.)
  • Many of the contractors were found as they were already Gumroad users and part of the creator economy
  • “Anti-overtime” rate of 50% of the hourly rate if a person works over 20 hours in a week (goal is for everyone to work 20 hours a week or less)

Reading the post, several questions come to mind:

  • How doable is this without the amazing pipeline of potential contractors that are already in the community of customers?
  • What type of person values flexibility above all else? What approximate percentage of the population?
  • Does a digital, asynchronous-only culture matter over the long haul for continued success?
  • What does contractor turnover look like? How similar or different is turnover to normal tech startups at a similar stage?

The “anti-overtime” rate really gets me thinking as it’s a catalytic mechanism to align the internal expectations with the contractor‘s wallet. We’re here to work no more than 20 hours/week. If you need more time to do whatever, go for it, but it’s at your discretion and at a significantly reduced rate.

Thinking about contractors working no more than 20 hours week, it likely aligns with how much “real” work gets done in a normal 40 hour week. Time spent in meetings, going to lunch, socializing at the water cooler (virtual or otherwise), etc. likely isn’t “creator” time but does have social value and cultural importance. When it’s stripped away and time is only spent on the desired output, what changes?

Overall, No Meetings, No Deadlines, No Full-Time Employees is an incredible read that feels like a new type of business where the working style fills an unmet need for some (many?) people. I believe the trend of contractors, freelancers, gig workers is only accelerating and a company like Gumroad is the logical extreme. The big question: when does something that seems extreme today become commonplace?

The Top Resource for Virtual/Remote Startups

Most conversations I have these days with entrepreneurs has some component about virtual teams, remote employees, return to the office timeline, etc. While great work is getting done virtually, there’s still a strong desire to have an in-person element, whether it’s a few days a week or a few days a year, humans crave face-to-face with other humans.

Personally, I don’t believe there’s one right answer. I believe most startups will have both people working in offices (some dedicated, some co-working) and people working from anywhere they choose (virtual). The big difference now is that the in-office aspect of the future will be a much smaller number of weekly hours, on average, and much greater worker flexibility. Overall, a huge net benefit to society.

As entrepreneurs continue to navigate this new approach, there’s one resource for virtual/remote startups that stands out:

GitLab Team Handbook

  • 8,400 pages of text
  • Open and usable by anyone
  • Incredibly detailed and thoughtful

While it is geared towards an all-remote business, there are a number of excellent resources applicable to all businesses like managing KPIs and doing OKRs.

Every entrepreneur should bookmark the GitLab Team Handbook and know that whatever scenario they’re contemplating, it’s likely been addressed in the handbook.

Startup Effort is Insane, So Think Big

Ten years ago I was talking to a tech entrepreneur in town with multiple startup wins. We were talking about the startup journey and how much effort is required to make it work — so many ups and downs, unknowns, and long hours.

Then, we got to talking about outcomes and levels of success and he offered up a comment that has stuck with me ever since:

It’s the same amount of effort to build a $30M business as it is to build a $300M business, so only pursue the biggest ideas.

Anonymous

Having held that thought in the back of my mind for many years, and seeing different entrepreneurial ventures play out, I’ve found that statement even more prescient. All successful startups take a tremendous amount of work. Whether it’s five years of effort (low end) or 10 years of effort (much more common), it takes an incredible amount of time and energy such that it’s best to pursue the biggest, most audacious ideas.

So, the next time you’re evaluating startup ideas, remember that it’s the same amount of work to produce a good outcome as it is to produce a great outcome, so think big.

4 Key Weights for Startup Investing

One of my hobbies is learning how other entrepreneurs and investors think about ideas, markets, opportunities, etc. I proposed a simple theory in Team, Stream, and Not a Meme for entrepreneurs at the earliest stages to find a trend accelerating (stream) with a must-have product (not a meme). I recently heard an excellent interview that offered up four key weights for investing.

Ted Seides interviewed Chamath Palihapitiya about The Social Capital Flywheel on his podcast Capital Allocators. Chamath’s thoughtfulness and conviction really resonated with me, especially as he described what he looks for as an investor. Here are his four key weights for investing, starting at the 45 minute mark:

  1. Product/market fit
    How strong or weak is the product/market fit? It doesn’t matter how old or young the business is, it matters how much the offering matches up to the market demands.
  2. Integrity of management
    What’s the integrity of the management team? High, medium, or low? Again, doesn’t matter how old the business is, but rather how much integrity there is on the management team.
  3. Headwinds or tailwinds
    What are the future prospects for this industry and this business? How strong or weak are they? How poorly described were they in the past?
  4. Internal corporate politics
    How much do internal politics play a role in the business? What are the Glassdoor reviews like? The lower the internal corporate politics, the better.

