David Cummings on Startups

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  • The First Five Customers

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    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?

  • 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?

  • 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?

     

  • 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?

  • 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?

  • 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.

  • Prototyping as Fast as Wireframing

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    We don’t build wireframes for new features. Did we do it before? Yes. What changed? Development technologies, including open source libraries, made it just as fast to build a prototype as to build a wireframe. I prefer the build it and “feel” it approach to the wireframe approach. Being able to use and interact with the new feature allows us to decide if we’re on the right track and make changes as necessary. Of course, once the application’s user interface has been fleshed out and many of the common user experience interactions are in place, developing a quick mock-up is literally as fast as making a wireframe.

    In order to prototype as fast as making a wireframe it also helps to be on a modern platform like Ruby on Rails or PHP on symphony. If you find that assembling the front-end components is laborious and slowing you down it is likely you aren’t getting the benefits of the latest frameworks and approaches. At some point you’ll be better off bitting the bullet and migrating to a newer technology. But, naturally, beware the rewrite of death.

    What else? What other thoughts do you have on prototyping vs wireframing first?

  • Thoughts on Startup Riot 2011

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    Today’s Startup Riot 2011 in Atlanta was definitely the best one yet. Now in its fourth year, this year’s event had a better venue (The Tabernacle), better internet access, better swag, and, most importantly, great startups. Here are a few quick thoughts on the event:

    • Several startups focused on social proof by showing slides with logos of existing customers or prospects in their pipeline
    • Most startups were looking to raise angel rounds of $250k – $500k
    • Most startups were pre-revenue and a fair number were pre-product launch
    • The table areas to meet the startups were packed throughout the day — a great sign that attendees were spending time with the companies
    • 90% of the startups were from Atlanta but at least one was from South Carolina, Boston, Germany, and Australia
    • One presenter said, when trying to build up the credibility of his management, that someone said his team was too good to do a startup (which is ridiculous to me)

    Overall it was a great event. Well done Sanjay!

    What else? What other thoughts did you have about Startup Riot 2011?

  • Startup Riot 2011 Tomorrow

    Tomorrow Atlanta’s very own Startup Riot takes place at the Tabernacle downtown. Sanjay Parekh puts on a great show every year and I’m sure tomorrow’s event won’t disappoint. The idea is to have 50 startups give three minute pitches with two keynotes mixed in. Whenever I mention the event to people they are always impressed that 50 startups are pitching — I must say that I think it is impressive as well. Now, all 50 startups aren’t local, but the vast majority are local (I don’t have any insider info but I’d guess 45 will be local).

    Here are a few questions I’ll be asking myself when I hear the pitches tomorrow:

    • Will this entrepreneur be successful?
    • Would I invest in this company?
    • Is this a product or a feature?
    • Is this an idea for a company or a business already operating?

    I’m looking forward to tomorrow’s Startup Riot event.

    What else? What other questions would you ask when you hear the startups pitch?

  • Product Review: The Resumator Applicant Tracking System

    Last week I was talking about our hiring process with my friend who runs the best IT support shop for creative firms in Atlanta and he referred me to The Resumator applicant tracking system. We promptly implemented it on our site and have been really impressed. Here’s why it resonated with us:

    • Clean, modern user interface that is fast and not Flash
    • Pricing model based on number of job postings with unlimited users works great for us (we pay $49/month for up to five jobs and they do have a free account for one job)
    • Integration with Scribed to view the submitted resume right inline (yes, it’s Flash but you can download the file)
    • Simple reports based on positions, candidates, pipelines, etc.
    • Embeddable job board and widgets to incorporate it in your site with basic color and logo customization

    I’m a fan of automating as much as possible and this is one more item to make us more efficient. If you’re looking at applicant tracking systems or want to see a good example of a well done marketing site and web app I’d recommend taking a look at them.

    What else? What other thoughts do you have about The Resumator?