David Cummings on Startups

Category: Entrepreneurship

  • Matching Brand Promise and Reality

    Last week I met an entrepreneur working on a Software-as-a-Service (SaaS) product where one of his main value propositions was product ease of use. The market is cluttered with a number of vendors, mostly a decade old, that have a distinctly web 1.0 feel. The entrepreneur sees an opportunity to be better, faster, and cheaper with a focus on ease of use. Only, after seeing his investor slide deck and current website, it screams complicated and not easy to use.

    Brand messaging and reality need to match up.

    Looking at it from an investor perspective, the entrepreneur immediately lost credibility as things didn’t match. My advice is to hire a professional designer, either through a crowdsourced design site like 99designs and crowdSPRING, or hire a local like Two Way Dialogue or Nebo Agency.

    Make sure the presentation and product match the brand promise.

    What else? What are your thoughts on disconnects between brand promise and reality?

  • Time is Precious — What’s your hourly rate?

    Recently I was talking to a successful entrepreneur and we got to discussing the precious nature of time. Once the business or entrepreneur has all the financial resources needed, time becomes even more valuable. On the individual front, there are always requests for time-related things: coffees, lunches, panels, events, conferences, etc. It’s easy to set up a personal schedule with tons of meetings and not accomplish anything.

    Now, when thinking about time as a precious resource, the logical way to quantify it is to determine your hourly rate. A great hourly rate estimate for time is as follows:

    Take your annual compensation for last year (e.g. $100k), divide it by two and drop the thousands, and the result is your hourly rate (e.g. a $100,000/year would be $50 per hour).

    So, the next time someone asks for an hour of time and you’re unsure about the value, think about the hourly rate and where best that time is spent.

    What else? What are your thoughts on time being precious and the hourly rate as part of the opportunity cost?

  • Highlights from the $130 Million Vocalocity Exit

    Earlier today Vocalocity announced their $130 million exit to Vonage. This is another big win for Atlanta and shows the strength of the Atlanta startup community. Vocalocity is an interesting story as it was founded as a different company, the assets were sold to another startup that took over, and finally it set off on the path it’s still on today — providing Internet-based phone services to small businesses.

    Here are some of the current Vocalocity details courtesy of Urvaksh’s piece on the acquisition as well as other sources:

    Overall, it’s another success story for Atlanta and a big congratulations are in order for all parties involved.

    What else? What are your thoughts on the Vocalocity exit to Vonage?

  • Thinking About a Startup’s Internal Meeting Rhythm

    One of the more common questions I get is around managing my schedule and coordinating different responsibilities. My response is that I work hard to build a consistent internal meeting rhythm and look to ensure that I’m not required for the business to operate (e.g. I’m not a bottleneck for any regular tasks). Per the internal meeting rhythm, it helps keep everyone aligned and communicating on a regular basis.

    Here’s our startup’s internal meeting rhythm:

    • Daily Check-in – A 10 minute scrum every morning with the entire company at 10:20am where we answer the following questions: what did you accomplish yesterday, what are you going to do today, and do you have any roadblocks.
    • Weekly Sprint Review / Planning – Two week product sprints where every week we either review the status of the current sprint or wrap up the last sprint and plan the new one.
    • Monthly Metrics Dashboard Review – Each month we review our Google Spreadsheet metrics dashboard, which has all the critical metrics for a Software-as-a-Service startup.
    • Quarterly One Page Strategic Plan – A simplified one page strategic plan that we update and review with the team once every quarter.
    • Quarterly Celebration – Each quarter we get out of the office and celebrate as a team (e.g. a baseball game, picnic, sailing, etc).

    Eventually we’ll break out the daily check-ins into smaller groups, do monthly strategic meetings, and quarterly check-ins (lightweight reviews) once the startup matures. While there are a fair number of meetings, they are all specialized and add significant value.

    What else? What are some other meetings you like for your internal startup rhythm?

