Author: David Cummings

Last week, I had a great conversation with a fellow entrepreneur. We debated various challenges in our industry. Eventually, our discussion centered on an issue I find particularly daunting: talented entrepreneurs working on the wrong ideas.

Over the years, I’ve met hundreds of entrepreneurs. While I don’t have an answer on what guarantees success, I’ve seen certain indicators related to customer adoption, market readiness, and business model. When I engage with an entrepreneur whose business doesn’t exhibit these indicators, I often suspect their venture is misaligned with the market.

It’s so hard when a clearly gifted entrepreneur possesses drive, passion, grit, resourcefulness, and tenacity, yet their venture is unlikely to succeed without significant changes. How can we help them realize that their current path might not yield the desired results?

Many tools help in entrepreneurial development, such as the simple one-page strategic plan and the business model canvas. These resources help structure a business and the quest for product-market fit, and beyond. However, if the market isn’t receptive, or there isn’t enough demand or opportunity, success remains elusive.

I often evaluate ventures based on two criteria:

• Mission Criticality: How essential is the product to a client’s operations?
  For instance, during the great recession, a fitness center faced a dilemma: pay the electricity bill or their SaaS subscription. They prioritized the latter, underscoring the software’s importance to their business.
• Path of Revenue: Does the product directly impact the client’s profitability?
  The best examples are products that offer clear, patently obvious return on investment (ROI). If a customer purchases and implements a product that boosts their profitability or has hard savings, the product’s value becomes self-evident.

For entrepreneurs focused on an unworkable idea, my advice is to challenge their assumptions. Encourage them to visualize a venture with stronger market traction. Instead of feeling like they’re pushing a boulder uphill, they should feel like they’re guiding a snowball downhill, gaining momentum. When things click, the experience changes dramatically. It becomes exhilarating. Those who haven’t felt it won’t appreciate the difference, but it’s profound.

One question for entrepreneurs to ask prospects and customers: does this solution solve your most pressing issue? They might see this as a nice-to-have while a must-have is on the tip of their tongue. Prospects and customers are always the best source of ideas. 

There’s a paradox, however. Entrepreneurs with abundant grit and resilience might persist with an ill-fated venture. To assist, it’s crucial to broaden their perspective. Encourage them to consider adjacent markets or variations in their idea. The better market might be right around the corner.

Many talented entrepreneurs work on startups that will never succeed, no matter the circumstances. If we can guide them toward more opportunity-oriented thinking and encourage ways to find even better needs in the market, everyone will benefit. Entrepreneurship isn’t a zero sum game and we need to move the world forward, faster.

Last week, I spoke with an entrepreneur who had just secured funding at a post-money valuation of $100 million. When I inquired about his thoughts on the funding round and investor mix, he explained that his aim was to de-risk personally, strengthen the balance sheet, and position the business for an attractive exit in 3 to 5 years. I brought up the possibility of an IPO or pursuing a unicorn valuation in the future, and he expressed no interest. After evaluating startups broadly and crunching the numbers, he felt that a $100 million valuation, though significant, would still pave the way for a favorable exit, potentially to a strategic or private equity firm. He believed that targeting an IPO or a unicorn valuation in the future might jeopardize the value they’d already created and would raise expectations he wasn’t prepared to meet. However, if the business landscape changed or a new related opportunity arose, he would consider revisiting things. Based on his experience and the years spent building his business, he deemed it wise not to raise money past a $100M valuation.

Even raising at a $100M valuation signs the founders and team up for an exit goal of 3-5x that. How many $300M+ exits occur per year? Not many. Now, play it out even further, and think about raising money at a $300M+ valuation to continue aggressively investing in the business. From there, the goal has to be an IPO or unicorn round. 

From an entrepreneur’s standpoint, it’s easy to become engrossed in the thrill of securing funding, expanding the team, and growing the business. Yet, more growth doesn’t always equal a better business. Some markets just aren’t that big. Some markets take longer to develop. Furthermore, personal priorities evolve, and one’s perspective on opportunities can shift over time. And, every round of funding shifts the goal posts further out. 

