David Cummings on Startups

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  • Can’t the Software Just be Knocked Off

    Last week I was talking to an ambitious young professional that wants to get into the startup world. We were discussing ways to evaluate the potential of a startup — how big and successful it might be. In terms of evaluating startups, he offered up a serious concern of his saying that it’s easy for a big company to just knock off the software once a startup proves the need. With a background in real estate, he had seen ideas and strategies knocked off repeatedly.

    Building a product that offers similar functionality to another product is straightforward. Building a successful startup or product line based on another successful startup is incredibly difficult. Here are a few reasons why software can’t just be knocked off to have a successful business:

    • Switching costs and the network effects of using a product are significantly more important than one can appreciate without being in the industry and seeing it play out (think of salesforce.com as an example with high switching costs and Snapchat as an example that benefits from massive network effects)
    • For each visible feature there are hundreds of behind-the-scenes features that can’t be seen or accounted for unless you have hundreds or thousands of customers (think of the iceberg example where only a small amount of the iceberg is above water and the majority of the iceberg is below water — unseen functionality)
    • The Mythical Man Month still holds true whereby adding new software engineers to a project to speed it up actually slows it down (e.g. if a big company threw a bunch of engineers at a new product to get it done quickly, it would be worse off than a smaller team working in conjunction with customers over a much longer period of time, which is what a startup does)

    So, it’s very difficult to copy a product and make it as successful as an already successful product with the same market and buyer.

    What else? What are some other reasons why it’s so difficult to just knock off a successful software product?

  • Entrepreneur With an Idea but No Software Engineers

    Earlier this week I talked about the 3 Next Steps for an Entrepreneur Without an Idea. Now, the next logical topic is what entrepreneurs should do when they have an idea but don’t have any software engineers to help with a minimum viable product (assuming market demand has already been confirmed with eager prospects ready to sign up).

    With an idea, committed prospects, and no software engineers, an entrepreneur should build wireframes using Google Drawing with Morten Just’s wireframe kit template (Balsamiq and Mockingbird are good choices as well but more specialized). Here are some items to keep in mind:

    • Make a Google Spreadsheet with all the product screens including hierarchy, links, notes, etc
    • Consider the minimum viable product and keep the screens simple
    • Include as much detail as possible on each wireframe via notes but don’t clutter the user experience
    • Share the wireframes with potential prospects to get their feedback
    • Don’t set anything in stone and make changes in an iterative process

    So, as a next step, an entrepreneur with an idea should start building product wireframes in Google Drawing and make the idea more tangible.

    What else? What are your thoughts on next steps for an entrepreneur with an idea and no software engineers?

  • Understanding Bookings as Different From Revenue

    One of the financial questions investors are fond of asking, and entrepreneurs often struggle with, is that of bookings. Bookings are related to revenue but are at the front-end, before cash comes in. Bookings are best thought of as the amount of money committed to be paid to the company in the future, where the time frame can be any amount of time.

    Let’s look at a few examples:

    • A customer signs up for a one-year contract with $50,000 up front and $50,000 over the next twelve months but hasn’t paid anything yet — that’s $100,000 in bookings with no cash received and revenue to be recognized on a monthly basis as the solution is delivered
    • A customer signs up for a two-year contract paying $2,000 per month with no up-front fees, making for $48,000 of bookings (the total contract value over the life of the arrangement)
    • A customer is signs up paying $1,000 month with no contract and just pre-paid their first month, resulting in no change to bookings

    Recurring revenue is the most important startup metric as it shows how much revenue the business will generate assuming no churn and no upgrades. Recurring revenue doesn’t take into account how much of the revenue is contractually obligated, whereas bookings is driven by contractually obligated revenue.

    So, when an investor asks a question like “how much do you have in bookings”, be ready to answer it, especially for a specific timeframe (e.g. we have $500,000 booked for the next 12 months based on signed contracts).

