David Cummings on Startups

Category: Entrepreneurship

  • Characteristics of a Salable Business

    Many entrepreneurs paint a picture in their mind of a strategic acquirer swooping in one day and paying an outrageous amount of money for their business. In reality, most businesses are of little value until one of two things happen: a) they have multiple years of sustained profitability, or b) they are growing fast and have at least $5 million in revenue (see The Magic of $5 Million SaaS Run Rate). Unfortunately, most startups won’t be able to find a strategic buyer.

    Here are characteristics of a salable business:

    • Large, established base of customers
    • Repeatable customer acquisition process
    • Proven management team
    • Little reliance on any one person
    • Consistent profitability and operating history (e.g. three years of results)
    • Strong recurring revenue (not required, but very desirable)
    • Market with logical, complementary acquirers

    As you can see there’s no reference to cool technology, innovative products, or hot ideas. Those things help, but most acquisitions are methodical and financially driven. While some acquisitions are emotional, most are not.

    What else? What are some other characteristics of a salable business?

  • The Magic of a $5 Million SaaS Run Rate

    After Defining a Successful Business several years ago for a Software-as-a-Service (SaaS) entrepreneur, the logical question is “what’s the next revenue milestone for a SaaS company after initial success has been achieved?” Things really start getting interesting once a startup hits the magic $5 million run rate mark. Here are a few reasons why $5 million is so important:

    • Product critical mass – $5 million often represents enough customers that the business will keep growing for several years to come
    • Team – There’s enough scale with 30-50 employees to have depth in each department, yet still move fast
    • Fundraising – Assuming a good growth rate (> 30%), it’ll be easy to raise money as a number of venture and growth equity funds exist with a minimum requirement of $5 million in revenue
    • Industry presence – There’s enough money for a marketing budget that enables attending all the conferences, being covered in analyst reports, and showing up in the key places online (SEO, PPC, etc)
    • Exit opportunities – Many acquirers aren’t interested in small startups, especially ones that are outside their hometown, so $5 million in revenue represents a minimum level where it’s worthwhile to look at acquiring a business

    While there’s no exact number, entrepreneurs that reach $5 million in recurring revenue with strong gross margins and a high growth rate have a tremendous number of strong options as well as enough scale to start spending more time on the business instead of in it.

    What else? What are your thoughts on a $5 million SaaS run rate being a major milestone for entrepreneurs?

  • SalesLoft and Sales Technologies

    Last week Urvaksh broke the news that Atlanta tech-legend Tom Noonan had invested $800,000 in SalesLoft (Disclosure: I’m an investor in SalesLoft). Tom is best known for being the co-founder and CEO of Internet Security Systems from start through exit to IBM for $1.5 billion a decade ago. Now, Tom is investing more heavily in the Atlanta area with a focus on Software-as-a-Service and internet security companies.

    SalesLoft’s core product, Prospector, is built on the premise that the best way to generate an accurate list of prospects for a sales rep is by scraping data online. While it might seem simple to some, it’s actually very difficult to find a current list of people with most data services having old information. With over 600 customers, SalesLoft has already shown that there’s a real need in the market for the technology.

    SalesLoft’s soon-to-be-launched product (Cadence) is all about automating the sales development process that was popularized by Aaron Ross’ excellent book Predictable Revenue. As sales teams put more emphasis on inside sales and web-based selling, so too does the need grow for sales technologies to help make this next generation of sales people more productive. Look for the product to be released in the near future.

    SalesLoft is well positioned in the fast-growing inside sales technologies world and is poised to be one of the next great success stories in Atlanta.

    What else? What are some other thoughts on SalesLoft and sales technologies?

  • VC Access Via Helping a Portfolio Company

    Several weeks ago an entrepreneur asked me for introductions to a few investors in town. After qualifying his startup, I happily obliged and introduced him to the most appropriate people for his company. Later, a different entrepreneur asked for an introduction to a specific venture capitalist that I didn’t know. As neither one of us had a connection to this person I offered a solution: research the investor’s portfolio of companies, provide one or more qualified leads or candidates to them, and then ask for an intro. The best way to get access to a person is to give value first.

