David Cummings on Startups

Category: Entrepreneurship

  • Four Years on Average for Startup Success

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    There’s a variety of opinions online about how long it takes to start a company from scratch and have it be successful (depends on your success definition but for me it is $1 million+ gross margin (not revenue), growing, profitable, and not dependent on a single key person). I’ve talked to entrepreneurs that were able to do it in 18 months and I’ve talked to entrepreneurs where it took 10 years (most fail).

    After being in the technology startup community for 10 years I’ve come to believe it takes four years, on average to be successful, if the company is ever going to be successful. That’s four long, hard years to be successful. I’ve also found it takes two years, on average, to know if the business is viable and on the right track. It’s a marathon, not a sprint.

    What else? What timelines have you seen to know if a startup is viable and if a business is a success?

  • Startup “Help” to Avoid

    When starting a company one of the best things you can do is to talk to as many people about the idea and get their feedback and introductions. A successful startup is 20% idea and 80% execution. With that said, there is some “help” that should be avoided whereby people take advantage of first-time entrepreneurs.

    Here are some tactics to stay away from:

    • Fees charged to get an introduction or to pitch angel investors or VCs
    • Offers to write a business plan in exchange for thousands of dollars (I’m against writing business plans as testing business models is the way to go, and if you do need a business plan for something like a bank, you need to be able to do it yourself to understand your own business)
    • People who pose as angel investors only to try and sell you consulting services requiring big fees and stock options to work with you first to see if they might invest later
    • People who pose as angel investors that really want to do business development deals for you in exchange for a percentage of revenue with no desire to actually invest

    My recommendation is to talk with people that genuinely want to help and have a clear motive of helping the community or offering a standard service (legal, accounting, commercial real estate, banking, etc).

    Thanks to my friend Wayt King who inspired this post with his tweet:

    http://twitter.com/#!/wayt/status/34781249474134016

    What else? What are some other examples of startup “help” to avoid?

     

  • Startup Financial Models after Product/Market Fit

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    The last thing many technology entrepreneurs want to do is to become spreadsheet jockeys but once product/market fit has been achieved one of the next things to do is to develop a comprehensive financial model. Yes, before product/market fit you need to have a good idea if the business is potentially viable, and some spreadsheet work is necessary to understand the business economics, but this should be a simple exercise. Post product/market fit the financial model should be much more detailed.

    Here are some resources to help build and think through a financial model:

    Ideally there would be example financial models online that could be easily customized but the nature of most startups is that there are company-specific nuances requiring heavy customization. My recommendation is to familiarize yourself with as much as you can related to financial modeling while enlisting help when possible.

    What else? Do you have any tips or examples for startup financial models?

  • Startups Don’t Require Perfect Decisions

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    When talking to people that want to be entrepreneurs but haven’t made the leap, the most common reason cited for not starting something is lack of a great idea. Yes, a great idea is nice but successful companies usually have a good idea, great timing, and great execution. Related to the idea for the business, startups don’t require perfect decisions. Making changeable decisions quickly and  learning from them is critically important. There is no such thing as the perfect decision.

    Here are some examples where a perfect decision isn’t required:

    • Logo – make sure it is professional but don’t dwell on it in search of the perfect decision (once you’re successful you can invest more in it)
    • Marketing strategies – there are so many mediums and venues to try that it is more important to develop  a culture of analysis and testing that will naturally figure out what does and doesn’t work
    • Product messaging – it takes a number of iterations to find the right tone, voice, and message for your target customer profiles (this is one of the tougher things startups must do)

    The idea isn’t to start with bad decisions but rather to debate internally, take the best decision at the time, execute it, and learn as much as you can as quickly as you can. Startups don’t require perfect decisions.

    What else? What are some other examples you see where people try to make the perfect decision?

  • Market Research for Inquiry Response Time

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    Image by nebarnix via Flickr

    Lately I’ve been using contact us forms on websites for companies that I would have normally called in order to test the effectiveness and response time for their follow-up emails and calls. The results aren’t pretty. Companies must not a) have a process for their online form inquiries, b) get very many leads online, or c) only have the form because the web design firm went ahead and included it.

    Here’s my simple research:

    • Local tire store – responded eight days later with the quote I requested
    • Local dentist – no response at all
    • Child swim coach – one hour response
    • Marketing vendor – responded 24 hours later and never responded to my email response (has been eight days)

    Now, I’m not saying small businesses should drop everything when an email comes in but they should prioritize these prospect inquiry requests, as with inbound marketing, these are usually the most serious leads. A couple ideas for the issue include having alerts for these sent to a special email address that multiple people receive as well as using software to have the phone ring when a form is completed.

