David Cummings on Startups

Blog

  • Find an Entrepreneur Community

    One of the most important things an entrepreneur can do in their journey is find a community. The high highs and low lows of being an entrepreneur are incredibly stressful. By finding a community of like-minded entrepreneurs that are eager to share ideas and the ups and downs, success is accelerated and emotions modulated.

    Here are a few ideas for finding an entrepreneurial community:

    • Start with the local EO chapter ($1M+ in revenue requirement) or EO Accelerator ($250k+ in revenue requirement)
    • Look to local colleges and universities as they often have entrepreneurial groups or incubators
    • Find a local tech entrepreneurship center like the Atlanta Tech Village
    • Research the central non-profit for entrepreneurs in the region and get involved

    Finding an entrepreneur community is immensely valuable and should be high on the list of things to do when building a company.

    What else? What are some more thoughts on finding an entrepreneur community?

  • Onboarding New Customers

    While most people like to talk about the software in Software-as-a-Service (SaaS), the service element of SaaS is just as important. One area that’s especially critical is onboarding new customers. There’s a huge variation in skill level of users, general sophistication of the customer, and preparedness for a new product.

    Here are a few thoughts on onboarding new customers:

    • Incorporate in-app functionality like a getting started wizard to guide the user through their initial experience
    • Provide an easy way for users to ask questions through a support form or live chat
    • Build an onboarding playbook (similar to a sales playbook) that outlines the whole process
    • Templatize the onboarding steps using a project management system like Trello, Asana, or Basecamp
    • Survey new customers about their experience as soon as the onboarding is finished using SurveyMonkey

    Successfully onboarding new customers is hugely important and often overlooked early on in the entrepreneurial journey. Invest in onboarding early and benefit from happier customers and stronger relationships.

    What else? What are some more thoughts on onboarding new customers?

  • 9 Simple Weekly Metrics for Seed Stage SaaS Startups

    There’s always a balance between tracking too many metrics and too few metrics. What I’ve found is that most seed stage entrepreneurs aren’t diligent enough in tracking simple metrics on a weekly basis. Of course, the seed stage is mostly about finding product/market fit and finding a repeatable customer acquisition process (see the four startup stages in eight words), so most activities should be customer focused.

    Here are nine simple metrics seed stage SaaS startups should track weekly:

    • Cash on hand
    • Weekly burn rate
    • Monthly recurring revenue
    • New customers
    • Lost customers
    • Marketing qualified leads
    • Sales demos
    • Active sales opportunities
    • Customer net promoter score (NPS)

    Cash on hand, weekly burn rate, and monthly recurring revenue are the three most important metrics as they indicate how many weeks left until running out of money and how fast the top line is growing. Configure a basic Google Sheet or goal/metric tracking system and record these nine simple metrics every week.

    What else? What are some other metrics that should be tracked weekly for seed stage SaaS startups? Here’s a more comprehensive list of SaaS metrics to track.

  • Video of the Week: Startup Secrets – Turning Products into Companies

    For our video of the week, watch the Harvard i-lab | Startup Secrets: Turning Products into Companies. Enjoy!

    From YouTube: You’ve figured out your value prop, you’ve got a great product under development. Now what? How can you develop a roadmap to build a company? VCs often qualify deals as being a “feature” a “product” or a “company.” Which do you have and how will you get where you want to go? During this session we’ll discuss how to think about designing your product as a foundational element of your business. Think beyond UX and Architecture to Whole Product, Ecosystems, and Strategic partners. Formulate how to design your go to market strategy and business model into your product with a modular architecture, distinctive packaging and a frictionless approach.

  • Sell in Advance of the Roadmap

    Last year I was talking to an entrepreneur who was recounting how they had just lost a big deal they thought they were going to win. Curious, I asked for more details. The prospect was pitched by a competitor where the competitor spent an hour doing a vision call talking about their direction, upcoming features, and general approach to the market. This call, which was about what was potentially going to happen, sealed the deal.

    Entrepreneurs need to sell in advance of the roadmap.

    Meaning, have a vision for the future and sell features and benefits that are coming soon, not purely what’s there today. Now, this can get tricky as we’ve all had sales people promise us things that were not true. That’s not the idea here. The idea is that when prospects buy a SaaS product, they’re not only buying what the product can do today — they’re also buying what the product will do tomorrow. Find the right balance between making sure the prospect will get value right away and promising things to come.

    Don’t underestimate the importance of selling in advance of the roadmap — customers are also buying a vision of the future.

    What else? What are some more thoughts on the idea of selling in advance of the roadmap?

