David Cummings on Startups

Category: Entrepreneurship

  • Iterate or Die – Part 2

    In Part 1, I discussed the first iteration of the Hannon Hill business model, wherein we built a SaaS web content management system and launched it in the summer of 2001.  Initially, we charged $30 per month per website, but after realizing that there wasn’t a reachable market large enough to ensure our success, we quickly changed our approach to offering an installed version of the same product. To our surprise and elation, we sold our first $1,000 license by the end of August.  With this auspicious start, we were sure we had found a path to growth and profitability.

    Over the next 24 months, representing the life of the application, we sold 25 licenses. Not surprisingly, it turned out that selling just over a thousand dollars’ worth of software per month didn’t make for a sustainable business model. Our big break did finally come, though, in December of 2001 at the Internet World trade show in New York City and was a direct result of changing our gameplan to pursue an installed software model.

    At the trade show, we serendipitously met another, much larger software company that was explicitly looking for a content management system to sell to their installed client base of over one million licensees. We had several rounds of discussions with their management team at the show and eventually consummated a deal in Spring 2002 to license our product to them to be sold under their own brand name.  They would pay us a minimum monthly payment for the first twelve months along with a royalty for each license sold once the pre-paid amount was cleared.  We had our first big break!

    At the time, I had just finished my degree at Duke in Durham, North Carolina. With a guaranteed revenue stream in place by the end of 2002, I moved the company to Atlanta, Georgia in August 2002. Why Atlanta? Growing up in Tallahassee, Florida, Atlanta was always the big city we’d go to for a Braves game or a trip to Six Flags, so I had been there many times and really liked the area. The Raleigh-Durham region is great, but I wanted a big city that was close to my family, had a low cost of living, and had a strong technology presence. Atlanta fit the bill perfectly.

    Now came the next big iteration: We completely shelved our product that we had spent nearly three years building in order to build The Next Big Thing.  By mid-2002, we had accepted that we were never going to be successful selling installed PHP software to small businesses.  Instead,  a larger competitor with much greater resources would be selling a slightly modified version of our product to the same target audience.  It was a pretty easy decision to make.

    Our next move was to build a completely new, mid-market Java-based web content management system using the expertise we’d gained over the past few years. I promptly put an ad in Craigslist and hired the best Georgia Tech software engineer I could find. Being that it was late 2002, there were lots of good people looking for work. I found our lead developer within a month and we were off and running. Our new product combined XML, search engine optimization, and distributed server publishing in a formidable package. And because we were building a next-generation product from scratch, we were able to address all the mistakes we made in architecting the first product.

    Head on over to Iterate or Die – Part 3 to learn how we made this new product successful, and the sales and marketing iterations that ended up paying off.

  • Iterate or Die – Part 1

    I’ve been hearing a good bit of chatter lately among the startup community in Atlanta about how important it is to iterate in a startup. By “iterate” I mean the process of determining exactly which product, market, and business model will result in success – in short, finding out what works.  Of course, success means different things to different startups. Let’s dive into iterating in a startup.

    Lance Weatherby is a venture catalyst at ATDC’s Georgia Tech and a well-known blogger in the Atlanta tech scene.  He values velocity and versatility in team members, and on his blog Force of Good (http://blog.weatherby.net/) he coined the term velocitile to label such a person. I believe that you need both a good market and flexible people to be successful in a startup.  Atlanta is a phenomenal city for talented people that have these characteristics. With both of those in place, iterating is a natural and healthy part of building a company.

    My Atlanta-based Inc. 500 software company, Hannon Hill, makes mid-market web content management solutions for higher education and other industry verticals. It wasn’t always this way. I started the company in Durham, North Carolina, and my intial vision in December of 2000 was to provide a software-as-a-service (SaaS) application that would make it easy to update a generic, small business website, for $30 per month.

    The service worked with existing websites over FTP and provided a visual interface, similar to Windows Explorer, so that people could click on a file and edit it in a browser-based word processor. Upon saving the changes, the file would then be sent over FTP back to the web server, along with a backup version. The benefits of this model included:

    • No software to install on the client (web browser) or server
    • No initial up-front fee and a low monthly cost
    • Familiar file manager interface with word processor

    On top of these benefits, the software was as easy to use as web-based email. The only problem?  It was a complete failure.  I started out working on the company part-time and eventually went full-time within six months.  I learned several lessons shortly after going full-time:

    • The market wasn’t accepting of SaaS as businesses were used to purchasing installed software with a perpetual license
    • $30 per month per site did not provide a sufficient path with little capital to build a $1 million+ business
    • Customers needed significant hand-holding to get up and running even though the product was easy to use

    At that point, I knew something had to change. By August 2001 we had retooled the product to be an installed server application (it was always a PHP/MySQL app) and priced it at $1,000 for a 10-user license.

