David Cummings on Startups

Category: Entrepreneurship

  • The Boat Analogy for Startups

    There’s a common line describing the lack of agility in big companies: they’re like a tanker ship that has immense force but little ability to change course. Well, let’s take the boat analogy a bit further and apply it to the many startup stages:

    • Concept stage – you’ve picked out the boat of your dreams, how you’ll operate it, and where you’ll take it, but it is still a dream.
    • Seed stage – you realize you can’t afford the boat of your dreams, but really want to get out on the water, so you start with a jet ski suitable for you and your co-founder. Wow, this thing goes fast and turns on a dime.
    • Early stage – OK, now you have a few people on board. It is time for a nice ski boat, like a MasterCraft with an in-board motor ready to go fast and turn hard.
    • Growth stage -Things are starting to get crowded, you need more room, people demand decent sleeping quarters: it is time for the used 40′ Hatteras yacht.
    • Late stage – With so much value now, the cruise ship has left the port and hit the open ocean. There’s ton of people and value on board, but little hope of changing course.

    What do you think? How applicable are these boat analogies to the different startup stages?

  • Atlanta Startup Community Challenge: Low Cost of Living

    Atlanta, Georgia shortly after the end of the ...
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    If you’ve read some of my previous posts you’ll know that I’m a big proponent of Atlanta, especially the low housing costs. At lunch today with two successful entrepreneurs I threw out an idea that I could tell neither one agreed with: one of Atlanta’s startup community challenges is that you can have a great lifestyle for common technology positions (e.g. programmer, sales rep, etc). Paul Graham wrote about similar idea a while back. The theory goes like this:

    • Smart programmer or sales rep gets a job out of college in technology making $60,000 per year.
    • He/she is good at what they do and progress quickly making $70k – $90k/year by their mid-to-late twenties.
    • Now, with minimal expenses (e.g. no spouse and kids), they live like a king in a great, low cost city by buying a new, fancy high-rise condo for $200k, a nice sports car for $30k, and doing whatever else they please.

    Why leave the nice lifestyle for more risk a low/no pay in a startup when you’re already doing something you love?

    In Silicon Valley, rent is 2x – 2.5x more expensive for a comparable place in Atlanta, but part of that is made up in the higher salaries. The major difference actually comes when you get married and want to buy a house. Right, that nice little three bedroom, three bath ranch house in Palo Alto in the good school district. Wait, that simple house costs $2 million. In Atlanta, in a good school district, you’re looking at $500k ITP and in the $350k range OTP. That’s quite the difference isn’t it? Combine the outrageous housing costs (to buy, not rent) with the technology eco-system (e.g. everyone else is doing it and tons of success stories) and you have strong reasons why they are so successful.

    Thinking through this, I don’t want Atlanta to be Silicon Valley. I do want a vibrant startup community in Atlanta and I want people to start thinking through how to get entrepreneurial people involved in startups when they already have such a great lifestyle, partly because Atlanta has such a low cost of living.

  • Anatomy of a Seed Stage Atlanta Startup

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    Recently I spent some time with a local seed stage Atlanta startup that has the makings of a successful business. The anatomy and DNA of this company are a great example of the type of team that can build a thiriving business. Let’s take a look at some of their characteristics:

    • Two passionate co-founders in their late 20s who met as grad students at Georgia Tech
    • Raised a low six figure angel round from local investors after building a working prototype
    • Built a B2B product using Python deployed on Google App Engine
    • Have a small number of paying customers and are slowing growing their client list
    • Seek advice from a good group of mentors and advisers that are actively helping the entrepreneurs
    • Members of ATDC
    • Participate in the local technology community by attending events

    Now, I believe this company will be successful but by no means are the above characteristics requirements. Atlanta is a great city to build a startup and this company is well on its way.

    What else? What are some of characteristics of seed stage companies that you believe will be successful?

  • 2010 Atlanta-Area Inc. 500 Companies

    Photo taken in Atlanta area
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    The 2010 Inc. 500 awards just came out and there were eight Atlanta-area businesses on the list. Now, I’m personally disappointed there weren’t more but I know of several local companies that are doing great and will likely make it next year. Let’s take a look at the businesses:

    Congratulations to all the companies that made the list!

