David Cummings on Startups

Category: Entrepreneurship

  • Startups and Three Year Financial Projections for Investors

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    Casually, I’m helping out a local first-time entrepreneur that has been working full-time on his idea for the past two months and is now focusing on raising an angel round. Earlier today he sent over his investor slide deck that covers the executive summary information as well as product details and brief financials. There was only one glaring problem: he listed year three revenue at $50 million.

    Now, this is a well educated guy with the best of intentions, but $50 million at year three based on organic growth in an unproven market is extremely suspect. Most companies don’t hit $1 million in year three let alone $50 million. Here are some thoughts on startup three year financial projections for investors:

    • Keep the financial projections reasonable and err on the conservative side
    • Investors want to see a path to an 8x – 10x return — they don’t need to see a 100x return
    • A solid year three revenue range for a technology startup with recurring revenues and high gross margins would be $7 – $15 million (the number would be higher for lower margin businesses)
    • Revenue growth from years one to three should be reasonable as well showing some acceleration (e.g. year 1 of $1M, year 2 of $4M, and year 3 of $10M)

    Startup financial projections are simply educated guesses. They are meant to show investors that the entrepreneur has a decent understanding of the financial aspects of the business and that there will be a solid return on investment.

    What else? What are your thoughts on startups and three year financial projections for investors?

  • 5 Steps for Finding Great Sales Reps

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    Earlier today a successful serial entrepreneur emailed me saying she was going to expand her sales team and to see if I had any recommendations. High quality sales reps, much like strong programmers, are always in short supply, regardless of the macroeconomic condition (and coincidentally are the two most complementary skills to have for startup cofounders). Finding great sales reps requires a methodical process and hard work.

    Here are five steps for finding great sales reps:

    1. Engage with social networks like Twitter and Facebook using a service like TheResumator to manage applicants and broadcast job openings
    2. Pay for LinkedIn Jobs and target sales people at companies with similar corporate cultures to your own
    3. Offer a bounty or referral bonus to people inside and outside your company
    4. Participate in local college career fairs, especially if they have general business or management degrees and you are hiring entry-level reps
    5. Network at local sales executive organizations and ask for referrals to reps
    6. Bonus: talk to vendors are trade shows and use it as a form of interviewing to find reps you’d like to have on your team (I know one successful rep that was recruited in a Delta Crown Room at the airport because he did such a great job on a call)

    Finding great sales reps, much like finding great employees, takes time and hard work. Participating in communities where the reps hang out as well as targeting specific companies through LinkedIn help increase the chances of finding strong candidates.

    What else? What are some other tips for finding great sales reps?

  • 5 Steps to Evaluating New Inside Sales Reps

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    Image by Cathdew via Flickr

    Hiring sales people is one of the more difficult things for startup founders, especially technical ones. Naturally, sales reps are great at selling themselves so they come across as being successful, even if they aren’t. Knowing that it’s considered good if 50% of new inside sales reps work out, it’s important to evaluate progress and results objectively as well as quickly.

    Here are five steps to evaluating new inside sales reps after they are hired:

    1. Set a required number of logged weekly calls and demos with self-reporting of the CRM values in a Google Spreadsheet
    2. Establish activity-based metrics for months one through six around call conversations, demos, pipeline opportunities, and deals won so that it is black and white to continue employment each month
    3. Review calls and demos by using a phone system that provides for recording calls (with the permission of all parties involved)
    4. Compare performance of the new inside sales reps to existing, proven reps and share how they compare on a weekly basis
    5. Continually ask questions and drill into things the rep should know about the company, product, and market on a weekly basis

    Evaluating the performance of inside sales reps after they’ve been hired is easier than picking the right people to hire. Even then, it’s important to clearly lay out the required goals and track the metrics so that the sales rep know exactly where they stand with respect to expectations.

    What else? What do you think of these five steps to evaluating new inside sales reps?

