David Cummings on Startups

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  • Getting to Entrepreneurial Freedom – Break Even with a Personal Salary

    Continuing with the previous post titled Entrepreneurs on Annual Revenue Goals, the clear next step is talking about controlling your own destiny. For almost all entrepreneurs, one of the biggest milestones on the startup roller coaster is achieving entrepreneurial freedom: financial break even in the business while also paying a salary that covers personal expenses and obligations. With a self-sustaining business and a self-sustaining personal lifestyle, stress and financial pressures are relieved.

    Here are a few thoughts on getting to entrepreneurial freedom:

    • Keep the team lean and focus on customer acquisition (see Simplifying it Down to Selling or Building)
    • Remember to keep the seed round small to minimize dilution and maximize ownership (see Death to the $700k Seed Round)
    • Ignore the desire to raise VC money for idea validation and instead build a great business that can raise money on its own terms (or never raise money)
    • Never forget the four stages of a B2B startup (e.g. don’t start investing in one stage when the previous stage isn’t fully developed)

    Whether bootstrapping the business or enlisting the help of investors, one of the most liberating moments is growing the business to the point that it can exist indefinitely on its own. While not easy, achieving entrepreneurial freedom is well worth the challenge.

    What else? What are some other thoughts on getting to entrepreneurial freedom?

  • Learn, Earn, and Change the World

    A popular question from would-be entrepreneurs is “What should I do next?” Should I join a startup to learn as much as I can, start my own company to try to earn as much as I can, or pursue a change-the-world idea I’ve always wanted to do? Mark Suster has a great post up titled Is it Time for you to Earn or to Learn? My recommendation is similar to Suster’s:

    • Join a startup initially, especially one with a successful entrepreneur or successful VCs (it’s always faster and easier to learn from a mentor), unless there’s the rare case where you have an idea you love and can bootstrap it or raise money for it in a modest amount of time (e.g. 12 months)
    • With several years of experience (e.g. 3 – 7) in the startup world, you’ll have had enough time to experience some ups and downs, learn what works and doesn’t work, and see a variety of business best practices. And, importantly, several business ideas will have emerged. Now’s the time to start a company.
    • Serious success has been achieved and now the part-time passion project can be turned into a bigger initiative with significant resources. Change the world projects come in all shapes and sizes.

    So, there you have it: learn, earn, and change the world. Naturally, there’s no perfect route but it’s best to play the game.

    What else? What are your thoughts on learn, earn, and change the world?

  • Entrepreneurs on Annual Revenue Goals

    Entrepreneurs are an optimistic bunch. When talking about revenue goals for the year, the most common approach is to pick numbers that feel reasonable and idealistic while also fitting into a spreadsheet narrative. Of course, it’s extremely difficult to estimate revenue without a repeatable customer acquisition process in place for a year. Why? For the most accurate revenue forecasting, a bottom-up financial model is superior to educated guessing.

    Here are a few thoughts on annual revenue goals:

    • Consider number of sales people, length of sales rep ramp up time, ratio of sales reps that work out to ones that don’t work out, number of leads required per sales rep, and more (hence the need to have operating history with reliable data for each category)
    • Analyze key metrics like cost of customer acquisition, gross margin, lifetime value of the customer, annual renewal rate, annual up-sell rate, and more to make sure that the numbers in the plan are inline or below industry averages (they should be worse than industry averages because economies of scale haven’t kicked in yet)
    • Without operating history from a repeatable customer acquisition process, take whatever data that’s available and conservatively extrapolate it out into a plan (this is where optimism combines with rose colored glasses)
    • Pardot’s revenues, previously published for magazine and newspaper awards, were as follows:
      Year 1 – ~$3,000
      Year 2 – ~$400,000
      Year 3 – ~$1,200,000
      Year 4 – ~$3,200,000
      Pardot isn’t the norm and that was the revenue growth with an amazing team, product, and market.

