David Cummings on Startups

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  • Make Funding Last 18 Months

    A popular question in the entrepreneurial fundraising world is “How long should I make the money last before raising another round?” Of course, my advice is to raise as little money as possible until there’s a repeatable customer acquisition process (then, outside capital will have a dramatic ROI). Now, that’s not always possible, and fundraising is a part of life for many tech startups.

    After making a number of angel investments and working with entrepreneurs, my recommendation is to make funding last 18 months. Here are a few reasons why:

    • Fundraising, when it goes well, typically takes six months, so 18 months provides for 12 months of focusing on the business
    • Milestones often take twice as long and cost twice as much to achieve, so more time is ideal to figure things out
    • Hiring is a major effort once fundraising is done, and it takes serious time to find the right people and train them, so a sufficient timeline is needed for the startup to execute

    The next time an entrepreneur is building a budget for investors, push for making the money last 18 months. Fundraising requires a significant amount of time and takes away from growing the business.

    What else? What are some other thoughts on making funding last 18 months?

  • Inflection Points in a Startup

    Over the course of a successful startup adventure there are numerous highs and lows. As much as people like to talk about hockey stick growth, it’s often more volatile at a day-to-day level. During the startup rollercoaster, there are a number of inflection points where the business hits a new level.

    Here are a few thoughts on inflection points in a startup:

    • Revenue milestones are often major inflection points due to institutional investor appetite (e.g. once a startup hits $5 million in revenue, there’s an entire market of growth equity investors that become interested)
    • Major partnerships can be an inflection point, but the startup often won’t know for many months (or years!) due to how long it takes for things to kick in
    • Key hires often make a huge difference, and in some cases, result in an inflection point as the startup begins executing at a new level
    • New product releases, especially ones that address an area of significant pent-up demand, can propel the startup’s growth rate forward
    • Belief that the team can do so much more (this plays out when a team is trucking along, making good progress, only to realize that they just had the best month ever, by a large percentage, and that there’s no reason every month can’t be like the last one)

    Inflection points are critical for startups, and sometimes aren’t even recognized until well after the fact. Look for inflection points and recognize them for what they are — the next level of growth for the startup.

    What else? What are some other thoughts on inflection points in a startup?

  • Startups Need Traction to Succeed

    Last week I started reading the new book Traction: A Startup Guide to Getting Customers by Gabriel Weinberg. I had enjoyed reading Gabriel’s blog (read this post on money) and I’m always telling entrepreneurs that repeatedly acquiring customers is much more difficult than building a working product. Early on, the author sets the tone that entrepreneurs should spend 50% of their time on acquiring customers, which is foreign to most entrepreneurs as they want to focus the vast majority of their time on the product (a good product is required but revenue pays the bills).

    The book sets up a methodology for constantly trying different customer acquisition strategies (the Bullseye Framework) and covers 19 different channels, each with its own chapter (e.g. PR, SEM, SEO, email marketing, trade shows, etc). The Bullseye Framework, while simple, provides a process that’s easy for entrepreneurs to follow. Here are the five steps:

    1. Brainstorm
    2. Rank
    3. Prioritize
    4. Test
    5. Focusing

    The general idea is to come up with a bunch of ideas, rank the laundry list, prioritize a select few, test some campaigns, and double down on the winners. Over time, most winners have diminishing marginal returns and it’s time to run the process again.

    Entrepreneurs that need more customers would do well to read the book and spend more time figuring out how to acquire customers.

    What else? What are some other thoughts on the new Traction book?

  • Things Occupying Space in Your Mind

    Recently I kept thinking about this one difficult interaction I had with another person and that I couldn’t get it out of my mind. After talking to another entrepreneur, he offered up that he tries to be conscious of what things occupy space in his mind. I thought about it for a minute and he’s exactly right.

    The mind is an amazing tool to solve problems, innovate, and do great things. Only, there’s a limited amount of space to juggle high priority items. If there’s something that you constantly worry about, but can’t control, it’s occupying space. If there’s something on your mind that needs to get done, but you don’t do, it’s occupying space. As tough as it is, the key is getting the mind to focus on the right things.

