David Cummings on Startups

Category: Entrepreneurship

  • Connect the Product to the Wallet

    Last week I was talking with an entrepreneur about their new product focus. After digging in, he volunteered something that really stuck with me: their new direction connects the product with the wallet in a way it never was before. Similar to the idea of candy, pain-killers, or vitamins, products that can clearly demonstrate an increase in revenue for the customer are more desirable.

    Here are a few thoughts on connecting the product to the wallet:

    • Something that saves time is less compelling compared to something that makes more money (more bonuses are tied to revenue growth than decreasing costs)
    • Products that provide value closest to where money is made are easiest to show value (e.g. a sales tool is easier to attribute to revenue growth compared to a tool to manage meeting rooms)
    • Case studies and ROI calculators are more compelling when it’s clear how the value is generated

    Entrepreneurs would do well to connect the product to the wallet, whenever possible. Products that help generate revenue are more compelling than products that save time or money.

    What else? What are some other thoughts on connecting the product to the wallet?

  • Nail the Basics Before Worrying About Scaling

    Recently I was talking with an entrepreneur about his startup and the concern about potentially not being able to hire fast enough. After asking a few questions about product-market fit, repeatability in acquiring customers, burn rate, and more, it became clear that the business wasn’t close to the scaling phase. The entrepreneur was worrying about a non-issue.

    Here are a few thoughts on nailing the basics:

    Entrepreneurs would do well to nail the basics before worrying about scaling the business. Scaling brings on an additional set of challenges best handled with a strong foundation.

    What else? What are some other thoughts on nailing the basics first?

  • Picking the Right Battles as an Entrepreneur

    As an entrepreneur biased towards doing things, one of the questions I have to keep asking myself is whether or not it’s a battle worth fighting. Every time I see an issue or opportunity to improve something (and I see a ton!), my immediate reaction is to fix it or make it better. Only, I don’t have the time to do most things myself, so I delegate (which I enjoy), but I don’t want to distract from other team members’ priorities and focus.

    Here are a few ideas to considering when picking battles:

    Most startups die of indigestion and not starvation. Entrepreneurs would do well to pick the right battles in a thoughtful manner.

    What else? What are some more thoughts on picking the right battles as an entrepreneur?

  • Notes from the New Relic S-1 IPO Filing

    Last week New Relic, an application performance company, published their S-1 IPO filing to go public. From a technical perspective, New Relic provides software developers insight into how every part of their web and mobile application performs, which is incredibly valuable. New Relic is part installed software (to gather the data) and part cloud-based software (to review and analyze the data).

    Here are a few notes from the New Relic S-1 IPO filing:

    • Mission is to empower organizations to build the best modern software possible and to improve their business intelligence using the data flowing through and about that software (pg. 1)
    • Revenues for fiscal years ending in March (pg. 2):
      2012 – $11.7 million
      2013 – $29.7 million
      2014 – $63.2 million
    • Losses for fiscal years ending in March (pg. 2):
      2012 – $7.5 million
      2013 – $22.5 million
      2014 – $40.2 million
    • Gartner says the IT Operations Management market is $19.1 billion in 2013 and growing to $27.9 billion in 2017 (pg. 5)
    • Business started in September 2007 (pg. 6)
    • Accumulated deficit of $100.8 million (pg. 11)
    • Employee headcount grown from 315 employees as of September 30, 2013 to 534 as of September 30, 2014 (pg. 12)
    • In the fiscal year ended March 31, 2014, sales and marketing expenses represented 92% of revenue (pg. 14)
    • 83% gross margin in 2014 (pg. 46)
    • Product line (pg. 67):
      New Relic APM: Application performance management
      New Relic Mobile: Mobile application performance management
      New Relic Servers: Server monitoring for cloud and data centers
      New Relic Browser: End-user experience monitoring and performance monitoring
      New Relic Synthetics: Software testing through simulated usage
      New Relic Platform: Platform that extends our functionality into other applications
      New Relic Insights: Real-time big data analytics for business managers
    • As of September 30, 2014, had over 250,000 users and had 10,590 paid business accounts worldwide (pg. 75)
    • Three core values (pg. 77):
      Customer Trust and Success
      Growth—“Excelsior!”
      Team—“Be Bold, You’re Not Alone”
    • Ownership percentages (pg. 100):
      CEO/Founder – 27.3% (this is an impressive amount for a company at this scale)
      Benchmark Capital – 22%
      Trinity Ventures – 13.6%
      Insight Venture Partners – 5.6%
      Tenaya Capital – 4.9%

    New Relic is one of the leading infrastructure apps for the cloud-generation of companies. With its scale and growth rate, the public markets will be very receptive to the IPO.

