David Cummings on Startups

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  • Measuring Member Progress Within the Atlanta Tech Village

    One of the topics we’re debating now within the Atlanta Tech Village is that of measuring member progress and how to create a culture of success. If we merely provide a great community and a great building without great success stories, we won’t be a success. Members of the Village need to continuously make progress with their startups and build sustainable, high growth businesses.

    Here are some ideas on measuring member progress within the Atlanta Tech Village:

    • Require quarterly and annual SMART goals as part of the application progress along with mandatory monthly updates in a Google Spreadsheet (documenting them in a spreadsheet makes it easy to look back and see what was, and what wasn’t, accomplished)
    • Require a monthly 15 minute meeting with each member company to go over their current One Page Strategic Plan or Business Model Canvas
    • Require a monthly review of the Killer SaaS KPIs and require a minimum growth rate (e.g. numbers must improve by at least 1% per month)

    Startups that are working hard and helping each other out will make significant progress, even in a short period of time. Results matter and measuring member progress will focus efforts on the important areas. It will also make it easier for mentors to make introductions and provide advice when challenges come up.

    What else? What are some other ideas on measuring member progress with the Atlanta Tech Village?

  • Notes from the ChannelAdvisor S-1 IPO Filing

    Way back in the spring of 2002 I took the FastTrac program at the Council of Entrepreneurial Development in Durham, NC. As part of the program there was a weekly speaker and one of the most memorable speakers was Scot Wingo, talking about starting and selling two previous companies followed by introducing his new startup ChannelAdvisor, then only a year old. One detail I remember from Scott’s talk was when he explained their level of scrappiness and how he didn’t want to spend $60,000/year on a sys admin, so he did it himself to save money.

    Now, 11 years later, it’s with great pleasure that I get to read the S-1 IPO filing from ChannelAdvisor Corporation. Here are my notes:

    • ChannelAdvisor has a Software-as-a-Service (SaaS) application that enables optimizing products across multiple online channels (pg. 1)
    • Customers processed over $3.5 billion in gross merchandise value in 2012 (pg. 1)
    • Over 1,900 customers including 27% of the Internet Retailer 500 (pg. 1)
    • Customer contracts include a base fee and a percent of the transactions (pg. 1)
    • Revenues (pg. 8)
      2010 – $36.7mm
      2011 – $43.6mm
      2012 – $53.6mm
    • Losses (pg. 8)
      2010 – $4.7mm
      2011 – $3.9mm
      2012 – $4.9mm
    • Accumulated deficit of $79.5mm (pg. 11)
    • Some customers pay for a managed services offering where ChannelAdvisor runs programs on behalf of customers (pg. 13)
    • Seasonality of revenue with Q4 always being the strongest (pg. 15)
    • Total redeemable convertible preferred stock – $90.5mm (pg. 36)
    • $28,050 average annual revenue per customer (pg. 40)
    • 189 employees in sales and marketing (pg. 43)
    • Reasons for the growth of ecommerce (pg. 66)
      – the availability of a broader selection of merchandise online;
      – consumer convenience and ease of use;
      – more competitive and transparent pricing;
      – increased functionality and reliability of e-commerce websites;
      – the emergence of mobile connected devices and specialized websites; and
      – the proliferation of online distribution channels.
    • Competitive strengths (pg. 71)
      – Industry leader
      – Channel independence
      – Network effects from customer base
      – Economies of scale
      – Global presence
    • Key platform functionality (pg. 73)
      – Inventory and order management
      – Product matching
      – Business rules and templates
      – Price optimization
      – Reporting and analytics
      – Developer ecosystem
    • 405 employees (pg. 81)
    • Venture capitalists own 67% of the business (pg. 102)
    • The two co-founders own a combined 19.2% (pg. 102)
    • Co-founder/CEO owns 10.6% (pg. 102)

    This is an interesting one because the SaaS company is based on the Southeast, has good but not amazing growth, and the cofounders still own a solid share of the business — many unusual characteristics for a recent tech IPO filing. Overall, I’m optimistic for the company and looking forward to another successful SaaS IPO.

    What else? What are your thoughts on the ChannelAdvisor S-1 IPO filing?

  • Killer SaaS KPIs Spreadsheet Dashboard

    A couple days ago I came across a post on Hacker News linking to The Angel VC: A KPI Dashboard for Early-Stage Startups. In the article, the author lays out a number of metrics and shares a quality Early-Stage KPI Dashboard Google Spreadsheet with everything in it.

