David Cummings on Startups

Category: Entrepreneurship

  • Run the Annual Expenses Audit and Cut the Waste

    Recently I was talking to an entrepreneur that had just finished an exercise to get more efficient with his business and reduce the burn rate. After making a concerted effort over 30 days to cut waste they now save $200,000/year. Here are a few areas to analyze:

    • Credit Cards – Start with the biggie. Credit cards are so easy — almost too easy — to buy stuff that many entrepreneurs don’t scrutinize the purchases. Take last month’s statement and make the card holders justify each expense in a Google Sheet.
    • Amazon Web Services – Cloud platforms make it incredibly simple to scale services, and scale the bill. Walk through every line item of the last AWS bill and the corresponding usage of that item (e.g. do you need all those full-time EC2 instances when spot instances might work instead? what about reserved instances?)
    • Unused SaaS Apps – With so many interesting SaaS apps out there it’s easy to sign up and pay only to not truly integrate into the business process such that there’s little-to-no value. Go ahead and cancel it.
    • Unused SaaS App Users – Many SaaS apps are mission critical must-have products but that doesn’t mean paying for more than you need. How many users of Salesforce.com do you have? Do you really need them all? What other apps can be adjusted?

    Entrepreneurs would do well to audit expenses at least annually, if not more frequently, and cut the waste. Just because you need to move fast doesn’t mean you need to waste money.

    What else? What are some other areas to look for savings?

  • What Uber’s Tipping Feature Teaches Us About Product Functionality

    If you were to create a new startup that put the legacy taxi experience on a mobile app, most entrepreneurs would take the traditional functionality and implement it directly in version one. Expected features would include:

    • Requesting a car
    • Inputting the destination address
    • Watching the car’s location on a map
    • Paying the fee for mileage and time
    • Providing a tip based on service and experience
    • Bonus: rating the driver

    Only now, after being in business for eight years and raising $8.8 billion (source), Uber has rolled out tipping — You can now tip your Uber driver in the app.

    This isn’t a critique on whether or not tipping is the right thing to include. Rather, Uber waiting eight years to add a feature that most entrepreneurs view as standard to the product teaches us an important lesson: the offline experience shouldn’t be recreated verbatim in an app. Rather, prioritize the product functionality that delivers the best experience to the user, and that often is a subset of the traditional functionality combined with new functionality that is only possible due to new technology.

    Entrepreneurs would do well to prioritize product functionality based on value to the user, not on legacy features.

    What else? What are some more thoughts on Uber adding tipping after eight years and what that teaches us about product functionality?

  • Must-Have Product Required for Startup Success

    After hearing hundreds of entrepreneurs pitch their ideas, I still can’t tell if the idea is a must-have or nice-to-have (see 5 Questions to Determine a Must-Have Product). In fact, I’ll never know as I’m not a domain expert in all the different markets and the best insight comes directly from customers. What I have figured out is that not having a must-have product is one of the top reasons for startup failure. No matter how great the team, and no matter how great the product, if the market doesn’t care about it, the startup won’t be a success.

    Investors love to invest in great teams knowing that it’s hard to find a must-have product and most initial ideas are nice-to-have. The belief is that great teams have a stronger chance of pivoting the idea to a product that is a must-have. Ideally, the great team has selected a great market, and the opportunity to find a must-have product is high.

    Think about the last three entrepreneurs you know that have failed. Now, think about their products. Were any of the products must-haves? Were the customers passionate about it? Was the value it created abundantly clear? Is using the product 10x better than going without the product? Chances are that all three of the entrepreneurs that failed had nice-to-have products.

    Startup success is predicated on a must-have product. Choose the market wisely, and ensure the product is needed.

    What else? What are some more thoughts on the idea that a must-have product is required for startup success and most startups have a nice-to-have product?

  • Quarterly Wrap Up

    With the start of Q3 upon us, it’s a great time to review the end of the quarter process. In the pre product/market fit days, there isn’t much process to follow but as the startup grows and scales, it’s important to scale the processes as well. Here are a few ideas to consider:

    • Simplified One Page Strategic Plan – The one pager is the overall business alignment doc. Priorities change every quarter, along with the basic metrics, but much of the document stays the same. 
    • Quarterly Check-ins – Whether it’s monthly or quarterly check-ins, it’s critical to spend time with team members and constantly calibrate. With small startups, it’s more ad hoc and formalizes as the business grows.
    • Monthly SaaS Metrics – While the one pager has great high-level info, the monthly SaaS metrics sheet breaks it down into dozens of data points and provides a fine-grained view into the performance of the business.
    • Start, Stop, Continue – What’s working well, not working, and needs to change in the business? Just like a scrum meeting, it’s important to evaluate the overall business functions as well.

    Figure out what’s right for the startup and continuously evolve the rhythm, data, and priorities.

    What else? What are some more ideas to wrap up each quarter?

  • Founder Equity at IPO, 2017 Edition

    With a number of successful tech IPOs so far in 2017, it’s a good time to revisit the idea that scaling a startup through to IPO is not only terribly expensive but also heavily dilutive for founders. Each round of funding helps the startup get to the next milestone, and requires selling 20% – 35% of the company to investors. Here are five 2017 IPOs and the founder/CEO equity based on the SEC filings (note that this is for the founder with the most equity and doesn’t include co-founders or secondary where they sell equity prior to the IPO):

    With an average founder/CEO ownership of 10% at time of IPO, it’s clear most founders have to sell a significant amount of their company to reach substantial scale.

