David Cummings on Startups

Blog

  • Investor Responsiveness as #1 Value

    Last month, I was talking to an entrepreneur about his experience with a variety of investors over multiple rounds of funding. Toward the end of the conversation, I asked which investor provided the most value and why. Without missing a beat, he said one of the investors stood out, and that the main driver of value was simply responsiveness. Anytime the entrepreneur had a question, the investor would respond immediately with an email or a phone call, regardless of the time of day or day of the week.

    At first, when an investor gets involved, there’s a period of time where the entrepreneur and investor feel out the relationship. What’s appropriate? What’s a good cadence for checking in? What areas does the investor like to work on or help with? And so on. From an investor’s perspective, they might invest in a couple of startups per year, up to dozens depending on their style. Whereas an entrepreneur might have a handful of serious investors and several casual investors on their cap table. The ratios of relationships are nowhere near the same.

    As an entrepreneur goes through an issue, or opportunity for the first time, having an investor who has been there before in a similar situation can be invaluable. Only, the investor has to want to share and spend time with the entrepreneur for it to be mutually beneficial.

    Thinking about this entrepreneur’s comment—that his most valuable investor was the one who was most responsive—makes sense. The entrepreneur is in the trenches, working hard to make progress, and having an on-demand sounding board with experience and knowledge is invaluable.

    My recommendation for entrepreneurs when talking to potential investors is to ask how they like to work with the entrepreneurs they invest in. Entrepreneurs would do well to have a go-to person they look forward to talking with, who has relevant experience and, crucially, is super responsive.

  • Starting Over as an Entrepreneur

    Recently, I was asked what I would do if I could start over as an entrepreneur. This question prompted me to reflect on my journey, particularly the early years when I tried numerous ideas that didn’t succeed. Looking back to my earliest beginnings in the late 1990s, when the Internet was taking off, I started as a freelance web developer during high school and college, building websites for small businesses and nonprofits.

    After several years of freelancing, I listened to client feedback and requests, which led to my first real software product idea: a web content management system delivered as Software as a Service (SaaS). This concept didn’t exist at the time. The key lesson was that the Internet’s rapid growth created opportunities for businesses and organizations eager to establish an online presence but lacking the expertise or desire to do it themselves. They were happy to pay for someone to handle the work and act as their consultant.

    How does this tie back to the question of starting over as an entrepreneur today? The current excitement and energy around artificial intelligence (AI), which feels reminiscent of the Internet boom in the late 1990s. The enthusiasm for AI and its potential to transform the world mirrors that earlier era. Just as I helped companies navigate the shift to the Internet, I would now position myself as an AI consultant. I would cold-call and network with businesses and organizations to help them integrate AI tools and consult on optimizing their processes with AI.

    However, the ultimate goal isn’t to remain an AI consultant. Instead, it’s to build relationships with a variety of businesses to identify unmet market needs. From there, I would develop AI-powered business software to help companies operate more efficiently and build a startup around that idea. Rather than searching for a software idea directly from the market, I propose an intermediate step: becoming a general AI problem-solver for companies. This involves doing real work, adding tangible value, and listening to authentic feedback for as long as it takes to discover a compelling AI-related software idea.

    My recommendation to aspiring entrepreneurs interested in B2B software is to work with various companies, assisting them with AI-related change management. This approach mirrors my efforts decades ago, helping organizations derive value from the Internet. While the future is uncertain, I firmly believe AI is the next major technological wave. A tremendous amount of technology implementation and change management will be required, particularly in helping businesses unlock AI’s potential. This work will uncover countless opportunities for new software products, paving the way for thousands of new startups.

  • Ask for the Startup Office Tour

    Whenever I visit a founder at their office, I always ask for a tour. Naturally, the entrepreneur perks up, eager to show off their environment. So much time, energy, and thought go into building a cool, collaborative office that there’s a sense of pride and joy in sharing it with others. Beyond the basics—like how they organize the floor plan, conference rooms, breakout areas, and kitchens—I’m also on the lookout for ideas to bring back to our own office.

