David Cummings on Startups

Category: Entrepreneurship

  • Cumulative Advantage for Entrepreneurs

    I just started reading the book SuperFreakonomics today and at the beginning they talk about how the success of their first book, Freakonomics, has made finding material for their second book so much easier as readers bring ideas to them. The term cumulative advantage, in the economics profession, describes a situation where previous accomplishments result in seemingly unfair advantages for future situations. Immediately, this made me think of serial entrepreneurs with a win under their belt.

    Some cumulative advantages for serial entrepreneurs include:

    • Previously proven executives and employees to draw from (assuming non solicitation has expired)
    • Relationships with partners and distributors
    • Existing network of trusted vendors like legal and accounting
    • Easier access to capital as investors are more apt to invest in entrepreneurs with a track record

    I recommend working on relationships and expertise that result in building a personal cumulative advantage.

  • Sales Focused Cultures

    I just finished reading the book Jungle Rules by John Imlay and really enjoyed learning about the origins of the technology community in Atlanta. What the book really did was drive home the importance of having a sales focused corporate culture. Here are a few anecdotes that emphasize the type of sales focus of a few companies:

    • MSA, the largest software company in the world at one point in the 1970s, brought in exotic animals, especially tigers, at their annual sales kick-offs, among other events
    • The CEO of Omniture, a company recently acquired by Adobe for $1.8B, had “QBSR” as his car license plate – Quota Bearing Sales Rep
    • Salesforce.com, the largest SaaS company in the world, has approximately 3,000 employees, of which 1,500 are in sales

    I recommend analyzing ways to make sales more top of mind in startup cultures.

  • Establish a Critical Launch Trigger

    I had lunch with a successful Atlanta tech entrepreneur today and he filled me in his current startup. After drilling into the business for 30 minutes he made a comment I didn’t expect: he’s only going to launch if he has seven key partners on board with signed contracts. He has a critical launch trigger where he’s requiring key distribution partners be in place before completing the product.

    This is a variation on lean startups and customer driven development whereby customers are incorporated into the development process — not after the product has already been built.

    My advice: consider critical launch triggers when starting a new company.

  • Startups Should Practice Direct Marketing

    I was talking to a successful entrepreneur this afternoon and he made a statement that I agree with: most startups should emulate direct marketers and focus on customer acquisition costs from the out set. Companies like Capital One and American Express set the bar for being extremely effective direct marketers. So, why direct marketing for startups?

    Direct marketing, as different from generic marketing, is centered around advertising with specific calls to action, like calling a phone number or filling out a form, and measuring the effectiveness. Most entrepreneurs get caught up in building a great product, which is critical, but there are more stories of inferior products with better sales and marketing teams beating out superior products. Building the direct marketer mindset into the DNA of the company from the beginning helps ingrain the importance of a metrics-driven approach to acquiring customers.

    The product is the marketing. Sales are the lifeblood. Every entrepreneur needs to be a direct marketer.

  • Videos for Entrepreneurs

    Recently, I’ve enjoyed watching entrepreneurial videos online from several different sources. To me, video captures more of the passion and excitement, when compared with more static, text-based content. I’d recommend taking a look at the following:

    I hope these are insightful — my position is that you can never learn enough.

  • Two More Entrepreneurial Blogs

    I’m always looking for new blogs on technology and entrepreneurship to add to the list that I scan daily. Recently, I’ve found two more that I recommend:

    • Derek Sivers — Founder of CDBaby.com, publishes a great blog with thought-provoking entries
    • Fred Destin — VC in Europe, gives great insight into and anecdotes into the venture world

    If you don’t already, I’d start following bloggers on topics near and dear to you as a way to stay up-to-date on trends as well as to glean insight from others.

  • When to Hire

    One of the challenges of running a bootstrapped business is determining when to make the next hire. Funding, being severely limited, must come from banks (including credit cards) or customers buying the goods or services. Banks, as we know, aren’t in the market of lending money without collateral to back it up. So, when do you increase the monthly nut and hire a new employee?

    My recommendation varies based on the type of business. Let’s look at a few:

    • Traditional installed software — start hiring once current assets are equal to the three times the trailing 90 days monthly average (known as the GPA)
    • Software as a service — this one is easy due to the recurring nature of the business (just hire once the cash is coming in)
    • Hybrid with part up-front and part recurring — look at the percentage of revenue that is recurring and discount the GPA value by that percent

    Determining when there’s enough momentum and cash to hire more people is difficult. I hope this advice helps.

  • Too Much Money Chasing a Market

    A phenomenon in the technology startup community I hadn’t read about until recently is that of too much money chasing a market resulting in lower than expected investor returns. Bill Gurley reiterated this recently in his recent talk at the AlwaysOn conference. Of course, supply and demand in any market should work itself out over time.

    My advice to entrepreneurs is to evaluate this potential in their market as part of determining their growth prospects as well as evaluating raising money from investors.

  • Build a Web App on a Budget

    I had lunch with an entrepreneur today and we talked about the web app he’s building. He was interested in my thoughts on how to do it in a scrappy, but high quality manner. I told him to use these sites and services:

    As for the programming of the web app, I recommend hiring a good software engineer in-house, but that’s a much longer topic. Good luck!

  • Boutique vs Lifestyle Business

    There was a meme a few months ago where people were trying to come up with a better term than lifestyle business to describe a non Venture-backed startup company that could scale. Last week, I was reminded of this when I talked to an entrepreneur and she described her company as a boutique services provider, and said her aspirations were to work for herself and not get big. Boutique businesses often get overlooked in the technology world.

    Now that I think about it, I can name several entrepreneurs, in technology, that run boutique businesses and love it. They are some of the more successful and passionate people I know. My advice for entrepreneurs is to think hard about boutique businesses, generally with no employees, vs a lifestyle business, with employees and more visions of organically-grown grandeur when thinking through what they want to be as a company.