David Cummings on Startups

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  • The Indirect Revenue Model App

    There’s a popular web pundit quote, “If you don’t pay for the product, you are the product.” Think about a company like Twitter or Facebook — they don’t charge to use the app but they make money by turning you, the user, into a product to market ads on behalf of the the advertiser. While this makes sense, there are actually a number of apps out there that aren’t what they seem when it comes to their primary revenue stream. Here are a few app examples:

    • Lead Gen Apps – Often micro-apps, these are simple services that provide some value in exchange for personal information for a sales rep to follow up and sell something else (see Micro Apps as Next Generation Content Marketing)
    • Transaction Apps – Even if an app has a monthly fee, there are many products out there that actually make more money off of transaction fees (e.g. pay $50/month to be a customer and then pay 10% for each payment collected resulting in more revenue from the transaction fees than the recurring monthly fee)
    • Secondary Apps – Some apps are built and sold as stand alone products, but they are really designed to fill in the gaps for a complementary app. This often happens when a technological shift has occurred and the original app can’t be adapted with the required changes, making it more cost effective and less painful to build a new app that takes advantage of the improved technology while supporting the original app.

    Product pricing and the main revenue stream for an app aren’t always what it seems. Pay attention to indirect revenue model products and figure out the true strategy.

    What else? What are some other examples of indirect revenue models?

  • Customer Acquisition, Customer Acquisition, Customer Acquisition

    As I talk to entrepreneurs, it’s apparent that the #1 challenge far and away is customer acquisition. The days of needing to raise serious cash to build a product are over. The days of worrying about scaling an app are over (see WhatsApp supporting 450 million users with 32 engineers). That’s right, if an entrepreneur shows up and hasn’t been able to get a simple prototype built and some people using it, they aren’t meeting the new minimum expectation.

    As building a prototype has dropped to a few thousand dollars, it puts even more pressure on customer acquisition. If anyone can build a product, it makes sense that more products will get built, and more competition will emerge for the same potential customer.

    Looking back, there are so many customer acquisition related posts that it makes sense it’s the most difficult problem to solve. Whether it’s Pick a Customer Acquisition Model that Make Sense, Lead Generation as the #1 Challenge for SaaS, or Double Inside Sales Rep Productivity in a Week, there’s no shortage of ideas to try.

    Customer acquisition is much harder than entrepreneurs expect. In fact, it’s the hardest thing to master.

    What else? What are some other thoughts on customer acquisition?

  • Pick a Customer Acquisition Model that Makes Sense

    Earlier today I was talking with an entrepreneur who was trying to figure out a repeatable customer acquisition process. After digging into his model, I asked the question, “How do you want to acquire customers?” He replied that he preferred an inbound marketing model with self-service customer onboarding and paying. In other words, he wanted a model that didn’t require humans selling to other humans. After thinking about it further, it gave me more clarity around the importace of playing to the strength of the founding team and/or the talent available to bring on to the team. If the model requires building an amazing inbound marketing engine, and the talent’s not on the team, it either needs to learned, recruited, or the idea needs to change.

    Thinking about it, there are three commmon customer aquisition models:

    1. Pure Marketing – Tons of storytelling, content marketing, brand building, and campaigns to generate customer sign-ups. No humans selling. Minimal product customization. Self service as much as possible.

    2. Inside Sales – Heavy phone, email, and web-oriented sales people — both lead follow-up and outbound prospecting (see Double Inside Sales Rep Productivity in a Week). Inside sales is labor intensive and requires a product price point and sales cycle to warrant people selling to people.

    3. Field Sales – Large deal size and complexity often warrant face-to-face selling. As a model, it’s very expensive and often capital intensive to get started. Few SaaS startups employ this model, although many have tried and failed.

    The next time an entrepreneur starts talking about an idea, inquire as to the expertise around customer acquisition models — especially marketing-based, inside sales, and field sales — and see if the shoe fits.

