David Cummings on Startups

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  • 3 Year Personal Development Plan

    At the end of each year I reflect on the past 12 months and set my New Year’s Resolutions. As part of this process I also spend time updating my 3 Year Personal Development Plan. My 3 Year Personal Development Plan is a simple Google Doc with four categories of information: personal, family, professional, and community. For each category I have 3-7 bullet points with ARMD goals that are tactical.

    Here are some example categories and items for a 3 Year Personal Development Plan:

    • Personal
      Workout 2x per week
      Meditate 2x per week
      20 tennis matches per year
      10 rounds of golf per year
      2 cool sporting events per year
      Financial savings (size defined for each year)
    • Family
      Spouse date night every week
      Dinner as a family 5x per week
      Quarterly week-long vacation
    • Professional
      Company size (size defined for each year)
      Read one book per month
      1 workshop/learning event per quarter
      2 conferences per year
      6 trips per year
    • Community
      Donate $X per year
      2 non-profit boards
      Volunteer X hours per month

    This format provides structure and personal accountability that is fairly broad. I recommend developing a 3 Year Personal Development plan and reviewing it several times per year.

    Have a great 2012!

    What else? What other items would you add to your 3 Year Personal Development Plan?

  • Stages of a Startup’s Lifecycle

    Six months ago I purchased the book Corporate Lifecycles: How and why corporation grow and die and what to do about it by Ichak Adizes and I’ve been slowly making my way through it. The book reads like a college textbook, so plan accordingly, but the author does hit on key insights that I’ve experienced first-hand, lending credibility to the other theories in it.

    Here are the stages of a startup’s lifecycle according to the author:

    • Courtship – excitement, reality tested, realistically committed founder, product orientation
    • Infant – risk does not evaporate commitment, negative cash flow, hard work nourishes commitment, no managerial depth, no systems, no delegation
    • Go-Go – arrogant founder, decisions based on intuition, centralized, too many priorities
    • Adolescence – conflict between decision makers, temporary loss of vision, founder accepts organizational sovereignty, yo-yo delegation of authority, policies made but not followed
    • Prime – firing on all cylinders, insufficient managerial training, limited in-fighting, cash is improving
    • Stable – lower expectations for growth, focus on past achievements instead of future, reward “yes men”, more interested in interpersonal relationships than risks
    • Aristocracy – money is spent on benefits and facilities, emphasis on how rather than what and why, formality in dress and tradition, low internal innovation, cash rich
    • Early Bureaucracy – emphasis on who caused the problem rather than what, much conflict and infighting, paranoia freezes the organization, focus on internal turf wars and not customers
    • Bureaucracy – many systems with little function, focused inwardly, no sense of control, customers must develop elaborate approaches to work effectively
    • Death – no one is committed to the organization anymore

    The early chapters though Aristocracy are useful for most entrepreneurs and the book is worth skimming for connoisseurs of corporate lifecycles.

    What else? What are your thoughts on the proposed stages of a startup’s lifecycle?

  • Most Visited Blog Posts of 2011

    With the end of 2011 fast approaching I find myself reflecting on this past year as well as setting goals for 2012. As part of reflecting, I wanted to see what blog posts were most visited this past year as well as most commented. While number of visits and comments don’t always correlate with the value of the content it is an objective measure.

    Here are the most visited and commented blog posts on this site in 2011 (note: some posts from previous years received significant traffic this year, so they are included):

    Thank you for your help and support.

    What else? What are some other topics I should write about?

  • Financial Controls for Startups

    As a startup grows, inevitably more processes and procedures get put in place. One area of note that should be done sooner than later is financial controls. Yes, at first it is easy to keep track of everything when there are only five people but that doesn’t scale when there are 50 people.

    Here are some simple financial controls for startups:

    • Require two signatures for checks over a certain amount (e.g. $5,000)
    • Put a modest spending limit (e.g. $2,000) on all corporate credit cards except for one that is designated for larger purchases
    • If possible, separate out the accounts receivable function from the person who actually deposits the checks
    • Pay for an annual review of your books by a CPA or get a full audit if required by investors
    • While not financial controls, backup your data using Dropbox and your website using CodeGuard

    For banks, it is a best practice that all employees take two weeks of consecutive vacation each year so that potential fraud will surface. That’s obviously for a different industry, but it is interesting to think about nonetheless. Financial controls are important for startups and should be implemented early on.

