David Cummings on Startups

Blog

  • Multi-Tenant SaaS and Virtualization are Two Different Things

    Saas-Grund mit Plattjen
    Image via Wikipedia

    Recently I talked to two companies that said they were Software-as-a-Service (SaaS). After asking more questions and drilling into details for a bit I came to the realization that what they were referring to as SaaS was independent virtualized instances of their product in the cloud. SaaS, to me, is very different.

    Here’s how I define multi-tenant SaaS:

    • Application servers that support multiple clients
    • Databases that support multiple clients in the same tables
    • Infrastructure (load balancers, fail-overs, etc) to support many customers

    Virtualization of the application delivered via the cloud is essentially a more manageable version of the late 1990s Application Service Provider (ASP) model, and not SaaS. A major benefit of SaaS is the engineering efficiencies and scalability of multi-tenant application services and multi-tenant database instances. Multi-tenant SaaS and virtualization are two different things.

    What else? What do you think of people calling their business model SaaS when it isn’t multi-tenant?

  • The Power of Twitter in Conferences

    Image representing Twitter as depicted in Crun...
    Image via CrunchBase

    Twitter really shines in conferences. Let me explain. Conferences, even with the advent of wonderful technology, are about the sharing of ideas. Some of the best idea sharing takes place between speakers and presentations. That’s right, the hallways and rooms between sessions are just as important as the speakers because it opens up the conference for attendees to talk to other attendees.

    Twitter makes conferences that much better.

    Twitter, combined with hashtags, provides a universal mechanism for like minds to connect more efficiently at events. At recent conferences I’ve attended, people in the audience constantly tweeted, providing their opinion and analysis of the presentation on the fly. With the hash tag of the event, I’m able to follow the conference-specific tweets and reach out to like-minded people in the same room. This then leads to quality conversations with people I might not have met otherwise.

    There’s also better feedback via Twitter to the people that put on the conference. The feedback is faster, the information is more accessible, and the messages can be saved for future reference. As a conference organizer, it’s better to know what’s working and not working while it is happening rather than after the event has already finished.

    Twitter makes conferences better and is a great communication mechanism for events.

    What else? What are your thoughts on Twitter at conferences?

  • Notes for Putting on an Annual User Conference

    Three Rivers Petroglyph Site

    The Fall is a common time of year for annual user conferences. Salesforce.com had their Dreamforce conference recently and I know of many more happening now or shortly (Hannon Hill and Pardot). User conferences are an amazing time to bring together customers, prospects, partners, and employees to spend time face-to-face and talk about best practices, the past year, and what’s on the horizon.

    For companies thinking about or doing an annual user conference, here are some notes:

    • Splurge for a great venue — with people traveling to the conference it’s important to invest in the facility and make it memorable (I highly recommend auditorium-type seating with power outlets and great wifi for everyone)
    • Find ways for attendees to intermingle and meet new people (mixers, receptions, consistent Twitter hash tags, etc)
    • Give the conference a consistent name (user conference, users conference, user’s conference, or users’ conference — it doesn’t matter as long as it’s consistent)
    • Put the attendees first name in big letters on their badge (it’s common for the first and last name to be the same size and hard to read amidst all the other text on the badge)
    • Let customers do most of the talking and presenting during the sessions (avoid the tendency to have employees do most of the presentation)

    Annual user conferences are great way to bring an eco-system together and I highly recommend them.

    What else? What are some other notes from user conferences you’ve attended?

  • 5 Ways to Increase the Value of Existing Marketing

    megaphone

    Entrepreneurs spend incredible amounts of time and energy to generate leads and drive traffic to their website. One area that is often overlooked is increasing the value of existing marketing efforts. Think about it: if you wanted to double the number of leads generated from your website you could either double the amount of traffic to the site or double the site’s conversion rate. Which one is easier? Increasing the conversion rate is always easier than increasing traffic. In addition to focusing on the conversion rate, it is also important to take the current marketing efforts and automate ways to improve their value, much like improving the conversion rate.

