David Cummings on Startups

Blog

  • Thoughts on Early Talks With a Potential Acquirer

    Over the course of the five-and-a-half years Pardot was in business as a standalone company, we received a half dozen overtures from potential acquirers with differing levels of seriousness. After a startup gains quality market traction, potential acquirers will start sniffing around. Now, most of the inquiries are just to gather information for a corp dev spreadsheet, but occasionally there’s more to it.

    Here are a few thoughts on early talks with a potential acquirer:

    • Remember that there’s little chance a deal will happen, so try and keep the expectations low (don’t start dreaming of a big pay day as it’s very distracting)
    • Use the interaction with a potential acquirer as a learning experience
    • Even if you don’t want to sell the business, it’s a useful exercise to learn what acquirers look for in a startup
    • Continue to grow the business and don’t lose sight of building a great company
    • Mutual NDAs are standard but sharing detailed information isn’t a requirement
    • External validation from a potential acquirer helps boost the confidence of the entrepreneurs

    The biggest takeaway is that each talk with a potential acquirer should be a learning experience with minimal expectations. Potential acquirers will come out of nowhere and disappear back where they came just as quickly.

    What else? What are some other thoughts on early talks with a potential acquirer?

  • The Hard Thing About Hard Things

    Recently I read Ben Horowitz’s book The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers. I enjoy entrepreneurial success story books that are full of anecdotes, and this one is good. Most of the book is CEO/founder advice with 80% of it being solid and 20% not so valuable.

    Ben’s story of Loudcloud/Opsware is one of the more unusual ones I’ve ever encountered. After starting a cloud computing company in the dot come heyday and going public, he decided he didn’t want to be in the hosting business and pivoted. Pivoting is hard enough when it’s just a couple entrepreneurs and an idea — imagine having the pressures of Wall Street and still moving forward with getting rid of your main business and becoming a software company. The bold move paid off and a few years later they ended up selling the business for $1.6 billion to HP. Ben is the rare entrepreneur that took an idea from inception to unicorn exit.

    Here are a few takeaways from the book:

    • Gather input from all the stakeholders and them make the decision you think is best, even without consensus
    • Prepare for psychological meltdowns as the CEO role can be terribly difficult
    • Hire the best candidate for the job even if other team members object (I don’t agree with this)
    • Not everyone will scale as the company scales, but it’s important to give them a shot
    • When the entrepreneurs and executive team are tired, it’s often a good time to sell the business

    The Hard Thing About Hard Things is an easy read that many entrepreneurs will enjoy. With the success of Ben’s venture firm Andreessen Horowitz, Ben has cemented himself as one of the leading business people of the 21st century.

    What else? What are some other thoughts on Ben Horowitz’s book?

  • Think Big, Start Small

    Entrepreneurs are dreamers. So many ideas and so much potential. Only, coming up with an amazing vision doesn’t translate into results. Entrepreneurs need to think big but start small.

    Here are a few thoughts on starting small:

    Entrepreneurs need to think big and start small.

    What else? What are some other ideas around starting small?

  • Gap Between Prototype and Robust Product

    While assembling a prototype to assess market demand is dramatically cheaper than 10 years old, there’s still a serious gap between minimum viable product and robust product. Software, like any product, can always be improved. Unlike many physical products, the complexity of a software product is not always understood even after a fair amount of usage.

    Here are a few thoughts on the gap between prototype and robust product:

    • All software has bugs, but over time the frequency of new known bugs will decrease (assuming minimal new functionality introduced)
    • Some software is inherently more complicated resulting in more time and effort required to achieve a robust state
    • One gauge to assess product robustness is to get it to the point where there aren’t any known blocker bugs and to have configured 10-25 new customers without any issues (bugs are always going to be present but the severity isn’t always going to be high)
    • Product robustness and product/market fit aren’t correlated as the product can be solid without market fit

    Prototypes aren’t the same as robust products but they are very important. Entrepreneurs need to budget for continued product development and pay attention to issues.

