David Cummings on Startups

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  • SalesLoft Rainmaker 2016 Conference

    SalesLoft, which has an great platform for increasing qualified appointments and raised a $10M Series A last year, is putting on a conference March 7-9 at the Westin in Atlanta (Disclaimer: I’m an investor). I’ve talked before about the rise of the sales development platform and I’m a big believer in using technology to improve sales and marketing (see Pardot).

    Here are a few details on the Rainmaker 2016 conference:

    • 400+ modern revenue leaders (demand gen, sales development, inside sales)
    • 15+ Partners (6 being announced as part of the sales development cloud ecosystem)
    • Amazing speakers and content
    • Gary Vaynerchuk is the keynote speaker!

    If you’re interested in sales or sales technologies, it’s a can’t-miss event. I hope to see you in Atlanta in March at SalesLoft’s Rainmaker 2016 conference.

  • 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.

  • 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?