David Cummings on Startups

Category: Entrepreneurship

  • Atlanta Startup Village #8

    Tonight the Atlanta Tech Village hosted the eight edition of the Atlanta Startup Village. Being the second ASV at ATV it was much smoother with more chairs, more TVs, more food, and, of course, more drinks. With 263 people signed up and well over 200 attending, it’s the largest monthly startup event in the Southeast.

    Here were the five presenters:

    • Deductmor – Expense management focused on independent contractors
    • QGenda – Physician scheduling software
    • Kevy – Cloud integration middleware
    • PeachDish – Weekly meal ingredient delivery service
    • BitPay – Bitcoin payment processing platform

    The companies did a great job and I’m looking forward to tracking their success.

  • Crowdfunding the Purchase of the Empire State Building in 1961

    Way back in 1961 investors were working on buying the Empire State building and they didn’t enlist a bank to finance it. Instead, they sold approximately 3,300 units at $10,000 each to regular people in the community, especially people that took pride in owning a piece of the most iconic building in the world, so reports a recent NY Times article labelled A Nasty, Epic Battle With Stakes 102 Stories High.

    Of course, we should all be so fortunate to make a $10,000 investment and have it be worth $332,000 52 years later (not even counting dividends!) — a great success story for crowdfunding. Now, investing in existing real estate is different than investing in an entrepreneur’s idea, but several core items are the same:

    • People invest in people, especially people they already know
    • People want businesses in their local community to succeed (not all crowdfunding is for local businesses but I bet the majority goes towards that)
    • People are more likely to invest if they can already feel, touch, and experience the product or service (like real estate)

    In retrospect, the Empire State building proved to be a great crowdfunding investment. I don’t know how crowdfunding will affect the startup world, but I’m looking forward to seeing it play out.

    What else? What are your thoughts on crowdfunding?

  • Translating Per Person Atlanta Tech Village Costs to Standard Commercial Real Estate Rates

    One of the common questions I get from people in the commercial real estate field is “How do the Atlanta Tech Village per person per suite fees compare to traditional commercial real estate rates?” The short answer is that it’s complicated as it isn’t an apples to apples comparison. Here’s the long answer as to how a 10 person modular suite @ $3,250/month compares to traditional real estate:

    • 1,010 rentable square feet @ $20/ft is $2,025/month
    • $35 per person per month for furniture is $350/month
    • $50 per person per month for food and drink is $500/month
    • $25 per person per month for a managed firewall and fiber internet is $250/month
    • 5 parking spots @ $90 per month is $450/month
    • Total: $3,575/month

    So, by commercial real estate standards, the number brokers are looking for is the $20 per rentable square foot amount. It still isn’t quite the same because a six month agreement for a space with nice finishes isn’t available in the regular world, let alone one that’s so small and furnished. Of course, the real value-add is in the community and camaraderie that comes with being in one of the largest tech entrepreneur centers in the country.

    What else? What are some other thoughts about translating the per person Atlanta Tech Village costs to standard commercial real estate rates?

  • How do part-time entrepreneurs fit in the startup community?

    Part-time entrepreneurs are more abundant than full-time entrepreneurs. Just think how many people work an hour or more per month on a new business idea. Now, let’s define part-time entrepreneur in a very simple manner: they have a day job that pays the bills. The day job might not even be full-time, but it’s still their primary means of making a living. So, today’s question is “How do part-time entrepreneurs fit in the startup community?”

    Here are a few thoughts:

    • I don’t know of any group that caters to the part-time entrepreneur audience other than general meetups where anyone can attend
    • It’s extremely difficult to get a business off the ground working nights and weekends on it (I only know of one entrepreneur, out of hundreds I’ve met, that was able to do it)
    • Peer groups, like Entrepreneurs’ Organization (EO) and Young Presidents’ Organization (YPO), are amazing resources, and a simpler version of one of those would be beneficial for part-time entrepreneurs (peer groups are great regardless of profession or career)
    • More open dialogue is needed about part-time entrepreneurs as the most common response is that you aren’t serious if you aren’t full-time

    I don’t have the answers but I believe more dialogue is needed about how part-time entrepreneurs should be nurtured and incorporated into the startup community.

    What else? What are your thoughts on how part-time entrepreneurs fit in the startup community?

  • The Ideal Startup Team

    So, you have a great idea and it’s time to build out a team. What’s the ideal team look like? Assuming you could pull together a team of five people that could take little/no salary, or you raised a $500k seed round, here’s an ideal startup team:

    • Co-Founder 1 – Product management-focused domain expert that loves building things
    • Co-Founder 2 – Sales and marketing expert that can bring a new product to market
    • Two Software Engineers – Great jack-of-all-trades engineers that are smart and get things done
    • UI/UX Engineer – Awesome front-end engineer that can build interfaces and relate to the end users

    So, the ideal startup team has two co-founders and three engineers with an acute focus on building a great product and achieving product/market fit as fast as possible.

    What else? What’s your ideal startup team?

  • Two Years for a Startup to Start Humming

    Launching a startup is one thing. To actually get it humming, and making strong momentum, it often takes two years of serious, full-time effort. Here’s how I’ve seen it play out in the past:

    • First Three Months – Assemble the team and build the minimum viable product
    • Next Three Months – Launch the minimum respectable product
    • Next Six Months – Sign the first 10 paying customers and tighten the product/market fit
    • Next Six Months – Focus in on building the customer acquisition machine while refining the product
    • Last Six Months – Continue tweaking the sales and marketing mix using objective data about what’s working and sign a critical mass of customers

    Startups aren’t overnight successes. Often, two years is the magic mark for startups to start humming, assuming they found a strong market with solid timing.

    What else? What are your thoughts on it taking two years for a startup to start humming?