    What else? What are some other thoughts on picking a customer acquisition model that makes sense?

  • Four Takeaways from the Atlanta TechCrunch Meetup

    Tonight over 800 people turned out for the TechCrunch meetup at the The Fabulous Fox Theatre. While there were some sound difficulties, overall the event was a big hit with a ton of networking, pitching, and excitement around startups. After talking with a number of entrepreneurs and people in the local community, I left with four takeaways:

    1. Atlantans love the city and truly want to put our region on the map for tech startups and entrepreneurship
    2. Startups and entrepreneurship are slowly making progress towards mainstream adoption as a viable career path
    3. Pitches need to highlight some progress and execution as most ideas tonight sounded far-fetched
    4. Human relationships matter even more in the age of pervasive technology, and the entrepreneurs that get the most value from the writers and editors are the ones that connect on a personal level

    TechCrunch has such a broad reach that it helps bring people together that don’t normally attend the startup events in town, and that’s a good thing. I look forward to future events.

    What else? What are some other takeaways from the Atlanta TechCrunch meetup?

  • Simple is Difficult for Entrepreneurs

    Many startups talk about keeping things simple, almost like a badge of honor. When trying to solve a problem, present a message, or interacting with a user, complexity is the natural response. Humans, especially engineers, enjoy providing comprehensive solutions that meet the needs of as many people as possible. Or do they? On average, making something simple and good is much harder than making something merely good.

    Here are several areas where I’ve seen startups have difficulty with simple but good:

    • Elevator Pitch – More often than not, elevator pitches are too complicated and don’t leave the recipient with a decent understanding of the idea (see Offline Analogy to Describe a Startup)
    • Messaging – Quick, go to five startup sites and read their homepage or most recent press release. How clear is the message? How much jargon and corporate-speak is used? Overwhelmingly, startups struggle with clear messaging.
    • Metrics – Typically, too many numbers are tracked making the important metrics less meaningful and rendering the other metrics more likely to be glossed over (see Metrics Tracking Based on Startup Scale)
    • User Experience – Often, the user experience is the most difficult to make simple and still good. Making a product intuitively obvious to the casual user is more art than science, and few people understand it.

    Delivering simplicity that is also high quality throughout a startup is hard. Very hard. The best entrepreneurs follow the idea of Occam’s Razor: “simpler explanations are, other things being equal, generally better than more complex ones.”

    What else? What are some other areas that startups have difficulty delivering simple but good?

  • Consulting Work to Fund Product Development

    One of the more common entrepreneur strategies is to use consulting work to generate cash to then fund product development. In fact, the most successful fast-growing software company in Atlanta, MailChimp, is actually owned by The Rocket Science Group, which for many years was a web design firm. The Rocket Science Group built MailChimp after identifying a need in the market for a simple, easy-to-use email marketing product, and now they have one of the most widely used products in the world.

    In thinking about consulting work to fund product development, here are a few things to keep in mind:

    • Consultants think in terms of time and materials, which can be limiting when trying to build a successful tech startup
    • Try to separate the consulting team from the product team so that the product team isn’t distracted and can focus 100%
    • Plan for everything to take three times as long and cost three times as much (it’s incredibly difficult to get past the first two stages of the B2B tech co lifecycle)
    • Join a community of like-minded entrepreneurs and find members with successful tech businesses (e.g. Entrepreneurs’ Organization)

    Consulting work to fund product development is difficult to pull off but very desirable when it works. Set internal expectations accordingly and settle in for a long adventure.

    What else? What are some other thoughts on consulting work to fund product development?

  • The Atlanta Tech Village Verified Program

    One of the initiatives we’re working on at the Atlanta Tech Village is the Village Verified program. With the initiative, our goal is to identify potential startups that have achieved some modest level of success and are poised for greater growth. Having 140+ startups in the same facility is amazing, but we need a way to funnel extra resources and programs to a smaller number of companies.

