David Cummings on Startups

Author: David Cummings

  • Quick Entrepreneur Screening: Are You Working Full-Time on the Startup?

    I enjoy talking to entrepreneurs about their startup, what’s working, what’s not working, and where things are headed. When entrepreneurs reach out to me I usually try to get the conversation going over email before jumping on a phone call or grabbing lunch as I want to casually gauge how much help I might be able to offer.

    One of my favorite questions for screening entrepreneurs is: are you working full-time on the startup? It might seem obvious that the entrepreneur would be working full-time on their startup if they’re reaching out for help but a decent percentage of the time the entrepreneur isn’t and one of the reasons for reaching out is that they want third-party validation of the idea. Of course, customer validation is a much better route to take but it still isn’t mainstream.

    Not everyone can go full-time on their startup idea due to financial challenges, and I understand that. If they aren’t full-time (part-time entrepreneurship isn’t ideal), I look to help more via email and referring to programs like Flashpoint and mentors at the ATDC. I prefer working with full-time entrepreneurs since they are 100% committed to the venture and make significantly more progress than the part-timers.

    What else? What are some other ways to do quick entrepreneur screening besides the full-time question?

  • 7 Characteristics of Successful Entrepreneurs

    Everyone loves to pontificate about what it takes to be a successful entrepreneur, myself included. There’s no one “right” answer but rather many different traits, that when combined, result in great outcomes. Here are the seven most common characteristics I’ve observed about successful entrepreneurs:

    • Forward-looking – able to anticipate trends, opportunities, and future organizational challenges
    • Hard working – they love putting in the hours and realizing a sense of satisfaction when accomplishing goals
    • Passionate – true enthusiasm and energy around the work that they do
    • Opinionated – ready and willing to take a stand for how they believe things should be done
    • Confident – when someone looks you in the eye and tells you they can do it, even if it’s far fetched, you’re more likely to believe them
    • Resourceful – when there are so many unknowns, it takes unique talent to put everything together on the fly
    • Positive – with the roller coaster ride that is entrepreneurship, staying positive helps the team get through very low lows

    Notice I didn’t say smart, high integrity, or any number of other common characteristics that might be thrown around. Those are often present but I’ve seen cases where some items were less than desired. These seven characteristics have proved to be the most common in successful entrepreneurs I know.

    What else? What are your thoughts on these seven characteristics of successful entrepreneurs?

  • Remote Inside Sales Reps vs Dedicated Inside Sales Offices

    With the rise of Software-as-a-Service (SaaS) comes a growth in the inside sales model for B2B technology vendors. Inside sales has always been part of the software industry but a common approach was to sell expensive, installed enterprise software with territory field reps and use inside sales primary in an appointment-setting function or for low-dollar deals. Well, many SaaS products act like lower-dollar deals because bills are paid monthly or quarterly and contract terms are often for one year so the deal value and structures don’t support an expensive customer acquisition process — enter inside sales as the dominant sales approach.

    As the startup grows and expands it can be difficult to build out the inside sales team fast enough internally. The next logical step is adding remote inside sales reps or opening up a separate inside sales office in a different geographic location. Here are some considerations to keep in mind:

    • Inside sales is often a more junior position, so the camaraderie and peer pressure from team members can be important
    • If the criteria for the inside sales position is extremely specific, having a larger geographic area to draw from provides more options
    • A popular strategy for inside sales departments is to have sales development reps that just set appointments, and also act an in-house farm system/minor leagues
    • As the compensation for the inside sales position becomes more lucrative, remote sales reps with experience become more available

    In general, either approach is difficult but startups I’ve talked to have had more luck with a separate, dedicated inside sales office where teams of reps can work together compared to having remote inside sales reps. For remote inside sales reps to be successful, the reps should be strong, independent self-starters and additional effort should be placed on collaboration tools like video conferencing (I like Google Hangout with video).

    What else? What are your thoughts on remote inside sales reps vs dedicated inside sales offices?

  • Look Out for Harvest Mode SaaS Startups

    Software-as-a-Service (SaaS) startups should have great revenue growth with companies buying more cloud-based tools, the layering of recurring revenue on top of recurring revenue, and the strong investor appetite to fund money-losing businesses. Unfortunately, things aren’t always so rosy. In fact, when a SaaS company’s growth stalls, and has outside investors with a timeline on the business, there’s a serious chance the company will be sold to a non-strategic buyer and put into harvest mode.

