David Cummings on Startups

Blog

  • Video of the Week: Storyboard of the Lean Startup Introduction

    It’s the year 2015 and I still hear the same story on a regular basis: we have an idea and are confident it’s going to be a success but we haven’t talked to any prospects about it. Whenever I hear that story I immediately think about Lean Startups and Customer Discovery. This week’s video outlines the genesis of the Lean Startup movement and helps entrepreneurs understand that entrepreneurship is a process — not genius, creativity, and timing. Enjoy!

  • Staying Connected to the Team as the Company Grows

    One day after Pardot hit about 80 employees I was walking down the hall in the office and I saw this friendly face coming towards me. In an effort to engage, I stopped and asked how things were going. We chatted for a minute and walked on. Only, I had no idea this person’s name, yet I had personally interviewed and been part of her hiring process. While I’m great with faces and pretty good with names, I had hit the point where I couldn’t keep pace with remembering everyone’s name in the office — we were growing so fast that I had little interaction with many of the new team members. Wow, that was a long ways from when we started.

    A serious CEO challenge is staying connected to the team as the company grows. Here are a few ideas to help:

    • Weekly Team Email – Send out an email every week to the team highlighting a culture story, quick updates from each department, and key metrics
    • Weekly Small Group Lunch – Invite five different people to a group lunch every week and spend an hour with people you don’t normally work with — the goal is to simply build rapport and trust
    • Monthly Department Seating Swap – Continually rotate throughout departments and sit next to different people each month — physical proximity promotes interaction
    • Company Sports Team or After-Hours Activities – Get involved with the softball team, running club, or anything else the company does after-hours as a way to connect with people on teams that are further removed

    There’s no way to stay connected with every team member at scale, nor should there be. As the company grows, it’s important to grow with it, and that means finding new ways to connect at greater scale.

    What else? What are some other ways to stay connected to the team as the company grows?

  • Metrics to Raise a Series A

    Continuing with the metrics theme from yesterday’s post Most Metrics Don’t Matter at the Beginning, a logical follow-up question is “what are the ideal metrics to raise a Series A?” EquityZen has a good post from last year on just this topic: The Metrics Required for Raising a Series A Round. Here are the key metrics to raise a Series A for each type of startup from the post:

    • Ecommerce – $12 million annual run rate
    • Consumer App – 50,000 daily active users with 25% month-over-month growth
    • SaaS – $1 million annual run rate and 100% year-over-year revenue growth
    • Marketplace – $12 million gross market volume with 20% month-over-month growth

    The next time an entrepreneur says they’re going to raise a Series A, ask if they have the appropriate metrics based on their type of business.

    What else? What are some other thoughts on the metrics to raise a Series A round of financing?

  • Most Metrics Don’t Matter at the Beginning

    I love metrics. I love understanding all kinds of different aspects of the business. What’s improving? What’s declining? Only, for the first 12-18 months, most metrics don’t really matter. Yet, entrepreneurs are constantly fretting over them. Besides revenue and customer count, popular metrics like cost of customer acquisition and churn rate aren’t meaningful due to a limited number of customers.

    Here’s what matters in the first 12-18 months:

    • Revenue – Getting that first $100,000, or better yet $250,000, in recurring revenue, shows there’s the kernel of something meaningful
    • Unaffiliated Customers – While signing up friends and warm referrals is standard, the real test is signing the first 10 or 20 unaffiliated customers — the customers that buy the product because it solves a serious problem, and not just because someone wants to help you personally
    • Product/Market Fit – A level of usefulness and functionality that meets customers needs and truly adds value (see Initial Product/Market Fit)

    When an entrepreneur talks about metrics, and has a handful of customers, point out that the focus should be on increasing the customer count, and not analyzing things where there aren’t enough customers to be statistically significant. Most metrics don’t matter at the beginning — keep it simple.

    What else? What are some other thoughts on the idea that most metrics don’t matter at the beginning?

  • Generating Ideas for Blog Posts

    One of the most common questions about writing a daily blog is “how do you come up with new post ideas every day?” I’ll admit it — the first first 30 days were really hard. After that, my mind started paying more attention to interesting topics and ideas as they appeared, and it became second nature to put blog post ideas down in my iPhone. Now, I have a list of ideas that are constantly refined based on what I think does or doesn’t make sense.

    After reflecting on it, here are some of the most frequent ways I get ideas:

    • Conversations – Talking to other entrepreneurs and just asking the questions “What did you learn about XYZ?” and “What’s something new you’ve implemented lately?” are some of my favorite questions, and they provide great content.
    • Reflecting on the Past – One exercise I do to generate ideas is to think about people I’ve worked with in the past, and reflect on the most prominent memories and lessons learned. Of course, I try to keep their stories anonymous.
    • Current Events – Analysis of news reports and upcoming programs, like that Atlanta Startup Village, are great, fresh content sources.
    • S-1 IPO Filings – S-1s are some of the most dense documents out there, but they are also chock-full of interesting information that isn’t normally available.

    Starting a daily blog is difficult. But, like anything, after doing it for awhile it becomes easier and easier, including generating ideas.

    What else? What are some more ways to generate blog post ideas?