    For example, many years ago, I visited another startup’s office and noticed a giant TV mounted on the wall right by the front door. It displayed a scoreboard of their most important goals, color-coded red, yellow, green, and super green based on their progress. This was visible to everyone—employees and guests alike—making it clear where the company stood on its key metrics. Inspired, I immediately implemented this at our office, installing a massive TV in the lobby connected to a Mac Mini. It displayed a Google Sheet that automatically updated with red, yellow, green, and super green indicators based on our metrics.

    Today, depending on the startup, the office often serves as more of a way station, with employees splitting their time between a couple of days in the office and a couple of days working from home. While office usage has changed since pre-COVID, it still plays an important role for most companies. My recommendation for entrepreneurs is to always ask for a tour when visiting another entrepreneur’s office and to look for ideas they can adapt for their own environment. Constantly tinkering and improving across everything is one of the great joys of being a founder.

  • Three Quick Questions After Hearing a Founder’s Story

    Last week, I caught up with a very successful local entrepreneur. While I knew parts of his story, I hadn’t yet heard the origin of his idea. With enthusiasm, he shared the moment that sparked it all: a use case in the internet communications world that was becoming increasingly common but was incredibly cumbersome and tedious. That lightbulb moment led him to create a startup around a new human-centered process that eliminated friction and increased distribution, making the process super efficient.

    This story isn’t about the specifics of his idea but the value it delivered to customers. Too often, entrepreneurs chase shiny new technology or ideas that are only marginally better than existing alternatives. When hearing a new idea, consider these key questions:

    1. Is this solution ten times better than the alternative? Many new products offer only a 10% improvement, which the market often ignores. True success comes when a product addresses a real need and is exponentially better.
    2. Can this only be achieved with new technology? Too often, entrepreneurs build products whose output could still be produced manually or outsourced to a junior employee or AI. The best innovations are those that are impossible without specialized software, enabling what was previously unachievable.
    3. What are the growth prospects for this market? The most promising markets may be small today but are growing rapidly. Look five to seven years ahead and assess whether the market will become large and significant.

    I love hearing founders’ origin stories, and this one was exceptional. Entrepreneurs would benefit from reflecting on these three questions about product value, innovation, and market timing to guide their ventures toward success.

  • The Preemptive Funding Offer

    Last week, I caught up with an entrepreneur, and we discussed a preemptive funding offer. The startup is thriving, growing rapidly in a large market with limited competition. Currently, the entrepreneur doesn’t need to raise capital, especially as key business metrics continue to improve. As the company grows, potential investors frequently reach out to build relationships before funding becomes necessary. The entrepreneur has started taking these meetings to connect with the venture community. After a particularly promising meeting, one investor offered a substantial investment at a valuation significantly higher than the last round. So, what should the entrepreneur do?

    We weighed the pros and cons. On the pro side, accepting the offer provides time to assess the investor’s compatibility, ensuring the right chemistry and personality fit for a long-term partnership. The additional capital would support a more aggressive hiring plan, considering it takes three to six months to onboard and scale a team. This could accelerate growth and position the company for greater opportunities. Moreover, the extra funds could act as a financial cushion, offering flexibility to seize new opportunities without immediate spending pressure.

    On the con side, raising money now at a higher valuation, when it’s not needed, reduces optionality. It sets a higher exit bar, which could complicate a future sale. Additional capital also brings increased pressure to grow and expand, which can be beneficial but may sometimes hinder the business. Finally, if growth continues and funds aren’t immediately necessary, the entrepreneur could raise capital later at an even higher valuation, minimizing dilution.

