David Cummings on Startups

Author: David Cummings

  • What to Look for in a Web Marketer

    As you might have guessed I’m a huge fan of web marketing. There’s so much opportunity online between search engine optimization, pay per click ads, lead nurturing, webinars, social media, etc. The challenge, naturally, is that the competition and complexity is fierce. Finding a good web marketer is hard. Here’s what I look for in a web marketing employee or consultant:

    • Ability to clearly articulate their current employer/client’s web marketing results (results, not activities!), what’s working, what isn’t working, and how it has changed over the past six months
    • Preferred strategy for generating and nurturing leads online including PPC, email marketing, white papers, sponsorships, etc
    • Personal blog or other online writing experience (e.g. should have at least a dozen posts)
    • Personal Facebook and Twitter account, and for the Twitter account it should have at least 50 tweets (it’s important for a web marketer to be adventurous and experiment with different tools)
    • Experience with common tools like Google AdWords, Google Analytics, email marketing systems, marketing automation products, etc
    • Good feel for analytics driven marketing including return on investment, trends over time, funnel analysis, and hard numbers

    Web marketing is easy. Results are hard. My recommendation is to focus on web marketers that can demonstrate results. Absent availability of that, hire for fit plus aptitude and train on the job.

    What else? What other aspects do you look for in a web marketer?

  • Startups and a Board of Advisors

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    Image by permanently scatterbrained via Flickr

    Several EO Accelerator participants (accelerants) have asked me this year about setting up a board of advisors. In addition, the board of advisors topic was brought up again a couple days ago in my post What Should I Write About? I view advisors, both formal and informal, as very important even though I’ve employed informal advisors much more than formal advisors. I’ve also been an advisor to several companies.

    Here are my thoughts on a formal board of advisors for startups:

    • Advisors should fill gaps in expertise (e.g. sales, marketing, services, support, operations, engineering, finance, etc) and/or be able to make key introductions to customers, partners, and investors
    • Advisors should meet quarterly or bi-annually as a group over a nice dinner as well as individually at least once between meetings
    • Advisors getting to spend time with other high-quality advisors, in addition to the entrepreneur(s), is a big part of the advisors’ experience
    • Advisors should be asked to commit for one or two years, but not typically more as the needs of the startup change over time
    • Advisors should not be compensated with cash but rather with equity (e.g. .1% – 1% depending on what they bring to the table with the norm being closer to .25% of the startup) along with the opportunity to invest in each round
    • Advisors that are also investors are ideal as they have more skin in the game

    My recommendation is to seriously consider advisors and know that it is like anything where the more you put into it the more you’ll get out of it.

    What else? What other advice do you have regarding startups and a board of advisors?

  • Startups and a Bank Line of Credit

    One of the goals of the most recent quantitative easing strategy (QE2) is to replace investment assets in banks, like T-Bills that make interest, with cash that doesn’t make interest. With cash on hand that isn’t income producing, banks are more likely to loan the money to businesses or consumers, as well as increase the money supply through the money multiplier effect. For technology startups, lines of credit and bank loans are especially difficult as almost all loans are done against hard assets like real estate or equipment. Even the recent increased guarantees by the SBA still don’t account for knowledge industries that are asset-lite.

    Here are a few items startups should keep in mind when thinking about a bank line of credit or loan:

    • Typically banks will do a line of credit for 75% of current accounts receivable (meaning, if you have $120,000 owed to your business, with $100,000 current and $20,000 overdue, a bank will loan you $75,000)
    • Certain banks like Silicon Valley Bank and Square 1 Bank specialize in banking venture-backed startups and provide sizable bank loans based on the reputation of the venture investors (but the VCs don’t co-sign on the loan) as well as loans against a small percentage of recurring revenue
    • A new class of investor that provides a loan in exchange for a percentage of future revenue is emerging (see TechCrunch’s article on RevenueLoan)

    My recommendation is to build a relationship with a community bank or startup-focused bank, establish a line of credit, and know that the best time to ask for money is when you don’t need it.

