David Cummings on Startups

Category: Entrepreneurship

  • Personal Estate Planning Ideas for Entrepreneurs

    Personal estate planning isn’t something many first-time entrepreneurs spend time on, and rightly so. There’s a million different things that can be done, most overkill for the stage and circumstances of many entrepreneurs. With that said, there are a few items that are worth mentioning (note: this is not tax or legal advice and should not be construed as such).

    Here are a couple personal estate planning ideas for entrepreneurs:

    • If you are independently wealthy, or thoroughly convinced you’ll be wildly successful and are willing to pay the on going fees, consider gifting a portion of your seed stage co-founder equity (e.g. 10% – 30%) to a trust outside your estate since it has nearly no value for lifetime gift tax exemption purposes and can grow into something substantial to support your future generations (and will be outside the estate so it won’t have estate taxes when you die)
    • If you are serious about selling your business, and/or are talking to potential acquirers before you’ve received a term sheet or letter of intent with a price (it’s key no price has been offered), consider getting a third party valuation that discounts the value for lack of marketability, and then donating a piece of the equity to a non-profit or private foundation, so that you don’t have to pay capital gains on it at time of sale and you get a tax deduction on the current value (you could donate the money after the sale but you’d pay full taxes on it before you can donate it, so the charity would receive less)

    The second item is much more generally applicable, especially for entrepreneurs with a successful business that have some charitable intent. Personal estate planning is much more complicated than this but these are two ideas for entrepreneurs.

    What else? What are some more personal estate planning ideas for entrepreneurs?

  • Co-Working Conundrum for Startups Slacking

    Recently I was talking with an entrepreneur that had toured a few of the big co-working spaces, including General Assembly, last month. It was great to hear about the energy and excitement in the air throughout the buildings. Behind the scenes, there was one conundrum that was tough to solve: a handful of startup were consistently slacking and not making any progress. This doesn’t seem like that big of a deal until you know that there’s a waiting list to get into the space. Ideally, all the startups in the facility would be making great progress and moving their ideas forward in a meaningful way.

    Here are some ideas on the co-working conundrum for startups slacking and not making any progress:

    • Have a finite period of time, say 12 months, that a startup can be there before they have to reapply or get on the waiting list
    • Have a peer review system whereby once a month all the startups in the facility anonymously rank all the other startups there and the bottom 5% are asked to leave in 90 days
    • Include a community interaction component where startups have to be involved in the community (e.g. attend at least one event per quarter) to continue using the facility
    • Have a pricing plan such that prices for a startup increase automatically over time, making it an up or out proposition

    One of the big values of a co-working space is being around like-minded peers pushing their startup forward. Inevitably, some aren’t as productive as others and start hanging out more and making little progress. Finding a good solution to this conundrum is a challenge for co-working facilities.

    What else? What are some other ideas to address the co-working conundrum for startups slacking?

  • Recycling Talent in a Startup Community

    Most startups fail — it’s inevitable. What isn’t inevitable is that the talented people that learned lessons during the failure go back to normal, non startup jobs. In fact, people usually learn more from their failures than from their successes, and post failure is a great time to join another startup so that the lessons learned can be shared.

    Startup communities need to embrace and help facilitate the recycling of talent.

    Here are some ideas around recycling talent in a startup community:

    • Creating an environment where many startups work in the same physical area, and thus have great startup density, naturally increases the recycling of talent
    • Failing at a startup should be seen as part of the process, and a good time to recycle talent into other startups that are working
    • Reducing the fear of startups poaching from other startups, knowing that talent should work on the best opportunity available, is an important philosophy for the community

    Talent is the most scarce resource anywhere and needs to be recycled in the startup community to increase the odds of success.

    What else? What are your thoughts on recycling talent in a startup community?

  • Look for Startup Ideas that Aren’t Unique

    One of the most common refrains from people interested in being an entrepreneur, but haven’t taken the entrepreneurial plunge, is that they don’t have a good idea. My immediate response to the “I don’t have a good idea” statement is “what ideas do you have?” Almost always, an idea is presented followed by the fact that they looked around and someone else was already doing it, so they gave up on it.

    Here a few things to keep in mind regarding startup ideas:

    • A startup idea that is truly, completely unique is likely a bad idea
    • Other companies working on the same or similar idea validates the idea (still might not be a great one but at least someone else thinks it’s a good one)
    • Ideas are plentiful, it’s the execution of the idea that’s much more difficult
    • Many times it takes the second or third generation startup with the same idea to be successful (being too early with an idea is a failure)

    Ideas are important, but they shouldn’t be unique. Find an idea that has great founder fit and out execute the competitors.

    What else? What are your thoughts on looking for startup ideas that aren’t unique?

  • Rolling out Roadmaps in a Startup

    One of the more delicate, and demanding, documents in a startup is the product roadmap. After getting feedback followed by buy-in from the different constituents, it becomes time to rollout the roadmap to customers, team members, analysts, and prospects (some pre-sale engagements sell the vision of what’s to come in the product).

    Here are some ideas for rolling out a roadmap:

    • An annual formal presentation on what to expect over the next 12 months at the user’s conference
    • A quarterly customer advisory council that meets via GoToMeeting and gets a private walk through as well as Q&A of the roadmap
    • A quarterly webinar for existing customers combined with a blog post summarizing what can be expected in the next three months
    • A monthly employee-only product show-and-tell that gives a preview of progress for each item on the roadmap

    So much time goes into building and managing the product roadmap that often there isn’t enough effort put in to rolling it out to constituents. Communicating the vision is a critical part of successful startups and should not be underestimated.

