David Cummings on Startups

Author: David Cummings

  • Migrating Models from Enterprise Sales to Inside Sales

    Software as a Service
    Image by Jeff Kubina via Flickr

    Yesterday I had lunch with a successful entrepreneur in town to talk about our inside sales model. His business has raised a fair amount of institutional capital, been growing nicely, and realized it has a customer acquisition problem. His SaaS product sells in the mid five figures with a handful of six figure deals and he has an enterprise sales team resulting in a cost of customer acquisition that is twice the first year’s revenue.

    For SaaS companies, a good rule of thumb is that the fully loaded cost of customer acquisition (sales salaries, commissions, marketing salaries, and advertising) should be less than than the first year’s new client revenue of all new clients combined. The thinking was to move to an inside sales model with a lower average deal size and a significantly lower cost of customer acquisition.

    Here are some thoughts on migrating from an enterprise sales model to an inside sales model:

    • The type of sales management for an inside sales team needs to be more activity focused (calls, demo, and pipeline opportunities) and less relationship focused due to the shorter sales cycles
    • Enterprise sales reps are typically $70-90k base while inside sales reps are typically $30-$45k base resulting in the need to hire a new team
    • More focus needs to be on marketing and lead generation to build a steady flow of qualified prospects for the sales team (lead generation drives SaaS)

    Moving from an enterprise sales model to an inside sales model will be a difficult transition but appears to be the right move based on market dynamics and pricing.

    What else? What other thoughts do you have on migrating from enterprise sales to inside sales?

  • Business Idea: Content Marketing as a Service – Part 2

    All Marketers Are Liars
    Image via Wikipedia

    Continuing with yesterday’s business idea on Content Marketing as a Service, I wanted to flesh out the concept a bit more as the post generated a number of good comments and tweets. As the idea isn’t hard technically, the real challenge is customer acquisition and execution. Let’s look at some pros and cons of the potential business model:

    Pros

    • Broad, growing market need to deliver fresh content for inbound marketing
    • Readily available market of journalists and marketers that can produce high quality work as freelancers (potential for stay-at-home moms and dads as well to be part of the content contributors)
    • Economies of scale, expertise, and proprietary technology will enable delivery of the service significantly cheaper and more effectively compared to doing it in-house (think about the SecureWorks model)
    • Marketing departments have budgets with discretionary spend
    • Proliferation of online marketing tools is overwhelming for many marketers

    Cons

    • Difficult to convince marketers and executives that the content marketing as a service startup will be able to speak intelligently about a specific business and industry due to potential jargon and lack of domain expertise
    • No barriers to entry
    • Potential 3-6 month time period required to see value (visitors will come right away but marketing qualified leads could take time)
    • Trust issue with giving access to WordPress account, Twitter account, Facebook Page, etc for the outsourced service provider to execute the work

    Marketers and business executives need this type of service. I expect to see it on the market within 12-24 months, if not sooner.
    What else? What are some other pros and cons of the content marketing as a service idea?

  • Business Idea: Content Marketing as a Service

    DSC00768
    Image by Hao-Zhong Wang via Flickr

    More and more companies are buying into the inbound marketing approach of providing fresh, original content on a regular basis to attract visitors to their site. Unfortunately, understanding and believing in the idea doesn’t mean most marketing departments spend the time to make it happen. There exists a need in the market for a company to provide content marketing as a service.

    Here are some details around the idea:

    • A typical plan might be $1,500/month for one blog post/week, three tweets/week, and one email newsletter per month (based on the blog posts) as well as managing the tools to publish the content
    • The price point would be significantly lower than a full-time person in-house to do it
    • The price point allows for a marketing manager to put it on his or her credit card without having to get approval from others
    • Technology would be used to facilitate the workflow with approval process, coordination of freelance writers, and phone integration so that subject matter experts could talk for a couple minutes about a topic to have that content put into a blog post by a writer
    • The project managers and some of the editorial team would be in-house while the writers would be freelancers
    • Available up-sells include white papers, video publishing to YouTube, slide publishing to SlideShare, and coordinating webinars

    Yes, a PR or marketing agency would be happy to do these things but agencies are typically not set up to get economies of scale with this level of specialization and aren’t good at building proprietary technology.

    Inbound marketing works and the market needs content marketing as a service.

    What else? What do you think of the idea? Pros and cons?

  • The Real Estate Equation for Fast Growing Startups

    Bangalore Properties - Real Estate India - Vas...

    Real estate is tough for startups. There’s the unpredictability with where you’ll be in 24-36 months combined with one of the last remaining old boys network (at least in Atlanta). The best thing for startups to do is go the sublease route. Unfortunately, with the sagging commercial real estate market many of the subleases have dried up as companies that went out of business turned their space back over to the landlord and the macro economy has been soft for several years now resulting in enough time for many subleases to be rented by tenants.

