David Cummings on Startups

Category: Entrepreneurship

Building a Passionate Community is Different Than Inbound Marketing
Recently I was talking with an entrepreneur who has been implementing inbound marketing best practices for years but not getting much value. His startup is past the product / market fit stage and now he’s working on building a repeatable customer acquisition machine and needs to fill the top of the marketing funnel (see Lead Generation Drives SaaS Startups). On the inbound marketing front, he’s been writing blog posts, creating white papers, nurturing followers on Twitter, and following search engine optimization recommendations.

After thinking about it for a minute, I commented that implementing inbound marketing best practices is different from building a passionate community. Here are a few thoughts on it:
- Standard content, while keyword rich, often isn’t edgy or strongly opinionated
- Offline interaction and building personal rapport is an important ingredient in cultivating a community
- Audience engagement is readily measured based on number of comments, retweets, and follow-up emails
- Amazing storytellers, like the best programmers, are 10x more effective than their colleagues
So, as part of building a passionate following, think about the cult in culture and figure out what resonates with the people you want engaged. Inbound marketing is about relevant content while a passionate community comes from compelling leadership.

What else? What are some more thoughts on how building a passionate community is different than inbound marketing?
January 29, 2014
Cold Calling for Fun and Profit
Cold calling isn’t dead. In fact, with so many people texting, emailing, and hanging out on social media, cold calling is even more effective because it is so under used. That said, cold calling isn’t easy. In fact, cold calling is very difficult and emotionally draining (for most people). Here are a few thoughts on cold calling:
- Allocate enough time and resources to be successful (e.g. trying it for a couple hours one afternoon doesn’t qualify as effort – allocate 40 – 80 hours of work to figure out if it’s going to work)
- Read Aaron Ross’s great book Predictable Revenue and learn how to do modern, internet-augment selling
- Build great lists of prospects to call on using a tool like the SalesLoft Prospector
- Pick at least three different job titles and call 500 people with that title (e.g. email marketing manager on LinkedIn)
Cold calling becomes even more effective with a proven methodology like Sandler Sales Training and other sales rep training programs. So, if cold calling isn’t on your radar, add it.

What else? What are some other thoughts on cold calling for fun and profit?
January 27, 2014
Insight’s Periodic Table of SaaS Sales Metrics
Insight Venture Partners has an excellent PDF up titled Insight’s Periodic Table of SaaS Sales Metrics where they break down seven different sales related categories and provide key metrics. This is super impressive as it was built using data from a number of their portfolio companies, so it’s real information from some of the fastest growing Software-as-a-Service companies in the world. Insight has an impressive track record with investments in companies like ExactTarget, AirWatch, and HootSuite.

Here are the Periodic Table of SaaS Sales Metrics categories with a couple key metrics:
- Business Development Reps (appointment setters)
  – 2 months new BDR ramp time
  – 10 sales qualified leads per week
- Inside Sales Reps
  – 3 months new ISR ramp time
  – $630k-$720k annual recurring revenue annual quota
- Field Sales Reps
  – 6 months new FSR ramp time
  – $800k – $1.3M annual recurring revenue annual quota
- New Business Bookings
  – 6% average commission on up-sell bookings
  – 66% of companies offer a trial before buying
- Retention
  – 2% median renewals commission rate
  – 50% of churn is uncontrollable
- Professional Services
  – 25% is the average professional services fees as percentage of 1st year contract
  – 25% of companies give quota relief for professional services but no commissions
- Account Managers
  – 60% account managers responsible for up-sell annual recurring revenue
  – 30% – 50% average net promoter score
Anyone involved in SaaS should study the table and use it to benchmark against their internal numbers.

What else? What are your thoughts on Insight’s Periodic Table of SaaS Sales Metrics?
January 26, 2014
When to Start Scaling the Sales Team
Sales and sales teams are one of my favorite topics as I’ve seen the wonders of what an amazing sales leader and sales team can accomplish. According to the Four Stages of a B2B Startup, after achieving product / market fit, it’s time to build a repeatable sales process. Building a repeatable sales process does not mean spending a ton of money on sales and marketing right out of the gate. What it does mean is experimenting with a variety of sales and marketing tactics, including things like 100 Growth Hacks in 100 Days.

