David Cummings on Startups

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  • Nobody, Nothing, Never: Confidentiality in a Mentor Relationship

    One of the things I recommend to entrepreneurs, but didn’t do well myself early on, was to reach out to mentors for help and advice. My daughter likes to say “sharing is caring” when parroting what she hears from her pre-school teacher. Sharing is caring fits perfectly with a mentor/mentee relationship — the more you give, the more you get.

    One of the oft repeated YPO lines is “nobody, nothing, never” when talking about confidentiality. The same confidentiality applies to the mentor/mentee relationship. Building a foundation of trust and confidentiality is critical to get past the high-level content and really go deep with the core challenges and opportunities.

    The next time you meet with a potential mentor or as a mentor with a mentee, bring up confidentially, in a graceful manner, and set the tone for “nobody, nothing, never.” The other person will appreciate it and likely reciprocate.

    What else? What are your thoughts on confidentiality in a mentor relationship?

  • How Do You Know if Cold Calling Will Work for a Startup

    Earlier today I had the opportunity to talk with an entrepreneur that has a successful Software-as-a-Service (SaaS) startup. He’s been at it for a few years and the business is growing nicely. Naturally, a question that’s top of mind for him is how to grow even faster. After I mentioned that cold calling works well for us, he started asking a number of questions.

    Here’s how I like to think through if cold calling will work for a startup:

    • Markets that suffer from a lack of market awareness are ripe for cold calling (e.g. the technology is ready, the ROI proven, but people just don’t know about it yet)
    • Products with a high lifetime value, and gross margin, help make cold calling more viable
    • Test cold calling on a list of prospects by hiring a college intern for $15/hour and see how many people answer the phone, how many people engage in a conversation, how many people schedule a demo — shoot for at least 50 calls per day
    • Ensure that social proof and case studies are readily available to educate the potential prospect

    Cold calling one of the most under utilized, but effective, method of B2B sales. Startups would do well to experiment with it and figure out how to make it work in their organization.

    What else? What are some other ways to know if cold calling will work for a startup?

  • How Do you Crack the Nut on Recruiting Technical Talent

    The shortage of software engineering talent is real. Not a day goes by that I don’t hear or read about a startup lamenting how hard it is to find strong technical talent to join their team. It isn’t that there aren’t people out there  looking for jobs. As a startup, it’s especially important that the engineers on staff are smart and get things done.

    Recruiting technical talent is an especially tough nut to crack as engineers are typically introverted making them less likely to reach out to people to learn about new career opportunities, talent is in such high demand that employers already coddle their IT departments, and there’s real uncertainty in the type of overall work experience when switching jobs.

    Here are some ideas to get better at recruiting technical talent:

    Cracking the nut on recruiting technical talent is a tough, long term proposition. Expect 6-12 months of hard work and serious investment to see results. In the end, the quality and quantity of talent on your team is going to seriously influence your level of success.

    What else? What are some other ideas to recruit technical talent?

  • What Scale Does a Startup Need to be Independent of the Founder

    Two weeks ago a couple of entrepreneurs were in my office asking for advice on their startup. Their revenue has really accelerated in the past six months and they’re debating between investing more in the business or putting money aside for a rainy day fund. After asking how many employees they had (less than 10) I asked if the business was dependent on them. Yes, unequivocally.

    I sensed that growing the team to the point that it wasn’t dependent on them was a near-term desire. Of course, you could do a budget and come up with that number. From my experience with software/software-as-a-service startups, the business would be spending about $1.5MM on salaries, benefits, and infrastructure (e.g. office space) to be large enough to not be dependent on the founders. Here are some items to think about with respect to size of business:

    • Gross margins will influence whether spending $1.5MM on team member occurs at $2MM of revenue or $10MM of revenue
    • Founders are often decent at multiple things and really good at one thing — that one thing is often the last type of talent brought on the team, and typically expensive because the founder has high standards for the role
    • Redundancy or scale is needed for positions that are critical to operation of the business (e.g. number of software engineers, support people, etc) so that the founders and team members can take vacation without worrying if the business will continue to operate
    • One strategy for a founder is to take a two week vacation, forcing the issue of what is, and isn’t, dependent on them (banks like to make every employee take one two week vacation per year to see if any fraud is taking place with that person)
    • Depending on the size of the startup, some investment in people will have to take place in advance of growth to be self sufficient from the founder

    Reaching a size and depth of business to be founder independent is a huge milestone. I’ve found that ensuring the business isn’t dependent on the founder (e.g. through a long vacation) provides great peace of mind and sense of progress — it should be a goal on every entrepreneur’s list.

