David Cummings on Startups

Category: Entrepreneurship

  • If You Can Get 10 Happy Customers, You Can Get 100

    When talking to entrepreneurs building a new B2B SaaS product, I constantly reiterate that the first major milestone is 10 unaffiliated customers that love the product (see SaaStr on 10 Unaffiliated Customers). Today, it’s easy to put a working product together (minimum viable product or even a minimum respectable product) due to the advances in open source software, cloud computing, and more. It’s always been about building something people want, and it’s even more so now that the technology challenge has been minimized.

    If you can get 10 happy unaffiliated customers, you can get 100. Here’s why:

    • Every new customer represents more testimonials and social proof that can be leveraged to attract more customers
    • 10 customers is enough to find common use cases and patterns that can be codified into a cohesive marketing message that targets similar companies
    • There aren’t 10 completely unique companies in the world — every business has other businesses like it and they are findable
    • The same lead generation process that lead to the first 10 customers — cold calling, PPC, social, etc. — will lead to 10 more and on and on
    • Customers that truly love a product tell their friends and help spread the message through word of mouth

    Getting 10 unaffiliated customers that are passionate about a product is incredibly hard. Once achieved, entrepreneurs have a strong foundation in place and can get to 100 customers using the lessons learned and momentum — that’s part of the beauty of B2B SaaS.

    What else? What are some more thoughts on the idea that if you can get 10 happy customers, you can get to 100?

  • Example Simplified One Page Strategic Plan

    Clay brought up a great point that with all this talk about the Simplified One Page Strategic Plan, it’d be great to see an example.

    Here’s an example Simplified One Page Strategic Plan for the Atlanta Tech Village.

    Purpose

    • To support and inspire Atlanta entrepreneurs to achieve success through a community that promotes faster connections between talent, ideas and capital.

    Core Values

    Market

    • Ambitious Atlanta-based tech entrepreneurs with 1 – 25 employees

    Brand Promise

    • The Atlanta Tech Village increases an entrepreneur’s chance of success.

    Elevator Pitch

    • The Atlanta Tech Village is a community of innovation powered by a 103,000 square foot building. The Village is designed for technology and technology-related companies that have a unique set of needs in their quest to change the world. Your workspace should be more than just a desk and a place to hang your hat — it should bring the community together, promote serendipitous interactions, and be a powerful tool for recruiting the best talent.

    3 Year Target

    • Create 1,000 new high tech jobs by way of startups housed or previously housed at the Atlanta Tech Village

    Annual Goals

    • Jobs Created
    • Recognized Revenue
    • Net Operating Income
    • Customer Satisfaction Score (NPS)

    Quarterly Goals

    • Renewal Rate
    • Member Revenue
    • Event Revenue
    • Parking Revenue

    Quarterly Priority Projects

    • Install new parking deck lighting
    • Install rooftop patio shading system
    • Launch a new event series

    For the annual and quarterly goals, there would be a table with four columns: goal name, start value (e.g. $0), current value (e.g. $150,000), and target value (e.g. $1,000,000) as every goal should be SMART. Everything else should be pretty straightforward.

    The Simplified One Page Strategic Plan is my favorite business worksheet as it brings together vision, accountability, and alignment at the highest level for everyone in the company. I’d highly recommend it (Google Doc Template).

    What else? What are some more thoughts on this example simplified one page strategic plan?

  • Revising the Simplified One Page Strategic Plan

    After publishing the original Simplified One Page Strategic Plan (OPSP) over four years ago, I’ve met and worked with dozens of entrepreneurs that use it (see Requiring a OPSP Prior to Meeting). Based on these meetings, and on-going feedback from entrepreneurs that have incorporated it into the day-to-day running of their companies, it’s time to freshen it up.