    Head on over to Iterate or Die – Part 2 to learn why we moved to Atlanta and if our iterating paid off.

    Note: This is republish of a previous series with some aspects reworked.

  • Post Mortem on a Failed Product

    Just over two years ago, at the beginning of 2008, we set out to build a web content management system with community functionality infused throughout — eCrowds. The idea was that companies would need a solution for facilitating product communities with the following functionality:

    • Content management
    • Forums
    • Blogs
    • Idea exchanges
    • Wikis

    We were solving the traditional challenges brought on by disparate silos of data with separate user authentication systems and inconsistent interfaces/template designs. 2008 was spent building the product and we launched it for our own internal customer success communities after nine months of development. It was a failure.

    Here are some of our lessons learned:

    • We spent way to much time building it for ourselves and not getting feedback from prospects — it’s easy to get tunnel vision. I’d recommend not going more than two or three months from the initial start to getting in the hands of prospects that are truly objective.
    • We made the product much too broad such that it did a little bit of everything. Unfortunately, it didn’t do anything exceptionally well. As an example, when we used it to replace our phpBB message board instance, our community was in an uproar because it lacked many of specialized features a mature forum offers (e.g. notifications and handling code examples in a comment).
    • The tools we were replacing were pretty cheap (e.g. each item was typically under $100/month), and we wanted to focus on the small-to-medium sized business, as that was our area of expertise, so we priced the product around $500 – $1,000/month. This caused another major disconnect — the integration costs were typically $10,000 to migrate an existing site into the system. With those integration costs, the sales cycle became prohibitively long/expensive relative to the lifetime value of the customer and the recurring revenue.
    • As the product became more and more complex, the performance degraded. In my mind, speed is a feature for all web apps so this was unacceptable, especially since it was used to run live, public websites. We spent hundreds of hours trying to speed of the app with little success. This taught me that we needed to having benchmarking tools incorporated into the development cycle from the beginning due to the nature of our product.

    So, to summarize, I recommend getting something simple into the hands of prospects quickly, picking out a narrow niche and doing it well before going broad, thinking through the economies of customer acquisition costs relative to the revenue generated, and making sure the app always runs fast.

    What else? What are some other lessons you’ve learned from a failed product?

  • The Pardot Name

    Way back in 2006 I had an idea for marketing software that would help with lead generation and management. Not owning any good domain names that met my criteria, I set out to find a domain name as the basis for the company name.

    After using several domain name finding tools (like BustAName.com) and not having any luck I went to Dictionary.com and typed in “marketing.” At the time, Dictionary.com returned translations of a word in 29 different languages. Nothing useful turned of for “marketing” so I tried the derivative of the word and did a search for “market.” Of the translations that came back, one caught my eye — pardot.

    Pardot is the Latvian (not Latin!) verb meaning “to market” or “to sell.” I liked that it was easy to pronounce and spell, so I headed over to BustAName to see if it was unregistered, and, much to my surprise, it was available. I registered it immediately for $8 and the rest is history.

  • Atlanta Lacks Launch-and-Move-On Entrepreneurs

    I was reading the TechFlash blog post on the RescueTime founder and CEO leaving after 28 months to start a new venture and it occurred to me that there are almost no launch-and-move-on entrepreneurs in Atlanta. What I mean by that is an entrepreneur who enjoys the birth to early growth stage of getting a company off the ground, but then turns the reins over and goes on to their next idea. Now, I don’t know if this is a good thing or bad thing, but does a strong startup ecosystem need more of these types of entrepreneurs?

    As another example, last Fall, the Twitter co-founder Jack Dorsey announced his new company Square to process credit cards on iPhones. He’s another launch-and-move-on entrepreneur. One benefit of this type of entrepreneur in the community is that there will be more companies with strong foundations growing fast. One downside might be that the entrepreneur leaves prematurely and the company doesn’t do as well. Of course, that is hard to predict.

