David Cummings on Startups

Category: Entrepreneurship

  • A Failure at Raising Money

    Back in 2009, we were in our third year of Pardot and things were looking good, really good. We had just cracked $1M in annual recurring revenue (a big milestone!) and went out to the market to raise money from venture capitalists. Only, we botched the process (actually, it was all my fault). Some of the mistakes:

    • Made the timeline to raise money too loose such that we were at different phases with different investors over the course of several months (best practice is to run a serious process over 4-6 weeks)
    • Made the personal time commitment too loose such that I was still 80% on the business and 20% fundraising when it should be the other way around
    • Met with 29 VCs from Atlanta to D.C. to Boston to Silicon Valley and didn’t do a good job of lumping meetings together resulting in lots of flights with only one or two meetings
    • Personally prepared the financial forecast without outside expertise resulting in a session with a VC where I was being grilled why gross margins were going down three years out instead of up, and I wasn’t prepared
    • Not really understanding how to put more money to work other than pointing to our cost of customer acquisition relative to payback period and saying we’d put most of the money into sales and marketing (a bottom-up SaaS revenue forecast is the way to go)

    In the end, it didn’t matter. After doing some spreadsheet jockeying, it was clear that we were better off continuing to bootstrap the business as we couldn’t see a 5-to-1 payback on raising money (e.g. invest $1 and make the business $5 more valuable). Raising money doesn’t ensure success, but if you are going that route, don’t make the same mistakes we made.

    What else? What are some more lessons learned from raising money?

  • Focus on One Solution for One Market

    Recently, an entrepreneur reached out to get some thoughts on going after two very different segments of the same market. As an example, think about a product that’s sold to one group for hundreds of dollars per year and another group for hundreds of thousands of dollars per year. My recommendation was to focus on one solution for one market.

    The old adage still rings true: most startups die of indigestion, not starvation. Meaning, entrepreneurs are optimistic and eager to chase a number of opportunities, yet by going after multiple markets with multiple solutions, the chance of success goes down dramatically. Building a product that 10 customers love is incredibly difficult, so why make it twice as hard going after two markets or having two products?

    Over time, most products and markets do run out of steam and it does make sense to expand. Too often, entrepreneurs give up early on a market and don’t go as deep as possible. If the market is growing double digits for the foreseeable future, it likely makes sense to stay the course. If the market changes, or there’s a new opportunity that’s at least 10x better, changing directions is an option.

    Entrepreneurs should focus on one solution for one market and delight the customer.

  • Signing the First Customer

    Yesterday I had the opportunity to interview Craig Hyde of Rigor at our Simply SaaS Forum. Of course, I asked one of my favorite questions: how did you sign your first customer? Craig recalled spending eight months full-time building their product before signing KontrolFreek as their first customer for $50/month. Now, it wasn’t much money, and frankly, KontrolFreek wasn’t sure it was even worth purchasing. Then, as timing would have it, the KontrolFreek site went down and Rigor promptly notified them using their digital experience monitoring platform. Rigor showed when the site started to degrade as well as when it came back online — all data delivered to their ecommerce vendor to enforce the SLA and work to ensure it doesn’t happen again. After that, KontrolFreek was a customer for life and Rigor was off the races telling that story and signing up customers.

    For Pardot, our experience signing the first customer was different in that the product was built around our sister company, Hannon Hill, from the beginning. By being in the same office, we could ask questions face-to-face and move fast listening to the feedback and desires of the marketing and sales teams. While things started slow, as they almost always do, once it got moving and we figured out that the product created 10x the value of the alternative (status quo), high growth followed.

    Signing the first customer is critically important for a number of reasons:

    • First, by exchanging money — even a modest amount — the relationship becomes real and the feedback becomes serious. Make sure and charge something so that it’s a bonafide customer/vendor relationship.
    • Second, too often entrepreneurs build their product in vacuum without feedback and input from the customer. By following the customer discovery process and signing a customer quickly, the product is going to achieve product/market fit much faster.
    • Third, while entrepreneurs believe in their vision, it can be lonely as that vision is untested and unconfirmed. The sooner that first customer buys into the product, and shares great feedback, the more confident the entrepreneur is that he or she is on the right path.

    Signing the first customer is one of the first micro-milestones in a startup, and often one of the most important. Entrepreneurs should start talking to potential customers even before starting their startup, and work to close a paying customer as quickly as possible. Remember: nothing happens until something is sold.

  • Two Routes to Starting Great Startups: Audience Building and Consulting

    Earlier this week I was at SalesLoft’s annual Rainmaker conference and couldn’t help but be in awe of the palpable energy from 1,000+ attendees. People were smiling, talking (go figure with a bunch of sales people attending a sales conference!), and genuinely excited to be there. After reflecting on the event, it reminded me of the early days of SalesLoft at the Atlanta Tech Village.

    From the start of SalesLoft, Kyle Porter, the founder/CEO, focused on building a passionate audience of modern sales professionals through public speaking, blogging, and interviewing of sales leaders. Site traffic, email subscribers, and Twitter followers grew tremendously. Only, the company didn’t have a product sales people wanted — the first product was a nice-to-have and not a must have.

