David Cummings on Startups

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  • Build a 10x Revenue Plan

    Entrepreneurs love talking about how they’re going to build the next unicorn startup (billion dollar valuation) or how they’re on a quest to hit $1 million in revenue to join Entrepreneurs’ Organization. While having big goals is important, it’s also important to map out how you’re going to get there. A good, simple exercise is to build a 10x revenue plan. The idea is to build out a one page document that outlines how you’ll make the business 10x larger. Most planning and budgeting is time-oriented (e.g. a one or three year plan). The 10x revenue plan isn’t designed to be a large, complicated financial model, rather the goal is to paint a picture of what’s needed to become 10x larger than now.

    Here are a few bullet points to include in the 10x revenue plan:

    • Current revenue and 10x revenue
    • Current staffing and staffing needed to be 10x larger (most likely not 10x the people)
    • Timeframe (often depends on size and scale of the startup currently)
    • Fundamental changes required (e.g. big rocks or milestones)
    • Key assumptions (things that will happen in the market, competitor changes, etc)
    • Financing needed, if any

    So, grab your co-founders and build a 10x revenue plan over lunch. Just putting the ideas down into a Google Doc does wonders for aligning team members and painting a picture of what’s required.

    What else? What are some other thoughts on building a 10x revenue plan?

  • Think Quarterly Growth Numbers for Investors

    Investors love to talk about certain revenue minimums before they’ll consider investing (e.g. $1 million and $5 million are the most common thresholds). In reality, what they really want is a story that shows scalable growth. Let’s look at two examples:

    Company A

    • Startup has been in business for four years
    • Added $50,000 in new recurring revenue last quarter across 50 new customers
    • Just hit $1,000,000 in annual recurring revenue last quarter

    Company B

    • Startup has been in business for three years
    • Added $250,000 in new annual recurring revenue last quarter across 100 new customers
    • Just hit $500,000 in annual recurring revenue last quarter

    Which one is more valuable? Which one will attract more attention from investors? If you hear the message about requiring a million in revenue to garner investor interest, then it appears Company A will be most desirable. Actually, Company B is much more desirable, even with half the annual recurring revenue. Company B is adding more customers at a much higher average customer value in the same period of time. Investors want to see the customer acquisition machine working and Company B clearly has it humming.

    What else? What are some other thoughts on telling a story with quarterly growth numbers?

  • Atlanta Startup Village #20

    Last night 350+ people descended on the Atlanta Tech Village for the 20th Atlanta Startup Village. The Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast with five startups presenting for five minutes followed by five minutes of Q & A.

    Here were last night’s presenters:

    • Hux – Book a house cleaner online in two minutes
    • UserIQ – Create data-driven in-app messages and guided tours
    • Ninja Post – Powerful community engagement forum software
    • BuzzBoard – CRM for sales people selling local media
    • Playout: The Game – Exercise card game to make fitness fun

    Atlanta Startup Village is free and open to the public. Come out and see what’s happening in the Atlanta community.

    What else? What are some other thoughts on Atlanta Startup Village #20?

  • 3 Little-Used Interviewing Tips Entrepreneurs Need to Know

    After yesterday’s post on The Culture-Oriented 7 Step Hiring Process, Ron Hollis provided a great comment highlighting some his lesson’s learned starting, growing, and selling a successful tech company. Entrepreneurs have so many great tools and resources readily available that they don’t find some of the most powerful tactics.

    Here are three little-used interviewing tips entrepreneurs need to know:

    1. Chronological In-Depth Surveys – Follow the Topgrading interview process and really dig into how the person thinks and why they moved from position to position in their career.
    2. Threat of Reference Check and Get References Not on the Resume – Everyone is happy to provide a list of references. Get the list of references and then during the chronological in-depth survey ask for three more names and numbers of references beyond the standard list. Then, call these people and confirm that the candidate will be successful in your desired role. The key is to get people that aren’t on their standard list.
    3. Writing Skills – More than anything else I’ve encountered, the ability to write well and answer questions in a cohesive manner correlates with success. Always have a written assessment.

    Entrepreneurs would do well to incorporate these three little-used interviewing tips into their hiring process. Hiring well is so critical and entrepreneurs need to build a process that works well for their company.

