David Cummings on Startups

Category: Strategy

  • The Dump and Social Media

    Today I visited a new, super large furniture store that opened in the Buckhead area of Atlanta: The Dump. The idea behind the store is to be like a TJ Maxx or Marshalls where unsold merchandise from manufacturers is sold at a discount. Here are a few interesting aspects of the business model:

    • Physical square footage is 30% larger than a Home Depot (huge!)
    • Store is only open Friday, Saturday, and Sunday to save money on labor
    • Furniture can be purchased and taken at the same time (most furniture stores require customers to order and waiting for delivery)

    Now, on to the point of this post: the social media reviews of The Dump are horrendous. Wow, I don’t know if I ever seen reviews so bad. Searching for “the dump store reviews” on Google has a good deal of negative results:

    • Consistent one and two star ratings on sites like Yelp.com
    • Negative blog posts completely dedicated to how bad the service and business practices are
    • Formal complaints on sites just dedicated to complaints and rip-offs

    My recommendation is to build good quality customer service into your business from day one and know that social media is a negative force multiplier for companies that do it poorly.

  • New Business Ideas

    At today’s Shotput Ventures office hours we had the chance to hear several different entrepreneurs talk about their business ideas. Normally, I like to have five questions answered before digging into the strategy. After listening to the ideas, one of the entrepreneurs asked if we had any business ideas we liked. Here’s one we batted around:

    • Platform for iPad to operate in kiosk mode
    • Dynamically include the current edition of multiple magazines
    • Distribute the iPads in doctor offices (need a way to lock them down!)
    • Show ads based type of doctor, demographics, and track article readership

    Generating ideas is the fun part. Executing on the idea is the most difficult, and rewarding part. What’s your idea?

    Note: Shotput Ventures is currently accepting applications!

  • Cohort Analysis for SaaS

    One of the SaaS measurements tools that I don’t think is mentioned enough is that of running a cohort analysis (Wikipedia) on customer data. The idea behind a cohort analysis is to track a group of data over time as an independent unit. With SaaS, the major areas to do cohort analysis are for churn and up sells. A common example would be as follows:

    • Analyze customers as a group based on the month they sign (each customer signing month would a new row in the spreadsheet with the left most row being the name of the month and year)
    • Look at the renewal rate and annual recurring revenue for that group for each subsequent month (each month after signing would be a new column to the right of the signing month in the spreadsheet with the column names being the number of months as a customer)
    • Look for trends in over time (e.g. renewal rates significantly increase after the sixth month)

    For more information, please see Fred Wilson’s post on cohort analysis.

  • The Fast Follower Approach

    One of the concepts I don’t hear entrepreneurs talk about enough is the fast follower approach. The general idea behind the fast follower approach is to build a product in a semi-established, fast growing market. All too often entrepreneurs feel their idea must be completely unique for it to be a good one. Some characteristics of the fast follower approach include:

    • Companies doing well in the market but no clear leaders
    • Market large enough to support multiple winners
    • Incumbents that are tied to a legacy platform and can no longer keep up with the modern web app expectations
    • Method to improve an aspect of the market resulting in an x-factor (7-10x improvement)

    I’m a fan of the fast follower approach and believe entrepreneurs should look for markets and opportunities that meet the characteristics listed above.

  • Competitive Differentiation

    One of the more exciting, and challenging, aspects of being an entrepreneur in a new, fast-growth market is the constant stream of changing competitors. New markets are very different from established markets in that they typically innovate faster and have lower barriers to entry (the technology doesn’t have to be as fully baked to be competitive). My advice is to pick a competitive strategy and don’t try to be all things to all people — a recipe for failure (trust me, I’ve tried it!). Of course, the strategy should be fluid and adaptable, but it is better to have a solidified one down on paper rather than none at all. Here are some competitive differentiation categories to consider:

    • Target company sizes
    • Target company verticals
    • Product price points
    • Product functionality (be opinionated!)
    • Geographic targets
    • Support policies (phone, email, 24/7, etc)
    • Sales tactics (aggressive, nice guy, etc)

    Again, I recommend putting a competitive differentiation plan together, aligning the team, and using it to make decisions quickly.

  • Market Opportunity or Management Team

    At lunch today I was talking with an entrepreneur who was lamenting that the company he was recently with has disjointed, inefficient technology powering their web services. He also talked about management turnover at the C-level as well as board of directors. I then casually asked how the company was doing financially and he said it was growing like crazy with substantial revenues and profitability.

    This conversation got me thinking about the old debate as to whether the market opportunity or the management team is more important in a startup. Some people, like Marc Andreessen, the Netscape and Ning co-founder, believe that market opportunity and size is more important. Others, like Mark Peter Davis (a classmate of mine at Duke), believe that the management team is critical.

    Personally, I’m starting to put more stock in the market opportunity and timing over the management team.

    Now, of course, there has to be a modicum of competency on the management. But, beyond that, I think the market, product, timing, and product to market fit are the real drivers for phenomenal success.

