David Cummings on Startups

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  • Go Get Five Customers and Let’s Talk Again

    For idea stage or prototype stage startups, there’s a response that’s becoming more common when pitching angel investors:

    Go get five paying customers that love what you’re doing and then let’s talk again.

    It’s not that angel investors don’t want to help — they do. There are several reasons why this response is more prevalent:

    • Angel investors want to mitigate risk, and signing five paying customers is great progress for the startup towards proving product/market fit
    • An important test for entrepreneurs is ability to follow through and meet a goal, so this is a straightforward assignment
    • The cost of building a product has gone down significantly such that entrepreneurs should be able to scrape together friends and family money together to get a prototype built and sign early customers before raising professional angel money

    Investor dollars are scarce and entrepreneur talent is strong resulting in angels requiring more startup progress before investing. Entrepreneurs should be ready for the response to go get five paying customers.

    What else? What are your thoughts on angel investors requesting entrepreneurs sign five paying customers as a pre-requisite for digging deeper into the investment opportunity?

  • Venture Atlanta 2013 Presenting Companies

    Venture Atlanta is largest annual event in the Southeast that connects startups in Georgia with venture capitalists from around the country.  Today, Venture Atlanta just announced the 2013 presenting companies for the late October conference.

    Here are the companies:

    Early Stage Companies

    Venture Spotlight Companies

    • Aptitude Health – Data analytics services to biopharmaceutical and diagnostics companies
    • Azalea Health – Patient management platform
    • BitPay – Bitcoin payment processing platform
    • Blue Ridge Inventory – Supply chain planning and inventory software
    • Catavolt – Cloud middleware for legacy systems
    • Digitus Biometrics – Physical biometric access control systems
    • Izenda – Business intelligence and reporting software
    • OneCare – Mobile health platform that tracks patient compliance
    • Parkmobile – Mobile payments system for the parking industry
    • Racemi – Cloud and virtualization migration software
    • RazorInsights – Financial and clinical systems
    • REACH Health – Telemedicine software
    • ShopVisible – Ecommerce software
    • SignUp4 – Event registration and management software

    It’s a great group of companies and I’m looking forward to Venture Atlanta next month.

    What else? What are your thoughts on the Venture Atlanta 2013 presenting companies?

  • Thinking About Startup Density for a City’s Entrepreneurial Success

    Tomorrow I’m giving a short talk at the (co) lab summit at the Woodruff Arts Center in Atlanta. One of the sessions is about Fostering Entrepreneurship and I’m speaking on the topic of startup density as an important element of a city’s entrepreneurial success.

    Here are a few thoughts on startup density:

    • Entrepreneurs, like any tribe, seek to share and learn with other like-minded people
    • Urban sprawl, a fact of life for Atlanta, results in startups spread out all over, and little density outside a couple pockets in the city
    • The Atlanta Tech Village, combined with ATDC and Hypepotamus, create serious startup density in Buckhead and Midtown
    • Serendipitous interactions play an important role in startup success and those interactions are a function of density
    • Recycling talent, which happens when members of a failing startup join another startup, increases significantly with density
    • Life can be lonely in a startup with the same tiny group of people everyday, thus instant community that comes with density fulfills a real human need and increases the likelihood of success

    I’m looking forward to the (co) lab summit tomorrow and sharing a few thoughts on the importance of startup density.

    What else? What are your thoughts on startup density for a city’s entrepreneurial success?

  • Does CRM go away as a standalone offering?

    Several months ago I wrote a piece titled HubSpot as the Next Mainstream CRM where I explored the lack of a clear #2 CRM provider in the market and offered that HubSpot might fill that role. Last month HubSpot, at their annual user conference, pushed the message “inbound sales” as the next phase of evolution with their solution.

    With yesterday’s post titled User Engagement Tools vs Marketing Automation, Scott Voigt of Homebase.io offered up that these user engagement tools are quickly becoming a viable alternative to a combination CRM and marketing automation system for companies that don’t have an outbound sales team (e.g. no hunters and sales order taking is done in a self-service fashion). Mike Lewis offered up that his company uses Totango as their user engagement tool and that it’s great for managing user retention at scale.

    So, looking back at the HubSpot-as-mainstream-CRM idea, the premise was wrong. The market doesn’t need a mainstream CRM as separate from the marketing automation system. Sales and marketing are inextricably tied together, and marketing campaign execution and tracking technologies are so good now, they’re leading the way. The marketing system is more important than the CRM system because it delivers more value in the organization. Marketing is driving sales, and marketing automation systems are a better driver at telling sales people where to spend their time, compared to the static information logged into a CRM.

    If an entrepreneur came up to me asking which CRM to use, I’d start talking about marketing systems. A CRM is useful for logging calls and managing opportunity pipeline, but that’s less important than implementing a marketing system. With a marketing system, prospects are tracked, messages triggered, and rules automated.

    So, yes, CRM systems do go away as a standalone offering and become part of a joint sales and marketing solution.

    What else? What are your thoughts on CRM as a standalone offering?

  • User Engagement Tools vs Marketing Automation

    There are a number of new Software-as-a-Service (SaaS) tools on the market that specialize in converting free/trial users into paying users as well as engaging customers on a one-to-one basis. Tools like Customer.io, Intercom, and Evergage are all different in their functionality but are working to solve the same problem. The market lacks a consistent name and uses terms like customer engagement, one-to-one customer communication, prospect conversion, etc.

    Recently, two different entrepreneurs asked me about these user engagement tools, and after digging in, they look like specialized marketing automation systems.