    What is harvest mode you ask? Good question. Harvest mode is when a significant percentage of staff is cut, typically 30-80%+, for the purposes of maximizing profitability and milking the recurring revenue.

    Here’s a simple example harvest mode scenario:

    • SaaS company is break-even on $10M in revenue and 70 employees
    • Growth stalls and investors, controlling the company, decide to sell to highest bidder
    • Company is bought for $30M and 50% of the 70 employees are immediately laid off
    • Employee costs represent 80% of the expenses, so a 50% staff reduction results in $4M in annual profits
    • Company continues to improve the product and sign up new customers, while revenues and profits slowly shrink
    • The financial buyer of the company is able to fund the acquisition with the $4M/year profits

    This is a hypothetical example of a harvest mode SaaS startup. I’ve personally seen it happen a few times and it’s important to look out for them, especially if you’re a potential customer thinking about choosing a vendor.

    What else? What other thoughts do you have on harvest mode SaaS startups?

  • Costs of Amazing Startup Benefits and Perks

    Earlier this week I was talking to an entrepreneur and he exclaimed that we must be spending a fortune on the amazing benefits and perks that we offer. After pausing for a minute I thought about and realized that I didn’t know how much it cost for an individual employee for benefits and perks.

    Here’s the cost for the different monthly items we pay for for each employee:

    • Full individual-only health and dental benefits – $270/month
    • Full short term and long term disability insurance – $20/month
    • Free lunch Fridays – $30/month
    • Catered daily breakfast – $60/month
    • 401k with 50% match up to 6% off salary with $3,000 max – $150/month (avg across company)
    • Unlimited drinks and snacks – $60/month
    • Weekly Friday massages – $15/month
    • Month car wash and detailing – $25/month
    • Free Braves tickets (2 per season) – $5/month
    • Total: $620/month direct expense of benefits and perks for the standard employee

    Yes, ~$7,500 per year is a fair amount extra on top of the 10% employer tax on wages but in the grand scheme of things it’s priceless to have such a great team of people with an awesome corporate culture.

    What else? What are your thoughts on the costs of amazing startup benefits and perks?

  • Startup Expansion Via an Office in Europe

    After successfully getting a Software-as-a-Service (SaaS) startup off the ground in North America, one of the natural tendencies is to start thinking about world domination, starting with an expansion office in Europe. London, due to its large population center, English speaking people, and easy transportation is a common choice for a European office. Startups often make the mistake of trying to launch a European office too soon and are better off waiting until they can fully fund it.

    Here are a few things to keep in mind with setting up an office in Europe:

    • A SaaS company should typically have $10M – $30M in recurring revenue to have enough scale and resources to fully invest in European expansion
    • Ideally a handful of customers will already be in Europe pre-expansion so that they can help out by acting as references to future clients as well as be case studies for the region
    • An easy way to get started is to hire one or two full-time contractors to work remote from London and have them be part of a department, just like a team member in the office
    • Many entrepreneurs in London and other cities specialize in helping North American software companies expand through a joint venture or via a subsidiary
    • One approach is to find a team member that’s been on your team at least year that wants to move to London for one to two years and set up the office, as well as ensure a consistent culture develops (most important!)
    • Sales, marketing, and support are the most common functions for an office in Europe with sales being the dominant one

    We’d had a London office now for almost 18 months and it’s worked out well following some of the ideas listed above. Europe is a huge market that’s ripe for startup expansion.

    What else? What are some other things to think about when opening an office in Europe?

  • Traffic Growth for a New Blog With Frequent Content

    Recently two entrepreneurs in town started new blogs to document their thoughts, share their theories, and help other people. As part of that process one of the common questions is how many people will read it? I don’t have many sources of data but I’m happy to provide some monthly visitor stats from this blog as a baseline for others to get a feel for how things might work.

