David Cummings on Startups

Category: Entrepreneurship

  • Basic Search Engine Optimization Tracking for Startups

    Search engine optimization (SEO) is a core part of most startup web marketing strategies. The content marketing component is talked about frequently with people cranking out blog posts, articles, white papers, ebooks, webinars, and more. Along with content marketing is the SEO work for on-page and off-page factors, inbound links, etc. To understand the results and progress on these efforts it’s important to do some basic tracking of data.

    Here are some basic search engine optimization tracking items for startups:

    • Keywords – the search engine ranking position (SERP) of the most important search terms should be tracked for your site on both Google and Bing/Yahoo
    • Competitors – common information like the number of Google indexed pages, the number of inbound links, traffic rankings, and more should be tracked for your site and your competitors’ sites
    • Keywords of Competitors – how the competitors’ rankings compare to your rankings for keywords as well as the keywords competitors rank well for should be tracked

    There are an unlimited number of data points that can be tracked around SEO but focusing on keywords and competitors is a good, simple start.

    What else? What are some other basic search engine optimization items that startups should track?

  • Why Big Companies Buy Small Startups

    Last month LinkedIn ($9.3 billion market cap) bought Rapportive for $15 million, which according to LinkedIn (naturally), has less than five people (LinkedIn Rapportive search). Rapportive, which is a great product that I use daily, is a dedicated Gmail plugin that takes the email address of the To: or From: address and shows social information like profile photo, recent tweets, links to Twitter/LinkedIn/Facebook profile, and more. It’s an awesome tool.

    Now, why would LinkedIn pay $15 million cash for a Gmail plugin that on the surface looks like the LinkedIn piece could be written in one week by a talented developer?

    Here are some reasons why big companies on occasion pay good money for small startups:

    • Time to market – Rapportive already has a raving fan base that loves the solid product
    • Talent acquisition – The Rapportive co-founders have built a killer product and likely have ideas for many more ways to make the product better with additional resources supplied by LinkedIn (or LinkedIn wants the talent to spearhead the development of a new product)
    • Competitive preemptive move – If LinkedIn didn’t acquire them someone else that’s trying to be more social (Google?) might pick them up
    • Cost of capital – If LinkedIn is sitting on a ton of cash or has a low cost of capital, which it does due to the large market cap and lack of leverage, putting the money to use immediately, even at premium, helps the company grow faster and create more enterprise value

    With engineering resources scarce, and new product development tough (I’ve seen it fail twice inside a small company), big companies buy small startups to get a proven commodity that is already successful.

    What else? What are some other reasons why big companies buy small startups?

  • The Incubator Approach and Startups

    Earlier today I had the opportunity to meet with another entrepreneur in town that I hadn’t met before. We got to talking about what his ideal role would be once he made his FU money and he said it was to build a startup incubator or lab that created a number of companies where he helped get them off the ground but someone else would run them.

    Interestingly, a story came out today where Kevin Rose, founder of Digg, took the acqui-hire route and sold his incubator to Google after their first product wasn’t successful. Rose is a guy who made his FU money, started a product incubator, and has now moved on to a giant company.

    Here are some pros and cons with the incubator approach to startups:

    • Idea to product won’t take much time at all since there aren’t any legacy customers to slow things down
    • Hockey stick-like revenue growth often occurs several years in, assuming things are successful, so if you start five or 10 companies simultaneously, you still have a long time to see good cash flow even after killing the ideas that aren’t working
    • Some startups are successful because they hang around a market long enough to find the pot of gold but with an incubator the staying power is less likely
    • Timing a market is one of the most difficult things to do, so building multiple startups at the same time increases the chance that the timing for one of the markets is right

    Idealab (great video) is one of the most successful incubators ever and should be closely studied by anyone thinking about doing their own startup lab. Building a successful incubator is hard, and I believe it’s even harder than building a successful startup (successful startup defined).

    What else? What are your thoughts on the incubator approach and startups?

