David Cummings on Startups

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  • Quick Notes on ServiceMax’s $915 Million Exit to GE

    GE announced their acquisition of ServiceMax for $915 million earlier today. ServiceMax is a SaaS company focused on field service workers. Imagine having a number of employees that work in the field (e.g. fixing and servicing products) — ServiceMax provides the management platform. From their site:

    ServiceMax’s mission is to empower every field service technician in the world to deliver flawless field service and every organization to unleash the untapped growth potential of service.

    Here are a few quick notes on ServiceMax:

    • Founded in 2007 (~9 years to exit)
    • Raised $204 million (source)
    • 469 employees on LinkedIn (source)
    • Revenue guess based on $200k/year/employee – $94 million
    • Built 100% on Force.com (source)
    • 400+ customers (source)

    Congratulations to Dave Yarnold and team on building a great business!

  • 60x Early Stage SaaS Pre-Money Multiple

    Recently I was talking to an investor that had competed to make a SaaS investment last quarter. The desired startup had just over $1 million in annual recurring revenue, a great management team, and a super hot market. After a competitive process, the final pre-money valuation: $60 million.

    Why would a well-known venture firm pay 60x run-rate? Here are a few thoughts:

    • Fund Size Dynamics – The larger the fund, the larger the checks. If the VC wants to lead the deal, and they usually put in ~$10 million, every investment is going to be in the tens of millions pre-money, whether the startup has $1M or $5M recurring.
    • Deal Competition – The best way to raise capital is to create an auction process with multiple bidders. More competition from investors results in a higher valuation.
    • Market – There are only so many untapped markets that are clearly large enough to support billion dollar exits. The more obvious the opportunity, the more the valuation goes up.
    • Team – Certain founders and teams command a premium (e.g. repeat successful entrepreneurs as well as key prior employers). Ultimately, investors are betting on the team and place tremendous value on it.

    While valuations have corrected in many areas, SaaS companies with certain dynamics are still commanding a large premium. Entrepreneurs would do well to understand the current market.

    What else? What are some more thoughts on early stage SaaS startups still raising money at huge multiples?

  • No Startup Value Until $1 Million in Recurring Revenue

    Recently we decided to shut down a startup I had invested in. After 20 months in business, ~$200k of recurring revenue, and a substantial monthly burn rate, the management team wasn’t interested in pursuing it further. Some product/market fit was in place but there wasn’t a profitable, repeatable customer acquisition model and the addressable market was challenging to reach.

    Why shut it down? Startups that are super sub-scale without a proven model aren’t of any value. No potential acquirer wants the company (perhaps the people in an acqui-hire but not the actual business). Investors might be interested in putting more money in it, but without a committed management team there’s no interest.

    In fact, there’s no startup value until reaching $1 million in recurring revenue, or a clear path to shortly achieve $1 million. Here are a few reasons why:

    When a startup is still figuring things out, has less than $1 million in annual recurring, and isn’t growing fast week over week, there’s no enterprise value. After $1 million is achieved, many opportunities emerge.

    What else? What are some more thoughts on no startup value until $1 million in annual recurring revenue?

  • Video of the Week: Steve Blank, Evidence-based Entrepreneurship

    For our video of the week, watch Steve Blank, Evidence-based Entrepreneurship at The Lean Startup. Steve is the author of The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company and one of the most influential thinkers around modern entrepreneurship (see 11 Great Ideas from Steve Blank). Enjoy!

  • Jobs to be Done Framework

    Clayton Christensen, author of the The Innovator’s Dilemma, also invented the “Jobs to be Done” framework.

    From the Clayton Christensen Institute:

    The jobs-to-be-done framework is a tool for evaluating the circumstances that arise in customers’ lives. Customers rarely make buying decisions around what the “average” customer in their category may do—but they often buy things because they find themselves with a problem they would like to solve. With an understanding of the “job” for which customers find themselves “hiring” a product or service, companies can more accurately develop and market products well-tailored to what customers are already trying to do.

    Too often, entrepreneurs think in terms of features. If our product does X,Y, and Z, then people will buy it. Instead, think about the job that needs to be performed and how the solution will fit it. Think solutions to jobs, not features.

    What else? What are some more thoughts on the jobs-to-be-done framework?

