David Cummings on Startups

Blog

  • Churn Cohorts in SaaS Startups

    Churn is the silent killer for Software-as-a-Service startups. SaaS is such a great business model that people focus on the cash flow predictability of recurring revenue, high gross margins, and overall growth prospects. Churn, or losing customers, isn’t talked about as frequently and is just as important to understanding the model as more popular items like cost of customer acquisition and cost of goods sold.

    Churn, globally, is a valuable metric that should be tracked closely. Even more important than generic churn is looking at churn on a quarterly or monthly basis, to get a better understanding of each cohort of customers for trend analysis. Here are some other churn cohorts, like monthly cohort analysis, to consider:

    • By customer company size (e.g. revenue, number of employees, etc)
    • By customer annual contract value size (e.g. track the five most common dollar amount ranges paid for the service)
    • By customer acquisition source (e.g. channel sale, Google AdWords, cold call, etc)

    As you can tell, there’s no shortage of potential churn cohorts to analyze. The key is making it easy to track and run churn cohort reports against a variety of factors.

    What else? What are some other churn cohorts to consider for SaaS startups?

  • 4 Ideas to Improve the Atlanta Startup Community

    The recent TechCrunch meetup in Atlanta with over 1,200 people was a great catalyst for talking about what’s working, and isn’t working, in the Atlanta startup community. Being an idea guy, I always love brainstorming ways to improve things and getting ideas from other people (R&D – ripoff and duplicate – is a great way to take ideas that are working in other startup communities and implement them in ours).

    After talking to entrepreneurs in person, participating in discussions online, and reading about other startup communities, here are three ideas to improve the Atlanta startup community that stand out to me:

    • Regular Content-Oriented Meetups that are Startup Generic – We have a number of meetups for specialized topics (like PHP or Ruby), speaker series where entrepreneurs tell their stories, and service providers providing education on their area of expertise, but we don’t have many meetups that are content-oriented and driven by specialists working in startups (e.g. sales, marketing, support, etc — product management and engineering have a critical mass of activities). B2BCamp is an example of a great organization that is starting to fill some of the content-oriented startup education needed.
    • Startup-Oriented Event Space to Complement ATDC – ATDC has a couple great rooms for events but they are booked well in advance creating a need in the market for a few go-to event spaces that can accommodate 20 -100 people on a regular basis. This event space shouldn’t be formal event space, easily accessible inside the perimeter, and available at a good rate (free) for startup-related events.
    • More Successful Entrepreneur Involvement – We have a number of successful entrepreneurs, as defined as profitable, million dollar plus revenue businesses, that achieved their success without involvement in the startup community, and therefore don’t feel a need to give back or get involved. In the journey to their level of success, they found advisors and peers that fulfill their community-connectedness need, leaving little desire to do startup community events. We need to get them involved.
    • Entrepreneur-to-Entrepreneur Exclusive Networking – Entrepreneurs’ Organization (EO) is an outstanding organization for entrepreneurs with at least a million in revenue built around trust, confidentiality, and experience sharing. Most startup entrepreneurs don’t have a million in revenue, but would appreciate the same values and peer networking EO members have in an environment that is entrepreneur-lead and not service provider-lead. One of the goals with this is more serendipitous connections and a stronger startup entrepreneur peer group to achieve a greater level of success individually and as a community.

    These four ideas aren’t capital intensive but do require that entrepreneurs lead the charge as volunteer leaders to help make them successful. Atlanta has all the ingredients to be a more prominent and more successful startup community. Let’s do it.

    What else? What do you think of these ideas and what are some other startup community ideas that you like?

  • Difficult Conversations in Startups

    Recently I started reading the book Difficult Conversations: How to Discuss What Matters Most by Douglas Stone, Bruce Patton, and Sheila Heen. The authors are a research team at Harvard working on the Harvard Negotiation Project, which has been in the works for several decades. In all aspect of life, and especially the startup world, as with any fast-paced leadership situation, there are a number of difficult conversations with team members, customers, investors, and more.

    One of the areas that resonated with me was around why we each see the world differently and how to better understand another person. From the book, here are three reasons why we see the world differently:

    1. We have different information
      – We notice different things
      – We each know ourselves better than anyone else case
    2. We have different interpretations
      – We are influenced by past experiences
      – We apply different implicit rules
    3. Our conclusions reflect self interest

    If you’re looking for advice and guidance on being a better leader and communicator, this book is for you.