  • Thinking Big or Thinking Small

    Earlier today I was talking with a friend about startups. He commented that most entrepreneurs have a tendency to think small in the grand scheme of things. The context for this part of the conversation was scaling a sales team from 10 sales reps to 100 sales reps. Often, an entrepreneur that currently has five or 10 sales reps sees 100 sales reps as massive, and to them its thinking big. If Groupon had stopped at 100 sales reps they wouldn’t have grown nearly as fast.

    Today, Groupon hires 100s of sales reps per month and has several thousand sales reps on staff — all hired in the past couple years. Think about it for a second — Groupon believed that the market opportunity was large enough, and growing fast enough, to support a literal army of sales reps. Alibaba, based in China, has one of the largest direct sales force in the world with tens of thousands of sales reps — that’s thinking big.

    The next time you’re dreaming big, ask yourself if’s truly big, and take it out to a magnitude (10x) larger and see how that feels. Are you thinking big or thinking small?

    What else? What are your thoughts on thinking big or thinking small?

  • My First Internship

    Growing up in Tallahassee, FL there wasn’t much industry in town. It’s a great city to raise a family and always has the lowest unemployment in the state since life revolves around the state government and Florida State University. At my high school, Lincoln, there was a program for seniors called a gifted externship. People in the gifted program could take the last two periods of the day to participate in an off-site, un-paid internship and get honors credit. It was a pretty sweet deal.

    Through a connection I had the opportunity to intern at the oil change franchisor Super Lube where I spent time partly with the COO and partly with the VP of Marketing. The COO was skeptical of having a high school senior around and didn’t give me much attention. Looking back, my biggest takeaway was that technology, and simple business intelligence software, would have automated a good chunk what he did. He would literally spend hours pouring over printed spreadsheets of KPIs from each store location manually looking for unusual deviations and trends. The most common thing he looked for was signs of theft based on different numbers not making sense (e.g. oil expense vs revenue).

    The VP of Marketing enjoyed having me around as I would help her with computer issues and desktop publishing projects. Learning about marketing and advertising options, like a certain high-profile billboard in town costing $500/month at the time, was fascinating for me. As expected, there was no focus on return on investment or ability to measure the effectiveness of different campaigns. A certain budget was dreamed up for marketing and the money was spent based on what seemed the most appropriate. Unfortunately, it still works that way for many companies.

    My first internship, in retrospect, drove home the importance of software. Here were these smart executives at one of the top companies in town, and so many aspects of their job were manual, but had the ability to be significantly enhanced by software. Software is truly eating the world.

    What else? What was your first internship like?

  • Manage Email Like a Boss

    Email is a necessary evil that isn’t going away, at least not until Paul Graham’s request is fulfilled. In the interim, my advice is to manage email like a boss. Well, like a good boss that’s savvy and effective.

    Here are some tips to manage email:

    • Use Gmail (yes, especially for business) with the web interface as the primary means and the Microsoft Exchange emulation for IMAP support on the iPhone
    • Install the ‘Send and Archive’ button from Gmail Labs so that when you reply to an email it is also removed from the inbox
    • Install the ‘Auto-advance’ Gmail Labs option so that whenever you act on an email it automatically takes you to the next email
    • Install the ‘Hide Unread Counts’ Gmail Labs option so that you aren’t constantly distracted when new email arrives
    • Follow Getting Things Done (GTD) by David Allen and never read the same email twice in your inbox. Either reply right away if it’ll take less than two minutes or file it into the appropriate folder.
    • Don’t reply to every email — that’s right, if you get an email and don’t want to reply, archive it right away instead of letting it sit there and fester.

    I’ve been doing Inbox Zero nightly for over three years with this approach and it’s worked great. Inbox Zero doesn’t mean you’ve replied to every email, rather, it means that every email is moved out of your inbox on a daily basis. Manage email like a boss and you’ll be glad you did.

    What else? What are some other best practices for managing email?

