David Cummings on Startups

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  • 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?

  • How Can I Help the Atlanta Tech Village?

    On a daily basis, when meeting someone about ATV, I almost always get the question “How can I help the Atlanta Tech Village?” This goes to show the awesome community support and pay it forward mentality we have as a city. Of course, when people are asking how they can help, they expect an answer like “please refer tech companies and tech startups to ATV” or “please get involved in our community.” Those are great, and important, but the real ask is even more strategic:

    Help us nurture startups so that they grow, succeed, and graduate

    No matter the coolness of the building, the greatness of the people, and the excitement of the vibe, if we don’t have startups becoming successful businesses, we’re not succeeding as a community. Simply put, we need success stories to create jobs, wealth, and to put Atlanta on the map.

    The next time you hear someone mention the Atlanta Tech Village, bring up the ultimate goal of nurturing more successful startups.

    What else? What are your thoughts on answering the “how can I help” question?

  • Being Expensive Means Saying “No” to Many Prospects

    Several days ago I wrote a post Expensive is Better than Cheap When it Comes to Pricing where I talked about my preference for focusing on the best experience knowing that it’s almost always more expensive as well. There’s another corollary to it that can be disconcerting to pleasers that look to make people happy: being expensive means saying “no” to many prospects.

    It’s so hard to generate leads and when someone comes calling, as an entrepreneur, it’s difficult to not get so excited that you throw up all your great information on the person. But, then, pricing comes up and the prospect wants everything you have, only at a much lower price — a big let down. When offering the best possible service, and therefore commanding a higher price, leads have to be turned away.

    Looking around, many of the best services are also the most expensive in their class:

    • Amazon Web Services – the most expensive cloud computing platform is also the best and most sophisticated (I recommend it to all tech entrepreneurs)
    • Rackspace – the most expensive managed hosting company has the best customer service and people, so you get what you pay for
    • Regus – the most expensive office suites at a cost typically 2.5x the equivalent space in the same building, but the ease of becoming a customer, number of locations, and consistency of services in unmatched

    Now, sometimes prospects do come along that are a good fit in the long-term, but don’t have the cash in the short-term, and there are ways to address it. Some companies offer special pricing for startups, many colleges offer scholarships, etc., so there are ways to have a premium product and still accommodate a handful of key customers. Being expensive still means saying “no” to many prospects.

    What else? What are your thoughts on having a premium product and saying “no” to many leads?

  • Notes from the Marketo S-1 IPO Filing

    I enjoy reading S-1 IPO filings. They’re just about the nerdiest, and most honest, documents you’ll find that spill all the darkest secrets of a company (salaries, equity ownership positions, valuations at each financing round, etc). So, when I read that Marketo’s S-1 filing is finally public, I jumped right in. Marketo’s the arch-enemy of Pardot, so over the years we’d debate things like how many customers do they really have (vs claimed to have), how much were they valued at each time they raised money, etc. Well, now we know.

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

    • Over 2,000 customers (pg. 1)
    • In 2011, one client paid over $324k that year – (pg. 1)
    • Revenues (pg. 1):
      2010 – $14mm
      2011 – $32.4mm
      2012 – $58.4mm
    • Losses (pg. 1):
      2010 – $11.8mm
      2011 – $22.6mm
      2012 – $34.4mm
    • Key benefits (pg. 3):
      – Drives faster revenue growth
      – Enables organizations to better build and retain long-term customer relationships
      – Streamlines the marketer’s world
      – Increases efficiency and speed of marketing execution
      – Provides deep analytical insight
    • Accumulated deficit of $82.2mm (pg. 10)
    • 79% of customers integrate with Salesforce.com (pg. 11)
    • 12.8% of revenue comes from outside the U.S. (pg. 17)
    • They define the SMB market as companies under 1,500 employees, with 80% of their customers in the SMB market (pg. 48)
    • Raised $107.1mm in financings (pg. 49)
    • Crowd Factory acquisition was for $13mm (pg. 72)
    • Five employees sold $2.5mm of their equity to a preferred shareholder in March 2012 (pg. 72)
    • Employees (pg. 96):
      Total: 339
      Research and development: 84
      Sales and marketing: 124
      Operations, customer support, and professional services: 98
      General and administrative: 30
    • Equity ownership (pg. 128):
      Venture capitalists: 85.5%
      CEO/co-founder: 6.6%
      Other co-founders: Not listed

    Overall, the Marketo S-1 IPO filing is as expected and follows the Silicon Valley SaaS playbook: find a market with huge growth opportunities, burn a ton of cash to be a market leader, go public, and likely get rolled up by one of the behemoths technology companies.

    The marketing automation market is enormous and Marketo is in a great position to capitalize on it.

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

  • Real-Time Lightweight Business Dashboards

    One of the trends we’ll be seeing this decade is more intuitive reporting and real-time dashboards. At Pardot we employed LED Scoreboards whereby we had a large TV mounted on the wall with our current quarter’s goals displayed in a Google Spreadsheet that was manually updated daily. From a technology standpoint, we had looked into real-time business dashboards but hadn’t gotten around to implementing one.

