David Cummings on Startups

Category: Entrepreneurship

  • Impact of a $10 Million Seed Fund on Atlanta

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    After talking a bit about the Atlanta startup community on Friday, it got me thinking more about the potential impact of a $10 million seed stage fund in the community. A few weeks ago I heard a rumor that some local big money real estate guys were thinking of doing a tech fund in their effort to find alpha in this investing climate (sign of the next bubble?). With all the publicity about Facebook, Twitter, and Groupon valuations, investors that haven’t participated in seed and early stage tech investing are thinking about getting in the game (little do they know how difficult it is to be successful).

    Here’s what a $10 million seed fund might look like:

    • Seven year fund with 3% annual management fee providing $300k/year for salaries and expenses (normal management fee is 2% for larger funds)
    • $7.9 million available to invest after management fees
    • 40 $100k investments representing $4 million
    • 13 of the original investments receiving follow-on rounds averaging $300k each representing $3.9 million (the idea is to reserve 3x the initial investment for roughly 1/3 of the original investments)
    • Between three and six of the 40 investments would be successful getting a nice return and one or two of those would have a great return returning most of the fund
    • Outcome would be upwards of a half dozen success stories for Atlanta combined with numerous net-new jobs and more startups in the community

    A few weeks ago I was at a Georgia Tech dinner and John Imlay sat directly behind me. When introducing himself to the group he said Imlay Investments has invested in 125 startups to date (not all in Atlanta but most). A $10 million seed fund would have no where near that kind of impact but it would be a great start.

    What else? What are some other thoughts on a $10 million seed fund for Atlanta?

  • Why Startups are Important for Non-Startup Type Employees

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    We all know that startups created the majority of net-new jobs over the past 20 years. We also know that startups, especially tech ones, are innovative as opposed to replicative resulting in a greater likelihood of failure. There’s another aspect of startups that I believe is important for society as a whole that isn’t appreciated as much:

    Startups with a strong corporate culture introduce non-startup type people to a more profoundly positive professional path.

    What I mean by this is that many people who haven’t worked at a startup with a strong corporate culture haven’t experienced what it’s like to get a greater sense of satisfaction and accomplishment in the professional realm of their life. The majority of our employees had never worked for a startup before and constantly talk about how much more rewarding, fun, and exciting it is on a regular basis compared to their previous jobs. It isn’t that their previous jobs, or companies, were bad, because they weren’t, but rather they had never worked in an environment where everyone was so passionate and enthusiastic about what they did. Startups are like that.

    Successful startups set the bar high when it comes to employee engagement. Successful startups get non-startup people addicted to the thrills of startup life and prompt them to join other startups, or start their own. Successful startups help improve the world beyond new products and new jobs by introducing people to a new level of professional fulfillment.

    What else? What other ways are startups important for non-startup type employees?

  • The Startup Community in Atlanta

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    After the successful Startup Riot 2011 on Wednesday much of the Atlanta startup community was pumped-up and excited about our growing eco-system. Dave Wright’s announcement last night that he was moving his pre-revenue company SolidFire, which had just raised $11 million, to Boulder, CO caught many people by surprise. At our Shotput Ventures partners’ meeting last month Dave told of his plans to move to Colorado due to the need for specialized engineers with storage system experience. The Atlanta startup community, much like a startup in and of itself, has highs and lows which are part of the process of building something great.

    Monday of this week Mark Suster published a piece on TechCrunch titled Can You Really Build a Great Tech Firm Outside Silicon Valley? where he outlines some of the challenges, and benefits, of building a startup outside Silicon Valley. Everything he highlights about Los Angeles is applicable here in Atlanta. Let’s look at his categories in an Atlanta context:

