David Cummings on Startups

Blog

  • Internal vs Outsourced Software Development

    One of the core challenges with building a web-based company is developing the software. Naturally, there are many debates between developing the software with an internal engineering team vs outsourcing the development to a firm, onshore or offshore. Let’s look at a few issues to consider:

    • Is the product central to the company’s success or is good enough OK?
    • Do the founders or CTO have experience managing an internal or outsourced development team? An outsourced team is generally considered more difficult to manage and management intensive.
    • What type of financial resources are available in the near term and longer term? One-time projects might be more cost effective when outsourced if scope is sufficiently defined and the platform is a known technology (e.g. writing a simple iPhone app).
    • How fast and iterative are the product changes? I’ve generally found internal teams faster at iterating when compared to an outsourced firm that is juggling multiple projects.
    • How accessible is local software development talent? The size of the city and quality of nearby engineering schools can be a factor in finding good internal software engineers.

    In my experience, I’ve had the most luck with internal software development teams as our product is our core competency. I have heard stories of software companies having success with completely outsourced software development, even offshore work, but the number of failures I’ve heard about significantly outweighs the wins. My advice is to seriously consider an internal team, even if on the surface it appears more expensive.

  • Market Opportunity or Management Team

    At lunch today I was talking with an entrepreneur who was lamenting that the company he was recently with has disjointed, inefficient technology powering their web services. He also talked about management turnover at the C-level as well as board of directors. I then casually asked how the company was doing financially and he said it was growing like crazy with substantial revenues and profitability.

    This conversation got me thinking about the old debate as to whether the market opportunity or the management team is more important in a startup. Some people, like Marc Andreessen, the Netscape and Ning co-founder, believe that market opportunity and size is more important. Others, like Mark Peter Davis (a classmate of mine at Duke), believe that the management team is critical.

    Personally, I’m starting to put more stock in the market opportunity and timing over the management team.

    Now, of course, there has to be a modicum of competency on the management. But, beyond that, I think the market, product, timing, and product to market fit are the real drivers for phenomenal success.

    What do you think?

  • Consider Lead Gen from the Beginning

    Today, I had the chance to meet with an entrepreneur working on a new business idea. After hearing the pitch and asking questions I realized he hadn’t spent much time on one of the most crucial aspects of a business: understanding how leads are going to be generated. That’s right, lead generation is one of the most important concepts that is paid little attention.

    Building a product, thinking through all the business plan questions, etc is so much more exciting and fun when compared to addressing how much it costs to acquire a customer, ramp the customer up, and the lifetime value of the customer. My advice to entrepreneurs is simple: consider lead generation to be one of the most important parts of the business.

  • 3 Year Life Plan

    One of the topics discussed at a recent EO University was centered around building a three year life plan incorporating the three main categories of professional, personal, and family. Generally, the idea is to identify where you want to be and what habits need to be employed to achieve it. Let’s look at some examples:

    Professional

    • Two annual speaking engagements — habit of writing one article per quarter for an industry publication
    • Selling a new deal each month — habit of meeting 100 new people every month

    Personal

    • Run a marathon — habit of running three miles every other day with a more specific plan before the race
    • Break 90 in golf — habit of hitting range balls two times per week

    Family

    • Healthy spouse relationship — habit of one dedicated date night per week
    • Engaged with children — habit of dinner with kids five nights per week

    I’d encourage you to think about your goals and get into habits immediately that will help you achieve them.

  • 5 Ways to Improve the Atlanta Startup Community

    Tonight I had the opportunity to attend a dinner, sponsored by a great VC firm in town, for the sole purpose of discussing the Atlanta technology startup community, including what’s working well and what can be improved. None of the solutions are effortless, nor are too many likely to happen soon, but the goal is to spread awareness of how we can improve things. Here are five ways to improve the Atlanta technology startup community:

    1. Allow the Georgia government pension funds to invest in the venture capital alternative asset class
    2. Convince Fortune 500 companies in the metro area to buy from local startups and acquire local startups
    3. Introduce several new local seed stage and early stage investment funds
    4. Encourage successful entrepreneurs to give back and reinvest in the community
    5. Increase the number of clusters and improve their recognition (e.g. online marketing, vertical e-commerce, lead generation, etc)

    There are many more but these were some of the main takeaways from the evening. The great news is that over the past five years the Atlanta startup community has really blossomed and has many different ways to get involved.

