David Cummings on Startups

Category: Entrepreneurship

  • Bessemer’s SaaS Pricing Strategies Notes

    Bessemer Venture Partners has a great new white paper up on Software-as-a-Service (SaaS) pricing strategies. Pricing is something that entrepreneurs labor over on a regular basis and there’s always multiple quality answers. Besides the standard advice that products should initially be priced higher than what you think it’s worth since it’s better to have push back and easier to lower prices, there’s a good bit of gray area on the different types of pricing options.

    Here are the four categories Bessemer identified:

    • Freemium (Dropbox, Asana, Skype) – Basic services at no charge and then fees for premium features. This is further sub-divided into capacity-based freemium, feature-based freemium, time-based freemium, and use-case freemium.
    • Consumption (Amazon Web Services, Twilio, ZipCar) – Pay-as-you-go pricing based on usage, similar to buying electricity.
    • Tiered (Salesforce.com, Pardot) – Pricing tied to value and usage (e.g. a combination of functionality and quantity) and is often found in enterprise software as well as SaaS.
    • Perpetual License (Oracle, Microsoft) – Initial payment followed by a smaller annual maintenance and support contract. Typically, annual subscription pricing is 3 – 5 years the cost of a perpetual license.

    As expected, some companies do a hybrid of the four categories listed above.

    The authors do a good job diving into the details and trade-offs of each of the approaches as well as case studies of SaaS companies employing each pricing strategy. If you’re interested in SaaS and pricing, go read the report.

    What else? What are your thoughts on SaaS pricing strategies and Bessemer’s white paper?

  • Takeaways from the First Kevy Connects Event / Impact of the Cloud

    Tonight we had our first Kevy Connects event at the Atlanta Tech Village with over 250 registered attendees and a panel of Atlanta cloud software leaders including Reggie Bradford of Oracle / Vitrue, Michael Cohn of Cloud Sherpas, Bill Nussey of Silverpop, and Ed Trimble of Kevy. For the event, our goal was to bring together some of the major Software-as-a-Service companies in town to learn from each other and explore how we can continue to expand Atlanta’s strength in the world of cloud-based applications.

    Here are a few takeaways from the first Kevy Connects event:

    • Cloud-based software, while it’s been around for well over a decade, is one of the fastest growing software segments and shows no signs of slowing down
    • Most companies that were originally averse to putting their information in the cloud due to security, availability, etc have come around and are now comfortable with it
    • Integration of cloud apps is a big challenge for the industry and an opportunity for new entrants
    • Atlanta’s extensive history of successful B2B software companies provides a strong foundation for the next generation of cloud-based software.

    Overall, tonight’s event was a big success and we look forward to bringing the local cloud community together on a regular basis.

    What else? What are some of your takeaways from the event and the impact of the cloud?

  • Atlanta’s Sales Community as Core for a Sales and Marketing Tech Hub

    Atlanta has one of the highest number of sales reps per capita in the world. Think about it: if you live in Atlanta or have friends in Atlanta, how many people do you know that are in sales? That’s right, there are a ton. Now, there are two main reasons why Atlanta has so many sales people:

    1. Capital of the South – Thousands of companies have regional sales offices in Atlanta to call on and service accounts all over the Southeast. Atlanta is the clear leader in the Southeast based on number of people and scale of infrastructure.
    2. World’s Busiest Airport – I know a sales-oriented CEO of a multi-national health IT company that just moved his family to Atlanta because he’s on the road all the time and would rather be based out of Atlanta instead of Boston, even though he grew up in the Midwest. The main reasons: climate and the airport. With the world’s busiest airport, it’s easy for sales reps to quickly visit customers anywhere in the world at a reasonable cost, and almost always with a direct flight.

    So, Atlanta has an unusually large number of sales people, which translates well into Atlanta being a hub for sales technologies, and the close relative of sales, a.k.a. marketing.

    The world’s largest software company in the late 70s was a firm called MSA, based in Atlanta. MSA had an amazing culture that was incredibly sales focused. From the sales reps and sales management at MSA, over 50 startups emerged in Atlanta. Several of Atlanta’s largest success stories, including the billion dollar exit of Internet Security Systems to IBM, were lead by MSA alumni.

