David Cummings on Startups

Author: David Cummings

  • Little Apps or More Modules in the Core Product

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    Image by alphabetjenn via Flickr

    Sometimes we get the urge to build a little app on the side to solve a certain problem that isn’t as core to our main product (like billing). Fight the desire, we must. Building a small app outside the core product introduces a host of challenges like:

    • The fresh excitement to build an app from scratch wears off when no one wants to maintain it on a day-to-day basis
    • Testing and QA won’t be as rigorous due to higher priorities
    • Interface changes won’t be implemented consistently due to the separate code base
    • Server monitoring and administration infrastructure won’t be as thorough due to unique aspects of the architecture that are different from the main app

    My recommendation is to avoid making little apps when at all possible as maintenance of them becomes a serious challenge. Unfortunately, they won’t be given the necessary on-going attention.
    What else? What other thoughts do you have on making little apps vs more modules in the core product?

  • The RSS-Driven Startup Dashboard

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    RSS is great in that so many apps support publishing and consuming the XML format. So much so that it really becomes the core plumbing to drive a startup dashboard. Tools like Google Reader, Socialite Mac, and Thunderbird support bringing in RSS feeds along with other types of information, perfect for creating a central hub of data.

    Here are some potential items for the RSS-driven dashboard:

    As you can, this is really a list of critical business apps and RSS provides a mechanism to centralize the most important information for each, which in turn represents the current pulse for the entire business. Of course, this could lead to information overload but I’ve found it’s better to have too much information compared to too little.
    What else? What do think of an RSS-driven dashboard and what feeds would you add?

  • Business Idea: Prospect Instant Call-Back and Qualification Service

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    There’s a need in the market for a technology-enabled business services startup that specializes in calling inbound leads and qualifying them immediately in a pay-per-action manner. Most companies do a poor job of getting back to prospects that raise their hand for the first time in a timely manner. Think about this: when you fill out an online form, how long does it take for you to hear back from someone? In my experience, I expect to talk to someone within 24 hours of filling out a form, would prefer to talk to someone within an hour, and usually hear back in 2-3 days, if I’m lucky.

    It isn’t that companies don’t want to follow-up on their new prospects instantly, it is that it is too costly to staff a dedicated person to do it and existing sales and marketing teams already have competing priorities. Studies have shown that the sooner you get an inbound lead on the phone after they request information, the higher the chance of closing the deal. That’s right — let a lead linger and every hour you wait the chance of them buying from someone else goes up.

    Here are some ideas on how the business might work:

    • Pay a fixed cost per lead called and qualified (e.g. $50) as well as a bonus for the desired outcome (e.g. an additional $25 if a web demo is scheduled on the phone)
    • Allow for hot-swapping the call from the person qualifying the lead to a sales rep
    • Provide a set of standard questions to qualify the lead as well as simple next steps.
    • Use an extremely friendly, well-paid onshore call center
    • Interface with leading marketing automation, inbound marketing, and CRM products to process leads
    • Partner with marketing agencies, appointment setting firms, and marketing technology products as the indirect channel
    • Sell directly to marketing managers and sales managers espousing the benefits of timely follow-up

    There’s a marketing opportunity for a technology-enabled business services company to fulfill this need and provide more timely call-backs to new prospects. Everyone wins: sales and marketing close more deals and leads get to talk to a company representative faster.
    What else? What do you think of the business idea?

  • ARMD Goals for Startups

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    Image by Tes Mar'a via Flickr

    Continuing the EO Strategy Summit theme from yesterday, there was another new methodology used that I hadn’t seen before: ARMD goals. Back in 2008 I talked about SMART goals, and now that I know about ARMD goals I like them better because they are simpler and don’t have the redundancy sometimes found in SMART goals.

    Here are ARMD goals:

    • Actionable – What specific things need to be accomplished?
    • Realistic – How attainable is the goal?
    • Measurable – Is there a number (metric is ideal) or “completed/not completed” that can be attached to it?
    • Date – When is it going to be done?

    My recommendation is to answer the four points of ARMD when making goals.
    What else? What do you think of ARMD goals?

  • Business Architecture Stack

    The High Museum of Art in Atlanta, Georgia.
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    At today’s EO Strategy Summit we planned the high-level goals for next year’s EO Atlanta chapter. This is the third time I’ve been through the full-day strategy summit planning session and each time the EO certified facilitators do an amazing job. Today’s event was no different.

    One of the techniques they talked about today that I hadn’t seen before was the Business Architecture Stack. I’ve seen the individual elements of it but hadn’t seen it presented in this particular manner. The idea behind the stack is that it is a concise representation of the six most important overarching aspects of a business. Here’s information on the stack straight out of the EO workbook:

    • Mission – What you want to do – your reason for “being.”
    • Vision – Why you’re doing what you do – the big-picture goal: have to be able to “see it” in your mind’s eye.
    • Core Values – Four or five beliefs you never compromised and in which you measured against.
    • Positioning Statement – A one or two sentence description of how you do what you do and for whom (i.e. what markets).
    • Value Proposition – One sentence that conveys to others the value you provide for your customers.
    • Tagline – Quick, catchy statement or phrase that embodies who and what you are.

    My recommendation is for all startups to go through this exercise within the first 12 months of their business and revisit it annually.
    What else? What do you think of the business architecture stack?

  • Vacation Policy: Be Reasonable

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    We have a very simple vacation policy: be reasonable. That’s it. We don’t track vacation days, sick days, or flex days. Not tracking vacation days doesn’t mean people take as much time off without getting their job done, rather it means that we track results and people make sure their work gets done on their own.

    If a team member wants to take time off we ask them to coordinate with their team in advance proportional to the amount of time off (e.g. give a week’s notice to take a day off, a month’s notice to take a week off, etc). The idea is that it’s the employee’s responsibility to make sure their results are taken care of and not the manager’s responsibility.

