David Cummings on Startups

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  • Sales Rep Territories and Multiple Lead Queues

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    Building a sales team is one of the more difficult things to do as an entrepreneur. You see, sales people are a great type of person that can sell themselves better than anybody, but it isn’t easy to determine if they’ll be effective for your product and prospects. Another challenging aspect of building a sales team, in addition to finding the right people, is determining who gets what leads. The traditional approach, especially with field reps, has been territories or geographic regions. The biggest challenge with territories for fast growing companies is that as you hire more sales reps territories inevitably shrink leading to disillusionment among sales reps, especially if their sales volume goes down after being a high performer.

    We have an inside sales team and don’t do territories. Here’s what we do:

    • Two different lead queues for round robin assignment of leads
    • The first queue is for regular leads that come from standard sources like white paper downloads, campaigns, etc
    • The second queue is specifically for test drive sign-ups as those are our best and highest qualified leads

    Both queues are round robin and by having two different queues we solve the problem of the highest quality leads getting passed out in an equitable manner. This avoids the situation where all leads go to the same queue and certain reps having bad luck with the leads that come their way.

    My recommendation is to think through these challenges early in the process of building a sales team as it can help the moral and effectiveness during fast growth periods.

  • #1 Interview Question for Startups

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    Interviewing is one of the most important jobs for startup founders. According to Fred Wilson, the three most important things a CEO does include sets overall vision and communicates it with stakeholders; hires, recruits, and retains the very best people; and makes sure there’s always enough cash in the bank. For our interview process we do a combination of interviewing with a half dozen people, two page essay, product exercise, reference checks, and more to make sure we hire the right people. Nothing is more important than getting the right people on the bus.

    Here’s the number one interview question we like to ask:

    Tell us what we do and why you want to join our team?

    This seems like such a simple question but it really reveals how serious and excited they are about the position and company. The key is getting them to talk about your company because it shows how much research they’ve done, how much they’ve visualized working for you, and what type of team member they’ll be. My recommendation is to incorporate this question into your interview process and never settle hiring anyone but a great fit for your team.

  • Simple Resume Tips for Recent Graduates

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    After hiring over 40 people in the past few years I’ve had the chance to look at a bunch of resumes. So, naturally, there a few things that consistently stand out. I’m no expert but here are a few tips geared specifically towards recent graduates:

    • Include everything on one page (there’s no way there’s more than one page worth of relevant info)
    • Include your major GPA and overall GPA, but only out to one decimal (recent Emory graduates have a tendency to take it out to three decimal places, so the career center over there must be telling them to do so)
    • Use no more than two fonts and make the layout consistent throughout
    • Double and triple check for typos and grammar (yes, my blog posts have both)
    • Make the purpose or goal paragraph at the top meaningful and don’t just say the desire is gainful employment
    • Read Mike Landman’s 7 Rules for Job Seekers

    What else? What are some other resume tips for recent graduates?

  • Startup: A Silicon Valley Adventure

    Cover of "Startup: A Silicon Valley Adven...
    Cover of Startup: A Silicon Valley Adventure

    I just finished reading Jerry Kaplan’s book Startup: A Silicon Valley Adventure from 1996 and I must say it is one of the best entrepreneur books I’ve read in a long time. Jerry recounts the story of founding GO Corporation, the first pen computing company, and the wild ride of burning through $75 million dollars before a forced merger with another company and a final sale to AT&T. Here are some of my takeaways:

    • Participating preferred stock 15 years ago was as poorly understood as it is today
    • The original idea for the GO tablet in the late 1980s was for a large screen with one single button, much like the iPad is today
    • The issues of weight, battery life, screen, and memory back then are all the same issues of today
    • GO had a closet at their office configured by IBM security personnel for IBM confidential files that had a key only the GO CEO had and they even went as far as to put chicken-wire above the ceiling tiles to block someone trying to get in, which, of course, is ridiculous
    • At the 1991 COMDEX show in Las Vegas it cost $53,000 to rent a small private room off the main hall plus $1,000 to have it vacuumed and $150 for electricity
    • AT&T called the network of infrastructure that made phones work “the cloud”, which is different from today’s popular term
    • Nine years after the book was published Kaplan finally sued Microsoft for anti-trust violations, which were chronicled throughout the story

    My recommendation is for technology entrepreneurs to read the book.

