David Cummings on Startups

Blog

  • 3 SaaS Market Types to Consider

    When analyzing Software-as-a-Service (SaaS) market types, it’s helpful to have different frameworks or patterns to compare against. While people like to talk about SaaS in general, the type of market a particular SaaS product is targeting greatly affects things like sales cycle, potential investor enthusiasm, and overall opportunity.

    Here are three SaaS market types to think through:

    • New Technology – Are customers replacing a legacy product or is this the first time they’ve ever bought a product like this because it’s a new technology? Almost all of Pardot’s customers had never used marketing automation before.
    • Middlemen – Are customers replacing a legacy service that’s traditionally used middlemen (e.g. benefits, financial planning, etc.)? In this case, they’re spending money but not necessarily on a SaaS offering.
    • Labor Intensive – Is the outcome that the SaaS product provides already achievable but labor intensive? Things like building a list of prospects (SalesLoft) or integrating ecommerce systems (Kevy) can be done by hand, but are time consuming and error-prone.

    When evaluating an opportunity, it’s important to understand the market type and corresponding nuances. No type is perfect but each has example success stories.

    What else? What are some other SaaS market types to consider?

  • Comparing Two Strategic Directions

    Recently I was talking to an entrepreneur that was making good progress in his startup. After signing a couple dozen customers it became clear that there were two strategic directions to take the business, each with their own pros and cons. We got to talking more about the strategic directions, and even after drilling in, both appeared favorable.

    Here are a few questions to ask when comparing two strategic directions:

    • Of the existing customers, how many fit the proposed directions? How many are good fits vs OK fits for the new directions? Why?
    • Which direction has the largest total addressable market?
    • Which direction is growing fastest?
    • Which direction has the most competition? How innovative is the competition (e.g. most incumbents have difficulty innovating)?
    • Which direction excites the team the most?

    Tweaking the strategic direction in a startup is more common than expected. In fact, there are many success stories of startups that started doing one thing and ended up doing something entirely different. Regardless, comparing strategic directions is a normal part of the journey.

    What else? What are some more thoughts on comparing two strategic directions?

  • Consulting Services Revenue in SaaS

    Several years ago I was biased against Software-as-a-Service (SaaS) startups offering consulting services. The previous thinking was that it was better for the startups to focus exclusively on recurring revenue and to hand off any consulting revenue to partners. Now, I believe the top priority is to deliver an amazing solution and make customers happy. While that can be done with partners, startups are better off doing it in-house for quality control reasons during the early years. Once the startup hits the growth stage ($5 million+ in revenue), incorporating channel partners becomes more important.

    Here are a few thoughts on consulting services revenue in SaaS:

    • SaaS valuations multiples aren’t affected by services revenue as long as it’s less than 20% of total revenue (e.g. a startup that’s heavy on consulting revenue won’t be viewed favorably, all things equal)
    • Freemium products, which are self-service to get started, still have consulting opportunities
    • Most technologies need a couple generations of refinement before they’re self-service (email marketing has reached it but marketing automation hasn’t)
    • Productized services are a great way to deliver customer hand-holding
    • Bigger companies are even more likely to pay for services, and often expect it, as change management is hard

    Consulting services, and the corresponding revenue, are commonplace in the software world, SaaS or otherwise. SaaS startups would do well to ensure customer success and incorporate consulting services as needed.

    What else? What are some more thoughts on consulting services revenue in SaaS?

  • Do More Good Stuff in 2015

    2015 is almost here and it’s a great time to make positive changes and do more of the good stuff. Whenever you’re getting ready for bed and reflect on the day, the good stuff becomes readily apparent. Here are a few things that come to mind:

    • Spend more time with family
    • Read more books and blogs
    • Take more walks
    • Help more people
    • Reflect more often
    • Write more prose (and code!)
    • Compose a letter
    • Call a friend
    • Volunteer at a charity
    • Give more hugs
    • Smile more often

    Here’s to a great 2015! Oh, and spend more time doing the good stuff.

  • The Product Manager

    In the tech startup world there’s a consistent theme that software engineers and sales reps are two of the hardest positions to fill as the company scales. Well, there’s an even harder position to fill and that’s the role of the product manager (thankfully, a larger number of them aren’t required for each startup). Here’s a blurb about the product manager’s role from this LinkedIn ad for a VP of Product Management at Pardot:

    As VP of Product Management, you will be one of the most public faces of the Pardot platform and help shape, direct and execute our product vision. You’ll be challenged to blend customer-centric principles with industry-changing innovation. You will work directly with the head of product, as well as the rest of the product and engineering teams, to create experiences that reinforce the Pardot brand by delighting and wowing our customers.

    How many people do you know that are a combination evangelist, visionary, technically adept, and customer-focused? The “technically adept” piece is especially difficult depending on the type and style of product manager desired. Often, the CEO, in conjunction with the head of engineering, act as the defacto product managers in the early years of a startup due limited resources and the difficulty in finding the right person.

    Here are a few thoughts on the product manager role:

    • Software engineers or technical project managers often transition well to product managers
    • Strong opinions on the future of the product are critical as input and feedback will come from all directions
    • True empathy for the customer is a must-have (we’ve all used products that didn’t feel like they had the customer in mind)
    • Extroversion is often found with product managers due to the nature of constant interaction with engineering, sales, marketing, support, customers, prospects, and analysts
    • Attention to detail and planning skills are crucial due to all the moving parts

    The product manager role is one of the toughest positions to fill. A great product manager, while hard to find, is incredibly valuable and important to the long-term success of the company.

