David Cummings on Startups

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  • The Continous Product Management Process

    We already know that the product manager is one of the most difficult positions to fill in a startup. Often, one of the co-founders or the CEO acts as the product manager until the startup is large enough to warrant a dedicated person (or there’s an opportunistic hire). Regardless of having a full-time product manager, there’s a continuous product management process. Here’s what the process looks like for many startups:

    • Daily – Customer feedback via a GetSatisfaction-powered idea exchange, team member feedback in a product planning spreadsheet, and new features as well as bugs in the issue tracker (e.g. JIRA, Pivotal Tracker, or GitHub Issues)
    • Weekly – Direct customer and prospect conversations, update key stakeholders, look for trends, document new functionality, and start/review the sprint (assuming two week product sprints)
    • Monthly – Review the roadmap, evaluate the product metrics/KPIs, demo upcoming features to the team, and one-on-one meetings with stakeholders (sales, marketing, services, support, and engineering)
    • Quarterly – Update the roadmap, call/web meeting with the customer advisory council, and revise components of the Simplified One Page Strategic Plan

    Now, this doesn’t include aspects like sales demos, evangelism, strategy, positioning, and more that is often associated with product management. Rather, this is continuous product management process that is a core part of a successful startup.

    What else? What are some more components of the continuous product management process?

  • 24 Months to Get the Startup Going

    When first-time entrepreneurs set out on a new startup, there’s a desire for immediate results and expectations for quick success. Only after a few set-backs – everything takes twice as long and costs twice as much – does reality start to take hold. Then, it feels like this thing is never going to make it, often called the trough of sorrow, where it even gets worse. Finally, things start to pick back up (hopefully!) and there’s nice steady growth.

    Here’s what the first 24 months might look like:

    • 6 months – Tons of conversations, administrative work, product exploration, and a few beta customers
    • 6 months – Product and messaging refinement, more customers signed, and stronger focus (or, things aren’t working and you start back over from scratch a.k.a. the pivot)
    • 6 months – Approaching product/market fit, more confidence, and more customers
    • 6 months – Product/market fit and the start of a repeatable customer acquisition process

    So, if everything goes well, the business will feel like it’s starting to hit its stride, albeit with modest revenues, after 24 months (see SaaStr on the 24 months timeframe as well). Even with more money and more team members, it still takes 24 months to really get the startup going.

    What else? What are some more thoughts on the idea that it takes 24 months to get the startup going?

  • Notes from the Xactly S-1 IPO Filing

    Xactly, a sales performance and incentive management SaaS company, just filed their S-1 to go public. Over the years, I’ve seen Xactly’s booth many times at the Salesforce.com Dreamforce show but didn’t know too much about the company. After reading the S-1, it’s clear that there’s a big growth opportunity using software to manage commissions for sales reps and other incentive programs.

    Here are a few notes from the Xactly S-1 IPO filing:

    • Company offering: solutions that help executives design, manage and analyze incentive programs and provide visibility into employee and incentive program performance. Employees use the solutions to monitor, estimate and track their own and their team’s performance in real-time, and modify their behaviors to maximize their payout consistent with company goals. (pg. 1)
    • 725 customers (pg. 2)
    • Revenues (pg. 2)
      2013 – $36.3 million
      2014 – $47.2 million
      2015 – $61.1 million (average of $84,275/year/customer)
    • Losses (pg. 2)
      2013 – $9.4 million
      2014 – $14.5 million
      2015 – $18.5 million
    • Replaces spreadsheets and integrates with customer relationship management (CRM), configure price quote (CPQ), human capital management (HCM), supply chain management (SCM) and enterprise resource planning (ERP) applications. (pg. 2)
    • According to IDC, the worldwide SaaS and cloud software market reached $39.3 billion in revenue in 2013, a 22.6% year-over-year growth rate, and will grow to $102.9 billion by 2018, at a compound annual growth rate of 21.3%, compared to an expected compound annual growth rate of 6.3% for the broader software market for the same time period. (pg. 2)
    • Only 12.7% of companies using a commercial incentive compensation management system as their primary method in 2014. (pg. 3)
    • 14 million people in sales and related occupations in the United States (pg. 3)
    • Average revenue per user of $280/year (pg. 3)
    • 28% of subscribers are outside of the United States (pg. 5)
    • Founded in March of 2005 (pg. 6)
    • Professional services revenue (pg. 9)
      2013 – $8.8 million
      2014 – $11.3 million
      2015 – $13.8 million
    • Accumulated deficit of $115.8 million. (pg. 12)
    • As of January 31, 2015, had approximately $198.7 million and $67.5 million of federal and state net operating loss carryforwards. (pg. 28)
    • Define enterprise customers as those customers with a minimum of 4,000 employees and mid-market customers as those customers with at least 350 and less than 4,000 employees. (pg. 49)
    • 104% revenue retention rate in the last 12 months (pg. 50)
    • As of January 31, 2015, had 333 employees, with 93 in research and development, 125 in sales and marketing, 86 in operations, customer support and professional services, and 29 in general and administrative. (pg. 88)
    • VCs own 67.4% of the company (pg. 113)
    • Founder/CEO owns 6.6% (pg. 113)

