David Cummings on Startups

Blog

  • 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?

  • 7 Ideas for a Great Startup Office

    Offices have always fascinated me. Much like a house is a personal reflection of your tastes, interests, and style, so is a startup’s office. In 2001 I rented my first office space while still an undergrad in college — it was one single 12×12 interior room in an old three story brick office building on 9th Street in Durham, NC. My nickname for the room was the “Prophet Profit”, which, while wasn’t correct in the sense that I didn’t make any money, but was correct in that I learned an immense amount that later paid off.

    That first office/room was very simple: four plain glass desks and chairs from Office Depot, tall glass shelves with a stereo on top, a dart board, four used PCs, and four giant 21″ CRT monitors. That’s it — a simple office outfitted by Office Depot and Dell. From there, my tastes and ideas evolved considerably.

    Here are seven ideas for a great startup office:

    1. Tons of natural light
    2. Nice open areas as well as several little rooms
    3. Large eating area for team meals and events
    4. Aeron chairs (used!) and IKEA furniture
    5. Massive LED TVs with attached Apple TVs for AirPlay
    6. Location convenient to restaurants, public transportation, exercise options, etc
    7. Visual ways to reinforce the corporate culture (e.g. a culture book, painted picture, etc)

    A great startup office sets the tone for employees, recruiting new hires, customers, and more. Figure out how to make it cool in a cost-effective manner and improve it as the business becomes more financially viable.

    What else? What are some other ideas for a great startup office?

  • 7 Ideas for More Effective Cold Calling

    I love cold calling — I really do. It isn’t that I personally love doing it, rather, I love it as a sales technique that is powerful in fast-growing markets with an average ticket value high enough to warrant the effort. Way back in 2001, I personally made many cold calls to web design companies in an effort to sell my content management software. While I wasn’t successful then, by 2004 when we started cold calling college and universities to sell content management software, the technique proved extremely effective.

    Here are seven ideas for more effective cold calling:

    1. Look for clues online for qualified people to call (e.g. tweets, LinkedIn Group discussions, Google Alerts, etc)
    2. Develop a compelling 20 second value proposition to get the message across quickly suitable for both live phone conversations and voicemails
    3. Incorporate relevant social proof into the opening line (“We helped Acme Corp make $500k/year more by automating their lead nurturing…”)
    4. Recognize that the goal isn’t to make a sale on the first call but rather to get them to see a web demo or take some next step
    5. Connect SmartSheet.com with Amazon Mechanical Turk to outsource high quality list building
    6. Use SalesLoft’s Automated Prosepctor to harvest names, job titles, and more automatically via a Google search
    7. Hire a sales assistant to take care of the heavy lifting

    Cold calling is effective and works for startups. Like anything, it’s hard work and takes time to get good, but the results speak for themselves when well executed.

    What else? What are some other ideas for more effective cold calling?

  • 7 Ideas to Start a Customer Acquisition Machine

    Let’s assume you’ve been working on a new cloud-based application for several months, have a few friendly customers, feel like product/market fit is getting close, and think it’s time to start creating the customer acquisition machine. You’ve read online about SEO, SEM, cold calling, trade shows, etc. Where do you begin? The best way to build a marketing plan is through a combination of top-down and bottom-up planning, just like with a bottom-up sales forecast, but in this case you don’t have enough data yet.

    Here are seven ideas to start a customer acquisition machine:

    • Write two blog posts per week
    • Guest write an article or blog for another site two times per month
    • Send 1-2 solid tweets per day
    • Participate in two or more LinkedIn Groups each week
    • Cold call 50 potential prospects per week
    • Spend $100/week on Google AdWords
    • Talk with at least two beta customers per week about what they like and don’t like and then ask for referrals

    A customer acquisition machine is much more complex than this but it’s important to start with something and execute against it. Over time, results will emerge showing what is and isn’t working, so adjust accordingly.

    What else? What are some other ideas to start a customer acquisition machine?

  • Innovation Scouts for Big Companies

    This past week the term “scout” came up in two different conversations in the context of big companies hiring other companies to help source innovative ideas and startups. Generally, the concept makes sense but I hadn’t ever heard of formal programs with retainers and performance-based fees. Big companies have a hard time innovating internally, which is one of the main reasons startups have such great opportunities.

