David Cummings on Startups

Blog

  • Equal Salaries for the First 10 Engineers

    Recently I was talking to an entrepreneur about salary and equity for early employees in a startup. After we went back and forth for a bit, he offered up something that they do in his company that I hadn’t heard: before institutional funding, the first 10 engineers all get the exact same salary. Now, the equity compensation differs based on experience and expertise, but the immediate cash compensation is all the same. Once the startup raises their first round of institutional capital, the salaries are leveled up to market rates for the respective positions (they had already raised a solid seed round).

    Here are a few reasons why they do this:

    • Requiring a pay cut for every engineer ensures that they are bought in on building a company, and not just taking a paycheck
    • Limiting pay initially creates more focus and dialogue around the equity component, resulting in greater belief that the equity will be worth a substantial amount
    • Keeping all salaries the same makes it so that everyone knows what everyone else makes, and ensures that they are pulling their own weight

    While it’s harder to build a team this way, I’m sure that once it’s assembled the team members have a greater level of commitment and work harder to achieve success.

    What else? What are some more thoughts on the idea of the same salaries for the first 10 engineers before institutional funding?

  • Timing as the Most Important Startup Consideration

    TED has an interesting new talk up from Bill Gross, founder of Idealab. titled Bill Gross: The single biggest reason why startups succeed. Bill looked at 100 Idealab companies and 100 non-Idealab companies analyzing them across these six dimensions:

    • Idea
    • Team
    • Execution
    • Business model
    • Funding
    • Timing

    From the talk:

    So what I would say, in summary, is execution definitely matters a lot. The idea matters a lot. But timing might matter even more. And the best way to really assess timing is to really look at whether consumers are really ready for what you have to offer them. And to be really, really honest about it, not be in denial about any results that you see, because if you have something you love, you want to push it forward, but you have to be very, very honest about that factor on timing.

    Personally, I favor team and execution more, but I believe timing plays a much bigger role than most people realize.

    What else? Do you believe that timing is the most important consideration in startup success?

  • More Outsourced Software Engineering Success Stories

    For years, whenever an entrepreneur asked my thoughts on outsourcing core product software engineering, my response was that I haven’t seen it work. There were too many disconnects between the startup team and the software engineering team – nuances around the actual product goals – resulting in a poor user experience and frustration during iteration while being enervating for the entrepreneur. Now, while building products in-house is most common, more startups are finding success with some or all of the core product being outsourced, especially to get started (I still think in-house software engineering is a must once the startup has traction).

    Here are a few thoughts on the rise of outsourcing core product software engineering:

    • Open source provides more reusable components, both for the frontend (e.g. Bootstrap) and backend (e.g. Rails)
    • General collaboration tools are stronger and more widely used (e.g. Slack, Basecamp, etc.)
    • Product management-specific collaboration tools are stronger (e.g. Balsamiq, Aha, etc.)
    • Certain software development firms have come to specialize in building products, as opposed to most that do one-off consulting projects
    • Non-technical entrepreneurs are more technical, on average, due to the more pervasive use of technology, and thus are better at communicating product needs

    When entrepreneurs ask me about building their product in-house, or outsourcing it, I still recommend building it internally, but outsourcing it is much more viable, and thus deserves some attention.

    What else? What are some more thoughts on outsourcing core product software engineering?

  • The $250,000 Annual Revenue Run Rate Milestone

    While there is much discussion around the large multi-million dollar seed rounds for pre-revenue startups, the reality is that most startups, especially ones outside California, won’t be able to raise any money. For those that haven’t raised any money, or raised a small seed round, one of the first substantial revenue milestone goals should be hitting the $250,000 annual revenue run rate mark. Here are a few reasons why:

    • Assuming strong gross margins (e.g. 80% or higher), the startup should be able to support 3-5 employees, making for a solid core team
    • With 3-5 employees and $250,000 in revenue, the business can be cash flow breakeven, resulting in infinite financial runway and the opportunity to grow indefinitely without outside financing
    • Investors are always looking to mitigate risk, and $250,000 in recurring revenue shows there is the basis of a more substantial market, making it easier to raise a larger seed round (to raise a Series A, investors often want at least a million in revenue)
    • Product/market fit is likely achieved and the start of a repeatable customer acquisition process in place, making the chance of continued success high (see the 4 Stages of a B2B Startup)

    Entrepreneurs would do well to make $250,000 in annual revenue run rate one of their first major financial goals as it represents a level of freedom and progress.

    What else? What are some more thoughts on $250,000 in revenue run rate as an important milestone?

  • Opportunistic Hiring

    One of the most important responsibilities for an entrepreneur is recruiting great people. Only, most entrepreneurs exclusively focus on recruiting people for open positions (e.g. ones that have a job listing on the site). Instead, entrepreneurs would do well about being more proactive with opportunistic hires. Yes, financial considerations are incredibly important, but so is getting the best people possible, even if the order of hiring differs from the current plan.

