David Cummings on Startups

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  • Finding a Rhythm as an Entrepreneur With a Family

    Several weeks ago a young professional that wants to be an entrepreneur approached me for advice about being an entrepreneur and having a family. He had just had his first child and was looking for ideas. Having spent time thinking through this I offered up a fews ideas:

    • Write down a set of rules and guidelines and share them with your spouse (getting everyone on the same page is critical)
    • No more than one early breakfast meeting and evening meeting per week (e.g. networking event or professional meeting)
    • Have dinner with the kid(s) at least five nights per week
    • No more than five business days of travel per quarter (some jobs make this difficult to achieve)
    • One week of vacation for the entire family per quarter (must go out of town)
    • Hold a weekly date night and leave the kid(s) with a babysitter

    Developing a rhythm like this results in clear expectations and helps with the work/life blend. Every family is different but this process has worked well for ours.

    What else? What are some other thoughts on finding a rhythm as an entrepreneur with a family?

  • When does a $1M seed round make sense?

    After yesterday’s post on $250k seed rounds, I received a number of questions and comments. One of the most common was “when does a $1M seed round make sense?” After thinking about it for a bit, I came up with a few ideas:

    • If it’s a serial entrepreneur with a proven track record and there’s significant demand from investors to get in the round (e.g. a successful entrepreneur is going to get a much higher valuation, so selling 20% of the business for $1M would make sense)
    • If there’s an existing team that’s worked together and there’s an option to bring them over all at once (e.g. a CTO with a team of five engineers that wants to move together)
    • If the startup is located in an extremely expensive part of the country and it isn’t reasonable for the three team members to live on $50k/year for 18 months

    Each of these examples is pretty rare for the majority of the world, and thus the $250k seed round is recommended. On occasion it does make sense for a $1M seed round.

    What else? What are some other examples that make sense for a $1M seed round?

  • $250k Seed Rounds

    Earlier today I had a debate with an investor in the startup community. He was arguing we need more angel investors that can help pre-revenue entrepreneurs put together $1 million investment rounds. I was arguing that the $700k – $1M seed rounds aren’t a good idea because the entrepreneur almost always spends all the money without making enough progress to raise the next round at a higher valuation leading to even more dilution. Raising a $1M seed round can work, but when entrepreneurs have money in the bank and believe they can raise more, the money gets spent quickly.

    Instead of $1M seed rounds pre-revenue, my recommendation is for angel investors to put together small rounds in the $250k range. $250k is enough money for a small team of three people to work on finding product/market fit and building the start of a repeatable customer acquisition process over the course of 18-24 months. If product/market fit hasn’t been found at the end of that time period, it’s a good time to evaluate continuing forward with the startup or shutting it down.

    Entrepreneurs would do well to think about smaller seed rounds and the benefits of a leaner team, less dilution, and more time to figure how to stay in the game long enough to win.

    What else? What are your thoughts on $250k seed rounds?

  • Getting Deals Done with a Third-Party Deadline

    I didn’t realize it at the time but one of the luckiest aspects of the Pardot/ExactTarget deal was that ExactTarget’s annual user conference, Connections, was scheduled for the second week of October 2012. So, when we were working on the acquisition, we always talked about getting the deal done just before the conference so that we could make a big splash at the show. With that firm deadline locked in, we moved forward in an expedient manner and got the deal down a few business days before the event.

    In talking with members of the AirWatch team, they had a similar situation, only at a much larger scale. When they raised over $200 million in one of the largest Series A rounds ever, it was announced at Mobile World Congress in Barcelona in 2013. When they sold the business to VMware, it was announced at Mobile World Congress 2014. In both cases, the largest tradeshow in their industry also provided a great third-party deadline for both parties to work towards so as to have a huge announcement for the show.

    When working on a big financing, partnership, or exit, if you have a true third-party date to as a firm deadline, it focuses all parties and helps get the deal done in an efficient manner.

    What else? What are your thoughts on having a third-party deadline to finish a deal in a timely manner?

  • Modeling Sales Rep Ramp in SaaS Startups

    Most Software-as-a-Service (SaaS) financial models focus on the standard areas like new customers acquired, customer churn, expenses, cash flow, etc. In the section that models out labor there are the standard categories like sales, marketing, engineering, operations, administrative, etc. Only, the sales rep section is often too simplistic with a model that shows the hiring of two new sales reps every month/quarter (always hire sales reps in pairs) and simply leaves it at that.

    Here are a few items to model in the sales rep ramp for a SaaS startup:

    • Time to quota attainment (most sales reps take 60 – 120 days before they’re productive)
    • Sales rep churn (often 50% of reps hired won’t work out and some percentage of the successful reps will leave each year)
    • Productivity increases (reps often get 10-20% better each year)
    • Quota increases (often coincides with productivity increases and market dynamics)

    Sales reps, as a percentage of total employees, is almost always higher than most entrepreneurs realize (check out Salesforce.com which is said to have more than 50% of the employees in a sales capacity). Ramping up a large sales team in a SaaS startup is much more complicated than most financial models dictate.

    What else? What are some other thoughts on modeling sales rep ramp in SaaS startups?

  • The Most Popular Blog Posts Here

    Once a year I like to see what blog posts are most popular here. SEO drives the majority of the traffic with social media in second place. Here are the 14 most popular posts based on site traffic:

    Clearly, planning/strategy content and SaaS content is popular. Look for more in the future.

    What else? What are some other topics you’d like to see?

  • What’s Atlanta’s Grade in the Competition for Startups?