    Visitors & Signups

    • Visitors
      m/m growth
    • Signups beginning of the month
    • New signups
      – Organic
      – Paid
    • Total new signups
      m/m growth
    • Visitor-to-signup conversion rate
    • Signups end of month

    Paying Customers

    • Customers beginning of the month
      – New customers
      – Conversion rate
      – Lost customers
      – Churn rate
    • Net new customers
    • Customers end of month
      m/m growth

    Monthly Recurring Revenue

    • MRR beginning of the month
    • New MRR
      – New MRR from new customers
      – New MRR from account expansions
    • Total new MRR
    • Lost MRR
    • MRR churn rate
    • New new MRR
    • MRR end of month
      m/m growth
    • Avg. revenue per customer
    • Avg. revenue per new customer

    Customer Acquisition Costs (CAC)

    • Marketing spendings
      – Marketing spendings per signup (blended)
      – Marketing spendings per paid signup
    • Sales spendings
      – Sales spendings per new paying customer
    • Total CAC (blended)
    • Total CAC (paid signups)
    • Time-to-recover CAC for paid signups (months)
    • CLTV (e)
    • CLTV/CAC (paid signups)

    Cash

    • Cash beginning of month
      – Cash coming in
      – Cash going out
    • Net cash burn
    • Cash end of month
    • Runway at current burn (months)

    This is a valuable list of solid KPIs and startups would do well to track them monthly. Download the spreadsheet and start tracking them today.

    What else? What are some other SaaS KPIs that are great to track?

  • Announcing the Frank Borchardt Undergraduate Prize Fund

    As a freshman at Duke I was part of a first year program where students elected to join 29 other students and study a particular topic, in our case, Computers in Society. One of my courses was Instructional Technologies, taught by Professor Frank Borchardt. Now, Frank Borchardt was a full professor in the German department, but he had a real passion for using computers for foreign language learning, and had become famous for his research in the mid 1990s.

    By the end of the course we had developed great rapport and he made the side comment that if I ever was going to start a business that I should come see him. I didn’t think much of it at the time but kept the idea in the back of my mind. Come the end of my first semester junior year, I had been doing a number of entrepreneurial initiatives but hadn’t seriously focused on any one thing. Then an idea hit me. I had been building websites for campus organizations, professors, small businesses, etc for a couple years and there was no easy way to update it once it was built. It’s like saying here’s a shiny new car to a 16 year old and following it up with you can look at it but can’t drive it.

    With this idea for a simple content management system, I approached Frank Borchardt to be an investor in early 2001 and he said yes on the spot. A month later I had $20,000 in the bank from Frank and I was actively recruiting friends to be summer interns and help me build SuperUpdate, our first product.

    Fast forward five years and I paid Frank back double his money. Frank was in poor health so I wanted to make sure and give him a good return as quickly as possible. That next year Frank passed away and I attended his nice funeral at the Duke Gardens.

    Frank had some unusual characteristics that made him stand out. Physically, he was a very large man with an energetic personality and a booming laugh that was infectious. Early in his career, he promised himself he would stop conforming to society once he became a full professor, so after achieving his goal, he wore all black and never cut his hair, resulting in a long beard and pony-tail. You could spot Frank across the campus and you’d always know it when you were in the same room together.

    To say thank you for all he did for Duke, as well as for me as an entrepreneur, I’m donating $500,000 to endow the Frank Borchardt Undergraduate Prize Fund, which will provide $20,000 in grant money, every year, to the top undergraduate entrepreneurs at Duke.

    Frank was a great man and I hope that his help to me will help entrepreneurs for generations to come.

  • Businesses Ideas I Attempted at Duke

    Tomorrow night I have the opportunity to talk at the 14th Annual Duke Startup Challenge and help select a winner for the $50,000 grand prize. The first Duke Startup Challenge, way back in academic year 1999-2000, is nostalgic for me as I was an undergraduate then and I actually designed and hand coded their first site. Each year I’d enter the competition with some new web-based product idea and each year some idea from the med school or engineering school would win.

