David Cummings on Startups

Category: Entrepreneurship

  • Ted Turner’s Scrappiness with Re-used Postage Stamps

    One of the reason’s startups are successful with limited capital is taking the Moneyball startup approach and being scrappy with resources. When I think of scrappy an example from Ted Turner’s autobiography Call Me Ted comes to mind. Turner was in the process of getting the TBS Superstation off the ground and it was novel to have a local station broadcasted nationally.

    Without having the brand recognition of a CBS or NBC, traditional advertisers balked at advertising so he had to do direct response marketing on his own dime. As an example, a company would pay $20 per widget sold, so he’d make the ad and sell the widgets, even doing the payment collections.

    Many payments were by individuals sending checks in the mail. Oddly enough at the time, the postal service didn’t always cancel the stamps on the envelopes (e.g. the little black ink lines on top of the stamp to designate that it has been used). To save money, they’d take the non-cancelled stamps off the letters and re-use them for their letters. Now, there are some ethical questions about that but it captures the spirit of a startup being scrappy.

    What else? What are some other ways startups are scrappy?

  • The Power of Recurring Revenue in Startups

    At today’s MIT Enterprise Forum Atlanta Entrepreneurs Uncensored Sanjay and I were asked if there were things that kept us up at night. Being the first to respond, I quickly said that I sleep great at night (unrelated to my Tempur-Pedic bed but that’s nice as well) for one simple reason: recurring revenue.

    Recurring revenue with high gross margins is the holy grail of business models.

    Here are some reasons recurring revenue is so powerful for startups:

    • Recurring revenue makes cash flow forecasting very easy (running out of cash is the #1 reason startups fail)
    • Recurring revenue makes predicting hiring needs straightforward so that you can recruit well in advance
    • Recurring revenue is often indicative of a business model that has strong economies of scale
    • Recurring revenue makes banks more comfortable with providing debt to finance growth (most businesses won’t qualify for debut unless the entrepreneurs have significant personal assets and are willing to do personal guarantees)

    Recurring revenue businesses are more difficult to get off the ground but once they’re going they’re easier to manage. Recurring revenue helps entrepreneurs sleep better at night.

    What else? What are some other reasons recurring revenue is so powerful for startups?

  • Four Lessons of Self-Knowledge for Leaders

    One of the approaches I like about Warren Bennis and his theories in the book On Becoming a Leader is that he puts the impetus on the leader to go out and better himself. There’s nothing handed to you — whether it’s proactively finding a mentor, reading books, or learning from peers, the onus is on you.

    In the book the author offers up four lessons of self-knowledge for leaders (pg 52):

    • One: You are your own best teacher.
    • Two: Accept responsibility. Blame no one.
    • Three: You can learn anything you want to learn.
    • Four: True understanding comes from reflecting on your experience.

    The best leaders I know are the ones who are constantly engaged in learning. And the learning doesn’t have to be specific to their industry, rather they are passionate learners about a multitude of things, of which they draw parallels and patterns in their efforts to be a better leader.

    What else? What do you think of these four lessons of self-knowledge for leaders?

  • What’s the right amount of in-person communication in a startup?

    Internal communication has been a hot topic lately. As a startup grows the amount of in-person communication needs to grow even faster. But, what’s the right amount of in-person communication in a startup? How do you know when there’s enough? As a general rule it’s better to have too much communication rather than too little.

    Here are some of the in-person communication processes we use:

    • Daily check-in – Quick stand-up meeting for 10 minutes each day answering the questions what did you accomplish yesterday, what are you going to do today, and do you have any roadblocks
    • Weekly all hands meeting – 20 minute meeting with everyone talking about good news and answering town hall questions
    • Bi-weekly or monthly catch-up – Status update on top three projects, what’s working, what needs to change
    • Quarterly check-in – Lightweight performance review answering questions what did you accomplish last quarter, what are you going to do this quarter, how can you improve, and how are you following the values
    • Quarterly simplified one-page strategic plan – A one page document with S.W.O.T. analysis, vision, goals, elevator pitch, and more talked about at the first all hands meeting of the quarter

    In-person communication and alignment is tough. As a startup grows it becomes even tougher. The fine balance between extensive communication and death-by-meeting needs to constantly be evaluated.

    What else? What are some other in-person communication processes that you’d recommend?

  • Product Stickiness Spectrum for SaaS Products

    In the Software-as-a-Service (SaaS) world one of the questions investors love to ask is, “what’s your annual renewal rate?” The idea is that products with a higher renewal rate, and thus a lower churn, are more desirable, everything else being equal. After the renewal rate question comes questions around why customers leave and under what circumstances. Not all products and markets are created equally — there’s a product stickiness spectrum for SaaS products.

    Here are some example SaaS product categories with levels of stickiness:

    • High
      Ecommerce (switching costs, SEO, payment gateways, product catalogs, etc result in many moving parts)
      Content management (especially with a high number of pages integrated and users trained)
    • Medium
      Marketing automation (CRM integration, scoring + grading rules, email templates, landing page templates, tracking code, etc)
      Payroll (the nuances of electronic deposit, vacation days, risk of error, etc make people less likely to switch)
    • Low
      Email marketing (CSV file of contacts, email templates, DNS changes, etc)
      Virtual meetings / webinars (event sign-up form, URLs, etc)

    As with anything there are tradeoffs. Typically, categories with higher levels of stickiness have higher integration and consulting costs to make the system work, so there’s going to be a heavier people component, and lower economies of scale.

