David Cummings on Startups

Tag: small-business

  • Double Revenue With No Additional Employees

    For the first 10+ years of my entrepreneurial journey, I was too focused on the number of employees as a key measure of success. When meeting other entrepreneurs, one of the first questions I asked to gauge the size and scale of their business was, So, how many employees do you have now? While that question is still relevant today, it is much less so than in the past.

    Productivity per employee has increased tremendously. The ability to leverage software and other systems for scaling has improved dramatically. The nature of work has also evolved, with more remote and hybrid work arrangements and a greater reliance on contractors and freelancers. My previous belief that W-2 employees were a key proxy for success no longer holds. In fact, many predict that we will see more billion-dollar companies in the future with only a small handful of employees.

    Last week, I heard an entrepreneur say he wants to double the size of his business without increasing headcount. This doesn’t mean keeping the exact same team but rather using AI to boost productivity, outsourcing more functions, and recruiting higher-skilled employees when attrition occurs. The key idea is that as teams grow, management and leadership demands increase, and the organization tends to move more slowly. In this case, the entrepreneur operates at considerable scale, and there is also a focus on increasing annual recurring revenue per employee as a key metric for business health. The goal isn’t to build the largest team possible—it’s to build the most efficient and successful one.

    Entrepreneurs in the growth stage would benefit from considering how they could double their revenue without adding new headcount. What positions would remain? Which ones would be outsourced? Which roles would need to be filled by more experienced hires? What would be the advantages and drawbacks? Entrepreneurs should evaluate the relationship between in-house employees and scale earlier than they might have in the past.

  • The Entrepreneur’s Passion

    Last week, I was talking to an entrepreneur, and one of the things that stood out was the passion in his voice. You could tell he was fired up and committed to building a business with a strong sense of customer empathy.

    When talking to entrepreneurs, I always enjoy asking questions like: Why did you start this business? Why is now the right time to create this company? What makes you uniquely suited to succeed? While these are important questions, a key nuance is the passion exuded by the entrepreneur. Does he really care? Does he truly want to make this happen? What sacrifices is he willing to make?

    The challenge with discussing passion is that it can be subjective. Different personality styles express passion in different ways. Some people get excited, talking fast and with high energy. Others become serious, showing a deep conviction. While passion comes in different forms, it’s ultimately one of those things you recognize when you see it.

    One final note is about the intersection of entrepreneurs searching for a great idea versus being passionate about that idea. This can be a tough balance. Great ideas are hard to find, and while some entrepreneurs are passionate about anything and everything, others struggle to get excited even when they find a strong idea. For many, that lack of excitement is a dealbreaker.

    From my experience, most things that move society forward, help others, or solve meaningful problems provide a foundation for passion. Of course, it’s ideal to find a need in an area you’re already passionate about, but I wouldn’t limit the search for a great idea to things that are immediately exciting.

    The next time you talk to an entrepreneur, listen to his voice. Pay attention to the excitement around the idea. After the conversation, do a mental analysis of his level of passion. Some of the most successful entrepreneurs I know are also the most passionate about their mission.

  • The Unknown Entrepreneur Arc

    Last week, I met an entrepreneur for the first time and asked one of my favorite questions: why did you start your company? He shared his journey, which began with participating in a college engineering organization that exposed him to an industry. From there, he became heavily involved and achieved some success among the school competitions. This led to job in the field, which quickly revealed an emerging gap in the market. Recognizing this, he decided to start a business to solve the problem. Now, he has millions of dollars in revenue and a tremendous market opportunity ahead of him.

    Hearing his story reminded me of my own journey. I started by building small PC apps followed by websites. Over time, I identified an opportunity for a new class of software that made it easier to update and manage websites. This led to the idea of creating software to make B2B marketing more productive, which eventually inspired a whole host of other ideas.

    Reflecting on both his journey and my own, my biggest takeaway—beyond the clear influence of luck and timing—is that the best thing a potential entrepreneur can do is to put themselves out there. Observe trends, find ways to get involved, and do interesting work. You never know where it might lead.

    Potential entrepreneurs would benefit from studying the stories of others. It quickly becomes clear that much of entrepreneurship involves trying new things, experimenting, failing, and maintaining a mindset that opportunities are abundant. The world is always changing, with new trends and tailwinds constantly emerging.

    While it’s popular to say, “Follow your passion,” it’s better for potential entrepreneurs to develop an eye for how the world is evolving. Becoming a student of what’s changing and why will lead to opportunities.

  • Event Attendance Yields and Quality Product Feedback

    Last week, I spoke with an entrepreneur who volunteers for a local tech nonprofit, helping with event planning and securing speakers. We discussed events in general and shared best practices we’ve learned over the years. He pointed out something I’ve also observed: events that require payment, even a nominal fee like $10, tend to have a significantly different attendance yield compared to free events.

    In some cases, an organization includes events as part of its annual dues, but many groups choose to charge for events individually. What I’ve noticed on the attendance side is that when you charge for an event, the attendance rate (the percentage of people who actually show up) is often over 90%. In contrast, for free events—especially larger ones or those without a special draw—the attendance rate is typically around 60%. So, while people sign up for events in both cases, charging even a small fee increases the commitment and effort to attend.

    In this unscientific example, the attendance yield for paid events is roughly 50% higher than for free ones. How does this relate to startups? In the startup world, entrepreneurs are eager to get new products into the hands of potential customers. The most common approach is to give products away for free in the early stages to encourage usage and gather feedback. While this might work for a small subset of premium products, in most cases, entrepreneurs are better off charging something, even if it’s less than the eventual market price.

    By charging for the product, the bar for customer commitment is raised. When customers pay, they are more likely to use the product, and the quality and quantity of feedback improve significantly. The relationship becomes a true vendor/customer. 

    Entrepreneurs should consider the example of event attendance yields when comparing free versus paid events. Paid events, as expected, have a higher yield, which implies a greater level of commitment—even if the amount paid is minimal. Similarly, when entrepreneurs charge for a product, the customer’s seriousness is much greater, resulting in higher-quality feedback. Feedback is the lifeblood of products, and the most valuable feedback comes from customers who are invested, even if minimally.