Recruiters and Startups

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For the first seven years as an entrepreneur I stayed as far away from recruiters as I could. My thinking was that I could find the talent I needed on the open market via word of mouth referrals, Craigslist, etc. More importantly, I thought that people that used recruiters to find jobs were only focused on money, and would promptly move on when another recruiter came along with a better offer. I was wrong.

Recruiters are great for startups when used properly.

The most important thing I didn’t understand with respect to using recruiters has nothing to do with recruiters. It’s entirely about corporate culture. With a strong corporate culture, and associated values, team members can come from anywhere, including recruiters. Recruiters need to understand your corporate culture, your values, and what makes your startup unique. Just like the hiring process internally, each candidate that’s vetted from a recruiter needs feedback given to the recruiter to understand what aspects of the person fit the culture and what aspects didn’t. There’s no right or wrong type of corporate culture. What’s important is that it’s consistent, understood, and strong. Recruiters are an important part of the startup eco-system and should understand your corporate culture.

What else? What are some other thoughts on recruiters and startups?

The Economic Value of Annual Contracts Relative to Month-to-Month for SaaS Startups

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Most enterprise Software-as-a-Service (SaaS) startups require an annual contract with their service. A minority of SaaS startups offer a month-to-month option either as the norm or for a premium over their annual contract price. What’s the economic value of an annual contract relative to a month-to-month offering for SaaS startups? How much more do vendors charge for the privilege of not having a contract?

Here are a few data points for prices from popular SaaS vendors (plans prominently highlighted on vendor sites will be used when multiple plans are available):

  • Zendesk – $49/agent/month billed annual vs $59 month-to-month (source)
  • New Relic – $149/server/month with annual contract vs $199 month-to-month (source)
  • Olark – $44/month with annual contract vs $49 month-to-month (source)

Now, this isn’t a large sample size, but for companies that offer different pricing relative to an annual contract or month-to-month, month-to-month is between 10% and 30% higher. It makes sense that committing to a year of service results in a lower price.

What else? What are your thoughts on the economic value of annual contracts vs month-to-month for SaaS startups?

Assessing Customer Renewal Rates and Churn Trends

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Customer renewals rates are one of the key tenets for Software-as-a-Service (SaaS) startups. It’s important to track relevant details as to why a customer leaves so that these can be analyzed and addressed.

Here are some common categories for SaaS companies to track in order to assess customer churn trends:

  • Budget
  • Product functionality
  • Usefulness
  • Personnel change
  • Project needs

Another general question I like to track is whether or not the item was within our control. The idea is that some things, like budget, are outside our control, but product functionality is within our control. Another area to look at when assessing customer renewal rates is to look at the sales reps that brought in the account to see if certain reps are signing clients that aren’t good fits, and thus have higher churn rates. A third exercise is to do SaaS cohort analysis and look at renewal rates of groups of customers from defined time periods (e.g. how do customers signed in Q1 2011 compare to customers signed in Q4 2010).

What else? What other ways do you assess customer renewal rates and churn trends?

Total Financing at Time of Venture-Backed IPO

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Continuing with yesterday’s post on Founder Equity at Time of IPO, it’s also important to look at how much money each company raised to get to their S-1 filing for an IPO. As expected, the amount raised and the amount of equity the founders own are correlated, with higher amounts of money raised related to less ownership.

Here are some data points on total financing at time of IPO for these venture-backed startups:

Another important element of founder ownership at time of IPO relative to venture funding is how far along the business was when it first raised money. Jive Software, as an example, was very far along before raising money, and thus the co-founders combined still have roughly 30% of the business. Bazaarvoice, which was extremely capital efficient only raising $23.6M, raised money at lower valuations and thus the founders took on greater dilution, resulting in less ownership than the Jive Software founders, even though they raised less than half the money.

Total amount of money raised as well as where in the startup lifecycle the money was raised are two major drivers of founder ownership in a business.

What else? What other thoughts do you have on total financing at time of venture-backed IPO?

Founder Equity Ownership at Time of IPO


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In light of the flurry of VC-backed technology company IPO filings this year, one of the more interesting data points was the beneficial equity ownership of the co-founder(s) (e.g. what percentage of the business did they own).

Here are a few data points on founder equity ownership at time of IPO:

Now this doesn’t take into account founders that cash out some of their equity prior to IPO, which isn’t common but is noted in the ExactTarget S-1 (~$5 million). But, it appears that on average for venture-backed companies that reach an IPO, founders typically have between 4% and 15% of the equity (note that Marc Benioff of had over 30% of the equity at the time of IPO: source).

What else? What are your thoughts on the percentage of ownership founders have at time of IPO?

Google Spreadsheet Marketing Budget Template for Startups

Presentation-quality budgets.

As a startup grows and matures so too should the tools and processes used. A simple Google Spreadsheet suffices for company-wide forecasting and budgeting until the business expands to the point that each department needs to do it on a more detailed basis. Here is an example marketing budget Google Spreadsheet template we use that includes the following info:

  • Categories for Staff, Lead Generation, and Communications
  • Monthly, quarterly, and annual totals
  • Budget, actual, difference in dollars, and difference in percentage

This marketing budget Google Spreadsheet template for startups isn’t limited to marketing departments and is readily used for any department. Budgets are an important part of the planning process and collaborative tools like Google Spreadsheets make them easy to develop and use.

Note: To use the spreadsheet for your own purposes, load the View-only version and go to File -> Download as Excel from within the File menu on the page (not in the browser window) and then upload the Excel file into your own new Google Spreadsheet.

What else? What are your thoughts on budgets in startups?

Giving Thanks in a Startup

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In light of the Thanksgiving holiday here in the United States the topic of giving thanks in a startup is very apropos. Giving thanks is an important part of startup culture and should be incorporated into the standard rhythm. Here are some ways we give thanks by helping others and by enjoying each others’ company :

  • Donate 1% of our time to local non-profits
  • Donate used computers and monitors to local non-profits
  • Company-wide off-site quarterly celebrations
  • Catered Monday morning breakfast and Friday lunch to break bread as a team

Happy Thanksgiving to everyone — all the best and happiness.

What else? What are some other ways to give thanks in a startup?