David Cummings on Startups

Category: Sales and Marketing

  • Lack of Market Awareness as Common Startup Challenge

    One of the most common startup challenges is the lack of market awareness that a solution exists. During the first four years of Pardot, we’d knock down doors and reach out to marketers only to find that they’d never heard of marketing automation and didn’t know the technology existed. Once we convinced them of the possibilities, and showed the application in action, the proverbial light bulb went off and they quickly got it. Only, it was extremely time consuming to get to that point.

    As the market grew and matured, awareness become a non-issue and the sales velocity accelerated. At that point, the business was nearly five years old and the market dynamics were established. It was too late for a new entrant.

    Here are a few thoughts on dealing with lack of market awareness:

    • Figure out a good pace in the business as timing a market is one of the most difficult things (being too early to a market is still a failure)
    • Know that a large amount of outbound activity is required
    • Inbound marketing doesn’t work due to the lack of searches (minimal awareness results in minimal searches)
    • Employee a team of business development reps (if the price point allows it)
    • Host in-person events in different cities and use sales reps to drive attendance (again, if the price point allows it)

    Lack of market awareness is a serious challenge for startups and many times isn’t surmountable. Startups would do well to brace for battle and engage in more manual tactics to get the message out.

    What else? What are some more thoughts on the lack of market awareness as a common startup challenge?

  • HubSpot, Marketing Automation, and Content Marketing

    After yesterday’s Notes from the HubSpot S-1 IPO Filing, there have been a number of interesting blog posts on the same topic including Louis Gudema on HubSpot’s S-1, BetaBoston on HubSpot’s S-1, and David Raab on HubSpot’s S-1. One of the points that I think is missed is that as part of HubSpot moving away from the small business market and into the mid-market, there’s also a shift from blogging with SEO tools to full marketing automation. With Marketo’s Q1 growth at 64% year over year, there’s huge money in marketing automation.

    Content marketing is hard due to the need for fresh content on a regular basis. I like how Louis Gudema defined running a content marketing program as publishing at least six pieces of content, of any length, per month. While I’m a fan of content marketing, one key point is that customers of HubSpot (and most any other provider, including Pardot) can still get tremendous value from the software through the marketing automation functionality.

    Marketing automation, while still requiring content for landing pages, drip programs, autoresponders, and more, doesn’t require fresh content. Companies can invest in content periodically, without having dedicated people on staff, and see a huge return on investment (ROI) from marketing automation. In addition to the ROI, there’s real benefit in sales and marketing alignment, closed loop reporting, and improved marketing accountability.

    The key takeaway: HubSpot understands the continual production challenges with content marketing and demonstrates value to customers via marketing automation, such that customers still have a strong ROI even without content marketing.

    What else? What are some other thoughts on HubSpot, marketing automation, and content marketing?

  • Notes from the HubSpot S-1 IPO Filing

    HubSpot just filed their S-1 to go public and I’m excited to dive into it. HubSpot has been in the B2B online marketing space slightly longer than Pardot and has awesome co-founders in Brian Halligan and Dharmesh Shah. Dharmesh is truly the king of content marketing with his excellent slide shows, best-selling book Inbound Marketing, and huge OnStartups.com community.

    HubSpot started out as a blogging platform before adding search engine optimization functionality and finally becoming a marketing automation platform. As HubSpot became more focused on marketing automation, Pardot and HubSpot started to see each other more often in the market and had a few partnership discussions before we ultimately decided we were heading down a path of direct competition.

    Here are notes from HubSpot’s S-1 IPO filing:

    • 11,624 customers and 1,900 marketing agency partners (pg. 1)
    • Focused on the mid-market (pg. 1 — this is a change from a few years ago when they were small business focused)
    • Revenue (pg. 2)
      2011 – $28.6 million
      2012 – $51.6 million
      2013 – $77.6 million
      2014 1H – $51.3 million
    • Losses (pg. 2)
      2011 – $24.4 million
      2012 – $18.8 million
      2013 – $34.3 million
      2014 1H – $17.7 million
    • Mid-market defined as companies between 10 and 2,000 employees (pg. 2 — this is a very broad definition of the mid-market)
    • Average revenue per customer is $8,823 per year (pg. 2)
    • 20% of customers outside the U.S. (pg. 4)
    • Professional services revenue (pg. 6)
      2011 – $2.8 million
      2012 – $5.7 million
      2013 – $6.8 million
      2014 1H – $4 million
    • One major risk factor is the inability of customers to create content to make blogging, social media, and inbound marketing in general worthwhile (pg. 10 — regularly writing good content is a serious effort)
    • 719 full-time employees as of June 30, 2014, up from 304 as of December 31, 2011 (pg. 12)
    • Accumulated deficit of $123 million (pg. 39)
    • More than 90,000 individuals with a free or paid Signals account used the Signals product during June 2014 (pg. 47)
    • 88.6% annualized subscription dollar retention rate (pg. 47)
    • $11,334 cost of customer acquisition (pg. 48 — it’s awesome that they are so transparent with their renewal rates and cost of customer acquisition)
    • $7.3 million in cash on hand and negative $22 million in working capital (pg. 60)
    • Great letter from the founders that describes the background of the business and the big vision (pg. 71)
    • Seven core principles of the HubSpot Culture Code (pg. 88)
      We are maniacal about our mission and our metrics.
      We empower every employee, at every level, to “Solve for the Customer”.
      We are radically transparent.
      We give ourselves the autonomy to be awesome.
      We are unreasonably picky about our peers.
      We invest in individual mastery and market value.
      We constantly question the status quo.
    • Venture capitalists own 66.3% (pg. 110)
    • Founders own 13.7% (pg. 110)
    • Co-founder/CEO owns 4.9% (pg. 110)
    • Note: The S-1 made no mention of competitors like Pardot and Marketo, which is unusual for this type of document.

