David Cummings on Startups

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  • Change the World or Pursue a Cool Idea

    Recently I was meeting with an entrepreneur that’s in transition and trying to figure out what’s next. Towards the end of the conversation he brought up an internal struggle: should I hold out for an idea that can change the world or pursue a cool idea that interests me but isn’t as grandiose. Naturally, this isn’t an easy question.

    We debated the topic a bit and I offered up that absent a big idea now, it’s better to keep moving and pursue a cool idea that’s of deep interest. Many would-be entrepreneurs suffer from analysis paralysis holding out for the “great” idea. Yet, most initial ideas fail and require a pivot.

    Pursuing an area of interest and starting the startup is better than holding out for an idea that might never come.

    What else? What are some more thoughts on change the world ideas vs cool ideas?

  • Demonstrating Product Value in the Application

    One of the on-going challenges, and opportunities, for a SaaS application is to show the user the value they’ve received using the product. At Pardot, we worked hard to show the product value through revenue generated, marketing pipeline, and campaign ROI. Of course, demonstrating product value took time depending on the volume of leads, marketing activities, and length of the customer’s sales cycle.

    Here are a few thoughts on demonstrating product value in the application:

    • Revenue Generated – Connecting the product to revenue generated is the ultimate in showing value. If there’s ROI, prove it.
    • Time Saved – Most applications have a time saving element. Quantifying it can be hard but worthwhile.
    • Items/Objects Used – Reminding the users of the volume of product usage — invoices sent, contacts created, etc. — helps realize the value.
    • Email Updates – Sending product usage summary emails to the user keeps the value top-of-mind on a regular basis. Weekly emails are recommended.

    Entrepreneurs would do well to ensure that the product demonstrates its value to the end-user.

    What else? What are some other ways to demonstrate product value in the application?

  • Weekly Update Email

    One of my favorite communication strategies for entrepreneurs post product/market fit is a weekly update email to all constituents: employees, advisors, mentors, and investors. Initially, the email should be pretty simple and then expand as the company grows and departments are formalized. Here’s an example format:

    • Intro
      • Quick paragraph summary of last week
    • Culture Highlight
      • A story or example from the week that exemplifies the company culture and recognizes one or more people
    • Annual Goals
    • Quarterly Goals
    • Quarterly Priority Projects
    • Sales
      • The top three weekly metrics for the sales team, or for smaller teams, the top three metrics for every person on the sales team (e.g. calls, appointments, deals won, new recurring revenue, etc.). By having every sales rep listed with their metrics, it provides transparency and peer-pressure to hit their numbers.
      • Comments or highlights from last week (e.g. the name of a big customer win or story from the team)
    • Marketing, Services, Support, Engineering, Operations, etc. (each has their own section, just like the Sales section)
      • The top three weekly metrics
      • Comments or highlights from the week

    Yes, it’s more work on a weekly basis. Yes, it’s a commitment. Yet, when done consistently, this weekly update email is one of the best techniques for an entrepreneur to increase communication and transparency in a scalable way.

    What else? What are some more thoughts on the weekly update email?

  • Video of the Week: How to Start a Startup (Sam Altman, Dustin Moskovitz)

    For our video of the week, watch How to Start a Startup (Sam Altman, Dustin Moskovitz). Enjoy!

    From YouTube:
    Sam Altman, President of Y Combinator, and Dustin Moskovitz, Cofounder of Facebook, Asana, and Good Ventures, kick off the How to Start a Startup Course. Sam covers the first 2 of the 4 Key Areas: Ideas, Products, Teams and Execution; and Dustin discusses Why to Start a Startup.

    See the slides and readings at startupclass.samaltman.com/courses/lec01/

  • Evaluating New Product Ideas

    One of the on-going challenges in a startup is evaluating new product ideas. As the product achieves product/market fit and the customer base grows rapidly, more new product ideas come in from customers, prospects, partners, and all internal teams (sales, support, success, strategy, etc.). Here are a few ideas for evaluating new product ideas:

    • Overall Strategy – How does the new product idea fit in with the overall strategy? Is it consistent with the current direction or offer a different direction?
    • Existing Customer Base – Does the new product idea help 80% of the existing customers? If not 80%, then what percentage will find value from it?
    • Desired Customers – Does the new product idea help 80% of the desired customers going forward? How does the existing customer base differ from the desired customer profile (startups often go up-market over time)?
    • Request Quantity – How often has this idea come up? How many “votes” does it have from customers?
    • Backlog Priority – Where might this new idea fit in with the backlog? How would it be prioritized?

    New product ideas never stop. Entrepreneurs would do well to create a process to store, evaluate, and process new product ideas.

    What else? What are some more thoughts on evaluating new product ideas?

  • What are you solving for?