    Here are a few thoughts on innovation scouts for big companies:

    • The bigger the business, the bigger the new opportunity needs to be so that it’s worthwhile unless it is a bolt-on to an existing business (e.g. if you’re Google and the new line of business won’t have a billion in revenue in a few years, it isn’t worth their time)
    • Many industries have exceptionally long lead times to bring an innovative idea in the fold, like automotive, making for an even larger need to cast a wide net and fill the top of the funnel
    • Innovation has a number of false-starts such that it’s even more beneficial for scouts to filter the signal from noise for big companies

    Innovation scouts make sense for big companies and I expect there’s more out there than most people realize.

    What else? What are your thoughts on innovation scouts for big companies?

  • Reasons for Building a Tech Community Center

    One common question people ask me about the Atlanta Tech Village is why I’m doing it. Is it to make money? Invest in startups? Give back? The answer, put simply, is that I had to do it. The idea was in my mind for a few years but I wasn’t ever at a good point to execute on it — it was an itch that I had to scratch.

    After visiting several coworking spaces and tech community centers over the past few months, I realized that the reason for being varies widely and is an important question.

    Here are a few reasons for building a tech community center:

    • Community — the desire to provide a place for entrepreneurs to start and grow a business so as to create more jobs and wealth for the area
    • Real Estate — to increase the value of the property as well as the rental rates
    • Startup Density — to bring like-minded people together to change the world

    There’s no right or wrong reason for building a tech community center but it’s important to understand the backstory.

    What else? What are some other reasons for building a tech community center?

  • Inside Sales Program and Compensation Model for SaaS/Cloud Businesses

    One of the best ways to scale a Software-as-a-Service/cloud-based enterprise application is through an inside sales team. Field reps work well when the price point is sufficiently high, but most SaaS products are focused on the SMB segment of the market, necessitating a more cost effective way to acquire customers.

    Here’s an example inside sales program and compensation model:

    Business Development Reps

    • Goal: Set quality appointments via cold calling and lead nurturing
    • Commission: $175 per completed appointment (completed is when the prospect shows up for the call) with no commission on the first 10 each month
    • Quota: 20 completed appointments per month (240 per year)
    • Salary: $30,000
    • On Target Earnings: $51,000 based on $30,000 salary plus $21,000 commission (commission is 10 appointments * $175 * 12 months)
    • Payout: Paid monthly for completed appointments
    • Promotion: Promoted to account executive after completing 240 appointments

    Account Executive

    • Goal: Take prospects from initial interest/demo through to close
    • Commission: 14% of first-year’s annual recurring revenue and 5% of services/consulting revenue at time of signing the deal (hunters and farmers are completely separate)
    • Quota: $25,000 in new annual recurring revenue per month ($300,000 per year) with no services/consulting allocation
    • Salary: $40,000
    • On Target Earnings: $82,000 based on $40,000 salary plus $42,000 commission (commission is 14% * $300,000)
    • Payout: Paid monthly after cash received (all at once for annual pre-pays and 50% per month for monthly payments up to the equivalent of 14% annually)
    • Promotion: Promoted from Junior Account Executive to Account Executive to Senior Account Executive for each $1,000,000 in new annual recurring revenue with a 30% salary raise and a 30% quota raise at each promotion

    This program provides a multi-year career path for sales people along with black and white metrics for each step in the process. A high quality inside sales team provides predictable revenue and is an integral part of a successful SaaS/cloud business.

    What else? What are some other thoughts on inside sales programs and compensation models? Here are 20+ more posts on sales reps.

  • Engineering Serendipity

    One topic that makes sense, but wasn’t talked about much previously in our community, is the role of serendipitous interactions. Recently, I wrote about The Power of Serendipitous Interactions and Startup Communities and how I was experiencing it first-hand at the Atlanta Tech Village. Now that we know it’s important, how can we engineer it to happen more frequently? Here are a few ideas:

    • Cool hangout areas with soft seating, games, kitchen amenities, and more
    • Regular events like happy hours, speaker series, show and tells, workshops, hackathons, etc
    • Startup launch parties and product demo sessions
    • Community clubs like running, sports, and shared interests
    • Great coffee in an awesome coffee shop
    • Free coworking times or areas
    • Mentors and catalysts that like to connect people and help solve problems

    Engineering serendipity is one of the most abstract topics we talk about regarding building community, and possibly one of the most important.

    What else? What are some other ways to engineer serendipity?