David Cummings on Startups

Category: Entrepreneurship

  • Video of the Week: Patrick Lencioni – The Four Traits of Healthy Teams

    Patrick Lencioni, one of my favorite authors, talks about The Four Traits of Healthy Teams in our video of the week. Enjoy!

    From YouTube: IESE Prof. Marta Elvira recently spoke with Patrick Lencioni, an expert on building teams and healthy organizations, at the World Business Forum in New York. In their discussion, Lencioni points out that healthy teams have the following four characteristics in common: 1) cohesive leadership 2) intellectual vibrance 3) the ability to communicate clearly and 4) structure, without being overly bureaucratic.

  • 6 Funding Questions from a First-Time Entrepreneur

    Recently an entrepreneur reached out asking for help around raising money for his startup. I obliged and requested a list of questions. Here are the questions and my answers:

    1. What is the deal structure normally put in place?
      Investors typically want preferred equity where they get their money back first in the event of a sale along with protective provisions (more on common vs preferred stock, learning startup investor speak, and the current market for liquidity preferences and dividends).
    2. How much equity should we expect to give up?
      Startups typically sell between 20 and 35% of the company in each funding round (I’m a fan of selling less and minimizing dilution). Also, you’re selling an asset, not giving it up.
    3. What are acceptable funding targets in this day and age (it’s a B2C social app)?
      There’s very little appetite for consumers apps unless they have traction. On the consumer side, investors want to see at least 100,000 active users (see five categories of initial traction milestones for startups). If you raise money, it’ll be from friends and family that believe in you, not your idea.
    4. How much influence do investors have over the product or is that still pretty much ours?
      None. Investors will offer up advice but have no influence.
    5. Is there care and feeding of investors involved, and what form does that take – a newsletter/group email about progress, etc.?
      Yes, you’re potentially taking large sums of money from people. They should be updated at least monthly on your progress via email and a few times per year via a meeting.
    6. Is there anything I should be looking out for in terms of red flags in deal structures or people?
      Yes, understand what’s common in a term sheet and what’s not. Stay away from the uncommon stuff. On the people front, check references and only do business with people that you like working with and see a long-term future of collaboration.

    Raising money is a serious endeavor. Treat fundraising like an important milestone and learn as much as you can about it. Read Both Sides of the Table, Venture Hacks, and The Macro.

    What else? What other advice do you have for a first-time entrepreneur raising money?

  • 5 Choice Quotes in From Impossible to Inevitable

    Aaron Ross and Jason Lemkin have a great book out titled From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue. Now, it’s a mixture of the good stuff from the book Predictable Revenue and the site SaaStr, which are both must-reads for entrepreneurs.

    Here are five choice quotes from the book:

    1. It’s always better to “show” rather than “tell” (stop talking and prove it).
    2. It takes three to six months to go from scratch to consistent pipeline generation — and longer for revenue. Stick it out!
    3. When you do something new, hire two. With one person, you can’t tell if what is working is due to the person or to the process.
    4. You’ll fail in SaaS if you don’t commit to spending 24 months to achieve initial traction.
    5. When you’re pursuing anything vitally important to you, you can figure it out when you embrace the challenge and growth rather than avoid it.

    Haven’t read the book? Head over to Amazon.com and purchase From Impossible to Inevitable: How Hyper-Growth Companies Create Predictable Revenue.

    What else? What are some more great quotes from the book?

  • Validating a Startup Idea

    Continuing with yesterday’s post Make a List of Startup Ideas, the next logical step is taking an idea that resonates and validating it in the market. The key is validating it with a potential customer, not someone who’s opinion you value. Of course, this is hard because the default human instinct is to go to the most successful entrepreneur or person you know and ask them their thoughts. Most friends and acquaintances want to be supportive and will say it sounds like a good idea — fight going this route.

    Here are a few ways to validate a startup idea:

    • Go ask 10 friends for referrals to people or companies that might be a good prospect
    • Search LinkedIn for 100 potential customers and send them InMail Messages (a higher response rate shows a higher need)
    • Cold call 100 people and pitch them on the idea
    • Put up a landing page and buy Google AdWords to drive leads to talk to potential prospects
    • Pick the top three potential partners for this new company and reach out to the appropriate people there to assess interest

    Be resourceful. Figure out if there’s a real opportunity here. Work hard to validate the idea. Finally, remember that nothing happens until something is sold.

    What else? What are some more ways to validate a startup idea?

  • Make a List of Startup Ideas

    One of the common refrains I hear is “I want to be an entrepreneur but I don’t have a good idea.” My response to that statement is “Great, what’s on your list of ideas?” Now, most of the time there’s no list. Aspiring entrepreneurs need to keep a list of ideas.

