David Cummings on Startups

Category: Entrepreneurship

  • 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.

  • Smart Money and Dumb Money

    Whenever an entrepreneur asks me for advice about raising money, one of the first things I want to understand is what the money is going to be used for, and if they have a specific plan. After that’s out of the way, I like to understand if they want money with or without help. What I mean is do they want investors that will actively add value (smart money) or do they just want money and nothing else (dumb money).

    Here are a few thoughts on smart money and dumb money:

    • Some entrepreneurs actively want investors for the accountability that comes with having a board, and that should be part of smart money
    • Most VCs want to be smart money and are actively involved
    • When talking to potential investors explicitly ask how they like to help their investments and set expectations before closing an investor
    • Check investor references from their other portfolio companies to see how much “help” they actually provide (are they really smart money?)

    When raising money, it’s important to consider the smart money and dumb money question. Not all investors are created equal and entrepreneurs would do well to understand the types of value-add investors can provide.

    What else? What are some more thoughts on smart money and dumb money?

  • When a Competitor Raises Money

    Early today an entrepreneur shared with me how he was super worried that a competitor just raised $2 million. Being a bootstrapped startup still trying to find product/market fit, he felt that the competitor was going to build a large team and capture the market before he gets enough traction to become a player.

    Hmm, I thought. At Pardot, we didn’t raise any outside capital and our main competitors HubSpot, Marketo, Eloqua, Genius, Act-On, etc. raised over $500 million in capital. You don’t have to raise money to build a successful business.

    Here are a few thoughts on competitors raising money:

    • Almost all B2B tech markets aren’t winner-take-all or even winner-take-most. How many successful email marketing companies do you know? Exactly. There are dozens of them. The same holds for most markets — find a niche and build a base of passionate customers.
    • Raising money doesn’t equal success (see Quirky’s bankruptcy). Some entrepreneurs execute poorly. Some markets change. Heavy startups without product/market fit are a real challenge.
    • Venture investors putting money into a company helps validate the market. Are the investors right about the market? Not sure. But, the fact they’re willing to put serious amounts of money into it is a good sign.

    The next time a competitor raises money, understand that it’s commonplace and doesn’t mean there won’t be multiple winners in the space. The best thing to do: continue building a passionate base of customers.

    What else? What are some more thoughts about competitors raising money?

  • Ogilvy on Potential for Rapid Promotion

    Katie Burke tweeted out a great list of questions from David Ogilvy in 1968 as a guide for Ogilvy & Mather managers worldwide. From the piece:

    There are five characteristics which suggest to me that a person has the potential for rapid promotion:

    1. The person is ambitious.
    2. The person works harder than their peers — and enjoys it.
    3. The person has a brilliant brain — inventive and unorthodox.
    4. The person has an engaging personality.
    5. The person demonstrates respect for the creative function.

    Just like in 1968, this list holds true today, especially for entrepreneurs.

    What else? What would you add to the rapid promotion list?

  • 2015 Year in Review

    With 2015 coming to a close, it’s a great time to review the year. After talking about the Personal Development Plan and Audit Where Time is Spent, let’s dive into some specifics from the year:

    Also, the Atlanta Tech Village continues to exceed expectations  (11 Takeaways and Year in Review).

    Happy New Year! Here’s to a great 2016.

  • Personal Development Plan

    With the new year almost here, it’s a good time to make an updated personal development plan. A personal development plan is a simple way to define what you’d like to do on a regular basis across personal, family, professional, and community categories.

    Here are some example categories and items for a 3 Year Personal Development Plan:

    • Personal
      Workout 2x per week
      Meditate 2x per week
      20 tennis matches per year
      10 rounds of golf per year
      2 cool sporting events per year
      Financial savings (size defined for each year)
    • Family
      Spouse date night every week
      Dinner as a family 5x per week
      Quarterly week-long vacation
    • Professional
      Company size (size defined for each year)
      Read one book per month
      1 workshop/learning event per quarter
      2 conferences per year
      6 trips per year
    • Community
      Donate $X per year
      2 non-profit boards
      Volunteer X hours per month

    This format provides structure and personal accountability that is fairly broad while well defined. If you don’t have a personal development plan, I’d recommend making one using this format.

    What else? What are some more thoughts on a personal development plan?

  • Quiet Mode Before Launching

    For years we’ve heard the saying that stealth mode is bad and entrepreneurs should talk about their concept. The idea is that no matter how much an entrepreneur thinks they know what the market wants, they have to get out of the building and talk to customers. Instead of stealth mode, I recommend “quiet mode” for entrepreneurs whereby they focus on getting 10 customers and making them super happy before “launching” their company.

    Here are a few thoughts on quiet mode before launching:

    • Quiet mode is focused on making a small handful of customers happy and not trying to do everything else that’s eventually needed to make a startup successful (it really focuses everything on the customer)
    • Achieving the goal of having 10 super happy customers will help the entrepreneur decide if the business is even worth continuing — if you can’t get 10 happy customers with a product, pivot to a new idea
    • Having happy customers at launch will provide for much better social proof, messaging, and belief that the company will be successful
    • If the first launch doesn’t succeed (media doesn’t pick up the story, little-to-no buzz, etc.) then sign 10 more customers and launch again (there’s no limit to the number of times a new startup can launch)

    Most entrepreneurs just getting started would do well to operate in quiet mode and just focus on the customer. Too much time is spent trying to launch startups without substance.

    What else? What are some more thoughts on quiet mode instead of stealth mode?

  • Audit Where Time is Spent

    With the new year almost upon us, it’s a good time to do a simple exercise: audit where you spend your time. Now, it doesn’t have to be fancy — a simple pen and paper will do. Take two or three days during the week and just write down what you’re doing and the time spent on it throughout the entire day (not just 9-5). (Note: for an app that constantly does this, check out RescueTime). Once this exercise is done, compare where you spend your time against your short-term and long-term goals. How does where you spend your time stack up with your goals and aspirations?

    Here are a few thoughts on auditing time spent:

    • Most people don’t regularly calibrate what they’re currently doing with what they want to be doing
    • Goals are often neglected for little things that constantly eat up time (like surfing the internet)
    • When reviewing time spent, ask yourself what time of day you have the most energy and focus, and prioritize the most critical and creative tasks then
    • Write out an ideal daily schedule and see if you can stick to it for a week

    Entrepreneurs would do well to regularly audit where they spend their time and constantly calibrate it with their goals. Most people waste a significant amount of time that could be used for more important work.

    What else? What are some more thoughts on auditing where time is spent?