A startup is ready to start scaling the sales team when the following two metrics are in place:
- Full burdened cost of sales and marketing expenses for a 90 day period of time is equal to or less than new annual recurring added in that same time period (e.g. spend $50k in sales and marketing salaries, commissions, trade shows, PPC ads, etc and generate at least $50k of new annual recurring revenue)
- Annual recurring revenue generated by a sales rep is at least 3x the fully loaded cost of the sales rep (e.g. if a fully loaded sales rep with salary, commission, and taxes is $80k, the rep should bring in at least $240k in new annual recurring revenue in a calendar year – see The 3x Rule for SaaS Inside Sales Rep Quotas)
Of course, there are a number of other important factors like gross margin, renewal rates, etc. that are play into these recommendations but this is a good start. Much like Startups Should Resist the VP of Sales Temptation, startups should also hold off scaling the sales team until the appropriate metrics are in place.

What else? What are your thoughts on when to start scaling the sales team?
January 25, 2014
Colleges Should Offer Two New Courses for Entrepreneurial Students
Earlier today I was talking to a second-year MBA student at a top 10 business school. As graduation looms on the horizon, he’s looking to network with startups and find a full-time gig in the summer. After the usual discussion about the desired type of gig (building or selling) as well as appetite for risk (seed stage, early stage, growth stage, etc) he posed a question on behalf of his professor: what should colleges be doing to prepare students to be entrepreneurs?

I thought for a second and offered up that colleges should offer two courses not commonly found:
- Professional Selling – Nothing gets done until something gets sold. Sales skills are important for entrepreneurs, not just sales people. Beyond the sales challenge of signing the first 10 customers, most entrepreneurs have to sell investors on why they should invest in their idea. Professional selling is an ideal course for entrepreneurs.
- Lean Startups / Customer Discovery – Business plans are dead. Validating ideas with prospects prior to building a product is alive and well. Dynamic business model canvases are in vogue. Entrepreneurs would do well creating and testing hypothesis, using the scientific method, rather than writing plans based on third-party information found in a vacuum. Doing is better than theorizing.
Of course, colleges are good for teaching subjects, but they are no substitute for getting out there and starting a real business, even if it’s a simple concept anyone can do. Colleges would do well to offer courses on professional selling and lean startups / customer discovery.

What else? What are your thoughts on these two course ideas as well as other courses colleges should offer for entrepreneurial students?
January 24, 2014
One Investment to Return the Fund

Hunter Walk has an interesting post up titled Why I Don’t Ask “Is This a Billion Dollar Business?” Before I Invest. In the post, he highlights an important element that I believe most entrepreneurs fail to understand when looking to raise money from VCs: VCs want to believe that they can return the value of the entire fund on a single investment.

Most of the time, when asking entrepreneurs what VCs want, you get the standard response that VCs want to make money. Yes, they want to make money, as do all investors, but they don’t want to make a 20% or 50% return on capital. The goal is to make an investment that generates a 10x or 20x return. Assuming the capital invested was less than 10% of the fund, a 10x or 20x outcome will return the entire fund.

This goal is especially true with smaller funds, which are more and more common. For larger funds, a standard minimum bar is to have an investment return at least 10% of the committed capital (see Ask Prospective Investors About the Ideal Exit). So, if it’s a $200 million fund, the VCs representing the fund would want an exit that returns at least $20 million in cash to the limited partners.

Overall, VC and entrepreneur exit goals often don’t align — remember to set expectations before taking money.

What else? What are some other thoughts around VC expectations being different from entrepreneur expectations?

January 21, 2014
Identifying a Problem and Finding a Solution From Another Industry

In yesterday’s post on 10 Free Business Ideas from Idealab’s IdeaDay, the last idea, Opti-Park, came after identifying a problem in one area and finding a solution for it from a completely unrelated area. Bill Gross, the founder of Idealab, commented that Idealab has 40,000 square feet of office space in the Old Town part of Pasadena. According to building code, they can double the size of their own facility to 80,000 feet, but to do that they are also required to add four parking spots per 1,000 square feet of space. Only, land is expensive, super expensive and there’s no room.

