David Cummings on Startups

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  • Purposefully Adding Friction to a Process

    Generally, I’m a big proponent of making things as frictionless and simple as possible. Whether it’s product pricing, customer onboarding, support channels, or any number of other items, less headache is better. Now, there are certain things where adding friction actually adds value, especially when done in a tasteful way.

    Here are a few areas to consider adding friction:

    • Hiring Process – It’s important candidates have a good experience, but it’s also important to fully vet and evaluate the person with tasks like a writing assessment, technical evaluation, reference checks, and more
    • Partnerships – While startups should say ‘no’ to most partnership requests, opportunities do arise that merit further evaluation, and adding friction like guaranteed minimums, joint marketing arrangements, and more can make it worthwhile
    • Raising Money – Just because an investor offers money doesn’t mean extensive reverse due diligence shouldn’t take place by calling CEOs of past investments, holding mock board meetings, and vetting the investor as much as the startup’s been vetted

    Adding friction here means being more thoughtful and taking more time that originally anticipated so as to achieve a better outcome. Most of the time friction should be removed but in select cases it should be added.

    What else? What are some other thoughts on when friction should be added to a process?

  • Make the ‘Ask’ at the End of a Presentation

    Earlier today we had a great “Show and Tell” event at the Atlanta Tech Village where four entrepreneurs gave a five minute update on their startup followed by five minutes of Q&A:

    The five minute updates ranged from personal stories to sales videos to product demos. With an audience of fellow Villagers, there was an opportunity to make an ‘ask’ — that is, to get help from the community. Whether it’s names of relevant mentors, introductions to potential prospects, or something else, a group of people always can help. Only, most people don’t make an ‘ask’ when presented with an opportunity.

    My advice: make the ‘ask’ at the end of a presentation.

    What else? What are some other thoughts on making the ‘ask’ at the end of a presentation?

  • Sales Development Team: Most Important Sales Process Innovation in 10 Years

    Kyle Porter shared Craig Rosenberg’s great new post The Sales Development Team: A Proven Framework for Success. Sales development became popular after Predictable Revenue hit the startup circuit a couple years ago. Now that I’ve seen sales development teams in action at several companies, I believe it’s the most important sales process innovation in the last 10 years.

    Here are the headlines from the sales development team article:

    The Case for Sales Development

    1. Connecting with prospects requires time and resources
    2. A fast, standardized lead follow-up process is the key to conversion
    3. Converting a lead to an opportunity requires its own playbook and subsequent training and coaching
    4. Sales Development means a higher lead to opportunity conversion
    5. Marketing and contact data is vastly improved with sales development
    6. Sales and marketing alignment
    7. Increased productivity and efficiency from quota-carrying sales reps = more revenue
    8. Your buyer wants you to follow-up

    Designing the Sales Development Organization

    • The importance of the qualified lead definition
    • Sales development organizational design
    • SDR compensation
    • Training, onboarding, and coaching
    • Sales development hiring
    • Sales development metrics
    • Sales development technology

    I’d recommend heading on over and reading The Sales Development Team: A Proven Framework for Success. Sales and the sales process is much more scientific than ever before, and with sales development teams it becomes even more predictable.

    What else? What are some other thoughts on sales development teams?

  • Lack of Liquidity With Angel Investing

    A common adage in angel investing is “invest an amount that you don’t care about losing.” Now, it isn’t that you want to lose any money as cash is cash, whether it’s $10,000 or $100,000. Yes, angel investing is risky, but there’s also no liquidity for an extended period of time, if ever. So, if you’re going to invest $25,000 into a startup, it isn’t like putting $25,000 into the stock market where if you change your mind you can take the money out at the prevailing price.

    No, once the money is invested, not only is there no timeline to be able to get it back, you also have to put in more money to maintain your ownership position, assuming pro-rata rights (I’ve always heard that you should save $3 in reserve for every $1 you invest). Once you’ve invested in the startup, it’s truly like the money is gone, and the lack of liquidity is the main culprit.

    While lack of liquidity is a big challenge, angel investing is much more interesting and rewarding than making traditional investments in places like the stock market. The opportunity to help entrepreneurs change the world, develop a mentor/mentee relationship, and invest in the next generation of leaders provides its own value. Access to cash matters but there are intangibles that are difficult to measure.

    The next time you think about making an angel investment, remember the lack of liquidity challenge and make sure that the money isn’t needed for a long, long period of time.

    What else? What are some other thoughts on lack of liquidity with angel investing?

  • Excitement of Kicking Off a New Project

    As an entrepreneur, one of the most exciting things to do is to kick off a new project. Now, many entrepreneurs aren’t the best at finishing all projects (looking at myself, guilty as charged), but starting new initiatives comes naturally. One important entrepreneurial trait is being able to see and appreciate what will be achieved in the future, even when others around you have a hard time seeing the potential.

    Here are a few thoughts on kicking off a new project:

    • New projects often involve other people, so it’s critical to be able to inspire others around you (sometimes it isn’t inspiration but just wearing them down so much that they’re ready to give it a try)
    • Details do matter and someone has to manage them (it takes all types of people to succeed)
    • Bring in the experts with complementary strengths (going alone is terribly difficult)
    • Continue to talk about the potential and remind everyone what’s on the horizon

    Kicking off a new project is exciting for entrepreneurs due to the internal spirit and energy for trying new things. Take the passion and channel it to the necessary team members to see things through to completion.