  • When to Help Entrepreneurs

    I’ve had a chance to work with entrepreneurs at all different stages of their idea and business. Whether it is an idea that popped into an entrepreneurs head the night before, or it’s already a million dollar company, I’ve found that there’s so much excitement and passion that makes it fun to help out. Recently I’ve decided that the most nascent stage of the pre-business idea formation is too early for me to add much value. Going forward, I’m interested in helping out once the Questions to Ask an Entrepreneur have already been established. Here are those questions again:

    • What problem are you trying to solve?
    • How are you different?
    • How many prospects have you talked to about it?
    • How far along are you with the concept?
    • Where do you need the most help?

    The general goal is to have the idea a bit more fleshed out before discussing it so as to be able to offer more value and input. Entrepreneurs that haven’t answered the questions yet will possibly view this as annoying but in the end will appreciate the purpose.

  • New Venture Time to Profitability

    In talking with first-time entrepreneurs I consistently find they optimistically believe they’ll hit profitability six months after launching their product. In my experience, with a couple different ventures, I’ve found that profitability comes a full two years after starting the venture. Let’s look at the timeline I’ve experienced two times before:

    • Six months building the product with a key potential customer providing feedback throughout
    • Three months working with a handful of non-paying beta customers
    • Three months of selling to get the first couple customers
    • A year of selling to refine product market fit, customer acquisition model, on boarding process, and at the end, achieving ramen profitable

    So, in my experience, the end of year two is when we finally have several hundred thousand in annualized revenue and typically have enough to cover our expenses assuming we’re paying below market salaries.

    For entrepreneurs that are bootstrapping a product company, I recommend having two years worth of living expenses on hand when starting the business — it often takes longer than expected to reach profitability.

  • Iterate or Die: Life in a Startup Slides

    Following the TAG/ATDC presentation from yesterday, I had several requests for the slides. I just finished uploading them to SlideShare and have embeded it below:

    Thanks again to everyone that attended.

  • Public Speaking Thoughts

    This morning I had the opportunity to talk at the TAG/ATDC Entrepreneurs group using the material from my Iterate or Die articles. I wanted to say thanks to TAG and ATDC for inviting me to speak as well as say thanks for everyone who attended. As for public speaking, I always enjoy the opportunity to speak in front of an audience and talk through something I feel strongly about, like the need to pivot and change directions in a startup. Here are a few things I try to do when given the opportunity to speak publicly:

    • Develop slides that tell a story with simple pictures and as few words as possible (see Beyond Bullet Points)
    • Respect the time of the event and leave a few minutes at the end for questions
    • Thank the people that invited me as well as the audience for attending
    • Emphasize a theme and takeaway message from the talk (ideally most people will take away one or two items from the talk)
    • Make my email address available for people to ask questions after the event has finished

    Of course, there’s nothing revolutionary here but I find that following these simple tactics results in a good outcome.

  • Idea Exchanges for Employee Feedback

    One of my favorite things we do each month is honor an internal hero and choose the most pressing hassle/best idea. The hero and hassle of the month is chosen by everyone through directly voting with an idea exchange. For us, we use UserVoice.com and just close the ideas out each month. The winner of the hero of the month and the provider of the most pressing hassle/best idea each get a $100 bill at our monthly all hands meeting. Here are some key benefits:

    • Employee recognition is done in a consistent and company-wide fashion
    • More pressing hassles and good ideas are generated, and documented, using this methodology
    • Departments and team members talk about the recognition and ideas on a daily basis at our morning check-ins
    • Each winner gets a fun lawn ornament (think little sumo wrestler and big foot character) to keep at their desk for the month to highlight that they won

    I’d recommend looking for ways to recognize employees and capture good ideas in a systematic fashion. Idea exchanges provide just the medium for us.