    What else? What are your thoughts on the necessary size of a startup to be independent of its founder?

  • Takeaways from The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups

    Two months ago I pre-ordered Randall Stross’s new book The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups in anticipation of his storytelling and insight into Y Combinator. Stross wrote one of my favorite books about the dotcom heyday titled eBoys: The First Inside Account of Venture Capitalists at Work, which is a must read for anyone interested in the crazy startup world of the late 1990s. The Launch Pad was a fun, quick read, but didn’t leave me in awe in the way eBoys did. Part of that is likely attributed to my level of understanding of Y Combinator from reading about it and talking with entrepreneurs who have gone through it. Nevertheless, for people that want to get a taste of the Y Combinator experience, the book is required reading.

    Here are a few takeaways from the book The Launch Pad:

    • Exclusivity is the norm with an acceptance rate of 3% of the applicants
    • Priority is placed on top flight technical skills
    • Co-founders are more important than the idea (a fair percentage of teams pivot during the 90 day process)
    • Grad school is the most closely related non-startup idea with self-starting and independence being a common theme
    • Alumni, cohort teams, and partners make up the bulk of the experience (not outside mentors like most other accelerator programs)
    • Fundraising is still hard for the majority of the teams in the cohort, beyond the $150,000 convertible debt everyone gets

    One message the book did drive home, that I didn’t appreciate before, is how much emphasis is placed on the founders, and not on the ideas. Codecademy was the result of a late-in-the-program pivot, and turned out to be one of the most successful by Demo Day. Y Combinator is a bet on people, knowing that ideas are plentiful.

    What else? What are your thoughts on the book The Launch Pad and Y Combinator?

  • The Critical Time Between Employee Offer Letter and Commitment

    Recruiting great employees who are corporate culture fits is one of the most rewarding, and most difficult, aspects of building a startup. Creating the best place to work with strong, aligned values does wonders for the recruiting process. Even so, there’s a part of the recruiting process that doesn’t get the attention it deserves: the critical time between employee offer letter and commitment.

    Here are some ideas to increase the chance of that great potential hire accepting their offer:

    • Provide a deadline in the offer to create a timeframe and expectations for a response
    • Talk on the phone and describe how excited you are for them to join your team before sending the written offer (delivering the message in person or over the phone is much more impactful)
    • Maintain an open and continuous dialogue while working hard to address any concerns they might have
    • Allow for negotiation of compensation but be weary of too much back and forth

    Changing employers, especially when joining a startup, is a big decision. Once an offer is sent to a potential employee, it’s critical to work hard to see the process through to a commitment to come aboard.

    What else? What are some other best practices around the time between an employee is given an offer letter to them signing on?

  • Scaling Corporate Culture in a Startup

    Earlier today I had the opportunity to talk to Charlie Goetz’s Emory entrepreneurship class. Every time I talk to a class I work hard to emphasize the importance of corporate culture, especially how it’s the only sustainable competitive advantage within the control of the entrepreneurs. Now, in an MBA class, all students have several years of work experience, and thus first-hand interaction with one or more corporate cultures. When I start talking about corporate culture to MBA students, they appreciate it more than students that haven’t had full-time jobs.

