David Cummings on Startups

Blog

  • The First 12 Months of a Seed-Funded Startup

    Yesterday I was reading the post Moderate Success is the Enemy of Breakout Success and saw the note that Jason Goldberg of Fab.com said that if a startup doesn’t breakout in a year, he moves one. Now, I agree with the author, Jason Calacanis, when he says that it takes more like 2-3 years to determine if something is going to be a big success.

    That question got me thinking about our Pardot experience and whether or not we felt like it would be a breakout success at the end of 12 months. From day one of working full-time on it we had financing, so I’d consider it a seed-funded startup from the get-go whereas most startups would need 3-6 months to raise money if they weren’t able to do things in a scrappy (bootstrapped or capital light) manner.

    Here’s the first 12 months of Pardot beginning when my co-founder and I started working full-time on the business March 1st, 2007:

    • March – Get the basics together like a minimum viable product, simple marketing site, bank account, etc
    • April – After several customer discovery interviews, decided to pivot from a pay per click bid arbitrage lead generation platform (like LendingTree.com for B2B tech lead gen) to a B2B marketing automation platform
    • May – Hire an awesome lead engineer (I wrote code full-time for the first year as well) and build the product with direct feedback from Hannon Hill, the content management software company I had started seven years earlier
    • June – Hire 11 full-time interns (eight programmers and three non-technical) (Note: this is not recommended and I wouldn’t do it again)
    • July – Continue rolling out product features to production for Hannon Hill to use (everything about the product and company was live but there was no external sales or marketing)
    • August – Start marketing the product publicly, begin recruiting for a sales person, and interns finish up
    • September – Hire two full-time sales people (one doesn’t work out and the other works out unbelievably well)
    • October – Give product demos to potential resellers that were already connected with Hannon Hill and start engaging with leads
    • November – Enter into a few free trial relationships and start collecting more feedback and product ideas
    • December – Sell our first couple customers
    • January – Continue to receive excellent reviews from prospects and the number of customers grows modestly
    • February – A handful of additional customers sign on and we start thinking about raising prices to reflect the product’s value

    So, at the end of the 12 months, beginning from a cold start, we had an awesome team, product, and ~12 paying customers with strong market validation that we were on to something. I didn’t know if we’d be a breakout success, but all the indicators at that point were looking good and I felt we’d be successful.

    What else? What are your thoughts on the first 12 months of a seed-funded startup?

  • The Art of the Customer Discovery Interview

    Customer discovery is hard. As an entrepreneur with a bias towards action, the action of building features in a product is much more fun than talking to potential customers. Only, if you don’t talk to potential customers early and often, the chance of success is significantly diminished. Once you’ve mentally agreed that talking to potential customers before or during the earliest stages of product development is key, it’s time to do customer discover interviews.

    Here are a few things to keep in mind with customer discovery interviews:

    • Don’t lead the witness — it’s all too common to try and guide the potential customer down a path the jives with your desires
    • Ask broad, open ended questions
    • Get a good understanding of how things work currently with as much excruciating detail as you can uncover
    • Find out what the ideal solution would be if time and money were no issue (if you could wave a magic wand and have anything you wanted , what would it be?)
    • Never show any prototypes you might have until after you’ve asked all your main questions (don’t introduce bias!)

    Customer discovery interviews are super valuable and should be employed by all entrepreneurs.

    What else? What are some other ideas on the art of the customer discovery interview?

  • Ask for Product Feedback from Prospective Customers, Not Friendlies

    Recently an entrepreneur reached out to me asking for feedback on his Software-as-a-Service (SaaS) application. By feedback, he was interested in my actual thoughts on the user interface, user experience, and overall application. Unfortunately, I’m not his target audience, and while I can give ideas from a general web-app snob/enthusiast perspective, what I think doesn’t matter — what matters is what prospective customers think.

    Here are a few reasons why it doesn’t make sense to ask for product feedback from friendlies:

    • Customers pay the bills, not people who like you and want you to succeed
    • Feedback from non-prospects can influence thinking in a way that doesn’t add value
    • Time is best spent with actual prospects
    • More functionality built into the product now that the market doesn’t need significantly slows down future development

    The next time an entrepreneur asks for product feedback from you, and you aren’t the target audience, respectfully decline and redirect the energy to customer development.