    Here are the changes:

    • Removed S.W.O.T. Analysis – This section didn’t resonate with entrepreneurs as it wasn’t as relevant to all levels of the business (it’s a good senior management team exercise but not necessary company-wide).
    • Added a Current Value to Goal Metrics – Instead of having Goal Value and Baseline Value, having Start Value, Current Value, and Target Value is more understandable and makes it more of a living document that should be visited weekly/monthly now that it has a slot to track the Current Value.
    • Moved the Goals and Priority Projects to the Bottom – Most of the OPSP is static text that doesn’t change often (e.g. the core values and purpose). By moving the goals and priority projects to the bottom, the top part is fixed and the bottom part is dynamic.

    Take a look at the new Google Doc Template and try out the revised Simplified One Page Strategic Plan — I think you’ll like it.

    What else? What are some other areas of the Simplified One Page Strategic Plan that should be revised?

  • When to Start Tracking Operational Metrics

    After reading about the Simplified One Page Strategic Plan, one of the common questions I get is “when should we start tracking metrics in our startup?” Basic things like cash, burn rate, and customers/users should be tracked immediately, but what about the dozens of other things that can be tracked? Generally, my recommendation is to start getting more operationally focused once product/market fit is in place and the search for a repeatable customer acquisition model is on (see the four startup stages in eight words).

    Here are a few more thoughts on when to start tracking operational metrics:

    • Finding product/market fit is all about building a product that customers love and are passionate about — that’s the main focus for everyone on the team.
    • Small teams (e.g. four people in a room) all know what’s going on. When the startup hits 10+ people, it’s time to add more metrics tracking and accountability (if not sooner).
    • With more scale on the people side comes more need for scale on the metrics side (e.g. operational metrics for sales, marketing, engineering, support, operations, etc.)
    • Start with something simple like a Google Spreadsheet KPIs Dashboard and iterate from there

    Most startups never get to the point where they have to worry about operational metrics because they don’t get past the product/market fit phase. For the ones that do, consider three buckets of metrics: financial, employee happiness, and customer happiness. And, start simple with the operational metrics and add more over time.

    What else? What are some more thoughts on when to start tracking operational metrics in a startup?

  • Why do West Coast Investors Invest Outside Their Region

    If you read the normal tech startup and venture capital blogs and news sites, it’s easy to think that West Coast investors in the Bay Area have unbelievable deal flow and never have to leave the region. Then, if you look at the 10-20 largest venture financings each year in major cities like Atlanta (and plenty of others), you’ll see that a good percentage, if not most, of the money came from California VCs. If the Bay Area is so great for deal flow, why does so much VC money from the West Coast go into deals outside their region?

    Simple: VCs are trying to make the most money possible, and they believe the deals they invest in outside their region are better than the deals they looked at in the Bay Area. Most VCs only do one or two deals a year, so when they invest in a startup in a different state, it’s because they believe they’ll generate a better return on their investment when compared to the other options. Being a top-quartile VC is super hard (making 3x cash-on-cash is much harder than it seems) and the best ones know that there are great startups all over the country (and world).

    Great entrepreneurs and startups are everywhere. The next time you read about a Bay Area fund leading a deal outside their region, know that it’s because they believe it’s a better opportunity than the ones they looked at locally.

    What else? What are some more thoughts on why West Coast investors invest outside their region?

  • Traction Required for Investment

    Recently I met with an entrepreneur that’s working on a new marketplace idea. We talked for a bit and I challenged some of his assumptions and gave anecdotes from other industries. Then, when it came to the “ask” about investing, I explained that raising money simply on an idea with no traction is nearly impossible. The best thing to do: figure out how to get the app built and customers loving it.

    Here are a few thoughts on traction required for investment:

    Traction is a critical element for raising money, and entrepreneurs would do well to focus on getting the product right and customers on it first.

    What else? What are some more thoughts on traction being required to raise money?