    One of the questions asked by a student today was “how do you scale the corporate culture as the business grows?” Here are a few ideas:

    • Implement culture check teams to provide checks and balances during the hiring process
    • Require unanimous consents from all interviewers when making a new hire
    • Regularly tell stories of positive corporate culture anecdotes
    • Include culture values in the quarterly check-ins
    • Physically embody the corporate culture through colors, objects, and visual cues

    Scaling a corporate culture in a startup is hard. Not scaling a successful corporate culture will make scaling the business 10 times more difficult.

    What else? What are some other ideas to scaling corporate culture in a startup?

  • Startups Should Use EchoSign for all Contracts

    An entrepreneur was recently asking me about an example employee handbook and what to include in it. After immediately sending over a copy of ours, I emphasized that the best thing to do was to use EchoSign and have each employee digital sign the current employee handbook once per year. EchoSign makes things so much easier, faster, and more maintainable compared to traditional signing of documents. In the United States, an electronic signature is viewed as the exact same thing as a normal signature in the eyes of the law (more background on electronic signatures).

    Startups should use EchoSign for all contracts, and here are some of the most common:

    • Employee handbooks
    • Customer deals / purchase orders
    • Partner agreements
    • Stock options
    • Investment docs (the last angel round I invested in was done entirely through EchoSign)

    E-signature and programs like EchoSign represent a much more efficient way of doing business and should be embraced by startups.

    What else? What are your thoughts on startups using EchoSign for all contracts?

  • Y Combinator and TechStars are Very Different

    Lately I’ve been reading The Launch Pad: Inside Y Combinator, Silicon Valley’s Most Exclusive School for Startups by Randall Stross. A future post will be a book review but I want to touch on a topic within the book first: Y Combinator and TechStars are very different. In fact, I know several people that have gone through each program, and their feedback and insight into the respective programs corroborates the differences.

    Here’s information on each program:

    Y Combinator

    • 60+ startups per class
    • Single city location (Mountain View)
    • No shared office space
    • No third-party mentors
    • ~$18k investment for ~6% of common stock
    • $150k convertible debt with no cap
    • Strong independent team orientation

    TechStars

    • 10 – 15 startups per class
    • Multiple cities (Boulder, NYC, Boston, and Seattle along with affiliates)
    • Shared office space
    • Third-party mentors
    • ~$20k investment for ~6% of common stock
    • $100k convertible debt with $3MM cap
    • Strong fraternity/group orientation

    Now, it isn’t that one is better than the other, only that they are very different. Y Combinator is more like grad students doing independent research projects and TechStars is more like a fraternity with everyone working on different projects in the house.

    What else? What are some other ways that Y Combinator and TechStars are very different?

  • Accelerated Second City Office Expansion Due to the Talent War

    With the ongoing war for talent in startups, especially in the money centers of California and New York, there’s going to be an increased focused on expanding to another city, with a separate talent pool, earlier in the startup lifecycle, when compared to historical standards. Traditionally, it wasn’t until a startup reached a critical mass in their scale that they would look for a second full office, not simply a light-weight sales office (e.g. Google has a massive engineering office in New York City). As for Atlanta, I know of at least two fast-growing software startups based in Florida, one based in South Carolina, one based in NYC, and two based in San Francisco (Square has an office in Atlantic Station in Midtown, Atlanta) that have full engineering offices in Atlanta. This trend is only going to accelerate.

    Here are a few reasons why startups with expand to a second city faster than historically:

    • Talent pools in a geographic area are only so large, creating excessively high demand for talent in the money centers like San Francisco and Silicon Valley
    • Money centers also have exceptionally high costs of living and housing prices, making it more desirable to have a significant office presence in a second city where costs are lower (Trulia is based in San Francisco but has hundreds of employees in Denver)
    • Video conferencing (e.g. Google Hangout) and cloud-based collaboration apps are better than ever, making it easy to work in separate physical locations
    • Acqui-hires are more common now, making it more likely startups will look for acui-hires in other cities to be the basis for a new office location

    Second city office expansion is already taking place faster for startups, but entrepreneurs aren’t talking about it as frequently as they should. Look for it to be even more commonplace over the coming years.

    What else? Do you think there will be accelerated second city office expansion due to the talent war?