David Cummings on Startups

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  • SaaS Leaky Bucket Number

    Software-as-a-Service (SaaS) has a number of important metrics for the business model with one of the most important being customer renewal rates / customer churn. Josh James, the co-founder of Omniture, which was bought by Adobe for $1.8 billion a couple years ago, sent this tweet out last week:

    http://twitter.com/#!/joshjames/status/154644835490463744

    The idea that they’d sign up 1,200 customers per month and have 800 customers leave per month drives home the need to closely watch customer renewals. The ratio of new customers to lost customers is critical and now has a formal name:

    Leaky Bucket Number = New Customers Per Month / Customers Lost Per Month

    Note that it doesn’t take into account the average revenue per new customer vs the average revenue per customer that leaves as well as customer upgrades or downgrades. Generally, it’s a good metric to monitor because it’s easier for people to understand we signed 29 customers and lost 11 customers because it continues to keep the number of lost customers top-of-mind. And, it’s especially important for this number to be greater than one otherwise the startup is losing more customers than it’s adding.

    What else? What do you think of the SaaS leaky bucket number?

  • #1 Failure of Idea-Stage B2B Startups

    Last week I was talking to an entrepreneur about an idea-stage B2B startup. After a few minutes of casual talk I asked for the pitch: tell me about the idea. Now this wasn’t a technology idea, so I didn’t have much experience, but it still didn’t sound right. I wasn’t clear why a business would pay for it and how it would be distributed. A few minutes into the idea I went for the hardest question that represents the #1 failure of idea-stage B2B startups:

    What did 10 potential prospects of this product say when you asked them about it?

    Crickets.

    The entrepreneur hadn’t talked to prospects yet. It’s much easier, and more fun, to get feedback from other entrepreneurs compared to talking to prospects. There’s a fear that the idea isn’t good enough and needs to be refined before talking to prospects. Unfounded. The number one failure of idea-stage B2B startups is not talking to prospects immediately and pursuing customer driven development.

    What else? What are some other mistakes idea-stage startups make?

  • Results Only Work Environments (ROWE) for Startups

    Today’s EO Accelerator quarterly education day was on people and more specifically accountability. As part of the material there was a lengthy discussion on results only work environments (www.goROWE.com). ROWE is the idea that results are what matter, not people being in the office from 8am – 5pm daily.

    Here are some tips when considering a results only work environment for startups:

    • Start with one telecommute day per week for everyone in the office and work through the kinks of everyone being able to work remotely (e.g. laptops, phones, etc)
    • Define the results for every position (the result for some positions is very simple like greet visitors at the front desk between certain hours whereas for others it can be more difficult)
    • Implement a no vacation tracking policy (e.g the policy is two words: be reasonable) as a baby step to ROWE
    • Make meetings optional and see who goes and doesn’t go as a proxy for the quality and value of the meetings
    • Work with one department to be ROWE before rolling it out to everyone else

    ROWE is continuing to grow and expand with startups being one of the best places for them.

    What else? What are your thoughts on results only work environments for startups?

  • Flashpoint Demo Day Startups January 2012

    Today I had a great time watching 15 startups in the Flashpoint cohort give six minute pitches at the Georgia Tech Research Institute. The teams have been working together since September 2011 and have made amazing progress.

    Here are notes from the 15 startups:

    Social Fortress
    Eliminate key risks associated with putting sensitive data into the cloud.
    Cloud isn’t as prevalent with financial services, healthcare, government, and IP rich industries
    How it works:
    1. Uniquely encrypt and tag all data.
    2. Provide global audit trail.
    3. Provide universal credentialing.
    Security and privacy are cloud adoption inhibitors
    Biz model: per seat monthly license
    Executed term sheet to raise up to $2M

    Lucena Research
    Bridges hedge fund technology to individual investors
    Quant in a box
    Like speed checkers, not chess
    People want to trade, and tools enable them
    Powered by artificial intelligence and machine learning
    Growing trend where people want to manage their own money
    Smaller hedge funds can’t afford full quant staff
    3 Questions investors want answered:
    Which way is a stock headed?
    How can I bound risk?
    How did it work in the past?
    Raising $1M for R&D, development, sales, and marketing

