David Cummings on Startups

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  • Who, What, Where, Why, When, and How for Startup Pitches

    At the Flashpoint mentoring session today we helped with the six minute startup pitches for demo day. For an hour I worked one-on-one with an entrepreneur. I explained that the goal with the pitch isn’t to share everything you know about your startup but rather to get the investor excited enough to want to setup a meeting. The investor isn’t going to invest on the spot. When the entrepreneur asked what should go into the investor pitch I said it helps to have an offline analogy as well as answer who, what, where, why, when, and how:

    • Who – who are the entrepreneurs behind the startup
    • What – what does the startup do
    • Where – where in the market does the startup operate
    • Why – why did the founders start the company
    • When – when will the next milestones be met
    • How – how much money are the founders looking for

    There are other topics like competition and market size that should also be addressed. Answering who, what, where, why, when, and how for startup investor pitches gets you most of the way there.

    What else? What do you think of this approach to startup investor pitches?

  • Attention is Almost as Limited as Time for Startups

    Yesterday I was talking to one of the smartest entrepreneurs I know. We were talking about things that were going well and things that weren’t going well. For one particularly annoying thing that was out of our control I commented that we’d already wasted significant time and energy on it and that I didn’t want to throw more good time after wasted time. She immediately commented that our attention is almost as limited as our time.

    People routinely comment that time is your most precious commodity. Well, attention is a close second to time as your most precious commodity. We know that there are only so many hours in the day. What we do with those hours is a choice. Attention is that choice.

    The next time you feel overwhelmed, a lack of progress, or some other set back, do a review of your attention. Write down where you’ve been spending your time. Write down how many hours a day you were in the flow of quality thinking work. Write down how many hours a day you were in busy, choppy work. Where’s your attention?

    What else? What do you think of attention being almost as limited as time for startups?

  • Startup Reasons: Lifestyle, FU Money, or Legacy

    With all the talk about founder equity ownership at time of IPO, it’s important to address three common entrepreneur reasons for starting a company: lifestyle, FU money, or legacy. There’s no right or wrong reason and some of these reasons overlap. With entrepreneurs that continually focus on more and more rounds of VC money, they are generally focused on building the biggest company possible, often to leave a legacy.

    I know of a local entrepreneur that started and built a nice VC-backed company up to eight million in revenue. The investors decided to sell the business, and consummated a deal for $23 million dollars. Sounds great right? Well, the entrepreneur walked away with his piece of the deal amounting to $250,000. Raising money early in the process, and swinging for the fences, resulted in so much dilution and liquidity preferences that he had roughly 1% of the result. While it wasn’t his ideal outcome, he knew what he wanted to do and he went for it: he wanted to leave a legacy.

    Here are three common reasons entrepreneurs start companies:

    • Lifestyle – Some people have the desire to create their own environment, hours, and culture
    • FU Money – Some people want to get rich and not have to report to anyone again
    • Legacy – Some people want to build a large, sustainable company that their grandkids can see

    Reasons for starting a company vary wildly. Over time, patterns start to emerge and entrepreneurs typically have one of these three reasons.

    What else? What are some other reasons besides lifestyle, FU money, or legacy to start a company?

  • Angel Investors that Don’t Meet the Entrepreneurs

    When you ask investors, especially venture capitalists, about what they most look for in an investment they almost always say the team. Yes, the product and market opportunity have to be great, but the team has to be awesome (my view is that the team has to be great but the market has to be awesome).

    I know an angel investor that has invested in over 20 startups. Yet, for the majority of the investments he hasn’t met the entrepreneur in person.

    Here are some reasons he doesn’t need to meet the entrepreneur in person to make investments:

    • He requires a working prototype to invest, so he gets to see what the entrepreneur was able to help build
    • He uses Skype and Skype Video to talk with the entrepreneur, creating a much larger reach for investment geographies
    • He invests small amounts in many startups, preferring a diversified portfolio approach
    • He prefers email for helping out and doesn’t spend much time with each investment, but he’s available for them

    The next time you think geographically about angel investors, remember that there’s a new breed, especially with the advent of AngelList, that will invest without meeting face-to-face.

    What else? What are your thoughts on angel investors investing without meeting the entrepreneur in person?

  • Alternative Daily Check-in Format for Startups

    Previously I’ve talked about how we do bottom-up daily check-ins. That means each morning we get together for a five minute meeting with everyone standing where each person answers the questions what did you do yesterday, what are you going to do today, and do you have any roadblocks. Well, at the Cameron Herold event earlier this week, he introduced a different format for seven minute daily check-ins:

    1. Share good news
    2. Cover numbers by department
    3. What does it all mean to the company goals and revenue?
    4. Missing systems or opportunities for improvement
    5. Sports team cheer with all hands in

    There are pros and cons to each type of daily check-in but the general benefits of daily, quick, in-person communication remain true.

    What else? What do you think of this alternative daily check-in format for startups?

