David Cummings on Startups

Category: Entrepreneurship

  • Entrepreneurs Should Tell a Compelling Story

    Recently I was talking to an entrepreneur and he was giving me his elevator pitch. After hearing it, and asking a few clarifying questions, I didn’t feel moved. I wanted more. I wanted a compelling story. I wanted a raison d’être. Thinking about it further, I realized that entrepreneurs are trained to provide short, simple talking points.

    Yes, entrepreneurs should be able to deliver an elevator pitch, but entrepreneurs should also tell a compelling story. Think about the following questions:

    • Why are you doing what you’re doing?
    • Why are you passionate about it?
    • Why are you going to change the world?
    • What compelled you to action?
    • What gets you excited in the morning?
    • What unfinished business do you have?

    Find a storyteller to help with the message. Craft a narrative. Get people excited. And, most of all, tell a compelling story.

    What else? What are your thoughts on entrepreneurs needing to tell a compelling story?

  • Think About The Market As Much As The Product

    Entrepreneurs spend a tremendous amount of time focused on specific product ideas and not enough time evaluating the overall market and trends. Most successful startups pivot at least once before finding the idea that turns out to be the one, so picking a good market increases the likelihood of developing knowledge in an area that has multiple opportunities.

    Back in March of 2007, Pardot started out as a Pay Per Click (PPC) bid arbitrage platform whereby we would generate leads and sell them to companies. Much like LendingTree.com where you fill out a form one time for a mortgage and get several responses, we wanted to do the same thing for B2B technology leads. Add in some industry analysis like Gartner or Forrester and you have a pretty good idea of Pardot 1.0.

    After 45 days of Pardot 1.0 we realized that we’d picked a good market (helping tech companies with lead gen) but didn’t pick the best product offering. At that point we pivoted and decided to offer the tools we’d built to help generate, track, and disseminate leads as a standalone marketing product instead of selling leads. We then spent the next four months fleshing out the product and did a soft launch in September 2007. After six more months of finding product/market fit, the business took off and the rest is history.

    In the end, our original idea wasn’t successful but we picked a great market and had impeccable timing. Entrepreneurs would do well to spend time thinking about the market in addition to the product.

    What else? What are your thoughts on the importance of picking a good market?

  • Atlanta Tech Village Accelerates Early User Acquisition

    Yesterday I was walking through the Atlanta Tech Village introducing an entrepreneur to other entrepreneurs that could use his cloud-based product. As an entrepreneur, one of the most challenging and time consuming tasks is getting companies to actually use and provide feedback on a new product. Yes, with customer discovery companies should be engaged before building the product but often times more companies are needed to evaluate the product once it’s under construction.

    Enter a community of like-minded entrepreneurs.

    Actively paying it forward and helping each other out by using a new product and making introductions to potential users, there’s an accelerated timeline to achieving product/market fit (stage 1). And, all too often, it’s an accelerated process to realize that there’s not enough pain or demand in the market, so it’s time to pivot and go a new direction.

    The next time users and introductions are needed, consider getting involved in a community to help accelerate the process.

    What else? What are some other thoughts on entrepreneurial communities to help with early user acquisition?

  • Notes from the Zendesk S-1 IPO Filing

    Zendesk, one of the hottest and fastest growing Software-as-a-Service (SaaS) companies just filed their S-1 to go public. Zendesk makes help desk software for support teams to interface with customers in an efficient manner. Zendesk started at the same time as Pardot back in 2007, so I have a sense of nostalgia watching our respective companies grow up at the same time as a class of second-generation SaaS companies providing broad-based solutions for a specific market.

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

    • Over 40,000 customer accounts (pg. 1)
    • Zendesk approach (pg. 3)
      Beautifully Simple
      Omni-Channel and Contextual
      Affordable
      Natively Mobile
      Cloud-Based Architecture
      Open Platform
      Proactive Engagement
      Strategic Analytics
    • Revenue (pg. 9)
      2011 – $15.6M
      2012 – $38.2M
      2013 – $72M
    • Losses (pg. 9)
      2011 – $7.2M
      2012 – $24.4M
      2013 – $22.6M
    • 473 employees (pg. 13)
    • Has experienced several security breaches including one in February 2013 where three accounts were compromised and personal information was stolen (pg. 15)
    • Owes $23.8M on their line of credit (pg. 34)
    • Three things that successful businesses do well (pg. 42)
      – Have great products
      – Care for your customers
      – Attract a great team
    • Acquired Zopim, a live chat company, for the purchase price of approximately $15.9 million (pg. 69)
    • Equity ownership (pg. 119)
      Co-founder/CEO – 7.1%
      Co-founder/CPO – 7.2%
      Charles River Ventures – 24.5%
      Benchmark Capital – 18.7%
      Matrix Partners – 8.8%

    Zendesk, with over $100 million in annual recurring revenue and an amazing growth rate, will do extremely well in the public markets. Ultimately, I expect Zendesk and HubSpot to merge in the future and take Salesforce.com head-on as the second-generation cloud platform of record for businesses.

    What else? What are some other thoughts on the Zendesk IPO filing?

  • Dragon Army Launches Robots Love Ice Cream on iOS

    Last summer Jeff Hilimire and I were talking at a Junior Achievement fundraiser about what was next on the horizon for him. After going back and forth on a few ideas, we decided on building a mobile game studio and tapping into the awesome game talent in Atlanta. We both loved mobile games and had a history of playing video games as kids. Well, I’m excited to announce that the first game from Dragon Army is live on the App Store: Robots Love Ice Cream.

    Robots Love Ice Cream

    The game is a modern take on Space Invaders and Defender with great graphics, gameplay, and fun. Check out Robots Love Ice Cream on the App Store now and look for an Android version here in a few weeks.