  • Intro to Marketing Automation

    Marketing automation is one the fastest growing software-as-a-service markets. The idea behind marketing automation is to consolidate many of the traditionally disparate marketing tools into a single web-based product. Here are some of the marketing tools found in a marketing automation platform:

    • Email marketing – support for broadcast emails like newsletters and one-off campaigns
    • Landing pages – web pages that are optimized for converting visitors into prospects via a form
    • Forms – fields used to capture input from visitors often in exchange for items like white papers, free trials, webinar sign-ups, etc
    • CRM integration – bi-directional connection to common customer relationship management systems like salesforce.com, SugarCRM, NetSuite, and Microsoft Dynamics CRM
    • Lead scoring and grading – automatic scoring of prospects based on activities they perform as well as grading based on explicit data points about the prospect relative to the ideal customer profile
    • Drip programs – periodic emails and activities triggered by events and time (e.g. send email A right away, if prospect clicks a link in the email notify the sales rep and remove from the drip program, if not, send email B 10 days later, and so on and so forth)
    • Automation rules – powerful logic-driven conditionals to change scores, send emails, move prospects between lists, notify sales reps, and more based on a variety of criteria
    • Anonymous visitor ID – identify the visitor’s company based on their IP address so that a sales rep can follow up as well as know that someone at the company is potentially interested
    • Prospect tracking – individual lead tracking of all activities like web pages viewed including length of page view time, forms completed, email opens, email clicks, file clicks, and more
    • Closed loop ROI reporting – track money spent to generate leads all the way through deals closed so that marketers can understand the success of campaigns even where there’s a long sales cycle

    Other common functionality like file hosting, lists, segmentation wizards, site search, and paid search integration is often included as well. Again, the general goal is one single system that replaces legacy systems like email markting tools and forms manager while adding significant new functionality like one-to-one tracking. In the end, sales and marketing teams are much more effective with marketing automation. My recommendation is for B2B companies with a sales and marketing team to seriously consider a marketing automation platform.

  • The Trifecta of a Perfect Business Model

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    Most entrepreneurs start a company based on an idea that they are passionate about without regard to some of the more optimal financial ingredients in a business model. Let’s take a look at the trifecta of financial attributes for the perfect business model:

    • Recurring revenue — revenue that recurs on a monthly, annual, or multi-year basis is the best as it provides predictable cash flow
    • High renewal rate — going hand in hand with recurring revenue, renewal rates at 90% plus provide future enterprise value and contribute to the predictability of the business
    • High gross margin — revenue that has little to no marginal cost for each additional customer provides more room for profitability and investment in the business

    A couple examples of businesses that typically meet these criteria include private wealth managers and software-as-a-service providers. My recommendation is to consider these three attributes when thinking through a business model.

    What else? What are other attributes of a perfect business model?

  • Valuing a Business

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    Last night EO Atlanta had an event on positioning a business for sale including how to value it. Typically a business that is bought by an acquirer actively browsing is worth more than when a company shops itself around to other companies. Let’s look at a few more factors in valuing a business:

    • Concentration of customers (e.g. one big customer or lots of little customers where more customer variety usually is worth more)
    • Gross margins (percent of revenues after only product/service costs are taken out with high gross margins being more valuable)
    • Recurring revenue (percent of revenue that comes from monthly or annual fees with higher percentage of recurring revenue being more valuable)
    • Profits over the last twelve months (a simple formula for an average company is that the company is worth 4-6x the previous year’s profits)
    • Growth rate over the last twelve months (faster growth rate is more valuable)
    • Liquidity of the shares (more liquidity like with publicly traded companies is typically much more valuable e.g. 50%+ more valuable)

