David Cummings on Startups

Author: David Cummings

  • Simple Resume Tips for Recent Graduates

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    After hiring over 40 people in the past few years I’ve had the chance to look at a bunch of resumes. So, naturally, there a few things that consistently stand out. I’m no expert but here are a few tips geared specifically towards recent graduates:

    • Include everything on one page (there’s no way there’s more than one page worth of relevant info)
    • Include your major GPA and overall GPA, but only out to one decimal (recent Emory graduates have a tendency to take it out to three decimal places, so the career center over there must be telling them to do so)
    • Use no more than two fonts and make the layout consistent throughout
    • Double and triple check for typos and grammar (yes, my blog posts have both)
    • Make the purpose or goal paragraph at the top meaningful and don’t just say the desire is gainful employment
    • Read Mike Landman’s 7 Rules for Job Seekers

    What else? What are some other resume tips for recent graduates?

  • Startup: A Silicon Valley Adventure

    Cover of "Startup: A Silicon Valley Adven...
    Cover of Startup: A Silicon Valley Adventure

    I just finished reading Jerry Kaplan’s book Startup: A Silicon Valley Adventure from 1996 and I must say it is one of the best entrepreneur books I’ve read in a long time. Jerry recounts the story of founding GO Corporation, the first pen computing company, and the wild ride of burning through $75 million dollars before a forced merger with another company and a final sale to AT&T. Here are some of my takeaways:

    • Participating preferred stock 15 years ago was as poorly understood as it is today
    • The original idea for the GO tablet in the late 1980s was for a large screen with one single button, much like the iPad is today
    • The issues of weight, battery life, screen, and memory back then are all the same issues of today
    • GO had a closet at their office configured by IBM security personnel for IBM confidential files that had a key only the GO CEO had and they even went as far as to put chicken-wire above the ceiling tiles to block someone trying to get in, which, of course, is ridiculous
    • At the 1991 COMDEX show in Las Vegas it cost $53,000 to rent a small private room off the main hall plus $1,000 to have it vacuumed and $150 for electricity
    • AT&T called the network of infrastructure that made phones work “the cloud”, which is different from today’s popular term
    • Nine years after the book was published Kaplan finally sued Microsoft for anti-trust violations, which were chronicled throughout the story

    My recommendation is for technology entrepreneurs to read the book.

  • Intro to Marketing Automation

    Marketing automation is one the fastest growing software-as-a-service markets. The idea behind marketing automation is to consolidate many of the traditionally disparate marketing tools into a single web-based product. Here are some of the marketing tools found in a marketing automation platform:

    • Email marketing – support for broadcast emails like newsletters and one-off campaigns
    • Landing pages – web pages that are optimized for converting visitors into prospects via a form
    • Forms – fields used to capture input from visitors often in exchange for items like white papers, free trials, webinar sign-ups, etc
    • CRM integration – bi-directional connection to common customer relationship management systems like salesforce.com, SugarCRM, NetSuite, and Microsoft Dynamics CRM
    • Lead scoring and grading – automatic scoring of prospects based on activities they perform as well as grading based on explicit data points about the prospect relative to the ideal customer profile
    • Drip programs – periodic emails and activities triggered by events and time (e.g. send email A right away, if prospect clicks a link in the email notify the sales rep and remove from the drip program, if not, send email B 10 days later, and so on and so forth)
    • Automation rules – powerful logic-driven conditionals to change scores, send emails, move prospects between lists, notify sales reps, and more based on a variety of criteria
    • Anonymous visitor ID – identify the visitor’s company based on their IP address so that a sales rep can follow up as well as know that someone at the company is potentially interested
    • Prospect tracking – individual lead tracking of all activities like web pages viewed including length of page view time, forms completed, email opens, email clicks, file clicks, and more
    • Closed loop ROI reporting – track money spent to generate leads all the way through deals closed so that marketers can understand the success of campaigns even where there’s a long sales cycle

    Other common functionality like file hosting, lists, segmentation wizards, site search, and paid search integration is often included as well. Again, the general goal is one single system that replaces legacy systems like email markting tools and forms manager while adding significant new functionality like one-to-one tracking. In the end, sales and marketing teams are much more effective with marketing automation. My recommendation is for B2B companies with a sales and marketing team to seriously consider a marketing automation platform.

