David Cummings on Startups

Category: Entrepreneurship

  • Startups Should Say No to Most Opportunities

    Montana 014
    Image by kellik via Flickr

    The great thing about startups, especially ones in small, fast growing markets, is that there’s no shortage of opportunities. One area that often comes up is larger, more established companies reaching out to talk about technical partnerships with startups in more cutting edge, complementary spaces. The bigger companies have a core competency that’s working, a limited number of engineers, and only so many resources. A tiny startup working in a related space is seen as a quick way to augment the bigger companies’ solution, often through a white label or OEM integration.

    95% of the time startups should say ‘no’ to these opportunities.

    When should you say ‘yes’ to an opportunity like this? Let’s look at a few potential reasons:

    • The partnership has guaranteed revenue minimums for the startup, and the money is meaningful (I did one of these is 2002 and it was worthwhile)
    • There is no custom technical work to be done (e.g. the startup has an API and the bigger company can do everything they need to without customization)
    • Partnerships like the one being proposed are part of the startup’s core strategy and it will be the first of many that look the same

    It is flattering to have these kinds of discussions with more established companies, but without a plan and strategy in place they can also drain a good deal of time and energy. My recommendation is to not get too enamored unless it meets one or more of the criteria listed above.

  • Control What You Can Control

    Andre Agassi Tennis
    Image via Wikipedia

    Entrepreneurs are a fickle bunch. Many, like myself, can be control freaks at times and drive people crazy. In the same light, the company, product, etc are a reflection of your vision and goals. In Andre Agassi’s autobiography one of the recurring themes is his coach reminding him control what you can control.

    Entrepreneurs need to control what can be controlled and move on otherwise.

    Here are some things that can’t be controlled by entrepreneurs:

    • Economic conditions
    • Competitive forces
    • Change
    • 24 hours in a day

    As you can see, most everything that entrepreneurs want to be controlled can be controlled. My recommendation is to control what you can control and stop worrying about the rest.

  • The Angle of the Angel

    Fallen Angel
    Image by onkel_wart via Flickr

    One of the more underrated questions that entrepreneurs need to ask angel investors is “why do you do angel investing?” It seems like such a simple question but you’d be surprised at how rarely it comes up. Many people assume the answer is to make money. Based on my limited angel investing experience (nine companies), there are many better ways to make money if that’s the primary goal. Let’s look at some other angles common with angel investors:

    • Desire to help the local community
    • Want to “stay in the game” while retired
    • Joy of mentoring younger entrepreneurs
    • Ability to brag about it with their friends
    • Use domain expertise in new ways

    My recommendation is to clarify this with angel investors early on so that expectations are properly aligned.

    What else? What are some other angles for angel investors?

  • $1 Million in Revenue is Hard

    Posing is also hard work!
    Image by pangalactic gargleblaster via Flickr

    Did you know that 95% of startups never reach $1 million in revenue? That’s right, only 5% hit that major milestone. Entrepreneurs’ Organization (EO) requires a minimum of $1 million in revenue to apply, and has done so since inception almost 25 years ago. Of course, $1 million 25 years ago is more difficult than today, but achieving $1 million in revenue is hard regardless. Very hard.

    Let’s look at a few examples of what it takes to hit $1 million in revenue:

    • 50 services deals at $20,000 each (a little over four per month) delivered to completion
    • 83.3 customers paying $1,000 per month at the beginning of the year (assuming no churn and no new customers)
    • 1,666 customers paying $50 per month at the beginning of the year (assuming no churn and no new customers)
    • 100,000 products at $10 each ($10 each selling direct or to a distributor that then marks it up further)

    As you can see, it takes quite a few sales regardless of the type of business model to achieve $1 million in revenue. My recommendation is to think through what it will take for your startup to hit $1 million in revenue, and to have that as one of your goals.

  • The Challenging Employee Conversation

    hot air balloon
    Image by AP… via Flickr

    The most common mistakes startups make are pricing their product/service too low and not firing employees that don’t fit fast enough. I want to talk a bit about that second example: employees that don’t fit. The pattern that I’ve seen emerge over the past 10 years is when an employee with challenges has been brought up in a management meeting, the issues addressed, and then something else repeatedly comes up, it isn’t going to work out.

    We do a weekly tactical as part of our Rockefeller Habits rhythm. The goal is to do a very brief KPI review, priorities for the week, and any immediate agenda items. My experience has been that if a challenging employee has come up in conversation over and over again at these meetings then we as the leadership team are doing a poor job of setting expectations and building a great corporate culture. Employees want to know where they stand and to receive honest feedback, in addition to written warnings in many cases, as that is more desirable than tip toeing around issues and not letting on to the severity of the problem.

