David Cummings on Startups

Category: Entrepreneurship

  • Sources of Ideas Implemented in a Startup

    At Pardot, one of my favorite things to do is to show guests the office and talk about many of our quirky and unusual ways. As you might expect, most of the ideas were generated via R&D (ripoff and duplicate) from others. We continually look for new ideas, try out the ones we like best, and keep the ones that feel right.

    Here are ideas we like and their source:

    One of the reasons I enjoy reading and talking to other entrepreneurs so much is that there are always new ideas. Most ideas I encounter are ignored but many are tried out and a few stick — you never know when you’ll come across a new idea.

    What else? What are some ideas you like and their source?

  • Getting Started as an Entrepreneur

    Recently I was talking to a successful professional who’s looking to make a transition and wants to be an entrepreneur. Of course, as a person thinking about being an entrepreneur, the best thing to do is to just do it (see JFDI). In reality, most people are measured and won’t jump in unless they feel like they have the right idea, team, and timing.

    My recommendation is the same as Jason Fried’s of 37signals in his article How to Get Good at Making Money. The approach is super simple: test the waters of being an entrepreneur by going to local garage sales and spending $100 on stuff that you think will sell well on online followed by actually selling them on eBay. Here are a few of the benefits getting started this way:

    • It takes physical, manual labor to buy the products, list them on eBay, package them up, and ship them out — entrepreneurs have to roll up their sleeves and get stuff done
    • There’s a margin, or spread, between what the product costs and what it sells for, making it readily apparent what it takes to make a profit
    • Tools like eBay and Paypal aren’t hard but it takes time to learn them and make everything work
    • Spending $100 and 10 hours of time is a low cost way to test the enjoyment level of being in business for yourself
    • If you like it, try the whole process multiple times and see if you can make more money off your $100 each time

    There’s an infinite number of things an entrepreneur can do to get started. Building an actual micro business with products and revenues is one of the best ways to start the entrepreneurial journey.

    What else? What are your thoughts on how to get started as an entrepreneur?

  • Thinking About Startups and Competitors

    One area that I don’t spend too much time worrying about is competitors. Most markets are not winner take all or winner take most such that there’s the opportunity for several successful companies to emerge. Email marketing is a great example of a market without winner take all/most (see email marketing companies with 100+ employees). Instead of worrying about competitors, I do think it’s worth tracking them for a few reasons:

    • Having competitors is important to validate that other people believe in the idea
    • Competitors provide a proxy for the level of market development (look on LinkedIn to see how many employees they have to get approximate company size)
    • Investors in competitors show the venture firms that care about certain markets, and provide third-party validation
    • Analysts that cover competitors can also provide reports and insight as well as segmentation

    Competitors are a necessary part of the startup world but should not be obsessed over. The best thing to do is to stay close to your customers and provide a great solution.

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

  • Common Questions After a Startup Exit

    A little over two weeks ago ExactTarget acquired Pardot (see ExactTarget and Pardot Join Forces) and things have been a blur ever since with congratulatory phone calls, in-person meetings to tell the back story, and kind email notes. Throughout it all there have been a number of common questions that have repeatedly come up.

    Here are common questions founders get asked after a startup exit:

    • Did you approach them or did they approach you?
    • Was it a competitive bidding situation?
    • Why did they pay the valuation they paid?
    • Did you think the business would sell for that amount?
    • How long did the acquisition process take?
    • How stressful was it?
    • What did your family think when they found out?
    • What are you going to do to celebrate?
    • What are you going to splurge on?
    • What are you going to buy your spouse as a thank you gift?
    • What’s next?

    There has been a number of other questions but these were the most common. Selling a business is an emotional experience and it’s fun to talk through the details.

    What else? What are some other common questions for a founder after the sale of the business?

  • Operating Agreements and Startups

    One of the most common, and tax efficient, entity types for startups is a Limited Liability Corporation (LLC). LLCs don’t have double taxation on profits and have much less paperwork when compared to standard C Corporations. Now, institutional investors will want to invest in a C Corp (or setup a blocker C Corp that then invests in the LLC) since they don’t want to deal with pass through entities as many of their investors are non-profits (e.g. large endowments and pension funds). LLCs have a governing document called an operating agreement that outlines the most core rules for the business.

    Here are a few thoughts on the operating agreement:

    • Take the time to get it right and agreed to by the co-founders
    • Include scenarios like if a co-founders leaves the company under good and bad circumstances
    • Incorporate how money invested or loaned by the co-founders is handled, especially when it comes to allocating losses (if applicable)
    • Document what’s required to sell the company (e.g. can minority shareholders dissent or are there drag along provisions) as well as to buy or sell units (stock) in the company

    Operating agreements are part of startup life for co-founders and should be drafted and implemented with the help of an experienced startup attorney (pay the legal fees for a good lawyer, it’s worth it).

    What else? What are your thoughts on operating agreements and startups?

  • Salary and Equity Trade-Off in a Startup

    One of the challenges for cash-strapped startups is paying market rate salaries. In lieu of standard salaries, equity is often a strong component for alignment of interests, upside in the event of an exit, and to compensate for lower salaries. Only, in areas outside of Silicon Valley, equity is often not viewed as being worth much due to so few exits and such little lore of millionaires created from stock options.

