David Cummings on Startups

Category: Entrepreneurship

  • Importance of Idea vs Team

    Earlier today I got into a conversation with a colleague about the relative importance of a startup idea vs a startup team. Naturally, both the concept and the people are critically important, but if you had to pick one, which would be most important?

    My general feeling is that the idea is more important than the team. Some arguments for and against it are as follows:

    • Strong ideas, especially pain killers over vitamins, are harder to come by since most ideas are vitamins (or candy!)
    • If it’s a good idea, or at least a good sandbox to play in, the chance of zigging and zagging to achieve success is much greater
    • Strong teams are hard to find but are more easily upgraded as the startup makes progress as opposed to pivoting and trying a new idea
    • Talented teams are more likely to figure out how to make something work, even if it is only a modest success
    • Investors bet on the jockey more than the horse, but it my anecdotal experience, investors bet on the idea more than the team for first-time entrepreneurs and then the team more than the idea for successful serial entrepreneurs

    Startups ideas and startup teams are extremely important to the success of a new venture. In the end, I’d take a great idea with a good team over a good idea with a great team.

    What else? What are your thoughts on the importance of idea vs team?

  • WSJ Piece on Corporate Culture at Pardot

    A couple weeks ago I was asked by some fellow Atlantans if I wanted to write a piece on corporate culture for the Wall Street Journal’s series The Accelerators. The Accelerators is all about strategies and challenges of creating a new business. Of course, I jumped at the opportunity and wrote Perks Keep Turnover Low, Morale High. Now, the title makes it sound like perks are the story, which they aren’t, but that’s easier for people to grasp compared to the real message: corporate culture wins.

    Here are a few takeaways from the article:

    • Corporate culture is the most important thing
    • Big exits do occur outside Silicon Valley
    • Perks like four hours of housecleaning per month, a full-time masseuse, and health+dental make a difference
    • Vacation policies are best when they are two simple words: be reasonable

    Please read Perks Keep Turnover Low, Morale High. Perks don’t define a great culture but help reinforce that the company cares about the team — always start with core values.

  • Startup Funerals

    As a community of innovators, entrepreneurs are up-beat and pumped about changing the world. There’s always a new trend or initiative that people are excited about, which creates new opportunities for startups. One necessary component for a healthy startup community is embracing failure and recognizing that it’s a natural part of how things work. NYC has a startup funeral initiative. Other places need one as well.

    What’s the current ratio of startup launches to public startup funerals and acknowledged shut downs? 1,000 to 1? 10,000 to 1? It isn’t that the startups aren’t being shut down. They are. It’s that some are put on auto-pilot to die a slow death and others are quietly turned off.

    Here are a few benefits of startup funerals:

    • Provides closure to everyone involved — human nature desires it
    • Makes it more public when talented people are available to promote recycling talent
    • Helps make failure more acceptable

    We need more startup funerals.

    What else? What are your thoughts on startup funerals?

  • Yolo and Startups

    One of the popular acronyms right now for high schoolers is yolo, as in You Only Live Once. Not to be confused with the cool stand up paddle boards also known as yolo boards, yolo makes it easy to justify doing something you might not normally do, like cliff diving into a lake. How can we get a little yolo idealism into some of the talented people that don’t consider startups as part of their career options?

    Here are a few ideas:

    • Facilitate programs and initiatives that specifically target college juniors and seniors (e.g. host a regular startups career and internship fair)
    • Promote technology meetups to employees of larger companies via targeted ads on LinkedIn, Facebook, and Twitter
    • Organize more startup drinks-like happy hours in high density commercial areas such that it’s an easy walk for people in the surrounding area

    Bringing the idea of yolo to talented people that haven’t considered startups isn’t an easy task. But, in the end, the biggest challenges can be the most fun.

    What else? What are your thoughts on yolo and startups?

  • When All Paying Customers are Friendlies

    Recently I heard the story of an edge case from an angel investor commenting on the question How Much Traction Does a Startup Need to Raise Angel Money. Here’s the background: an angel investor is pitched by an entrepreneur that has recently cleared the $100,000 in annual recurring revenue mark. The idea sounds plausible but it isn’t completely clear if the product is candy, a pain killer, or a vitamin due to the lack of domain expertise by the angel investor. As the angel investor starts to dig in on due diligence it becomes clear that there’s an anomaly here in which the 10 customers each paying $12,000/year are all friends with the founder of the startup.

    All the paying customers were friendlies. That is, all the customers already had a prior relationship with the founder such that there wasn’t a clear picture regarding the true value of the product as well as how difficult it would be to build a repeatable customer acquisition process. Now, the fact that the founder had such strong relationships with a variety of people bodes well for success in general, but as an investor one of the biggest questions is how the sales and marketing process is going to scale.

