David Cummings on Startups

Blog

  • When to Hire

    One of the challenges of running a bootstrapped business is determining when to make the next hire. Funding, being severely limited, must come from banks (including credit cards) or customers buying the goods or services. Banks, as we know, aren’t in the market of lending money without collateral to back it up. So, when do you increase the monthly nut and hire a new employee?

    My recommendation varies based on the type of business. Let’s look at a few:

    • Traditional installed software — start hiring once current assets are equal to the three times the trailing 90 days monthly average (known as the GPA)
    • Software as a service — this one is easy due to the recurring nature of the business (just hire once the cash is coming in)
    • Hybrid with part up-front and part recurring — look at the percentage of revenue that is recurring and discount the GPA value by that percent

    Determining when there’s enough momentum and cash to hire more people is difficult. I hope this advice helps.

  • Too Much Money Chasing a Market

    A phenomenon in the technology startup community I hadn’t read about until recently is that of too much money chasing a market resulting in lower than expected investor returns. Bill Gurley reiterated this recently in his recent talk at the AlwaysOn conference. Of course, supply and demand in any market should work itself out over time.

    My advice to entrepreneurs is to evaluate this potential in their market as part of determining their growth prospects as well as evaluating raising money from investors.

  • Work Life Balance

    Work life balance is something that I take seriously. My typical weekday work hours are as follows:

    • 8 – 8:30am at home
    • 9:30 – 6pm at office
    • 9 – 10:30pm at home

    I usually work 5-10 hours over the weekend.

    In addition, I have the following goals, which I do a good job of keeping:

    • No more than two business trips per quarter
    • No more than an average of one evening business event per week
    • No more than an average of one morning business event per week

    This week has been more hectic than a typical week due to holiday parties and events. Generally, setting up these rules makes it easy for me to make sure I maintain the work life balance I’ve chosen. My advice, especially if you have a spouse, is to do something similar so that both people are on the same page.

  • Reserve Usernames

    One simple piece of advice I recommend to entrepreneurs is to reserve their company name as a username on popular services like Twitter, Facebook, Flickr, etc. The username has to be unique to the service and acts much like a domain name where it is first come, first serve. Registering the name now doesn’t cost anything, so reserving it is a good move even if there aren’t plans to use it anytime soon.

    So, head on over to usernamecheck.com and start reserving a username.

  • Build a Web App on a Budget

    I had lunch with an entrepreneur today and we talked about the web app he’s building. He was interested in my thoughts on how to do it in a scrappy, but high quality manner. I told him to use these sites and services:

    As for the programming of the web app, I recommend hiring a good software engineer in-house, but that’s a much longer topic. Good luck!

  • Boutique vs Lifestyle Business

    There was a meme a few months ago where people were trying to come up with a better term than lifestyle business to describe a non Venture-backed startup company that could scale. Last week, I was reminded of this when I talked to an entrepreneur and she described her company as a boutique services provider, and said her aspirations were to work for herself and not get big. Boutique businesses often get overlooked in the technology world.

    Now that I think about it, I can name several entrepreneurs, in technology, that run boutique businesses and love it. They are some of the more successful and passionate people I know. My advice for entrepreneurs is to think hard about boutique businesses, generally with no employees, vs a lifestyle business, with employees and more visions of organically-grown grandeur when thinking through what they want to be as a company.

  • Kindle and the First 30 Pages

    There’s an interesting phenomenon that’s bound to happen with books in general and their first 30 pages. The Amazon.com Kindle, both on the specialized device as well as generic devices like the iPhone, removes the traditional friction involved in the purchasing of a book. With the Kindle, potential book buyers can read the first 20 or 30 pages of the book at no charge — why not since there’s no marginal cost for the distribution of the digital media.

    Here’s my prediction: successful book authors are going to focus even more on their first 20 or 30 pages to get readers sucked into the story so that they purchase the entire work. In the offline world, readers might browse at a local bookstore, but there is much more work involved to read 20 pages at the store to decide if the book is worth purchasing. At home, on the plane, or on the train, there’s much more down time where reading 20 pages to see if a book is interesting has less opportunity cost. With the Kindle, there will be more serious trying before buying.

    Only time will tell if this prediction comes true.

  • Walk, Jog, Run Approach to Partnerships

    Recently, a colleague of mine introduced me to the walk, jog, run approach to partnerships. The general idea is that many partnerships between companies don’t result in the desired level of success. Generally, this is due to a lack of properly set expectations as well as jumping in too deep, too fast — something I see much too often.

    The concept is pretty simple:

    • Walk – something simple that allows both sides work together in the easiest fashion possible, to prove the value
    • Jog – a more tighter integration and cross-selling relationship with more skin in the game from the companies
    • Run – very tight integration with significant product development

    I recommend this approach whenever possible.

  • Accelerator Program Without the Capital

    A friend of my brother (who’s a Spanish Dictionary entrepreneur) reached out to me to talk about my experience running Shotput Ventures in Atlanta as he’s thinking about putting on a similar type of program in another major city in the Southeast. Only, he wants to do the program without providing any investment capital. I told him it wouldn’t work.

    He cited these benefits for joining his program:

    • Pre-negotiated deferred legal fees
    • Office space with conference rooms
    • In-house data center for co-location
    • Mentoring

    This, of course, is in exchange for a small amount of equity. I said that resourceful entrepreneurs can get the items he mentioned on their own, and that if they aren’t resourceful, they probably aren’t going to be successful.

    In addition, without capital, he’s going to have a hard time getting entrepreneurs to move to his city to participate in the program. For Shotput, the majority of our companies moved to Atlanta for the program. Entrepreneurship isn’t a geographic endeavor.

    My advice to him was to raise money to be able to invest in the companies as part of the program. Money talks.

  • SaaS With No Contracts, Oh My!

    When I tell people we don’t have a contract with our software as a service (SaaS) product, they are often surprised. So many companies require a one or two year contract (much like a cell phone), that it is almost expected for mid-to-high end business software. Here’s why we don’t have a contract:

    • Tightly aligns our interests with our customers since they can leave at will
    • Requires us to get customers up and running quickly providing value within the first week
    • Helps reduce our sales cycle and establish a nice cadence with our sales team

    I recommend evaluating ways to achieve to these types of catalytic mechanisms.