David Cummings on Startups

Category: Entrepreneurship

The 18 Year Angel Investment
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A few days ago I was talking to an angel investor about his experiences. From a previous conversation I knew he had a nice exit four or five years ago so I asked what he learned from his experience in that deal. After he shared some takeaways I casually asked when he first invested. His answer shocked me: from the time of first investment to selling the company it took 18 years. There’s been talk for a couple years now of exits taking longer and that angels should expect deals to take 7-10 years for an exit. 18 years for an exit seems like an eternity.

Some interesting notes on the 18 year angel investment:
- The angel investor invested in the company three times over the first five years
- The company had several small pivots before finding a market opportunity
- The company was close to running out of money when the founder died and the company had a $1 million life insurance policy which provided it capital to keep going
- A new management team was brought in and was able to make the company successful by signing distribution deals with several large companies
His stories drove home the fact that things take longer than expected and a good bit of unplanned events are part of the journey.

What else? What other stories have you heard about angel investments taking a long time?
March 12, 2011
Understanding Customer Product Usage
Image by vrypan via Flickr

As a product manager one of the nice aspects of web-based software is that you can easily understand customer usage. The idea is to track which modules and features customers use in order to make more intelligent decisions. Here are a few notes when thinking about how customers use a product:
- Consider embedding Google Analytics tracking code in the app (run it in async mode to minimize performance issues)
- Categorize types of customers based on size and vertical industry in order to segment their usage patterns (e.g. small vs. medium vs. large customers with verticals like governments, IT, healthcare, and higher education)
- Client advocates should ask customers directly what modules they use most often and record this information in custom fields in the CRM
- Customer usage information should help in product management to focus development efforts and provide objective information during debates
Accessible product usage information is a valuable benefit of building web-based software. My recommendation is to incorporate product usage information into your startups processes.

What else? What other ideas do you have for understanding customer product usage?
March 11, 2011
Loosening the Purse Strings for Growth
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One of the phenomenons we encountered a year ago was money coming in faster than we had budgeted for in a significant way. Now, yes, it is a high class problem to have and it’s easy to think that that would make for some nice short term profits. Well, we’re focused on growing and building a large business in a small, fast growing market with strong competitors. The interesting thing is that we’re scrappy as part of our company culture but with this market opportunity we had to loosen the purse strings for growth.

Here’s what we did as a result of growing faster than expected:
- Increased our marketing budget substantially
- Started working with recruiters to find additional team members as we’d tapped our existing team for referrals (half our employees come from referrals and we do a $1,000 employee referral bonus)
- Bought MacBooks and giant monitors for everyone
- Added catered Flying Biscuit breakfast every Monday morning
Could we have saved some money and gotten by in a cheaper manner? Yes. Did we feel like with our size and scale we could afford to experiment more and enjoy some of life’s niceties a bit more? Yes. There’s no right or wrong answer but we felt that loosening our purse strings for growth was a great move and we’re already seeing results.

What else? What changes have you made as your business has grown?
March 10, 2011
Alignment of Co-Founder Goals
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It goes without saying that picking the right co-founder is critically important. This is someone you’re going to spend more time with than your spouse and kids for the next 4-7 years, so choose wisely. In the past few days I’ve heard several different stories of co-founders that broke up because they had different goals. Here’s some of what I heard:
- One co-founder was hard charging and focused on growing the business while the other one wanted to maximize short-term profit and put cash in his pocket. The co-founder focused on cash was bought out last year.
- One co-founder wanted to make recent college graduates an integral part of their business model and coach them to be productive members of the company while the other co-founder didn’t like working with junior people that weren’t trained. The co-founder that didn’t like working with junior people was bought out three years ago.
- One co-founder was focused on the product and vision while the other co-founder was supposed to be focused on sales. The co-founder in charge of sales refused to cold call and the partnership broke up 45 days after the venture began.
My recommendation is to make sure co-founder goals are aligned before the company is founded and then to talk about each other’s goals on a regular basis.

What else? What other thoughts do you have on the alignment of co-founder goals?
March 9, 2011
Top 3 Personal Entrepreneurial Strengths
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Recently I was meeting with an entrepreneur (I usually talk with 5+ in a given week) and we ended up talking about what our companies do well and what areas we’re lacking. After talking about our companies, I later began to think personally about my individual strengths not unlike the Unique Ability question.

Here’s what I think I’m good at as an entrepreneur:
1. Building a strong corporate culture – it took me many years to appreciate the value of this but now I hold it as the most important thing I do in my company
2. Getting stuff done – this might seem cheesy but I don’t get bogged down by all the details or unknowns necessary to make a decision and I can figure out what works and doesn’t work quickly
3. Translating between the business and technical world – communicating with business people and technical people comes naturally to me and I help connect the two
Notice I didn’t say my strengths were raising money, writing code, or selling software. Early on I would have said my strengths were working crazy hard, not having fear, and being blissfully ignorant but I didn’t really understand what it takes for a successful startup. Hopefully these three entrepreneurial strengths shed some light on what I’ve found to be valuable to me.

