David Cummings on Startups

Category: Entrepreneurship

  • The Indirect Revenue Model App

    There’s a popular web pundit quote, “If you don’t pay for the product, you are the product.” Think about a company like Twitter or Facebook — they don’t charge to use the app but they make money by turning you, the user, into a product to market ads on behalf of the the advertiser. While this makes sense, there are actually a number of apps out there that aren’t what they seem when it comes to their primary revenue stream. Here are a few app examples:

    • Lead Gen Apps – Often micro-apps, these are simple services that provide some value in exchange for personal information for a sales rep to follow up and sell something else (see Micro Apps as Next Generation Content Marketing)
    • Transaction Apps – Even if an app has a monthly fee, there are many products out there that actually make more money off of transaction fees (e.g. pay $50/month to be a customer and then pay 10% for each payment collected resulting in more revenue from the transaction fees than the recurring monthly fee)
    • Secondary Apps – Some apps are built and sold as stand alone products, but they are really designed to fill in the gaps for a complementary app. This often happens when a technological shift has occurred and the original app can’t be adapted with the required changes, making it more cost effective and less painful to build a new app that takes advantage of the improved technology while supporting the original app.

    Product pricing and the main revenue stream for an app aren’t always what it seems. Pay attention to indirect revenue model products and figure out the true strategy.

    What else? What are some other examples of indirect revenue models?

  • Customer Acquisition, Customer Acquisition, Customer Acquisition

    As I talk to entrepreneurs, it’s apparent that the #1 challenge far and away is customer acquisition. The days of needing to raise serious cash to build a product are over. The days of worrying about scaling an app are over (see WhatsApp supporting 450 million users with 32 engineers). That’s right, if an entrepreneur shows up and hasn’t been able to get a simple prototype built and some people using it, they aren’t meeting the new minimum expectation.

    As building a prototype has dropped to a few thousand dollars, it puts even more pressure on customer acquisition. If anyone can build a product, it makes sense that more products will get built, and more competition will emerge for the same potential customer.

    Looking back, there are so many customer acquisition related posts that it makes sense it’s the most difficult problem to solve. Whether it’s Pick a Customer Acquisition Model that Make Sense, Lead Generation as the #1 Challenge for SaaS, or Double Inside Sales Rep Productivity in a Week, there’s no shortage of ideas to try.

    Customer acquisition is much harder than entrepreneurs expect. In fact, it’s the hardest thing to master.

    What else? What are some other thoughts on customer acquisition?

  • Pick a Customer Acquisition Model that Makes Sense

    Earlier today I was talking with an entrepreneur who was trying to figure out a repeatable customer acquisition process. After digging into his model, I asked the question, “How do you want to acquire customers?” He replied that he preferred an inbound marketing model with self-service customer onboarding and paying. In other words, he wanted a model that didn’t require humans selling to other humans. After thinking about it further, it gave me more clarity around the importace of playing to the strength of the founding team and/or the talent available to bring on to the team. If the model requires building an amazing inbound marketing engine, and the talent’s not on the team, it either needs to learned, recruited, or the idea needs to change.

    Thinking about it, there are three commmon customer aquisition models:

    1. Pure Marketing – Tons of storytelling, content marketing, brand building, and campaigns to generate customer sign-ups. No humans selling. Minimal product customization. Self service as much as possible.

    2. Inside Sales – Heavy phone, email, and web-oriented sales people — both lead follow-up and outbound prospecting (see Double Inside Sales Rep Productivity in a Week). Inside sales is labor intensive and requires a product price point and sales cycle to warrant people selling to people.

    3. Field Sales – Large deal size and complexity often warrant face-to-face selling. As a model, it’s very expensive and often capital intensive to get started. Few SaaS startups employ this model, although many have tried and failed.

    The next time an entrepreneur starts talking about an idea, inquire as to the expertise around customer acquisition models — especially marketing-based, inside sales, and field sales — and see if the shoe fits.

    What else? What are some other thoughts on picking a customer acquisition model that makes sense?

  • Four Takeaways from the Atlanta TechCrunch Meetup

    Tonight over 800 people turned out for the TechCrunch meetup at the The Fabulous Fox Theatre. While there were some sound difficulties, overall the event was a big hit with a ton of networking, pitching, and excitement around startups. After talking with a number of entrepreneurs and people in the local community, I left with four takeaways:

    1. Atlantans love the city and truly want to put our region on the map for tech startups and entrepreneurship
    2. Startups and entrepreneurship are slowly making progress towards mainstream adoption as a viable career path
    3. Pitches need to highlight some progress and execution as most ideas tonight sounded far-fetched
    4. Human relationships matter even more in the age of pervasive technology, and the entrepreneurs that get the most value from the writers and editors are the ones that connect on a personal level

    TechCrunch has such a broad reach that it helps bring people together that don’t normally attend the startup events in town, and that’s a good thing. I look forward to future events.

    What else? What are some other takeaways from the Atlanta TechCrunch meetup?

  • Simple is Difficult for Entrepreneurs

    Many startups talk about keeping things simple, almost like a badge of honor. When trying to solve a problem, present a message, or interacting with a user, complexity is the natural response. Humans, especially engineers, enjoy providing comprehensive solutions that meet the needs of as many people as possible. Or do they? On average, making something simple and good is much harder than making something merely good.

    Here are several areas where I’ve seen startups have difficulty with simple but good:

    • Elevator Pitch – More often than not, elevator pitches are too complicated and don’t leave the recipient with a decent understanding of the idea (see Offline Analogy to Describe a Startup)
    • Messaging – Quick, go to five startup sites and read their homepage or most recent press release. How clear is the message? How much jargon and corporate-speak is used? Overwhelmingly, startups struggle with clear messaging.
    • Metrics – Typically, too many numbers are tracked making the important metrics less meaningful and rendering the other metrics more likely to be glossed over (see Metrics Tracking Based on Startup Scale)
    • User Experience – Often, the user experience is the most difficult to make simple and still good. Making a product intuitively obvious to the casual user is more art than science, and few people understand it.

