David Cummings on Startups

Category: Entrepreneurship

  • Losing Product-Market Fit

    One of the hot topics in startups is around product-market fit. Whether it’s how to know if you’ve achieved product-market fit or how product-market fit relates to raising money, there’s plenty of information available. Well, there’s another aspect of product-market fit that’s almost never talked about: losing it. Just because product-market fit is achieved, it doesn’t mean it’s going to stay.

    Here are a few thoughts on losing product-market fit:

    • When churn rates increase, product-market fit is likely slipping away (if churn hits 3% per month, you don’t have a business)
    • When the sales team loses the majority of competitive deals, it’s a bad sign
    • When the growth rate of the business stalls at modest scale, it’s likely the customers’ needs have changed

    Markets move quickly and many startups that had a good thing going for a while get passed by when the next wave of innovation comes through. Don’t assume that achieving product-market fit also means that it will be maintained.

    What else? What are some more thoughts on losing product-market fit?

  • Time for Tactical and Strategic Work

    Most entrepreneurs are doers, meaning they enjoy rolling up their sleeves and working directly on whatever needs to get done. Similar to the idea that if you want to something done, ask a busy person to do it. Only, there’s all this talk that entrepreneurs should work on the business instead of in it. One challenge that comes up repeatedly is making time for tactical and strategic tasks.

    Here are a few thoughts on making time for tactical and strategic work:

    Constantly switching between tactical and strategic work is a real challenge for entrepreneurs. Naturally, human nature is to go towards the easiest tasks — tactical in nature — and to put off strategic items. Entrepreneurs need to make time for strategic work.

    What else? What are some more thoughts on time for tactical and strategic work?

  • Make a Good Decision, Learn from It, and Move Forward

    Recently I was talking to a friend and he said he had no interest in being an entrepreneur. Curious, I asked why. There was one simple reason: he didn’t like to make decisions with limited information. As an entrepreneur, so many decisions have to be made with little or no data and lots of gut instinct. For many people, especially perfectionists, making those kinds of decisions over and over is terrifying.

    For me, I like to keep in mind that I’m trying to make a good decision, learn from it, and move forward. Here are a few thoughts on entrepreneurial decision making:

    • Perfect information never exists, never
    • Limited information is normal, and often good enough to make quality decisions
    • Almost all decisions aren’t permanent (thankfully!)
    • Constantly learning and adapting is key to get to the right answer
    • Moving forward is better than standing still

    When the next decision is required on limited information, make the call, learn from it, and move forward. As General Patton said, “A good plan violently executed now is better than a perfect plan executed next week.”

    What else? What are some more thoughts on making decisions, learning, and moving forward?

  • 3 SaaS Market Types to Consider

    When analyzing Software-as-a-Service (SaaS) market types, it’s helpful to have different frameworks or patterns to compare against. While people like to talk about SaaS in general, the type of market a particular SaaS product is targeting greatly affects things like sales cycle, potential investor enthusiasm, and overall opportunity.

    Here are three SaaS market types to think through:

    • New Technology – Are customers replacing a legacy product or is this the first time they’ve ever bought a product like this because it’s a new technology? Almost all of Pardot’s customers had never used marketing automation before.
    • Middlemen – Are customers replacing a legacy service that’s traditionally used middlemen (e.g. benefits, financial planning, etc.)? In this case, they’re spending money but not necessarily on a SaaS offering.
    • Labor Intensive – Is the outcome that the SaaS product provides already achievable but labor intensive? Things like building a list of prospects (SalesLoft) or integrating ecommerce systems (Kevy) can be done by hand, but are time consuming and error-prone.

    When evaluating an opportunity, it’s important to understand the market type and corresponding nuances. No type is perfect but each has example success stories.

    What else? What are some other SaaS market types to consider?

  • Comparing Two Strategic Directions

    Recently I was talking to an entrepreneur that was making good progress in his startup. After signing a couple dozen customers it became clear that there were two strategic directions to take the business, each with their own pros and cons. We got to talking more about the strategic directions, and even after drilling in, both appeared favorable.

    Here are a few questions to ask when comparing two strategic directions:

    • Of the existing customers, how many fit the proposed directions? How many are good fits vs OK fits for the new directions? Why?
    • Which direction has the largest total addressable market?
    • Which direction is growing fastest?
    • Which direction has the most competition? How innovative is the competition (e.g. most incumbents have difficulty innovating)?
    • Which direction excites the team the most?

    Tweaking the strategic direction in a startup is more common than expected. In fact, there are many success stories of startups that started doing one thing and ended up doing something entirely different. Regardless, comparing strategic directions is a normal part of the journey.

    What else? What are some more thoughts on comparing two strategic directions?

