David Cummings on Startups

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  • The Culture of Anchor Technology Companies Influences Future Startups

    Earlier today I was at a meeting with two dozen of Atlanta’s startup community leaders. After talking for an hour, the topic of anchor technology companies came up and how as a community they are tremendously influential (Atlanta has several including AutoTrader.com and AirWatch). One of the things that wasn’t mentioned, but struck me on the drive home, is how the culture of the anchor technology companies influences future startups that come from employees of the anchor company.

    Back in the 1970s, Atlanta had the largest software company in the world — MSA. MSA provided accounting and ERP software for mainframes, and was known for having an extremely sales-oriented and competitive culture. Fast forward to the 1990s and several of MSA’s past employees, including some of their sales professionals, had started very successful tech companies in Atlanta. Being immersed in a sales-oriented culture influenced how the MSA alumni ran their startups.

    Some companies are sales-oriented, others are focused on engineering or customer service. It’s not that one focus is better or worse than another but that the culture of the anchor technology companies influences future startups as people take cues from their previous employer.

    What else? What are your thoughts on how the culture of anchor technology companies influence future startups?

  • Getting Atlanta’s City Leaders Excited About Tech Startups

    Today I had the opportunity to speak for a few minutes to 300+ members of the downtown Rotary Club of Atlanta. The goal of my talk was to help get Atlanta’s city leaders excited about tech startups and the great opportunity we have as a community. Initially, I shared the Pardot story and set the stage for starting, growing, and selling a tech startup. Finally, I talked about the vision for the Atlanta Tech Village.

    Here are a few thoughts on getting city leaders excited about tech startups:

    • Seismic shifts in technology that will both destroy and create billions of dollars of value are taking place right now due to cloud computing, smart phones, and more
    • Over the next 10 years, the majority of jobs created will be from companies that aren’t in existence today
    • Startup density is a big driver of community due to the desire for learning, sharing, and collaborating
    • All the natural resources are present including technical talent, creative professionals, infrastructure, and can-do attitudes

    I’m looking forward to future conversations with city leaders and spreading the tech startup message outside the standard business community.

    What else? What are some other ways to get city leaders excited about tech startups?

  • Entrepreneurs Need to Seek Out Ideas

    Early on in my first company we hit a nice period of growth and hired a bunch of people. Fast forward 18 months and the business was fine but the people side of things was a mess. There was no cohesive corporate culture and we were suffering mightily because of it. At that point, I went on a reading binge and worked at assimilating as much information as possible on the people side of the business. Finally, we worked through a number of tough changes and came out stronger because of it.

    I tell this story not to highlight the importance of corporate culture, but rather to emphasize that entrepreneurs need exposure to many ideas early and often. Yes, it was important for me to experience things first-hand, but I should have been more proactive earlier around gathering ideas and learning from others.

    Here are a few ways to seek out ideas:

    • Join a startup or entrepreneur group like EO
    • Subscribe to blogs (including this one!) via email or RSS (try Feedly or Digg Reader)
    • Network with other entrepreneurs in town
    • Follow entrepreneurs on Twitter

    The goal isn’t to spend a ton of time away from your business learning everything about everything, rather the goal is to continually learn and gain exposure to a wide variety of ideas.

    What else? What are your thoughts on entrepreneurs needing to seek out ideas?

  • Product Pricing Properties

    Continuing with yesterday’s post titled Pardot’s Pricing Progression Through the Years, I think it’s important to add a few more comments on the topic of pricing. Too often, entrepreneurs labor to set the perfect price before they’ve even launched the product. The best thing to do is to get out and talk to prospects to get a better understanding of the value provided. While they won’t necessarily be explicit, they will provide feedback and information to make a better decision.

