David Cummings on Startups

Category: Entrepreneurship

  • Customer Service as a Competitive Advantage

    Travel Sponsor: Zappos
    Image by theritters via Flickr

    Customer service as a competitive advantage is one of the more difficult ones to sell as most people are jaded by companies that say they have good customer service but don’t deliver on the promise. Great customer service has to be experienced for people to believe it and therein lies the challenge: you have to convince them enough to even try it out. More tangible differentiators like we’re the only company with feature X or position Y are easier to defend and point to, but are also easier for competitors to adopt. Customer service is difficult to do well if it isn’t built into the culture from day one.

    What companies do you think of when it comes to great customer service? Zappos.com, USAA, Amazon.com, etc. It’s really hard to do customer service well and the handful of companies that do it well are perennial growth stories.

    Here’s what I’ve found works for making customer service a competitive advantage:

    • Mention that you pride yourself on customer service but don’t spend too much time on it as people won’t believe it
    • Work hard to get existing customers to do video testimonials and have them articulate why your company is so good
    • Think of ways to get qualified prospects to use your support team as part of your customer acquisition strategy (e.g. proof of concepts, trials, etc)
    • Track your net promoter score and use that to gauge your success
    • Know that the benefit of high quality customer service will come from long run customer retention and employee satisfaction (employees want to work in organizations that truly care about their customers)

    What else? What are other things to keep in mind when using customer service as a competitive advantage?

  • The Best Exit Strategy is to Not Have One

    Exit Strategy (album)
    Image via Wikipedia

    Much of the tech startup media is obsessed with big exits, which make for fun-to-read stories. In a blog post today Jason Cohen writes about his new WordPress startup and provides a good answer as to his exit strategy in the comments:

    Success for me is defined as: Creating a company that generates at least $30k/month in profit after paying everyone reasonable salaries, while it’s still growing.

    Jason is building his company to last, as most entrepreneurs do, and will likely sell his business if the right offer comes along. The key is that he defines success as getting to a certain level of profitability while still growing. Today I brought up that blog post with three entrepreneurs and asked about their exit strategy. Every single one said they don’t have an exit strategy and want to build up their company to a point where they can hand it over to someone else to run it while still growing. That sounds like a great plan.

  • Atlanta Startups Should be Moneyball’s Oakland A’s

    Baseball with clock to represent a "curre...
    Image via Wikipedia

    Earlier this week my friend sent me a quick email saying he had just finished Michael Lewis’ 2004 book Moneyball and that I should read it. Right away I replied saying that was one of my favorite books and that all startup founders should read it.

    The short gist of the book is that professional baseball players were historically measured against traditional stats like batting average, on base percentage, etc. The Oakland A’s didn’t have the resources of teams like the New York Yankees but perennially did well in their division despite a significantly lower cost structure. They were able to do this by being scrappier with their players, farm system, and trades looking at long tail statistics and really focusing on past performance as the best predictor of the future.

    Atlanta startups should be like the Oakland A’s in the book Moneyball.

    Here’s how Atlanta startups can do just that:

    • Focus on areas that other companies aren’t paying attention to, especially small, fast growing markets
    • Be scrappier than the next startup by taking using of all the cost advantages Atlanta has over other major technology hubs
    • Take advantage of the farm system of young professionals, of which Atlanta has had the most growth of any city in the country

    My recommendation is for Atlanta startups to be like the Oakland A’s in the book Moneyball and focus on long tail areas of strength to succeed.

    What else? What other ways should Atlanta startups be like Moneyball’s Oakland A’s?

  • How to Help When it is Time to Shut Down a Startup

    The Business End
    Image by cell105 via Flickr

    At least once a quarter I meet with an entrepreneur that is at the end of their ropes and should shutdown their startup. Giving up is hard. During these meetings the entrepreneur is seeking help, chronicling the many different things they’ve tried, talking about when they’ll run out of money, and doing everything but coming out and saying they need to give up. Inevitably, we talk about everything except how to go about shutting down the startup.

    Here are some tips when having a conversation with an entrepreneur that it is time to shut down his or her startup:

    • Clarify when the startup will run out of money and explain that it is better to shut down sooner and retain some funds to properly unwind the business, pay legal bills, return money to investors, etc
    • Reiterate that a business idea failing isn’t the end of the world, even though it might feel like it, and that there will be plenty of additional opportunities
    • Make sure and communicate twice as much as you think necessary with employees, customers, investors, and any other constituents as the entrepreneur’s reputation is at stake
    • Try to find a home for the product, if you have customers and revenue, by reaching out to competitors or complementary companies

    What else? What other tips would you provide to an entrepreneur about to shut down his or her company?

  • Ask the Right API Questions

    Api
    Image via Wikipedia

    In yesterday’s post on saying ‘no’ to most opportunities, I mentioned that API integrations, assuming no custom work, are fine. An API, or Application Programming Interface, is a way for two software programs to communicate with each other in an automated manner. The challenge with most startups is that they don’t have a robust API. Yes, they often have a primitive API, so as to check off a box in a features comparison matrix, but the reality is that early on most APIs aren’t very good.

