David Cummings on Startups

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  • What Uber’s Tipping Feature Teaches Us About Product Functionality

    If you were to create a new startup that put the legacy taxi experience on a mobile app, most entrepreneurs would take the traditional functionality and implement it directly in version one. Expected features would include:

    • Requesting a car
    • Inputting the destination address
    • Watching the car’s location on a map
    • Paying the fee for mileage and time
    • Providing a tip based on service and experience
    • Bonus: rating the driver

    Only now, after being in business for eight years and raising $8.8 billion (source), Uber has rolled out tipping — You can now tip your Uber driver in the app.

    This isn’t a critique on whether or not tipping is the right thing to include. Rather, Uber waiting eight years to add a feature that most entrepreneurs view as standard to the product teaches us an important lesson: the offline experience shouldn’t be recreated verbatim in an app. Rather, prioritize the product functionality that delivers the best experience to the user, and that often is a subset of the traditional functionality combined with new functionality that is only possible due to new technology.

    Entrepreneurs would do well to prioritize product functionality based on value to the user, not on legacy features.

    What else? What are some more thoughts on Uber adding tipping after eight years and what that teaches us about product functionality?

  • Must-Have Product Required for Startup Success

    After hearing hundreds of entrepreneurs pitch their ideas, I still can’t tell if the idea is a must-have or nice-to-have (see 5 Questions to Determine a Must-Have Product). In fact, I’ll never know as I’m not a domain expert in all the different markets and the best insight comes directly from customers. What I have figured out is that not having a must-have product is one of the top reasons for startup failure. No matter how great the team, and no matter how great the product, if the market doesn’t care about it, the startup won’t be a success.

    Investors love to invest in great teams knowing that it’s hard to find a must-have product and most initial ideas are nice-to-have. The belief is that great teams have a stronger chance of pivoting the idea to a product that is a must-have. Ideally, the great team has selected a great market, and the opportunity to find a must-have product is high.

    Think about the last three entrepreneurs you know that have failed. Now, think about their products. Were any of the products must-haves? Were the customers passionate about it? Was the value it created abundantly clear? Is using the product 10x better than going without the product? Chances are that all three of the entrepreneurs that failed had nice-to-have products.

    Startup success is predicated on a must-have product. Choose the market wisely, and ensure the product is needed.

    What else? What are some more thoughts on the idea that a must-have product is required for startup success and most startups have a nice-to-have product?

  • Quarterly Wrap Up

    With the start of Q3 upon us, it’s a great time to review the end of the quarter process. In the pre product/market fit days, there isn’t much process to follow but as the startup grows and scales, it’s important to scale the processes as well. Here are a few ideas to consider:

    • Simplified One Page Strategic Plan – The one pager is the overall business alignment doc. Priorities change every quarter, along with the basic metrics, but much of the document stays the same. 
    • Quarterly Check-ins – Whether it’s monthly or quarterly check-ins, it’s critical to spend time with team members and constantly calibrate. With small startups, it’s more ad hoc and formalizes as the business grows.
    • Monthly SaaS Metrics – While the one pager has great high-level info, the monthly SaaS metrics sheet breaks it down into dozens of data points and provides a fine-grained view into the performance of the business.
    • Start, Stop, Continue – What’s working well, not working, and needs to change in the business? Just like a scrum meeting, it’s important to evaluate the overall business functions as well.

    Figure out what’s right for the startup and continuously evolve the rhythm, data, and priorities.

    What else? What are some more ideas to wrap up each quarter?

  • Founder Equity at IPO, 2017 Edition

    With a number of successful tech IPOs so far in 2017, it’s a good time to revisit the idea that scaling a startup through to IPO is not only terribly expensive but also heavily dilutive for founders. Each round of funding helps the startup get to the next milestone, and requires selling 20% – 35% of the company to investors. Here are five 2017 IPOs and the founder/CEO equity based on the SEC filings (note that this is for the founder with the most equity and doesn’t include co-founders or secondary where they sell equity prior to the IPO):

    With an average founder/CEO ownership of 10% at time of IPO, it’s clear most founders have to sell a significant amount of their company to reach substantial scale.

    What else? What are some more thoughts on the average founder equity at IPO in 2017?

  • Prematurely Scaling Sales Affects More Than Burn

    One of the mistakes I’ve made in the past is thinking we had product/market fit and starting to scale the sales team in an effort to find a repeatable customer acquisition process. Only, by prematurely scaling sales, it created more issues than just increasing the burn. Here are a few reasons why:

    • Product – With a sales team and no product/market fit, when prospects ask for features, the tendency is to add whatever feature request is made to win the deal, but that can create bad habits and a Frankenstein of a product. The key is to be opinionated about the product functionality even when there’s a chance to close an early customer.
    • Customer Happiness – Without product/market fit, the chance of early customers being happy is much lower unless the product is a must-have and solves a real problem. As the product gets closer to product/market fit, customer happiness goes up.
    • Morale – Sales people love to sell. Only, when the product isn’t ready, trying to sell something that doesn’t have product/market fit rarely results in success, and that hurts morale. Teams want to win, and trying to sell something people don’t want makes things worse.