    Here are five simple ways to increase the value of existing marketing efforts:

    1. Retargeting – Retargeting allows you to show banner ads on a large number of different sites exclusively to people who have already been on your site (I’m generally against banner advertising with retargeting being the one major exception)
    2. RSS Broadcasts – Take an RSS feed of blog posts, press releases, or whatever else you like of yours and have Twitter, Facebook, and LinkedIn automatically updated when each new item is published
    3. Newsletter Sign-up Option – Add a sign-up link or text box on your site and encourage people to give their email address to get your newsletter (the contents of the newsletter should be repurposed blog posts)
    4. Live Chat – Engage with your site visitors through live chat to answer their questions as well as convert anonymous visitors into identified prospects
    5. Company IP Address Lookup – automatically identify companies on your site based on their IP address

    Existing marketing efforts are easily augmented and improved with these tactics and more.

    What else? What are some other ways to increase the value of existing marketing efforts?

  • 5 Steps to Action

    New York City: Heckscher Building at 50 East 4...
    Image via Wikipedia

    Whether you’re trying to sell a product or recruit a new team member to you join your team, there are five steps to action. These have been talked about for decades in marketing textbooks and were first made popular by Madison Avenue firms.

    Here are the five steps to action:

    • Unaware – the person doesn’t know the product exists
    • Aware – the person knows the product exists but doesn’t understand it
    • Understand – the person comprehends the product but hasn’t established a position
    • Believe – the person has bought into the product but hasn’t pulled the trigger on it
    • Action – the person buys the product

    Thinking through these five steps, especially with regards to sales and marketing, helps increase the effectiveness of your team. Sales and marketing messages (e.g. email communication) should be tailored to the respective stage of the prospect.

    What else? What do you think of these five steps to action?

  • The Daily Scrum in a Startup

    No Competitive Advantage

    Every day we do a bottom-up daily scrum. Every person in the company participates in one or more daily scrums so that there’s an effortless flow of information. We believe that staying closest to the customer and having the shortest feedback loop to make decisions provides us a competitive advantage. The daily scrum allows us to do just that.

    Here’s how the daily startup scrum works:

    • 9:30 – 9:40 manager with team members
    • 9:40 – 9:50 C-level with managers
    • 9:50 – 10 CEO and C-level execs

    We answer three simple questions: What did you accomplish yesterday, what are you going to accomplish today, and do you have any roadblocks? This daily scrum makes it so that everyone knows the top three key items for each person in daily chunks allowing up to make decisions quickly and execute fast.

    What else? What are your thoughts on doing a daily scrum?

  • Quick Tips for Public Speaking

    Major-General Ridgway and Major-General Gavin
    Image via Wikipedia

    Recently I had the opportunity to attend a leadership communications class where the first day focused on public speaking. I usually speak once per quarter at an event, so it isn’t too frequent but it is frequent enough that I want to get better. The all-day course was really well done and involved video-taping each student multiple times with feedback.

    Here are some quick tips for public speaking:

    • Plant your feet without locking your knees and don’t sway
    • Make eye contact with a different person in the audience for each point you want to make
    • Take time to breathe through your mouth
    • Pause, pause, and pause some more. Most people talk too fast with too few breaks when in front of an audience.
    • Put your hands by your side when you pause. Use your hands when you talk.

    Public speaking is tough to do, but with practice and following these simple tips it becomes much easier.

    What else? What are some other public speaking tips?

  • Startups and Competitive Differentiation

    The Department of Justice building in Washingt...
    Image via Wikipedia

    Earlier today I was talking with a successful entrepreneur about competitive differentiation. As with many markets, there’s 500-pound gorilla that’s slowly moving into his space and he’s working hard on a long-term competitive differentiation plan. His business continues to grow nicely but there’s the persistent threat of this significant competitor seriously affecting his startup.

    Here are some ideas when thinking through competitive differentiation with startups:

    • Build a competitive matrix listing everything possible comparing the different companies, even if it isn’t a software product
    • Consider softer items like quality of customer service, contract terms, and variety of options
    • Look to adjacent parts of the value chain that are less likely to be entered
    • Analyze marketing and lead generation options that are too difficult or too niche for large competitors

    Competitive differentiation is hard, especially in commoditized markets. Startups should focus on staying close to the customer and making decisions quickly without overly focusing on the competition. It’s prudent to regularly think through competitive differentiation and make sure all team members are aligned.