Recent market downturns have indicated that IPOs now face higher scrutiny. Take Klaviyo’s public offering, for instance. Despite its immense value, the standards for them were exacting, given they reported over $600 million in annual recurring revenue and a 50% growth rate. Companies positioned to achieve such scale should consider it, but those that don’t meet the threshold (e.g. $200 million ARR with 30% yearly top-line growth) would benefit more from focusing on the private equity path, or simply growing organically without more fundraising. An IPO is increasingly unlikely. 

Entrepreneurs shouldn’t keep raising money just because they can, especially after a $100M valuation. Instead, entrepreneurs should continually evaluate what they’re signing up for and what outcomes are required to be successful.

Last week, I had a conversation with a successful entrepreneur about how to help other entrepreneurs. We exchanged recommendations and lessons learned, and he shared a concept I had never encountered before, which really resonated with me.

Many entrepreneurs forecast their growth in a linear manner. They might say, “I aim to double our revenue next year,” and consequently map this out on a chart with a left-to-right approach. So if they’re generating $1 million in revenue this year and hope to double it the next, they plot a 100% year-over-year growth on their chart.

However, he suggested that entrepreneurs should think differently. Instead of focusing on short-term, incremental goals, they should envision much greater ambitions and then plan backwards to the present. Start with the end in mind. 

For instance, an entrepreneur aims to grow their business tenfold in three years with much more than 100% annual growth, they should identify that future target first and then strategize backwards to their current position. This approach, working from the right side of the chart (representing the future) to the left side (representing the present), encourages an innovative mindset that breaks from traditional, incremental growth patterns.

This notion of “right-to-left” thinking aligns with other ambitious growth strategies, like the “triple, triple, double, double, double” approach championed by Neeraj Agrawal. The underlying message is clear: set ambitious goals, understand what’s needed to achieve them, and then work backwards to make them a reality.

Adopting this right-to-left methodology where you work backwards from exponential growth is an invaluable approach for entrepreneurs. It emphasizes expansive, long-term vision over incremental, short-term gains. The most significant accomplishments stem from the boldest ambitions. 

Last week, I was listening to a podcast from “Invest Like the Best,” where guest Miles Grimshaw discussed a concept I’ve encountered before, but never described in the same manner. The concept revolves around the in-market search for product-market fit. Historically, product-market fit has been discussed in contexts where new ideas and markets were explored. Entrepreneurs would develop a minimum viable product or minimum respectable product, then iterate and adapt it to the market based on customer feedback.

This notion of market search for product-market fit diverges slightly. The premise here is to launch a product to initiate dialogue with customers and use their feedback to potentially discover even better product ideas. It’s often challenging to engage potential customers without a tangible, functional product to present.

An instance of market search for product-market fit is Pardot. Initially, our product was a Google AdWords integrated landing page designed to generate leads to sell to companies. After building the MVP and generating several leads, discussions with prospective customers revealed a preference for a platform to generate and nurture their own leads. This revelation steered us from a lead generation system to a marketing automation platform, ultimately contributing to the business’s success.

Another example is Salesloft. The first product, “Job Change Alerts,” focused on tracking key contacts and prospects. It failed but led to the development of “Prospector,” a tool to gather contact information from the internet. Although more successful, “Prospector” did not fully meet the goals, prompting the creation of a third product: a comprehensive sales engagement and revenue workflow platform. This suite included a cadence engine and a range of tools designed to enhance sales team productivity, and it proved to be the ultimate success.

In both examples, an initial product was built, failed, leading to successful iterations. The original ideas didn’t pan out, but they paved the way for subsequent innovations, shaped by customer feedback and in-market adaption. Entrepreneurs should embrace customer feedback and be willing to adapt or pivot their products accordingly. Often times, launching an initial product to enter the market and build relationships with customers, while maintaining flexibility to pivot, is the path to product-market fit. The first product idea is almost always wrong.

Several months ago, Auren Hoffman wrote a blog post titled Dual Threat CEOs where full-time founder/CEOs are also investing in startups with institutional money. At the time, I didn’t think about it too much and put it aside as another interesting theory without knowing too many people to whom it actually applied. However, after reading it, I’ve been socializing the concepts and asking around as I meet successful entrepreneurs. Last week, in Chicago, I asked a number of the entrepreneurs I met there if they did any side investing, angel investing, had a fund, or had any sort of scout program they were involved in. I was really surprised by the results. The majority of the successful entrepreneurs I talked to last week had been investing money on the side, and they had been extremely successful doing so. Now, this could’ve been a moment in time as part of the zero-interest-rate phenomenon, or this could be a trend that has the opportunity to continue indefinitely.