    Naturally, entrepreneurs are going to be optimistic thinking through annual revenue goals, but it’s important to use data and make them realistic. Growing revenue is always much more difficult than it appears on a spreadsheet.

    What else? What are some other thoughts on entrepreneurs and annual revenue goals?

  • Micro Apps as Next Generation Content Marketing

    Have you ever been to Grader.com and gotten a marketing grade for a website? Amazingly, over one million people have done it. And, you know what, it’s an unbelievable lead generation channel for HubSpot. Much like content marketing – blogging, white papers, ebooks, SEO, etc – has been a mainstream marketing tactic for over a decade now, there’s a new kid on the block: micro apps.

    A micro app is a custom web application that provides some type of useful value, like Grader.com’s automated evaluation of marketing best practices for a website, in exchange for contact information (e.g. we’ll give you some value at no charge in exchange for becoming a lead). Micro apps are more difficult to build and more expensive to maintain, but also provide more value and interactivity compared to traditional content marketing.

    Here are some more micro app examples (Disclosure: I’m an investor in these companies):

    Due to the technical nature of micro apps it’s never going to be as popular or mainstream as content marketing, but for the sophisticated companies that can pull it off, micro apps will be an excellent source of lead generation.

    What else? What are your thoughts on micro apps as next generation content marketing?

  • Simplify it Down to Selling or Building

    When talking to a founder or early employee in an early stage startup I always start by asking “What do you guys do?” After that, I follow up with “What do you personally do in the startup?” When they answer, I like to mentally categorize it in one of two buckets: selling or building. If the person provides a long answer without much clarity, I’ll make my question more specific and say, “Do you sell or build?”

    One of the goals with this line of questioning is to get the person to focus on selling and/or  building. Too often, I hear that people focus on things like strategic direction, managing an advisory board, etc. Those are important occasional things, but shouldn’t be the day-to-day focus of a few person startup. Once product / market fit is achieved, more team members are brought on, and there’s room for specialization, it makes sense to branch out. Until then, almost all of the effort should be either selling or building.

    What else? What are your thoughts on simplifying the seed stage startup experience as either selling or building?

  • The Trough of Disillusionment for Entrepreneurs

    There’s a Hype Cycle is a methodology invented by Gartner about technologies whereby expectations start out in grand fashion only to fall off sharply into the trough of disillusionment. Then, slowly, over time the visibility and impact grow creating tremendously productivity and value. Entrepreneurs follow a similar path on the personal level when building a new company.

    Over the last week I’ve talked with two different entrepreneurs that were in the trough of disillusionment. Of course, they didn’t volunteer to me that they were in the trough of disillusionment. Instead, they said that they were down because they’d been pushing hard on their new startup for the past year and haven’t seen the results they expected. Worse, results on the revenue side were almost none existent. With the advent of the New Year, and the typical reflection time, more stress is self-inflicted around achieving success.

    Here are a few thoughts on the trough of disillusionment:

    • Startups always have highs and low lows, so attempt to keep perspective
    • Business models like the Software-as-a-Service / cloud model are beautiful, but the time to build a customer acquisition machine is often excruciatingly long
    • Everything takes twice as long and costs twice as much as expected, so plan accordingly
    • Gut checks are critical throughout, and sometimes the right move is to keep moving forward and sometimes the right move is to give up

    The next time things are going poorly, think about the trough of disillusionment and figure out where things stand. Much like Seth Godin’s The Dip, sometimes things get worse before they get better.

    What else? What are some other thoughts on the trough of disillusionment for entrepreneurs?

  • One Page Strategic Plan for the New Year

    One of my favorite exercises for entrepreneurs is putting together a one page strategic plan. The exercise only takes an hour for a rough draft and provides immense value. Generally, the idea is to capture as much pertinent company information as possible on the front side of one piece of paper, preferably as a living Google Doc (Google Doc template), and refreshed on a quarterly basis.

