David Cummings on Startups

Category: Entrepreneurship

  • Ask People to Accomplish Tasks for User Testing

    Building high-quality software is still more of an art than science, especially with the preponderance of different opinions to accomplish even the simplest of functionality. With the rise of open source software, great web development frameworks (e.g. Rails), and lighter languages (e.g. Ruby) it is cheaper and faster to build web applications. It’s hard to make an app easy. It really is difficult.

    One of the best ways to do user testing is to grab a person who hasn’t used the software before, give them a gift certificate or pizza, and ask them to accomplish tasks in the product. That’s it. Don’t ask about the color scheme, positioning of icons, or arrangement of navigation links. Simply ask for some deliverables and get out of their way.

    A critical part of this process is to not lead them on asking “what did you think about X” while they’re in the middle of the process. Too often product managers and co-founders are so excited about the product that they can influence the activities of the tester. It is best to make the desired tasks black and white and put them in front of the tester and have he or she go to town.

    What else? What other recommendations do you have for user testing?

  • Published Prices Aren’t Always the Main Business Model

    Photo taken in Atlanta area
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    Whenever I come across a pricing page on a site I immediately think “Oh, OK, that’s how they make money and where they fit in the market.” Well, recently, I came across a company that I knew how many employees they had, how many customers they had, and saw their published pricing. After some simple mental calculations, and knowing they hadn’t raised money, I quickly realized the math didn’t make sense. They couldn’t support that many employees with that little revenue, even in Atlanta (great Fast Company interview of Alan Taetle).

    After asking around I found the answer. The monthly fee for the web service is what everyone pays, and it is very competitive for what they offer, but if you choose to use their “free” payment processing option, they charge an additional 1% of the transaction fee as an additional commission. Yep, that’s right, they generate more annual revenue on that 1% transaction fee than from the monthly service for their product. Only, you wouldn’t know it from browsing their site.

    My recommendation is to think through ways to generate multiple revenue streams, and consider ones that aren’t always as obvious as a monthly subscription fees (yes, recurring revenue is the best form of revenue).

  • Google Docs and Gmail Canned Responses for Process

    Image representing Gmail as depicted in CrunchBase
    Image via CrunchBase

    As a startup grows from a couple co-founders to small team and eventually to departments, it becomes important to add more process while not stifling innovation. One of the best ways to start adding more structure is to document activities in Google Docs and create Gmail canned responses to go with them. Here are some tips:

    • Use Google Documents for unstructured content, canned response emails, and any other documentable information
    • Use Google Spreadsheets for processes that are linear and structured
    • Use Google Drawings for Visio-like drawings that have conditionals and dependencies
    • Use Gmail canned responses for as many steps as possible (e.g. sales process, recruiting process, accounts receivables process, etc)

    My recommendation is think through processes that are repeated and document them as well script out canned email responses. In addition to saving time and providing greater consistency, another benefit is more efficient delegation to new team members.

  • Non-Compensation Sales Rep Recognition

    Photo of Cormac O'Reilly, the Sales Guru.
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    Sales are the lifeblood of most organizations and sales reps are an integral component of success. I love sales people as they are typically out-going, passionate, and easily carry a conversation. Yes, money is a primary motivator for sales people but it is also important to have non-compensation recognition. Here are a few of the ways we do that:

    • Hero of the month award voted on by other team members (any department, not just sales)
    • Mentor program for senior reps to help junior reps
    • Million dollar club (once a sales reps has sold $1 million in total recurring revenue)
    • Priority choice for tradeshows (e.g. shows in San Francisco are more desirable)

    My recommendation is to consider ways to recognize sales people beyond financial remuneration.

    What else? What are some other good ways to recognize sales people?

  • Google Tips to Gauge Industry Competitiveness

     

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    So you’re thinking about building a new product and are in the due diligence phase of the research. You’ve found a few companies in the space but you don’t have a good feel for competitiveness in the industry. Here are my top three Google tips to help with your research:

    My recommendation is to employ these three tips whenever you’re researching a potential industry.

    What else? What are some other Google research tips?