    What else? What are some other thoughts on the gap between prototype and robust product?

  • Calendly For Self-Service Calendar Scheduling

    Atlanta Ventures just partnered with entrepreneur Tope Awotona and made a seed investment in Calendly — a cloud-based service that sits on top of Google Calendar making it super easy to provide self-service scheduling (no more sending several emails back and forth to find a time that works). Calendly has signed up thousands of users over the past few months and is focused on helping professionals save time and increase revenue.

    Here are a few of the main benefits of Calendly:

    • Reduce the friction to setting up a meeting (how many times have you gone back and forth over the phone or email to find a time that works?)
    • Make it easy to cancel or reschedule a meeting (many meetings are changed and Calendly cuts down on the noise)
    • More consistent meeting information and preparation (e.g. you can require certain information be provided as part of scheduling a meeting as well as have different meeting types)
    • Automated integration with other systems like CRM (e.g. when a lead schedules a meeting, put it in Salesforce.com)

    Anyone that schedules meetings on a regular basis (e.g. sales reps, customer success managers, support reps, etc) would do well to put a Calendly link in their email signature and make it easy for prospects and clients to schedule a meeting. We’re big fans of Calendly and are looking forward to working with Tope.

    What else? What are some other thoughts on Calendly and self-service calendar scheduling apps?

  • Hot or Not for Startup Potential Customer Matchmaking With Big Companies

    One of the biggest opportunities I see for the Atlanta startup community, and many other startup communities around the country, is helping connect local startups with local mid-to-large companies looking for certain technologies. Big companies are difficult to navigate, have many competing interests, and are not oriented to purchase from startups. With that said, big companies do want to be more innovative and want to try new things but don’t know where to begin or how to engage local startups.

    Here’s an idea for a hot or not service to connect startups with potential big companies:

    • Similar to the site James Hong launched in 2000 (history), the idea is to have startups and big companies list their information in a database with some data being public and some being private
    • Startups filter and browse the big companies giving a thumbs up or down depending on if they are a good fit (hot) or not
    • Big companies filter and browse the startups giving a thumbs up or down depending on if they are a good fit or not
    • When a match is made (both parties give a thumbs up), the software does an email introduction and let’s the startup and big company take it from there

    Some of the key aspects of this include startups agreeing not to hassle big companies that get introduced, big companies agreeing to spend a modest amount of time using the system (will need some C-level buy-in from people that want to help the local community), and a constant curation of information by someone that manages the system (e.g. the local chamber of commerce). Connecting startups with mid-to-large companies is a big opportunity to help grow the local entrepreneurial community

    What else? What are some thoughts on this hot or not system to connect startups with large companies?

  • Sell Before Optimizing

    Today I was talking to an entrepreneur that’s working on a physical product that solves a specific issue within a traditional industry. After describing the idea, he started asking questions about patents, low-cost manufacturing options, and state-related tax laws. Naturally, I asked the logical next question: how many paying customers do you have? Answer: 0. How many customers do you have lined up that will pay as soon as the product is ready? Answer: 0.

    Without people interested in buying, most entrepreneurial efforts result in premature optimization. Here are a few reasons why:

    • Product/market fit and entrepreneurial instincts differ, so listen to the market and act accordingly
    • Messaging, positioning, value propositions, etc. all become much stronger with customer feedback
    • Optimizing is a neverending thing, so get in the habit of selling before optimizing
    • Nothing happens until something is sold

    Don’t let entrepreneurs start optimizing their business without first getting potential customers engaged. Too much time is wasted on premature optimization.

    What else? What are some other thoughts on sales as a prerequisite before optimizing the business?

  • What Percentage of the Company Should Entrepreneurs Sell to Investors?

