David Cummings on Startups

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5 Quick Tips for Effective Blogging
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Continuing the previous post on marketing for the top of the funnel (practical PPC tips) an equally important aspect of online marketing, and more specially inbound marketing, is that of blogging. Blogging is a great way to regularly push out new content that builds credibility, inbound links, and a company persona.

Here are five quick tips for effective blogging:
1. Set a schedule for posting new content and stick to it (e.g. daily, bi-weekly, weekly, etc)
2. Look for themes or a series of related items (e.g. house of the week, idea of the day, etc)
3. Incorporate a headline, bullets/numbers, and picture(s) for each post
4. Link to one or more items in each post and participate in relevant discussions online providing links back to your post
5. Distribute your post on sites like Twitter, Facebook, and LinkedIn
Blogging is one of the best ways to employ inbound marketing. Creating content can be tough at first but once you get in the habit of doing it it becomes much easier.

What else? What other tips do you have for effective blogging?
February 27, 2011
Practical PPC Tips with AdWords
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We’ve been working on expanding the top of our lead gen funnel to complement our strong middle of the funnel marketing. Meaning, we’re working on driving more visitors and leads at the earliest of stages so that we can nurture them. To help make our PPC efforts stronger we reached out to some local firms and received a bit of free advice from Atlanta PPC firm Relevance Advisers.

Here are some practical PPC tips with Google AdWords:
- Separate “brand” terms like your company and product name into their own AdWords Campaign as they’ll often skew results with such good conversions
- Create more AdWords Ad Groups that group closely aligned related keywords so that your ads will be more targeted resulting in greater effectiveness and lower cost per conversion
- Note that {keyword} is different from {KeyWord} when dynamically substituting the search term into the ad as the later will capitalize the first letter of each word
- Capitalize as many words as make sense in the text of the ad as it makes it easier to read even if it isn’t standard capitalization
- Separate geo-targeting into region-specific AdWords Campaigns so that the text creative and landing page content are applicable to the country
PPC is a great way to generate leads, but should be measured and followed closely as the auction system around bid prices results in continuous fluctuations.

What else? What are some other practical PPC tips with Google AdWords?
February 26, 2011
PPC Spend Relative to Startup Size
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This week I had the opportunity to talk with two different startups generating eight figures of recurring revenue and spending seven figures of it on pay per click (PPC) advertising. I knew the companies were a good size, but had no idea how important Google and the direct response online advertising model was to their business. Think about it — spending more than $1 million per year on ads to generate leads for a small business (both under 100 employees). That level of spend shows the power of PPC as well as how a finely tuned sales and marketing machine knows the different levers required to profitably acquire customers (both startups are bootstrapped).

A few thoughts on PPC spend relative to startup size:
- When you think about getting into a market, do research on the keyword search volume and costs to be competitive using the Google tools
- Some startups look like they have a fairly easy product to build but are in reality amazing at customer acquisition, which is harder than building a great product in many cases
- Generating traffic through inbound marketing with blogs, social media, and other methods can be one of the most powerful ways to grow a business, but are often not as predictable as other methods like PPC and sponsorships
My recommendation is to spend serious time thinking about customer acquisition like you do thinking about the product. PPC is an easy, and expensive, way to drive serious traffic and deliver leads.

What else? What other things have you seen regarding startups and PPC spend?
February 25, 2011
The Expected Value for Entrepreneurial Risk
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As you already know there’s an extreme risk/reward equation for entrepreneurs in innovative businesses. We’ve all heard of the billionaires but that type of outcome is so rare it usually isn’t worth discussing. Let’s look at some simple math for entrepreneurial risk:
- High achiever young professional who earns $100k/year (for simple math) plus $20k/year of benefits
- Salary reduced to $20k/year to start a business with no benefits
- $100k/year contribution in opportunity cost due to lost market-rate compensation until the business can afford to pay previous salary and benefits
- ~90% of companies never reach $1 million in revenue (source)
- 10% chance of reaching $1 million in revenue (assuming all things are equal) and the company is worth 3x revenue, so $3 million (this would be a nice valuation for most companies)
- Assuming no dilution, no investors, no stock option plan, etc the expected value is 10% of $3 million or $300k
- If the entrepreneur can achieve that company value and do it before giving up $300k in compensation, he or she is better off (assuming they can get by in the interim, the amount they invest directly from savings is $0, and they start generating revenue quickly)
The greater the market opportunity and expected value of the risk, the greater the potential outcome (e.g. a 2% chance at making $100 million produces a $2 million expected value). The entrepreneurial risk/reward equation is a dramatic one that makes sense in the context of a tiny chance to make a large amount of money.

