David Cummings on Startups

Category: SaaS

  • Thoughts on the Content Sourcing Marketplace Space

    Almost two years ago I wrote a post on a Content Marketing as a Service idea where I talked about the need in the market for high quality custom content on a regular basis for companies. It’s been two years and I still haven’t seen anything breakthrough as a clear leader in the space.

    Here are three content marketing companies that are related to the idea but not the exact thing:

    • Contently – marketplace that facilitates high quality freelancers for companies
    • Compendium – content marketing platform that provides a set of tools for content planning, managing, and publishing
    • Kapost – content marketing platform with a marketing calendar, workflow, analytics, etc

    After thinking more about the idea and market for content marketing marketplaces, I believe there are some challenges in the space to build a $100 million business:

    • Content is too personal and custom to a business such that business owners and marketers are very reluctant to outsource it to a third party (this is anecdotal after asking several business owners about it)
    • Crowd sourcing areas in the creative space have been most successful with simple, visual items like logos where there are people that design logos for fun and it’s easy to decide which ones you do and don’t like. It’s exponentially more difficult on both sides of the equation to facilitate 1,000 word blog posts as the product.
    • Even if you outsourced the content development to a third party, it still takes a significant amount of effort to come up with content ideas and the subsequent editing of it to maintain a consistent voice and message aligned with your brand

    Content marketing continues to grow in importance but I think there’s too much friction relative to the return on investment for a content marketing production as a service company to emerge as a large vendor. As it is now, it will continue being serviced by agencies, PR firms, and more involved freelancers.

    What else? What are your thoughts on the content sourcing marketplace space?

  • SaaS Momentum is Strong

    Recently I was talking with a friend about entrepreneurship and technology. The topic of Software-as-a-Service (SaaS) came up and how it’s been a hot area for years now. After discussing it further, we agreed that SaaS is just getting started and shows no signs of slowing down.

    Here are some of the reasons SaaS is so disruptive:

    • Pace of innovation is much faster for a tech company compared to installed software due to delivering software over the web
    • Ease of on-boarding a new client and getting value is a magnitude better than the previous way
    • Removal or lack of IT involvement empowers line-of-business managers to be more autonomous and self-sufficient
    • Anytime, anywhere access changes the approach to work and frees up team members to be productive on their own schedule
    • Open APIs to share data and connect systems in an automated fashion is 10x more efficient than traditional enterprise software

    Software-as-a-Service has another decade of rapid adoption ahead and is just getting started.

    What else? What are some other reasons SaaS momentum is so strong?

  • Notes from the Marin Software IPO Filing

    Marin Software just filed their S-1 (SEC doc) to go public and sell $75mm worth of shares. Marin makes an advertising and pay-per-click (PPC) Software-as-a-Service (SaaS) management platform for online marketing, or Revenue Acquisition Management, as they put it. I remember first hearing about Marin several years ago when the PPC bid management world was heating up, so it’s great to see how far they’ve come.

    Here are a few notes from the Marin Software IPO filing:

