David Cummings on Startups

Category: Entrepreneurship

  • 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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    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?

  • Catalytic Mechanisms in Startups

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    Jim Collins, the famous author who wrote Good to Great and Built to Last, wrote an article in the summer 1999 issue of Harvard Business Review titled Turning Goals into Results: The Power of Catalytic Mechanisms  (third-party review of it). Every startup should know about catalytic mechanisms. The idea behind catalytic mechanisms is to put in triggers and rights that force change or improvement by their very nature — think tactics that empower the person or user who is often in a position of less power to be more empowered.

    Here are some example catalytic mechanisms in startups:

    • No contracts for a SaaS vendor – this forces the SaaS vendor to win the client’s business each and every month as opposed to annual contracts where the vendor might not meet expectations for many months of the contract only to scramble at the end
    • Allowing customers to strike out items that didn’t meet their satisfaction on the bill, and not pay – this forces the vendor to get every detail right and provide a high level of customer satisfaction knowing the customer is empowered to not pay
    • Requiring unanimous approval for new hires – this empowers all team members to have veto power and ensure corporate culture standards, including personal buy-in of hiring decisions

    My recommendation is to think through catalytic mechanisms for your startup, even ones that really challenge traditional convention.

    What else? What other catalytic mechanism examples do you have?

  • Reproducible Sales and a Scalable Business Model

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    This afternoon I had the chance to do my monthly EO Accelerator Accountability Group mentoring with six Atlanta entrepreneurs working hard to scale their business. After doing individual business updates and a lightning round of quick Q&A, we jumped into discussion topics around sales, marketing, and prospect nurturing (part of marketing).

    After a couple entrepreneurs talked I was quickly reminded that the biggest hurdle for most entrepreneurs to reach $1 million in revenue is a reproducible sales process not limited to referrals. Yes, referrals are great, and should not be ignored, but most startups are going to have a hard time to scaling to $1 million in revenue within three years without a reproducible sales process. Here are some factors in a reproducible sales process:

    • Ability to generate leads or talk to prospects in a reliable manner
    • Capability to perform a set of sales steps and actions that produce results
    • Consistent sales cycle, approachable buyers, and known tactics

    Again, this isn’t required to be a successful startup, but the ones I’ve seen scale have these components. My recommendation is to work hard to find and build a reproducible sales process.

    What else? What other factors go into a reproducible sales process?

  • PPC Tools for B2B Marketers

    Pay-per-click (PPC) ads are a true revolution for marketers. They’re the main reason Google is on a $30 billion/year revenue run rate. For B2B marketers, PPC can be a bit daunting, and get expensive quickly. In many cases, to get sufficient clicks from potential prospects you have to bid much higher than you might normally, otherwise it isn’t worth your time to use it for lead gen. Here are a few tools to consider to help to get more value from your PPC spend:

    My recommendation is for B2B marketers to experiment with these tools to better understand their strengths and weaknesses as well as help with marketing efforts.

    What else? What are some other PPC tools you like?

  • Web Analytics Goals and B2B Marketers

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    Web analytics tools, especially the industry standard Google Analytics platform, are powerful tools more commonly used on a regular basis by B2C marketers as opposed to B2B marketers. For B2B marketers the number of hits and visitors, entry and exit pages, geographic and demographic, and other forms of data don’t always translate into productive information. B2C marketers, often generating revenue from advertising, get immediate value from those types of stats.

    For B2B marketers, the real value comes from understanding qualified prospect behavior, something a marketing automation system provides. In addition to using micro web analytics tools provided by marketing automation systems, B2B marketers should take advantage of goals in Google Analytics to understand activities that add value. Here are some examples goals from a recent Search Engine Watch article:

    • Set 1: Contact actions
      • Contact form complete
      • Newsletter sign-up
      • Email link clicked
      • Etc.
    • Set 2: Site engagement
      • Blog comment
      • Feedback/poll widget completed
      • Etc.
    • Set 3: Downloads
      • White papers, brochures, etc.
    • Set 4: Micro-conversions
      • Contact page viewed
      • Product pages viewed
      • Etc.
    • Set 5: Engagement metrics
      • Time spent on site
      • Pages per visit

    Notice that the focus is on items directly related to lead generation and nurturing. My recommendation is for B2B marketers to use goals and work to improve those results when using macro web analytics tools.

  • Most Important Question: What did you learn?

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    In thinking about startups, the ability to learn quickly and make decisions fast are two of the most important attributes of success. Whenever a colleague of mine stops by to tell me about a meeting, call, or event, my favorite question to ask is: what did you learn. The idea is that, yes, outcomes and results are critical, but learning from the experience is equally important.

    A culture of learning, as opposed to purely minimizing mistakes and CYA, provides these benefits:

    • Team members are encouraged to experiment without fear of reprimand
    • Iterations are done quickly with the goal to learn and make another decision, as opposed to extensive planning to make the perfect decision absent information (perfect is the enemy of good)
    • Focuses internal hiring on people that are smart and get’s things done as opposed to exclusively requiring ones with extensive experience

    My recommendation is to develop a culture of learning and incorporate it throughout the startup.

    What else? How important is learning to a startup?

  • The Third Rail of Entrepreneurship: A shrinking business

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    In politics, the term “third rail” is used to describe something that is untouchable and comes from the charged train lines that supply power, which should never be touched. As entrepreneurs think about the future there are always two growth options:  stay the current growth course or swing for the fences by taking more risks to grow even faster. Notice, as is the case for entrepreneurs, there’s no notion or possibility of shrinking. Entrepreneurs are focused on growth.

    There is, in fact, a third option, and for many entrepreneurs it’s an unimaginable third rail in their mind: a shrinking business. Increased competition, commoditization pressure, and changing marketplaces happen all the time. For entrepreneurs thinking about the future, being forever optimistic is the necessary course of action, even blissfully ignorant at times, but at some point is important to think about the third rail and incorporate that into the decision making process.

    What else? Is there another third rail of entrepreneurship?

  • PE Firms have Decreased Technology IPOs

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    When people think of private equity (PE) firms, they usually think of large amounts of money to acquire and improve the value of private companies (or public companies taken private). After talking to entrepreneurs, executives, and investors over the last few years I’ve learned another fact about PE firms: they’ve decreased the number of technology IPOs. Yes, Sarbanes Oxley has made it much more expensive and laborious to be a public company, and that is the major force of the decline, but let’s look at how PE firms have also decreased technology IPOs:

    • PE firms, especially when debt was much cheaper, leveraged up companies as the main source of capital, and that provided the fuel needed for growth in lieu of the public markets
    • PE firms, because of US tax laws related to debt and dividends, are able to take a relatively small amount of money, proportionate to the company value, and immediately make money off a deal (imagine buying a $100 million company with $20 million of equity and $80 million of debt, adding $25 million more of debt, then issuing a $25 million dividend to preferred shareholders to get the equity back)
    • PE firms have provided liquidity to shareholders (employees, founders, and investors) of fast-growing private companies with substantial enough revenues to go public, so that the company can continue to grow without the scrutiny and distractions of being public

    Thus, many technology companies that would have historically gone public for liquidity and growth capital are instead staying private much longer due to PE firms. PE firms have decreased technology IPOs by providing an alternative source of substantial capital.