David Cummings on Startups

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  • Startup Positioning Template

    April Dunford has an amazing post up titled A Startup Positioning Template. Effectively positioning a startup is incredibly difficult, and most entrepreneurs struggle with it. Over the years I’ve looked at dozens of Simplified One Page Strategic Plans, which has a number of positioning elements, and those are some of the most poorly-done sections.

    Here’s the Startup Positioning Template:

    • What is it?
      As short as possible statement that describes what you are
    • Target Segment
      The specific target market you are targeting in the short term
    • Market Category
      The market that you compete in
    • Competitive Alternatives
      If your customers don’t use you, what do they use
    • Primary Differentiation
      The one thing that sets you apart the most from the competitive alternatives
    • Key Benefit
      The biggest benefit that your target market derives from your offering

    Entrepreneurs would do well to use a methodology like the Startup Positioning Template and work through the different components. The next time the topic comes up, have everyone read A Startup Positioning Template.

    What else? What are some more thoughts on the Startup Positioning Template?

  • 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?

  • 5 Quick Presentation Tips for Startup Pitches

    Tonight I had the opportunity to hear startup pitches at the Harvard Business School New Venture Competition regional final at the Atlanta Tech Village. Being a regional final, this group represented the best HBS-affiliated teams from around the Southeast. Here are five quick presentation tips for startup pitches after seeing tonight’s event:

    1. Tell a Story – Most of the pitches were product-heavy and not story-oriented. The winner of the event told the best story and made the problem/solution most relatable.
    2. Invest in Slides – Slides should be visually compelling, even if the investment is modest. Everyone in the audience knows immediately if they’re homemade.
    3. Don’t Read Slides – One of the presenters read multiple slides to the audience, word for word. Ouch. Engage with the audience and don’t read to them.
    4. Max 10 Words Per Slide – Slides to be used as handouts are different from slides for a visual presentation. For presentations, don’t use more than 10 words per slide and ensure a sufficiently large font such that the furthest person in the room can see it.
    5. Infuse Passion – Excitement and genuine enthusiasm need to come through when pitching a startup. If the pitch isn’t passionate, don’t do it.

    Overall, the idea is to passionately tell a story with supportive slides. Pitching a startup is more involved than that but this is a good start.

    What else? What are some more presentation tips for startup pitches?

  • Money and Energy are Separate Considerations

    Recently, I was talking with an entrepreneur about his company. They just launched a new initiative and he shared with me a few of the details. Then, he said something that stuck with me: money and energy are separate considerations. Meaning, most entrepreneurs, at least initially, focus more on a lack of money as the inhibiting resource. Then, as the business grows, energy becomes even more of a consideration as the company has more money and staff is more specialized.

    Here are a few thoughts on money and energy as separate considerations:

    • Startups have an ebb and flow where it’s clear that sometimes team members have extra energy and sometimes they are burnt out
    • Startups flush with cash realize that balancing energy is tougher because it’s less quantifiable and more based on the human element
    • Most projects require both money and energy, and leaders would do well to think through the energy component as much, if not more, than the money component

    When planning, ask the hard questions about the costs, as we all do, and then spend time thinking through the current energy of the team. When energy is applied to a new project some other project always has its energy reduced.

    What else? What are some more thoughts on money and energy being separate considerations?

  • Deep Pockets and Short Arms

    Back in 2001, while an undergraduate in college, I spent a good bit of time meeting with angel investors in an effort to raise money for my startup. Not knowing much, I wrote an extensive 30-page business plan outlining every aspect of the business (I even made the mistake of paying a lawyer, yes a lawyer, to give me feedback on the plan — ouch!). At one of the meetings, the angel investor offered up a line that has stayed with me ever since: most angel investors have deep pockets and short arms.

