By Poornima Vijayashanker
David Cummings started a business in college and used it as a test subject, as well as a funding source, for his next company, Pardot. He built an MVP in 45 days, but customers didn’t want it. Learn how David used this early feedback to pivot, hire a great first sales rep, and grow the company into a multimillion-dollar business that was acquired by ExactTarget, then Salesforce—all outside of Silicon Valley.
Pardot offers a software-as-a-service marketing automation application that allows marketing and sales departments to create, deploy, and manage online marketing campaigns.
Poornima: “Hi David! Thanks for agreeing to chat with me today. I was thrilled to learn that a fellow Duke grad built a successful startup outside of Silicon Valley. Let’s start with undergrad, because you mentioned that was when you started your first business. What were you doing at Duke?”
David: “I started college in 1999 and majored in Economics. I also built a lot of websites for researchers and sororities. I’d hand it to them, and then they’d say: I want to change it. This was before WordPress existed. So I figured they needed an easy-to-use content management system. I approached one of my professors for money to build the business over a summer. The business was Hannon Hill. I built it up to a 25-person company, and it’s still around today.”
Poornima: “That’s awesome! So what happened next?”
David: “I studied the marketing automation space. I noticed that there were businesses who were marketing directly to individuals [consumers, or B2C], but there weren’t good solutions to market to other businesses [B2B]. They didn’t have good tools for CRM, webinar management, etc. So I started with that thesis.”
Poornima: “This is while you were running Hannon Hill?”
David: “Yes.”
Poornima: “Got it. OK, so what did you do next?”
David: “In the first 45 days of Pardot, we decided to create a product to generate leads that did PPC [pay-per-click] arbitrage. We were going to buy ads against e-commerce terms, generate leads, and then sell them to vendors. Our goal was to pay $100 for a lead, then sell that lead at $50 to 5 vendors.”
Poornima: “What happened when you showed it to customers?”
David: “We took our MVP [minimum viable product] to customers, and they actually thought the tool we created to generate these leads was more interesting. It did things like create landing pages, set up forms, and track leads. Basically, it was a tool to generate leads, and that’s what they wanted. They wanted to do it themselves.”
Poornima: “Who was your initial customer segment, and how did you reach out to your initial set of customers?”
David: “Our customers were tech companies, and we reached out to companies we were working with at Hannon Hill.”
Poornima: “That’s great, so you had a deep relationship with them that you could leverage. What happened after you decided to pivot?”
David: “Yeah, so this was March 1st of 2007. In April we decided to go in this new direction, and we worked on it until September 2007.”
Poornima: “How did you go about building the product?”
David: “I built version 1.0 of Pardot by myself in PHP, and the summer of 2007 we hired a bunch of interns from Georgia Tech. My co-founder, Adam Blitzer, also came on board. I did all the engineering and he handled all the product, marketing, and customer support. We were funding it through Hannon Hill and used Hannon Hill as a test customer.”
Poornima: “How did you scale your customer base?”
David: “We hired our first sales rep. We paid him $2500 monthly salary plus 15% commission for first-year sales.”
Poornima: “What was his background?”
David: “He wasn’t familiar with the space. He was selling police management software. So we spent a lot of one-on-one time walking him through the product.”
Poornima: “Wow, it’s great that he was able to learn quickly and add value.”
David: “Yeah, we were extremely lucky. When he started, he was pretty entry-level, but he figured out the market and messaging. Within 2 years, he built out a sales team and went on to become our VP of sales.”
Poornima: “So you had a pretty junior team: interns coding and an entry-level sales guy. Were you concerned at all about balancing the team’s experience level?”
David: “We could only afford junior people, but we focused on hiring people for what their abilities could be.”
Poornima: “That’s great. So, let’s switch gears and talk about the business. How did it grow over the 5 years that you were working on it?”
David: “We focused on generating recurring revenue combined with strong gross margins and strong renewal rates, and eventually that leads to strong predictability. In the first year we made $63K, the second year $485K, and the third year $2.25M. We focused on 5% growth per week, and then slowly lowered it over time. I wrote a post about it on my blog.”
Poornima: “Thanks, I’ll check it out and offer it to readers; I think it would be extremely helpful for them. Now let’s talk about the acquisition. How did that get started?”
David: “Back in June of 2012, ExactTarget was looking to partner with a marketing automation company. They knew they were strong in the B2C market but felt like they had missed the B2B. They originally approached Marketo for a partnership and put a program in place with them. They soon discovered that the organizations just weren’t aligned culturally, but they did realize the B2B market was important.”
Poornima: “It’s interesting to see how culture and fit are important, even for a partnership. What happened next?”
David: “They approached us and asked for a demo. We didn’t know if they were looking for a partner or looking to acquire us. We flew up to Indianapolis and shared everything. After the demo they kept asking us for more info. Then on August 15th [2012], they handed us a term sheet with an initial offer of $60M. We spent about 2 weeks negotiating, and eventually arrived at $95.5M plus some other stuff. In September we started due diligence, and by October 9th we closed the deal.”
Poornima: “And since there were no investors, you and your co-founder basically benefited. Did you stay on?”
David: “I stayed for 0 days. I had no earnout. My co-founder stayed, and 8 months later ExactTarget was acquired by Salesforce.”
Poornima: “That’s awesome, and you had no outside investment, so it was a pretty sweet deal for you. What did you do next?”
David: “I started to look for a building to buy. I found a place for 100K square feet and closed the deal in December 2012. It’s now Atlanta Tech Village and houses 200 startups.”
Poornima: “Great to hear that you’re building a community in Atlanta, David! Any final takeaways for our readers?”
David: “Timing was super important. Marketing automation was already around, but B2B was really behind. Our competitors had been in the space for 5 years, and there was enough fatigue in the market that customers were looking for something fresh. If we had done it earlier, the market wouldn’t have been receptive.”
Poornima: “It’s also a great lesson in pursuing an idea even if there is competition! Let’s briefly talk about your new startup, Kevy. How did you come up with the idea for it?”
David: “Kevy came out of Pardot. I noticed that for every 1 product you use, you need 10 products to connect the data together. So I discovered that there was a need for a cloud middleware tool to connect products to each other.”
Poornima: “There is definitely a need for that. Thanks a lot David for doing the interview, and I wish you a lot of success in your new venture!”
Just to recap, here’s what we learned from David Cummings:
- You can leverage your learnings from one business to start another. David began Hannon Hill, then soon discovered the need to generate business leads for it. That led him to build a tool to generate leads, which eventually become Pardot.
- Build something small and get it in front of customers. Within 45 days, David had built the first version of Pardot. When he showed it to customers, they didn’t want to buy leads; they wanted the tool that generated them. Based on customer feedback, he quickly pivoted and then spent 6 months building out the product.
- You don’t need an experienced team. Since David was right out of college and bootstrapping the business, he couldn’t afford to hire experienced engineers and salespeople. He was fortunate to find a very talented entry-level sales guy and recruited engineering interns to build the product.
- You can build a sizable business without outside funding. David went after enterprise customers and focused on generating recurring revenues early on. This helped him grow to a million-dollar business in 3 years.
- You can build a successful software company outside of Silicon Valley! David built Pardot in Atlanta, GA, and the acquiring company, ExactTarget, was headquartered in Indianapolis, IN.
Get 7 more in-depth interviews with founders & early employees at startups like Pardot, Shopify, and Olark in How to Transform Your Ideas into Software Products, a step-by-step guide to bringing your product ideas to life.