Naturally, the ideal solution would be to squeeze more parking spaces out of the existing parking deck and surrounding parking lots. Unfortunately, no good solution had emerged until a fortuitous trip to NYC. There, Bill encountered a building using the new intelligent elevator system whereby a passenger keys in their desired floor from the elevator lobby, waits for a designated elevator, and rides the highlighted elevator to a specific floor. Inside the elevator, there aren’t any floor selection buttons — everything is controlled from the elevator lobbies. The end result is shorter elevator trips and a much more efficient use of resources.

After experiencing the intelligent elevators, the idea came to Bill to do the same thing for parking lots and parking decks. Imagine pulling up to a parking lot gate, a computer instantly calculating the dimensions of your car, and issuing a slip of paper to park in a designated spot (e.g. D4). Upon receiving the slip of paper, the driver knows exactly where to go and doesn’t drive around aimlessly until they encounter the first open spot, which may or may not fit their car. Of course, the big benefit is striping the lines of the parking deck for a variety of car sizes such that it can hold several more cars (in Bill’s example he cites one lot being able to hold 23% more cars). Eventually, the lot can be designed to not have any painted stripes but rather have LED lights that can change dynamically to maximize parking efficiency — so many amazing opportunities.

Overall, the takeaway is to keep a list of problems encountered in a Google Spreadsheet so that when solutions emerge in different areas, it becomes more automatic to apply them to other opportunities.

What else? What are your thoughts on identifying a problem and finding a solution from another industry? Do you have any examples of this?

January 20, 2014
10 Free Business Ideas from Idealab IdeaDay
Idealab, the most famous tech startup incubator in the world, just released a 90 minute video from their IdeaDay event last week. The goal with IdeaDay is to share 10 business ideas they’re excited about in the hopes that potential entrepreneurs, team members, and investors come forward to partner with Idealab in some way on them. Of course, the ideas are free and people can take them and run with them on their own as well.

Here are the 10 free business ideas from Idealab’s IdeaDay:
1. Too Many Pictures – With digital pictures stored in so many places there’s a growing need to wrangle them all in a manner that’s more maintainable (e.g. photos on Facebook, Picassa, Instragram, Dropbox, etc)
2. ActionMail – Interface with email in a more manageable manner through features like pulling questions out of email text and prompting for answers, prioritizing inbound email based on whether or not you’ve already emailed the person, etc
3. Deliver.it – An Uber for delivering common, convenience store-like items where the items are already in the vehicle (as opposed to someone having to go pull a specific order, all the items are in the vehicle ready for delivery)
4. LifeChanger – Wearable technology, similar to Fitbit, that would be used track eating, smoking, etc with the goal of changing and/or improving behavior
5. Product Search – Moving beyond standard shopping comparison engines, the idea is to have a guided product search that takes into account more structured search criteria
6. DashCam – Bring the popularity of Russian car dashboard cameras to North America for the purpose of saving money on insurance, providing more context-sensitive information, etc
7. Luv.it – Provide a list of places, hotels, restaurants, etc that you love and get a list of ones you might not know about based on what other people love (recommendation engine to find other stuff you’d love but don’t know about, as different from Yelp, Trip Advisor, etc)
8. Dashboard.biz – Real-time business dashboard with the most important, actionable metrics pulled from other cloud-based systems
9. CloudShare – Cross cloud file storage searching (e.g. Dropbox, Google Drive, etc) for personal files as well as coworker files so that if a coworker has a file that you want, the software prompts them to share the file only if a match was found (as opposed to the standard practice of emailing a company mailing list and interrupting everyone to see if they have a file)
10. Optipark – System for real-time assigning of parking spots based on the size of the car whereby the parking lot is stripped with a variety of parking spot sizes such that 10-20% more cars fit in the same area (think of using a touch screen to say the type of car you have and it telling you a specific spot to use as it knows all spots in use and not in use — future idea would be to use LED lights to dynamically stripe the parking lines for maximum efficiency)
Watch the IdeaDay video to get a more detailed explanation of each idea as well as visuals. Overall, I think it’s a very cool idea that Idealab is open sourcing ideas as a way of recruiting people to get involved. Well done!