    Here’s partial functionality listed by some of the user engagement tools:

    • Track user-level activities and set triggers
    • Manage and deploy lifecycle emails
    • Automate one-to-one emails based on behaviors
    • Segment and tag users

    So, without having first-hand experience using the user engagement tools, they appear to be specialized marketing automation systems geared towards companies with a web-based applications with a user conversion and engagement process. The interface and functionality is less sophisticated than marketing automation systems, but it’s also easier to learn and more tailored for a specific audience.

    Marketing automation systems already fill the general need in the market for these user engagement tools, but if they are better/faster/cheaper for converting and engaging users in a web-based product, there’s an opportunity out there.

    What else? What are your thoughts on user engagement tools vs marketing automation?

  • Thoughts on Startup Crowdfunding

    Earlier today I was at the Southern Capital Forum on a panel about early stage investing and crowdfunding. Based on the JOBS Act passed last year, soon non-accredited investors will be able to invest in startups. There are a number of unknowns about how the law will actually be implemented as well as how it will affect the fundraising market.

    Here are a few ideas from today’s panel:

    • For tech startups that are difficult to understand, crowdfunding likely won’t do too much
    • For tech startups and consumer-oriented startups with a good marketing story, crowdfunding will provide another market validation option (e.g. crowdfunding could be a precursor to an angel round or replace angel rounds)
    • Standard deal considerations that are applicable to an angel round are also applicable to crowdfunding (e.g. having everyone invest via a single LLC, making the terms fair and consistent with the market so that the startup can raise money in the future, etc.)
    • Non-accredited investors are already investing in startups, so this legitimizes some of that activity

    Overall, there’s significant enthusiasm that crowdfunding will have a material impact on the startup world. I’m looking forward to seeing how it all plays out.

    What else? What are your thoughts on startup crowdfunding?

  • I have a Big Problem to Solve, Not I have an Idea

    Earlier this week I was on a panel with Dr. Paul Judge at a Google-sponsored event titled Georgia’s Digital Economy. The moderator asked a question about evaluating startup ideas and Paul responded with a great answer:

    I don’t want an entrepreneur to come to me and say “I have a great idea.” I want the entrepreneur to come to me and say “I have a big problem to solve.”

    Too often, entrepreneurs get caught up in having a big idea, but there isn’t a big problem to go with it. The next time an entrepreneur tells you they have an idea, tell them you want to hear about a big problem instead.

    What else? What are your thoughts on having a big problem to solve instead of an idea?

  • Startup Earnings or Winnings

    Last month a friend asked me what types of projects I was working on besides the Atlanta Tech Village with my winnings. Hmm, I thought, not saying it out loud, but isn’t the cash from selling a company more earnings instead winnings? Luck is an important part, but so is hard work and timing. Thinking about it some more, I have a few thoughts:

    • Winning the lottery is much more in the luck and randomness category, but to win you still have to put yourself out there and play the game
    • Working without a salary, or at a greatly reduced salary compared to market rate (sweat equity), is one of the many sacrifices to build a successful startup, making money gained from an exit that much more earned
    • Calling it earnings makes it that much more sweet as there’s a sense of making something great that the world chooses to buy, and then seeing the resulting value created

    Does it matter whether it’s called earnings or winnings? No. As an entrepreneur what do I prefer? Earnings.

    What else? What are your thoughts on startup earnings or winnings when describing a good monetary outcome?

  • Thinking About Long Term Profit Margins

    People like talking about enterprise software and Software-as-a-Service (SaaS) valuation multiples. Often, these valuations are presented in the context of a revenue multiple, as revenue is easier to track and more readily shared. In reality, these valuation multiples are driven by growth rate and expected profit margins. The startup phase is all about maximizing growth, but at some point growth stops and there becomes a focus on profitability.

    Here are some thoughts on long term profitability:

    • Greg Crabtree, author of Simple Numbers, Straight Talk, says that a 5% margin is OK, 10% is great, and 15% is amazing (this is for businesses in general and not necessarily tech companies)
    • Mark Suster’s recent post Why The Media Has Been Wrong About YouTube Networks, says the multi-channel network business should be able to achieve profit margins of 50-60%
    • SolarWinds, a publicly-traded software company that is unusually profitable, had a 40% operating margin for last quarter (Google Finance source)

    When thinking about valuations, profitability needs to be one of the top considerations, especially if the business is past the startup phase.

    What else? What are your thoughts on long term profit margins?

  • SaaS Business Apps with a Paid Mobile Client

    Last week I was searching the App Store for an unrelated item and I came across the listing for the HotSchedules iOS app. Now, I normally wouldn’t pay any attention but HotSchedules, with their office in Austin, TX, is actually owned by Red Book Connect, which is based in Atlanta. More importantly, I saw a price tag of $2.99 to buy the app, which really surprised me. Why the surprise? HotSchedules is a B2B Software-as-a-Service app for scheduling hourly workers (e.g. restaurant employees, retail staff, etc) — I’ve never seen a SaaS business app with a paid mobile client.

    It got me thinking about why they chose to charge for it. Here are a few ideas:

    • With an extremely large number of end-users forced to use the software, HotSchedules sees it as an additional, meaningful revenue stream (web based access to the product is free)
    • HotSchedule’s end-users, which are hourly workers, change jobs frequently and are likely to only use their app briefly, making support costs higher, and thus this could be a way to offset some of those costs
    • HotSchedules is in a competitive industry with foes like PeopleMatter and SnagAJob.com, providing more pricing pressure on the core product, such that if they can offer the main application at a lower price, they can capture more market share and make up the revenue via end-users

    I don’t believe paid mobile clients for B2B SaaS app will ever be the norm, but it’s interesting to know that there are examples out there and that companies are trying it.

    What else? What are your thoughts on SaaS business apps with a paid mobile client?