David Cummings on Startups

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  • Triple, Triple, Double, Double, Double

    Neeraj Agrawal has an interesting article up titled The SaaS Adventure where he talks about the seven phases of go-to-market success for Software-as-a-Service (SaaS) companies that have gone public recently:

    • Phase 1: Establish a great product-market fit.
    • Phase 2: Get to $2 million in ARR (annual recurring revenue).
    • Phase 3: Triple to $6 million in ARR.
    • Phase 4: Triple to $18 million.
    • Phase 5: Double to $36 million in ARR.
    • Phase 6: Double to $72 million.
    • Phase 7: Double to $144 million.

    Of course, there’s much more nuance to startup success than hitting certain revenue targets (see 4 Startup Stages in 8 Words for the briefest example possible). Combine this with the Law of Large Numbers and Startup Growth and you can appreciate just how difficult it is to achieve that level of revenue growth and scale. See the Notes from the Marketo S-1 Filing to understand that the capital required to achieve the size and scale in that period of time resulted in investors owning 85.5% of the business, which is fine as long as that level of success is attained.

    The next time an investor asks about revenue goals, tell them about tripling two years in a row and then doubling revenue year after year beyond that so as to go public in 6-7 years.

    What else? What are some other thoughts on the revenue growth pattern of recent SaaS companies that have gone public?

  • Let’s Talk Over Email

    One of the new initiatives I’ve been trying lately is pushing more intros into email conversations. That is, when people reach out and ask to talk or meet, instead of setting up a fixed time in the future to talk, just start the conversation now. Yes, it’s easier to go deeper and cover more topics when talking in person, but there’s significant overhead to stop everything at a fixed time vs conversing asynchronously over email.

    Here are a few thoughts on talking over email:

    • Requiring a Simplified One Page Strategic Plan to start the conversation still works well
    • Most introduction requests are for specific reasons, which are readily conveyed over email (e.g. I want advice on a problem, what do you recommend for X, how did you handle Y, etc)
    • Email is much easier to share links to specific information and relevant resources
    • Some people won’t like conversing over email as it feels like it takes more effort and isn’t as personal

    Dharmesh put it eloquently in his post Dear Friend: Sorry. My heart says yes, buy my schedule says no. When time doesn’t permit a meeting, talking over email works well.

    What else? What are some more thoughts on talking over email in lieu of a meeting?

  • The Law of Large Numbers and Startup Growth

    Revenue growth is always a hot topic for entrepreneurs. Growth is tied to company valuation, career paths for team members, and requiring significant amounts of cash. Investopedia defines the Law of Large numbers as “a large entity which is growing rapidly cannot maintain that growth pace forever.” The Law of Large numbers really hits startups as they start to scale from the early stage to the growth stage. Let’s look at it a bit more:

    • Say a company grows from $1 million to $3 million in 12 months — that’s huge growth. Now, say a different company grows from $10 million to $12 million in 12 months — the same amount of growth on an absolute basis — but only 20% top line growth.
    • For many tech startups, the goal is to grow 50-100% per year. Here’s how 75% per year growth plays out over five years starting at $5 million:
      Year 1 – $5 million
      Year 2 – $8.75 million
      Year 3 – $15.31 million
      Year 4 – $26.79 million
      Year 5 – $46.88 million
      Achieving this level of growth in later years is especially difficult.
    • If it costs $1 to achieve $1 of revenue growth above a modest amount, it’s easy to see how maintaining a high growth rate at scale becomes incredibly expensive

    The Law of Large numbers applies to every startup that achieves some level of success. Entrepreneurs would do well to recognize how much more difficult growth becomes at scale and to plan accordingly.

    What else? What are some other thoughts on the Law of Large numbers and startup growth?

  • Raising Money vs Growing Organically

    Earlier this week I had the opportunity to talk with an entrepreneur who’s considering raising money. His company is doing well at a small scale and getting close to breakeven. Now, he’s in the process of building financial models and mapping out different scenarios regarding raising money vs growing organically.

    Here are a few thoughts on raising money vs growing organically:

    There’s no right or wrong answer when it comes to raising money or growing organically as every situation is different. What’s important is that it’s carefully thought through and that the decision is made intentionally.

    What else? What are some more thoughts on raising money vs growing organically?

  • Creating a Great Environment for Software Engineers

    Continuing with yesterday’s post on Recruiting Software Engineers, Kevin Strasser of TribeBoost offered a great comment that software engineers are looking for more than just money — the environment must also be attractive. Here are some thoughts on creating a great environment for software engineers based on Kevin’s thoughts and others:

    • Autonomy, Mastery, and Purpose – Encourage autonomy, mastery, and purpose for all team members (straight from Dan Pink’s book)
    • Results Only Work Environment – Have a Results Only Work Environment where team members can work where they want when they want
    • Unlimited Vacation Policy – Don’t track vacation days, sick days, or flex days, rather, focus on the required results for that position
    • Great Equipment – Provide the latest MacBook Pros, Thunderbolt monitors, Herman Miller Aeron chairs, and anything else that helps maximize productivity
    • Workspace Variety – Offer different shared and private areas to work as some tasks are more collaborative and some are more heads-down
    • Big Picture Understanding – Share a Simplified One Page Strategic Plan with everyone so that there’s a greater understanding of the entire business and direction

    Creating a great environment for software engineers and team members takes work and continual refinement. Following these best practices and working hard to create one of the best places to work makes it easy to attract great talent.

