David Cummings on Startups

Category: Entrepreneurship

  • ExactTarget and Pardot Join Forces

    Over the past 45 days I’ve been working hard on a special deal, codenamed Project Duke, and I’m thrilled to reveal it today: Atlanta’s Pardot Acquired by ExactTarget for Almost $100M. Seeing the headline is still surreal to me, as is the whole experience and journey.

    The Pardot team has the most amazing people and I’ve been honored, blessed, and humbled by the opportunity to work with them, especially my co-founder Adam Blitzer. Corporate culture comes first and Pardot lives it everyday. Walking around the halls I see people who are positive, self-starting, and supportive — exactly our goal. We believe that in providing the best place to work and the best place to be a customer everything else takes care of itself. It really is that simple.

    ExactTarget, of which I’ve written about many times (Notes from the ExactTarget S-1 Filing, A Theory on the Amazing ExactTarget Success Story, etc) is unlike any 1,000+ person company I’ve ever worked with. The Orange Culture is as pervasive and strong as any culture I’ve seen. And, with 1,400 employees, they’ve scaled it to a massive level. ExactTarget is the only company I’ve ever read about that listed their corporate culture as a competitive advantage in their filings with the SEC — it’s an unbelievably good company.

    Most acquisitions fail for one simple reason: lack of corporate culture alignment. With ExactTarget and Pardot, the corporate cultures couldn’t be more aligned and the growth opportunities more dramatic. People like to talk about complementary technologies, gaps in product portfolios, etc when it really comes down to the simplest thing — people.

    The future is bright and I couldn’t be more thrilled that ExactTarget and Pardot have joined forces.

  • The Enterprise Value of Compounding Growth in a Startup

    Albert Einstein said, “Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth” (source). This statement is often used in the context of investing in public company stocks with a set-it-and-forget-it approach. Money compounding annually at a single digit percentage rate (e.g. 5%) will generate a significant return, especially in the context of decades (invest $100 at a 9% interest rate and it’ll double in value in eight years based on the rule of 72).

    Now, for fast growing startups, the stakes are even higher. If the business is growing at a sustained 50%+ per year over an extended period of time (e.g. 5 – 10 years), the scale and enterprise value of compounding growth becomes even more dramatic. Want to see what crazy growth rates look like at super scale? Load up Google Finance for Apple’s stock and set the timeframe to 10y (10 years).

    Compounding is an impressive phenomena for regular growth assets. For startups with traction and explosive growth, the increase in enterprise value is unbelievable. Pay close attention to growth and don’t forget the power of compounding over time.

    What else? What are your thoughts on the enterprise value from compounding growth in a startup?

  • Nobody, Nothing, Never: Confidentiality in a Mentor Relationship

    One of the things I recommend to entrepreneurs, but didn’t do well myself early on, was to reach out to mentors for help and advice. My daughter likes to say “sharing is caring” when parroting what she hears from her pre-school teacher. Sharing is caring fits perfectly with a mentor/mentee relationship — the more you give, the more you get.

    One of the oft repeated YPO lines is “nobody, nothing, never” when talking about confidentiality. The same confidentiality applies to the mentor/mentee relationship. Building a foundation of trust and confidentiality is critical to get past the high-level content and really go deep with the core challenges and opportunities.

    The next time you meet with a potential mentor or as a mentor with a mentee, bring up confidentially, in a graceful manner, and set the tone for “nobody, nothing, never.” The other person will appreciate it and likely reciprocate.

    What else? What are your thoughts on confidentiality in a mentor relationship?

  • How Do You Know if Cold Calling Will Work for a Startup

    Earlier today I had the opportunity to talk with an entrepreneur that has a successful Software-as-a-Service (SaaS) startup. He’s been at it for a few years and the business is growing nicely. Naturally, a question that’s top of mind for him is how to grow even faster. After I mentioned that cold calling works well for us, he started asking a number of questions.

