David Cummings on Startups

Blog

  • Thinking About Goals for 2011

    Two New Year's Resolutions postcards
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    With the new year right around the corner it’s time to start thinking about New Year’s Resolutions and goals for 2011. For me, I like to create goals in several buckets: family, personal, professional, and community. Some of my goals are specific (e.g. X amount of revenue) and some of my goals are really habits (e.g. exercise twice a week).

    Here are a few previous posts to get you thinking about goals for 2011:

    What are your goals for the new year?

  • Answering the Competitive Differentiation Question

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    One of the most common questions I get when talking to someone who is familiar with one of our competitors is “How are you guys different from xyz?” Naturally, as with most industries, there are a multitude of competitors out there, most of which we never compete against. Here are a few approaches to the competitive differentiation question:

    • Focus on target company size, industries, and verticals (e.g. SMB vs enterprise or healthcare vs financial services)
    • Address specific product functionality and use cases (e.g. feature X vs feature Y)
    • Talk about customer acquisition (sales) and service approaches (e.g. insides sales vs field sales)
    • Articulate the different corporate cultures, fundraising, and other strategies

    The most important thing to do with the competitive differentiation question is to answer it concisely and clearly. Too often when I ask others that question I get a long answer that doesn’t leave a memorable hook in my mind. Keep it short, simple, and memorable.

    What else? What other recommendations do you have for competitive differentiation questions?

  • Quick Specifics on a Newly Formed Startup

    No Software: Getting Ready For the Dreamforce...
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    Earlier today I was talking to an entrepreneur that had just started a new business this morning. He’d filed the incorporation papers and wanted to clarify a few items he was thinking about with me. Here are some of his specifics around the details of the business formation without getting into the idea of the actual startup (it’s a SaaS product):

    • Incorporated in Delaware due to industry-standard laws
    • S Corp instead of C Corp or LLC due to desire to not have double taxation but still can relatively easily switch to C Corp if decides to raise money in the future
    • 10,000,000 authorized shares with no stock option pool yet but thinking about a pool representing 10% of equity
    • Single founder (tried to recruit co-founder but the one he wanted needed more financial stability)
    • Capitalizing the business with $10k of his own money and going to loan money to the business as it needs more (initially budgeted $100k and he’s not going to take any salary)
    • Paid a corporate lawyer that specializes in startups a flat fee of $900 to take care of everything (the lawyer charges this low amount as a way to build relationships for more lucrative work in the future)
    • Paid a trademark lawyer $17 plus the cost of filling ($350) to do a search and trademark the name (the lawyer normally charges $1,800 for a trademark filing but does the first one for next to nothing as lead generation since most startups need 3-4 trademarks over time)
    • Bought the domain name off Sedo.com for $200 and paid an extra $350 to register several variations of the name as well as other top level extensions
    • Hired an off-shore development firm out of South America to build the app at a budgeted cost of $30k representing two full-time engineers for $3k/week (so 10 weeks to get it done)

    This should provide some more color and specifics to entrepreneurs thinking about starting their own company. It isn’t necessarily the way I’d go about doing things but I find it instructive to understand other approaches.

    What else? What other questions about forming a startup do you have? Does this help?

  • Web App Security Considerations

    Ouro-preto
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    With the prominent security breach at Gawker and a major email marketing vendor recently having similar issues, web app security has been brought to the forefront. Web app security is a real challenge due to the continual arms race with crackers and all the technology plus process issues related to a large scale SaaS product.

    Here are a few web app security considerations:

    • Encrypt passwords one way as a hash with a salt in the database
    • Require passwords to be more complicated than simple words (e.g. minimum of eight characters, minimum of one number, minimum of one upper case letter, etc)
    • Provide IP address checks via email confirmation for user authentication and allowed IP ranges
    • Enable secondary authentication like PINs and challenge questions to go along with a standard password
    • Track failed sign-in attempts and expire passwords based on policies

    Of course, there are many other considerations but this is a starting point for web app security. My recommendation is to consider this type of functional early on in the engineering process.

    What else? What other web app security considerations would you add?

  • Merry Christmas

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    Merry Christmas and Happy Holidays! Christmas is a great time to reflect and give thanks. Here are a few previous posts on celebrating and giving thanks in startups:

    I hope everyone has a great day. Merry Christmas and Happy Holidays.

