David Cummings on Startups

Blog

  • Differentiating Tech Startups from Service Providers

    At the Atlanta Tech Village we’re reserving 80% of the space for tech companies and tech startups while leaving 20% for tech-related service providers. Of course, the next question that comes up is “how do you define a tech startup?” Some companies that we believe fall in the service provider category claim they are actually a tech startup, so we’ve been debating how best to handle it and have a few ideas.

    Here are some ideas on how to differentiate between a tech startup and a tech-related service provider:

    • Tech startups generate the majority of their revenue from proprietary technology
    • Tech startups have a scalable product and actively strive for a reproducible customer acquisition process
    • Tech startups have product managers and software engineers on staff (service providers could have them but rarely do)

    We don’t have all the answers but we’re actively working on ideas. Over time, we’ll have a better understanding and ways to clearly differentiate tech startups from service providers.

    What else? What are some other ideas to differentiate tech startups from service providers?

  • Google Reader End of Life

    Google Reader is one the few products I use every single day. There are a number of blogs and sites I enjoy staying up-to-date with, especially ones related to entrepreneurship and startups (my favorite blogs). Yesterday, like millions of other people, I read that Google is shutting the service down July 1st to focus on their core products.

    Here are a few thoughts on Google Reader:

    • As a product, it solves a real need in the market, but Google needs billion dollar opportunities, of which it is not
    • RSS, the XML format used to share information, caught on in the enterprise but never transcended to consumers
    • Twitter, as a way to share and find relevant content, fills the human desire to consume fresh information
    • Services like Feedly and NewsBlur are available providing similar functionality

    Google Reader is a valuable and useful tool that wasn’t able to meet its owner’s ambitions. RIP.

    What else? What are some other thoughts on Google Reader?

  • Notes from the Rally Software S-1 IPO Filing

    Rally Software Development Corp., makers of tools to help software engineers be more productive (agile software development lifecycle tools to be exact), just filed their S-1 to go public. S-1 IPO filings are a great way to really dig into a company and read about all the nitty gritty stuff that isn’t usually covered in such detail. Rally is interesting on a number of levels: it’s based on Boulder, CO which has a good tech startup brand but few public software companies, it’s been around for over 10 years (that’s how long overnight successes take), and it’s riding the trend in software development going from a waterfall to agile methodology.

    Here are notes from the Rally Software S-1 IPO filing:

    • 154,982 paid users and more than 1,000 customers, including 36 of the Fortune 100 companies (pg. 1)
    • Customer renewal rate of 129%, taking into account paid seat nonrenewals, upgrades, and downgrades (pg. 1)
    • Agile, as a software development methodology, was introduced in 2001 (pg. 2)
    • 13% of revenue derived from international customers (pg. 4)
    • Growth strategy (pg. 4)
      Increase sales to existing customers
      Acquire new customers
      Continue to innovate
      Expand international presence
      Increase market awareness and drive adoption of Agile
      Strategic acquisitions
    • Incorporated in Delaware in July 2001 under the name F4 Technologies, Inc. (pg. 5)
    • Revenues (pg. 8):
      2010 – $18.4M
      2011 – $29.7M
      2012 – $41.3M
    • Losses (pg. 8):
      2010 – $9.7M
      2011 – $9.9M
      2012 – $11.6M
    • Accumulated deficit of $71.5M (pg. 11)
    • Primary competitors are Atlassian, CollabNet, and VersionOne (pg. 13)
    • 343 employees (pg. 15)
    • $12M line of credit with Square 1 Bank (pg. 54)
    • Venture capitalists own 76.5% (pg. 106)

    Rally has all the makings of a successful IPO with strong recurring revenue and a high growth rate.    Losses are high but growth rate is more important at this stage of their lifecycle.

    What else? What are your thoughts on the Rally Software S-1 IPO filing?

  • 7 Ways to Increase Employee Retention

    Employees are the most important part of a business. Anyone who says otherwise hasn’t built and scaled a growth business from scratch. With the economy slightly improving and demand for talented team members continually increasing, it’s just as important to focus on employee retention  as it is on the recruiting and hiring proces.

