David Cummings on Startups

Category: Strategy

  • International Partnership Considerations

    When a new product shows signs of taking off, inevitably companies and entrepreneurs in other countries will take note and reach out to form a distribution partnership. Having a distributor can really help startups generate revenue without significant capital outlays. Let’s look at a few considerations for international partnerships:

    • Geographic Exclusivity – this is a big one, and needs to be taken very seriously. Ideally, it would be tied to performance metrics.
    • Revenue Split – Variables like who supports the customer, who delivers sales demos, and kickers to accelerate the revenue share should be considered.
    • Training – web-based training programs like GoToMeeting make this an easy consideration. Annual face-to-face training should be evaluated as well.
    • Branding – considerations like usage of the brand and content vs a true independent distributor should be analyzed.

    Partnerships generally fall under the 80/20 rule whereby 80% of the partnerships produce 20% of the results and 20% of the partnerships produce 80% of the results. Regardless, partnerships, and international ones, are great growth opportunities for startups and should be fully evaluated.

  • 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.

  • 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.

  • Walk, Jog, Run Approach to Partnerships

    Recently, a colleague of mine introduced me to the walk, jog, run approach to partnerships. The general idea is that many partnerships between companies don’t result in the desired level of success. Generally, this is due to a lack of properly set expectations as well as jumping in too deep, too fast — something I see much too often.

    The concept is pretty simple:

    • Walk – something simple that allows both sides work together in the easiest fashion possible, to prove the value
    • Jog – a more tighter integration and cross-selling relationship with more skin in the game from the companies
    • Run – very tight integration with significant product development

    I recommend this approach whenever possible.

  • SaaS With No Contracts, Oh My!

    When I tell people we don’t have a contract with our software as a service (SaaS) product, they are often surprised. So many companies require a one or two year contract (much like a cell phone), that it is almost expected for mid-to-high end business software. Here’s why we don’t have a contract:

    • Tightly aligns our interests with our customers since they can leave at will
    • Requires us to get customers up and running quickly providing value within the first week
    • Helps reduce our sales cycle and establish a nice cadence with our sales team

    I recommend evaluating ways to achieve to these types of catalytic mechanisms.

  • Bonuses Don’t Drive Performance

    I’m of the same opinion of The Globe and Mail article “Bonuses don’t mean better performance” where the author cites several examples in the real world as well as academic research of bonuses not improving output in non-manual labor roles. In my company, we don’t do bonuses, but rather we focus on above-average pay, a great work environment, and positive corporate culture. My line of thinking is that people automatically incorporate the bonus into their standard compensation, and don’t separate fixed from variable pay.

    This strategy won’t work for everyone, but I encourage entrepreneurs to proactively decide on their desired type of corporate culture and compensation strategy, and not just blindly follow the plan from their previous employer.

  • Much Ado About Nothing (re: Competitors)

    Too often, I find first-time entrepreneurs are extremely worried about competitors. Yes, every industry and market has tons of competitors (unless you didn’t do your homework) but the reality is that most markets are big enough to support lots of companies. In addition, competitors usually do one or two things well, at most, and leave other areas for your company to focus. Worrying about competitors is typically much ado about nothing.

    Another key to differentiation is to stay the closest to your customers in your market. This means that the entire company is truly geared towards successful customer relationships, service, and results. Successful clients will talk to other prospects, act as references, and provide invaluable feedback. Only once you’ve lost several competitive deals to a competitor should you dig in and start developing a strategy for that situation. Until then, focus on selling and staying close to your customer.

  • Winner Take All Markets

    The famous software blogger Joel Spolsky has a post up Does Slow Growth Equal Slow Death? where he talks about their challenges in the market and the concern that the market they compete in is a winner take all type market. In that type of market, if they aren’t number one, they’ll be marginalize. I’m of the same belief as the 37signals guys in their response to his post Bug Tracking Isn’t a Network Effect Business where they argue there’s room for many successful bug tracking software companies that appeal to different segments of the market, and solve unique problems.

    For entrepreneurs, my advice is to think critically about your markets and whether or not they are winner take all type markets (e.g. eBay for auctions) or if there’s room for several winners. Most markets support many successful companies.

  • Mindshare Hook Analogy

    We were going to a restaurant in Atlantic Station for brunch today and my wife mentioned she wanted to stop by H&M. I had heard of H&M before but didn’t have a context for their type of positioning in the market. My wife started describing that they had trendy clothes at really low prices. In my mind, I immediately formed an analogy and said that it’s like IKEA for clothes. She said, “yes, exactly.”

    Developing an analogy is critical for hooking into existing mindshare when explaining a business. Finding a brand or analogous situation makes it easier for people to remember what a business does and how it is positioned. For technology companies, I also recommend making an analog analogy whereby the technology is related to a non-technology company (e.g. when Amazon.com was first launched, it was like the Borders or Barnes & Noble of the web).

  • User Feedback

    One of the most profound changes the Internet has brought to the world of software companies, besides software-as-a-service, is that of user feedback. When I say user feedback, I don’t mean just getting emails with feedback on the product, rather I mean all the different ways people talk about the product with you, with others, and on their own. Think about some of the common ways people provide feedback now:

    • Email
    • Phone
    • Twitter
    • Facebook
    • Message boards
    • Idea exchanges
    • Blogs

    The list goes on and on. Generally, the key isn’t to try and be all things to all people. My favorite strategy is to keep track of feedback in a structured fashion (e.g. inside a CRM or Google Spreadsheet) and then once a change has been made that addresses one of those ideas, reach out to the person or all the people that submitted it, and tell them we listened to their request and made the change in the product. You’ve just won a customer for life.