    CollectorDASH
    A social and mobile ecommerce platform
    Collectors are unique consumers – social and super-passionate
    Collectors: discover, manage, share, trade, buy, and sell
    Started as platform for repurposability
    Action figures first, then trains, then American Girls, etc
    Go to market via OEM or strategic partners e.g. dealers/retailers, manufacturers, brands/licensors, affinity groups/clubs
    www.Collector-ActionFigures.com is live today
    Going to market with Trainz.com
    Make money on premium subscriptions, transaction fees, and other sales
    Raising money

    Badgy
    Social “likes” are similar to SEO inbound links
    Marketers spent $20B last year on SEO and SEM
    What’s after the “like”? 88% of Facebook “likes” never return
    Quilted Northern is a customer
    Several paying customers
    Charge $5-$10k based on number of Fans
    Raising $800k
    Building self-service platform

    Sports Crunch
    Enables athletes, coaches, and fans to connect
    Reconnect, replay, relive
    Social networks have noise
    Derek Anderson is an advisor
    Sports is the universal unifier
    Ability for athletes and coaches to upload content for timeline
    Make money through advertising and premium services
    Raised money through ex-ISS CTO and Flashpoint
    Raising $750k seed round

    Trimensional
    3D scanner for iPhone
    Capture digital 3D models in seconds using an iPhone or iPad
    Replacing $20,000 piece of equipment with an app
    Used in entertainment, 3D printing, medicine, security, mechanical engineering, industrial design
    Entertainment: Actors are digitized via expensive 3D scanning
    Put fans in the background of films and video games
    Users upload their images into the Trimensional database
    50,000 paying customers in 2011…and they can’t do anything
    In discussions with film and media industry
    Applied for provisional patents
    Raising $500k

    eCommHub
    Put your store on autopilot
    Problem: no standard way of communicating with third-party vendors
    Vendors have own requirements / file formats
    eCommHub is a self-service middleware that automates inventory management and order processing through any third-party vendor
    Nearly $2M processed through product already
    Integrated with Shopify already (top 5 shopping cart vendor)
    Going to expand to top five shopping cart platforms
    SaaS business model based on # of vendors, products, and orders
    Raising $450k

    CodeGuard
    Time machine for websites
    Continuous site monitoring with alerts and backups
    $10/month/site on average for paid plan
    Targeting the shared hosting segment of the market
    95% of the market underserved (enterprise is served)
    Customer acquisition direct, through developers, and through hosting companies
    Raising $1.2M
    Taking prototype to commercial product
    Integrating technology with major resellers

    IdeaString
    SaaS social business solution
    Companies need a way to capture their collective brain-power for innovation
    Historically little innovation to drive innovation
    Helped Celanese realize $9 million in immediate cost reduction by generating 4-6 new ideas per day
    A top priority is to find ways to reduce costs through innovation
    Application: part idea exchange, social network, and event management all focused on innovation
    Raised money from angels

    Soket
    Companies need to manage their site, Facebook, Twitter, Foursquare, Yelp, OpenTable and more
    Social content management system for people managing content engagement for multiple local businesses
    Social LSM: Social “Local Store Marketing”
    Sell directly as well as through channel with marketing agencies
    Per month per store subscription fee
    Raising $1M series A funding

    N4MD
    Content aggregation publishing platform
    Help repurpose content into e-books
    Interest server: smart web crawling robot, human curating interface, publishing tool to popular mobile apps
    Home Depot – Spring time is their big season so interested in brining social, local content to customers conversation for hundreds of stores
    Raising $500k

    Simmer
    Easing conflicts at home
    Targeting parents of teens age 13-17
    Goal is to ease the fighting and help communicating with teens
    Resources, tools, and technologies to help
    Looking for investors who have a shared interest in solving this problem