One of the questions that came out of this is, should entrepreneurs run their own company as the founder CEO, who often raises institutional capital, and at the same time be investing in startups on the side, especially using other people’s money? Is this just another side hustle, or is this something that’s going to be really distracting? My answer when somebody asked if I believe entrepreneurs should do this is yes. And the reason I think entrepreneurs should do this if they want to – they shouldn’t do it if they don’t want to – is that when you’re a startup founder/CEO, one of your best uses of time is meeting with other entrepreneurs and other executives, visiting customers, recruiting talented people, and spending time in the industry. Invariably, that leads to finding interesting deals, finding interesting angel-and-beyond investment opportunities, finding interesting ways to help create value in the world.

There are just so few venture-backed founder/CEOs that most startup communities need their talented people performing both roles: performing the role of growing the venture-backed startup and performing the limited role, maybe 2 to 3% of their time, being an asset allocator for high-risk capital. Most up-and-coming startup regions don’t have enough capital; they don’t have enough people deploying capital. And so, if going through the founder/CEO route allows the community to develop that muscle around deploying risk capital and seeing more flowers bloom from the seeds planted, then so be it.

Dual threat CEOs aren’t going to be commonplace, but I do think they’re needed in the startup community. Entrepreneurs that are building businesses are going to find great investment opportunities in the normal course of action, and by being a dual threat CEO, they’re able to deploy capital in a way that is a win-win for both them, the startup community, and the funding providers.

Last week, I was with a group of entrepreneurs in Chicago as part of the Endeavor organization. One of the topics that naturally came up was ChatGPT, and how we were using it inside our respective startups. After discussing the usual ways we use it, I shared my favorite use case: cleaning up longform text that was originally from me, but putting it through ChatGPT so that it corrects all the grammar, punctuation, and spelling, making it turnkey for publishing. In fact, it’s so powerful and fast that I recommend every entrepreneur do it.

Here’s how to do it. Start by going to your Mac and enabling voice-to-text through the fn shortcut key. To do this, begin with the Apple logo in the upper left, then System Settings, then Keyboard. Enable the fn key to start dictation. Scroll down on that settings screen, and you can turn on voice dictation. Now that you’ve enabled speech-to-text through a simple keyboard shortcut, the next step is to load up your favorite word processing application. In this example, I’m using the native Notes app on Mac and setting it to plain text.

With your word processing application open, it’s pretty straightforward. All you need to do is use the shortcut key to start the voice dictation, and then you can start talking. From a content perspective, my favorite way to create content is to reflect on conversations from the last week or two. These conversations with entrepreneurs are always insightful, and opportunities to learn something new. Quite often, it’s the best source of new information that I want to document and share as part of this blog.

Once you have your long form content through the voice dictation in your notes or word processor, the next step is to copy and paste it into ChatGPT and have it cleaned up for publishing. Now you can go ahead, copy and paste, and instruct ChatGPT with the prompt, “Turn the following content into a blog post.” It will quickly generate a blog post. The challenge we’ve seen with ChatGPT is that it can be verbose and tends to get wordy with adjectives. What I like to do is give it the following prompt: “Clean up the following blog post focusing on grammar, punctuation, and spelling without adding adjectives.“

By using this as the prompt for ChatGPT, followed by the content you copied and pasted from your voice dictation, ChatGPT will immediately respond with all the content cleaned up and ready to go, including paragraphs, punctuation, spelling, and grammar – everything turnkey. Now, once ChatGPT has returned its version of the article, I copy and paste it back into the original app, the Notes app or the word processor app. Then, I go through it and refine it to make it sound more like my voice wherever possible. 

The voice dictation plus ChatGPT polish entire process takes less than five minutes and is the fastest process possible to go from idea to content to polished content to ready to publish. This is one of my favorite use cases of ChatGPT, and I highly recommend it to all entrepreneurs as they build their content and brand.

Last week, I was catching up with an entrepreneur, and he shared that they were interested in finding a new independent board member. After a number of years of growth and expansion, they felt like there was an opportunity to take the business to the next level and needed help after raising some capital. So, on the independent board member front, the idea was to find somebody to help augment the business. Thinking through my experience being on a number of boards over the years, three archetypes came to mind.

