David Cummings on Startups

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  • 2014 Inc. 500 Atlanta Companies

    Inc. magazine just released the 2014 Inc. 500 and there are several Atlanta companies on the list. As covered in 2013 and 2012, it’s great to see so many fast-growing firms in the area.

    Here are the Atlanta companies on the 2014 Inc. 500 list:

    • 147 – Residential Capital Management, 2,626% growth, $30.2m revenue
    • 178 – Apex Controls, 2,360% growth, $7.8m revenue
    • 180 –  Futurewave Systems, 2,343% growth, $2.8m revenue
    • 239 –  Expert Technical Solutions, 1,908% growth, $3.5m revenue
    • 305 – Clearleap, 1,510% growth, $9.8m revenue
    • 310 – CoolMiniOrNot, 1,495% growth, $6.2m revenue
    • 334 – Caduceus Healthcare, 1,385% growth, $6.0m revenue
    • 396 – StandBy Talent Staffing Services, 1,179% growth, $3.7m revenue
    • 401 – National Tax Credit, 1,176% growth, $3.4m revenue
    • 405 – Patientco, 1,167% growth, $3.0m revenue
    • 458 – Cloud Sherpas, 1,036% growth, $113.1m revenue
    • 467 – Mashburn Outdoor, 1,010% growth, $5.7m revenue
    • 483 – Premier Logic, 983% growth, $8.5m revenue
    • 489 – CATMEDIA, 970% growth, $4.6m revenue
    • 490 – STONE Resource Group, 969% growth, $9.0m revenue

    With 15 companies on the list, it’s a solid showing. I’d like to see more product-based tech companies on the list and expect things to change over the next 3-5 years.

    What else? What are some other thoughts on the 2014 Inc. 500 Atlanta companies?

  • The 7 Figure Club

    One of the initiatives we’re working on at the Atlanta Tech Village is bringing together different groups within the community to build relationships and help each other. Today we launched our newest group, the 7 Figure Club, for entrepreneurs within the Village that have either a million in revenue or have raised a million from investors. While one million in revenue or investment might seem arbitrary, it’s a nice milestone that represents customer traction or investor confidence. One million in revenue is also the requirement for the Entrepreneurs’ Organization.

    Slightly more than 10% of the Village is in the 7 Figure Club (21 companies). The format is a monthly lunch with the following agenda:

    • What’s going well
    • What’s not going well
    • Topical discussion (one topic per month e.g. fundraising, hiring, growth strategies, etc.)
    • Needs and leads (anything anyone needs help with or has something to help others)

    Overall, the club isn’t designed to replace an EO or YPO forum. Rather, it’s goal is to keep the largest companies in the Village abreast of what’s going on with each other and act as a regular meeting to help each other.

    I’m looking forward to participating in the 7 Figure Club.

    What else? What are some other thoughts on this type of entrepreneur group?

  • Fine Balance Between Being Comprehensive and Doing Too Much

    Earlier today at Atlanta Rotary we had the opportunity to hear Jeff Arnold, founder of WebMD and Sharecare, share some of this entrepreneurial lessons learned over the past 25 years. Jeff did a great job taking us through several of his experiences as well as talking about the some of the opportunities that lie ahead.

    Halfway through the talk Jeff made a comment that really stuck with me:

    There’s a fine balance between being comprehensive and doing too much.

    Personally, I’ve seen this challenge many times. As an entrepreneur, there’s a desire to please every prospect and customer. Only, that’s a formula for a frankenstein product. Entrepreneurs would do well to have a strong opinion of what will, and won’t, go into the product. When requests come up, figure how well they align with the vision of the product, and continually ask internally if 80% of the desired customers need the feature. Find the balance and build a comprehensive product that doesn’t do too much.

    What else? What are some other thoughts on the balance between being comprehensive and doing too much?

  • Helping Entrepreneurs that Want Feedback on an Idea

    One of the more common requests I receive from entrepreneurs is for feedback on an idea. Idea-stage entrepreneurs are always looking for external validation of their idea, and it’s often easier to talk to other entrepreneurs as opposed to finding potential prospects. My response right now is that I’m happy to help answer questions once they have 10 paying customers as my focus is on helping entrepreneurs get from 10 to 100 paying customers and not from 0 to 10. Yes, getting from 0 to 10 is where most entrepreneurs fail, but it’s also a good way to filter down to those that are making early progress.

    Here are a few recommendations for entrepreneurs wanting feedback on an idea:

    The takeaway is that entrepreneurs need to talk to potential customers of their product and not other entrepreneurs. Customer Development is hard work and the value has been well documented. Entrepreneurs that want feedback on an idea need to talk to prospects.

    What else? What are some other ways to help entrepreneurs that want feedback on an idea?

  • How does it help reach the goal?

    Quick, what are the three most important things you’re working on right now? Why?

    That email you just sent — how does it help you achieve your goals?

    That meeting invite you just accepted — how does it fit in?

    That phone call you’re about to make — how does it move you closer to your dreams?

    That hanging out on social media last night — how does it improve your chances of success?

    Being intentional is hard, very hard. With a limited amount of time and resources, prioritizing what’s critical is of the utmost importance.

    The next time you start to do something, ask yourself how it helps reach the goal.

  • Rise of the Inside Sales Rep

    I’m fascinated by the growth of inside sales reps in organizations and the corresponding opportunities that are emerging in the market to support them. Inside sales growth is driven by a number of factors including:

    • Productivity gains from modern cloud-based tools (e.g. CRM, marketing automation, etc.)
    • Quality of video conferencing and screen sharing
    • Continual margin pressure for many products
    • Higher costs and hassles with travel
    • More quantifiable results and tracking for management

    At Pardot, we focused on selling into marketing departments but we had several great tools that sales people loved including Lead Deck, Chrome Extension for Gmail, and an Outlook Plugin. Adding value to the sales process, in addition to the marketing process, was a critical part of the Pardot value proposition.