    Monthly stats at six month intervals since the start of this blog:

    • Jan 2009 – 739
    • Jul 2009 – 1,115
    • Jan 2010 – 2,565
    • Jul 2010 – 3,591
    • Jan 2011 – 6,197
    • Jul 2011 – 8,628
    • Jan 2012 – 13,430

    So, from a standing start with a clean slate, this blog went from less than a thousand visitors in the first month to over 13,000 visitors exactly three years later with 1,072 blog posts published in the interim. I don’t know how this compares but assuming it’s average then it takes an impressive amount of time and effort to get a modest of regular traffic (most traffic comes from Google with social media being the second major source).

    What else? What other traffic growth pattens have you seen from blogs and sites with frequent content?

  • Two Requirements for Success from The Advantage

    Patrick Lencioni’s most recent book, The Advantage, is one of the best business books published in the past year. Early on he argues that there’s two requirements for success in business:

    1. Smart – strategy, marketing, finance, and technology
    2. Healthy – minimal politics, minimal confusion, high morale, high productivity, and low turnover

    Most executives focus on the “smart” side of the equation because it is easier to deal with, taught in school, and believed to be the differentiating part of running a successful business. The reality is that the “smart” requirement is now much more of a given due to the availability of information, educational background of executives, and competitive nature of most markets in the Internet age.

    The “healthy” side of the equation is the one that isn’t given enough attention and over the next 10-20 years will become just as top-of-mind and worked on as the “smart” side. Entrepreneurs and executives that don’t embrace the “healthy” side will have more limited lifespans and outcomes compared to those that do. Some people will deride it as being fuzzy and a corporate culture ploy but in the end a strong corporate culture is the only sustainable competitive advantage completely within the control of the company’s leaders.

    What else? What are your thoughts on the two requirements for success from Patrick Lencioni’s book The Advantage?

  • Entrepreneurs Should Focus on One Startup and One Idea

    Last week I was judging the Global Student Entrepreneur Awards at the EO Nerve Atlanta 2012 conference. One of the student entrepreneurs presented his business and at the end said he was working on two other startup ideas the same time. Ouch, there a was big subtraction of points for lack of focus.

    Earlier today I was on a panel titled Startups Are Not Businesses Like Caterpillars Are Not Butterflies at the TiECON Southeast 2012 conference. One of the first questions from a guest in the audience was a conundrum about her two related startups and whether or not she should do one or both simultaneously. My response was direct: focus on one startup and one idea at a time.

    The risk for most startups is not whether or not you’ll fail, but rather will you fail fast enough to keep going if the idea isn’t the right one. Most initial ideas aren’t right, even though the area or market might be right, and not giving it enough attention means you won’t make enough progress to realize it won’t work and to find a related iteration or more comprehensive pivot that will work. More focus equals more progress which equals more chance for success.

    Now some people will point out successful parallel entrepreneurs that have multiple multi-million dollar businesses and say that they aren’t focusing on one startup and one idea. The reality is that they are focusing on one startup and one idea, but they’ve achieved enough scale with their organizations that they have senior executives 100% focused on an individual venture. So, while the entrepreneur might have multiple businesses, people within each business are exclusively focused on their respective business.

    What else? What are your thoughts on entrepreneurs focusing on one startup and one idea?

  • Extracting Talent from Large Companies to Work in Startups

    There’s a serious talent shortage right now for strong analytical and technical people. It’s a shortage for startups and established companies alike. Startups, inventing the future, are a much better place for the talent but it’s difficult to convince people that there’s a better, more exciting opportunity when things are good enough. People are generally averse to change.

    Startups, as a community, need a more concerted effort to extract talent from large companies. Here are a few ideas to start extracting more talent:

    • Work harder to target and invite developers to meetups around certain technologies or programming languages — one of the best ways to convince someone to change jobs is to talk to them in person about some common bond
    • Additional content marketing around tech talks, best places to work, and more so that people will be exposed to other corporate cultures that get them excited
    • Better articulation of the value of startups having more autonomy, mastery, and purpose
    • More highlighting that large companies aren’t as safe as people believe, with the recent Google office closing and Yahoo layoffs as prime examples

    Extracting more talent from large companies to work in startups will be hard. Very hard. For startup communities to thrive, especially in markets that are still aren’t mature, extracting more talent from large companies is one of the best things they can do.

    What else? What are some other ways to extract talent from large companies to work in startups?