David Cummings on Startups

Category: Operations

  • Uber Burning $750 Million in a Year

    Recently, I heard an astounding piece of information: Uber is going to burn $750 million in capital this year as part of their expansion. Considering their most recent funding announcement of $1.2 billion in equity and $1.6 billion in debt, and the idea that most funding rounds are for 18-24 months of runway, the math makes sense. Still, burning $750 million in any context, let alone 12 months, is truly incredible.

    $750 million over 12 months is $62.5 million per month (the burn rate won’t stay constant month to month, but let’s assume it does). As a fun mental exercise, here’s how $62.5 million might be spent per month:

    • $5 million on legal – With all the local and state regulation battles, I bet Uber has an army of in-house and third-party lawyers.
    • $5 million on lobbying – States and local government aren’t going to change their laws based on simple requests, hence lobbyists are hired to help accelerate the process.
    • $30 million on market managers – Each market has local staff and regional staff that manage a territory. Assuming each market costs $30,000/month, on average, for fully burdened staff compensation, that provides for 1,000 new cities, which includes international expansion.
    • $2 million on office rent – Rent is super expensive in San Francisco, and Uber now has 113,000 square feet there, not counting other cities (this amount references all cities).
    • $4 million on insurance – Even though the drivers are independent contractors, Uber still has to carry huge amounts of insurance as things, inevitably, can go wrong.
    • $10 million on driver support – Screening drivers, running background checks, training, and ensuring a great consumer experience for hundreds of thousands (millions?) of drivers is no small feat.
    • $10 million on technology – While the Uber app is straightforward, a company with such scale and complexity needs a variety of internal tools to ensure continued success, and many of them are custom.

    Other potential categories include marketing, administrative costs, financing cars, more staff, etc.

    Uber is one of the fastest growing companies of all time, and on a mission to be one of the largest logistics marketplaces in the world. Burning $750 million in a year is incredible, and, a sign of the times.

    What else? What are some other thoughts on Uber burning $750 million in a year?

  • Accounting Rules Will Drive Companies to Look at Shorter-Term Leases

    If a fast-growing, growth-stage startup, desperate to find great office space, signs a 7-year lease at an average of $1 million per year in rent, nothing changes to the long-term liabilities in their financials. Now, the company is on the hook for a million dollars per year. What if they downsize? What if they need more space? It seems strange that the same company, whether they have seven years left on an office lease or one year left, doesn’t reflect that huge liability somewhere, encouraging companies to sign longer leases since they’ll get lower rates and more tenant improvement allowance at the beginning, and thus making the company look better in the short-term.

    Well, the Financial Standards Accounting Board is five years into a project to change the standards around accounting for leases. While it isn’t finalized yet, the net effect is that companies are going to have to recognize assets and liabilities that come from lease transactions.

    Here are a few ideas on how more transparent recognizing of leases will affect the market:

    • Lease terms will be shorter on average
    • Companies that can commit to longer terms, and the corresponding liability, will be given more concessions by landlords
    • Furnished, short-term office environments, like the Atlanta Tech Village, will see increased demand
    • Subleases will be more aggressively reviewed (and the flip side is that companies will look to get out of their liabilities more aggressively by subleasing space)

    The amount of liabilities out there for companies with long, expensive commercial real estate leases is staggering. While a FASB change won’t cause the market to correct overnight, it will have a fundamental change on commercial real estate leases.

    What else? What are some more thoughts on accounting rule changes that will drive more companies to look at shorter-term leases?

  • Review of the Previous Quarter

    With Q1 2015 wrapped up, now’s a great time to reflect on the previous quarter. Did anything dramatic happen? Why, yes, there were some serious ups and downs. From a rhythm, data, and priorities perspective, there are several items to review:

    • 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 sit-downs or quarterly, it’s critical to spend time with team members and constantly calibrate. With tiny 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.

    The quarterly review of rhythm, data, and priorities feels frequent enough to be useful and infrequent enough to not be burdensome. Entrepreneurs would do well to implement a personal quarterly process whereby key aspects of the startup are reviewed.

    What else? What are some more thoughts on a review of the previous quarter?

  • 9 Entrepreneurial Team Member Traits

    Sam Wheeler of PayRight Health Solutions posted a great comment yesterday about traits he finds in entrepreneurial team members at thriving startups. After seeing the list, I readily agree.

    Here are his nine entrepreneurial traits of successful team members:

    1. Flourish with ambiguity.
    2. Love constant change.
    3. Feel as if they are on a mission.
    4. Comfortable being misunderstood.
    5. Can make decisions and move quickly.
    6. Willing to discard prior beliefs when proven wrong.
    7. Always try to hire smarter and better employees.
    8. Don’t give up, but know when to move on.
    9. Think of themselves as builders.

    The next time you’re recruiting a candidate, or thinking through your core values, reference this solid list.

    What else? What are some other entrepreneurial team member traits you like?

  • Gmail Productivity Tips

    Personally, I enjoy figuring out ways to be more efficient and more productive. One area that I’ve developed several shortcuts and optimizations is Google Apps, specifically Gmail. For two decades, I did email in a native app (Pine, Thunderbird, and Outlook) before switching exclusively to Gmail. After being Gmail-only for several years, I recommend it to everyone.

