David Cummings on Startups

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  • $100M ARR or $5M EBITDA Target for Strong Exit Opportunities

    With exits for tech startups rare, especially outside of the largest tech startup hub, most entrepreneurs anticipating a great exit are going to be disappointed unless they are on pace for $100 million in annual recurring revenue (ARR) or $5 million in earnings before interest, tax, depreciation and amortization (EBITDA). Why those numbers? $100M in ARR is often the requirement for a successful IPO and $5M in EBITDA is often the minimum to get private equity firms interested in buying the company.

    Strategic buyers are often the most desirable buyer for startups as they’ll have both a complementary product or service that’s much larger and they’ll pay a much higher price, all things considered. Only, there are so few exits to strategics. In order to have options, the startup has to reach significant scale (> $100M ARR) or significant profitability (> $5M EBITDA). Most startups won’t achieve either and need to recognize the financial benchmarks required, especially in the context of fundraising.

    Entrepreneurs would do well to think through what success looks like for them and plan accordingly when evaluating different funding opportunities for the company.

    What else? What are some more thoughts on the $100M ARR and $5M EBITDA targets to have strong exit opportunities?

  • Video of the Week: Where good ideas come from | Steven Johnson

    For our video of the week watch Where good ideas come from | Steven Johnson. Enjoy!

    From YouTube: People often credit their ideas to individual “Eureka!” moments. But Steven Johnson shows how history tells a different story. His fascinating tour takes us from the “liquid networks” of London’s coffee houses to Charles Darwin’s long, slow hunch to today’s high-velocity web.

  • Scaling Culture in a Fast-Growing Startup

    Culture is one of my favorite topics as it’s so critical to successful organizations. I’ve seen OK cultures and I’ve seen amazing cultures — the amazing ones always grow faster and outperform their peers. Only, scaling a strong culture is hard as there’s much more complexity.

    Here are a few thoughts on scaling culture:

    Once the team grows beyond the co-founders, it’s time to start thinking about culture. As the startup finds product/market fit and a repeatable customer acquisition process, culture needs to be intentional.

    What else? What are some more ideas for scaling culture in a fast-growing startup?

  • 3 Trends in Marketing Technology

    Earlier today I had a chance to talk at the Geek Out on Marketing Technology event and one of the topics was MarTech trends. With 4,000+ marketing technology companies, there are a number of excellent trends in the market.

    Here are three trends discussed:

    1. Machine Learning – Take large amounts of data and find patterns and actionable insights that just weren’t possible before. Machine learning is the ability for computers to learn without being explicitly programmed. Think of all the applications in marketing from improving campaigns to targeting the best-fit accounts.
    2. Account-Based Marketing – Target named accounts with the right message at the right time. With account-based marketing, marketers are able to proactively engage with accounts that haven’t come through the traditional channels.
    3. Customer Data Platforms – Marketing is more than campaigns to attract prospects. Marketers are now expected to help guide the entire customer experience from first touch to signing as a customer to renewing at a future date. Customer data platforms pull in data from all the customer facing functions — sales, marketing, support, customer success, etc. — and provide a holistic view of the account as well as next actions to take.

    It’s a great time to be in marketing technology and look for these three trends to grow in importance over the coming years.

    What else? What are some more trends in marketing technology?

  • 4 Quick Ideas on Building a Tech Startup Center

    Several times a month I’m asked for advice about building a tech startup center based on experience at the Atlanta Tech Village. Entrepreneurs from cities in both the metro region and the Southeast are interested in creating stronger entrepreneurial communities with a higher density of startups.

    After four years at the Tech Village, here are four quick ideas on building a tech startup center:

    1. Community First – Everything starts and ends with the community. From the entrepreneurs to the mentors to the people in different roles, it’s all about community. Ensure there’s a critical mass of community and the rest will follow.
    2. Location, Location, Location – The old adage still rings true that location is key. People want to be in a great location that makes it easy to recruit from the surrounding region.
    3. Lots of Spaces – Create lots of little spaces. Four-person offices are the most popular offering at the Tech Village. Incorporate phone booths, meeting rooms, and a variety of breakout spaces. Then, combine those with a large, central community area.
    4. Success Stories – Build a culture of success. Celebrate success. Get successful, serial entrepreneurs to start their next venture in the building. The faster success stories emerge from the community, the greater the halo effect and others will want to join.

