David Cummings on Startups

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  • Two Common SaaS Sales Compensation Plans

    Continuing with Mark Roberge’s book The Sales Acceleration Formula and the recent post on HubSpot Growth: $300,000 to $3,000,000 in Six Months, there’s another really important topic to discuss: SaaS sales compensation plans.

    In the early years of Pardot everything was sold month-to-month with no annual contract. We quickly learned that if a customer stayed with us past month four, they’d stay with us indefinitely (we had a monthly customer churn of 1.4% with no contracts). So, naturally, we set our sales compensation plan based on this learning about the critical nature of the first four months. Sales reps were paid commission of 50% of the monthly revenue for the first four months (e.g. the equivalent of 2x the monthly recurring revenue). We wanted the reps to sell good fit customers, and if the customer churned after the first month or two, the sales rep would get a substantially reduced commission.

    Unbeknownst to us at Pardot, HubSpot arrived at the exact same formula: their reps were paid 50% of the first four months of revenue.

    Overtime, HubSpot evolved to a different formula that did a better job of promoting good fit customers. Sales reps were paid a commission on monthly recurring revenue as follows:

    • 50% of the first two months
    • 50% of month six
    • 50% of month 12

    By paying half the commission in the first two months and then spreading the commission out over two key junctions – the six and twelve month milestones – HubSpot was able to align the sales team with the company goal of signing customers that were great fits.

    Entrepreneurs would do well to consider the company goals and organize the sales compensation plans accordingly in a way that balances the short-term and long-term.

    What else? What are some more thoughts on these two SaaS sales compensation plans?

  • Product Engagement and Usage Understanding

    One of the areas that I want to better understand is that of product engagement and usage metrics in the context of a B2B SaaS app. I’ve looked at a number of usage reports from Google Analytics and other apps but haven’t had the opportunity to see an expert in action combined with a system that adds insight.

    Some of the product engagement and usage questions I’m interested in:

    • What are basic product engagement elements that every B2B product manager should know?
    • What are some of the more advanced techniques and best practices?
    • What metrics should be tracked daily, weekly, and monthly?
    • What are the best apps and tools to to track and analyze product engagement?

    I’m confident that staying close to the customer is one of the most important things to do and understanding product engagement and usage is a critical part of this. Now, I’m interested in learning more.

    What else? What are the answers to these questions and what other questions need to be asked?

  • HubSpot Growth: $300,000 to $3,000,000 in ARR in Six Months

    In Mark Roberge’s book The Sales Acceleration Formula, he talks about implementing HubSpot’s first sales compensation plan when they had $300K in annual recurring revenue and 100 customers. Six months later they had 1,000 customers and an annual run rate of $3 million. Today, HubSpot is on a revenue run rate of over $200 million per year (NYSE:HUBS).

    From a SaaS perspective, going from $300K ARR to $3M ARR in six months is amazing. Lemkin’s SaaS Law is as follows:

    if you can go from $1m to $10m in 5 quarters or less, then your market is huge.

    While this HubSpot example is going from $300K to $3M in six months, I’m sure they went from $1M to $10M in five quarters or less. And, of course, today they’re north of $200M run rate, proving that the market is huge.

    This is an exceptional example but a great datapoint nonetheless. Entrepreneurs should look for small, fast growing markets that will eventually be huge.

    What else? What are some more thoughts on this example of HubSpot having tremendous growth in the early days and that representing a huge market?

  • Personal Angel Investing Strategy

    One of the common questions I get from other angel investors and VCs is regarding my personal angel investing strategy. Most investors have a strategy about the types of deals they like to do, and then when a deal fits the strategy, they go through their investment criteria (see Ask Investors About Their Investment Criteria).

    Here’s my angel investing strategy:

    • Look for entrepreneurs that have failed at a previous venture and started again (shows they’re serious about being an entrepreneur and aren’t a hobbyist)
    • Find small, fast growing markets that have the opportunity to be much larger
    • Demonstrate modest traction with at least 10 arms-length customers (once an entrepreneur has 10 customers, I can help on the journey to 100 customers)
    • Prove basic unit economics (strong gross margin potential) and primarily recurring revenue

    My angel investing strategy has evolved over the past few years and continues to do so. This strategy focuses on serious seed stage entrepreneurs with early, modest results and a recurring revenue business model.

    What else? What are some more personal angel investing strategies?

  • Ask Investors About Their Investment Criteria

    Earlier this week I was meeting with some local entrepreneurs to learn about their business. I had the Simplified One Page Strategic Plan prior to meeting so I knew the vision, goals, and metrics for the startup. We had 30 minutes for the meeting and by the end of the allotted time they still hadn’t asked if their business model and stage fit my investment criteria. It’s like trying to sell a product without doing customer discovery or a sales discovery call first.

    Here are a few thoughts on asking investors about their investment criteria:

    • Don’t start the conversation asking about their investment criteria
    • Work to make the pitch a dialogue and not a one-way conversation
    • Summarize the pitch and company progress towards the end of the meeting and then ask if it fits their investment criteria
    • Be patient, listen, and take notes as the investment criteria is explained
    • Know that just because things aren’t a good fit right now doesn’t mean they won’t be a good fit later (often, investors will need to see more traction before investing)

    Entrepreneurs would do well to understand investors’ investment criteria as part of the pitch process and use that to gauge interest and potential alignment.

