David Cummings on Startups

Blog

  • Video of the Week: Simon Sinek – Why Leaders Eat Last

    Our video of the week is from Simon Sinek (author of the famous book Start With Why) on the topic Why Leaders Eat Last. Enjoy!

    From YouTube: In this in-depth talk, ethnographer and leadership expert Simon Sinek reveals the hidden dynamics that inspire leadership and trust. In biological terms, leaders get the first pick of food and other spoils, but at a cost. When danger is present, the group expects the leader to mitigate all threats even at the expense of their personal well-being. Understanding this deep-seated expectation is the key difference between someone who is just an “authority” versus a true “leader.”

  • Startups Selling to Other Startups

    As much as we like to think that we’re bringing our new product to the old-guard businesses, the reality is that a number of startups sell their product to other startups. At Pardot, most of our early customers were other tech companies (more progressive and tech savvy) and many of them were startups. Over time, the market expanded and more non-tech companies became Pardot customers. Many startups start this way.

    With so many startups selling to other startups, there are a few things to keep in mind:

    • If we have another Great Recession, startups are more likely to be less stable customers
    • When bartering one product for another (this happens often), sell the product to each other and pay full price in lieu of just swapping apps (this is important in the event one side isn’t living up to expectations but be careful as this is one of the reasons the Dot Com implosion happened so fast when the house of cards crumbled)
    • Be upfront with investors the percentage of sales that comes from selling to other startups as well as the percentage from bartering deals
    • When startups are a good type of customer, use a data source like MatterMark to target startups that are similar to existing customers

    Startups selling to other startups is commonplace but still needs to be better understood. Not all customers are created equal and it’s important to be intentional.

    What else? What are some other thoughts on startups selling to other startups?

  • Saying No is Harder than Saying Yes

    As an entrepreneur, there’s often the desire to say “yes” to many requests. A potential customer wants this one feature added. A partner wants to do a webinar with you as the guest. A community leader wants you on the board. Yes, yes, yes. Only, after looking around, it’s clear that you’re over committed and don’t have time to work on the business.

    Saying “no” is harder than saying “yes.” Yet, it’s time to do more of it.

    The next time someone asks something of you, ask yourself the following questions:

    • When answering this request, am I being intentional with my time?
    • Am I the absolute best person to work on this?
    • How easy is it to delegate this?
    • If I say “yes” to this request, what am I giving up?
    • If I say “no” to this request, what will happen?

    Saying “no” is often harder than saying “yes” for many entrepreneurs. The result: too many things to do and not enough time to think. My advice is for entrepreneurs is to get better at saying “no” and being more intentional with their time.

    What else? What are some more thoughts on saying “no” being harder than “yes” with requests?

  • Today’s Business Ideas That Weren’t Possible 10 Years Ago

    One of the ways I like to think about business ideas is in the context of what can we do today that we couldn’t have done 10 years ago. As an example, when we started Pardot in early 2007, we could build a web application quickly using open source software, run it on commodity web hosting, and deliver B2B marketing automation with analytics, campaign execution, and insights in a cost effective manner to SMB customers. 10 years prior it would have been 100x more to build it, 100x more to host it, and the market wasn’t ready for it (being too earlier is still a failure).

    Here are a few things to think about when considering ideas that weren’t possible 10 years ago:

    • What new ideas are possible because we have a super computer in our pocket (e.g. iPhones didn’t even exist 10 years ago)?
    • How can we use cloud computing and big data tools like Hadoop to unlock insights we never knew about before?
    • How do advances in technology in one industry help another one (e.g. GPU advancements helping self-driving cars, cell phone miniaturization helping a number of other devices, etc.)?
    • What ideas were good before but the timing wasn’t right (e.g. limited broadband penetration, GPS adoption, independent contractor availability, etc.)?

    The next time you’re considering a business idea, ask the question why wasn’t this done 10 years ago and see what you come up with. Some ideas weren’t even possible and some ideas were just before their time.

    What else? What are some more thoughts on thinking about business ideas in the context of what wasn’t possible 10 years ago?

  • Addressing Competitor FUD

    One major challenge for a startup is when established companies start putting out FUD to slow the upstart down. FUD, an acronym for Fear, Uncertainty, and Doubt, is painful for scrappy startups that are working hard and doing what’s right for the customer, yet it’s a normal part of business.

    Here are a few thoughts on addressing competitor FUD:

    • Don’t ignore the FUD — talk about it head-on with the potential customers, and make sure every issue is discussed (too small, will go out of business, not proven, about to be eclipsed by a new in-house product, etc.)
    • Engage with the potential customer on a level where it’s abundantly clear how the product or service will be better, faster, and/or cheaper than how they’re doing it now, and tie that directly to a hard ROI (the solution needs to be a must-have and in the path of revenue)
    • Reach out to the competitor spreading the FUD and look to build a bridge, or at least the start of a relationship
    • Finally, ensure that you’re controlling what you can control

    Competitor FUD is one of the more annoying aspects of being an entrepreneur but it still needs to addressed, just like everything else. Don’t ignore it or shy away from it and build the case for why it it’s a non-issue.