    What else? What are some other financial controls startups should implement?

  • Signs the Economy is Improving at the End of 2011

    Over the past month I’ve heard more and more signs from front-line entrepreneurs that the economy is starting to get a little better. It could just be a seasonal thing with the holidays but the information is based on comparing Q4 of 2011 to Q4 of 2010. Now, I don’t think the housing market is going to improve for many years but there are signs other parts of the economy are getting better.

    Here are some signs the economy is improving:

    • One startup that offers a 10% discount to clients that pre-pay for a year in advance instead of paying quarterly has seen an up-tick in pre-pays, indicating their clients feel more confident about their financial position and are investing in new tools
    • One company that sells directly to consumers has seen same store sales grow 50% faster in 2011 compared to 2010
    • One business signed more new customers in Q4 than the rest of 2011, and Q4 isn’t normally a good quarter

    Obviously, this sample size isn’t large enough to be statistically significant but anecdotally it appears that things are getting a tiny bit better.

    What else? What other signs have you seen that the economy is improving here at the end of 2011?

  • Fast Growing Startups are Cash Eating Machines

    As our startup continues to grow and hire, more and more people reach out to us to sponsor events, donate money to non-profits, and use our resources for alternative purposes. We strive to be good stewards of our community by donating 1% of our time to local causes as part of our corporate culture. One aspect of fast growing startups that isn’t talked about enough is how the faster you grow, the more cash the business demands. Instead of being cash generating machines, fast growing startups are cash eating machines.

    Here are some reasons fast growing startups need even more cash than normal:

    • Great employees take time to find and train, so the faster the business grows, the more employees you need to hire in advance to meet future demand, causing a cash burden in the interim
    • Adding experience and expertise to the leadership team often operates as a step function such that you hire managers that are compensated for managing a much larger team, even though your team hasn’t grown to that size yet (e.g. you hire a CFO with experience in a 200 person startup even though you only have 50 so far)
    • Office space and commercial real estate in general aren’t flexible such that you have to get the amount of office space you expect to need at the end of the lease term at the beginning, and pay for the unused space throughout (try to negotiate to grow into the space)

    As a general rule of thumb, the faster the startup is growing, the more cash it is consuming, especially early on. As the business matures and starts to generate more economies of scale, then it starts making more money and transitions from a cash eating machine to a cash generating machine.

    What else? What are some other reasons why fast growing startups are cash eating machines?

  • Thinking About Tech Trends in 2012

    Christmas 2011 is a great time to think about tech trends in 2012 what with all the gadgets found under the tree. Around our house, the Amazon.com Kindle Fire was a highlight as highly functional and relatively affordable. The Kindle book reader on the Fire was almost as good as the dedicated Kindle device. Reflecting on the Kindle Fire, there are a number of promising tech trends in 2012:

    • Continued growth of cloud computing – Large networks of on demand computing resources continue getting cheaper and more approachable. Amazon Web Services leads the way by constantly lowering prices, expanding services, and adding locations.
    • Continued growth of mobile devies and apps – “There’s an app for that” has become so pervasive that I’m no longer amazed when someone shows me an awesome app I haven’t encountered yet. With the debate between native apps and HTML5 apps, I believe HTML5 will win out for most apps.
    • Continued growth of big data usage and awareness – Big data is the idea of using distributed computing to analyze large amounts of data in a more efficient and cost effective manner than what was previously possible. As an example, imagine crawling the internet and processing large numbers of web pages to automatically find compelling event sales reps need to know about (see SalesLoft Sales Intelligence).
    • Continued growth of specialized sharing and social networks – One of the main topics at Christmas Eve dinner was Pinterest, the popular online pinboard to share content, pictures, etc. Several gifts under the tree came from Etsy, the specialized marketplace and social network for homemade goods (yes, it’s more than just a marketplace). The number of specialized sharing and social networks with a critical mass keeps growing.