    Billfold
    Awesome billing system for web hosting
    Web hosting is a $10B market with 35,000 companies
    10% of revenues are spent on billing
    Web hosting billing software is all installed, not in the cloud
    SaaS billing system with PCI compliance for hosting companies
    Take billing from 10% of revenue to 4% of revenue
    Adjacent telecom markets like VoIP, ISPs, and media
    Raising a round

    Saving Grace
    Fundraising service for churches and congregants using daily deals
    Use the church as a channel for deals
    John’s Creek United Methodist Church has 3600 members and has 150 businesses within a short drive, all with a vested interest in the community
    Stewardship is the responsible use of what’s given to us
    Help churches save money, help people save money, and help merchants find customers
    Raising $300k

    Pindrop Security
    Focused on stopping phone fraud
    Came out of PhD research from GA Tech
    Caller ID is broken
    Phone fraud is easy to do by calling consumer to get info then call bank and pretend to be the customer
    $37B in identity theft annually with 10% starting by phone
    Phone verification solution that shows every phone call has a unique fingerprint
    Determine type of phone, geo-location, fraud caller, caller identity
    Products:
    Reputation portal and intelligence feed
    Anti-fraud call analyzer
    Call authenticator
    Call protection apps
    Raised $255k
    Raising seed round of $1M

    The teams did a great job and I was very impressed. The next Flashpoint cohort starts June 4th, 2012.

  • Startups Should Default to Laptops for Employees

    Three years ago we started defaulting laptops for employees in place of desktops and we’ve never looked back. Laptops are so cheap, portable, and powerful that there are few reasons not to use them. When a laptop, especially a MacBook Air, is paired with a nice monitor (at least 24″) you have the ultimate modern workstation. Yes, some hard core CPU-intensive applications and games are better for high-end desktops but those are few and far between.

    Here are a few items to keep in mind when you go to a company-wide laptop plan:

    • Conference room laptops should be locked down because inevitably people will forget their laptops at home and borrow it without telling anyone
    • Extra laptops and laptop chargers should be ordered and managed by someone in the event an employee forgets theirs at home
    • Theft of laptops will occur when an employee forgets about it in their car, so be prepared with remote-wipe software and require a password upon machine start
    • Ensure that laptops during meetings are used for notes and not email (do the lunch check: if someone calls someone out for checking email during the meeting and they are right, the person checking email buys the other person lunch and vice versa if they’re wrong)

    Laptops for all employees has worked great for us and I highly recommend it.

    What else? What are your thoughts on startups defaulting to laptops for employees?

  • The Four Areas of Sales Rep Specialization in Startups

    Continuing with yesterday’s book review on Predictable Revenue, there’s one critical takeaway: specialization of sales functions is paramount. The idea is that sales reps are often juggling multiple tasks and even the best intentioned ones spend time where they can maximize their personal commission. Inevitably, when the near-term opportunities grow, the long-term prospecting fades. When the near-term opportunities grow, the farming and account maintenance of existing customers fades. Enter specialization.

    Here are the four areas of sales rep specialization in startups:

    • Market Response Rep – Qualifies and nurtures inbound leads that are handed off to an account executive once engaged in the sales cycle (one rep can handle approximately 400 inbound leads per month)
    • Outbound Sales Development Rep – Cold calls and emails potential prospects and nurtures them until they are ready for an account executive (one rep should generate 10-20 qualified leads per month)
    • Account Manager – Manages the relationship with existing customers and continually looks for ways to add more value
    • Account Executive / Sales Rep – Carries a quota and is responsible for taking leads engaged in the buying process through to close and hand-off

    When a person on a sales team spends 30% of their time on one of the above functions that isn’t their primary function, that’s a good sign there’s enough work available for a full-time person dedicated to it. After you hire a sales rep (before a VP of Sales!), the next hire should likely be a sales development rep.

    What else? What are your thoughts on the four areas of sales rep specialization in startups?