  • MSPOT Strategy Document for Startups

    Brian Halligan, CEO and co-founder of HubSpot, has a great post up titled Scale-up Leadership Lessons I’ve Learned Over 9 Years as HubSpot’s CEO. One section of the post, called Documenting Strategy, talks about their equivalent of the Simplified One Page Strategic Plan. They call it the MSPOT document and is has the following components:

    • Mission: Rarely changes
    • Strategy: Annually changes
    • Projects: 4 or 5 big annual initiatives
    • Omissions: Projects we decided not to fund
    • Tracking: Numbers we are looking at to see if we are on track

    Omissions is a section I haven’t seen before and represents a cool idea: what projects that were under consideration are explicitly not going to get done. Most strategy docs focus on what needs to be done, but people still hope other strategic projects get attention. An omissions section helps make it clear what isn’t going to be done so that people are more focused on what is going to get done.

    Entrepreneurs would do well to have a strategy document that gets updated on a regular basis and is shared with every stakeholder.

    What else? What are some more thoughts on the MSPOT strategy document for startups?

  • When Product Adoption is Lite

    Last week an entrepreneur reached out for help. He’d been working on his startup for two years on the side and had a working product with a number of customer discovery meetings where prospects had expressed interest. Only, even with a fully functional product, adoption has been lite. Meaning, prospects that said they were interested weren’t actually interested once the product was available.

    Here are a few thoughts when product adoption is lite:

    • Product usage is oxygen, and without real users, product death is imminent
    • Lack of adoption, even with a functional product, is a sign that there either wasn’t a real need or the product was built in a way that doesn’t provide enough value
    • Finding product/market fit is the most important thing at the start of a startup, and lack of adoption means things aren’t good
    • Prospects will tell you what they want, but things don’t get serious, and the feedback isn’t the best, until they’re actually paying for something (once money changes hands, the feedback is 100x better)

    My message to the entrepreneur: figure out how to get 10 raving customers that love the product. Lite adoption means the product isn’t valuable yet, and without a good product, there’s no company.

    What else? What are some more thoughts on the challenge of lite product adoption?

  • Video of the Week: Scott Dorsey on 5 Startup Ideas

    Scott Dorsey, Managing Partner of High Alpha, and co-founder ExactTarget, has a great video where he shares the story of building ExactTarget from scratch to over 1,000 employees. In the video he talks about five sales-related startup ideas:

    1. Look big!
    2. Don’t rely exclusively on the web to sell the web
    3. Hire (sales people) in groups of three
    4. Test different sales models
    5. Build channel distribution

    I always love hearing entrepreneur success stories and lessons learned. Enjoy!

  • Arriving at the Pardot Acquisition Price

    One of the more popular questions I get from entrepreneurs that are curious about selling a company is how we arrived at the Pardot acquisition price. My normal response is that we had $10 million in trailing twelve months (TTM) revenue at time of sale and we got 9.5x TTM. Well, since we’re more than three years out from the deal (see 3 Year Anniversary of the Pardot Exit), there’s actually much more to how we arrived at the acquisition price.

    And, as you might expect, arriving at the price of a fast-growing SaaS startup isn’t as logical as you might think.

    The original offer came in at $60 million. Looking at our growth rate (100%/year) and our run-rate ($13M ARR), we said we could wait 12 months, get to $20 million TTM, and then sell for 5-7x. We countered asking for $140 million.

    Not knowing what would happen, but confident we were in a great place in a great market, we felt good about our counter.

    48 hours later they came back and offered us $70 million. Time to play ball. We countered at $120 million.

    48 hours later they came back and offered us $80 million. We countered at $110 million.

    48 hours later they came back and offered us $90 million. We countered at $100 million.

    48 hours later they came back and offered us $95 million. We said no. $100 million is our final offer.

    Then, the final wrinkle emerged: they couldn’t pay $100 million. Even with $210 million in cash on the balance sheet at the time, they had already filed paperwork with the SEC to do a secondary offering, and based on rules as a public company, they’d have to withdraw the offering if they acquired a company for more than a certain percentage of assets. Well, $95 million was the max they could do if we wanted to do a deal now.

    $95 million — take it or leave it.

    We said yes. The deal closed 42 days later.

    Not all acquisition prices are logical. Our deal was driven partly by our revenue, market multiples, market opportunity, and SEC rules. Go figure.