David Cummings on Startups

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  • The Cold Start Problem for Products

    Recently I was talking to an entrepreneur about his Software-as-a-Service company and he was excited that this new company didn’t suffer from the cold start problem he had previously. Not having heard this term before, I asked him to explain it to me. The cold start problem is when someone tries out a new product, like an accounting system, and there’s little real work they can do until significant integration is done (chart of accounts, import data, etc). Other products, like Rigor’s web performance management system, don’t have a cold start problem because you can turn it on and start getting value right away.

    Here are a few ideas to consider if you have a cold start problem:

    • Include high quality demo or test data so that users can experience something of meaning without doing a big integration
    • Consider having client implementation coordinators on-board new customers to ensure that clients get real value as soon as possible
    • Implement a wizard that walks the user through getting started in a way that they get small wins and have a clear picture of next steps

    Some products inherently have a cold start problem and that’s normal. Knowing that it’s a challenge, it’s best addressed in a sustainable, strategic manner.

    What else? What are your thoughts on the cold start problem for products?

  • Balancing the Desire for Full Paying Customers with the Need for Discounting

    One of the challenges that arises when working to achieve product / market fit is around charging full price to a new customer vs offering a discount to get a customer that wasn’t going to pay retail. Of course, in an ideal world every customer would pay retail and be a reference. In reality, the personalities and budgets of the people making the buying decisions come into play and there are desirable accounts where a special arrangement is required.

    Here are a few thoughts on the balance between full paying customers and discount customers:

    • At the earliest stage, any customer is better than no customer, but the key is that they have to pay something to have some skin in the game (the corollary is that they have to actually use the product as well on a regular basis and not just pay for it)
    • As the product matures and new features are introduced, sometimes it’s required to offer a discount to the first few customers that need the new feature so as to have a willing guinea to work out any kinks (this is especially true when moving up market to more complex customers)
    • Develop a written discount policy so that there’s clarity throughout the organization and the sales reps are more autonomous

    As the startup grows and matures the desire to discount should decrease and the number of reference customers should increase. As with anything there’s a balance to be had and it takes time to find out what makes sense. Do whatever it takes to get oxygen for the product and then slowly introduce more standards around pricing.

    What else? What are some other thoughts on balancing the desire for full paying customers with the need for discounting?

  • Automatic Product Pulse With Google Spreadsheets

    Github, the largest source code hosting and collaboration platform, has a great built-in tool call Github Pulse. Github Pulse highlights key aspects of a project like number of authors, commits, pull requests, open issues, closed issues, and more in a designated time frame (e.g. 1 month). The same way Github Pulse provides an automatic dashboard of a project, startups would do well to build an automated pulse of their product usage using the Google Spreadsheets API.

    Here’s how an automatic product pulse with Google Spreadsheets would work:

    • Blank Google Spreadsheet with columns for each piece of relevant data and a new row for each day of data
    • Nightly cron job to insert a new row of data based on the previous day’s data in one or more sheets
    • Example columns: New accounts, deleted accounts, new account revenue, deleted account revenue, new users, deleted users, active users, user logins, # module A created, # module A updated, # module A used, # module B created, # module B updated, # module B used, etc (where each number represents the amount for that one 24 hour period)
    • Charts and graphs would automatically update based on data

    Overall, the idea is to spend a few engineering cycles to build a system that automatically sends data on a regular basis to a cloud-based spreadsheet so that everyone in the company can see the most important information at a moment’s notice. Taking it one step further, the product pulse could then be displayed on a large LED TV, much like a LED Scoreboard, so that the most important product metrics are always top of mind.

    What else? What are your thoughts on an automatic product pulse with Google Spreadsheets?

  • Getting to Entrepreneurial Freedom – Break Even with a Personal Salary

    Continuing with the previous post titled Entrepreneurs on Annual Revenue Goals, the clear next step is talking about controlling your own destiny. For almost all entrepreneurs, one of the biggest milestones on the startup roller coaster is achieving entrepreneurial freedom: financial break even in the business while also paying a salary that covers personal expenses and obligations. With a self-sustaining business and a self-sustaining personal lifestyle, stress and financial pressures are relieved.

