David Cummings on Startups

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  • Richard Branson Entrepreneurial Iterations

    Late last week I finished the Richard Branson autobiography Losing My Virginity. The book is an entertaining read that provides a great number of stories around the personal and professional life of one of the world’s great entrepreneurs. The name Virgin, as most of Richard’s companies start with, came when they were working on the name for the first company and one of his friends suggested it since they didn’t have any business experience.

    One of the more interesting aspects of his story is the continual iterations of businesses he had early on. Here are some of those:

    • Magazine called Student targeted towards the college-age student, popular on many UK campuses, even though Richard never went to college
    • Mail order record business designed to undercut store prices after Student went under due to not being profitable
    • Record stores started after the UK postal service went on strike for many months and there was no other way for the mail order business to survive
    • Record label with a recording studio as a way to capture more from the value chain of the recording industry
    • Airline after a US lawyer sent him a letter saying that since British Airways had acquired the only other UK competitor that flew to the US there was a law that another company could come in and gain access to the routes

    Now the Virgin group has over 150 companies doing everything from rail services to vacations to cola. It is pretty amazing the scale and success he’s achieved by bringing a fun, irreverent brand to a variety of otherwise boring industries. I’d recommend this book to get a glimpse into the life of a fascinating entrepreneur.

  • Entrepreneurs and Families – Have a Place to Go

    A couple years ago I was at lunch with one of the most prominent software CEOs in Atlanta. I mentioned I had a baby at home at the time and we were talking about raising kids. He then went on to tell me a story of an entrepreneur that he really respected who he thought raised great kids. This CEO posed the question to the gentleman he respected: what was the best thing you did to have your kids turn out the way they did?

    The answer was that his family had a place to go, in this case a little farm they owned two hours away, and spent many weekends there each year as a family. Here are some of the reasons he cited that having a place to go was so important:

    • The kids were removed from their typical surroundings so they did more things together as a family instead of the typical hanging out with friends
    • There was no Internet at the farm so most work had to be left behind for the CEO
    • The family always had a few projects going on like fixing the barn or working on a garden, which brought the family closer together

    Looking at the benefits, it is many of the same reasons companies hold off-site retreats for the management team.

    This story from two years was brought back to me as I finished the Richard Branson autobiography last week. In it he mentions Necker Island, the private island he owns, as one of the best things he ever did for his family. My recommendation is to consider having a place to go on a regular basis to take the family and get away from the normal routine of daily life.

  • Track Competitor Displacements

    Earlier today we had a good conversation about the recent trend we’ve seen where new customers were already vended and came over to us from a competitor. Traditionally we haven’t seen too much competitor displacement as our market is small but growing fast. This might be a sign that our market is maturing but I wouldn’t give it too much credit. Rather, enough companies have had a chance to use our competitors and we’ve come in with the right value proposition at the right time.

    New customers, once they’re smiling and satisfied, are a font of information about their previous vendor. Here are a few reasons why it is important to track competitor displacements:

    • Understand if there are any trends e.g. a certain competitor’s customers seem to be switching so you should focus on reaching out to more of that competitor’s customers
    • Learn what the competitor doesn’t do well and exploit it as a weakness
    • Figure out what the competitor does do well and incorporate it into your strategy, if applicable
    • Inquire if there’s anything about the customer experience you provide that was better or worse about their experience with your competitor

    My recommendation is to track competitor displacements and spend time understanding the nuances of the deal as it will provide significant intelligence for your company.

  • Dividends and Private Equity with Angel Investors

    A few days ago Dave Walters published a TechDrawl piece about the state of angel investment in the Atlanta startup community. Dave made a strong call to action for investors to step up and fill the void that is being created as the most prominent angel investor in town, Sig Mosley, stops making new investments at the of this month. Lance Weatherby followed up with a good post arguing that Dave was asking the wrong questions and that entrepreneurs in Atlanta need to take their companies further without angel investors.

    Two areas I haven’t seen mentioned in the blog posts and ensuing comments are that of dividends and private equity (PE) firms. Here’s how they play a role with angel investors:

    • Dividends – I know of two examples where angel investors put in money, haven’t had an exit, but have had dividends that paid back the initial investment within five years, and the companies are still doing well. In one case, the company is doing north of $10 million a year in revenue, paying out an annual $1 million dividend, and is still growing 10%+ per year, but feels that investing the dividend amount back into the company doesn’t have an ROI, hence the annual payout.
    • Private Equity – I know an investor that put $200,000 into an early stage company several years ago and exited the investment recently when a private equity firm bought out his stake for $650,000 as part of a recapitalization. My understanding is that private equity firms are still sitting on a ton of money, and even though the acquisition and IPO market are soft, my belief is that we’ll see more angels make money from PE firms buying out investors in good, profitable companies.

    Granted, these aren’t homeruns, but angels making money helps the community in that the angels have more of an appetite for future deals.

    What do you think? Should dividends and private equity firms be talked about more in conjunction with angel investors?