    Delivering simplicity that is also high quality throughout a startup is hard. Very hard. The best entrepreneurs follow the idea of Occam’s Razor: “simpler explanations are, other things being equal, generally better than more complex ones.”

    What else? What are some other areas that startups have difficulty delivering simple but good?

  • Consulting Work to Fund Product Development

    One of the more common entrepreneur strategies is to use consulting work to generate cash to then fund product development. In fact, the most successful fast-growing software company in Atlanta, MailChimp, is actually owned by The Rocket Science Group, which for many years was a web design firm. The Rocket Science Group built MailChimp after identifying a need in the market for a simple, easy-to-use email marketing product, and now they have one of the most widely used products in the world.

    In thinking about consulting work to fund product development, here are a few things to keep in mind:

    • Consultants think in terms of time and materials, which can be limiting when trying to build a successful tech startup
    • Try to separate the consulting team from the product team so that the product team isn’t distracted and can focus 100%
    • Plan for everything to take three times as long and cost three times as much (it’s incredibly difficult to get past the first two stages of the B2B tech co lifecycle)
    • Join a community of like-minded entrepreneurs and find members with successful tech businesses (e.g. Entrepreneurs’ Organization)

    Consulting work to fund product development is difficult to pull off but very desirable when it works. Set internal expectations accordingly and settle in for a long adventure.

    What else? What are some other thoughts on consulting work to fund product development?

  • Betting on Teams and Markets

    On a weekly basis I receive several requests from entrepreneurs to talk about their idea. Typically, I’ll reply back that I’m not a good judge of the quality of an idea and that customer discovery is a much better approach. Rather than discuss ideas, I’m much more interested in discussing execution and what’s working and what’s not working. Overall, especially from an investor perspective, I’m more interested in betting on teams and markets as compared to ideas.

    Here are a few thoughts on betting on teams and markets:

    • Rarely is the initial product direction the best (see Pivoting is More Common than Expected), so a team in a great market will find a better opportunity
    • Timing is critical (see Timing a New Market), and a strong team with a strong market is more likely to get it right
    • Markets are incredibly dynamic, making strength of team so important due to the huge of number decisions that have to be made on a regular basis

    When entrepreneurs talk about ideas, listen, but spend more time drilling into the team and market, as that’s a stronger bet.

    What else? What are your thoughts on betting on teams and markets instead of ideas?

  • A Few Data Points on Domain Name Prices

    Entrepreneurs that have been in the software world since the dot com days love a good domain. Now, we’re seeing more .co and .io domains but .com domains are still the the most sought-after and most expensive. Over the years, I’ve purchased several domains at auction and helped other entrepreneurs acquire domains.

    Here are domains I’ve purchased or been an angel investor in the startup at time of domain purchase along with their price:

    • terminus.com – $10,000
    • kevy.com – $4,000
    • atlantaventures.com – $1,750
    • inspirational.com – $14,000
    • chipshot.com – $12,000
    • salesloft.com – $1,000
    • rivalry.com – $10,000
    • rigor.com – $4,000
    • clickscape.com – $750

    Using a marketplace like Sedo.com and budgeting ~$1,000-$10,000, there are still a number of quality .com domains available for purchase.

    What else? What are some other example prices for domain names?

  • Lead Generation as the #1 Challenge for SaaS

    Continuing with yesterday’s post on SaaS Company Premium Valuations, there’s an important point about the SaaS business model that isn’t well understood. With all the talk about finding product/market fit followed by building a repeatable customer acquisition process (see the 4 Stages of a B2B Startup), it’s regarded that with enough time and money, both of these tasks will be accomplished. Assuming there’s sufficient need in the market, and enough resources, product/market fit can be achieved. Only, it’s the repeatable customer acquisition process that’s also capital efficient and profitable where there’s even more difficulty. Customer acquisition that’s capital efficient and repeatable starts with lead generation.

    Here are a few thoughts on lead generation as the #1 challenge for SaaS:

    • Cost of customer acquisition relative to the first year’s customer revenue is one of the driving metrics for building a SaaS business, and lead generation is the top of the funnel for customer acquisition
    • Company size upper limits are determined by the number of new customers signed relative to customers that leave (churn) and is also accentuated by the law of large numbers that makes growth more difficult at scale
    • Acquiring customers in a manner that is scalable and profitable isn’t always possible, which is why many entrepreneurs give up on building out a sales team due to repeated failure (the lower cost and higher volume of leads can be generated, the greater the chance for a profitable and repeatable customer acquisition process)
    • Top of the funnel lead generation is the most difficult to plan and control for — once a lead is in the pipeline, automated nurturing and human selling is very controllable

    The next time an entrepreneur talks about how hard it’ll be to scale the service for a large number of users or get the user interface just right, ask the harder question about how they’ll generate a huge number of marketing qualified leads.

    What else? What are your thoughts on lead generation as the #1 challenge for SaaS companies?

  • Time to Shut Down a Startup

    Last week an entrepreneur emailed me that he’s shutting down his startup and moving on. After working hard, spending many months on the idea, and over $100,000 of personal savings, it was clear that the business wasn’t going to be successful. There were a number of signs leading up to his decision.

    Here are a few indicators to evaluate if it’s time to shut down a startup:

    Deciding to shut down a startup is a difficult decision. Once the decision is made, and the trigger is pulled, the result is a major sense of relief.

    What else? What are some other indicators when deciding to shut down a startup?