Career Paths are Tough for Early Stage Startups

Once a startup finds a repeatable business model and gets out of the seed stage, they then enter early stage (e.g. 20 – 50 employees) before (hopefully) moving on to growth stage (50+ employees). With five employees in a startup everyone wears multiple hats and things are so crazy the topic of career paths don’t often come up. As the startup matures into a business and the next 20 people are hired, more specialization sets in and the topic of career paths becomes a bit more common. By the growth stage, career paths are a normal part of the conversation.

Startups have an especially difficult time answering the career path question.

With all the uncertainty of a startup who knows if it will even be around in a year or two. High end strategy consulting firms like Bain and McKinsey have the motto “up or out” which basically means you’re promoted every two to three years or you’re fired, and that works for that world. For startups, no matter how hard you try, everyone on the team isn’t going to be so entrepreneurially-oriented that they love the feeling of not knowing what’s next.

Here’s how we approach the career path question in a growth stage startup:

  • Once or twice a year we sit down and talk with each person about career path options (we don’t do annual performance reviews but we do do quarterly check-ins that are simplified reviews)
  • We emphasize that with company growth comes new opportunities, teams, departments, etc but that we don’t have a firm timeline
  • As a philosophy, we want to promote from within whenever possible
  • Team members are encouraged to identify opportunities or challenges that excite them and we work on how to make them achievable

Career paths are tough for early stage startups. It’s best to tackle them head on and look for ways to be open and transparent with team members while also getting them excited about the potential opportunities and changes that lie ahead.

What else? What are some other ideas around career paths for startups?

Cost Difference Between Employee and Employer Paid Benefits

One of the common questions I hear is, “Wouldn’t your employees rather have higher pay checks and less benefits?” It’s true that more individual choice is often the better route, and I’m a fan of pushing the decision making down as far as possible. There’s two factors at play here 1) the culture of the company with it’s values and 2) the government’s tax code. Assuming the company places a high value on great benefits, let’s look at how the tax code promotes employer paid benefits.

Take an example benefit of $1,200 per year per employee for housecleaning provided to all employees:

  • Employer paid benefit cost: $1,200
  • Employee paid benefit cost: $1,200
    Plus employee paid federal income taxes (~30%): $514
    Plus employee paid state income taxes (~6%): $77
    Plus employee paid payroll taxes (~6%): $77
    Plus employer paid payroll taxes (~6%): $77
    Total cost for the employee paid benefit including the employer’s taxes: $1,945

So, for the employee to pay for the same $100 per month housecleaning on their own, it costs a total of $1,945 to be paid by the employer to a combination of the government and the employee. For the employer to pay directly for the employee’s housecleaning, it costs $1,200, or 38% less. There’s a serious difference between employee and employer paid costs for benefits.

What else? What are some other thoughts on the cost difference between employee and employer paid benefits?

Fundraising Starts with Friend Making for Startups

A number of entrepreneurs have lamented to me how difficult it is to raise money for their startup. Now, they are trying to raise seed rounds of less than $1 million from angels and aren’t having much luck. Of course, the best time to raise money or get a bank loan is when you don’t need it, but that’s rarely the case for startups. One of the most important aspects of fundraising, and least discussed, is that of investors wanting to invest in and work with people they genuinely like — potential friends if not already friends.

Entrepreneurs would do well to read How to Win Friends and Influence People by Dale Carnegie at the start of their fundraising process (if not right away). The idea isn’t to be fake but rather to be genuinely interested in the person and the relationship, as that sets the foundation for everything going forward. Some of the most successful fundraisers are also the best at making friends.

Fundraising starts with friend making as investors want to invest in startups that have entrepreneurs they truly want to hang out with for many years. In addition to finding investors generically, entrepreneurs would do well to find investors that they enjoy being around and have complementary personalities.

What else? What are some other reasons fundraising starts with friend making for startups?

Churn Cohorts in SaaS Startups

Churn is the silent killer for Software-as-a-Service startups. SaaS is such a great business model that people focus on the cash flow predictability of recurring revenue, high gross margins, and overall growth prospects. Churn, or losing customers, isn’t talked about as frequently and is just as important to understanding the model as more popular items like cost of customer acquisition and cost of goods sold.

Churn, globally, is a valuable metric that should be tracked closely. Even more important than generic churn is looking at churn on a quarterly or monthly basis, to get a better understanding of each cohort of customers for trend analysis. Here are some other churn cohorts, like monthly cohort analysis, to consider:

  • By customer company size (e.g. revenue, number of employees, etc)
  • By customer annual contract value size (e.g. track the five most common dollar amount ranges paid for the service)
  • By customer acquisition source (e.g. channel sale, Google AdWords, cold call, etc)

As you can tell, there’s no shortage of potential churn cohorts to analyze. The key is making it easy to track and run churn cohort reports against a variety of factors.

What else? What are some other churn cohorts to consider for SaaS startups?