    What else? What are your thoughts on mobile games and the first title from Dragon Army?

  • Make the ‘Ask’ at the End of a Presentation

    Earlier today we had a great “Show and Tell” event at the Atlanta Tech Village where four entrepreneurs gave a five minute update on their startup followed by five minutes of Q&A:

    The five minute updates ranged from personal stories to sales videos to product demos. With an audience of fellow Villagers, there was an opportunity to make an ‘ask’ — that is, to get help from the community. Whether it’s names of relevant mentors, introductions to potential prospects, or something else, a group of people always can help. Only, most people don’t make an ‘ask’ when presented with an opportunity.

    My advice: make the ‘ask’ at the end of a presentation.

    What else? What are some other thoughts on making the ‘ask’ at the end of a presentation?

  • Lack of Liquidity With Angel Investing

    A common adage in angel investing is “invest an amount that you don’t care about losing.” Now, it isn’t that you want to lose any money as cash is cash, whether it’s $10,000 or $100,000. Yes, angel investing is risky, but there’s also no liquidity for an extended period of time, if ever. So, if you’re going to invest $25,000 into a startup, it isn’t like putting $25,000 into the stock market where if you change your mind you can take the money out at the prevailing price.

    No, once the money is invested, not only is there no timeline to be able to get it back, you also have to put in more money to maintain your ownership position, assuming pro-rata rights (I’ve always heard that you should save $3 in reserve for every $1 you invest). Once you’ve invested in the startup, it’s truly like the money is gone, and the lack of liquidity is the main culprit.

    While lack of liquidity is a big challenge, angel investing is much more interesting and rewarding than making traditional investments in places like the stock market. The opportunity to help entrepreneurs change the world, develop a mentor/mentee relationship, and invest in the next generation of leaders provides its own value. Access to cash matters but there are intangibles that are difficult to measure.

    The next time you think about making an angel investment, remember the lack of liquidity challenge and make sure that the money isn’t needed for a long, long period of time.

    What else? What are some other thoughts on lack of liquidity with angel investing?

  • Excitement of Kicking Off a New Project

    As an entrepreneur, one of the most exciting things to do is to kick off a new project. Now, many entrepreneurs aren’t the best at finishing all projects (looking at myself, guilty as charged), but starting new initiatives comes naturally. One important entrepreneurial trait is being able to see and appreciate what will be achieved in the future, even when others around you have a hard time seeing the potential.

    Here are a few thoughts on kicking off a new project:

    • New projects often involve other people, so it’s critical to be able to inspire others around you (sometimes it isn’t inspiration but just wearing them down so much that they’re ready to give it a try)
    • Details do matter and someone has to manage them (it takes all types of people to succeed)
    • Bring in the experts with complementary strengths (going alone is terribly difficult)
    • Continue to talk about the potential and remind everyone what’s on the horizon

    Kicking off a new project is exciting for entrepreneurs due to the internal spirit and energy for trying new things. Take the passion and channel it to the necessary team members to see things through to completion.

    What else? What are some other thoughts on entrepreneurs and new projects?

  • Growth-Oriented Entrepreneur Required

    Earlier today I was talking to a serial entrepreneur about patterns of success he’s seen in other entrepreneurs. His assertion: every startup needs to have a growth-oriented entrepreneur on the team. Growth, often synonymous with sales, is about moving the business forward in a revenue-focused manner. There are many smart, hard-working entrepreneurs out there that haven’t achieved success, and, in general, they focus too much attention on non-revenue generating parts of the business. Sales and marketing is a critical part of success and most entrepreneurs don’t figure it out.

    Here are a few thoughts on the need for a growth-oriented entrepreneur:

    • Growth isn’t purely about selling, but having someone that can sell absolutely helps
    • Revenue can come from direct and indirect sales, partnerships, etc — the key is that someone is passionate about it
    • If something can’t be sold, or the market isn’t ready, a growth-oriented entrepreneur is going to find an opportunity that does exist
    • Some of the best cofounder complements come when one is growth-oriented and the other is product-oriented

    As a community, we need to be talking more about customers and less about cool features. Nothing happens until something is sold. Make sure a growth-oriented entrepreneur is on the team.

    What else? What are some other thoughts on the idea that a growth-oriented entrepreneur is required?

  • Employee Equity Value at Time of Exit

    Joelle Fox asked a question earlier today about reasonable expectations for the amount of money a startup employee might make at time of exit based on their equity or stock options:

    https://twitter.com/joellefox7/status/451436670198759424

    Of course, there’s no exact answer, but there are several good examples to talk through. Generally, when talking about equity for startup employees, I like to set expectations that if we do well, this will pay for a nice new car (e.g. $40k). If we do great, it’ll pay for a new house (e.g. $400k), and if it’s a once-a-decade company, it’ll pay for a new life (e.g. $4M). The reality is that most of time the equity isn’t worth anything because the startup goes out of business or doesn’t sell for an amount that’s greater than the amount of money invested.

    Typical equity grants in a startup are in the .1 – 1% range, assuming fewer than 10 employees and some funding. In the example above with the new car, house, and life, if you assume .4% fully diluted ownership of the business, the company would have to sell for $10M, $100M, and $1B to achieve those results. Very few startups ever sell for $100M or more, so the common outcome, assuming there’s any success at all, is in the new car range (e.g. .2% and sell for $30M, results in $60k for the equity).

    So, equity should be viewed as icing on the cake and the salary and benefits should be the main financial compensation. Of course, there are stories of winning the lottery, and it’s definitely possible to hit it big in a startup, but that shouldn’t be the main driver.

    What else? What are some other thoughts on employee equity value at time of exit?