David Cummings on Startups

Author: David Cummings

  • Business Model Canvas for Startups

    The Business Model Canvas has proven to be a great way to express the current state of affairs for a startup. A business model canvas is best thought of as a methodology or worksheet to articulate the most important details of a startup in a simple, one page format. One pagers, like the one page strategic plan, are great for aligning people as well as providing clarity.

    Here are the pieces of a business model canvas:

    • Key partners
    • Key activities
    • Key resources
    • Value proposition
    • Customer relationships
    • Channels
    • Customer segments
    • Cost structure
    • Revenue streams

    Providing short bullet points for each of these items gives a powerful view into the startup while providing details that are similar but more comprehensive compared to an executive summary without the management team section.

    What else? What are your thoughts on the business model canvas for startups?

  • Startups Need to Get Out of the Building

    Today was the kick-off for the second cohort of startups at Flashpoint, an accelerator at Georgia Tech. The day started with introductions between the new startups and their mentors, followed by a primer on startup engineering/lean startup methodology, and concluded the morning with each team introducing themselves and their business, with a business model canvas in the background.

    The afternoon assignment was to get out of the building and talk to potential customers. Here are some thoughts on startups getting out of the building:

    • Steve Blank says, “In a startup, no facts exist inside the building, only opinions”
    • Resist the tendency to talk to friends that are potential customers as your only source since their feedback is going to be tainted by their relationship with you
    • Go to where you customers are most likely to be (e.g. at a specific office complex), not just where you might get lucky to find them (e.g. Starbucks)
    • Keep the questions open-ended by avoiding yes/no questions
    • Stay focused on finding answers to your hypotheses (it’s easy to get distracted)

    Startups need to get out of the building and talk to potential customers right away. Too often entrepreneurs build their products in a vacuum and talk to customers after spending significant resources, and many times don’t have enough resources left to achieve success. Making the most of time and resources requires getting out of the building.

    What else? What are your thoughts on startups getting out of the building?

  • Management Alignment in Startups

    One of my favorite quotes is “A good plan, violently executed now, is better than a perfect plan next week.” by George S. Patton. Now, just because one plan is good, but not perfect, doesn’t mean that the management team isn’t aligned and on the same page. One of the mistakes I’ve made several times is worked on a plan with my colleagues, solicited input, and pronounced it good enough to execute. Only, everyone else wasn’t on board — management wasn’t aligned.

    Here are some ideas to develop management alignment in startups:

    • Balance input in person, phone, IM, and email without relying on just one digital medium
    • Articulate the plan in the simplest format possible, preferably a one page Google Doc with bullet points
    • Ensure key stakeholders have seen the plan and voiced their opinion
    • Consider a consensus-driven approach or a leader-decided approach when ready to execute

    The harder the plan, the harder the management alignement. Following these ideas makes the management alignment process easier.

    What else? What are some other ideas to develop management alignment in startups?

  • Startups Should Shoot Bullets to Find a Cannonball Opportunity

    In Great by Choice, the most recent book by famed author Jim Collins, he talks about 10x companies (companies that outperform the market by 10x) and how they do a better job shooting bullets, as opposed to cannonballs, for new opportunities. Think about the cost of bullets and guns vs the cost of cannonballs and cannons — bullets are significantly cheaper than cannonballs.

    Most startups come up with a new product idea and fire a giant cannonball at it without knowing if they are pointing in the right direction and actually have a target. Instead, they should use bullets and iterate quickly to try and find the target. Once the target has been squarely hit by the bullet, doubling down and loading the resources to fire the cannonball at the same target becomes a much more effective strategy.

    Startups should shoot bullets to find a cannonball opportunity. This is another way of saying start with a minimum viable product and iterate quickly via customer driven development — a core part of the lean startup movement. The next time a startup builds a full product and launches it with significant resources, and it doesn’t work out, think to yourself that they should have fired bullets until they hit the target, instead of lobbing a cannonball out there right off the bat.

    What else? What do you think about startups shooting bullets to find a cannonball opportunity?

  • Strong Corporate Culture Doesn’t Mean Everyone is Best Friends

    An entrepreneur was asking me questions about corporate culture and why I thought it was so important. After my usual lines about it being the only sustainable competitive advantage within our control, he said that they were having challenges with certain people getting along even though they meet their corporate culture standards. I thought about it for a second and realized he was right — a strong corporate culture doesn’t mean everyone is best friends. In fact, even with a strong culture, everyone isn’t going to like hanging out with every other team member.