    Overall, I expect this IPO to be very successful due to the excellent team, large market opportunity, current growth rate, and awareness of the company within the online marketing industry. Look for HubSpot to have a market capitalization in excess of $1 billion shortly.

    What else? What are some other thoughts on the HubSpot S-1 IPO filing?

  • The Ratio of Business Development Reps to Account Executives

    With the Rise of the Inside Sales Rep and the Sales Development Team, one of the most common questions that comes up is about the ratio of appointment setters to closers. First, a quick primer. Sales Development Reps/Business Development Reps (BDRs) were popularized by the 2011 book Predictable Revenue. BDRs use email and phone to prospect, qualify leads, and set appointments for Account Executives (AEs), which close the deals.

    Overall, the main goals is to have much more specialized functions on the sales team. Too often, expensive sales people are used to cold call (prospect), respond to inbound leads, set appointments, deliver demos, write proposals, and close deals. The modern approach is to have one team dedicated to prospecting (Business Development Reps), one team dedicated to following up with inbound leads (Market Response Reps), and one team taking the qualified leads to close (Account Executives).

    Now, back to the original question regarding the ratio of BDRs to AEs. Of course, every business is different, but one constant stays the same when thinking through the ratio of BDRs to AEs: the Account Executives should have as many Business Development Reps as necessary such that the AEs are only working active, qualified opportunities. Everything that takes place before an engaged lead is ready to start the buying process should be handled by the BDRs. More often than not, sales teams have too many AEs and not enough leads. One strategy in this common scenario is to let go of the low performers and use the money saved to hire more BDRs until the successful AEs are well fed.

    The next time someone says they want to hire more sales people, ask the hard questions and figure out if they really need Business Development Reps and not more Account Executives.

    What else? What are some more thoughts on the ratio of Business Development Reps to Account Executives?

  • Rise of the Inside Sales Rep

    I’m fascinated by the growth of inside sales reps in organizations and the corresponding opportunities that are emerging in the market to support them. Inside sales growth is driven by a number of factors including:

    • Productivity gains from modern cloud-based tools (e.g. CRM, marketing automation, etc.)
    • Quality of video conferencing and screen sharing
    • Continual margin pressure for many products
    • Higher costs and hassles with travel
    • More quantifiable results and tracking for management

    At Pardot, we focused on selling into marketing departments but we had several great tools that sales people loved including Lead Deck, Chrome Extension for Gmail, and an Outlook Plugin. Adding value to the sales process, in addition to the marketing process, was a critical part of the Pardot value proposition.

    Newer tools like SalesLoft, Rivalry, Calendly, and Voxa as well as back-office integration systems like Kevy really complement popular applications like Salesforce.com and Pardot (disclosure: I’m an investor in these new apps). Sales rep productivity continues to improve enabling professionals to close more deals with a shorter sales cycle. It’s win-win for everyone involved.

    Inside sales is a fast-growing field and I’m excited to be a part of the industry.

    What else? What are some other thoughts on the rise of the inside sales rep?

  • SalesLoft and Sales Technologies

    Last week Urvaksh broke the news that Atlanta tech-legend Tom Noonan had invested $800,000 in SalesLoft (Disclosure: I’m an investor in SalesLoft). Tom is best known for being the co-founder and CEO of Internet Security Systems from start through exit to IBM for $1.5 billion a decade ago. Now, Tom is investing more heavily in the Atlanta area with a focus on Software-as-a-Service and internet security companies.

    SalesLoft’s core product, Prospector, is built on the premise that the best way to generate an accurate list of prospects for a sales rep is by scraping data online. While it might seem simple to some, it’s actually very difficult to find a current list of people with most data services having old information. With over 600 customers, SalesLoft has already shown that there’s a real need in the market for the technology.

    SalesLoft’s soon-to-be-launched product (Cadence) is all about automating the sales development process that was popularized by Aaron Ross’ excellent book Predictable Revenue. As sales teams put more emphasis on inside sales and web-based selling, so too does the need grow for sales technologies to help make this next generation of sales people more productive. Look for the product to be released in the near future.

    SalesLoft is well positioned in the fast-growing inside sales technologies world and is poised to be one of the next great success stories in Atlanta.

    What else? What are some other thoughts on SalesLoft and sales technologies?