  • Entrepreneurs’ Organization and Young Presidents’ Organization

    This weekend I was talking to an entrepreneur about his startup and sharing war stories. Towards the end of the conversation I asked him if he’d thought of joining an organization like Entrepreneurs’ Organization (EO) or Young Presidents’ Organization (YPO). He said he knew of both but didn’t know many details or requirements.

    Here’s how I described each organization:

    Entrepreneurs’ Organization

    • For co-founder and owners that are actively managing the company and own at least 20% of the equity
    • All entrepreneurs and business owners
    • Multiple people from the same company are allowed in
    • At least $1 million in revenue
    • No employee minimum
    • Frequent monthly events, workshops, and socials
    • ~8,000 members worldwide

    Young Presidents’ Organization

    • For presidents, CEO, managing directors, etc that’s actively running the company but doesn’t need to own any equity
    • 1/3 later generation family business, 1/3 hired president, 1/3 entrepreneur
    • No more than one person from the same company allowed in YPO
    • At least $11.5 million in revenue
    • At least 50 full-time employees
    • Three large events per year
    • ~17,000 members worldwide

    Previously I mentioned the power of peer groups in startups and can’t recommend joining one enough. These organizations are truly life changing.

    What else? What’s your experience with EO or YPO?

  • Return on Founder Equity in Startups

    Recently I was talking with a friend of mine who was thinking about raising money for his startup. He’s self-funded the business to date but is finding out that it’s going to take twice as long and cost twice as much to reach break-even. The topic of dilution and how much to sell came up, prompting me to introduce the concept of return on founder equity that I learned from a different friend.

    Return on equity, as defined by Investopedia:

    Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.

    So, the return on founder equity can be thought of as the amount of money the founder made relative to the amount of money the founder invested in the business. As an example, say you invest $5,000 and turn it into $1,000,000,000 like the Spanx founder did, you’d have a return on founder equity of $1b/$5k = 200,000. A more modest, but still very successful example would be investing $50,000 and turning it into $5,000,000 for a RoFE of 100.

    The next time an entrepreneur mentions raising money, ask about their expected return on founder equity.

    What else? What are your thoughts on the concept of return on founder equity in startups?

  • Warren Buffet’s 10 Rules from Jimmy John’s

    A few nights ago I was out with the kids and we headed over to Jimmy John’s near Terminus. As we were waiting for our sandwiches to be made I noticed a sign on the wall: Warren Buffet’s 10 Rules. Much like the Jimmy John’s sign How Much is Enough, this one is packed with wisdom.

    Here are Warren Buffet’s 10 Rules:

    1. Reinvest your profits
    2. Be willing to be different
    3. Never suck your thumb
    4. Spell out the deal before you start
    5. Watch small expenses
    6. Limit what you borrow
    7. Be persistent
    8. Know when to quit
    9. Assess the risks
    10. Know what success really means

    The next time you’re at a Jimmy John’s read the signs on the wall — they’re worthwhile.

    What else? What do you think of Warren Buffet’s 10 Rules?

  • An Unusual Entrepreneur Characteristic: Dramatic Life Event

    A few years ago I was having dinner with a successful software entrepreneur. One of his true enjoyments in life is developing deep mentor relationships with team members and partners. During our conversation he offered up something that rang true for me: some of the most successful entrepreneurs have had a very dramatic life event.

    I personally know two different entrepreneurs that had their mom die before they could vote — that leaves a serious mark. Imagine working through the death of a parent at a young age and the internal personal struggle. Conquering the pain and pushing on gives a greater level of internal strength and focus.

    Reading the Forbes article yesterday on Sara Blakely of Atlanta titled Undercover Billionaire: Sara Blakely Joins the Rich List Thanks to Spanx drives it home again. In the article it tells of her watching her friend get hit by a car and die at age 16, and then both of her prom dates died in horrible situations. Everything else seems easy after those dramatic life events.

    Successful entrepreneurs have often had a dramatic life event. The next time you’re talking with one see if you can work the idea into the conversation and if it holds true for them.

    What else? Do you know of other examples of dramatic life events for successful entrepreneurs?