  • Modern BANT Sales Qualification

    Jacco Van der Kooij has a great article up titled BANT Sales Qualification for a New Era. BANT (budget, authority, need, timeline) has been around for decades as a way to qualify sales prospects. Personally, I’ve used BANT for many years as it’s logical and a great starting point in the absence of a more specific methodology (most sales people don’t use any methodology). Only, Jacco argues that BANT needs to be modernized based on factors like SaaS being less of an upfront expense so budget isn’t as big of a concern as it used to be, decision making often goes through a process, as opposed to a specific person, and more. Here’s Jacco’s modern BANT with a new order:

    • N = Need = Impact on the customer business
    • T = Time-line = Critical event for the customer
    • B = Budget = Priority for the customer
    • A = Authority = Decision Process the customer goes through

    Every entrepreneur needs to go read BANT Sales Qualification for a New Era right now.

    What else? What are some more thoughts on modern BANT sales qualification?

  • Know the Number of Customers for $1 Million in Annual Recurring Revenue

    With so much emphasis on hitting the $1 million in annual recurring revenue (ARR) mark (see The $1 Million Annual Recurring Revenue Milestone and 99% of Tech Startups Never Hit $1 Million in Revenue) it’s important to understand the metrics required. For most SaaS startups, recurring revenue is driven by accounts/customers or seats/users.

    Let’s look at a few price points to see how many customers are required for $1 million in ARR ($83,333 in monthly recurring revenue):

    • $20/month = 4,166 customers
    • $100/month = 833
    • $500/month = 167
    • $1,000/month = 83
    • $3,000/month = 28

    How many customers do you have now? What’s your average revenue per customer (sometimes referred to as average revenue per user or ARPU)? How many more customers do you need to hit the major $1 million in ARR milestone?

    $1 million in annual recurring revenue is hard to hit, and 99% of tech entrepreneurs never achieve it. Entrepreneurs should know how many customers it’ll take to hit $1 million in ARR based on their average price point.

    What else? What are some more thoughts on knowing the number of customers required to hit $1 million in annual recurring revenue?

  • 12 Lessons from ThoughtWorks

    Pat Kua has a great article up titled 12 Years, 12 Lessons Working at ThoughtWorks. In his first section “Tools don’t replace thinking”, he hits on something that’s true for all entrepreneurs building SaaS products:

    Too many times I have witnessed managers implement an organisational-wide tool that is locked down to a specific way of working. The tool fails to solve the problem, and actually blocks real work from getting done. Tools should be there to aid, to help prevent known errors and to help us remember repeated tasks, not to replace thinking.

    Here are the 12 lessons:

    1. Tools don’t replace thinking
    2. Agile “transformations” rarely work unless the management group understand its values
    3. Safety is required for learning
    4. Everyone can be a leader
    5. Architects make the best decisions when they code
    6. Courage is required for change
    7. Congruence is essential for building trust
    8. Successful pair programming correlates with good collaboration
    9. Multi model thinking leads to more powerful outcomes
    10. Appreciate that everyone has different strengths
    11. Learning is a lifelong skill
    12. Happiness occurs through positive impact

    While some lessons are developer centric, most are broadly applicable. Go read 12 Years, 12 Lessons Working at ThoughtWorks.

    What else? What are some more takeaways from the article?

  • Economics of a $100 Million Incubator

    Reading about Expa Labs in the NY Times I couldn’t help but think about what the economics might look like for a $100 million incubator. From the article, there are five partners (I’ve met one of them through a mutual friend), eight startups per class, two classes per year, and $500,000 invested in each startup.

    Let’s look at some hypothetical math:

    • Five years of new startup investing/incubating and 10 year total fund life (the incubator is essentially a fund with an investing period and a harvesting period)
    • 40% for new investments ($40 million), 10% for fund expenses ($10 million), and 50% for follow on investments ($50 million)
    • 8 startups per class x $500,000 per startup x 2 classes per year = $8 million in investments per year
    • $40 million for new investments at $8 million in investments per year makes for five years of new investing (80 total investments)
    • Estimated initial target ownership stake of 40% (roughly 20% for the incubator’s value-add and 20% for the $500,000 investment)
    • Assume 20% average ownership stake at time of exit based on a combination of dilution and pro-rata participation
    • Required 3x cash on cash return to be a top tier fund necessitating $300 million in fund proceeds
    • With 20% ownership to achieve $300 million in proceeds, the exits need to have a combined value of $1.5 billion

    Put another way, if Expa Labs can make one unicorn and one half of one unicorn out of 80 incubated startups, they’ll be considered a successful incubator based on having top tier returns.

    What else? What are some more thoughts on the economics of a $100 million incubator?

  • SaaS Founder/CEO Equity at Time of IPO

    As a followup to the Rich or Royal conversation, there’s another example to highlight: SaaS founder equity at time of IPO. Here are the last nine SaaS IPOs profiled on this blog and the founder/CEO equity percentage at time of filing:

    On average, the founder/CEO owned 10.9% of the business at time of IPO. Now, these are some of the most high profile SaaS startups over the past three years and by all measures these founder/CEOs have been tremendously successful. Entrepreneurs would do well to think through the Rich or Royal question and understand the level of dilution that comes from multiple rounds of institutional financing.

    What else? What are some more thoughts on the average SaaS founder/CEO equity at time of IPO?