David Cummings on Startups

Author: David Cummings

2011 Southeastern Venture Conference Day Two
Day two, much like day one at SEVC 2011, proved to be very worthwhile. The morning was composed of a keynote followed by two panel discussions. After the lunch keynote from the GM of the Atlanta Falcons, Thomas Dimitroff, the rest of the day was spent hearing (and giving) startup pitches.

Here are some notes from the second day of the conference:
- One i-banker from the first panel said that SaaS companies really start to see economies of scale at $20 million in revenue
- The same i-banker said that the strategic multiples for $20+ million revenue companies has been 7-10 times revenue over the past 18 months
- The majority of presenting companies violently violated the 10/20/30 rule of PowerPoint
- 1/4 of the presenting companies didn’t get to their value proposition within the first two minutes of their pitch, and many went over their allotted eight minutes
- My favorite startup and pitch was from Spoonflower – design and print your own fabric
Overall, SEVC was a great event.
March 3, 2011
2011 Southeastern Venture Conference Day One
Image by StevenM_61 via Flickr

Today I attended the Southeastern Venture Conference for the first time and came away impressed. The program, now in its fifth year, brings together investors from around the country with startups from the Southeast. Each year it rotates to a different city and this year it’s at the Ritz Carlton in Buckhead. Here are a few notes from the conference:
- Several VCs expressed their opinion that there’s a bubble in the market with the valuations for Facebook, Twitter, and Groupon causing startups that don’t have as high a profile to have unrealistic valuation expectations
- The increased activity from angels and super angels, especially in the Valley, is viewed as a blip on the radar compared to the the dot com days because of the small amounts being invested
- There’s a good mix of companies from North Carolina, South Carolina, Georgia, and Florida (not much from the other Southeastern states)
- IT and healthcare represent the majority of the presenting companies
The SEVC conference is well done and does a great job bringing investors and entrepreneurs together.
March 2, 2011
Edge Cases in Startup Products
Image by wools via Flickr

Last week I talked a bit about successful startups that from the outside appear to have an easy business to duplicate. Once you pull back the covers you might find that they are spending over a million dollars per year on pay-per-click ads to generate customers, creating a barrier to entry for most startups. There’s another less obvious aspect of successful startups that you don’t quickly see when peering in: product edge cases required for happy customers.

Edge cases are scenarios the product has to handle that aren’t common or intuitive when first building the software. Here are some tips to think through regarding edge cases:
- Most edge cases come from customer feedback requiring you to get the product into the customer’s hands as quickly as possible
- Use edge cases as a way for your sales team to differentiate against upstarts (e.g. talk about the many different unique scenarios you’ve already had to solve that new companies wouldn’t have mastered yet)
- When encountering a potential edge case ask yourself how important it is to the product and stay extremely opinionated about what does and doesn’t get into the application
Edge cases can be one of the more challenging aspects of building great software but they also can result in happy customers when successfully addressed.

What else? What other tips do you have about edge cases in startup products?
March 1, 2011
Sales Development Reps in Startups
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When most first-time entrepreneurs think of hiring their first sales rep the immediate thought is a traditional sales person that will do deals. In reality, most entrepreneurs are better off with sales development reps — a fancy term for cold callers and appointment setters. The idea is that the entrepreneur should be on the phone or in person selling the deal for the first 10 customers with the sales development rep coordinating appointments.

Here are some thoughts on sales development reps:
- Typically junior people that are much more affordable than sales reps
- The goal is to cold call, handle inbound leads, and schedule appointments
- Compensation is typically a base (e.g. $35k) plus variable pay (e.g. $175 per completed appointment)
- Great when paired with an entrepreneur early on as well as paired with team lead sales reps once the sales team starts to grow
- Helps develop a separation of specialties as well as provides a career path to be promoted to sales rep (acts like a farm system)
Sales development reps should be seriously considered by entrepreneurs as a cost effective way to help with sales early on and as a way to more efficiently acquire customers once sales reps are in place.

What else? What other thoughts do you have about sales development reps in startups?
February 28, 2011
5 Quick Tips for Effective Blogging
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Continuing the previous post on marketing for the top of the funnel (practical PPC tips) an equally important aspect of online marketing, and more specially inbound marketing, is that of blogging. Blogging is a great way to regularly push out new content that builds credibility, inbound links, and a company persona.

Here are five quick tips for effective blogging:
1. Set a schedule for posting new content and stick to it (e.g. daily, bi-weekly, weekly, etc)
2. Look for themes or a series of related items (e.g. house of the week, idea of the day, etc)
3. Incorporate a headline, bullets/numbers, and picture(s) for each post
4. Link to one or more items in each post and participate in relevant discussions online providing links back to your post
5. Distribute your post on sites like Twitter, Facebook, and LinkedIn
Blogging is one of the best ways to employ inbound marketing. Creating content can be tough at first but once you get in the habit of doing it it becomes much easier.

What else? What other tips do you have for effective blogging?
February 27, 2011
Practical PPC Tips with AdWords
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We’ve been working on expanding the top of our lead gen funnel to complement our strong middle of the funnel marketing. Meaning, we’re working on driving more visitors and leads at the earliest of stages so that we can nurture them. To help make our PPC efforts stronger we reached out to some local firms and received a bit of free advice from Atlanta PPC firm Relevance Advisers.