    A strong culture doesn’t mean everyone likes everyone else. A strong corporate culture does mean the following:

    • Common values
    • Mutual respect
    • Alignment and clarity of purpose

    Of course, it’s great when people are good friends with their co-workers, and we actively want that, but personality styles don’t always mesh and we’re most interested in smart people that get things done and have our same core values.

    What else? What are your thoughts on the idea that a strong corporate culture doesn’t mean everyone is best friends?

  • Startup Community Idea: Monthly Group for Fast Growing Startups

    One of the great things about an active startup community is that there’s no shortage of events to attend. Even with all the events there’s a gap in the market for CEOs and co-founders of fast growing startups to meet on a monthly basis in a small-to-medium sized group free of service providers. Service providers are a key part of the startup community but when entrepreneurs attend events it’s important to have a strong signal to noise ratio of entrepreneurs to service providers, and small group settings are much better served in an environment of strict non-solicitation.

    Here are some ideas for this type of group of entrepreneurs that are committed to sharing ideas and growing their startup as fast and efficiently as possible:

    • Meets monthly for two hours over lunch in a private room at a restaurant
    • 8 – 15 technology entrepreneurs in a group
    • Minimum $1 million in revenue or $3 million in funding raised, growing revenue much more than 10% per year, and at least 10 employees
    • Simple round table discussion and format:
      45 minutes – what’s had the most impact on your startup in the past 30 days
      45 minutes – what’s the top priority for your startup right now
      30 minutes – open discussion

    Organizations like EO and YPO have an awesome element called forum that’s a monthly group with a much greater level of commitment, isn’t exclusive to fast growing technology startups, and is focused on the complete person (family, personal, and business). The idea with this group is that it’s focused on fast growing startups so that entrepreneurs can minimize mistakes and maximize opportunities through peer-to-peer experience sharing and learning.

    What else? What are your thoughts on this startup community idea for a monthly group for fast growing startups? Who’s interested?

  • Bringing ‘B’ Players in to Scale Fast

    Recently a VC, when asked how to scale fast after a large funding round, said the solution was to bring in ‘B’ players and have a process and structure to make them successful. Of course, you want all ‘A’ players, but when raising institutional money you have a mandate to grow as fast as possible — and that often means hiring faster than you can find ‘A’ players.

    There’s a saying that ‘A’ players recruit ‘A’ players and ‘B’ players recruit ‘C’ players, not knowing any better. The thought of lowering your standards in order to hire people fast enough to meet investor expectations sounds bad to me, but I understand the pressure. Some startups, with a focus on corporate culture. know that they are sacrificing growth, while maintaining long-term organizational health, by sticking to their hiring standards throughout high-growth periods. One of the biggest challenges is not getting frustrated with hiring for key positions such that you accept someone that has domain expertise but isn’t a good corporate culture fit — don’t do it.

    What else? What are your thoughts on bringing ‘B’ players in to scale fast?

  • Two Killer Questions for Entrepreneur Insight

    Earlier today I had the opportunity to speak with eight startups at GigTank in Chattanooga. We started with a talk plus Q&A session followed by 15 minute individual sessions with each team. During the group-wide Q&A one of the questions was around things to do as an entrepreneur to continue learning. I talked about standard items like Twitter, Google Reader for RSS feeds, books, EO, YPO, and conversations with other entrepreneurs.

    When it comes to entrepreneurs, there are two killer questions I like to ask:

    • What two or three new things have had the most impact on your startup in the past 90 days?
    • What are the top two or three things you are personally focused on in the next 90 days?

    With these two simple questions you’ll get a wealth of insight, ideas for your startup, and opportunities to provide advice or recommendations. Of course, reciprocating with your own answers to these questions makes for a great conversation.

    What else? What other killer entrepreneur questions do you like to ask for insight?

  • The NetSuite SaaS Valuation Outlier

    Looking at the last round of Publicly Traded SaaS Company Valuations there’s one outlier that needs more discussion: NetSuite. NetSuite is a strong Software-as-a-Service (SaaS) company with a powerful enterprise resource planning and accounting package along with a host of other tools like CRM. Whereas ExactTarget deserves to be in the 8x revenue club due to growth rate, NetSuite with a market cap of $3.2B (NYSE:N) and a run rate of $280M, is trading at north of 11x revenue, but only has a one-year revenue growth rate of 22% (source: thestreet.com).

    A 22% year-over-year growth rate is solid but a 11x revenue multiple seems like a stretch. What gives? After asking around I found a plausible answer:

    Oracle has to buy NetSuite at some point to be competitive in the cloud and investors have baked that into the valuation.