  • 5 Quick Tips for Finding Employees

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    Finding great employees is hard. Very hard. As a startup CEO, recruiting great talent is one of the three most important functions. In addition, a strong corporate culture is the only sustainable competitive advantage, and it starts with the team members.

    Here are some quick tips for finding employees:

    1. Referrals – referrals from employees, friends, and family should be at the top of your list. Offer referral bonuses, even ones to people not associated with your company.
    2. Job Boards – look to specialty boards like ones for software engineers, sales reps, etc. Go to online communities where your type of team member hangs out and participate.
    3. Craigslist – great for entry-level jobs and interns. Yes, there is tons of noise but it is still worthwhile.
    4. Career Fairs – local college and university career fairs are often designed for students about to graduate, but also look for career fairs the cater to experienced graduates looking to make a change.
    5. Recruiters – work hard to find recruiters that align with your values, and make it a collaborative relationship

    Finding great employees is hard. Use these five quick tips to cast a wide net.

    What else? What are some other tips for finding employees?

  • Why Email Marketing was a Successful Services to Products Switch

    I know of at least three successful email marketing companies that started out as web design firms doing custom web app development. As with most startups, the ideas that result in success come from trying something first that didn’t work out (from personal experience, my original business idea has never been what resulted in success). My question today is as follows: why is there a pattern of successful email marketing companies that originated as web development companies? Entrepreneurs continually ask me how to make the transition from consulting services to product-oriented businesses and I don’t have any silver bullets. Email marketing has some interesting aspects that made it more attainable before the market became commoditized.

    Here are some thoughts on why email marketing was especially suitable for consulting companies that transitioned into a products business:

    • Web application consulting lent itself well to building a SaaS web app for email marketing
    • Email marketing, like any SaaS offering, is difficult to get going but once a modest amount of revenue is recurring the ability to scale it out becomes more apparent
    • Customer acquisition is the most difficult part of any product-based business and many web development companies developed areas of expertise in lead generation, search engine optimization, and search engine marketing through client work

    Converting from a services company to a products company is extremely difficult. Email marketing is one of the few SaaS product markets that has several successful companies that made the switch from services to products.

    What else? Why do you think so many email marketing companies started out as web development companies?

  • Common Mistakes in a Business Plan Competition

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    Tonight I had the opportunity to judge the business plan competition for the MBA program at GA Tech (the site is powered by Hannon Hill). Personally, I’m against doing business plans as the time and effort required to do a quality one is better spent on a two page executive summary combined with talking to 50 potential customers. There is value in thinking through the different sections but I’ve never seen a business become successful by doing exactly what they set out to do with their original plan. Unfortunately, too many people start believing what they wrote in the plan and not spending time finding out what the market needs.

    Here are the common mistakes we saw tonight while judging the business plan competition:

    • Not clearly articulating the pain or problem being solved
    • Not providing a memorable anecdote or hook for the idea
    • Not painting a clear picture as to what they wanted from the presentation (e.g. a second meeting with investors)
    • Using slides with too many words and too small of a font (the slides were designed as handouts and not for presenting)

    Writing and presenting a comprehensive business plan is difficult. The students did a good job, the event was well done, and I was honored to be invited.

    What else? What other problems do you commonly see in business plans?

  • To Spread or Not Spread FUD

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    Spreading FUD is a common tactic from traditional, old fashioned enterprise technology companies. Fear, uncertainty, and doubt (FUD) combined with patently false claims (e.g. the product doesn’t do X when it clearly does) are a way for companies to try and persuade a prospect that the other product and company are inferior. Startups with integrity and strong values don’t participate in slinging mud and prefer to stay above-board by focusing on solving customer problems instead of putting down the competition.

