David Cummings on Startups

Author: David Cummings

  • Entrepreneurs Aren’t the Best At Evaluating Ideas

    Quick, what’s an entrepreneur? In my mind it’s someone who’s optimistic, blissfully ignorant at times, can see around the corner, and gets results with limited resources. Now, entrepreneurs, especially successful entrepreneurs, are constantly asked by other budding entrepreneurs to hear their new idea so as to provide feedback. In reality, the budding entrepreneur wants validation and encouragement from the successful entrepreneur. Only, entrepreneurs aren’t the best at evaluating ideas.

    You know who is good at evaluating ideas?

    The potential customer.

    That’s right, don’t get someone who isn’t in the field and doesn’t have the domain expertise to pontificate on the next great idea. Go straight to the source — the prospect. Spending time getting feedback from entrepreneurs is nice and all, especially because many entrepreneurs are a little crazy and excitable, but that’s not a good use of time. The next time an entrepreneur asks for feedback on his or her idea, ask them if you’re they’re ideal customer.

    What else? What are your thoughts on entrepreneurs not being the best people to evaluate an idea?

  • Announcing the Atlanta Student Fund

    Urvaksh broke the news this morning about the new $1 million fund for Georgia Tech student startups called the Atlanta Student Fund (site coming soon) as part of Atlanta Ventures. Georgia Tech is an amazing university with a top-flight engineering school and a tremendous asset to the City of Atlanta.

    Here are a few notes on the Atlanta Student Fund:

    • $5,000 – $10,000 investments in startups with a current GA Tech student on the founding team
    • Convertible note (a loan that turns into equity upon a qualified financing event)
    • Memberships and desks at the Atlanta Tech Village
    • Target of 10 investments per year (opportunistic)
    • $1 million fund to invest over three years, inclusive of follow-on investments

    Overall, the goal is to increase the number of successful, seed stage startups in Atlanta that then grow into larger, meaningful companies. Georgia Tech has tremendous talent and there’s a real opportunity to increase the amount of entrepreneurial activity on campus.

    What else? What are your thoughts on the opportunity for more startups at Georgia Tech?

  • Pivoting is More Common Than Expected

    We’ve all heard the term pivot by now. When a startup isn’t working out, it’s time to try something different, thus the concept of pivoting to a new idea. What most people don’t know is that a large number of successful startups became successful after doing a pivot. I was reminded of this again a few days ago when Alan Dabbiere, chairman of AirWatch, spoke at the (co) lab summit. Both of Alan’s huge successes were pivots:

    • Manhattan Associates (NASDAQ:MANH – Market cap of $1.8 billion) – Started out as a solution for printing packing slips in warehouses and eventually pivoted into supply chain software
    • AirWatch (raised a $225 million series A round in early 2013) – Started out doing WiFi management for a restaurant chain (Panera Bread) and eventually pivoted into mobile device management software

    On the personal front, Pardot started out as a pay-per-click lead generation service before pivoting into marketing automation software. Pivoting is a normal part of the startup process and more common than expected.

    What else? What are your thoughts on pivots being more common than expected?

  • Sales Team Required

    I love reading about Software-as-a-Service (SaaS) and sales ideas, so when I saw Peter Levine’s latest post titled SaaS Manifesto: Part Two – It’s Time to Build a Real Sales Team, I jumped right in. After going through the article, one stat really stood out to me:

    LinkedIn has a 1,200 person sales team.

    Yes, you read that correctly. LinkedIn has well over 1,000 people as part of their sales force — that’s enormous! As an entrepreneur, the standard tendency is to get so focused on the product that the concept of having to invest significant resources into selling doesn’t enter the mind. In reality, even with an amazing business like LinkedIn, and all the valuable services they have, they still have a massive sales team. Occasionally, some startups succeed without a sales team, but 99% of the successful ones have a sales team.

    Great technology still requires a sales team.

    What else? What are your thoughts on the need for a sales team?

  • Go Get Five Customers and Let’s Talk Again

    For idea stage or prototype stage startups, there’s a response that’s becoming more common when pitching angel investors:

    Go get five paying customers that love what you’re doing and then let’s talk again.

    It’s not that angel investors don’t want to help — they do. There are several reasons why this response is more prevalent:

    • Angel investors want to mitigate risk, and signing five paying customers is great progress for the startup towards proving product/market fit
    • An important test for entrepreneurs is ability to follow through and meet a goal, so this is a straightforward assignment
    • The cost of building a product has gone down significantly such that entrepreneurs should be able to scrape together friends and family money together to get a prototype built and sign early customers before raising professional angel money

    Investor dollars are scarce and entrepreneur talent is strong resulting in angels requiring more startup progress before investing. Entrepreneurs should be ready for the response to go get five paying customers.

    What else? What are your thoughts on angel investors requesting entrepreneurs sign five paying customers as a pre-requisite for digging deeper into the investment opportunity?

  • Venture Atlanta 2013 Presenting Companies

    Venture Atlanta is largest annual event in the Southeast that connects startups in Georgia with venture capitalists from around the country.  Today, Venture Atlanta just announced the 2013 presenting companies for the late October conference.

    Here are the companies:

    Early Stage Companies

    Venture Spotlight Companies

    • Aptitude Health – Data analytics services to biopharmaceutical and diagnostics companies
    • Azalea Health – Patient management platform
    • BitPay – Bitcoin payment processing platform
    • Blue Ridge Inventory – Supply chain planning and inventory software
    • Catavolt – Cloud middleware for legacy systems
    • Digitus Biometrics – Physical biometric access control systems
    • Izenda – Business intelligence and reporting software
    • OneCare – Mobile health platform that tracks patient compliance
    • Parkmobile – Mobile payments system for the parking industry
    • Racemi – Cloud and virtualization migration software
    • RazorInsights – Financial and clinical systems
    • REACH Health – Telemedicine software
    • ShopVisible – Ecommerce software
    • SignUp4 – Event registration and management software

    It’s a great group of companies and I’m looking forward to Venture Atlanta next month.

