David Cummings on Startups

Category: Entrepreneurship

A Theory on the Amazing ExactTarget Success Story
Image via CrunchBase

Earlier today I was talking with an entrepreneur about how the marketing automation market today parallels the email marketing market of seven years ago. We were talking about some of the largest email marketing vendors and what decisions they made along the way to achieve their prominence. One of the vendors, ExactTarget, has an amazing success story, especially considering the relatively small amount of money raised in their first six years.

Here are some pieces of the theory as to how they were able to achieve such success:
- They had great market timing to be early but not too early
- Originally, the product started around $100/month, making it affordable for most businesses
- They employed relatively junior field sales reps in all the major markets who were able to sign up local companies as well as give it away to non-profits (like local technology associations) who would then have the ExactTarget logo at the bottom of every email blast
- The original low entry price forced ExactTarget to get good at customer acquisition, on-boarding, and product ease-of-use otherwise the business wouldn’t scale
- As employees of ExactTarget customers changed jobs they would help get ExactTarget implemented at their next employer creating a nice momentum effect
- Email marketing, charging based on number of emails sent or database size, provides significant head room to grow the size of an account (e.g. as a company like Groupon, which uses ExactTarget, started out paying a few thousand dollars a year in 2008 now pays millions of dollars annually)
- The product, marketing, and sales team became much more sophisticated allowing the company to move up market, and I’d guess that their average revenue per customer today is many times greater than what it was five years ago (moving up market is generally easier than moving down market)
Now, this is all theory, but ExactTarget has been an amazing success story regardless. Great timing, execution, and little luck goes a long ways.

What else? What do you think of this theory on the ExactTarget success story?
July 7, 2011
Efficiency Ratios of Employees to Startup Metrics
Image via Wikipedia

As a startup begins to scale conversations internally change from “how do we keep the lights on” to “how do we improve our efficiency and get better economies of scale.” As part of this mind shift, one of the inevitable performance indicators that comes up is around the efficiency ratio of employees to customers or revenues. One of the stats that’s been a focus historically is the revenue per employee, with companies like Google being exceptionally high.

For a startup that is scaling, revenue per employee might not be the best measure yet because some departments are going to have more economies of scale than others and the company is still likely investing heavily in areas. While scaling, more specific efficiency ratios like the following are important:
- Customer support employees to customers older than 60 days
- Client services employees to new customers
- Sales reps to new customers
- Marketing employes to new qualified leads
The goal is not to blindly add more and more people to a department because of growth but rather continually looks for ways to get better economies of scale from team members and track how that scalability changes over time.

What else? What do you think of efficiency ratios around employees to startup metrics?
July 6, 2011
A Startup Site Redesign is Like Getting a Shiny New Car
Image by andyrusch via Flickr

Startups love to redesign their website. We did it for one of our sites recently and have another in the works that’ll launch at the end of this month. Effectiveness of our lead generations efforts is measured by our marketing automation and inbound marketing products, but we’re like 99% of other companies online where we can’t tell if the redesign actually made our site better. Prettier? Yes. More modern? Yes. More successful? No idea.

A startup site redesign is like getting a shiny new car. Here’s why:
- You don’t really need a new car because your current car still gets you from A to B
- The new site prettiness is like the new car smell — it’s great but wears off quickly
- Spending considerable time and money on the redesign, much like buying a new car, is usually more ego than necessity
Do I recommend doing a site redesign? Yes, but with one caveat: buy an off-the-shelf theme/design and tweak it instead of creating one from scratch. There are so many good Woo Themes and others out there that you can get that new car smell for significantly less time and money than in the past.

What else? Do you think startup site redesigns are like getting a shiny new car?
July 5, 2011
Lifestyle vs Location Startup Trade-off

Image via Wikipedia

The debate about building a technology startup in Silicon Valley vs other places has gone on for years, and will continue indefinitely. Inevitably, when reading TechCrunch and following the startup world, the fact that the majority of high-profile startups and venture money are in Silicon Valley makes entrepreneurs think “what if I lived there?” I’ll admit, it has gone through my mind many times.

For me, when I read about the next company that got funded with a billion dollar valuation, I like to remind myself that I actively chose the lifestyle vs location trade-off for me and my family. Growing up in Florida, and having the majority of my family and wife’s family in the Southeast, we value being close to family. Another major factor is the quality of life for the money. Atlanta is one of the few really large cities where real estate has stayed affordable along with the other amenities expected in a metropolitan area of more than five million people.

The next time you think about how the grass is greener in a different city for startups, ask yourself about the lifestyle vs location trade-off and paint a clearer picture for yourself.

What else? What do you think of the lifestyle vs location startup trade-off?

July 4, 2011
If Georgia Tech wasn’t in Atlanta I Wouldn’t be Either

Image by hectorir via Flickr

In late 2009 we were actively talking with VCs about raising money as the business had just hit an inflection point and we saw tremendous opportunity. During the proverbial Sand Hill Rd trip we met with quite a few VCs and gave them our pitch. After meeting with about 30 VCs over the period of two months we were asked to do a full partner presentation to six of them (that’s usually the last stage before a term sheet). We were back out in California for one of these full partner pitches, gave our pitch, and were in Q&A mode when a common question came up:

VC: So, what part of North Carolina are you in?

Me: Hmm, we’re actually in Atlanta, Georgia.

VC: Ah, sorry. So, do you have engineers in Silicon Valley, Boston, or off-shore?

