David Cummings on Startups

Blog

  • 10 Atlanta Tech Village Frequently Asked Questions

    Earlier today I gave a tour of the Atlanta Tech Village to a group of CMOs from large companies in Atlanta. Naturally, the CMOs asked a number of great questions as we walked around the community. After finishing the tour, I realized I needed to write down the most frequently asked questions. Here we go:

    1. Is there an equity component to being a member of the Village?
      No, we want to keep the model simple and attract the best entrepreneurs possible. An equity component would discourage previously successful entrepreneurs as well as entrepreneurs that already have a successful startup (we stay away from the word incubator for this reason).
    2. Do entrepreneurs have to sign a lease?
      No, the model is to pre-pay per desk per month with a 30-day notice to cancel. Everything is furnished and turn-key so that entrepreneurs can show up with a laptop and be immediately productive.
    3. Is there a period of time entrepreneurs are allowed to stay before being asked to leave?
      No, right now entrepreneurs can stay as long as they continue meeting the core values. This might change in the future but we don’t have any plans.
    4. What’s the turnover like on an annual basis?
      We haven’t been open long enough to know what the churn will be but we’re guessing 20% per year (so, with 200 startups, 40 startups will come and go each year).
    5. Are back office services provided as part of the model?
      No, we believe back office services like accounting, payroll, and others are best provided by experts that specialize in the area. There are a number of great service providers locally and online that have extensive startup experience.
    6. How does having free beer on tap for Villagers work?
      Great! Seriously, we haven’t had any issues so far, and as long as we don’t sell it, we don’t need a liquor license.
    7. Have you had to kick out any Villagers yet?
      Yes, we’ve had to kick out a few Villagers for not meeting our core values. Luckily, it’s been a very small number.
    8. What are some of the biggest success stories at the Village?
      We’ve had a number of success stories so far including BitPay, Yik Yak, Insightpool, and SalesLoft.
    9. What’s the goal of the Tech Village for the next 10 years?
      Our goal is to help make Atlanta a top 10 city for tech startups and to create 10,000 new jobs in Metro Atlanta by way of startups that come through the Village.
    10. How does the Tech Village bring entrepreneurs together?
      We put on a number of events and programs like Startup Chowdown, Atlanta Startup Village, monthly roundtables, happy hours, workshops, panels, and more. Bringing together like-minded people so that they can help each other out is one of the most important aspects of the Tech Village.

    I’ve had the opportunity to answer these questions hundreds of time and they never get old. I love sharing the Atlanta Tech Village story and lessons learned.

    What else? What are some other frequently asked questions about the Atlanta Tech Village?

  • 2,000th Blog Post

    Back in January of 2007 I took the blogging plunge and put up a quick Inaugural Blog Post on WordPress. I started out strong posting several times in the first few weeks, but then gave up on it. Then, 18 months later, on July 20, 2009, I wrote Rethink PowerPoint Presentations with BBP, and that was the start of writing a post every day.

    My inspiration for doing a post per day came from AVC.com. After seeing Fred Wilson’s content pop up on a regular basis, and reading his About page, I thought to myself “I want to do that!” Well, I started the daily post and haven’t looked back.

    Writing one short blog post per day is such a great way to share ideas, document best practices, and get feedback from smart people. Now, it’s been over five years of writing daily and today marks my 2,000th post. Thank you to everyone for your help and here’s to 2,000 more posts.

  • Notes from the New Relic S-1 IPO Filing

    Last week New Relic, an application performance company, published their S-1 IPO filing to go public. From a technical perspective, New Relic provides software developers insight into how every part of their web and mobile application performs, which is incredibly valuable. New Relic is part installed software (to gather the data) and part cloud-based software (to review and analyze the data).

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

    • Mission is to empower organizations to build the best modern software possible and to improve their business intelligence using the data flowing through and about that software (pg. 1)
    • Revenues for fiscal years ending in March (pg. 2):
      2012 – $11.7 million
      2013 – $29.7 million
      2014 – $63.2 million
    • Losses for fiscal years ending in March (pg. 2):
      2012 – $7.5 million
      2013 – $22.5 million
      2014 – $40.2 million
    • Gartner says the IT Operations Management market is $19.1 billion in 2013 and growing to $27.9 billion in 2017 (pg. 5)
    • Business started in September 2007 (pg. 6)
    • Accumulated deficit of $100.8 million (pg. 11)
    • Employee headcount grown from 315 employees as of September 30, 2013 to 534 as of September 30, 2014 (pg. 12)
    • In the fiscal year ended March 31, 2014, sales and marketing expenses represented 92% of revenue (pg. 14)
    • 83% gross margin in 2014 (pg. 46)
    • Product line (pg. 67):
      New Relic APM: Application performance management
      New Relic Mobile: Mobile application performance management
      New Relic Servers: Server monitoring for cloud and data centers
      New Relic Browser: End-user experience monitoring and performance monitoring
      New Relic Synthetics: Software testing through simulated usage
      New Relic Platform: Platform that extends our functionality into other applications
      New Relic Insights: Real-time big data analytics for business managers
    • As of September 30, 2014, had over 250,000 users and had 10,590 paid business accounts worldwide (pg. 75)
    • Three core values (pg. 77):
      Customer Trust and Success
      Growth—“Excelsior!”
      Team—“Be Bold, You’re Not Alone”
    • Ownership percentages (pg. 100):
      CEO/Founder – 27.3% (this is an impressive amount for a company at this scale)
      Benchmark Capital – 22%
      Trinity Ventures – 13.6%
      Insight Venture Partners – 5.6%
      Tenaya Capital – 4.9%