    What else? What’s your experience been like using contact us forms online?

  • Details of a Cool Startup Office – Cloud Sherpas

    Earlier today I had the opportunity to visit with some of the team members at the fast-growing Atlanta startup Cloud Sherpas (Google Apps consultants). Cloud Sherpas did a custom build-out that took two months over at Piedmont Center in Buckhead. Here are some details of their new space:

    • Orange paint throughout to emphasize their corporate branding
    • Conference rooms named after famous mountains (playing off the “sherpa” part of their name)
    • Concrete floors and exposed duct-work in the reception area to create a loft feel even though they are on the seventh floor of a mid-rise
    • Huge breakroom with two full-size refrigerators, giant LCD TV, several sofas, and large whiteboards on the wall
    • Great work areas with numerous workstations using half-height dividers to give some privacy while being primarily open
    • And, most importantly, genuinely happy people walking the halls

    The new Cloud Sherpas office is great and really sets the tone for a cool technology startup office.

  • Co-Founders are Keepers of the Culture

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    One of the biggest things I underestimated when I started my company over 10 years ago was the importance of corporate culture. In fact, underestimated is the wrong word — I didn’t even recognize it as something to consider. Corporate culture is now the most important part of the company. Why so important? It’s our only sustainable competitive advantage where we have complete control.

    Co-founders are keepers of the culture and need to guard it however they can. Here are a few ways to develop and maintain a strong culture:

    • Define the culture and attributes you look for in a person (ours are positive, self-starting, and supportive)
    • Develop a rhythm where the culture is talked about on a regular basis (e.g. weekly team meetings, quarterly reviews/check-ins, etc)
    • Empower other team members to own the culture (e.g. require unanimous decision for new hires, have a culture book that documents why things are the way they are, etc)

    The corporate culture is critical to long-term success and the co-founders need to guard it. Co-founders are keepers of the culture.

    What else? What other tips do you have to develop and maintain a strong culture?

  • Outsourced Appointment Setting in Startups

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    We recently started the process of researching outsourced appointment setting to get a feel for the options and how it might help us accelerate our growth. After a few meetings I’ve developed a grasp of the different options and strategies. Here are a few notes so far:

    • Dials per day per rep is typically 80-100 using an automated dialer technology
    • Success percentages are in the 3-7% (e.g. call on 1,000 companies and get 50 appointments for a 5% success percentage over a comprehensive campaign)
    • Pricing styles include per call costs (~$2), per hour costs ($30 – $50), and per completed appointment costs ($500 – $1,000) or a hybrid of these
    • Training typically takes 4-6 weeks to get started
    • Reviews weekly of recorded successful calls is a best practice

    I can readily see the value these organizations provide and we should be making a decision shortly. I’m looking forward to learning more about what does and doesn’t work.

    What else? Have you tried outsourced appointment setting and what did you learn?

  • SaaS Startup Growth Metrics

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    Software-as-a-Service (SaaS) continues to be a hot area for startups. The Responsys IPO filing shed more light on the numbers behind a larger scale SaaS business, including ratios of license to service revenue as well as growth over many years. As a SaaS company, whereby clients essentially rent the software, and thus are financed compared to paying a large up-front license fee, it is critical to understand if you’ll be making money over a long-term horizon as there’s a great chance you’ll lose money in the short-term due to the nature of the business.

    Here are some SaaS growth metrics we track:

    • Churn rate in terms of number of clients as well as in dollars
    • Monthly, quarterly, and annual recurring revenue growth
    • Client acquisition costs as well as how many months/years it takes for a client to be profitable
    • Omniture Magic Number – ratio of sales and marketing costs two quarters ago to new annual recurring revenue from last quarter
    • Average revenue per customer/user
    • Lifetime value of the customer as well as the lifetime value discounted against the cost of capital
    • Cost of goods sold (typically hosting and customer service fees) per client

    Managing and tracking these SaaS metrics help us better understand our company as well as benchmark us against data from publicly traded SaaS companies. My recommendation is to prepare a monthly analysis of this type of information.

    What else? What other SaaS startup growth metrics do you track?

  • What B2B web apps do you use?

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    Image by Harold of the Rocks via Flickr

    Two weeks ago I was talking to an entrepreneur about the proliferation of B2B web apps. He asked me what tools we use, and after thinking about it, I realized we have quite a few different systems in use. Here’s most of what we have:

    Yes, there are some categories with multiple systems in there due to different teams using different products. The growth of quality, affordable web apps continues to amaze me and I look forward to adding more systems in the future.

    What else? What are some other apps you like related or unrelated to the ones listed above?