    Here are a few thoughts on getting to entrepreneurial freedom:

    • Keep the team lean and focus on customer acquisition (see Simplifying it Down to Selling or Building)
    • Remember to keep the seed round small to minimize dilution and maximize ownership (see Death to the $700k Seed Round)
    • Ignore the desire to raise VC money for idea validation and instead build a great business that can raise money on its own terms (or never raise money)
    • Never forget the four stages of a B2B startup (e.g. don’t start investing in one stage when the previous stage isn’t fully developed)

    Whether bootstrapping the business or enlisting the help of investors, one of the most liberating moments is growing the business to the point that it can exist indefinitely on its own. While not easy, achieving entrepreneurial freedom is well worth the challenge.

    What else? What are some other thoughts on getting to entrepreneurial freedom?

  • Learn, Earn, and Change the World

    A popular question from would-be entrepreneurs is “What should I do next?” Should I join a startup to learn as much as I can, start my own company to try to earn as much as I can, or pursue a change-the-world idea I’ve always wanted to do? Mark Suster has a great post up titled Is it Time for you to Earn or to Learn? My recommendation is similar to Suster’s:

    • Join a startup initially, especially one with a successful entrepreneur or successful VCs (it’s always faster and easier to learn from a mentor), unless there’s the rare case where you have an idea you love and can bootstrap it or raise money for it in a modest amount of time (e.g. 12 months)
    • With several years of experience (e.g. 3 – 7) in the startup world, you’ll have had enough time to experience some ups and downs, learn what works and doesn’t work, and see a variety of business best practices. And, importantly, several business ideas will have emerged. Now’s the time to start a company.
    • Serious success has been achieved and now the part-time passion project can be turned into a bigger initiative with significant resources. Change the world projects come in all shapes and sizes.

    So, there you have it: learn, earn, and change the world. Naturally, there’s no perfect route but it’s best to play the game.

    What else? What are your thoughts on learn, earn, and change the world?

  • Entrepreneurs on Annual Revenue Goals

    Entrepreneurs are an optimistic bunch. When talking about revenue goals for the year, the most common approach is to pick numbers that feel reasonable and idealistic while also fitting into a spreadsheet narrative. Of course, it’s extremely difficult to estimate revenue without a repeatable customer acquisition process in place for a year. Why? For the most accurate revenue forecasting, a bottom-up financial model is superior to educated guessing.

    Here are a few thoughts on annual revenue goals:

    • Consider number of sales people, length of sales rep ramp up time, ratio of sales reps that work out to ones that don’t work out, number of leads required per sales rep, and more (hence the need to have operating history with reliable data for each category)
    • Analyze key metrics like cost of customer acquisition, gross margin, lifetime value of the customer, annual renewal rate, annual up-sell rate, and more to make sure that the numbers in the plan are inline or below industry averages (they should be worse than industry averages because economies of scale haven’t kicked in yet)
    • Without operating history from a repeatable customer acquisition process, take whatever data that’s available and conservatively extrapolate it out into a plan (this is where optimism combines with rose colored glasses)
    • Pardot’s revenues, previously published for magazine and newspaper awards, were as follows:
      Year 1 – ~$3,000
      Year 2 – ~$400,000
      Year 3 – ~$1,200,000
      Year 4 – ~$3,200,000
      Pardot isn’t the norm and that was the revenue growth with an amazing team, product, and market.

    Naturally, entrepreneurs are going to be optimistic thinking through annual revenue goals, but it’s important to use data and make them realistic. Growing revenue is always much more difficult than it appears on a spreadsheet.

    What else? What are some other thoughts on entrepreneurs and annual revenue goals?

  • Micro Apps as Next Generation Content Marketing

    Have you ever been to Grader.com and gotten a marketing grade for a website? Amazingly, over one million people have done it. And, you know what, it’s an unbelievable lead generation channel for HubSpot. Much like content marketing – blogging, white papers, ebooks, SEO, etc – has been a mainstream marketing tactic for over a decade now, there’s a new kid on the block: micro apps.

