David Cummings on Startups

Blog

  • Bet on the Horse, Course, or Jockey

    Earlier today I was talking to a technology investor and I asked the question, “what types of startups and opportunities are you looking for in the area?” He stopped, looked up, and said he characterizes things in three buckets by betting on the horse, jockey, or course:

    • Horse – the specific business idea
    • Jockey – the entrepreneurs/co-founders/management team
    • Course – the market or vertical for the business idea

    Of course, I’d heard the horse and jockey concept many times before but this was the first time “course” came up and I really liked it. When evaluating a specific idea (horse), the market or vertical (course) is extremely important as most of the time the idea that becomes successful isn’t the idea that the team started out with. The horse and course need to be evaluated together as much as they are evaluated apart.

    What else? What are your thoughts on the terms horse, jockey, or course?

  • SaaS Momentum is Strong

    Recently I was talking with a friend about entrepreneurship and technology. The topic of Software-as-a-Service (SaaS) came up and how it’s been a hot area for years now. After discussing it further, we agreed that SaaS is just getting started and shows no signs of slowing down.

    Here are some of the reasons SaaS is so disruptive:

    • Pace of innovation is much faster for a tech company compared to installed software due to delivering software over the web
    • Ease of on-boarding a new client and getting value is a magnitude better than the previous way
    • Removal or lack of IT involvement empowers line-of-business managers to be more autonomous and self-sufficient
    • Anytime, anywhere access changes the approach to work and frees up team members to be productive on their own schedule
    • Open APIs to share data and connect systems in an automated fashion is 10x more efficient than traditional enterprise software

    Software-as-a-Service has another decade of rapid adoption ahead and is just getting started.

    What else? What are some other reasons SaaS momentum is so strong?

  • Sound Issues in a Large Coworking Space

    In a week the Atlanta Tech Village will open an expanded coworking area with reserved desks for 30+ people and unreserved bench seating for 15+ more people in a large 4,000+ square foot area. To date, the pre-renovation coworking area has been 20+ private offices with two to six desks per office, more like a shared Regus office and less like a coworking area. Next week’s new space will be a complete, traditional coworking space with a large open area, game room, and several shared conference rooms. Enter the sound question.

    A common question people ask when touring the space is “will it get loud in here?” Of course, we don’t want it loud so we need a plan for addressing sound issues. Here are a few ideas:

    • No phone calls in the large area such that people that need to get on the phone can use one of the three phone booths, five conference rooms, game room, hallway, or go outside
    • Require companies that have a heavy cold-calling component to their business model to have a private room or suite
    • Ask people with a loud or booming voice to be cognizant of those around them
    • Incorporate some small white noise machines / active noise reduction technology

    Sound is always going to be a concern in a large, open work area. With core value number one being “be nice”, I’m confident everything will work out great.

    What else? What are some other ideas to address sound issues in a large coworking space?

  • Culture Fit Challenges Revealed in a Non-Work Setting

    Corporate culture is the only controllable competitive advantage for entrepreneurs. All the focus for corporate culture is on recruiting to bring the right people in as well as things to do internally to institutionalize whatever it is that makes the culture successful. There’s another rarely discussed item that can become an issue: when someone blatantly violates the culture’s standards in a non-work setting.

    In the sports world you see it frequently when a player gets in trouble with the law. There’s clearly been a violation of team standards but it didn’t happen on the job. In the corporate world, it isn’t usually related to the law, but more so when people treat others in a way that’s clearly against the core values, and it comes back to the entrepreneur or team member via a friend of a friend.

    The immediate response is that what someone does on their own time is their own business, and that’s true, but if they act in an egregious manner, that reflects on their employer, as people expect them to act the same whether on company time or not. I don’t have a good solution for it other than confirming to the source of the news that it’s not inline with the company’s core values. I’ve only had it happen a couple times and haven’t ever brought it up with the employee.

    Sometimes culture fit challenges are revealed in a non-work setting and there isn’t much that can be done.

    What else? What would you do if culture fit challenges were revealed to you in a non-work setting via a third-party?

  • Video Games in the Office

    One of the first comments people make when coming in our office is about the 70″ LED TV with an Xbox and Kinect hooked up to it. Laying on the sofa is four Xbox controllers with Madden 13 prominently displayed below the TV. Video games, hanging out, and enjoying each other’s company are a regular part of our startup experience.

