David Cummings on Startups

Category: Entrepreneurship

  • Hero and Hassle of the Month

    Early in the life of Pardot we heard feedback from our team that we needed to do a better job acknowledging employees that had gone above and beyond as well as hassles in the company that were impeding people from being as productive as possible. To help with this, and increase the internal communication, we introduced the Hero of the Month and the Hassle (or improvement) of the Month.

    Here’s how it worked:

    • Every morning, as part of our daily check-in, we’d ask an additional question: are there any heroes or hassles? The idea is that recognizing heroes and talking about hassles would be top-of-mind for everyone in the company each day.
    • GetSatisfaction was used with a private idea exchange for the Hero of the Month and a separate one for the Hassle of the Month whereby employees submitted a hero or hassle and other employees voted on their favorite.
    • At the monthly all-hands meeting, we’d recognize the Hero of the Month and the Hassle of the Month by giving a $100 bill to each winner and talking through the submissions in front of the whole team. And, as a bonus, each winner got to keep a cool SkyMall lawn ornament at their desk for the month.

    Through this Hero and Hassle of the Month program, we significantly increased employee satisfaction and developed an environment focused on continual improvement. As startups grow, scaling the culture becomes more challenging, and this program worked well for us.

    What else? What are some more thoughts on the Hero and Hassle of the Month?

  • The Power of Getting the Band Back Together

    Over the years I’ve read a number stories about entrepreneurs building great companies, having a nice exit, and then getting core members of their team back together for the next venture and achieving strong results. Now, this past year, I’ve see it happen a few times at the Atlanta Tech Village and can attest to the power of getting the band back together. Here are a few thoughts on reassembling successful teams:

    • Rapport and trust is already in place, making for stronger communication right away
    • Team members already know the strengths and weaknesses of the people they’ve worked with before, making for more effective team execution
    • Assuming a similar industry or type of product, the team knows the playbook that worked before and can apply it in the new venture
    • Investors love backing teams that were previously successful as many of the risks related to team dynamics and the ability to get things done are mitigated

    Successful teams that have come back together to do another startup are often successful again — not from doing the same thing over and over, but because of the human element that comes with intense shared experiences.

    What else? What are some more thoughts on startups that are formed from previously successful startup team members?

  • HR Recruiting and Applicant Tracking Systems

    Recently I was talking to an entrepreneur about finding great team members and technologies used to help with the process. We got into talking about the ideal system and realized we didn’t know of the best tools for what we wanted. Here’s what we’d like:

    • Multi job board listing distribution and management (e.g. post a job to a number of sites automatically)
    • Ability for candidates to apply online and submit their resume
    • Video integration for candidates to post a video of answering specific questions (to help speed up the process in lieu of a phone screen)
    • Internal review of candidates and resumes (e.g. ranking and collaboration tools)
    • Workflow system to take candidates through the hiring process
    • Marketing functionality to message candidates in a repeatable manner (much like drip programs)
    • Integration with LinkedIn to find potential candidates and see the strength of relationships for candidates in the pipeline

    There are so many strong HR Software-as-a-Service tools out there that I’m guessing there are a number of systems that accomplish this. Finding great people is such a critical role in any business that it’s clear there’s a role for technology to enhance it.

    What HR recruiting and applicant tracking system do you use? Do you recommend it?

  • 26 Lessons Learned from Investing in 26 Startups

    After yesterday’s post Investing in 100 Startups, several people asked me about the lessons learned from the 26 startup investments I’ve already made. Generally, startup investing is much harder and less glamorous than it sounds, but I really enjoy it — entrepreneurs have such great energy and enthusiasm.

    Here are 26 lessons learned from investing in 26 startups:

    1. Entrepreneurs are always overly optimistic
    2. If anything seems fishy or out of the ordinary, immediately pass
    3. Any signs that the entrepreneur isn’t self-starting and resourceful, immediately pass
    4. Everything takes twice as long and costs twice as much
    5. Look for a pattern where the entrepreneur had already started a prior business, failed, and is at it again
    6. Lean startups are better than heavy startups
    7. Expect regular investor updates
    8. More traction reduces risk
    9. Lack of liquidity is one the biggest challenges
    10. Exits are few and far between
    11. Plan for 7-10 years before seeing a return on investment
    12. Exit value is more important than entry value (e.g. a small piece of a big pie is usually better than a big piece of a small pie)
    13. Reserve twice as much as the original investment for follow-on investments (e.g. exercising the pro-rata rights)
    14. Personality fit is more important than entrepreneurs realize
    15. $300k is the ideal amount for a seed round
    16. Build a portfolio for diversification
    17. Investor jargon is more prevalent than expected
    18. Know that winning a pitch competition isn’t the same thing as a successful startup
    19. Fewer seed-funded startups as a percentage raise a Series A round
    20. Developing rapport well in advance of investing is important
    21. Evaluate the Investment Readiness Level
    22. Seed capital is different from venture capital
    23. Bet on the horse, course, or jockey
    24. Understand the difference between friendly customers and unaffiliated customers
    25. Milestones met pre-investment help improve confidence
    26. Investing is an incredibly hard way to make money

    Even after investing in 26 startups I still feel I have a ton more to learn. Every investment is different and every entrepreneur is different. When I eventually make investment number 100, I’m sure I’ll feel the same way.

    What else? What are some more lessons learned from investing in startups?

  • Generic Market Research Questions

    Recently an entrepreneur emailed me some market research questions as they’re working on refining their product and trying to better understand the pain points. Seeing the list, I immediately thought that this is a good starting point for other entrepreneurs doing research as many of the questions can be repurposed to be broadly applicable.

