David Cummings on Startups

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  • Top 10 EO NERVE 2011 Takeaways

    The following is a guest post by my friend Chris Wegener, the co-founder of PaperStyle.com – cards and stationary. Chris attended the EO NERVE 2011 conference in NYC a couple weeks ago. Enjoy!

    Some of these you will know, some are simple but are great reminders, but nevertheless, they all were things that I feel are important!

    1. David Rosenblatt (Formerly Double-Click CEO) – For your Board to be effective, they need skin in the game. Trust your gut and don’t be greedy.
    2. Maurice Ashley (Intl. Chess Player – Strategist) – Mercata in 2001 vs. Groupon in 2010 – Late movers often can build a product for less and more effectively… learning from all of the front runner’s mistakes. Groupon switched the ‘move order.’ Meaning, they told the retailer, no deal until a certain # of customers sign up… guaranteed sales or it won’t happen. In the past, hadn’t been done that way.
    3. David Rose (Investor, Big thinker and really bright guy) – Is anything secret anymore? Everyone knows a lot about everyone. Discussed theory of ‘Singularity’ by 2045. http://www.singularity.com/ and http://singularityu.org/
    4. Tony Hsieh (Zappos Founder) – Most of his presentation is from his book, Delivering Happiness. The Zappos way of marketing is to spend your resources/time on your current customers and let them advertise for you. Much cheaper and more effective. With a billion in revenue, I’m not going to disagree!
    5. Tony Hsieh (Zappos Founder) – Hire and fire based on your Core Values. If you can’t, you might want to re-think your Core Values. Commit to transparency and you have nothing to fear. His desk, like Zuckerberg’s appears to be in the center of a sea of desks. Hard place to hide!
    6. Tony Hsieh (Zappos Founder) – Played this video about his recent book tour. Evidence of his inspiring vision, story and cult… I mean culture! Like it or not, they are drinkin’ the Zappos juice…. and getting it done! Looks like they had quite a time.
    7. Tony Hsieh (Zappos Founder) – Chase your vision, not the $. Find your passion and goal in life. What would you be passionate about and do with no pay for 10 years? Be part of something bigger than yourself.
    8. Jeff Hoffman (Priceline Founder) – Does ‘Blue Sky Sessions’ 20 minutes a day. Let your mind wander and blurt out whatever it is you are thinking. No rules. No gravity. No editing. Uses post-it-notes on the wall of his office. By themselves, they may not mean much, but over time, all the ‘dots’ as he calls them, can form an idea. If you are saying things like “Wouldn’t be cool if ___________?” You’re on the right track.
    9. Jeff Hoffman (Priceline Founder) – Validate your idea in the marketplace before building it. Work backwards and ‘get out of the conference room and into the marketplace.’ Said he got kicked out of a lot of grocery stores following customers around asking for their opinions. Learned that future Priceline Customers were not as originally thought… cheap-skates, but rather people who only had $100 to spend on an airline ticket a cousin’s wedding, didn’t care what time they left and how many connections they had to make.
    10. Jack Daly (Sales Coach) – Was sitting on front row and Jack was the most passionate and entertaining speaker I have ever seen. No joke. Awesome. Major take-away was that companies who have great cultures beat the crap out of companies who don’t. Revenues, Stock Prices, Net Income and Job Growth flourish by huge percentages if you’ve got the culture right. Take care of your employees and allow them to grow. They are like plants that need to be watered he said. If you get it right with them, they get it right with your customer.

    Thanks again to Chris for taking these great notes.

  • Align Co-Founder Skill Sets with Market Approach

    The three suns align
    Image via Wikipedia

    Recently I was meeting with the co-founder of a fledgling SaaS business and we were catching up about the progress of the startup. After talking for a bit it became readily apparent that the skill sets of the co-founder weren’t aligned with the startup’s approach to the market. What I mean by this is that the co-founder had a background in high-end enterprise sales (think million dollar plus deals) but was now building a company where the average deal size was much less than $10k/year.