    After seeing and commenting on the TV with video games, followed by the ping pong table down the hall and the razor scooters strewn about, a common jest is “how does any work get done around here?” The answer, of course, is that work gets done whenever and wherever each person  chooses to do it — the office is merely a cool spot to collaborate. Work isn’t defined as sitting at a desk from nine to five and putting in the hours.

    Video games in the office provide a great outlet for unwinding, building relationships with colleagues, and having fun. In fact, we have actually have two 70″ TVs with Xboxes in the office — go figure.

    What else? What are your thoughts on video games in the office?

  • Notes from the Marin Software IPO Filing

    Marin Software just filed their S-1 (SEC doc) to go public and sell $75mm worth of shares. Marin makes an advertising and pay-per-click (PPC) Software-as-a-Service (SaaS) management platform for online marketing, or Revenue Acquisition Management, as they put it. I remember first hearing about Marin several years ago when the PPC bid management world was heating up, so it’s great to see how far they’ve come.

    Here are a few notes from the Marin Software IPO filing:

    • Platform works with Baidu, Bing, Facebook, Google, Yahoo! and more (pg. 1)
    • Revenues (pg. 2):
      2009 – $7.5mm
      2010 – $19mm
      2011 – $36.1mm
      2012 first 9 months – $42.5mm
    • Business benefits (pg. 3)
      Financial lift
      Efficiences and time savings
      Better business decision making
    • Key strengths (pg. 3)
      Robust and flexible integration
      Big data analytics
      Real-time, cross-publisher campaign management
      Predictive bid management and optimization
      Intuitive interface offering visibility and control
      Experienced team committed to customer success
      Highly-scalable and extensible cloud-based architecture
    • Losses (pg. 8)
      2009 – $9.7mm
      2010 – $11.9mm
      2011 – $17.4mm
      2012 first 9 months – $19.2mm
    • Accumulated deficit – $70.1mm (pg. 11)
    • Fees are calculated as a percentage of customers’ advertising spend managed on the platform (pg. 12)
    • Substantial majority of spend is through Google using the Google AdWords API (pg. 12)
    • Sales cycle is typically one to nine months (pg. 15)
    • Employee count (pg. 23)
      2011 – 285
      2012 – 386
    • 181 day lock-up period for shareholders (pg. 31)
    • 26% of total revenue came from advertisers outside the U.S. (pg. 44)
    • 502 active customers on September 20, 2012 (pg. 45)
    • 58% 2012 gross margin (pg. 49)
    • Total amount raised from investors: $105.7mm (pg. 56)
    • Equity ownership percentages (pg. 114)
      Benchmark Capital – 16.4%
      DAG Ventures – 16.1%
      Temasek Capital – 10.1%
      Focus Ventures – 6.5%
      Crosslink Ventures – 5.8%
      Founder – 8.8%
      Co-founder – 2.8%
      Co-founder – 3%

    Marin Software looks to have the makings of a successful IPO based on being a modern SaaS platform growing incredibly fast at scale.

    What else? What are some other thoughts on the Marin Software IPO filing?

  • 5 Years and Out for an Entrepreneur

    Recently I was talking to a successful entrepreneur who’s started and sold a number of businesses. I asked about any common patterns or takeaways from the years of startups. One of the most interesting insights was around his thoughts on the lifecycle of a startup and the idea of five years and out.

    Generally, the idea is that by the fifth year of a startup, it’s often time to sell the business and move on unless it’s in breakout mode and growing fast. Rarely does a startup make it to the fifth year as most go out of business before then, but when it does, if it’s on a slow-and-steady growth path, it’s time to evaluate different options. Here are a few ideas around it:

    • Entrepreneur fatigue often starts to set in 5-7 years after starting a venture
    • Many startups by the fifth year still aren’t on the hockey stick growth curve
    • A successful, profitable startup with modest growth often takes the same amount of effort as working on getting a new idea off the ground
    • An alternative to selling the business is turning it over to a management team to run it with more of a focus on profitability and less on growth

    Now, the idea is pretty unusual but it has merit in that there’s so much talk on getting a startup off the ground that there’s little discussion on when to move on.

