David Cummings on Startups

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  • Gall’s Law and Startups

    Business of Software has a great video up by Des Traynor, co-founder of Intercom, where he talks about why Product Strategy is About Saying No. A couple minutes into the video, he cites Gall’s Law, which is critical for anyone in the startup field:

    Gall’s Law

    A complex system that works is invariably found to have evolved from a simple system that worked.

    A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a working simple system.

    People ask all the time why a big company can’t just throw a ton of money at an idea and knock-off the market leader. Gall’s Law is one of the main reasons.

    What else? What are some other thoughts on Gall’s Law and startups?

  • Cold Calling for Fun and Profit

    Cold calling isn’t dead. In fact, with so many people texting, emailing, and hanging out on social media, cold calling is even more effective because it is so under used. That said, cold calling isn’t easy. In fact, cold calling is very difficult and emotionally draining (for most people). Here are a few thoughts on cold calling:

    • Allocate enough time and resources to be successful (e.g. trying it for a couple hours one afternoon doesn’t qualify as effort – allocate 40 – 80 hours of work to figure out if it’s going to work)
    • Read Aaron Ross’s great book Predictable Revenue and learn how to do modern, internet-augment selling
    • Build great lists of prospects to call on using a tool like the SalesLoft Prospector
    • Pick at least three different job titles and call 500 people with that title (e.g. email marketing manager on LinkedIn)

    Cold calling becomes even more effective with a proven methodology like Sandler Sales Training and other sales rep training programs. So, if cold calling isn’t on your radar, add it.

    What else? What are some other thoughts on cold calling for fun and profit?

  • Insight’s Periodic Table of SaaS Sales Metrics

    Insight Venture Partners has an excellent PDF up titled Insight’s Periodic Table of SaaS Sales Metrics where they break down seven different sales related categories and provide key metrics. This is super impressive as it was built using data from a number of their portfolio companies, so it’s real information from some of the fastest growing Software-as-a-Service companies in the world. Insight has an impressive track record with investments in companies like ExactTarget, AirWatch, and HootSuite.

    Here are the Periodic Table of SaaS Sales Metrics categories with a couple key metrics:

    • Business Development Reps (appointment setters)
      – 2 months new BDR ramp time
      – 10 sales qualified leads per week
    • Inside Sales Reps
      – 3 months new ISR ramp time
      – $630k-$720k annual recurring revenue annual quota
    • Field Sales Reps
      – 6 months new FSR ramp time
      – $800k – $1.3M annual recurring revenue annual quota
    • New Business Bookings
      – 6% average commission on up-sell bookings
      – 66% of companies offer a trial before buying
    • Retention
      – 2% median renewals commission rate
      – 50% of churn is uncontrollable
    • Professional Services
      – 25% is the average professional services fees as percentage of 1st year contract
      – 25% of companies give quota relief for professional services but no commissions
    • Account Managers
      – 60% account managers responsible for up-sell annual recurring revenue
      – 30% – 50% average net promoter score

    Anyone involved in SaaS should study the table and use it to benchmark against their internal numbers.

    What else? What are your thoughts on Insight’s Periodic Table of SaaS Sales Metrics?

  • When to Start Scaling the Sales Team

    Sales and sales teams are one of my favorite topics as I’ve seen the wonders of what an amazing sales leader and sales team can accomplish. According to the Four Stages of a B2B Startup, after achieving product / market fit, it’s time to build a repeatable sales process. Building a repeatable sales process does not mean spending a ton of money on sales and marketing right out of the gate. What it does mean is experimenting with a variety of sales and marketing tactics, including things like 100 Growth Hacks in 100 Days.

    A startup is ready to start scaling the sales team when the following two metrics are in place:

    • Full burdened cost of sales and marketing expenses for a 90 day period of time is equal to or less than new annual recurring added in that same time period (e.g. spend $50k in sales and marketing salaries, commissions, trade shows, PPC ads, etc and generate at least $50k of new annual recurring revenue)
    • Annual recurring revenue generated by a sales rep is at least 3x the fully loaded cost of the sales rep (e.g. if a fully loaded sales rep with salary, commission, and taxes is $80k, the rep should bring in at least $240k in new annual recurring revenue in a calendar year – see The 3x Rule for SaaS Inside Sales Rep Quotas)

    Of course, there are a number of other important factors like gross margin, renewal rates, etc. that are play into these recommendations but this is a good start. Much like Startups Should Resist the VP of Sales Temptation, startups should also hold off scaling the sales team until the appropriate metrics are in place.

    What else? What are your thoughts on when to start scaling the sales team?

  • Colleges Should Offer Two New Courses for Entrepreneurial Students

    Earlier today I was talking to a second-year MBA student at a top 10 business school. As graduation looms on the horizon, he’s looking to network with startups and find a full-time gig in the summer. After the usual discussion about the desired type of gig (building or selling) as well as appetite for risk (seed stage, early stage, growth stage, etc) he posed a question on behalf of his professor: what should colleges be doing to prepare students to be entrepreneurs?