    What else? What are some more thoughts on product managers in a startup?

     

  • 15 Favorite Posts of 2014

    2014 is almost done and it’s a great time to look back on this blog’s topics. While most posts have an entrepreneurial theme with a focus on action, there’s a good bit of variety in there as well. I went through every blog post of the year and picked out my 15 favorite:

    I can’t wait to see what 2015 has in store.

    What else? What are some other favorite posts from 2014?

  • Power of Growing Recurring Revenue Sooner

    As part of the idea of Always Hiring Sales Reps, it’s important to understand the power of growing recurring revenue sooner. Say there’s a debate between hiring two sales now or six months from now. Assuming the sales reps are hired now, how does that affect recurring revenue over the next four years? Let’s take a look:

    • Assume both reps are successful, 90 days to ramp up, annual quota is $500,000 of new annual recurring revenue, and churn is 10% per year
    • Time between hiring the reps now and six months from now, plus 90 day ramp, makes the first newly generated deals coming in either day 91 or day 271.
    • Annual recurring revenue increase from the six month difference:
      – Year 1: $250,000
      – Year 2: $225,000
      – Year 3: $202,500
      – Year 4: $182,250
      – Total non-recurring revenue: $859,750

    Hiring two more sales reps now, as opposed to six months from now, adds almost a quarter million dollars in new annual recurring revenue in the first year and over $180,000 in annual recurring revenue by the end of the fourth year (it’s the gift that keeps on giving). The moral of the story is to hire as many sales reps as possible assuming the standard SaaS metrics look good.

    What else? What are some other thoughts on the power of growing recurring revenue sooner?

  • Year of Code

    Back when Adam and I started Pardot in 2007, I spent the entire first year writing code full-time and it was awesome. We were blazing a new trail with SMB marketing automation and adding new functionality every week. As the business grew, my software engineering efforts slowed and I focused my energies on ways to best grow the business. After we sold Pardot, I spent the past two years split between the Atlanta Tech Village and Kevy, trying to get both off the ground. Now that construction has been done at the Village for a couple months, I’ve had the opportunity to jump back in and write some code.

    In fact, my goal is to continue writing code part-time throughout 2015 — a year of code. Here are a few ideas on the year of code:

    • My target is 500 hours of coding over the course of the year (~10 hours/week), but it’ll ebb and flow based on priorities
    • My guess is that it takes 50 – 100 hours to achieve proficiency again
    • Most of my skills from 2007 are fairly applicable today, if only rusty
    • My effort is focused on non-core or net-new items that aren’t yet customer-facing

    Like Allen Nance says in Old Dog, New Tricks, the world is becoming more technical and a deeper understanding is important. I’m looking forward to the year of code.

    What else? What are some other thoughts on writing code part-time for a year?

  • Why Not a Venture Fund

    One of the questions I’ve been asked several times is if there’s a venture fund as part of the Atlanta Tech Village. My answer is “no” but we’ve considered it in the past and we’ll look at it again in the future. We stay away from using the word “incubator” to describe the Atlanta Tech Village as there’s no equity component and we don’t want the stigma of the failed dot-com incubators. As for a venture fund, we also don’t want to create a system where startups that haven’t received funding from the affiliated fund are viewed differently (with 200+ startups, the scale makes the non-funding less of a potential issue).

    Here are a few things we’d like to see in place before doing a venture fund:

    • More success stories (we’re making good progress building our reputation with startups like BitPay, Yik Yak, Insightpool, and SalesLoft)
    • More exits (we’ve had a few acqui-hire deals with startups in the Village but nothing substantial)
    • More differentiable areas of strength (we’re strong in Software-as-a-Service and business software, but eventually want more specific areas of expertise)

    Overall, one of the most important aspects is building a reputation that the Atlanta Tech Village increases the chances of startup success. With a reputation for success in place, raising a fund to invest in Village startups will come naturally.

    What else? What are some other thoughts on a venture fund associated with the Atlanta Tech Village?

  • Work/Life Blend

    On this beautiful Christmas day it’s a great time to reflect on work/life blend. While the phrase work/life balance is more common, I think work/life blend is more appropriate. The days of only doing “work” at the office and “life” outside the office have been over for many years, especially as an entrepreneur. Things like this blog are more “life” for me and less “work” as I believe it’s a great way to capture thoughts and help other entrepreneurs minimize common mistakes and grow faster.

    As for me, I achieve my version of work/life blend by defining a rhythm and sticking to it. Here’s the rhythm I’ve been followed for a few years now:

    • Weekly
      – Friday date night
      – Weekend kids adventure
      – No more than one business breakfast event and one evening event
    • Quarterly
      – Family vacation out of town for one week
      – No more than five days of business travel
    • Annual
      – Getaway without the kids
      – Review the family rhythm and priorities

    I highly recommend coming up with a work/life blend plan, implementing it, and adjusting it as needed. This simple framework has been beneficial to me.

    What else? What are some other thoughts on work/life blend?