David Cummings on Startups

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  • Beware Lawyers Charging to Edit Business Plans

    Slightly more than 10 years ago I was living in Durham, NC working full-time on my startup on Ninth St. right near the edge of Duke’s East Campus. I was actively involved in the fledgling Research Triangle startup scene with the Council for Entrepreneurial Development (CED) as the heart. At the CED I participated in a great program called FastTrack that came from the Kauffman Foundation (side note: one of my goals is to start a Cummings Foundation one day that is similar to the Kauffman Foundation with a focus on entrepreneurship) and through the program I had the chance to meet several entrepreneurs as well as startup-focused service providers in the area.

    One of the lawyers that spoke at the program did a great job and was very approachable. After his talk at the class I went up and introduced myself and what we were doing. He said he liked what he heard and that we should get together and talk more. I diligently followed up and we met for an hour to talk about my startup. At the end of that conversation he asked if I had a business plan, so I naturally said yes (that was the thing to do then although I recommend against business plans now). He said if I’d like he take a look at it and give me feedback. Wow, I was thinking, this guy is super helpful.

    After our meeting I promptly emailed him the latest version of my business plan hoping to get some great insight from him. Well, two weeks later I received a fax from his assistant where he had taken a printed version of the business plan and handwritten a few number of comments and questions in the columns. Hmm, I thought, that’s an interesting approach to feedback, but I was anxious for any third-party thoughts on what I was doing. I quickly sent a thank you email and commented on his comments.

    A week later I received a bill for $500 for his time commenting on the business plan. I was stunned. It wasn’t the $500, although that was a ton of money for a bootstrapped startup that did $15,000 in revenue that year, but rather that he would charge for it without clarifying in advance it was billable hours. It was a good lesson learned early on. My advice: always ask the cost for any services up front and beware of lawyers charging to edit business plans.

    What else? Have you had any experiences like this?

  • Think of Startup Employees as Volunteers

    Earlier today I was having lunch with an entrepreneur and we were talking about corporate culture when she said something that really stuck with me: the newest generation of employees are best thought of as volunteers like at a non-profit. Now, this isn’t volunteers in the sense of not getting paid but rather volunteers in the way they want to be treated and the way they approach things.

    Here are a few reasons why startup employees should be viewed as volunteers:

    • Mission and purpose is more important than the money
    • The best work is done when you care deeply about something
    • Volunteers often need praise and encouragement to feel appreciated
    • Length of tenure is shorter

    Treating startup employees as volunteers makes sense as the employer is beholden to the creative, mobile, sought-after employee. With the creative class, the volunteer mindset is very prevalent.

    What else? What are some other reasons why startup employees should be viewed as volunteers in the non-profit sense?

  • Picking a Startup Idea

    Most entrepreneurs looking to start a new business have a limited number of startup ideas and eventually pick one from a small list. Some entrepreneurs on the other hand have a gift for coming up with startup ideas, but then like having too many choices of cereal at the grocery store, run into analysis paralysis and get bogged down making a decision. Of course, picking a startup idea is a huge decision, so it shouldn’t be taken lightly.

    Here are a few things to consider when picking a startup idea:

    • Market Timing – Is this an idea that’s going to be successful some day but timing the market will be critical to success or is clear that the opportunity is in the short run (e.g. next 1-2 years)?
    • Domain Expertise – How much experience do you need to be productive for this startup? Does not having experience help so that you have a fresh perspective?
    • Capital – How capital-light or capital-intensive is the startup idea and what are you comfortable with?
    • Passion – How passionate and committed are you to the industry and opportunity vs something that you think will be successful but aren’t that interested in?

    Picking a startup idea is a big decision but picking a market to be in is a monumental decision. I’ve never met an entrepreneur that was successful with their original idea — the idea always changed but their market rarely did.

    What else? What are some other things to consider when picking a startup idea?

  • Culture Checks to Help Scale a Startup

    One of the changes we made recently was to put in culture check teams to help us scale our interviewing process. As we add more and more team members it becomes difficult for the founders to personally interview everyone (although we still do it currently). Here’s how the culture check idea works:

    • Teams of two people do culture checks together (we have two teams for a total of four people)
    • People on a culture check team strongly embody our culture and can identify culture fit with candidates
    • The culture check interview is only done at the very end of the process when the candidate is in the finalist stage
    • The culture check interview isn’t for assessing domain expertise but for fit with core values (candidates that don’t make it through are great people that just don’t quit fit our culture)

    Culture checks are working out well and we plan on expanding the number of teams as the number of people we’re hiring grows.

    What else? What are your thoughts on culture checks for scaling in a startup?

  • 10 To Do Items from Jim Collins

    Today I had the opportunity to hear Jim Collins at a workshop in Atlanta courtesy of EO Atlanta. Jim was amazing, truly amazing — so much energy, passion, and enthusiasm. At the very end he gave a list of 10 things leaders should add to their to do list.

    Here are the 10 to do items courtesy of Jim Collins:

    1. Change your next big ‘what’ question into a ‘who’ question
    2. Double your questions to statements ratio
    3. Try to embrace the Stockdale Paradox – going along in life and get knocked down, and it happens over and over again
    4. Discover your personal hedge hog and focus on it
    5. Set your vision on three components: 100 year core values, purpose that answers question who would miss you if you disappeared, 25 year BHAG
    6. Set your 20-mile march
    7. Start a stop doing list (and have no more than 3 priorities)
    8. Turn off electronic gadgets and create pockets of quietude for one day every two weeks
    9. Get a huge return on next luck event
    10. Change from striving to be successful to being useful

    I’d recommend reading his books as well as attending his events.

