David Cummings on Startups

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  • Five Categories of Initial Traction Milestones for Startups

    Results matter. I’d much rather hear from an entrepreneur about their traction metrics than an idea with no results yet. Once the team and product are in place, it’s time to focus on traction. TechCrunch has a piece up titled Want to Raise a Million Bucks? Here’s What You Need where the author provides five categories of initial traction milestones for startups:

    • B2B SaaS: 1,000 seats at $10/month (or the equivalent $10k/month revenue with a higher priced SaaS offering)
    • Enterprise Application: 2 paid pilot contracts for at least $100k combined
    • Social: 100,000 downloads/signups
    • Marketplace: $50k revenue/month
    • Ecommerce: $50k revenue/month

    Here’s an idea: start a Traction Club for startups in your city that exceed these metrics. Make metrics a badge of honor and get more people talking about results, not ideas.

    What else? What are your thoughts on these five categories and amounts as initial major milestones for startups?

  • Employee Count as a Proxy for Startup Revenue

    Recently I read about using employee count as a solid proxy for revenues of a given startup. The idea is to look at three factors a) the number of employees found in LinkedIn b) the amount of venture capital raised and c) the recency of the last fundraising round.

    Here’s the idea to determine the amount of revenue for a startup:

    • Non-venture backed startups: multiply the LinkedIn employee count by $200,000
    • Venture backed startup with a recent large round of funding: multiply the LinkedIn employee count by $100,000
    • Venture-backed startup without a recent large round of funding: multiply the LinkedIn employee count by $150,000
    • Note:  if in a more affordable region, like Atlanta, subtract $25,000 from the above multipliers

    So, the next time someone ponders how much revenue a startup has, use these simple formulas to generate a directionally correct value, especially for technology startups.

    What else? What are your thoughts on using employee count as a proxy for startup revenue?

  • The Power of Sharing Ideas – Pivoting Pardot 1.0

    Today I enjoyed hearing Bill Nussey (@bnussey) give the commencement address at the 2013 ATDC Startup Showcase graduation. I’ve enjoyed talking to Bill over the years and hearing him speak at several events. There was one piece of advice he gave me that changed the trajectory of my career.

    Way back in April 2007 we had just launched Pardot 1.0, which was a pay-per-click bid arbitrage system to generate leads for technology companies. Much like LendingTree.com, Pardot 1.0 was a platform where prospects would put in their information and vendors would compete for their business. I had reached out to Bill as I wanted to share the vision for Pardot 1.0, and he graciously agreed to meet me for lunch at the River Room on the Chattahoochee River.

    We were sitting outside on a beautiful Spring day and I was selling hard on the benefits of a Pardot 1.0 platform and how they could buy higher quality leads at a lower cost. After a few minutes talking about Pardot 1.0, he shared that there was this marketing automation company called Eloqua that was of great interest to him. Eloqua focused on the B2B segment of online marketing and was a combination email service provider and micro web analytics tracking platform.

    Now, at the time, I had never heard of Eloqua or marketing automation software, but the functionality sounded similar to several of the Pardot 1.0 modules we’d already built. I thanked him for lunch and returned to the office to tell my cofounder about Eloqua. We’d been struggling with Pardot 1.0 and the market opportunity of generating leads on behalf of vendors. What if we pivoted and starting selling pickaxes to gold miners instead of mining gold on behalf of vendors?

    After a week of analyzing things, debating what was and wasn’t working, and researching Eloqua, we decided to pivot Pardot into a SMB marketing automation platform. We already had a good bit of the core functionality including landing pages and micro web analytics tracking. The missing pieces were CRM integration, automation rules, and email marketing. With a new course charted, we went heads-down and decided to build the updated product with the goal of a beta launch in September 2007.

    Bill introduced us to Eloqua and the idea that put Pardot on course to becoming a major success. For that, I’m forever thankful.

    Sharing ideas is powerful. You never know who you can help or who can help you.

    What else? What are some other examples of the power of sharing ideas?