    Of course, the joke is that even though angel investors are wealthy (deep pockets), investing is a hobby for them and they don’t write that many checks (short arms). Here are a few thoughts on angel investors with deep pockets and short arms:

    • When pitching angels, ask how many tech startup investments they’ve made in the last 24 months (it’s good to know if someone is truly active as many angel investors aren’t actually active angel investors)
    • Find out what size check they typically write as well as their areas of interest
    • Ask how they typically add value, if at all, for startups they invest in
    • Inquire as to their decision making process and what, if any, red flags they see with your potential deal

    While most investors — angel, VC, and other — have a combination of profit-motive and fear of missing out, angels, more so than other groups, are driven by the desire to help entrepreneurs and to be a part of something interesting. Regardless, deep pockets and short arms still holds true today, just like it did almost 15 years ago.

    What else? What are some more thoughts on the saying that angel investors have deep pockets and short arms?

  • The Wallet Test

    Jon Birdsong, CEO of Rivalry, wrote a post last month titled SaaS Gratification. The idea with SaaS gratification is that some products are faster to get value from whereas others take more time. There’s a related idea that’s equally important: the wallet test. Simply, the wallet test is how tightly the product is associated with revenue. Put another way, how easily and quantifiably does the software help customers make money.

    Here are a few examples of the wallet test:

    • Products that directly generate revenue (e.g. ecommerce shopping cart software or lead generation marketplaces for taxi drivers), are undeniably tied to the wallet (e.g. a 10 on a scale of 1-10 with 10 being the best)
    • Products that are closely tied to revenue, but don’t actually collect money (e.g. marketing automation software), are slightly lower on the wallet test (e.g. an 8 or 9)
    • Products that help organize information, and clearly add value but are harder to quantify (e.g. a CRM), are a bit higher than middle of the road on the wallet test (e.g. a 6)
    • Products that are a productivity tool, but aren’t in the revenue conversation (e.g. a screen capture app), are valuable yet low on the wallet test (e.g. a 3 or 4)

    When thinking through startup ideas, or evaluating opportunities, include the wallet test as part of the analysis. New ideas that score high on the wallet test are often areas of interest.

    What else? What are some more thoughts on the wallet test?

  • Entrepreneurs and Calls from VC Associates

    I remember it clearly: we were less than a year into Pardot and a venture capitalist reached out to us asking to talk. Excitedly, we set up a time for the call and waited anxiously for the date. Finally, the day arrived and we talked for 45 minutes only to realize that it wasn’t a good use of our time: the associate’s firm requires potential investments to have at least $5 million in annual recurring revenue whereas we had less than a million.

    Here are a few thoughts on calls from VC associates:

    • Associates cast a wide net and engage with as many entrepreneurs as possible, regardless of whether or not they’re a good fit yet
    • While associates source deals for the partners, most of the firm’s investments come from referrals and existing partner relationships — not from associates cold calling
    • Know that associates aren’t the decision makers at the firm and that they spend a huge amount of time cold emailing and cold calling startups (not too different from a sales rep)
    • Before taking a call from an associate, ask a number of qualifying questions, and only take the call if raising money is on the horizon (remember that the best time to raise money is when you don’t need it)
    • If getting ready to raise money, associates can be a good testing ground and opportunity to practice the pitch
    • Make an ask at the end of the call to be introduced to three portfolio companies that might be potential customers

    In the end, most entrepreneurs shouldn’t engage with associates unless they’re going to raise money in the near-term and they’ve pre-qualified the firm to ensure it’s a good fit. Too often, entrepreneurs get excited when a VC associate reaches out and it’s not actually a good use of time.

    What else? What are some more thoughts on entrepreneurs and calls from VC associates?

  • Failure to Attract Talent Starts with the CEO

    This past month I’ve had a number of CEOs reach out asking for help attracting talent. With a shortage of talented software engineers, digital marketing managers, and SaaS sales reps, competition is strong to attract the best and brightest. Many CEOs have a hard time owning this but a failure to attract talent starts with them.