    The co-founder was using his excellent consultative sales skills with clients, building comprehensive proposals, going through long sales cycles, and getting much less revenue per client as compared to his previous company. I asked the stereotypical question: Can you charge significantly more per client? He thought about it for a minute and said he wouldn’t get as many clients but he could charge more per client, work with fewer clients, and generate more revenue. That was the answer.

    My recommendation is to consider your co-founder skill sets when thinking about the market approach and align the strategy appropriately.

    What else? Have you seen examples of co-founder skill sets not aligned with the startup’s market approach?

  • Calculating Your FU Money Amount

    Yesterday’s post What’s Your FU Money Amount prompted several great comments and tweets. Stephen Flemming chimed in with his target FU money amount from several years ago:

    http://twitter.com/#!/StephenFleming/statuses/75752957307658240

    Seeing Stephen reference $42 million made me think it would be interesting to calculate FU money assuming a “Buckhead fabulous” lifestyle. Here’s how that might be calculated assuming a 30 year horizon with no inflation and no interest/appreciation:

    • House – $1.5 million
    • Beach house on 30A – $2 million (@lance prefers Rosemary Beach)
    • The Westminster Schools for three kids ($20k/child/year) for 12 years – $720k
    • Ivy League college for four years @ $50k/year/child – $600k
    • Living expenses/property taxes/etc @ $150k year for 30 years – $4.5 million
    • Two nice cars @ $10k/year/car for 30 years – $600k
    • Two $50k angel investments per year for 30 years – $3 million
    • Total: $12,920,000

    So, a little south of $13 million of after tax dollars in the bank gets you a “Buckhead fabulous” lifestyle in one of the wealthiest communities in the Southeast with extra to spare.

    What do you think? How would you calculate your FU money?

  • What’s Your FU Money Amount

    Various Federal Reserve Notes, c.1995. Only th...
    Image via Wikipedia

    At today’s EO Accelerator Accountability Group meeting one of the topics I facilitated was around business valuations and estimating the value of a startup. For these startups with under $1 million in revenue the most common valuation range is 4-6x profits (e.g. $500k in revenue startup with $100k in profits might be worth $500k). After Accelerants went around and talked about how they viewed the value of their business they then answered the question “How much money would you need for it to be FU money?”

    F%!@ You money is defined as the amount of money where you never have to work again and have the resources to do whatever you like, whenever you like.

    After going around the room the general consensus was that FU money was between $5 million and $10 million after taxes. That number is probably double if you live in California or New York.

    FU money is an interesting concept to think about and is a worthwhile mental exercise.

    What else? What do you think of FU money and what’s your amount?

  • Base Hit to Homerun Values in a Startup Exit

    Homerun EP
    Image via Wikipedia

    The business world loves sports metaphors. When I was at Duke in the late 90s the business school offered a course on sports metaphors geared towards foreign students because metaphors are so prevalent. One of the more common phrases for startups is homerun, meaning that the startup was bought for a huge amount or went public at a massive valuation. In addition to homerun, other types of baseball hits are used regularly.

    Here are baseball hits to describe different types of approximate startup exit valuations:

    • Base Hit: $2 – $10 million
    • Double: $10 – $25 million
    • Triple: $25 – $100 million
    • Homerun: $100+ million

    If the startup is in Silicon Valley multiple these by 10x otherwise this holds true for most parts of the country.

    Sports metaphors are common in startup land and baseball hits are the most popular way to describe startup exits.

    What else? Do you agree with these baseball hits to describe different types of exit valuations?

  • The Startup Toolkit’s Business Model Canvas

    Illustration of Porters 5 Forces. Illustrates ...
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    Yesterday’s post on The 9 Building Blocks of a Business Model prompted a comment by Denis Baranov recommending The Startup Toolkit. I was first shown The Startup Toolkit and their Business Model Canvas a couple months ago at the TiE VISTA Conference by one of the attendees. The Business Model Canvas is the 9 building blocks of a business model broken out into a one page view facilitated by a point-and-click webapp.

    I’m a fan of frameworks to think through and plan different strategies. Two popular one include the One Page Strategic Plan from Mastering the Rockefeller Habits and Porter’s Five Forces Framework for Analysis. There’s no silver bullet for thinking through strategy but these two combined with the Business Model Canvas provide a good starting point for different purposes.

