David Cummings on Startups

Category: Entrepreneurship

  • Market Opportunity or Management Team

    At lunch today I was talking with an entrepreneur who was lamenting that the company he was recently with has disjointed, inefficient technology powering their web services. He also talked about management turnover at the C-level as well as board of directors. I then casually asked how the company was doing financially and he said it was growing like crazy with substantial revenues and profitability.

    This conversation got me thinking about the old debate as to whether the market opportunity or the management team is more important in a startup. Some people, like Marc Andreessen, the Netscape and Ning co-founder, believe that market opportunity and size is more important. Others, like Mark Peter Davis (a classmate of mine at Duke), believe that the management team is critical.

    Personally, I’m starting to put more stock in the market opportunity and timing over the management team.

    Now, of course, there has to be a modicum of competency on the management. But, beyond that, I think the market, product, timing, and product to market fit are the real drivers for phenomenal success.

    What do you think?

  • Consider Lead Gen from the Beginning

    Today, I had the chance to meet with an entrepreneur working on a new business idea. After hearing the pitch and asking questions I realized he hadn’t spent much time on one of the most crucial aspects of a business: understanding how leads are going to be generated. That’s right, lead generation is one of the most important concepts that is paid little attention.

    Building a product, thinking through all the business plan questions, etc is so much more exciting and fun when compared to addressing how much it costs to acquire a customer, ramp the customer up, and the lifetime value of the customer. My advice to entrepreneurs is simple: consider lead generation to be one of the most important parts of the business.

  • 5 Ways to Improve the Atlanta Startup Community

    Tonight I had the opportunity to attend a dinner, sponsored by a great VC firm in town, for the sole purpose of discussing the Atlanta technology startup community, including what’s working well and what can be improved. None of the solutions are effortless, nor are too many likely to happen soon, but the goal is to spread awareness of how we can improve things. Here are five ways to improve the Atlanta technology startup community:

    1. Allow the Georgia government pension funds to invest in the venture capital alternative asset class
    2. Convince Fortune 500 companies in the metro area to buy from local startups and acquire local startups
    3. Introduce several new local seed stage and early stage investment funds
    4. Encourage successful entrepreneurs to give back and reinvest in the community
    5. Increase the number of clusters and improve their recognition (e.g. online marketing, vertical e-commerce, lead generation, etc)

    There are many more but these were some of the main takeaways from the evening. The great news is that over the past five years the Atlanta startup community has really blossomed and has many different ways to get involved.

  • When to Help Entrepreneurs

    I’ve had a chance to work with entrepreneurs at all different stages of their idea and business. Whether it is an idea that popped into an entrepreneurs head the night before, or it’s already a million dollar company, I’ve found that there’s so much excitement and passion that makes it fun to help out. Recently I’ve decided that the most nascent stage of the pre-business idea formation is too early for me to add much value. Going forward, I’m interested in helping out once the Questions to Ask an Entrepreneur have already been established. Here are those questions again:

    • What problem are you trying to solve?
    • How are you different?
    • How many prospects have you talked to about it?
    • How far along are you with the concept?
    • Where do you need the most help?

    The general goal is to have the idea a bit more fleshed out before discussing it so as to be able to offer more value and input. Entrepreneurs that haven’t answered the questions yet will possibly view this as annoying but in the end will appreciate the purpose.

  • New Venture Time to Profitability

    In talking with first-time entrepreneurs I consistently find they optimistically believe they’ll hit profitability six months after launching their product. In my experience, with a couple different ventures, I’ve found that profitability comes a full two years after starting the venture. Let’s look at the timeline I’ve experienced two times before:

    • Six months building the product with a key potential customer providing feedback throughout
    • Three months working with a handful of non-paying beta customers
    • Three months of selling to get the first couple customers
    • A year of selling to refine product market fit, customer acquisition model, on boarding process, and at the end, achieving ramen profitable

    So, in my experience, the end of year two is when we finally have several hundred thousand in annualized revenue and typically have enough to cover our expenses assuming we’re paying below market salaries.

