David Cummings on Startups

Blog

  • Startups and Disability Insurance

    One area that is often difficult for startups is insurance. Difficult in the sense that being so small, with so few employees, if any, rates are typically high and options are low. Now health insurance is always considered the most important insurance, and it is, but another type of insurance that isn’t talked about as frequently is disability insurance.

    In the past two weeks I’ve talked with entrepreneurs that mentioned situations where disability insurance would have been valuable. One entrepreneur had an employee with cancer that took significant time off. Another entrepreneur had a key employee that was pregnant and needed bed rest for the last two months of the pregnancy. In both cases, disability insurance would have been beneficial but the entrepreneurs didn’t have it.

    Short term disability insurance usually pays 60% of the employee’s salary for up to 12 weeks, with a maximum of $5,000 per month while long term disability is usually more customized. At a cost of $30 – $70 per employee per month, it becomes clear that having a single issue arise more than pays for itself. Hopefully, an issue will never come up.

    My recommendation is to look into disability insurance and purchase it if you can afford the payment. Insurance is usually cost effective and helps give piece of mind to the entrepreneur and team members.

  • Entrepreneurs Owning Community Banks

    Everyone has read about the number of bank failures over the past couple years. In fact, Georgia leads the nation in bank failures, so we know it well locally (my company bank, Georgian Bank, was one of the ones that failed). Lately, I’ve noticed a trend: three EO members that I know are part owners and on the board of local community banks.

    I’ve mentioned before that banks aren’t in the business of loaning money when you don’t need it or when you don’t have hard assets to use as collateral. With this in mind it makes good sense why several of my friends are investors in banks:

    • They have million dollar plus companies, so keeping their desirable accounts at the bank they invest in helps the bank
    • They know lots of people and can refer them to their bank
    • They encounter opportunities where they need access to capital and I’m sure being part owner helps with the loan process

    I also talked to an entrepreneur that had sold his company to another entrepreneur where the entrepreneur that bought the company also owned a bank, and that played a role in the transaction. The reason it played a role is that the business was a good cash flow, 100% recurring revenue business. Because of the industry and structure of the business, partners in the future would buy into the business, get financing from the bank that was owned by the entrepreneur that also owned the business. Banks can borrow money from the fed at next to nothing right now. Owning a bank that can borrow money at next to nothing, loan it to a business partner that is buying into a business you also own at a standard rate (say prime plus 2%), and making money even if the new business partner walks away, seems like a pretty shrewd operation.

    What else am I missing? Why are there so many community banks?

  • My First Software Product: Statbook

    In ninth grade I started working on my first commercial shareware software product called Statbook. The goal with Statbook was to provide baseball and softball coaches with a Windows 3.1 application that made it easy to keep track of all the statistics for their team (games, hits, pitches, etc). I set the price at $12.95, put in on CompuServe, and when I was 15 years old I received a check in the mail from a gentleman in Minnesota. That was it! I was hooked on writing and selling software.

    In addition to CompuServe’s shareware section, I put it on AOL, and built a simple website for people to download it. Not knowing much about sales and marketing, I also made some 3.5″ floppy labels in a desktop publishing program and attempted to sell copies of the program during little league season at my elementary school (Gilchrist in Tallahassee). Needless to say I didn’t sell any that way. Sales from CompuServe continued to trickle in from people all around the country and over the course of a two years I made a three hundred dollars from the product.

    From this experience in early high school I knew I’d be involved in technology startups the rest of my life.

  • My Hero Growing Up: Michael Dell

    When I was in high school I read a biography about the Michael Dell and by the end I knew that he was the guy I wanted to emulate: my hero. His dad was an orthodontist, like mine, and he grew up working on computers from an early age like I did. He started his company with $1,000 in his dorm room when he was 19 — I took inspiration from him and started mine in my dorm room when I was 20. Of course, he’s been a bit more successful than I have been :-).

    Dell is best known for establishing the made-to-order PC market, which was revolutionary when he did it. In addition, his company has been innovative in other areas like having negative working capital where the suppliers are required to have warehouses within a certain distance of the factory and supply product as needed in advance of being paid. These innovations and more, along with timing, helped make Michael Dell so successful. I think it is important to have heroes and people you really respect.

    Who’s your entrepreneurial hero? Why?

  • Value Added Reseller Plans for Startups

    Selling a product indirectly through value added resellers (VARs) is a great way to reach a broader market at a lower fixed cost. These channel partners can help augment your services, shorten the sales cycle because they already have existing relationships, and provide valuable feedback. My one piece of advice for startups is to not expect the channel to be the best way to grow your business early on. The channel is extremely hard to get up and running, gives little visibility into the sales pipeline, and follows the 80/20 rule (20% of the partners will deliver 80% of the partner deals).