The Coach

The first archetype is the coach. The coach is somebody who has been around the startup and entrepreneurial world and loves helping founders and leaders. The coach wants to be there as a sounding board, as a mentor, as somebody who’s been there and done that. Their primary benefit is to be that Consigliere. In town here, I know of two excellent independent board members who meet this archetype, and entrepreneurs rave about their experience.

The Industry Expert

The second archetype is the industry expert. The industry expert is somebody who has already led a similar company in the same or similar industry. They already know the ins and outs. They might’ve taken a company public, sold it to a PE firm, or worked for the same investors. But ultimately, they have done the same job in the same industry or one that’s very similar with a successful result. So, this is the industry expert who is using all of their accumulated knowledge to share and help grow the business ultimately to achieve a similar, or better, outcome.

The Functional Area Expert

The third archetype is the subject matter expert. This is somebody who’s a proven executive at sales, marketing, product development, M&A, etc. This person is world-class at doing one of the functions in a business, and ideally, it’s the function that the startup needs the most help with. So, if the startup is struggling at scaling their sales and marketing in a way that’s more repeatable and more geographically based, this independent board member might be a world-class head of sales. If the startup is struggling with their product development, building a scalable product, their release schedule, and their whole development cycle, this person might be a world-class CTO who doesn’t want to be a CTO anymore and would rather be involved at the board level in a more part-time role. Functional area experts bring extensive, specialized experience to the company.

So, these are the three most common types of independent board members that I see: the coach, Consigliere, there to mentor and help the entrepreneur generally in the board and the company; the industry expert that knows the market that the startup is in inside and out and is there because they’ve been there and done that and they can help accelerate the mission; and the third type of independent board member is the functional area expert, somebody who’s world-class in a certain area and wants to help the startup develop their own expertise and skills in that same area.

Entrepreneurs would do well to identify the type of independent board member they’re looking for and consider one that’s either a coach, an industry expert, or a functional area expert. Identifying that type of person at the outset will make the process of recruiting the independent board member that much more efficient and productive.

While the frequency and urgency of the “how does your company do in-office vs remote?” conversation has diminished, it remains a popular topic of interest among entrepreneurs. Entrepreneurs are enthusiastic about sharing ideas and learning from one another, and this has kept the future of work debate top-of-mind. Even after years of experimentation, many entrepreneurs remain eager to explore new ideas.

Most software entrepreneurs I know have fully embraced remote work environments, allowing their teams to operate from various locations and convene in person regularly—typically, once a quarter for departmental gatherings and a couple of times per year for company-wide meetings. In contrast, many traditional business entrepreneurs I know have opted for a hybrid approach, requiring employees to be in the office 2-3 days a week while maintaining a workforce that is predominantly geographically centered around physical offices.

Last week, I read an interesting variation in a Wall Street Journal article titled “This Company Created a Return-to-Office Plan That Employees Actually Like.” J.M. Smucker, the company renowned for its eponymous jam, employs over 1,000 individuals primarily based at their headquarters in Ohio. After navigating the challenges posed by Covid-19, including work-from-home and in-office work arrangements, they realized that they could attract superior talent without the constraints of geographic specificity. However, they still valued face-to-face interactions. The solution they devised allowed employees to reside wherever they pleased but mandated in-office attendance on Tuesdays through Thursdays every alternate week, totaling six days per month, with exceptions of three days in July and December—all scheduled a year in advance.

With this schedule in place, all critical activities such as strategy sessions, training sessions, and other in-person work took place exclusively at the headquarters. This approach ensured that everyone knew well in advance when and where they were expected to be, enhancing the success of both crucial meetings and spontaneous water cooler conversations.

Naturally, there were specific rules and regulations associated with this arrangement. The most significant requirement was that employees were responsible for covering their own travel and lodging expenses. In essence, individuals had the freedom to live anywhere they desired, but the cost of travel was not subsidized by the company. This eliminated any debates about proximity to the office, as the financial burden for commuting was shifted to the employees themselves.

For entrepreneurs who firmly believe in the value of frequent face-to-face interactions and aspire to attract talent from all over, this innovative in-office plan, allowing employees to reside anywhere, merits consideration.

Within the startup community, there’s an essential aspect that warrants greater attention – embracing and celebrating failures. In recent weeks, two local entrepreneurs have openly shared their journeys, shedding light on the challenges they faced while building their startups.