    Here are a few reasons to engage a VC via helping his or her portfolio companies:

    • VCs don’t read business plans — they look at deals that are personally referred from trusted third-parties
    • VCs are in the business of knowing a large number of people, especially people that work at their portfolio companies, so portfolio companies typically have a number of first-party connections
    • Helping grow a portfolio company’s sales pipeline and potentially growing revenue directly helps the VC’s goal of making the company successful
    • Qualified leads and qualified job candidates are two of the most valuable introductions for a startup

    So, the next time you hear an entrepreneur ask about an introduction to a VC, tell them to figure out how to provide value first to a direct connection and then make the ask for an intro.

    What else? What are some other thoughts on getting access to a VC by first helping a portfolio company?

  • Helping Entrepreneurs at Scale

    I’ll be the first to admit that I feel bad turning down requests for help from entrepreneurs, students, people in the community, etc. It’s not that I don’t want to help them, rather I’ve prioritized a number of things I want to do well and have decided to allocate my time there. As Dharmesh likes to say, Dear Friend: Sorry. My heart says yes, but my schedule says no.

    So, if helping entrepreneurs is a personal goal, but there isn’t enough time for the requested one-on-ones, I need to figure out how to help entrepreneurs at scale. Much like the conversation changes internally in a startup when going from 10-20 employees vs going from 20-200, I need to be thinking scale as well with helping entrepreneurs.

    Here are three ways I try and help entrepreneurs at scale:

    • Blogging – An amazing way to reach tens of thousands of people on a daily basis
    • Atlanta Tech Village – Community, educational events, office space, and more that reaches thousands of people on a monthly basis
    • Public Speaking – Last year I gave 20 talks on entrepreneurship to groups ranging from 25-500 people

    Over time I hope to get better at helping entrepreneurs at scale with these three strategies while continuing to look for new ways to share ideas and thoughts.

    What else? What are some other ways to help entrepreneurs at scale?

  • Why Continue Working After a Nice Exit

    Recently I was asked why I continue to work and start companies when I don’t need the money. Many people I know don’t work because they enjoy it, rather they work because they need the money. For me, the simple answer is that I enjoy doing it, so I’m always going to do it. Thinking about it more, there are several reasons I continue to work and start companies:

    • Kids – I want my kids to grow up seeing their dad work hard while still having an abundance of time together
    • Innovation – I really enjoy being a part of the new product invention process and seeing an idea unfold in the marketplace
    • Jobs – I believe that helping create high quality, culture-first jobs adds tremendous value to our community
    • Personal Growth – I’m always learning new things, meeting new people, and having new experiences, all of which contribute to my personal growth
    • Entrepreneurial Forces – I believe that entrepreneurship is one of the most powerful forces for helping grow our economy and improve our standard of living

    Even after my second, third, or even fourth exit I’m going to keep working and starting companies as I enjoy it and want to give back and help others.

    What else? If you didn’t have to work any more, what would you do?

  • Benefits of Price Transparency

    Earlier this week I was asked about my thoughts on publishing product prices and general price transparency. Whenever I visit a website, especially for a Software-as-a-Service (SaaS) product, one of the first things I do is go to the pricing page and try and understand how the company positions themselves in the market. Overall, I’m a big fan of price transparency on a SaaS site for a number of reasons:

    • Provides potential customers more information in an effort to empower them as much as possible
    • Creates an anchor for sales people to work with, and is especially great when combined with a no/limited discount policy
    • Makes it clear how customers are segmented by way of product functionality
    • Sets expectations around freemium products, if applicable (e.g. if the product is free, then the provider makes money off the users)
    • Allows for custom pricing options so as to capture more value and provide a different level of service to high-end customers

    Personally, I’m a practical personal that wants to empower buyers, and I think price transparency is a critical component of that.