    Here are the real-time lightweight business dashboards I’ve seen on the market:

    • Geckoboard –
      $19/month for 20 connections
      12 employees on LinkedIn (source)
    • Cyfe –
      $19/month for unlimited everything
      1 employee on LinkedIn (source)
    • Leftronic –
      $42/month for 2 dashboards
      10 employees on LinkedIn (source)
    • Ducksboard –
      $25/month for 3 dashboards
      9 employees on LinkedIn (source)

    At a glance, it looks to be a small but competitive market. Real-time lightweight dashboards will become even more common as more and more businesses switch to products in the cloud with open APIs. I’m looking forward to trying them out.

    What else? Do you use a real-time lightweight business dashboard and what do you think of it?

  • Sam Walton: Made in America Book

    Recently I finished reading Sam Walton: Made in America, the autobiography of the founder of Wal-Mart. Two years ago I had read about the book on another blog as a great one for entrepreneurs to read — I wasn’t disappointed. Entrepreneur autobiographies is one of my favorite categories of book and this one is awesome, especially if you like entertaining anecdotes, leadership lessons, and inspiring ideas.

    Here are some notes from the book:

    • Sam started out in retail because that was the best job offer he had out of college
    • Bentonville, Arkansas was chosen because it was close to his in-laws and near four states for hunting seasons
    • Wal-Mart wasn’t started until Sam was in his 40s as it was an itch he had to scratch (a market opportunity he felt compelled to go after)
    • Having a plane and a pilot’s license was a competitive advantage for Sam so that he could fly around and visit stores as well as scout sites in the rural towns
    • Kmart was the 800-pound gorilla in the industry and many people thought Wal-Mart would stay regional and not be able to compete in Kmart’s markets
    • Wal-Mart’s heavy investments in technology and communications systems (e.g. satellites were necessary to share data since the internet wasn’t available) were considered unusual at the time but proved to be a critical part of their long-term success
    • Wal-Mart owned its distribution centers and tractor trailers, which was different than Kmart and Target, thereby providing greater levels of communication and responsiveness (a store could order something and have it delivered in 48 hours)
    • Culture was a main focus for Sam and he constantly looked for people that had talent and abilities in advance of their experience (people who could punch above their weight class)
    • Sam did an in-person weekly huddle on Saturday mornings with hundreds of store managers and the executive team religiously for decades, analyzing everything and sharing stories of what did, and didn’t, work much more frequently than most other companies — he cited this as one of the reasons they were able to grow so fast and dominate

    Whether you like Wal-Mart of not, it’s impressive to read the stories of the early days and learn how it was built. Sam Walton is an entrepreneur in the truest sense.

  • Expensive is Better than Cheap When it Comes to Pricing

    Pricing is a common question that comes up with first-time entrepreneurs. My preference is being on the expensive side rather than the cheap side so that the product is viewed as a premium offering, more money is available to provide the best experience, and to have some pricing flexibility in special deals (it’s always easier to offer a lower price than it is to offer a higher price when negotiating a deal).

    Here are a few examples where the product is more expensive and why:

    • Pardot is more expensive than many of it’s SMB competitors because we believed in providing the best product and service possible at the $1,000/month price point, and this resulted in extensively staffing up our engineering and services team ahead of our sales team, contrary to what our competitors did
    • The Atlanta Tech Village is viewed as an expensive coworking space (thanks Lisa for the comment), compared to others in town, because our goal is to be the best available, so we’re in a Class A midrise building with 12′ ceilings, free food and drink, fiber internet (~$40,000/year), a top-of-the-line Meraki wifi network (~$70,000 up-front), and more
    • Tesla’s first car, the Roadster, was an expensive $100,000+ sports car, based on a Lotus, used to prove an all-electric car could be great, and pave the way for progressively building more affordable cars

    Better, faster, cheaper — pick two — is a common saying for entrepreneurs. I prefer the first two and not the third. Expensive is better than cheaper when it comes to pricing.

    What else? What are your thoughts on being more expensive, all things equal, for pricing?

  • 3 Misconceptions About the Atlanta Tech Village

    At the Atlanta Tech Village we probably average 25 people per week coming through on a tour of one sort or another, so it’s fun to hear all the different questions and comments. I also enjoy asking the question “How did you first hear about ATV?” and most of the time it’s from a friend or via Twitter. As with anything, there are a number of misconceptions.

    Here are the top three misconceptions about the Atlanta Tech Village:

    1. Amount of Space – Many people think the Atlanta Tech Village is one floor or one section of the building when it is actually the entire building, patio, and parking deck — 103,000 square foot building and a 93,000 square foot parking deck.
    2. Incubator Equity – ATV is a high tech entrepreneur center and not an incubator — members pay a monthly fee and there’s no equity component or shared services component. We do have investors in the building along with other service providers, but no equity is involved to join.
    3. Vetting of Ideas – We believe we can’t pick the good ideas from the bad ideas better than anyone else, but by providing a great community and holding people accountable to our four core values (be nice, dream big, pay it forward, work hard/play hard), we can increase the likelihood of success.

    ATV is designed to service technology and technology-related companies that have a unique set of needs in their quest to change the world. Come join us.

    What else? What other misconceptions have you heard about the Atlanta Tech Village?