    • Platform works with Baidu, Bing, Facebook, Google, Yahoo! and more (pg. 1)
    • Revenues (pg. 2):
      2009 – $7.5mm
      2010 – $19mm
      2011 – $36.1mm
      2012 first 9 months – $42.5mm
    • Business benefits (pg. 3)
      Financial lift
      Efficiences and time savings
      Better business decision making
    • Key strengths (pg. 3)
      Robust and flexible integration
      Big data analytics
      Real-time, cross-publisher campaign management
      Predictive bid management and optimization
      Intuitive interface offering visibility and control
      Experienced team committed to customer success
      Highly-scalable and extensible cloud-based architecture
    • Losses (pg. 8)
      2009 – $9.7mm
      2010 – $11.9mm
      2011 – $17.4mm
      2012 first 9 months – $19.2mm
    • Accumulated deficit – $70.1mm (pg. 11)
    • Fees are calculated as a percentage of customers’ advertising spend managed on the platform (pg. 12)
    • Substantial majority of spend is through Google using the Google AdWords API (pg. 12)
    • Sales cycle is typically one to nine months (pg. 15)
    • Employee count (pg. 23)
      2011 – 285
      2012 – 386
    • 181 day lock-up period for shareholders (pg. 31)
    • 26% of total revenue came from advertisers outside the U.S. (pg. 44)
    • 502 active customers on September 20, 2012 (pg. 45)
    • 58% 2012 gross margin (pg. 49)
    • Total amount raised from investors: $105.7mm (pg. 56)
    • Equity ownership percentages (pg. 114)
      Benchmark Capital – 16.4%
      DAG Ventures – 16.1%
      Temasek Capital – 10.1%
      Focus Ventures – 6.5%
      Crosslink Ventures – 5.8%
      Founder – 8.8%
      Co-founder – 2.8%
      Co-founder – 3%

    Marin Software looks to have the makings of a successful IPO based on being a modern SaaS platform growing incredibly fast at scale.

    What else? What are some other thoughts on the Marin Software IPO filing?

  • The First 12 Months of a Seed-Funded Startup

    Yesterday I was reading the post Moderate Success is the Enemy of Breakout Success and saw the note that Jason Goldberg of Fab.com said that if a startup doesn’t breakout in a year, he moves one. Now, I agree with the author, Jason Calacanis, when he says that it takes more like 2-3 years to determine if something is going to be a big success.

    That question got me thinking about our Pardot experience and whether or not we felt like it would be a breakout success at the end of 12 months. From day one of working full-time on it we had financing, so I’d consider it a seed-funded startup from the get-go whereas most startups would need 3-6 months to raise money if they weren’t able to do things in a scrappy (bootstrapped or capital light) manner.

    Here’s the first 12 months of Pardot beginning when my co-founder and I started working full-time on the business March 1st, 2007:

    • March – Get the basics together like a minimum viable product, simple marketing site, bank account, etc
    • April – After several customer discovery interviews, decided to pivot from a pay per click bid arbitrage lead generation platform (like LendingTree.com for B2B tech lead gen) to a B2B marketing automation platform
    • May – Hire an awesome lead engineer (I wrote code full-time for the first year as well) and build the product with direct feedback from Hannon Hill, the content management software company I had started seven years earlier
    • June – Hire 11 full-time interns (eight programmers and three non-technical) (Note: this is not recommended and I wouldn’t do it again)
    • July – Continue rolling out product features to production for Hannon Hill to use (everything about the product and company was live but there was no external sales or marketing)
    • August – Start marketing the product publicly, begin recruiting for a sales person, and interns finish up
    • September – Hire two full-time sales people (one doesn’t work out and the other works out unbelievably well)
    • October – Give product demos to potential resellers that were already connected with Hannon Hill and start engaging with leads
    • November – Enter into a few free trial relationships and start collecting more feedback and product ideas
    • December – Sell our first couple customers
    • January – Continue to receive excellent reviews from prospects and the number of customers grows modestly
    • February – A handful of additional customers sign on and we start thinking about raising prices to reflect the product’s value

    So, at the end of the 12 months, beginning from a cold start, we had an awesome team, product, and ~12 paying customers with strong market validation that we were on to something. I didn’t know if we’d be a breakout success, but all the indicators at that point were looking good and I felt we’d be successful.

    What else? What are your thoughts on the first 12 months of a seed-funded startup?

  • Bessemer’s Updated 5 Cs of Cloud Finance

    Continuing with the post a couple days ago on Bessemer’s Updated Top 10 Laws of Cloud Computing (that name is better suited to be “Cloud Computing Companies” as the current title sounds more technical than it really is) one of the most important ones, after #9 about corporate culture is #5 titled: Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance. The good thing about these metrics is that they are incredibly powerful while still being easy to understand — a rare feat in much of the financial world.