  • Valuing a Small Software Company With No Growth

    Yesterday I was talking to an entrepreneur about his small software company. After being in business for a number of years, and building a stable base of customers, the company has leveled off with a handful of employees and sub $1 million in revenues. Now, he feels it’s time to sell the business. Only, a small software company with no growth isn’t worth as much as he’d like, especially compared to the big multiples commonly referred to online.

    Here are a few thoughts on valuing a small software company with no growth:

    • Typical business valuation multiples apply with the most common being 4 – 6x profits
    • Software companies with scale and a good customer base are typically valued at 2 – 3x revenue for installed software and 3 – 6x revenue for Software-as-a-Service with growth rate and profitability being two major drivers
    • Strategic buyers pay more for a business than financial buyers, and it’ll be tough for either to get interested in a small business unless they want to significantly invest in it or it’s very complementary

    I told him that if his passion isn’t in the business anymore, it’s time to move on. The valuation might not be want he wants but by selling it new opportunities will open up and he’ll have the chance to make the next one even greater.

    What else? What are your thoughts on valuing a small software company with no growth?

  • The Nine C’s of the Atlanta Tech Village

    Johnson Cook put together a great presentation about the Atlanta Tech Village for the AIM Speak Easies: Rapid Talks From Brilliant Minds series in Omaha. I’m borrowing the nine C’s from his presentation and presenting my own thoughts on them here:

    • Core Values – Everything starts with the core values. For us, they are the following: be nice, dream big, pay it forward, and work hard / play hard. We can’t pick winning ideas but we can set the foundation with strong core values.
    • Curated – We have an application process for membership that starts with a tour of the Village. As part of our focus on building the best place possible for startups, it’s critical we curate membership.
    • Collaboration – Creating an environment that promotes serendipitous interactions increases formal and informal collaboration. Startups helping startups increases the likelihood of success.
    • Chaos – Having so many different entrepreneurs under one roof, combined with the desire to push the limits, results in chaos on a regular basis. We roll with the chaos and are constantly improving.
    • Concentrated – Assembling 100+ startups under the same roof makes for great density, which increases the efficiency and economies of scale for everything.
    • Colossal – Our goal is nothing less than creating 10,000 new jobs in Atlanta over the next 10 years. Go big or go home.
    • Community – The core of the Village is the people and we have an amazing community. Community is the main differentiator from a standard office building.
    • Control – Owning the physical real estate, making investments with a 20 year horizon, and not having external investors allows us to control the entire experience. We’re not perfect but we strive to be great.
    • Celebrity – Spotting several Tesla Model S electric cars in the parking deck and bringing by CEOs of Fortune 500 companies are two ways we incorporate a little celebrity excitement in the Village.

    So, there you have it — the nine C’s of the Atlanta Tech Village. What else would you add?

  • Thinking About Atlanta’s and London’s Startup Community

    The Economist has a new article up titled London’s Tech City: Start me up. It’s a good piece that has a variety of talking points about the strong cluster of tech startups in east London. From an local perspective, if you take all the talking points and substitute Atlanta, it’s nearly identical.

    Here are some of those talking points:

    • Need for a big exit or IPO to put the community on the map with King, makers of Candy Crush Saga, as the likely first billion dollar IPO, similar to AirWatch holding the billion dollar crown in Atlanta
    • Many new coworking spaces like Google’s Campus, similar to Atlanta Tech Village
    • Several accelerators including Passion Capital and Seedcamp, similar to Flashpoint and the Atlanta Ventures Accelerator
    • Seed Enterprise Investment Scheme to promote investments in startups, similar to the Georgia Angel Investor Tax Credit
    • Lack of technical talent, which is common everywhere
    • Dearth of venture capital, which is typical in most places

    Now, these talking points aren’t unique to Atlanta and London as I bet most major metro areas with at least a small-to-medium sized startup community as making similar progress. It’s great to startup communities growing around the world.

    What else? What are your thoughts on these talking points from Atlanta’s and London’s startup communities?

