David Cummings on Startups

Blog

  • 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?

  • Revenue Run-Rate to Raise a Series A

    Here’s a common conversation I have with entrepreneurs:

    Entrepreneur: I want to raise a $2 million Series A.

    Me: Great. How much recurring revenue do you have now?

    Entrepreneur: We’re just getting started and have a few pilot projects.

    Me: Cool. What’s your annual revenue run-rate?

    Entrepreneur: Well, we don’t have any revenue yet.

    Me: Unfortunately, the chance of you raising a Series A is slim-to-none.

    Of course, investors want a great management team, market, traction, growth-rate, and, naturally, revenue. So, what’s a good target run-rate to raise a modest Series A (e.g. $2 million – $3 million)? From my experience outside Silicon Valley, I’ve found entrepreneurs usually need to have $250,000 – $500,000 in recurring revenue (annual run-rate) to raise a couple million dollars from investors.

    Now, investors typically want to buy 20-35% of the company with each round of investment, so that means a $2 million investment for 25% of the company results in a pre-money valuation of $6 million and a post-money valuation of $8 million. Is a company with $500,000 in recurring revenue worth $6 million? That’s for the market to decide.

    What else? What are some more thoughts on revenue run-rate to raise a Series A?

  • Cheaper Offering that’s Structurally Defensible and Sustainable

    Larry Cheng, Managing Partner at Volition Capital, has a new post up titled My Favorite Value Proposition is Admittedly Boring. The idea is that after 16 years as professional investors, he’s zeroed in on his preferred type of tech startup that has the following criteria:

    • Existing Market – People/companies are already paying for the product or service (it’s not a new market)
    • Cheaper Offering – Instead of better, faster, and cheaper, the focus is on the cheaper part of the equation
    • Structurally Defensible – At it’s core, this new technology or delivery model is different enough from the incumbent that it’s not feasible for the incumbent to switch (many companies have died clinging to their golden goose)
    • Sustainable – Like the transition from buying in stores to buying online, it has to be innovative and sustainable (ecommerce isn’t going away anytime soon)

    My personal style as an entrepreneur is to invent new products whereby the business buyer didn’t have a solution before, and not the cheaper offering route. Thankfully, there are a number great ways to build successful companies.

    What else? What are some more thoughts on a cheaper offering that’s structurally defensible and sustainable?

  • Build to Last or Build to Sell

    Whenever I give a talk and tell the Pardot story, one of the 10 most popular questions I get is “did you have a plan to sell the company?” My response is always that our goal was to build the best company possible and to make sure that it met the two following conditions:

    • Be the best place to work and the best place to be a customer
    • Follow the core values of positive, self-starting, and supportive

    If a potential acquirer comes along and makes an offer we can’t refuse, we’ll look at and consider it (which is what happened). Put another way, the business isn’t for sale, but tell me what you’re offering.

    Yes, it’s common for entrepreneurs to have a financial goal and to sell the company when the financial goal is met. Based on how much luck and timing is involved in a successful exit, I think the best approach is to build a company to last, not to sell.

    What else? What are some more thoughts on build to last or build to sell?

  • Planned Growth and Striking Oil

    Recently, I read a post about how entrepreneurs like to think that growth is readily planned and predictable. Then, an employee that had been in a hyper growth startup, said “no”, it’s not the planned growth that everyone thinks. Rather, it’s like striking oil and the resulting mad dash to take advantage of it as quickly as possible.

    Here are a few thoughts on planned growth and striking oil:

    • Consumer-oriented startups are more likely to strike oil and achieve hyper growth, but more entrepreneurs will be struck by lightning than achieve this level of growth (read about the Beanie Babies story)
    • Software-as-a-Service (SaaS) startups that have a human-lead sales process are going to be limited by the number of sales people, and thus growth can be much more planned
    • SaaS startups with a self-service sales process that don’t require sales people can grow faster, but are more rare
    • Growth planning is more realistic once a repeatable customer acquisition process is in place (read the four stages of a B2B startup)

    Planning and thinking through different areas of the business is important regardless of growth rate (use the Simplified One Page Strategic Plan). Entrepreneurs would do to plan for growth and know that it’s much more complicated than it seems.

    What else? What are some more thoughts on planned growth and striking oil?

  • Upselling Customers in the Early Years

    One question I’ve received several times is regarding best practices for upselling customers. Interestingly, at Pardot, we didn’t employ any concerted efforts around upselling in the early years. All the focus was on acquiring new customers, and making them successful. In addition, at the time, product pricing was based on email volume and usage of certain features, making upselling difficult as the additional functionality was only compelling to a small percentage of customers.

    Here are a few thoughts on upselling customers:

    • Ensure that the product pricing and corresponding upsell trigger points are enticing
    • Focus most of the energies on acquiring customers and know that as the customer count grows, upselling will become more important
    • Strive for customer upsells to outweigh customer churn such that there’s negative revenue churn
    • Lead with value and focus on customer success such that upselling doesn’t feel pressured or forced

    Customer upselling is an area that I have much to learn. My main lesson learned so far is to have a pricing plan that lends itself to upselling.

    What else? What are some more thoughts on customer upselling in the early years?

  • B2B Applications with a Viral Component

    Entrepreneurs love to talk about viral customer acquisition — the idea that by the very nature of the how the product works, users will introduce other users to it. Facebook is one of the most popular examples whereby the viral nature of their product helped them acquire over 1 billion users. David Skok has a great article up titled Lessons Learned – Viral Marketing. Only, most of the viral marketing discussion is geared around the business to consumer (B2C) startup world and not the business to business (B2B) startup world. So, I started thinking of B2B applications with a viral component. Here are a few examples:

    • EchoSign – Whenever someone requests an e-signature from another person, that person is introduced to EchoSign and its benefits
    • Calendly – Whenever someone requests a meeting and the recipient asks them to self schedule it with Calendly, that other person is introduced to Calendly and its benefits
    • Mailchimp – Whenever someone sends out a newsletter, the recipients see a “Powered by Mailchimp” message at the bottom of the email, introducing the brand and service many times over

    B2B examples of viral marketing aren’t as common but they’re still plentiful. Entrepreneurs would do well to look for ways to incorporate a viral marketing element to their startup if it makes sense.

    What else? What are some other examples of viral marketing within the B2B world?

  • Notes on the ShopVisible Exit

    Atlanta-based ShopVisible announced yesterday that they are being acquired by Epicor (public filings but privately held) in their press release Epicor to Acquire Industry Leading Cloud Digital Commerce and Order Management Solution Provider – ShopVisible. Epicor has 4,600 employees and is owned by private equity firm Apax Partners. ShopVisible is a specialized ecommerce Software-as-a-Service (SaaS) company led by Sean Cook and Josh Lloyd.

    Here are a few details on ShopVisible:

    • Started in 2006 in South Florida and relocated to Atlanta (source)
    • Domain name registered January 26, 2006 (source)
    • 41 employees on LinkedIn (source)
    • Raised $823,000 in equity in 2009 (source)
    • 2013 Venture Atlanta presenting company (source)

    While the purchase price wasn’t disclosed, with 41 employees, I’m sure the deal was lucrative. Congratulations to the whole ShopVisible team on the exit.

    What else? What are some other notes on the ShopVisible exit?