    Here are a few details on the Village Verified program:

    • Membership is for startups that have raised at least $100,000 from investors OR have at least $100,000 in revenue (either trailing twelve months revenue or $100,000 in annual recurring revenue)
    • Provided $10,000 in credits from Amazon Web Services, $24,000 in credits from Rackspace, and several other special deals at no charge
    • Domain-specific peer lunches and roundtables (e.g. for engineering, sales, marketing, etc)
    • Special meetings with VIP guests (Village Verified companies had a special lunch with the Mayor of Atlanta as well as other executives and investors in town)
    • Must complete a One Page Strategic Plan and review it bi-annually

    With the Village Verified program, we want to find a balance with our large, all inclusive events while providing more attention and resources to startups that have differentiated themselves. As with everything we do, we’re constantly experimenting and looking for ways to make things better. Check out the Village Verified program and help spread the word.

    What else? What are your thoughts on the Village Verified program at the Atlanta Tech Village?

  • Betting on Teams and Markets

    On a weekly basis I receive several requests from entrepreneurs to talk about their idea. Typically, I’ll reply back that I’m not a good judge of the quality of an idea and that customer discovery is a much better approach. Rather than discuss ideas, I’m much more interested in discussing execution and what’s working and what’s not working. Overall, especially from an investor perspective, I’m more interested in betting on teams and markets as compared to ideas.

    Here are a few thoughts on betting on teams and markets:

    • Rarely is the initial product direction the best (see Pivoting is More Common than Expected), so a team in a great market will find a better opportunity
    • Timing is critical (see Timing a New Market), and a strong team with a strong market is more likely to get it right
    • Markets are incredibly dynamic, making strength of team so important due to the huge of number decisions that have to be made on a regular basis

    When entrepreneurs talk about ideas, listen, but spend more time drilling into the team and market, as that’s a stronger bet.

    What else? What are your thoughts on betting on teams and markets instead of ideas?

  • Joint Webinars as a Top 10 Lead Generation Tactic

    One of the best ways to generate new leads is through joint webinars with partners. Webinars, as a seminar delivered over the internet using a tool like GoToWebinar or ReadyTalk, are great because of attendee interactivity and the ability to interface with a large number of people all at once (great economies of scale for delivering rich content). By combining with a partner to do a webinar, there are a number of benefits:

    • Cross promotion of the webinar drives more registrations (e.g. social media, blogging, emails, sales reps, etc drive signups for the event)
    • Counter-part at the other company is a resource to collaborate with on the content, review slides, etc
    • Sales reps are always looking for a good reason to reach out to prospects (e.g. join us on our XYZ webinar next Tuesday at 2pm)
    • Ability to share in the credibility and social proof of the other company (e.g. a startup can earn some credibility by associating with a more established company)

    Joint webinars are one of the best ways to generate leads and deliver fresh content. Startups and marketers would do well to incorporate them into their lead gen mix.

    What else? What are your thoughts on joint webinars as a top 10 lead generation tactic?

  • A Few Data Points on Domain Name Prices

    Entrepreneurs that have been in the software world since the dot com days love a good domain. Now, we’re seeing more .co and .io domains but .com domains are still the the most sought-after and most expensive. Over the years, I’ve purchased several domains at auction and helped other entrepreneurs acquire domains.

    Here are domains I’ve purchased or been an angel investor in the startup at time of domain purchase along with their price:

    • terminus.com – $10,000
    • kevy.com – $4,000
    • atlantaventures.com – $1,750
    • inspirational.com – $14,000
    • chipshot.com – $12,000
    • salesloft.com – $1,000
    • rivalry.com – $10,000
    • rigor.com – $4,000
    • clickscape.com – $750

    Using a marketplace like Sedo.com and budgeting ~$1,000-$10,000, there are still a number of quality .com domains available for purchase.

    What else? What are some other example prices for domain names?