    Of course, it is hard to know in advance how mature an API is as the documentation is usually also lacking. Here are some questions to ask when considering using a startup’s API:

    • What features in the product are NOT available via the API?
    • What are some limitations we should know about?
    • What percent of customers use the API?
    • Will you share the API documentation with us?

    What else? What other questions should you ask when evaluating a startup’s API?

  • Startups Should Say No to Most Opportunities

    Montana 014
    Image by kellik via Flickr

    The great thing about startups, especially ones in small, fast growing markets, is that there’s no shortage of opportunities. One area that often comes up is larger, more established companies reaching out to talk about technical partnerships with startups in more cutting edge, complementary spaces. The bigger companies have a core competency that’s working, a limited number of engineers, and only so many resources. A tiny startup working in a related space is seen as a quick way to augment the bigger companies’ solution, often through a white label or OEM integration.

    95% of the time startups should say ‘no’ to these opportunities.

    When should you say ‘yes’ to an opportunity like this? Let’s look at a few potential reasons:

    • The partnership has guaranteed revenue minimums for the startup, and the money is meaningful (I did one of these is 2002 and it was worthwhile)
    • There is no custom technical work to be done (e.g. the startup has an API and the bigger company can do everything they need to without customization)
    • Partnerships like the one being proposed are part of the startup’s core strategy and it will be the first of many that look the same

    It is flattering to have these kinds of discussions with more established companies, but without a plan and strategy in place they can also drain a good deal of time and energy. My recommendation is to not get too enamored unless it meets one or more of the criteria listed above.

  • Control What You Can Control

    Andre Agassi Tennis
    Image via Wikipedia

    Entrepreneurs are a fickle bunch. Many, like myself, can be control freaks at times and drive people crazy. In the same light, the company, product, etc are a reflection of your vision and goals. In Andre Agassi’s autobiography one of the recurring themes is his coach reminding him control what you can control.

    Entrepreneurs need to control what can be controlled and move on otherwise.

    Here are some things that can’t be controlled by entrepreneurs:

    • Economic conditions
    • Competitive forces
    • Change
    • 24 hours in a day

    As you can see, most everything that entrepreneurs want to be controlled can be controlled. My recommendation is to control what you can control and stop worrying about the rest.

  • The Angle of the Angel

    Fallen Angel
    Image by onkel_wart via Flickr

    One of the more underrated questions that entrepreneurs need to ask angel investors is “why do you do angel investing?” It seems like such a simple question but you’d be surprised at how rarely it comes up. Many people assume the answer is to make money. Based on my limited angel investing experience (nine companies), there are many better ways to make money if that’s the primary goal. Let’s look at some other angles common with angel investors:

    • Desire to help the local community
    • Want to “stay in the game” while retired
    • Joy of mentoring younger entrepreneurs
    • Ability to brag about it with their friends
    • Use domain expertise in new ways

    My recommendation is to clarify this with angel investors early on so that expectations are properly aligned.

    What else? What are some other angles for angel investors?

  • $1 Million in Revenue is Hard

    Posing is also hard work!
    Image by pangalactic gargleblaster via Flickr

    Did you know that 95% of startups never reach $1 million in revenue? That’s right, only 5% hit that major milestone. Entrepreneurs’ Organization (EO) requires a minimum of $1 million in revenue to apply, and has done so since inception almost 25 years ago. Of course, $1 million 25 years ago is more difficult than today, but achieving $1 million in revenue is hard regardless. Very hard.

    Let’s look at a few examples of what it takes to hit $1 million in revenue:

    • 50 services deals at $20,000 each (a little over four per month) delivered to completion
    • 83.3 customers paying $1,000 per month at the beginning of the year (assuming no churn and no new customers)
    • 1,666 customers paying $50 per month at the beginning of the year (assuming no churn and no new customers)
    • 100,000 products at $10 each ($10 each selling direct or to a distributor that then marks it up further)

    As you can see, it takes quite a few sales regardless of the type of business model to achieve $1 million in revenue. My recommendation is to think through what it will take for your startup to hit $1 million in revenue, and to have that as one of your goals.

  • The Challenging Employee Conversation

    hot air balloon
    Image by AP… via Flickr

    The most common mistakes startups make are pricing their product/service too low and not firing employees that don’t fit fast enough. I want to talk a bit about that second example: employees that don’t fit. The pattern that I’ve seen emerge over the past 10 years is when an employee with challenges has been brought up in a management meeting, the issues addressed, and then something else repeatedly comes up, it isn’t going to work out.

    We do a weekly tactical as part of our Rockefeller Habits rhythm. The goal is to do a very brief KPI review, priorities for the week, and any immediate agenda items. My experience has been that if a challenging employee has come up in conversation over and over again at these meetings then we as the leadership team are doing a poor job of setting expectations and building a great corporate culture. Employees want to know where they stand and to receive honest feedback, in addition to written warnings in many cases, as that is more desirable than tip toeing around issues and not letting on to the severity of the problem.

    My recommendation is to not sugar coat issues with employee challenges and know that one of the most common startup mistakes is not letting go of bad fits fast enough. It isn’t that the employee isn’t a good person, it’s that they aren’t a good fit for your startup and there are better places for them to shine.