    What might the trade off between salary and equity look like? Here are some questions to ask:

    • What’s the market rate salary for this position? What’s the difference between the offer and expected salary?
    • What’s the value of the company now and what could it be worth in four years? Example: the company is worth $1M now and expected to be worth $21M in four years (best case), so .1% of the equity might be valued at $200,000 based on .1% of the difference between $21M and $1M.
    • What’s the risk profile for accepting the difference between current salary and potential upside? Example: assume salary is $5,000 per year less than market, so $20,000 in less total compensation over four years, but the upside of marking $200,000 from the stock for a 10x risk profile between one dollar in less current comp to 10 dollars of potential comp.
    • What personal benefit is good/bad working in a chaos-rich startup environment vs a more established company?

    Many startups have an equity component in their compensation and potential employees would do well to understand the salary and equity trade trade-off.

    What else? What are your thoughts on the salary and equity trade-off in a startup?

  • Physical Atlanta Startup Village Components

    After reading about Denver’s new tech startup center called Galvanize today, I thought it was time to revisit the Physical Atlanta Startup Village Idea post from almost two months ago. If you talk to startups in town about office space, they’ll say they want creative, loft style office space that’s in a cool area. Two of the most popular creative lofts areas are The Stove Works in Inman Park (High Groove is there) and the Carriage Works buildings in West Midtown (ScoutMob is there). The Stove Works complex is completely full and Carriage Works is almost full, showing there’s serious demand for creative space in town.

    Thinking more about a physical Atlanta Startup Village, here are a few components that would be nice to have:

    • In-town on the Atlanta Beltline (22 miles of old train tracks that are being redeveloped into trails, public parks, and transit)
    • Loft style offices with tall, 12-20 foot ceilings and ample natural light
    • Within one mile of a MARTA train station
    • Walkable to several restaurants
    • Rooftop patio or other outdoor component
    • Great coffee shop (see Octane Coffee)
    • Plenty of free parking

    A physical Atlanta Startup Village would need to be a amazing place that people people wanted to be a part of in order to be successful. As great as the facility might be, at the end of the day it’s the people involved.

    What else? What are some other ideal components for an Atlanta Startup Village?

  • Culture Fit Trumps Productivity

    Several years ago we were having a heated debate on our management team about a team member that was very productive but a poor corporate culture fit. Logically, everyone knew the person had to be let go. Practically, everyone kept going around in circles debating the short-term productivity hit and what that would mean to our startup.

    I argued we should let the person go immediately. In the end, we spent six months debating it before finally letting the person go. Culture fit always trump productivity. Here are a few things to think about:

    • Do you look forward to seeing the person each day in the office?
    • How much productivity is lost by good corporate culture fits working with the non corporate culture fit?
    • What type of precedent does this set for future culture decisions?
    • What are the worst possible scenarios when this person is let go?

    It’s never easy firing an employee. In fact, it’s the worst part of being an entrepreneur. With that said, it’s part of the job, especially when working hard to maintain a strong corporate culture. Culture fit trumps productivity.

    What else? What are your thoughts on the idea that culture fit trumps productivity?

  • 500 Startups Checklist for Investing in a Startup

    Last night I had the opportunity to listen to Paul Singh present the 500 Startups thesis at the ATDC. He did a great job outlining how things have changed in the tech startup world over the past 10 years as well as making a great a argument for investing in a large number of startups with a structured thesis.

    One of my favorite slides was the 500 startups checklist for investing:

    • Product solves a problem for a specific target customer
    • Capital-efficient businesses – operational @ <$1M funding
    • Primarily internet-based distribution – search, social, mobile, location
    • Simple revenue models – transactions, subscriptions, or affiliate
    • Functional prototype before investment (or previous success)
    • Small but measurable usage – some customers, early revenue
    • Small but cross-functional team – engineer, design/UX, marketing

    I think this is a great list. One item I’d add: co-founders are working full-time on the business and don’t have day jobs (if they need to wait tables at night to pay the bills, that’s fine). Also, design/UX is critical for B2C startups but Twitter Bootstrap makes it less critical for B2B startups.

    What else? What are your thoughts on the 500 Startups checklist for investing in a startup?

  • Venture Atlanta 2012 Day Two Recap

    Venture Atlanta 2012 wrapped up today with another strong session of keynote speakers and startup pitches. Jonathan Bush of athenahealth gave the most entertaining talk of the show outlining many of the absurdities of the healthcare system in the U.S. as well as how health IT is progressing (Atlanta is the health IT capital of the world).