    Here’s how I like to think through if cold calling will work for a startup:

    • Markets that suffer from a lack of market awareness are ripe for cold calling (e.g. the technology is ready, the ROI proven, but people just don’t know about it yet)
    • Products with a high lifetime value, and gross margin, help make cold calling more viable
    • Test cold calling on a list of prospects by hiring a college intern for $15/hour and see how many people answer the phone, how many people engage in a conversation, how many people schedule a demo — shoot for at least 50 calls per day
    • Ensure that social proof and case studies are readily available to educate the potential prospect

    Cold calling one of the most under utilized, but effective, method of B2B sales. Startups would do well to experiment with it and figure out how to make it work in their organization.

    What else? What are some other ways to know if cold calling will work for a startup?

  • How Do you Crack the Nut on Recruiting Technical Talent

    The shortage of software engineering talent is real. Not a day goes by that I don’t hear or read about a startup lamenting how hard it is to find strong technical talent to join their team. It isn’t that there aren’t people out there  looking for jobs. As a startup, it’s especially important that the engineers on staff are smart and get things done.

    Recruiting technical talent is an especially tough nut to crack as engineers are typically introverted making them less likely to reach out to people to learn about new career opportunities, talent is in such high demand that employers already coddle their IT departments, and there’s real uncertainty in the type of overall work experience when switching jobs.

    Here are some ideas to get better at recruiting technical talent:

    Cracking the nut on recruiting technical talent is a tough, long term proposition. Expect 6-12 months of hard work and serious investment to see results. In the end, the quality and quantity of talent on your team is going to seriously influence your level of success.

    What else? What are some other ideas to recruit technical talent?

  • What Scale Does a Startup Need to be Independent of the Founder

    Two weeks ago a couple of entrepreneurs were in my office asking for advice on their startup. Their revenue has really accelerated in the past six months and they’re debating between investing more in the business or putting money aside for a rainy day fund. After asking how many employees they had (less than 10) I asked if the business was dependent on them. Yes, unequivocally.

    I sensed that growing the team to the point that it wasn’t dependent on them was a near-term desire. Of course, you could do a budget and come up with that number. From my experience with software/software-as-a-service startups, the business would be spending about $1.5MM on salaries, benefits, and infrastructure (e.g. office space) to be large enough to not be dependent on the founders. Here are some items to think about with respect to size of business:

    • Gross margins will influence whether spending $1.5MM on team member occurs at $2MM of revenue or $10MM of revenue
    • Founders are often decent at multiple things and really good at one thing — that one thing is often the last type of talent brought on the team, and typically expensive because the founder has high standards for the role
    • Redundancy or scale is needed for positions that are critical to operation of the business (e.g. number of software engineers, support people, etc) so that the founders and team members can take vacation without worrying if the business will continue to operate
    • One strategy for a founder is to take a two week vacation, forcing the issue of what is, and isn’t, dependent on them (banks like to make every employee take one two week vacation per year to see if any fraud is taking place with that person)
    • Depending on the size of the startup, some investment in people will have to take place in advance of growth to be self sufficient from the founder

    Reaching a size and depth of business to be founder independent is a huge milestone. I’ve found that ensuring the business isn’t dependent on the founder (e.g. through a long vacation) provides great peace of mind and sense of progress — it should be a goal on every entrepreneur’s list.

    What else? What are your thoughts on the necessary size of a startup to be independent of its founder?

  • Takeaways from The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups

    Two months ago I pre-ordered Randall Stross’s new book The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups in anticipation of his storytelling and insight into Y Combinator. Stross wrote one of my favorite books about the dotcom heyday titled eBoys: The First Inside Account of Venture Capitalists at Work, which is a must read for anyone interested in the crazy startup world of the late 1990s. The Launch Pad was a fun, quick read, but didn’t leave me in awe in the way eBoys did. Part of that is likely attributed to my level of understanding of Y Combinator from reading about it and talking with entrepreneurs who have gone through it. Nevertheless, for people that want to get a taste of the Y Combinator experience, the book is required reading.

