David Cummings on Startups

Blog

  • In-House Recruiters for Startup Growth

    Fred Wilson has a great post today titled MBA Mondays: Best Hiring Practices. In it he highlights a number of quality strategies and tactics to build out the most crucial part of a startup: the team members. A couple years ago I was visiting the CEO of Appcelerator at his office in California and he told me how difficult it was to recruit great team members out there, so much so that they had brought on a full-time in-house recruiter, even though they were much smaller then.

    When we started to grow faster than we could hire, we took the next step of bringing on an in-house recruiter. Here are some of the benefits we’ve found having an in-house recruiter:

    • Focus, focus, focus — it’s awesome what one person can do when they have a single focus
    • Reach — a dedicated recruiter has the time to cast a wider net to work with more outside, contingency-based recruiters, college career centers, potential candidates on LinkedIn, and more
    • Process — many startups are averse to much structure, but hiring is the one area that you can’t cut corners, making a strong hiring process that much more important

    When company growth outpaces the capacity to bring on new team members, in-house recruiters can really help close the gap and ramp up the hiring process, while maintaining quality.

    What else? What are your thoughts on in-house recruiters for startup growth?

  • An Increase in Startup Exits in the Second Half of 2012

    With the second half of 2012 less than a month away there’s speculation that we’ll see an increase in startup exits right up until December 31, 2012. Why? Taxes. That’s right, the tax rate for long term capital gains in the United States is expected to rise from 15% to 23.8% with the expiration of the Bush tax rates and the advent of the Obamacare tax increases.

    How does an increase of long term capital gains from 15% to 23.8% play out for entrepreneurs that do or don’t sell? Here are some example scenarios:

    • Own 20% of a company that sells for $10M for a payout of $2M:
      15% of $2M = $300,000
      23.8% of $2M = $476,000
    • Own 20% of a company that sells for $30M for a payout of $6M:
      15% of $6M = $900,000
      23.8% of $6M = $1,428,000
    • Own 20% of a company that sells for $100M for a payout of $20M:
      15% of $20M = $3,000,000
      23.8% of  $20M = $4,760,000

    Of course, the potential acquirers are going to know this as well and take it into account when negotiating, so it isn’t all benefit for the entrepreneurs. Potential acquirers, taking taxes into account, will offer requisitely lower prices knowing there’s a hard and fast deadline. Most deals are emotionally driven and not as rational as you’d think, making taxes even less of any issue, but they’ll still be an issue for the entrepreneurs.

    What else? Do you think there will be an increase in startup exits in the second half of 2012?

  • The Three Parts of a Startup’s Purpose

    Continuing with takeaways from Clayton Christensen’s book How Will You Measure Your Life?, there’s another area of content I want to highlight from the book. In the epilogue, Professor Christensen talks about the benefits of defining a purpose for a family and how similar it is to defining a purpose for a startup.

    Here are the three parts of a company or startup’s purpose (pg. 196):

    • Likeness – what the key leaders and employees want the enterprise to have become at the end of the path that they are on
    • Commitment – a deep level of resolve to achieving the likeness laid out
    • Metrics – defined results enabling everyone associated with the enterprise to calibrate their work

    With these three parts of a startup’s purpose – likeness, commitment, and metrics – team members achieve clarity and alignment significantly increasing the likelihood of success. Purpose fits in with items like mission, vision, and values to paint a clear picture of the most strategic side of a startup.

    What else? What are your thoughts on the three parts of a startup’s purpose?

  • Consider Hygiene Factors and Motivation Factors in Startups

    Recently I started reading Clayton Christensen’s new book How Will You Measure Your Life? after seeing it mentioned on a few blogs I read. Professor Christensen is the author of the famous business book The Innovator’s Dilemma as well as numerous other ones. Last Fall I had the opportunity to hear Professor Christensen give a talk at the Executive Summit for Salesforce.com’s Dreamforce event, which was documented as Notes from Clayton Christensen’s Disruptive Innovation Talk (I also saw him on campus at Duke and his son, a Duke grad, was in one of my economics classes).

    This new book is part personal self-help and part business where different corporate theories are laid out in compressed form and then a personal or family analogy is introduced. One section I enjoyed reading about is the What Makes Us Tick chapter talking about the two-factor theory of hygiene factors and motivation factors.

    The two-factor theory from the book (pg 32):

    • Hygiene factors – things like status, compensation, job security, work conditions, company policies, and supervisory practices (not that compensation is a hygiene factor and not motivation)
    • Motivation factors – things like challenging work, recognition, responsibility, and personal growth

    Dan Pink’s book Drive, where he talks about autonomy, mastery, and purpose, is similar to motivation factors. For startups, it’s important to think through two-factor theory and work to build the best environment for the corporate culture. The next time a friend complains about his or her job, listen carefully to the reasons and ask yourself if it is hygiene factors or motivation factors.

    What else? What are your thoughts on hygiene factors and motivation factors in startups?

  • The Startup Valuation Anomaly Phase

    Tech startups are a strange thing when it comes to valuations in the early days. When you’re just starting out, have great social proof, but no revenue, there’s a real chance that the valuation is higher than when you’ve started to monetize things and have some revenue. Investors and potential acquirers see the startup and make educated guesses as to how fast the business will scale, potential gross margins, and monetization opportunities. Since these are educated guesses, there’s a good chance they won’t pan out as predicted, but no one knows.