    Since there’s a suitor with deep pockets in waiting, investors have taken that into account and paid much higher than expected prices, knowing that for Oracle to acquire NetSuite they’ll have to pay a premium on the public valuation, thus there’s still money to be made for investors. The next time an entrepreneur points to the NetSuite valuation as a good example for SaaS multiplies, that outlier needs to be thrown out the window.

    What else? What are some other reasons NetSuite is a valuation outlier for SaaS companies?

  • Startup Idea: Zipcar Style Model for Supercars

    With the growth of the sharing economy, and services like Zipcar and Portico Club, people are growing more accustomed to paying a membership fee for access to a service where you then pay a per usage fee, and save money overall compared to buying the item outright. Well, there’s a startup opportunity in the same manner to serve the supercar/exotic car market.

    High end sportscars are a niche, but healthy market. These supercars and grand tourers are different from the normal car approach in two key ways: they aren’t usually the daily driver for the owner and the owner isn’t looking to have the same car for many years. Like taking a vacation and enjoying the experience of something new, the same can be said of supercars but the current economics don’t make sense. If you want to experience a car you can try to test drive one, which is a short experience and potentially not possible depending on your circumstances, or you can rent one for $500/day, which again is short and highly restrictive.

    Owning a super car is very expensive and out of reach for most people. Here’s a simple break down of costs for an example $150,000 supercar:

    • $3,000/year in lost investment income (assuming 2% return on investment, and the money spent on the car is fairly illiquid at that point) or $6,000/year in interest if the car is financed
    • $3,000/year for car insurance
    • $10,000 for sales tax, spread out over two years (assumed length of ownership), for an average of $5,000/year
    • $3,000/year for service, repairs, and tires (crazy expensive!)
    • $18,000/year for depreciation (new Porsches and Ferraris hold their value much better than Aston Martins and Mercedes, as an example)
    • Total: $27,000/year if bought outright or $30,000/year if financed

    For simple math, assume most $150,000 supercars are financed, resulting a fully loaded $2,500 monthly cost to the buyer to own and operate the vehicle. Assume the car is driven 3,000 miles per year, resulting in a cost of $10/mile, not counting gas. Surely, there’s a better way.

    Imagine a Zipcar-style service where you pay an annual membership fee and then have a variety of supercars to choose from, each assigned a point value based on their current market value, and then for a per day/week/month cost, you can take the car as long as you want. The cost to have it will be less than the fully loaded cost of ownership, capital won’t be tied up in the vehicle, and you can swap it out when you’re ready to try the next one. Even if the price of the service was similar to the cost to buy (e.g. $2,500/month) it is still much better to do the service since there’s transaction costs (like shipping, finding the right car, worrying about its quality, dealer markup, etc) and peace of mind that you can enjoy it and move on.

    Plus, when you buy a supercar, as opposed to leasing one, there’s the risk that you get in an accident, and even though insurance covers the repairs, the resale value of the vehicle drops by 10%-20% since it now has a blemished Carfax and there’s uncertainty as to the quality of repair, extensiveness of damage, etc. With a Zipcar-style service, that risk goes away.

    There are a number of different ideas to go along with this potential startup:

    • Example cost might be $5,000 to join, and then a monthly fee depending on the type of car you want (e.g. $1,500/month for a 2008 Audi R8, $2,000/month for a 2011 Porsche 911 Turbo S, and $4,000/month for a 2010 Ferrari 458 Italia, all paid on a credit card)
    • Opportunity to make a membership and certain number of points as a corporate benefit (e.g. the top sales person for the quarter gets a super car for the next quarter)
    • Optional: members could take a supercar that they own and let other members use it to accumulate points that they can use to rent other supercars (in general the cars would be owned by the company and not by individuals, so as to be more exclusive and not have the fate of services like HiGear, plus the $5,000 membership fee and background checks would reduce the people who joined)
    • Supercars could be very loosely defined as cars with a manufacturer’s suggested retail price of at least $100,000 USD
    • Certain cars could be designated track cars whereby you’d be allowed to take them to a track (like the new Atlanta Motorsports Park)
    • Advertising would done through local enthusiast groups like Caffeine & Octane, Google AdWords, etc
    • Free pickup and delivery of the cars to members within a 30 mile radius and service to ones further out than that at a rate of $1/mile (e.g. you live 100 miles from the local location and for an extra $100/car you can have it delivered to you and $100 to have it picked up whenever you are done)
    • High end vehicles like the Ranger Rover Signature Edition could be made available (e.g. to take to the mountains for a weekend)

    A Zipcar-style model for supercars holds tremendous promise, especially through franchising or multi-city expansion. The sharing economy continues to grow and shows no signs of slowing down.

    What else? What are your thoughts on the startup idea for a Zipcar-style business for supercars?