David Cummings on Startups

Author: David Cummings

  • Dreamforce 2014

    This week is the annual Super Bowl of Software-as-a-Service (SaaS) with the Dreamforce 2014 event in San Francisco. It’s the biggest event of its kind and draws 100,000+ people from all over the world. While I’m not attending this year, I’ve been many times in the past.

    Here are some thoughts from previous years:

    If you’re a software entrepreneur and haven’t been to a Dreamforce event, I’d highly recommend it.

    What else? What are some other thoughts on Salesforce.com’s annual Dreamforce event?

  • Doing the Dilution Dance with Investors

    Entrepreneurs love talking about fundraising announcements from other startups. Fundraising, while it’s much too celebrated, is the most dramatic and firm number that’s readily associated with many startups. Whenever a fundraising announcement comes out, it’s fun to speculate on things like pre-money valuation, participating preferred vs non-participating preferred, stock option pool size, and other stipulations.

    From an entrepreneur’s perspective, too much effort is focused on raising a specific dollar amount and not enough on dilution. After building a financial model, and plugging in imaginary numbers, it’s easy to get fixated on a specific amount as the must-have number. Only, with that number in mind, investors have more leverage in negotiating the pre-money valuation and other terms as the conversation is centered around the amount of money the entrepreneur wants to raise.

    Instead, when raising money, it’s best to give a range (e.g. we want to raise $2-$3 million for our Series A) and make the conversation more focused on valuation and key terms and less about a specific amount. When we tried to raise money for Pardot in 2009, we received one verbal offer to invest $1 million at a $2 million pre-money valuation and a separate verbal offer to invest $5 million at a $7 million pre-money valuation. Both offers came from venture capitalists, and both were at the same time for the same business (we had slightly over $1 million in annual recurring revenue at the time). In one case we could sell 33% of the business for $1 million and the other case we could sell 40% of the business for $5 million. We passed on both offers.

    When doing the dilution dance with investors, focus on the key terms and less on the actual dollar amount raised.

    What else? What are some more thoughts on entrepreneurs focused on raising a specific dollar amount instead of more important terms like valuation and control provisions?

  • Two Year Anniversary of the Pardot Acquisition

    Today marks the two year anniversary of Pardot being acquired by ExactTarget (see ExactTarget and Pardot Join Forces followed by Thoughts on Salesforce.com Acquiring ExactTarget/Pardot). It’s still surreal looking back on the Pardot experience and reminiscing about everything we accomplished.

    Of course, I enjoy working on a number of different initiatives and It’s been a busy two years since the sale. Here are a few accomplishments over the past 24 months:

    • Bought 3423 Piedmont Rd and named it the Atlanta Tech Village
    • Finished almost all the renovations on the Atlanta Tech Village (all office space has been renovated and there are only a few patio, basement, and garage items left)
    • Started Kevy and have already signed 100+ paying customers
    • Made six major startup investments that were greater than $200,000
    • Made four small startup investments that less than $50,000
    • Joined three non-profit boards
    • Endowed a startup grant at Duke in honor of my professor

    The journey continues to unfold in fascinating and interesting ways. Life’s changed since the sale of the Pardot but the core tenants of family, community development, and working with startups hasn’t changed. Life is good.

    What else? What are some other observations since the sale of Pardot?

  • Dreams Worth More Than Limited Reality With Fundraising

    This is a topic that continues to fascinate me, so here it goes again: startup dreams are worth more than limited reality when it comes to fundraising. Entrepreneurs pitching an unproven idea with no product or customers can often raise money at a higher valuation than if they have a working product with a few paying customers.

    The potential of the unknown. What might the business become? How big can this thing really be in a few years? Without a product these are all fantastic questions. Being blissfully ignorant about the true potential makes for a dreamy discussion when it comes to valuation: there’s no data so the valuation can be as high as the entrepreneur can convince the investor.

    Once a product has been built and a handful of customers are using it, there’s data. All kinds of data. How frequently is the product used? How much did it cost to acquire the customers? How much do the customers pay? How long does it look like they’ll use the product? With data, it’s easy to build a financial model and make estimates around growth, financing needs, etc. Then, valuations are more definable (even if some part of the financial models are imaginary).

    Entrepreneurs would do well to remember that dreams are worth more than limited reality when it comes to fundraising and valuations.

    What else? What are some other thoughts on the disconnect in valuations for a startup with an idea vs one with a product and a handful of customers?

  • Customers Finding Bugs

    Yesterday I was talking to an entrepreneur about their recent product launch. The application looks solid and has a minimum respectable feature set (one level above a minimum viable product). Only, he thought the product was sufficient for now and wouldn’t need as much engineering attention for a month or two.

    A new product never survives contact with customers. Never. Customers always find bugs, problems, inconsistencies, and issues. In fact, it never stops, and it’s a good thing.

    Here are a few thoughts on customers finding bugs:

    • Acknowledge the bug when found and graciously apologize to the customer
    • Allocate some amount of engineering time on a recurring basis to address bugs
    • Incorporate exception handling software that automatically registers product errors in a third-party service that notifies the engineering team (e.g. Airbrake)
    • Add automated tests (e.g. unit tests, integration tests, synthetic browser tests, etc.) as new issues arise to ensure core elements of the application are always working

    Customers finding bugs is a normal part of the software experience. Develop a process and best practices for handling them when they occur and work hard to make customers happy.