    • Funding is different outside of Silicon Valley – Funding in Atlanta doesn’t take place unless you have (a) a proven track record/pedigree, (b) product traction (generally $100,000 in revenue), or (c) wealthy friends, family, or fools (3 Fs of angel investing). Naturally, with funding restricted to these three items there isn’t much tech investing that takes place.
    • “Necessity is the mother of all invention” and drives business outside the Valley – Do you have an idea for a business application that solves real, validated corporate issues? Atlanta works great for those kind of companies (B2B SaaS is especially hot right now). If you have an idea for a consumer application that requires significant scale and network effect before monetization you’re probably better off someplace else.
    • Recruiting and retention will be different outside the Valley – Atlanta is especially beneficial in this regard due to great engineering talent from Georgia Tech and throughout the Southeast, combined with low turnover (assuming you have a strong corporate culture), and a limited number of other startups in the area. Salaries and cost of living are also commensurately lower making it a great place to bootstrap or build capital-light web businesses. Did you know you can buy a decent condo in Buckhead, one of the nicest and most affluent areas in the Southeast, for under $100,000?
    • There are many strategic assets outside of Silicon Valley – Atlanta has an amazing Internet security cluster, the world’s busiest airport (makes flying more affordable and efficient than most places), and tons of young professionals perfect for building out sales and services teams.
    • Communities outside the Valley have matured – The Atlanta startup community is 10x more vibrant and active compared to when I moved here in 2002. If you follow @mattstech (and who doesn’t?) you’ll see that there’s a startup event most days of the week. It really is that busy. The ATDC, truly a strategic asset as well, has become the heart of the Atlanta startup community and facilitates many great events. We have a startup community in Atlanta that’s growing every year. Are we a major player? No. Do we have the right ingredients? Yes.

    In the end, the most important thing we can do as a community is build meaningful, enduring companies that employ as many local people as possible and let the results speak for themselves.

    What else? What would you add about the startup community in Atlanta? Oh yeah, we’re hiring a bunch of people this year, so please send referrals my way.

  • Prototyping as Fast as Wireframing

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    We don’t build wireframes for new features. Did we do it before? Yes. What changed? Development technologies, including open source libraries, made it just as fast to build a prototype as to build a wireframe. I prefer the build it and “feel” it approach to the wireframe approach. Being able to use and interact with the new feature allows us to decide if we’re on the right track and make changes as necessary. Of course, once the application’s user interface has been fleshed out and many of the common user experience interactions are in place, developing a quick mock-up is literally as fast as making a wireframe.

    In order to prototype as fast as making a wireframe it also helps to be on a modern platform like Ruby on Rails or PHP on symphony. If you find that assembling the front-end components is laborious and slowing you down it is likely you aren’t getting the benefits of the latest frameworks and approaches. At some point you’ll be better off bitting the bullet and migrating to a newer technology. But, naturally, beware the rewrite of death.

    What else? What other thoughts do you have on prototyping vs wireframing first?

  • Thoughts on Startup Riot 2011

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    Today’s Startup Riot 2011 in Atlanta was definitely the best one yet. Now in its fourth year, this year’s event had a better venue (The Tabernacle), better internet access, better swag, and, most importantly, great startups. Here are a few quick thoughts on the event:

    • Several startups focused on social proof by showing slides with logos of existing customers or prospects in their pipeline
    • Most startups were looking to raise angel rounds of $250k – $500k
    • Most startups were pre-revenue and a fair number were pre-product launch
    • The table areas to meet the startups were packed throughout the day — a great sign that attendees were spending time with the companies
    • 90% of the startups were from Atlanta but at least one was from South Carolina, Boston, Germany, and Australia
    • One presenter said, when trying to build up the credibility of his management, that someone said his team was too good to do a startup (which is ridiculous to me)

    Overall it was a great event. Well done Sanjay!

    What else? What other thoughts did you have about Startup Riot 2011?

  • Startup Riot 2011 Tomorrow

    Tomorrow Atlanta’s very own Startup Riot takes place at the Tabernacle downtown. Sanjay Parekh puts on a great show every year and I’m sure tomorrow’s event won’t disappoint. The idea is to have 50 startups give three minute pitches with two keynotes mixed in. Whenever I mention the event to people they are always impressed that 50 startups are pitching — I must say that I think it is impressive as well. Now, all 50 startups aren’t local, but the vast majority are local (I don’t have any insider info but I’d guess 45 will be local).

    Here are a few questions I’ll be asking myself when I hear the pitches tomorrow:

    • Will this entrepreneur be successful?
    • Would I invest in this company?
    • Is this a product or a feature?
    • Is this an idea for a company or a business already operating?