    What else? What are some other thoughts on entrepreneurs and new projects?

  • Growth-Oriented Entrepreneur Required

    Earlier today I was talking to a serial entrepreneur about patterns of success he’s seen in other entrepreneurs. His assertion: every startup needs to have a growth-oriented entrepreneur on the team. Growth, often synonymous with sales, is about moving the business forward in a revenue-focused manner. There are many smart, hard-working entrepreneurs out there that haven’t achieved success, and, in general, they focus too much attention on non-revenue generating parts of the business. Sales and marketing is a critical part of success and most entrepreneurs don’t figure it out.

    Here are a few thoughts on the need for a growth-oriented entrepreneur:

    • Growth isn’t purely about selling, but having someone that can sell absolutely helps
    • Revenue can come from direct and indirect sales, partnerships, etc — the key is that someone is passionate about it
    • If something can’t be sold, or the market isn’t ready, a growth-oriented entrepreneur is going to find an opportunity that does exist
    • Some of the best cofounder complements come when one is growth-oriented and the other is product-oriented

    As a community, we need to be talking more about customers and less about cool features. Nothing happens until something is sold. Make sure a growth-oriented entrepreneur is on the team.

    What else? What are some other thoughts on the idea that a growth-oriented entrepreneur is required?

  • Employee Equity Value at Time of Exit

    Joelle Fox asked a question earlier today about reasonable expectations for the amount of money a startup employee might make at time of exit based on their equity or stock options:

    https://twitter.com/joellefox7/status/451436670198759424

    Of course, there’s no exact answer, but there are several good examples to talk through. Generally, when talking about equity for startup employees, I like to set expectations that if we do well, this will pay for a nice new car (e.g. $40k). If we do great, it’ll pay for a new house (e.g. $400k), and if it’s a once-a-decade company, it’ll pay for a new life (e.g. $4M). The reality is that most of time the equity isn’t worth anything because the startup goes out of business or doesn’t sell for an amount that’s greater than the amount of money invested.

    Typical equity grants in a startup are in the .1 – 1% range, assuming fewer than 10 employees and some funding. In the example above with the new car, house, and life, if you assume .4% fully diluted ownership of the business, the company would have to sell for $10M, $100M, and $1B to achieve those results. Very few startups ever sell for $100M or more, so the common outcome, assuming there’s any success at all, is in the new car range (e.g. .2% and sell for $30M, results in $60k for the equity).

    So, equity should be viewed as icing on the cake and the salary and benefits should be the main financial compensation. Of course, there are stories of winning the lottery, and it’s definitely possible to hit it big in a startup, but that shouldn’t be the main driver.

    What else? What are some other thoughts on employee equity value at time of exit?

  • Time to Wow

    David Skok has a great new article up on his blog titled Growth Hacking Free Trials: Time to Wow! is the key to success. The idea is that whenever a startup has a free trial, the most important thing is getting the prospect to use enough of the product that they achieve a sense of satisfaction and level of success so that they come back. Now, this doesn’t mean they have to use every feature. What it does mean is that there’s often a critical module or function that provides a tremendous amount of value, and once the lead successfully uses it, the chance of converting into a customer goes up considerably.

    Here are five questions David asks:

    • How long does it takes to get to Wow!? (Time to Wow!)
    • What is the drop out rate of trial users on their way to Wow!?
    • Is the Wow! moment clear and strong enough?
    • Are different buyers interested in seeing different Wow! moments? (This is often the case in a product that has several modules.)
    • Are we providing the buyer with clear guidance on how to get to Wow!?

    Everyone in the business of signing up and converting prospects would do well to go read David Skok’s post.

    What else? What are some other thoughts on time to wow for products?

  • Atlanta Startup Village March 2014

    Tonight we have the monthly Atlanta Startup Village at the all new Atlanta Tech Village conference center. With 450+ people already signed up, it’s easily the largest monthly gathering of entrepreneurs in the Southeast. Here are tonight’s presenters:

    • Yik Yak – Location-oriented mobile messaging app that’s super popular on college campuses (see the TechCrunch write up)
    • Siftit – Marketplace connecting restaurants and vendors
    • cubic.fm – Music discovery platform that connects with Spotify and other apps
    • Abate Solutions – Restaurant management system including table-side tablet ordering tools
    • Dragon Army – Mobile game studio — launching their new game Robots Love Ice Cream

    The event is free and open to the public. Please come out and support Atlanta entrepreneurs.

  • Get 10 Paying Customers and Let’s Talk

    Last week an entrepreneur approached me after an event and said he wanted to get together and talk about his business idea. Having experienced a similar encounter many times before, I knew the next question to ask: how many paying customers do you have? Now, I’m not trying to make a statement that I know he likely doesn’t have any paying customers (he didn’t), rather I’m trying to focus the conversation towards an area that I can add real value.

    See, I’m almost certainly not his ideal customer and I don’t think he’s looking to do customer discovery with me. Entrepreneurs want validation and positive reinforcement from anyone, even if that person isn’t relevant to the target market. I want to help, I really do. With so much great content online about customer discovery and the cost to build a minimum viable product so low, the bar is higher now.

    For entrepreneurs requesting a meeting, requiring a one page strategic plan in advance makes for a much more efficient conversation. Taking it further, requiring a one page strategic plan and at least 10 paying customers really applies a strong filter and results in even better conversations.

    What else? What are your thoughts on the idea of asking for at least having 10 paying customers before meeting?