Here are some practical PPC tips with Google AdWords:
- Separate “brand” terms like your company and product name into their own AdWords Campaign as they’ll often skew results with such good conversions
- Create more AdWords Ad Groups that group closely aligned related keywords so that your ads will be more targeted resulting in greater effectiveness and lower cost per conversion
- Note that {keyword} is different from {KeyWord} when dynamically substituting the search term into the ad as the later will capitalize the first letter of each word
- Capitalize as many words as make sense in the text of the ad as it makes it easier to read even if it isn’t standard capitalization
- Separate geo-targeting into region-specific AdWords Campaigns so that the text creative and landing page content are applicable to the country
PPC is a great way to generate leads, but should be measured and followed closely as the auction system around bid prices results in continuous fluctuations.

What else? What are some other practical PPC tips with Google AdWords?
February 26, 2011
PPC Spend Relative to Startup Size
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This week I had the opportunity to talk with two different startups generating eight figures of recurring revenue and spending seven figures of it on pay per click (PPC) advertising. I knew the companies were a good size, but had no idea how important Google and the direct response online advertising model was to their business. Think about it — spending more than $1 million per year on ads to generate leads for a small business (both under 100 employees). That level of spend shows the power of PPC as well as how a finely tuned sales and marketing machine knows the different levers required to profitably acquire customers (both startups are bootstrapped).

A few thoughts on PPC spend relative to startup size:
- When you think about getting into a market, do research on the keyword search volume and costs to be competitive using the Google tools
- Some startups look like they have a fairly easy product to build but are in reality amazing at customer acquisition, which is harder than building a great product in many cases
- Generating traffic through inbound marketing with blogs, social media, and other methods can be one of the most powerful ways to grow a business, but are often not as predictable as other methods like PPC and sponsorships
My recommendation is to spend serious time thinking about customer acquisition like you do thinking about the product. PPC is an easy, and expensive, way to drive serious traffic and deliver leads.

What else? What other things have you seen regarding startups and PPC spend?
February 25, 2011
The Expected Value for Entrepreneurial Risk
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As you already know there’s an extreme risk/reward equation for entrepreneurs in innovative businesses. We’ve all heard of the billionaires but that type of outcome is so rare it usually isn’t worth discussing. Let’s look at some simple math for entrepreneurial risk:
- High achiever young professional who earns $100k/year (for simple math) plus $20k/year of benefits
- Salary reduced to $20k/year to start a business with no benefits
- $100k/year contribution in opportunity cost due to lost market-rate compensation until the business can afford to pay previous salary and benefits
- ~90% of companies never reach $1 million in revenue (source)
- 10% chance of reaching $1 million in revenue (assuming all things are equal) and the company is worth 3x revenue, so $3 million (this would be a nice valuation for most companies)
- Assuming no dilution, no investors, no stock option plan, etc the expected value is 10% of $3 million or $300k
- If the entrepreneur can achieve that company value and do it before giving up $300k in compensation, he or she is better off (assuming they can get by in the interim, the amount they invest directly from savings is $0, and they start generating revenue quickly)
The greater the market opportunity and expected value of the risk, the greater the potential outcome (e.g. a 2% chance at making $100 million produces a $2 million expected value). The entrepreneurial risk/reward equation is a dramatic one that makes sense in the context of a tiny chance to make a large amount of money.

What else? What other variables should be part of the entrepreneurial risk equation?
February 24, 2011
The First Five Customers
When you’re just getting started with a new venture there’s a tendency to spend too much time trying to perfect pricing before you’ve signed your first customer. The most important thing for you to do is to get them to pay you something (even if it is tiny) and then bend over backwards to make them successful so that they allow you to showcase their success in your first marketing. The first five customers aren’t about making money but rather about getting feedback and reference customers (they do need to pay you something to have some skin in the game).

Here are some things to keep in mind about the first five customers:
- Don’t worry about pricing other than to be reasonable and get them paying something (it is easier to lower prices than to raise prices but the overwhelming tendency is to price too low)
- Make the ask early in the relationship to be able to use them as a reference if the relationship is successful
- View the first few customers as a paying advisory board more so than your eventual typical customer
- Feedback and input, along with references, are 10x more valuable than the money they are paying
- Great customer service is the easiest way to differentiate yourself when the product is still immature
Signing the first five customers is one of the hardest things to do, ever, but it is also incredibly rewarding. Entrepreneurs should view those first five customers more as partners to help them sculpt their business as opposed to exactly how the business will operate.

What else? What other thoughts do you have on the first five customers?
February 23, 2011
Key Tenets of SaaS for Startups
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Earlier today I was emailing with an entrepreneur seeking advice. After a few emails back and forth about pricing he asked if he could charge more to customers who got to use the latest version of the software. Wow, I was taken aback as we’re talking about a Software-as-a-Service (SaaS) application where all customers should use the same version. That got me thinking about some of the most important aspects of a SaaS startup. Here are a few key tenets of SaaS:
- The application should have a multi-tenant architecture where all customers use the same version of the product on one or more shared databases
- Product enhancements and fixes should be pushed on a frequent basis
- The most important word in software-as-a-service is “service” and not “software”
- Customer acquisition costs and on-boarding costs should be appropriate for the monthly/annual fee
- Churn should be studied as closely as sales and marketing
SaaS is a phenomenal business model once it is up-and-running but presents its own unique set of challenges. Entrepreneurs should understand these key tenets of SaaS and work to incorporate them into their startup.

What else? What are some other key tenets of SaaS?
February 22, 2011