David Cummings on Startups

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  • HubSpot as the Next Mainstream CRM

    With all the talk about Salesforce.com buying ExactTarget, there’s another company that needs to be mentioned: HubSpot. HubSpot is a great inbound marketing software company based in Boston. Early on, HubSpot was focused on being a blogging platform with related search engine optimization tools. Over time, they morphed into an all-in-one marketing platform with blogging, SEO, email marketing, marketing automation, and social media marketing. So, how does this fit in with Salesforce.com?

    Well, Salesforce.com is an investor in HubSpot and HubSpot is a Salesforce.com AppExchange partner. HubSpot is emphasizing marketing automation and is moving up market, going from micro seven person companies with no dedicated marketing person to the SMB segment with dedicated marketers and a CRM. Their most common CRM integration is Salesforce.com. So, if you’re moving up market and your investor/most common integration partner buys a company that does amazing marketing automation (and soon will be the de facto standard), it’s time to think hard about the long-term strategy.

    Since I no longer have a dog in the fight, here’s the answer: HubSpot needs to parlay their powerful system into being a full blown CRM and remove Salesforce.com from the equation. Businesses want the best tools to sell more stuff, and want it at a reasonable price. Salesforce.com is crazy powerful, but at $700 – $1,200 per user per year, it’s the most expensive system in the market (add another $1,000/month for marketing automation capabilities from Salesforce.com). There’s a real opportunity for a CRM priced in the $120 – $240 per user per year range with all the corresponding marketing automation capabilities. The right system can and should support both sales and marketing.

    Outside of adding more CRM capabilities to the basic contact management they already have, the other big missing ingredient is third-party integrations. Looking at the HubSpot App Marketplace, there’s a handful of integrations, but not much compared to the Salesforce.com AppExchange. Connecting with a few integration-as-a-service providers will really help expand the number of potential integrations.

    So, I see three changes for HubSpot to make:

    • Turn the contact management functionality into a full CRM (opportunity pipeline, call logging, scheduling, etc)
    • Put more resources into the App Marketplace and ensure the top 50 cloud apps used by 80% of the customers have a great integration
    • Add an additional per user pricing option in the $15/user/month price range with metered pricing on web traffic and email sends (right now all pricing is based on marketable database size and functionality)

    This changes the focus of HubSpot while helping them get closer to their value proposition: helping companies make more money. More tools, more systems, more user interfaces to learn adds more complexity. Companies just want great tools to close more business faster. HubSpot can do that. Salesforce.com needs a mainstream CRM competitor.

    What else? What are your thoughts on HubSpot as the next mainstream CRM?

  • Pardot as the World’s Most Widely Used B2B Marketing Automation System

    In last night’s post Thoughts on Salesforce.com Acquiring ExactTarget/Pardot, I missed making the most important point: Pardot will shortly become the world’s most widely used B2B marketing automation system and be the defacto standard. Much like QuickBooks dominates the market for SMB accounting software, Pardot will dominate the SMB marketing automation market.

    As an entrepreneur, the goal is to change the world. With Pardot, it’s amazing to think that the product we helped birth is going to be the most popular product of its kind and will be used by millions of people around the world. Pretty awesome!

    Salesforce.com has 130,000 customers. Marketo has 2,100 customers. Pardot has 1,400 customers. Eloqua has 1,200 customers. What percentage of Salesforce.com’s customers, growing at a rate of 4,000 per quarter, will become Pardot customers over the next 1 – 2 years? How about in five years? The opportunity for Pardot to have tens of thousands of customers is readily apparent. What’s my guess as to the percentage of Salesforce.com customers that eventually become Pardot customers? Answer: 15%. And, as Salesforce.com grows its customer base, so too grows the Pardot customer base.

    Man, it feels good to have a product become the standard in the market.

    What else? What are your thoughts on Pardot becoming the world’s most widely used B2B marketing automation system?

  • Thoughts on Salesforce.com Acquiring ExactTarget/Pardot

    Wow! Earlier today Salesforce.com announced it was buying ExactTarget (which includes Pardot) for $2.5 billion in cash (yes, cash). This is a great acquisition for Salesforce.com as they have a strong sales and service cloud but a weak marketing cloud (Buddy Media and Radian6 are social media marketing but not core marketing). Way back in 2009, I was pitching VCs to invest in Pardot (we didn’t raise money) and one of the most common questions was “What’s the exit strategy for Pardot?” My immediate response was that Salesforce.com was the most logical acquirer and that every CRM customer should also be a marketing automation customer. Well, the idea will finally come true.

    Here are a few thoughts on Salesforce.com acquiring ExactTarget/Pardot:

    • ExactTarget has an amazing culture (called “Orange”) with strong mid-western values whereas as Salesforce.com is typical Silicon Valley
    • Email marketing has been the #1 most requested feature for Salesforce.com on their idea exchange for as long as I can remember (ExactTarget is more for the mid-market and enterprise, but will finally allow Salesforce.com to check off that feature)
    • Marketing automation vendors like Marketo and others have real challenges ahead of them since over 80% of their customers use Salesforce.com (Salesforce.com will keep integrating with all the marketing automation vendors but now Pardot becomes the default standard)
    • Cloud marketing software as a fast-growing opportunity has really been validated lately with all the large acquisitions
    • Pardot has an opportunity to be a billion dollar a year business for Salesforce.com within 5 – 7 years due to how complimentary it is to their core sales offering

    Overall, it’s been amazing to be part of the marketing automation industry and I’m excited that Pardot ended up with the cloud leader.

