David Cummings on Startups

Author: David Cummings

  • Culture Checks to Help Scale a Startup

    One of the changes we made recently was to put in culture check teams to help us scale our interviewing process. As we add more and more team members it becomes difficult for the founders to personally interview everyone (although we still do it currently). Here’s how the culture check idea works:

    • Teams of two people do culture checks together (we have two teams for a total of four people)
    • People on a culture check team strongly embody our culture and can identify culture fit with candidates
    • The culture check interview is only done at the very end of the process when the candidate is in the finalist stage
    • The culture check interview isn’t for assessing domain expertise but for fit with core values (candidates that don’t make it through are great people that just don’t quit fit our culture)

    Culture checks are working out well and we plan on expanding the number of teams as the number of people we’re hiring grows.

    What else? What are your thoughts on culture checks for scaling in a startup?

  • 10 To Do Items from Jim Collins

    Today I had the opportunity to hear Jim Collins at a workshop in Atlanta courtesy of EO Atlanta. Jim was amazing, truly amazing — so much energy, passion, and enthusiasm. At the very end he gave a list of 10 things leaders should add to their to do list.

    Here are the 10 to do items courtesy of Jim Collins:

    1. Change your next big ‘what’ question into a ‘who’ question
    2. Double your questions to statements ratio
    3. Try to embrace the Stockdale Paradox – going along in life and get knocked down, and it happens over and over again
    4. Discover your personal hedge hog and focus on it
    5. Set your vision on three components: 100 year core values, purpose that answers question who would miss you if you disappeared, 25 year BHAG
    6. Set your 20-mile march
    7. Start a stop doing list (and have no more than 3 priorities)
    8. Turn off electronic gadgets and create pockets of quietude for one day every two weeks
    9. Get a huge return on next luck event
    10. Change from striving to be successful to being useful

    I’d recommend reading his books as well as attending his events.

    What else? What are your thoughts on the 10 to do items from Jim Collins?

  • Being Too Early with a Startup Idea is a Failure

    Last week I was on a panel at the Digital Summit conference with well over 1,000 attendees. One of the panelists with me was Todd Sawicki, an entrepreneur in a high growth startup that recounted how his previous seven ventures were a failure. One of the comments that he made really stuck with me:

    If you’re too early with a startup idea, that’s a failure just like any other.

    Many entrepreneurs don’t realize that after running out of money, being too early with an idea is one of the most common reasons for failure. Todd told how he worked on a startup that was similar to YouTube, only it was 1997. He also talked about working on a startup that was similar to Dropbox/Carbonite/Mozy, but that it was 1996. Being too early with a startup idea is a failure and happens all the time.

    What else? Do you think being too early with a startup idea is a failure?

  • 9 Ways to Assess Angel Investor Tech Savviness

    Recently I saw a tweet about an entrepreneur that was pitching a new mobile app startup idea to an angel investor, and at the end of the conversation the investor pulled out a Blackberry to check email. If an investor carries around a Blackberry and no other device, is he or she tech savvy enough for you?

    Here are 9 things to assess angel investor tech savviness:

    1. Owns and uses an iPhone (an Android phone gets partial credit)
    2. Has a LinkedIn profile with 500+ connections
    3. Has an AngelList profile with at least one investment
    4. Has a Twitter account more than three years old — whendidyoujointwitter.com (bonus points if their Twitter username is their first name)
    5. Sends at least one tweet per day, preferably about topics relevant to you
    6. Has at least 1,000 followers on Twitter
    7. Has a blog and publishes blog posts on a regular basis
    8. Uses Gmail or Google Apps for Your Domain for email (the more cloud-based apps, the better)
    9. Has a MacBook (preferably a MacBook Air or MacBook Pro)

    Of course, angel investor tech savviness isn’t nearly as important as the quality of their advice and introductions but tech savviness is often correlated with how current they are on the latest trends.

    What else? What are some other ways to assess angel investor tech savviness?

  • Physical Technology Upgrades for Startup Offices

    Modern startup offices should be forward looking and take advantage of the latest tools for the job. As an example, large LED TVs are much better to use compared to projectors due to screen resolution, warm up time, sound, and energy consumption. Here are a few physical technology upgrades startups should think about for their office:

    • 65 inch LED TVs with 1080p and VGA/DVI inputs instead of projectors and screens (will be even better with OS X Mountain Lion and AirPlay from a laptop straight to the screen via an AppleTV)
    • Dual 50 inch LED TVs for the scoreboard in the lobby/sales bull pen with one showing real-time data with a number of metrics while the other shows the three most important KPIs highlighted in red, yellow, green, and super green
    • iPads outside each conference room with Google Calendar showing room availability mounted to the wall via a PadTab
    • Entry-door cameras with night vision and a built-in DVR for security and after-hours guest monitoring

    While these technology upgrades aren’t necessarily cheap, they help make for a more efficient and productive working environment.

    What else? What are some other physical technology upgrades startups should think about for their office?

  • John Wooden’s Pyramid of Success for Startups

    Recently I started reading the book Wooden on Leadership after a recommendation from a colleague. The book’s author, John Wooden, is one of the most successful college basketball coaches ever and an amazing leader. In the book, Wooden describes his pyramid of success that he developed over the years:

    • Competitive Greatness
    • Poise | Confidence
    • Condition | Skill | Team Spirit
    • Self-Control | Alertness | Initiative | Intentness
    • Industrious-ness | Friendship | Loyalty | Cooperation | Enthusiasm

    Startups defining their core values would do well to use one or two items from Wooden’s Pyramid of Success (I’m a fan of no more than 3-5 core values otherwise there are too many remember). For entrepreneurs interested in the leadership and the study of leadership, I’d recommend the book.