    We’re only scratching the surface of how the internet and mobile devices are fundamentally changing our lives. It’s a great time to be a technologist and I’m excited for 2012.

    What else? What are some other tech trends for 2012?

  • Possible Outcomes for a Venture-Backed Startup

    There’s been a small meme for a while now that too much congratulations is bestowed on entrepreneurs for raising money from investors. The idea is that raising money is glorified to a level greater than that of building a successful business when in reality most funded startups still fail. When raising money, especially venture money, the possible outcomes for the startup are limited to a few scenarios, typically in a 3-10 year time horizon:

    • Positive exit – get acquired by another company for substantially more than the amount raised
    • Negative exit – an asset or fire sale where the company is sold for less than the amount raised or a complete shut down of the business
    • IPO – also a positive exit but done via providing liquidity to shareholders through the public markets

    Note that it’s very limited: the venture investors need to return either cash or public stock to their limited partners. Once a startup raises institutional money, their ability to be small-to-medium sized long-term business goes away. Their ability to be a family business goes away. Their ability to do things outside of provide cash or public equities in a sub 10-year horizon goes away. This isn’t necessarily a bad thing but it’s important for entrepreneurs to think through these possible outcomes when raising money.

    What else? What are your thoughts on these possible outcomes for venture-backed startups?

  • Executive Hire Considerations in a Startup

    Hiring an executive is hard in any business, especially startups. In startups, the speed and execution of the organization is so critical to success that a poor executive hire can sink the ship. When hiring an executive it’s important to consider different applicable traits and articulate internally what’s most important for the startup’s current stage (e.g. the team at $1M in revenue isn’t necessarily the same team at $20M in revenue).

    Here are some executive considerations when hiring:

    • Manager – does this person need to manage a team, like a VP of Engineering, or be more of a chief scientist like a CTO?
    • Doer – especially in earlier stages, executives need to roll up their sleeves and do some front-line work. If this is a significant part of the job, it’s important to make sure the person likes to do individual projects in addition to managing.
    • Planner – planning takes many forms. Do they need to do quarterly and annual goals? What about budgets?
    • Strategic thinker – some roles are more for thought leadership and public speaking (e.g. the visionary type). The best managers aren’t always the best strategic thinkers.

    Of course, a strong corporate culture fit is first and foremost with any hire. Assuming corporate culture fit is in place, it’s important to think through these considerations when hiring an executive in a startup.

    What else? What are some other executive hire considerations in a startup?

  • Ways to Tell an Entrepreneur You Don’t Like Their Idea

    Wyoming Entrepreneur
    Image by ▓▒░ TORLEY ░▒▓ via Flickr

    On a monthly basis I hear two to three new startup ideas from entrepreneurs that want help with something (investor intros, thoughts on an issue, transitioning from consulting to products, etc). Unfortunately, a small percentage of the time I don’t like their idea and want to strike a balance between offering candid feedback and still being a nice guy. Nice guy tendencies usually win out.

    Here are some different ways to tell an entrepreneur you don’t like their idea:

    • Direct – give it to them straight and frank that their idea isn’t good and you don’t see how it could succeed
    • Too many competitors – point out a number of other companies that are doing it and how you don’t see how they can be successful without a small fortune (look on LinkedIn to get a proxy for size based on how many employees a competitor has)
    • You don’t get it – don’t focus on whether it is good or bad but be self-deprecating that you don’t get it and aren’t the best person to provide feedback because you can’t relate to it
    • Poke extensive holes in it – articulate everything that is tough regardless of idea, and hit on all the warts of the specific idea
    • Market focus while downplaying the idea – focus on the fact that the market they’re thinking about is good (small, fast growing, etc) but that you’re not sure if that’s the best idea for that market and that if you start with that idea there’s a good chance you’ll find a better idea

    Telling an entrepreneur that’s excited and passionate that their idea stinks is hard. Very hard. Sometimes it’s the best medicine for them and sometimes it’s best to hold your nose and move on. Regardless, it’s always a judgement call.

    What else? What are some other ways to tell an entrepreneur that you don’t like their idea?