The first one comes from Adam Steinberg, co-founder of Fetch Truck in the truck rental space. He candidly chronicles the evolution of their business model over the years. Despite raising VC money and tirelessly pursuing different strategies, their journey ended without building a sustainable business. They made the tough call to cease operations, acknowledging that there was no viable path ahead.

From Adam’s post: Without a clear and immediate path for fixing these challenges and restarting growth, we made the disappointing conclusion that the prudent course of action is to wind down the business. We ran out of time.

In the second example, Shep Ogden, co-founder of Offbeat Media Group (OMG) in the social media and virtual influencer space, reflects on an equally impactful experience. Shep recounts the thrill of onboarding big brands, hiring a team, and growing fast. However, shifts in the clients’ own business models led to a significant revenue drop for OMG. Unfortunately, this downturn necessitated major layoffs.

From Shep’s post: We made the tough decision to restructure while the company had a chance to move forward. This was the only way we could guarantee our employees a severance on their way out. After everything the business had gone through, we really wanted that for our team. 

Both these local instances illustrate how hard it is to be an entrepreneur. Even after raising millions of dollars and signing a number of customers, the chance of failure still persists. The call for celebrating these failures does not stem from a desire for more failures; rather, it is rooted in developing a startup community with more attempts. More attempts equate to more entrepreneurs willing to take risks and endeavor to build something from nothing. If we don’t have more failures, we’re trying hard enough.

While failure is not the objective, we celebrate the courage to take risks. Failure is an inherent part of the entrepreneurial journey. By acknowledging and learning from it, we set the stage for the next round of entrepreneurs to enter the arena.

Ever since I was in high school I’ve been fascinated by fast-growing businesses and the annual Inc. 5000 list of the fastest growing private companies in the United States. By digging in the list every year, you get to see the hottest industries, geographies, and trends. Every hope-to-be entrepreneur should spend a couple hours on the list.

And, of course, I like to look at the Atlanta tech companies on the list. Here the ones in the top 1000 for the 2023 Inc. 5000:

#70 Fusus
https://www.fusus.com/, 103 employees
Provider of an open intelligence ecosystem that integrates and enhances public safety and investigations assets.

#136 PrizePicks
http://prizepicks.com/, 276 employees
Daily fantasy sports.

#164 Neighborly Software
http://neighborlysoftware.com/, 81 employees
Software for community development.

#189 Flock Safety
http://flocksafety.com/, 645 employees
Operating system helping neighborhoods, businesses and law enforcement eliminate crime, protect privacy and mitigate bias.

#259 Stord
http://stord.com/, 398 employees
Supply chain and fulfilment solutions for direct-to-consumer and omnichannel brands.

#276 Mile Auto
http://mileauto.com/, 22 employees
A B2B2C pay-per-mile insurance provider that provides lower mileage drivers with insurance based miles driven.

#316 OncoLens
http://oncolens.com/, 38 employees
A clinical decision support company connecting data and care teams for better cancer treatment plans.

#329 Codoxo
http://codoxo.com/, 65 employees
Company providing AI-driven solutions and services to health care payers, agencies and pharmacy benefit managers.

#334 BetterBot
http://betterbot.com/, 49 employees
Company offering an automated platform to support the multifamily real estate industry.

#414 DUJUD
http://dujud.com/, 11 employees
Serving the semiconductor industry with proprietary 3D printing technologies that enable microfabricating.

#510 PadSplit
http://padsplit.com/, 117 employees
Creator of a co-living market platform enabling workers to live in the communities they serve.

#610 Voxie
http://voxie.com/, 29 employees
An AI-powered conversational texting platform for consumer brands to connect with and engage their customers.

#697 Bitcoin Depot
http://bitcoindepot.com/, 159 employees
Bitcoin ATM network throughout the United States.

#738 Polygon.io
http://polygon.io/, 36 employees
Developer of a real-time financial data platform that displays stocks, forex and cryptocurrency data, enabling clients to build APIs efficiently.

#846 Florence Healthcare
http://florencehc.com/, 283 employees
Advancing medical cures by connecting biopharma companies and clinical research sites through automated and integrated workflows on its own platform.

Congrats to all the Inc. 5000 winners and the 200+ Atlanta companies on the list. Well done!