    What else? What are some more thoughts on asking investors about their investment criteria?

  • Video of the Week: Start Now, No Funding Needed

    Derek Sivers has a fascinating blog and story as an entrepreneur turned world traveler and writer. For our video of the week, watch his video Start Now, No Funding Needed from his book Anything You Want. Enjoy!

    From Amazon: After making a living as a professional musician, Derek Sivers went looking for ways to sell his own CD online and ended up creating CD Baby, once the largest seller of independent music on the web with over $100M in sales for over 150,000 musician clients. Since 2008, Derek has traveled the world and stayed busy creating and nurturing creative endeavors, like Muckwork, his newest company where teams of efficient assistants help musicians do their “uncreative dirty work.” Derek writes regularly on creativity, entrepreneurship, and music on his blog: http://sivers.org/.

  • Metrics Spreadsheet for Every SaaS Company

    Lately I’ve been talking to more entrepreneurs that have product/market fit and are working to find a repeatable customer acquisition process (see 5 Steps to Startup Success in 30 Words). Now, sales and marketing metrics become critical and it’s time to figure out what works. Christoph Janz has the best Google Sheets Dashboard for SaaS companies:

    Visitors & Signups

    • Visitors
      m/m growth
    • Signups beginning of the month
    • New signups
      – Organic
      – Paid
    • Total new signups
      m/m growth
    • Visitor-to-signup conversion rate
    • Signups end of month

    Paying Customers

    • Customers beginning of the month
      – New customers
      – Conversion rate
      – Lost customers
      – Churn rate
    • Net new customers
    • Customers end of month
      m/m growth

    Monthly Recurring Revenue

    • MRR beginning of the month
    • New MRR
      – New MRR from new customers
      – New MRR from account expansions
    • Total new MRR
    • Lost MRR
    • MRR churn rate
    • New new MRR
    • MRR end of month
      m/m growth
    • Avg. revenue per customer
    • Avg. revenue per new customer

    Customer Acquisition Costs (CAC)

    • Marketing spendings
      – Marketing spendings per signup (blended)
      – Marketing spendings per paid signup
    • Sales spendings
      – Sales spendings per new paying customer
    • Total CAC (blended)
    • Total CAC (paid signups)
    • Time-to-recover CAC for paid signups (months)
    • CLTV (e)
    • CLTV/CAC (paid signups)

    Cash

    • Cash beginning of month
      – Cash coming in
      – Cash going out
    • Net cash burn
    • Cash end of month
    • Runway at current burn (months)

    SaaS entrepreneurs would do well to use the Google Sheets Dashboard for SaaS companies. And, if inside sales is employed, take a look at the Google Sheets Dashboard with Inside Sales.

    What else? What are your favorite metrics for SaaS startups?

  • Atlanta Startup Village #37

    Next Monday is Atlanta Startup Village #37 at the Atlanta Tech Village. Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast. Every month five entrepreneurs give five minute pitches followed by five minutes of audience question and answer. For Monday’s event, there’s a strong showing of portfolio companies from Atlanta Ventures:

    Join the meetup and come to the Tech Village on Monday night.

  • Inside Sales Plus Face-to-Face Events

    Earlier today Stuart McLeod tweeted they do inside sales combined with face-to-face events for his startup Karbon.

    I’ve seen several startups follow this same strategy with strong results and I expect more to emulate it. Inside sales is great for all the reasons talked about before (see Rise of the Inside Sales Rep). Only, it doesn’t have the same human element that comes with being in-person that expensive field sales provides. Face-to-face events act as an efficient way to build stronger rapport and connections that are required in B2B sales.

    Here are a few more thoughts on inside sales plus face-to-face events:

    • Inside sales is used to both close deals (account executives) as well as drive prospects to demos and face-to-face events (sales development reps)
    • Running events in the major NFL cities covers the population centers so that a large number of prospects are within a short distance of a program
    • Stronger relationships result in better communication, feedback, and experiences (B2B products are much more dependent on people helping people than most technologists like to admit)
    • Modern tools like Attend for B2B events combined with Pardot for marketing automation help orchestrate the face-to-face programs

    Look for more B2B startups to employ an inside sales plus face-to-face events approach as the core to their customer acquisition strategy.

    What else? What are some more thoughts on the inside sales plus face-to-face events customer acquisition strategy?

  • Account-Based Marketing for Dummies

    Tonight Terminus launched their new book Account-Based Marketing for Dummies (disclosure: I’m an investor). From the publisher:

    This practical guide takes the intimidation out of account-based marketing in today’s highly digitized world. You’ll be armed with the knowledge you need to increase your reach in real time, giving you greater exposure to other decision-makers and influencers within an account. You’ll discover how, through a combination of marketing technology and online advertising, your messages can be displayed where and when your customers already engage online.

    • Align your sales and marketing teams for greater success in your ABM efforts
    • Analyze data to identify key accounts
    • Target your messages for real-time interaction
    • Integrate your campaign with marketing automation software

    Want to learn about account-based marketing? Buy the book today. Also, learn more about Terminus.