David Cummings on Startups

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  • Video of the Week: Sequoia Capital’s Doug Leone on Luck & Taking Risks

    Doug Leone is one of the top venture capitalists and helps run Sequoia Capital, the most prominent venture firm in the world. In this video of the week, Doug talks about why Sequoia looks to invest in immigrant entrepreneurs, how he got his start in the venture world, and what he sees on the horizon for the industry. Enjoy!

    From YouTube: “Always take risks. If something is working like a dream, break it. Taking risks is the only way to keep on going,” shared Sequoia Capital Managing Partner Doug Leone during his Stanford GSB View From The Top talk on November 4. He also discussed the venture capital industry, what his team looks for in entrepreneurs, and more.

  • Employee Goals on the Wall at Lululemon

    Lululemon, the athletic clothing company, employs a unique strategy with their employees: everyone has their 1,5, and 10 year goals for personal, health, and career on the wall in each store. Interested, I checked this out at Ponce City Market and sure enough, a dozen sheets of paper were on the wall near the fitting rooms, one sheet for each employee. On each paper, there were two paragraphs written by the employee describing themselves followed by SMART goals. This approach — all employees transparently sharing their goals — is amazing for accountability, growth, and alignment.

    Before writing out their goals, each employee is asked to create a 10-year personal vision by answering the following questions:

    • What will I love?
    • What will I have accomplished?
    • Who will surround me?

    Then, with that vision in place, the next step is to write out goals, in order of necessary accomplishment, to achieve that vision:

    • Personal
      • 10 year goals
      • 5 year goals
      • 1 year goals
    • Health
      • 10 year goals
      • 5 year goals
      • 1 year goals
    • Career
      • 10 year goals
      • 5 year goals
      • 1 year goals

    Considering Lululemon started in 1998 and is now worth $7 billion (NASDAQ:LULU), there’s something special about figuring out what motivates people and building an organization that helps them achieve their goals.

    What else? What are some more thoughts on Lululemon having all employees create goals and sharing them with everyone else, including customers?

  • A Power Meal Conversation, Reid Hoffman Style

    The New Yorker has a great article up on Reid Hoffman titled The Network Man. Reid founded LinkedIn and is a huge believer in networks and the power of relationships. In the article, the author plays back a power meal between Reid and Mark Pincus, founder of Zynga.

    Here’s how the power meal works (in this case it was dinner):

    • One-on-one meal
    • Each person writes down a list of topics to discuss (the bigger the ideas, the better)
    • Topics are prioritized in order or importance
    • Each person shares their topics with the other person to find what the other person is most interested in
    • One person starts and goes through their topics and then the other person goes through their topics

    While not dissimilar from an agenda at a team meeting, writing down topics to discuss, and prioritizing them with the other person, makes for a much more impactful meal. Read The Network Man and try out the Reid Hoffman approach at your next power meal.

    What else? What are some more thoughts on the idea of adding more structure to one-on-one business meals?

  • Customer Acquisition is Harder than Product Development

    Most entrepreneurs come up with an idea for a product and focus on building a prototype. Only, in the software world, it’s become progressively easier to build a decent product and, as an entrepreneur, it’s fun to iterate on the features. Now, there’s so much “progress” on the product that entrepreneurs continue to focus their efforts there and don’t focus on the much harder challenge: customer acquisition.

    Here are a few thoughts on customer acquisition for the product-focused entrepreneur:

    One of the more successful entrepreneurs I know went through three product pivots in the same market and managed to thrive because they’re so good at customer acquisition. For most entrepreneurs, customer acquisition is significantly harder than product development, especially in the early years.

    What else? What are some more thoughts on the idea that customer acquisition is harder than product development?

  • Making Less Annually After Selling a Services Business

    Recently I was talking to an entrepreneur that was in the process of selling his company. Now, this wasn’t a Software-as-a-Service company, but rather a services business with an expected valuation of 4-6x EBITDA (basically, profits). We got to debating the pros and cons of selling the business and I brought up the fact that selling the company, and the resulting passive income, would be much less than the profits now. Here’s how the math works out:

    • Assume the business is doing $5 million in revenue and makes $1 million per year in profits (20% margins)
    • Assume a valuation of 6x profits, so the business would be valued at $6 million (6x is high for a services business)
    • Assume a tax rate of 25% (varies by state) on the long term capital gains from the sale for an after-tax take home of $4 million
    • Income/rate of return scenarios:
      • 5% of $4 million = $200,000
      • 10% of $4 million = $400,000

    So, after selling a services business making $1 million per year in profits, the owner would make $400,000 per year in income (if able to earn 10% per year on the money, which is high). Of course, the entrepreneur would have more free time, flexibility, etc. but he’d actually take home much less money. Most businesses are bought for a multiple of profits and the resulting income to the owners is significantly less than what they made before.

    What else? What are some more thoughts on the idea that selling a company results in less annual income to the entrepreneur?

