David Cummings on Startups

Category: Entrepreneurship

  • Debt is Your Friend

    This one is for entrepreneurs and not consumers: debt is your friend. Too often, first time entrepreneurs think the first step to starting a business is raising money from other people or venture capitalists. My recommendation is to get the business off the ground doing whatever it takes — including using your credit cards. I used credit cards for my business eight years ago and even played the game of applying for new cards that had no interest for the first X months and transferring balances between cards in an effort to minimize the interest rate. Having tens of thousands of dollars of credit card debt, like I had, isn’t for the faint of heart, and is not recommended for most people, but it is often times the only way to get access to money.

    As for banks, the truth is that most entrepreneurs will never get a loan from a traditional bank unless you have collateral for 80% of the value (e.g. stocks, bonds, real estate, accounts receivables, etc). People think banks are in the market of loaning money but they are really in the market of buying physical goods on your behalf and letting you pay them back for it. They aren’t there to fund your dreams that involve intangible assets.

    My advice is to seriously consider debt whenever possible.

  • Jack Welch on the Four Types of Employees

    My younger brother is a first year student at Harvard Business School and was recently discussing a case in class on Jack Welch’s management style. After 35 minutes of discussing the case, the professor surprised the class by having Jack Welch come in personally and answer questions. The key message by Welch was that of the four types of employees and what you should do with them:

    • High performer that buys into the corporate culture — promote and empower them as much as possible
    • Low performer that doesn’t buy into the corporate culture — fire them as quickly as possible
    • Low performer that buys into the corporate culture — give them a second chance in a different position to see if they can be an ‘A’ player
    • High performer that doesn’t buy into the corporate culture — do a public hanging where you fire them and then discuss with other managers their short comings
    Of course, the last two types are the ones that provide the most difficulty for companies. I thought it was an interesting perspective from a very decorated business person.

  • Tips for Office Subleases

    We’re in the process of securing a new office for early next year and I wanted to share some tips I’ve learned over the years when it comes to offices and subleases:

    • Offer much lower than they’re asking as it’s a sublease and they likely already have a new lease, especially in this soft commercial real estate market
    • Try to offer a deal when your company grows into the space over time e.g. pay for 50% of the space the first six months, 65% the next six months, 80% the next six months, and the full amount the remainder of the time
    • Shorter subleases will result in better deals as companies don’t like moving very often

    I’ve found that you can consistently rent office space for 50% of the market rate using these approaches during normal market conditions.

  • Transitioning to a SaaS Business Model

    Just under a year ago we started the process of overhauling our business in an effort to have 75% of our total revenue be recurring. It is very difficult to transition a traditional, enterprise software model to that of a SaaS type model. Our particular niche in the market was not suited to charging an annual per user fee for installed software (although some vendors in other B2B markets have made it work). We decided on a two pronged approach:

    • Offer a hosted version of our installed software, with a monthly per user fee
    • Build a new system from the ground up with a multi-tenant architecture

    We started with 25% of our revenue as recurring and I predict we’re 1/3 of the way of a three year process.

  • Aligning Company and Customer Interests

    At lunch today I was talking with my friend about a new business he was starting. We got into a good conversation about different pricing and business models, especially in relation to what was in the market already. During the conversation, I expressed how passionate I am about aligning the company’s interests with that of the customer. Some common examples come to mind:

    • Have monthly contracts (unlike most cell phone companies)
    • Only charge if a transaction was successful (like Google Pay Per Action or eBay Motors)
    • Provide an unconditional money back guarantee

    By building these types of programs into the business model from day one, the company adapts and grows around them such that in the long run the company’s interests stay aligned with the customers’.

  • Don’t solve a problem that doesn’t exist

    I was at a meeting for a non-profit last week and we were talking about some upcoming projects. One member brought up a potential issue that seemed very unlikely and another member chimed in that we shouldn’t try to solve a problem that doesn’t exist. Wow. That really resonated with me. I think all too often we try to solve problems before they become an issue. Don’t get me wrong, I want to be proactive, but not for unlikely issues.

  • Y Combinator for Atlanta – Costs?

    Lance Weatherby has an interesting post titled “Who Wants Seed Money?” in which he discusses the idea of a Y Combinator for the Southeast. I’m a proponent of the idea and was part of the discussions last year with the people he mentions. Mike Landman and I hashed out the idea once again today at lunch and concluded that Atlanta really needs such a program. Mike is heading up the EO Accelerator program for Atlanta which helps entrepreneurs with businesses between $250k and $750k grow to $1 million plus so as to be eligible to join EO (which I highly recommend).

    Naturally, Mike and I dove right into some of the details of doing a Y Combinator for Atlanta. We each have a couple thousand extra square feet at our respective corporate offices to provide a co-working environment. What are some of the other costs? Here are the initial thoughts on costs on an annual basis:

    • Managing Partner – volunteer (~$5k in expenses to talk at regional organizations and schools)
    • Part-time Program Coordinator – $20k
    • 5 teams in one summer class @ $20k investment per team – $100k
    • Office space (2,000+ sq feet for 20 people) – $25k (possibly less)
    • Legal – $5k
    • Accounting – $3k
    • Miscellaneous (food, infrastructure, etc) – $7k
    • Cushion (more people per team than expected, legal/accounting in future years) – $10k

    Total: $175k annually

  • Entrepreneurial Force Multipliers

    I was reading an article about technology in the military/police context and the term force multiplier kept being mentioned. Naturally, I thought it was an interesting term in the entrepreneurial/business world. Here is Wikipedia’s entry on force multipliers:

    A force multiplier refers to a factor that dramatically increases (hence “multiplies”) the effectiveness of an item or group.

    Here are some force multipliers:

    • Product development — not one-off features for a specific client but rather opinionated features that fit a focused vision
    • Investment capital — particularly when you have the basis for a repeatable sales process that is profitable and/or gains market share
    • Search engine optimization — PageRank operates like the Richeter Scale such that each incremental increase results in substantially more credibility

    What are the force multipliers in your business?

  • Negotiations – A few thoughts

    I was talking with a friend the other day about negotiating a deal and I had a few pieces of advice:

    • Always go into the deal with the ability to walk away. Always.
    • Set an absolute minimum in advance of negotiations and use that as a private lens during the process
    • Put yourself is the shoes of the person on the other side of the negotiation and think about concessions or points that they are interested in and how those might stack up to your interests

    Good luck!

  • Entrepreneurs’ Organization

    I joined the Entrepreneurs’ Organization (EO) three months ago and I have nothing but great things to say about it. According to the EO website, EO is:

    The Entrepreneurs’ Organization (EO) is a global network of business owners, all of whom run companies that exceed US$1M in annual revenue. We engage leading entrepreneurs to learn and grow through executive education and other tools for business owners.

    One of the most important aspects of the organization is what’s known as Forum. Forum is a group of 8 – 10 entrepreneurs that meet on a regular basis (usually monthly) and it acts as your own personal advisory board. This is an invaluable way to learn from other entrepreneurs and (hopefully) minimize potential mistakes and maximize opportunities. If you’re an entrepreneur, I recommend you look into EO.