    One of the top entrepreneur-turned-investor in town introduced me to a phrase that I’ve found valuable: what are you solving for? When an entrepreneur wants to do something, like launch a new initiative, you have the common questions like “why?” and “what are the pros and cons?” but those don’t always get to the core. An entrepreneur might want to do X but misses solving for the real issue.

    Entrepreneurs should ask the “solving for” question on major initiatives, including:

    • Planning
    • Strategy
    • Fundraising
    • Recruiting
    • Product features

    Ask the “what are you solving for?” question and assess how it relates back to the original initiative.

    What else? What are some more thoughts on the “what are you solving for?” question?

  • 2017 Internet Trends

    Mary Meeker is out with with her excellent annual Internet Trends 2017 report. Mary has been publishing an influential annual report for many years, and this one doesn’t disappoint.

    https://www.slideshare.net/kleinerperkins/internet-trends-2017-report

    Here are a few sections from the slides:

    • Global Internet Trends = Solid….Slowing Smartphone Growth
    • Online Advertising (+ Commerce) = Increasingly Measurable + Actionable
    • Interactive Games = Motherlode of Tech Product Innovation + Modern Learning
    • Media = Distribution Disruption @ Torrid Pace
    • The Cloud = Accelerating Change Across Enterprises
    • Heathcare @ Digital Inflection Point

    Want to know the major Internet trends? Go read the Internet Trends 2017 report.

  • Another Publicly-Traded SaaS Company Going Private

    Earlier today Vista Equity Partners announced they were acquiring Xactly Corp (NYSE:XTLY) and taking it private for $564 million. Vista has already bought several public SaaS companies including Marketo for $1.8 billion and Cvent for $1.65 billion, among other acquisitions. Public markets are supposed to price in all known information, yet Benjamin Graham’s famous quote still rings true today:

    In the short run, the market is a voting machine but in the long run, it is a weighing machine.

    The idea is that opinions on public companies fluctuate, along with their corresponding stock price, on a regular basis. Only, over an extended period of time, their value is based on the underlying substance.

    Let’s look at info on Xactly Corp from Google Finance:

    • Xactly Corporation is a provider of cloud-based incentive compensation solutions for employee and sales performance management.
    • 450 employees
    • Current annualized run rate $97.2 million
    • Annualized year-over-year growth rate of ~20% (hence slightly less than a 6x exit valuation on run rate not including cash on hand and debt)

    For more information on Xactly, read the notes from the S-1 IPO filing.

    For Vista Equity Partners, they must believe they can generate annualized double-digit returns on the investment. Here are a few ideas how they might do it:

    • Substantially Increase the growth rate through new strategies or direction
    • Roll up a number of smaller SaaS companies in the sales performance market grow much faster through an in-organic approach
    • Do nothing and believe that the momentum and potential for SaaS over the next 10 years is greater than what the public markets believe

    My guess is that it’s a general bet on SaaS and better long term potential than markets price in. I’m interested to see how it plays out over the next 5-7 years.

    What else? What are some more thoughts on another publicly-traded SaaS company going private?

  • The Three Critical Monthly Cash Questions

    Whenever I meet with an entrepreneur that’s raising money I ask about current funding, burn rate, and the number of months of runway. Managing cash, and understanding the corresponding business unit economics, are two critical functions of an entrepreneur, yet many don’t do it. In fact, ensuring that there’s always enough cash in the bank is one of the three most important things a CEO does.

    Every month, entrepreneurs should be able to answer these three questions immediately:

    • How much cash do we have?
    • How much cash are we burning each month?
    • How many months do we have until we run out of money?

    Pretty simple, right? Only, many entrepreneurs I talk to can’t answer these three questions with confidence. Entrepreneurs need to understand the importance of cash and manage it accordingly.

    What else? What are some more thoughts on the three simple monthly cash questions?

  • Customer Success for Company Success

    Continuing with yesterday’s post on Second Order SaaS Revenue, it’s important to drill into the role of customer success and how it drives company success. There’s an excellent slide deck titled How to Drive Growth with Customer Success Metrics that covers the topic well. Here are a few notes from the slides:

    https://www.slideshare.net/GainsightHQ/how-to-drive-growth-with-customer-success-metrics

    • Customer success is a growth driver on par with sales and marketing
    • Show, don’t tell, how you make money
      • Renewals
      • Upsells
      • 90 day adoption
      • Product roadmap feedback
    • One customer success manager per $2 million (hired in advance, not in arrears)
    • Second order revenue – the key to long term success
    • Why customer success is critical
      • Happy customers, better product
      • Grow faster
      • Decrease capital needs
    • How much to spend on customer success?
      • Expected value =  Save rate x Value of extension
      • Example: 30% x 12 months x $83/month = $298 or about 30% of annual contract value

    Pre product/market fit, customer success is often ad hoc. As the company grows and finds a repeatable customer acquisition process, customer success is critical.

    Entrepreneurs need to understand how customer success drives company success.

    What else? What are some more thoughts on customer success?