Me: No. We do all our engineering in-house in Atlanta.

VC: Where do you find engineers in Atlanta?

Me: Georgia Tech

VC: You hire GA Tech employees without startup experience?

Me: No, there are tons of startups in Atlanta that have Georgia Tech graduates. We look for smart people who get things done, regardless of school, but Georgia Tech grads comprise the majority of our engineering team.

The VC was genuinely asking the question and wasn’t trying to be arrogant. I proceeded to explain that Georgia Tech is the largest engineering school in the country and one of the top academically. Because I’m such a proponent of core product engineering being an in-house function, I need to be in a city with great engineering talent. If Georgia Tech wasn’t in Atlanta I wouldn’t be either.

July 3, 2011
Minimum Viable Product or Minimum Acceptable Product

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A recent post on the Signal vs Noise blog titled What happens to user experience in a minimum viable product? hits on an important point that I don’t think is covered enough: a minimum viable product doesn’t mean critical functionality is left out. The entrepreneurial tendency is to over-engineer the product in a vacuum and then realize that too many assumptions were incorrect. The minimum viable product is designed to go to the other extreme and build the simplest product that does something useful and then get user feedback as you iterate on it.

In some B2C cases, and many B2B cases, the market demands a minimum acceptable product. A minimum acceptable product is a minimum viable product plus a few (not too many!) niceties people expect in a quality product. The niceties could include items like the password reset option and other generally accepted features. A minimum acceptable product still should not be developed in a vacuum and driven with close customer input. One rule of thumb I like is that the minimum viable product should be built and launched in 90 days with the minimum acceptable product no more than 45 days after that.

What else? What do you think of minimum viable product vs minimum acceptable product?

July 2, 2011
Sales Tip: Target Companies Related to Recent Competitor Wins

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In a small, fast growing market (my favorite type) competitive deals take place on a daily basis. Often, competitors will announce new clients via tweets, press releases, and blog posts as a way to develop social proof and help grow the market. Use these new customer signing announcements to your advantage.

Whenever a competitor announces a new customer, go on Google and find all the companies related to that customer and call on them.

The idea is that most companies aren’t leaders but rather follow other companies. Once a company buys a new technology, their competitors will take notice and start wondering if they too should buy it, or something similar. At this point when you call on those related companies you have an edge in setting expectations and differentiating your product.

My recommendation is to target companies that are related to companies recently signed by your competitors.

What else? Have you tried this tactic and were you successful?

July 1, 2011
The Physical Self Storage Business Model
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A few months ago I was talking to a friend of mine who owns several physical self storage locations. He was asking me about lead generation and ideas around online marketing. My line of questioning was trying to determine the value of a lead:
- How much is a lead worth to you?
- What’s the lifetime value of a customer?
- What are your gross margins?
- What are your net margins?
- What are your business goals?
It was when I asked the gross margins question that he threw me for a loop — he doesn’t pay attention to the gross margin but rather keeps track of how many customers each location needs to break even and views any customers above that amount as pure profit. So, for him, the value of a lead assuming the location had the magic number of customers was extremely high relative to the revenue generated from the incremental customer.

For his business there are dual goals: make money off the long term appreciation of real estate as well as profit from the short term cash flow of the different locations. I don’t have any experience with non-technology startups but this struck me as an interesting way to think about his type of business.

What else? What are your thoughts on this way of thinking about a combination real estate and cash flow approach?
June 30, 2011
Site Stats from TechCrunch Coverage of Rigor
Last night TechCrunch published a nice piece on a startup I co-founded titled Rigor Launches Unified Platform for Web and Mobile Performance Management. TechCrunch, for those in the tech world, is like the Wall Street Journal for startups with a large readership. Tonight I went through the site stats for the last 24 hours to see what traffic boost coverage in TechCrunch provided.

Here are some 24 hour stats based on traffic driven by the TechCrunch article:
- 601 more visitors than normal
- 131 visitors had identified company IP addresses (shows a good number of people read TechCrunch at work)
- 27 free trial sign-ups
While these aren’t astronomical numbers they do show the power of PR and getting coverage in relevant places. Please go read the TechCrunch article on Rigor if you haven’t already.

What else? Have you had TechCrunch coverage of your startup and what were the site stats like?
June 29, 2011
Be Wary of “Check the Box” Features

Image via Wikipedia

Recently I was at Palmetto Dunes in Hilton Head Island, South Carolina. Palmetto Dunes is like a small village on the island with multiple golf courses, resorts, neighborhoods, etc. The core part of the area has a well-known tennis facility with over 20 tennis courts and several quality golf courses. What stuck out to me is that as part of the massive tennis facility and expensive golf course there was a tiny, 80s-era pool. It was clearly a “check the box” pool for the purpose of checking a box on different travel websites and marketing brochures. I’m guessing they don’t expect too many people to use the pool since the resorts and condo complexes have their own nice pools but it was still jarring to see it tucked away on the side near some infrequently used tennis courts.

The same “check the box” feature creep applies to software.

As an entrepreneur and product manager it is critical have a clear, consistent product vision and be extremely opinionated about what does and doesn’t make it into the product. When you start adding features to “check the box” it becomes abundantly clear to users and slows down future development with code debt. The next time to you go to implement a new feature that a competitor has or RFP requests, ask yourself the “check the box” question.

What else? Have you seen “check the box” features in products?

June 28, 2011