David Cummings on Startups

Category: Entrepreneurship

  • Notes from the Coupa S-1 IPO Filing

    Coupa, a SaaS spend management platform, just published their S-1 IPO filing to go public. Seeing the filing makes me sentimental as I first learned about them in 2009 when they become one of our early Pardot customers and we were at similar stages with our respective startups. Now, with over $100 million in recurring revenue and a strong growth rate, Coupa is positioned for a solid IPO.

    Here are a few notes from the Coupa S-1 IPO filing:

    • Mission – Our mission is to deliver “Value as a Service” by helping our customers maximize their spend under management, achieve significant cost savings and drive profitability. (pg. 1)
    • 460 customers, 1.5 million users, and 2 million suppliers (pg. 1)
    • We refer to the process companies use to purchase goods and services as spend management (pg. 1)
    • Revenues and net losses: (pg. 2)
      • Revenues
        • 2014 – $50.8 million
        • 2015 – $83.7 million
        • 1H 2016 – $60.3 million ($120.6 million annualized divided by 460 customers makes for an average of $262,000/customer/year)
      • Net losses
        • 2014 – $27.3 million
        • 2015 – $46.2 million
        • 1H 2016 – $24.3 million
    • Competitive strengths: (pg. 7)
      • Easy and Intuitive User Interface that Enables Widespread Employee Adoption.
      • Unified Platform With Powerful Functionality.
      • Independence and Interoperability.
      • Powerful Network Effects.
      • Cloud Platform.
      • Rich Partner Ecosystem.
      • Results-Driven Culture.
      • Higher Supplier Adoption.
      • Proprietary Data Enables Superior Insights.
    •  Accumulated deficit of $147.2 million at July 31, 2016 (pg. 16)
    • In general, the upfront costs associated with new customers are higher in the first year than the aggregate revenues we recognize from those new customers in the first year. (pg. 19)
    • We have funded our operations since inception primarily through equity financings and prepayments by customers. (pg. 30)
    • Equity (pg. 121)
      • CEO/Chairman (non-founder): 5.8%
      • VCs – 59%
      • Mutual Funds – 5.1%

    Congrats to the Coupa team on building a meaningful, fast-growing SaaS company. My guess is that Coupa has a strong IPO and gets acquired by someone like Salesforce.com, Oracle, or Microsoft in the next 24 months as they look to expand their SaaS portfolio.

  • No Product Roadmaps

    Continuing with yesterday’s post on Quarterly Product Themes, another area we struggled with at Pardot was product roadmaps. Early on, we tried to map things out for the product. We’d come up with an idea to do Z, and in order to Z we first needed Y, and everything was laid out beautifully. Then, a week later, this other idea/request would come up, we’d debate it vigorously and decide it was more important than an item on the roadmap. Staying close to the customer required a short feedback loop and necessitated rapid product iteration.

    It was time for a change. It was time for no product roadmaps.

    Instead, we had a Google Sheet with a separate tab for each department in the company and their product requests along with a GetSatisfaction idea board for customer requests. Finally, there was a Google Sheet tab for the priority product items and that constantly changed as we moved requests in and out as well as implemented new features and fixes. When a prospect or customer would ask about our product roadmap, we’d say we don’t have a detailed roadmap due to the need to stay nimble, but we’d share big broad ideas about our general strategy and product direction. The product roadmap was no more.

    What else? What are some more thoughts on not doing product roadmaps?

  • Quarterly Product Themes

    One of the challenges we had at Pardot was balancing the different requests from our constituents. Sales wanted one set of features while customer success wanted a different set of features. Then, support had their own desires separate from engineering which wanted to make a number of behind-the-scenes improvements. What to do?

    We eventually arrived at doing a product theme every quarter where we alternated between heavy market-facing improvements (lots of shiny bells and whistles for sales) and heavy back-end improvements (lots of infrastructure work, fixing of nagging issues, and general product polishing). This process worked well in that it was clear to our different stakeholders where the emphasis was for the quarter, along with the expectation of what we’d do the following quarter.

    Consider using product themes for each quarter as the startup grows and product demands increase.

    What else? What are some more thoughts on quarterly product themes?

  • Recruiting Executives in a Startup

    While there’s significant talk about recruiting great software engineers and sales people, even harder is finding key executives to join a startup. Like anything important, it requires tremendous time and effort to do well. Yet, with so few qualified candidates, it can be even more challenging than expected.

    Here are a few thoughts on recruiting executives in a startup:

    • Build a candidate pipeline well in advance of the hire and work to nurture the relationships (go ahead, set up a recurring quarterly calendar notification just to nurture the relationship)
    • Bring the board and advisors in to the executive recruiting process to help identify potential candidates as well as meet with identified candidates
    • When a qualified candidate has been identified, and is interested, run a Topgrading chronological in-depth survey (plan to spend 4 – 6 hours on interviewing each candidate)

    Recruiting key executives to a startup is incredibly hard, and one of the most important things an entrepreneur will do. Invest the time to do it well and build out a great team.

    What else? What are some more thoughts on recruiting executives in a startup?

