David Cummings on Startups

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  • APIs Provide Unbelievable Power

    Application Programming Interface (API) is the term to describe a way for computers to talk to other computers in an automated fashion. Imagine your accounting software talking to your payroll software to cut checks, pay taxes, and facilitate 401k matching — that would be done via an API. APIs open up a world of unbelievable power due to the ability to control other systems as well as consume data, and vice versa.

    The famous Paul Graham of Y Combinator sent a tweet recently saying an API is self-serve business development:

    https://twitter.com/#!/paulg/status/171840230373081088

    Business development is traditionally slow, labor intensive, and often ineffective. With APIs acting as self-serve business development, companies can start integrating services or data from other providers and mashing it up with their own functionality. This way, they can build real enterprise value and let the market decide faster than humans trying to work out deals with other humans. APIs provide unbelievable power.

    The next time someone talks about building a new feature or developing their own data source, do some Google searching and see if an API is already out there — you might be surprised.

    What else? What are your thoughts on APIs?

  • Thinking, Fast and Slow for Startups

    Recently I started reading the book Thinking, Fast and Slow by Daniel Kahneman after an entrepreneur recommended it to me. Now the book is a tome packed with anecdotes and research by the author who won the Nobel Price in Economics. The idea is that the mind has two core systems as follows:

    • System 1 – the instinctive response that you immediately know (e.g. 2 + 2)
    • System 2 – the thinking that goes into a more detailed thought that takes time to answer (e.g. 17 x 12)

    Even though Kahneman won the Nobel Price in Economics there’s a significant amount of psychological and human elements that are fascinating with a number of behavioral economics items thrown in as well. As an example, if a person gets the option to flip a coin and can win $13 if they guess right and lose $10 if they guess wrong, they are less likely to take the bet at all due to loss aversion even though the weighted average is clearly in their favor. This applies to the corporate world where people don’t take risks for fear of failure. As for startups, those are the people that like the bet.

    If you enjoy psychology and economics I’d recommend the book.

    What else? What were your thoughts on the book?

  • Subtle Marketing That’s Effective

    Earlier today I was at the Atlanta Zoo with my little kids. We were at the playground area on the right just past the entrance hanging out on the short climbing wall. Five minutes in, the little train comes around the corner and proceeds to honk its horn several times. Naturally, all the little kids stop and wave as the train moves by followed promptly with asking their parents if they could ride the train. Was the train honking its horn with the kids there subtle marketing, general train conductor behavior, or both?

    In Atlanta there are a number of burrito places around town including Chipotle, Moe’s, and Willy’s. When I ask my son which one is his favorite (we frequent them all) he always says Moe’s. I ask him if the burritos are better — nope. I ask him if the chips are better — nope. I ask him why he likes it the best and he says he doesn’t know why. My theory why he likes it the best is that when he walks in the door the Moe’s employees always say “Welcome to Moe’s” and that enthusiastic greeting sets the tone for the rest of the experience. It’s subtle marketing that’s effective.

    The next time an experience puts a smile on your face or nudges you towards a buying event, ask yourself if the marketing was overt or subtle — it might just surprise you. Subtle marketing is some of the most effective marketing.

    What else? What are some other examples of subtle marketing that’s effective?

  • Basic Search Engine Optimization Tracking for Startups

    Search engine optimization (SEO) is a core part of most startup web marketing strategies. The content marketing component is talked about frequently with people cranking out blog posts, articles, white papers, ebooks, webinars, and more. Along with content marketing is the SEO work for on-page and off-page factors, inbound links, etc. To understand the results and progress on these efforts it’s important to do some basic tracking of data.

    Here are some basic search engine optimization tracking items for startups:

    • Keywords – the search engine ranking position (SERP) of the most important search terms should be tracked for your site on both Google and Bing/Yahoo
    • Competitors – common information like the number of Google indexed pages, the number of inbound links, traffic rankings, and more should be tracked for your site and your competitors’ sites
    • Keywords of Competitors – how the competitors’ rankings compare to your rankings for keywords as well as the keywords competitors rank well for should be tracked

    There are an unlimited number of data points that can be tracked around SEO but focusing on keywords and competitors is a good, simple start.