    What else? What are your thoughts on John Wooden’s Pyramid of Success?

  • Scaling a B2B SaaS Startup is Expensive

    Software-as-a-Service (SaaS) is an amazing model with great recurring revenue, high gross margins, and strong industry growth. That said, scaling a SaaS startup is expensive. Very expensive.

    Once you’ve crossed the desert and reached profitability, you can control you own destiny, especially if profitable, however modest, is true profitability paying market wages, and not just ramen profitable. Now, break-even or slightly profitable is great, but scaling the business and staying ahead of the market requires significantly more investment. The real challenge is when the law of large numbers kicks in based on the size of the customer base and the renewal rate. In order to grow, the number of new customers signed monthly has to keep growing because the number of customers leaving keeps growing.

    Scaling a SaaS business is expensive because the primary expense of the business is people, and people need to be hired and trained in advance of customer acquisition. With the SaaS model, customers don’t pay a large sum of money up-front, rather they pay monthly or quarterly, often with an annual contract. The lifetime value of the customer is great but payment is spread out over years, with a decent chunk of the first year’s revenue going towards sales and marketing costs for customer acquisition, leaving little left over to staff up engineering, support, services, and back-office functions.

    To recap: first year customer revenue almost all goes to sales and marketing, payments are spread out over years, and people are the largest expense, which need to be hired and trained in advance of delivering value. To scale a SaaS startup, sales has to get out in front of churn, which is always growing on an absolute basis assuming the the churn percentage stays constant and the business is growing. Along with significant investment in sales and marketing, all other core aspects of the business need investment in advance of customer growth.

    What else? What are some other reasons scaling a B2B SaaS startup is expensive?

  • 5 Tips for Killer Angel Investor Pitches

    Last night I had the opportunity to hear three startups give their pitch to a room full of angel investors. Each one did a good job, but for different reasons. The angel investors and VCs in the room were attentive and asked solid questions. Towards the end of the night, the real test happened when the entrepreneurs were asked to leave for the evening so that the investors could discuss the different startups. Naturally, I paid attention to see what investors came up to talk to the entrepreneurs as they were leaving, so as to gauge interest level, which was decent.

    Here are five tips for killer angel investor pitches:

    1. Tell a compelling story — story telling is the strongest form of human communication and should never be underestimated
    2. Presentation slides and handout slides are two different things — presentation slides should be visual and nearly word-free while handout slides should be full of words
    3. The one and only goal is to get an individual meeting — the goal of the pitch isn’t to get them to write a check on the spot, but rather to get an investor excited enough that they want a meeting
    4. Provide a memorable off-line analogy — repeat a simple message multiple times that takes the digital concepts and relates them to a real-world item that everyone is familiar with
    5. Deliver objective, quantifiable metrics throughout the pitch — investors want to believe the dream, and facts provide a core foundation

    Raising money from investors is hard. Following these tips makes for a much better pitch and greater chance of raising money.

    What else? What other tips do you have for killer angel investor pitches?

  • The Pre-Money Valuation Bump from an Accelerator Program

    Startup accelerators like Y Combinator, TechStars, and Flashpoint provide great, intense programs designed to significantly increase the likelihood of success. When they first came out people seriously questioned the value provided relative to the company pre-money valuation of $15,000 for 6% of the business. Well, that point has been discredited based on the many successful exits from the top tier accelerators but there’s another related point that needs to be talked about more: the pre-money valuation bump by going through an accelerator program.

    Say you want to raise a $1M Series A angel round, without doing an accelerator program you might get a pre-money valuation of $1.5M – $2M unless you have an amazing background or prior entrepreneurial success. Well, with Y Combinator and TechStars, startups post accelerator have recently been raising Series A rounds at pre-money valuations of $4M – $7M with some north of $10M. Assuming you’re on the low end of that pre-money spectrum and raise a round at a pre-money valuation of $4M, that’s a huge jump from the $2M pre-money you might have raised without going through one of the programs. By going through the program you get national exposure as well as more social proof for things like AngelList, which makes angel investing much more open and transparent.

    So, selling 20% of your company for $1M at a pre-money valuation of $4M vs selling 33% of your company for $1M at a pre-money valuation of $2M makes up for more than the 6% dilution from the original $15,000. Top tier accelerator programs are easily worth it based on that simple math. The real challenge is to even get accepted into one of the programs.

    What else? What are your thoughts on the pre-money valuation bump from an accelerator program?

  • The First 5 Steps for an Entrepreneur with an Idea

    Entrepreneurs are a crazy bunch of people full of ideas and excitement. We talked about the 7 Characteristics of Successful Entrepreneurs as well as the 50 Things Every Startup Should Know. Now, those either assume a) you’re a successful entrepreneur or b) you already have a startup. Well, a number of first-time entrepreneurs have an idea but don’t have a startup, yet.

    Here are the first five steps for an entrepreneur with an idea:

    1. Get a co-founder – yes, you can do it on your own but it’s much more fun and you’re more likely to be successful with a co-founder
    2. Sign a customer – a customer should come before a product so that you don’t build the app in a vacuum
    3. Start building a product with the customer’s feedback – with the customer in place build a beta version in a collaborative process
    4. Sign 10 more customers – customers are oxygen for a product, but don’t let a single customer dominate the conversation
    5. Enhance the product based on your vision and customer feedback –  rinse and repeat the previous two steps signing customers and enhancing the product indefinitely

    This is obviously a simplified first five steps for an entrepreneur with an idea but it gets the point across — with a co-founder in place, start talking to customers and a build a product that adds value.

    What else? What steps would you add or change for an entrepreneur with an idea?