David Cummings on Startups

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  • Video of the Week: Vidyard – Small Empires from The Verge

    The Verge has a cool series on YouTube called Small Empires where they profile different startups from around the world. For our video of the week, learn about Vidyard in The startup success story behind Vidyard – Small Empires Ep. 5. Enjoy!

    From YouTube: This Waterloo company started out creating videos, but realized they were better at analyzing other people’s clips. Before there was Vidyard, there was Redwoods Media, a small Canadian startup making marketing videos. Slowly but surely, the company, like so many startups, had to learn two lessons and has come to embrace them over time: being creative is difficult to scale, and they’e actually much better engineers than they are artists.

  • 99% of Tech Startups Never Hit $1 Million in Revenue

    According to the book Scaling Up, 94% of companies — all types of companies, not just tech startups — never hit $1 million in revenue in a calendar year, ever. We’ve all heard the stat that most entrepreneurs fail within five years, but there’s a big difference between not failing and not building a seven figure+ revenue business. So, if 94% of all companies never hit $1 million in revenue, it’s safe to say that 99% of tech startups will never hit $1 million in revenue as tech startups are 10x harder than regular businesses (see the difference between innovative and replicative businesses).

    As an entrepreneur building a tech startup, here are a few things to think about:

    Knowing that 99% of tech startups never hit $1 million in revenue makes success look even more daunting. The key is to continually learn and improve as fast as possible.

    What else? What are some more thoughts on the idea that 99% of tech startups never hit $1 million in revenue?

  • Annual No NDAs Reminder

    Several times this quarter entrepreneurs have asked me for advice, I’ve obliged, and then they’ve promptly given me an NDA to sign. My response is always the same: unfortunately, I don’t sign NDAs to hear startup pitches. Mark Suster’s great post On NDAs and Confidentiality covers all the major points:

    • Processing more legal documents is time consuming and annoying
    • After talking with hundreds of entrepreneurs, it’s not possible to keep track of which ideas came from which entrepreneurs
    • Trust needs to be at the core of a successful relationship, and not initiated by a legal document
    • NDAs are difficult to enforce resulting in little value

    This is the annual no NDAs reminder for most entrepreneurs (note: investors do sign NDAs for growth stage startups).

    What else? What are some more thoughts on NDAs between entrepreneurs and investors?

  • When Things are Hard, More Money Isn’t Always the Solution

    When talking to entrepreneurs, a recurring theme is the belief that if there was more money available, this challenge/headache/difficulty would just go away. It’s as if money solves problems, which isn’t the case. Money can buy the startup more time, which is incredibly valuable, but often there are more fundamental issues that need to be solved.

    Here are a few examples:

    • If I only had money for more software engineers…
      • Without product/market fit, more engineering beyond a modest point often results in product bloat the acts like technical debt (the more the product does, the harder it is to move fast) and makes it harder to pivot (if that becomes required)
    • If I only had money for a bigger marketing budget…
      • Most startups are still trying to figure out a repeatable customer acquisition process and don’t have a marketing process that works. Yes, more money allows for more experimenting but it’s still important to be prudent. Traction: A Startup Guide to Getting Customers has a number of great ideas in it.
    • If I only had money for sales people…
      • Selling is best done by the founders with the help of a sales assistant or SDRs. Throwing money at sales people before the founders prove the value is a quick way to burn through cash.

    Money is hard to come by for most founders and so lacking it is often used as a crutch when things aren’t going well. The best entrepreneurs are resourceful and figure out how to make things work so that they can stay in the arena long enough to win.

    What else? What are some more examples of more money not always being the solution?

  • 5 Great Resources for SaaS Entrepreneurs

    SaaS is an amazing business model: fast product iteration cycle, recurring revenue with strong gross margins, and great growth rates industry-wide. In addition, the business model is well understood across the different functions – sales, marketing, customer success, engineering, support, and finance – such that there are a number of excellent blogs for entrepreneurs. Here are five great resources for SaaS entrepreneurs:

    Read and study these blogs, now. Learn what the experts learned, minimize common mistakes, and grow faster.

    What else? What are some other great resources for SaaS entrepreneurs?

  • Atlanta Startup Village #36

    Join us at the Atlanta Tech Village tomorrow night for Atlanta Startup Village #36. Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast. Five startups give five minute pitches followed by five minutes of audience questions. Here are the presenting startups:

    • Funding University – a better way to finance their college education.
    • Incubate – the time delay messenger.
    • ClientSide – electronic signature system for law firms.
    • PRIVET – Ask. Tell. Anonymously.
    • Sequr – Steroids for your call box.

    RSVP at the Atlanta Startup Village Meetup and come by the Tech Village tomorrow night.

  • Why Didn’t Salesforce.com Get Into Marketing Automation Sooner?