The first three are pretty common but I hadn’t seen the fourth — internal corporate politics — as a factor in investing. Now, I’m going to pay more attention to it, especially in later stage startups where it’s relevant.

Keep the weights of these four characteristics in mind when considering an investment opportunity.

Pipedrive and Gainsight Exiting to Private Equity

Recently Vista Equity Partners announced separate acquisitions of Pipedrive for $1.5 billion and Gainsight for $1.1 billion. Both startups are highly regarded as category leaders in SMB CRM and enterprise customer success, respectively. Let’s take a look at some quick data points from each.

Pipedrive – Sales CRM and Pipeline Management

Gainsight – The Customer Success Company

In today’s white-hot SaaS market with public multiples near all-time highs, why sell to a premium private equity firm instead of staying the course and raising more money? Here are a few ideas:

  • Vista Track Record
    Vista Equity Partners has one of the best track records in the world for B2B SaaS. With their secret playbook and massive buying power, they have proven best practices and scale benefits. While they are known for running a tight ship, there are opportunities to improve the existing fundamentals.
  • Early Employees and Investors Liquidity
    With the companies being at least a decade old, early employees are often looking for liquidity and early investors are often looking to close out their funds, return capital, lock in a big win, etc. While there is a huge amount of secondary available today, it won’t be at the premium that comes with a control position.
  • Growth Investor Terms
    While some B2B SaaS startups are raising money at 100x multiples, and the BVP Cloud Index is at 20.3x, the reality is that modest growth (10-20%) startups are raising money at dramatically lower multiples. Put another way, there’s a huge premium for growth companies. Modest growth can imply a number of different things but the most common are that the total addressable market isn’t as big as desired, competition is strong, and/or churn is high. Instead of taking a lower valuation with potentially more onerous terms, selling a majority position gets primary and secondary capital at a more favorable valuation.

As SaaS startups continue to be in favor, and the economics highly desirable, look for more private equity activity in the space, especially next year. It’s a great time to be in SaaS.

Congratulations to the teams at Pipedrive and Gainsight for building incredible businesses.

Atlanta Startups on the Deloitte Technology Fast 500

Every year I enjoy reading through the Deloitte Technology Fast 500 and seeing how tech startups in Atlanta are doing. This year’s report is excellent and highlights a number of Atlanta’s high growth firms.

Here are the Atlanta startups on the list:

  • #4 – OneTrust – Privacy, Security and Data Governance Software
  • #8 – CharterUP – Charter Bus Rentals, Comparisons and Tracking
  • #11 – FIXD – The Car Scanner That’s Saving People $1000s
  • #26 – LeaseQuery – Rated #1 for ASC 842, IFRS, & GASB Compliance
  • #97 – Calendly – Free Online Appointment Scheduling Software
  • #102 – GROUNDFLOOR – What are you building?
  • #106 – FullStory – Build a More Perfect Digital Experience
  • #149 – LendingPoint – Personal Loans for Fair Credit Customers
  • #228 – GreenPrint – Corporate Sustainability Solutions
  • #229 – Terminus – The Leading Account Based Marketing Platform
  • #274 – SalesLoft – Sales Acceleration & Customer Engagement Platform
  • #286 – MacStadium – Mac Servers and Cloud Solutions on Apple Hardware
  • #319 – Intelligent Systems – Prepaid and Credit Card Processing Services
  • #330 – SaaSOptics – Top Subscription Management Software
  • #341 – BitPay – Welcome to the Future of Payments
  • #386 – AODocs – Cloud Document Services Platform
  • #370 – CallRail – Call Tracking & Marketing Analytics Software
  • #371 – SpringBot – Data-Driven eCommerce Marketing Simplified
  • #373 – QGenda – The #1 Automated Provider Scheduling Solution
  • #405 – Wahoo Fitness – Indoor Bike Trainers, GPS Bike Computers, Cycling Sensors & Heart Rate Monitors
  • #408 – Azalea Health – Leading Cloud-based Health IT Platform
  • #415 – Kahua – Construction Program Management Software
  • #497 – Mobilewalla – Consumer Intelligence Platform – Mobile Marketing
  • #498 – ShootProof – Online Proofing Galleries for Photographers

Congrats to all the companies on the Deloitte Technology Fast 500 and especially the Atlanta startups.