    Xactly is a good representation of the major growth opportunity for SaaS: taking old-line business functions and building them from scratch in the cloud. By providing a better experience and delivery model, SaaS actually grows the size of the market. Look for Xactly to do well in their IPO and beyond, especially if they can keep their top-line growth above 30%.

    What else? What are some more thoughts on the Xactly S-1 IPO filing?

  • Investing in an Entrepreneur and Disliking the Idea

    Several months ago I was giving a high profile, out-of-town VC a tour of the Atlanta Tech Village. As we walked around the rooftop patio, I asked about one of his investments I had read about previously and he said something that surprised me, “I don’t think the idea for [redacted] is that good, but I love the entrepreneur and invested just so I could invest in whatever company he does after this one.” Wow! This is an investor who has put many millions of dollars into a startup saying the idea is only OK but that’s it’s all about the belief in this person.

    Naturally, I pressed further and asked about expected return on investment and how it compares to other investments. The expectation is still to make good money (e.g. a 10x), but that there’s no way it could be a 100x (or 1000x like Jeff Clavier’s Fitbit investment). So, disliking an idea while still believing it can generate good financial returns are not mutually exclusive. Regardless, a fundamental belief in the entrepreneur is the driving force.

    The next time you hear of an investor saying ‘no’ because they’re not interested in the idea, remember that the entrepreneur is even more important. In fact, some investors bet on the entrepreneur regardless of the idea.

    What else? What are some more thoughts on the idea of investing in an entrepreneur and disliking the idea?

  • Scale Needed for Sale

    One of the harder concepts for entrepreneurs to grok is that even when a startup has product/market fit, customers, employees, and investors, there’s almost no value to the business. Now, on paper, there’s a valuation the investors bought in at, so it feels like there’s value. But, unfortunately, there’s really very little value until the startup has some scale — say $5 million or $10 million in revenue. Similar to the idea that there’s no market for failed startup products, there’s almost no market for barely successful startups.

    Here are a few reasons why scale is need for sale or acquisition of a startup:

    • For any mid-to-large company that can afford to acquire the startup, the revenue needs to be meaningful, or the potential to be meaningful in a few years (e.g. at least 1-5% of the overall revenue)
    • Financial buyers, as opposed to strategic acquirers, are looking to pay based on a multiple of profits, not revenue, and most startups aren’t profitable (financial buyers often pay 4-6x EBITDA, depending on the type of business)
    • Transactions costs to acquire a company are high, especially with all the legal and accounting time as part of due diligence, adding considerable friction to the process of acquiring a startup
    • Someone within the acquiring organization has to be a champion for the acquisition and stick their neck out — it’s safer to pay more and acquire a startup that’s more established with more revenue

    Once there’s scale, many of the risks – customer adoption, value proposition, growth potential – are addressed and it’s more of an opportunity to take something that’s working and make it many times larger. Most mid-to-large companies aren’t interested in acquiring sub-scale startups.

    What else? What are some more thoughts on the idea that scale is needed for sale?

  • Entrepreneur by Day, Car Valet by Night

    Several years ago I was talking to an entrepreneur about his startup. When we got to the part about funding, he said that it was all bootstrapped. Each day he would work full-time on his company and then at night, to pay the bills, he would valet cars. Valeting cars is hard – constantly running back and forth, hoping the customer didn’t wait too long and will give a nice tip, and loss of a social life. Also, it’s something many people, especially engineers with college degrees, see as being beneath them. Only, to me, it showed how serious he was about being a full-time entrepreneur and doing whatever it takes to succeed.

    The next time an entrepreneur laments not being able to work full-time on their startup due to funding, ask a few questions:

    • What lifestyle sacrifices are you making to be an entrepreneur?
    • What can you change so that you can be a full-time entrepreneur?
    • What jobs can you do after hours to pay the bills (e.g. being an Uber driver or valeting cars)?
    • What percentage of your savings are you willing to invest in the startup?