    What else? What are your thoughts on five years and out for an entrepreneur?

  • Importance of Idea vs Team

    Earlier today I got into a conversation with a colleague about the relative importance of a startup idea vs a startup team. Naturally, both the concept and the people are critically important, but if you had to pick one, which would be most important?

    My general feeling is that the idea is more important than the team. Some arguments for and against it are as follows:

    • Strong ideas, especially pain killers over vitamins, are harder to come by since most ideas are vitamins (or candy!)
    • If it’s a good idea, or at least a good sandbox to play in, the chance of zigging and zagging to achieve success is much greater
    • Strong teams are hard to find but are more easily upgraded as the startup makes progress as opposed to pivoting and trying a new idea
    • Talented teams are more likely to figure out how to make something work, even if it is only a modest success
    • Investors bet on the jockey more than the horse, but it my anecdotal experience, investors bet on the idea more than the team for first-time entrepreneurs and then the team more than the idea for successful serial entrepreneurs

    Startups ideas and startup teams are extremely important to the success of a new venture. In the end, I’d take a great idea with a good team over a good idea with a great team.

    What else? What are your thoughts on the importance of idea vs team?

  • WSJ Piece on Corporate Culture at Pardot

    A couple weeks ago I was asked by some fellow Atlantans if I wanted to write a piece on corporate culture for the Wall Street Journal’s series The Accelerators. The Accelerators is all about strategies and challenges of creating a new business. Of course, I jumped at the opportunity and wrote Perks Keep Turnover Low, Morale High. Now, the title makes it sound like perks are the story, which they aren’t, but that’s easier for people to grasp compared to the real message: corporate culture wins.

    Here are a few takeaways from the article:

    • Corporate culture is the most important thing
    • Big exits do occur outside Silicon Valley
    • Perks like four hours of housecleaning per month, a full-time masseuse, and health+dental make a difference
    • Vacation policies are best when they are two simple words: be reasonable

    Please read Perks Keep Turnover Low, Morale High. Perks don’t define a great culture but help reinforce that the company cares about the team — always start with core values.

  • On Demand Office Space Like On Demand Computing

    Amazon Web Services, the most widely used cloud computing platform, has a concept of “Reserved Instances” and “On Demand Instances.” Reserved Instances are virtual computers with a fixed hourly price and guaranteed availability. The hourly price is lowered based on how much money you pay up front to reserve it for some number of years (e.g. you pay more to reserve it for three years but you get a lower hourly rate compared to only reserving it for one year). On demand instances are the same technology as reserved instances but they have a higher hourly price and aren’t guaranteed to be available (e.g. you might request 10 instances but it could take some time for them to be available). Overall, the concept is pretty simple: some capacity is fixed and some capacity is available as needed.

    Much like the strong benefit with this model for server capacity, the same need exists in the office space world, especially for technology companies. Technology companies, on average, are more volatile when it comes to staffing up and down compared to traditional companies due to how fast the industry changes and how difficult it is to predict breakout successes. How can the on demand computing model be applied to office space?

    At the Atlanta Tech Village, we’re going to be experimenting with a few ideas:

    • Multiple tenant office space options including part-time unreserved coworking desk, full-time unreserved coworking desk, reserved coworking desk, furnished private room, and furnished private multi-room suite with adjoining sliding glass door to the adjacent suites for combining suites
    • Furnished adjoining suites in sizes like 600 sq ft, 1,000 sq ft, and 3,000 sq ft along with the option to combine them and create much larger suites (a simple rule of thumb is 4-6 people per 1,000 ft, depending on density)
    • Coworking space on each of the five floors so that tenants on that floor, and other floors, can have team members both in a private room or suite as well in coworking (imagine having a 1,000 sq ft furnished suite with 5 people in it and 3 more employees down the hall with unreserved desks in the coworking space such that there’s a mix of private, dedicated rooms and public spaces)
    • Coworking spaces can be used for standard team members, interns, contractors, and any other type of colleague — only it’s on demand and not locked in with a long contract, like most offices

    Much like on demand computing in the cloud has changed the nature of software delivery, on demand office space in a flexible environment is poised to change how entrepreneurs think about office space. It’s an on demand, sharing world.

    What else? What are your thoughts on on demand office space similar to on demand computing?