    Despite limited commercial success with the first product, the passionate audience was there and growing. So, if the product isn’t working but there are a ton of fans of the company, the next step is to ask the them what they want. After many conversations, and more product iterations, sales engagement was identified as the next major opportunity in the sales technology market. Today, SalesLoft has thousands of paying customers and is one of the fastest growing startups in the country.

    Now, contrast it to another amazing startup: Terminus. Terminus is the leader in account-based marketing and was founded by Eric Spett. The first year of Terminus was completely focused on consulting for marketers with an eye towards finding a product opportunity and turning it into a SaaS platform. And, that’s exactly what happened.

    Consulting is generally a tough way to start a startup because it’s easy to get comfortable with a decent paycheck and not have the time to build a compelling product. Yet, consulting actually works well in that there’s a professional that needs a problem solved, and is willing to pay money to solve it — the perfect environment to do customer discovery. In the case of Terminus, as soon as the market opportunity was clear, the shift was made away from consulting and to full-on product development. Today, thousands of marketers use the Terminus product.

    Ultimately, there are many different paths to success. Too often, entrepreneurs get enamored with their initial idea and don’t evolve it fast enough to meet the needs of the market. Building a passionate audience and doing consulting work are two different routes that get close to the customer and help accelerate success.

  • Founding Team 3H: Hustler, Hacker, and Hipster

    Continuing with the idea of Team, Stream, and Not a Meme, it’s clear that it all starts with team. No matter how disruptive a trend or product that’s 10x better, without a strong team it’s going to be difficult to build a great company. Only, what’s the ideal founding team? Enter the hustler, hacker, and hipster.

    • Hustler – The consummate sales person that’s always pitching a new opportunity. Think about that guy or gal that’s selling candy at a markup in elementary school because there was demand and they couldn’t help but fill it.
    • Hacker – The builder that loves creating new products, for fun and for profit. This person is constantly tinkering and whips up a new prototype in 24 hours with ease.
    • Hipster – The user experience expert that wants to delight the customer through every product and company interaction. Every detail has to be authentic and true to the brand.

    The hustler is typically the leader (CEO) save for the occasional hacker or hipster that comes up with the initial idea and brings it to life. Someone has to make the key decisions, and it’s critical that one of the founders be in charge.

    Entrepreneurs would do well to be intentional about their founding team, and look for complementary skill sets like that of the hustler, hacker, and hipster.

    What else? What some more thoughts on the founding team 3H of hustler, hacker, and hipster?

  • 18 Ideas to Accelerate the City’s Entrepreneurial Trajectory

    Last week I put out a tweet to collect ideas for accelerating the entrepreneurial trajectory of Atlanta, and received a number of excellent ideas. Now, none of these ideas are limited to Atlanta and most are needed in all cities.

    Here are 18 ideas for accelerating entrepreneurship in a city:

    1. Run a billboard campaign highlighting local startups
    2. Provide free training and courses for local founders
    3. Develop and support free/subsidized office space for startups like the Atlanta Tech Village
    4. Organize an accelerator program like Y Combinator
    5. Launch a YouTube video channel of local startup stories
    6. Connect local mid-to-large companies with startups
    7. Get large companies to commit to working on their procurement process to accommodate a certain number of startups
    8. Drive a public relations campaign to spotlight local entrepreneurs
    9. Coordinate an “after hours” program for entrepreneurs that have full-time day jobs
    10. Facilitate formal internship programs across startups
    11. Engage with local K-12 schools and get kids involved in entrepreneurship at an early age
    12. Run speed dating events between entrepreneurs and angels
    13. Partner with the local universities to help more students build businesses while in college
    14. Educate potential angel investors so that they feel comfortable investing more
    15. Bootstrapping programs to help startups do more with less
    16. Curate entrepreneurs-in-residence that help startups
    17. Find local mentors that want to help startups with no ulterior motive
    18. Acquire housing options for startups

    Wow, that’s a great list. I’m really excited about the ideas and eager to help accelerate the entrepreneurial growth in our community.

    What else? What are some more ideas to accelerate a city’s entrepreneurial trajectory?

  • The Simply SaaS Forum – Network and Learn from SaaS Pros

    Next month we’re hosting the first of many Simply SaaS Forums in the Southeast. Taking a page from Jason Lemkin and SaaStr Annual, we’ve set out to build a community for SaaS entrepreneurs and professionals that want to network and learn from other experts. The faster you learn, the faster you grow.

    As for the structure, it’s a 4.5 hour event from 1-5:30pm with an optional dinner afterwards. Being in Atlanta, we have direct flights and short drives for more than 80 million people in the Southeast whereby you can travel here in the morning, get a tremendous amount of value in the afternoon, and be home that night without having to even get a hotel room. We understand the grind and are providing a program and format to take actionable insights across a variety of functions for SaaS pros.

