David Cummings on Startups

Blog

  • Startup Trends for Entrepreneurs

    There’s never been a better time to be an entrepreneur, and it’s only getting better. Technological change in society is growing at a faster rate due to the proliferation of smart phones, the power of cloud computing, and the connectedness of society. Now, it’s 10x cheaper to build a minimum viable product compared to a decade ago and there are many more tech opportunities available.

    Here are a few startup trends on the horizon for entrepreneurs:

    • Talent War – Technology has such great economies of scale that it magnifies the value of smart people who get things done, and that demand is only going to increase
    • Changing Workplace – Millennials seek an environment that encourages autonomy, mastery, and purpose along with a focus on results, not being in the office from 9-5
    • More Outsourcing – With continued technological enhancements comes more ability to outsource non-core work and more items available as a service (even office space as a service)
    • Emphasis on Design – No longer is it good enough for the product to just work — now people look for it to work in an intuitive and beautiful manner

    More opportunities results in more competitors, but overall it’s a great time to be an entrepreneur. With these trends, and more, look for continued entrepreneurial opportunities.

    What else? What are your thoughts on startup trends for entrepreneurs?

  • Entrepreneurs are Patient and Impatient

    One of the more common refrains I hear from entrepreneurs with a working product is that sales aren’t where they had hoped. Peeling back the layers, the real issue is that entrepreneurs are impatient and want to see results immediately.

    Now, on the other hand, entrepreneurs are patient in that it takes a tremendous amount of time to see a pay-off for all the risk, if they have any success at all. It takes years to get a business off the ground and in a position that’s sustainable and predictable. But, of course, during the process of building a business, most entrepreneurs are super impatient. Here are common issues:

    The product is taking too long to build.

    The suppliers are too slow.

    The sales people can’t close deals fast enough.

    The potential investors take too long to make a decision.

    Impatient, impatient, impatient.

    Being impatient is a healthy attribute as it’s correlated with pushing hard and constantly seeking results. Overall, it takes a unique person that’s patient with a long-term horizon and impatient with short-term results. Entrepreneurs are an unusual breed.

    What else? What are your thoughts on entrepreneurs being both patient and impatient?

  • Thinking About Annual Planning in a Startup

    With the end of the calendar year upon us, it’s time for the annual ritual entrepreneurs love: planning. Why do entrepreneurs love planning? Easy, because it’s an opportunity to dream about the future. Entrepreneurs love scheming up the next big thing.

    Here are a few ideas about startup annual planning:

    Annual planning is an important part of every startup and shouldn’t be overlooked.

    What else? What are some more thoughts on annual planning in a startup?

  • Forcing Sales Without Product / Market Fit

    Over the years, I’ve seen startups raise significant amounts of money from investors and plow it into sales and marketing. Only, many times this is prior to product / market fit — I call it forcing sales. The reason it’s forcing sales is that the product doesn’t meet the needs of the market (yet) and good sales and marketing can sell an inferior product.

    What’s the tell tale sign sales are being forced?

    Answer: high churn rates.

    Now, some products, due to the nature of what they do, are prone to high churn rates (think of things that are one-off or temporary). But, products that are designed to be used indefinitely, as long as they are providing real value, shouldn’t have high churn rates (annual renewal rates in the 75 – 90% range are normal with 90%+ renewal rates being exceptional).

    So, if you hear of extremely high churn rates, peel back the layers and see if sales are being forced without product / market fit.

    What else? What are your thoughts on forcing sales without product / market fit?

  • Thinking About Early Employee Equity in a Startup

    An important part of the startup ethos is equity and having an owner’s mentality, especially for early employees. Naturally, co-founders have a good chunk of equity along with investors, advisors, and employees. Early employees will often have equity in the range of .1% – 1%, depending on the role, experience level, and salary (executives and key hires often have larger percentages of equity depending on the stage of the startup).

    Here are a few thoughts on early employee equity in a startup:

    • Vesting of equity is common with it being either time-based (e.g. vesting over four years) or performance-based (e.g. vesting based on hitting milestones)
    • Salary and equity should have an inverse relationship with market-rate salaries having less equity and below-market salaries having more equity
    • Tempering expectations as to getting rich off early employee equity is important – I like to present it as if we do well, it’ll pay for a new car; if we do great, it’ll pay for a new house; and if we are a once-in-a-generation company, it’ll pay for a new life
    • Cash compensation should cover minimum lifestyle expenses, if possible, otherwise the added stress of not making ends meet can derail the focus on making the startup successful
    • Ownership percentages aren’t static – raising money from investors as well as issuing more stock options will result in dilution, which is a normal part of growing a business

    Equity is an important and sometimes challenging topic. Early employees in a startup would do well to further research it and have a conversation with the founders of their startup.