    What else? What are your thoughts on the 10 to do items from Jim Collins?

  • Being Too Early with a Startup Idea is a Failure

    Last week I was on a panel at the Digital Summit conference with well over 1,000 attendees. One of the panelists with me was Todd Sawicki, an entrepreneur in a high growth startup that recounted how his previous seven ventures were a failure. One of the comments that he made really stuck with me:

    If you’re too early with a startup idea, that’s a failure just like any other.

    Many entrepreneurs don’t realize that after running out of money, being too early with an idea is one of the most common reasons for failure. Todd told how he worked on a startup that was similar to YouTube, only it was 1997. He also talked about working on a startup that was similar to Dropbox/Carbonite/Mozy, but that it was 1996. Being too early with a startup idea is a failure and happens all the time.

    What else? Do you think being too early with a startup idea is a failure?

  • 9 Ways to Assess Angel Investor Tech Savviness

    Recently I saw a tweet about an entrepreneur that was pitching a new mobile app startup idea to an angel investor, and at the end of the conversation the investor pulled out a Blackberry to check email. If an investor carries around a Blackberry and no other device, is he or she tech savvy enough for you?

    Here are 9 things to assess angel investor tech savviness:

    1. Owns and uses an iPhone (an Android phone gets partial credit)
    2. Has a LinkedIn profile with 500+ connections
    3. Has an AngelList profile with at least one investment
    4. Has a Twitter account more than three years old — whendidyoujointwitter.com (bonus points if their Twitter username is their first name)
    5. Sends at least one tweet per day, preferably about topics relevant to you
    6. Has at least 1,000 followers on Twitter
    7. Has a blog and publishes blog posts on a regular basis
    8. Uses Gmail or Google Apps for Your Domain for email (the more cloud-based apps, the better)
    9. Has a MacBook (preferably a MacBook Air or MacBook Pro)

    Of course, angel investor tech savviness isn’t nearly as important as the quality of their advice and introductions but tech savviness is often correlated with how current they are on the latest trends.

    What else? What are some other ways to assess angel investor tech savviness?

  • Physical Technology Upgrades for Startup Offices

    Modern startup offices should be forward looking and take advantage of the latest tools for the job. As an example, large LED TVs are much better to use compared to projectors due to screen resolution, warm up time, sound, and energy consumption. Here are a few physical technology upgrades startups should think about for their office:

    • 65 inch LED TVs with 1080p and VGA/DVI inputs instead of projectors and screens (will be even better with OS X Mountain Lion and AirPlay from a laptop straight to the screen via an AppleTV)
    • Dual 50 inch LED TVs for the scoreboard in the lobby/sales bull pen with one showing real-time data with a number of metrics while the other shows the three most important KPIs highlighted in red, yellow, green, and super green
    • iPads outside each conference room with Google Calendar showing room availability mounted to the wall via a PadTab
    • Entry-door cameras with night vision and a built-in DVR for security and after-hours guest monitoring

    While these technology upgrades aren’t necessarily cheap, they help make for a more efficient and productive working environment.

    What else? What are some other physical technology upgrades startups should think about for their office?

  • John Wooden’s Pyramid of Success for Startups

    Recently I started reading the book Wooden on Leadership after a recommendation from a colleague. The book’s author, John Wooden, is one of the most successful college basketball coaches ever and an amazing leader. In the book, Wooden describes his pyramid of success that he developed over the years:

    • Competitive Greatness
    • Poise | Confidence
    • Condition | Skill | Team Spirit
    • Self-Control | Alertness | Initiative | Intentness
    • Industrious-ness | Friendship | Loyalty | Cooperation | Enthusiasm

    Startups defining their core values would do well to use one or two items from Wooden’s Pyramid of Success (I’m a fan of no more than 3-5 core values otherwise there are too many remember). For entrepreneurs interested in the leadership and the study of leadership, I’d recommend the book.

    What else? What are your thoughts on John Wooden’s Pyramid of Success?

  • Scaling a B2B SaaS Startup is Expensive

    Software-as-a-Service (SaaS) is an amazing model with great recurring revenue, high gross margins, and strong industry growth. That said, scaling a SaaS startup is expensive. Very expensive.

    Once you’ve crossed the desert and reached profitability, you can control you own destiny, especially if profitable, however modest, is true profitability paying market wages, and not just ramen profitable. Now, break-even or slightly profitable is great, but scaling the business and staying ahead of the market requires significantly more investment. The real challenge is when the law of large numbers kicks in based on the size of the customer base and the renewal rate. In order to grow, the number of new customers signed monthly has to keep growing because the number of customers leaving keeps growing.

    Scaling a SaaS business is expensive because the primary expense of the business is people, and people need to be hired and trained in advance of customer acquisition. With the SaaS model, customers don’t pay a large sum of money up-front, rather they pay monthly or quarterly, often with an annual contract. The lifetime value of the customer is great but payment is spread out over years, with a decent chunk of the first year’s revenue going towards sales and marketing costs for customer acquisition, leaving little left over to staff up engineering, support, services, and back-office functions.

    To recap: first year customer revenue almost all goes to sales and marketing, payments are spread out over years, and people are the largest expense, which need to be hired and trained in advance of delivering value. To scale a SaaS startup, sales has to get out in front of churn, which is always growing on an absolute basis assuming the the churn percentage stays constant and the business is growing. Along with significant investment in sales and marketing, all other core aspects of the business need investment in advance of customer growth.

    What else? What are some other reasons scaling a B2B SaaS startup is expensive?