David Cummings on Startups

Blog

  • Recruiting Executives in a Startup

    While there’s significant talk about recruiting great software engineers and sales people, even harder is finding key executives to join a startup. Like anything important, it requires tremendous time and effort to do well. Yet, with so few qualified candidates, it can be even more challenging than expected.

    Here are a few thoughts on recruiting executives in a startup:

    • Build a candidate pipeline well in advance of the hire and work to nurture the relationships (go ahead, set up a recurring quarterly calendar notification just to nurture the relationship)
    • Bring the board and advisors in to the executive recruiting process to help identify potential candidates as well as meet with identified candidates
    • When a qualified candidate has been identified, and is interested, run a Topgrading chronological in-depth survey (plan to spend 4 – 6 hours on interviewing each candidate)

    Recruiting key executives to a startup is incredibly hard, and one of the most important things an entrepreneur will do. Invest the time to do it well and build out a great team.

    What else? What are some more thoughts on recruiting executives in a startup?

  • Tod’s 7 Lessons Learned at BrightRoll

    Tod Sacerdoti has a great post up titled 0 to $640M: Non-obvious Lessons Learned at BrightRoll. While the saying “you learn more from your failures than from your successes” rings true to me, there’s still plenty to learn from successes. Here are the six non-obvious lessons learned at BrightRoll:

    1. Overspend
    2. Don’t Innovate
    3. Focus on Edge Cases
    4. Be An A** Hole
    5. Get a Low Valuation
    6. Be Tribal
    7. Love Being Last

    Want to know more? Head on over to 0 to $640M: Non-obvious Lessons Learned at BrightRoll and read the whole thing — it’s worth your time.

  • Video of the Week: Seth Godin on the Difference Between Leadership and Management

    For our video of the week watch Seth Godin on the Difference Between Leadership and Management. Seth has one of the most prolific blogs ever and is a well known author. Enjoy!

    From YouTube: Bestselling author Seth Godin says that “Management and leadership are totally different things. You think you are being a leader, but you are probably being a manager.” He goes on to say, “Managers figure out what they want done and get people to do it. Managers try to get people to do what they did yesterday, but a little faster and a little cheaper with a few less defects.” But this is not leadership. What is leadership? You’ll have to watch this seven-minute video to learn more.

  • Overestimating the Short Term, Underestimating the Long Term

    One of my favorite quotes comes from Bill Gates:

    We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. (source)

    Entrepreneurs are an optimistic bunch, as such they’re always overestimating what can be done in the short term. Just think of all the revenue forecasts showing hockey stick growth up and to the right. Only, it rarely happens.

    Then, talk to any entrepreneur that’s built a successful company and they’ll always talk about how the amount of change and success exceeded their expectations. And, they did it in less than 10 years.

    As an entrepreneur, the next time you’re feeling the grind, remember that we overestimate the short term and underestimate the long term. Stick with it.

    What else? What are some more thoughts on overestimating the short term and underestimating the long term?

  • Three Ways VCs Value Investments for LPs

    Scott Kupor of Andreessen Horowitz has a great post titled When Is a “Mark” Not a Mark talking about a recent WSJ article and the different ways venture capitalists internally value their investments for their investors. One of the biggest challenges being an investor in a private company is that there’s no market to readily sell the shares, thus it’s hard to know the value, and even harder to turn value into cash (ready about the Dry Bubble).

    Here are three ways VCs value investments when reporting their data quarterly to the limited partners:

    • Last round valuation/ waterfall – Take the valuation for the last round of financing, take the percent ownership, and report the value of that percent ownership.
    • Comparable company analysis – Take the current metrics of the business (especially revenue), take publicly traded companies that are similar, and base the valuation off those comparables with a ~30% discount for being private
    • Option pricing model (OPM) – Run the different potential exit scenarios through a complicated statistical model (made easy by software) and use the resulting output

    Go read When Is a “Mark” Not a Mark and better understand some inner workings of the venture industry.

    What else? What are some more thoughts on three ways VCs value investments for LPs?

  • Capabilities in a Startup

    Another popular topic of conversation for growth stage entrepreneurs is capabilities on the team. Capabilities, like it sounds, is a fancy way of talking about the talents and skills of people in the organization. Often, the term capabilities is used in the context of more specialized or difficult to find skills, especially when there are gaps or deficiencies.

    Here are a few thoughts on capabilities in a startup:

    • Think about the capabilities needed over the next three years. What’s in place now? What’s going to be needed? When?
    • How do capabilities align with future fundraising? Need a CFO before raising the next round?
    • What team members can their existing capabilities? What team members need someone brought in above them?