    Prematurely scaling sales affects much more than just the burn rate. It slows the organization down and creates unintended challenges.

    What else? What are some more ways hiring sales people when the product isn’t ready causes problems?

  • Video of the Week: Vinod Khosla – Failure does not matter. Success matters.

    For our video of the week, watch Vinod Khosla: Failure does not matter. Success matters. Enjoy!

    From YouTube:
    “Try and fail, but don’t fail to try,” emphasized Vinod Khosla (MBA ’80) during the Roanak Desai Memorial View From The Top talk on May 1, 2015. Khosla, the founder of Sun Microsystems and Khosla Ventures, also discussed the importance of having a belief system and the “indulgence” of brutal honesty.

  • When the Product is the Sales and Marketing

    Continuing with the theme of SaaS 2.0, there’s another important concept in that it inverts the sales and marketing process. In SaaS 1.0, a tremendous amount of money is spent on sales and marketing to take the potential buyer on a journey where they have to provide their name and email to download an ebook, watch a video, or get a piece of content. Then, inside sales reps start calling in hopes of doing a demo and taking the person through a sales process. Only, after this experience, and signing a contract to buy the software, does the buyer get to use the product. Finally, the implementation coordinators help on-board the new customer and the buyer gets to use the product, often for the first time.

    In SaaS 2.0, the product is the sales and marketing. Everything starts and ends with the product so there are no barriers to begin using the app immediately. Once signed into the free edition of the app (often called the platform), there are marketing videos that explain the benefits of each module. Paid modules are explained and in-app upgrades made clear — the selling is done by the app, in the app. Sales reps are still available, but they’re there as consultants to answer questions and help with change management, not to get contracts signed. There are no contracts to sign.

    The most powerful form of service is high quality self-service, with great people to help as a backup. With SaaS 2.0, the product is the sales and marketing.

    What else? What are some more thoughts on SaaS 2.0 focusing on the product experience as the center of the sales and marketing?

  • Balancing the Short-Term and Long-Term Product Demands

    Recently I was talking to an entrepreneur that’s in the process of changing their data storage architecture as the startup is growing fast and there are increased demands on the database. Only, the app is performing fine and there aren’t any slowdowns right now, but it’s clear that with the continued growth at some point there will be issues. Yet, the team doesn’t know exactly when that will occur, even after some load and stress tests against the system. Now, they’re moving forward with a heavy refactoring of code and changing of the storage architecture.

    Balancing the short-term and long-term product demands is never easy. Here are a few questions to ask:

    • What percentage of current customers will appreciate this change? What percentage of desired customers will appreciate this change?
    • Do we have to implement this change eventually? Why? Why not? What instrumentation will help guide our decision making process?
    • What does the current road map have prioritized? What will have to change to make room to implement this long-term product change now?
    • Is the proposed change a temporary solution or will it support growth indefinitely?
    • What are the risks? What might go wrong?
    • How will this change affect our ability to compete in the market?

    Balancing short-term and long-term product demands is never easy. Ask these questions and make an informed decision.

    What else? What are some more questions to ask when thinking about short-term and long-term product demands?

  • The Power of the Webhook

    Back in the Pardot days, we wanted a way to accept data from a third-party form or application directly into the app, so we came up with the form handler. Basically, it’s the receiving end of a form submission without the front end form fields to go with it. Over time, this practice of sending and receiving data via a specific URLs became popular and is widely know as a webhook.

    Wikipedia has a more technical definition:

    Webhooks are “user-defined HTTP callbacks”. They are usually triggered by some event, such as pushing code to a repository or a comment being posted to a blog. When that event occurs, the source site makes an HTTP request to the URI configured for the webhook. Users can configure them to cause events on one site to invoke behaviour on another.

    Now, webhooks make it easy to share data and trigger features across thousands of SaaS apps, and they don’t have to have formal integrations. The more apps that implement webhooks — both to send and receive data — the more the incumbent apps that aren’t SaaS 2.0 lose their ecosystem integration moat.

    Look for webhooks to continue to grow in importance over time.

    What else? What are some more thoughts on the power of webhooks?

  • JavaScript as the Web’s Integration Fabric

    Ten years ago, I never would have predicted how JavaScript (code to make things more dynamic in a web browser) hosted on third-party sites would become the core integration method for the front-end of the web (see The Three Types of SaaS Integration). In hindsight, it makes sense that interactive elements and analytics would be decoupled from much of the content so that companies can deliver best-of-breed solutions for a variety of functions. Now, tag managers like Segment and Google Tag Manager have taken it one step further and decoupled the loading of JavaScript on a per-page basis to a system that uses JavaScript to load other JavaScript (very meta).

    Many popular webpage features are loaded via JavaScript that comes from a third-party, including:

    • Web analytics
    • Forms
    • Live chat
    • Comments
    • Pop-up prompts that ask for an email address
    • Site search
    • Dynamic content

    Going forward, look for this trend to continue and more functions on the web to be delivered via third-party JavaScript. More sites will deliver real-time personalization and richer, higher quality experiences in a seamless manner via third-party products. JavaScript is the web’s integration fabric, and growing in importance.

    What else? What are some more thoughts on JavaScript as the web’s integration fabric?