    What do you think?

  • Search Engine Optimization Recommendations

    At the time of this writing, Pardot ranks on the first page of natural search results for our industry term marketing automation. I’ve been asked for recommendations and best practices on how to rank well with search engines (search engine optimization or SEO). Here’s my advice:

    • Write for humans and not computers (computers, known as bots, crawl websites indexing the content for the search engines and people sometimes try to cheat)
    • Make the most important search term the first words in the title of the homepage
    • Keep the title and largest heading (h1) present and consistent on the all pages other than the homepage
    • Publish two new blog posts per week on the site, in addition to constantly adding other content
    • Include a sitemap that links to all the relevant pages
    • Ensure the pages are well-formed and standards compliant so as to demonstrate to search engines that you care about the quality of your HTML
    • Publish a separate, industry-specific blog that is company agnostic on a domain that incorporates the most important search term (see ours at marketingautomation.net) and link back to your site
    • Participate professionally in Twitter, Facebook, LinkedIn, etc with links to your site and others in the industry, on a daily basis
    • Use a content management system that is search engine friendly (good HTML and human-friendly URLs with keywords)
    • Ask partners and resellers to link back to your site with the appropriate keywords

    At the end of the day, the most important thing is to publish new, high quality content on a weekly, if not daily, basis. Good luck!

  • Startup Potential Revenue and Market Size

    A reader of this blog sent me an email asking for advice about his startup. After hearing the pitch on the phone I told him that I didn’t think it was a large enough market to be worth his time. He then sent me an email with some stats about the market and a statement like:

    2 million potential customers * $100/year * 1% = $2 million/year business

    I quickly replied back saying that I don’t like doing the top down approach for how big a company can be but rather doing a bottom up approach is the way to go. What’s a bottom up approach look like? I’d recommend doing something simple like:

    • A typical customer will pay us $1,000/year
    • We’ll hire five sales reps
    • Each rep will sell 10 per month
    • We’ll lose a certain percentage of customers per year (churn)
    • We’ll up-sell a certain percentage of customers
    • With this math we’ll add approximately $600,000 in annual recurring revenue per year assuming churn and up-sell equal out

    Here’s a good review of market sizing on DocStoc titled A Startup’s Guide to Market Sizing.

  • More X-Factor Examples

    Thinking more about the X-Factor post from a few days ago, I realized there are a few more examples worth citing. As a quick recap, the general idea is that an X-Factor is a competitive advantage that is 7 – 10x better than the industry. Let’s look at some additional examples:

    • When Google introduced Gmail they offered 1GB of storage space, which was much more 10x the space of Yahoo! Mail or Hotmail
    • America Online, back in the 1990s, distributed over one billion (yes, billion) free trials on CD-ROMs, which is more than 10x their competitors
    • Salesforce.com, one of the pioneers of SaaS, reduced the cost of enterprise CRM software by more than 10x (NetSuite did the same for ERP software)

    I encourage entrepreneurs to look at products they use on a regular basis and ask themselves what X-Factors got the product to where it is today.

    What are some more X-Factor examples?

  • The Trouble With Yahoo! Mail Forwarding

    As commonly happens, I’m called in to help with IT challenges at my dad’s house over the holidays. I’m happy to help and am always curious about what new issues have arisen. Yesterday, the goal was to help him configure email on his new iPhone 3GS. He had just purchased it the day before due to the battery dying on his first generation iPhone, and it being unusually expensive to replace.

    With a clean slate on his iPhone, I recommended he go with Gmail instead of Yahoo due to the superior web-based interface, no text ads in the emails, and the better integration with other Google services like Google Calendar. Of course, he’d been using Yahoo! Mail for seven years, so he was reluctant to switch. Here’s the trouble with Yahoo! Mail we had to go through to make forwarding work:

    1. Sign into Yahoo! Mail to forward email to the new Gmail account only to find you can’t forward mail unless you pay $20/year for the Yahoo! Mail Plus (we’re now annoyed at Yahoo! and they have a message that the $20/year will auto-renew and there’s no way to not have that take place without canceling the email forwarding)
    2. Go to the Yahoo! Mail Plus forwarding interface and find that it is the static, non-ajax interface with a cheesy apology that they haven’t gotten around to updating the interface
    3. Pay $20 and wait for a confirmation email to the Gmail address required by Yahoo! to forward mail
    4. Click refresh several times in Gmail, looking for the confirmation email, only to eventually think to look in the spam folder — there’s the Yahoo! email
    5. The Yahoo! email doesn’t have a clickable link and there’s a code that has to be copied and pasted into the Yahoo! interface (yes, we’re just trying to get mail forwarded)
    6. The process is now complete after paying $20 and jumping through a bunch of hoops

    This trouble with Yahoo! Mail, actively making it difficult and cumbersome to forward email, shows they are on the defensive, protecting with they have, and not doing the right things to grow. Companies make lots of little choices that all add up to a strategy — Yahoo!’s strategy is to play defense.