    Here are Bessemer’s 5 Cs of Cloud Finance:

    1. CMRR, ARR, & ARRR – Committed Monthly Recurring Revenue, Annual Recurring Revenue, and Annual Run Rate Revenue.
    2. Cash Flow – Start with Gross Burn Rate and Net Burn Rate, then hopefully turn to Free Cash Flow over time.
    3. CAC – Customer Acquisition Cost Payback Period.
    4. CLTV – Customer Lifetime Value.
    5. Churn & Renewal Rates – Logo Churn, CMRR Churn, and CMRR Renewed.

    Every Software-as-a-Service company should have a Google Spreadsheet where they track each of these values on a monthly basis and discuss it with their senior management team on a regularly.

    What else? What are your thoughts on Bessemer’s Updated 5 Cs of Cloud Finance?

  • Bessemer’s Updated Top 10 Laws of Cloud Computing

    Bessemer Venture Partners publishes some of the best content available on Software-as-a-Service/cloud computing. Recently, they just updated their Bessemer’s Top 10 Laws of Cloud Computing to reflect several more years of insights into best practices for the popular business model.

    Here are Bessemer’s Top 10 Laws of Cloud Computing:

    1. Drink Your Own Champagne (use your software for your own business)
    2. Build for the Doer, Build Employee Software (make it for the line-of-business manager and not for someone that doesn’t actually use it on a regular basis)
    3. Death of the suite; long live best-of-breed and even best-of-feature
    4. Grow or Die
    5. Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance
    6. Build the Revenue Engine, and only invest aggresively if you have a short CAC Payback Period
    7. Make online sales and marketing a core competency
    8. The most important part of Software-as-a-Service isn’t “Software” it’s “Service”
    9. Culture is key as you build your dream team
    10. Cash is (still) king – Cloudonomics requires that you focus on cash flow above operating profits, and plan your fuel stops very carefully

    Every tech entrepreneur, cloud or otherwise, should read Bessemer’s Top 10 Laws of Cloud Computing.

    What else? What are your thoughts on Bessemer’s updated Top 10 Laws of Cloud Computing?

  • Favorite Cloud-Based Web Apps for Startups

    One thing I like to stay current with is web-apps that are popular among startups. It’s amazing how good and how powerful apps have gotten over the past five years.

    Here’s what I believe to be the most popular cloud-based web apps for startups:

    What web apps are on your list? Which ones do you like?

  • The Road to a $1M Recurring Revenue SaaS Startup

    One of my personal goals is to help more Software-as-a-Service (SaaS) startups reach $1 million in annual recurring revenue while raising less than $1 million in money from investors. As part of that goal, it’s important to help paint the picture for what that looks like so that it’s more readily visualized by entrepreneurs. Sure, it’s easy to say sign up 83 customers paying $1,000/month and you’ll be there but the reality is that most SaaS startups can’t command $1,000/month per customer, especially in the early days.

    For Pardot, it took 2.3 years from start of the business to hit $1M in annual recurring revenue (ARR). We started at roughly $150/month on average per new customer and were up to $500/month on average per new customers by the time we achieved a seven figure run rate (side note, it took 4.7 years to hit $10M in recurring revenue, so the first million really is the hardest). Pardot was an exceptional experience and not normal.

    For most startups, I would expect three to fours years before getting to $1M in ARR, assuming the business is going well (with SaaS it’s fairly easy to see if a business is going to succeed based on how the recurring revenue layers on top of itself each year). So, if it takes four years to get to $1M recurring, and the goal is burn less than $1M all-time to get there, that only leaves $250k/year for the annual burn — much less than most startups that raise a full seed round burn (see Death to the $700k Seed Round).

    In the end, the moral of the story is to plan for a long, hard path to get to $1M in recurring revenue, and as part of achieving that milestone, be scrappier than anticipated by being more capital efficient and burning less than $1M in investor money.