Startup Learnings Take Time, So Just Start

One of the more popular questions I receive is something to the effect of “what entrepreneurial advice would you tell your younger self?” After reflecting on this question for years, my favorite answer is to just get going and start something. Being an entrepreneur, just like anything meaningful in life, is best done by doing. Sure, reading and learning best practices like the Lean Startup and a Simple Strategic Plan are important, but there’s no substitute for getting in the arena and working through the onslaught of challenges.

Don’t have a great idea? Just start anything, even if you have to do it on the side.

Don’t know if the timing is right? The timing is never right, all you have is now.

Don’t have a co-founder? Go solo and know you can always add one later (many co-founders weren’t there on day one!).

Don’t know where to begin? Plug into a local or virtual community — someone is willing to help.

Don’t have the personal belief? You’ll never know if you don’t try.

Everything about startups is 10x harder than it seems. Only, everything about startups is also doable, and working through the ups and downs is the real reward.

There’s no better time than now. Just start.

Think RAGS for Startup Team Members

10+ years ago I read Joel Spolsky’s seminal blog post The Guerrilla Guide to Interviewing. His theories on what to look for when hiring developers have been imprinted on my mind ever since: hire people who are smart and get things done. This applies to all hiring for all startup team members, not just developers, but misses two important ingredients — attitude and grit.

Attitude permeates everything about a person. At Pardot, our values were positive, self-starting, and supportive. Each one of these values were embodied in the type of attitude we looked for in every person on our team. Of course, while values and attitude are different, attitude as a way to capture the desired personality traits works well.

Continuing with attitude, the other missing characteristic that smart and gets things done doesn’t account for is grit. Grit is the idea of resilience and not giving up in the face of adversity. Angela Duckworth popularized it as passionate persistence, which captures it well. Startups are inherently challenging, so while this might be less important in a company not focused on high growth, in the startup world grit is invaluable.

Combining these all together produces the RAGS acronym:

  • Results – Gets things done and continually makes progress
  • Attitude – Personality traits and view of the world that aligns with the core values
  • Grit – Passionate persistence, especially in challenging situations
  • Smarts – Ability to synthesize information and make quality decisions

Defining results, attitude, grit, and smarts is up to each entrepreneur and their view of the world. Overall, the big idea is that this needs to be done intentionally, not haphazardly, and everyone must be held to the RAGS standards defined by the leaders.

Startup Lessons from The Perfect Store

In 1997/1998 I loved eBay and was on it daily. At the time, I’d buy sports cards from across the country to resell them in my local region. On eBay, I’d focus on Atlanta Braves players — my favorite team — and buy stars like Chipper Jones at half the Beckett pricing guide value from dealers in places like Seattle. Then, as a high school senior, I’d drive to baseball card shows and setup a dealer table selling to people in the local market. I did shows all across North Florida from Pensacola to Tallahassee to Jacksonville. The arbitrage opportunity was buying cards over the Internet outside the region at half price and selling them face-to-face at shows for full price — eBay made this possible.

I’ve been reliving these memories recently while reading the stories from twenty-year-old The Perfect Store: Inside eBay. The author, Adam Cohen, captures the founding and scaling of eBay through a number of stories in chronological order. The life of Pierre Omidyar and eBay is an incredible story for anyone who loves the entrepreneurial journey.

A few startups lessons from The Perfect Store:

  • Most great entrepreneur stories start with a tinkerer scratching an itch
  • Passionate communities — especially raving fans — are the secret ingredient to word of mouth growth, which is the best indicator of product/market fit
  • Leveling up management teams is always a challenge, no matter the startup
  • Startup cultures are defined by the first few people and often live on indefinitely
  • Key mentors and coaches early in the experience can add incredible value
  • Defining a memorable origin story, no matter how liberally created, makes continued lore that much more viral (no, eBay wasn’t start for Pez dispensers)
  • Today’s tech stacks and cloud infrastructure are easily taken for granted (eBay was regularly down for 10+ hours at a time during hyper growth)

Entrepreneurs interested in the early years of Internet startups and the power of marketplaces should read the The Perfect Store: Inside eBay and soak up the many lessons.