What else? What are your top three personal entrepreneurial strengths?
March 8, 2011
Costs to Furnish a Nice Startup Office
If you’re bootstrapping, you should keep the costs to furnish an office as close to $0 as possible while you get the business off the ground. Once the business starts growing and you move from the seed stage to early stage, and especially growth stage, there’s the tendency to progressively improve the office in an effort to look more credible for recruiting, but especially for egos.

Here are ballpark costs to outfit a startup with mid-to-high-end furnishings:
- Open workspace with “L” shaped desk, cabinet, and electrical – $1,500/person (nice cubicles are $3,500/person)
- Herman Miller Aeron chair – $600/person
- MacBook Air/Pro – $1,500/person
- 25″ monitor – $350/person
- Wired ethernet port – $100/person
- Desk accessories like keyboard, mouse, etc – $150/person
So, for $4,200 per person you’ll have a great, professional environment. Add another five grand for things like a nice coffee maker (a must!), switches, routers, access points, foos ball, ping pong, and more (not counting build-out of the office, conference room furniture, etc). The final ingredient is blazing fast Internet ($2,000/month) and you’ll have a sweet set up.

What else? What other costs are necessary to furnish a nice startup office?

P.S. We’re hiring and have the environment outlined above (apply online).
March 7, 2011
Comparing Inbound Marketing and Marketing Automation
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Inbound marketing and marketing automation are two of the hottest areas in web marketing right now but both still haven’t crossed the chasm and suffer from a lack of mainstream market awareness. On a really simple level you can think of the sales and marketing funnel as follows:
- Top of the funnel – inbound marketing: drive traffic to your site, landing pages, etc through search marketing, blogging, social media, link building, participating in online conversations, and other mechanisms with the goal of generating leads
- Middle of the funnel – marketing automation: convert, nurture, email, track, score, and grade prospects as well as provide insights to sales reps
- Bottom of the funnel – sales: solve prospect problems and turn them into customers
As you might guess, there is some overlap between the top of the funnel and the middle of the funnel, resulting in pieces of duplicated functionality between inbound marketing tools and marketing automation platforms. Will the two eventually converge into one: yes. Right now, there’s so many different features required for each type of product that it’s difficult to do everything well resulting in more specialization with deeper functionality.

Inbound marketing and marketing automation address two different areas of the sales and marketing funnel but provide tremendous business value.

What else? What other thoughts do you have comparing inbound marketing and marketing automation?
March 6, 2011
Managing to the Number or Opportunity
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Talking with many entrepreneurs I get a sense that too many of them are managing too much to an arbitrary number and not enough to the opportunity at hand. Some categories of numbers I’ve heard:
- Company value at time of exit
- % of revenue allocated to sales, marketing, or some other function
- % difference from projected budget
- Required cost to acquire a customer
Entrepreneurs I talk to are most often at the idea or seed stage and don’t have enough operating history or scale to know what their business will become. There’s no crystal ball. I believe it’s much more important to build an agile, data-driven company that stays close to the customer as opposed to correctly guessing in advance the value of a number. Startups are about testing hypotheses, learning, making changes, and doing it all over again. Learning quickly is much more important than guessing perfectly.

What else? What are some other examples of managing to a number instead of an opportunity?
March 5, 2011
Understanding the Power of Promoted Tweets for B2B
Image via CrunchBase

Earlier today I was meeting with a successful entrepreneur talking about customer acquisition and more specifically the top and middle of the funnel. Late in the conversation he mentioned that he’d had success advertising on Twitter, so, naturally, I wanted to learn more since we hadn’t done that yet. One of the main ways to advertise (if you get a beta invite) is to do promoted tweets.

Promoted tweets show up as a tweet based on searches of keywords that the advertiser purchases. One niche, but powerful example is to do a promoted tweet with content related to a conference currently happening and then buy the hashtag of the conference as the keyword. More and more conferences have a hashtag (e.g. #Shotput2011) so that people tag their tweet with it and then other people can read all the tweets with the tag to see the collective conversation. Imagine paying for a promoted tweet that is associated with the keyword hashtag. Now, when people at the conference look to read other tweets at their event they’ll see your tweet as well. That’s strong contextual marketing.

Here are some possible promoted tweet ideas:
- A tweet from a happy client (social proof from a third-party)
- A tweet to download a white paper or do a free trial
- A tweet to join a meetup either in-person or via a webinar
This is a great example of where social media will be effective for B2B lead generation and a nice business model for Twitter.
March 4, 2011
2011 Southeastern Venture Conference Day Two
Day two, much like day one at SEVC 2011, proved to be very worthwhile. The morning was composed of a keynote followed by two panel discussions. After the lunch keynote from the GM of the Atlanta Falcons, Thomas Dimitroff, the rest of the day was spent hearing (and giving) startup pitches.

Here are some notes from the second day of the conference:
- One i-banker from the first panel said that SaaS companies really start to see economies of scale at $20 million in revenue
- The same i-banker said that the strategic multiples for $20+ million revenue companies has been 7-10 times revenue over the past 18 months
- The majority of presenting companies violently violated the 10/20/30 rule of PowerPoint
- 1/4 of the presenting companies didn’t get to their value proposition within the first two minutes of their pitch, and many went over their allotted eight minutes
- My favorite startup and pitch was from Spoonflower – design and print your own fabric
Overall, SEVC was a great event.
March 3, 2011