    New Relic is one of the leading infrastructure apps for the cloud-generation of companies. With its scale and growth rate, the public markets will be very receptive to the IPO.

    What else? What are some other thoughts on theNew Relic S-1 IPO filing?

  • Better Strategies Become Apparent With Customer Interactions

    Back when Adam and I started Pardot in March of 2007, the original idea was to build a lead generation as a service product where we’d generate leads for technology companies and sell them to multiple vendors. For the business model, the goal was to spend $100 on Google PPC ads to generate one qualified lead (e.g. someone searching for the term “email marketing”) and we’d in turn sell that lead to five companies that fit the buyer’s needs for $50 each (so, turn $100 into $250).

    Within six weeks we’d built a prototype system that managed simple landing pages and had light business rules to forward leads to different companies. Google happily took our money for AdWords ads and we ended up spending several thousand dollars to get our first batch of leads in the system. With leads in hand, we then went to technology vendors and said we had a few qualified leads for them at no-charge and that we’d like to setup a conversation to talk about our new business. Quickly, within a few conversations, it was clear that the technology companies were much more interested in the system to generate the leads than to buy leads from us. After much internal discussion over the course of a week, we decided to change the business to focus on building a marketing automation platform.

    While we shifted our business to go from selling leads to selling software, we stayed in the same area of B2B lead generation. To me, this was an iteration in the startup and not a pivot since we could use the core of our existing technology and we continued to go after the same buyer (marketing managers). Here, the key takeaway is that the right strategy often reveals itself as more time is spent in the market, especially when getting honest feedback from customer interactions.

    What else? What are some more examples of better strategies emerging after customer interaction?

  • Atlanta’s Contact At Once selling for $65 Million

    Urvaksh broke the news last week that Atlanta’s Contact At Once is going to be bought for $65 million by LivePerson. Contact At Once (CAO) makes web-based chat software and tailors it to industries like car dealerships and apartment complexes. Online chat programs, like LivePerson, have been around for decades. CAO took a standard idea and built a business from the ground-up to service specific verticals, which continues the trend of vertical-specific Software-as-a-Service applications as the next wave.

    Here are a few interesting notes about Contact At Once:

    • Started in 2005
    • 2009 revenue of $2.2 million and 34 employees (per the Inc. 500 page)
    • 2012 revenue of $12.3 million and 86 employees in 2012 (per the Inc. 500 page)
    • Raised $3 million from Fulcrum Equity Partners in 2012 (went seven years without raising money and got to a $10 million+ run rate)
    • 127 employees on LinkedIn today (November 2014)
    • Using the 2012 revenue and employee count, CAO is likely in the ~$20 million revenue range based on having 50% more employees now

    Contact At Once is a great success story that shows you can take a straightforward idea, build a great business, and do it with limited capital. Congratulations to the team!

    What else? What are some more thoughts on Contact At Once?

  • Scaling Up: Rockefeller Habits 2.0

    Last week I started reading the new Verne Harnish book Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0). Verne’s version 1.0 of the book, Mastering the Rockefeller Habits, is one of the top five books I recommend to entrepreneurs. My favorite business tool, the Simplified One Page Strategic Plan, is from the book. While the first book was more of a quick read, this new one is much longer and has more of a textbook feel (I bought several hardback copies to keep for other entrepreneurs).

    Here are the sections of the book:

    The Introduction – Tools for Scaling Up

    • The Overview – People, Strategy, Execution, Cash
    • The Barriers – Leadership, Infrastructure, and Market Dynamics

    Scaling Up People

    • The Leaders – The Face and Pace of the Company
    • The Team – Attracting and Hiring
    • The Managers – Keeping and Growing (Educating) the Team

    Scaling Up Strategy

    • The Core – Values, Purpose, and Competencies
    • The 7 Strata of Strategy – The Framework for Dominating Your Industry
    • The One-Page Strategic Plan – The Tool for Strategic Planning

    Scaling Up Execution

    • The Priority – Focus, Finish Lines, and Fun
    • The Data – Powering Prediction
    • The Meeting Rhythm – The Heartbeat of the Organization

    Scaling Up Cash

    • The Cash – Accelerating Cash Flow
    • The Accounting – Driving Profitability
    • The Power of One – 7 Key Financial Levers

    I’m looking forward to digging in to Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0) and seeing what’s new.