    Here are seven ways to increase employee retention:

    1. Build an environment of autonomy, mastery, and purpose (see Drive by Dan Pink)
    2. Be the best place to work and the best place to be a customer
    3. Have all managers read Patrick Lencioni’s book Three Signs of a Miserable Job
    4. Define the culture and religiously enforce it (everyone has a culture but it’s rarely defined and consciously strengthened)
    5. Implement a consistent meeting rhythm and over communicate
    6. Regularly celebrate the small and large wins as a team, regardless of other challenges
    7. Anonymously survey the team members every quarter looking for ways to improve and asking the ultimate question to get a net promoter score

    Here’s my prediction: as the unemployment rate drops, employee retention will become a more popular topic. My recommendation is to create the best place to work and make employee retention a non-issue.

    What else? What are some other ideas to increase employee retention?

  • 7 Sales Metrics to Track

    I love sales, I really do. Unfortunately, it took me many years to fully appreciate it. You see, I’m a product guy — I love the nuts and bolts of the application. Naturally, I thought that if I helped build a great product the world would beat a path to our door. It didn’t happen. What did happen is that after struggling for 3+ years, I realized I needed to become a sales person myself and learn how to build a customer acquisition machine.

    After managing sales people for almost 10 years now, and helping build a sales team from scratch to 28 people, I’ve found seven simple sales metrics to track:

    1. Calls logged — Some sales people love picking up the phone and dialing. Most don’t. Calls logged is the simplest of metrics that reflects activity.
    2. Conversations logged — What good is making calls if no one answers the phone? Conversations are more important than calls logged and are a combination of effort and skill.
    3. Demos scheduled — With a conversation underway, the goal is to get a web demo on the calendar, build rapport, and more fully understand their problems before proposing a solution.
    4. Demos completed — Not everyone shows up to scheduled demos. It’s just as important to track demos completed as it is demos scheduled.
    5. Proposals sent — Once the budget, authority, need, and timeline (BANT) has been established, it’s time to send a proposal. Without BANT, more nurturing is needed.
    6. Deals lost — No one wins them all. Tracking lost deals, and reasons why the deal was lost, is critical, and sales people rarely do it.
    7. Deals won — Victory favors those who are prepared. Nothing is more satisfying to a sales person than a new customer win.

    Sales people hate tracking their activity in a CRM. What gets measured gets done and sales is no different — zealously track sales metrics and hold the team accountable.

    What else? What are some other sales metrics to track?

  • 7 Ideas for Developing a Sales-Oriented Culture

    Quick, think of the top five software companies in the world in your mind. Do you see Google, Oracle, SAP, Salesforce.com (Salesforce.com will be soon enough), and Microsoft? What do the majority of them have in common? Hard. Core. Sales. Culture. They have the largest, most aggressive, most highly compensated sales teams around. Sales, sales, sales — it’s what they do.

    Here are seven ideas for developing a sales-oriented culture:

    1. Celebrate the wins, even the small ones, with significant company-wide recognition (e.g. a funny email to everyone highlighting the most recent deal and how the sales person won it, with some embellishment)
    2. Pick an arch enemy, your most hated competitor, and publicly display an award every time they are beat in a head-to-head deal
    3. Build a clear career path for sales people and make it a black and white process to be promoted to each stage
    4. Develop sales management training programs and mentor programs to always have a strong leadership pipeline
    5. Highlight the sales people’s quarter-to-date quota rankings on a large LED TV to foster competition and internal rivalries
    6. Recognize top performing sales people at all hands meetings, quarterly celebrations, trade shows, etc — sales people love public recognition
    7. Heavily weight the sales team’s input into the product roadmap as the roadmap is the most hotly contested document in a startup

    99% of software doesn’t sell itself. People sell software. No, sales people sell software. Many of the most successful software companies have a sales-oriented culture.

    What else? What are some other ideas for developing a sales-oriented culture?

  • Play to the Individual Strength of a Mentor

    Mentors are an important part of any successful career. One challenge I’ve seen is entrepreneurs asking their mentors and/or advisors for the same help when they should be playing to the individual strength of the specific mentor. When entrepreneurs take the same exact question to all five of their mentors, they’re going to get five different answers, which is fine. What isn’t fine is that mentors don’t often have the same domain expertise and experience, and shouldn’t get the same questions.

