David Cummings on Startups

Author: David Cummings

  • Impact Builders

    Continuing with yesterday’s post on Empire Builder or Lifestyle Builder, Alok offered up a third type as a variation of the Empire Builder: the Impact Builder. Here’s how Alok describes it:

    The Impact Builder wants to impact a specific issue or group and believes building a business (for profit or non profit) is the most sustainable way to drive that change. They’re not really in it for the ‘sport’ or goal of building a company but, instead, look at that process as a means to an end. Impact Builders want scale, profitability, etc. — primarily because it enables them to impact more people.

    Alok is absolutely right that Impact Builders are incredibly important and make a huge difference in our society. Many entrepreneurs are Impact Builders and use their gifts and talents to help other people. The next time you think of Empire Builders and Lifestyle Builders, think of Impact Builders as well.

    What else? What are some more thoughts on Impact Builders?

  • Empire Builder or Lifestyle Builder

    When meeting entrepreneurs, one of the mental questions I like to ask myself is whether or not this person is an empire builder or a lifestyle builder. An empire builder wants to build a massive company, or collection of companies, and yearns to play the great sport that people call business forever. A lifestyle builder wants freedom to be both financially independent and to do what they want with their time, but doesn’t aspire to having an empire. There’s no right or wrong approach, and people can switch between the two, though that’s usually rare.

    Here are a few questions to discern empire builder vs lifestyle builder:

    • When do you want to retire? What are you going to do during retirement?
    • If you won the lottery tomorrow, what would you do?
    • How big do you see your startup getting? Why?
    • What’s your desired exit (my favorite exit strategy)?

    Again, there’s no right answer. Only, there’s more insight into the entrepreneur and his or her desires. The next time you talk to an entrepreneur, see if they’re an empire builder or a lifestyle builder.

    What else? What are some more thoughts on this idea of empire builder vs lifestyle builder?

  • 6 Ways to Improve Executive Summaries After Reviewing 32

    Earlier today I read through 32 executive summaries of startups that are presenting at Venture Atlanta later this month. Most were good, a few were sub-par, and several were excellent. After reading the executive summaries, here are six things entrepreneurs should do to make them better:

    1. Minimize Jargon – Every industry has jargon and terminology that is cumbersome and alienating to outsiders. Figure out how to minimize the jargon and provide a clear message.
    2. Don’t Cram Too Much – Two pages is never enough to cover every important point. Regardless, don’t shrink the font and try to cram so much in that the most important points get lost in the verbiage.
    3. Be Visual – If there’s a visual element to your story — chart, diagram, etc. — incorporate it into the executive summary to break up the monotony of text. Customer logos are a great visual.
    4. Use Strong Words – Investors need to believe that the startup will be wildly successful. Words that are weak like “plans”, “hopes”, and “wants” should be left out.
    5. Reasonable Revenue Forecasts – Too many executive summaries showed sales of $20M+ only a few years after founding. While it’s technically possible, the reality is that revenue forecasts should be more reasonable and less inflated.
    6. Keep it Balanced – Spending one paragraph on the market and four paragraphs on the competition doesn’t make for a balanced executive summary. Find a rhythm and keep it throughout.

    Executive summaries are a key part of the startup world and should be crafted with care. Follow these six ideas and make them even stronger.

    What else? What are some more ways to make executive summaries better?

  • Limited By the Best You’ve Personally Seen

    One of the challenges of being an entrepreneur is that you’re expected to be functionally OK in a wide range of areas — sales, marketing, services, support, operations, engineering, etc. Only, entrepreneurs are typically great at one thing and not good at the other stuff, especially if it doesn’t interest them. Now, this gets even more difficult in that you’re often limited by the best person you’ve personally seen in a specific role.

    Seen a good sales leader in action but not a great one? How do you know? What does a great sales leader do that a good one doesn’t do? This is especially tough if you’re in a city or area without a strong startup ecosystem as it’s even harder to find a great person to learn from, even if they aren’t on your team. As much as we like to read blogs (including this one!), there’s a very real human element that comes from seeing greatness in action. One of the best resources to help is a strong mentor, advisor, or investor that’s worked with great people in the desired area. Leaning on someone who knows what greatness looks like is the next best thing to knowing it yourself.

    How do you meet more people? Put yourself out there. As Byron Wien says in his life lessons:

    Network intensely. Luck plays a big role in life and there is no better way to increase your luck than by knowing as many people as possible. Nurture your network by sending articles, books and emails to people to show you’re thinking about them. Write op-eds and thought pieces for major publications. Organize discussion groups to bring your thoughtful friends together.

    The more people you know, the more likely you are to encounter greatness or meet people that are one degree moved from greatness in the area you need the most. While it’s difficult to appreciate without experiencing it, once you’ve worked with a great person in one area, you’ll want a great person for every area.

    What else? What are some more thoughts on the idea that entrepreneurs are limited by the best they’ve personally seen?

  • A Series A VC Roughly Owns 1% Individually

    Recently an entrepreneur asked me if VCs get individual compensation beyond the fees and profits from their partnership for serving on the board of a startup. Normally, there’s no individual compensation (this changes if the company goes public and the VC stays on the board), but with some basic math you can come up with a rough approximation of their individual ownership position.

    Let’s work through a simple example:

    • Assume the typical venture firm targets a 20% ownership position as the lead investor in the Series A
    • Assume the typical partnership has four general partners (varies based on size and stage of firm)
    • Assume the venture firm has the standard compensation of 2% management fees and 20% carry (profits)
    • Take the 20% ownership position and multiple by the 20% of profits resulting in an effective partnership ownership position of 4% of the company (assumes a big exit where the initial investment is returned many times over)
    • With four partners and the firm owning 4% of the exit, each general partner effectively owns roughly 1% of the startup individually (this doesn’t take into account junior partners, venture partners, advisors, etc. that have different stakes in the partnership)

    So, while VCs don’t get compensated directly on an individual basis in a successful investment, they often have economic interests equivalent to roughly 1% of the startup’s value.