    I thought for a second and offered up that colleges should offer two courses not commonly found:

    • Professional Selling – Nothing gets done until something gets sold. Sales skills are important for entrepreneurs, not just sales people. Beyond the sales challenge of signing the first 10 customers, most entrepreneurs have to sell investors on why they should invest in their idea. Professional selling is an ideal course for entrepreneurs.
    • Lean Startups / Customer Discovery – Business plans are dead. Validating ideas with prospects prior to building a product is alive and well. Dynamic business model canvases are in vogue. Entrepreneurs would do well creating and testing hypothesis, using the scientific method, rather than writing plans based on third-party information found in a vacuum. Doing is better than theorizing.

    Of course, colleges are good for teaching subjects, but they are no substitute for getting out there and starting a real business, even if it’s a simple concept anyone can do. Colleges would do well to offer courses on professional selling and lean startups / customer discovery.

    What else? What are your thoughts on these two course ideas as well as other courses colleges should offer for entrepreneurial students?

  • 947 Different Marketing Technology Companies

    Scott Brinker, a.k.a. Chiefmartec, has an amazing supergraphic up with 947 different marketing technology companies in his post titled Marketing Technology Supergraphic 2014. Just looking at it you get the sense that there are way more tools and technologies out there than anyone would have expected. Only, there are even more as many startups carve out niches and don’t show up on the radar.

    Here are the categories in the supergraphic:

    Marketing Experiences

    • Email Marketing
    • Mobile Marketing
    • Search & Social Ads
    • Display Advertising
    • Video Ads & Marketing
    • Creative & Design
    • Communities & Reviews
    • Social Media Marketing
    • Events & Webinars
    • Calls & Call Centers
    • Customer Experience / VoC
    • Loyalty & Gamification
    • Personalization
    • Testing & Optimization
    • Marketing Apps
    • SEO
    • Content Marketing
    • Sales Enablement

    Marketing Operations

    • Marketing Data
    • Channel / Local Marketing
    • Marketing Resource Management
    • Digital Asset Management
    • Agile & Project Management
    • Marketing Analytics
    • Dashboards
    • Web & Mobile Analytics
    • Business Intelligence

    Middleware

    • Data Management Platforms / Customer Data Platforms
    • Tag Management
    • User Management
    • Cloud Connectors
    • APIs

    Backbone Platforms

    • CRM
    • Marketing Automation
    • Web Site / Web Content Management / Web Experience Management
    • Ecommerce

    The next time an idea pops in your head, check out the supergraphic and use it as a starting point for research.

    What else? What are some thoughts on the different marketing technology company categories and companies listed?

  • Atlanta’s AirWatch to be Acquired by VMware for $1.5 Billion

    Earlier today the big news broke that Atlanta’s AirWatch is going to be acquired by VMware for over $1.5 billion. AirWatch is the consumate Atlanta success story. Business software? Check. Security technology? Check. Limited outside capital to get to scale before raising institutional capital? Check. AirWatch has all the ingredients.

    Here are some of the awesome Atlanta benefits of the AirWatch story:

    • Created 1,000 jobs in Atlanta
    • Delivered another success story on the international stage
    • Minted many more tech millionaires in the city
    • Established a strong reputation for mobility-related software

    Unfortunately, AirWatch won’t be the next anchor technology company for the region but it will leave a lasting legacy for the city. New entrepreneurs and investors will emerge and 1,000+ people will have felt what it’s like to be a part of something that succeeds in a big way.

    Congratulations to AirWatch on building a large software company in Atlanta.

    What else? What are your thoughts on the impending VMware acquisition of AirWatch?

  • One Investment to Return the Fund

    Hunter Walk has an interesting post up titled Why I Don’t Ask “Is This a Billion Dollar Business?” Before I Invest. In the post, he highlights an important element that I believe most entrepreneurs fail to understand when looking to raise money from VCs: VCs want to believe that they can return the value of the entire fund on a single investment.

    Most of the time, when asking entrepreneurs what VCs want, you get the standard response that VCs want to make money. Yes, they want to make money, as do all investors, but they don’t want to make a 20% or 50% return on capital. The goal is to make an investment that generates a 10x or 20x return. Assuming the capital invested was less than 10% of the fund, a 10x or 20x outcome will return the entire fund.

    This goal is especially true with smaller funds, which are more and more common. For larger funds, a standard minimum bar is to have an investment return at least 10% of the committed capital (see Ask Prospective Investors About the Ideal Exit). So, if it’s a $200 million fund, the VCs representing the fund would want an exit that returns at least $20 million in cash to the limited partners.

    Overall, VC and entrepreneur exit goals often don’t align — remember to set expectations before taking money.

    What else? What are some other thoughts around VC expectations being different from entrepreneur expectations?

