David Cummings on Startups

Category: Entrepreneurship

  • MTA for Startups

    Tallahassee Florida Skyline
    Image via Wikipedia

    In high school I played on the JV baseball team my freshman and sophomore years. Freshman year the school had a new coach, a young guy that was strict and feisty. One of the more interesting things he did was put the letters MTA on the back of the team hats. We had our standard LHS (Lincoln High School in Tallahassee, FL) on the front and a strange MTA in small letters on the very back right over the seem. Now, I was 15 years old at the time, so I thought having MTA on the back of the hat was cheesy, but looking back it was brilliant.

    MTA stands for Make The Adjustment.

    MTA is appropriate for startups and any endeavor in life. The idea is that you can always be improving, looking for tweaks, and never settling. Too often I see people doing the same thing over and over again expecting different results. People who constantly MTA constantly succeed.

    To this day I don’t remember much about my high school baseball team but whenever something needs to change in my startup the letters MTA come to mind — make the adjustment.

    What else? Have you seen the MTA abbreviation?

  • SweetJack Daily Deals Site – Bubble Sign?

    Corporate logo of Cumulus
    Image via Wikipedia

    Tonight as I was turning on to Peachtree Rd at West Paces Ferry I noticed a large billboard at the intersection that simply said SweetJack.com. Being the startup junkie that I am, I wondered what it was and made a note to check it out later. Well, I pulled up the site and, you guessed it, it’s another daily deal site like Groupon, Living Social, Scoutmob, and Half Off Depot.

    The most interesting thing about SweetJack is that it is part of the large Cumulus Broadcasting company. One of the questions about the daily deals market has always been what’s blocking others from entering the market? A media company, that has a significant sales team and existing relationships with a variety of businesses, is uniquely suited to start a daily deals site due to the clear economies of scale from existing infrastructure.

    Now, is yet another deal site (YADS) a sign of a bubble? I do think there are signs of a bubble but I have no concerns of a bankruptcy-induced crash. See, the big difference with this market, compared to the dot-com hey day of the late 1990s, is that this is a viable economic model whereby vendors split revenue with marketers that drive business to their store. It is grounded in real dollars with real consumers. Will there be significant consolidation, pricing pressure, and daily deal sites that don’t make it? Yes, just like any market that is at the will of the invisible hand.

    What else? Do you think there’s a bubble with daily deal sites?

  • Personal Burn Rate

    Burn Rate
    Image by thelapd via Flickr

    In the startup world burn rate refers to the amount of money the company is losing on a monthly basis. It is usually mentioned in the same breath as the number of months remaining until the business runs out of money (e.g. $200k in the bank losing $20k per month gives 10 months of runway). For entrepreneurs getting ready to go out on their own, I like to talk through personal burn rate. Personal burn rate, as you might have guessed, is the same idea as a startup burn rate but for personal finances.

    Here are a few thoughts on personal burn rate:

    • Lifestyle modification is typically needed to lengthen the runway and lower the burn rate
    • For entrepreneurs with no family, mortgage, or kids the monthly expenses can usually get under $2k/month comfortably, especially in a city like Atlanta
    • Many people talk about 6-12 months of runway but everything takes twice as long and costs twice as much so I recommend 18-24 months of runway
    • Even if you’re not going to make the entrepreneurial plunge tomorrow it’s a good personal finance exercise to divide your savings by your average monthly expenses in order to calculate your current runway

    The personal finance side of taking the entrepreneurial plunge isn’t talked about as much as the corporate side. It’s important for entrepreneurs to calculate their personal burn rate and make the appropriate modifications when possible.

    What else? What do you think of personal burn rate?

  • A Theory on the Amazing ExactTarget Success Story

    Image representing ExactTarget as depicted in ...
    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?

  • Efficiency Ratios of Employees to Startup Metrics

    An energy efficiency display by Panasonic at t...
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    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?

  • A Startup Site Redesign is Like Getting a Shiny New Car

    Audi S5
    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?

  • Lifestyle vs Location Startup Trade-off

    This is my own image.
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    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?

  • If Georgia Tech wasn’t in Atlanta I Wouldn’t be Either

    Georgia Institute of Technology 2
    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.

  • Minimum Viable Product or Minimum Acceptable Product

    Outside the Experience Music Project and the S...
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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?

  • Sales Tip: Target Companies Related to Recent Competitor Wins

    Time Warner Center - Midtown Manhattan
    Image by ecstaticist via Flickr

    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?