David Cummings on Startups

Category: Entrepreneurship

  • Every Spreadsheet Shared is Another SaaS App

    For software and SaaS entrepreneurs out there, Patrick McKenzie is a must-follow on Twitter. Recently, he tweeted out something that really stuck with me:

    Every spreadsheet shared in a business is an angel announcing another SaaS app still needs to be built.

    Frequently, potential entrepreneurs tell me they want to start a business but can’t come up with a good idea. Well, just look at all the spreadsheets shared in a business and start there when looking for ideas. Now, the inherent scale might not be there with some of them but that’s part of the evaluation process.

    Here are a few more thoughts on every spreadsheet shared is another SaaS app:

    • Spreadsheets have some structure but lack business rules, validation (usually), processes, etc.
    • Spreadsheets are easy to create and well understood whereas most SaaS apps require training and effort to understand
    • Think of the common apps you use on a regular basis and ask which functions you used to do in a spreadsheet (e.g. accounting, project management, customer relationship management, etc.)
    • Most SaaS entrepreneurs flop due to failing at customer acquisition, not due to failing to build a workable product

    The next time a spreadsheet’s shared with you, ask if there’s a SaaS app opportunity.

    What else? What are some more thoughts on the idea that every spreadsheet shared is another SaaS app?

  • Inherent Scale to a Business

    Last week I was talking to an entrepreneur and the idea of empire builders vs. lifestyle builders came up. After some discussion, she brought up a key question most entrepreneurs don’t think through: what’s the inherent scale to the business? Too often, entrepreneurs come up with a good idea, build a viable business, and only then realize that even if they build a great beachhead in their respective market, it’ll still be small business.

    Here are a few thoughts on scale in a business:

    • Consider if it’s a small, fast-growing market that will be large or a large, slow-growing market, or neither (most markets)
    • Evaluate the geographic element of the business as many are local in nature and difficult to scale outside of the city or region
    • Think through “share of wallet” and the opportunities to start small with customers and grow the account over time by expanding the existing product or introducing new products

    Remember that market size is more important than most people realize and there’s an inherent scale to a business.

    What else? What are some more thoughts on inherent scale to a business?

  • Video of the Week: Zappos’ Hsieh on Building a Formidable Brand

    When thinking of startups and culture, the first company that comes to mind is always Zappos. In this week’s video, CEO Tony Hsieh talks about building a formidable brand and shares a number of interesting stories along the way. Enjoy!

    From YouTube: Zappos CEO Tony Hsieh offers a compelling account of his transformation from callow Harvard student entrepreneur through his years as a dot-com wunderkind to the creator of a formidable brand.

  • Notes from the Square S-1 IPO Filing

    Earlier today Square, a payment processing and financial technology company, released their S-1 IPO filing to the public. Square is especially unique in that it’s CEO is Jack Dorsey, who’s also the CEO of Twitter (imagine founding and running two billion dollar tech companies at the same time!).

    Here are a few notes from the Square S-1:

    • In the 12 months ended June 2015, over two million sellers accepted five or more payments using Square (pg. 2)
    • We define a quarterly cohort of sellers as the group of sellers that are approved to accept card payments with Square in a given quarter. On average, our payback period has been four to five quarters. (pg. 2)
    • Net revenue (pg. 3):
      1H 2015 $560.6 million
      2014 $850.2 million
    • Net revenue without transaction costs and the Starbucks account, which is going away in late 2016 (pg. 3):
      1H 2015 $198.8 million
      2014 $276.3 million
    • Losses (pg. 4)
      1H 2015 $77.6 million
      2014 $154.1 million
      2013 $104.5 million
    • Combining payments, point-of-sale systems, financial services, and marketing services (pg. 7) – Note: Square is really building a small business operating system to run all aspects of the business from payroll to email marketing — that’s a big idea.
    • From Jack: I believe so much in the potential of this company to drive positive impact in my lifetime that over the past two years I have given over 15 million shares, or 20% of my own equity, back to both Square and the Start Small Foundation, a new organization I created to meaningfully invest in the folks who inspire us: artists, musicians, and local businesses, with a special focus on underserved communities around the world. The shares being made available for the directed share program in this offering are being sold by the Start Small Foundation, giving Square customers the ability to buy equity to support the Foundation. I have also committed to give 40 million more of my shares, an additional 10% of the company, to invest in this cause. I’d rather have a smaller part of something big than a bigger part of something small. (pg. 24)
    • Accumulated deficit of $473.2 million (pg. 26)
    • For example, in the three months ended March 31, 2015, we recorded a loss of approximately $5.7 million related to fraud by a single seller using our payments services. (pg. 27)
    • Mr. Morley contends that he was an equal partner with Jack Dorsey and Jim McKelvey in the business enterprise that ultimately evolved into Square, and that Mr. Dorsey and Mr. McKelvey breached their alleged oral joint venture agreement with Mr. Morley by excluding him from ownership in Square. (pg. 39)
    • Founders equity ownership (pg. 176):
      • Jack Dorsey – 24.4%
      • James McKelvey – 9.4%
    • VCs equity ownership (pg. 176):
      • Khosla Ventures – 17.3%
      • Sequoia Capital – 5.4%
      • Kleiner Perkins – 3.0%

    Square is an impressive company that’s using payment processing — handling good old fashion credit cards — as the gateway to run many aspects of a regular small business. Look for Square to become more like Intuit (owner of QuickBooks) with a variety of services and less like a credit card processing company over time.