    A strong cluster of sales and marketing technology startups and companies have already coalesced in Atlanta including SalesLoft, Rivalry, Insightpool, CallRail, Badgy, Pardot, Vitrue, BrightWhistle, and more not even counting the amazing pool of email marketing companies in town like WhatCounts, Silverpop, and MailChimp.

    Atlanta’s strong sales community is the core that’s helped spawn many tech companies. Over the next 10 years, I predict Atlanta will become even more well known as a sales and marketing technology capital, and I can’t wait to see it happen.

    What else? What are your thoughts on Atlanta’s sales community as core for a sales and marketing tech hub?

  • Successful Entrepreneurs Continually Invest in Personal Improvement

    One pattern I’ve found with successful entrepreneurs is the internal motivation to continually invest in personal improvement. There’s this innate desire to keep getting better, both in life and in work.

    Here are some of the more popular personal improvement things I see entrepreneurs doing:

    • Public speaking practice by joining Toastmasters International
    • Peer experience sharing and learning through EO and YPO
    • Exercise and sports (running, working out, hiking, biking, and golf are popular)
    • Reading books and blogs on a regular basis

    The next time you talk to an entrepreneur, ask about personal improvement initiatives and see what they’re working on — it just might surprise you.

    What else? What are your thoughts on the idea that successful entrepreneurs are continually investing in personal improvement?

  • Business Idea: Google Now for Sales Reps

    Google Now is presented as an intelligent personal assistant that delivers the right information at just the right time. Pretty awesome. After reading about it, it’s clear that there’s a market opportunity for a similar service targeted at sales reps.

    Here’s how the service might work:

    • Tight integration with CRM (Salesforce.com, NetSuite, SugarCRM, Microsoft Dynamics, Nimble, etc) and calendar (Google Apps and Microsoft Exchange)
    • Analysis of rep’s top opportunities and prospects based on score, grade, timeline, and likelihood of closing
    • Monitor prospects’ social media activity to determine if a contact is online so as to prompt the sales rep to make a call or send an email
    • Review sales rep’s daily activity and automatically build recommendations based on previous success (e.g. a sales rep might have a higher close rate when doing demos in the morning and cold calls in the afternoon, so the service figures that out and prompts accordingly)
    • Seamless geographic and timezone integration to make recommendations based on GPS location of the sales rep (e.g. out in the field for a meeting, automatically reference another prospect that’s in the area)
    • Connection to phone systems (cell and VoIP) that both manually logs dialed calls as well as automatically initiates calls (e.g. there’s a 2pm conference call and the service rings the sales rep’s phone at 1:59pm)

    Perhaps the functionality is a bit too broad but the general idea remains the same: analyze everything related to a sales reps and make intelligent recommendations at the right time and place. Sales reps are always looking to close more deals with a shorter sales cycle and smart software will help make that happen.

    What else? What are your thoughts on the opportunity for a Google Now-like service for sales reps?

  • Business Idea: Next Generation Business Contacts Data Service

    Some of the big challenges for inside sales teams include finding quality data for cold calling, augmenting existing data, and targeted list building. There exists a business opportunity for a next generation business contacts data service. Let’s dig in and look at some characteristics of the business idea and market.

    Established companies like Jigsaw.com / Data.com from Salesforce.com, NetProspex, and ZoomInfo have good products with thousands of paying customers and millions of contact records. Only, when you talk to sales reps that use these products there’s always pushback that the data isn’t current.

    Several factors are driving the need for business contact data services:

    • Macro trend of inside sales replacing field sales
    • CRM growth among sales teams
    • Sales tools like auto dialers becoming more commonplace
    • Marketing automation adoption

    How it might work and differentiate from competitive services:

    • Better use of web scraping and web crawling for publicly available information
    • Deep integration of social media info, including analysis of Twitter, Facebook, YouTube, message boards, etc
    • Automated crowdsourcing of data using Mechanical Turk and other third-party services
    • Algorithmic review of existing customers and recommendation of similar companies / people

    LinkedIn is the one wildcard as they have the best, most current data, but don’t resell or allow programmatic access to it.

    Data service companies have been around for decades with Dun & Bradstreet being the most well known. The market is ready for a next generation service that takes advantage of the most modern techniques and delivers great data.

    What else? What are your thoughts on the opportunity for a next generation business contacts data service startup?

  • New Jobs Come from New Companies

    Several months ago I first heard the following statement and it’s really stuck with me:

    The majority of new jobs created over the next 10 years will come from companies that aren’t in existence today.