    Here are a few thoughts on opportunistic hiring:

    • Let team members know that the company is open to opportunistic hiring (most people don’t even consider it yet referrals from employees are often the best candidates)
    • Hold the potential opportunistic hires to an even higher standard, and ensure that they’re great culture fits
    • Evaluate how bringing on an opportunistic hire now affects the hiring plan and communicate how it would change things to team members
    • If the timing doesn’t work, let the candidate know and work hard to maintain a good relationship in the event of a future opportunity

    Opportunistic hiring is the most challenging in the seed and early stages. As the company grows, and there are more resources, opportunistic hiring becomes easier and more commonplace. Regardless, entrepreneurs would do well to be proactive about opportunistic hiring.

    What else? What are some more thoughts on opportunistic hiring?

  • Learn How to Sell

    Late in the summer of 2001 I was seriously frustrated. After raising money from a professor, hiring several friends as programming interns, and taking a leave of absence from college, we had built a good product, but only had two customers. Eagerly, I reached out to a mentor of mine I met earlier that year when he was on sabbatical from Microsoft.

    As he was back in Seattle, we scheduled a time to talk. Even today, I clearly remember that I was standing on a campus tennis court using my cell phone (a flip phone!) for the conversation. After sharing our progress, and my frustrations, he quickly diagnosed my problem: I needed to learn how to sell. Everything I did was focused on building the product, and not on acquiring customers. It was time for a change.

    Most entrepreneurs are in love with their product. Unfortunately, most products don’t sell on their own. One of the most difficult, and important, challenges for product entrepreneurs is to learn how to sell. When an entrepreneur reaches out for help, it’s almost always because they haven’t figured out to grow sales.

    What else? What are some more thoughts on entrepreneurs needing to learn how to sell?

  • Startup Review: Terminus

    Terminus, a new account-based marketing startup, launched last year at the Atlanta Tech Village (disclosure: I’m an investor). With so much marketing focus on individual lead generation and nurturing (e.g. the great functionality that Pardot provides), a big gap emerged around marketing and advertising to all the potential stakeholders at a company. Enter account-based marketing.

    Here’s how it works:

    • Existing leads and contacts from the CRM or marketing automation system are imported in based on rules (e.g. take all the leads/contacts with an active opportunity in the pipeline)
    • Based on job titles, additional contacts are retrieved from the targeted companies through different data sources (e.g. NetProspex and others)
    • Similar to retargeting, ads based on rules are shown on mainstream sites to everyone identified in the account (e.g. show specific ads based on where they are in the sales cycle)
    • Ad click throughs and conversions are tracked to show return on investment

    Companies with a complex sales process, especially for mid-to-high dollar ticket items, are great candidates to use Terminus as they work leads through the sales funnel. If you know anyone interested in increasing their close rate and shortening their sales cycle, have them take a look at Terminus.

    What else? What are some other thoughts on Terminus and account-based marketing?

  • Startup Pitch Deck Examples and Template

    Alexander Jarvis has a solid post up titled Pitch Deck Collection from VC Funded Startups. With 40+ pitch decks, there are a number of excellent examples to review. I especially love seeing artifacts from the early days of major success stories like LinkedIn and Airbnb. Taking the Airbnb deck as a template, here are the slides:

    • Welcome
    • Problem
    • Solution
    • Market Validation
    • Market Size
    • Product
    • Business Model
    • Market Adoption
    • Competition
    • Competitive Advantages

    Add in a Team and Summary slide and that’s a great format for entrepreneurs to copy. Pitch decks should tell a story and convince the potential investor that’s it worthwhile to spend more time on the opportunity.

    What else? What are some other items you look for in a startup pitch deck?

  • New Product Idea Generation

    Last week an entrepreneur-to-be was asking me how I come up with new product ideas. I explained that most of my ideas come out of necessity — I experience an issue and look for a product or solution to solve it. While not fancy, it has served me well. Beyond having a problem first-hand and wanting to fix it, I’ve seen a number of different ways to come up with ideas:

    • Apply an idea or trend that’s working well in one industry to another industry
    • Reimagine an old technology on a new platform (e.g. the cloud, smart phones, etc.)
    • Take an existing product and make a new one that’s better, faster, and/or cheaper
    • Talk to friends or acquaintances and ask them what problems they have in their business
    • Watch for when a big company acquires a hot startup, potentially leaving a void in the current market (most acquisitions slow innovation and take the acquired product up market)

    While coming up with ideas is part of the process, evaluating if a startup idea is good is just as important. Almost every idea is already available online, so it’s more about execution and timing rather than novelty. Regardless, there are many ways to generate new product ideas.

    What else? What are some more ways to generate new product ideas?

  • Regular Investor Updates

    After investing in a number of startups over the years, it’s clear that entrepreneurs need some guidance around regular investor updates. At the most basic level, investors should be updated on a regular basis either monthly or quarterly, both to help the investor understand how things are going as well as to let the investor know areas where they can help. Almost all investors want to add value, and regular communication is key.

    Here are a few items to include in regular investor updates:

    • Key financial metrics including monthly recurring revenue, cash on hand, monthly burn rate, etc.
    • Quick department updates (e.g. 3-4 bullet points for sales, marketing, services, support, engineering, etc.)
    • Culture update (it’s important to highlight the culture, even with investors)
    • Company needs and areas to help

    Entrepreneurs that have raised money should put a recurring event on their calendar to provide regular investor updates. Ongoing communication is critical to a healthy relationship.

    What else? What are some more thoughts on regular investor updates?