    Subleases are most plentiful right after the economy turns downward and companies put excess inventory on the market. When things are starting to pick up, even so slightly like now, companies hold on to excess space longer in the event things do continue to improve and the space is needed. Fast growing startups have an even bigger challenge because they are hiring people so quickly they need an even larger amount of unused space on hand to accommodate the growth. There’s no easy equation.

    The best thing to do, absent a sublease, is to look for flexible landlords and build into the contract things like an option to break the lease early if you out grow it, right of first refusal on adjacent spaces, and flexibility to move into other spaces in the same complex without penalty. Yes, flexibility is the most important consideration for direct deals.

    What else? What other thoughts do you have on real estate for fast growing startups?

  • Business Idea: SaaS Line of Credit Provider

    The lens of a compact disc drive and its assoc...
    Image via Wikipedia

    There’s a void in the market for high gross margin recurring revenue businesses to get a line of credit based on the recurring revenue. Banks are designed to lend money when you don’t need it (e.g. very profitable) or when you have assets to put up as collateral (a friend of mine got an SBA-backed bank loan for $1.2M to buy some franchises and had to put up $800k of personal money into a CD that the bank held until the loan was repaid).

    The most common assets for collateral are accounts receivables, real estate, and heavy equipment. Software-as-a-Service (SaaS) companies shouldn’t have any of those. Accounts receivables, especially if the majority of customers pay by credit card, are almost non-existent as the customer payment is made on a regular, timely basis (e.g. monthly). A SaaS startup’s appetite for capital is even more acute due to the fact that the “services” part of SaaS results in effectively leasing the product over the life of customer, as opposed to receiving a lump-sum of money up-front like with enterprise software. This clearly impacts cash flow and is made more difficult due to the cost of sales commissions and providing on-boarding and training services. SaaS companies are doing well if after 12 months of having a client they break even. Typically, it isn’t until years two and three that they start turning a profit.

    The business idea is a technology fund that provides lines of credit to SaaS companies. Here are some details:

    • The amount of capital is dependent on several factors including: monies received from recurring revenue in the past 90 days, gross margin, customer renewal rate, customer contract length (if any), and more
    • The fund has a core amount of capital that is then leveraged up with a third-party loan
    • Members of the fund’s management team must have technology experience and be willing to take over a SaaS company that doesn’t meet its obligations (the SaaS companies are using their business as collateral)
    • The idea is riding two waves: lack of sophistication from traditional banks to lend against recurring revenue without hard assets and the proliferation of small SaaS companies that aren’t venture backed

    There’s a clear opportunity in the market for a business like this and I hope entrepreneurs step in and fill the void.

    What else? What do you think of the idea?

  • Entrepreneurial Desire Trapped by the American Dream

    The American Dream (Mike Jones album)
    Image via Wikipedia

    Two separate young professionals that want to be entrepreneurs reached out to me this past week asking for advice. In each case they’re married, have great jobs, a mortgage, and want an angel investor to invest in their idea so that they can quit their day job while maintaining their current lifestyle. The chance of that happening is slim-to-none. Yes, investment from the three Fs (friends, families, and fools) is possible, but they want to avoid that route.

    These young men have an entrepreneurial desire but are trapped by the American dream.

    Of course, the American dream I’m referring to is home ownership. Home ownership requires them to keep working on their salary since their spouse’s salary alone doesn’t cover their costs. What about selling the home? The home price has decreased so much that they can’t afford to sell it. Their remaining option, which I suggested, is to rent out their house, live in an apartment, and cut their costs such that they can live off one salary and pursue their dream. Both young professionals said they didn’t want to do that.

    What do you think? Would you invest in young professionals that want to be entrepreneurs but aren’t willing to make serious personal sacrifices to do it?

  • Business Idea: iPhone App to Make Driving a Game

    black Audi R8.
    Image via Wikipedia

    Earlier today I was driving to my ALTA tennis match and enjoying the beautiful day. On Roswell Road heading towards Chastain Park, I was merging into the turn lane and found myself splitting two reflectors in the road due to vering a bit too early. The precision with which I spaced the reflectors on either side of my front left tire put a smile on my face and an idea popped into my head: there needs to be an iPhone app to make driving a game.