    The next time your mind starts focusing on something, step back and ask yourself if it’s a worthwhile endeavor. While it can be difficult at times, especially keeping the thought of thinking top-of-mind, optimizing what’s occupying space in your mind will make a serious difference.

    What else? What are some other thoughts on things occupying space in your mind?

  • Entering New Markets Requires Different Tactics

    Recently an entrepreneur was telling me about his desire to enter an adjacent market, and that to do so, he needed a different skill set on his team. After thinking about it, I knew he was right. Several times in the past I’ve tried to push into different markets with the same sales team, same marketing message, and same product only to fail. Much like the sales rep that’s strong at selling into an established market is much less likely to succeed building a new market from scratch in startup — it’s a different skill set.

    Here are a few thoughts on entering a new market:

    • Find an advisor or mentor that’s already an expert in the new market in order to minimize some of the common mistakes
    • Treat the new market more like a startup and do customer discovery, seek out product-market fit, etc
    • Know that existing team members and skills will need to be adapted for the new market
    • Create additional messaging, collateral, etc. for the new market and treat it like a different product

    Entering a new market is difficult. Entrepreneurs would do well to recognize the challenges and plan accordingly.

    What else? What are some more thoughts on entering a new market?

  • Corporate Retreats in a Startup

    Early on in my startup career I thought corporate retreats were a waste of time. I just wanted to stay heads-down and crank away at the items on my to do list. Only after experiencing great retreats with EO and YPO did I come to understand the real value.

    Here are a few thoughts on corporate retreats in a startup:

    • Hire an outside facilitator (find one that is EO or YPO certified) as they are worth the cost (if money is available to do so)
    • Find the right balance between work time and fun activity time (depending on the group, I’ve found 60/40 works well with 60% work time)
    • Always get outside the building, and preferably outside the city, so that the usual distractions aren’t present
    • Come with an agenda and make sure that the goals are accomplished
    • Decide on a cell phone policy and enforce it (e.g. turn off all phones and leave them on the middle of the table)
    • Give homework in advance to set the tone and get the team thinking about the key topics

    Corporate retreats are a great way to bring the team together, strategize the future, and align everyone.

    What else? What are some other thoughts on corporate retreats and startups?

  • Working from Home and Startups

    With the continued chatter about Yahoo’s policy change last year where employees are no longer allowed to work from home, and HP following suit, I’ve had a few entrepreneurs reach out over the past few months asking about work from home strategies. Before talking about working from home, the discussion needs to focus on the company’s core values and how it operates. Personally, I’m interested in a culture of people who are positive, self-starting, and supportive with a results only work environment (ROWE) structure.

    Here are a few considerations regarding working from home and startups:

    • More working from home requires more communication and planning, so allocate time accordingly
    • Working from home doesn’t imply a ROWE structure, but a good way to move towards ROWE is to allow more telecommuting
    • Crystal clear expectations for employees, including results, makes it easier to assess if the employee is meeting his or her expectations, regardless of working in the office or at home
    • Tools like Google Hangouts are so good now that people working remotely can participate in meetings with a great deal of effectiveness
    • Physical, face-to-face interactions and rapport-building is still important, so people that work remotely or from home all the time should plan for getting together at least once a quarter

    More recently, discussions have emerged about holocracy and startups with 100% remote employees and no managers. My takeaway is that having a culture that encourages people to do their best work wherever they are requires a strong alignment of core values and often starts with the hiring process. Working from home works for many companies, especially ones with a strong culture and clear expectations for their team members.

    What else? What are some more thoughts on working from home and startups?

  • Seed Stage Entrepreneurs Hiring Consultants to Raise Money

    Just this week I’ve encountered two separate consultants that help seed stage entrepreneurs raise money. Of course, I’m very suspect when someone tells me they help entrepreneurs with little-to-no revenue raise money from investors. In each case I asked if they were a broker-dealer that gets a placement fee and they said ‘no’, it’s an hourly rate or project fee to consult.

