David Cummings on Startups

Category: Entrepreneurship

  • Frameworks for Fast Growing Companies

    One of the hardest things to do for a fast growing company is to get everyone aligned and on the same page. One business guru said successful businesses are 1% vision and 99% alignment. Here are some good books for entrepreneurs once they get past $1 million in revenue:

    What are your thoughts? What books do you recommend?

  • SaaS/Web is Ideal for ADHD Entrepreneurs

    A common trait you’ll find among entrepreneurs is that they have tons of ideas and routinely can be described as ADHD. Due to this phenomenon, SaaS products, and the web in general, make for an ideal medium as it affords an elegant manner with which to constantly tinker. In many cases, you can have an idea, see it live in production, and get customer feedback in a matter of days or weeks (with strong automated testing, of course!). What other types of products allow you to do that? Physical goods? No. Services? Rarely.

    Constant iteration and innovation really is adrenaline for enterpreneurs. It doesn’t get much better than SaaS/Web for products.

  • Some Thoughts on Sales Commission Strategy

    Sales commissions are a tricky thing. Once you put them in place, it is difficult to change them without the sales team being demoralized that their compensation is going to go down (even if it isn’t!). The goal, generally, is to minimize base salary and maximize performance based compensation. Here are some thoughts on strategy:

    • Align company interests with the commission (e.g. have commission percentages based on the profitability of the item being sold such that things like license revenue have a higher percentage commission than services revenue)
    • Significantly reduce compensation if quota isn’t hit (e.g. cut the standard commission in half if quota isn’t reached for the designated time period)
    • Don’t limit the up-side (e.g. don’t put a cap on the maximum amount a sales rep or account manager can make)

    Sales, and management of a sales team, is one of the most difficult, and rewording, aspects of a business. Good luck!

  • What are your three most important business measurements?

    It’s that time of year to start next year’s planning. We’re currently debating the three most important items to measure and set goals against. Here are the current three we’re working on:

    • Employee satisfaction
    • Customer renewal rate
    • Revenue bookings
    What are your three?

  • Debt is Your Friend

    This one is for entrepreneurs and not consumers: debt is your friend. Too often, first time entrepreneurs think the first step to starting a business is raising money from other people or venture capitalists. My recommendation is to get the business off the ground doing whatever it takes — including using your credit cards. I used credit cards for my business eight years ago and even played the game of applying for new cards that had no interest for the first X months and transferring balances between cards in an effort to minimize the interest rate. Having tens of thousands of dollars of credit card debt, like I had, isn’t for the faint of heart, and is not recommended for most people, but it is often times the only way to get access to money.

    As for banks, the truth is that most entrepreneurs will never get a loan from a traditional bank unless you have collateral for 80% of the value (e.g. stocks, bonds, real estate, accounts receivables, etc). People think banks are in the market of loaning money but they are really in the market of buying physical goods on your behalf and letting you pay them back for it. They aren’t there to fund your dreams that involve intangible assets.

    My advice is to seriously consider debt whenever possible.

  • Jack Welch on the Four Types of Employees

    My younger brother is a first year student at Harvard Business School and was recently discussing a case in class on Jack Welch’s management style. After 35 minutes of discussing the case, the professor surprised the class by having Jack Welch come in personally and answer questions. The key message by Welch was that of the four types of employees and what you should do with them:

    • High performer that buys into the corporate culture — promote and empower them as much as possible
    • Low performer that doesn’t buy into the corporate culture — fire them as quickly as possible
    • Low performer that buys into the corporate culture — give them a second chance in a different position to see if they can be an ‘A’ player
    • High performer that doesn’t buy into the corporate culture — do a public hanging where you fire them and then discuss with other managers their short comings
    Of course, the last two types are the ones that provide the most difficulty for companies. I thought it was an interesting perspective from a very decorated business person.

  • Tips for Office Subleases

    We’re in the process of securing a new office for early next year and I wanted to share some tips I’ve learned over the years when it comes to offices and subleases:

    • Offer much lower than they’re asking as it’s a sublease and they likely already have a new lease, especially in this soft commercial real estate market
    • Try to offer a deal when your company grows into the space over time e.g. pay for 50% of the space the first six months, 65% the next six months, 80% the next six months, and the full amount the remainder of the time
    • Shorter subleases will result in better deals as companies don’t like moving very often

    I’ve found that you can consistently rent office space for 50% of the market rate using these approaches during normal market conditions.

  • 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.