    A micro app is a custom web application that provides some type of useful value, like Grader.com’s automated evaluation of marketing best practices for a website, in exchange for contact information (e.g. we’ll give you some value at no charge in exchange for becoming a lead). Micro apps are more difficult to build and more expensive to maintain, but also provide more value and interactivity compared to traditional content marketing.

    Here are some more micro app examples (Disclosure: I’m an investor in these companies):

    Due to the technical nature of micro apps it’s never going to be as popular or mainstream as content marketing, but for the sophisticated companies that can pull it off, micro apps will be an excellent source of lead generation.

    What else? What are your thoughts on micro apps as next generation content marketing?

  • Simplify it Down to Selling or Building

    When talking to a founder or early employee in an early stage startup I always start by asking “What do you guys do?” After that, I follow up with “What do you personally do in the startup?” When they answer, I like to mentally categorize it in one of two buckets: selling or building. If the person provides a long answer without much clarity, I’ll make my question more specific and say, “Do you sell or build?”

    One of the goals with this line of questioning is to get the person to focus on selling and/or  building. Too often, I hear that people focus on things like strategic direction, managing an advisory board, etc. Those are important occasional things, but shouldn’t be the day-to-day focus of a few person startup. Once product / market fit is achieved, more team members are brought on, and there’s room for specialization, it makes sense to branch out. Until then, almost all of the effort should be either selling or building.

    What else? What are your thoughts on simplifying the seed stage startup experience as either selling or building?

  • The Trough of Disillusionment for Entrepreneurs

    There’s a Hype Cycle is a methodology invented by Gartner about technologies whereby expectations start out in grand fashion only to fall off sharply into the trough of disillusionment. Then, slowly, over time the visibility and impact grow creating tremendously productivity and value. Entrepreneurs follow a similar path on the personal level when building a new company.

    Over the last week I’ve talked with two different entrepreneurs that were in the trough of disillusionment. Of course, they didn’t volunteer to me that they were in the trough of disillusionment. Instead, they said that they were down because they’d been pushing hard on their new startup for the past year and haven’t seen the results they expected. Worse, results on the revenue side were almost none existent. With the advent of the New Year, and the typical reflection time, more stress is self-inflicted around achieving success.

    Here are a few thoughts on the trough of disillusionment:

    • Startups always have highs and low lows, so attempt to keep perspective
    • Business models like the Software-as-a-Service / cloud model are beautiful, but the time to build a customer acquisition machine is often excruciatingly long
    • Everything takes twice as long and costs twice as much as expected, so plan accordingly
    • Gut checks are critical throughout, and sometimes the right move is to keep moving forward and sometimes the right move is to give up

    The next time things are going poorly, think about the trough of disillusionment and figure out where things stand. Much like Seth Godin’s The Dip, sometimes things get worse before they get better.

    What else? What are some other thoughts on the trough of disillusionment for entrepreneurs?

  • One Page Strategic Plan for the New Year

    One of my favorite exercises for entrepreneurs is putting together a one page strategic plan. The exercise only takes an hour for a rough draft and provides immense value. Generally, the idea is to capture as much pertinent company information as possible on the front side of one piece of paper, preferably as a living Google Doc (Google Doc template), and refreshed on a quarterly basis.

    Here are the categories:

    • S.W.O.T. Analysis
      – Strengths
      – Weaknesses
      – Opportunities
      – Threats
    • Core Values
    • Purpose
    • Three Year Target
    • Annuals Goals
      – Goal 1
      – Goal 2
      – Goal 3
    • Quarterly Goals
      – Goal 1
      – Goal 2
      – Goal 3
    • Quarterly Priority Projects
    • Market
    • Brand Promise
    • Elevator Pitch

    So, if you don’t do anything else this week, please, please, please put one together based on the Google Doc template and share it with everyone inside and outside your organization.

    What else? What are your thoughts on putting together a one page strategic plan, especially as part of the start of a new year?