  • 3 Reasons Sales Calls Get Returned

    After yesterday’s post on having prospects itemize their top priorities, I wanted to continue the sales theme today. One area that we spent a good bit of time on Thursday was sales, which makes sense as Jim, the facilitator, owns a professional sales training company. We spent time talking about how to get potential prospects to return our call. Here are the three reasons a potential prospect will call back:

    1. Mentioning someone that referred you, or a relevant company (e.g. partner or competitor)
    2. They need what you’re calling about (less than 1% chance)
    3. They appreciated your persistance and thought you sounded nice

    The average number of times a sales person calls on a potential prospect before giving up is 2.4. That’s not enough. My recommendation is to clearly identify your ideal customer profile and plan on being persistent, and nice, with sales calls.

  • Have Prospects Give Top 3 Priorities Before Sales Call

    At yesterday’s Accelerator event we also spent a good bit of time talking about sales as that’s Jim’s specialty. One of the tips he had that has been working well lately is to send the prospect a list of several items prior to a call and ask him or her to pick their top three and put them in order in a response. The purpose is to make sure and address those in your call. Here’s a sample list you might send:

    • Quality
    • Best in class
    • New services
    • My involvement
    • Timeline
    • Price
    • ROI
    • Long-term impact

    In addition to making the call more productive due to aligning priorities, this also gives you a chance to see if they are solely driven by price (e.g. price is their top priority in the email response). My recommendation is to try this out and see if it helps your sales process.

  • Profitability Traps

    Today was the quarterly education day for Accelerator, with the topic being money. Our facilitator was Jim Ryerson of SalesOctane who brings a great deal of energy and passion to the program. We worked through a series of exercises, one of which was talking about profitability traps. Profitability traps are where you do things that aren’t profitable. Why would do something that isn’t profitable? Good question — let’s look at a few, straight from the Accelerator materials:

    1. “Falling in love with” your customers
    2. Valuing quantity over quality
    3. Creating work to keep the staff busy
    4. Failing to correctly account for costs
    5. Making up for per-unit costs in volume
    6. Taking projects at a loss to keep competitors from getting them

    My recommendation is to pay attention to these types of traps and continually ask yourself if a customer or project is going to be profitable before jumping into the work.

  • 3 Keys to a Strong Corporate Culture

    As an entrepreneur, I most underestimated the importance of a strong corporate culture when building a company. Yes, having a great office, fun toys (like Razor Scooters and a Segway), and free food+drinks set the tone, but they aren’t nearly as important the three areas both Dan Pink in the book Drive (autonomy, mastery, and purpose) and John Bogle in the book Enough (autonomy, connectedness, and competence) identify. Here’s what I view as the three keys to a strong corporate culture, and personal happiness:

    1. Autonomy – empowering team members to make and own their own decisions
    2. Camaraderie – knowing that others in the company care about each team member on a personal level, especially managers and direct reports
    3. Mastery – truly excelling at your given role and achieving a level of confidence and proficiency

    My recommendation is to spend time on your corporate culture knowing it is one of the most important things your company can do to be successful. I agree with Richard Branson when he says that employees come before shareholders, customers, and vendors.

  • The Direct Flight Challenge

    One difficulty entrepreneurs have in smaller cities is what I call the direct flight challenge. Basically, most flights go through a regional hub, and if you aren’t that hub, trips become more difficult as well as much more expensive. If you’re from the South, this quote is common:

    Whether you go to heaven or hell, you have to pass through Atlanta’s airport to connect.

    Lack of direct flights can be an issue for startups due to several reasons:

    • Many investors (e.g. VCs) want to be able to fly in and out on the same day, which is usually difficult without a direct flight.
    • Sales and business development travel costs and time will be significantly greater.
    • Potential partners and acquirers will be more reluctant to get involved, all things being equal, as it is more difficult to get together.

    My recommendation is to keep direct flights in mind when choosing a city to start a company, especially if air travel is an important component.

  • Harness One of Four Emotions in Ads

    By now most of us have heard a simplistic yet powerful piece of advice when considering a new product/company: spend $20 on Google pay-per-click ads attached to a simple landing page and generate leads before you even have a product. The goal is to validate market demand while talking to potential prospects about your plan so as to get input at the earliest stage — pre product.

    A key part of making this successful is crafting the copy of the text ad as well as the copy on the landing page. There are four main human emotions that should be considered when writing the ad and content:

    • Fear – How many times have you seen an ad for a home security system that shows a thief breaking into a house? The ad is playing off of fear by taping into human desire to protect his or her family.
    • Greed – Every get rich quick scheme plays off the secular society goal of having more money. Think of all the ads you’ve seen to become a real estate investor, double your income, and get money for free from the government.
    • Exclusivity – We’ve all seen ads where the offer is limited to the first 100 callers. Do we really think if we’re caller 101 they won’t talk to us? I don’t think so, but there’s real power in creating an artificial sense of urgency.
    • Vanity – Who doesn’t want to be more attractive? The quantity of commercials from cosmetic companies lends credibility to the success of using vanity to help sell products.

    My recommendation is to pick one of these emotions and consciously use it when creating ads and landing pages. It will help with customer acquisition and product/company success.