David Cummings on Startups

Blog

  • Switching to a Much Smaller Startup is Hard

    A few weeks ago a friend changed jobs moving from a growth-stage startup to an early-stage startup and he was surprised at just how much he’d forgotten about the early days, and how hard it can be at times. A high-growth tech company with 150 employees is very different from a just-barely-achieved-product-market-fit company with 10 employees.

    Here are a few challenges when switching to a much smaller startup:

    • Problems like losing a big customer can be catastrophic at the early stage, while more of a bump in the road for larger companies
    • Layers of redundancy are often absent, making for more difficulty when a team member is sick or on vacation
    • No Man’s Land sets in where the company has to invest in more infrastructure and people, often without the necessary resources
    • Processes and dedicated teams, like HR to help with hiring a new team member, aren’t in place, requiring more time from the employee to take care of details
    • Marketing guides, sales collateral, engineering instructions, etc. are usually still on the to-do list, making for unexpected work

    Of course, smaller startups are often faster paced, more dynamic, and provide greater thrills. There’s no one-size-fits-all, but there are real differences that come into focus after making a job change.

    What else? What are some other challenges encountered after switching from a growth-stage startup to an early-stage startup?

  • Creative Monopolies on the Mind

    Last week I started reading Peter Thiel’s new book, Zero to One (as an aside, I’m good at starting books but bad at finishing them, inline with my Leadership Weaknesses). Peter does a great job offering up theories on a number of topics from capitalism to startups to the future. One idea that really resonated with me is that of creative monopolies.

    Back in 2012 David Brooks wrote about The Creative Monopoly in his NY Times article on Peter Thiel. From the article:

    In fact, Thiel argues, we often shouldn’t seek to be really good competitors. We should seek to be really good monopolists. Instead of being slightly better than everybody else in a crowded and established field, it’s often more valuable to create a new market and totally dominate it. The profit margins are much bigger, and the value to society is often bigger, too.

    Entrepreneurs create successful businesses in competitive markets all the time. Entrepreneurs that create once-in-a-decade businesses build creative monopolies (think Google, Facebook, etc.). When evaluating the next business idea, ask yourself if it has the potential to be a creative monopoly.

    What else? What are some more thoughts on the idea of creative monopolies?

  • Ideal Entrepreneur Bootcamp Program

    While an undergraduate in college in 2002 I participated in the Kauffman FastTrac program at North Carolina’s Council for Entrepreneurial Development. We’d meet on Wednesday nights from 6-9pm for eight weeks. As for the agenda, each week had a different speaker (including Scot Wingo from ChannelAdvisor), followed by an instructor that would go over a section of a standard business plan template, and finally networking with small group sharing.

    I enjoyed the program as it introduced me to a cohort of other entrepreneurs and mentors. As for the content, it was typical business plan material that’s not nearly as useful as the customer discovery with business model canvas approach, but, at the time, no one knew any better. Regardless, it was a good experience.

    Last week I was reminded of these entrepreneur bootcamp programs when I was reading about Stanford’s new course How to Start a Startup. The speakers for the course are amazing, and even better yet, everything is recorded and made freely available online (e.g. here’s last week’s video).

    Going forward, I think the ideal entrepreneur bootcamp would meet weekly and have the following agenda:

    • Watch a How to Start a Startup video in advance of the class and talk about highlights (20 minutes)
    • Hear a live guest speaker tell their story (40 minutes)
    • Talk about a different section of the business model canvas (30 minutes)
    • Discuss customer discovery progress from 2-3 teams (30 minutes)
    • Meet in small groups, share updates, and help each other out (30 minutes)

    So, it would meet for two-and-a-half hours once a week for 8-10 weeks. Classroom time would maximize peer-to-peer learning with most of the canned material worked on outside of class.

    I think there’s a real opportunity for these types of entrepreneur bootcamp programs and I hope to see more of them in the future.

    What else? Have you done a program like this in the past? Are you interested in doing one in the future (especially for those based in Atlanta)?