    Here are some generic market research questions where ‘XYZ’ should be substituted for the specific topic:

    • How do you currently accomplish XYZ?
    • How many people in your organization are involved in XYZ?
    • Have you ever had any problems with XYZ?
    • What are your most common problems with XYZ, if any?
    • What is the workflow like for people that are involved in XYZ?
    • How would you make XYZ better?
    • What do you dislike the most about XYZ, outside of the problems?
    • With 10 being most important and 1 being least important, how important is it for you to improve XYZ?
    • With 10 being most important and 1 being least important, how important is it for you to solve the biggest problem with XYZ?
    • What other products or services related to XYZ do you use?
    • Are there any challenges with the related products or services?
    • Any other thoughts, comments, or recommendations for us?

    Entrepreneurs researching a market would do well to employ these questions as they gather information and talk to prospective customers.

    What else? What are some more generic market research questions to add to the list?

  • University-Affiliated Angel Networks

    One of the projects I’ve been helping out with recently is the Duke Angel Network. Universities have been making a stronger entrepreneurial push over the past few years and startup funding is always a challenge. With the Duke Angel Network, the idea is to review Duke-affiliated startups that have a student, alumni, faculty, staff, or parent of a graduate on the founding team and present qualified companies to angel investors that are Duke-affiliated (same criteria for affiliation).

    Startups that raise money from the Duke Angel Network then have the option for a smaller matching investment from the Duke Innovation Fund. The Duke Innovation Fund is a charitable pool of committed capital that’s an evergreen vehicle to continually invest in Duke-affiliated startups indefinitely (e.g. all fund profits go back into the fund to invest in more startups). People can donate to the Duke Innovation Fund, get a charitable deduction, and know that the money will go to help the Duke-affiliated startups in perpetuity.

    Here are a few thoughts on university-affiliated angel networks:

    • Part of the pitch is that investing with a network of angels, whereby there are more people with expertise for any specific deal, will increase the overall returns (I’m hopeful this plays out but I don’t believe it will be the case)
    • Increasing tech transfer (licensing university developed IP) is also a goal such that the more commercialization of technology – funded by the affiliated angel network – will generate greater returns for the university
    • Development offices are fans of university-affiliated angel networks as it can help increase the affinity for the university and generate more engagement

    Look for more university-affiliated angel networks to emerge, especially as entrepreneurship remains hot and universities seek to engage with their constituents.

    What else? What are some more thoughts on university-affiliated angel networks?

  • Solving One Problem Magnifies Another

    Things are going well but there’s this nagging issue that won’t go away. If we could only solve this one problem, everything else would be great. Only, once the problem is solved, the next most important problem is magnified. And, it never stops.

    Solving one problem magnifies another.

    Here are a few thoughts to keep in mind:

    As an entrepreneur, it’s easy to get overwhelmed with all the on-going problems and challenges. Find a good cadence knowing that solving one problem magnifies another, and figure out how to grind it out.

    What else? What are some more thoughts on the idea that solving one problem magnifies another?

  • Tranche Investments in Startups

    Over the past year I’ve seen a little-used investment strategy come up a few times: the tranche. With a tranche, money is typically invested over two or three milestones based on the progress of the company (often at the will of the investor, and sometimes contingent on the entrepreneur’s approval). As an example, $250,000 might be put in immediately, and within the next six months, the investor has the option to put in an additional $250,000 at the same terms.

    Clearly, this is a nice benefit for the investor as they can see how the company performs before putting in the additional money, and if the company does well, the second part of the tranche investment is a better deal because the company is worth more as the investor is buying the equity at the previous valuation. Only, there are a few more nuances at play as well. Here are some thoughts on tranche investments:

    • Entrepreneurs almost always operate, and spend, as if the later round(s) of the tranche are going to come in, creating challenges if the business doesn’t perform as expected
    • Tranches often make the entrepreneur more beholden to the investor (possibly filtering the news to make things sound more promising) as they want to ensure that the next round of money comes in, and this can distract from growing the business
    • Tranches can be more distracting as they usually have a shorter timeframe – say three or six months – between milestones as opposed to the typical 12-24 months between financings
    • From a valuation perspective, tranches can be thought of as the average of the current valuation and the projected valuation(s) at the later milestones, such that the investor gets a bonus if the company does better than expected

    Entrepreneurs typically want to avoid tranches and focus on negotiating a fixed investment amount upfront, so that they know how much money and runway they have to grow the business before raising another round.

    What else? What are some more thoughts on tranche investments in startups?

  • What Wasn’t Said in the Response

    Last year, when talking to an entrepreneur about his startup, I asked him why he started the company. He responded that he wanted to build a big company and do well financially. Probing a bit deeper, he explained how he owned a certain percentage of the company and that there were several key financial goals he was hoping to achieve. What wasn’t said in the answer was more telling than the actual answer. Where was the excitement about changing the world? Where was the enthusiasm for solving a hard problem?

    Here are a few thoughts about what wasn’t said in the response:

    • Certain questions have certain expected responses, and they aren’t meant to be trick questions
    • When responding, the first idea in the explanation is always the most important, and most telling
    • Body language and nonverbal communication is a key part of the response

    Whether it’s an entrepreneur talking about their startup, or a potential employee sharing thoughts on their last job, what wasn’t said in the response can be even more important than what was said.

    What else? What are some more thoughts on the idea that what’s left unsaid in an answer can be critically important?

  • Video of the Week: Make Meaning in Your Company

    One of my all-time favorite entrepreneurial authors is Guy Kawasaki. His book Art of the Start is on my list of recommendations for entrepreneurs everywhere. One of his ideas that really resonates with me is the importance of making meaning in your company.

    Here is Guy Kawasaki talking on the topic as the video of the week:

    For more videos, take a look at Guy Kawasaki’s talk on Stanford’s Entrepreneurship Corner.

    Side note: one of my goals is to incorporate more videos into this blog, so look for them more regularly.