    What else? What are some other basic search engine optimization items that startups should track?

  • Why Big Companies Buy Small Startups

    Last month LinkedIn ($9.3 billion market cap) bought Rapportive for $15 million, which according to LinkedIn (naturally), has less than five people (LinkedIn Rapportive search). Rapportive, which is a great product that I use daily, is a dedicated Gmail plugin that takes the email address of the To: or From: address and shows social information like profile photo, recent tweets, links to Twitter/LinkedIn/Facebook profile, and more. It’s an awesome tool.

    Now, why would LinkedIn pay $15 million cash for a Gmail plugin that on the surface looks like the LinkedIn piece could be written in one week by a talented developer?

    Here are some reasons why big companies on occasion pay good money for small startups:

    • Time to market – Rapportive already has a raving fan base that loves the solid product
    • Talent acquisition – The Rapportive co-founders have built a killer product and likely have ideas for many more ways to make the product better with additional resources supplied by LinkedIn (or LinkedIn wants the talent to spearhead the development of a new product)
    • Competitive preemptive move – If LinkedIn didn’t acquire them someone else that’s trying to be more social (Google?) might pick them up
    • Cost of capital – If LinkedIn is sitting on a ton of cash or has a low cost of capital, which it does due to the large market cap and lack of leverage, putting the money to use immediately, even at premium, helps the company grow faster and create more enterprise value

    With engineering resources scarce, and new product development tough (I’ve seen it fail twice inside a small company), big companies buy small startups to get a proven commodity that is already successful.

    What else? What are some other reasons why big companies buy small startups?

  • The Incubator Approach and Startups

    Earlier today I had the opportunity to meet with another entrepreneur in town that I hadn’t met before. We got to talking about what his ideal role would be once he made his FU money and he said it was to build a startup incubator or lab that created a number of companies where he helped get them off the ground but someone else would run them.

    Interestingly, a story came out today where Kevin Rose, founder of Digg, took the acqui-hire route and sold his incubator to Google after their first product wasn’t successful. Rose is a guy who made his FU money, started a product incubator, and has now moved on to a giant company.

    Here are some pros and cons with the incubator approach to startups:

    • Idea to product won’t take much time at all since there aren’t any legacy customers to slow things down
    • Hockey stick-like revenue growth often occurs several years in, assuming things are successful, so if you start five or 10 companies simultaneously, you still have a long time to see good cash flow even after killing the ideas that aren’t working
    • Some startups are successful because they hang around a market long enough to find the pot of gold but with an incubator the staying power is less likely
    • Timing a market is one of the most difficult things to do, so building multiple startups at the same time increases the chance that the timing for one of the markets is right

    Idealab (great video) is one of the most successful incubators ever and should be closely studied by anyone thinking about doing their own startup lab. Building a successful incubator is hard, and I believe it’s even harder than building a successful startup (successful startup defined).

    What else? What are your thoughts on the incubator approach and startups?

  • Thinking Big or Thinking Small

    Earlier today I was talking with a friend about startups. He commented that most entrepreneurs have a tendency to think small in the grand scheme of things. The context for this part of the conversation was scaling a sales team from 10 sales reps to 100 sales reps. Often, an entrepreneur that currently has five or 10 sales reps sees 100 sales reps as massive, and to them its thinking big. If Groupon had stopped at 100 sales reps they wouldn’t have grown nearly as fast.

    Today, Groupon hires 100s of sales reps per month and has several thousand sales reps on staff — all hired in the past couple years. Think about it for a second — Groupon believed that the market opportunity was large enough, and growing fast enough, to support a literal army of sales reps. Alibaba, based in China, has one of the largest direct sales force in the world with tens of thousands of sales reps — that’s thinking big.

    The next time you’re dreaming big, ask yourself if’s truly big, and take it out to a magnitude (10x) larger and see how that feels. Are you thinking big or thinking small?

    What else? What are your thoughts on thinking big or thinking small?