    What else? What are some other SaaS categories and where do they fit on the stickiness spectrum?

  • The Four Essential Competencies of a Leader

    Recently I started reading On Becoming a Leader by Warren Bennis as several people have mentioned it as a classic. After getting through his Hollywood-style political leanings in the intro he does a good job of describing characteristics and examples of good and bad leaders.

    Here are the four essential competencies of a leader according to Warren Bennis (pg. xxv)

    • Leaders are able to engage others by creating shared meaning
    • All authentic leaders have a distinctive voice
    • All true leaders have integrity
    • The most important competency is adaptive capacity — this is what allows leaders to respond quickly and intelligently to relentless change

    Most of the leaders interviewed are somewhat dated now as the book is over 20 years old but the concepts and ideas still ring true. For leaders looking to learn and grow in their skills, this book is a quality read.

    What else? Do you agree with these four essential competencies of a leader?

  • Product Management Planning Process for a Startup

    Product management is one of the most strategic and critical components of startups. While the best products don’t always win, great products in a great market are almost always successful. Unfortunately, product management is still much more art than science, although actionable data is becoming more prevalent.

    Here’s an example product management planning process:

    • Create a simple Google Spreadsheet with sheets for different constituencies
    • Solicit requests from sales, marketing, services, support, client advocates, product management, and engineering in individual sheets
    • Review the customer idea exchange and take the top 10 most popular items and 20 other items that have the most bang-for-the-buck and add them to a new sheet
    • Analyze trends from the 100 most recent support tickets and confirm the big ones are in the Google Spreadsheet
    • Categorize every item based on priority (low, medium, high) and difficulty (low, medium, high)
    • Get a group of stakeholders together, no more than five people, and debate everything that’s been assembled and decide on the items for the next quarter
    • Share the quarterly roadmap with the team and create alignment
    • Repeat each quarter

    Product management planning and roadmaps should be fluid with 20% of the quarterly time allocation left open for new items that might arise. There’s no perfect product management planning session but with a thorough process, proper categorizing of issues based on Covey’s quad one and quad two, and hard work, the results will be invaluable.

    What else? What are your thoughts on this example product management planning process for a startup?

  • Covey’s Priorities Quadrant System for Startup Product Management

    Stephen Covey has a well-known quadrant system for priorities that is beneficial for product management in startups. Here’s how it works: there are four boxes based on not important & important up the left and urgent & not urgent across the top in order to prioritize what needs to be done. It looks like this:

    The startup urge is to work in Quadrant 1 – important and urgent. Yes, the important and urgent things need to be done but the mistake I commonly see is not enough time spent in Quadrant 2 – important and not urgent. Quad 2 is often infrastructure, big picture, or long-term items that have significant compounding effects. Whereas the general time allocation is likely 90/10 with 90% in quad 1 and 10% in quad 2, the more successful startups consciously do 80/20 with 80% in quad 1 and 20% in quad 2. The next time you look at potential product features, put them in quad 1 and quad 2 buckets and see how the time allocations stacks up.

    What else? What are your thoughts on using Covey’s priorities quadrant system for startup product management?

  • Startups Don’t Lose a Deal Over One Feature

    Recently an entrepreneur was telling me about a customer he lost due to a missing feature in the product. The customer absolutely had to have this feature, and without it, wouldn’t be moving forward. Naturally, the entrepreneur was depressed thinking he needed to add this new feature right away. Hearing this I asked a few quick questions:

    • Do 80% of your ideal customers need that feature?
    •  Is that feature the highest priority?
    • Was your relationship with the customer strong enough that they were telling you the whole story?

    That last question is the most important.

    Most customers that point out a single feature for leaving are doing that as a nice way out. 

    The reality is that more times than not the customer was sold by the sales rep of a competing product. It’s true, the competing-product sales rep provided talking points to the customer and gave an easy way out with competitive intel — being outsold is never fun but it happens all the time. The next time you hear that your customer is switching because of a missing feature, remember that your company got outsold by a competitor.

    What else? Do you agree that when a customer leaves for one single feature they were sold by a competitor’s sales rep?

     

  • Sales Development Rep Pilot Metrics from Sales 2.0

    After seeing it mentioned on another blog I picked up the book Sales 2.0: Improve Business Results Using Innovative Sales Practices and Technology by Anneke Seley and Brent Holloway. The authors do a good job making the case for sales development reps, telesales, and using the web as part of the selling process. For those versed with the modern B2B SaaS customer acquisition model of the past five years it won’t be much new information but those transitioning from a traditional enterprise sale to a hybrid model or more telesales, this is a strong primer.

    One question I see frequently is around metrics for sales development reps. Here are example sales development rep (SDR) metrics from the book for a 12 week pilot period (pg 173):

    • Number of outbound calls and e-mails per day/week/pilot period including ramp: 45/135/1521
    • Contacts (connects, returned calls and returned e-mails) per day/week/month at 12 percent rate: 5/15/183
    • Percent of contacts in A lead category: 4 percent
    • Number of contacts per pilot period in A lead category: 7
    • Percent of contacts in B category: 6 percent
    • Number of contacts per pilot period in B lead category: 11
    • Average deal size: $80,000
    • Pipeline value per month (A & B leads): $1.44 million

    So, a trained sales development rep spends three months prospecting, connects with five people per day, and generates seven hot leads and 11 warm leads. These numbers are inline with what I’ve heard from other entrepreneurs and show that SDRs work if the economics of the deal make sense.

    What else? What are your thoughts on these metrics with sales development reps?