David Cummings on Startups

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  • 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?

  • 2015 Most Popular Posts

    Periodically, I like to review the most popular posts here and see what topics are of interest. Here were the most popular posts of 2015:

    Clearly, business tools, SaaS, and startups are the three most popular areas. Please let me know if you have any topics of interest.

  • John Maxwell’s Five Levels of Leadership

    In yesterday’s video, John Maxwell talks about the leadership ideas from his best-selling book The 5 Levels of Leadership: Proven Steps to Maximize Your Potential. These are a must-learn for anyone that’s in a leadership role, or aspires to be in a leadership role.

    Here are the five levels of leadership from the book synopsis:

    1. Position – People follow because they have to.
    2. Permission – People follow because they want to.
    3. Production – People follow because of what you have done for the organization.
    4. People Development – People follow because of what you have done for them personally.
    5. Pinnacle – People follow because of who you are and what you represent.

    Read the book, or watch the video, and remember the author’s critical point at the end: know that your leadership level differs from person to person and work to improve the level with each person.

    What else? What are some more thoughts on John Maxwell’s Five Levels of Leadership?

  • Video of the Week: John Maxwell The 5 Levels of Leadership

    For this week’s video, watch John Maxwell talk about The 5 Levels of Leadership. Enjoy!

    From YouTube: New York Times Best-Selling Author, Dr. John C. Maxwell teaches the high points of The 5 Levels of Leadership at The Chick-Fil-A Leadercast.

  • 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?