David Cummings on Startups

Tag: marketing

  • KPI Definitions in Board Decks

    A question I get from entrepreneurs from time to time is to look at past board decks from other startups. Board decks are a normal part of venture-backed startups and help align the executive team, the entrepreneur, and the investors on a quarterly basis.

    Now, decks don’t have a defined standard, so they are a little bit all over the place. But the best ones capture what’s going well, what’s not going well, the strategy, plans, and, of course, metrics.

    On the metrics front, one thing I’ve seen more frequently — but never saw over the first 10 or 15 years — is KPI definitions. Board decks include a variety of performance indicators and metrics, but just because it says “recurring revenue” or “gross renewal rate” doesn’t mean it’s measured the same way everyone else measures it.

    The trend now is to include KPI definitions at the end of the deck that outline each KPI, the unit of measurement, and how it’s calculated. Here’s a list of common board metrics:

    Corporate

    • ARR
    • Net new ACV
    • Net dollar retention
    • Gross dollar retention
    • Operating margin (Op margin)
    • Burn rate
    • Days to zero cash

    Marketing

    • Signups
    • Marketing qualified leads
    • Sales qualified leads

    Sales

    • Sales new ACV
    • Sales efficiency

    Customer Success

    • Managed portfolio efficiency
    • MP NDR (Net dollar retention)
    • MP GDR (Gross dollar retention)
    • CSM carry (ARR per CSM employee)

    Customer Support

    • Cost per case
    • Cost per MAU
    • Case close via automation
    • Support CSAT

    R&D

    • Plan / Do
    • Say / Do
    • Cycle times
    • Availability

    Finance

    • Expense actual to forecast
    • Days to close books
    • Net New ACV actual to forecast
    • Revenue actual to forecast

    People

    • Voluntary attrition 
    • New hire attrition
    • New hire starts
    • Exits

    Entrepreneurs would do well to include KPI definition slides at the end of their board decks to ensure that everyone is on the same page and the metrics are calculated in a way that is readily understood and, ideally, aligned with industry standards.

  • Starting Over as an Entrepreneur

    Recently, I was asked what I would do if I could start over as an entrepreneur. This question prompted me to reflect on my journey, particularly the early years when I tried numerous ideas that didn’t succeed. Looking back to my earliest beginnings in the late 1990s, when the Internet was taking off, I started as a freelance web developer during high school and college, building websites for small businesses and nonprofits.

    After several years of freelancing, I listened to client feedback and requests, which led to my first real software product idea: a web content management system delivered as Software as a Service (SaaS). This concept didn’t exist at the time. The key lesson was that the Internet’s rapid growth created opportunities for businesses and organizations eager to establish an online presence but lacking the expertise or desire to do it themselves. They were happy to pay for someone to handle the work and act as their consultant.

    How does this tie back to the question of starting over as an entrepreneur today? The current excitement and energy around artificial intelligence (AI), which feels reminiscent of the Internet boom in the late 1990s. The enthusiasm for AI and its potential to transform the world mirrors that earlier era. Just as I helped companies navigate the shift to the Internet, I would now position myself as an AI consultant. I would cold-call and network with businesses and organizations to help them integrate AI tools and consult on optimizing their processes with AI.

    However, the ultimate goal isn’t to remain an AI consultant. Instead, it’s to build relationships with a variety of businesses to identify unmet market needs. From there, I would develop AI-powered business software to help companies operate more efficiently and build a startup around that idea. Rather than searching for a software idea directly from the market, I propose an intermediate step: becoming a general AI problem-solver for companies. This involves doing real work, adding tangible value, and listening to authentic feedback for as long as it takes to discover a compelling AI-related software idea.

    My recommendation to aspiring entrepreneurs interested in B2B software is to work with various companies, assisting them with AI-related change management. This approach mirrors my efforts decades ago, helping organizations derive value from the Internet. While the future is uncertain, I firmly believe AI is the next major technological wave. A tremendous amount of technology implementation and change management will be required, particularly in helping businesses unlock AI’s potential. This work will uncover countless opportunities for new software products, paving the way for thousands of new startups.

  • Market A or B for a Startup

    Last week, I spoke with an entrepreneur who shared his elevator pitch. I then asked a few questions and learned more about his business. He mentioned that they have two early adopter customers: one in Industry A with a unique use case, and another in Industry B with a completely different use case. He then asked which market I thought he should focus on. After posing more questions about the product being a must-have versus it being a nice-to-have, and trying to understand the mission-critical nature of the application, it became clear that there wasn’t enough information available yet. I explained that I couldn’t provide any recommendations on which direction to pursue. Instead, I suggested that he either sign more customers and evaluate which use cases are most valuable or spend time with the existing two customers, diving so deeply that he could make a gut decision about which market is better for his business overall.

    In this example, my recommendation is to acquire at least 10 unaffiliated customers to create a broader sample set. This would allow him to learn how, why, where, and when they use the product. From there, the best direction forward would likely become obvious. Back in our time at Pardot, we debated this for years. We initially targeted very small businesses, then small businesses, followed by small-to-medium-sized businesses, and ultimately settled on medium-sized businesses, as well as emerging-growth small businesses. Over time, we honed in on three characteristics that our most successful customers shared.