    What else? What are your thoughts on asking for product feedback from prospective customers, not friendlies?

  • Go Deep Instead of Wide with a SaaS Product

    Recently I was talking with an entrepreneur that was showing me his Software-as-a-Service (SaaS) product. After a quick 10 minute demo, which was crisp and complete, he started talking about what’s next and how they were moving into an adjacent opportunity. I proceeded to ask about adoption rates, what were the “must have” features of the product, and what would the benefits be if they continued to go deeper instead of wider. The core product looked good and I didn’t buy the strategy to go broader.

    Here are some reasons for going deep with a SaaS product:

    • Be the best that you can be instead of just OK on a number of fronts
    • Resources are limited, so use them wisely
    • Deep functionality to provide specific value is much more defensible than light-weight functionality
    • Specialists command much more money than generalists
    • SaaS is readily integrated with third-party products via APIs such that the idea of an all-in-one suite is not going to win in the future

    Whenever debating product functionality, always ask yourself if you’re going deeper or wider, and the vast majority of time the answer should be deeper.

    What else? What are your thoughts on going deep instead of wide with a SaaS product?

  • Entrepreneur Questions for Other Entrepreneurs After a Startup Exit

    It’s a great feeling having so many different people congratulate you after the successful sale of your startup. People that work as a chore, instead of as a passion, ask if you’ll retire to an island, implying there’s nothing left to accomplish. Entrepreneurs, who love changing the world, ask what’s the next business you’ll start or problem you’ll tackle. There’s also another very popular questions entrepreneurs like to ask with an air of fascination: how did the deal go down?

    Common questions from entrepreneurs about selling a business:

    • Did you hire an investment bank?
    • Did you shop the deal around?
    • How much did you think the business was worth?
    • How long did it take?
    • How distracting was it for the senior management team?
    • When were you confident that a deal was going to get done?
    • How did the employees react?
    • How’s the transition going?
    • What’s going to change in the business?

    Answering these questions and helping other entrepreneurs think through them for their own companies is fun and rewarding. Every deal is different so there’s always something that can be learned.

    What else? What are some other questions entrepreneurs ask other entrepreneurs after a startup exit?

  • Bessemer’s Updated 5 Cs of Cloud Finance

    Continuing with the post a couple days ago on Bessemer’s Updated Top 10 Laws of Cloud Computing (that name is better suited to be “Cloud Computing Companies” as the current title sounds more technical than it really is) one of the most important ones, after #9 about corporate culture is #5 titled: Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance. The good thing about these metrics is that they are incredibly powerful while still being easy to understand — a rare feat in much of the financial world.

    Here are Bessemer’s 5 Cs of Cloud Finance:

    1. CMRR, ARR, & ARRR – Committed Monthly Recurring Revenue, Annual Recurring Revenue, and Annual Run Rate Revenue.
    2. Cash Flow – Start with Gross Burn Rate and Net Burn Rate, then hopefully turn to Free Cash Flow over time.
    3. CAC – Customer Acquisition Cost Payback Period.
    4. CLTV – Customer Lifetime Value.
    5. Churn & Renewal Rates – Logo Churn, CMRR Churn, and CMRR Renewed.

    Every Software-as-a-Service company should have a Google Spreadsheet where they track each of these values on a monthly basis and discuss it with their senior management team on a regularly.

    What else? What are your thoughts on Bessemer’s Updated 5 Cs of Cloud Finance?

  • More Entrepreneurs or More Resources for Existing Entrepreneurs

    One of the questions that still nags me is why aren’t more entrepreneurs successful? We have amazing information and resources online, tons of community events, and a wealth of people that truly want to help out. On the surface, it appears that the necessary ingredients are present to have a higher success rate. Now, I don’t know the previous success rates or the current success rates, so this is merely based on my gut.