  • 3 Year Anniversary of the Pardot Exit

    Two weeks ago marked the three year anniversary of the Pardot exit (see ExactTarget and Pardot Join Forces). Naturally, it’s amazing how fast the time goes by. Of course, after any major life event there are a number of takeaways. Here are a few of those from the past three years:

    • Marketing automation, as a market, has proved even bigger and more important than we even thought. I remember pitching VCs back in 2009 how marketing automation was this great market, and had a hard time getting buy-in. Well, now, six years later, it’s a strong medium-sized market and still growing fast.
    • Software-as-a-Service (SaaS), while good back then, is great now. Investors love SaaS, and fast-growing businesses, making a rocketship like Pardot incredibly valuable. While it’s easy to second guess what could have been, selling at a local maximum was the right call.
    • The journey is much more fun that the destination. Selling the company was truly a life-changing event, but working with great people and building a great company was the real reward. I still marvel at all the talented people we had on the team and what we were able to accomplish. Unreal.
    • Second acts are really hard to pull off and I’m glad that the Atlanta Tech Village turned out to be something much greater than a labor of love. Bringing together a passionate community and helping so many entrepreneurs has been incredibly rewarding. Now, I just need to figure out my third act…
    • Seeing Pardot grow and thrive as part of the Salesforce.com family has been great. Knowing that it’s more than quadrupled in number of employees and many times that in customers makes me proud that we built something that was scalable and strong. I have no doubt that Pardot will eventually be the world’s most widely used B2B marketing automation system.

    Pardot was an amazing experience and I’m thankful to have been a part of the team. Three years later the business continues to do great and shows no signs of slowing down. I’ve learned a good bit over these past three years and look forward to learning even more.

    What else? What are some more takeaways three years after the Pardot exit?

  • Atlanta Tech Village as Meta Company

    Sam Altman describes Y Combinator and Google’s new parent company, Alphabet, as meta companies in an earlier TechCrunch video. Specifically, he says:

    A meta company [is] one organizing platform where other independent, but collaborative, companies exist. If I had to guess what companies have the most impact on the world [it’s] some version of that.

    Under that definition, the Atlanta Tech Village is a meta company. While there’s no equity relationship with the Village startups, there are a number of meta company components:

    • Collaboration – The biggest internal benefit of the Village is the collaboration between Villagers. As an entrepreneur, being around other like-minded entrepreneurs is huge advantage.
    • Recruiting – The biggest external benefit of the Village is recruiting great people. Talented people want to work in the Village and actively seek out Village startups.
    • Shared Culture – With a focus on four core values — be nice, dream big, pay it forward, and work hard/play hard — the Village startups have culture commonality.
    • Shared Physical Infrastructure – Great workspaces, game rooms, kitchens, meeting rooms, rooftop patio, coffee shop, etc. are all shared by the Villagers.

    The Atlanta Tech Village is a meta company that’s working hard to increase the chance of entrepreneurial success and helping launch hundreds of new companies.

    What else? What are some more thoughts on the idea that the Atlanta Tech Village is a meta company?

  • Video of the Week: Eric Ries Discusses “The Lean Startup”

    Far and away the most common entrepreneur mistake is building a product in isolation without first validating the pain in the market and then building the product in conjunction with the ideal customers. For our video of the week, watch Eric Ries, author of The Lean Startup, discuss the book and a methodology for significantly increasing the chance of entrepreneurial success. Enjoy!

    From YouTube: Entrepreneur Eric Ries spoke in Toronto at the Rotman School of Management as part of his book tour for “The Lean Startup.”

  • 4 Thoughts on Venture Atlanta 2015

    I spent the last two days at Venture Atlanta in the most popular aquarium in the United States. Venture Atlanta continues to be one of the top venture events in the Southeast and this year was excellent. Here are four thoughts on Venture Atlanta 2015:

    • Quality of Early Stage Companies – This year’s early stage companies were much more investable this year in that most had six figures of revenue and operating businesses. A few fell into the “science experiment” bucket (they didn’t have any paying customers) but it was rare.
    • References to the Marketing Software Cluster – Quite a few presenting companies referenced local success stories like Silverpop, Vitrue, and Pardot. It’s clear that our local marketing software exits have spurred new investments in marketing startups and that we have a cluster’s critical mass.
    • Number of Attendees – The first day was standing room only for the presenting companies and attendance is at or near an all-time high. Investors, entrepreneurs, and service providers all turned out en masse for the event.
    • Presenting Companies that aren’t Raising Money – Several companies that presented clearly weren’t raising money. Now, this is a tough one. We want to showcase great multi-million dollar revenue tech companies in Atlanta, yet potential investors are here to find a new deals, not to see what’s interesting and not raising money. It makes sense to have them present if we don’t have another qualified company to present in that slot.

    The presenting companies were well coached and did a great job on stage. I’m looking forward to Venture Atlanta next year.

    What else? What are some more thoughts on Venture Atlanta 2015?

  • Angel Capital vs Venture Capital vs Private Equity

    Last week I was talking to an angel investor that had invested in a couple idea stage startups and he mentioned that he was also interested in small private equity deals. Curious, I probed deeper and asked what a small private equity deal looks like. He responded that it might be a startup with $500k in revenue. Hmm, I realized we were talking about different things. Here’s how I see it:

    Angel Capital

    • Idea stage through seed stage
    • $0 – $1 million in revenue
    • Not profitable
    • Minority stake
    • Insanely risky
    • No debt component

    Venture Capital

    • Early stage through growth stage
    • $1 million+ in revenue
    • Not profitable
    • Minority stake
    • Very risky
    • Moderate debt component

    Private Equity

    • Growth stage
    • $20 million++ in revenue
    • At least $5 million in profits
    • Majority stake
    • Moderately risky
    • Heavy debt component

    So, the gentleman I was talking to was really looking for angel deals where the company was in the seed stage instead of the idea stage. Angel capital, venture capital, and private equity are all very different and each serves its own purpose.

    What else? What are some other differences between angel capital, venture capital, and private equity?