    First, they had an email newsletter sign-up box on their website. This indicated that they used email marketing in their business and likely engaged in regular communication, such as a monthly newsletter. Second, they ran Google Ads for their product. When we searched the company name or product name and found Google Ads, it showed us that they were investing in lead generation, implying a certain level of marketing presence. Third, we would search the company name on LinkedIn to see if they had any sales reps listed as employees. If they did, it suggested they had a consultative sales process, making a B2B marketing automation platform like ours a worthwhile investment.

    Naturally, we wrote some code to automate the process of finding companies that met these three criteria and used that as our prospecting mechanism for cold outbound to companies that fit our profile. While this example focuses more on identifying common criteria for an ideal customer rather than choosing a specific market, it’s instructive. The ideal customer might not be tied to a particular market or vertical. In our case at Pardot, it was a very horizontal product, and these three criteria were strong indicators of whether a company would succeed with it.

    My recommendation for entrepreneurs is to sign at least 10—if not more—unaffiliated customers and spend a tremendous amount of time with them, either in person or over a Zoom call. Talk to the customers and learn every minute detail possible about why they bought the product, how they use it, and what value they derive from it. Choosing a market, a vertical, or even criteria for the ideal customer is a critical step in an entrepreneur’s journey and should not be taken lightly.

  • From Speed Alone to Speed + Quality

    Most beginning entrepreneurs suffer from the same problem: chasing too many shiny objects. With a clean slate or in the early stages of a new venture, there’s no shortage of ideas to pursue. When a prospect asks for something, the response is often, “Let’s do it.” If a different prospect requests something completely unrelated, the answer is, “Sure, why not?” The goal is to build a business, so responding to customer requests seems logical, right? However, this approach quickly breaks down due to finite resources and limited time. I often say that more startups have died from indigestion rather than starvation.

    In the early days of Pardot, we were building what is now known as marketing automation software, but it didn’t have a term back then. At one point, we called it lead generation software, then lead management software, and eventually, the term that stuck was marketing automation. The fact that we called it lead management software was indicative of what we started doing at the beginning. However, I made the rookie mistake of trying to do too much too fast. While we needed to offer forms, lead routing, lead scoring, and basically an intake system for leads generated on the website that could then be connected to a CRM, we kept building and building. We wanted to have the most feature-rich system, but we lost sight of maintaining a level of quality control at the same time. Being small and nimble, we had to move fast and build out our system, but the lack of quality was driven home one day when I came into the office and customers started reporting that they were seeing leads in their system that they didn’t generate themselves. That’s right; we were cross-contaminating data. Leads generated from one customer were being put into other customers’ systems. Uh-oh, we had moved fast and broken things. It’s one thing to have little bugs that affect the user experience or annoy a customer for a bit; it’s an entirely different thing to corrupt one customer’s data with another’s.

    After quite a bit of work, we had cleaned up the data and addressed the issues in the system. Thankfully, we had learned our lesson: speed creates an early advantage, but speed plus quality is the sustainable advantage.

    Entrepreneurs should use speed to their advantage and iterate as quickly as possible for the customer. Yet, within this context, it’s critical to maintain a strong opinion of where the market is headed and regularly say no to requests that are outside of the vision. Over time, pure speed gets replaced with speed and quality. Pay attention to the signs and be ready to add more efforts around quality as the customer count grows.

  • Event Attendance Yields and Quality Product Feedback

    Last week, I spoke with an entrepreneur who volunteers for a local tech nonprofit, helping with event planning and securing speakers. We discussed events in general and shared best practices we’ve learned over the years. He pointed out something I’ve also observed: events that require payment, even a nominal fee like $10, tend to have a significantly different attendance yield compared to free events.

    In some cases, an organization includes events as part of its annual dues, but many groups choose to charge for events individually. What I’ve noticed on the attendance side is that when you charge for an event, the attendance rate (the percentage of people who actually show up) is often over 90%. In contrast, for free events—especially larger ones or those without a special draw—the attendance rate is typically around 60%. So, while people sign up for events in both cases, charging even a small fee increases the commitment and effort to attend.

    In this unscientific example, the attendance yield for paid events is roughly 50% higher than for free ones. How does this relate to startups? In the startup world, entrepreneurs are eager to get new products into the hands of potential customers. The most common approach is to give products away for free in the early stages to encourage usage and gather feedback. While this might work for a small subset of premium products, in most cases, entrepreneurs are better off charging something, even if it’s less than the eventual market price.

    By charging for the product, the bar for customer commitment is raised. When customers pay, they are more likely to use the product, and the quality and quantity of feedback improve significantly. The relationship becomes a true vendor/customer. 

    Entrepreneurs should consider the example of event attendance yields when comparing free versus paid events. Paid events, as expected, have a higher yield, which implies a greater level of commitment—even if the amount paid is minimal. Similarly, when entrepreneurs charge for a product, the customer’s seriousness is much greater, resulting in higher-quality feedback. Feedback is the lifeblood of products, and the most valuable feedback comes from customers who are invested, even if minimally.