  • Consulting Services Revenue in SaaS

    Several years ago I was biased against Software-as-a-Service (SaaS) startups offering consulting services. The previous thinking was that it was better for the startups to focus exclusively on recurring revenue and to hand off any consulting revenue to partners. Now, I believe the top priority is to deliver an amazing solution and make customers happy. While that can be done with partners, startups are better off doing it in-house for quality control reasons during the early years. Once the startup hits the growth stage ($5 million+ in revenue), incorporating channel partners becomes more important.

    Here are a few thoughts on consulting services revenue in SaaS:

    • SaaS valuations multiples aren’t affected by services revenue as long as it’s less than 20% of total revenue (e.g. a startup that’s heavy on consulting revenue won’t be viewed favorably, all things equal)
    • Freemium products, which are self-service to get started, still have consulting opportunities
    • Most technologies need a couple generations of refinement before they’re self-service (email marketing has reached it but marketing automation hasn’t)
    • Productized services are a great way to deliver customer hand-holding
    • Bigger companies are even more likely to pay for services, and often expect it, as change management is hard

    Consulting services, and the corresponding revenue, are commonplace in the software world, SaaS or otherwise. SaaS startups would do well to ensure customer success and incorporate consulting services as needed.

    What else? What are some more thoughts on consulting services revenue in SaaS?

  • Do More Good Stuff in 2015

    2015 is almost here and it’s a great time to make positive changes and do more of the good stuff. Whenever you’re getting ready for bed and reflect on the day, the good stuff becomes readily apparent. Here are a few things that come to mind:

    • Spend more time with family
    • Read more books and blogs
    • Take more walks
    • Help more people
    • Reflect more often
    • Write more prose (and code!)
    • Compose a letter
    • Call a friend
    • Volunteer at a charity
    • Give more hugs
    • Smile more often

    Here’s to a great 2015! Oh, and spend more time doing the good stuff.

  • The Product Manager

    In the tech startup world there’s a consistent theme that software engineers and sales reps are two of the hardest positions to fill as the company scales. Well, there’s an even harder position to fill and that’s the role of the product manager (thankfully, a larger number of them aren’t required for each startup). Here’s a blurb about the product manager’s role from this LinkedIn ad for a VP of Product Management at Pardot:

    As VP of Product Management, you will be one of the most public faces of the Pardot platform and help shape, direct and execute our product vision. You’ll be challenged to blend customer-centric principles with industry-changing innovation. You will work directly with the head of product, as well as the rest of the product and engineering teams, to create experiences that reinforce the Pardot brand by delighting and wowing our customers.

    How many people do you know that are a combination evangelist, visionary, technically adept, and customer-focused? The “technically adept” piece is especially difficult depending on the type and style of product manager desired. Often, the CEO, in conjunction with the head of engineering, act as the defacto product managers in the early years of a startup due limited resources and the difficulty in finding the right person.

    Here are a few thoughts on the product manager role:

    • Software engineers or technical project managers often transition well to product managers
    • Strong opinions on the future of the product are critical as input and feedback will come from all directions
    • True empathy for the customer is a must-have (we’ve all used products that didn’t feel like they had the customer in mind)
    • Extroversion is often found with product managers due to the nature of constant interaction with engineering, sales, marketing, support, customers, prospects, and analysts
    • Attention to detail and planning skills are crucial due to all the moving parts

    The product manager role is one of the toughest positions to fill. A great product manager, while hard to find, is incredibly valuable and important to the long-term success of the company.

    What else? What are some more thoughts on product managers in a startup?

     

  • 15 Favorite Posts of 2014

    2014 is almost done and it’s a great time to look back on this blog’s topics. While most posts have an entrepreneurial theme with a focus on action, there’s a good bit of variety in there as well. I went through every blog post of the year and picked out my 15 favorite:

    I can’t wait to see what 2015 has in store.

    What else? What are some other favorite posts from 2014?

  • Power of Growing Recurring Revenue Sooner

    As part of the idea of Always Hiring Sales Reps, it’s important to understand the power of growing recurring revenue sooner. Say there’s a debate between hiring two sales now or six months from now. Assuming the sales reps are hired now, how does that affect recurring revenue over the next four years? Let’s take a look:

    • Assume both reps are successful, 90 days to ramp up, annual quota is $500,000 of new annual recurring revenue, and churn is 10% per year
    • Time between hiring the reps now and six months from now, plus 90 day ramp, makes the first newly generated deals coming in either day 91 or day 271.
    • Annual recurring revenue increase from the six month difference:
      – Year 1: $250,000
      – Year 2: $225,000
      – Year 3: $202,500
      – Year 4: $182,250
      – Total non-recurring revenue: $859,750

    Hiring two more sales reps now, as opposed to six months from now, adds almost a quarter million dollars in new annual recurring revenue in the first year and over $180,000 in annual recurring revenue by the end of the fourth year (it’s the gift that keeps on giving). The moral of the story is to hire as many sales reps as possible assuming the standard SaaS metrics look good.

    What else? What are some other thoughts on the power of growing recurring revenue sooner?