David Cummings on Startups

Blog

  • 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?

  • Startup Funerals

    As a community of innovators, entrepreneurs are up-beat and pumped about changing the world. There’s always a new trend or initiative that people are excited about, which creates new opportunities for startups. One necessary component for a healthy startup community is embracing failure and recognizing that it’s a natural part of how things work. NYC has a startup funeral initiative. Other places need one as well.

    What’s the current ratio of startup launches to public startup funerals and acknowledged shut downs? 1,000 to 1? 10,000 to 1? It isn’t that the startups aren’t being shut down. They are. It’s that some are put on auto-pilot to die a slow death and others are quietly turned off.

    Here are a few benefits of startup funerals:

    • Provides closure to everyone involved — human nature desires it
    • Makes it more public when talented people are available to promote recycling talent
    • Helps make failure more acceptable

    We need more startup funerals.

    What else? What are your thoughts on startup funerals?

  • The Power of Serendipitous Interactions and Startup Communities

    One of the oft repeated phrases for healthy startup communities is that there needs to be serendipitous interactions. The idea with serendipitous interactions is that you never know what relationships, introductions, or advice will help and the more collisions, the better. Confession: I didn’t really appreciate this concept until being able to experience it first-hand at the Atlanta Tech Village.

    Prior to ATV, my world was more controlled with regular EO and YPO events once or twice a quarter as well as one-on-one intro meetings a couple times per week via intros from friends. Now, I’m randomly meeting people in the Village several times a week just by being a member of the community and, of course, doing my best to pay it forward. People share, people connect, and people are able to accomplish more faster with the help of others.

    Serendipitous interactions are vital to a healthy startup community to increase the number and quality of relationships. I’ve now experienced it over the past 30 days and I’m a believer.

    What else? What are your thoughts on the power of serendipitous interactions and startup communities?

  • Some Commercial Real Estate Ownership Lessons Learned

    So it’s been a little over six weeks since I purchased a commercial office building (see Atlanta Tech Village) and became a landlord. It’s been a fascinating experience with several lessons learned.

    On our first real day in the building, January 2nd, at 11am one of the toilets on the fifth floor started overflowing. Being that the building was built in 1986, there’s no extra drain on the bathroom floor and the overflow proceeded to go into the hallway. Not knowing any better, my colleague called Roto-Rooter and they came and snaked the offending toilet by way of a tube on the roof (necessary to get to the bathroom on the top floor). Well, the snake broke one of the pipes causing even more problems.

    At 5:20pm that night, still on the first day, the power went out in the building and the whole neighborhood for 15 minutes. Tenants were calling and complaining and all we could do was point them to Georgia Power and the fact that our neighboring buildings didn’t have any power. Again, that was the first day.

    Since then, things have gotten much easier and everything has been pretty smooth. Here are some of the lessons learned owning commercial real estate:

    • Depreciation for tax purposes is a big deal and there are many strategies (e.g. a cost segregation analysis that assigns value to different items in the building so that they can be depreciated according to their useful life instead of a generic 39 year straight line depreciation)
    • Recruiting tenants to move in to traditional leases is difficult due to timing and nature of their existing lease (e.g. you can’t just get your friends to move into your building because they can’t break their existing lease)
    • Existing tenants follow the standard Pareto Rule where 20% of the tenants require 80% of the support and attention
    • Operating expenses need to be closely monitored as they are a massive part of the business model (see the financial model for ATV)
    • Fixed inventory of rentable square feet is a different mindset compared to software where there’s unlimited inventory
    • Demand for flexible office space in a high energy, entrepreneurial environment is much greater than expected

    Everything is off to a great start and I’m sure we’ll learn a ton more over the years.

    What else? What are some other lessons learned owning commercial real estate?

  • The Atlanta Top 10 Startup City Question

    Earlier today I got a question that hasn’t come up as often as I’d like: do you really believe Atlanta can be a top 10 startup city within 10 years? The answer is an emphatic yes! Atlanta has all the natural ingredients including a large number of young professionals, a low cost of living, the largest engineering school in the country with Georgia Tech, the world’s busiest airport, and an active startup community. If Atlanta has all the ingredients, what else is happening to make Atlanta a top 10 startup city?

    Here’s what’s going on in Atlanta:

    • Large anchor technology companies – Atlanta has AutoTrader.com (over $1 billion in revenue) and Air Watch, which is going to IPO and have a billion dollar valuation within 24 months. More anchor technology companies results in more talent recruited to the area, more jobs, and more startups that spin-out. The seeds have already sprouted in Atlanta and full bloom is right around the corner.
    • High density startup areas – Atlanta has the ATDC, Hypepotamus, and the Tech Square area in Midtown with dozens of startups. Add in the new 103,000 square feet Atlanta Tech Village with room for 75-100 companies and 400+ people and now there are two areas accessible via train that have critical startup mass necessary for serendipitous interactions.
    • Early stage investment dollars – Within the past 24 months Atlanta Technology Angels has invested in 29 startups (source). Within the past 12 months three new venture funds including Moseley Ventures, Forté Ventures, and Hamilton Ventures have been formed. Just last month Cox Enterprises announced the $250 million dollar Cox Innovation Fund to incubate tech startups in Atlanta.

    All the ingredients are in place and necessary advancements are under way. Atlanta will be a top 10 startup city within 10 years.

    What else? What are some other reasons Atlanta will be a top 10 startup city within 10 years?

  • Yolo and Startups

    One of the popular acronyms right now for high schoolers is yolo, as in You Only Live Once. Not to be confused with the cool stand up paddle boards also known as yolo boards, yolo makes it easy to justify doing something you might not normally do, like cliff diving into a lake. How can we get a little yolo idealism into some of the talented people that don’t consider startups as part of their career options?

    Here are a few ideas:

    • Facilitate programs and initiatives that specifically target college juniors and seniors (e.g. host a regular startups career and internship fair)
    • Promote technology meetups to employees of larger companies via targeted ads on LinkedIn, Facebook, and Twitter
    • Organize more startup drinks-like happy hours in high density commercial areas such that it’s an easy walk for people in the surrounding area

    Bringing the idea of yolo to talented people that haven’t considered startups isn’t an easy task. But, in the end, the biggest challenges can be the most fun.

    What else? What are your thoughts on yolo and startups?

  • When All Paying Customers are Friendlies

    Recently I heard the story of an edge case from an angel investor commenting on the question How Much Traction Does a Startup Need to Raise Angel Money. Here’s the background: an angel investor is pitched by an entrepreneur that has recently cleared the $100,000 in annual recurring revenue mark. The idea sounds plausible but it isn’t completely clear if the product is candy, a pain killer, or a vitamin due to the lack of domain expertise by the angel investor. As the angel investor starts to dig in on due diligence it becomes clear that there’s an anomaly here in which the 10 customers each paying $12,000/year are all friends with the founder of the startup.

    All the paying customers were friendlies. That is, all the customers already had a prior relationship with the founder such that there wasn’t a clear picture regarding the true value of the product as well as how difficult it would be to build a repeatable customer acquisition process. Now, the fact that the founder had such strong relationships with a variety of people bodes well for success in general, but as an investor one of the biggest questions is how the sales and marketing process is going to scale.

    The next time you’re thinking of working for a company or investing in a company with 10 customers, research how the customers were acquired.

    What else? What are your thoughts on the situation when all paying customers are friendlies?