  • Benefits of a Downturn for Strong Startups

    Famous entrepreneur and venture capitalist Marc Andreessen just put out a tweetstorm telling people to worry that many startups are spending excessively. While the overall landscape is nothing like the dot-com hey day, there are a number of signs that things have over heated. If funding dries up and a number of startups shut down, startups that have meaningful growth metrics or are profitable do see several benefits:

    • Talented people hit the market (right now, there’s a shortage of experienced sales people and software engineers)
    • Recruiting becomes less competitive (until the next hot area emerges)
    • Investors will make fewer investments and flock to higher quality startups (though valuations will be lower)
    • Subleases for cool office space become readily available
    • Noise in the marketplace from competitors dies down (assuming a number go out of business)

    Downturns are never pleasant but strong startups will benefit from a correction. Of course, this only affects markets that have had access to large amounts of risk capital, and there aren’t too many of those.

    What else? What are some other benefits during a downturn for strong startups?

  • Venture Atlanta 2014 Presenting Companies

    Venture Atlanta 2014 is next month at the Georgia Aquarium. Last week the presenting companies were announced in two categories: Early Stage and Venture Spotlight. While there’s not a hard and fast delineation, the Early Stage category is typically under $1 million in revenue and the Venture Spotlight category is typically over $1 million revenue or has already raised a venture round (there are other non-revenue factors, like number of active users, that are also analyzed).

    Here are the Venture Atlanta 2014 presenting companies:

    Early Stage

    Venture Spotlight

    I’m looking forward to attending Venture Atlanta and hearing the pitches from these companies.

    What else? What are some other thoughts on Venture Atlanta 2014?

  • Build Investor Relationships Before You Need Them

    There’s an old adage that the best time for entrepreneurs to raise money is when they don’t need it. If an entrepreneur does need to raise money, and doesn’t already have relationships with investors, it’s often too late. Investors would much rather build relationships with entrepreneurs and potential entrepreneurs without the undercurrent that the only reason they’re talking is because the entrepreneur wants money now. Think about it — when someone approaches you wanting something, does that help or hinder the rapport-building process?

    Here are a few thoughts on building relationships with investors before you need them:

    • Most investors are in the business of having a large rolodex as that’s how they add value to their portfolio companies, so they want to continually meet talented people
    • Investors want to see entrepreneurs outline a vision and then regularly meet their goals well in advance of fundraising discussions, and this often takes months, if not years (see Invest in Lines, Not Dots)
    • Entrepreneurs that haven’t formally started a company yet would do well to share with potential investors areas of interest and plans
    • Entrepreneurs that want to build relationships with investors can start by finding a qualified prospect for a portfolio company prior to meeting so as to show value and pay it forward

    Entrepreneurs need to know that the fundraising process for a business is an inefficient process that requires hundreds of conversations and often doesn’t result in raising money. One way to significantly increase the chance of success is to build investor relationships well in advance of asking for money.

    What else? What are some other thoughts on building investor relationships before raising money?

  • Community Engagement as an Entrepreneur

    As long as I can remember I’ve felt driven to get involved with the community and give back. My amount of civic involvement would ebb and flow based on the various stages of the startups. Over the past two years I’ve gotten even more involved in civic organizations as a representative of the Atlanta tech entrepreneurship community, working to build awareness around the importance of startups in new job creation for the region.

    On the business side, I’m involved at the board/committee level with the Metro Atlanta Chamber of Commerce, the Young Presidents’ Organization, and the Buckhead Coalition. On the civic side, I’m involved with Atlanta Rotary, Children’s Healthcare of Atlanta, Woodruff Arts Center, and Piedmont Park.

    Here are two events next month and one next year that I’m actively involved in:

    Civic engagement is a personal decision and one that I’ve found very rewarding. If you’re in Atlanta, please consider sponsoring or buying tickets to one of the above events.

    What else? What are some other thoughts on civic engagement for entrepreneurs?

