David Cummings on Startups

Author: David Cummings

  • Value Added Reseller Plans for Startups

    Selling a product indirectly through value added resellers (VARs) is a great way to reach a broader market at a lower fixed cost. These channel partners can help augment your services, shorten the sales cycle because they already have existing relationships, and provide valuable feedback. My one piece of advice for startups is to not expect the channel to be the best way to grow your business early on. The channel is extremely hard to get up and running, gives little visibility into the sales pipeline, and follows the 80/20 rule (20% of the partners will deliver 80% of the partner deals).

    Why shouldn’t you focus on the channel when first starting out? It is so important to have clear and unfettered lines of communications with your customers that only direct sales provides. In addition, direct sales allows for more visibility into the pipeline and more ability to control your own destiny. Only after you have a repeatable sales process yourself should start putting more effort into the channel.

    Just starting out with the channel I recommend a simple revenue sharing policy. Something easy like a 10% referral fee for leads that they give to you that you have to close the deal along with a 30% referral fee if they do all the selling and close the deal handing you a purchase order. Having the 10% and 30% plan makes it quick and straightforward for VARs to do deals and sell their bread and butter offering (typically consulting services billed as time and materials).

    What else? What other advice do you have for startups and VARs?

  • Startup Docs to Create in Month One

    I was recently looking through Google Docs for my company to get an idea of what documents we put together in the first month. The idea is to get a bit of introspection on what we felt were important to iron out right away. Really, these are very much strategy and alignment docs to get the founding team on the same page.

    Here are some of the Google Docs we put together:

    • Company Overview (official company name, market description, positioning, team, etc)
    • Customer Acquisition Strategy
    • Pricing
    • Road Map
    • Action Items
    • Passwords
    • Technical Setup

    Note that there were no KPIs, one page strategic plans, etc in the initial docs. Operational items like those come with time as the business develops. Strategy documents like those outlined above are critical for getting everyone on the same page.

    What else? What other documents do you recommend creating when getting a new business off the ground?

  • Don’t Reinvent the (UI) Wheel

    One question I hear a good bit from software entrepreneurs building their first product is “Who made your user interface?” There’s a dearth of quality user interface (UI) and user experience people, especially in markets like Atlanta. Many people think they can get their graphic designer friend that made the company logo to also do the user interface. I’ve gone down that route and it failed.

    My recommendation is the classic R&D — ripoff and duplicate — of a major product where the company likes to have apps that have a consistent user experience with their app. That’s right, please don’t reinvent the wheel when it comes to the user interface. Companies like Google, Apple, and Microsoft have invested millions in the UI for their different products. For example, Gmail, Google Analytics, and Google AdWords have nice clean and fast UIs that are perfect for most B2B web apps.

    What else? Do you agree or disagree that most people shouldn’t reinvent the wheel when it comes to UIs?

  • The Value of Talking About Your Startup

    Earlier in the week I was talking to an entrepreneur who was sharing his new business idea with me. After two minutes into the conversation I had the perfect person for him to talk to about his idea and his industry. Two days later the two connected and had a very productive conversation and my connection will likely prove a valuable sounding board for him going forward.

    What’s the moral of this simple anecdote? There’s tremendous value in talking about your business and idea as you never know who’s going to have a good connection or can legitimately help you. Too often entrepreneurs think their idea is unique, and that the value is in the idea, not the execution of it. Unfortunately, this is the wrong approach in my experience, especially considering how much value I’ve derived from talking to people about my company and our current challenges.

    I do have one caveat: don’t be the guy that is always talking about a new business idea every 30 days, otherwise people will stop being as supportive and think you aren’t serious. Pivoting or iterating with your idea is great, and should be explained when visiting with the same person you pitched your previous idea, but be thoughtful of their time.

    My recommendation is to seek out anyone who will listen to your business idea and look for ways to get input, connections, and ideas.

    What else? Do you agree or disagree?

  • Incremental vs Instrumental Change

    We’ve all heard the saying that entrepreneurs should focus on working on the business instead of in the business. I’d like to add that in a similar manner entrepreneurs should think about incremental vs instrumental changes. What I’ve found is that a company can only handle so much change in a period of time, say 6 – 12 months, before the change is viewed as leadership testing new theories without enough thought to providing some semblance of rhythm or continuity.