    The next time you’re thinking of working for a company or investing in a company with 10 customers, research how the customers were acquired.

    What else? What are your thoughts on the situation when all paying customers are friendlies?

  • Maintaining a High Standard of Excellence in a Coworking Space

    One of the most common questions we get at the Atlanta Tech Village is regarding how we’re going to maintain a high standard of excellence among the tech companies, startups, investors, freelancers, and tech-related service providers. The main concerns are around corporate culture, work ethic, and general success of the ventures.

    Here are a few ideas for maintaining a high standard of excellence in the coworking space and ATV overall:

    • Application process with in-person interview to assess core values fit (see the core values)
    • Monthly or quarterly peer review process where members evaluate other members as to how well they’re meeting the values and, potentially, people who aren’t meeting the values get voted off the island
    • Sell 90 day pre-paid memberships such that every 90 days there’s the option to renew the membership, or not renew if the core values aren’t being met

    This is a really tough topic as we want to be inclusive while building the best place for tech companies and startups to grow and thrive. We have a ton to learn.

    What else? What are some other ideas for maintaining a high standard of excellence in a coworking space and community center?

  • Developing an Accountability Plan for Startups in the Community

    One of the goals with the Atlanta Tech Village is to create an environment of accountability and competition such that the member tech companies and startups achieve a greater level of success than if they were on their own. The ultimate measure of ATV’s overall success is the number of companies that build sustainable, meaningful businesses. Now, how can we create and foster this type of environment in a way that’s positive and fun?

    Here are a few ideas for an accountability plan for community startups:

    • Monthly or quarterly check-ins with an entrepreneur, mentor, or community manager
    • Accountability questions like what did you accomplish, what are your going to accomplish, and how can you improve whereby the answers are recorded in a Google Spreadsheet for review during the next period
    • Continually measure objective items related to revenue, new users, page views, downloads, App Store ratings, etc
    • Regular peer feedback survey where the other startups rate how they see their peers doing across several dimensions

    We want tech companies and startups that are continually moving onward and upward such that the Village is known for having an environment that breeds success. Accountability is going to be an important part of the equation.

    What else? What are some other thoughts on developing an accountability plan for startups in the community?

  • How Much Traction Does a Startup Need to Raise Angel Money

    500 Startups has a great checklist for investing in startups that includes items like capital-efficient, internet-based distribution, simple revenue model, functional prototype, small but measurable usage, and more. One area that’s vague but super important is around the small but measurable product usage or early revenue, otherwise known as traction.

    In most of the country, startups need to have some level of traction to raise money unless it’s an entrepreneur that’s been successful before. Here are some thoughts on the amount of traction needed to raise angel money:

    • Valuations of $1 million – $1.5 million pre-money are pretty standard when startups have $25,000 – $100,000 in annual recurring revenue
    • Valuations start to move up once the startup has $250,000+ in recurring revenue
    • After $1MM in recurring revenue is achieved, valuations move up significantly (e.g. $5MM – $8MM pre-money) as the venture is often getting close to a repeatable customer acquisition process and the business is viewed as less risky

    Most startups I meet with are pre-revenue and in a difficult spot because angel investors want to see some traction, even if it’s modest, before investing. Entrepreneurs would do well to have a fair amount of recurring revenue to raise money on good terms.

    What else? What are your thoughts on the amount of traction a startup needs to raise angel money?

  • How big does a startup’s market need to be to make sense?

    Recently I was talking to an entrepreneur and he was sharing his new idea. Now, the idea was sound and made sense but it immediately struck me as too small a market. There’s no perfect method to determining the size of a market opportunity but there’s plenty of information available.

    Here’s how I like to think through if a market is large enough to go after:

    So, it doesn’t need to be a billion dollar business but it does need to be large enough to build a sustainable, successful business in a reasonable amount of time.

    What else? How big does a startup’s market need to be to make sense?

  • 4 Different Angel Investing Strategies

    Over the past few months I’ve asked a number of angel investors about their experience and strategies when it comes to angel investing. As expected, there are a variety of different approaches and outcomes. Most angels say they’ve made money angel investing, when leads me to believe there’s some survivorship bias as well as returns included from companies they’ve operated.

    Here are four of the most common angel investing strategies I’ve encountered:

    • Domain Expertise – looks for startups in a field related to personal background and areas of previous experience
    • Bet on Previous Winners – focuses exclusively on investing in entrepreneurs that have already been successful
    • Small Bets and Double Down – invests the minimum amount in a large number of startups and then invests significantly more in the winners
    • Follow the Leader – takes the lead from another angel investor and follows him/her in investing

    I don’t have much experience with this yet but I’m looking forward to learning more and getting a better understanding of each strategy.

    What else? What are some other angel investing strategies?