  • Bootstrapping After Raising Money

    Typically, the term bootstrapping in the entrepreneurial world means that the founder(s) used their own money and sweat equity to get a new business off the ground. Only, more and more entrepreneurs are saying that they want to bootstrap the business, even after having raised an angel round (I’ve been guilty of this in the past as well). So, what is it? Bootstrapping or being capital-light?

    What the entrepreneurs are trying to say when they call it bootstrapping after raising an angel round is that they want to continue growing the business without any additional outside investment (e.g. be a customer-funded company going forward). Bootstrapping implies being lean and scrappy as resources are limited. An investor-funded company can be lean and scrappy as well, but once a startup raises money it’s often perceived as being flush with cash that will be readily spent.

    My proposal is that entrepreneurs that build their company without any outside capital are bootstrapping and ones that only raise angel money are capital-light. Results are what matters, not terminology, but it’s good to be on the same page when talking about financing strategies with entrepreneurs.

    What else? What are some more thoughts on bootstrapping after raising money?

  • Meaningful Metrics When Industry Metrics Don’t Make Sense

    Recently an entrepreneur was lamenting that his cost of customer acquisition (CAC) was significantly higher than the first year’s revenue for a customer (and even higher than the lifetime value for a customer). Naturally, I started asking more questions and digging into the situation. Turns out, it was a classic case of applying industry metrics to a business that was still in its infancy. Metrics like the cost of customer acquisition being less than the first year’s revenue is a great standard, but isn’t relevant when signing up the first 10-100 customers (unless the customers pay an unusually large sum).

    Imagine having two sales reps ($4,000/month each), a marketing manager ($4,000/month), modest pay-per-click spend ($1,000/month), and a tradeshow ($5,000 one-time) one quarter. Over the course of three months, that’s a sales spend of $24,000 (no commissions) and a marketing spend of $20,000. Now, say it was a good quarter and 20 new customers were signed paying an average of $1,000/year. $20,000 is new annual recurring revenue was added (no churn), yet $44,000 was spent on customer acquisition, resulting in a business with a poor magic number. Only, assuming this was early in the life of the product, say within the first 12 months, it’s too soon to definitively say that the customer acquisition model isn’t going to work.

    When industry metrics don’t make sense yet, the focus should be on growing 10% every week. Weekly metrics, especially as a percentage, work well because the absolute numbers are so small. Eventually, after things go well, the absolute numbers get bigger and industry metrics become applicable. Apply the right standard to the right situation.

    What else? What are some other examples when industry metrics don’t make sense?

  • 10 Community Learnings from the Atlanta Tech Village

    Over the past 21 months we’ve learned a tremendous amount building the Atlanta Tech Village. With 200+ startups and 650+ members, we have a critical mass of entrepreneurs, events, and energy. Of course, everything hasn’t gone according to plan, but it’s been a great experience nonetheless.

    Here are 10 community learnings from the Atlanta Tech Village:

    1. Startup stages are more varied than expected, so we had to come up with different ways to segment them (Village Verified, 7 Figure Club, etc.)
    2. Mentors are plentiful, only we haven’t figured out how to curate and engage them as well as we should
    3. Occupying the building while renovating it at the same time is terribly difficult (it was the right call but messaging and timing weren’t always well executed)
    4. Communicating changes, especially around pricing and parking, requires an ongoing dialogue and more proactive conversations
    5. Events are the best way to get large numbers of new people to experience the community and facility
    6. Entrepreneurs love helping other entrepreneurs and act as an accelerant to each other’s startup (we also had a few bad apples along the way that we had to remove)
    7. Coffee has a passionate following, and Octane is the best
    8. Social functions like yoga, running club, and Startup Chowdown are key to bringing people together on a more personal level
    9. Design and style of the physical space sets the tone and contributes to the positive energy
    10. Core values establish a standard for the entire community and provide a common foundation

    The Atlanta Tech Village has already exceeded expectations and we’re just getting started. I’m excited about many more learnings in the future as we work to fulfill our mission to be the #1 hub for startups in the Southeast.

    What else? What are some other community learnings from the Atlanta Tech Village?