  • 3 Venture Capital Rules that Can Be Broken for Hot Startups

    Reading online there’s a number of “rules” about venture capitalists and how they operate. Most of the information is solid, but there are a handful of edge cases that are more nuanced for hot startups. Here are three ideas about how venture capitalists operate that aren’t as black and white as commonly presented:

    • Signing Non-Disclosure Agreements (NDA) – Most of the time, VCs won’t sign a non-disclosure agreement, and rightfully so since they see so many startups on a regular basis. Now, if you’re in super high demand, VCs are clamoring to invest, and you truly have confidential information like outstanding financials, VCs will sign NDAs.
    • Investing in LLCs – Limited partners, the investors in venture capital funds, are often endowments, charities, and other non-profits that don’t want pass-through losses and the headaches of K-1s, and thus require investing in C-Corps. VCs won’t invest directly into LLCs, but if the deal has enough demand, VCs will create a blocker C-Corp, put the money in that entity, and that entity will invest in the LLC. Overall, the preference is for C-Corps based in Delaware, and if you want to raise serious institutional money, a C-Corp is the way to go from the beginning.
    • Complicated Term Sheets – VCs are notorious for long, complicated term sheets with extensive legalese and jargon. Not all firms operate this way. Often, the most successful and well-known firms will have the most straightforward term sheets. Complicated term sheets are also a sign of whether or not the VC is optimizing for the relationship with the entrepreneur (upside) or trying to minimize the downside scenario (many more provisions).

    With these three “rules” in mind, there’s one big takeaway: if your startup is doing great and has serious demand from VCs, the traditional rules don’t apply to you. 99% of startups never raise VC money, and the ones that can break the common rules are in the 1% of the 1% that raise money.

    What else? What are some other venture capital rules that can be broken for hot startups?

  • The Startup Launch

    After building a solid minimum respectable product, lining up some early adopter users, and putting together a simple brand for the company it’s time for the startup launch. For many startups, the launch is as soon as the website is live. For others, there’s a LaunchRock homepage to gather email addresses followed by a more formal revealing. Regardless, it’s important to think through the launch and how to maximize the occasion.

    Here are a few ideas for a startup launch:

    • Celebrate with the team, advisors, friends, family, and other supporters in person
    • Engage with journalists and relevant publications to announce the launch
    • Reach out to industry analysts and influential people to share first-hand about the new startup
    • Collect email addresses and document people that are interested in the new venture (use Google Spreadsheets as well as an email marketing program)

    Overall, the startup launch is a time to celebrate and kick off the next phase. Make the most of it and recognize that it’s a marathon and not a sprint.

    What else? What are some other ideas for a startup launch?

  • Recruiting Talent for Startups is Easier in Denser Tech Communities

    A startup in the Atlanta Tech Village was recruiting hard for a software engineer against a more established company that offered a significantly higher salary. At the end of the recruiting process, with two offers in hand, the programmer chose the startup in ATV citing ATV as one of the more important drivers of the decision (along with the people at the startup and the startup’s vision).

    After thinking about it briefly, it makes sense that recruiting talent for startups is easier in denser tech communities:

    • People want a strong community for pride, camaraderie, and relationship building
    • Startups have high highs and low lows, creating an even higher demand for a peer group to share experiences, learn from, and lean on
    • Most startups fail, so being in a dense community, especially an ultra dense building like ATV, provides greater opportunities to quickly find another job with another tech company in the event things don’t work out

    Denser tech communities make it easier to recruit talent for startups. As much as the internet makes it easier to decentralize things, people want to be around other like-minded people.

    What else? What are some other reasons it’s easier to recruit talent for startups in denser tech communities?

  • 3 Simple Ideas to Conquer Email Overload

    Every few months someone comes out with a new article on how to defeat email overload, and like the most recent diet fad, it gets some love and then goes away. Only, the volume of email continues to grow and the death of it is greatly exaggerated. I have a few friends that prefer texting and/or DMing over Twitter, but overall email dominates, big time.