    What do you think? Does Atlanta need more of these types of entrepreneurs? Do you know of  any entrepreneurs like this in Atlanta?

    Side note: RescueTime is partially funded by an angel investor in Atlanta.

  • Producer Mentality for Entrepreneurs

    One of the interesting aspects of entrepreneurs that I’ve noticed, but haven’t articulated, is that of the producer mindset. What I mean is that entrepreneurs typically have an inherent need to continually build things — companies, products, teams, projects, etc. When looking for that right co-founder, I’d probe and ask them if they did any of the following in their youth:

    • Lemonade stand
    • Yard work for neighbors
    • Classified ad newsletter (this would be pre-Craigslist)
    • Web design for businesses
    • Miscellaneous business (e.g. sports cards, animal husbandry like hamster breeding, etc)

    Then, the most important follow-up is to ask why they did one or more of those items. The key response you want to hear is that they identified an opportunity and went after it — not that their mom/dad said they needed to get out of the house.

    What else? Do you agree that entrepreneurs typically have a producer mentality?

  • The Domain Name Challenge

    I believe a good domain name, and thus company name, is absolutely critical for a software/web-based business. The challenge, naturally, is that it is difficult and/or expensive to find a good name that isn’t already taken. Here are  some rules I try to follow:

    • 10 characters or less
    • Must be a .com and not a secondary extension
    • Should be phonetically spelled and easily spoken in English
    • Always purchased and not rented/leased from someone else
    • Ideally relevant to the business, but this is more optional

    To meet these requirements I’ve generally found it takes a budget of $500 – $1,000 and the buying of an existing domain on Sedo.com. It is still worth trying a site like BustAName.com to find an unregistered domain, but I haven’t had luck going that route in several years.

    What else? What other attributes do you look for in a good domain name?

  • The Latent Market Demand Question

    One of the questions I like to ask entrepreneurs is “Are you unleashing latent demand for your product or are you taping into existing demand?” This question is another way of asking “Do most of your clients have an existing vendor that you replace or are you the first vendor they ever use?” Here are a few questions that come up with this important question:

    • Why isn’t there more demand already?
    • What can you do to help grow the market?
    • Can you solve the problem(s) that is/are holding back the growth of the market?
    • Is it a timing issue (e.g. the market is about to explode) or is it so early that you risk not getting to scale?

    The question also helps determine if it is an innovative or replicative business. My recommendation is to think through this topic as part of strategic positioning for the business.

    Do you agree? What other questions would you ask related to market demand?

  • The Owner Mentality

    A few days ago I was talking to an entrepreneur who was considering bringing on a business partner, who wanted significant equity. Now, this potential business partner had been a VP at several previous companies but hadn’t started a business and this entrepreneur was concerned if he had the entrepreneurial mentality — the owner mentality.

    Here are some questions to ask when determining if the owners mentality is present:

    • Are you prepared to personally guarantee the business line of credit and office space, using your house as collateral?
    • Are you comfortable with inconsistent cash flows potentially resulting in significantly reduced paychecks?
    • Are you prepared to roll up your sleeves and take on any and all tasks to ensure success, even if they take you out of your comfort zone?

    What else? What other attributes would you include with the owners mentality?

  • Challenges of First Starting a Product

    Today we kicked off our first investment for Shotput Ventures 2010. Now, like Shotput last year, we don’t talk about the specifics of our portfolio companies until they launch, but one of the things I want to do is capture more of the lessons learned as we go through the 12 week mentoring process.

    During our discussions about their product today, which comprised most of the few hours, several issues were brought up:

    • What’s the right balance between working on code and talking to prospects?
    • How simple should a minimum viable product actually be?
    • What functionality can standalone and what is dependent on other items?
    • How should the features be prioritized?

    While there is no right or wrong answer, one piece we did quickly realize is that the team was building a good bit of functionality that was overkill for getting something out the door that added real business value. This is especially true when there’s such a clean slate with a new product — new features are incredibly easy and fast to add. The hidden problem, which most entrepreneurs don’t appreciate until after they’ve felt the pain, is that these quick-to-add features add code debt and actually slow down development in the future — when it is even more important to move fast.

    My advice: ask yourself “Do we really need this?” for every little feature or option of a feature when building a product — you’ll appreciate it in the long run.