    There’s no right or wrong answer—only an opportunity to reflect on priorities and goals. Entrepreneurs should build relationships with a select group of investors before their next funding round. Occasionally, these connections lead to preemptive offers, as in this case. When this happens, it’s an ideal time to evaluate the next round by listing the pros and cons of acting now versus sticking to the existing financing timeline.

  • Matching Funding with Entrepreneur Ambitions

    Last week, I caught up with an entrepreneur who shared an update on his company’s progress. The business has been growing steadily, boasting a critical mass of over 1,000 customers. Now, they’re contemplating their next round of financing. From a business perspective, the company checks many boxes that investors look for: high gross margin software, a solid growth rate that’s fast but not hyper-growth, and a large market with low single-digit overall growth.

    However, the challenge lies in potential scale. In its current form, the company is unlikely to grow large enough to become a standalone, publicly traded entity. To attract analyst coverage and interest from broader markets, a publicly traded company typically needs around $500 million in annual recurring revenue (ARR) and a growth rate exceeding 30%. For this business, that target feels unattainable under current circumstances.

    The startup has already raised some capital and has been relatively efficient, burning roughly $1 for every dollar of recurring revenue. Now, the entrepreneur faces a crossroads in the financing market. Growth equity investors might offer a modest valuation, aiming for a three- to fivefold return in three to five years. On the venture capital side, high-profile VCs seek moonshots with the potential for a hundredfold return—something this company doesn’t currently fit. Yet, the entrepreneur is highly ambitious and determined to build a large, standalone business.

    So, what’s the next step? Should he explore new product lines to transform the company into a multi-product business, despite its modest scale and limited resources? Or should he consider finding a home for the business now, allowing him to pursue his next idea in a year or two? This is a high-class problem, as the entrepreneur has already achieved a notable level of success but aspires to do more.

    My recommendation was to align the next round of funding with the business’s current potential and evaluate whether a smaller amount of capital could maintain optionality. Too often, entrepreneurs raise as much money as the market allows, which isn’t always best for the business. Here, raising capital requires careful consideration, especially since the entrepreneur aims to build a larger business than the current market supports. He’ll need to either expand the product line, adding complexity, or temper his ambitions and consider building another company in the future.

  • Find the Community Super Connector

    Last week, I attended a startup event and met with various entrepreneurs. One of my favorite questions to ask is, “What’s going well, and what are your latest challenges?” During one conversation, an entrepreneur shared that their company had pivoted to a new product direction and was experiencing tremendous success.

    Curious, I asked what prompted this shift and what customer discovery and feedback had informed it. As we delved deeper, the entrepreneur revealed that the change stemmed from an introduction made by a local startup community leader—a “community super connector.”

    A community super connector is someone who loves people and excels at making thoughtful, value-adding introductions. These individuals are rare and incredibly valuable for nurturing and growing startup ecosystems. They might be venture capitalists, marketing or sales consultants, accountants, or lawyers. Regardless of their industry, they derive value from helping the community and are genuinely passionate about fostering connections.

    These connectors are extraordinarily talented at building relationships and are critical for pollinating new opportunities through introductions. Entrepreneurs would benefit greatly from identifying the community super connector in their city or region. A simple way to find them is to ask a friend, “Who’s the most connected person in the startup community?” Because of their natural inclination to engage, super connectors are eager to meet new people.

    Every startup community has a super connector, and their role is vital in sparking new relationships that drive innovation and growth.

  • The Power of Transferring Belief

    Last week, I listened to an entrepreneur deliver his pitch, and by the end, I was struck by how deeply he believed in his company’s vision. His conviction was contagious, transforming his belief into mine. All entrepreneurs believe in their work, but some have a unique ability to persuade others to share their perspective. I describe this as a transfer of belief from one person to another. Yes, it’s a form of selling, but it’s far more profound.