    Why shouldn’t you focus on the channel when first starting out? It is so important to have clear and unfettered lines of communications with your customers that only direct sales provides. In addition, direct sales allows for more visibility into the pipeline and more ability to control your own destiny. Only after you have a repeatable sales process yourself should start putting more effort into the channel.

    Just starting out with the channel I recommend a simple revenue sharing policy. Something easy like a 10% referral fee for leads that they give to you that you have to close the deal along with a 30% referral fee if they do all the selling and close the deal handing you a purchase order. Having the 10% and 30% plan makes it quick and straightforward for VARs to do deals and sell their bread and butter offering (typically consulting services billed as time and materials).

    What else? What other advice do you have for startups and VARs?

  • Startup Docs to Create in Month One

    I was recently looking through Google Docs for my company to get an idea of what documents we put together in the first month. The idea is to get a bit of introspection on what we felt were important to iron out right away. Really, these are very much strategy and alignment docs to get the founding team on the same page.

    Here are some of the Google Docs we put together:

    • Company Overview (official company name, market description, positioning, team, etc)
    • Customer Acquisition Strategy
    • Pricing
    • Road Map
    • Action Items
    • Passwords
    • Technical Setup

    Note that there were no KPIs, one page strategic plans, etc in the initial docs. Operational items like those come with time as the business develops. Strategy documents like those outlined above are critical for getting everyone on the same page.

    What else? What other documents do you recommend creating when getting a new business off the ground?

  • Don’t Reinvent the (UI) Wheel

    One question I hear a good bit from software entrepreneurs building their first product is “Who made your user interface?” There’s a dearth of quality user interface (UI) and user experience people, especially in markets like Atlanta. Many people think they can get their graphic designer friend that made the company logo to also do the user interface. I’ve gone down that route and it failed.

    My recommendation is the classic R&D — ripoff and duplicate — of a major product where the company likes to have apps that have a consistent user experience with their app. That’s right, please don’t reinvent the wheel when it comes to the user interface. Companies like Google, Apple, and Microsoft have invested millions in the UI for their different products. For example, Gmail, Google Analytics, and Google AdWords have nice clean and fast UIs that are perfect for most B2B web apps.

    What else? Do you agree or disagree that most people shouldn’t reinvent the wheel when it comes to UIs?

  • The Value of Talking About Your Startup

    Earlier in the week I was talking to an entrepreneur who was sharing his new business idea with me. After two minutes into the conversation I had the perfect person for him to talk to about his idea and his industry. Two days later the two connected and had a very productive conversation and my connection will likely prove a valuable sounding board for him going forward.

    What’s the moral of this simple anecdote? There’s tremendous value in talking about your business and idea as you never know who’s going to have a good connection or can legitimately help you. Too often entrepreneurs think their idea is unique, and that the value is in the idea, not the execution of it. Unfortunately, this is the wrong approach in my experience, especially considering how much value I’ve derived from talking to people about my company and our current challenges.

    I do have one caveat: don’t be the guy that is always talking about a new business idea every 30 days, otherwise people will stop being as supportive and think you aren’t serious. Pivoting or iterating with your idea is great, and should be explained when visiting with the same person you pitched your previous idea, but be thoughtful of their time.

    My recommendation is to seek out anyone who will listen to your business idea and look for ways to get input, connections, and ideas.

    What else? Do you agree or disagree?

  • Incremental vs Instrumental Change

    We’ve all heard the saying that entrepreneurs should focus on working on the business instead of in the business. I’d like to add that in a similar manner entrepreneurs should think about incremental vs instrumental changes. What I’ve found is that a company can only handle so much change in a period of time, say 6 – 12 months, before the change is viewed as leadership testing new theories without enough thought to providing some semblance of rhythm or continuity.

    I’d encourage entrepreneurs to always be bringing new ideas to their company, but pay close attention to which changes are incremental vs which ones are instrumental. Like many things, it probably falls into an 80/20 paradigm where 80% of the time should be spent on incremental improvements and 20% of the time should be spent on major, instrumental changes. Each company is different, with its own respective threshold, and it is tough to find the right balance. Through it all, never stop bringing about change.

  • My Goal to be on the Inc. 500

    Thinking back to 2003, a couple years after I started my company, I can distinctly remember reading Inc. magazine with a colleague of mine who had a subscription. This was the famous Inc. 500 issue where it showcased the 500 fastest growing privately held companies in the United States. Right then and there I made it a goal to be an Inc. 500 company.

    I remember the energy and excitement of making up my mind and deciding on an ambitious goal. It’s amazing what the mind can do once you really focus. At the time, we were growing fast on a percentage basis but no where near the minimum requirement of $1 million in revenue to qualify. I had to make the hardest shift of my entrepreneurial career: go from being the technical product guy to the sales and marketing machine.

    I’m pleased to say that in 2007 we were number 247 on the Inc. 500 with a three year growth rate of almost 1,000%. My goal was achieved.

    What are your goals? What are you focused on?