David Cummings on Startups

Category: Entrepreneurship

  • 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.

  • Accelerator Program Without the Capital

    A friend of my brother (who’s a Spanish Dictionary entrepreneur) reached out to me to talk about my experience running Shotput Ventures in Atlanta as he’s thinking about putting on a similar type of program in another major city in the Southeast. Only, he wants to do the program without providing any investment capital. I told him it wouldn’t work.

    He cited these benefits for joining his program:

    • Pre-negotiated deferred legal fees
    • Office space with conference rooms
    • In-house data center for co-location
    • Mentoring

    This, of course, is in exchange for a small amount of equity. I said that resourceful entrepreneurs can get the items he mentioned on their own, and that if they aren’t resourceful, they probably aren’t going to be successful.

    In addition, without capital, he’s going to have a hard time getting entrepreneurs to move to his city to participate in the program. For Shotput, the majority of our companies moved to Atlanta for the program. Entrepreneurship isn’t a geographic endeavor.

    My advice to him was to raise money to be able to invest in the companies as part of the program. Money talks.

  • The Importance of a Technical Co-Founder

    I was talking with a napkin stage (idea only) entrepreneur recently about his business and we got to the product portion of the conversation. He said he didn’t have a technical person on his two-person team but that they have talked to some programmers that will build the web app application. Immediately, a red flag came up in my mind. It is imperative to have a technical co-founder on the team. Why? Let’s dig into it.

    Here are several benefits of having a technical co-founder:

    • Ability to iterate faster on the product
    • The technical person can communicate directly with the potential customers or users (the company closest to the customer wins)
    • Alignment of incentives and long term interests to build a successful business

    Here are several negatives of not have a technical co-founder:

    • Shows that the entrepreneur hasn’t been able to sell the vision to a technical person to get on board and be a technical co-founder
    • Makes the project timeline and deliverables more suspect as getting a consultant’s help just isn’t the same
    • Results in more narrow-minded thinking of the technical possibilities due to not having someone on the founding team 24/7 to obsess over the future

    I recommend all teams have a technical co-founder. For Shotput Ventures, it is a requirement.

  • How Does Your Company Give Thanks

    With today being Thanksgiving in the United States, it makes sense to talk about giving thanks in your company. Giving thanks, and celebrating, go together and should be part of the company rhythm. Here’s what we do to give thanks and celebrate:

    • Whenever we close a deal with a new customer, we ring our gong at 5pm that same day and everyone claps
    • Every Friday we have a catered lunch for the entire office to spend time together and socialize
    • We use an eCrowds Idea Exchange to nominate a hero of the month, voted on by entire team, and then award the winner a $100 bill at our monthly all hands meeting

    I recommend every company give thanks and celebrate on a regular basis.