    In 2014, I met Tope Awotona, the founder of Calendly, at the Atlanta Tech Village. I asked the usual questions: Why did you start the business? Why now? What’s going well? What’s not going well? What’s next? He shared his passion for building a simple, beautiful interface to make scheduling meetings effortless. Today, we take such tools for granted, but back then, scheduling was cumbersome, slow, and inefficient. By the end of our conversation, Tope had transferred his belief that there was a better way, and that he was the best person to make it happen. Yes, I was sold, but it was so much more. I believed.

    Sales has always been a critical role for entrepreneurs. Nothing happens until someone, somewhere, is sold. However, we’ve all encountered an founder who failed to convince us of a product’s value or worth. They couldn’t transfer their belief. As an entrepreneur, I recommend reframing the concept of selling as transferring belief in your solution and vision. Belief comes from a deeper, more meaningful place, carrying greater conviction. A sale can feel superficial or transactional. Moving forward, focus on transferring belief rather than just closing a deal.

  • Everything Compounds

    Last week, an entrepreneur asked me what I appreciate now, after 25 years as an entrepreneur, that I didn’t fully grasp back then. After a moment of reflection, I replied that everything compounds. As children, we learn about compounding in the context of money, often citing Albert Einstein’s famous quote that compound interest is the eighth wonder of the world. While this is true, the principle of compounding extends far beyond finances—it applies to everything.

    For example, when I moved to Atlanta, I knew only a few people. After a year, I still hadn’t found my community. One late afternoon, I called a college friend and shared my feelings. He expressed a similar sentiment but suggested inviting people to breakfast and lunch to build connections. I took his advice to heart. For a solid decade, I scheduled business lunches three to four days a week and business breakfasts one to two days a week. As a result, I now know hundreds of entrepreneurs and community leaders, many of whom have become friends and colleagues for one or two decades. Relationships, like everything else, compound over time.

    For over 15 years, I’ve read dozens of blogs and information-aggregation sites like Techmeme and Hacker News. For the past decade, I’ve listened to numerous podcasts on business, technology, and startups. By consistently consuming information in these areas, my knowledge, pattern matching, and mental models have compounded. While AI and large language models (LLMs) may accelerate information retrieval and analysis, the value of compounding knowledge will always remain relevant.

    Everything compounds—from money to relationships to knowledge and beyond. The key is to start investing time and energy now. Build a process through consistent inputs and habits, and after many years, you’ll reap the rewards. The best time to start is today.

  • The Rise of AI-Powered Vertical SaaS

    Over the past few weeks, I’ve spoken with several entrepreneurs who are developing all-in-one, AI-powered vertical SaaS applications and making significant progress. In contrast, the previous generation of SaaS companies typically consisted of horizontal platforms that excelled in one market segment, such as marketing automation or sales engagement. These products were comprehensive, serving a wide range of industries. Over time, many of these applications moved upmarket, focusing on mid-market and enterprise clients.

    In addition to horizontal players, numerous vertical SaaS applications have emerged over the last two decades. These typically followed a playbook of targeting small to midsize businesses in specific segments before gradually moving upmarket. They focused on delivering the most valuable features for their target audience while avoiding overly broad functionality.

    With the rise of AI-powered software development, including low-code platforms and vibe coding, robust cloud computing resources, and mature open-source ecosystems, building large-scale software quickly has never been easier. As a result, entrepreneurs are now creating AI-powered vertical SaaS products that combine the functionality of multiple horizontal tools into a single, purpose-built solution for specific industries. Instead of small business owners needing separate tools for their website, social media, marketing automation, CRM, and sales engagement, a single system now provides everything they need, tailored to their vertical. These solutions are offered at a significantly lower price point with greater ease of use. Moreover, because these products are directly tied to revenue through lead generation, proposals, and new business, their ROI is clear.

    My recommendation to entrepreneurs is to identify a vertical they or a colleague know intimately and consider building a comprehensive application that replaces multiple existing tools for that target customer. By leveraging AI, cloud infrastructure, and open-source technologies, they can deliver a fully integrated solution at a fraction of the cost.