    Newer tools like SalesLoft, Rivalry, Calendly, and Voxa as well as back-office integration systems like Kevy really complement popular applications like Salesforce.com and Pardot (disclosure: I’m an investor in these new apps). Sales rep productivity continues to improve enabling professionals to close more deals with a shorter sales cycle. It’s win-win for everyone involved.

    Inside sales is a fast-growing field and I’m excited to be a part of the industry.

    What else? What are some other thoughts on the rise of the inside sales rep?

  • Understanding a VC’s Desire for Investments to Raise More Money

    One of the little known aspects of venture capitalist investing in startups is around the desire for the entrepreneurs to continually raise more money. Now, the initial thinking around raising money is that a VC would primarily want an existing investment to raise more money when it’s doing well and the VC has the wherewithal to put more capital to work (e.g. double down on the winners).

    Even if the VC doesn’t have the capital to put more money into the startup, or it’s doing good but not great, there’s still a desire for the startup to raise more money as long as it’s at a higher valuation. Why the emphasis if the VC’s ownership stake will get diluted? VCs, like everyone else, have a hard time putting a value on existing investments. Most startups are losing money, so you can’t do a value based on a multiple of profits. Another common strategy is to look at comparable public market multiples (e.g. a similar software company in the same or related market) and then take a 50% hair cut for lack of liquidity. Again, it isn’t very exact.

    What’s exact is the valuation a subsequent investor paid for equity with the startup. So, VCs want their investments to raise money at higher valuations so that they can show paper returns to their own limited partners. VCs can’t raise another fund without good returns, and startups are often taking 7-10 years before an exit, so many VCs go out to raise their next fund based on the value of their illiquid investments according to the most recent funding round of each investment.

    The next time you hear an entrepreneur say their VCs want them to raise another round, figure out if part of the desire is to mark their investment to a higher market value.

    What else? What are some other thoughts on understanding a VC’s desire for an investment to raise more money?

  • Characteristics of a Salable Business

    Many entrepreneurs paint a picture in their mind of a strategic acquirer swooping in one day and paying an outrageous amount of money for their business. In reality, most businesses are of little value until one of two things happen: a) they have multiple years of sustained profitability, or b) they are growing fast and have at least $5 million in revenue (see The Magic of $5 Million SaaS Run Rate). Unfortunately, most startups won’t be able to find a strategic buyer.

    Here are characteristics of a salable business:

    • Large, established base of customers
    • Repeatable customer acquisition process
    • Proven management team
    • Little reliance on any one person
    • Consistent profitability and operating history (e.g. three years of results)
    • Strong recurring revenue (not required, but very desirable)
    • Market with logical, complementary acquirers

    As you can see there’s no reference to cool technology, innovative products, or hot ideas. Those things help, but most acquisitions are methodical and financially driven. While some acquisitions are emotional, most are not.

    What else? What are some other characteristics of a salable business?

  • The Magic of a $5 Million SaaS Run Rate

    After Defining a Successful Business several years ago for a Software-as-a-Service (SaaS) entrepreneur, the logical question is “what’s the next revenue milestone for a SaaS company after initial success has been achieved?” Things really start getting interesting once a startup hits the magic $5 million run rate mark. Here are a few reasons why $5 million is so important:

    • Product critical mass – $5 million often represents enough customers that the business will keep growing for several years to come
    • Team – There’s enough scale with 30-50 employees to have depth in each department, yet still move fast
    • Fundraising – Assuming a good growth rate (> 30%), it’ll be easy to raise money as a number of venture and growth equity funds exist with a minimum requirement of $5 million in revenue
    • Industry presence – There’s enough money for a marketing budget that enables attending all the conferences, being covered in analyst reports, and showing up in the key places online (SEO, PPC, etc)
    • Exit opportunities – Many acquirers aren’t interested in small startups, especially ones that are outside their hometown, so $5 million in revenue represents a minimum level where it’s worthwhile to look at acquiring a business

    While there’s no exact number, entrepreneurs that reach $5 million in recurring revenue with strong gross margins and a high growth rate have a tremendous number of strong options as well as enough scale to start spending more time on the business instead of in it.

    What else? What are your thoughts on a $5 million SaaS run rate being a major milestone for entrepreneurs?

  • SalesLoft and Sales Technologies

    Last week Urvaksh broke the news that Atlanta tech-legend Tom Noonan had invested $800,000 in SalesLoft (Disclosure: I’m an investor in SalesLoft). Tom is best known for being the co-founder and CEO of Internet Security Systems from start through exit to IBM for $1.5 billion a decade ago. Now, Tom is investing more heavily in the Atlanta area with a focus on Software-as-a-Service and internet security companies.

    SalesLoft’s core product, Prospector, is built on the premise that the best way to generate an accurate list of prospects for a sales rep is by scraping data online. While it might seem simple to some, it’s actually very difficult to find a current list of people with most data services having old information. With over 600 customers, SalesLoft has already shown that there’s a real need in the market for the technology.

    SalesLoft’s soon-to-be-launched product (Cadence) is all about automating the sales development process that was popularized by Aaron Ross’ excellent book Predictable Revenue. As sales teams put more emphasis on inside sales and web-based selling, so too does the need grow for sales technologies to help make this next generation of sales people more productive. Look for the product to be released in the near future.

    SalesLoft is well positioned in the fast-growing inside sales technologies world and is poised to be one of the next great success stories in Atlanta.

    What else? What are some other thoughts on SalesLoft and sales technologies?