  • Five Categories of Initial Traction Milestones for Startups

    Results matter. I’d much rather hear from an entrepreneur about their traction metrics than an idea with no results yet. Once the team and product are in place, it’s time to focus on traction. TechCrunch has a piece up titled Want to Raise a Million Bucks? Here’s What You Need where the author provides five categories of initial traction milestones for startups:

    • B2B SaaS: 1,000 seats at $10/month (or the equivalent $10k/month revenue with a higher priced SaaS offering)
    • Enterprise Application: 2 paid pilot contracts for at least $100k combined
    • Social: 100,000 downloads/signups
    • Marketplace: $50k revenue/month
    • Ecommerce: $50k revenue/month

    Here’s an idea: start a Traction Club for startups in your city that exceed these metrics. Make metrics a badge of honor and get more people talking about results, not ideas.

    What else? What are your thoughts on these five categories and amounts as initial major milestones for startups?

  • Employee Count as a Proxy for Startup Revenue

    Recently I read about using employee count as a solid proxy for revenues of a given startup. The idea is to look at three factors a) the number of employees found in LinkedIn b) the amount of venture capital raised and c) the recency of the last fundraising round.

    Here’s the idea to determine the amount of revenue for a startup:

    • Non-venture backed startups: multiply the LinkedIn employee count by $200,000
    • Venture backed startup with a recent large round of funding: multiply the LinkedIn employee count by $100,000
    • Venture-backed startup without a recent large round of funding: multiply the LinkedIn employee count by $150,000
    • Note:  if in a more affordable region, like Atlanta, subtract $25,000 from the above multipliers

    So, the next time someone ponders how much revenue a startup has, use these simple formulas to generate a directionally correct value, especially for technology startups.

    What else? What are your thoughts on using employee count as a proxy for startup revenue?

  • The Power of Sharing Ideas – Pivoting Pardot 1.0

    Today I enjoyed hearing Bill Nussey (@bnussey) give the commencement address at the 2013 ATDC Startup Showcase graduation. I’ve enjoyed talking to Bill over the years and hearing him speak at several events. There was one piece of advice he gave me that changed the trajectory of my career.

    Way back in April 2007 we had just launched Pardot 1.0, which was a pay-per-click bid arbitrage system to generate leads for technology companies. Much like LendingTree.com, Pardot 1.0 was a platform where prospects would put in their information and vendors would compete for their business. I had reached out to Bill as I wanted to share the vision for Pardot 1.0, and he graciously agreed to meet me for lunch at the River Room on the Chattahoochee River.

    We were sitting outside on a beautiful Spring day and I was selling hard on the benefits of a Pardot 1.0 platform and how they could buy higher quality leads at a lower cost. After a few minutes talking about Pardot 1.0, he shared that there was this marketing automation company called Eloqua that was of great interest to him. Eloqua focused on the B2B segment of online marketing and was a combination email service provider and micro web analytics tracking platform.

    Now, at the time, I had never heard of Eloqua or marketing automation software, but the functionality sounded similar to several of the Pardot 1.0 modules we’d already built. I thanked him for lunch and returned to the office to tell my cofounder about Eloqua. We’d been struggling with Pardot 1.0 and the market opportunity of generating leads on behalf of vendors. What if we pivoted and starting selling pickaxes to gold miners instead of mining gold on behalf of vendors?

    After a week of analyzing things, debating what was and wasn’t working, and researching Eloqua, we decided to pivot Pardot into a SMB marketing automation platform. We already had a good bit of the core functionality including landing pages and micro web analytics tracking. The missing pieces were CRM integration, automation rules, and email marketing. With a new course charted, we went heads-down and decided to build the updated product with the goal of a beta launch in September 2007.

    Bill introduced us to Eloqua and the idea that put Pardot on course to becoming a major success. For that, I’m forever thankful.

    Sharing ideas is powerful. You never know who you can help or who can help you.

    What else? What are some other examples of the power of sharing ideas?

  • 3 Venture Capital Rules that Can Be Broken for Hot Startups

    Reading online there’s a number of “rules” about venture capitalists and how they operate. Most of the information is solid, but there are a handful of edge cases that are more nuanced for hot startups. Here are three ideas about how venture capitalists operate that aren’t as black and white as commonly presented:

    • Signing Non-Disclosure Agreements (NDA) – Most of the time, VCs won’t sign a non-disclosure agreement, and rightfully so since they see so many startups on a regular basis. Now, if you’re in super high demand, VCs are clamoring to invest, and you truly have confidential information like outstanding financials, VCs will sign NDAs.
    • Investing in LLCs – Limited partners, the investors in venture capital funds, are often endowments, charities, and other non-profits that don’t want pass-through losses and the headaches of K-1s, and thus require investing in C-Corps. VCs won’t invest directly into LLCs, but if the deal has enough demand, VCs will create a blocker C-Corp, put the money in that entity, and that entity will invest in the LLC. Overall, the preference is for C-Corps based in Delaware, and if you want to raise serious institutional money, a C-Corp is the way to go from the beginning.
    • Complicated Term Sheets – VCs are notorious for long, complicated term sheets with extensive legalese and jargon. Not all firms operate this way. Often, the most successful and well-known firms will have the most straightforward term sheets. Complicated term sheets are also a sign of whether or not the VC is optimizing for the relationship with the entrepreneur (upside) or trying to minimize the downside scenario (many more provisions).

    With these three “rules” in mind, there’s one big takeaway: if your startup is doing great and has serious demand from VCs, the traditional rules don’t apply to you. 99% of startups never raise VC money, and the ones that can break the common rules are in the 1% of the 1% that raise money.

    What else? What are some other venture capital rules that can be broken for hot startups?