  • Modeling Sales Rep Ramp in SaaS Startups

    Most Software-as-a-Service (SaaS) financial models focus on the standard areas like new customers acquired, customer churn, expenses, cash flow, etc. In the section that models out labor there are the standard categories like sales, marketing, engineering, operations, administrative, etc. Only, the sales rep section is often too simplistic with a model that shows the hiring of two new sales reps every month/quarter (always hire sales reps in pairs) and simply leaves it at that.

    Here are a few items to model in the sales rep ramp for a SaaS startup:

    • Time to quota attainment (most sales reps take 60 – 120 days before they’re productive)
    • Sales rep churn (often 50% of reps hired won’t work out and some percentage of the successful reps will leave each year)
    • Productivity increases (reps often get 10-20% better each year)
    • Quota increases (often coincides with productivity increases and market dynamics)

    Sales reps, as a percentage of total employees, is almost always higher than most entrepreneurs realize (check out Salesforce.com which is said to have more than 50% of the employees in a sales capacity). Ramping up a large sales team in a SaaS startup is much more complicated than most financial models dictate.

    What else? What are some other thoughts on modeling sales rep ramp in SaaS startups?

  • 5 Recommendations for Teams at Conferences

    Over the years I’ve had the opportunity to attend dozens of industry conferences. Some large, some small, and mostly worthwhile. My first real conference as an entrepreneur was the Internet World trade show at the Javits Center in NYC in December 2001. With 50,000 attendees and 300 vendors, I was blown away by the size and scale. At the show I met the company that licensed our product and indirectly financed our next product, which ultimately helped make the company successful — it was a big inflection in the lifecycle of the startup.

    Here are five recommendations for teams at conferences:

    1. Make a plan with goals in advance of the conference
    2. Divide up roles and responsibilities, and ensure all team members are on the same page
    3. Schedule meetings with prospects, customers, and partners a month in advance (it’s a great sales tactic to say that you’re in town for the conference and would enjoy stopping by to meet)
    4. Enforce a “no sit together rule” whereby team members divide up during sessions so as to meet more people (the main point of tradeshows is to build relationships, so hanging out with coworkers during show time doesn’t help that)
    5. Debrief at the end and come up with a list of to start, stop, and continue doing at future conferences

    Even in the digital age, building relationships face-to-face is critically important and conferences, when done well, are a great way to do it. Put time into the conference before and after the event to make it worthwhile.

    What else? What are some other recommendations for teams at conferences?

  • Calendly For Self-Service Calendar Scheduling

    Atlanta Ventures just partnered with entrepreneur Tope Awotona and made a seed investment in Calendly — a cloud-based service that sits on top of Google Calendar making it super easy to provide self-service scheduling (no more sending several emails back and forth to find a time that works). Calendly has signed up thousands of users over the past few months and is focused on helping professionals save time and increase revenue.

    Here are a few of the main benefits of Calendly:

    • Reduce the friction to setting up a meeting (how many times have you gone back and forth over the phone or email to find a time that works?)
    • Make it easy to cancel or reschedule a meeting (many meetings are changed and Calendly cuts down on the noise)
    • More consistent meeting information and preparation (e.g. you can require certain information be provided as part of scheduling a meeting as well as have different meeting types)
    • Automated integration with other systems like CRM (e.g. when a lead schedules a meeting, put it in Salesforce.com)

    Anyone that schedules meetings on a regular basis (e.g. sales reps, customer success managers, support reps, etc) would do well to put a Calendly link in their email signature and make it easy for prospects and clients to schedule a meeting. We’re big fans of Calendly and are looking forward to working with Tope.

    What else? What are some other thoughts on Calendly and self-service calendar scheduling apps?

  • Sales Development Team: Most Important Sales Process Innovation in 10 Years

    Kyle Porter shared Craig Rosenberg’s great new post The Sales Development Team: A Proven Framework for Success. Sales development became popular after Predictable Revenue hit the startup circuit a couple years ago. Now that I’ve seen sales development teams in action at several companies, I believe it’s the most important sales process innovation in the last 10 years.

    Here are the headlines from the sales development team article:

    The Case for Sales Development

    1. Connecting with prospects requires time and resources
    2. A fast, standardized lead follow-up process is the key to conversion
    3. Converting a lead to an opportunity requires its own playbook and subsequent training and coaching
    4. Sales Development means a higher lead to opportunity conversion
    5. Marketing and contact data is vastly improved with sales development
    6. Sales and marketing alignment
    7. Increased productivity and efficiency from quota-carrying sales reps = more revenue
    8. Your buyer wants you to follow-up

    Designing the Sales Development Organization

    • The importance of the qualified lead definition
    • Sales development organizational design
    • SDR compensation
    • Training, onboarding, and coaching
    • Sales development hiring
    • Sales development metrics
    • Sales development technology

    I’d recommend heading on over and reading The Sales Development Team: A Proven Framework for Success. Sales and the sales process is much more scientific than ever before, and with sales development teams it becomes even more predictable.

    What else? What are some other thoughts on sales development teams?