David Cummings on Startups

Category: Entrepreneurship

  • Pardot’s Pricing Progression Through the Years

    The topic of pricing and request for advice on how to price a product comes up on a regular basis. I always like to share the Pardot pricing experience, including lessons learned. Pricing is something that is best treated as yet another experiment in the startup process with the caveat that all things equal, it’s better to start too high and come down.

    Here’s the early progression of pricing at Pardot:

    • $65 / user / month, minimum three users – At launch in late 2007, we priced the product based on Salesforce.com (how cool is it that Salesforce.com now owns Pardot?!?). The idea was that each marketing user that used the product would pay for a seat. Note: it didn’t do email marketing at the time, so there weren’t any email volume concerns.
    • $325 / account / month, unlimited users, unlimited contacts, with an allotment of 10,000 emails, 100,000 page views, and other modules (e.g. 10 landing pages), plus a required $2,500 quick start fee to set everything up. Email overages were billed separately. We quickly raised prices to $500 / month to reflect value and market dynamics.
    • $1,000 / account / month with the same characteristics as the previous offering but now a quick start package was included at no additional charge. By getting rid of the quick start fee, we were able to shorten the sales cycle, increase the average recurring revenue, and capture more of the value provided by the software. This was a major breakthrough for the business overall and this was the pricing for 3+ years of the business.
    • $1,000 / account / month for up to 30,000 contacts with unlimited emails and additional fees for more contacts. This became the standard in the industry and allowed vendors to capture value based on the size of the database such that accounts would grow as their marketing efforts grew. This change worked well and allowed us to grow the average size of an account.

    Pricing should adapt to the market and continually change over time. We didn’t get the pricing right originally, but we kept improving on it and built a great business.

    What else? What are your thoughts on Pardot’s pricing progression through the years?

  • Entrepreneurs Want Private Space Combined With Community

    When we started the Atlanta Tech Village we thought that there would be more demand for coworking space, with the idea that entrepreneurs and tech-related service providers wanted to be in large, open areas together. In reality, the initial private rooms sold out immediately — entrepreneurs want private space combined with community.

    Here are a few ideas around private space combined with community:

    • Entrepreneurship can be lonely, especially in the early days if things aren’t working out, so community is important
    • Absent coworkers, community provides for more social interactions
    • Private space provides more options for branding and customizing the furniture, pictures, etc
    • Private space makes it easier to lock things up and leave personal effects behind

    Of course, private space is more expensive than individual space if you don’t have the requisite number of people to fill the room, so it’s good to have a variety of options.

    What else? What are your thoughts on entrepreneurs wanting private space combined with community?

  • Get Potential Customers to “No” as Quickly as Possible

    Earlier today I was talking to an entrepreneur in the finding product/market fit stage of the startup adventure. He’s making progress collecting information but is still trying to understand if there’s a viable market. After hearing an update and sharing a few ideas, I recommended that he get to “no” with a bunch of potential customers as quickly as possible. The idea is that it’s often easier and faster to figure out if an idea isn’t viable, such that you can then move on. Too often, entrepreneurs take too long to kill an idea.

    Here are a few labor-intensive ideas to get in front of a number of people to determine viability for an idea:

    • Make a methodical plan to reach a certain type of person (e.g. take the last 100 people featured in the local business journal and contact them via phone)
    • Find a list of award winners (e.g. the Inc. 5000) and contact at least 500 companies on the list
    • Reach out to 100+ people that you know and ask for a referral to someone that could be a potential customer or could point you in the right direction

    Now, if this sounds like sales, it’s because it is sales. Most startup founders like building a product and don’t like selling. Whether it’s sales or customer discovery, the best thing to do is to get in front of as many people as possible, as quickly as possible.

    What else? What are your thoughts on getting potential customers to “no” as quickly as possible?

  • The Real-Time Entrepreneur

    As I was switching through different web apps and reports today, it struck me how real-time information is today as an entrepreneur. I had just published a new post on the Kevy blog titled Managing a SaaS Metrics Dashboard With Pardot (check it out for an example on how to use a marketing automation system to feed the top-of-the-funnel SaaS metrics). Right after hitting publish and sending out a couple tweets about it, I was immediately able to see clicks and prospects interacting with it. As an entrepreneur that loves results, it doesn’t get much better than that!

    Think about information from the most common apps:

    • Salesforce.com – Watch sales rep activities, opportunities, and deals
    • Pardot – Watch anonymous visitors, leads, and digital fingerprints
    • Google Analytics – Watch information on macro hits and visitors
    • GitHub – Watch pull requests and progress on the current sprint
    • Zendesk – Watch support tickets and customer interaction

    Of course, a dashboard with all the critical data in one place would be cool (like Geckoboard), but the fact that each system is there and can be left open in a browser tab makes it readily accessible. It’s great to be a real-time entrepreneur.

    What else? What are your thoughts on the real-time entrepreneur?

