David Cummings on Startups

Blog

  • 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?

  • Comparing Competitor Functionality

    Most startups have an arch enemy and only a handful of other serious competitors. While markets might seem crowded from the outside, on the inside there are usually just a handful of companies that compete on a regular basis. One caution with an arch enemy is to not get caught up in the functionality arms-race. That is, don’t blindly copy new competitor functionality just because they’re boasting about it.

    Here are a few thoughts on competitor functionality:

    • Competitors might be positioning themselves for a move in a different direction (e.g. to a different vertical, up market, etc), so analyze the potential motives
    • 5-10% of functionality added by a competitor will actually not be useful (e.g. they’ll make a big splash about the new functionality but customers won’t actually use it for a variety of reasons)
    • Listen to customers, especially ones that best represent the ideal customer, and deliver new functionality that meets their needs, not the needs of competitors’ customers

    Playing the functionality game with major competitors is standard course for entrepreneurs. Resist the temptation and focus on adding value to the right customers.

    What else? What are some other thoughts on comparing competitor functionality?

  • Year-End Reports Review

    The end of the year is a great time to look back and reflect on the progress throughout the year. Most of the tools and processes I use to plan and evaluate progress are on a weekly/monthly/quarterly basis, so looking back over the course of 12 months helps me see things from a more strategic perspective.

    Here’s what I like to review:

    Reviewing reports from a year-end perspective is a standard part of the entrepreneurial journey. Every year is different and it helps to study the past to make more informed decisions about the future.

    What else? What are some more thoughts on reviewing year-end reports?

  • SMART Goals for 2015

    With 2015 almost upon us, it’s a good time to review goals for the next year. When I talk with entrepreneurs, I enjoy asking about their big-picture goals. Too often, I’ll hear “my goal is to build a successful tech company.” Great, what does successful mean (here’s my definition of a successful business)? That’s when I like to drill in and talk about SMART goals:

    • Specific – What exactly are you going to accomplish?
    • Measurable – How can you track it?
    • Actionable – What steps do you need to take?
    • Realistic – Is it truly feasible to accomplish the goal?
    • Timeline – When will it be finished?

    The next time you think of goals, think of SMART goals.

    What else? What are some other thoughts on setting SMART goals?

  • Atlanta Tech Village 2 Year Anniversary

    Yesterday marked the two year anniversary of buying the Atlanta Tech Village. When David Lightburn and I showed up at the building post closing, we were promptly handed a huge bag with 50 keys and told “good luck” by the previous manager. Then, as would be expected, on our first day working in the Village, the power went out in the whole building and the 5th floor bathrooms overflowed into the hallways. Tenants were furious with us and were just getting started.

    Now, we have a gorgeous renovation (2nd floor, 4th floor) and a thriving community of 200+ entrepreneurs and 700+ Villagers. I’ve had the chance to answer these frequently asked questions hundreds of times and I still enjoy telling the founding story from August 30, 2012, a full six weeks before selling Pardot.

    So, with two years under our belt, I’m just as excited and optimistic about that future as I was then, only more so now based on our progress. Atlanta will be a top 10 startup city in the next 10 years – mark my words.

  • Clarity

    I had been stewing on this one idea for a couple weeks now and suddenly the answer came to me. I had clarity. I had relief. I knew exactly what to do next. Only, sometimes it takes a few minutes for clarity and sometimes it takes a few weeks. I like to make decisions quickly, with an optimistic outlook, and learn as much as I can as I go along.

    Here are a few areas to seek clarity as an entrepreneur:

    • Personal mission, vision, and values
    • Family mission, vision, and values
    • Company mission, vision, and values

    Clarity is powerful in so many ways. The next time something doesn’t feel right, step back and seek clarity on it.

    What else? What are some more thoughts on clarity?

  • The Best Time to Raise a Series A

    Continuing with yesterday’s post Revenue Run-Rate to Raise a Series A, the immediate follow up question is: assuming low-to-mid six figures of recurring revenue, when’s the best time to raise a Series A? While the simplest answer is that the best time to do it is anytime you can do it on good terms, the real answer is more nuanced.

    Going back to the four stages of a B2B startup, stage one is product-market fit. With a few hundred thousand in annual recurring revenue, there’s a good chance product-market fit is in place. Next, stage two, is building a repeatable customer acquisition process with good metrics (e.g. the ratio of cost of customer acquisition relative to the lifetime value of the customer). Once this has been achieved on a small scale, it’s the best time to raise a Series A round of financing. Why? With firm customer acquisition metrics, it’s easy to make a compelling case that investing X dollars in the business will turn into Y revenue. Investors want a compelling story and many focus on financial models, so when there’s a clear path to significantly increase the startup’s value relative to money invested, investors get excited.

    The best time to raise a Series A is when a repeatable customer acquisition process is in place with good metrics.

    What else? What are some other thoughts on the best time to raise a Series A?