    Here are a few takeaways from the book The Launch Pad:

    • Exclusivity is the norm with an acceptance rate of 3% of the applicants
    • Priority is placed on top flight technical skills
    • Co-founders are more important than the idea (a fair percentage of teams pivot during the 90 day process)
    • Grad school is the most closely related non-startup idea with self-starting and independence being a common theme
    • Alumni, cohort teams, and partners make up the bulk of the experience (not outside mentors like most other accelerator programs)
    • Fundraising is still hard for the majority of the teams in the cohort, beyond the $150,000 convertible debt everyone gets

    One message the book did drive home, that I didn’t appreciate before, is how much emphasis is placed on the founders, and not on the ideas. Codecademy was the result of a late-in-the-program pivot, and turned out to be one of the most successful by Demo Day. Y Combinator is a bet on people, knowing that ideas are plentiful.

    What else? What are your thoughts on the book The Launch Pad and Y Combinator?

  • The Critical Time Between Employee Offer Letter and Commitment

    Recruiting great employees who are corporate culture fits is one of the most rewarding, and most difficult, aspects of building a startup. Creating the best place to work with strong, aligned values does wonders for the recruiting process. Even so, there’s a part of the recruiting process that doesn’t get the attention it deserves: the critical time between employee offer letter and commitment.

    Here are some ideas to increase the chance of that great potential hire accepting their offer:

    • Provide a deadline in the offer to create a timeframe and expectations for a response
    • Talk on the phone and describe how excited you are for them to join your team before sending the written offer (delivering the message in person or over the phone is much more impactful)
    • Maintain an open and continuous dialogue while working hard to address any concerns they might have
    • Allow for negotiation of compensation but be weary of too much back and forth

    Changing employers, especially when joining a startup, is a big decision. Once an offer is sent to a potential employee, it’s critical to work hard to see the process through to a commitment to come aboard.

    What else? What are some other best practices around the time between an employee is given an offer letter to them signing on?

  • Scaling Corporate Culture in a Startup

    Earlier today I had the opportunity to talk to Charlie Goetz’s Emory entrepreneurship class. Every time I talk to a class I work hard to emphasize the importance of corporate culture, especially how it’s the only sustainable competitive advantage within the control of the entrepreneurs. Now, in an MBA class, all students have several years of work experience, and thus first-hand interaction with one or more corporate cultures. When I start talking about corporate culture to MBA students, they appreciate it more than students that haven’t had full-time jobs.

    One of the questions asked by a student today was “how do you scale the corporate culture as the business grows?” Here are a few ideas:

    • Implement culture check teams to provide checks and balances during the hiring process
    • Require unanimous consents from all interviewers when making a new hire
    • Regularly tell stories of positive corporate culture anecdotes
    • Include culture values in the quarterly check-ins
    • Physically embody the corporate culture through colors, objects, and visual cues

    Scaling a corporate culture in a startup is hard. Not scaling a successful corporate culture will make scaling the business 10 times more difficult.

    What else? What are some other ideas to scaling corporate culture in a startup?

  • Startups Should Use EchoSign for all Contracts

    An entrepreneur was recently asking me about an example employee handbook and what to include in it. After immediately sending over a copy of ours, I emphasized that the best thing to do was to use EchoSign and have each employee digital sign the current employee handbook once per year. EchoSign makes things so much easier, faster, and more maintainable compared to traditional signing of documents. In the United States, an electronic signature is viewed as the exact same thing as a normal signature in the eyes of the law (more background on electronic signatures).

    Startups should use EchoSign for all contracts, and here are some of the most common:

    • Employee handbooks
    • Customer deals / purchase orders
    • Partner agreements
    • Stock options
    • Investment docs (the last angel round I invested in was done entirely through EchoSign)

    E-signature and programs like EchoSign represent a much more efficient way of doing business and should be embraced by startups.

    What else? What are your thoughts on startups using EchoSign for all contracts?