    What else? What are some other thoughts on Salesforce.com acquiring ExactTarget/Pardot?

  • Strong Employee Loyalty as an Atlanta Startup Strength

    When thinking about startup strengths for Atlanta, everyone knows the common ones like low cost of living, great Georgia Tech talent, abundant young professionals, and general excitement in the community. There’s another Atlanta startup strength that needs more coverage: strong employee loyalty.

    Here are a few thoughts on strong employee loyalty as an Atlanta startup strength:

    • Part of Atlanta’s Southern culture is a focus on people and relationships, which results in more emphasis on the team and less on jumping ship to the hotter startup down the road
    • Tech talent is at a premium and there’s a real shortage of software engineers, making strong employee loyalty more important than people realize
    • Training a new employee often costs 10 – 20% of first year’s salary, making it an expensive proposition that increases the value of employee retention
    • Referrals are the best source for new hires and loyal employees are more likely to recommend friends

    Of course, things like a great corporate culture, awesome mission, and competitive wages are a pre-requisite for strong employee loyalty regardless of location. Strong employee loyalty is an Atlanta startup strength compared to the top high tech centers in the country.

    What else? What are your thoughts on strong employee loyalty as an Atlanta startup strength?

  • Opportunities for More High Density Startup Buildings in Metro Atlanta

    One of the more common questions I get about the Atlanta Tech Village is regarding opening up other locations. My response is always that we’re focused on making our current building the flagship facility for technology entrepreneurs in the Southeast and the country, and aren’t currently looking at any other opportunities. Is there room for more high density startup buildings in Metro Atlanta? Absolutely!

    Here are a few thoughts on opportunities for more high density startup buildings in Metro Atlanta:

    • Buckhead – I believe ATV will satiate all the demand for open coworking, private rooms, and modular suites for tech companies and startups under 25 people while there is opportunity for another building for growth startups that have “graduated” from ATV
    • Midtown – There’s plenty of opportunity in Midtown, evidenced by the ATDC having a waiting list, Hypepotamus being full, and the success of the Biltmore
    • Old Fourth Ward / Inman Park – A tech co-working space with plenty of private rooms would do well in Ponce City Market or a place nearby due to all the creative professionals in the area
    • Downtown – 200 Peachtree Office is a co-working space in a great location downtown with many amenities
    • Perimeter – With a few MARTA stations, GA 400 and 285, as well as a number of tech companies like AirWatch, the necessary ingredients are in place to support a facility with coworking, private rooms, and some modular suites.
    • Suburbs – Tech heavy suburbs like Marietta, Alpharetta, and Norcross should be able to support a small-to-medium sized facility, especially if there’s a public/private partnership arrangement

    Overall, there’s an opportunity for a number high density startup buildings in the 5,000  – 20,000 sq ft range. One of the biggest challenges is that a large number of members is necessary to support having a dedicated staff, which is required for a successful community, and that makes smaller facilities often unworkable. I’m looking forward to more high density startup buildings in Atlanta.

    What else? What do you think of the opportunities for more high density startup buildings in Metro Atlanta?

  • Notes from the Textura S-1 IPO Filing

    Curiously, I recently saw a report of a Chicagoland Software-as-a-Service (SaaS) company called Textura filing their S-1 to go public with only $21.7 million in sales for fiscal 2012. ChannelAdvisor just had a successful IPO with only $53.6 million in trailing twelve months revenue, which is considered low by IPO standards, but it was well received nonetheless. Now, $21.7 million in sales in significantly lower than other SaaS IPO filings, so I had to dive and learn more.

    Here are notes from the Textura S-1 IPO filing:

    • Provides on-demand business collaboration software to the commercial construction industry (pg. 1)
    • Specific modules for payment management, document management, project bid management, contractor qualification, and environmental certification processes (pg. 1)
    • 12,000 commercial construction projects have been managed with the system (pg. 2)
    • Revenues (pg. 2)
      2010 – $6.0 million
      2011 – $10.5 million
      2012 – $21.7 million
    • Losses (pg. 2)
      2010 – $15.9 million
      2011 – $18.9 million
      2012 – $18.8 million
    • Accumulated deficit of $146.2 million (pg. 12) (Note: Take ~$40 million in losses from 2011 and 2012 out of the accumulated deficit and that leaves you with ~$100 million being burned to get to the point where the business generated $6 million in revenue in 2010)
    • Ten largest clients represented 41.5% of 2012 revenue (pg. 13)
    • Largest client represented 10.8% of 2012 revenue (pg. 13)
    • Sales cycle of a year or longer to secure a new client (pg. 15)
    • $8.1 million of the new proceeds will be used to repay debt (pg. 29)
    • Already built their own 63,000 sq ft corporate headquarters with a $11.9 million loan and tripped their mortgage covenant (pg. 67)
    • 287 employees (pg. 92)
    • CEO/co-founder 2012 cash compensation was $1,145,000 (pg. 100)
    • CEO/co-founder owns 9.1% of the company (pg. 120)

    Overall, this SaaS IPO filing is unusual due to the small amount of overall revenue and high revenue concentration among a small number of clients. Add in the fact that the company already built their own corporate headquarters and it doesn’t feel like the usual SaaS IPO. Textura has a big market opportunity and a great growth rate, so it’ll be interesting to see how it does in the public markets.

