My good friend Ellie Byrd just published her first book last week – Eating Ramen: A Survival Guide for Tough Financial Times. The book is part autobiography, part inspiration, and part personal finance. Some of my favorite takeaways from the book:
- Czechoslovakian payment plan – don’t buy it unless you can pay cash for the whole thing
- Don’t keep employees on the bench after an economic meltdown (Sept. 11, 2001) unless you have a couple years worth of cash on hand – and are willing to use it
- Physical office space isn’t required to be successful – virtual companies are becoming more and more common
- The best offense for becoming financially secure is a strong defense around spending money – especially things like lattes
The book is a quick read, has many funny stories, and is worthwhile for anyone who enjoys entrepreneurial stories, financial tips, and reading about the lives of others.
Head on over to EatingRamen.com or buy the book on Amazon.com.
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Software-as-a-Service (SaaS) continues to be a hot area for startups. The Responsys IPO filing shed more light on the numbers behind a larger scale SaaS business, including ratios of license to service revenue as well as growth over many years. As a SaaS company, whereby clients essentially rent the software, and thus are financed compared to paying a large up-front license fee, it is critical to understand if you’ll be making money over a long-term horizon as there’s a great chance you’ll lose money in the short-term due to the nature of the business.
Here are some SaaS growth metrics we track:
- Churn rate in terms of number of clients as well as in dollars
- Monthly, quarterly, and annual recurring revenue growth
- Client acquisition costs as well as how many months/years it takes for a client to be profitable
- Omniture Magic Number – ratio of sales and marketing costs two quarters ago to new annual recurring revenue from last quarter
- Average revenue per customer/user
- Lifetime value of the customer as well as the lifetime value discounted against the cost of capital
- Cost of goods sold (typically hosting and customer service fees) per client
Managing and tracking these SaaS metrics help us better understand our company as well as benchmark us against data from publicly traded SaaS companies. My recommendation is to prepare a monthly analysis of this type of information.
What else? What other SaaS startup growth metrics do you track?
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Two weeks ago I was talking to an entrepreneur about the proliferation of B2B web apps. He asked me what tools we use, and after thinking about it, I realized we have quite a few different systems in use. Here’s most of what we have:
Yes, there are some categories with multiple systems in there due to different teams using different products. The growth of quality, affordable web apps continues to amaze me and I look forward to adding more systems in the future.
What else? What are some other apps you like related or unrelated to the ones listed above?
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For many years I was against working with recruiters as I felt the best candidates were the ones proactively looking for a new position through word-of-mouth or online job listings. Over time I’ve come to appreciate that recruiters help for hard-to-fill positions as well as time sensitive positions. There’s also the rare time when the company is growing faster than it can hire or just landed a round of investment capital.
Here are a few tips to keep in mind when working with recruiters:
- Use your personal network and offer employees a $1,000 bonus if they refer someone, as hiring via referrals is generally the highest quality source
- Make sure there is at least a 90 day refund period if a new hire doesn’t work out (give the recruiter 60 days to replace the person first but if they can’t deliver someone that you hire, get your money back)
- Employ an applicant tracking system where all candidates fill out a form online for efficiency as well as if you have concerns about multiple recruiters supplying the same person and getting double billed
My recommendation is to use your network first to find candidates and then go to recruiters if that doesn’t work out. Recruiters have a role for startups and should be used where applicable.
What else? What other tips do you have for working with recruiters?
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Jim Collins, the famous author who wrote Good to Great and Built to Last, wrote an article in the summer 1999 issue of Harvard Business Review titled Turning Goals into Results: The Power of Catalytic Mechanisms (third-party review of it). Every startup should know about catalytic mechanisms. The idea behind catalytic mechanisms is to put in triggers and rights that force change or improvement by their very nature — think tactics that empower the person or user who is often in a position of less power to be more empowered.
Here are some example catalytic mechanisms in startups:
- No contracts for a SaaS vendor – this forces the SaaS vendor to win the client’s business each and every month as opposed to annual contracts where the vendor might not meet expectations for many months of the contract only to scramble at the end
- Allowing customers to strike out items that didn’t meet their satisfaction on the bill, and not pay – this forces the vendor to get every detail right and provide a high level of customer satisfaction knowing the customer is empowered to not pay
- Requiring unanimous approval for new hires – this empowers all team members to have veto power and ensure corporate culture standards, including personal buy-in of hiring decisions
My recommendation is to think through catalytic mechanisms for your startup, even ones that really challenge traditional convention.
What else? What other catalytic mechanism examples do you have?