    What else? What are some other thoughts on bookings and how it relates to revenue?

  • Investors Look For Personality Fit

    There’s a rumor going around that investors write checks only based on the likelihood of making money. While making a good return is a high priority, there’s an equally high priority of enjoying the ride, and that comes down to personality fit. That’s right, investors are gauging how much they like the entrepreneurs as well as ability to generate a return.

    In addition to personality fit, here are some entrepreneurial characteristics investors look for:

    • Leadership – Startups require great people and great people require strong leadership
    • Perseverance – Startups are hard, very hard, and everything takes twice as long as expected
    • Confidence – With so many unknowns, it’s important to have visible belief in the direction and approach
    • Work Ethic – Startup often require long hours and it takes a few years to develop a work / life harmony

    Another way to describe it is that the entrepreneur has to pass the canoe test: would you enjoy spending a day with the person in a two person canoe on an open lake?

    Never forget that personality fit is as important as making a great return.

    What else? What are your thoughts on the importance of personality fit for investors?

  • Ambitious Software Entrepreneurs Should Attend Dreamforce

    Over the past 24 hours I’ve received several emails from colleagues at Dreamforce ’13 about all the cool things going on at the show. After reading the emails, and following the tweets, I realized that all ambitious software entrepreneurs, regardless of industry, should attend at least one Dreamforce event in person.

    Here are a few reasons to attend the Dreamforce conference:

    • Scale – it’s hard to get a feel for the size based on the pictures — being in person helps expand the mind to just how much success and influence a company can attain
    • Energy – passionate communities have incredible energy and in the world of cloud computing / Software-as-a-Service, it doesn’t get any better than the excitement of the Dreamforce attendees
    • Innovation – walking the show floor with hundreds of software companies exhibiting, many of them startups, helps fire more synapses in the brain about what’s possible
    • Billionaires – it’s not about the money but there’s something inspiring for entrepreneurs to be around and shake hands with a billionaire (or two)

    So, all software entrepreneurs should put October 13, 2014 on their calendar now and attend Dreamforce 2014.

    What else? What are your thoughts on ambitious entrepreneurs attending the largest software conference in the world to expand their mind as to what’s possible?

  • Rise of the Solo Founder

    Over the years I’ve said numerous times that it’s much better to have a co-founder rather than go it alone. Personally, I’ve started companies with and without a co-founder and the co-founder route is much more enjoyable and achieved a much greater level of success. One of Atlanta’s biggest exits last year, Vitrue, which sold for a reported $300+ million, had an amazing solo founder in Reggie Bradford.

    With the Atlanta Ventures Accelerator, the first investment we made was in a solo founder. For the accelerator, we prefer 2-3 co-founders per team, but we’re most interested in building successful startups, irrespective of number of founders.

    Additionally, the cost of creating a minimum viable product, assuming potential prospects are lined up, has dropped substantially making prototypes more attainable. So, it’s easier for solo founders to start out independently, moving forward with the startup, and then look to recruit one or two co-founders as progress is made. By getting things done and networking, there’s a greater chance of finding potential co-founders, and the better things go with the startup, the easier it is to find people that want to join.

    With more single founder success stories, and lower startup costs, look for more solo founders to emerge.

    What else? What are your thoughts on the rise of more solo founder startups?

  • Notes on Salesforce.com’s AppExchange Certification Process

    Continuing with yesterday’s post on Getting the Most out of Salesforce.com’s Dreamforce ’13 Conference, there’s another Salesforce.com topic that I’ve received a number of questions about over the years: the AppExchange Certification process. Salesforce.com takes their marketplace very seriously with a heavy focus on security and value. Most companies go through the process of getting on the AppExchange to have the social proof and marketing of an approved Salesforce.com product as well to gain access to Professional edition customers (without certification, apps can’t access Salesforce.com data unless the Salesforce.com account is Enterprise edition or pays extra for API access).