  • SaaS Metrics Dashboard With Inside Sales

    Previously I posted about a Killer SaaS KPIs Spreadsheet that I really liked. After digging into the spreadsheet more, I realized it was geared towards a self-service SaaS model where the prospect finds the service, signs up for a free trial, and then becomes a customer (or doesn’t). While this is a great model, I see most SaaS startups using some inside sales component where a sales rep holds the hand of a prospect and guides them through things. It’s a light touch model that still involves people helping people.

    So, I went in and changed several things and made an enhanced SaaS Metrics Dashboard Google Spreadsheet Template. Here are the changes I made:

    • Replaced “signups” with “leads”
    • Added a row for “Sales generated leads” to reflect leads that come from cold calls, partners, trade shows, direct emails, etc
    • Fixed the formulas throughout to support zeros for data (dividing by zero caused problems before)
    • Fixed the header and left column to make it easier when scrolling
    • Simplified some of the formatting

    Take a look at the new SaaS Metrics Dashboard Google Spreadsheet Template and give it a try — it’ll add value to most B2B SaaS startups.

    What else? What are your thoughts on the updated SaaS Metrics Dashboard Google Spreadsheet Template with support for inside sales?

  • Ideal Four Year Startup Trajectory at the Atlanta Tech Village

    One of the interesting parts about the Atlanta Tech Village is that the more successful we are helping startups grow, the more turnover we’ll have due to startups graduating out of the building. We don’t exactly know what size company that will be but we’re guessing somewhere in the 30 – 40 employee range. Of course, most of the startups in the building will be much smaller, usually with 1 – 5 employees, and will have substantial room to grow. 

    Thinking about growth, here’s the ideal four year startup trajectory at the Atlanta Tech Village:

    • Year 1 – Two entrepreneurs with an idea rent coworking desks, build a minimum respectable product, and raise some money and / or sell their product.
    • Year 2 – Early in the year, the entrepreneurs move up in the building from the coworking space on the 1st floor to a private five-person office on the 2nd floor. Product traction is coming along nicely and product / market fit has been achieved (stage one is complete).
    • Year 3 – With revenues growing nicely, the startup moves up to a 10-person modular suite on one of the upper floors. By the end of the year, it’s clear there’s a repeatable customer acquisition process in place (stage 2 is done), the startup raises a solid Series A round of financing, and takes an additional 10-person modular suite next to the first one.
    • Year 4 – As the customer acquisition machine hums along, revenues grow substantially. Mid-year, the startup takes a third 10-person modular suite and has contiguous space for 30 people. With full on growth mode in effect (stage 3), and north of 30 employees, the startup graduates and moves next door to Tower Place or Piedmont Center. The cycle is complete.

    Startup journeys are much more messy than outlined above, and that’s why being in a strong community is so important.

    What else? What are your thoughts on the ideal four year startup trajectory at the Atlanta Tech Village?

  • Notes from the Cvent S-1 IPO Filing

    Cvent, one of the oldest and largest online event management software companies, just released their S-1 IPO filing. Cvent has an interesting background raising money as a dot com startup in the late 90s, growing without much capital for over a decade, and then raising a large round of $135.9 million in July 2011 to recapitalize the business and accelerate growth. Event management software, especially with a two sided offering like Cvent provides, has the potential to be a winner-take-most market.

    Here are notes from the Cvent S-1 IPO filing:

    • Mission is to transform the meetings and events industry (pg. 1)
    • For some hotels events and group meetings constitute one-third of total revenue (pg. 2)
    • More than 6,200 event and meeting planner customers (pg. 2)
    • More than 4,700 hotels and venues have purchased marketing solutions from them (pg. 2)
    • Offers six products for event and meeting planners: event management software, strategic meetings management software, mobile event apps, pre- and post-event web surveys, ticketing software, and Cvent Supplier Network (pg. 4)
    • 1.1 million RFPs were transmitted using Cvent software in 2012 (pg. 4)
    • 600 employees in India (pg. 6)
    • 1,300 total employees (pg. 8)
    • Revenue (pg. 11)
      2010 – $45 million
      2011 – $60.9 million
      2012 – $83.5 million
    • Income (profits! – pg. 11)
      2010 – $7.7 million
      2011 – $2.6 million
      2012 – $8.7 million
    • Accumulated deficit of $19.5 million (pg. 24)
    • Three acquisitions in 2012 (pg. 62)
      Seed Labs LLC – $1.4 million in cash and $0.9 million in stock
      CrowdCompass, Inc – $5.8 million in cash
      TicketMob LLC – $5.2 million in cash
    • Research and development expenses were 9% of revenue in 2012 (pg. 92)
    • CEO/co-founder owns 16% (pg. 111)

    Overall, it’s an impressive story of profitable growth and execution, with a huge market opportunity. I predict the IPO will do well and the public markets will like the company.

    What else? What are your thoughts on the Cvent S-1 IPO filing?