What else? What are your thoughts on these 10 free business ideas? Which one is your favorite?
January 19, 2014
Walkthrough of a Standard Floor at the Atlanta Tech Village
With our 4th floor complete at the Atlanta Tech Village, we can now visually highlight many of the elements and explain some of the thinking behind them. The 4th floor is our first finished floor and we’ve already identified a dozen smaller items we’ll be changing for the exact replica 3rd and 5th floors, but we’re pleased with how everything came together. Also, with tenants moving in, we’ll also have tons of feedback over the next few weeks that we’ll take into account for the other floors.

Here’s a walkthrough of the main elements.

Elevator Lobby
- Reclaimed hemlock wood from New Hampshire surrounding a 70″ TV that displays a directory of startups on the floor as well as community-related news
- Large glass doors with key card access into kitchen and common areas
Kitchen
- Large, single kitchen for the entire floor to promote serendipitous interaction
- Pantry stocked with light snacks and refrigerator stocked with drinks
Medium-Sized Conference Rooms
- Three medium-sized conference rooms immediately adjacent to the kitchen
- LED backlit dry erase panel across the length of the back wall of each room
- Self-service room scheduling as well as ad hoc availability
Phone Rooms
- Seven shared phones rooms and eight private phone rooms per floor
- Perfect for personal calls, conference calls, and web meetings
- Self-service room scheduling as well as ad hoc availability
Large Conference Room
- One large conference room around the corner from the kitchen
- 70″ LED TV on the wall with Google Chromecast to wirelessly project a laptop screen
- Extensive back wall with dry erase paint
- Self-service room scheduling as well as ad hoc availability
Coworking Area
- 20 desks plus soft seating directly next to the kitchen
- Large walls with dry erase paint
Library / Game Room
- Two rooms: a soft seating room with sofas, coffee table, etc and a shared desk room
- No talking when others are in the room working
- Video game system
- 50″ LED TV per room
- Large amounts of glass that also act as dry erase boards
Private Rooms
- Five private rooms with 2-6 desks per room
- Large amounts of glass that also act as dry erase boards
- Individual key card access
Private Suites
- 12 private suites with two rooms per suite containing 6-12 desks
- 50″ LED TV per room with Google Chromecast
- Large amounts of glass that also act as dry erase boards
- Large dry erase wall on the interior hallway
- Individual key card access
Private Corner Suites
- Four corner suites with 5-6 rooms per suite containing 16-21 desks
- 70″ LED TV in the main area with Google Chromecast
- Large amounts of glass that also act as dry erase boards
- Large dry erase wall on the entry hallway
- Individual key card access
Another important feature is that there’s a locked connecting door between each suite that can be opened if two adjacent suites are rented by the same company, similar to adjoining hotel rooms.

In addition to the amenities described above, the building also has a shared conference center, classroom, community center, over-sized board room, video production room, and gym coming in March. Oh, and an Octane Coffee with a great outdoor patio.

Want to see it in person? Sign up for our weekly tour.

Overall, the idea is to have a variety of shared and private spaces that promote collaboration and serendipitous interactions while allowing startups to scale and contract as necessary.

What else? What are some thoughts on the standard floor at the Atlanta Tech Village?
January 18, 2014
Custom Work to Win SaaS Deals
As a follow-up to Balancing Desire for Full Paying Customers with the Need for Discounting, I was asked about doing custom work to win a deal. For example, statements like “I’m very interested in your product but it has to do X before I’d buy it” are common from prospects. For Software-as-a-Service (SaaS), this is even more interesting because SaaS should be a true multi-tenant architecture where everyone uses the same product.

Here are a few thoughts on custom work to win SaaS deals:
- Never give something without asking for something in return (e.g. sure, we’ll do 5% off our product in exchange for a case study)
- Always debate if the custom work request is going to be applicable to 80% of the desired customers (e.g. custom work is OK if it really is going to be used by everyone else)
- When evaluating a custom work request, get a letter of intent that the prospect will buy the product before implementing the new feature (e.g. the prospect has to show some level of commitment before engineering resources are applied)
Custom work and product enhancements often come up in a sales cycle, regardless of product type. The key is to have a gameplan and evaluate it on a case-by-case basis.

What else? What are some other thoughts on custom work to win SaaS deals?
January 16, 2014