David Cummings on Startups

Blog

  • Two Years of Part-Time Work to get to Launch is Tough

    Recently I talked to a sharp entrepreneur with tons of energy. Over the past year he’s been working part-time on a startup with a couple friends that had already been at it for a year before he joined. Product launch is right around the corner and exemplifies the challenge of working on startup part-time: taking two years of working part-time to launch a mobile app is a recipe for a slow death. I hope they succeed, I truly do. It’s just that products need oxygen (users) and founders need faster iterations to figure out what works and doesn’t work.

    Most tech startups fail, that’s a fact. With high risk (and reward) comes a high likelihood of failure. Most startups fail with entrepreneurs working full-time on them, so how much more difficult is it to be successful working part-time on one? Another big challenge working part-time on an idea is that you don’t make enough progress either way. A major progress milestone is when you realize an idea isn’t going to work and it’s time to shut it down — that’s much better than taking three times as long to get there working part-time on it. Ideally, the startup does work out and you figure out what works as fast as possible, helping to reserve stamina for the long haul (it’s a marathon, not a sprint).

    What else? What are your thoughts on working part-time vs full-time on a startup?

  • A Startup Community is Defined by Money Raised and Successful Exits

    Everyone has ideas to improve the local startup community, myself included. At the end of the day, it doesn’t matter how many meetups there are, conferences, or co-working spaces. To the outside world, for better or worse, a startup community is defined by how much money is raised on an annual basis and the the dollar amounts of exits on an annual basis. Of course, the idea is that more activities, resources, and interactions will lead to more raising money and more exits.

    Here are a few reasons why startup communities are defined by money raised and successful exits:

    • Raising a $5M Series A or selling for $50M generates publicity, and publicity always affects perceptions (it’s too bad there isn’t more coverage of bootstrapped companies that clear $5M in revenue, but I don’t expect that to change)
    • Organizations like PricewaterhouseCoopers publish the Money Tree Report regularly, making it easy to for regions to compare themselves to other regions, based on amount of venture investments, increasing awareness of money raised, and thus desire for the level of investment to increase
    • Angel investors and venture capitalists pay significant attention to exits, resulting in startup communities with more exits to receive more interest and money from investors

    Startup community evangelists, of which I’m one, need to remember that to the outside world, the quality of the community is defined simply by money. Money raised and the dollar value of exits drives national reputation.

    What else? What are your thoughts on startup communities being defined by money raised and successful exits?

  • Raising Money for a Startup with no Product Idea

    Last week I was talking to a software engineer from out of town that was looking to join an idea stage startup in his city. With three options on the table, he had a good idea of the pros and cons of each while still wanting a sounding board. I asked him to go through each of the startups he was considering, including the ideas and the founders behind them.

    The first idea was OK but sounded like a feature instead of a product. The second idea was much better than the first and sounded promising. It was when he got to the third startup that I had to stop him and clarify: it was two first-time entrepreneurs that had raised an angel round without a product idea. Imagine pitching investors with lines like “don’t worry about our product idea, invest in us and we’ll be successful.”

    Now, it’s one thing to get friends, families, and fools to invest in a hair-brained scheme that you’re super passionate about. It’s a whole different animal to get people to write checks for your startup that has a name, but no product idea. As a software engineer looking for my next opportunity, I’d evaluate the business idea almost as much as I’d evaluate the people. Ideas are readily available and do matter.

    What else? What are your thoughts on first-time entrepreneurs raising angel money for a startup with no product idea?

  • Series A Crunch Neglects the Profitable and Proud

    The idea of a Series A Crunch has been talked about for some time now on PandoDaily (late 2012), TechCrunch (late 2011), and others. Generally, the idea is that there have been so many angel rounds over the past few years that there’s a ton more competition to raise a Series A round due to the smaller number of venture capital firms still regularly investing. Many startups that would have raised Series A rounds in the past won’t be able to do it now because the bar is much higher (demand for Series A rounds is way up while supply of that type of capital has actually gone down as more and more VCs go out of business because they can’t raise another fund).

    Just last week Sarah Lacy wrote a detailed piece on PandoDaily titled The Series A Crunch is Hitting Now. Have we even noticed? All the usual ideas were mentioned save for one obvious one: a small number of angel-backed startups are profitable and proud, choosing not to raise a Series A round or in no rush to do so. In fact, I talked the co-founder and CEO of one Silicon Valley startup last week that’s in this boat. He’s raised an angel round, profitable, and has over 30 employees. Internally, he wants to go big but he stills controls the company and doesn’t want to bring on VCs yet, if ever. This startup is already successful and won’t register in the Series A Crunch.

    Raising an angel round, building a profitable, fast growing company, and never raising VC money is a fine outcome and should be talked about more frequently.

    What else? What are your thoughts on the Series A Crunch discussion neglecting the profitable and proud startups?

  • Personal Estate Planning Ideas for Entrepreneurs

    Personal estate planning isn’t something many first-time entrepreneurs spend time on, and rightly so. There’s a million different things that can be done, most overkill for the stage and circumstances of many entrepreneurs. With that said, there are a few items that are worth mentioning (note: this is not tax or legal advice and should not be construed as such).