  • Margins and Business Models

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    One area that I find many first-time entrepreneurs don’t think through is the type of potential margins for their business model. Let’s talk about the two main types of margins:

    • Gross margins are the percent of revenues after only the product/delivery costs are taken out.
    • Net margins are the percent of revenues that result in profit after all costs.

    As an entrepreneur, it is important to understand both gross margins and net margins. For me right now, I’m only interested in business models with potential gross margins greater than 70%. That typically rules out physical products, services, and other businesses that are labor intensive. High gross margin businesses are important to me because they often provide for more scalable enterprises, with greater profit opportunity, which allows for more latitude to invest in growth.

    What else? What other considerations do you have for margins and business models?

  • Hiring Your First Sales Person

    An entrepreneur in town recently reached out to me for advice as he’s about to hire his first sales rep. Building a sales team is no easy task, and hiring successful sales people ranks right up there as being one of the most difficult positions to figure out if someone will work out. Why? Sales people are the best at selling themselves, and not always your product. A great sales person is worth their value many times over.

    I’ve written about sales on numerous occasions. Here are some of my posts:

    What else? What other advice would you give to someone about to hire their first sales rep?

  • The Difficulty of Modernizing Legacy Software

    Outline of a cloud containing text 'The Cloud'
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    As part of my recent project researching ideas on building high quality prospect lists, I reached out to several different providers. One of the companies had a really promising product that allowed for slicing and dicing data, presumably from Dun & Bradstreet or Hoovers. After getting excited about their technology, merely based on their marketing collateral, it came time for the product demo from a sales rep.

    Guess what?

    The application with a Windows product with no web-based components at all. Their response to the question about them building a Software-as-a-Service product: no plans at all. Now, I don’t know how successful this company is but it was pretty amazing to see a product that clearly should be in the cloud, connected to CRMs like salesforce.com and SugarCRM, and all around part of the normal web ecosystem.

    The point here isn’t what one single company should do, but rather the difficulty of modernizing legacy software. Once companies become successful with one product, working one way, it is incredibly difficult to introduce a new or modern product built from the ground up.

    With difficulty comes opportunity. Startups don’t have the legacy baggage of code debt, existing customer needs, and the status quo. Wherever you see a legacy system that is still continuing along, there’s room for a startup to do a modern version of the product, in the cloud, and be successful.

  • Ask the Right Questions

    One major takeaway I have from working on startups over the past 10 years is that asking the right questions is more important than providing the answers. With startups, many if not most challenges that arise require someone to accomplish a task that they haven’t done before. Naturally, as one of the leaders of the company, people come forward with issues looking to you for answers. This is where it’s important to ask the right questions and do your best to empower the person to solve it on their own.

    Don’t get me wrong, it is important to help, but the best way to help is by asking the right questions. Some thoughts on asking the right questions:

    • Ask the five whys
    • Ask for his/her current recommendation
    • Ask what was done so far
    • Ask about the next steps

    What else? What other questions should be asked?

  • Parallel Entrepreneurs

    Reading the ATDC Team page for yesterday’s post, one of the terms that stood out, but isn’t seen too often, comes from Paul Freet’s bio:

    Paul is also a parallel entrepreneur and enjoys creating startups.

    A parallel entrepreneur is someone who builds more than one company at a time. The biggest reason I believe we’ll be seeing this more frequently is that the time, money, and effort to launch a website/web app has gone down significantly over the past decade. That’s not to say it doesn’t take a meaningful amount of money to launch a business — it does — but if you have technical skills, it is easy to start experimenting with works and what doesn’t work.

    Now, I don’t recommend being a parallel entrepreneur for everyone. For some types of personalities, especially people who enjoy the getting-the-company-off-the-ground stage of a business, it can be very rewarding.

  • Power of Building Relationships First

    A very obvious piece of advice: the time to start building relationships is now. Yes, relationships. Relationships for a variety of reasons take time to develop and it’s best to seek out people to get to know them well in advance of needing their help. Here are some types of people you should consider:

    Relationships are likely to take longer than you expect to develop. My recommendation is to start building your network now.

    What else? Do you agree/disagree? What are some other types of people you should consider?