    The initial stages – going from idea to product/market fit – are terribly difficult, and practically impossible as a part-time entrepreneur. Entrepreneurs that focus full-time on their startup have a much greater chance of success.

    What else? What are some more thoughts on the idea that entrepreneurs need to figure out how to go full-time on their startup?

  • Atlanta Tech Village as an Accelerant

    Recently I was talking to an entrepreneur at the Atlanta Tech Village and he told me how they had just found a great designer through the Village community. Then, later that same day, another entrepreneur volunteered that he had made several key connections through the Village, including signing one of his first customers. With the community, connections, and collaboration, the Village acts as an accelerant for entrepreneurs.

    Entrepreneurs meet more people faster.

    Entrepreneurs sign their first customer faster.

    Entrepreneurs fail faster.

    Entrepreneurs find key employees faster.

    Entrepreneurs learn best practices faster.

    Entrepreneurs grow their business faster.

    Whether it’s the Atlanta Tech Village or another entrepreneurship community, my recommendation is for entrepreneurs to find a place and get involved. It’s hard to appreciate the value until it’s experienced first-hand.

    What else? What are some other thoughts on the Atlanta Tech Village as an accelerant for entrepreneurs?

  • Well, There’s Nothing Left to Build

    During the first summer of Pardot we embarked on a crazy adventure with 11 full-time summer interns. While I wouldn’t recommend that to anyone, we learned a ton and built the foundation of an amazing product. Near the end of the summer, most of the interns had finished and one excellent one stayed around to continue working part-time during the school year. One day, when all the immediate summer engineering projects were done, he walked in and said with a straight face:

    Well, there’s nothing left to build. We finished everything and the product is completely done.

    Of course, the product is never done. Here are a few reasons why:

    • Markets are constantly iterating and evolving (features that are hot one quarter won’t be hot the next)
    • Customer demands and needs continually change (as customer usage matures, more requests come in for edge cases)
    • Competitors introduce valuable new functionality (there’s always an arms-race between the major players in an industry)
    • New technologies emerge (e.g. supporting different screen resolutions, devices, and formats)

    Products with fast-growing customer bases are continually improving and never done. If anyone suggests otherwise, take them through any major product they use on a regular basis and point out how it’s evolved.

    What else? What are some other thoughts on the idea that there’s always room to improve?

  • Startup Review: Rivalry for Sales Coaching Software

    Rivalry, at the Atlanta Tech Village, is one of the fastest growing companies in the building (disclosure: I’m an investor). After creating a sales rep leaderboard platform to promote internal competition for teams, they found a bigger opportunity with sales coaching and accountability software. The big idea: the one-on-one once a week between a sales manager and sales rep often isn’t process driven and lacks appropriate follow-up. With sales coaching software, sales reps shorten their sales cycle, increase the average deal size, and sell more.

    Here’s how it works:

    • Every sales manager and sales rep has a user in the system (can be single sign-on via the CRM)
    • A specific template of weekly questions for each role is created (or taken from standard best practices)
    • Metrics are automatically pulled from the CRM (important to see where the rep stands during coaching sessions)
    • Sales managers and sales reps use the software each week during their one-on-one to answer questions and create follow-up tasks right within the system
    • Reports show progress and insights (e.g. which sales reps are making the most progress and which managers are most effective at coaching)

    Rivalry ensures one-on-ones happen, are productive, and are documented. Check out Rivalry as a great way to improve sales coaching and accountability.

    What else? What are some more thoughts on Rivalry and sales coaching software?

  • Get on a Plane

    Several months ago I was talking to a successful, serial entrepreneur. He had sold several companies and hadn’t had to work for many years. Even still, he loved creating companies and so was at it again with his next startup. After talking for a while, the topic of travel and sales meetings came up. Naturally, he loved chasing big deals and was on the road 50% of the time. His mantra: get on a plane. There’s no substitute for face-to-face interaction.

    Here are a few thoughts on the importance of getting on a plane:

    • People buy from other people they like (this is one of the reasons the best product doesn’t always win)
    • Collaboration tools like Google Hangouts and Skype Video are good, but in person is significantly better
    • Rapport and strong relationships help when challenges inevitably arise (e.g. bugs, downtime, late delivery, etc.)
    • Body language and subtle feedback are critical when negotiating important deals

    While many entrepreneurs fantasize about a world of self-service products with no business development deals or humans selling, the reality is that most startups require a heavy human component. When there’s a heavy human component, there’s no substitute for getting on a plane and meeting in person.

    What else? What are some other thoughts on the importance of getting on a plane and meeting face-to-face?