  • Predictable Revenue Book Review

    Recently I read Predictable Revenue: Turn Your Business Into A Sales Machine With The $100 Million Best Practices Of Salesforce.com. This is a good book for startups with a B2B sales process and average lifetime values of at least $10,000. The general premise is that companies should have a dedicated person/team that is responsible for prospecting and generating qualified leads with quota-bearing sales reps exclusively focused on engaged leads (no prospecting).

    Here are a few notes from the book:

    • Targeted unsolicited emails are more effective than cold calls
    • Use SalesLoft to manage the entire process
    • Separate roles should be used for prospecting for leads (sales development reps), following up with inbound leads (market response reps), closing deals (account executives), and maintaining accounts (account managers)
    • Delineated roles result in better results and specialization of skills as well as more measurable results
    • A full-time sales development rep should create 10-20 qualified leads per month
    • A full-time market response rep can handle 400 inbound leads per month

    There’s too much talk of “Cold Calling 2.0” in the book which is literally cold information-request emails (legal spam) to targeted people within companies that fit the ideal customer profile. It does make sense that busy executives are more likely to respond to a short, relevant email that is highly targeted.

    Overall, the book is recommended for startups with a B2B sales process that want a more modern perspective on consistent quality lead generation, and thus more predictable revenue.

    What else? What are your thoughts on Predictable Revenue?

  • Flashpoint Demo Day on January 10th

    Next Tuesday, January 10th is the first Flashpoint Demo Day at Georgia Tech Research Institute. Flashpoint is a startup accelerator that is part startup school and part startup factory. With 17 companies in this first cohort, there are a variety of strong B2B and B2C technology startups.

    Flashpoint is actually having three Demo Days in January:

    Earlier today it was announced that Andreessen Horowitz invested in Pindrop Security, one of the Flashpoint cohort startups — a great prelude to the Demo Days.

    I’m looking forward to Demo Day next week and I’m impressed by the progress the startups have made over the last 90 days.

    What else? What are your thoughts on Flashpoint and accelerator Demo Days in general?

  • Revenue Growth for Startups isn’t Linear

    There’s plenty of jargon terminology in startupland, one of which is ‘hockey stick growth.’ The idea is that revenue growth isn’t linear but rather starts out really slow and at some point (hopefully) things really take off.

    Imagine the annual revenue numbers as follows:

    • Year 1 – $75,000
    • Year 2 – $150,000
    • Year 3 – $300,000
    • Year 4 – $1,000,000
    • Year 5 – $4,000,000

    So, if the company did $4M in Year 5 revenue, and they are on the accelerated growth part of the hockey stick, their growth as a percentage basis is higher than the earlier years and on an absolute basis it’s tremendously higher. The value creation for most successful startups takes place when they hit the accelerated growth portion. From a startup valuation perspective, high growth is significantly more valuable than low growth, everything else being equal. Revenue growth for successful startups is almost never linear.

    What else? What are some reasons revenue growth for startups isn’t linear?

  • Costco and Amazon Prime are More Similar than you Think

    What if you were a retailer that operated like a Software-as-a-Service company whereby you barely marked up your products and you made the bulk of your profits off the recurring revenue subscriptions? Costco does it. Amazon Prime is doing it. Think about it for a second: would you rather break-even selling products and make good money off of predictable, high margin recurring revenue or make varying margins off products with less predictability?

    Amazon Prime is really Costco delivered to your doorstep.

    If Amazon Prime has 5 million subscribers (probably high) that pay $80 per year, and they mark up products barely enough to cover the expedited shipping, inventory, operations, etc, that’s $400 million per year of profit (assume the $80 per year is nearly all profit). $400 million per year of profit is solid. And they’re just getting started. And they’re giving consumers more reasons to sign up, like free streaming movies and TV shows.

    Look for more services with an annual fee that sell their product or service near cost and make all their profit off the subscription fee.

    What else? Are Costco and Amazon Prime more similar than you thought? What are some more examples of this model?