    What else? What are some other little-used interviewing tips entrepreneurs need to know?

  • The Culture-Oriented 7 Step Hiring Process

    As corporate culture is king, and three leading companies have published entire guides to their culture, it’s important to talk through an example hiring process. At Pardot, we spent years refining our hiring process, and were never finished. Here’s the core of the process we developed:

    1. Start with an applicant tracking system (e.g. Workable, Greenhouse, or Jazz) and require all candidates to apply through it
    2. Have an HR manager, office manager, or someone on the team do a phone screen for any candidates that meet the requirements with the goal of screening for culture fit (especially attitude)
    3. Require a written assessment of the candidates that pass the phone screen (I like a two-page essay and technical test)
    4. Bring in the candidates that pass the written assessment to meet with the hiring manager and a few members of that team (always require unanimous decision among interviewers when hiring)
    5. When there are multiple great candidates available bring the leading candidates back in to meet with the hiring manager and a separate set of team members
    6. Invite the candidate(s) that pass all steps to interview with the founders of the company and a separate culture check team purely for the purpose of assessing culture fit
    7. Send out a job offer to the top candidate by way of the hiring manager and have one of the founders also send an email expressing their excitement for the person to join the company (closing the candidate is extremely important and shouldn’t be taken lightly)

    Bonus: offer a $10,000 referral fee for anyone who brings in a candidate that’s hired for a tough-to-find position.

    This seven step process helped us scale Pardot beyond 100 employees and build an environment that was rated the #1 place to work for multiple years.

    What else? What would you add to a culture-oriented hiring process?

  • 23 Corporate Culture Ideas for Entrepreneurs

    Now that we have the 3 Must Read Culture Guides for Entrepreneurs, let’s summarize the most important ideas that every entrepreneur needs to know. Some are common sense, some don’t make sense until you’ve experienced it, and some fluctuate with time. Regardless, culture is the only sustainable competitive advantage for an entrepreneur and needs to nurtured and worked on just like anything else in a high performing startup.

    Here are 23 corporate culture ideas for entrepreneurs:

    1. Culture is the collective of people
    2. Culture’s influence permeates outside the organization
    3. Culture is the only thing completely within the control of the entrepreneur
    4. Culture starts with the entrepreneur
    5. Culture must be intentional
    6. Culture is different for every startup
    7. Culture that works at one company isn’t guaranteed to work at another
    8. Culture must be defined and nourished
    9. Cultures can be completely different between two startups and still be effective for both
    10. Culture isn’t defined by free lunches and masseuses — it’s all about people
    11. Culture needs to be defined by core people values every team member believes in
    12. Culture isn’t defined by company values placed prominently on the reception wall
    13. Culture is either strengthened or weakened with each new hire, it’s never stagnant
    14. Culture starts with the hiring process that must actively foster recruiting people that meet the values
    15. Culture check teams should be part of the hiring process to counteract short-term desires of hiring managers
    16. Culture needs to be reinforced daily/weekly/monthly/quarterly/annually through systems and processes
    17. Culture is shared through stories and emotional experiences
    18. Culture looks cultish from the outside
    19. Culture is fluid and always changing
    20. Culture changes as organizations mature (a three-person culture is different than a 300-person culture)
    21. Culture should absorb great-fit new hires and make them like they’ve found an amazing home
    22. Culture should expel poor-fit new hires within the first month
    23. Culture is king

    Entrepreneurs that make culture intentional and value it create higher performing organizations and achieve a greater level of success. Culture is more important than most people realize.

    What else? What are some other items you’d add to the list?

  • 3 Must Read Culture Guides for Entrepreneurs

    One of my favorite things to talk about, and most underrated by first-time entrepreneurs, is the importance of corporate culture. This seemingly simple idea that the people you choose to work with is that only thing you can control, and the most important thing to work on, is hard to appreciate without experiencing it first-hand. Entrepreneurs should put their anthropology hat on and study high performing cultures, not to merely copy one, but rather to learn and incorporate their favorite pieces into their own culture.