    What else? What are some other thoughts on Square’s S-1 IPO filing?

  • The Best Thing Possible to Help Startup Communities

    One of the most common questions I get on a weekly basis is “what do we need to do to help our local startup community?” People expect me to talk about more local funding options, more national press, and more local talent. While all of those things are great, the best answer is also the hardest answer: produce more huge success stories. Now, small success stories are fine but they don’t move the needle. What’s needed is huge success stories, the kind that changes the trajectory of the region.

    Here are a few benefits of big success stories:

    • More success stories — whether exits, IPOs, or jobs created — creates more attention and reasons for the media to cover the community.
    • More wealth creation provides capital to fund the next generation of entrepreneurs and enables investors in the region to make riskier bets.
    • More people starting companies because they’ve seen it work and much of the process has been demystified.

    The next time someone asks what’s the biggest thing the startup communities needs to get better, tell them the best thing possible is big success stories.

    What else? What are some more reasons why big success stories are so important for startup communities?

  • Recapitalize or New Entity After a Pivot

    Last week I talked to an entrepreneur that had recently gone through a pivot where they identified a new, better opportunity and had an early product in the market. Next, they mentioned they were raising money for the new product, but that it was under a new company. Interested, I asked what happened to their old company. Did they shut it down? What happened to the paying customers? Nothing. The old company was still in business, but the team was focused on the new business.

    Of course, this poses challenging questions:

    • Do you shut down the original business and tell investors their investment is worthless?
    • Do you recapitalize the original business to work on the new idea and dilute the existing investors (or create a situation where the founders have limited equity in the event of anti-dilution)?
    • Do you give the investors in the original business some equity in the new business or do nothing?
    • What obligations exist in the original business that aren’t being fulfilled if the entire team is working on a different business?

    While every situation is different, a pivot typically requires difficult decisions. Most often, a pivot results in a new direction for the same company, but sometimes a new entity makes more sense.

    What else? What are your thoughts on recapitalizing the original business or creating a new entity as part of a pivot?

  • Notes from the Netflix Culture Deck

    As mentioned in yesterday’s Video of Week: Reed Hastings on Netflix, Netflix published one of the most powerful culture manifestos ever seen in Netflix Culture: Freedom & Responsibility. With 124 slides, it’s comprehensive, but not overwhelming.

    Here are notes from the Netflix culture deck:

    • Seven aspects of the culture
      • Values are what we Value
      • High Performance
      • Freedom & Responsibility
      • Context, not Control
      • Highly Aligned, Loosely Coupled
      • Pay Top of Market
      • Promotions & Development
    • Values the following nine behaviors and skills
      • Judgement
      • Communication
      • Impact
      • Curiosity
      • Innovation
      • Courage
      • Passion
      • Honesty
      • Selflessness
    • Adequate performance gets a generous severance package (meaning, people that are OK get fired)
    • A team, not a family
    • The Rare Responsible Person
      • Self motivating
      • Self aware
      • Self disciplined
      • Self improving
      • Acts like a leader
      • Doesn’t wait to be told what to do
      • Picks up trash lying on the floor
    • Netflix Vacation Policy and Tracking – there is no policy or tracking
    • Netflix Policies for Expensing, Entertainment, Gifts & Travel: Act in Netflix’s best interest
    • Managers: When one of your talented people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set.

    Anyone that cares about culture, or is working on establishing a strong culture in their startup, should study the Netflix culture deck.

    What else? What are some more takeaways from the Netflix culture deck?

  • Video of Week: Reed Hastings on Netflix

    Netflix, while often viewed as a media company, is one of the most iconic tech companies of our time. Ever since Netflix published their incredible Netflix Culture: Freedom and Responsibility deck in 2009, I’ve viewed them as a much more powerful force than people realize. Now, with 65 million subscribers (source), and a market cap of almost $50 billion (NASDAQ:NFLX), it’s one of the most successful companies in the world. The video of the week is Reed Hastings accepting an award for the 2014 Entrepreneurial Company of the Year. Enjoy!

    From YouTube: At the 37th annual ENCORE Award event on September 23, 2014, Stanford Graduate School of Business honored Netflix, and Netflix Founder and CEO Reed Hastings, MS ’88. Reed Hastings speaks on the history of the company, the challenges they faced, and how Netflix became the innovative leader it is today.

  • 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?