David Cummings on Startups

Category: Entrepreneurship

  • Reduce the 10-Year Vision to a 12-Month Outcome

    Entrepreneurs love to think big and brainstorm different what-if scenarios. Only, the big idea is often too broad and unattainable without meaningful incremental progress in a much shorter timeframe. Meaning, results are needed in the next 12 months to continue the pursuit of the 10-year vision.

    Think about Tesla starting with an expensive electric sports car to prove the concept. Then an expensive sedan followed by a crossover. Only after those successes was a mainstream, mid-priced sedan possible.

    Think about Uber starting as a high-end black car service in one city. Once that worked they added ridesharing and launching hundreds of cities. Now, Uber has expanded to food delivery and more.

    Think big but start small. Take the 10-year vision and reduce it to a 12-month outcome with sufficient progress to continue.

    What else? What are some more thoughts on the idea that the big vision needs incremental progress?

  • Getting Rejected

    Back in 2008 Pardot was just starting to get off the ground with a few hundred thousand in recurring revenue and the makings of a big market. Excitedly, I applied to be a “member company” at a local startup organization by filling out an online application and trying to meet with people. No one would meet with me. We weren’t “the right type of company” and didn’t get accepted into the program.

    Rejected.

    Completely rejected.

    I put my head down and went back to work. We didn’t need the blessing of another organization for us to be successful. With a strong locus of control we followed Andre Agassi’s mantra “control what you can control” and continued plodding along. Ultimately, the business was successful and we didn’t need validation from something else.

    Getting rejected is an awful feeling but it didn’t stop us from realizing our vision.

  • The Best Response to an Inbound Acquisition Price Inquiry

    Last week an entrepreneur mentioned that he was approached by a large company that was potentially interested in acquiring his startup. Not knowing what to do, he agreed to a call and asked a number of questions. Then, he got the big question: how much do you want for your business?

    The best response to an inbound acquisition price inquiry is as follows:

    We’re not for sale but what are you offering?

    The idea is to set the tone that the business is doing well and going to keep growing independently. With that established, only then is the door slightly opened to see what the potential acquirer is thinking.

    The next time a potential acquirer comes around asking questions, make it clear the business isn’t for sale but that you’re open to listening.

    What else? What are some more thoughts on the best response to an inbound acquisition price inquiry?

  • Mission-Driven Startups

    Recently I was meeting with an entrepreneur and he started talking about their mission. After five minutes on the mission it was clear he was serious and dedicated to building a mission-driven business. First, what’s a mission?

    From How to Write a Perfect Mission Statement, here are a few examples:

    • Ben & Jerry’s: Making the best possible ice cream, in the nicest possible way.
    • Disney: To make people happy.
    • Instagram: Capture and Share the World’s Moments.
    • Amazon: To be the world’s most customer-centric company.

    A mission is the core aspiration of the business. The best mission statements are short, inspiring, and memorable.

    Here are a few ways to know if it’s a mission-driven startup:

    • Employees talk about “we” and not “I”
    • Everyone in the company can recite the mission
    • The entrepreneur is constantly connecting the actions with the mission
    • There’s a sense of focus and drive in the team members where it’s clear that it’s more than “just a job”

    Look for the rare mission-driven startup. Mission-driven startups grow faster, achieve more, and make a bigger impact.

    What else? What are some more thoughts on mission-driven startups?

  • Compounding Value Over Time

    One of the most profound forward-looking concepts is the power of compounding value. I’ve mentioned the idea several times before, and it’s worth repeating many more. Let’s take the simple example:

    • Start with $1,000 of value today
    • Compound at 5% annually
    • After five years you get $1,276

    Now, expand that value in a hyper-growth ( > 50%) fashion:

    • Start with $1,000 of value today
    • Compound at 50% annually
    • After five years you get $7,594

    By growing at 50% per year instead of 5% per year, there’s 6x the value in only five years. Carry it out further in the future and the multiple becomes even more dramatic.

    Finally, apply the compounding value concept to ownership in a startup with a much larger dollar base and fast growth rates. The SaaS valuation growth rate multiplier shows the importance of growth, and the corresponding compounding value, in a startup. Combine that with Tomasz Tunguz’s When Should I Sell and it’s clear how to create real value.

    Do the simple math. Run the numbers around compounding value and appreciate just how powerful it is to create incredible value over time.

    What else? What are some more thoughts on compounding value over time?