    Here are a few thoughts on properties of product pricing:

    • Product pricing has nothing to do with a cost plus formula (e.g. it cost me $10 to make it, and I want to make $3 on each sale, so I’ll charge $13 for it) and everything to do with value provided
    • Product pricing should scale with value provided to the customer (e.g. as the number of seats/transactions/usage grows, so too does the price)
    • Product pricing should be as simple as possible while still capturing the appropriate value
    • Consider having several pricing tiers where the tier you want most customers to buy is accented by the other tiers (e.g. a major jump in pricing or a major difference in functionality so that human psychology causes the person to focus in on a specific choice)
    • Work to differentiate against the competition based on value and not based on price
    • When it doubt, charge much more than you think something is worth as it’s easier to lower prices than to raise them

    Pricing is a peculiar part of the startup process that should evolve over time. At a minimum, keep pricing straightforward and oriented around capturing value.

    What else? What are some other product pricing properties?

  • Pardot’s Pricing Progression Through the Years

    The topic of pricing and request for advice on how to price a product comes up on a regular basis. I always like to share the Pardot pricing experience, including lessons learned. Pricing is something that is best treated as yet another experiment in the startup process with the caveat that all things equal, it’s better to start too high and come down.

    Here’s the early progression of pricing at Pardot:

    • $65 / user / month, minimum three users – At launch in late 2007, we priced the product based on Salesforce.com (how cool is it that Salesforce.com now owns Pardot?!?). The idea was that each marketing user that used the product would pay for a seat. Note: it didn’t do email marketing at the time, so there weren’t any email volume concerns.
    • $325 / account / month, unlimited users, unlimited contacts, with an allotment of 10,000 emails, 100,000 page views, and other modules (e.g. 10 landing pages), plus a required $2,500 quick start fee to set everything up. Email overages were billed separately. We quickly raised prices to $500 / month to reflect value and market dynamics.
    • $1,000 / account / month with the same characteristics as the previous offering but now a quick start package was included at no additional charge. By getting rid of the quick start fee, we were able to shorten the sales cycle, increase the average recurring revenue, and capture more of the value provided by the software. This was a major breakthrough for the business overall and this was the pricing for 3+ years of the business.
    • $1,000 / account / month for up to 30,000 contacts with unlimited emails and additional fees for more contacts. This became the standard in the industry and allowed vendors to capture value based on the size of the database such that accounts would grow as their marketing efforts grew. This change worked well and allowed us to grow the average size of an account.

    Pricing should adapt to the market and continually change over time. We didn’t get the pricing right originally, but we kept improving on it and built a great business.

    What else? What are your thoughts on Pardot’s pricing progression through the years?

  • The Coming Wave of Marketing Automation Adoption

    Being in the marketing automation world for five-and-a-half years with Pardot, it’s easy to think that everyone knows about the technology and has adopted it. Not so. When I talk to non-tech CEOs and entrepreneurs, very few have heard of marketing automation, let alone begun using it. Technology companies are the main users of the technology and it’s starting to spread rapidly.

    Think about all the companies that use a modern, web-based CRM, based on approximate customer count:

    • Salesforce.com: ~140,000
    • SugarCRM: ~10,000
    • Microsoft Dynamics CRM: ~40,000
    • Netsuite: ~13,000
    • Total: ~200,000 companies

    Now, look at the major marketing automation vendors based on approximate customer count:

    • Marketo: ~2,400
    • Pardot: ~1,900
    • Eloqua: ~1,500
    • HubSpot: ~1,800 (this is a guess as many of their customers use the blogging and SEO tools, with the marketing automation piece growing quickly)
    • Act On: ~1,400
    • Total: 9,000

    Note: customer counts are all educated guesses based on published information and industry knowledge.

    So, with roughly 200,000 companies using a modern, web-based CRM and only 9,000 using a B2B marketing automation system, there’s unbelievable room for growth. Marketing agencies and lead generation experts would do well to develop a marketing automation practice and get out ahead of the curve. Per adoption, we’re just about to cross the chasm into the early majority and the number of companies that use that software will explode.

    What else? What are your thoughts on the coming wave of marketing automation adoption?