    What else? What are some more thoughts on the Textura S-1 IPO filing?

  • Atlanta’s Modesty When It Comes to Self-Promotion

    Quick, who’s the most famous entrepreneur ever from Atlanta? Hint: he’s been referred to as “the mouth of the South.” That’s right, it’s Ted Turner. Ted Turner understands self-promotion and is happy to speak his mind (see the book Call Me Ted). Now, beyond Ted Turner and his amazing run with TBS and CNN, who are some other famous entrepreneurs from Atlanta. It’s hard to name very many.

    Atlanta, with it’s Southern culture, has too much modesty. There are so many success stories, yet they are rarely talked about. Last year Atlanta had a half billion dollars in exits alone with marketing software companies, and people aren’t shouting the story from the rooftops. Atlanta has three more marketing software companies in Silverpop, Mailchimp, and WhatCounts that are easily worth over a half billion dollars combined — there’s no national press about the marketing software cluster in Atlanta.

    I don’t have the answer but I can see the problem: Atlanta has too much modesty and needs to get better at self-promotion.

    What else? What are some ideas to help with promoting the city and its successes?

  • The Unfortunate Case of the Expired Domain Name

    Over sixteen years ago I put together a simple website for my dad’s business at DrCummings.com. Nothing special really, just a standard brochure site with information about the business, pictures, etc. A year later I went off the college and didn’t think much of it until I received a frantic phone call from my dad: DrCummings.com was now a porn site and they had called the police to find the culprit.

    Explaining the site probably got defaced by some script kiddies, I fired up my FTP client to restore the site. Only, I couldn’t login — it was worse than I had expected. The domain name had expired and someone else registered it, likely owning to the fact that the longest serving professional porn actor shares our last name (and my full name, to be clear). To make matters worse, the domain name was prominently featured in my dad’s new Yellow Pages ad strewn about Tallahassee.

    Naturally, I did what any desperate kid would do and I pulled up the WHOIS registry to get the email address of the person that had registered the domain. I shot off a quick email to the new domain owner in New Jersey asking if it was for sale and how much he wanted for it. By a miracle, the domain owner quickly responded and said he would happily sell it for $1,000. I swallowed my pride and did a PayPal transfer spending $1,000 of my personal savings to fix the situation and move on. Everything was back to normal.

    The moral of the story: pay the extra money and do a five or 10 year registration for your domain and make sure the associated email address is correct.

    What else? Have you had this happen to you and how did it turn out?

  • 10 Awesome Startup Tweets from Box’s Aaron Levie

    If you haven’t been following Box’s Aaron Levie (@levie) on Twitter, you’ve been missing out. Levie has some of the most poignant and prescient startup quips anywhere. Here are 10 of my favorite startup tweets from @levie:

    1. The best disruptions reduce the cost of technology, expand its availability, and create more value for the ecosystem, not less. (link)
    2. The first era of enterprise software was won with sales, being closed, and complexity. This era: service, openness, and simplicity. (link)
    3. Sometimes things are the way they are and can’t be changed, other times it’s because no one ever tried. Your job is to find the latter. (link)
    4. The trick is to build a core competency narrow enough to be unique, yet broad enough to be compelling, and then constantly evolve it. (link)
    5. The only way to avoid disruption is to constantly do what you would do if you were just starting out. (link)
    6. Focus too much on the near-term and you won’t get tomorrow’s customers, focus too much on the long-term and you won’t get today’s. (link)
    7. Imagination > Resources = Disruptor.
      Resources > Imagination = Disrupted. (link)
    8. Spend only as much time thinking about the competition as it takes to beat them, and nothing more. (link)
    9. Your time horizon matters more than almost anything else as a startup. The longer you’re in the game, the more shots you can take. (link)
    10. Better to go after a bigger market without all the answers, than a smaller market without any questions. (link)

    @levie does an amazing job distilling startup strategy into 140 character sound bites. I’m looking forward to reading many more.

    What else? What are your thoughts on the startup tweets from Box’s Aaron Levie?

  • Atlanta Startup Village May 2013

    Tonight we have the monthly Atlanta Startup Village (ASV) meetup at the Atlanta Tech Village. Averaging over 220 attendees per month, ASV is now the largest monthly startup event in the entire Southeast.

    Here are the startups pitching tonight:

    I’m looking forward to the event and hearing the startups give their five minute pitch.

    What else? What are your thoughts on these startups and the Atlanta Startup Village?