  • Packaging the Same Product into Multiple Products

    FINANCIAL SERVICES CENTRE
    Image by infomatique via Flickr

    One strategy startups should consider is packaging the same product into multiple products. There are three common ways this is accomplished:

    • Segment the same product into different editions where features or usage rates are changed (e.g. group, professional, enterprise, and ultimate editions)
    • Apply an industry specific name to the product (e.g. technology, healthcare, financial services, etc)
    • Make the platform (same code base) divided into separate, but related products, available independently or combined a la carte (e.g. marketing suite, sales suite, and support suite)

    Most often, one size does not fit all and buyers like to buy when a company speaks their own language. My recommendation is to consider ways to package the same product into multiple products.

  • Capital Becomes Cheaper as a Startup Grows

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    Earlier I talked about how most startups are more valuable on day 0 than on day 100. Now I want to talk about how capital, and access to capital, becomes cheaper as a startup grows. You see, through the concept and seed stage of a startup, you’re most likely bootstrapping, investors outside of Silicon Valley aren’t likely to invest, and banks won’t lend without hard assets. Once you hit the early stage ($1M+ run rate) and growth stage ($5M+ run rate) capital starts getting cheaper and cheaper.

    Capital starts getting cheaper and cheaper because risk in the business is removed as revenues become more and more substantial. The risk of a market not being present is changed to more of an execution risk. Execution risk is much more understood than is-there-a-business risk. With revenues in the millions banks will do more substantial lines of credit based on receivables as well as recurring revenue. Investors, especially venture capital and private equity, is plentiful for fast growing, profitable startups with millions in revenue. Capital is cheaper and more accessible as a startup grows.

    What else? What other reasons is capital cheaper as a startup grows?

  • The Leadership Pipeline

    Woodstock School Campus
    Image by paulhami via Flickr

    One aspect of growing a company that I didn’t consider 10 years ago is building a leadership pipeline. The idea behind a leadership pipeline is that a startup can only grow as fast as its people grow and managers need to grow with the business. Think about the following:

    • Co-founders working together
    • Managing direct reports
    • Managing managers of direct reports
    • Managing executives who are managing managers of direct reports
    • Managing executives who are managing managers of managers of direct reports

    So, the goal is to promote from within whenever possible, so some front-line employees need to be groomed into managers, and then managers need to be groomed to be managers of managers or executives, and so on. My recommendation is to consider building a leadership pipeline as your startup grows.

    What else? What other considerations do you have about a leadership pipeline?

  • Planning Frequency at Different Startup Stages

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    Generally, I’m more of a fan of doing rather than planning but I understand the importance of getting everyone on the same page. With that said, it’s important to plan in a way that’s relevant to the size and stage of the startup. Yes, a 100 page business plan for a company not yet started is almost always overkill. On the other hand, a one page plan is almost always the right size for leadership purposes.

    Here’s how I think about the planning frequency at different startup stages:

    • Concept stage — get out there and talk to as many people as possible and iterate quickly
    • Seed stage — weekly strategy sessions to digest new information and make a plan for the following week
    • Early stage — monthly planning and milestones; enough to move fast while still keeping everyone on the same page
    • Growth stage — quarterly planning with a Rockefeller Habits approach

    Startup size and progress plays an important role in planning frequency. My recommendation is to move quickly and keep a simple one page plan.

    What else? What other tips do you have for planning frequency at different startup stages?

  • Startups and the Scientific Method

    "Light travels through transparent bodies...
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    Remember the scientific method as a kid in fourth grade science class? Well, all the same principles apply to startups. Let’s review the scientific method courtesy of  ScienceBuddies.org:

    • Ask a question — what business problem or unmet need do you want to solve?
    • Do background research — talk to as many friends and colleagues as you can about your idea and get firm commitments from people that will use it.
    • Construct a hypothesis — decide what angle you’re going to take and build a minimum viable product.
    • Test your hypothesis by doing an experiment — put the product in the hands of your committed users and get their feedback.
    • Analyze your data and draw a conclusion — look at the results and decide if you’re on the right path.
    • Communicate your results — talk to your committed users and share your next iteration or pivot (if applicable).

    The scientific method maps perfectly to the world of lean startups and should be used liberally.

    What else? What are ways is the scientific method applicable to startups?