    I’m sure someone else has already thought about it and that an app already exists (I haven’t checked yet) but here are some thoughts as to how it would work:

    • Use the GPS and accelerometer to measure the car’s location and motion
    • Develop tracks or routes like “Lenox Mall to Piedmont Park” or “GA 400 Exit 1 to Harvest on Main in Blue Ridge, GA) and have leader boards based on route time, average speed, lateral Gs pulled, and more
    • Award badges and bonus points for items like the fastest speed through turn two, night owl for doing the route after midnight, etc
    • Be able to put in your type of car for a handicap (e.g. a Ford Explorer would get an adjustment compared to an Audi R8)
    • Allow for custom routes like recording your daily commute for more badge types and categories (longest commute, most variable commute, most turns in a commute, etc)

    Yes, there are some public safety concerns with people driving too fast in attempt to set a personal best or top the leader board but I don’t think it’s anything crazier than people already on the road.

    Driving is fun. An iPhone app with a community makes it even more fun.

    What do you think of the idea? Will it work?

  • College Loans to Finance Entrepreneurship

    You can use this image if you credit it like t...
    Image via Wikipedia

    Earlier this week I was talking to an entrepreneur at the TiE VISTA conference and he made a statement that made me pause. He was telling me about his company and I asked one of the most telling questions: are you working full-time on the business? That’s a real litmus test to see how serious and committed the entrepreneur is to the startup. Quickly, he replied that he was working on it full-time but that he was in grad school. Grad school? How much harder is it to build a startup and be in grad school at the same time? Creating a startup is hard enough without extra work on top of it.

    After the full-time question I asked how he was financing the business. He told me of a shady angel investor in Florida that had offered $200k for 70% of the business, which they declined, but only after serious consideration and an attempt to increase the valuation (tech startups in the Southeast that raise more than $100k in financing typically have a $500k – $1M post money valuation). He then offered up that he was using college loans to finance his company. Not directly, of course, but rather he was getting a second master’s degree, with classes only at night, and his low-cost taxpayer subsidized loans were also covering his living expenses (grad school type living expenses without a mortgage, etc). Now, large college loans for degrees that don’t have the requisite earning potential might not make sense but this is an intriguing idea for a tiny percent of the population — something to think about.

    What else? What are you thoughts on college loans to finance entrepreneurship?

  • TiE VISTA Conference Day Two – Dharmesh Shah

    Image representing Dharmesh Shah as depicted i...
    Image by Dharmesh Shah via CrunchBase

    The TiE VISTA Conference wrapped up today with day two being as excellent as day one. Tim Draper of DFJ kicked off the morning but the real highlight for me was Dharmesh Shah’s keynote at the end of the day. Dharmesh covered many different topics in his keynote and it’s scary how much I agree with him and how I’ve written short blog posts about many of his points.

    Here are a few bullets from Dharmesh’s slides:

    • Starting is more important than the idea
    • Write a blog, not a business plan
    • Stealth mode is for fighter jets, not startups
    • A sub-optimal price today beats a perfect price tomorrow
    • Sales velocity, acquisition cost, lifetime value – improving one often degrades another (the only thing that improves all three is the customer experience)
    • Transparency trump secrecy
    • The path of truth and justice is often paved with profit

    If you don’t follow Dharmesh on Twitter, do so now @dharmesh.

    Again, congratulations to TiE for putting on a great event.
    What else? What did you enjoy about the TiE event?

  • TiE VISTA 2011 Conference Day One

    Midtown Atlanta, Piedmont Park
    Image via Wikipedia

    Today I had the opportunity to attend the TiE VISTA 2011 Conference in Atlanta. TiE, if you don’t know, is one of the best entrepreneurial groups originally focused on Indian entrepreneurs but since expanded to all entrepreneurs. Day one of the conference was a keynote speech followed by a collection of panel discussions culminating in a night Gala with awards. Everything was well executed.

    Pete Kight, founder of multi-billion dollar CheckFree corp, was the morning keynote. He shared several thoughts and insights:

    • The equivalent amount of information created in the world from the dawn of man to 2000 is now created every 48 hours.
    • The highest form of personalized service is where no human interaction is necessary (think self-service web and mobile apps).
    • Industries with idle equipment times and inferior logistics are ripe for technology-based middleman applications (think limo service that doesn’t own any limos but contracts on-demand with other limo companies).
    • Betamax was superior to VHS in every technical way but VHS won because the consortium of companies behind it gave away all the necessary recording equipment and rights to making the tapes for five years to a dozen porn companies. They did this knowing people would prefer watching porn from the comfort of their home as opposed to being seen at a theater.
    • When he started the first electronic check company in his grandmother’s basement in 1981 everyone thought he was crazy in that no one would trust electronic payments. Now it is the most pervasive form of payment.
    • Smart phones are going to be the new credit card.

    The TiE community did a great job putting on the conference and Gala and I’m looking forward to day two tomorrow.