  • My First Internship

    Growing up in Tallahassee, FL there wasn’t much industry in town. It’s a great city to raise a family and always has the lowest unemployment in the state since life revolves around the state government and Florida State University. At my high school, Lincoln, there was a program for seniors called a gifted externship. People in the gifted program could take the last two periods of the day to participate in an off-site, un-paid internship and get honors credit. It was a pretty sweet deal.

    Through a connection I had the opportunity to intern at the oil change franchisor Super Lube where I spent time partly with the COO and partly with the VP of Marketing. The COO was skeptical of having a high school senior around and didn’t give me much attention. Looking back, my biggest takeaway was that technology, and simple business intelligence software, would have automated a good chunk what he did. He would literally spend hours pouring over printed spreadsheets of KPIs from each store location manually looking for unusual deviations and trends. The most common thing he looked for was signs of theft based on different numbers not making sense (e.g. oil expense vs revenue).

    The VP of Marketing enjoyed having me around as I would help her with computer issues and desktop publishing projects. Learning about marketing and advertising options, like a certain high-profile billboard in town costing $500/month at the time, was fascinating for me. As expected, there was no focus on return on investment or ability to measure the effectiveness of different campaigns. A certain budget was dreamed up for marketing and the money was spent based on what seemed the most appropriate. Unfortunately, it still works that way for many companies.

    My first internship, in retrospect, drove home the importance of software. Here were these smart executives at one of the top companies in town, and so many aspects of their job were manual, but had the ability to be significantly enhanced by software. Software is truly eating the world.

    What else? What was your first internship like?

  • Manage Email Like a Boss

    Email is a necessary evil that isn’t going away, at least not until Paul Graham’s request is fulfilled. In the interim, my advice is to manage email like a boss. Well, like a good boss that’s savvy and effective.

    Here are some tips to manage email:

    • Use Gmail (yes, especially for business) with the web interface as the primary means and the Microsoft Exchange emulation for IMAP support on the iPhone
    • Install the ‘Send and Archive’ button from Gmail Labs so that when you reply to an email it is also removed from the inbox
    • Install the ‘Auto-advance’ Gmail Labs option so that whenever you act on an email it automatically takes you to the next email
    • Install the ‘Hide Unread Counts’ Gmail Labs option so that you aren’t constantly distracted when new email arrives
    • Follow Getting Things Done (GTD) by David Allen and never read the same email twice in your inbox. Either reply right away if it’ll take less than two minutes or file it into the appropriate folder.
    • Don’t reply to every email — that’s right, if you get an email and don’t want to reply, archive it right away instead of letting it sit there and fester.

    I’ve been doing Inbox Zero nightly for over three years with this approach and it’s worked great. Inbox Zero doesn’t mean you’ve replied to every email, rather, it means that every email is moved out of your inbox on a daily basis. Manage email like a boss and you’ll be glad you did.

    What else? What are some other best practices for managing email?

  • Entrepreneurs’ Organization and Young Presidents’ Organization

    This weekend I was talking to an entrepreneur about his startup and sharing war stories. Towards the end of the conversation I asked him if he’d thought of joining an organization like Entrepreneurs’ Organization (EO) or Young Presidents’ Organization (YPO). He said he knew of both but didn’t know many details or requirements.

    Here’s how I described each organization:

    Entrepreneurs’ Organization

    • For co-founder and owners that are actively managing the company and own at least 20% of the equity
    • All entrepreneurs and business owners
    • Multiple people from the same company are allowed in
    • At least $1 million in revenue
    • No employee minimum
    • Frequent monthly events, workshops, and socials
    • ~8,000 members worldwide

    Young Presidents’ Organization

    • For presidents, CEO, managing directors, etc that’s actively running the company but doesn’t need to own any equity
    • 1/3 later generation family business, 1/3 hired president, 1/3 entrepreneur
    • No more than one person from the same company allowed in YPO
    • At least $11.5 million in revenue
    • At least 50 full-time employees
    • Three large events per year
    • ~17,000 members worldwide

    Previously I mentioned the power of peer groups in startups and can’t recommend joining one enough. These organizations are truly life changing.

    What else? What’s your experience with EO or YPO?