    What else? What are some other thoughts that a Series A VC roughly owns 1% individually?

  • 3 Reasons Local Investors Don’t Collaborate More

    Last week an angel investor asked me why local investors don’t collaborate more. We chatted about it for a few minutes and I didn’t have a good answer for him. After thinking about it for a week, I realized there are three reasons why local investors do their own thing:

    1. Unique Focus – With so few investors, there isn’t much overlap between interests. Focus areas like sales and marketing technologies, cybersecurity, media, and fin tech don’t usually intersect.
    2. Investing as Hobby – Most of the local investors are investing their own money as a hobby, and don’t treat it as a profession. Also, since it’s a hobby, the pace of activity ebbs and flows depending on other life activities.
    3. Lack of Collective Goals – Without common goals, like growing the entrepreneurial community, there’s little impetus to collaborate.

    Local investors don’t collaborate much, yet there’s a desire to build a stronger startup community, and a belief that more collaboration will help. Hopefully, with time, we’ll see more collaboration.

    What else? What are some more reasons local investors don’t collaborate more?

  • Video of the Week: Kevin Plank on Becoming a Successful Entrepreneur

    Kevin Plank, the founder and CEO of Under Armour, tells an incredible story of building one of the most iconic athletic brands of our day. Here’s a great line he repeats several times in this week’s video:

    We were always smart enough to be naive enough to not know what we can accomplish.

    Enjoy!

    From YouTube: Kevin Plank, founder and CEO of Under Armour, talks about the keys to becoming a successful entrepreneur. Plank spoke at the 2010 Cupid’s Cup for the Robert H. Smith School of Business at the University of Maryland.

  • Financial Literacy in Startups

    At Pardot we noticed that many of our team members were asking questions about whether or not to put money in the 401k plan (which even had a company match). Then, as other financial questions came up, we realized that there was a real financial literacy challenge in the company, and, no, not just with the millennials.

    To help, we hired a financial literacy coach that met individually with everyone interested and taught a six week course exclusively for employees during work hours (every Friday at 1pm). In fact, the first program was so successful that we did it again a second time. Pardot paid directly for the program and the financial literacy teacher didn’t sell any products or services.

    Here are a few thoughts on financial literacy in startups:

    • While many people focus on big exits and love to talk about the future value of equity, the reality is that the financial basics aren’t well understood
    • Financial literacy can help people for the rest of their life by helping them make better financial decisions
    • More investment in people, especially to help them at a personal level, endears them to the company
    • Company benefits come in all forms and aren’t just related to good insurance and free food

    Financial literacy is a real challenge and startups have the opportunity to help educate their employees. For many people, it’ll make a profound difference.

    What else? What are some more thoughts on financial literacy in a startup?

  • Inbox Zero and One Page Strategic Plan

    Recently I was talking to an entrepreneur and the topic of what to do next after achieving inbox zero (see Manage Email Like a Boss) came up. His answer was perfect: go straight to the one page strategic plan. For many entrepreneurs, the one pager acts as the highest-level gameplan for the business. If it’s truly the gameplan, it needs to be visited frequently. Only, too many entrepreneurs put a one pager together and then treat it like a static document to be updated once every 90 days. The best entrepreneurs treat it like a living document and use it to align the leadership team on a frequent basis.

    Here are a few thoughts on inbox zero and the one page strategic plan:

    • Inbox zero comes from reading emails once and processing them (often deleting them or putting them into folders to address later based on priorities), but it also acts as a to do list for many, and once the current to do list is done, the next logical place to go is the one pager
    • Quarterly goals and annual goals, while usually fixed for the designated time period, should have a quarter-to-date or year-to-date value so it’s easy to see where things currently stand, as opposed to only having the desired outcome
    • Priority projects should be the most frequently reviewed area of the one pager as it has the most important things to accomplish in the next 90 days (or sooner depending on where things are in the quarter), and, like the inbox acting as a pseudo to do list, the priority projects act as a high-level to do list for the company

    The next time you hit inbox zero and consider what to do next, go straight to the one page strategic plan.

    What else? What are some more thoughts on inbox zero and the one page strategic plan?

  • Sales and Marketing Drives Successful SaaS Startups

    One of the ongoing debates is the balance between the sales and marketing teams and the engineering team. Often, the startup is a reflection of the CEO’s passion. If the CEO is product-oriented, the startup will be more product-oriented. If the CEO is sales-oriented, the startup will be more sales-oriented. Only, for the most successful B2B SaaS companies, there’s a repeated trend: sales and marketing drives the business.

    Here are a few thoughts on sales and marketing driving the business:

    • Recognize the constant tension between the teams, especially the desire for engineering to produce new functionality faster
    • Know that sales and marketing can get too far out in front of engineering, and figure out how to slow one down or speed one up
    • One common strategy is presenting a demo of new product functionality at an annual user conference, knowing full well that it’s vaporware and might not be generally available for many months, if ever (this happens all the time)
    • Another common strategy is taking prospects through a multi-year roadmap (e.g. a visioning session) only to not be able to guarantee that the proposed functionality will actually be available at designed dates, if ever
    • Ensure that sales and marketing paints a picture of the future but doesn’t promise things that can’t be done (harder than it sounds)

    Sales and marketing is always ahead of the engineering team at the most successful startups. Finding a balance and not being reckless is a real challenge for ambitious CEOs. Sales and marketing should drive the business, while maintaining a healthy tension with engineering.

    What else? What are some more thoughts on sales and marketing driving the business?