    What else? What are some other thoughts on early employee equity in a startup?

  • Differences as an Entrepreneur on the Next Venture

    Life as a first-time entrepreneur is well documented. Naturally, things change on the next entrepreneurial venture, especially when the first time goes well. Here are a few differences as an entrepreneur on the next venture:

    • Culture – Eventually entrepreneurs arrive at the understanding that people trump all other opportunities and challenges in a startup, making a focus on culture from the beginning more commonplace
    • Hiring – People want to be part of a team with proven success, making the recruiting process easier
    • Rhythm, Data, and Priorities – Whether it’s Mastering the Rockefeller Habits, or some other methodology, the second time around is easier due to having an established management process
    • Capital – Raising money is much easier after having a successful exit and investment terms are more entrepreneur friendly

    Finding product / market fit, building a customer acquisition machine, and scaling the business are still extremely difficult, regardless of being a first-time or tenth-time entrepreneur. Startups are hard, but having gone through it before makes entrepreneurs on their next venture more confident and more likely to not make the same mistakes.

    What else? What are some other differences as an entrepreneur on the next venture?

  • Rise of the Browser Add-on Business

    Now that Google Chrome and Firefox have healthy, active extension / add-on marketplaces, we’re starting to see more companies build businesses that interact with data and services from other web apps with the browser add-on being a critical component. Here are three popular examples:

    • Rapportive – Adds a sidebar in Gmail that shows rich contact profiles and information (e.g. social profiles, LinkedIn data, etc). Rapportive was acquired by LinkedIn.
    • Boomerang for Gmail – Enables scheduling emails for delivery at a date / time in the future as well as generating reminders if an email doesn’t receive a response.
    • SalesLoft – Enables fast and efficient capture of data returned in Google search results for the purpose of building prospect lists as well as integrating the data into a CRM (Disclosure: I’m an investor).

    Over time, I expect more products will emerge as browser add-ons that take advantage of data and interactions with existing web apps to provide substantially more value.

    What else? What are some other examples of browser add-ons that you like?

  • 2 Action Items Going from Doer to Leader

    Last week an entrepreneur emailed me for advice on going from doer to leader. His startup is doing well and now has several employees for the first time. Only, he’s being pulled in many directions and knows he needs to start the slow process of spending a more time on the business and less time in the business.

    I quickly responded that there are two immediate action items to start going from doer to leader:

    So, join a group of other people that are interested in improving their leadership abilities and implement rhythm, data, and priorities to establish a foundation for the business to scale.

    What else? What are some other recommendations for entrepreneurs going from doer to leader?

  • Investment Readiness Level

    Last night Keith McGreggor tweeted a picture laying out the characteristics of the Investment Readiness Level (IRL). After seeing it, I was impressed as seed and early stage angel investors often invest based on the team, the market, and gut feel — a very unscientific process. With the Investment Readiness Level, there’s a barometer of progress that brings much more rigor to the evaluation.

    Here’s the Investment Readiness Level, based on the picture of the slide:

    • High-fidelity MVP
    • Sufficient market opportunity
    • Left side of canvas validation
    • Right side of canvas validation
    • Product / market fit
    • Problem / solution validation
    • Low-fidelity MVP
    • Canvas
    • Hypotheses

    So, the next time an entrepreneur is trying to raise money, have them evaluate their Investment Readiness Level using these attributes.

    What else? What are your thoughts on the Investment Readiness Level?

  • Fear of a Dominant Vendor

    One of the most common refrains I hear from people when talking about a new startup in the Village  is “doesn’t so and so already do that?” Why, yes, you’re right, XYZ company does do a similar thing as the new startup. So, then, why is the new startup doing what they’re doing?

    Answer: they don’t fear the dominant vendor.

    Let me explain further:

    • Large, fast growing markets have room for multiple vendors as most aren’t winner-take-all or winner-take-most
    • Markets have segments like small-to-medium sized businesses and large enterprise customers, which have different needs
    • Vertical specialization is the next wave of successful startups, so even if the new startup looks like the dominant vendor, the vertical specialization creates significant differentiation
    • Incumbents, especially as they get larger, move slower and slower creating room for startup to outmaneuver them (speed and ability to stay close to the customer are two major reasons startups win)

    So, the next time someone brings up a dominant vendor in a category, think about some of the reasons why a new startup can carve out a successful space in the same field.

    What else? What are some other reasons startups can be successful in the face of a dominant vendor?