    Here are three simple ideas to conquer email overload:

    1. Only read emails in your inbox once and reply immediately if it’ll take less than two minutes to handle, otherwise promptly sort it into an appropriate folder
    2. Don’t — I repeat don’t — set your email program to automatically retrieve email, instead make it a manual process to get new messages (with Gmail make “Sent Mail” your homepage so that you don’t see when new messages come in)
    3. Allocate five time slots per day to check email, put them on your calendar as recurring events, and stick to it — don’t let email own you

    Handling email is like handling anything else: make a plan, keep it simple, execute, and iterate. Conquer email with these three simple ideas and don’t look back.

    What else? What are your thoughts on these three simple ideas to conquer email overload?

  • Hope and Startup Communities

    Recently I saw the movie Hunger Games after it showed up as a recommended item on Netflix. In the movie there’s a scene where the leader asks another character why they don’t kill all participants and instead have a single winner that gets to live. After an insufficient answer is given, the leader responds: hope. People need hope otherwise they won’t care and won’t be as involved and committed.

    Startup communities need hope as well. The Atlanta startup community is at an all-time high due to amazing progress and hope. Here are a few examples:

    Hope is an important ingredient to push things forward and do things never thought possible. Startup communities need hope just like anything else.

    What else? What are your thoughts on hope and startup communities?

  • New Angel Investors Should Ease Into Writing Checks

    After I sold my company a number of people offered great post-sale advice from their personal experiences. One piece of advice that has stuck with me is that new angel investors should ease into writing checks. A successful entrepreneur shared with me that he sold his company and within the next 12 months invested $3mm into startups as an angel investor, only to lose every penny of every investment — not a single one made it and returned money.

    Here are a few reasons why it’s good for new angel investors to ease into writing checks:

    • Angel investments, being extremely risky, are likely to fail, so it’s better to make a number of tiny investments when getting started, rather than a smaller number of larger investments
    • Angel investing, like anything, takes time to get good at, and the process can’t be accelerated by writing a bunch of checks quickly
    • Investment opportunities will always continue to present themselves, so there won’t be a shortage of deals or a need to do several at once

    After selling a company there’s an urge to invest in what you know and put money to work in startups. Angel investing is great but ease into it over time.

    What else? What other thoughts do you have about new angel investors writing checks?

  • Pricing Iteration at the Atlanta Tech Village

    After publishing the most recent Pricing at the Atlanta Tech Village post, and talking to companies that have signed up for private rooms and private suites, we’ve learned that startups would prefer a fixed-rate pricing methodology whereby the rooms or suites are a flat-rate, regardless of number of people.

    The idea is that tech companies and startups want to have the option of being high density or low density with respect to the number of people and not feel like they are being nickeled and dimed. If two contractors or interns are needed, and there’s room to double up a couple desks, pricing shouldn’t change, resulting in more predictability and flexibility. Use cases like temporary workers, part-time workers, interns, guests, etc kept coming up and the original idea of additional membership types became more cumbersome than it’s worth.

    Going forward, we’re going to try out our next iteration of pricing for rooms and suites where everything is labeled for the ideal number of people, with no extra per person charges if you want to cram more people in. We’re playing to the law of averages knowing that some companies will have less than the target number of people and some will have more. Here are the new prices for all inclusive memberships:

    • 3 Person Office – $1,000/month
    • 4 Person Office – $1,300/month
    • 5 Person Office – $1,625/month
    • 8 Person Suite – $2,600/month
    • 14 Person Suite – $4,550/month
    • 18 Person Suite – $5,850/month

    Service provider pricing is 20% higher and follows the same idea where there are no additional per person fees.

    Pricing is a very interesting topic as it plays into the financial model, positioning in the market, and more. With this new pricing change we’re working hard to make the pricing as easy to understand and streamlined as possible for a wide variety of use cases. I’m sure we’ll continue to make changes but this feels right based on input from customers.

    What else? What are your thoughts on these pricing changes?