  • Don’t Ask Yes or No Questions in Sales

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    Continuing with our sales theme from yesterday, the next topic I want to look at is asking questions during the sales process. We’ve been trained by our parents to be polite and ask yes or no questions (e.g. can I have a second piece of cake, can I go to Jimmy’s house, etc). The problem with yes or no questions during sales is that you’ll do all the talking and prospects will quickly close out the conversation. The most important thing you can do during sales is to get the prospect talking by asking quality, open-ended questions that start with the following words:

    • Who
    • What
    • Where
    • Why
    • When
    • How
    • Which

    A great question to always have handy is “How so?” That way, the prospect can continue explaining whatever it is they were talking about and go into greater detail. The best sales people are great listeners and ask great questions. Sales is about listening more than selling.

    What else? What are some other tips related to asking questions in sales?

  • Features, Benefits, and Advantages

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    At today’s EO Accelerator education workshop on sales, one of the comments the facilitator, Jim Ryerson, said really caught my attention: every company needs to quickly explain their features, benefits, and advantages. Most startups talk about features and benefits, but rarely explicitly get into their advantages. Let’s look at simple definitions in the startup context:

    • Features – product functionality and abilities
    • Benefits – the outcomes from using the product features
    • Advantages – differentiating factors compared to other competitors in the market or traditional methods

    For the advantages, stating the competitor’s name isn’t required, but a nice sales tip when a prospect says they use a competitor is to ask how they accomplish some task or provide some service that the other company doesn’t do, without being condescending. For example, say your competitor doesn’t offer quarterly strategy calls you might ask, “How did your most recent quarterly strategy call go?” Of course, since the competitor doesn’t do those you’ll get the prospect thinking as to what else the competitor doesn’t do.

    My recommendation is to have scripted messages around features, benefits, and advantages while making sure everyone in the startup is on the same page.

  • What’s your FOTS plan?

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    Sometimes startups need to engage in good old fashioned hand-to-hand combat and hit the streets to get customers. Twitter and Foursquare launched this way at SXSW. A friend of mine introduced me to FOTS recently which stands for Feet On The Street and the idea behind it is to set up a points system for your team members along with relevant goals (e.g. 100 points per quarter). Here are some examples:

    • 1 point for each business card collected
    • 3 points for each scheduled meeting
    • 3 points for each targeted referral
    • 5 points for each book delivered
    • 10 points for each face-to-face meeting completed
    • 40 points for serving on a panel

    Now, activities should not be confused with results, but this is the right idea. These types of activities are more closely associated with professional services firms but can be applicable to a variety of startups.

  • Ask Prospective Investors About the Ideal Exit

    Black-backed Jackal and Cheetah
    Image by Sergey Yeliseev via Flickr

    Yes, the ideal exit for a prospective investor is going public and having a $170 billion market cap like Google. In reality, the more likely exit is via acquisition by a larger company at a much smaller value. It is critically important to find out and align expectations with a prospective investor as to what the ideal return looks like as well as the minimum exit value for it to be worth their time. Here are some questions to ask:

    • What type of cash on cash multiple do you shoot for? Minimum acceptable?
    • What internal rate of return do you shoot for? Minimum acceptable?
    • What percentage of your total fund do you look to return to your limited partners (LPs) on any single deal?

    That last question is especially important as the larger firms result in a larger amount. As an example, say the fund is $200 million and the investor looks to return a minimum of 10% of the fund on any one deal, that’s a minimum of $20 million for the investor’s stake in the company. Say the investor will have 25% of the company, that means that the company needs to sell for $80 million for the investor to return the amount of money that is meaningful to their LPs.

    My recommendation is to ask these three questions when talking to potential investors to learn about the type of returns that will make it worth their time.

  • Position a Product to Grow Into or Out of It

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    One area that first-time entrepreneurs often give little thought to is how they are going to position their product. Generally, the desire to start a company and build a product is driven by the goal to “scratch an itch” and fix a problem or grab an opportunity. I’d like to divide product positioning into two super simple categories:

    1. Little to no learning curve and you eventually grow out of it
    2. At least some learning curve and you grow into it

    Yes, there are many more nuances than this but for many entrepreneurs this provides a simple framework with which to use, especially for the many 37signals inspired simple web apps out there that fall into category 1. Once you’ve chosen a category, next you should find a product that falls into the other category relative to your product. Typically I’m against paying too much attention to competition and instead focusing on customers and prospects, but the competition works well in this case. Now with a deep understanding of the competitor that falls into the other category, make a list of the differentiation points that serve as a transition between the products and use that as a guide when building the product.

    What else? What other points would you add with regard to growing into and out of products?