    Here are a couple personal estate planning ideas for entrepreneurs:

    • If you are independently wealthy, or thoroughly convinced you’ll be wildly successful and are willing to pay the on going fees, consider gifting a portion of your seed stage co-founder equity (e.g. 10% – 30%) to a trust outside your estate since it has nearly no value for lifetime gift tax exemption purposes and can grow into something substantial to support your future generations (and will be outside the estate so it won’t have estate taxes when you die)
    • If you are serious about selling your business, and/or are talking to potential acquirers before you’ve received a term sheet or letter of intent with a price (it’s key no price has been offered), consider getting a third party valuation that discounts the value for lack of marketability, and then donating a piece of the equity to a non-profit or private foundation, so that you don’t have to pay capital gains on it at time of sale and you get a tax deduction on the current value (you could donate the money after the sale but you’d pay full taxes on it before you can donate it, so the charity would receive less)

    The second item is much more generally applicable, especially for entrepreneurs with a successful business that have some charitable intent. Personal estate planning is much more complicated than this but these are two ideas for entrepreneurs.

    What else? What are some more personal estate planning ideas for entrepreneurs?

  • Co-Working Conundrum for Startups Slacking

    Recently I was talking with an entrepreneur that had toured a few of the big co-working spaces, including General Assembly, last month. It was great to hear about the energy and excitement in the air throughout the buildings. Behind the scenes, there was one conundrum that was tough to solve: a handful of startup were consistently slacking and not making any progress. This doesn’t seem like that big of a deal until you know that there’s a waiting list to get into the space. Ideally, all the startups in the facility would be making great progress and moving their ideas forward in a meaningful way.

    Here are some ideas on the co-working conundrum for startups slacking and not making any progress:

    • Have a finite period of time, say 12 months, that a startup can be there before they have to reapply or get on the waiting list
    • Have a peer review system whereby once a month all the startups in the facility anonymously rank all the other startups there and the bottom 5% are asked to leave in 90 days
    • Include a community interaction component where startups have to be involved in the community (e.g. attend at least one event per quarter) to continue using the facility
    • Have a pricing plan such that prices for a startup increase automatically over time, making it an up or out proposition

    One of the big values of a co-working space is being around like-minded peers pushing their startup forward. Inevitably, some aren’t as productive as others and start hanging out more and making little progress. Finding a good solution to this conundrum is a challenge for co-working facilities.

    What else? What are some other ideas to address the co-working conundrum for startups slacking?

  • Recycling Talent in a Startup Community

    Most startups fail — it’s inevitable. What isn’t inevitable is that the talented people that learned lessons during the failure go back to normal, non startup jobs. In fact, people usually learn more from their failures than from their successes, and post failure is a great time to join another startup so that the lessons learned can be shared.

    Startup communities need to embrace and help facilitate the recycling of talent.

    Here are some ideas around recycling talent in a startup community:

    • Creating an environment where many startups work in the same physical area, and thus have great startup density, naturally increases the recycling of talent
    • Failing at a startup should be seen as part of the process, and a good time to recycle talent into other startups that are working
    • Reducing the fear of startups poaching from other startups, knowing that talent should work on the best opportunity available, is an important philosophy for the community

    Talent is the most scarce resource anywhere and needs to be recycled in the startup community to increase the odds of success.

    What else? What are your thoughts on recycling talent in a startup community?

  • Look for Startup Ideas that Aren’t Unique

    One of the most common refrains from people interested in being an entrepreneur, but haven’t taken the entrepreneurial plunge, is that they don’t have a good idea. My immediate response to the “I don’t have a good idea” statement is “what ideas do you have?” Almost always, an idea is presented followed by the fact that they looked around and someone else was already doing it, so they gave up on it.

    Here a few things to keep in mind regarding startup ideas:

    • A startup idea that is truly, completely unique is likely a bad idea
    • Other companies working on the same or similar idea validates the idea (still might not be a great one but at least someone else thinks it’s a good one)
    • Ideas are plentiful, it’s the execution of the idea that’s much more difficult
    • Many times it takes the second or third generation startup with the same idea to be successful (being too early with an idea is a failure)

    Ideas are important, but they shouldn’t be unique. Find an idea that has great founder fit and out execute the competitors.

    What else? What are your thoughts on looking for startup ideas that aren’t unique?

  • Rolling out Roadmaps in a Startup

    One of the more delicate, and demanding, documents in a startup is the product roadmap. After getting feedback followed by buy-in from the different constituents, it becomes time to rollout the roadmap to customers, team members, analysts, and prospects (some pre-sale engagements sell the vision of what’s to come in the product).

    Here are some ideas for rolling out a roadmap:

    • An annual formal presentation on what to expect over the next 12 months at the user’s conference
    • A quarterly customer advisory council that meets via GoToMeeting and gets a private walk through as well as Q&A of the roadmap
    • A quarterly webinar for existing customers combined with a blog post summarizing what can be expected in the next three months
    • A monthly employee-only product show-and-tell that gives a preview of progress for each item on the roadmap

    So much time goes into building and managing the product roadmap that often there isn’t enough effort put in to rolling it out to constituents. Communicating the vision is a critical part of successful startups and should not be underestimated.

    What else? What are some other ideas around rolling out roadmaps in a startup?

  • Favorite Cloud-Based Web Apps for Startups

    One thing I like to stay current with is web-apps that are popular among startups. It’s amazing how good and how powerful apps have gotten over the past five years.

    Here’s what I believe to be the most popular cloud-based web apps for startups:

    What web apps are on your list? Which ones do you like?