  • What Should I Write About?

    Don't Know
    Image via Wikipedia

    Over the past 550 posts I’ve covered a ton of different topics and had over 64,000 page views since January 2009. Most of my posts are related to these categories:

    • Entrepreneurship
    • Sales and marketing
    • Corporate culture
    • Software-as-a-service
    • Product management
    • Operations

    I love writing about these topics and plan on continuing to do so. My question is this: what should I write about? What are some specific questions or thoughts you’d like to talk more about related to these categories or others? Thanks for reading and please let me know what I can do to improve this blog.

  • Comparing Angel Investors to VCs

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    Image via Wikipedia

    Earlier today I was talking to an entrepreneur that was thinking about raising money. His technology startup is near break-even and he sees a market opportunity to accelerate growth. We talked for a bit about his sales and marketing progress before jumping into fundraising. After I asked about pre-money valuation, current revenue run rate, and amount he wanted to raise it was clear he hadn’t thought through the differences between raising money from angel investors vs. venture capitalists. Here’s what I offered up:

    • Angels are typically more hands-off while VCs typically take a seat on the board and are hands-on.
    • Angels are typically happy with a 3-5x return while VCs focus on results with 8-10x returns.
    • Angels are typically satisfied with dividends providing some liquidity while VCs want profits reinvested to maximize growth.
    • Angels typically don’t make big investments while VCs can provide significantly more equity.
    • Angels typically don’t have as many strings attached with the investment (e.g. anti-dilution, liquidity preferences, etc) compared to VCs.
    • Angels typically want to invest an amount they’re comfortable with (say $50K) without budgeting for follow-on investment. VCs however, start with an amount (say $1M) and want to put more money to work in the same company in later rounds (e.g. plan for several rounds of financing with the VC route)

    These were most of the main points that I thought he should consider. My recommendation for entrepreneurs looking to raise money is to truly understand the differences between typical angel and VC investments.

    What else? What other differences between angel investors and VCs would you note?

  • Thoughts for Entrepreneurs from Economist Roger Arnold

    Tonight’s EO event featured the economist and TheStreet.com writer Roger Arnold pontificating on the macro economy. It was great. Here are a few of his thoughts, many of which are contrary to mainstream media opinions:

    • ABCs of the world economies:
      As the the U.S. housing market goes, so goes the U.S. economy
      As the U.S. economy goes, so goes the world economy
      What’s good for the U.S. is good for the world
    • Interest rates are going to go down to 2.5-3% for 30 year fixed mortgages in the next 2-3 years
    • Interest rates in 10 years are going to be 10-20% to inflate away some of the U.S. debt
    • China is over heating and will crash this decade
    • China will require half the world’s oil in 10 years at their current 8% compounded annually growth
    • The cost of shipping is put under overhead for many companies resulting is misunderstanding of costs
    • Oil prices in 10 years will be so high that manufacturing jobs will return to the U.S. because it’ll be too expensive to ship things
    • Quantitative easing part two is a good thing as the fed is lowering the yield on T-bills making it less desirable for banks to hold them and thus look for other ways to make money (e.g. loan the money to small businesses)
    • Housing prices still need to come down as 30% of homes are under the value of the mortgage and people will keep walking away from them
    • The current generation of kids watching their parents lose their homes will be more reluctant to purchase homes in 20 years resulting in a larger percentage of the population renting instead of buying
    • A home should not be viewed as an asset but rather a lifestyle choice and liability
    • Current income tax cuts should expire and revert to previous rates but then new tax cuts should be put in place for small business creation and growth that are even more favorable than what we have now
    • Small businesses create the majority of new jobs in the U.S.
    • All the uncertainty and change going on right now creates opportunity for entrepreneurs

    As you can see, he covered quite a bit of ground in the hour and I enjoyed hearing him speak.

  • Cold Call Ratios

    Supply and demand market curves
    Image via Wikipedia

    One of the more under appreciated sales techniques is cold calls. Yes, with marketing automation and inbound marketing there are great ways to tap into existing market demand, but often times in a startup there’s a mercenary aspect where market demand must be created. Enter cold calls.