    Here are three culture guides every entrepreneur must read:

    The next time an entrepreneur mentions culture, explain the significance, and point them to these three guides.

    What else? What are some other good culture guides that you really like?

  • Expected Term Sheet Changes In A Down Market

    Recently, there have been a number of prognostications that we’re in for a market down-turn on the near horizon. Mark Suster mentions it in one of his most recent posts Here’s Why a Booming Tech Market May Fool You into Thinking You’re Successful. Of course, when the market does turn down it won’t be anything like the dot com crash as there’s significantly less capital in the tech startup community, more startups are making real money (not pyramid schemes like before), and it’s much less expensive to get a tech company started (still expensive to scale).

    Here are a few things we’ll start see changing with investor term sheets when the market sours:

    • Valuations will go down (super-fast growth stage startups will still command great valuations but pre-revenue and early stage valuations will take a big drop)
    • Participating preferred liquidity preferences will become more common (and they’ll be more aggressive e.g. 2x and 3x liquidity preferences)
    • Cumulative dividends will be more standard (again, downside protection becomes a big theme)
    • Anti-dilution provisions will be stronger and more punitive to doing down rounds in the future

    Entrepreneurs will keep starting companies and investors will keep writing checks. Raising money will be more difficult and the terms won’t be as entrepreneur-friendly as now. I hope we don’t have to see a down market again soon but I do believe things are still cyclical and it’ll come back around.

    What else? What are some other thoughts on expected term sheet changes in a down market?

  • More Thoughts on Tracking Week Over Week Growth

    While I haven’t historically paid any attention to week over week growth, the more I think about it the more I like it. Why? Because in a startup it’s so hard to get things going and the numbers are so small in the early years. A few dollars of revenue here, a few qualified leads there. On an absolute basis the numbers are tiny. Continuing with yesterday’s post on Recurring Revenue and Week Over Week Growth, here are a few more thoughts on tracking week over week growth:

    • Watching revenue go from $1,000 to $1,500 isn’t too impactful, but seeing 50% growth is more reassuring
    • Small, measurable goals (like 5% per week growth) are easy to understand and get buy-in from team members (e.g. we need to add $500 of recurring revenue this week and everyone will understand it)
    • A focus on weekly growth sets a metrics-driven tone for the culture
    • Consistent growth gets much harder as the numbers get larger, but it should be achievable in the first one to two years
    • Once the startup is larger, tracking growth on a monthly basis and then a quarterly basis becomes more normal

    Entrepreneurs would do well to track week over week growth for their key metrics and share the information with everyone via an LED scoreboard.

    What else? What are some other thoughts on tracking week over week growth?

  • Recurring Revenue and Week Over Week Growth

    Recurring revenue is incredibly powerful for startups. On the Software-as-a-Service (SaaS) front, recurring revenue gets combined with strong gross margins, strong renewal rates (hopefully!), and strong predictability. Only, it’s incredibly difficult to get the engine going. Paul Graham says growth of 5-7% per week is good (see his Growth essay).

    Let’s look at how a 5% per week revenue growth rate looks from a base of $5,000:

    • End Year 1 – $63,000 (based on 5,000*1.05^52)
    • End Year 2 – $800,000 (based on 63,000*1.05^52)
    • End Year 3 – $10,100,000 (based on 800,000*1.05^52)

    As an example, Pardot’s revenue growth rate was solid, but no where near those numbers. Is 5% per week growth great? Absolutely. Is it realistic after the first year or two? Not likely. Over time the law of large numbers kicks in and growing 5% per week becomes nearly impossible.

    Another way to look at it would be start with 5% per week in year one and then lower to 4% per week in year two, and 3% per week in year three. Here’s how that would look from a base on $5,000:

    • End Year 1 – $63,000 (based on 5,000*1.05^52)
    • End Year 2 – $485,000 (based on 63,000*1.04^52)
    • End Year 3 – $2,250,000 (based on 485,000*1.03^52)

    Still a great growth rate, and beyond Pardot’s numbers, but much more reasonable.

    The takeaway is to focus on growing at least 5% per week when starting out and to slowly lower the growth rate requirement over time.

    What else? What are some other thoughts on recurring revenue and week over week growth?