    Here are a few things to keep in mind with startup mentors:

    • What is the mentor’s background? Business executive? Tech entrepreneur? Non tech entrepreneur?
    • What areas are they most passionate about? Corporate culture? Financing? Team building?
    • How can they help the most? Introductions? Strategic thinking? Planning?
    • What’s the best communication process? Weekly phone calls? Monthly email updates? Quarterly dinners?

    Mentors help maximize opportunities and minimize mistakes for entrepreneurs while being a critical component of a healthy startup ecosystem. Play to the strength of the mentor for best results.

    What else? What are your thoughts on playing to the individual strength of a mentor?

  • Startup Tax Misconception on Capital Gains

    Recently I heard that there’s a tax misconception in the market with the new ObamaCare 3.8% surtax on investment income, capital gains, and other types on non-ordinary income. The thinking is that the top marginal tax rate, as of January 1, 2013, in the sale of equity held for over a year is 20% Federal long term capital gains plus 3.8% ObamaCare surtax for a total of 23.8% not counting state income tax (e.g. 6% state income tax in Georgia).

    In reality, the 3.8% ObamaCare surtax is not applied to the difference in the transaction value and the amount it would be if it was an asset sale. So, the tax is applied to the appreciation of hard assets, like real estate or financial securities, but not to goodwill like the value of the brand or customers. So, if your company sold for $10 million and had $2 million of assets (current working assets e.g. cash in the bank, equipment, real estate, etc) and $8 million in goodwill (e.g. soft items like the growth opportunity), then the extra 3.8% tax would apply to the $2 million of assets but not to the $8 million of goodwill. Overall, this is great news for technology entrepreneurs as the majority of purchase value is for intangible assets, which won’t have the extra tax.

    Note: this isn’t tax advice so consult your tax professional. More info is available in the Forbes article titled: Is Gain Attributable to the Sale of Goodwill Include in Net Investment Income?

  • 7 Ideas for Types of Meetings in Startups

    Many people think startups should be devoid of most meetings. In large companies, people have meetings just to discuss other meetings. At a startup, it should be all doers and not administrators. Even with doers, meetings are important for alignment, communication, and calibration.

    Here are seven ideas for types of meetings in startups:

    1. Daily check-ins for 10 minutes where each person stands and answers the following questions: what did you accomplish yesterday, what are you going to accomplish today, and do you have any roadblocks
    2. Weekly tactical meetings where you discuss KPIs, what was accomplished last week, and what will be accomplished next week
    3. Weekly show-and-tells for product-centric companies where new features/products/ideas are shown, discussed, and cheered
    4. Weekly company-wide lunches with no agenda other than to hang out and enjoy each other’s company
    5. Monthly strategic meetings where you discuss big topics that take 30+ minutes each
    6. Quarterly off-site where the previous quarter/year is reviewed and the next quarter/year is planned, goals are set, and big items tackled
    7. Quarterly one-on-one check-ins where four questions are answered: what did you accomplish last quarter, what are you going to accomplish next quarter, how will you improve, and how are you following the values?

    This might feel like too many meetings but each has a specific goal and is short with most well under one hour. The net effect is that meetings are more meaningful, take up less time overall, and people look forward to them.

    What else? What are some other types of meetings in startups?

  • 7 Ideas for a Strong Hiring Process

    Getting good at interviewing and recruiting process is something that took us a long time and many iterations to develop. By no means were we perfect, but our annual employee retention was 98% and our net promoter score was in the 70s. Early on we struggled to make the process systematic and then once we hit high growth mode we had to work on make the process faster and more scalable.

    Here are seven ideas for a strong hiring process:

    1. Remember that culture fit is more important than domain expertise
    2. Find the people on your team that most embody your culture and have them as the final step in the interview process (a culture check team)
    3. Make hiring a top priority such that everything is dropped when it’s time to move fast on a candidate
    4. Require unanimous consent on any new hire so that everyone has a powerful say in the process
    5. Include a writing assessment to determine ability to communicate and interest-level in the company
    6. Incorporate a chronological in depth survey as part of the interview and use Topgrading for manager and other senior positions
    7. Communicate frequently with the candidates and let them know their status on a regular basis

    A strong hiring process is critical for companies of all sizes and only becomes even more important as a startup hits high growth mode.

    What else? What are some other ideas for a strong hiring process?