David Cummings on Startups

Blog

  • Email as Currency

    I was talking with an entrepreneur earlier today and the conversation centered around strategies for monetizing highly specialized content. Her company provides niche business services and supporting collateral (books, white papers, worksheets, etc) to a valuable audience. The question was as follows: should I sell my content or give it away for free?

    In the end, my advice was to go the free route for the following reasons:

    • The conversion rate for unique visitors to buyers of digital content (e.g. a PDF for $20) is likely 1 in a 1,000, so it’ll take a ton of visitors to make much money
    • Most people don’t like to buy content online, and pulling out a credit card to purchase a PDF results in tons of friction
    • If instead of 1 in a 1,000 that spend $20, you give the content away for free in exchange for providing a valid email address that opts into an occasional newsletter (no more than 2x a month), the number of emails you earn is 20 in a 1,000
    • With opted in email addresses, and thus a targeted audience, new articles and content can be sent out with sponsored, context-relevant advertising, that will command a high quality rate (e.g. $5 – $10 per email of annually), resulting in significantly more revenue than the digital content route
    • The biggest value of focusing on email as currency is that not only is the revenue higher, but that it is recurring revenue, which is one of the best business models

    Selling digital content appears to be an easy way to make money online, but I believe that building a loyal, opted-in audience around the content is a superior strategy for value creation.

  • Milestones for New Sales Reps

    Hiring an effective sales team is one of the most difficult challenges for a technology entrepreneur. It isn’t that there aren’t good sales people out there, it is just that sales is usually foreign to technologists, and like non-technical people trying to hire technical people, it is hard to determine who will be successful. Sales people can be even more challenging to figure out because by their very nature they are good at selling, especially themselves.

    One of the best things to do as part of hiring a new sales person is to establish success milestones. These are milestones for the sales rep to achieve during their first six months to a year, assuming you have a consultative sales process with a decent learning curve. Here are some categories to measure:

    • Call conversations logged
    • Demos scheduled and completed
    • Opportunities created
    • Opportunities closed won (sales made!)

    Of course, these are standard metrics to track for sales people. What I’m emphasizing here is to have specific numbers of each that are required to be met for every 30 day period to stay on the bus until quota is achieved. What gets measured gets done.

  • The Dump and Social Media

    Today I visited a new, super large furniture store that opened in the Buckhead area of Atlanta: The Dump. The idea behind the store is to be like a TJ Maxx or Marshalls where unsold merchandise from manufacturers is sold at a discount. Here are a few interesting aspects of the business model:

    • Physical square footage is 30% larger than a Home Depot (huge!)
    • Store is only open Friday, Saturday, and Sunday to save money on labor
    • Furniture can be purchased and taken at the same time (most furniture stores require customers to order and waiting for delivery)

    Now, on to the point of this post: the social media reviews of The Dump are horrendous. Wow, I don’t know if I ever seen reviews so bad. Searching for “the dump store reviews” on Google has a good deal of negative results:

    • Consistent one and two star ratings on sites like Yelp.com
    • Negative blog posts completely dedicated to how bad the service and business practices are
    • Formal complaints on sites just dedicated to complaints and rip-offs

    My recommendation is to build good quality customer service into your business from day one and know that social media is a negative force multiplier for companies that do it poorly.

  • New Business Ideas

    At today’s Shotput Ventures office hours we had the chance to hear several different entrepreneurs talk about their business ideas. Normally, I like to have five questions answered before digging into the strategy. After listening to the ideas, one of the entrepreneurs asked if we had any business ideas we liked. Here’s one we batted around:

    • Platform for iPad to operate in kiosk mode
    • Dynamically include the current edition of multiple magazines
    • Distribute the iPads in doctor offices (need a way to lock them down!)
    • Show ads based type of doctor, demographics, and track article readership

    Generating ideas is the fun part. Executing on the idea is the most difficult, and rewarding part. What’s your idea?

    Note: Shotput Ventures is currently accepting applications!

  • The Power of Silence

    I think one of the most underrated leadership tactics is silence. What I mean by that is the common approach to leading is to constantly offer up ideas, opinions, input, etc. Generally, I’m not recommending removing those practices, but rather to spend more time not talking. Just listening, and the power of silence by leaders, is very impactful.

    Have you ever had an employee come up and ask for advice? Of course you have. The next time that happens, just nod your head and wait, uncomfortably, for them to offer their suggestion and resolution. I bet the resolution will be a good one, and a second benefit is keeping the monkey off your back.

  • Cohort Analysis for SaaS

    One of the SaaS measurements tools that I don’t think is mentioned enough is that of running a cohort analysis (Wikipedia) on customer data. The idea behind a cohort analysis is to track a group of data over time as an independent unit. With SaaS, the major areas to do cohort analysis are for churn and up sells. A common example would be as follows:

    • Analyze customers as a group based on the month they sign (each customer signing month would a new row in the spreadsheet with the left most row being the name of the month and year)
    • Look at the renewal rate and annual recurring revenue for that group for each subsequent month (each month after signing would be a new column to the right of the signing month in the spreadsheet with the column names being the number of months as a customer)
    • Look for trends in over time (e.g. renewal rates significantly increase after the sixth month)

    For more information, please see Fred Wilson’s post on cohort analysis.

  • Shotput Ventures Office Hours

    In lieu of an open house like we did last year, we’re doing a Shotput Ventures Office Hours program at two popular coffee shops in town. The goal of the office hours is to make the Shotput partners available for potential applicants to ask questions and learn more about the 12 week program. Here are the office hours:

    March 4, 2010
    1pm – 3pm
    Octane Coffee Westside (near GA Tech)

    March 24, 2010
    10am – noon
    Octane Coffee Eastside (near Emory)

    Please stop by and introduce yourself.

  • Billboards for Web Hosting Companies

    Driving around Atlanta recently I’ve see several large billboards for web hosting companies — yes, web hosting companies. Do they know something I don’t know? Since when did old fashioned billboards on the side of the road generate a better return on investment (ROI) when compared to online advertising? Here’s my theory: web hosting is so competitive, and has such low barriers to entry and obvious need, that the traditional online lead generation routes don’t have an appreciable ROI. Web hosting companies that continue to do the online advertising do so to get greater economies of scale so that these new customers eventually will be profitable. And, that’s why they are trying out billboards.

    Oh, and here are the companies that are advertising:

  • Rajeev’s Rule

    Through a tweet I came across Brad O’Neill’s blog post on Rajeev’s Rule:

    “When any sincere individual or group of people asks for your assistance in the pursuit of their business dream, strive to help them in any way that you can, be it small or large.”

    Rajeev Motwani was a Stanford professor and angel investor that was one of the most respected advisors in Silicon Valley and was always looking to help others. While I haven’t achieved his level of respect, I do aspire to give back and help other entrepreneurs in pursuit of their business dream.

    Please shoot me an email or tweet if I can help.

  • Money Now or Later

    One of the challenges in a startup is deciding when to trade off short term revenues (money!) to focus on the long term plan. This might sound like a strange concept — why would I want to say no to money? Let’s look at a few examples where this can happen:

    • A key beta customer really wants to pay for consulting work, but you know, based on previous experience, that this will take too much energy away from the product
    • Traffic is growing nicely on your site, and the urge is to put up advertising, but you know it’ll detract from the user experience
    • Users are using your service for free, and several have offered to pay, but time is better spent improving the product and not implementing a payment system

    Of course, this can be a good problem to have. My recommendation is to think hard and be wary of making short term decisions that can hinder growth or don’t have economies of scale.