    What else? What are some other ideas when thinking through competitive differentiation with startups?

  • Startup Valuations Involving Preferred Equity are Best Viewed as Bonds with Warrants

    Image representing Twitter as depicted in Crun...
    Image via CrunchBase

    People love to talk about startup valuations. The most recent extravagant valuation to make the rounds was Twitter Closing Its $400M Secondary Offering at an $8 billion valuation. On the surface it looks like $400M represents 5% of the equity (assuming the $8 billion is the post-money valuation and not the pre-money valuation). To me, I’m not sure if Twitter is worth $8 billion but that isn’t the right way to think about it.

    With preferred equity it is best viewed as a bond with warrants. Here’s why:

    • Preferred equity is often 1x participating preferred (double dip) or 1x non-participating preferred (investor gets all their money back before anyone else). Assuming it is a more entrepreneur-aligned investor with 1x non-participating preferred, there still will be ~10% cumulative annual dividends. What this means is that if Twitter sells for $500 million in 2.5 years, the investors that put in $400 million will get all $500 million and the other shareholders won’t get anything. Do I think Twitter is worth $500 million? Absolutely. This is a low risk investment in my opinion (assuming you’re comfortable making follow-on investments to maintain your position).
    • A bond is senior to equity just like preferred equity is senior to common equity or previous rounds’ preferred equity. That is, in the event of a sale or liquidation, the senior debt and equity get their money back first. Add in the cumulative dividend and the preferred equity looks even more like a bond.
    • Warrants are similar to stock options in that it is the right to buy stock at a certain price. Continuing with the preferred equity acting like bonds with warrants, if the preferred equity was 1x participating preferred and Twitter sold for $8 billion in 2.5 years, the investors who put in $400 million would get $500 million (the original equity plus dividends) plus 5% of the remaining $7.5 billion (double dip) for a total of $725 million. Put another way, the $400 million investment could have been bonds for $400 million with a 10% dividend combined with warrants to purchase 5% of the stock for a penny and they would have ended up at the same point. Would I make that investment? Absolutely.

    Arguing if Twitter is worth $8 billion is fun conjecture. In reality, the investment and subsequent valuation aren’t the same as thinking about buying common stock of a publicly traded company, which is how most people think about it. A better way to think about preferred equity is as a senior bond (debt) with warrants to buy stock and participate in the upside.

    What else? What do you think of this way to view preferred equity?

  • Three Startup Examples of Wasting $10,000 Dollars

    No Backup
    Image via Wikipedia

    One of the startup traits I value highly is being scrappy, especially is regards to making every dollar go far. Now, don’t be a penny wise and a pound foolish, and invest in what has the best return even if it isn’t the cheapest. It’s one thing to waste a few hundred dollars, or even a thousand, but it is really bad when $10,000 is wasted. In fact, we’ve had the unfortunate experience of wasting more than $10,000 on three different occasions.

    Here are three of our startup examples of wasting $10,000+:

    • We tried out a new advertising mechanism, raised the bid per click high to try and spend a few hundred dollars to determine the ROI, and got no clicks for a week so we moved on without turning it off on accident. Only the next month we got a bill for north of $10,000, and no good leads from it.
    • We had scripts running to backup our 100+ servers daily, including several extremely large databases, on an Amazon S3 account. Well, that S3 account and corresponding bill wasn’t monitored, and backup purging wasn’t turned on (e.g. purge backups older than X weeks). Once the S3 charge was brought up for budgeting, we realized we’d wasted much more than $10,000 due to storing unnecessary files.
    • We signed up for a conference/trade show looking to generate leads and build our brand in an adjacent market. Well, it proved to be a horrible investment and we didn’t generate any leads. That was a $10,000 lesson learned.

    My recommendation is to pay attention to expenses, especially ones that hit a credit credit, and know that as you get bigger more items fall through the cracks.

    What else? What are some ways you’ve wasted money in a startup?