    What else? What are some other thoughts on customers finding bugs?

  • 7 Tips for Startup Community Building

    Earlier today I had the opportunity to talk to a group of business leaders that were in town as part of the Cincinnati Leadership Exchange to learn about Atlanta and recent city initiatives. I was asked to talk about the Atlanta Tech Village and ways to grow a startup community. Of course, we had several lessons learned over the past 18 months.

    Here are seven tips for startup community building:

    1. Don’t try to control all the startup community activities in town — let a thousand flowers bloom
    2. Bring the community together on a monthly basis for entrepreneurs to share progress on their startup with the greater community, and have no other agenda beyond building community (see the Atlanta Startup Village)
    3. Connect mid-to-large companies in the region with startups through curated meetings (the best form of funding for startups is helping them find customers)
    4. Focus entrepreneurs on building successful, sustainable businesses and not on raising money (too many people view raising money as the measure of success)
    5. Foster serendipitous interactions in the startup community through clusters of tech companies in different areas of town
    6. Support entrepreneurs with different programs based on the stage of the company (e.g. The 7 Figure Club)
    7. Incorporate mentors and community leaders that want to give back, but understand that the strongest startup communities are lead by entrepreneurs

    Note that physical office building with startups isn’t necessary for community building, but physical proximity is critical. Startup community building is difficult and rewarding at the same time. Plan for a long journey and enjoy the ride.

    What else? What are some other tips on startup community building?

  • CEOs are Treated Differently

    Several years ago we had an employee that wasn’t working out. Team members kept coming to me and lamenting that this person wasn’t getting things done and didn’t meet our culture standards (positive, self-starting, and supportive). Only, in my interactions with him everything was great, he did quality work for the tasks I asked of him, and appeared to meet the values. Then, it dawned on me: I was being treated differently since I was the CEO.

    Here are a few thoughts on being treated differently as a CEO:

    • Ideally, the culture will be strong enough to weed out people that aren’t a good fit, regardless if they change their style around the CEO
    • CEOs can be their own worst enemy by making requests to team members that aren’t direct reports and confusing organizational priorities
    • If team members never push back on the CEO’s decisions and recommendations, the culture lacks the healthy debates required for a successful business
    • When a CEO notices they are being treated differently, it’s important to acknowledge it and talk about why it’s important to have consistency with how people are treated

    CEOs are treated differently, but healthy cultures actively discourage it and encourage team members to treat everyone the same.

    What else? What are some other thoughts on CEOs being treated differently?

  • I vs We in Talking About Your Company

    Last week an entrepreneur was taking me through their progress over the past five years. Only, the entire conversation was in the form “I did this, I signed that account, I achieved this growth, etc.” Everything came out with the word “I” at the beginning, implying that he did it alone. Unfortunately, this was a real company with several employees and it was clear that “we” wasn’t in his vocabulary.

    Entrepreneurs would do well to refer to team accomplishments and activities as “we” and not “I.” Constituents, including employees, investors, partners, and customers, want to be part of an inclusive, team-oriented company. People don’t want to be part of an organization where the entrepreneur implies he’s the one that does everything.

    The next time an entrepreneur overuses “I”, tactfully point out that it takes a team to go far, and that “we” is more engaging.

    What else? What are some more thoughts on “I” vs “we” when talking about your company?

  • 5 Growth Planning Ideas

    Continuing with yesterday’s post that CEOs Focus on Growth, not Execution, there are a number of strategies and ideas to implement when it comes to growth planning. Often, as a CEO, it’s easy to sit back and be reactive to the deluge of inbound requests, which never stop. CEOs need to be proactive.

    Here are five ideas to focus more time on growth planning:

    1. Develop a simplified one page strategic plan and build support for the three-year section
    2. Run monthly strategy sessions soliciting growth ideas
    3. Take a solo retreat and reimagine the future
    4. Hire a business coach (pro athletes have coaches, why don’t more CEOs have them?)
    5. Join EO or YPO and develop a peer group that is growth-oriented

    Growth planning isn’t something that’s turned on and off of a regular basis. Rather, the best CEOs are always focused on growth and are constantly thinking about it.

    What else? What are some more growth planning ideas?

  • CEOs Focus on Growth, not Execution

    Thinking more about the Notes from Sales Training with Jack Daly, the one idea that really stood out to me is that CEOs focus on growth, not execution. Since A Startup is a Scalable Growth-Focused Company according to Paul Graham, CEOs are tasked with leading the charge. Generally, people think of the CEO as setting the mission, vision, and values, making the hard decisions, and communicating the message relentlessly. But growth? I’ve never heard of growth in the CEO’s job description.

    In the entrepreneurial circles, there’s a popular saying that we often spend too much time working in the business, not on the business. In this case, working in the business implies doing day-to-day tasks that are readily accomplished by someone else. That is, too much time is spent on execution. Instead, working on the business implies more strategic topics whereby the entrepreneur or CEO is the best person for the job. Most often, especially in startups, the goal of working on the business is to figure out how to grow faster.

    CEOs and entrepreneurs that understand the importance of working on the business, and not in it, are focused on growth. The most successful CEOs have growth in their job description.

    What else? What are some more thoughts on CEOs as focused on growth and not execution?