David Cummings on Startups

Category: Entrepreneurship

  • Telling the Startup Story

    By now, we’ve probably all heard the eBay story that the founder started it because he wanted a way to help his girlfriend find Pez dispensers online. Well, did you know that was made up? That’s right, those PR folks were looking for a good, memorable story and delivered. Politicians do it all the time.

    I do believe it is important to have a story for your startup. Why was it founded? Why are you doing what you’re doing? Here are some points to consider:

    • Make it memorable
    • Keep it short
    • Practice it for consistency across co-founders
    • Include emotion and feeling in it

    What’s your startup story?

  • Defining a Successful Business

    People constantly throw around the term “successful business” or “successful startup”, but I bet if you ask 10 entrepreneurs how they define success, you’ll get 10 different answers. I typically like to ask the following question: how do you define success? Here’s how I define a successful business:

    • $1 million+ in annual gross margin (difference between the sales and the cost of goods)
    • Sufficient redundancy and scale such that anyone in the business can go on vacation for two weeks and everything continues to run fine
    • Reasonable revenue predictability (recurring revenue is best) such that sales can be predicted out on a quarterly basis with 75% confidence
    • Profitable enough to make decisions on growth, lifestyle, etc

    Notice that I didn’t say it had to be a technology business, or potential for 30% net margins (even though that would be nice), or 50% year-over-year growth. I think those are all nice, and important to me, but for most entrepreneurs I’ve talked to, they are looking for a level of scale, stability, predictability, and freedom (profits!).

    How do you define success?

  • The Startup’s Siren Call of California

    Back in late 2003, a few years after I’d started my company, I got down on myself questioning the amount of progress we’d made on the business. I had two full-time employees with a couple of interns and I just wasn’t satisfied with how fast things were growing. Revenues were increasing nicely on a percentage basis, but on an absolute basis they were still pretty meager. I didn’t know how to push the ship forward faster without outside capital, and after talking to many local angels and VCs, I knew I wasn’t going to be able to raise any money because I didn’t have a successful startup under my belt and we were competing in a crowded market.

    Deep in frustration I heard the startup’s siren call: move to California and everything will be better.

    In California, I’d be able to raise a ton of money, hire an army of great people, and build the next Salesforce.com. It was a standard playbook that has been implemented many times before. Mentioning California to my soon-to-be wife got her all riled up and upset as she’s pretty averse to change. I didn’t know what to do.

    After thinking about it more, and continuing to plug away at my business, I began to realize I was already in the best place for me: Atlanta. Why? Here are a few reasons:

    • With revenues continuing to grow, and lack of outside capital, we were able to continue bootstraping, and Atlanta is a phenomenal place to bootstrap a business due to a variety of reasons
    • My friends and community (e.g. networking organizations, softball team, etc) were established and comfortable
    • My family in North Florida, where I grew up, was less than five hours away
    • Thinking more about the tech startup community, and potentially one day being a big fish in a small pond or a small fish in a big pond, I felt I was better suited for a small pond where I could have more of an impact

    Incredibly, the startup’s siren call of California is as strong today as it’s ever been, based on comments and discussions all over social media. I’m glad I stayed in Atlanta as we were right on the cusp of explosive growth, and Atlanta proved to be a great place to build a multi-million dollar business.

  • Consider Talent Requirements for Businesses

    One area that entrepreneurs don’t pay enough attention to when evaluating business models is that of the talent required. By talent, I mean the type of people necessary to staff and grow the business. Here are talent examples to consider:

    • Programmers with domain expertise that are hard to come by
    • Difficult certifications or licenses required for operation
    • Specialized medical clinics where the type of doctors are in short supply

    I know of one business in Atlanta whereby the entrepreneur thought the main talent required would be easy to come by. Thankfully, the business is growing nicely, with volume ramping up quickly, but the additional work can’t be serviced properly due to a lack of people with the required government-regulated license. It is a predicament no one expected.

    My recommendation is to consider talent requirements when evaluating businesses, and look at ways to incorporate a staffing pipeline early on.