    For entrepreneurs that are bootstrapping a product company, I recommend having two years worth of living expenses on hand when starting the business — it often takes longer than expected to reach profitability.

  • Iterate or Die: Life in a Startup Slides

    Following the TAG/ATDC presentation from yesterday, I had several requests for the slides. I just finished uploading them to SlideShare and have embeded it below:

    Thanks again to everyone that attended.

  • Sales Rep as Consultant

    One of the core values for our sales approach is to follow a consultative model (solution selling) whereby we work to understand the needs of our prospect in a non-pushy fashion. Unfortunately, we have a couple competitors that follow the pushy approach and spread FUD (fear, uncertainty, and doubt) about our product and company. Naturally, the immediate reaction is to belittle the competitor and talk about their inferiorities. Instead of taking a fight-negative-with-negative approach we strive to address any incorrect assertions as well as to emphasize what we do well and why we’re a good fit.

    I recommend making an explicit decision as to your approach to the market, brand value, and what your company will do when situations like this arise. It is important to maintain a consistent position, whichever direction you choose.

  • TAG/ATDC Talk: Iterate or Die

    This Thursday morning I’m giving a talk in Midtown Atlanta for the TAG/ATDC Entrepreneurs Series on my Iterate or Die articles on TechDrawl.com. Here are some of the items I cover:

    • How I funded development of our first product
    • How September 11, 2001 proved beneficial for us
    • Why I shelved our first product and found funding for our second product
    • What I learned that didn’t work in sales and marketing
    • What I learned that did work to develop a leadership position in a vertical

    Please join me for the event this Thursday morning at 7:30 by signing up online for the talk.

  • eBoys: The First Inside Account of Venture Capitalists at Work

    After reading Mark Suster’s blog post where he mentioned the book eBoys: The First Inside Account of Venture Capitalists at Work, I new I had to read it right away. Well, I just finished the book and I highly recommend it for anyone interested in learning about the go-go Internet dot com days of the late 1990s, venture capitalists, or entrepreneurs looking to raise venture capital. The book details the formation of Benchmark Capital, started in 1995, and chronicles their inner working, investments, successes, and failures in the late 1990s. Here are a few of my takeaways:

    • Benchmark pioneered the concept of having equal partners (no junior or non-general partners), no associates, and limiting themselves to eight boards instead of the usual 12, so as to have more time for entrepreneurs
    • Benchmark made the single best VC investment of all time by investing $6 million into eBay, at a $40 million valuation, which was the only money eBay raised, and resulted in a 100,000% return on investment (eBay is worth $30 billion today)
    • Benchmark had the opportunity to invest in Priceline.com at an $80 million valuation, but deemed it to expensive (Priceline.com then IPO’d and shot to a value of $20 billion, before crashing many years ago and has now risen to a value of $8.6 billion today)

    Again, if you’re interested in venture capital or are an entrepreneur raising money from venture capitalists, I’d recommend reading the book.

  • Simplifying the Rockefeller Habits One Page Strategic Plan

    We employ many of the strategies from the book Mastering the Rockefeller Habits including the One Page Strategic Plan (OPSP). For this year, and going forward, we decided to simplify and develop our own one page plan, as a hybrid between the Rockefeller Habits approach and the Patrick Lencioni organizational clarity approach. Here are some of the challenges we had with the Rockefeller Habits one:

    • Too much stuff on one page front and back
    • Terminology wasn’t clear (what’s the difference between a key thrust, rock, objective, initiative, and actions)
    • Jargon for our own goal categories (most people didn’t remember that A/R – DSO stood for accounts receivables – days sales outstanding, which translates to how many days, on average, does it take for us to get paid)

    We’re still working on what this simplified document will contain, and when we’ll roll it out, but my guess is that we’ll be ready within the next two weeks.