    Here are a few thoughts on CEOs and attracting talent:

    • Talent is attracted to environments that promote autonomy, mastery, and purpose (see Dan Pink’s book Drive)
    • Corporate culture starts at the top and strong cultures attract strong talent
    • Absent a strong culture and interesting work, companies that can afford it resort to paying well above market salaries
    • Best practices for retaining employees also apply to recruiting employees
    • Recruiting and attracting talent should be viewed as first-class initiatives, and not ignored

    Attracting talent is one of the top five priorities of a CEO, and most CEOs neglect it. When a startup is having a hard time recruiting talent, know that it starts with the CEO.

    What else? What are some other thoughts on the idea that the failure to attract talent starts with the CEO?

  • Seed Rounds Up 4x But Series A Rounds Flat

    First Round Review has a great new post up titled What the Seed Funding Boom Means for Raising a Series A. The general idea is that the number of seed funding rounds is up 4x, but the number of Series A financings hasn’t increased, meaning a significant number of startups that were expecting to raise another round failed.

    Here a few notes from the post:

    • Just because it’s easy for some founders to raise a seed round doesn’t mean it’ll be easy to raise subsequent rounds
    • Seed rounds are often raised based on the strength of the team and idea whereas Series A rounds are based on startup traction, and many startups don’t have strong enough metrics to warrant institutional funding
    • One idea for seed-stage startups is to raise a larger seed round and/or make it last longer so as to provide more time to show results
    • When raising a Series A, consider starting with a lower desired amount of funding, and, if there’s more demand than expected, raise the amount (it’s easier to go up than it is to go down after talking to investors)
    • Metrics matter and entrepreneurs need to have a strong handle on the key drivers for their business (too often entrepreneurs wing it, especially when the startup is so young)

    For entrepreneurs that have raised a seed round, What the Seed Funding Boom Means for Raising a Series A is a must-read.

    What else? What are some more thoughts for entrepreneurs that have raised a seed round and are looking to raise a Series A?

  • 5 Ideas for Atlanta to be a Top 5 Tech Startup City

    Continuing with yesterday’s post, Atlanta in the Top 10 for Startups Funded, one of the most talked about ideas is what it would take to be a top five tech startup city. With Washington DC in the number five spot with 69 fundings and Seattle at 67 fundings (source), it would require almost 80% more fundings than Atlanta had to earn the number five spot, assuming no other growth from these cities and others (unlikely). Let’s assume Atlanta would need 90 deals in 10 years to be a top five tech startup city since other metro regions would make progress as well.

    Here are five ideas for Atlanta to have 90 first-time fundings by the year 2025:

    1. Multi-Billion Anchor Tech Company – One massive success story, like Atlanta’s had with Home Depot and CNN, creates hundreds (thousands?) of millionaires, attracts thousands of employees from inside and outside the region, and helps spawn dozens of new companies (10 company first-time fundings increase per year).
    2. New Accelerator Programs – With only a couple accelerator programs in Atlanta, there’s a real opportunity to build several more, especially ones that are more industry or technology specific (e.g. SaaS, IoT, internet security, etc.). More accelerator programs will result in more first-time fundings (10 company increase).
    3. Increased Startup Density – As areas like Buckhead and Midtown continue to attract startups and increase in density, a number of benefits ensue and the chance of entrepreneurial success increases. With increased success comes increased first-time fundings (10 company increase).
    4. More Recycled Capital – As the current generation of success stories achieve strong exits, more entrepreneurs will have the opportunity to invest in the next generation of entrepreneurs, and recycle a greater percentage of the wealth created. Creating a culture where entrepreneurs are expected to recycle some of their winnings will generate a number of new first-time fundings (10 company increase).
    5. Startup Relocations – Some percentage of the existing 39 deals last year in Atlanta were startups that relocated to Atlanta, especially from surrounding states in the Southeast. Assuming it was 10% (4 companies), doing a more proactive job and highlighting the strengths of our existing community, that number could rise to 14 companies (10 company increase).

    With these five ideas turning into 50 additional first-time fundings per year, Atlanta has a real opportunity to be a top five tech startup city. Of course, it’ll take a tremendous amount of work, and a lot of luck, but with so many good things happening, momentum is strong and the opportunity is real.

    What else? What are some other ideas to help Atlanta become a top five tech startup city?