David Cummings on Startups

Category: Entrepreneurship

  • 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.

  • What does it take to encourage entrepreneurship?

    Today I had the opportunity to grab lunch with Howie Rhee, the Managing Director of the Center for Entrepreneurship and Innovation at Duke University and talk about what the university is doing to encourage entrepreneurship. Stepping foot on Duke’s campus a dozen years ago as a student, I wanted to get involved with entrepreneurship programs, only to find that the university lacked them. That’s right, there was almost nothing related to entrepreneurship on campus. Thankfully, that has changed. Here are the top six entrepreneurship programs at Duke, according to Howie:

    1. Duke Start-Up Challenge – annual business plan competition with $25,000 grand prize to the winner
    2. Entrepreneurship and Venture Capital Club – I would argue these should be two separate clubs but it is successful as-is, and is one of the strongest clubs on campus making it a winner
    3. Duke Entrepreneurship Education Series – weekly guest speaker every Thursday of the school year
    4. Entrepreneurship Week at Duke University – one full week annually filled completely with entrepreneurship events
    5. Duke Global Entrepreneurship Network (DukeGEN) – LinkedIn group for Duke alumni with 1,700 members
    6. DUHatch Student Business Incubator – on campus incubator for student-run businesses

    I must say I’m impressed with the progress and I look forward to seeing even more encouragement of entrepreneurship.

  • Startup Potential Revenue and Market Size

    A reader of this blog sent me an email asking for advice about his startup. After hearing the pitch on the phone I told him that I didn’t think it was a large enough market to be worth his time. He then sent me an email with some stats about the market and a statement like:

    2 million potential customers * $100/year * 1% = $2 million/year business

    I quickly replied back saying that I don’t like doing the top down approach for how big a company can be but rather doing a bottom up approach is the way to go. What’s a bottom up approach look like? I’d recommend doing something simple like:

    • A typical customer will pay us $1,000/year
    • We’ll hire five sales reps
    • Each rep will sell 10 per month
    • We’ll lose a certain percentage of customers per year (churn)
    • We’ll up-sell a certain percentage of customers
    • With this math we’ll add approximately $600,000 in annual recurring revenue per year assuming churn and up-sell equal out

    Here’s a good review of market sizing on DocStoc titled A Startup’s Guide to Market Sizing.

  • Pitching Your Startup

    Today I had the chance to help a friend that is working with a startup from Tennessee that is trying to raise money. The team behind the startup has a fair amount of technology services experience and is building their first enterprise software company. Of course, even with experience, their pitch left several areas for improvement. Here are some ideas when pitching your startup:

    • Find out how long you have to pitch and make the presentation for half the alloted time so that you can make it a conversation and have sufficient time for questions
    • Follow Guy Kawasaki’s 10/20/30 Rule of PowerPoint
    • Determine in advance if the audience is more the visionary type or more of a spreadsheet jockey type, and tailor the presentation appropriately
    • Pick a theme (e.g. recurring revenue, market size, gross margins, etc) and focus on it throughout the presentation so that the investors have a takeaway
    • Remember that the goal of the pitch isn’t to get the investors to write a check on the spot, rather, it is to get another meeting

    Pitching your startup should be fun and a great chance to get feedback from a variety of people. Use these techniques to improve the experience and increase your chance of success.