    Capabilities is a critical element of scaling a startup. Start planning early and be proactive about growing the team as the company grows.

    What else? What are some more thoughts on capabilities in a startup?

  • Good Progress, But Not Enough to Raise Institutional Money

    Recently I was talking to an entrepreneur that’s built a sustainable SaaS business and really wants to grow it exponentially. Only, even though there’s good progress, there isn’t enough progress to raise money by today’s high standards (see Metrics to Raise a Series A). Institutional investors want to see a minimum revenue threshold (e.g. $1M in recurring revenue) combined with a growth threshold (e.g. at least 100% year-over-year). What’s an entrepreneur to do that’s made good progress, but not enough to raise institutional money?

    Here are a few thoughts on available options:

    • Angel Investors – If more money is absolutely required, angels are the way to go. But, they want to see fast growth as well, so if that’s a problem, angels will take a wait-and-see approach which leaves us with…
    • Upgrade the Metrics – If the year-over-year growth numbers aren’t high enough, the next best thing is to upgrade month-over-month growth for several months and try to tell a growth story, albeit a short one.
    • Customer Cash Flow – Finally, if raising money isn’t going to happen, growing the business via customer cash flows is always an option. Remember, most markets aren’t winner-take-most and have opportunities for several success stories. The key is to be relevant in the market, and sometimes that requires outside capital, and sometimes it doesn’t.

    Building a sustainable business is an enviable milestone. Only, investors are looking for big exits, and sustainability with limited growth often isn’t enough to raise money. When that’s the case, figure out the options and choose the best course.

    What else? What are some more thoughts on entrepreneurs making good progress but not enough to raise money?

  • Customer Acquisition as the #1 Startup Challenge

    There’s a reason Why Lead Velocity Rate is the Most Important Metric in SaaS: customer acquisition is the #1 challenge for entrepreneurs. Nowadays, building great technology still takes work, but there are a number of excellent people out there that can do it. When it comes to building a customer acquisition machine that combines lead generation, brand building, and consultative sales reps, all in a cost effective manner, there are many fewer people out there that can do it. Oh, and it’s hard. Really hard.

    Here are a few thoughts on customer acquisition as the #1 startup challenge:

    • When talking to entrepreneurs, they always say they want to grow revenue faster (I’ve never heard an entrepreneur say “we’re growing too fast”)
    • When an entrepreneur fails, it’s always due to not signing enough customers to breakeven (or reach another funding milestone)
    • Traction outlines 19 different marketing channels, and most startups aren’t good at more than one or two of them
    • Building a high quality sales team is really hard (hint: it all starts with the hiring)
    • While finding product/market fit comes before building a repeatable customer acquisition process in the four stages of a startup, building a repeatable customer acquisition process is even harder

    As Guy Kawasaki likes to say, sales fixes everything. Figure out a repeatable customer acquisition process that’s financially viable and you have the makings of a very successful business. Customer acquisition is the #1 startup challenge.

    What else? What are some more thoughts on customer acquisition as the #1 startup challenge?

  • Atlanta Startup Village #40

    Tomorrow night the Atlanta Tech Village is hosting #40 of the Atlanta Startup Village. The Atlanta Startup Village is the largest monthly gathering of entrepreneurs in the Southeast and is open to the general public. Come one, come all and join 400+ other people hearing pitches from local entrepreneurs.

    Here’s the lineup:

    Can’t make it? Watch the event from the Atlanta Tech Village live event stream.

    I’m looking forward to #40 of the Atlanta Startup Village.

  • The Three Main Functional Categories for B2B SaaS Apps

    When analyzing B2B SaaS opportunities, I like to think through things like nice-to-have vs must-have, market size, point on the lifecycle adoption curve, etc. There’s another area that I like to bucket SaaS apps: functional categories. Functional categories are a big, general way to think about what the app does and how it fits in with the user.

    Here are the three main functional categories for B2B SaaS apps:

    • Major Job Function (Workflow) – This is for apps where the app is one of the top three apps used daily by the person (e.g. SalesLoft and Gmail would be the main apps for an SDR).
    • Specialized Job Function – This is for apps where the app is used at least weekly to accomplish a function but aren’t an app that the end user “lives” in daily (e.g. Calendly for automating meeting scheduling).
    • Utility – This is for apps that are always running in the background acting as a utility for a specific function (e.g. Rigor for performance monitoring).

    Look at the public SaaS companies and you’ll be able to easily categorize each one into one of the three main functional categories for SaaS apps. Also of note is that the largest SaaS companies by revenue are all major job function apps (there are plenty of successful specialized job function and utility apps as well, but they aren’t nearly as large as the major job function apps).

    What else? What are some more thoughts on the three main functional SaaS app categories?