  • Valuations through the 4 Stages of a B2B Startup

    Valuations are more art than entrepreneurs are led to believe. Often, the most common refrain is that business valuations are a multiple of EBITDA (a.k.a. profits with some stuff added back). In reality, the stage of the business, along with other measures like revenue, profitability, growth rate, and more help drive valuation. Like anything rare, a business is only worth what someone else will pay for it.

    Here are a few thoughts on valuations through the four stages of a B2B startup:

    • Stage 1: Search for Product / Market Fit – Valuation is largely driven by the region of the country, background of the entrepreneur, and investor belief in the opportunity (e.g. in the Southeast valuation might be in $1mm – $1.5mm range while in Silicon Valley it could be $3mm – $4mm for the same thing)
    • Stage 2: Build a Repeatable Customer Acquisition Process – Valuation is largely driven by the size of round and desired ownership stake of the venture capitalist (e.g. based on the size of the VC fund, and the number of investments a VC makes of the life of the fund, it’s simple math to figure out the necessary size of each investment, which when combined with a 20 – 30% ownership stake, results in the valuation of the company)
    • Stage 3: Maximize Growth – Valuation is driven by factors like recurring revenue, growth rate, gross margin, market size, etc and is often negotiated as a multiple of revenue (e.g. 3 times forward-looking twelve months revenue)
    • Stage 4: Maximize Profitability – Valuation is driven by earnings before interest, taxes, depreciation, and amortization (EBITDA) where it’s often a multiple of that (e.g. 4 – 6x EBITDA for a small business and 7 – 10x EBITDA for a larger business)

    In the first few years valuation is driven by what investors are willing to value the idea and business, followed by valuation driven by top line revenue and growth, and concluded by profitability.

    What else? What are some other thoughts on valuation through the four stages of a B2B startup?

  • Learning from Past Employees

    While it’s always tough to see employees move on to another company, it’s a standard part of business and being an entrepreneur. One of the things I enjoy doing is catching up with the person after they’ve left and had time to settle in to find out how things are going. I especially like learning about what they like, and don’t like, about the new company. Now, this isn’t meant to be a feel good session that the new company can’t possibly be as good as the one they left, rather I want to learn as much as I can about how others do things.

    Here are a few areas of interest:

    • What’s the corporate culture like?
    • How do they do meetings and internal communication?
    • What’s the goal setting and accountability process like?
    • What do you like overall?
    • What don’t you like overall?
    • What have you learned that didn’t expect when you took the job?
    • What are your thoughts about the market, product, competition, etc?

    These same questions can be used during an interview process as well as to learn from past employees. In addition to doing a standard exit interview, it’s also a good practice to reach out and learn from past employees after they’ve been at their new job for some time.

    What else? What are some other questions you like to ask past employees?

  • The Four Stages of a B2B Startup

    In thinking through the two most recent posts on 5 Ways to Identify Product/Market Fit and 5 Quick Steps to Go From Product/Market Fit Focused to Customer Acquisition Focused, it became clear to me that there’s value in organizing the startup lifecycle into generic stages. With simple stages, it’s easier to communicate and focus in on what’s important when talking with entrepreneurs (e.g. how often have you heard entrepreneurs worrying about scaling their product when they don’t have customers yet).

    Here are the four stages of a B2B startup:

    • Stage 1 – Search for Product/Market Fit (1 – 2 years)
      This involves putting the core team together, building a simple version of the product, signing the first 20+ customers, and honing in on the needs of the market. Most startups fail in this stage.
    • Stage 2 – Build a Repeatable Customer Acquisition Process (1 – 2 years)
      This involves experimenting with a number of different sales and marketing tactics to find as many channels as possible that work in a scalable, predictable fashion (e.g. if you can do something repeatedly but only sign one customer a month, it doesn’t count because it doesn’t have scalability). If the market timing is right, product / market fit is in place, and the team executes, the necessary inputs to achieve the desired outputs become clear and it’s time to step on the gas.
    • Stage 3 – Maximize Growth (indefinite)
      Once it’s clear there’s a repeatable customer acquisition process with scale, it’s time to focus on growing the business as fast as possible. This involves ramping up sales, marketing, engineering, services, support, operations, etc, implementing more processes and procedures, and scaling the corporate culture. As long as the business is growing north of 20% per year, it’s full on maximize growth mode.
    • Stage 4 – Maximize Profitability (no longer a startup)
      After the core growth engine of the business slows down it’s time to transition to maximizing profitability. Most businesses in this mode give some attention to growth and most attention to profitability (and profitable growth, where possible). When attention to profitability is valued over growth, and change has slowed down, it’s no longer a startup.

    These are the four stages of a B2B startup. Between each stage there’s no clear line of demarcation, but it helps to know where the startup stands so as to focus on the most pressing issues. Each stage has it’s own nuances and entrepreneurs that have built a successful business can appreciate the differences.

    What else? What are your thoughts on these four stages of a B2B startup?

    Bonus: Read about the 4 Stages in 8 Words.