    What else? What are some other ideas around rolling out roadmaps in a startup?

  • Favorite Cloud-Based Web Apps for Startups

    One thing I like to stay current with is web-apps that are popular among startups. It’s amazing how good and how powerful apps have gotten over the past five years.

    Here’s what I believe to be the most popular cloud-based web apps for startups:

    What web apps are on your list? Which ones do you like?

  • Financial Projections for Startups Hurt More Than They Help

    Last week I received an executive summary from an entrepreneur and it showed financial projections for the next four years. Guess what the projected revenues were for year four? $3 million? Nope. $100 million? Nope. Projected revenues for the fourth year of operations were almost $1 billion — I’m not making this stuff up.

    I’m not a fan of financial projections for idea stage startups. Yes, I like big round numbers to see if a financial model generally makes sense, but I’ve found that they hurt more than they help. If you put tiny numbers, which is much more realistic, you turn off some investor’s imagination as to how big the idea can become one day. If you put massive numbers, you show you don’t know how startups progress, even if they are successful.

    Here are the ballpark revenues for the first four years of Pardot:

    • Year 1 – Under $50k
    • Year 2 – ~$400,000
    • Year 3 – ~$1.1 million
    • Year 4 – ~$3.2 million

    I consider those Pardot numbers to be exceptionally high, and not the norm for Software-as-a-Service startups. Now, if it’s a consulting business or something with small gross margins, those could appear to be small numbers. The next time an entrepreneur includes financial projections for their idea stage startup, compare them to this simple example of Pardot’s numbers and ask if they hurt more than they help.

    What else? What are your thoughts on financial projections for startups hurting more than they help?

  • Temporary Labor Intensive Efforts are Fine in Startups

    One area I find entrepreneurs constantly talking about, especially tech savvy entrepreneurs, is that of automating everything and having a “touchless” process whereby humans aren’t involved. A common example of this is having a web app with a self-service sign up and provisioning process complete with payment processing via credit card. Now, as awesome as this sounds, it’s incredibly rare in reality. Most startups are working on innovative, non-replicative ideas that are in their first or second generation — generations that require extensive handholding and education.

    Temporary labor intensive efforts are fine in startups as long as the economics eventually make sense. Here are a few examples:

    • Cold calling is labor intensive and not nearly as elegant as online marketing, but it often makes sense if the gross margins, lifetime value of the customer, and cost of customer acquisition are all inline (cold calling doesn’t have to be a temporary effort as some startups do it indefinitely)
    • Manually parsing of data, even large quantities of data, can be done with Amazon Mechanical Turk via Smartsheet.com such that a core amount is handled in a crowd-sourced manner, before investing the effort to fully automate it
    • Billing always starts out as a manual process, and there’s a desire to spend engineering time to automate it or use a SaaS billing tool, but it’s easy to do by hand so that engineering can work on higher value projects

    The goal isn’t to do labor intensive efforts indefinitely if there are better solutions, rather the goal is to focus on the most high value work at the time, especially if a manual workaround is possible. It’s also important to pay attention to what enables economies of scale vs what doesn’t (e.g. lots of consulting work that is labor intensive).

    What else? What are your thoughts on temporary labor intensive efforts in startups?

  • Minimize Technical Complexity in a Pre-Revenue Startup

    Early on in a startup, especially a pre-revenue one, it’s super easy to add technical complexity to the product since there’s a clean slate. With no existing users and no lock-in, there’s nothing slowing the engineering team down from incorporating a variety of programming languages, best-of-breed open source components, and more. My advice: minimize technical complexity and moving parts as much as possible, even while sacrificing elegance to solve challenging problems.

    Here are a few reasons to minimize technical complexity in a pre-revenue startup:

    • With a limited engineering team it’s important to keep things simple so that everyone on the team can substitute for anyone else (once the team grows having more specialization works well)
    • Complexity is much harder to take out than add in, so start simple, even if it isn’t elegant
    • Getting something working that customers love is much more important in the early days than having the most scalable back-end
    • More moving parts and different types of systems create more complexity for sys admin work, especially upgrades and on-going maintenance

    Some technical complexity is unavoidable, but whenever possible, it should be minimized. Keep things simple, move fast, and stay close to the customer.

    What else? What are your thoughts on minimizing technical complexity in a pre-revenue startup?

  • Outfitting a Great Creative Tech Office

    One area I enjoy obsessing over is the physical office environment and office space. The people component of any business is much more important than the actual office that people work out of but the physical environment is often a manifestation of the company’s culture. So, if you had unlimited budget to outfit the ultimate office, what would you include?

    Here are some ideas for outfitting a great creative tech office:

    • iPads outside each conference room
    • 80″ LED TVs inside each conference room
    • High quality chairs (e.g. Herman Miller Aeron chairs)
    • Mixture of open workspaces with many ad hoc meeting rooms and phone booth rooms for calls
    • Tons of glass and natural light
    • Great lighting
    • Exposed duct work with high ceilings throughout
    • Rooftop patio
    • Coffee shop with indoor and outdoor seating
    • Pool table and ping pong table
    • Sleeping pods
    • Fireman’s pole or slide to go between floors
    • Zen garden
    • Climbing wall
    • Massage room

    Most of these are practical items with a few out there. A great office, like a great company, has its own identity and sets the tone for everyone.

    What else? What other things would you do to outfit a great creative tech office?