    What else? What are some more thoughts on addressing competitor FUD?

  • The Most Successful B2B Apps are Must-Haves

    One area I see a number of entrepreneurs struggle with is building a product that is truly a must-have for their customer. While it’s true that every spreadsheet is another SaaS app, the reality is that if what the app does is only slightly better than the spreadsheet, it’s going to be a nice-to-have and not a must-have. Why? Because spreadsheets are commonplace, well understood, and people don’t like change. The most successful B2B apps are must-haves.

    Here are a few ideas for assessing if an app is a must-have:

    • Customers say things like “I don’t know how I did my job before XYZ” and “I can’t run my business without XYZ”
    • If the app goes down, customers are calling immediately (as opposed to shrugging their shoulders and not caring)
    • Customers use the app multiple times per week, if not daily, to accomplish something important
    • Is the app clearly in the path of revenue?
    • The results (value delivered) are not possible without specialized software (e.g. the data isn’t available without the system capturing it, the data size is too large to process it in spreadsheets, the data is too siloed, the data is too large to be actionable without automations, etc.)

    Building a B2B app is easy. Building a must-have B2B app that hundreds or thousands of customers use is incredibly hard. Build a must-have B2B app whenever possible.

    What else? What are some more thoughts on the idea that the most successful B2B apps are must-haves?

  • Video of the Week: Making Something People Love

    For our video of the week, watch the Tools for Entrepreneurs: Making Something People Love as part of Google for Entrepreneurs. Enjoy!

    From YouTube: Google for Entrepreneurs and General Assembly have partnered up to create “Tools for Entrepreneurs,” video classes for entrepreneurs to grow their skills and grow their businesses. — Renowned entrepreneur and Reddit cofounder Alexis Ohanian, will inspire you to think of unique ways to connect with your customers, and to build a community of users who want your business to succeed. In this class you’ll learn some key branding, marketing, and user experience principles, plus specific tactics and strategies that you can use to create a company people love.

  • Sell Less, Minimize Dilution

    One piece of advice that I’ve recommended to many entrepreneurs, with little success, is that they don’t have to sell the typical 20-30% of their business every financing round. Add the 10 – 15% additional dilution for each round from the new optional pool, and the overall dilution is often 40%+. Here’s the thing: institutional investors love to say that they have to buy at least 20% of the business for it to be worthwhile, but in reality, the percent ownership is a flexible amount.

    Here are a few thoughts on selling less and minimizing dilution:

    • If it’s a winner take all or winner take most market, forget about dilution and focus on winning
    • Many markets have multiple winners (like email marketing), such that there’s room for several players including ones that don’t raise a ton (or any) outside capital, and still build great businesses (like Pardot and MailChimp)
    • Find a partner that can provide enough capital to get to the next milestone (e.g. raise $2.5 million instead of $5 million and model it out so that you still make meaningful progress over the next 18 – 24 months)
    • Pay close attention to growth rate and don’t let it get below 100% such that you raise enough capital to continue to grow fast (slow or no growth is the death of many venture-backed startups)
    • Know that there are many more sub $100 million exits than there are above that amount (see less than 2% of all venture-backed startups sell for more than $100 million)
    • Venture debt is an amazing deal and should be pursued (see credit lines for SaaS startups)

    I know the glamorous thing to do is to raise a bunch of money but the reality is that most entrepreneurs can’t do that, and the ones that can should really consider raising less money and being more conscious of their dilution.

    What else? What are some more thoughts on selling less and minimizing dilution?

  • The Ideal Team Player

    Patrick Lencioni is one of my favorite leadership authors writing books like The Advantage and The 5 Dysfunctions of a Team. His latest book, The Ideal Team Player, is focused on “how to recognize and cultivate the three essential virtues.” As always, he starts with a fable and then goes into more detail.

    Here are the three virtues and descriptions from the book:

    1. Humility – Humility isn’t thinking less of yourself, but thinking of yourself less.
    2. Hunger – Hungry people are always looking for more.
    3. People smarts – A person’s common sense about people…the ability to be interpersonally appropriate and aware.

    Looking to improve your leadership skills and build a better organization? Start by reading Lencioni’s books.

    What else? What are your thoughts on the book The Ideal Team Player?

  • Two Major SaaS Exits Announced

    After last week’s Lack of SaaS Consolidation post, we just had two major SaaS exits announced in the last 24 hours:

    With relatively few SaaS exits recently, these two are huge. What to make of it? Here are a few thoughts:

    • SaaS has much more growth ahead than public markets even priced in
    • Market leaders get a serious premium
    • Consolidation will eventually happen for the category leaders
    • Plan on 10+ years for the largest of SaaS exits
    • Look for more of these huge exits over the next five years (Zendesk, Shopify, HubSpot, etc.)

    It’s a great time to be in SaaS and we have many years of growth ahead of us.

    What else? What are some more thoughts on these recent SaaS acquisition announcements?