What else? What other variables should be part of the entrepreneurial risk equation?
February 24, 2011
The First Five Customers
When you’re just getting started with a new venture there’s a tendency to spend too much time trying to perfect pricing before you’ve signed your first customer. The most important thing for you to do is to get them to pay you something (even if it is tiny) and then bend over backwards to make them successful so that they allow you to showcase their success in your first marketing. The first five customers aren’t about making money but rather about getting feedback and reference customers (they do need to pay you something to have some skin in the game).

Here are some things to keep in mind about the first five customers:
- Don’t worry about pricing other than to be reasonable and get them paying something (it is easier to lower prices than to raise prices but the overwhelming tendency is to price too low)
- Make the ask early in the relationship to be able to use them as a reference if the relationship is successful
- View the first few customers as a paying advisory board more so than your eventual typical customer
- Feedback and input, along with references, are 10x more valuable than the money they are paying
- Great customer service is the easiest way to differentiate yourself when the product is still immature
Signing the first five customers is one of the hardest things to do, ever, but it is also incredibly rewarding. Entrepreneurs should view those first five customers more as partners to help them sculpt their business as opposed to exactly how the business will operate.

What else? What other thoughts do you have on the first five customers?
February 23, 2011
Key Tenets of SaaS for Startups
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Earlier today I was emailing with an entrepreneur seeking advice. After a few emails back and forth about pricing he asked if he could charge more to customers who got to use the latest version of the software. Wow, I was taken aback as we’re talking about a Software-as-a-Service (SaaS) application where all customers should use the same version. That got me thinking about some of the most important aspects of a SaaS startup. Here are a few key tenets of SaaS:
- The application should have a multi-tenant architecture where all customers use the same version of the product on one or more shared databases
- Product enhancements and fixes should be pushed on a frequent basis
- The most important word in software-as-a-service is “service” and not “software”
- Customer acquisition costs and on-boarding costs should be appropriate for the monthly/annual fee
- Churn should be studied as closely as sales and marketing
SaaS is a phenomenal business model once it is up-and-running but presents its own unique set of challenges. Entrepreneurs should understand these key tenets of SaaS and work to incorporate them into their startup.

What else? What are some other key tenets of SaaS?
February 22, 2011
Learn It Yourself So You Can Manage It

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Curiously, I know an entrepreneur just starting out that believes it’s best to delegate everything even with two employees and a small amount of angel funding. To him, it’s imperative that he always be available to answer questions and act as traffic manager for the different projects in motion. That’s right: with no customers, no product launched, and no business yet being an entrepreneur is about managing and not doing to him.

I don’t know about you but the most successful entrepreneurs I’ve met are the kind of guys and gals that roll up their sleeves and make stuff happen. It’s in their blood — they can’t help but be productive.

Here’s another aspect of entrepreneurship that isn’t talked about: you should learn enough yourself to be dangerous so that you can manage someone else doing it. How many times have you heard a sales rep complain that the sales manager doesn’t know what they are doing because they’ve haven’t been in sales themselves? How about software engineers complaining that management doesn’t understand technology? When you learn it, and especially if you master it, you become a much better manager of it.

Entrepreneurs are often a jack of all trades, master of one (not none) type person. Being able to pick up a variety of different skills so that you can make better decisions and be a better manager helps out tremendously. Entrepreneurs often have one thing they’re good at and spend a decent percentage of their time doing it (e.g. sales, marketing, product management, engineering, etc). Now, you should still play to your strengths and not spend too much time on your weaknesses (your unique ability). My recommendation is to get dirty and learn as much as you can. You’ll be better off for it.

What else? What other thoughts do you have on learning stuff so you can manage others doing it?

February 21, 2011
Impact of a $10 Million Seed Fund on Atlanta
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After talking a bit about the Atlanta startup community on Friday, it got me thinking more about the potential impact of a $10 million seed stage fund in the community. A few weeks ago I heard a rumor that some local big money real estate guys were thinking of doing a tech fund in their effort to find alpha in this investing climate (sign of the next bubble?). With all the publicity about Facebook, Twitter, and Groupon valuations, investors that haven’t participated in seed and early stage tech investing are thinking about getting in the game (little do they know how difficult it is to be successful).