    What else? What are some other thoughts on price transparency?

  • Crowded Markets Aren’t Actually Crowded

    When you look around the Atlanta Tech Village, or any other group of startups, you’ll find that the startup ideas aren’t as revolutionary as you might expect. In fact, most of the ideas already have tons of competitors. So, why are the entrepreneurs playing the me-too game and battling it out in crowded markets?

    Markets aren’t what they appear on the outside. On the outside, it looks like there are 10 different competitors all doing the same thing, speaking the same language, and targeting the same group of businesses. In reality, each competitor has their own strengths and weaknesses and targets a slightly different segment of the market.

    During the marketing automation wars of 2011 and 2012, it looked like Pardot competed with Marketo, Eloqua, Act-On, and many more. A material percentage of Pardot’s deals weren’t competitive at all (meaning, a new customer would sign up without evaluating other products) and when there was competition, it was almost always with the same competitor. Inside the market was very different than what the outside saw.

    While markets are considered crowded in that there are a number of competitors, most markets aren’t winner-take-all or winner-take-most, resulting in a number of “winners” that carve out their respective niches and build successful companies. Crowded markets aren’t actually crowded when you get on the inside.

    What else? What are some other thoughts on the idea that markets that look crowded can actually have a number of successful businesses?

  • Goals and the Cadence of a Sale Per Day

    One of the milestones I really like as an entrepreneur is signing an average of one new customer per day. A new customer every day means that the the business is starting to take off, there’s product/market fit, and the basis of a repeatable customer acquisition process is in place — all critical ingredients of a successful company.

    Of course, the cadence of a sale per day can vary dramatically based on things like typical sales cycle, average deal value, and more. A small ticket sale business (e.g. under $500/year) will usually achieve the milestone much sooner than a larger ticket sale business, everything else being equal. There’s no set amount of time for this milestone, but it’s often within the first few years of a startup.

    Another benefit of signing a new deal per day is that there’s a volume of customer-generated information that really informs the business as to what to do next. Whether it’s information from customers as to why they chose the product (sales and marketing info), to feature requests (product management info), to bug reports (support and engineering info), primary data helps make for more informed decisions. Product usage is oxygen for software.

    The next time you’re making a series of goals, consider adding the cadence of a sale per day to the list.

    What else? What are some other thoughts on the cadence of a sale per day?

  • What’s Next After a Serious Competitor is Acquired

    Recently I was talking to an entrepreneur that was lamenting how worried they are now that one of their main competitors was acquired. After asking a number of questions and drilling into their situation as best I could, I told him not to worry. Yes, things will change, but no, it won’t be as game-changing as he thinks.

    Here are a few things that typically happen after a serious competitor is acquired:

    • Tons of PR comes out talking about how this is a major acquisition and the industry is going to change/consolidate/go mainstream
    • Quick changes to their branding and website saying they are part of a bigger company (product name changes usually don’t happen right away but the bigger company’s name is usually added to the logo of the acquired company)
    • Employees in overlapping positions are let go (back-office jobs like accounting and HR are usually the first to go)
    • Paralysis occurs on the engineering and innovation front as a tremendous amount of time is spent integrating things with the mothership and working on a long-term roadmap (this is a key opportunity for the other competitors to keep innovating and get out in front of the newly acquired competitor)
    • Prices often rise and more emphasis is put on cross-selling to justify the purchase
    • Life continues as normal (the noise will die down and things will continue on just like they always have)

    Competition is healthy and when a competitor is acquired things do change, but more often than people realize, a big company acquiring a startup results in a less competitive startup. Less competitive doesn’t mean the acquisition won’t be considered successful, rather priorities will change and the number of directly competitive deals will usually decrease (often a big company takes the startup’s product up market).

    What else? What are some other thoughts on what happens next after a competitor is acquired?