    Think about that for a minute. As a country, we have a real unemployment problem on our hands, one which many people believe is more structural than temporary. Yes, existing businesses will create some new jobs but it’s critical for entrepreneurs to step up and build great companies. Our country depends on it.

    The next time you think about entrepreneurship, think about job creation and how important it is for our future.

    What else? What are your thoughts on the statement that most new job creation over the next 10 years will come from companies that aren’t in existence today?

  • Announcing Dragon Army Mobile Games Studio

    Urvaksh broke the news about the new Dragon Army mobile games studio Jeff Hilimire, Ryan Tuttle, and I are starting at the Atlanta Tech Village. Jeff and I met briefly in 2005 when I was trying to get his company Spunlogic to resell the Hannon Hill content management software. We first had a chance to work together running Shotput Ventures back in 2009 and ended up investing in nine startups together. After the Shotput Ventures experience, I knew Jeff would be awesome to work with again in the future.

    So, what is Dragon Army? Dragon Army is a mobile games studio where we’ll be building casual games and apps for tablets and smart phones. Mobile is the next major wave of computing and games are a big part of it. It’ll be a new experience for us and we’re super excited.

    Read Jeff’s great post on Dragon Army.

    Oh, and please sign up to be notified when our first Dragon Army title hits the App Store.

    What else? What are your thoughts on mobile games and opportunities for a new games studio?

  • Sublease Adventures: Touring the Executive Floor

    Several years ago we were playing the real estate roulette sublease game where every 18 – 24 months we’d go shopping around to find an affordable and flexible lease suitable for our startup. In the first seven years of my entrepreneurial journey, we were in five different offices (one of the reasons the Atlanta Tech Village was started).

    Well, we were out in the market looking for a new office and there was an option across the street in a nice building. Looking at the floor plan and the existing layout, it was unlike ones I’d seen before in this part of town due to several large, open rooms. Perfect, I thought, as we wanted to have a more open, shared environment.

    Excited, we headed over to review the space. We met the listing broker and he explained that this was a beautiful space previously used by a publicly traded pharmaceutical company. Oh, and it was their executive floor. Coming from the startup world, I hadn’t ever seen an “executive floor”, but I quickly understood what that meant.

    Here are some characteristics of the executive floor:

    • Massive private offices in the neighborhood of 300 – 500 square feet each
    • Closets and fine built-in shelves in each of the excutive rooms
    • Mahogany wood paneled walls in the main conference room
    • Large reception area for the floor followed by smaller, private reception areas for each of the large offices
    • Internal, over-the-top bathrooms that were much nicer that the standard building bathrooms

    Basically, it was the antithesis of how startups operate. Ultimately, we were able to negotiate a sublease-type rate due to tough market conditions and stayed in our same space. It was an experience to tour an executive floor and see how some other companies operate.

    What else? Have you seen an executive floor and what are your thoughts on them?

  • SaaS Companies Losing Money to Grow Recurring Revenue

    When talking about recent IPO filings and SaaS growth rates, there’s often a reaction that because XYZ company lost millions of dollars last year, it isn’t well run. Inherently, people understand having to lose money to get a startup off the ground as there’s a disconnect between expenses and revenue. Only, once the business has scale, say $50 million in revenue, it seems that the company should be profitable going forward. Often, the SaaS company is choosing to invest in sales and marketing to grow faster.

    Losses in a single year are one-time while the recurring revenue added continues indefinitely.

    Let’s look at a SaaS company with almost all revenue recurring. If, as an example, you could invest $10 million into a business, and then spend that $10 million on additional sales and marketing all at once (assume other costs like support, R&D, administration, etc wouldn’t go up), and that the additional sales and marketing would generate an incremental $5 million in new annual revenue, that’s a great deal. The $5 million in incremental recurring revenue would make the company $25 million more valuable (assume a 5x revenue multiple for a SaaS company with a good growth rate) and it would add $3 – $4 million of gross margin to the business each year (assume 60% – 80% gross margins and a 100% renewal rate).

    When reading about heavy losses due to expanded sales and marketing, it’s important to remember that the losses are one-time, sales and marketing can be easily cut back, and that the recurring revenues generated are indefinite.

    What else? What are your thoughts on the relationship between losses from heavily investing in sales and marketing vs the recurring revenues that are indefinite?