  • Atlanta GigaOM Mobility Meetup Recap

    Tonight I had the opportunity to attend the Atlanta GigaOM Mobility Meetup at Opera in Midtown. Over 600 people registered for the event, showcasing the power of the GigaOM brand (6 million uniques a month) and the excitement around mobile in the Atlanta tech community. Even with one of the worst lightning and rain storms we’ve had this year, the entire event space was packed with people.

    Here are a few notes from the Atlanta GigaOM Mobility Meetup:

    • Atlanta has a strong mobility cluster anchored by AT&T Mobility, which is headquartered here
    • Mobile payments is a hot area and companies are eagerly awaiting adoption of NFC technology
    • Mobile marketing, especially with regards to personalized messaging, has significant opportunity
    • AirWatch, a mobile device management company in Atlanta, added 1,000 new employees last year and is growing fast

    I’m glad that GigaOM put on the event and I look forward to future programs.

    What else? What are some other takeaways from the Atlanta GigaOM Mobility Meetup?

  • Entrepreneurs Want Private Space Combined With Community

    When we started the Atlanta Tech Village we thought that there would be more demand for coworking space, with the idea that entrepreneurs and tech-related service providers wanted to be in large, open areas together. In reality, the initial private rooms sold out immediately — entrepreneurs want private space combined with community.

    Here are a few ideas around private space combined with community:

    • Entrepreneurship can be lonely, especially in the early days if things aren’t working out, so community is important
    • Absent coworkers, community provides for more social interactions
    • Private space provides more options for branding and customizing the furniture, pictures, etc
    • Private space makes it easier to lock things up and leave personal effects behind

    Of course, private space is more expensive than individual space if you don’t have the requisite number of people to fill the room, so it’s good to have a variety of options.

    What else? What are your thoughts on entrepreneurs wanting private space combined with community?

  • Get Potential Customers to “No” as Quickly as Possible

    Earlier today I was talking to an entrepreneur in the finding product/market fit stage of the startup adventure. He’s making progress collecting information but is still trying to understand if there’s a viable market. After hearing an update and sharing a few ideas, I recommended that he get to “no” with a bunch of potential customers as quickly as possible. The idea is that it’s often easier and faster to figure out if an idea isn’t viable, such that you can then move on. Too often, entrepreneurs take too long to kill an idea.

    Here are a few labor-intensive ideas to get in front of a number of people to determine viability for an idea:

    • Make a methodical plan to reach a certain type of person (e.g. take the last 100 people featured in the local business journal and contact them via phone)
    • Find a list of award winners (e.g. the Inc. 5000) and contact at least 500 companies on the list
    • Reach out to 100+ people that you know and ask for a referral to someone that could be a potential customer or could point you in the right direction

    Now, if this sounds like sales, it’s because it is sales. Most startup founders like building a product and don’t like selling. Whether it’s sales or customer discovery, the best thing to do is to get in front of as many people as possible, as quickly as possible.

    What else? What are your thoughts on getting potential customers to “no” as quickly as possible?

  • Cold Calling Doesn’t Scale Initially

    Paul Graham has his latest essay online titled Do Things that Don’t Scale. The idea is that many founders believe that every part of a startup should be scalable and automated right from the beginning. In reality, it’s better to get things going as quickly as possible, even if it’s manual and doesn’t scale.

    Early on in Hannon Hill, my first real company, we built a solid product, but had no customers. I knew how to build software while I had no idea how to build a customer acquisition machine. With limited resources, I started a very manual process: cold calling all 4,160 two year and four year colleges / universities in the United States.

    To start, I went over to the local Barnes & Noble in Buckhead and bought one of those massive books that listed all the colleges (geared towards high school seniors). Next, I had my brother, who was a student at Emory, post a job opening for a sales intern on the internal Emory website. Finally, I hired two students part-time to call every school, with the goal of scheduling an appointment for me to do a web demo. After much trial and error we developed a process that worked and today Hannon Hill has hundreds of school customers, many from cold calling.

    Paul Graham cites cold calling for B2B startups as an example of something not scalable for the founders. While it doesn’t scale for an individual, it does scale for many organizations.

    What else? What are your thoughts on doing things that don’t scale, including cold calling?