  • Do the Personal Math When Thinking About Raising Money

    Yesterday I was talking to an entrepreneur that was contemplating whether or not to raise a Series A round for his Software-as-a-Software startup. The business is growing nicely and it’s clear there’s a big market opportunity. With a low cost of customer acquisition and a great lifetime value, the financial model is there to scale the business indefinitely with little outside capital. Only, there’s so much market potential that with outside capital the business can grow significantly faster and gain marketshare in a relatively greenfield space.

    My answer to him regarding raising money was pretty simple: do the personal math on the expected outcomes with and without venture capital.

    Here are a few questions related to doing the personal math when thinking about raising money:

    • How many rounds of financing will the business take and how much equity will be sold at each round?
    • How much more difficult is it to find a buyer for the business when the valuation exceeds $50M? $100M? $500M?
    • With no outside capital, how fast and how long do you believe the growth will persist?
    • Is it a winner-take-most market where marketshare matters or is it a fragmented market with many winners?
    • What are your personal goals and aspirations related to control, company size, and financial outcomes?

    There’s no right or wrong answer when it comes to raising outside capital but more often than people expect, going the independent route makes more sense financially, assuming the startup can get to the point where it’s self-sustainable. The next time an entrepreneur says they’re raising outside money, tell them to do the personal math.

    What else? What are your thoughts on doing the personal math when thinking about raising money?

  • Breakout Startups Grow the Ecosystem of Talent

    When talking to local software engineers, sales people, and entrepreneurs that come through the Atlanta Tech Village, I find a common pattern where the individual starts their career at a non-startup company and then eventually gets recruited by a startup. After a taste of the startup experience, the individual never wants to go back to a regular business. Now, once the individual is in the startup ecosystem, every 2-4 years they move to a different startup and bring their experience and expertise to a new opportunity.

    This is all good and well but it doesn’t significantly grow the startup community since most startups fail and the talent gets recycled into the community (which is fine and healthy). What does grow the startup community is breakout startups. Startups that create 100+ jobs locally bring a ton of talent into the startup community. Software engineers get recruited from all kinds of backgrounds, especially right out of school. Sales reps get recruited from insurance jobs, telcom positions, and other traditional sales roles. And, of course, entrepreneurs that started ventures that didn’t work out join the breakout startup, provide great leadership for a few years, and then go on to start their next thing.

    Having more startups helps grow the entrepreneurial ecosystem, but a greater impact comes from breakout startups that bring in tons of talent and introduces them to a better way of life.

    What else? What are your thoughts on breakout startups growing the ecosystem of talent?

  • Syndicating Angel Deals in Atlanta with AngelList

    AngelList just launched their Syndicates offering and it’s a big deal. Angel investing is notoriously inefficient due to corralling hobbyist investors, extensive paperwork, and generally small dollar amounts. Syndicates works to change that and deliver some of the benefits of a venture fund with a larger amount of investments dollars, fewer investors to wrangle, and the speed and leadership of a lead investor.

    Here are a few details on AngelList Syndicates:

    • Lead angels get a carry (part of the profits, if any, from doing the deals) and AngelList gets a carry (that’s how they make money as a company)
    • Money invested from lead angels in a deal often represents a much higher percent of the deal, and personal wealth, compared with venture capitalists investing from their own fund (e.g. the lead angels have much more skin in the game compared to VCs)
    • No management fees (management fees are money taken out of the fund to pay salaries, office space, etc. regardless of making a profit)
    • Open to accredited investors and qualified purchasers (it isn’t crowdfunding)

    Overall, this has the potential to make lead angel investors much more meaningful and impactful with their time and effort.

    From an Atlanta perspective, this is awesome. This provides the opportunity to bring together startup investors that don’t want to commit capital to a fund, and the requisite long term illiquidity, but still want the guidance, deal flow, and help that a lead investor provides. It’s win-win.

    I’m looking forward to using it and seeing how it changes the market for angel and venture funding.

    What else? What are your thoughts on syndicating angel deals with AngelList?