David Cummings on Startups

Category: Entrepreneurship

  • 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!

  • Blogs I Read

    I mentioned earlier in the week that I read 100 blog posts per day (that’s blog posts and not blogs). The blog posts act like my personal version of a newspaper and give me food for thought on a daily basis that I can bring back to my company. Here are the blogs I subscribe to in my Google Reader:

    Well, that’s almost the half of the blogs I read. I’ll add the second half tomorrow. Here’s Part 2 of blogs I read.

    Note: I didn’t include links to the blogs of our competitors, for obvious reasons.

  • Budget vs Actual

    We don’t use budgets in my company. There, I said it. Yes, many executive would view it as blasphemous to not set budgets and measure actual against it. What do we do in lieu of budgets? We do have quarterly sales bookings goals, recognized revenue goals, profit margin goals, etc. Yes, we look at our salary cap, trailing 12 months revenue and expenses, and a variety of other metrics. On a monthly basis we have a chunk of money to use for whatever comes up, and department managers submit requests and we make decisions to allocate money, or not, within a week.

    I’m guessing as we continue to grow, and work through the process of exiting No Man’s Land, we’ll have to do budgets. For now, we’re in no rush.

  • The Art of War

    I’ve seen several entrepreneurs and business leaders cite The Art of War as one of their most influential business books. While I haven’t read it yet, a colleague of mine just started a weekly practice of picking a section or quote from the book and writing about how it is relevant to our company. There are a few takeaways here:

    • Look to military books and other non-business books for inspiration
    • Find third-party ideas and adapt them to your business
    • Look for things you’re passionate about and use them to inspire your team
    • Never stop reading

    I’ve added The Art of War to the list of books I want to read.