  • The Trifecta of a Perfect Business Model

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    Most entrepreneurs start a company based on an idea that they are passionate about without regard to some of the more optimal financial ingredients in a business model. Let’s take a look at the trifecta of financial attributes for the perfect business model:

    • Recurring revenue — revenue that recurs on a monthly, annual, or multi-year basis is the best as it provides predictable cash flow
    • High renewal rate — going hand in hand with recurring revenue, renewal rates at 90% plus provide future enterprise value and contribute to the predictability of the business
    • High gross margin — revenue that has little to no marginal cost for each additional customer provides more room for profitability and investment in the business

    A couple examples of businesses that typically meet these criteria include private wealth managers and software-as-a-service providers. My recommendation is to consider these three attributes when thinking through a business model.

    What else? What are other attributes of a perfect business model?

  • Valuing a Business

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    Last night EO Atlanta had an event on positioning a business for sale including how to value it. Typically a business that is bought by an acquirer actively browsing is worth more than when a company shops itself around to other companies. Let’s look at a few more factors in valuing a business:

    • Concentration of customers (e.g. one big customer or lots of little customers where more customer variety usually is worth more)
    • Gross margins (percent of revenues after only product/service costs are taken out with high gross margins being more valuable)
    • Recurring revenue (percent of revenue that comes from monthly or annual fees with higher percentage of recurring revenue being more valuable)
    • Profits over the last twelve months (a simple formula for an average company is that the company is worth 4-6x the previous year’s profits)
    • Growth rate over the last twelve months (faster growth rate is more valuable)
    • Liquidity of the shares (more liquidity like with publicly traded companies is typically much more valuable e.g. 50%+ more valuable)

    As you can see there are many different factors in determining the value of a business. It comes down to what another company or person is willing to pay for it with the more profitable and faster growing businesses being more valuable. An example would be a company with $1 million in trailing twelve months revenue with $200,000 in profit (assuming founders and management had market rate salaries) might be valued at 5x the profit, or $1 million. Some companies with no profits are bought for many times revenue due to their strategic value whereas other companies with significant revenues are bought for only a fraction of revenue due to significant debt, losses, and a decline in the business (e.g. Newsweek for $1).

    Valuing a business is tough as the market of buyers is usually very small. These guidelines can help you come up with a rough idea of what a business might be worth.

  • Venture-Backed Zombie Startups

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    There’s a term used to describe startups that have raised money from venture capitalists (VCs), been around for several years, built sustainable businesses, but don’t have the hockey stick growth necessary to raise more money or provide a venture quality return: zombies. Zombie startups are actually more prevalent than you might think and represent one of the more difficult situations for VCs. Here’s a few reasons why these are so tough:

    • VCs often have more money than time and can only sit on a limited number of boards and still be effective
    • Once a VC believes an investment is a zombie they want to sell it and move on
    • Valuations are down significantly compared to three years ago and companies that try to sell themselves often don’t command as much money as when a strategic buyer comes knocking
    • The VC still has a personal reputation and brand to maintain thus needing to provide significant energy to sell the company and get the highest price as part of their fiduciary responsibility to the limited partners in the fund

    Now, if the startup was bootstrapped and in the same position it could still be a great business for the managers and employees to continue indefinitely. It is very unlikely for a VC to sell his or her stake back to the company or co-founders due to the difficulty of the buyer coming up with enough money. Zombies are part of the startup community and should be understood by entrepreneurs.

  • Customer Service as a Competitive Advantage

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    Customer service as a competitive advantage is one of the more difficult ones to sell as most people are jaded by companies that say they have good customer service but don’t deliver on the promise. Great customer service has to be experienced for people to believe it and therein lies the challenge: you have to convince them enough to even try it out. More tangible differentiators like we’re the only company with feature X or position Y are easier to defend and point to, but are also easier for competitors to adopt. Customer service is difficult to do well if it isn’t built into the culture from day one.