    So, if an investor or potential acquirer comes along and offers a high price based on hype, social proof, herd mentality, or whatever, there’s a chance the entrepreneur will be staring at the deal and thinking that the startup is being valued at such a high price, it’ll take a couple years to get back to that value, and possibly many years (e.g. Instagram). For startups in hot areas or great timing, there’s a startup valuation anomaly phase.

    What else? What are your thoughts on some startups having a valuation anomaly phase?

  • The Broken Windows Crime Theory Applies to Startups

    Every detail counts. It isn’t that every detail needs to be planned in advanced but that every detail needs to be addressed. According to Wikipedia, the Broken Windows Theory says the following:

    Monitoring and maintaining urban environments in a well-ordered condition may stop further vandalism and escalation into more serious crime.

    For startups, it isn’t about further decay but rather about setting the tone organization-wide that details matter. Details in the product, details in the corporate culture, details in the office, and details in how people are treated matter. You can still launch a minimum viable product and have the details for the feature set covered, even if it is sparse.

    People are smart and pick up on what’s acceptable and what’s not acceptable. It’s hard to set the tone that some details matter and others don’t. A better approach is that all details matter, like the broken windows theory implies, and some details have a higher priority than others. The next time you see an issue or a detail not addressed, consider the implications and organizational approach.

    What else? What are your thoughts on the broken windows theory for crime applying to details in startups?

  • Business Model Canvas for Startups

    The Business Model Canvas has proven to be a great way to express the current state of affairs for a startup. A business model canvas is best thought of as a methodology or worksheet to articulate the most important details of a startup in a simple, one page format. One pagers, like the one page strategic plan, are great for aligning people as well as providing clarity.

    Here are the pieces of a business model canvas:

    • Key partners
    • Key activities
    • Key resources
    • Value proposition
    • Customer relationships
    • Channels
    • Customer segments
    • Cost structure
    • Revenue streams

    Providing short bullet points for each of these items gives a powerful view into the startup while providing details that are similar but more comprehensive compared to an executive summary without the management team section.

    What else? What are your thoughts on the business model canvas for startups?

  • Startups Need to Get Out of the Building

    Today was the kick-off for the second cohort of startups at Flashpoint, an accelerator at Georgia Tech. The day started with introductions between the new startups and their mentors, followed by a primer on startup engineering/lean startup methodology, and concluded the morning with each team introducing themselves and their business, with a business model canvas in the background.

    The afternoon assignment was to get out of the building and talk to potential customers. Here are some thoughts on startups getting out of the building:

    • Steve Blank says, “In a startup, no facts exist inside the building, only opinions”
    • Resist the tendency to talk to friends that are potential customers as your only source since their feedback is going to be tainted by their relationship with you
    • Go to where you customers are most likely to be (e.g. at a specific office complex), not just where you might get lucky to find them (e.g. Starbucks)
    • Keep the questions open-ended by avoiding yes/no questions
    • Stay focused on finding answers to your hypotheses (it’s easy to get distracted)

    Startups need to get out of the building and talk to potential customers right away. Too often entrepreneurs build their products in a vacuum and talk to customers after spending significant resources, and many times don’t have enough resources left to achieve success. Making the most of time and resources requires getting out of the building.

    What else? What are your thoughts on startups getting out of the building?

  • Management Alignment in Startups

    One of my favorite quotes is “A good plan, violently executed now, is better than a perfect plan next week.” by George S. Patton. Now, just because one plan is good, but not perfect, doesn’t mean that the management team isn’t aligned and on the same page. One of the mistakes I’ve made several times is worked on a plan with my colleagues, solicited input, and pronounced it good enough to execute. Only, everyone else wasn’t on board — management wasn’t aligned.

    Here are some ideas to develop management alignment in startups:

    • Balance input in person, phone, IM, and email without relying on just one digital medium
    • Articulate the plan in the simplest format possible, preferably a one page Google Doc with bullet points
    • Ensure key stakeholders have seen the plan and voiced their opinion
    • Consider a consensus-driven approach or a leader-decided approach when ready to execute

    The harder the plan, the harder the management alignement. Following these ideas makes the management alignment process easier.

    What else? What are some other ideas to develop management alignment in startups?

  • Startups Should Shoot Bullets to Find a Cannonball Opportunity

    In Great by Choice, the most recent book by famed author Jim Collins, he talks about 10x companies (companies that outperform the market by 10x) and how they do a better job shooting bullets, as opposed to cannonballs, for new opportunities. Think about the cost of bullets and guns vs the cost of cannonballs and cannons — bullets are significantly cheaper than cannonballs.

    Most startups come up with a new product idea and fire a giant cannonball at it without knowing if they are pointing in the right direction and actually have a target. Instead, they should use bullets and iterate quickly to try and find the target. Once the target has been squarely hit by the bullet, doubling down and loading the resources to fire the cannonball at the same target becomes a much more effective strategy.

    Startups should shoot bullets to find a cannonball opportunity. This is another way of saying start with a minimum viable product and iterate quickly via customer driven development — a core part of the lean startup movement. The next time a startup builds a full product and launches it with significant resources, and it doesn’t work out, think to yourself that they should have fired bullets until they hit the target, instead of lobbing a cannonball out there right off the bat.

    What else? What do you think about startups shooting bullets to find a cannonball opportunity?