David Cummings on Startups

Category: Entrepreneurship

  • Entrepreneur Questions for Other Entrepreneurs After a Startup Exit

    It’s a great feeling having so many different people congratulate you after the successful sale of your startup. People that work as a chore, instead of as a passion, ask if you’ll retire to an island, implying there’s nothing left to accomplish. Entrepreneurs, who love changing the world, ask what’s the next business you’ll start or problem you’ll tackle. There’s also another very popular questions entrepreneurs like to ask with an air of fascination: how did the deal go down?

    Common questions from entrepreneurs about selling a business:

    • Did you hire an investment bank?
    • Did you shop the deal around?
    • How much did you think the business was worth?
    • How long did it take?
    • How distracting was it for the senior management team?
    • When were you confident that a deal was going to get done?
    • How did the employees react?
    • How’s the transition going?
    • What’s going to change in the business?

    Answering these questions and helping other entrepreneurs think through them for their own companies is fun and rewarding. Every deal is different so there’s always something that can be learned.

    What else? What are some other questions entrepreneurs ask other entrepreneurs after a startup exit?

  • Bessemer’s Updated 5 Cs of Cloud Finance

    Continuing with the post a couple days ago on Bessemer’s Updated Top 10 Laws of Cloud Computing (that name is better suited to be “Cloud Computing Companies” as the current title sounds more technical than it really is) one of the most important ones, after #9 about corporate culture is #5 titled: Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance. The good thing about these metrics is that they are incredibly powerful while still being easy to understand — a rare feat in much of the financial world.

    Here are Bessemer’s 5 Cs of Cloud Finance:

    1. CMRR, ARR, & ARRR – Committed Monthly Recurring Revenue, Annual Recurring Revenue, and Annual Run Rate Revenue.
    2. Cash Flow – Start with Gross Burn Rate and Net Burn Rate, then hopefully turn to Free Cash Flow over time.
    3. CAC – Customer Acquisition Cost Payback Period.
    4. CLTV – Customer Lifetime Value.
    5. Churn & Renewal Rates – Logo Churn, CMRR Churn, and CMRR Renewed.

    Every Software-as-a-Service company should have a Google Spreadsheet where they track each of these values on a monthly basis and discuss it with their senior management team on a regularly.

    What else? What are your thoughts on Bessemer’s Updated 5 Cs of Cloud Finance?

  • More Entrepreneurs or More Resources for Existing Entrepreneurs

    One of the questions that still nags me is why aren’t more entrepreneurs successful? We have amazing information and resources online, tons of community events, and a wealth of people that truly want to help out. On the surface, it appears that the necessary ingredients are present to have a higher success rate. Now, I don’t know the previous success rates or the current success rates, so this is merely based on my gut.

    As I look around the community, I want to see many more startups that are clearly on their way to being a viable, on going concern (my definition of a successful business). The lean startup movement and tools like the business model canvas are great for helping entrepreneurs spend their time more wisely, thus increasing the likelihood of success. I haven’t seen the increased success yet, but I’m hopeful.

    Another theory is that you can’t pick winners and some people will make it and most won’t make it. If that’s the case, and the resources for success are better and costs lower than ever to launch a tech startup, the next area of focus is to get more people that are thinking through ideas to take the plunge. Accelerator programs like Y Combinator and Flashpoint are great entry points for entrepreneurs to jump in with a group of peers around them.

    I don’t have the answers but it appears that the next area of focus is increasing the top of the funnel of total number of entrepreneurs to increase the number of successes.

    What else? What are your thoughts on helping more people become entrepreneurs or investing more in resources for existing entrepreneurs?

  • Bessemer’s Updated Top 10 Laws of Cloud Computing

    Bessemer Venture Partners publishes some of the best content available on Software-as-a-Service/cloud computing. Recently, they just updated their Bessemer’s Top 10 Laws of Cloud Computing to reflect several more years of insights into best practices for the popular business model.