  • Most Popular Blog Posts

    A couple times per year I like to jump into the WordPress stats and review the most popular blog posts. Generally, the popular posts are split between high SEO rankings and large numbers of social shares. Here are the top 15 blogs for this year to date:

    1. The 9 Best Startup Blogs for Entrepreneurs
    2. How Much is Enough: A Story from Jimmy John’s
    3. Simplified One Page Strategic Plan from Rockefeller Habits
    4. SaaS Cost of Goods Sold for Startups
    5. The 9 Building Blocks of a Business Model
    6. Quantifying the SaaS Valuation Growth Rate Multiplier
    7. SaaS Financials – Cost of Goods Sold
    8. Google Spreadsheet Marketing Budget Template for Startups
    9. Uber Burning $750 Million in a Year
    10. 5 of the Top 10 Fastest Growing Companies in Atlanta are Tech Firms
    11. V2MOM Planning Process for Startups
    12. Hockey Stick Growth for Startups
    13. Costs to Furnish a Nice Startup Office
    14. 26 Lessons Learned from Investing in 26 Startups
    15. Gross Margin and SaaS

    Patterns here include lists, SaaS content, and worksheets/business tools. Enjoy!

    What else? What are some other topics to cover on this blog?

  • Morning Meetings Only

    One of the new experiments I’m trying out is only scheduling meetings in the morning. Using Calendly, I have several different types of meetings configured, depending on the context with most meetings 20-30 minutes to keep them effective. Only, I found that standard rhythm-oriented meetings (like daily check-ins) were often followed by other catch up meetings. Then, afternoons would often be filled meeting with people outside the company and ultimately killing any long blocks of time desired for extended focus.

    Here are a few thoughts on morning meetings only:

    • Jumping between doing actual work and meeting about things can be challenging, especially if there’s work that requires deeper thought
    • Grouping some or all meetings into a specific time of day is a good way to maximize personal peak energy times (e.g. if you do your best writing before 10am, you’d want to keep that time of day free of meetings)
    • Meetings like grabbing breakfast or coffee are super popular, contributing to the morning-oriented meeting schedule
    • Timezones can be a challenge with morning meetings only, especially if there’s regular dialog with people in California, so it definitely doesn’t work for everyone

    I’m going to try this out for two months and see how it goes. Of course, this strategy doesn’t exclude any afternoon meetings, it just leaves them open by default unless something urgent comes up or there’s no other morning slot.

    What else? What are some other thoughts on morning meetings only?

  • More Aggressive Venture Debt Market Opportunity

    Venture debt, just like it sounds, is a loan for venture-backed startups. Banks like Silicon Valley Bank and Square 1 Bank have great programs where they loan money at low rates based on how much money has been raised as well as the amount of recurring revenue (see Credit Lines for SaaS Startups). Only, these lines of credit are often maxed out at ~20% of recurring revenue (e.g. have $10 million in annual recurring revenue and get a line of credit for $2 million). There’s an opportunity in the market for subordinated debt that is junior to the debt from the banks.

    Here’s how it might work:

    • A new venture debt fund that provides lines of credit at half the size of the banks (e.g. 10% of recurring revenue, so an extra $1 million for a $10 million run-rate startup)
    • Whereas normal venture debt is often prime plus a couple percent (e.g. 6% in today’s market), this would be much higher interest rates (e.g. 12-15%) and warrants for between 0.5% and 1% of the company
    • $1 million in debt at an interest rate of 15% per year would compound as follows (assuming interest only and no principal payments):
      • Year 1 – $1,150,000
      • Year 2 – $1,322,500
      • Year 3 – $1,520,875
      • Year 4 – $1,749,006
      • Year 5 – $2,011,357

    This would be attractive to startups that haven’t raised money and want to grow faster as well as venture-backed startups that are trying to put off raising their next venture round until they reach a bigger milestone. For entrepreneurs averse to dilution and venture-backed startups that aren’t able to raise money at a great multiple, more aggressive venture debt could be an option to accelerate growth.

    What else? What are some more thoughts on more aggressive venture debt as a market opportunity?

  • Video of the Week – Gary Vaynerchuk USC Entrepreneur Talk 2015

    Gary Vaynerchuk has always epitomized the entrepreneurial hustle starting as a poor immigrant and going on to build several super successful companies. In this talk from earlier in the year, Gary shares his thoughts that entrepreneurship is not teachable, the importance of betting on personal strengths, and the state of the current tech startup community.

    Enjoy.

    Note: Gary’s signature style is in-your-face and passionate, so get ready.

  • Challenges with the Venture Investment Model

    Earlier today I was talking with an investor about the the venture investment model and some of the challenges. Venture, as an asset class, is one of the more unusual ones and has been in the news a good bit lately with many high-flying tech startups raising money at huge valuations. While time will tell if we’re a little frothy or a lot frothy in the markets right now, it’s clear that tech is white-hot. Let’s look at some of the challenges with the venture investment model:

    • Lack of Liquidity – Stock in private tech startups, especially ones in the earlier stages, is incredibly illiquid, making it almost impossible to get money out of the fund before a material exit occurs
    • Long Horizon for Any Returns – Funds typically invest their capital in the first 3-5 years and then look to generate returns in years 7-10 (with the option to extend for a few more years), meaning investors aren’t likely to see returns for at least seven years, if not more
    • High Portfolio Concentration – Many funds only invest in 10-20 companies and one or two of them must be incredibly successful to generate great returns, which is a much higher required hit rate than many people acknowledge
    • Higher Entry Prices Require Higher Exit Prices – With valuations up significantly to buy into startups, exit valuations need to be up as much to generate the desired returns (if you buy in high you have to sell even higher)

    The venture investment model is more challenging than people realize. On the positive side, it’s positioned as potentially delivering great returns (target of 17%+ per year rate of return) and being uncorrelated with the public markets (can’t be the case completely).

    What else? What are some other challenges with the venture investment model?