    What else? What were some other takeaways from the book for you?

  • Startups and Choosing a Technology Stack

    A technology stack is a fancy way of saying the products and programming languages used to build the behind-the-scenes piece of an application. Just like car companies source technology from a variety of vendors, so do startups, many of which are open source products.

    Three weeks ago I was talking to an entrepreneur and he was looking at acquiring another company. Only, there was a big problem — the target company’s technology stack was Microsoft-based with ColdFusion as the primary programming language. Now, ColdFusion was amazing last decade but has been antiquated for several years now. Building a new startup around a ColdFusion-based app would be a bad idea.

    Here are a few tips when choosing a technology stack:

    • Consider the cutting-edge nature of the technology being evaluated and if you are comfortable having more bumps in the road (e.g. JavaScript on the server side and NoSQL databases are gaining popularity but there are trade-offs that should be considered)
    • Analyze the expertise you currently have and the expertise you have access to either locally or globally through your connections (e.g. Ruby on Rails is awesome but there’s a serious talent shortage right now)
    • Three of the most popular programming languages for startups, based on the entrepreneurs I talk to, are PHP, Ruby, and Python with Java and .NET being more big-company oriented
    • Ask the five entrepreneurs you trust what technology stack they are using and if they recommend it
    • Using a simpler stack with faster time to market is the best approach when you’re starting out as you can always introduce fancier technologies later and deal with things like scaling when you have that high-class problem

    Choosing a technology stack is an important decision and should not be underestimated. I recommend using whatever gets you to market fastest and is enjoyable for your team to use.

    What else? What are some other tips when choosing a technology stack?

  • Hiring, Hiring, Hiring

    Hiring is on the tip of the tongue for almost all entrepreneurs I’ve talked to over the past few months — there’s something going on. Perhaps the economy is getting better for certain sectors or I’ve randomly been talking to a group of entrepreneurs that happen to be doing really well (likely some of both). Regardless, hiring is always a big deal and especially now with so many startups aggressively competing for talent.

    Here are a few ideas to keep in mind when hiring:

    • It’s better to take your time to find the right candidate that fits your culture than it is to hire someone that’s good enough (this is always the case!)
    • Use Topgrading for management positions and a slightly abbreviated chronological in depth survey for more junior positions
    • Internal referrals are always the best candidates, so provide a generous referral bonus
    • If it’s a position that you’re going to need a large number of people on staff over time, consider developing a farm system or a straight-out-of-college training program
    • Awards like being the fastest growing company or the best place to work are great social proof and should be used as part of the recruiting process
    • Institute a unanimous approval process for everyone that interviews the candidate so that all team members are empowered to veto a prospective hire

    Hiring is tough. The startups that hire the best people for their corporate culture and market win. Never stop working on improving everything you do related to hiring.

    What else? What are some other ideas around hiring for startups?

  • Team Players that Take the Initiative in a Startup

    Team players in a startup get me excited, really excited. A team player is someone who isn’t afraid to take on projects or start new initiatives outside their roles and responsibilities. In the baseball sense, it’s like a utility player who is an active self-starter. With so many moving parts and lack of resources in a startup, these team players are invaluable.

    Here are a few examples of team players that take initiative in a startup:

    • Bringing ideas to the table, like the introduction of a new employee benefit, and spearheading the selection of a vendor and roll out of the new service
    • Identifying a need in the startup, like on boarding and training of new employees, and volunteering to head it up
    • Recognizing a hassle, like internal conference room scheduling, and finding a solution for it without prompting

    Part of being this type of team play is having the “can do” attitude as well as awareness of what’s going on around them. Team players that take the initiative are invaluable in a startup.

    What else? What are some other aspects of team players that take the initiative in a startup?

  • Co-Founder Characteristics in a Startup

    Finding the right co-founder for a startup is one of the more difficult tasks. It isn’t that there aren’t great people that want to go to war with you, rather, getting your co-founder right is one of the most important things you’ll ever do in a startup, right up there with choosing an awesome market, and timing things well. I’m a fan of two total co-founders, sometimes three, but only if everyone really adds significant value.