    Here are a few Gmail productivity tips:

    • Send and Archive – For almost all email responses, I use the optional Send and Archive button available through Gmail Settings. The idea is that once I send a response, I don’t want to see the email again unless the recipient responds back. With one click, the response is sent and I likely won’t ever see that email again.
    • Auto-Advance Emails – Every time I respond to an email, Gmail automatically takes me to the next oldest email in the Inbox without showing the Inbox via auto-advance, making it easy to rapid-fire process emails.
    • Canned Responses – Many of the common emails I send, like scheduling a meeting or introducing another person, are a canned response, making the email process faster and more consistent.
    • Calendly Signature Link – For sales reps and customer-facing roles, adding a Calendly link to the signature (see Jason’s post on Calendly) makes it easy for prospects and clients to schedule a meeting with limited friction.
    • Hide Unread Email Counts – As I don’t want to be distracted by the number of unread emails, I click on the “Starred” folder on the left navigation to change the page title and thus not show new emails in the inbox.
    • Native Mobile App – On iPhone, the native Gmail app is much better than using the standard email program, but doesn’t support all the above features.

    Gmail is an amazing tool, and with these productivity tips, an even better and more efficient experience.

    What else? What are some more Gmail productivity tips that you like?

  • The Why Around Job Changes in Interviews

    One of the most common problems I see when team members interview job candidates is related to questions about jobs in the past. The typical interview goes like this:

    • Interviewer: I see you worked at IBM. Tell me what you did there?
    • Candidate: I was a software engineer on the web services team. My responsibility was around web performance management and ensuring that we met the service level agreements.
    • Interviewer: Great. Next you worked at Salesforce.com. What was that like and what did you do there?
    • Candidate: Definitely. Let me tell you about my experience…

    One of the most important questions to ask is “why did you change companies and what was the decision making process for that change?” Asking the “why” question opens up tremendous insight into how the person thinks, what went well or not well at the employer, what they were looking for in the new company that they didn’t get out of the previous company, and so much more. Understanding how someone thinks and evaluates major life decisions is critical in assessing their fit as a potential team member (see Topgrading Interviews in a Startup).

    The next time you’re interviewing a candidate, ask the “why” question about job changes.

    What else? What are some more thoughts around the “why” for job changes during interviews?

  • Consulting to Fund Product Development

    Recently I’ve had the chance to talk with two different entrepreneurs who were building software consulting firms to fund product development. Software engineering is in high demand and a number of businesses, especially startups, are hiring contractors to rapidly prototype new products and ideas.

    Here are a few thoughts on consulting to fund product development:

    • Consulting work, with an emphasis on billing time and materials, is very different from product work
    • Whenever possible, team members who do product work should not also do consulting work so that they can iterate on the product and interface with customers
    • With new products, one of the most important early milestones is to decide if the product is worth continuing to pursue (e.g. a go/no go decision), and working on it part-time makes it difficult to achieve enough progress
    • Ensure that there’s not a have/have not situation where the engineers doing consulting are jealous of the engineers working on the product

    Consulting companies that turn into product companies can happen, albeit rarely. One of the most successful examples is Mailchimp, based in Atlanta (280 employees). Entrepreneurs building consulting firms to fund product development would do well to recognize the fundamental differences between the two types of businesses and plan accordingly.

    What else? What are some more thoughts on doing consulting work to fund product development?

  • Revenue Growth in the Early Startup Years

    Back in 2008 I was on a screening committee helping evaluate angel investment opportunities for a group of investors in town. Once a month we’d meet with 4-6 startups and pick two to present to the group. Well, one of the entrepreneurs delivered his pitch to the committee and did a great job.

    Everyone around the table was interested and liked the startup. Then, one of the investors raised his hand and asked about the financial projections. There, on the screen, the entrepreneur pulled up the dreaded slide: $0 in revenue today and $100 million in revenue by the end of year three. Ouch. All the excitement left the room.

    Here are a few revenue growth resources for the early startup years:

    The best financial models are built from the bottom-up based on actual metrics from an operating business. While startup metrics can be minimal early on, after a few years they become more meaningful and reasonable financial models with revenue growth can be built.

    What else? What are some more thoughts on revenue growth in the early years?

  • SaaS Metrics Cheat Sheet

    ChartMogul has a nice new PDF online called The Ultimate SaaS Metrics Cheat Sheet where they’ve consolidated many of the key SaaS metrics from thought-leaders like David Skok, Christoph Janz, and Tomasz Tunguz.

    Here are a few key items from the SaaS Metrics Cheat Sheet:

    • Monthly Recurring Revenue (MRR) – Amount of money billed monthly for existing customers (or the appropriate pro-rated amount for customers that pay annually)
    • Customer Churn Rate – Number of customers who left in a period divided by number of customers at the start of the period
    • Customer Lifetime Value (LTV) – Total value of a customer subscription over the expected life of the customer
    • Average Revenue Per Customer (ARPC) – Average MRR across all the active customers
    • Cohorts – Different groups of customers for comparing over time
    • Customer Renewal Rate – Total number of customers who renewed their contract divided by the total number of contracts up for renewal
    • Custom Acquisition Cost (CAC) – Sum of all sales and marketing expenses divided by number of new customers added in a time period

    Every SaaS entrepreneur should go read The Ultimate SaaS Metrics Cheat Sheet.

    What else? What are some more thoughts on the SaaS Metrics Cheat Sheet?

  • Year-End Reports Review

    The end of the year is a great time to look back and reflect on the progress throughout the year. Most of the tools and processes I use to plan and evaluate progress are on a weekly/monthly/quarterly basis, so looking back over the course of 12 months helps me see things from a more strategic perspective.

    Here’s what I like to review:

    Reviewing reports from a year-end perspective is a standard part of the entrepreneurial journey. Every year is different and it helps to study the past to make more informed decisions about the future.

    What else? What are some more thoughts on reviewing year-end reports?