    What else? What are your thoughts on the Venture Atlanta 2013 presenting companies?

  • Thinking About Startup Density for a City’s Entrepreneurial Success

    Tomorrow I’m giving a short talk at the (co) lab summit at the Woodruff Arts Center in Atlanta. One of the sessions is about Fostering Entrepreneurship and I’m speaking on the topic of startup density as an important element of a city’s entrepreneurial success.

    Here are a few thoughts on startup density:

    • Entrepreneurs, like any tribe, seek to share and learn with other like-minded people
    • Urban sprawl, a fact of life for Atlanta, results in startups spread out all over, and little density outside a couple pockets in the city
    • The Atlanta Tech Village, combined with ATDC and Hypepotamus, create serious startup density in Buckhead and Midtown
    • Serendipitous interactions play an important role in startup success and those interactions are a function of density
    • Recycling talent, which happens when members of a failing startup join another startup, increases significantly with density
    • Life can be lonely in a startup with the same tiny group of people everyday, thus instant community that comes with density fulfills a real human need and increases the likelihood of success

    I’m looking forward to the (co) lab summit tomorrow and sharing a few thoughts on the importance of startup density.

    What else? What are your thoughts on startup density for a city’s entrepreneurial success?

  • Does CRM go away as a standalone offering?

    Several months ago I wrote a piece titled HubSpot as the Next Mainstream CRM where I explored the lack of a clear #2 CRM provider in the market and offered that HubSpot might fill that role. Last month HubSpot, at their annual user conference, pushed the message “inbound sales” as the next phase of evolution with their solution.

    With yesterday’s post titled User Engagement Tools vs Marketing Automation, Scott Voigt of Homebase.io offered up that these user engagement tools are quickly becoming a viable alternative to a combination CRM and marketing automation system for companies that don’t have an outbound sales team (e.g. no hunters and sales order taking is done in a self-service fashion). Mike Lewis offered up that his company uses Totango as their user engagement tool and that it’s great for managing user retention at scale.

    So, looking back at the HubSpot-as-mainstream-CRM idea, the premise was wrong. The market doesn’t need a mainstream CRM as separate from the marketing automation system. Sales and marketing are inextricably tied together, and marketing campaign execution and tracking technologies are so good now, they’re leading the way. The marketing system is more important than the CRM system because it delivers more value in the organization. Marketing is driving sales, and marketing automation systems are a better driver at telling sales people where to spend their time, compared to the static information logged into a CRM.

    If an entrepreneur came up to me asking which CRM to use, I’d start talking about marketing systems. A CRM is useful for logging calls and managing opportunity pipeline, but that’s less important than implementing a marketing system. With a marketing system, prospects are tracked, messages triggered, and rules automated.

    So, yes, CRM systems do go away as a standalone offering and become part of a joint sales and marketing solution.

    What else? What are your thoughts on CRM as a standalone offering?

  • User Engagement Tools vs Marketing Automation

    There are a number of new Software-as-a-Service (SaaS) tools on the market that specialize in converting free/trial users into paying users as well as engaging customers on a one-to-one basis. Tools like Customer.io, Intercom, and Evergage are all different in their functionality but are working to solve the same problem. The market lacks a consistent name and uses terms like customer engagement, one-to-one customer communication, prospect conversion, etc.

    Recently, two different entrepreneurs asked me about these user engagement tools, and after digging in, they look like specialized marketing automation systems.

    Here’s partial functionality listed by some of the user engagement tools:

    • Track user-level activities and set triggers
    • Manage and deploy lifecycle emails
    • Automate one-to-one emails based on behaviors
    • Segment and tag users

    So, without having first-hand experience using the user engagement tools, they appear to be specialized marketing automation systems geared towards companies with a web-based applications with a user conversion and engagement process. The interface and functionality is less sophisticated than marketing automation systems, but it’s also easier to learn and more tailored for a specific audience.

    Marketing automation systems already fill the general need in the market for these user engagement tools, but if they are better/faster/cheaper for converting and engaging users in a web-based product, there’s an opportunity out there.

    What else? What are your thoughts on user engagement tools vs marketing automation?

  • Thoughts on Startup Crowdfunding

    Earlier today I was at the Southern Capital Forum on a panel about early stage investing and crowdfunding. Based on the JOBS Act passed last year, soon non-accredited investors will be able to invest in startups. There are a number of unknowns about how the law will actually be implemented as well as how it will affect the fundraising market.

    Here are a few ideas from today’s panel:

    • For tech startups that are difficult to understand, crowdfunding likely won’t do too much
    • For tech startups and consumer-oriented startups with a good marketing story, crowdfunding will provide another market validation option (e.g. crowdfunding could be a precursor to an angel round or replace angel rounds)
    • Standard deal considerations that are applicable to an angel round are also applicable to crowdfunding (e.g. having everyone invest via a single LLC, making the terms fair and consistent with the market so that the startup can raise money in the future, etc.)
    • Non-accredited investors are already investing in startups, so this legitimizes some of that activity

    Overall, there’s significant enthusiasm that crowdfunding will have a material impact on the startup world. I’m looking forward to seeing how it all plays out.

    What else? What are your thoughts on startup crowdfunding?