    While at Duke, I had no shortage of ideas and endeavors. Here are four business ideas I launched as an undergrad:

    • textbooks.ml.org – in 1999 I worked with my college roommate on the first textbook exchange marketplace for college students. We launched the site, achieved 1,000 unique visitors, and were promptly summoned by the manager of the on campus bookstore to talk about how they do things and why they had to charge the prices they charge (hah!). It lasted one textbook season and we moved on (textbook rentals proved to be the winner in that market, not exchanges).
    • Devil Laundry – in 2000 I worked with a friend on a laundry service whereby students could go online, create an account, choose what they’d like done to their clothes, pay by credit card, and finally have the clothes picked up on Saturday morning to be returned on Sunday morning. I ordered custom printed laundry bags and coordinated a wholesale relationship with White Star Cleaners on Ninth Street. With everything in place and a few paying beta customers, I realized I wasn’t interested in pursuing it further so I sold it to a friend of mine, Arun Gupta for $300.
    • Devil Community – in 2000 I worked solo on a community site for Duke that would have message boards, events, and most importantly, public course evaluations and reviews of professors. Needless to say, campus administrators heard from professors who were upset by it so I was called into Dean Sue’s office (Dean of Student Affairs). After a nice chat with the dean, nothing much came of the site as it didn’t achieve critical mass.
    • Hannon Hill – in January 2001 I incorporated Hannon Hill, my first serious company, focused on a Software-as-a-Service content management system for small businesses. Hannon Hill ultimately was successful ranking as the 247th fastest growing company in the United States in 2007 by Inc. magazine (read the Iterate or Die series of posts).

    Overall, college was a great platform to try out ideas and collaborate with talented people. One of my biggest takeaways was that I’d learn something new in every project, resulting in new ideas and insight I could take to the next one.

    What else? What are some business ideas you’ve tried in college?

  • Raising Seed Capital Often Makes Sense for Startups

    Seed capital is a small amount of money to help get a startup off the ground, often provided by  the three Fs — friends, family, and fools. Seed capital is almost always different from venture capital in that there’s less dilution, less control, no timelines on a return, and overall more passive of an investment. 99.9% of startups shouldn’t raise venture capital but seed capital does make sense for many startups.

    Here are some thoughts on raising seed capital for a startup:

    • Focus on smart money where the investor can add expertise to the startup in addition to money
    • Asking for money is always better if you have an existing relationship as people like to invest in people they know, trust, and enjoy being around
    • Making measurable, objective progress in the form of customers, users, revenue, etc is the best way to earn a strong valuation
    • Think about the desired milestones for the startup and how much money it will take to reach them — use this to help determine how much to raise as well as to paint a picture of the projected progress to a potential investor

    Raising seed capital often makes sense for startups, especially when the goals of the entrepreneurs and investors are aligned. A key takeaway is to find the best investors possible — don’t settle for ones that will write a check without adding additional value.

    What else? What are your thoughts on startups raising seed capital?

  • Internal Startup Product Jargon

    With any new product development comes debate about product jargon. Product jargon is the different terms and names used for features, modules, etc. With a clean slate, it’s easy to try and reinvent the wheel with new terminology and ways to describe things. Don’t do it.

    Here are a few thoughts on internal startup jargon:

    • Use the industry standard terms for features and modules so that prospects and customers don’t have to relearn things
    • Use Google Trends and Google to find search volume of terms in order to decide what’s the most common phrase or name. Plus, this plays into search engine optimization (SEO).
    • Make sure that that internal code for the feature/module matches up with the marketing name for the feature/module (I’ve seen this many times where the two don’t align and it creates on-going headaches between different teams as well as new engineers that are learning the code base)

    Internal startup product jargon is the norm and entrepreneurs would do well to ensure standardization across their product and their industry.

    What else? What are your thoughts on internal startup product jargon?

  • Notes from the Tableau S-1 IPO Filing

    Last week Tableau Software filed their S-1 with the SEC as part of the process to go public. Tableau, a business intelligence enterprise software company, is different from many of the IPO filings mentioned recently in that the company is already profitable, has been incredibly capital-light for their level of success, and is based in Seattle.

    Here are some notes from the Tableau S-1 IPO filing:

    • Common business intelligence use cases include increasing sales, streamlining operations, improving customer service, managing investments, assessing quality and safety, studying and treating diseases, completing academic research, addressing environmental problems and improving education (pg. 1)
    • “Land and expand” business model that starts with a free trial and then grows from there (pg. 2)
    • Over 10,000 customers (pg. 2)
    • Revenues (pg. 2)
      2010 – $34.2mm
      2011 – $62.4mm
      2012 – $127.7mm
    • Profits (pg. 2)
      2010 – $2.7mm
      2011 – $3.4mm
      2012 – $1.6mm
    • 17% of revenues are outside the U.S. and Canada (pg. 6)
    • Growth strategy (pg. 6)
      – Expand customer base
      – Further penetrate existing customer base
      – Grow internationally
      – Innovate and advance products
      – Expand distribution channels and partner ecosystem
      – Foster passionate user community
      – Cultivate exceptional culture
    • 749 employees (pg. 16)
    • Sales and engineering groups have the most hiring growth (pg. 16)
    • 239 orders over $100,000 in 2012 (pg. 20)
    • Using NetSuite for financial management and salesforce.com for CRM (pg. 24)
    • Currently does not offer a SaaS product (pg. 25)
    • Limited use of indirect sales channel partners (pg. 25)
    • Class B common stock has 10 votes per share and is concentrated among officers and directors (pg. 38)
    • 321 people in sales and marketing (pg. 55)
    • Transactions over $100,000 take over three months to close with transactions below that amount taking less than three months (pg. 56)
    • 25% of purchase price for maintenance and support contract (pg. 57)
    • Insiders took $32mm off the table in 2010 by selling shares to existing VCs (pg. 122)
    • Co-founders own 49% (pg. 125)
    • VCs own 44% (pg. 125)