    Here are the categories:

    • S.W.O.T. Analysis
      – Strengths
      – Weaknesses
      – Opportunities
      – Threats
    • Core Values
    • Purpose
    • Three Year Target
    • Annuals Goals
      – Goal 1
      – Goal 2
      – Goal 3
    • Quarterly Goals
      – Goal 1
      – Goal 2
      – Goal 3
    • Quarterly Priority Projects
    • Market
    • Brand Promise
    • Elevator Pitch

    So, if you don’t do anything else this week, please, please, please put one together based on the Google Doc template and share it with everyone inside and outside your organization.

    What else? What are your thoughts on putting together a one page strategic plan, especially as part of the start of a new year?

  • One Year Personal Development Plan

    Several years ago a friend of mine came back from an EO University and was raving about a session he attended where they built a one year person development plan. Naturally, I love these kind of things and asked him for all the details. The idea is straightforward, as expected, but incorporates numerical goals as well as specific habits. Most of the time people think of one year goals as “I want to make X dollars and lose Y pounds.” This methodology is useful because it incorporates those goals as well as more specific habits desired (e.g. I want a healthy marriage so one habit is having a date night once a week).

    Here’s the plan template:

    • Professional
      – Category, 2014 Achievements, Habits
      – e.g. My Startup, $1,000,000 in revenue, attend one entrepreneur event/month
      – e.g. My Income, $100,000, 50 cold calls/day
    • Family
      – Category, 2014 Achievements, Habits
      – e.g. Spouse, Good marriage, Date night/week
      – e.g. Child, Healthy relationship, One adventure/bi-weekly
      – e.g. Vacations, Out of town, One week/quarter
    • Community
      – Category, 2014 Achievements, Habits
      – e.g. Non-profit board, Donate time, Two hours/month
      – e.g. Donations, Give $1,000, One meeting/month
    • Personal
      – Category, 2014 Achievements, Habits
      – e.g. Weight, 175 pounds, Run 10 miles/week
      – e.g. Learning, Reading, One book/month
      – e.g. Fun, Attend a sporting event, One event/quarter

    So, dust off those recent New Year’s Resolutions and add habits to go along with the goals, as well as break things out into professional, family, community, and personal.

    What else? What are your thoughts on a one year personal development plan?

  • The Challenge of Surpassing a Previous Success

    If you like to run, it’s easy to keep track of your time when running a 5k or 10k, so you can continually strive to set a new personal best — it’s human nature to want to improve and get better. Of course, this applies to the entrepreneur world as well. After a big success, the goal is to surpass it with the next venture. But, what if the bar is set extremely high? How do you measure success?

    Here are a few thoughts on the challenge of surpassing a previous success:

    • Think about the journey more than the destination
    • Success comes in many forms like creating jobs, being challenged, building relationships, achieving goals, etc
    • Limits and guidelines should be set around personal capital invested, amount of risk desired, etc
    • Legacies come in many different forms and doing one thing well repeatedly isn’t required

    Surpassing a previous best is a real challenge that is rarely achieved in the entrepreneurial world. Regardless, as long as the game is fun, it should be played.

    What else? What are some other thoughts on the challenge of surpassing a previous success?

  • Two Products, One Startup — Don’t Do It

    Whenever I see a startup offering two different products on their website I cringe. It’s so incredibly hard to make one product successful that having a second product means resources are going to be spread more thin. Personally, I’ve tried it three times and have failed all three times. Can it be done? Yes. Is it rare? Yes.

    Here are a few thoughts on a second product:

    • Whichever product pays the bills is going to get all the attention
    • Having a second product is actually 10x more difficult that it appears
    • Finding product / market fit still takes 12 – 24 months with the second product
    • Micro apps that are a subset of the mothership’s functionality are fine as long as they share the same code base
    • Building a successful second product suffers many of the same issues as being a part-time entrepreneur
    • If it’s going to be done, consider having a separate, dedicated team of people and website devoted to the product

    When the first product has plateaued or is in decline, a second product makes sense to try and start growing again. Regardless, startups should stay away from a second product as long as possible.

    What else? What are some other thoughts on a startup having two products?