David Cummings on Startups

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  • 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?

  • 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?