    Here are a few notes on Salesforce.com’s AppExchange certification process:

    • Plan on it taking 3-4 months, so if it’s on the horizon, but isn’t immediate, go ahead and start it now
    • Run the app through several security testing programs, especially ones for cross-site scripting and SQL injection
    • Justify the value of the application and figure where it fits in the Salesforce.com ecosystem as the reviewers reject a number of applications for not adding value
    • Know that even with a certified app, there’s often work to be done on the Salesforce.com customer side to make the integration smooth (e.g. the one click installs add a variety of functionality but the Salesforce.com user often has to change other security and permission settings to make things fully functional, so it isn’t as simple as installing an app on an iPhone)

    The Salesforce.com AppExchange certification process is more thorough than might be expected for a marketplace of over 1,000 apps. Plan accordingly for it and everything will go smoothly.

    What else? What are some other notes on Salesforce.com’s AppExchange certification process?

  • Getting the Most out of Salesforce.com’s Dreamforce ’13 Conference

    Next week is the annual Salesforce.com Dreamforce ’13 conference out in San Francisco. For the past five years I’ve attended the show and enjoyed watching the Software-as-a-Service market grow extensively. I won’t make it to the show this year but I have a few thoughts on getting the most out of the event:

    • Plan your itinerary in advance around the sessions and events, but stay flexible as more opportunities will always pop up
    • Remember that the most value comes from building new relationships in the hallway discussions between sessions
    • Never pay for a meal or drink while at Dreamforce — there’s always something going on
    • Engage in social media, especially Twitter, to meet like-minded individuals at the show
    • Set five personal goals for the show, whether it’s meeting certain people, finding answers to business problems, or helping push forward other initiatives

    Dreamforce is a great event and anyone in the software industry would do well to experience it at least once. I’m disappointed I’ll be missing it this year, but with these recommendations, anyone who attends will get tremendous value.

    What else? What are some other ways to get the most value out of Dreamforce ’13?

  • 4 Tested Scrappy Startup Ideas

    One of the best things an entrepreneur can do is figure out how to get stuff done on a limited budget and build scrappiness into the DNA of the company. Once the business catches fire and has unbelievable growth, some of the scrappiness will have to be unwound, but that’s a high class problem to have. Let’s talk about some common scrappy ideas.

    • Subleases – Never do a direct lease unless there are flexible terms (more ideas on subleases)
    • IKEA Furniture (or Goodwill) – Invest in great chairs but otherwise get the cheapest desks and furniture possible (costs to furnish a nice office)
    • Interns – Young, ambitious talent is eager to help out and make a difference
    • Crowdsourced Design – Look to talent from around the world for high quality logos and graphic design (see 99designs and crowdSPRING)

    Scrappiness is an important part of successful startups and should be employed whenever possible.

    What else? What are some other scrappy startup ideas?

  • 3 Next Steps for an Entrepreneur Without an Idea

    At last night’s Startup + Student Connection event a number of ambitious students came up after my talk and expressed interest in becoming an entrepreneur. Naturally, I asked why they hadn’t started a company already. Of course, the standard response was that they didn’t have a good idea. My response was either to a) start an eBay store to learn some basic entrepreneurial skills or b) build a personal brand that will help your future company.

    Here are the first three steps for building a personal brand:

    1. Register the domain name of your personal name at Namecheap or GoDaddy
    2. Create a free blog at WordPress.com that uses your personal domain name
    3. Start blogging and tweeting on a regular basis about things you’re passionate about as well as ideas to make things better

    How does a personal brand fit in with being an entrepreneur? Brand awareness helps with recruiting team members, validating ideas, finding potential prospects, raising money, and a number of other things. Plus, regardless of being an entrepreneur or not, it helps with any endeavors in life. So, the next time a potential entrepreneur expresses interest in starting a company but doesn’t have an idea, tell them to start working on their personal brand.

    What else? What are your thoughts on these three next steps for an entrepreneur without an idea?