    As you can see there are many different factors in determining the value of a business. It comes down to what another company or person is willing to pay for it with the more profitable and faster growing businesses being more valuable. An example would be a company with $1 million in trailing twelve months revenue with $200,000 in profit (assuming founders and management had market rate salaries) might be valued at 5x the profit, or $1 million. Some companies with no profits are bought for many times revenue due to their strategic value whereas other companies with significant revenues are bought for only a fraction of revenue due to significant debt, losses, and a decline in the business (e.g. Newsweek for $1).

    Valuing a business is tough as the market of buyers is usually very small. These guidelines can help you come up with a rough idea of what a business might be worth.

  • Venture-Backed Zombie Startups

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    There’s a term used to describe startups that have raised money from venture capitalists (VCs), been around for several years, built sustainable businesses, but don’t have the hockey stick growth necessary to raise more money or provide a venture quality return: zombies. Zombie startups are actually more prevalent than you might think and represent one of the more difficult situations for VCs. Here’s a few reasons why these are so tough:

    • VCs often have more money than time and can only sit on a limited number of boards and still be effective
    • Once a VC believes an investment is a zombie they want to sell it and move on
    • Valuations are down significantly compared to three years ago and companies that try to sell themselves often don’t command as much money as when a strategic buyer comes knocking
    • The VC still has a personal reputation and brand to maintain thus needing to provide significant energy to sell the company and get the highest price as part of their fiduciary responsibility to the limited partners in the fund

    Now, if the startup was bootstrapped and in the same position it could still be a great business for the managers and employees to continue indefinitely. It is very unlikely for a VC to sell his or her stake back to the company or co-founders due to the difficulty of the buyer coming up with enough money. Zombies are part of the startup community and should be understood by entrepreneurs.

  • Customer Service as a Competitive Advantage

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    Customer service as a competitive advantage is one of the more difficult ones to sell as most people are jaded by companies that say they have good customer service but don’t deliver on the promise. Great customer service has to be experienced for people to believe it and therein lies the challenge: you have to convince them enough to even try it out. More tangible differentiators like we’re the only company with feature X or position Y are easier to defend and point to, but are also easier for competitors to adopt. Customer service is difficult to do well if it isn’t built into the culture from day one.

    What companies do you think of when it comes to great customer service? Zappos.com, USAA, Amazon.com, etc. It’s really hard to do customer service well and the handful of companies that do it well are perennial growth stories.

    Here’s what I’ve found works for making customer service a competitive advantage:

    • Mention that you pride yourself on customer service but don’t spend too much time on it as people won’t believe it
    • Work hard to get existing customers to do video testimonials and have them articulate why your company is so good
    • Think of ways to get qualified prospects to use your support team as part of your customer acquisition strategy (e.g. proof of concepts, trials, etc)
    • Track your net promoter score and use that to gauge your success
    • Know that the benefit of high quality customer service will come from long run customer retention and employee satisfaction (employees want to work in organizations that truly care about their customers)

    What else? What are other things to keep in mind when using customer service as a competitive advantage?

  • The Best Exit Strategy is to Not Have One

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    Much of the tech startup media is obsessed with big exits, which make for fun-to-read stories. In a blog post today Jason Cohen writes about his new WordPress startup and provides a good answer as to his exit strategy in the comments:

    Success for me is defined as: Creating a company that generates at least $30k/month in profit after paying everyone reasonable salaries, while it’s still growing.

    Jason is building his company to last, as most entrepreneurs do, and will likely sell his business if the right offer comes along. The key is that he defines success as getting to a certain level of profitability while still growing. Today I brought up that blog post with three entrepreneurs and asked about their exit strategy. Every single one said they don’t have an exit strategy and want to build up their company to a point where they can hand it over to someone else to run it while still growing. That sounds like a great plan.