    Here are some ways companies spread FUD about their competition:

    • Cite things the product does or doesn’t do when two minutes of web research show the truth
    • Talk about lack of funding or institutional investors in an attempt to imply that money makes a company successful (what happened to Webvan?)
    • Provide anonymous quotes claiming to be from customers that switched products

    Sales reps that spread FUD act like used car salesman in the worst of ways. Startups and sales reps should focus on solving customer problems and not putting down competitors.

    What else? What do you think about startups that spread FUD?

  • Multi-Tenant SaaS and Virtualization are Two Different Things

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    Recently I talked to two companies that said they were Software-as-a-Service (SaaS). After asking more questions and drilling into details for a bit I came to the realization that what they were referring to as SaaS was independent virtualized instances of their product in the cloud. SaaS, to me, is very different.

    Here’s how I define multi-tenant SaaS:

    • Application servers that support multiple clients
    • Databases that support multiple clients in the same tables
    • Infrastructure (load balancers, fail-overs, etc) to support many customers

    Virtualization of the application delivered via the cloud is essentially a more manageable version of the late 1990s Application Service Provider (ASP) model, and not SaaS. A major benefit of SaaS is the engineering efficiencies and scalability of multi-tenant application services and multi-tenant database instances. Multi-tenant SaaS and virtualization are two different things.

    What else? What do you think of people calling their business model SaaS when it isn’t multi-tenant?

  • Notes for Putting on an Annual User Conference

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    The Fall is a common time of year for annual user conferences. Salesforce.com had their Dreamforce conference recently and I know of many more happening now or shortly (Hannon Hill and Pardot). User conferences are an amazing time to bring together customers, prospects, partners, and employees to spend time face-to-face and talk about best practices, the past year, and what’s on the horizon.

    For companies thinking about or doing an annual user conference, here are some notes:

    • Splurge for a great venue — with people traveling to the conference it’s important to invest in the facility and make it memorable (I highly recommend auditorium-type seating with power outlets and great wifi for everyone)
    • Find ways for attendees to intermingle and meet new people (mixers, receptions, consistent Twitter hash tags, etc)
    • Give the conference a consistent name (user conference, users conference, user’s conference, or users’ conference — it doesn’t matter as long as it’s consistent)
    • Put the attendees first name in big letters on their badge (it’s common for the first and last name to be the same size and hard to read amidst all the other text on the badge)
    • Let customers do most of the talking and presenting during the sessions (avoid the tendency to have employees do most of the presentation)

    Annual user conferences are great way to bring an eco-system together and I highly recommend them.

    What else? What are some other notes from user conferences you’ve attended?

  • 5 Ways to Increase the Value of Existing Marketing

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    Entrepreneurs spend incredible amounts of time and energy to generate leads and drive traffic to their website. One area that is often overlooked is increasing the value of existing marketing efforts. Think about it: if you wanted to double the number of leads generated from your website you could either double the amount of traffic to the site or double the site’s conversion rate. Which one is easier? Increasing the conversion rate is always easier than increasing traffic. In addition to focusing on the conversion rate, it is also important to take the current marketing efforts and automate ways to improve their value, much like improving the conversion rate.

    Here are five simple ways to increase the value of existing marketing efforts:

    1. Retargeting – Retargeting allows you to show banner ads on a large number of different sites exclusively to people who have already been on your site (I’m generally against banner advertising with retargeting being the one major exception)
    2. RSS Broadcasts – Take an RSS feed of blog posts, press releases, or whatever else you like of yours and have Twitter, Facebook, and LinkedIn automatically updated when each new item is published
    3. Newsletter Sign-up Option – Add a sign-up link or text box on your site and encourage people to give their email address to get your newsletter (the contents of the newsletter should be repurposed blog posts)
    4. Live Chat – Engage with your site visitors through live chat to answer their questions as well as convert anonymous visitors into identified prospects
    5. Company IP Address Lookup – automatically identify companies on your site based on their IP address

    Existing marketing efforts are easily augmented and improved with these tactics and more.

    What else? What are some other ways to increase the value of existing marketing efforts?