    What else? What are your thoughts on Scaling Up and Mastering the Rockefeller Habits?

  • 7 Engineering Startup Lessons from Netflix

    Om Malik, journalist and entrepreneur, put up a slide on his site titled Startups lessons from Netflix where he highlights a presentation from Adrian Cockcroft, previously of Netflix. Adrian highlights 7 startup lessons he learned from his time at Netflix:

    1. Speed wins in the marketplace
    2. Remove friction from product development
    3. High trust, low process, no hand-offs between teams
    4. Freedom and responsibility culture
    5. Don’t do your own undifferentiated heavy lifting
    6. Use simple patterns automated by tooling
    7. Self service cloud makes impossible things instant

    Product and engineering-oriented entrepreneurs would do well to read all the slides in Adrian’s Fast Delivery presentation.

    What else? What are some more takeaways from Adrian’s presentation?

  • 5 Happy Customers With No New Bugs

    Being a part of the Atlanta Tech Village enables me to spend a good bit of time with entrepreneurs that have a working product and are seeking product-market fit. As a product-oriented entrepreneur, I enjoy talking about the software, how it works, how customers use it, and how the customer on-boarding process works. After writing about 5 Ways to Identify Product-Market Fit, I’ve come to the following conclusion:

    Product-market fit is achieved when five new customers are immediately happy and don’t find any bugs.

    Before, I was leaning towards a certain number of customers, or level of value received from the service. Now, I believe product-market fit is all about signing a small number of successful customers that don’t run into rough edges. Some startups sign new customers, but the customers aren’t happy and don’t end up seeing enough value in the product (there was more selling than buying). Also, the new customers might be happy, but they immediately run into bugs, and so don’t have a great experience (bugs are normal but need to be squashed quickly).

    Product-market fit is difficult to achieve but readily apparent when new customers are successful and have a bug-free experience. Once fit has been achieved, the next step is shifting attention to building a repeatable customer acquisition model (see The Four Stages of a B2B Startup).

    What else? What are some more thoughts on the idea that product-market fit has been achieved once five new customers are successful and don’t find product issues?

  • Growth-Stage Startups Should Have In-House Recruiters

    In early 2012 it was clear we needed to significantly grow our Pardot employee base and we weren’t bringing in new team members fast enough. From an organization perspective, we were growing the business from 70 employees to 110+ by the end of the year, with an expectation of even more hiring the following year. In an effort to scale to 200+ employees, we hired four full-time recruiters in-house to focus on engineering, sales, and services. Four recruiters, plus two additional people on the HR team, is a huge HR department for a 70-person company. In hindsight, it was a great move.

    Here are a few thoughts on having in-house recruiters for growth-stage startups:

    • In-house recruiters learn the mission, vision, values, and culture at the deepest level
    • In-house recruiters spend all their time recruiting just for the company, and don’t split their time with other accounts like an outsourced recruiter
    • In-house recruiters can identify and nurture a “virtual bench” such that candidates are lined up and ready as soon as the position needs to be filled
    • In-house recruiters are typically in the $40,000 – $70,000/year range with commissions, depending on how many team members they bring on board
    • Contingent outside recruiters can be great, but with fees representing 20% of the first-year salaries, adding $4 million in new payroll in a year equals $800,000 in fees (vs. less than half that for an in-house team)
    • Referral fees for different types of hires are still encouraged (e.g. a $10,000 bonus for referring an engineer)

    Growth-stage startups that plan on hiring a large number of people would do well to hire an in-house recruiting team and make it a company-wide priority to become excellent at recruiting new team members.

    What else? What are some more thoughts on growth-stage startups hiring in-house recruiters?

  • 3 Ways to Increase Sales Rep Productivity

    Entrepreneurs are always looking for ways to grow their business faster. Whether it’s improving the marketing message, rolling out an updated version of the product, or launching a new partnership, there’s no shortage of ideas. One area that’s often easy to implement, and get a great return, is increasing sales rep productivity. In terms of productivity, the most common areas to improve are sales cycle length, deal size, and volume of deals (e.g. close more deals in less time for larger amounts of money).

    Here are three ways to increase sales rep productivity:

    1. Implement Predictable Revenue – Develop specialists on the sales team that respond to inbound leads, make outbound calls to set appointments, and support the account executives that close deals
    2. Develop a culture of sales coaching – Ask a sales manager what their primary responsibility is and they’ll say it’s to bring in revenue, which is wrong — their primary responsibility is to grow their sales people, which requires coaching and mentoring (see Rivalry’s sales coaching platform)
    3. Incorporate sales acceleration tools – CRM is tablestakes now and there’s a whole new class of sales acceleration tools like SalesLoft Prospector and InsideSales.com PowerDialer that complement the CRM.

    At the end of the day, getting more productivity out of the sales team is one of the best ways to increase growth. Entrepreneurs would do well to invest in improving sales team performance.

    What else? What are some other ways to improve sales team productivity?