    Here are some characteristics to look for in a co-founder:

    • An owner mentality (e.g. ask how comfortable they are to go without pay or sign a personal guarantee on a line of credit)
    • A skill set that complements the other co-founder (e.g. technical, business acumen, marketing, etc)
    • Aligned personal, professional, and family values — this can be tough, but values hold a team together during the toughest of times
    • Personality fit whereby it’s someone that you’ll look forward to spending a significant amount of time together

    A co-founder is one of the most important decisions of a startup and should not be taken lightly. Spend as much time with the person, even working on projects, before jumping in. With the right co-founder, the startup experience will be that much better.

    What else? What are some other co-founder characteristics to look for in a startup?

  • 2 Lean Approaches in the 90 Day Startup Accelerators

    Over the past few years I’ve had the opportunity to talk with a number of startups that have gone through 90 day accelerator programs, some regional and some from the most well known brands. There’s typically two lean startup approaches that are related but different. The difference is characterized by the extensiveness of the customer discovery methodology and the timing of building of a minimum viable product.

    Here are the two approaches to the 90 days of a startup accelerator:

    • Build Something Simple Immediately and Iterate with Customer Discovery – The thinking here is that there’s a general market idea and opportunity, an extremely simple product is built, and the product is then constantly improved after getting input from prospects. As an approach, this solves the common mistake of startups building their product in a vacuum, only to emerge with something that doesn’t fit the market’s needs, have code debt, and usually run out of money before they can find product/market fit.
    • Do Customer Discovery Without Product Building Until a Clear Need is Identified – The thinking here is that even with a general market idea and opportunity, you really don’t know what the market needs until you talk to so many people that a high percentage of a large enough demographic jump out of their seat and say they must have it. Only when it’s abundantly clear what the product needs to do it, prospects are ready to sign to be customers, and there’s a big opportunity should work be started (e.g. talk to 100 people and 15 out of a demographic of 20 say it is a “must have”, then start work on it).

    As you can see, the big difference here is whether or not a simple product is started immediately and improved upon as more prospects are talked to vs talking to as many prospects as needed to find a clear market opportunity, and only then starting to build it. Most startups should do the second approach where no product work is done until a clear need is identified so that all the co-founders are focused on customer development and not distracted by product building, since they don’t actually know what the market needs. This approach is at the other end of the spectrum from building a product with tunnel vision for a year before coming up and talking to prospects, but it’s the right way to do it since time and money are so precious. As for the first approach where a product is started right away, it works well when the co-founders have extensive domain expertise in the market they’re going after and have experience first-hand with new product development. Both styles have their pros and cons and are much better ways than the traditional approach.

    What else? What are your thoughts on these two lean approaches in the 90 day startup accelerators?

  • Radical Workplace Ideas from 1993

    Recently I started reading Maverick: The Success Story Behind the World’s Most Unusual Workplace by Ricardo Semler, published in 1993. The author was born in Brazil, the son of Austrian immigrants, and inherited his father’s manufacturing business, Semco, at an early age. Not liking the traditional workplace style after several years of stress, Semler set out to build the most democratic environment.

    Here’s what the book publishers labeled the most radical ideas in 1993:

    • No dress code
    • No secretaries
    • Workers set their own salaries (based on budgets and department profitability)
    • Required vacation time

    It’s interesting to look back nearly 20 years and see three of the four highlighted items as things that are pretty commonplace today. 20 years from now I wonder what will be common in the workplace that’s considered radical today.

    What else? What are some other major changes in the workplace over the past 20 years? What’s going to be normal 20 years from now?

  • When to Hire the Next Sales Person

    Sales is the lifeblood of startups. Getting a sales machine humming along is one of the most difficult things for an entrepreneur to do, especially if they haven’t done it before. Assuming the VP of Sales temptation was defeated and a few sales reps are on board delivering results, how do you know when to hire the next sales person?

    Here are a few things to keep in mind when determining when to hire the next sales person:

    • What percentage of sales reps are currently making quota? Typically, 60 – 80% of reps should be making quota for any given quarter once you have product/market fit. With higher quota attainment, you likely need more reps.
    • What percentage of deals are from marketing-sourced leads vs sales-sourced leads? If sales-sourced leads are higher than 25%, you likely can support more reps.
    • How fast is the market growing relative to the startup’s revenue? Markets that are growing faster can often support more sales reps.

    There’s no magic formula for determining when it’s the right time to hire another sales person. Often, there will be diminishing marginal returns with each additional sales rep and it becomes clear when you have reached the limit.

    What else? What are some other things to think about when determining if it’s time to hire the next sales person?