David Cummings on Startups

Category: Entrepreneurship

  • Predictable Revenue Book Review

    Recently I read Predictable Revenue: Turn Your Business Into A Sales Machine With The $100 Million Best Practices Of Salesforce.com. This is a good book for startups with a B2B sales process and average lifetime values of at least $10,000. The general premise is that companies should have a dedicated person/team that is responsible for prospecting and generating qualified leads with quota-bearing sales reps exclusively focused on engaged leads (no prospecting).

    Here are a few notes from the book:

    • Targeted unsolicited emails are more effective than cold calls
    • Use SalesLoft to manage the entire process
    • Separate roles should be used for prospecting for leads (sales development reps), following up with inbound leads (market response reps), closing deals (account executives), and maintaining accounts (account managers)
    • Delineated roles result in better results and specialization of skills as well as more measurable results
    • A full-time sales development rep should create 10-20 qualified leads per month
    • A full-time market response rep can handle 400 inbound leads per month

    There’s too much talk of “Cold Calling 2.0” in the book which is literally cold information-request emails (legal spam) to targeted people within companies that fit the ideal customer profile. It does make sense that busy executives are more likely to respond to a short, relevant email that is highly targeted.

    Overall, the book is recommended for startups with a B2B sales process that want a more modern perspective on consistent quality lead generation, and thus more predictable revenue.

    What else? What are your thoughts on Predictable Revenue?

  • Flashpoint Demo Day on January 10th

    Next Tuesday, January 10th is the first Flashpoint Demo Day at Georgia Tech Research Institute. Flashpoint is a startup accelerator that is part startup school and part startup factory. With 17 companies in this first cohort, there are a variety of strong B2B and B2C technology startups.

    Flashpoint is actually having three Demo Days in January:

    Earlier today it was announced that Andreessen Horowitz invested in Pindrop Security, one of the Flashpoint cohort startups — a great prelude to the Demo Days.

    I’m looking forward to Demo Day next week and I’m impressed by the progress the startups have made over the last 90 days.

    What else? What are your thoughts on Flashpoint and accelerator Demo Days in general?

  • Revenue Growth for Startups isn’t Linear

    There’s plenty of jargon terminology in startupland, one of which is ‘hockey stick growth.’ The idea is that revenue growth isn’t linear but rather starts out really slow and at some point (hopefully) things really take off.

    Imagine the annual revenue numbers as follows:

    • Year 1 – $75,000
    • Year 2 – $150,000
    • Year 3 – $300,000
    • Year 4 – $1,000,000
    • Year 5 – $4,000,000

    So, if the company did $4M in Year 5 revenue, and they are on the accelerated growth part of the hockey stick, their growth as a percentage basis is higher than the earlier years and on an absolute basis it’s tremendously higher. The value creation for most successful startups takes place when they hit the accelerated growth portion. From a startup valuation perspective, high growth is significantly more valuable than low growth, everything else being equal. Revenue growth for successful startups is almost never linear.

    What else? What are some reasons revenue growth for startups isn’t linear?

  • Costco and Amazon Prime are More Similar than you Think

    What if you were a retailer that operated like a Software-as-a-Service company whereby you barely marked up your products and you made the bulk of your profits off the recurring revenue subscriptions? Costco does it. Amazon Prime is doing it. Think about it for a second: would you rather break-even selling products and make good money off of predictable, high margin recurring revenue or make varying margins off products with less predictability?

    Amazon Prime is really Costco delivered to your doorstep.

    If Amazon Prime has 5 million subscribers (probably high) that pay $80 per year, and they mark up products barely enough to cover the expedited shipping, inventory, operations, etc, that’s $400 million per year of profit (assume the $80 per year is nearly all profit). $400 million per year of profit is solid. And they’re just getting started. And they’re giving consumers more reasons to sign up, like free streaming movies and TV shows.

    Look for more services with an annual fee that sell their product or service near cost and make all their profit off the subscription fee.

    What else? Are Costco and Amazon Prime more similar than you thought? What are some more examples of this model?

  • The Four Questions for Every Startup from IBM’s CEO

    A few days ago the NY Times had an article titled Even a Giant Can Learn to Run about the retiring CEO of IBM, Samuel J. Palmisano. Amazingly, the CEO admits that they sold their PC business to Lenovo to gain favor with the Chinese government, which is a big buyer of IBM stuff through their state-owned companies. People won’t be happy about that.

    When asked how he helped IBM grow, Samuel said he got together with his top 300 managers to answer four simple questions:

    • Why would someone spend their money with you — so what is unique about you?
    • Why would somebody work for you?
    • Why would society allow you to operate in their defined geography — their country?
    • And why would somebody invest their money with you?

    Four straightforward, simple questions that every startup and Fortune 500 company should answer.

    What else? What are your thoughts on the four questions?

  • The Experience Economy at the Mall

    I’m not much of a mall guy. The experience shopping on Amazon.com, especially with Amazon Prime, is amazing, cheaper, and much more efficient. So, today, in an effort to get the kids out of the house, I took my two little ones to North Point Mall 20 miles north of where I live. North Point was chosen, instead of Lenox and Phipps nearby, due to the American Girl store.

    Even though my daughter is too little to know much about the American Girl store she loves dolls, and the American Girl store didn’t disappoint. In the store they have a full restaurant, dolls, girl clothes with matching doll clothes, and a spa for the dolls. Yes, you read that right: they style the doll’s hair and clean their face/nails/etc as if they were people. It’s really quite frightening, but girls love it. The line for it was 10 people deep when I was there.

    Amazon.com is competing less and less against the mall, especially North Point Mall. Malls and stores in the mall are offering two things Amazon.com will never offer: vertically integrated brands like Banana Republic and experiences like doll spas. Malls are a natural venue for the experience economy and today’s visit was no exception.