  • Announcing the new Endeavor Atlanta for High-Impact Entrepreneurs

    Last month I joined the non-profit board of Endeavor Atlanta to help local high-impact entrepreneurs scale their businesses and grow the entrepreneurial community. Endeavor is a global organization with chapters in almost 30 cities and nearly 1,500 entrepreneurs. Here, in Atlanta, we’re looking for 6-8 entrepreneurs per year that are committed to learning, growing, and giving back as part of a program to help them realize their full potential.

    Here’s what we’re looking for in Endeavor entrepreneurs:

    • Motivated, learning-oriented mindset
    • Scalable, high growth business
    • $1 million – $20 million in revenue
    • Aspirations to grow to $100+ million in revenue

    Want to learn more? Read the press release about Endeavor Atlanta and reach out to meet. We’d love to talk more.

    What else? What are some more questions about the new Endeavor Atlanta chapter?

  • The Four Recurring Activities to Build a Powerful Marketing Engine

    Earlier today I was talking to a successful entrepreneur that has built an excellent company in only a few short years. Intrigued, I asked a simple question: how’d you do it? His response: we built community around our target audience. That sounds straightforward; I wanted details. Here are the four recurring activities to build a powerful marketing engine:

    1. Two Quality Blog Posts Per Week – Inbound marketing works well when done consistently with great content. Want to see an example of great content? Check out Hitenism.com.
    2. One Quality Webinar Per Week – Webinars work wonders. At Pardot, we ran a new one every week and they were super successful. Make great slides, get a guest speaker, and run a weekly webinar.
    3. One Quality Email Newsletter Per Week – Build a list of opt-in subscribers. Find people that care about quality content and send a weekly newsletter. Need an example? HubSpot has over 300,000 subscribers to their newsletter.
    4. One In-Person Event Per Month – People connect with people first, companies second. Run in-person events locally at first and then in major cities around the country. Build a tribe. Find the 1,000 true fans.

    These four activities are hard to do well. After achieving product/market fit, this approach is excellent to build a repeatable customer acquisition process.

    What else? What are some more thoughts on these four recurring activities to build a powerful marketing engine?

  • People Connect With People First, Companies Second

    During the Pardot journey I’d talk to customers at tradeshows like Dreamforce and ask about their experience as a customer. At first I was expecting feedback and input on the product — what worked well, what didn’t work well, etc. — only the feedback was always about the people. Comments like “we love X on the sales team” or “Y is great to work with.” While customers thought Pardot was great, it was really the people at Pardot they loved.

    People connect with people first, companies second.

    As much as we like to talk about our cool technology and awesome startups, the ones that people really engage with do so because of the people they interact with at the company. There’s a reason the “service” part of Software-as-a-Service is more important than the “software” part — good products make for good customers, good service makes for raving fans.

    Remember that people connect with people above all else.

    What else? What are some more thoughts on the idea that people connect with people first, companies second?

  • Video of the Week: Chip Conley on Measuring What Makes Life Worthwhile

    Chip Conley is a successful entrepreneur and I’ve enjoyed reading his books over the years. For our video of the week watch Chip Conley: Measure What Makes Life Worthwhile. Enjoy!

    From YouTube: When the dotcom bubble burst, hotelier Chip Conley went in search of a business model based on happiness. In an old friendship with an employee and in the wisdom of a Buddhist king, he learned that success comes from what you count. 

  • Valuing a Pre-Revenue Startup

    Last week an entrepreneur reached out for help on an estimated valuation for his pre-revenue startup. After building a prototype and getting some non-paying early testers, he’s looking to raise an angel round and wanted thoughts on what’s normal in the market. I asked a number of questions and offered up a few ideas:

    • Base Valuation – Pre-money valuations are usually $1-$2 million for a startup with a prototype and a handful of users. Typical funding rounds are for $300-$500k whereby the entrepreneur sells around 20-25% of the business.
    • Management Team Premium – If it’s an experienced management team or highly-regarded prior employer, there’s a large increase in pre-money valuation to $3-$4 million. Investors view an experienced management team as more likely to be successful and pay up for it.
    • Half the Next Round Valuation – Figure out the milestones for this round (e.g. revenue targets), and estimate the corresponding valuation for the next round with those milestones. Then, with the expected next round valuation, divide it in half to value this round. Investors want to believe that they can double their money on paper in 18 months, and see a clear path to get there.

    Pre-revenue valuations are always subjective and come down to how eager either side wants to get a deal done. There’s no exact number but these are good guidelines for normal deals.

    What else? What are some other ideas for valuing a pre-revenue startup?