David Cummings on Startups

Category: Entrepreneurship

  • 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?

  • SaaS 2.0 Companies Often Resegment an Existing Market

    Continuing with yesterday’s post Examples of SaaS 2.0 Companies, there’s an important point that requires more explanation: SaaS 2.0 companies often resegment an existing market. Meaning, they go into a market that has plenty of credible incumbents (like Calendly with scheduling software) and offer a novel approach to a known opportunity (better user experience, better product modularity, better pricing flexibility, better integrations, better APIs, etc.).

    Critically, this is best executed in existing markets. If it’s a new, unproven market, SaaS 2.0 often doesn’t work because new markets need armies of sales people to get the new type of product in front of a buyer that’s never used it before. One of the key benefits of sales people is that they help orchestrate the sale and initiate the change management in the customer’s organization. Change management is hard and sales people help create the urgency to make it happen.

    SaaS 2.0 products, typically being self-service, are best resegmenting an existing market where the value is known and the incumbents deliver an outdated customer experience.

    What else? What are some more thoughts on the idea that SaaS 2.0 companies often resegment an existing market?

  • Examples of SaaS 2.0 Companies

    After talking about the The Next Generation Competitor to Every Public SaaS Company, it’s clear a better name for it is SaaS 2.0 companies. SaaS 2.0 companies are API-first, have rich, responsive UIs that are more conversational in tone, have approachable pricing models that are more flexible than the incumbents, and have a modularized platform so that customers can purchase only the features they need. With this definition in place, several people have asked for examples of SaaS 2.0 companies:

    • Intercom – Customer communications platform that’s one of the fastest SaaS companies to go from $0 to $50 million in revenue (see notes on Intercom’s growth)
    • Groove – Simple help desk software with a passionate following (read their blog)
    • Calendly – Schedule meetings without the back-and-forth emails (an amazing product!)
    • CallRail – Call tracking for data-driven marketers
    • MailChimp – Beautiful email marketing

    Look for more SaaS 2.0 companies to emerge that reimagine the entire experience in a new, more personal approach.

    What else? What are some more examples of SaaS 2.0 companies?

  • Software Contracts in the Age of SaaS 2.0

    Continuing with yesterday’s post Software Contracts and Traditional Business Practices, a friend was skeptical that contracts would be less common in 5 – 10 years as so many software company business models are dependent on it. Yes, most existing companies that require them now won’t make the shift, but plenty of next generation upstarts will. Software contracts won’t go away but more options like the following will be offered:

    • Annual Prepay – Pay for a full year in advance and get a 10 – 20% discount off the monthly price. This is effectively an annual contract with an incentive attached to it.
    • Month-to-Month with Setup Fee – Instead of a long term commitment, vendors will offer the option of a setup fee that helps recoup some of the customer acquisition and on-boarding costs.
    • Annual Contract with 90-Day Out Clause – While this is still a contract, the customer has the option to leave within the first 90 days of signing, providing more flexibility to ensure it’s the right fit.

    Look for more pricing and term flexibility from SaaS 2.0 startups. SMB customers will come to expect it as part of the next generation experience.

    What else? What are some more thoughts on software contracts in the age of SaaS 2.0?