  • Recruiting a Technical Co-Founder

    I’ve talked previously about the importance of having a technical co-founder. A friend of mine asked me today if I had any tips or thoughts on recruiting a technical co-founder. Here are a few ideas on finding one:

    Now, once you’ve identified a couple candidates, recruiting the person is even harder. Here are some recruiting ideas:

    • Offer a contractor period of one to three months to try out working together
    • Compensate with significant equity (e.g. 5 – 20%), but have it vest over four years (so that there’s incentive to stay) and include a one year cliff (meaning if it doesn’t work out in the first year, no equity is granted)
    • Try recruiting two engineers that want to work together since they already trust each other

    Finding and recruiting a technical co-founder is tough. Good luck!

  • Joining the Atlanta Tech Startup Community

    In the past week I’ve met with two different entrepreneurs that said they were interested in getting involved with the Atlanta technology startup community. Of course, I had one or two ideas on things they can do. Instead of emailing a bunch of resources around I decided to enumerate them here. Let’s go:

    • ATDC is the mothership. Get involved.
    • TAG has tons of networking events related to technology (not necessarily startups)
    • Shotput Ventures is the accelerator seed fund
    • Mike Blake has the best post on joining the VC scene (most is applicable to tech entrepreneurs who don’t want to raise VC as well)
    • TechDrawl is the Southeast specific technology startup blog (think localized TechCrunch)
    • ATLSE.com (Atlanta Startup Entretpreneurs) has a bunch of random stuff (events, people on Twitter, organizations, etc)
    • AtlanTech is the local business journal tech blog where Urvaksh fights hard for the scoop

    Needless to say it is easy to get involved and to start meeting people. Do it.

    Did I miss anything?

  • Speaking about Entrepreneurship

    Tomorrow I’m giving my Iterate or Die talk at a Georgia State entrepreneurship class. I’ve given the talk several times now at Emory and once at a TAG/ATDC event, so it is pretty smooth. My main emphasis is that entrepreneurial success, defined as building a million dollar plus company, comes after most of the following are met:

    • Tons of hard work
    • Never giving up
    • Belief in the vision
    • Constant iterating and pivoting
    • Luck (very important!)
    • Market timing

    Most of these sound like common sense, and they are, but it can’t be reiterated enough: it isn’t easy. Fortunately, the journey makes it worth it.

  • Fighting Complexity

    One of the challenges I didn’t expect to face as my company grew is how hard it is to fight complexity in a variety of areas. I try to follow the keep it simple mantra throughout everything we do, and find myself saying that on a regular basis. Here are some areas that I see continually see requests for complexity creep:

    • Metrics and KPIs
    • Product functionality
    • Policies and procedures

    My recommendation for entrepreneurs is to constantly ask the question will this add significant value and be applicable 80% of the time when confronted with adding more complexity. Most of the time, the value isn’t there.

  • Shotput Ventures and ATDC

    I’m excited to announce that Shotput Ventures and the Advanced Technology Development Center (ATDC) at Georgia Tech have teamed up for the Shotput 2010 class of companies. Here are some aspects of the partnership:

    • Shotput companies will be ATDC member companies
    • The ATDC Seed Fund is investing in the Shotput fund
    • The Shotput companies will have office space at the ATDC
    • The weekly dinners will be held at the ATDC
    • Shotput companies will be able to participate in CapVenture

    Applications for Shotput 2010 are now open. Please apply.

  • Email as Currency

    I was talking with an entrepreneur earlier today and the conversation centered around strategies for monetizing highly specialized content. Her company provides niche business services and supporting collateral (books, white papers, worksheets, etc) to a valuable audience. The question was as follows: should I sell my content or give it away for free?

    In the end, my advice was to go the free route for the following reasons:

    • The conversion rate for unique visitors to buyers of digital content (e.g. a PDF for $20) is likely 1 in a 1,000, so it’ll take a ton of visitors to make much money
    • Most people don’t like to buy content online, and pulling out a credit card to purchase a PDF results in tons of friction
    • If instead of 1 in a 1,000 that spend $20, you give the content away for free in exchange for providing a valid email address that opts into an occasional newsletter (no more than 2x a month), the number of emails you earn is 20 in a 1,000
    • With opted in email addresses, and thus a targeted audience, new articles and content can be sent out with sponsored, context-relevant advertising, that will command a high quality rate (e.g. $5 – $10 per email of annually), resulting in significantly more revenue than the digital content route
    • The biggest value of focusing on email as currency is that not only is the revenue higher, but that it is recurring revenue, which is one of the best business models

    Selling digital content appears to be an easy way to make money online, but I believe that building a loyal, opted-in audience around the content is a superior strategy for value creation.