David Cummings on Startups

Category: Entrepreneurship

  • Transitioning to a SaaS Business Model

    Just under a year ago we started the process of overhauling our business in an effort to have 75% of our total revenue be recurring. It is very difficult to transition a traditional, enterprise software model to that of a SaaS type model. Our particular niche in the market was not suited to charging an annual per user fee for installed software (although some vendors in other B2B markets have made it work). We decided on a two pronged approach:

    • Offer a hosted version of our installed software, with a monthly per user fee
    • Build a new system from the ground up with a multi-tenant architecture

    We started with 25% of our revenue as recurring and I predict we’re 1/3 of the way of a three year process.

  • Aligning Company and Customer Interests

    At lunch today I was talking with my friend about a new business he was starting. We got into a good conversation about different pricing and business models, especially in relation to what was in the market already. During the conversation, I expressed how passionate I am about aligning the company’s interests with that of the customer. Some common examples come to mind:

    • Have monthly contracts (unlike most cell phone companies)
    • Only charge if a transaction was successful (like Google Pay Per Action or eBay Motors)
    • Provide an unconditional money back guarantee

    By building these types of programs into the business model from day one, the company adapts and grows around them such that in the long run the company’s interests stay aligned with the customers’.

  • Don’t solve a problem that doesn’t exist

    I was at a meeting for a non-profit last week and we were talking about some upcoming projects. One member brought up a potential issue that seemed very unlikely and another member chimed in that we shouldn’t try to solve a problem that doesn’t exist. Wow. That really resonated with me. I think all too often we try to solve problems before they become an issue. Don’t get me wrong, I want to be proactive, but not for unlikely issues.

  • Y Combinator for Atlanta – Costs?

    Lance Weatherby has an interesting post titled “Who Wants Seed Money?” in which he discusses the idea of a Y Combinator for the Southeast. I’m a proponent of the idea and was part of the discussions last year with the people he mentions. Mike Landman and I hashed out the idea once again today at lunch and concluded that Atlanta really needs such a program. Mike is heading up the EO Accelerator program for Atlanta which helps entrepreneurs with businesses between $250k and $750k grow to $1 million plus so as to be eligible to join EO (which I highly recommend).

    Naturally, Mike and I dove right into some of the details of doing a Y Combinator for Atlanta. We each have a couple thousand extra square feet at our respective corporate offices to provide a co-working environment. What are some of the other costs? Here are the initial thoughts on costs on an annual basis:

    • Managing Partner – volunteer (~$5k in expenses to talk at regional organizations and schools)
    • Part-time Program Coordinator – $20k
    • 5 teams in one summer class @ $20k investment per team – $100k
    • Office space (2,000+ sq feet for 20 people) – $25k (possibly less)
    • Legal – $5k
    • Accounting – $3k
    • Miscellaneous (food, infrastructure, etc) – $7k
    • Cushion (more people per team than expected, legal/accounting in future years) – $10k

    Total: $175k annually

  • Entrepreneurial Force Multipliers

    I was reading an article about technology in the military/police context and the term force multiplier kept being mentioned. Naturally, I thought it was an interesting term in the entrepreneurial/business world. Here is Wikipedia’s entry on force multipliers:

    A force multiplier refers to a factor that dramatically increases (hence “multiplies”) the effectiveness of an item or group.

    Here are some force multipliers:

    • Product development — not one-off features for a specific client but rather opinionated features that fit a focused vision
    • Investment capital — particularly when you have the basis for a repeatable sales process that is profitable and/or gains market share
    • Search engine optimization — PageRank operates like the Richeter Scale such that each incremental increase results in substantially more credibility

    What are the force multipliers in your business?

  • Negotiations – A few thoughts

    I was talking with a friend the other day about negotiating a deal and I had a few pieces of advice:

    • Always go into the deal with the ability to walk away. Always.
    • Set an absolute minimum in advance of negotiations and use that as a private lens during the process
    • Put yourself is the shoes of the person on the other side of the negotiation and think about concessions or points that they are interested in and how those might stack up to your interests

    Good luck!

  • Entrepreneurs’ Organization

    I joined the Entrepreneurs’ Organization (EO) three months ago and I have nothing but great things to say about it. According to the EO website, EO is:

    The Entrepreneurs’ Organization (EO) is a global network of business owners, all of whom run companies that exceed US$1M in annual revenue. We engage leading entrepreneurs to learn and grow through executive education and other tools for business owners.

    One of the most important aspects of the organization is what’s known as Forum. Forum is a group of 8 – 10 entrepreneurs that meet on a regular basis (usually monthly) and it acts as your own personal advisory board. This is an invaluable way to learn from other entrepreneurs and (hopefully) minimize potential mistakes and maximize opportunities. If you’re an entrepreneur, I recommend you look into EO.

  • Attitude + Effort = What Matters

    Attitude and effort is what really matters. Think about it: 99% of the business issues you run into relate to those two items. Pretty simple, isn’t it?

    • Attitude captures the emotion, passion, and genuineness of the interaction.
    • Effort captures the care, fastidiousness, and desire of the situation.

    What matters to you?

  • Rapid Improvement with SaaS = Reference Customers

    Another SaaS benefit that isn’t readily apparent before going live is the relationship between quick product enhancements and reference customers. Because you can update and enhance the product so fast, customers that make small requests can see the changes within a matter of days or weeks (assuming you accept the tweak and it fits in your opinionated vision!). This goes a long way towards having them become a reference account that you can use for future prospects. With installed software, it is difficult and time consuming to keep making little patches so customers often have to wait several months for the release cycle to happen before they can actually appreciate that your team has been working hard on their request.

    Near instant gratification with product change requests is something many clients have never experienced. Please make sure and temper expectations that it won’t always happen but that you’ll always be there to hear them out and be understanding.

  • Use Your GPA to Know When to Expand

    As a software entrepreneur it can be difficult to know when to expand staff, marketing, etc. One simple method I developed over the years is called GPA (Growth Plan Assets). The method is really simple in that you add together cash in the bank and current accounts receivable and then divide by last month’s “normal” costs. This, in a rough fashion, gives you the number of months you can operate without any new sales.

    You know you’re ready to expand when your GPA is greater than a standard college GPA (scale 0 – 4). So, like a college GPA, most of the time you’re in the two or three month range. When you go above that, you have a sufficient GPA to expand. When you are below a two, you’ll have some tough decisions to make. What’s your GPA?

    Note: The higher the percentage of revenue that is recurring, the lower the desired GPA.