    What else? What are some more thoughts on the average founder equity at IPO in 2017?

  • Prematurely Scaling Sales Affects More Than Burn

    One of the mistakes I’ve made in the past is thinking we had product/market fit and starting to scale the sales team in an effort to find a repeatable customer acquisition process. Only, by prematurely scaling sales, it created more issues than just increasing the burn. Here are a few reasons why:

    • Product – With a sales team and no product/market fit, when prospects ask for features, the tendency is to add whatever feature request is made to win the deal, but that can create bad habits and a Frankenstein of a product. The key is to be opinionated about the product functionality even when there’s a chance to close an early customer.
    • Customer Happiness – Without product/market fit, the chance of early customers being happy is much lower unless the product is a must-have and solves a real problem. As the product gets closer to product/market fit, customer happiness goes up.
    • Morale – Sales people love to sell. Only, when the product isn’t ready, trying to sell something that doesn’t have product/market fit rarely results in success, and that hurts morale. Teams want to win, and trying to sell something people don’t want makes things worse.

    Prematurely scaling sales affects much more than just the burn rate. It slows the organization down and creates unintended challenges.

    What else? What are some more ways hiring sales people when the product isn’t ready causes problems?

  • Video of the Week: Vinod Khosla – Failure does not matter. Success matters.

    For our video of the week, watch Vinod Khosla: Failure does not matter. Success matters. Enjoy!

    From YouTube:
    “Try and fail, but don’t fail to try,” emphasized Vinod Khosla (MBA ’80) during the Roanak Desai Memorial View From The Top talk on May 1, 2015. Khosla, the founder of Sun Microsystems and Khosla Ventures, also discussed the importance of having a belief system and the “indulgence” of brutal honesty.

  • Balancing the Short-Term and Long-Term Product Demands

    Recently I was talking to an entrepreneur that’s in the process of changing their data storage architecture as the startup is growing fast and there are increased demands on the database. Only, the app is performing fine and there aren’t any slowdowns right now, but it’s clear that with the continued growth at some point there will be issues. Yet, the team doesn’t know exactly when that will occur, even after some load and stress tests against the system. Now, they’re moving forward with a heavy refactoring of code and changing of the storage architecture.

    Balancing the short-term and long-term product demands is never easy. Here are a few questions to ask:

    • What percentage of current customers will appreciate this change? What percentage of desired customers will appreciate this change?
    • Do we have to implement this change eventually? Why? Why not? What instrumentation will help guide our decision making process?
    • What does the current road map have prioritized? What will have to change to make room to implement this long-term product change now?
    • Is the proposed change a temporary solution or will it support growth indefinitely?
    • What are the risks? What might go wrong?
    • How will this change affect our ability to compete in the market?

    Balancing short-term and long-term product demands is never easy. Ask these questions and make an informed decision.

    What else? What are some more questions to ask when thinking about short-term and long-term product demands?

  • Video of the Week: Amazon’s Jeff Bezos on Artificial Intelligence(AI), Cashless Store, and Self-Driving Cars

    For our video of the week watch Amazon’s Jeff Bezos on Artificial Intelligence(AI), Cashless Store, and Self-Driving Cars. Enjoy!

    From YouTube: Amazon CEO Jeff Bezos talks about the “gigantic” potential of artificial intelligence to change everything from shopping to self-driving cars. Bezos also discusses his purchase of the Washington Post in 2013, which he says is transforming from a local to a global institution. He explains why he opposes both Peter Thiel’s campaign against Gawker Media and Donald Trump’s attempts to “freeze or chill” press scrutiny. Plus: Why Bezos’s other company, Blue Origin, is trying to lower the cost of entrepreneurship in space.

  • API-First SaaS 2.0 Single Page Apps

    Two of the core components of SaaS 2.0 products are actually related: API-first platform and rich, responsive user interfaces. Ever since Gmail made the first mainstream Javascript-heavy web experience that feels more like a desktop app, developers have been building open source platforms to make that type of “Single Page App” easier and faster to build. Single Page Apps reload only the portions of the screen that have changed, instead of the traditional way which refreshed the whole screen. And, these Single Page Apps work best against REST APIs, the same APIs that make a product API-first.

    Now, there are powerful Javascript libraries like Angular (MVC framework backed by Google) and React (view framework backed by Facebook) that are popular with strong developer communities and a long list of additional open source projects that plug in nicely. By having quality, proven open source platforms, more apps are going to adopt them thereby applying more pressure to the legacy incumbents. The incumbents are going to have an incredibly hard time modernizing. Just like many software companies couldn’t make the transition from on-premise to the cloud, many SaaS companies aren’t going to be able to make the transition from SaaS 1.0 to SaaS 2.0, and it’ll be most apparent in the user experience.

    Look for Single Page Apps to be a defining characteristic of API-first SaaS 2.0 companies.

    What else? What are some more thoughts on API-first SaaS 2.0 Single Page Apps?