4 Ideas to Improve the Atlanta Startup Community

The recent TechCrunch meetup in Atlanta with over 1,200 people was a great catalyst for talking about what’s working, and isn’t working, in the Atlanta startup community. Being an idea guy, I always love brainstorming ways to improve things and getting ideas from other people (R&D – ripoff and duplicate – is a great way to take ideas that are working in other startup communities and implement them in ours).

After talking to entrepreneurs in person, participating in discussions online, and reading about other startup communities, here are three ideas to improve the Atlanta startup community that stand out to me:

  • Regular Content-Oriented Meetups that are Startup Generic – We have a number of meetups for specialized topics (like PHP or Ruby), speaker series where entrepreneurs tell their stories, and service providers providing education on their area of expertise, but we don’t have many meetups that are content-oriented and driven by specialists working in startups (e.g. sales, marketing, support, etc — product management and engineering have a critical mass of activities). B2BCamp is an example of a great organization that is starting to fill some of the content-oriented startup education needed.
  • Startup-Oriented Event Space to Complement ATDCATDC has a couple great rooms for events but they are booked well in advance creating a need in the market for a few go-to event spaces that can accommodate 20 -100 people on a regular basis. This event space shouldn’t be formal event space, easily accessible inside the perimeter, and available at a good rate (free) for startup-related events.
  • More Successful Entrepreneur Involvement – We have a number of successful entrepreneurs, as defined as profitable, million dollar plus revenue businesses, that achieved their success without involvement in the startup community, and therefore don’t feel a need to give back or get involved. In the journey to their level of success, they found advisors and peers that fulfill their community-connectedness need, leaving little desire to do startup community events. We need to get them involved.
  • Entrepreneur-to-Entrepreneur Exclusive NetworkingEntrepreneurs’ Organization (EO) is an outstanding organization for entrepreneurs with at least a million in revenue built around trust, confidentiality, and experience sharing. Most startup entrepreneurs don’t have a million in revenue, but would appreciate the same values and peer networking EO members have in an environment that is entrepreneur-lead and not service provider-lead. One of the goals with this is more serendipitous connections and a stronger startup entrepreneur peer group to achieve a greater level of success individually and as a community.

These four ideas aren’t capital intensive but do require that entrepreneurs lead the charge as volunteer leaders to help make them successful. Atlanta has all the ingredients to be a more prominent and more successful startup community. Let’s do it.

What else? What do you think of these ideas and what are some other startup community ideas that you like?

Difficult Conversations in Startups

Recently I started reading the book Difficult Conversations: How to Discuss What Matters Most by Douglas Stone, Bruce Patton, and Sheila Heen. The authors are a research team at Harvard working on the Harvard Negotiation Project, which has been in the works for several decades. In all aspect of life, and especially the startup world, as with any fast-paced leadership situation, there are a number of difficult conversations with team members, customers, investors, and more.

One of the areas that resonated with me was around why we each see the world differently and how to better understand another person. From the book, here are three reasons why we see the world differently:

  1. We have different information
    – We notice different things
    – We each know ourselves better than anyone else case
  2. We have different interpretations
    – We are influenced by past experiences
    – We apply different implicit rules
  3. Our conclusions reflect self interest

If you’re looking for advice and guidance on being a better leader and communicator, this book is for you.

What else? What were some other takeaways from the book for you?

Startups and Choosing a Technology Stack

A technology stack is a fancy way of saying the products and programming languages used to build the behind-the-scenes piece of an application. Just like car companies source technology from a variety of vendors, so do startups, many of which are open source products.

Three weeks ago I was talking to an entrepreneur and he was looking at acquiring another company. Only, there was a big problem — the target company’s technology stack was Microsoft-based with ColdFusion as the primary programming language. Now, ColdFusion was amazing last decade but has been antiquated for several years now. Building a new startup around a ColdFusion-based app would be a bad idea.

Here are a few tips when choosing a technology stack:

  • Consider the cutting-edge nature of the technology being evaluated and if you are comfortable having more bumps in the road (e.g. JavaScript on the server side and NoSQL databases are gaining popularity but there are trade-offs that should be considered)
  • Analyze the expertise you currently have and the expertise you have access to either locally or globally through your connections (e.g. Ruby on Rails is awesome but there’s a serious talent shortage right now)
  • Three of the most popular programming languages for startups, based on the entrepreneurs I talk to, are PHP, Ruby, and Python with Java and .NET being more big-company oriented
  • Ask the five entrepreneurs you trust what technology stack they are using and if they recommend it
  • Using a simpler stack with faster time to market is the best approach when you’re starting out as you can always introduce fancier technologies later and deal with things like scaling when you have that high-class problem

Choosing a technology stack is an important decision and should not be underestimated. I recommend using whatever gets you to market fastest and is enjoyable for your team to use.

What else? What are some other tips when choosing a technology stack?