  • 18 Quick Sales Resources for Startups

    These past few weeks have been focused on sales — the life blood of every successful startup. Here are the recent sales posts:

    1. Four Types of Sales Reps
    2. Getting to “Wow” in the Sales Process
    3. Sales Team Challenges When Scaling
    4. Territories vs Wide Open for Sales Teams
    5. Make Body Language Your Superpower
    6. Benchmarking Sales Development Reps
    7. The Different Meeting Rhythms in Sales
    8. Analyzing the Sales Opportunity Pipeline
    9. Mining the Sales Opportunity History for Insights
    10. The Sales Ops Role – Operational Rigor for the Sales Team
    11. Hire a Sales Assistant First
    12. The Best Sales Demos are Conversations
    13. Mapping Out the Sales Stages
    14. Discovery Calls – A Critical Part of the Sales Process
    15. Notes from Trenton Truitt’s Presentation on MEDDICC
    16. MEDDICC Forecasting Methodology
    17. The Success Plan Google Doc for Sales
    18. Testing Potential Demand By Being an SDR

    Sales is critical, yet foreign, to most startup founders. Put in the time and effort to learn it — it’s worth it.

    What else? What are some more sales topics to cover?

  • Four Types of Sales Reps

    Predictable Revenue laid the ground work for sales development and the rise of sales engagement software. The author, Aaron Ross, outlined a more modern, predictable function of appointment setters on the sales team, as separate from the closing team. In the book, he outlines four types of functions on the sales team.

    Here are the four types of sales reps 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

    Early in the startup lifecycle, it’s common to have “full stack” sales reps that do both the appointment setting and deal closing. Then, as the startup grows, more specialization emerges. Look for these four types of sales reps.

    What else? What are some more thoughts on the four types of sales reps?

  • Getting to “Wow” in the Sales Process

    At Pardot, we’d work hard to get marketers to a web demo, through cold calling and typical B2B marketing campaigns, as we knew there was one “wow” or “magic moment” that really made the value of the product apparent. David Skok calls it the “wow” in Creating a Wow Moment.

    Our Pardot wow: showing a marketer their own activity history in Pardot via a screen share. When marketers saw how all their digital fingerprints (clicks, opens, page views, etc.) were captured, and made actionable to both sales and marketing, they immediately wanted that functionality for their own team.

    Here are a few questions to ask:

    • What’s the “wow” in your product?
    • How hard is it to show the “wow” to a prospect?
    • Where is “wow” currently shown in the sales process?
    • How can the “wow” be delivered sooner?

    Entrepreneurs would do well to think through the feature in their product that is most powerful and exciting to prospects — the “wow” — and work to deliver that to prospects as quickly as possible.

    What else? What are some more thoughts on getting to “wow” in the sales process?

  • Sales Team Challenges When Scaling

    Continuing with yesterday’s post on Territories vs Wide Open for Sales Teams, one of the points mentioned was that with territories, as the team scales, the assigned geography for each sales rep shrinks (more reps equals more sub dividing of territories). As expected, many challenges arise as the sales team scales. Here are a few to consider:

    • Sales Reps to Management – The top sales reps often don’t make the best sales managers (different skill set and personality traits). As the team grows, it’s important to set expectations around the path to management and build management training programs.
    • Downward Lead Volume Per Rep – The size of the sales team often grows faster than the volume of qualified leads such that the number of leads per rep goes down over time.
    • Hiring Standards – It’s hard to find great sales people. As pressure is applied for hitting an overall team quota, there’s a tendency to lower hiring standards to get more people in the door. Don’t do it.
    • Undoing Special Arrangements – Special sales rep arrangements like owning certain reseller relationships or getting a slightly different commission for certain deals become problematic as the team grows and more specialized functions are implemented (like a channel program).
    • Adding Process – Some reps that thrive during the free-for-all early startup stage don’t make it as the organization hits the growth stage and adds more process. It’s not that one stage is better or worse. Rather, it’s important to connect the right personalities with the right stage of the company.

    Scaling a sales team is hard, especially with the pressure from different stakeholders like investors. Know that there are many challenges scaling a sales team and these are just a few of them.

    What else? What are some more challenges scaling a sales team?

  • Territories vs Wide Open for Sales Teams

    At Pardot, we built the sales team to almost 30 people before the exit and never had territories (everything was inside sales). Our model was wide open with simple round robin lead assignment based on two different queues (one based on leads from the test drive form and one based on leads from all other forms). When I talk to entrepreneurs about their sales strategy, territories are commonplace. Naturally, we had internal debates about the pros and cons of territories vs wide open.

    Here are a few thoughts on territories vs wide open:

    • With wide open, sales reps get an equal number of qualified leads as company lead volume ebbs and flows
    • With territories, sales reps get a reduced geography as the sales team grows, potentially resulting in morale issues
    • With wide open, there’s a constant tension around the rules of engagement for stale leads (we made it so that if a lead hadn’t been engaged in six weeks, it was fair game)
    • With territories, sales reps that are primarily inside have a better opportunity to meet with multiple prospects on the occasional trip to their territory as well as attend regional events

    The growth of inside sales is causing entrepreneurs to rethink the traditional territory approach and look for ways to make sales more efficient. Entrepreneurs would do well to evaluate both the territories approach as well as the wide open approach.

    What else? What are some more thoughts on territories vs wide open for sales teams?