    Here are experiences I saw going on at North Point Mall:

    • Cafe and doll pampering at the American Girl store
    • Build-a-Bear Workshop where you can build your own teddy bear
    • Food court with tiny tables and chairs the perfect size for toddlers and little kids
    • Carousel (merry-go-round) in the food court for $2 per child (adults not allowed)
    • Train tours for five minutes around the stores for $4 per person
    • Playground inside near Dillard’s
    • Massage kiosk (people giving the massages, not massage chairs)
    • Santa pictures (santa wasn’t there today but I’m confident he was there last month)

    This doesn’t even include services inside the mall like haircut places and spas (for real people).

    Over time the gap between what Amazon.com offers and what malls offers will grow. Malls are part of the new experience economy.

    What else? What are your thoughts on malls becoming more and more about experiences?

  • The Power of a Consistent Rhythm

    After finishing the Rockefeller biography Titan, I reflected on key takeaways from the book. One of the more profound items was his emphasis on a consistent rhythm. When running Standard Oil, he had a set, predictable schedule that included lunch with his executive team every single day. After retiring in his 50s he set a personal goal to live to 100. While he died just shy of his 98th birthday, that’s impressive especially for a guy born in the mid 1800s. He credited his longevity to a consistent rhythm that included nine holes of golf daily, the same healthy foods, and more.

    The idea is that there’s a personal balance of physical, emotional, mental, and spiritual (PEMS) needs such that the happiest people are the ones that achieve their necessary levels of each on a regular basis. Once you know what those things are, assembling them and sticking to a consistent rhythm makes all the difference.

    With 2012 upon us, it’s a great time to think about our own personal rhythm and the rhythm of our company. What’s working? What’s not working? What should be added? My recommendation is to work on your rhythm in addition to general goals.

    What else? What other thoughts do you have on the power of a consistent rhythm?

  • 3 Year Personal Development Plan

    At the end of each year I reflect on the past 12 months and set my New Year’s Resolutions. As part of this process I also spend time updating my 3 Year Personal Development Plan. My 3 Year Personal Development Plan is a simple Google Doc with four categories of information: personal, family, professional, and community. For each category I have 3-7 bullet points with ARMD goals that are tactical.

    Here are some example categories and items for a 3 Year Personal Development Plan:

    • Personal
      Workout 2x per week
      Meditate 2x per week
      20 tennis matches per year
      10 rounds of golf per year
      2 cool sporting events per year
      Financial savings (size defined for each year)
    • Family
      Spouse date night every week
      Dinner as a family 5x per week
      Quarterly week-long vacation
    • Professional
      Company size (size defined for each year)
      Read one book per month
      1 workshop/learning event per quarter
      2 conferences per year
      6 trips per year
    • Community
      Donate $X per year
      2 non-profit boards
      Volunteer X hours per month

    This format provides structure and personal accountability that is fairly broad. I recommend developing a 3 Year Personal Development plan and reviewing it several times per year.

    Have a great 2012!

    What else? What other items would you add to your 3 Year Personal Development Plan?

  • Stages of a Startup’s Lifecycle

    Six months ago I purchased the book Corporate Lifecycles: How and why corporation grow and die and what to do about it by Ichak Adizes and I’ve been slowly making my way through it. The book reads like a college textbook, so plan accordingly, but the author does hit on key insights that I’ve experienced first-hand, lending credibility to the other theories in it.

    Here are the stages of a startup’s lifecycle according to the author:

    • Courtship – excitement, reality tested, realistically committed founder, product orientation
    • Infant – risk does not evaporate commitment, negative cash flow, hard work nourishes commitment, no managerial depth, no systems, no delegation
    • Go-Go – arrogant founder, decisions based on intuition, centralized, too many priorities
    • Adolescence – conflict between decision makers, temporary loss of vision, founder accepts organizational sovereignty, yo-yo delegation of authority, policies made but not followed
    • Prime – firing on all cylinders, insufficient managerial training, limited in-fighting, cash is improving
    • Stable – lower expectations for growth, focus on past achievements instead of future, reward “yes men”, more interested in interpersonal relationships than risks
    • Aristocracy – money is spent on benefits and facilities, emphasis on how rather than what and why, formality in dress and tradition, low internal innovation, cash rich
    • Early Bureaucracy – emphasis on who caused the problem rather than what, much conflict and infighting, paranoia freezes the organization, focus on internal turf wars and not customers
    • Bureaucracy – many systems with little function, focused inwardly, no sense of control, customers must develop elaborate approaches to work effectively
    • Death – no one is committed to the organization anymore

    The early chapters though Aristocracy are useful for most entrepreneurs and the book is worth skimming for connoisseurs of corporate lifecycles.

    What else? What are your thoughts on the proposed stages of a startup’s lifecycle?

  • Financial Controls for Startups

    As a startup grows, inevitably more processes and procedures get put in place. One area of note that should be done sooner than later is financial controls. Yes, at first it is easy to keep track of everything when there are only five people but that doesn’t scale when there are 50 people.

    Here are some simple financial controls for startups:

    • Require two signatures for checks over a certain amount (e.g. $5,000)
    • Put a modest spending limit (e.g. $2,000) on all corporate credit cards except for one that is designated for larger purchases
    • If possible, separate out the accounts receivable function from the person who actually deposits the checks
    • Pay for an annual review of your books by a CPA or get a full audit if required by investors
    • While not financial controls, backup your data using Dropbox and your website using CodeGuard

    For banks, it is a best practice that all employees take two weeks of consecutive vacation each year so that potential fraud will surface. That’s obviously for a different industry, but it is interesting to think about nonetheless. Financial controls are important for startups and should be implemented early on.

    What else? What are some other financial controls startups should implement?