    When I talk to entrepreneurs that are in the process of raising money I always like to ask “what percentage of the company are you looking to sell to investors?” Inevitably, the answers come back all over the board, often ranging from 20%-35%. Entrepreneurs also like to quote a range when it comes to how much money they’re raising e.g. we’re raising $2M-$3M at a $4M pre-money valuation.

    Here are a few thoughts on what percentage of the company entrepreneurs should sell to investors:

    • Entrepreneurs should raise enough money to run the business at a certain scale for 12-18 months in order to hit a major milestone so as to raise more money or achieve modest profitability
    • Startups often require multiple rounds of financing, so it’s best to think about selling part of the company at each step in the process, and what that looks like in terms of dilution
    • Some investors will “require” a certain percentage of the business to be worthwhile for them to invest — this is a game that should be avoided, if possible, as investors are flexible as to what percentage of the business they’ll buy if they believe they make a large return
    • One school of thought is to raise as much money as possible, whenever possible, as you don’t know when fundraising will dry up, and to not worry about dilution (I don’t subscribe to this but others do)

    The best answer to the question is that entrepreneurs should sell as little as possible to investors while still raising enough money to hit the next major milestone. In reality, entrepreneurs usually sell between 1/5th and 1/3rd of the business with each round of financing.

    What else? What are some other thoughts on how much of the company entrepreneurs should sell to investors?

  • Large Growth Companies Create Sizable Startup Opportunities

    Jason Lemkin wrote a great post last month titled The Simple Reason Why There Will be 10-20 Great CRM IPOs in the Next Few Years. The idea is awesome: when a company like Salesforce.com hits $10 billion in run rate, the bottom 10% of the customers get neglected, creating $1 billion in revenue opportunities for startups. Here are a few thoughts on large growth companies creating sizable startup opportunities:

    • Market reinventions happen every 10-15 years, so it’s inevitable everyone will be disrupted at some point (think mainframes, PCs, Internet, mobile, etc)
    • Opportunities come in the form of a vertical-specific offering, a lower priced offering, and/or a better solution
    • Better solutions in CRM will come in the form of more fully integrated marketing and sales platforms that aren’t tied to traditional conventions
    • Disruptive vertical-specific offerings will be the most prominent (e.g. CRM for real estate, CRM for legal, CRM for accounting, etc.)
    • Startups that can hit $5 or $10 million in run rate will have nice, solid businesses whereas ones that can get to $75-$100 million in run rate will be homeruns, and the market will support several of these

    Go read Jason’s post on why there will be 10-20 great CRM IPOs in the next few years. Large growth companies create sizable startup opportunities and entrepreneurs should capitalize on it.

    What else? What are some other thoughts on large growth companies creating sizable startup opportunities?

  • Startup Theatre

    Over the past four days I’ve attended three different startup events. Each event served a slightly different purpose and had overlap in attendees. One of the benefits of a medium-sized tech startup community, like what’s found in Atlanta, is that there are a tremendous number of events and get togethers. Only, there’s a real risk in people attending events and equating that to making progress as an entrepreneur.

    Attending events is for learning, networking, and helping each other. If someone’s repeatedly attending startup events, and not actually in the startup game, it becomes startup theatre: a form of entertainment and enjoyment with no advancement. Even worse, it can bring a sense of accomplishment that you’re doing something, when, in fact, no progress is being made.

    Here are a few thoughts on startup theatre:

    • Entrepreneurship is best learned by doing and accelerated by the quality teaching, mentoring, etc
    • Attending events is a great way to get to know people in the community, but shouldn’t be a substitute for actually working on something (see 3 Next Steps for an Entrepreneur Without an Idea and Finding a Startup Idea)
    • Accountability is an important component of a health startup community, and starts with repeatedly asking direct questions like “what have you accomplished in the last 30 days?” and “how close are you to product/market fit?”

    Startup theatre is a very real challenge for startup communities around the world. Startup communities should work hard to maintain a bias towards action and not theatre.

    What else? What are some other thoughts on startup theatre?