    When I explain to people that we have a “no vacation tracking policy” I’m inevitably asked what do we do if someone abuses it. The answer: we’d let them know they aren’t meeting our “be reasonable” goal and we’d part ways if it continues. It’s never happened.

    As part of our good work, good people, and good pay approach, we believe employees are our most important asset. Empowering team members to come and go as they please as well as take as much or little time off as needed while their work still gets done helps contribute to our strong culture.

    What else? What other thoughts do you have on this vacation policy?

  • Sales Strategy for SMB SaaS Startups

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    Image by mlibrarianus via Flickr

    This morning I met with a startup in town that recently closed their Series A round and was getting ready to ramp up their sales and marketing. We talked about a number of different aspects of building a SaaS company focused on the small-to-medium sized business market.

    Here are few takeaways from the conversation:

    • Once you charge more than $100/month an inside sales team becomes necessary as people are much less likely to do a self-service credit card checkout process.
    • Pricing a product between $100/month and $500/month is usually no-mans land unless you have a really short sales cycle because prospects will require the same amount of sales engagement whether they are spending $200/month or $500/month.
    • Pricing should follow Occam’s Razor where the all things being equal, the simplest solution is best.
    • A two-tiered sales process with sales development reps and junior/senior inside sales reps works well to develop a farm system of sales reps and specialties.
    • Having more $30k base/$80k on target earning sales reps than the comparable expense with $75k base/$150k on target earning reps is better due to sheer number of activities involved to close a deal over the phone.
    • Writing skills are critical for today’s email-heavy selling environment and a written essay as part of the hiring process goes a long ways.

    The inside sales process requires a completely different approach when compared to the traditional enterprise software sales model. My recommendation is to follow these best practices as part of the sales strategy for SMB SaaS startups.
    What else? What are some other components of the sales strategy for SMB SaaS startups?

  • The 3:1 Customer Acquisition to Engineering Spend Ratio

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    First-time technology entrepreneurs repeatedly make a common mistake: they don’t budget enough for customer acquisition relative to software development/engineering costs. Over the past five years I’ve talked to plenty of entrepreneurs that raised angel money ($100k – $1m), spent 90% of the money building the product of their dreams, and realized too late that it costs serious money to acquire customers. Unfortunately, they weren’t able to show enough traction to raise more money and shut down the startup. It happens more than you think.

    There’s a distinct 3:1 ratio for customer acquisition (sales salaries, sales commissions, marketing salaries, and marketing expense) costs relative to engineering (software development, architecture, quality assurance, etc) costs. A typically software company budget might look like the following:

    • 60% – customer acquisition (sales and marketing)
    • 20% – software development/engineering
    • 20% – general and administrative

    Yes, some rare products have a self-service model resulting in the percent of budget to customer acquisition swapping with engineering but the majority of B2B software companies follow the 3:1 customer acquisition to engineering ratio. My recommendation is for entrepreneurs to pay close attention to these ratios when planning and building their company.
    What else? How you seen this 3:1 customer acquisition to engineering ratio in your experience?

  • Not Everyone Should be an Entrepreneur

    Diverging Paths

    Yesterday’s post on lifestyle modification to be an entrepreneur touched off a series of interesting comments. One thing I want to clarify is that as much as I talk about entrepreneurship I do want to make one thing clear: not everyone should be an entrepreneur. Everyone that wants to be an entrepreneur, and makes whatever necessary sacrifices, should have the opportunity.

    Here are some reasons why not everyone should be an entrepreneur:

    • The high highs and low lows of the entrepreneurial roller coaster make for an exciting, but stressful environment
    • The level of uncertainty and lack of information when making decisions is uncomfortable and disconcerting at times
    • The high chance of failure is scary (failure should not be frowned upon and 90% of companies fail within five years and 95% of companies never reach $1 million in annual revenue, ever)

    Each one of these reasons can be turned around as a reason why it is great to an entrepreneur due to the thrills of success, thriving on uncertainty, and beating the odds. Not everyone should be an entrepreneur but they should have the chance, if they want it.

    What else? What are some other reasons why not everyone should be an entrepreneur?

  • Lifestyle Modification to be an Entrepreneur

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    Last week I spent some time talking to the entrepreneur that I mentioned before that has his entrepreneurial desires trapped by the American dream of home ownership. This young professional has a business idea, two co-founders, a mortgage, and a finance background with no software development experience. I asked him where he’s spending his time outside his day job and he said there wasn’t much for him to do since he wasn’t a developer. Naturally, I told him that he should roll up his sleeves and learn HTML, CSS, and PHP or Ruby and get to work on developing his skills since software engineering is just like finance where you solve logic puzzles according to given rules.

    The real heart of the conversation came when he said he was going to continue helping out part-time on the business until they made enough progress to pay himself a salary and go full-time. I said that wasn’t a good approach because his goal is to be an entrepreneur noe and building a business on the side is going to significantly prolong the amount of time it’ll take before he makes enough progress for it to be his full-time job. A startup isn’t a part-time job (see Rob Kischuk’s comments on trying to get funding while still having a day job). I said he should view it like wanting to be a doctor — plan for four years of med school and a couple years of residency and you’ll have the right mindset. That’s right, he needs to modify his lifestyle now by cutting back his expenses and selling his house so that his spouse can support him without his income and plan for working full-time for the next six years, likely on multiple business ideas or pivots, before he’ll be back to where he is now in terms of income and ability to go on vacation for a week and not have to worry about anything. That’s a serious commitment, and not one to be taken lightly.

    What else? Do you agree a serious lifestyle modification will help him be a successful entrepreneur sooner?