    Back in late 2009 we pitched dozens of VCs in an effort to raise money for Pardot. When asked the common question “who are your likely acquirers?” we’d always answer that Salesforce.com was perfect — the market leader with 100,000+ B2B CRM customers needed a complementary B2B marketing automation platform. Then, of course, we’d get the expected follow up question: why doesn’t Salesforce.com just build a marketing automation product now and compete directly?

    Immediately, we’d respond with the answer every entrepreneur should give when asked why doesn’t big company ‘X’ get into their market: it’s not worth their time. Of course, this is a confusing response. As entrepreneurs trying to raise money, we’re arguing that marketing automation is a great market worthy of millions of dollars of investment. Yet, we’re also arguing that the most logical player to get into the market shouldn’t do it because it’s not worth their time. Well, what is it?

    Here are the two reasons why Salesforce.com didn’t get into marketing automation sooner:

    • Strong Core Business Growth – When the main business is growing at high double digits, it doesn’t make sense to take resources away from it to address a related market. As long as the core business is experiencing major growth, stay the course.
    • Market Too Small, For Now – Startups often help create new markets that are small but fast growing. Marketing automation back in 2009 was too small for anyone to care about, especially Salesforce.com with their amazing growth. Put another way, if the related market can’t immediately add substantial revenue (e.g. > 5% of current company revenue), it isn’t worth their time.

    Salesforce.com was smart not to get into marketing automation 7+ years ago as their core business was growing fast and marketing automation was too small a market. Eventually, it became clear that marketing automation was a bigger market than expected with growth much greater than the CRM market, making the acquisition of ExactTarget + Pardot a strong strategic move.

    What else? What are some more reasons Salesforce.com didn’t get into marketing automation sooner?

  • Video of the Week: Dharmesh Shah – Why Company Culture is Crucial

    Corporate culture is one of my favorite topics (more here). For this week’s video, listen to Dharmesh Shah talk about Why Company Culture is Crucial and read his famous Culture Code deck. Enjoy!

    From YouTube: Dharmesh Shah, co-founder and CTO at the marketing and sales software firm HubSpot, distills his 128-slide presentation on company culture down to its essence, describing it as a business’s “operating system” that lets people do their best work. Shah says entrepreneurs must create a company culture they love, because one will eventually emerge no matter what.

    http://www.slideshare.net/HubSpot/the-hubspot-culture-code-creating-a-company-we-love

  • Entrepreneurs: Rich or Royal

    Yesterday I was talking with a couple founders that had bootstrapped their company to a great spot and were debating whether or not to raise money. Having had this conversation dozens of times, I brought up the Rich or Royal concept. Simply put, there’s a tradeoff between raising money (going the “rich” route) and maintaining control (going the “royal” route). Most entrepreneurs that want to raise money don’t think through how having other investors changes things, and in most cases, reduces their control.

    Here are a few questions on rich or royal:

    • How much of being an entrepreneur is about controlling your own destiny and being your own boss?
    • How much of being an entrepreneur is about making a large amount of money as quickly as possible?
    • How much of being an entrepreneur is making a major impact on your industry or city?
    • How much of being an entrepreneur is about creating a certain lifestyle or quality of life?

    There’s no right answer to the rich or royal question. Yes, some entrepreneurs get to be rich and royal, but that’s even less common. My recommendation: think through the rich or royal question and be intentional about it.

    What else? What are some more questions on rich or royal?

  • Quick Math to Determine if Inside Sales Makes Sense

    When talking to seed stage SaaS entrepreneurs, a common question is “should we do inside sales?” Naturally, it’s important to take into account factors like average sale price (e.g. new committed monthly recurring revenue), average sales cycle, complexity of sale (e.g. can junior inside sales reps sell it or does it need more specialized expertise), and more. Here’s the quick math to determine if inside sales makes sense:

    • Take the gross margin of the product (SaaS is typically 70-80%)
    • Use the average deal size in the first year (e.g. $5,000 in new annual recurring revenue)
    • Decide on the cost of salary and commission for the desired type of sales person (e.g. $35k base and $75k on target earnings)
    • Run the math for the example above:
      $75,000 + taxes for the sales rep = $85,000
      70% gross margin times $5,000 per deal times X number of deals = $85,000
      24 deals at $5,000 per deal = $120,000 times 70% gross margin = $85,000
      24 deals are required for the sales rep to make sense.
      With 12 months per year, the rep needs to sell two deals per month.
    • Note: this assumes the rep does all the work and doesn’t require leads from marketing. When you add in heavy marketing costs, the number of deals the sales rep has to sell often doubles.

    Inside sales makes sense when the average ticket price and deal volume are high enough to warrant the expense.

    What else? What are some factors to determine if inside sales makes sense?