    As you would expect, cold calling is a numbers game. For our small but fast-growing market, our numbers look something like the following, assuming four weeks with 20 business days per month:

    • A list of 333 companies that fit the ideal customer profile with three contacts at each company (1,000 contacts total found using LinkedIn and Jigsaw.com)
    • 50 calls per day, 2,000 calls per month, every contact called twice per month
    • 10 conversations per day
    • 1 voicemail and send one email per contact per month
    • 1 demo per day

    This might seem daunting at first but it you assume 12.5 calls per hour, that’s four hours of calling a day. Add in one hour a day for the web demo and that still leaves three more hours for other work, follow-ups, planning, etc. My recommendation is to consider cold calling as part of your sales and marketing strategy.

    What else? What are some other cold call ratios?

  • Building Your First Startup Team

    SoftwareEngineering
    Image via Wikipedia

    Many times I’ve been asked, “How did you build your first startup team?” and I don’t have a great answer: it evolved slowly over time based on the needs of the business. This is especially the case with bootstrapped startups that are customer funded. For us, we followed the GPA (growth plan assets) model and hired our next person when the GPA was high enough.

    Generally, I see this progression in building a startup team:

    • Start with two co-founders, one in charge of product management and the other responsible for software engineering
    • Add an engineer to as you work towards product/market fit, if necessary
    • With product/market fit in sight, bring on a sales rep that is more of a mercenary than an order taker to assist the product management co-founder, who also acts as a sales engineer
    • Next bring on a jack-of-all-trades that can do services/support/marketing
    • Based on the startup’s specific needs, the next hire will likely be one of sales/marketing/services/support/engineering

    The most important thing to do is to build a strong culture that stays close to the customer.

    What else? What other experiences do you have building a startup team?

  • When to Push Out New Product Features

    Continuing my post from yesterday that Usage is Like Oxygen for Ideas in Products I want to talk a bit more about the endless debate on when to push out new product features. Product, in this context, is Software-as-a-Service (SaaS) applications on the web. Generally, with installed software, new features need to be tested 10x more thoroughly before shipping as there is a much higher cost to make a mistake. As for SaaS products, here are some reasons to push out features fast and frequently:

    • No feature survives intact with contact in the real world
    • Customers appreciate innovation, even if it isn’t always perfect
    • Customers provide more input when they see a product is actively enhanced vs one that doesn’t change often
    • Programmers have a tendency to overcomplicate features, so pushing out bite-sized chunks forces a simplification of the functionality

    Now, how is fast and frequently defined? There’s a movement to do continuous deployment where every piece of code checked in goes straight to production if all the tests pass (see IMVU pushing out code 50 times a day). We don’t do continuous deployment but we do look to push code anywhere from daily to bi-weekly depending on the maturity of the product and the impact of the feature. My recommendation is to err slightly on the side of pushing out too fast knowing the trade-off that some features will not be enough for users, but will provide a strong foundation for feedback.

    What else? What are some other considerations in pushing out new product features?

  • Usage is Like Oxygen for Ideas (in Products)

    The founding developer of WordPress, Matt Mullenweg, has a great essay titled 1.0 is the Loneliest Number where he recounts similar story to my post mortem on a failed product in which he spent entirely too long adding more and more features to a release before putting it out in wild to get feedback on it. His choice quote, which is echoed by the guys at 37signals, is as follows:

    Usage is like oxygen for ideas. You can never fully anticipate how an audience is going to react to something you’ve created until it’s out there. That means every moment you’re working on something without it being in the public it’s actually dying, deprived of the oxygen of the real world.

    My recommendation is to read Matt’s essay and to create a culture of minimum viable functionality for new features so that customers can provide feedback right away. Too often, the engineering mentality is that of a perfectionist leading to more and more functionality piled onto a feature to get it just right. Only, just right for one engineer isn’t the same as just right for 80% of a product’s user base. Don’t let your product ideas suffocate.