  • Tod’s 7 Lessons Learned at BrightRoll

    Tod Sacerdoti has a great post up titled 0 to $640M: Non-obvious Lessons Learned at BrightRoll. While the saying “you learn more from your failures than from your successes” rings true to me, there’s still plenty to learn from successes. Here are the six non-obvious lessons learned at BrightRoll:

    1. Overspend
    2. Don’t Innovate
    3. Focus on Edge Cases
    4. Be An A** Hole
    5. Get a Low Valuation
    6. Be Tribal
    7. Love Being Last

    Want to know more? Head on over to 0 to $640M: Non-obvious Lessons Learned at BrightRoll and read the whole thing — it’s worth your time.

  • Overestimating the Short Term, Underestimating the Long Term

    One of my favorite quotes comes from Bill Gates:

    We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. (source)

    Entrepreneurs are an optimistic bunch, as such they’re always overestimating what can be done in the short term. Just think of all the revenue forecasts showing hockey stick growth up and to the right. Only, it rarely happens.

    Then, talk to any entrepreneur that’s built a successful company and they’ll always talk about how the amount of change and success exceeded their expectations. And, they did it in less than 10 years.

    As an entrepreneur, the next time you’re feeling the grind, remember that we overestimate the short term and underestimate the long term. Stick with it.

    What else? What are some more thoughts on overestimating the short term and underestimating the long term?

  • Capabilities in a Startup

    Another popular topic of conversation for growth stage entrepreneurs is capabilities on the team. Capabilities, like it sounds, is a fancy way of talking about the talents and skills of people in the organization. Often, the term capabilities is used in the context of more specialized or difficult to find skills, especially when there are gaps or deficiencies.

    Here are a few thoughts on capabilities in a startup:

    • Think about the capabilities needed over the next three years. What’s in place now? What’s going to be needed? When?
    • How do capabilities align with future fundraising? Need a CFO before raising the next round?
    • What team members can their existing capabilities? What team members need someone brought in above them?

    Capabilities is a critical element of scaling a startup. Start planning early and be proactive about growing the team as the company grows.

    What else? What are some more thoughts on capabilities in a startup?

  • Good Progress, But Not Enough to Raise Institutional Money

    Recently I was talking to an entrepreneur that’s built a sustainable SaaS business and really wants to grow it exponentially. Only, even though there’s good progress, there isn’t enough progress to raise money by today’s high standards (see Metrics to Raise a Series A). Institutional investors want to see a minimum revenue threshold (e.g. $1M in recurring revenue) combined with a growth threshold (e.g. at least 100% year-over-year). What’s an entrepreneur to do that’s made good progress, but not enough to raise institutional money?

    Here are a few thoughts on available options:

    • Angel Investors – If more money is absolutely required, angels are the way to go. But, they want to see fast growth as well, so if that’s a problem, angels will take a wait-and-see approach which leaves us with…
    • Upgrade the Metrics – If the year-over-year growth numbers aren’t high enough, the next best thing is to upgrade month-over-month growth for several months and try to tell a growth story, albeit a short one.
    • Customer Cash Flow – Finally, if raising money isn’t going to happen, growing the business via customer cash flows is always an option. Remember, most markets aren’t winner-take-most and have opportunities for several success stories. The key is to be relevant in the market, and sometimes that requires outside capital, and sometimes it doesn’t.

    Building a sustainable business is an enviable milestone. Only, investors are looking for big exits, and sustainability with limited growth often isn’t enough to raise money. When that’s the case, figure out the options and choose the best course.

    What else? What are some more thoughts on entrepreneurs making good progress but not enough to raise money?

  • Customer Acquisition as the #1 Startup Challenge

    There’s a reason Why Lead Velocity Rate is the Most Important Metric in SaaS: customer acquisition is the #1 challenge for entrepreneurs. Nowadays, building great technology still takes work, but there are a number of excellent people out there that can do it. When it comes to building a customer acquisition machine that combines lead generation, brand building, and consultative sales reps, all in a cost effective manner, there are many fewer people out there that can do it. Oh, and it’s hard. Really hard.

    Here are a few thoughts on customer acquisition as the #1 startup challenge:

    • When talking to entrepreneurs, they always say they want to grow revenue faster (I’ve never heard an entrepreneur say “we’re growing too fast”)
    • When an entrepreneur fails, it’s always due to not signing enough customers to breakeven (or reach another funding milestone)
    • Traction outlines 19 different marketing channels, and most startups aren’t good at more than one or two of them
    • Building a high quality sales team is really hard (hint: it all starts with the hiring)
    • While finding product/market fit comes before building a repeatable customer acquisition process in the four stages of a startup, building a repeatable customer acquisition process is even harder

    As Guy Kawasaki likes to say, sales fixes everything. Figure out a repeatable customer acquisition process that’s financially viable and you have the makings of a very successful business. Customer acquisition is the #1 startup challenge.

    What else? What are some more thoughts on customer acquisition as the #1 startup challenge?

  • Atlanta Startup Village #40

    Tomorrow night the Atlanta Tech Village is hosting #40 of the Atlanta Startup Village. The Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast and is open to the general public. Come one, come all and join 400+ other people hearing pitches from local entrepreneurs.

    Here’s the lineup:

    Can’t make it? Watch the event from the Atlanta Tech Village live event stream.

    I’m looking forward to #40 of the Atlanta Startup Village.