    Here are Bessemer’s Top 10 Laws of Cloud Computing:

    1. Drink Your Own Champagne (use your software for your own business)
    2. Build for the Doer, Build Employee Software (make it for the line-of-business manager and not for someone that doesn’t actually use it on a regular basis)
    3. Death of the suite; long live best-of-breed and even best-of-feature
    4. Grow or Die
    5. Play moneyball in the cloud, and check the scoreboard with the 5 Cs of Cloud Finance
    6. Build the Revenue Engine, and only invest aggresively if you have a short CAC Payback Period
    7. Make online sales and marketing a core competency
    8. The most important part of Software-as-a-Service isn’t “Software” it’s “Service”
    9. Culture is key as you build your dream team
    10. Cash is (still) king – Cloudonomics requires that you focus on cash flow above operating profits, and plan your fuel stops very carefully

    Every tech entrepreneur, cloud or otherwise, should read Bessemer’s Top 10 Laws of Cloud Computing.

    What else? What are your thoughts on Bessemer’s updated Top 10 Laws of Cloud Computing?

  • The Hypepotamus Gift to Atlanta

    Earlier today I spent several hours at Hypepotamus, an awesome coworking space right next to Georgia Tech and Tech Square in the heart of Midtown Atlanta. Hypepotamus, if you haven’t heard of it, is a free (no charge!) facility for designers, engineers, and entrepreneurs sponsored by Kevin Wallace (@kevinbwallace) and Heath Hyneman (@hhyneman) purely to help grow the tech startup community. In addition, Hype, as it’s affectionately known, is expertly managed and run by Scott Henderson (@scottyhendo).

    Here’s some of the thinking about the Hypepotamus gift to Atlanta:

    • Serendipitous interaction is key to growing a community
    • Startup leaders are all types of people, not just company co-founders
    • Startups, being resource constrained, benefit by helping each other
    • Community events foster relationships and help with the human desire to be a part of a tribe

    Regardless, the community should be measured by the number of successful companies (not money raised) and I’m optimistic Hypepotamus fills a gap that will help improve the startup community.

    What else? What are your thoughts on the Hypepotamus gift to Atlanta?

  • Key Items for an Effective Coworking Space

    Last week a friend approached me and confirmed the issue raised in the Coworking Conundrum for Startups Slacking post. He had previously worked in a coworking space for several months and said the distraction challenges, both in a big communal area as well as other entrepreneurs not working hard, are very real. I then asked more questions about what he liked, and didn’t like, with the co-working experience.

    Here are some key items for an effective co-working space:

    • Super fast, plentiful bandwidth
    • Amazing coffee
    • Great chairs
    • Multiple sitting areas (desks, standing desks, lounge chairs, etc)
    • Bright natural light
    • Private conference rooms and phone booths (super small conference rooms for phone calls — no phone calls in the large communal room)
    • Easy parking/transportation options with 24/7 access

    Coworking spaces continue to grow in popularity and are perfect for creative professionals that want to be around other people while working in a productive environment.

    What else? What are some other key items for an effective coworking space?

  • Two Years of Part-Time Work to get to Launch is Tough

    Recently I talked to a sharp entrepreneur with tons of energy. Over the past year he’s been working part-time on a startup with a couple friends that had already been at it for a year before he joined. Product launch is right around the corner and exemplifies the challenge of working on startup part-time: taking two years of working part-time to launch a mobile app is a recipe for a slow death. I hope they succeed, I truly do. It’s just that products need oxygen (users) and founders need faster iterations to figure out what works and doesn’t work.

    Most tech startups fail, that’s a fact. With high risk (and reward) comes a high likelihood of failure. Most startups fail with entrepreneurs working full-time on them, so how much more difficult is it to be successful working part-time on one? Another big challenge working part-time on an idea is that you don’t make enough progress either way. A major progress milestone is when you realize an idea isn’t going to work and it’s time to shut it down — that’s much better than taking three times as long to get there working part-time on it. Ideally, the startup does work out and you figure out what works as fast as possible, helping to reserve stamina for the long haul (it’s a marathon, not a sprint).

