David Cummings on Startups

Month: May 2018

  • Happy Ears and Sales Contracts

    By my senior year in college I was working full-time on Hannon Hill both building and selling content management software. Just down the road there was a prestigious business school where I had networked my way into the IT director that was in charge of the website. After a great meeting with him, he said, “If you add kerberos for authentication, we’d be very interested.”

    Naturally, my “happy ears” perked up and I thought that if we added that feature they’d be a customer. I emailed him after the meeting and set up a time to meet two weeks later. The night before our scheduled meeting to walk through the new kerberos module, I still hadn’t gotten it working (extra C++ code to go with the core PHP app). Undeterred, I stayed up the entire night writing code (literally!) and walked into the 9am meeting with a beautiful kerberos module. The potential buyer took one look, said they’d chosen another product, and wouldn’t be moving forward as a customer. I was devastated.

    Positive feedback from a prospect doesn’t equal a sale (verbals are for gerbils). Ask for the sale before building the next set of features. Ensure the prospect is truly buying before committing more resources. Don’t make the common entrepreneur mistake: check for happy ears and get a sales contract before moving forward.

    What else? What are some more thoughts on happy ears and sales contracts?

  • The Relentlessly Resourceful Entrepreneur

    Earlier this week I was meeting with a successful entrepreneur that’s constantly getting things done. Every time I talk to him he’s moved the startup forward in a meaningful way and refined his thinking.

    Normally, when I meet with a successful entrepreneur, they fall into one of two buckets: sales-oriented or product-oriented. Sales-oriented entrepreneurs are always selling something, even if it doesn’t exist yet (sell in advance of the roadmap). Product-oriented entrepreneurs are usually heads-down building the best product possible, often to the exclusion of other important activities (need to be paired up with a growth-oriented entrepreneur). Yet, this entrepreneur I met with didn’t fall into either bucket: he wasn’t focused on selling and he wasn’t focused on the product.

    This entrepreneur falls into a unique bucket: relentlessly resourceful. Resourceful, defined as “having the ability to find quick and clever ways to overcome difficulties” sums it up perfectly. Entrepreneurship is about moving fast (quick) and constantly solving problems (overcome difficulties). Also known as cockroaches of the corporate world, these entrepreneurs just keep moving and don’t die.

    Signs of a relentlessly resourceful entrepreneur:

    • Check-ins – Never afraid to ask for help, they also check-in on a periodic basis and come prepared with a specific question or idea for feedback. Every conversation you walk away believing that they’re going to take the feedback to heart and make something happen.
    • Updates – Proactive updates via email are sent several times per year in a thoughtful and valuable format. These entrepreneurs value relationships and seek to keep their network current and up-to-date on progress.
    • Recruiting – People are attracted to the entrepreneur and get pulled into help, even if there are limited resources or compensation. And, they consistently find new people that can help the mission, even if that person isn’t needed immediately.
    • Progress – Finally, the startup is always growing, winning new customers, earning industry accolades, and making great progress. Momentum is strong and it’s clearly a winner.

    Relentlessly resourceful entrepreneurs epitomize the entrepreneurial spirit and continuously move their business forward. Look for these entrepreneurs in the community and work to help them achieve even greater levels of success.

  • Implications of Raising Venture Capital

    Last week I was talking to an entrepreneur that was dead set on raising venture capital. Naturally, I wanted to understand more and asked a number of questions. Turns out, this entrepreneur just thought it was the next step to being successful. Venture capital shouldn’t be viewed as just another step in the startup journey — raising venture capital is a serious decision that shouldn’t be taken lightly.

    Here are several implications of raising venture capital:

    • Growth – Startups are growth-oriented organizations. Raising venture capital takes the emphasis on growth and raises it to max — everything is focused on growth. If growth stalls, more money needs to be raised or the company needs to be merged with someone else that is growing faster. Grow, grow, grow.
    • Timeline – As soon as you raise institutional capital (as different from angel capital, family office capital, etc.) the business is now on a timeline to sell in as little as 3-5 years and as long as 7-10 years. No matter how you feel, the business has to be sold (or go public) in an effort to generate returns for the limited partners (the people and institutions that provide capital to the venture capitalists).
    • Partnership – Selling a piece of equity is signing up for a long-term partnership with the investor. The relationship should be viewed as a partnership and not merely as an investment. Only raise money from investors you want to work with indefinitely.

    Raising venture capital puts the startup on a path to grow at all costs, and has serious implications. Most startups fail and most startups that raise venture capital don’t make any money for the founders. Entrepreneurs should deeply study the pros and cons of this type of capital and know that most of the time it doesn’t make sense. Yet, when everyone is aligned and the startup does well, it’s a beautiful thing.

  • Tie Opportunities to the Vision

    The entrepreneurial grind continually presents new challenges, and opportunities. Do I double down on what’s working? Do I pursue this new idea that appears to be a bigger opportunity, but is more unknown? As an entrepreneur, especially one that’s prone to chasing the next shiny object (aren’t we all!), it’s easy to lose focus of the bigger vision.

    Instead of asking “should we do X or Y?”, the better question is “where does X fit in our vision and what’s the priority?”. Only by constantly comparing the opportunities to the vision, and regularly reprioritizing them, does clarity become possible. Yes, occasionally the vision itself needs to change, but that doesn’t happen too often, especially as the startup grows (watch out for organizational whiplash).

    The next time an opportunity emerges, tie it to the overall vision, and use that as a lens to determine importance.

    What else? Have you seen an opportunity assessed independent of vision?

  • The Entrepreneur’s Financial Sacrifices

    Over the last two weeks multiple entrepreneurs volunteered to me that they emptied their 401k retirement savings to fund their startup. While that financial sacrifice seems extreme to many people, to some entrepreneurs it’s the only way forward.

    Reflecting on my journey, at one point I had $50,000 in personal credit card debt for Hannon Hill. Our company was doing well, but still sub-scale, and we desperately needed to invest in certain areas. I made the choice, fully self aware, that if things went badly I was on the hook for the debt. Yet, I pushed forward with the full belief that we’d make it and the company would thrive. Everything turned out well but it was scary for a period of time.

    Entrepreneurs make a number of financial sacrifices, and here are a few of the more common ones:

    • Salary Cut – Taking the plunge from being employed at a regular job to being a no-income entrepreneur is brutal. This is often the main reason people that want to be entrepreneurs don’t do it.
    • Credit Card Debt – Banks aren’t in the business of lending unless there’s already a valuable asset in place so many entrepreneurs resort to credit cards. I like to think that Capital One is the number one non-family funder of entrepreneurs in the U.S.
    • Retirement Plans – Programs like 401k plans incentivize people to save for retirement, but they also act as emergency savings accounts which can be tapped for any reason at great penalty. Entrepreneurs use these retirement plans as seed capital.
    • Skipping Mortgages/Student Loans/Other Required Payments – Some entrepreneurs purposefully skip payments of other loans or bills in an effort use the temporarily saved cash to invest in the business, often resulting in a negative impact to their credit score. One entrepreneur would purposefully blur an account number on their payment checks so that the check couldn’t get cashed right away, thereby buying more time to be able to make the payment (not ethical but did work).

    Financial sacrifices are a difficult and challenging part of the entrepreneurial journey. As with most things, the more struggle to make it succeed, the more rewarding the outcome.

    What else? What are some more financial sacrifices?