    What else? What are some more thoughts on creating a great environment for software engineers?

  • Recruiting Software Engineers

    Just this past week I’ve received two separate requests for help recruiting software engineers. I think it’s a sign of the times with technology continuing to be hot and the corresponding shortage of software developers becoming more acute. So, as someone who’s trying to recruit developers, what are some best practices?

    Here are a few ideas for recruiting software engineers:

    • $10,000 referral bonus – Offer a $10,000 referral bonus to any employee that refers a software engineer that is hired and stays with the company for six months
    • Twitter – Build a brand online through social media and use it as part of the recruiting process
    • LinkedIn – Use LinkedIn, both on the job posting side as well as directly soliciting employees of other companies, to find great talent
    • Alumni Career Fairs – Sponsor both student career fairs as well as alumni career fairs (e.g. GA Tech has an alumni career fair)
    • Technical Meetup Groups – All the major programming languages have regular meetup groups (e.g. the Atlanta iOS Developers meetup) and engineers that attend them are interested in honing their craft
    • Recruiters – External recruiters are a way of life in the technology world and the key is to find ones that understand the importance of culture and fit when placing candidates

    Recruiting great software engineers is a real challenge, and with serious effort, readily achievable. Build a methodical process and try a number of different avenues to find the right candidates.

    What else? What are some more thoughts on recruiting software engineers?

  • 731 RSVPs for the Atlanta Startup Village

    Last night’s Atlanta Startup Village at the Atlanta Tech Village had 731 RSVPs. Think about that for a second: a simple monthly event for entrepreneurs to demo their product now attracts more than 20x the number of people compared to when it started a little over two years ago. Is the startup community growing? Absolutely. Do we still have a long ways to go as a community? Absolutely.

    Here are a few thoughts on the growth of Atlanta Startup Village:

    • People want to be part of a community and feel a sense of belonging to something greater than just themselves
    • Entrepreneurship can be lonely at times, creating an opportunity for events to bring people together to share some of the highs and lows
    • Entrepreneurs want to help other entrepreneurs and a large event is an efficient way for the presenters to explain what they’re doing as well as make specific requests

    The Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast and continues to grow every month. Entrepreneurs want community with other entrepreneurs.

    What else? What are some thoughts on the growth of the Atlanta Startup Village?

  • Straight from College to Startup CEO

    One of the most popular questions at the Atlanta Tech Village is if our community is comprised of early twenty-somethings that are fresh out of college. While we do have several of those, our average age is around 30 with plenty of entrepreneurs in their 40s, 50s, and 60s. While there are outlier success stories of entrepreneurs going straight from college to startup CEO, I’m a fan of entrepreneurs-to-be working at a startup for a few years before starting their own company. Personally, I went straight from college to startup CEO and made a ton of mistakes I could have learned on someone else’s dime.

    Here are a few lessons learned going into the startup CEO role with no real world experience:

    • Culture is King – The tendency coming out of college is to focus on people that can get the job done — not people that meet the core values and get the job done (this is my most important lesson learned).
    • Sales is Hard – Even the best products require extensive sales and marketing, which is difficult to appreciate without experiencing it first-hand. Acquiring customers is much harder than expected.
    • Everything takes Longer – As an entrepreneur I like to rush things and move quickly. Only, most of the world doesn’t operate that way and everything takes longer than expected — much longer than expected.
    • Multiple Iterations Required – Every successful venture I’ve been involved with started out doing something different from what they ultimately ended up doing. Don’t expect the first idea to work.

    Going straight from college student to startup CEO is hard. Seeking mentors, peer entrepreneurs, and studying lessons learned will help increase the chance of success.

    What else? What are some more thoughts on going from college student to startup CEO?

  • Employee Turnover in a Startup

    With all the talk about recruiting and finding talent, it’s easy to forget that employee turnover is a real challenge and that strong employees always have multiple job offers. Of course, the best thing to do is create a great culture that not only attracts awesome people but also retains them.

    Here are a few thoughts on employee turnover in a startup:

    • Always reach out and understand why a team member is leaving through an exit interview or an informal conversation
    • Discuss the employee that is leaving with other key team members and find out where they stand
    • Work hard at proactively building career paths so that team members understand the opportunities ahead
    • Continually maintain relationships with potential hires as well as recruiters
    • Startups that are growing fast and creating new internal opportunities often have lower turnover
    • When a key employee leaves in good graces, throw a party and recognize them

    Employee turnover in a startup, as in any business, is a real challenge. The best thing to do is to build a great corporate culture and strong relationships with team members.

    What else? What are some more thoughts on employee turnover in a startup?

  • Favorite General Conversation Question

    Continuing with the topic Favorite Question to Ask Entrepreneurs, I have another favorite question I like to ask during conversations: how so? It’s so simple — just two short words. Yet, during a conversation, it keeps things flowing, shows that you’re interested, and is easy to incorporate.

    • Sales Rep: This deal is going to close based on our conversations.
    • Me: How so?
    • Prospect: We’ve looked at similar products in the past but didn’t have the internal buy-in.
    • Me: How so?
    • Engineer: We’re going to need more resources to hit this timeframe.
    • Me: How so?

    Whether you want to be a better listener or a stronger conversationalist, the question “how so” is a great one to incorporate. Try it and you’ll see.

    What else? What are some other questions you like to ask?