    I’m looking forward to tomorrow’s Startup Riot event.

    What else? What other questions would you ask when you hear the startups pitch?

  • Revisit KPIs at Least Quarterly

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    Key performance indicators (KPIs) have been discussed several times before (here, here, and here). In general, we do two KPIs per department and discuss them at our weekly tactical if a value is out of line. There’s always the tendency to try and complicate things by adding one, two, or three more per department but I’ve found that it is hard enough to concentrate on a couple things let alone five different items multiplied out by several departments (sales, marketing, services, support, operations, and engineering).

    One thing to note is that KPIs should be revisited at least quarterly for both the goals for that quarter as well as the items being measured. I’ve found that we usually change one KPI completely each quarter to try a new metric to see if better represents one of the two most important numbers for a department. Most individual KPI goals change each quarter in an upward manner but some stay pretty steady (e.g. engineering average of 32 burn down hours per week per developer).

    My recommendation is to keep KPIs simple and to revisit them at least quarterly. KPIs should be fluid metrics that are constantly improving, but not complicated.

    What else? What other tips do you have about revisiting KPIs?

  • Startups Should Develop a Sales Playbook

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    After a startup achieves product/market fit one of the most important next steps is to develop a sales and marketing machine. The sales team should be working towards a reproducible, and profitable, sales process. As part of that iteration, a sales playbook should be at the top of the sales manager or entrepreneurs list of items. A sales playbook is the how-to manual for a sales rep. The goal is to document and categorize as much sales related information as possible in a digestible format.

    Here are some items for a sales playbook:

    • Corporate information
    • Sales pitch
    • Elevator pitch
    • Market space
    • Recent trends
    • Target customer
    • Types of buyers
    • Features and benefits
    • List of references
    • Sales process
    • CRM process
    • Competitors and differentiators
    • Objection handling
    • Glossary

    As you can tell, the sales playbook is very detailed covering upwards of 50+ pages. A key aspect is that it should be a living, breathing document that is constantly updated (e.g. a shared Google Doc). Startups should develop a sales playbook.

    What else? What other items do you include in your sales playbook?

  • Bottom-Up or Top-Down Financial Projections

    Continuing the post from earlier in the week titled Startup Financial Models after Product/Market Fit, I wanted to talk a bit more about financial projections. Too often an entrepreneur asks for feedback on their executive summary, slide deck, and financial model only to have the financial model show a top-down projection. A bottom-up projection is a much better way to do it. Let’s look at a few details:

    • A top-down projection is often something like “we’ll sell $500k the first year, $3 million the second year, and $10 million the third year” without detailing what it takes to actually achieve those results
    • A bottom-up projection details the tactical items like number of sales reps, sales rep quota, hiring plan, percent of sales reps that won’t work out, ramp up times for sales reps, ad spend per rep or per new client, etc
    • A bottom-up projection more accurately outlines the assumptions and thought process of the entrepreneur, which then allows advisors or investors to offer more valuable feedback
    • A bottom-up projection helps the entrepreneur better budget for the startup and it often shows it’s more expensive than expected to reach the goals

    My recommendation is to do bottom-up financial projections to better understand the business and what it takes to be successful.

    What else? What other ideas do you have about financial projections?

  • Send Sales Proposals Within 48 Hours

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    Lately I’ve been talking to a number of service providers as we continue to expand — everything from office space to marketing firms to recruiting agencies and I’m amazed at how long it takes to get proposals from people. Optimistically, I like to think it’s a good thing — their business is doing well and they’re busy. In reality, I’m guessing they aren’t being prioritized like they should.

    Take note: proposals should be sent to the prospect within 48 hours.

    Yes, some business proposals are more custom and complicated but the majority are boiler plate requiring less than 30 minutes of customization. For our own sales team — yes it is a product and not a service — we strive to get proposals over to prospects the same day they ask for them. Of the 10+ proposals I’ve received over the past 45 days, the majority took over 48 hours to get back to me and the content didn’t appear to be customized beyond 10-30 minutes of work. Service providers need to sign up customers when they are ready to buy.

    What else? What have you seen with proposal response times?