    I’d encourage entrepreneurs to always be bringing new ideas to their company, but pay close attention to which changes are incremental vs which ones are instrumental. Like many things, it probably falls into an 80/20 paradigm where 80% of the time should be spent on incremental improvements and 20% of the time should be spent on major, instrumental changes. Each company is different, with its own respective threshold, and it is tough to find the right balance. Through it all, never stop bringing about change.

  • My Goal to be on the Inc. 500

    Thinking back to 2003, a couple years after I started my company, I can distinctly remember reading Inc. magazine with a colleague of mine who had a subscription. This was the famous Inc. 500 issue where it showcased the 500 fastest growing privately held companies in the United States. Right then and there I made it a goal to be an Inc. 500 company.

    I remember the energy and excitement of making up my mind and deciding on an ambitious goal. It’s amazing what the mind can do once you really focus. At the time, we were growing fast on a percentage basis but no where near the minimum requirement of $1 million in revenue to qualify. I had to make the hardest shift of my entrepreneurial career: go from being the technical product guy to the sales and marketing machine.

    I’m pleased to say that in 2007 we were number 247 on the Inc. 500 with a three year growth rate of almost 1,000%. My goal was achieved.

    What are your goals? What are you focused on?

  • Setting the Corporate Culture Tone

    Most entrepreneurs, especially when they are starting out, underestimate the power of a strong corporate culture. In my experience, the corporate culture is immediately evident upon entering an office and walking around. How can you tell? Here are some simple examples:

    • Awesome office (fun, cool, and inspirational)
    • MacBooks and iMacs on desks
    • Dual monitors everywhere
    • Unlimited drinks and food
    • People that truly want to be there

    My recommendation is to read about the Zappos corporate culture as well as books by Jim Collins and Patrick Lencioni.

  • Product Death by Not Enough Cuts

    In the software world, death by a thousand cuts comes from trying to make the product do all things for all people. I want to bring up another phenomenon not talked about enough: death by not enough cuts. This happens when an entrepreneur builds a product and gets it in the hands of a few customers, only then to keep customizing it further for those too few customers. In addition, it is often combined with not being opinionated enough about the product functionality, so a few companies drive the product road map.

    The next thing the entrepreneur finds out is that they have a deep and rich product, but not a big enough market to be successful. Oh, and the product is so large now that adding functionality takes significantly longer than it used to take — big problems lie ahead. Here’s what I recommend:

    • Get the product into the hands of as many prospects as possible
    • Launch early and often
    • Always ask yourself if the feature request fits into your vision for the next three years (be opinionated!)
    • After you’ve asked if it fits in with the vision, ask yourself if it is applicable to 80% of your user (e.g. will they love to use it)
    • Every 20 customers you sign up, raise the price until you can’t raise it anymore

    What else? Have you seen this happen? What would you recommend?

  • Iterate or Die – Part 5

    Once we had a few sales under our belt, we began to notice a trend in the higher education vertical. It was the one industry in which we were able to generate the most leads using PPC ads. Additionally, we found that our application was uniquely suited to the types of challenges higher ed clients were looking to solve. It was an ideal match, and one we had never anticipated in our early days as a company.

    Colleges and universities typically have a collection of independent websites with little or no consistency. As you might imagine, the development of these sites happened organically and in piecemeal fashion. Different technologies like PHP, Classic ASP, ASP.NET, and ColdFusion were used to power the dynamic portions, while plain HTML was used for more static sections. Our software can handle each of these situations by publishing files as well as content to remote databases. This flexibility has been a key differentiator for our product, especially for our higher ed clients.

    Our product’s special sauce is its ability to manage multiple websites, all of which live on multiple servers and use different operating systems, from one single product instance (just think of all the independent websites at Georgia Tech). It’s a difficult problem, but our product offers the capabilities needed to solve it. In addition, we had a simple per-CPU pricing model with unlimited sites, users, groups, and content combined with a focus on XML (before XML really hit the mainstream).

    I wish I could say we planned it that way, but we didn’t. The reason we could publish to different servers and support all the major programming languages was because of the goal we had set out with in our first (albeit unsuccessful) SaaS CMS: support all small business shared hosting accounts. With our SaaS CMS focused on small businesses, the only way to get content to their server was through FTP or SFTP. There weren’t any other options.