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This afternoon I had the chance to do my monthly EO Accelerator Accountability Group mentoring with six Atlanta entrepreneurs working hard to scale their business. After doing individual business updates and a lightning round of quick Q&A, we jumped into discussion topics around sales, marketing, and prospect nurturing (part of marketing).
After a couple entrepreneurs talked I was quickly reminded that the biggest hurdle for most entrepreneurs to reach $1 million in revenue is a reproducible sales process not limited to referrals. Yes, referrals are great, and should not be ignored, but most startups are going to have a hard time to scaling to $1 million in revenue within three years without a reproducible sales process. Here are some factors in a reproducible sales process:
- Ability to generate leads or talk to prospects in a reliable manner
- Capability to perform a set of sales steps and actions that produce results
- Consistent sales cycle, approachable buyers, and known tactics
Again, this isn’t required to be a successful startup, but the ones I’ve seen scale have these components. My recommendation is to work hard to find and build a reproducible sales process.
What else? What other factors go into a reproducible sales process?
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Tonight I had the opportunity to attend a meeting of the Atlanta Technology Angels where they outlined ATA 2.0. The idea behind ATA is to bring angel investors together as a group to get better economies of scale of one’s time (angel investing is a very manual process). ATA is not a fund with committed capital but rather a group of dues-paying members looking to help the Atlanta startup community.
Here are some of the new aspects of ATA 2.0:
- No longer a “one man show” with an executive director but rather a group of several volunteer committees
- Formal process, with feedback and transparency, for entrepreneurs applying to present
- Three separate categories of funding:
Seed – Under $100k
Series A – Around $500k (but not limited to that)
Opportunistic – Whatever the deal takes
- Corporate sponsorships and institutional memberships
- Rotating venues both ITP and OTP
- Partial discount of dues after a certain amount invested (this is to help encourage investing as many people who are members of ATA don’t regularly invest)
- Lowered investment minimum from $25k to $5k to help get more participation in deals
My focus on helping the startup community is still going to be through Shotput Ventures companies and individual EO Accelerator mentoring but I’m excited to learn about ATA 2.0 and I look forward to its success.
Pay-per-click (PPC) ads are a true revolution for marketers. They’re the main reason Google is on a $30 billion/year revenue run rate. For B2B marketers, PPC can be a bit daunting, and get expensive quickly. In many cases, to get sufficient clicks from potential prospects you have to bid much higher than you might normally, otherwise it isn’t worth your time to use it for lead gen. Here are a few tools to consider to help to get more value from your PPC spend:
My recommendation is for B2B marketers to experiment with these tools to better understand their strengths and weaknesses as well as help with marketing efforts.
What else? What are some other PPC tools you like?
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Web analytics tools, especially the industry standard Google Analytics platform, are powerful tools more commonly used on a regular basis by B2C marketers as opposed to B2B marketers. For B2B marketers the number of hits and visitors, entry and exit pages, geographic and demographic, and other forms of data don’t always translate into productive information. B2C marketers, often generating revenue from advertising, get immediate value from those types of stats.
For B2B marketers, the real value comes from understanding qualified prospect behavior, something a marketing automation system provides. In addition to using micro web analytics tools provided by marketing automation systems, B2B marketers should take advantage of goals in Google Analytics to understand activities that add value. Here are some examples goals from a recent Search Engine Watch article:
- Set 1: Contact actions
- Contact form complete
- Newsletter sign-up
- Email link clicked
- Set 2: Site engagement
- Blog comment
- Feedback/poll widget completed
- Set 3: Downloads
- White papers, brochures, etc.
- Set 4: Micro-conversions
- Contact page viewed
- Product pages viewed
- Set 5: Engagement metrics
- Time spent on site
- Pages per visit
Notice that the focus is on items directly related to lead generation and nurturing. My recommendation is for B2B marketers to use goals and work to improve those results when using macro web analytics tools.
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In thinking about startups, the ability to learn quickly and make decisions fast are two of the most important attributes of success. Whenever a colleague of mine stops by to tell me about a meeting, call, or event, my favorite question to ask is: what did you learn. The idea is that, yes, outcomes and results are critical, but learning from the experience is equally important.
A culture of learning, as opposed to purely minimizing mistakes and CYA, provides these benefits:
- Team members are encouraged to experiment without fear of reprimand
- Iterations are done quickly with the goal to learn and make another decision, as opposed to extensive planning to make the perfect decision absent information (perfect is the enemy of good)
- Focuses internal hiring on people that are smart and get’s things done as opposed to exclusively requiring ones with extensive experience
My recommendation is to develop a culture of learning and incorporate it throughout the startup.
What else? How important is learning to a startup?