    Building a tech startup center is just like building any other type of community. Find people that are passionate about it, create a cool physical space, and work to nurture and grow the community.

    What else? What are some more ideas on build a tech startup center?

  • Due Diligence for an Angel Investment

    When raising money from angel investors, they often require a fair amount of due diligence to ensure the startup is what the entrepreneurs say it is and that it has proper record keeping. If the startup raises money from Institutional investors, like venture capitalists, the amount of due diligence increases substantially. Here are a few commonly requested items as part of due diligence from angel investors:

    • Operating agreement
    • Founder legal agreements like non-compete, non-solicitation, etc.
    • Cap table with any equity grants, stock sales, etc.
    • Customer contracts
    • Employee IP assignments
    • Financial forecasts
    • Financial statements
    • Recent bank statements

    Entrepreneurs would do well to keep their legal and financial affairs in order generally, but especially so when close to the term sheet phase of the fundraising process.

    What else? What are some more thoughts on due diligence when raising money from angel investors?

  • Atlanta Startup Village #47

    Tonight is Atlanta Startup Village #47 at the Atlanta Tech Village.

    Follow the conversation on Twitter (https://twitter.com/atlsv) and Instagram (https://www.instagram.com/atlstartupvillage/).

    Here are the startups presenting:

    • SkilRoute: Online learning reinvented.
    • Reech.io: The Instagram analytics you’ve been waiting for!
    • Netify: Prototype development and business strategy consulting
    • inSITE: Fundamentally changing the way organizations share information
    • Shotzy: Pro Photographers On-Demand

    Admission is free and all are welcome. Come join us.

  • 4 Year Projections With 100x Growth and 50% Profit Margins

    When meeting with entrepreneurs they often have a slide that shows their amazing projected growth. Most of the time it shows projected revenue amount for the current year (e.g. $200,000) and then goes out four years with a projected revenue amount in the 4th year that’s 100x this year (e.g. $20,000,000). Now, that might be doable, and entrepreneurs are an optimistic bunch, but they always have a corresponding profits bar to go along with the revenue bar and it typically shows losses in the first year (from the funding cash they’ll burn) and then massive profits in year four (e.g. $10,000,000 in profits on $20,000,000 in revenue).

    What’s always missing: massive losses and the funding rounds necessary to hit those growth numbers.

    Starting a startup is cheap. Scaling a startup is expensive. Entrepreneurs would do well to provide projections that show they’ve thought through the costs of scaling their business.

    What else? What are some more thoughts on startup projections not recognizing the costs to scale?

  • Video of the Week – Shawn Achor: The happy secret to better work

    With the annual TED Conference this coming week, let’s look at one my favorite TED Talks – Shawn Achor: The happy secret to better work. Enjoy!

    From the talk, here’s the happiness advantage:
    Better securing jobs
    Better keeping jobs
    Superior productivity
    More resilient
    Less burnout
    Less turnover
    Greater sales

    From YouTube: We believe that we should work to be happy, but could that be backwards? In this fast-moving and entertaining talk from TEDxBloomington, psychologist Shawn Achor argues that actually happiness inspires productivity.

  • The Rule of 3 and 10 – Everything Breaks When Tripling in Company Size

    Mid-way through the book Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers, the author Tim Ferriss interviews Phil Libin, the founder of Evernote. Phil shares a lesson he learned from Hiroshi Mikitani, the founder of Rakuten, the largest online marketplace in Japan, on “the rule of 3 and 10” where everything breaks when tripling in company size.

    From the book:

    He was the first employee at Rakuten, now they’ve got 10,000 or more. He said when you’re just one person, everything kind of works. You sort of figure it out. And then, at some point, you have three people, and now, things are kind of different. Making decisions and everything with three people is different. But you adjust to that. Then, you’re fine for a while. You get to 10 people, and everything kind of breaks again. You figure that out, and then you get to 30 people and everything is different, and then 100 and then 300 and then 1,000.

    The idea is that things break in the company at these multiples of 3 and powers of 10. Startups figure it out when smaller but then struggle as they grow without realizing they hit the next 3 and 10 milestone and haven’t adjusted.

    Entrepreneurs should think about the rule of 3 and 10 and be cognizant of what needs to be reinvented as the startup grows.

    What else? What are some more thoughts on the idea that things break at company sizes that are multiples of 3 and powers of 10?