    What else? What are some other thoughts on theNew Relic S-1 IPO filing?

  • Better Strategies Become Apparent With Customer Interactions

    Back when Adam and I started Pardot in March of 2007, the original idea was to build a lead generation as a service product where we’d generate leads for technology companies and sell them to multiple vendors. For the business model, the goal was to spend $100 on Google PPC ads to generate one qualified lead (e.g. someone searching for the term “email marketing”) and we’d in turn sell that lead to five companies that fit the buyer’s needs for $50 each (so, turn $100 into $250).

    Within six weeks we’d built a prototype system that managed simple landing pages and had light business rules to forward leads to different companies. Google happily took our money for AdWords ads and we ended up spending several thousand dollars to get our first batch of leads in the system. With leads in hand, we then went to technology vendors and said we had a few qualified leads for them at no-charge and that we’d like to setup a conversation to talk about our new business. Quickly, within a few conversations, it was clear that the technology companies were much more interested in the system to generate the leads than to buy leads from us. After much internal discussion over the course of a week, we decided to change the business to focus on building a marketing automation platform.

    While we shifted our business to go from selling leads to selling software, we stayed in the same area of B2B lead generation. To me, this was an iteration in the startup and not a pivot since we could use the core of our existing technology and we continued to go after the same buyer (marketing managers). Here, the key takeaway is that the right strategy often reveals itself as more time is spent in the market, especially when getting honest feedback from customer interactions.

    What else? What are some more examples of better strategies emerging after customer interaction?

  • Scaling Up: Rockefeller Habits 2.0

    Last week I started reading the new Verne Harnish book Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0). Verne’s version 1.0 of the book, Mastering the Rockefeller Habits, is one of the top five books I recommend to entrepreneurs. My favorite business tool, the Simplified One Page Strategic Plan, is from the book. While the first book was more of a quick read, this new one is much longer and has more of a textbook feel (I bought several hardback copies to keep for other entrepreneurs).

    Here are the sections of the book:

    The Introduction – Tools for Scaling Up

    • The Overview – People, Strategy, Execution, Cash
    • The Barriers – Leadership, Infrastructure, and Market Dynamics

    Scaling Up People

    • The Leaders – The Face and Pace of the Company
    • The Team – Attracting and Hiring
    • The Managers – Keeping and Growing (Educating) the Team

    Scaling Up Strategy

    • The Core – Values, Purpose, and Competencies
    • The 7 Strata of Strategy – The Framework for Dominating Your Industry
    • The One-Page Strategic Plan – The Tool for Strategic Planning

    Scaling Up Execution

    • The Priority – Focus, Finish Lines, and Fun
    • The Data – Powering Prediction
    • The Meeting Rhythm – The Heartbeat of the Organization

    Scaling Up Cash

    • The Cash – Accelerating Cash Flow
    • The Accounting – Driving Profitability
    • The Power of One – 7 Key Financial Levers

    I’m looking forward to digging in to Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0) and seeing what’s new.

    What else? What are your thoughts on Scaling Up and Mastering the Rockefeller Habits?

  • 7 Engineering Startup Lessons from Netflix

    Om Malik, journalist and entrepreneur, put up a slide on his site titled Startups lessons from Netflix where he highlights a presentation from Adrian Cockcroft, previously of Netflix. Adrian highlights 7 startup lessons he learned from his time at Netflix:

    1. Speed wins in the marketplace
    2. Remove friction from product development
    3. High trust, low process, no hand-offs between teams
    4. Freedom and responsibility culture
    5. Don’t do your own undifferentiated heavy lifting
    6. Use simple patterns automated by tooling
    7. Self service cloud makes impossible things instant

    Product and engineering-oriented entrepreneurs would do well to read all the slides in Adrian’s Fast Delivery presentation.