  • Identifying a Problem and Finding a Solution From Another Industry

    In yesterday’s post on 10 Free Business Ideas from Idealab’s IdeaDay, the last idea, Opti-Park, came after identifying a problem in one area and finding a solution for it from a completely unrelated area. Bill Gross, the founder of Idealab, commented that Idealab has 40,000 square feet of office space in the Old Town part of Pasadena. According to building code, they can double the size of their own facility to 80,000 feet, but to do that they are also required to add four parking spots per 1,000 square feet of space. Only, land is expensive, super expensive and there’s no room.

    Naturally, the ideal solution would be to squeeze more parking spaces out of the existing parking deck and surrounding parking lots. Unfortunately, no good solution had emerged until a fortuitous trip to NYC. There, Bill encountered a building using the new intelligent elevator system whereby a passenger keys in their desired floor from the elevator lobby, waits for a designated elevator, and rides the highlighted elevator to a specific floor. Inside the elevator, there aren’t any floor selection buttons — everything is controlled from the elevator lobbies. The end result is shorter elevator trips and a much more efficient use of resources.

    After experiencing the intelligent elevators, the idea came to Bill to do the same thing for parking lots and parking decks. Imagine pulling up to a parking lot gate, a computer instantly calculating the dimensions of your car, and issuing a slip of paper to park in a designated spot (e.g. D4). Upon receiving the slip of paper, the driver knows exactly where to go and doesn’t drive around aimlessly until they encounter the first open spot, which may or may not fit their car. Of course, the big benefit is striping the lines of the parking deck for a variety of car sizes such that it can hold several more cars (in Bill’s example he cites one lot being able to hold 23% more cars). Eventually, the lot can be designed to not have any painted stripes but rather have LED lights that can change dynamically to maximize parking efficiency — so many amazing opportunities.

    OptiPark more efficient layout

    Overall, the takeaway is to keep a list of problems encountered in a Google Spreadsheet so that when solutions emerge in different areas, it becomes more automatic to apply them to other opportunities.

    What else? What are your thoughts on identifying a problem and finding a solution from another industry? Do you have any examples of this?

  • 10 Free Business Ideas from Idealab IdeaDay

    Idealab, the most famous tech startup incubator in the world, just released a 90 minute video from their IdeaDay event last week. The goal with IdeaDay is to share 10 business ideas they’re excited about in the hopes that potential entrepreneurs, team members, and investors come forward to partner with Idealab in some way on them. Of course, the ideas are free and people can take them and run with them on their own as well.

    Here are the 10 free business ideas from Idealab’s IdeaDay:

    1. Too Many Pictures – With digital pictures stored in so many places there’s a growing need to wrangle them all in a manner that’s more maintainable (e.g. photos on Facebook, Picassa, Instragram, Dropbox, etc)
    2. ActionMail – Interface with email in a more manageable manner through features like pulling questions out of email text and prompting for answers, prioritizing inbound email based on whether or not you’ve already emailed the person, etc
    3. Deliver.it – An Uber for delivering common, convenience store-like items where the items are already in the vehicle (as opposed to someone having to go pull a specific order, all the items are in the vehicle ready for delivery)
    4. LifeChanger – Wearable technology, similar to Fitbit, that would be used track eating, smoking, etc with the goal of changing and/or improving behavior
    5. Product Search – Moving beyond standard shopping comparison engines, the idea is to have a guided product search that takes into account more structured search criteria
    6. DashCam – Bring the popularity of Russian car dashboard cameras to North America for the purpose of saving money on insurance, providing more context-sensitive information, etc
    7. Luv.it – Provide a list of places, hotels, restaurants, etc that you love and get a list of ones you might not know about based on what other people love (recommendation engine to find other stuff you’d love but don’t know about, as different from Yelp, Trip Advisor, etc)
    8. Dashboard.biz – Real-time business dashboard with the most important, actionable metrics pulled from other cloud-based systems
    9. CloudShare – Cross cloud file storage searching (e.g. Dropbox, Google Drive, etc) for personal files as well as coworker files so that if a coworker has a file that you want, the software prompts them to share the file only if a match was found (as opposed to the standard practice of emailing a company mailing list and interrupting everyone to see if they have a file)
    10. Optipark – System for real-time assigning of parking spots based on the size of the car whereby the parking lot is stripped with a variety of parking spot sizes such that 10-20% more cars fit in the same area (think of using a touch screen to say the type of car you have and it telling you a specific spot to use as it knows all spots in use and not in use — future idea would be to use LED lights to dynamically stripe the parking lines for maximum efficiency)

    Watch the IdeaDay video to get a more detailed explanation of each idea as well as visuals. Overall, I think it’s a very cool idea that Idealab is open sourcing ideas as a way of recruiting people to get involved. Well done!

    What else? What are your thoughts on these 10 free business ideas? Which one is your favorite?