    What else? What do you think of the Business Model Canvas and what are your favorite strategy frameworks?

  • The 9 Building Blocks of a Business Model

    Cover of "Business Model Generation: A Ha...
    Cover via Amazon

    A few months ago I ordered the book Business Model Generation on Amazon.com after seeing it mentioned on several blogs. Memorial Day weekend makes for the perfect time to dive into the book and I’m just getting started. Straight from the book, here are the nine building blocks of a business model:

    1. Customer Segments – An organization serves one or several customer segments.
    2. Value Propositions – It seeks to solve customer problems and satisfy customer needs with value propositions.
    3. Channels – Value propositions are delivered to customers through communication, distribution, and sales Channels.
    4. Customer Relationships – Customer relationships are established and maintained with each customer segment.
    5. Revenue Streams – Revenue streams result from value propositions successfully offered to customers.
    6. Key Resources – Key resources are the assets required to offer and deliver the previously described elements…
    7. Key Activities – …by performing a number of key activities.
    8. Key Partnerships – Some activities are outsourced and some resources are acquired outside the enterprise.
    9. Cost Structure – The business model elements result in the cost structure.

    What else? Is there anything else you’d add to the building blocks of a business model?

  • Customer Acquisition is the Most Difficult Part of a Startup

    F-117 Nighthawk (2158948811)
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    Most entrepreneurs, especially ones who aren’t technical, believe the technology and product development is the most difficult part of a startup. They’re wrong. Easily the most difficult part of a startup is customer acquisition. That’s right, the thing that is seemingly so obvious and critical to the success of the business is also the most over looked when evaluating business ideas. The number one reason businesses close down is that they run out of cash. Making customers happy and getting them to pay a fair amount for your service is the best way to build a company.

    Here are a few thoughts around customer acquisition:

    Customer acquisition truly is the most difficult part of a startup. Yes, startups require great markets, strong management teams, and good timing but if you can’t acquire customers you won’t be in business.

    What else? Do you agree that customer acquisition is the most difficult part of a startup?

  • Prepare for Product Demo Failure

    BEEN FISHING
    Image by gazzat via Flickr

    This afternoon I had the opportunity to listen to two entrepreneurs pitch their new product and company at my office. The entrepreneurs are talented software developers and have been building an app for the last four months. After some quick catching up I asked them to do a short product demo as I always want to see the technology as much as I want to learn about the business — I’m a product geek at heart.

    As you might have guessed, the inevitable happened: the product demo failed due to our firewall blocking certain ports. Entrepreneurs should always prepare for product demo failure. Here are some tips for preparing for a product demo and if it fails:

    • Have screenshots of key app functionality ready to show in a simple PDF or Google Presentation
    • Bring handouts in the event the projector doesn’t work (yes, dead trees come in handy once in a while)
    • Don’t spend too much time trying to get the demo to work — the goal of a meeting is to develop interest for a next meeting so focus on building rapport
    • Apologize for the demo not working and make a note to follow-up with instructions on how they can test it on their own

    Product demo failures are a part of entrepreneurship. Take the failure in stride and still make the most of the meeting.

    What else? What are some other tips around product demos and product presentation failures?

  • Limit the Brain Damage Work in a Startup

    Brain Damage (photo officielle du groupe)
    Image via Wikipedia

    A friend of mine who’s been an entrepreneur for the last four years likes to refer to any of the stuff he doesn’t enjoy doing as brain damage. In his world, he doesn’t have back-office personnel support resulting in a quite a bit of brain damage. Most entrepreneurs have to deal with minutia that isn’t fun. The simplest test for the amount of brain damage work you have to do is to look back on your day and ask yourself what work energized me and what work sapped my energy. Work that takes energy from you is brain damage work.

    Here’s some example brain damage work in a startup:

    • Taxes (need I say more…)
    • Basic infrastructure problems like the phones or internet going down
    • Government paperwork, licenses, fillings, etc
    • Letting employees go that aren’t working out (big relief when it’s done!)

    My recommendation is to do what you can to limit the brain damage work in a startup so that you can focus on items that you enjoy.

    What else? What are some other brain damage work items?