Here’s what a $10 million seed fund might look like:
- Seven year fund with 3% annual management fee providing $300k/year for salaries and expenses (normal management fee is 2% for larger funds)
- $7.9 million available to invest after management fees
- 40 $100k investments representing $4 million
- 13 of the original investments receiving follow-on rounds averaging $300k each representing $3.9 million (the idea is to reserve 3x the initial investment for roughly 1/3 of the original investments)
- Between three and six of the 40 investments would be successful getting a nice return and one or two of those would have a great return returning most of the fund
- Outcome would be upwards of a half dozen success stories for Atlanta combined with numerous net-new jobs and more startups in the community
A few weeks ago I was at a Georgia Tech dinner and John Imlay sat directly behind me. When introducing himself to the group he said Imlay Investments has invested in 125 startups to date (not all in Atlanta but most). A $10 million seed fund would have no where near that kind of impact but it would be a great start.

What else? What are some other thoughts on a $10 million seed fund for Atlanta?
February 20, 2011
Why Startups are Important for Non-Startup Type Employees

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We all know that startups created the majority of net-new jobs over the past 20 years. We also know that startups, especially tech ones, are innovative as opposed to replicative resulting in a greater likelihood of failure. There’s another aspect of startups that I believe is important for society as a whole that isn’t appreciated as much:

Startups with a strong corporate culture introduce non-startup type people to a more profoundly positive professional path.

What I mean by this is that many people who haven’t worked at a startup with a strong corporate culture haven’t experienced what it’s like to get a greater sense of satisfaction and accomplishment in the professional realm of their life. The majority of our employees had never worked for a startup before and constantly talk about how much more rewarding, fun, and exciting it is on a regular basis compared to their previous jobs. It isn’t that their previous jobs, or companies, were bad, because they weren’t, but rather they had never worked in an environment where everyone was so passionate and enthusiastic about what they did. Startups are like that.

Successful startups set the bar high when it comes to employee engagement. Successful startups get non-startup people addicted to the thrills of startup life and prompt them to join other startups, or start their own. Successful startups help improve the world beyond new products and new jobs by introducing people to a new level of professional fulfillment.

What else? What other ways are startups important for non-startup type employees?

February 19, 2011
The Startup Community in Atlanta
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After the successful Startup Riot 2011 on Wednesday much of the Atlanta startup community was pumped-up and excited about our growing eco-system. Dave Wright’s announcement last night that he was moving his pre-revenue company SolidFire, which had just raised $11 million, to Boulder, CO caught many people by surprise. At our Shotput Ventures partners’ meeting last month Dave told of his plans to move to Colorado due to the need for specialized engineers with storage system experience. The Atlanta startup community, much like a startup in and of itself, has highs and lows which are part of the process of building something great.

Monday of this week Mark Suster published a piece on TechCrunch titled Can You Really Build a Great Tech Firm Outside Silicon Valley? where he outlines some of the challenges, and benefits, of building a startup outside Silicon Valley. Everything he highlights about Los Angeles is applicable here in Atlanta. Let’s look at his categories in an Atlanta context:
- Funding is different outside of Silicon Valley – Funding in Atlanta doesn’t take place unless you have (a) a proven track record/pedigree, (b) product traction (generally $100,000 in revenue), or (c) wealthy friends, family, or fools (3 Fs of angel investing). Naturally, with funding restricted to these three items there isn’t much tech investing that takes place.
- “Necessity is the mother of all invention” and drives business outside the Valley – Do you have an idea for a business application that solves real, validated corporate issues? Atlanta works great for those kind of companies (B2B SaaS is especially hot right now). If you have an idea for a consumer application that requires significant scale and network effect before monetization you’re probably better off someplace else.
- Recruiting and retention will be different outside the Valley – Atlanta is especially beneficial in this regard due to great engineering talent from Georgia Tech and throughout the Southeast, combined with low turnover (assuming you have a strong corporate culture), and a limited number of other startups in the area. Salaries and cost of living are also commensurately lower making it a great place to bootstrap or build capital-light web businesses. Did you know you can buy a decent condo in Buckhead, one of the nicest and most affluent areas in the Southeast, for under $100,000?
- There are many strategic assets outside of Silicon Valley – Atlanta has an amazing Internet security cluster, the world’s busiest airport (makes flying more affordable and efficient than most places), and tons of young professionals perfect for building out sales and services teams.
- Communities outside the Valley have matured – The Atlanta startup community is 10x more vibrant and active compared to when I moved here in 2002. If you follow @mattstech (and who doesn’t?) you’ll see that there’s a startup event most days of the week. It really is that busy. The ATDC, truly a strategic asset as well, has become the heart of the Atlanta startup community and facilitates many great events. We have a startup community in Atlanta that’s growing every year. Are we a major player? No. Do we have the right ingredients? Yes.
In the end, the most important thing we can do as a community is build meaningful, enduring companies that employ as many local people as possible and let the results speak for themselves.

What else? What would you add about the startup community in Atlanta? Oh yeah, we’re hiring a bunch of people this year, so please send referrals my way.
February 18, 2011