    What else? What are some more takeaways from Adrian’s presentation?

  • 5 Happy Customers With No New Bugs

    Being a part of the Atlanta Tech Village enables me to spend a good bit of time with entrepreneurs that have a working product and are seeking product-market fit. As a product-oriented entrepreneur, I enjoy talking about the software, how it works, how customers use it, and how the customer on-boarding process works. After writing about 5 Ways to Identify Product-Market Fit, I’ve come to the following conclusion:

    Product-market fit is achieved when five new customers are immediately happy and don’t find any bugs.

    Before, I was leaning towards a certain number of customers, or level of value received from the service. Now, I believe product-market fit is all about signing a small number of successful customers that don’t run into rough edges. Some startups sign new customers, but the customers aren’t happy and don’t end up seeing enough value in the product (there was more selling than buying). Also, the new customers might be happy, but they immediately run into bugs, and so don’t have a great experience (bugs are normal but need to be squashed quickly).

    Product-market fit is difficult to achieve but readily apparent when new customers are successful and have a bug-free experience. Once fit has been achieved, the next step is shifting attention to building a repeatable customer acquisition model (see The Four Stages of a B2B Startup).

    What else? What are some more thoughts on the idea that product-market fit has been achieved once five new customers are successful and don’t find product issues?

  • Growth-Stage Startups Should Have In-House Recruiters

    In early 2012 it was clear we needed to significantly grow our Pardot employee base and we weren’t bringing in new team members fast enough. From an organization perspective, we were growing the business from 70 employees to 110+ by the end of the year, with an expectation of even more hiring the following year. In an effort to scale to 200+ employees, we hired four full-time recruiters in-house to focus on engineering, sales, and services. Four recruiters, plus two additional people on the HR team, is a huge HR department for a 70-person company. In hindsight, it was a great move.

    Here are a few thoughts on having in-house recruiters for growth-stage startups:

    • In-house recruiters learn the mission, vision, values, and culture at the deepest level
    • In-house recruiters spend all their time recruiting just for the company, and don’t split their time with other accounts like an outsourced recruiter
    • In-house recruiters can identify and nurture a “virtual bench” such that candidates are lined up and ready as soon as the position needs to be filled
    • In-house recruiters are typically in the $40,000 – $70,000/year range with commissions, depending on how many team members they bring on board
    • Contingent outside recruiters can be great, but with fees representing 20% of the first-year salaries, adding $4 million in new payroll in a year equals $800,000 in fees (vs. less than half that for an in-house team)
    • Referral fees for different types of hires are still encouraged (e.g. a $10,000 bonus for referring an engineer)

    Growth-stage startups that plan on hiring a large number of people would do well to hire an in-house recruiting team and make it a company-wide priority to become excellent at recruiting new team members.

    What else? What are some more thoughts on growth-stage startups hiring in-house recruiters?

  • 3 Ways to Increase Sales Rep Productivity

    Entrepreneurs are always looking for ways to grow their business faster. Whether it’s improving the marketing message, rolling out an updated version of the product, or launching a new partnership, there’s no shortage of ideas. One area that’s often easy to implement, and get a great return, is increasing sales rep productivity. In terms of productivity, the most common areas to improve are sales cycle length, deal size, and volume of deals (e.g. close more deals in less time for larger amounts of money).

    Here are three ways to increase sales rep productivity:

    1. Implement Predictable Revenue – Develop specialists on the sales team that respond to inbound leads, make outbound calls to set appointments, and support the account executives that close deals
    2. Develop a culture of sales coaching – Ask a sales manager what their primary responsibility is and they’ll say it’s to bring in revenue, which is wrong — their primary responsibility is to grow their sales people, which requires coaching and mentoring (see Rivalry’s sales coaching platform)
    3. Incorporate sales acceleration tools – CRM is tablestakes now and there’s a whole new class of sales acceleration tools like SalesLoft Prospector and InsideSales.com PowerDialer that complement the CRM.

    At the end of the day, getting more productivity out of the sales team is one of the best ways to increase growth. Entrepreneurs would do well to invest in improving sales team performance.

    What else? What are some other ways to improve sales team productivity?