    As for the program, we’ve broken it out into sales, marketing, product/engineering, and people/culture followed by a founder discussion on scaling from $0 to millions in recurring revenue. Here’s our first lineup:

    • Tonni Bennett, VP of Sales at Terminus – Tonni will share her lessons learned as a sales leader growing Terminus from $0 to tens of millions in ARR.
    • Tami McQueen, Co-founder of 31south – Tami McQueen, formerly of SalesLoft, will share marketing lessons learned when growing SalesLoft into one of the largest sales engagement platforms on the market.
    • Hubert Liu, Engineering Lead at Atlanta Ventures – Hubert Liu will share experiences from his time as CTO at Rigor about what it takes to grow a product from $0 to Inc. 500.
    • Karen Houghton, VP of Atlanta Tech Village – Karen has been with Atlanta Tech Village since the beginning and will share lessons learned on building great culture for startups.
    • Craig Hyde, CEO of Rigor – Craig is the founder/CEO of Rigor and was recognized last year in the Inc. 500 as one of the fastest growing companies in the United States.

    Overall, we’re on a mission to connect the Southeastern SaaS community with great content and programs to ultimately increase our quantity and scale of success. Please join us on our journey.

  • Venture-Backed SaaS Must Have a Fast Path to $100M Revenue

    Rory O’Driscoll just published an excellent post titled Understanding the Mendoza Line for SaaS growth where he argues that the minimum requirement for a SaaS company to raise venture capital is a path to $100 million of revenue growing at least 25% at that milestone. Of course, as a startup grows the law of large numbers kicks in and fast growth becomes harder and harder. Historical data from SaaS companies that have gone public (considered best-in-class) shows that they typically grow between 80 and 85 percent of the prior year once past $10 million of revenue.

    From the post, here’s an example with numbers:

    • Year 1 – Grew 120% from $4.5M to $10M
    • Year 2 – Grew 98% from $10M to $19.8M
    • Year 3 – Grew 81% from $19.8M to $34.8M
    • Year 4 – Grew 66% from $34.8M to $59.6M
    • Year 5 – Grew 54% from $59.6M to $91.9M
    • Year 6 – Grew 44% from $91.9M to $132.8M

    SaaS entrepreneurs need to understand the calculus for raising venture capital and have the requisite growth rate to make it worthwhile.

    Want to learn more? Head over and read Understanding the Mendoza Line for SaaS growth.

  • How to Help an Entrepreneur

    Every day I’m lucky enough to get to meet with entrepreneurs and look for ways to help. Occasionally, there’s no clear way to be helpful but most of the time there are one or two things — an intro here, a lesson learned there — that can be really useful. Here are some of the most common ways to help an entrepreneur:

    • Customer Discovery Concepts – Most entrepreneurs have never heard of customer discovery and the idea of getting deep customer input before even building a product. Start with the basics and see where they are on the learning curve.
    • Available Meetups – Entrepreneurs crave community. Share the local meetups on SaaS, IoT, big data, health IT, or whatever the area of focus.
    • Specific Blogs and Books – Share your favorite blogs and books. Entrepreneurs don’t know what they don’t know and the best ones are learning machines.
    • Prospect Intro – Nothing really happens until something is sold. If you know someone that might be a prospect for the entrepreneur, make the intro.
    • Partner Intro – Most businesses need partners that supply a certain solution, resell the product, or connect an important element of the ecosystem. Connect an entrepreneur with a partner and pay it forward.
    • Potential Employee Intro – One great team member can truly transform a startup. Think of the people in your network and refer a potential employee.

    Helping an entrepreneur is incredibly rewarding. Entrepreneurship is so difficult and messy that help along the way makes a huge impact.

    What are you doing today? Reach out and see if you can help an entrepreneur.

  • The Winner Effect in SaaS

    One important component of SaaS that isn’t talked about enough is the “Winner Effect.” Simply put, the Winner Effect is all the benefits that accrue to the winner in a specific market that ultimately results in a significantly more valuable company. SaaS is well known for its high quality business model: substantial recurring revenue, high gross margin, and tremendous predictability. The Winner Effect makes the model even more profound.

    Here are a few elements of the Winner Effect:

    • Sales Opportunities – Instead of hunting to find the potential deals in the market, the Winner Effect results in being in almost all the sales opportunities by default. Every prospect brings the winner in and it’s up to the upstarts to try and unseat the leader.
    • Public Relations – The #1 in a market gets 10x the number of media mentions than the #2. This PR results in even more separation between first place and second place, which compounds over time.
    • Third-Party Integrations – Even with all the middleware tools out there, integrating products is still a challenge, especially for the deep, more comprehensive integrations. As the winner in the market, more third-parties write integrations back into the platform creating an even larger moat for the next set of challengers.
    • Valuations – Ultimately, category winners get a valuation premium both when raising money from investors and when going public or selling to a strategic. Look at the some of the high end SaaS valuations to see investors that believe they’re betting on winners.

    Another way to put it is that SaaS has a real network effect that snowballs as the business gets larger and larger and becomes the de facto winner in the market.

    The Winner Effect is real. Entrepreneurs would do well to understand it and seek it for their business.

    What else? What are some more thoughts on the Winner Effect?