    Here are the startups that pitched today:

    Open Solutions for Education

    • OpenSIS – student information systems software
    • OpenIntel – academic analytics and reporting
    • Open source model with a free core product and paid add-ons
    • 55,000 downloads
    • $8 per student per year for paid edition
    • Raising $3M Series A

    PMG.net

    • Service catalog suite software
    • End-to-end business process management software
    • Imagine employee onboarding and the 25 steps that need to be completed — this software enforces the process across departments
    • Customers include Wal Mart, Medo, and many more
    • Works with multiple backend systems unlike many competitors

    LSN Mobile

    • Mobile marketing and commerce opportunity
    • $9M in revenue for 2012
    • Raised $1.2M
    • Provides a mobile ad network
    • Carriers are looking for additional revenue streams

    Emcien

    • What’s your data telling you?
    • Patented solution that connects that dots of what’s going on
    • Look for pattern detection to identify gangs, fraud, etc
    • Boom in big data is a driver
    • Customers across a number of verticals including classified government agencies
    • Raised $5M
    • Raising $10 – $15M

    Kahua

    • Platform to create applications and sell on the store
    • Founders of Constructware and Compliance360
    • Design, construction, and facility operations
    • Intercompany data exchange and workflow
    • kStore is where 3rd parties post applications for sale
    • Raised $7.5M
    • Raising $3 – $5M in Q1 2013

    ScholarLab

    • 50 customers
    • Software to power required continuing education programs to associations
    • Learning desktop that brings together multiple apps
    • SaaS model at $25k/year with 2-3 year contracts
    • Raising $3 – $5M to expand sales and marketing

    AirSage

    • The power of when and where
    • Patented population analytics
    • 15 billion location data points per day
    • 25 employees in Atlanta
    • Transportation planning, target marketing, site selection
    • Raising $5 – $10M

    Meeting Consultants

    • Growing over 20% per year
    • Optimize return on event marketing spend
    • Software and services to put on marketing events
    • Managed over 10,000 events and $260M in spend
    • Raising $5M

    Delta Data

    • Solutions provider to mutual fund industry
    • 50 employees
    • Grew out of a CPA firm
    • Solve inefficiencies around securities processing and data management
    • Help meet compliance mandates and mitigate risk for mutual funds
    • Raising $7 – $10M

    Pretty in My Pocket

    • Free, social, mobile app that enables brands and retailers to drive purchase decisions inside the store
    • Consumer, brand, and retailer have pain points
    • Beauty has 1/10th of the retail space in Walgreens
    • Content, reviews, perks, redemption, analytics
    • Raising $750k

    Clinigence

    • Pay for performance in healthcare is growing
    • Difficult for healthcare providers to measure performance
    • Declarative classification, semantic understanding, normalization
    • Greater need for clinical analytics for outcomes analysis
    • Raising seed round

    Safely Locked

    • SaaS tool for security of business data
    • SafelySendIt -secure web-based “courier” service
    • SafelyShareIt – secure “dropbox” for collaboration
    • All browser based with no plugins
    • Raising $3M Series A

    Monocle Health Data

    • Healthcare price and quality for chronic illness
    • Lot of disparity in price and quality with healthcare
    • 13.5% of hospital patients experience and adverse event
    • Gold seal of joint commission doesn’t mean the hospital is good at a specific illness
    • High deductible health plans are the fastest growing
    • Aggregate multiple data sources and apply 72 quality indicators
    • $4 per employee per month

    Message Gears

    • Hybrid email service provider
    • Four employees
    • On-premise power, cloud convenience
    • Behind the firewall so it has the most complete access to company data
    • Email sending is actually from the cloud after the emails have been
    • assembled behind the firewall
    • Raising $1M Series A

    Sytheros

    • Sensing the world
    • Wireless system that’s cheap and able to send data a long distance
    • Difficult to monitor and know where water is due to need to conserve water
    • 55% of U.S. has a moderate to severe drought
    • 200 billion gallons of water used every day
    • Only 9% of farmers measure the water in the soil
    • $150k in grants
    • Raising $500k seed round

    Rigor

    • Web performance management software
    • Help companies build more efficient and faster apps
    • Slow loading sites are a real business problem
    • Slow loading pages on an ecommerce result in potential customers leaving
    • Amazon did a study that 1/10th of a second slow down results in a loss of 1% of revenue
    • Tempur-Pedic used Rigor to increase average order size 14% by decreasing load time by 1.5 seconds

    Lucena Research

    • Scientific investment strategies
    • Tech for hedge funds and other sophisticated investors
    • Proprietary decision support technology
    • Design and validate investment strategies
    • QuantDesk for $1,000/seat/month
    • Raised $400k
    • Raising $1M

    Apparity

    • The enterprise of Excels
    • Last great business process management challenge: spreadsheets
    • Hybrid server that runs on premise or in the cloud
    • Imposes workflow that’s specific to spreadsheets
    • Apparity360 – enterprise visibility, process automation, content analytics, and user control

    SalesLoft

    • Sales people suffer from a lack of fundamental understanding of prospects
    • Knowing the customer inside and out
    • 30% of sales reps time spent looking for info
    • Each sales reps gets custom stream of news and alerts on companies they sell to
    • Like a digital newspaper about the contacts in the CRM
    • Job changes are some of the best data for sales reps to act on
    • 3 million sales professionals

    Venture Atlanta 2012 was a big success again. Allyson Eman is the behind-the-scenes force and should be applauded for all her great work.

    I’m looking forward to Venture Atlanta 2013.