    With our new mid-market CMS, we set out to provide all the benefits of a dynamic, database-driven website with the performance and flexibility of publishing flat files. It turned out, unbeknownst to us for some time, that this arrangement was perfect for higher education. We started signing more and more higher ed clients, allowing us to build a portfolio of reference customers in a specific vertical — an important step in laying the foundation for future growth. With these valuable customer references in place, it was time to grow a serious business around our product. At this point, I had been running the business on my own for over four years and was barely scraping by; but it wasn’t until then, at the start of 2005, that I was finally certain we were on to something special.

    The new strategy was pretty simple — cold call all 4,160 two-year, four-year, public, and private colleges and universities in the U.S. and Canada.  We focused on calling people with the following job titles:

    • Webmaster
    • Director/VP of IT
    • Director of University Relations
    • Web Manager
    • Communications Director

    I had three full-time sales people cold-calling and setting up web demos for me. My role was to be both the tech-savvy sales engineer and the passionate product manager that gave the demo. It worked beautifully. Sales tripled in 2005 and more than doubled in 2006. We had finally hit our stride.

    Now, in 2009, we have over 120 colleges and universities as clients (including Emory, GA Tech’s Business School, Clemson, and Duke), making us one of the top higher education CMS vendors in the world. At the end of the day, achieving success came down to the following:

    • Neverending determination to succeed
    • Making decisions quickly and figuring out what works and doesn’t work
    • Being passionate about the product and the market opportunity

    Building a company is an amazing journey that is worth every minute. Even though you’ll frequently take many different turns and struggle, in hindsight these are a major factor in success. In addition, being able to iterate and learn quickly is one of the most important traits that a management team can have. Good luck!

  • Iterate or Die – Part 4

    After we had built an award-winning product and accrued several years of domain experience, we embarked on the next major iteration of the business: sales and marketing. I knew the technology aspects of my business inside and out, but my knowledge of B2B sales and marketing left much to be desired. After a bit of Googling, I decided to focus on three strategies:

    • Cold calling
    • Partnerships
    • Pay-per-click ads

    Cold Calling

    The first idea for cold calling was to buy a list of all the Chief Information Officers  in the Southeast with revenues between $100 million and $1 billion, a grouping often referred to as mid-sized companies.  We targeted the Southeast because we figured we would have the most success if we could meet with our prospects face to face. That’s another benefit of being based in Atlanta — as a regional transport hub, you are within reach of many other large regional cities, not to mention connected to a multitude of flight routes from the world’s busiest airport.

    Once we had a list of target prospects, we hired a slew of interns from nearby Emory University to cold call 1,000 organizations. The end result?  A measly four appointments. Our cold calling efforts, while valiant, suffered from a lack of the following:

    • Compelling value proposition
    • Referenceable customers we could name-drop
    • Product or company name recognition in the market

    Cold calling would eventually become one of our most effective strategies, but it took us a solid year to determine where we should focus our efforts.

    Partnerships

    I’d long assumed that finding implementation partners and resellers was a logical strategy to build my business. Potential partners, such as interactive agencies and ISVs, would provide the services and we’d provide the product. It would be an ideal win-win situation.

    Unfortunately, it never brought the results we’d envisioned.

    We continually worked over the course of several years to forge partnerships with ten companies. Those ten partnerships together resulted in just five total sales. That’s right — very few partners would officially sign on, and even fewer relationships resulted in actual revenue gains. It took me a long time to understand that introducing a mid-market CMS to a client would in turn reduce the amount of money that agency could bill for fees.

    Agencies operate in a time and materials model, and tens of thousands of dollars in CMS costs would come right out of the same client budget as hourly fees. From the agency’s perspective, building a custom client solution, even if it cost more and accomplished less than an off-the-shelf CMS, was the right thing to do for their business model. It was a hard lesson to learn.

    Pay-Per-Click Ads

    Pay-per-click (PPC) ads are the sponsored ads that show up alongside search results in Google and other search engines. When we did our first PPC campaign in late 2003, it was much more affordable and cost-effective compared to today. Quite by accident and much to our delight, PPC ads, combined with landing pages, generated leads in a variety of industries. After reviewing these leads, we methodically followed up on the promising ones and began moving prospects through the sales process. By the end of 2004, we had signed clients representing each of the following verticals:

    • Management consulting (1, from cold call)
    • Healthcare (1, from cold call)
    • Utilities (1, from partner)
    • Hospitality (1, from partner)
    • Technology (1, from PPC)
    • Higher education (2, from PPC)

    Head on over to Iterate or Die – Part 5 to find out what single industry we had slightly more success with and how we focused on that industry to become a market leader.