    What else? What are your thoughts on working part-time vs full-time on a startup?

  • A Startup Community is Defined by Money Raised and Successful Exits

    Everyone has ideas to improve the local startup community, myself included. At the end of the day, it doesn’t matter how many meetups there are, conferences, or co-working spaces. To the outside world, for better or worse, a startup community is defined by how much money is raised on an annual basis and the the dollar amounts of exits on an annual basis. Of course, the idea is that more activities, resources, and interactions will lead to more raising money and more exits.

    Here are a few reasons why startup communities are defined by money raised and successful exits:

    • Raising a $5M Series A or selling for $50M generates publicity, and publicity always affects perceptions (it’s too bad there isn’t more coverage of bootstrapped companies that clear $5M in revenue, but I don’t expect that to change)
    • Organizations like PricewaterhouseCoopers publish the Money Tree Report regularly, making it easy to for regions to compare themselves to other regions, based on amount of venture investments, increasing awareness of money raised, and thus desire for the level of investment to increase
    • Angel investors and venture capitalists pay significant attention to exits, resulting in startup communities with more exits to receive more interest and money from investors

    Startup community evangelists, of which I’m one, need to remember that to the outside world, the quality of the community is defined simply by money. Money raised and the dollar value of exits drives national reputation.

    What else? What are your thoughts on startup communities being defined by money raised and successful exits?

  • Raising Money for a Startup with no Product Idea

    Last week I was talking to a software engineer from out of town that was looking to join an idea stage startup in his city. With three options on the table, he had a good idea of the pros and cons of each while still wanting a sounding board. I asked him to go through each of the startups he was considering, including the ideas and the founders behind them.

    The first idea was OK but sounded like a feature instead of a product. The second idea was much better than the first and sounded promising. It was when he got to the third startup that I had to stop him and clarify: it was two first-time entrepreneurs that had raised an angel round without a product idea. Imagine pitching investors with lines like “don’t worry about our product idea, invest in us and we’ll be successful.”

    Now, it’s one thing to get friends, families, and fools to invest in a hair-brained scheme that you’re super passionate about. It’s a whole different animal to get people to write checks for your startup that has a name, but no product idea. As a software engineer looking for my next opportunity, I’d evaluate the business idea almost as much as I’d evaluate the people. Ideas are readily available and do matter.

    What else? What are your thoughts on first-time entrepreneurs raising angel money for a startup with no product idea?

  • Series A Crunch Neglects the Profitable and Proud

    The idea of a Series A Crunch has been talked about for some time now on PandoDaily (late 2012), TechCrunch (late 2011), and others. Generally, the idea is that there have been so many angel rounds over the past few years that there’s a ton more competition to raise a Series A round due to the smaller number of venture capital firms still regularly investing. Many startups that would have raised Series A rounds in the past won’t be able to do it now because the bar is much higher (demand for Series A rounds is way up while supply of that type of capital has actually gone down as more and more VCs go out of business because they can’t raise another fund).

    Just last week Sarah Lacy wrote a detailed piece on PandoDaily titled The Series A Crunch is Hitting Now. Have we even noticed? All the usual ideas were mentioned save for one obvious one: a small number of angel-backed startups are profitable and proud, choosing not to raise a Series A round or in no rush to do so. In fact, I talked the co-founder and CEO of one Silicon Valley startup last week that’s in this boat. He’s raised an angel round, profitable, and has over 30 employees. Internally, he wants to go big but he stills controls the company and doesn’t want to bring on VCs yet, if ever. This startup is already successful and won’t register in the Series A Crunch.

    Raising an angel round, building a profitable, fast growing company, and never raising VC money is a fine outcome and should be talked about more frequently.

    What else? What are your thoughts on the Series A Crunch discussion neglecting the profitable and proud startups?