    My recommendation is to not sugar coat issues with employee challenges and know that one of the most common startup mistakes is not letting go of bad fits fast enough. It isn’t that the employee isn’t a good person, it’s that they aren’t a good fit for your startup and there are better places for them to shine.

  • Small, Fast Growing Markets

    Candies, Covered Market, Barcelona, Spain
    Image via Wikipedia

    As I mentioned yesterday, I believe the market is more important than the management team, assuming both are good at a minimum. For me, I focus on small, fast growing markets as opposed to large established ones. Why? Good question. Here are a few reasons:

    • These markets usually have leaders that aren’t so large as to suck all the oxygen out of the space (e.g. what Omniture did to the high end of the web analytics market once they achieved scale and Google Analytics when they consumed the small-to-medium segment).
    • These markets by their very nature don’t have incumbents that have to be replaced. Rather, you’re often the first vendor for a company making it easier to define the standards of the market.
    • The fast growing nature of the market makes it more likely for several startups to flourish at a small scale.
    • The functionality required rapidly changes making it even more fun to be part of the innovation.

    What else? Why types of markets do you like?

  • What VCs Look for in Startups

    My younger brother is in his final year at HBS and had as a guest speaker today a partner from one of the oldest and most prestigious venture capital firms. Here’s what the partner said they look for in startups:

    1. Does it create value for customer and will they pay for it
    2. What is required for strong execution of the idea
    3. Who comprises the team
    4. What’s the valuation and is there a big upside

    One key aspect is that he didn’t directly mention the market as one of the four items. I believe you need a good management team but that a great market is more important than a great management team. That’s right, I’d prefer a good management team with a great market over a great management team with a good market.

  • Publishing a Product Roadmap

    Cabbage Market
    Image via Wikipedia

    One aspect of our annual user’s conference is publishing our product roadmap. Now, we don’t publish our entire roadmap as the market is too dynamic and we’d rather under commit than over commit and have to remove functionality. The challenge is to balance the desires of customers, employees, prospects, and the general vision for the application. Most important, it is critical to be opinionated about the software.

    Here’s what we consider in building our product roadmap:

    • Internal vision and opinion for the software
    • Customer ideas and votes on our idea exchange
    • Services and support team member input on ways to make their lives easier
    • Marketplace input from prospects and analysts

    My recommendation is to make the roadmap development process a regular strategic action item.

    What else? What other aspects would you add to the product roadmap process?

  • Hold an Annual User’s Conference

    Georgia Tech Yellow Jacket cheerleaders at a 2...
    Image via Wikipedia

    Every year in the Fall we hold an annual user’s conference. In fact, our conference for this year is right around the corner. The user’s conference is one of the highlights of my year as it is the best time to meet with many clients over a two day period. Our business model is primarily selling direct with an inside sales team, so we rarely meet prospects and clients face to face. Over time we build rapport with our users as our services, support, and engineering departments regularly interact with clients, but there’s something lacking without face time. An annual user’s conference fills that gap.

    Here are a few benefits of holding an annual user’s conference:

    • Cheerleading – Provides a great experience for team members to understand how much customers really value what we do
    • Feedback – Allows us to capture feedback and input on how we’re doing and the direction of the product
    • Excitement – Gets customers energized about our software as well as helps with any challenges they might have encountered

    Now, a user’s conference is a big production and takes considerable planning. I’d recommend ensuring at least 30 people can attend (we average a little over 100 people at our conference each year). My advice is to seriously consider having an annual user’s conference as my experience with them has been exceptional.

    What else? Have you hosted or attended a user’s conference and found it valuable?

  • Why Publish a Daily Blog Post

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    Image by daniel.julia via Flickr

    Continuing the introspection series from yesterday on why I like B2B startups, today I wanted to talk about why I do a daily blog post. Here are a few reasons why I write each day:

    • Writing something short every day is actually easier than writing one lengthly piece each week
    • Each day the process provides 10-20 minutes of reflection on what I did, experienced, and read in the past 24 hours
    • The writing helps clarify my thinking on the day’s topic
    • I’ve made an exceptional number of mistakes over the years and I’d like other entrepreneurs to not have to repeat them
    • Documenting my thoughts helps employees and business partners understand my approach and thinking
    • If I get hit by a bus I want my kids to know my thoughts on business and life

    I’d highly recommend writing a daily blog post for the above reasons and more. The biggest challenge is getting through the first 30 days. After a month it becomes an easy routine, like brushing your teeth before bed. Once you get used to it you won’t want to stop.