    Preparing a longish pitchbook (e.g. a business plan) with comprehensive financial models requires a tremendous amount of imagination for a startup with a couple paying customers. Financial models can be built to paint any desired picture, especially when there’s almost no historical data to draw from. As an investor, I’d prefer to see the entrepreneurs spend the $25,000 validating the market or signing 10 more customers, instead of hiring a fundraising consultant. Intellectually, I understand that an entrepreneur who’s struggled raising money would resort to getting help from someone that promises them a successful outcome.

    While a fundraising consultant isn’t a good use of money for a seed stage entrepreneur, here are a few things that are worth investing in:

    • Investor Deck – Find someone who’s great at storytelling, build a slidedeck, and then hire a graphic designer to make it professional looking (~$500)
    • Financial Model – Grab a free financial model online (e.g. here’s a great financial model for SaaS startups) and pay a CPA for two hours of their time to help understand it (~$300)
    • Executive Summary – Write a simple two-page executive summary with all the pertinent sections and have a friend proof-read it ($50 to buy them a nice meal in exchange for their help)

    So, for under $1,000, an entrepreneur has all the tools necessary to pitch investors and speak intelligently about their startup’s potential. This doesn’t guarantee raising money but it does increase the chances of success.

    What else? What are some other thoughts on fundraising consultants for seed stage startups?

  • Entrepreneurs Deciding to Sell Their Company

    Several weeks ago an entrepreneur reached out and said he wants to sell his company. After having grown the business from nothing to a good size (> $10 million revenue) he’s tired and ready to move on to the next adventure. I’ve had a number of similar conversations over the years, and here are a few reasons entrepreneurs decide to sell their company:

    • Boredom – The journey is the fun part, and when it’s no longer fun, it can be time to sell
    • Financial freedom – Many entrepreneurs set out to make FU money — say $20 million — and when the first offer comes along that meets their goal, they sell
    • Incredible offer – My favorite response to someone asking “is your company for sale?” is to answer “no, but how much are you offering?” such that sometimes an offer so incredible comes along that you can’t say “no” (this was the case with selling Pardot to ExactTarget)
    • Industry shift – Technology moves fast and sometimes you’re on the wrong side of the curve, so it’s important to get out before things get even worse

    Selling a company is a very personal and emotional decision. Deciding to sell is just the first step in a long process and there are many reasons to exit.

    What else? What are some other reasons why entrepreneurs decide to sell their company?

  • Evaluating an Early Stage Startup to Join

    Recently an entrepreneurial leader told me he was interested in joining a funded early stage startup in a COO or CEO role. After quizzing him for a bit about what he meant as a funded early stage startup (raised a Series A round from institutional investors), I offered up a few thoughts on evaluating a startup to join:

    • Has the startup achieved product-market fit? Just because there’s institutional money it doesn’t mean that the dogs eat the dog food.
    • Has the startup built a repeatable customer acquisition machine? Customers might love the product but if customers can’t be found in a predictability, cost-effective manner, there’s still a serious amount of risk.
    • What’s the board arrangement like? Is it a functional board? Are the entrepreneurs in control? Joining a startup with a dysfunctional board makes for a poor experience.
    • How critical is culture to the entrepreneurs? Culture is important at all stages and sets the tone for how the company operates.
    • How much cash is in the bank? How much runway does the startup have? Just because the startup raised money doesn’t mean it’s in a strong financial position.
    • What’s the current division of roles and responsibilities of the management team? Some people have broad titles like COO but really specialize in one or two functional areas like product management or marketing.
    • What’s the three year plan look like? While things change all the time it’s still important to look out over several years and have a fluid game plan.
    • What are the top three priorities right now? What does the simplified one page strategic plan look like? Aligning everyone in the company is critical.

    So, with a few ideas and words of encouragement, I told him joining an early stage startup would be an awesome experience and that he’d learn a tremendous amount.

    What else? What are some other thoughts on evaluating an early stage startup to join?