    As I look around the community, I want to see many more startups that are clearly on their way to being a viable, on going concern (my definition of a successful business). The lean startup movement and tools like the business model canvas are great for helping entrepreneurs spend their time more wisely, thus increasing the likelihood of success. I haven’t seen the increased success yet, but I’m hopeful.

    Another theory is that you can’t pick winners and some people will make it and most won’t make it. If that’s the case, and the resources for success are better and costs lower than ever to launch a tech startup, the next area of focus is to get more people that are thinking through ideas to take the plunge. Accelerator programs like Y Combinator and Flashpoint are great entry points for entrepreneurs to jump in with a group of peers around them.

    I don’t have the answers but it appears that the next area of focus is increasing the top of the funnel of total number of entrepreneurs to increase the number of successes.

    What else? What are your thoughts on helping more people become entrepreneurs or investing more in resources for existing entrepreneurs?

  • Bessemer’s Updated Top 10 Laws of Cloud Computing

    Bessemer Venture Partners publishes some of the best content available on Software-as-a-Service/cloud computing. Recently, they just updated their Bessemer’s Top 10 Laws of Cloud Computing to reflect several more years of insights into best practices for the popular business model.

    Here are Bessemer’s Top 10 Laws of Cloud Computing:

    1. Drink Your Own Champagne (use your software for your own business)
    2. Build for the Doer, Build Employee Software (make it for the line-of-business manager and not for someone that doesn’t actually use it on a regular basis)
    3. Death of the suite; long live best-of-breed and even best-of-feature
    4. Grow or Die
    5. Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance
    6. Build the Revenue Engine, and only invest aggresively if you have a short CAC Payback Period
    7. Make online sales and marketing a core competency
    8. The most important part of Software-as-a-Service isn’t “Software” it’s “Service”
    9. Culture is key as you build your dream team
    10. Cash is (still) king – Cloudonomics requires that you focus on cash flow above operating profits, and plan your fuel stops very carefully

    Every tech entrepreneur, cloud or otherwise, should read Bessemer’s Top 10 Laws of Cloud Computing.

    What else? What are your thoughts on Bessemer’s updated Top 10 Laws of Cloud Computing?

  • The Hypepotamus Gift to Atlanta

    Earlier today I spent several hours at Hypepotamus, an awesome coworking space right next to Georgia Tech and Tech Square in the heart of Midtown Atlanta. Hypepotamus, if you haven’t heard of it, is a free (no charge!) facility for designers, engineers, and entrepreneurs sponsored by Kevin Wallace (@kevinbwallace) and Heath Hyneman (@hhyneman) purely to help grow the tech startup community. In addition, Hype, as it’s affectionately known, is expertly managed and run by Scott Henderson (@scottyhendo).

    Here’s some of the thinking about the Hypepotamus gift to Atlanta:

    • Serendipitous interaction is key to growing a community
    • Startup leaders are all types of people, not just company co-founders
    • Startups, being resource constrained, benefit by helping each other
    • Community events foster relationships and help with the human desire to be a part of a tribe

    Regardless, the community should be measured by the number of successful companies (not money raised) and I’m optimistic Hypepotamus fills a gap that will help improve the startup community.

    What else? What are your thoughts on the Hypepotamus gift to Atlanta?

  • Key Items for an Effective Coworking Space

    Last week a friend approached me and confirmed the issue raised in the Coworking Conundrum for Startups Slacking post. He had previously worked in a coworking space for several months and said the distraction challenges, both in a big communal area as well as other entrepreneurs not working hard, are very real. I then asked more questions about what he liked, and didn’t like, with the co-working experience.

    Here are some key items for an effective co-working space:

    • Super fast, plentiful bandwidth
    • Amazing coffee
    • Great chairs
    • Multiple sitting areas (desks, standing desks, lounge chairs, etc)
    • Bright natural light
    • Private conference rooms and phone booths (super small conference rooms for phone calls — no phone calls in the large communal room)
    • Easy parking/transportation options with 24/7 access

    Coworking spaces continue to grow in popularity and are perfect for creative professionals that want to be around other people while working in a productive environment.

    What else? What are some other key items for an effective coworking space?