    Here are a few thoughts on making a list of startup ideas:

    • Use Evernote or a Google Doc
    • Write down all the ideas you’ve had historically
    • Ask three close friends what ideas you’ve mentioned to them in the past that they remember and write them down
    • Whenever you encounter a problem, headache, or poor experience, write it down (personally, my best ideas have come from solving personal problems or challenges)
    • Set a goal for writing down a certain number of new ideas per week (e.g. make a target of one new idea per week)
    • Don’t be selective about the ideas written down — make it exhaustive

    With this living list of startup ideas, review them the 1st day of every month and think about which ones continue to stay top-of-mind. Use this process to build a list of startup ideas and put yourself in a position to come up with an idea you want to pursue.

    What else? What are some more thoughts on making a list of startup ideas?

  • Managing with Data

    One of the topics I’m passionate about is managing with data. Now, data is often scarce in the early startup days, especially when there’s the elusive search for product/market fit. As the company moves from product/market fit to the search for a repeatable customer acquisition process and beyond to a scalable business, data becomes more plentiful.

    Here are a few thoughts on managing with data:

    Data shouldn’t be the only focus in the business but it should have an important role in the company. Let routine set you free and include data with it.

    What else? What are some more thoughts on managing with data?

  • Startup Review: Teamworks

    Teamworks, a sports team management and operations SaaS application, was started 10+ years ago by Duke football player Zach Maurides (disclosure: I’m a recent investor). The original problem: how to manage all aspects of 85 scholarship players on a football team. Today, Teamworks has over 850 teams from all major sports including the majority of D1 football teams.

    Here are a few notes on Teamworks:

    • Vertical SaaS is a big growth market, and team sports is no different
    • SaaS takes time to build, and Teamworks is an overnight success 10 years in the making
    • Growth opportunities exist in a variety of sports markets including college, pro, semi-pro, club, and others
    • Functionality like messaging and scheduling is the core with a number of supporting modules like academics, compliance, and equipment

    Teamworks is the typical SaaS success story: a product that solves a real business problem, a great customer base built slowly over time, and plenty of room to expand. Look for continued growth from Teamworks.

    What else? What are some more thoughts on Teamworks?

  • 2 Answers to the Valuation Question

    One of the questions investors like to ask is “What’s your target valuation for this round?” Sometimes they’re calibrating to see if the valuation is in their typical range, sometimes they’re fishing for information, and sometimes they’re seeing if there’s a logical answer. As an entrepreneur, there are two correct answers:

    1. We’re going to let the market decide.
      This should be the most common answer (it isn’t) as it shows that the entrepreneur is both flexible and looking to create an auction process to find the best combination of terms and valuation.
    2. We’re thinking of the range $X to $Y.
      Now, it’s best to keep it open ended but some investors press for a number. Don’t give a single number. Instead, give a range and sound flexible since it depends on a variety of factors. Never forget the old investor saying: you decide the valuation and I’ll decide the terms (it always holds true).

    When an investor asks about valuation, provide one of these two answers and keep it simple. Valuations are much more subjective than they might seem.

    What else? What are some more thoughts on the two answers to the valuation question?

  • HESaaS: Hardware Enabled SaaS

    Last week I heard a new term: HESaaS. HESaaS stands for Hardware Enabled Software as a Service and the idea is that there are new SaaS opportunities that come from the addition of specialized hardware. Put another way, the Internet of Things (IoT) is going to enable a variety of new HESaaS opportunities.

    A local Atlanta Tech Village HeSaaS startup is Gimme Vending (disclosure: I’m an investor). Gimme makes a device that transmits vending machine data to the cloud for more efficient inventory management and product merchandising analytics. Without the hardware to send the data to the cloud, there’s no SaaS business.

    Add HeSaaS to the list of reasons to be Bullish on SaaS Growth.

    What else? What are some other hardware enabled SaaS opportunities?

  • Bullish on SaaS Growth

    When talking with non-tech entrepreneurs, I always like to ask about their software stack as tech entrepreneurs typically have the same lineup: Salesforce, Pardot, SalesLoft, Terminus, Calendly, etc. For the non-tech entrepreneurs, I’m surprised how many don’t have modern, SaaS systems. This opportunity for more mainstream adoption, combined with the growth of SaaS companies I’m involved with, and the growth of public SaaS companies, makes me bullish on SaaS growth. We’re just getting started.

    Here are a few reasons I’m bullish on SaaS growth:

    SaaS as an industry has tremendous growth ahead. Look for many more years of opportunity.

    What else? What are some more reasons to be bullish on SaaS growth?