David Cummings on Startups

Category: Entrepreneurship

  • Commercial vs Open Source

    I like to think of my company as being scrappy and resourceful. We love open source, looking to use it everywhere that makes sense. Up until 18 months ago we still had OpenOffice as the standard in the office, that was until the up-roar about incompatibility with MS Office documents became so loud that I caved and bought a license of MS Office for everyone. I wouldn’t say I’m an open source zealot, but I am a big proponent.

    My strategy has always been to start with open source and they look to commercial software once the open source doesn’t work out. As an example, we’ve used open source firewall software in our office for several years now, but it’s no longer meeting our needs. We evaluated bringing in a consultant and paying him several thousand dollars to make the changes we desired vs buying an off-the-shelf firewall appliance. The commercial firewall is being installed next week.

    My advice to entrepreneurs is to be scrappy with resources and to always evaluate open source solutions in addition to commercial systems (this from a guy who’s company makes and sells commercial software).

  • Giving Back

    As an entrepreneur, the more successful you become, the more people outside of your company ask for your time. The challenge becomes balancing the desire to give back and help others with the demands of continuing to grow your business. There’s no silver bullet here but at the end of the day it comes down to having great people that you can trust so that you have time to give back and help others.

    My advice for entrepreneurs is to set aside 5-10% of their time from the beginning for giving back and helping others. You won’t regret it.

  • I Don’t Know

    Here’s one of the most important phrases entrepreneurs need to be able to confidently say: I don’t know. Too often, the reaction of confident entrepreneurs is to shoot from the hip and offer the first thing that comes to mind. I know I’ve been guilty of that many times. The key is to immediately follow-up and say “but I’ll find out and get back to you.”

    It doesn’t matter if you’re talking to employees, partners, customers, or investors — tell it like it is if you don’t know. The most important thing is to say you’ll follow up and to actually follow through on it. Give it a try — you’ll be amazed at its effectiveness

  • Moving from Consulting to Products

    I had lunch with a friend today that is working on shifting his company from being a consulting business to being a products business. No, it isn’t the same entrepreneur that I mentioned before, so there must a theme here: when the economy goes south, consultants think the grass is greener for recurring revenue software-as-a-service companies.

    Here’s the advice I gave him:

    • Cost of customer acquisition is going to be your number one challenge
    • Plan for the software process to take twice as long and cost four times as much as you think
    • Several employees that like the consulting business will be alienated by the software business — it is hard to shift the corporate culture to support the new way of thinking
    • Build metrics about everything that goes on from day one — Salesforce.com, or something similar, makes it easy to track many of these

    It’s going to be a challenging transition but well worth the effort.

  • Startups as Deer Hunters

    Mark Suster published the blog post Most Startups Should be Deer Hunters last month. It is, without a doubt, one of the five most important startup blog posts of the year. Every entrepreneur needs to read it.

    Here’s the general idea: startups need to focus their energies on deals that are big enough to be worthwhile but not so big that they overwhelm the company. Think of it this way:

    • Rabbits – Not much meat and they can be get away quickly
    • Deer – Enough meat to be worthwhile and once knocked down, aren’t going to get away
    • Elephants – Difficult and expensive to capture, and if you are lucky enough to get one, might be too much for the team to handle

    Go read Mark’s post right away.

  • Resetting Revenues and Growth

    One of the hardest lessons to learn, and one that isn’t talked about much, is that as an entrepreneur of most types of businesses, your revenues reset each year. What I mean is that you have to sell a certain amount of your products or services the following year just get to the previous year’s revenues, and then some amount more to grow. Resetting revenues make growth difficult in tough economic climates.

    This is also one of the reasons why business models with subscriptions, like software as a service or required maintenance and support contracts, are so desirable. Assuming a high retention rate (90%+), each deal sold in a new year represents growth as your revenue base is already the revenue from the previous year, if not higher due to more recurring revenue at the end of the year compared to the beginning of the year.

    My advice for entrepreneurs is to look for businesses with a recurring revenue component.

  • Quick Thoughts on Angel Investing

    A gentleman reached out to me to get my advice on angel investing in companies that are pre-revenue and/or pre-product, of which I have very little. He’d heard about Shotput Ventures through the Atlanta community. I told him that I didn’t have much experience other than the eight companies Shotput funded this past summer. Of course, I had to give him something, so here’s what I came up with:

    • Don’t expect to make money
    • It isn’t for the feint of heart
    • Whatever you invest, save 3x that for later rounds
    • Look for a strong product/market fit
    • Make sure there’s a personality fit with the team (e.g. you should want to see them once a month for lunch indefinitely)
    • Valuations are a shot in the dark
    • There’s intrinsic value in giving back and helping others

    I’ll revisit this post in 10 years and have even better advice to give.

    Note: This advice is for pre-revenue companies.

  • Celebrate the Small Victories

    In a startup, there are so many moving pieces that change on a daily basis it is easy to spend all your time putting out fires and being reactive to what’s going on in the company. One of the more important things I underestimated is the value of celebrating the small victories. I’m talking about progress-type victories as opposed to serious, signed-on-the-dotted line victories.

    It is important to stop everything, get the team together, and do some cheerleading.

    As much as technology like IM, Skype, and email make it easy to not do things in person, nothing beats the emotional connection of being face-to-face. I recommend teams get together once a week and celebrate the small victories.

    Note: Celebrating the small victories is separate from an accountability-type weekly tactical.

  • Amazing Interview with John Imlay

    Wow, I just finished reading an interview with John Imlay about his life and storied career. It is packed with great stories and insights that every entrepreneur should read. Here are a few key points from it:

    • Employees are the most important thing in a business
    • Relationships matter across all fronts
    • Software isn’t as differentiated as people think — most products will solve a problem, the key difference comes from how well the people that sell it understand your business

    This really is one of the top 10 entrepreneurial articles I’ve read this year. Read it on DocStoc:
    An Interview with John Imlay.

  • Blogs I Read Part Two

    Here’s the second and final piece on blogs I read. My goal is to skim 100 posts per day.

    Naturally, I’m biased towards technology and startup blogs. I hope this helps!