  • Topgrading Interviews in a Startup

    Hiring a person that doesn’t work out hurts growth, profitability, and morale. For certain positions the outcome of a bad hire can be much worse. One method of interviewing that has a high degree of success is known as Topgrading (book on Amazon). The book is a massive tome that covers many excruciating details and is worth skimming. Overall, the concepts and methodologies are sound and should be understood by entrepreneurs.

    Here are some general comments on Topgrading interviews and process:

    • Much more time and thought should be put into the hiring process. If you’re going to potentially spend thousands of hours with a person, shouldn’t you spend more than an hour or two interviewing them?
    • The core tenet of Topgrading is the chronological in depth interview. Start from college, regardless of stage of career, and ask deep probing questions of the college experience as well as each job. Find out how the person thinks and why they moved from position to position.
    • For each and every single job, ask about the following:
      Job title
      Start and end date
      Starting and ending compensation
      Roles and responsibilities
      State of affairs when joining
      Results and accomplishments
      Mistakes and failures
      Most enjoyable and least enjoyable aspects of the job
      Circumstances that led to change of jobs
      Manager name and phone number
      Manager strengths and weaknesses
      What manager would say about candidate’s strengths and weaknesses
      Names of direct reports, their strengths and weaknesses, and rate them A through F
    • After the jobs review sections ask questions about the following:
      Analysis skills
      Judgement/decision making
      Creativity
      Continuing education
      Integrity
      Organization/planning
      Independence
      Stress management
      Interpersonal competencies
    • Plan on three to fours hours for this interview and take breaks every 90 minutes

    Topgrading is great because it forces much longer and more detailed conversations to not only understand a person’s background but to also understand more of the how and why as opposed to just the what.

    What else? What do you think of Topgrading interviews in a startup?

  • The Ultimate Formula for Startup Success

    A couple days ago I was at an EO workshop put on by Cameron Herold, the former COO of 1-800-GOT-JUNK. Cameron covered a range of topics with the emphasis being on the painted picture where the future is vividly described in words. Towards the end of the workshop he revealed the ultimate formula for startup success:

    ___% focus  x  ___% faith  x  ___% effort  =  ___% liklihood of success

    • Focus – the level of attention
    • Faith – the passion and belief
    • Effort – the amount of work
    As an example, if all three are 80%, that’s only a 51% chance of success — not good odds. Even at 90% for all three you only get a 73% chance of success. Once all three are at 97% you get a 91% chance of success.

    Cameron did a great job and I enjoyed the workshop.

    What else? What do you think of this formulate for startup success?

  • The Top 3 Things Every Entrepreneur Needs to Know

    There are three main things every entrepreneur needs to know. Yes, it’s really as simple as three little things. These don’t guarantee success, don’t address the market opportunity, and don’t address the management team. They do address things that are within your control and relate to how you run the business.

    Here are the top three things every entrepreneur needs to know in order of importance:

    1. Corporate culture is the only sustainable competitive advantage that is completely within the control of the entrepreneur. Develop a strong corporate culture first and foremost.
    2. Companies that stay closest to the customer in order to understand their needs and wants produce the best solutions.
    3. The feedback loop from new information to making a decision, if any, needs to be as short as possible. Organizational speed allows startups to beat more established organizations with extensive resources.

    Pretty simple stuff: strong corporate culture. stay close to customers, and make decisions fast.

    What else? What do you think of these top three things every entrepreneur needs to know?

  • Notes from Flashpoint Meeting with Sigma Partners

    Tonight we had the opportunity at Flashpoint to do a Q&A with one of the general partners from Sigma Partners. He fielded a variety of questions, primarily around venture capital, and provided candid answers. Here are a few notes from the talk:

    • A typical Series A for them involves co-leading with another investor, buying 50% of the company, and carving out 25% for founders and 25% for future employees (e.g. $6 million invested on $6 million pre-money valuation)
    • It took a week to raise their previous fund by calling on their existing LPs whereas their next fund will take significantly longer due to contractions in the market
    • Many funds from 2007 haven’t returned any money at all to LPs resulting in even more challenges for VCs to raise new funds with the expectation that many VCs will go out of business in the next five years

    Flashpoint is a great accelerator and I enjoyed listening to the Q&A with Sigma Partners.

    What else? What other thoughts do you have on VCs and the fundraising market?

  • Architecting an Infinitely Scalable B2B Web App

    An entrepreneur was recently telling me how he was worried that his B2B web app might not scale if things took off. Of course, I explained to him that that would be a high class problem to have and that he shouldn’t worry about it. Focusing on finding product/market fit and customer acquisition is much more important. With that said, I did describe a simple approach to architecting an infinitely scalable B2B web app:

    • Round robin DNS to a handful of load balancers in separate data centers
    • Databases with near real-time replication between data centers
    • Separate databases for global information (like users, accounts) and limitless shards to hold account-specific information (multiple accounts per shard, when a shard gets too large it is split into two shards)

    The benefit of most B2B web apps is that one account or user doesn’t need to know about another account, and thus the system can scale by adding more and more database shards horizontally with a global database that keeps tracks of what account is on what shard.

    What else? What are your thoughts on this approach to an infinitely scalable B2B web app?