    Mark Suster has a solid new post up titled How to Kick Start Your Community’s Startup Scene. Whenever I see a post like this I always size up Atlanta relative to the recommendations. Under the “What does a city need to compete” section Mark offers five areas of focus. Here are the five areas and how Atlanta’s doing:

    1. Events (Grade: B+) – With a strong set of metro events like the Atlanta Startup Village Meetup, Startup Chowdown, ATDC Entrepreneurs Night, and TAG Entrepreneurs Society there are a number of great events that connect the community. Without a national event that brings outsiders to Atlanta, it’s tough to get a better grade (we have a great venture conference with Venture Atlanta).
    2. Co-Working Space (Grade: A) – Between ATDC at 40,000 sq. ft. and the Atlanta Tech Village at 103,000 sq. ft. Atlanta has a tremendous amount of startup-friendly office space.
    3. Angels & Recycled Capital (Grade: B-) – With the Atlanta Technology Angels (one of the largest and most active angel groups in the country) combined with a number of local angels, Atlanta is making great progress. It’s still extremely difficult to raise seed stage capital and there’s limited recycled capital.
    4. Venture Capital (Grade: B-) – There are a number of active venture firms in town including Noro-Moseley Partners, BIP Capital, Mosley Ventures, Fulcrum Equity Partners, TechOperators, and Kinetic Ventures. Even with those firms, a general guideline is that they’ll average one investment per year in Atlanta, meaning there’s only six local VC investments per year. Venture capital, and all other capital, is much more mobile now, meaning it will find the best entrepreneurs and opportunity to make money, regardless of geography. Entrepreneurs with proven metrics and a scaling business can easily raise money in Atlanta.
    5. Mavens & Marketing (Grade: B) – We’re working hard to spread the word about Atlanta’s great startup community, especially for bootstrapped businesses, startups for grownups, and our strong clusters (like digital marketing, internet security, logistics, mobility, financial technology, health IT, and more). Atlanta unicorns happen fairly regularly, but we can still do more to get the word out.

    Atlanta’s making great progress and is well positioned to be one of the top 10 cities in the country for tech entrepreneurs.

    What else? What are your thoughts on Atlanta’s grades in the competition for startups?

  • The Power of Commitment

    At last Monday’s Atlanta Rotary meeting, one of the Rotarians was honored with a remarkable feat: he hadn’t missed a weekly meeting since 1962. To put that in perspective, that’s roughly 50 years at 40 meetings per year (no meetings during national holidays) for a total of 2,000 consecutive Monday lunches. That’s an unbelievable level of commitment and consistency.

    Imagine picking something you care about — like running — and commit to do it every day for a week. Then commit to do it for a month. Then commit to do it for a quarter. The next thing you know you’ll be like this club of runners that has run every single day for over 40 years. That’s commitment.

    Once committed, there’s a sense of confidence that you know you’re going to do it. Whether a big project, or a small one, one of the best ways to ensure the commitment is to share the commitment with friends and have them help hold you accountable. Friends want to see other friends succeed.

    Commitments are powerful. Tap into that power and achieve greatness.

    What else? What are some other thoughts on the power of commitment?

  • Leadership Weaknesses: Lack of Planning and Accountability

    Allen Nance put up a post this afternoon on the 8 Dimensions of Leadership. In it, he identifies himself as “Pioneering” whereby two of his top weaknesses are as follows:

    1. Lack of attention to planning (e.g. he’ll brainstorm with a group, say make it so, and be done)
    2. Lack of accountability (e.g. when someone says they’ll do something, it’s assumed it’ll get done, and that’s that)

    After reading the post I immediately recognized that it describes me as well. Not big on planning? Check. Not big on accountability? Check. My workaround is to force myself to follow the Mastering the Rockefeller Habits which results in more time spent on planning and accountability. For me, the two biggest things are doing a Simplified One Page Strategic Plan every quarter (planning) and doing daily check-ins (accountability). There are a number of other techniques like weekly tacticals, quarterly check-ins, and LED scoreboards to help with planning and accountability. Overall, I recognize planning and accountability aren’t strengths of mine, but I do well at setting up simple processes to address them so as to operate at an acceptable level.

    What else? What are some other thoughts on common leadership weaknesses of entrepreneurs?

  • Investors and Conflicting Investments

    As more startups emerge around today’s popular trends (e.g. social media, big data, sales technologies, etc) it’s inevitable that investors will start seeing startups that are competitors of existing investments (some loosely competitive and some that are direct competitors). Just this past week I talked to two different investors that mentioned they looked at one of the Atlanta Tech Village companies raising money and had to pass because it was close to being competitive with an existing investment.

    Here are a few thoughts on investors and conflicting investments:

    • Entrepreneurs pitching at large venture conferences should share enough information to get investors interested in a private meeting, and expect that everything that’s shared publicly will get back to their competitors
    • Venture investors don’t sign NDAs since they hear so many entrepreneur pitches, it’s difficult to keep track of who said what and what information is public vs confidential
    • Occasionally investors will have an existing portfolio company pivot and become a direct competitor to another portfolio company, making for a difficult situation
    • Some venture firms have multiple groups within their firm (e.g. an early stage team and a growth stage team) such that they agree to not share information (a Chinese wall) if they’re evaluating competing companies at the same time (usually different stage companies in the same industry — we experienced this at Pardot)

    Investors and conflicting investments are a standard part of the startup world. Entrepreneurs would do well to research the investor’s portfolio in advance of pitching as well as find the right balance between sharing too little or too much information.

    What else? What are some other thoughts on investors and conflicting investments?