David Cummings on Startups

Blog

  • Top 15 Blog Posts

    Every so often I like to check and see what’s popular here on the blog. As expected, Software-as-a-Service (SaaS) continues to be hot (it’s my favorite market). Here are the top 15 blog posts based on traffic this year:

    1. SaaS Cost of Goods Sold for Startups
    2. Simplified One Page Strategic Plan from Rockefeller Habits
    3. How Much is Enough: A Story from Jimmy John’s
    4. The 9 Building Blocks of a Business Model
    5. SaaS Founder/CEO Equity at Time of IPO
    6. Example Simplified One Page Strategic Plan
    7. Costs to Furnish a Nice Startup Office
    8. Gross Margin and SaaS
    9. Arriving at the Pardot Acquisition Price
    10. HubSpot Growth: $300,000 to $3,000,000 in ARR in Six Months
    11. Google Spreadsheets for KPI Dashboards
    12. Quantifying the SaaS Valuation Growth Rate Multiplier
    13. Google Spreadsheet Marketing Budget Template for Startups
    14. 99% of Tech Startups Never Hit $1 Million in Revenue
    15. Killer SaaS KPIs Spreadsheet Dashboard

  • Debate Between Startup Growth and Founder Dilution

    One of the more common debates I hear from founders that have hit $1 million in annual recurring revenue is around growing faster by raising money vs the tradeoff of more equity dilution. There’s never a right answer and there’s always a spreadsheet scenario to go either way. At Pardot, we debated this for many years and ended up not raising any money (see the Pardot timeline). Here are a few thoughts on the debate:

    Entrepreneurs love to take calculated risks and raising money to grow faster, or taking it slower and owning more of the company, is a continual debate. Regardless, take the time to understand the different options and make an informed decision.

    What else? What are some more thoughts on the debate between growing the business faster vs taking more founder dilution?

  • Video of the Week: Guy Kawasaki – The Top 10 Mistakes of Entrepreneurs

    For the video of the week, listen to one of my favorite startup authors Guy Kawasaki talk about The Top 10 Mistakes of Entrepreneurs. Enjoy!

    From YouTube: Kawasaki, former chief evangelist of Apple and co-founder of Garage Technology Ventures, explained the top ten mistakes that entrepreneurs make. His talk covered all stages of a startup from inception to exit.

  • Special Sales Rep Incentive Ideas

    Generally, I like to err on the side of keeping things as simple as possible, and sales rep compensation is no different. Compensation plans like commission based on 50% of the first four months revenue are easy to understand and manage. Sometimes the desire arises to implement special sales rep incentives to help get a new product launched or get initial traction in a new market.

    Here are a few special sales rep incentive ideas:

    • Double Commission on the First 10 Deals – Paying out extra commission is a great way to incentivize reps when there’s a new, unproven opportunity that’s potentially strategic to the company.
    • Add Extra Commission for Certain Customer Segment – If the push is to move up market or sell bigger deals, add addition commission for that type of new customer for a specific time period (always have a time period limit to special incentives).
    • Comp on Logos – Some markets are a race to build marketshare and get out in front of the competition. One approach here is to compensate sales reps based on the number of logos (customers) they sign that fit a profile (e.g. Fortune 1000 companies) instead of based on the size of the deal knowing that market share or land and expand will pay off in the long run.

    Keep sales rep compensation plans simple and straightforward. Selectively use special incentives when needed to better align the rep and the company.

    What else? What are some more special sales rep incentive ideas?

  • 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/.