    What companies do you think of when it comes to great customer service? Zappos.com, USAA, Amazon.com, etc. It’s really hard to do customer service well and the handful of companies that do it well are perennial growth stories.

    Here’s what I’ve found works for making customer service a competitive advantage:

    • Mention that you pride yourself on customer service but don’t spend too much time on it as people won’t believe it
    • Work hard to get existing customers to do video testimonials and have them articulate why your company is so good
    • Think of ways to get qualified prospects to use your support team as part of your customer acquisition strategy (e.g. proof of concepts, trials, etc)
    • Track your net promoter score and use that to gauge your success
    • Know that the benefit of high quality customer service will come from long run customer retention and employee satisfaction (employees want to work in organizations that truly care about their customers)

    What else? What are other things to keep in mind when using customer service as a competitive advantage?

  • The Best Exit Strategy is to Not Have One

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    Much of the tech startup media is obsessed with big exits, which make for fun-to-read stories. In a blog post today Jason Cohen writes about his new WordPress startup and provides a good answer as to his exit strategy in the comments:

    Success for me is defined as: Creating a company that generates at least $30k/month in profit after paying everyone reasonable salaries, while it’s still growing.

    Jason is building his company to last, as most entrepreneurs do, and will likely sell his business if the right offer comes along. The key is that he defines success as getting to a certain level of profitability while still growing. Today I brought up that blog post with three entrepreneurs and asked about their exit strategy. Every single one said they don’t have an exit strategy and want to build up their company to a point where they can hand it over to someone else to run it while still growing. That sounds like a great plan.

  • Atlanta Startups Should be Moneyball’s Oakland A’s

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    Earlier this week my friend sent me a quick email saying he had just finished Michael Lewis’ 2004 book Moneyball and that I should read it. Right away I replied saying that was one of my favorite books and that all startup founders should read it.

    The short gist of the book is that professional baseball players were historically measured against traditional stats like batting average, on base percentage, etc. The Oakland A’s didn’t have the resources of teams like the New York Yankees but perennially did well in their division despite a significantly lower cost structure. They were able to do this by being scrappier with their players, farm system, and trades looking at long tail statistics and really focusing on past performance as the best predictor of the future.

    Atlanta startups should be like the Oakland A’s in the book Moneyball.

    Here’s how Atlanta startups can do just that:

    • Focus on areas that other companies aren’t paying attention to, especially small, fast growing markets
    • Be scrappier than the next startup by taking using of all the cost advantages Atlanta has over other major technology hubs
    • Take advantage of the farm system of young professionals, of which Atlanta has had the most growth of any city in the country

    My recommendation is for Atlanta startups to be like the Oakland A’s in the book Moneyball and focus on long tail areas of strength to succeed.

    What else? What other ways should Atlanta startups be like Moneyball’s Oakland A’s?

  • How to Help When it is Time to Shut Down a Startup

    The Business End
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    At least once a quarter I meet with an entrepreneur that is at the end of their ropes and should shutdown their startup. Giving up is hard. During these meetings the entrepreneur is seeking help, chronicling the many different things they’ve tried, talking about when they’ll run out of money, and doing everything but coming out and saying they need to give up. Inevitably, we talk about everything except how to go about shutting down the startup.

    Here are some tips when having a conversation with an entrepreneur that it is time to shut down his or her startup:

    • Clarify when the startup will run out of money and explain that it is better to shut down sooner and retain some funds to properly unwind the business, pay legal bills, return money to investors, etc
    • Reiterate that a business idea failing isn’t the end of the world, even though it might feel like it, and that there will be plenty of additional opportunities
    • Make sure and communicate twice as much as you think necessary with employees, customers, investors, and any other constituents as the entrepreneur’s reputation is at stake
    • Try to find a home for the product, if you have customers and revenue, by reaching out to competitors or complementary companies

    What else? What other tips would you provide to an entrepreneur about to shut down his or her company?