    What else? What are some other thoughts about the road to $1M in recurring revenue for SaaS startups?

  • Continuous Deployment in Startups

    Continuous deployment is a methodology whereby software code checked into a repository for a web application is automatically sent to the production server after all automated tests pass with no other human intervention. While not being an easy process to describe, it’s revolutionary in how it affects software development. The traditional software development process, even if agile, often involves bottlenecks around manual QA, a limited number of engineers empowered to push a release, and numerous issues when major changes are pushed.

    Here are some thoughts on continuous deployment:

    • Software releases go from big productions to non issues
    • Small changes result in small issues and large changes result in large issues (bugs are inevitable, so keep them small)
    • Automated testing becomes a critical part of the development process and no longer an after thought (there’s no right answer to how much code coverage is necessary other than it needs to be suitable to the product)
    • New developers should push code to production on their first day, setting the tone for a culture that moves quickly and isn’t afraid to make mistakes
    • Config flags are an important part of continuous deployment such that code that’s being worked on, but not ready to be seen by end users, is still pushed to production during development

    Software-as-a-Service, whereby programs are delivered over the internet, makes continuous deployment possible (continuous deployment doesn’t work for installed software). With time, continuous deployment will become more prominent, especially when firms like Etsy espouse its benefits.

    What else? What are your thoughts on continuous deployment in startups?

  • Dreamforce 2012 Exhibitors as Proxy for Hot SaaS Categories

    Salesforce.com’s annual Dreamforce conference is here again promising to have over 80,000 attendees in San Francisco. One of the many interesting aspects of the show is to see all the different Software-as-a-Service (SaaS)/cloud companies exhibiting at the show (250+). In many respects, the exhibitors at the show act as a proxy for the excitement surrounding different SaaS categories. Booths at the show range from ~$30,000 for a bronze sponsorship to $1,000,000 for a diamond sponsorship.

    Using the sponsorship level as an approximation for company size, we can gauge different SaaS sectors on their size. So, Bronze = 1 point, Silver = 2 points, Gold = 3 points, Platinum = 4 points, Titanium = 5 points, and Diamond = 6 points.

    Here’s a quick analysis of the different SaaS/cloud categories based on the vendors at Dreamforce 2012 with at least a Silver sponsorship level and the points earned by that category based on sponsorships:

    • Cloud Consulting: 6, 5, 5, 4, 4, 3, 3, 3, 3, 3, 3, 3, 3, 3, 3, 2, 2, 2, 2, 2, 2
    • Marketing Software: 5, 5, 4, 4, 2, 2, 2, 2, 2
    • Contract/Quote Management: 4, 3, 3, 3, 3, 3
    • Document Collaboration: 4, 3, 2, 2
    • E-Signature: 4, 3
    • Accounting/ERP Software: 3, 2, 2, 2, 2
    • Business Intelligence: 3, 3, 3, 2
    • Forecasting/Pipeline Management: 3
    • Expense Management: 3
    • Data Quality Management: 3
    • Cloud Integration Middleware: 3, 3, 3, 2, 2, 2
    • Customer Service/Call Center Software: 3, 3, 2, 2, 2, 2, 2, 2, 2
    • Data Services: 3, 2, 2, 2
    • Mobile Software: 3, 2
    • Human Resources Software: 3, 2
    • Sales Compensation Management: 3
    • Billing Management: 3
    • Learning Management Software: 2
    • User Engagement Software: 2
    • Conferencing Software: 2
    • Project Management: 2
    • Ecommerce Software: 2
    • Sales Process Management: 2, 2, 2, 2, 2
    • Identity Management: 2

    The four clear winners in order of size: cloud consulting, marketing software, customer service/call center software, and contract/quote management software.

    What else? What are your thoughts after seeing the different categories of vendors and size of their investment in the Dreamforce 2012 conference?