    Tableau has had amazing growth, especially considering they’ve only raised $15mm total from venture capitalists ($15mm for growth and more than that for insiders to sell their shares). The big wild card is their ability to transition from installed software to cloud-based software. If they can do that, they’ll have even more upside potential.

    What else? What are some other thoughts on the Tableau S-1 IPO filing?

  • Pricing at the Atlanta Tech Village

    After three months of being open with a beta version at the Atlanta Tech Village we’ve tweaked ATV pricing over a dozen times and incorporated feedback from prospects and customers. In addition, the master plan for the Village is almost done, so we now have a good feel for the optimal layout, and what the corresponding rates need to be to make things successful.

    Here are the economics of the Atlanta Tech Village as well as the second round of ideas on the economics. After a couple more months under our belt, we have a several more updates on the economic model:

    • Renovation, including construction, furniture, and other associated fees is likely to be $500,000 to $1,000,000 more expensive than expected
    • Demand for private rooms is higher than expected, so a two person room is now $1,000/month for the first two people and then $200/person/month after that, making a room for three people the same price as three reserved desks in the coworking area ($1,200/month)
    • Stocked Coke refrigerators, ample snacks, and catered lunches every Friday are now standard for all members, resulting in a direct expense of $50+ per person per month, which we believe is worth it to create the best place possible and to engineer serendipity (the Free Food Friday lunches, as we call them, have proved to be amazing at bringing people together — in fact, it’s the largest weekly tech/startup/entrepreneurship event in the Southeast with 70+ people on a weekly basis). Overall, with 400+ members, this will add $240,000/year in direct expenses that weren’t contemplated before, which is a 20%+ increase in overall costs.

    Taking our current pricing, and the draft of the master plan, we have the following revenue potential for each floor:

    • 1st floor – 50 desks @ $350/month blended average due to being mostly hot desks ($210,000/year) plus conference center and coffee shop ($75,000/year)
    • 2nd floor – 28 private rooms @ $1,100/month blended average ($369,000/year) plus 20 desks @ $450/month blended average due to being mostly reserved desks ($135,000/year)
    • 3rd floor – 20,000 rental square feet @ $22/foot traditional space for tech companies ($440,000/year)
    • 4th floor – 10 private suites @ $3,500/month ($420,000/year) plus six private rooms @ $1,000/month blended average ($72,000/year)
    • 5th floor – 10 private suites @ $3,500/month ($420,000/year) plus six private rooms @ $1,000/month blended average ($72,000/year)

    So, overall potential direct revenue from tenants, assuming no churn and 100% utilization (which isn’t going to happen due to lag time with turnover), is $2,213,000 ($210,000 + $75,000 + $369,000 + $135,000 + $440,000 + $420,000 + $72,000 + $420,000 + $72,000). The new pricing for unreserved desks, reserved desks, private rooms, and private suites reflect the economics of the business. We’re super excited about ATV and are committed to making it the best tech and entrepreneurship center in the Southeast.

    What else? What are some other thoughts on the pricing at the Atlanta Tech Village?

  • One of the Best Sales Questions Ever

    Several years ago I was at a Jim Ryerson salesOctane sales training session as part of an Entrepreneurs’ Organization workshop. After covering a good bit of material we were in a section of the program on sales questions and prospect conversations. There, I learned one of the best sales questions ever that still sticks with me today:

    How so?

    It’s so simple, right? Salespeople have two ears and one mouth for a reason — listening should be done twice as much as talking. When asking questions, it’s best to ask open-ended questions as opposed to yes/no questions. One of the simplest and best ways to get a prospect to continue talking is to say “how so?”

    Tomorrow, when talking to a friend or family member, try using the “how so” question and see how well it works to get them to continue talking and sharing information with you.

    What else? What are some of your favorite sales questions?