David Cummings on Startups

Author: David Cummings

  • Team Members Scaling From Front Line to Executive

    When a company is just getting started it’s critical to get ‘A’ players on board that are excited to roll up their sleeves and do whatever it takes to be successful. As the startup grows and matures, one of the most difficult things is developing the early team members to scale as the business scales. It’s super tough to go from front-line team member to an executive managing a fast-growing department.

    Here are some items to look for in team members that aspire to scale as the business scales:

    • Executive presence – a level of confidence and professionalism that reflects strongly on the company
    • Penchant for bigger-picture thinking – getting the job done is great but successful executives need to be thinking about long-term strategies, metrics, and ways to improve
    • Strong communication skills – in-person discussions, team meetings, and conference calls should be productive and facilitated in an effective manner (great public speaking skills are a nice bonus)

    As team members express a desire to scale with the organization, set proper expectations and ask hard questions regarding their ability to deliver as an executive at the next level.

    What else? What other thoughts do you have on team members scaling from front line to executive?

  • Raising Limited Money to Get Key People Formally Involved

    Most startups should not raise money. Some exceptions include when it’s a winner take all market (like eBay), winner take most with a huge valuation boost (like Salesforce.com), or very capital intensive (like a hardware business). In this context “raise money” means the traditional large sums of money over multiple rounds approach. There’s another  approach that isn’t talked about as frequently: raising limited money to get key people formally involved.

    By raising limited money you might sell 2 – 10% of the business to get key people participating instead of the traditional 20 – 40% (usually 30%) per round, not because you need the money but because you want them formally involved. You might say you could do that through board seats or advisors — you could, but it’s better if they have some skin in the game through a formal investment as well as the board/advisor participation.

    The next time you want to get a person involved in the business for a long time, and you’re not raising money, consider raising money from them as a way to align interests and formalize the relationship.

    What else? What are your thoughts on raising limited money to get key people formally involved?

  • Sales Rep Metrics for Startups to Track

    Hiring and managing a successful B2B sales team is one of the hardest things to do for technology entrepreneurs. In a previous post, Milestones for New Sales Reps, there were four simple sales metrics to track: call conversations logged, demos completed, opportunities created, and deals won — those are pretty straightforward. As the sales department matures, there are a number of additional metrics to track.

    Here are some sales rep metrics for startups to track:

    • Calls:
      No message left
      Voicemail
      Conversation positive
      Conversation neutral
      Conversation negative
    • Demos:
      Demo 1 Scheduled
      Demo 1 Completed
      Demo 1 Missed
      Demo 2 Scheduled
      Demo 2 Completed
      Demo 2 Missed
    • Opportunities:
      Opportunity created
      Opportunity won
      Opportunity lost
      Revenue booked
      Average days till closed / won
      Lost opportunity revenue
      Competitive opportunity

    This isn’t an exhaustive list but it’s a good start for understanding on a more detailed level how sales reps are performing. These should be measured on a monthly and quarterly basis as well as rolled up team and department-wide.

    What else? What are some other sales rep metrics for startups to track?

  • Quick Management Exercise for Startup Team Building

    In the book The Advantage, Patrick Lencioni argues that one aspect of organizational health is management trust and connectedness. Many management teams don’t have enough trust and rapport amongst each other and that shows when they’re focused on achieving personal and department goals while sacrificing company-wide goals. In order for management to work better together they need to understand more about each other on a personal level.

    Here’s a quick management exercise for startups to help get to know each other better in 20 minutes by each person answering the following questions:

    • Where were you born?
    • How many siblings do you have?
    • What was your birth order?
    • What was the most difficult or challenging part of your childhood?

    Obviously the last question is the most difficult, and the most insightful, for getting to know someone better. The next time you’re looking to building connectedness, try out this exercise.

    What else? What are your thoughts on this quick management exercise for startup team building?

  • An Easy Way Out Makes More Challenging Opportunities Harder

    Two nights ago I realized a phenomenon that’s more prevalent than I expected. As I was sitting down to write my daily blog post I knew I had the topic of Organizational Health as the Next Corporate Frontier readily available since I had just read the start of a book. My thinking was that this was a topic I felt passionately about but that it was an easy one, so I should write about something harder or more timely, and come back to this one when I was at a loss. Only, by having the easy topic sitting there it made it even harder to come up with something else.

    Having an easy way out makes it even harder to do the more challenging opportunity.

    Thinking about it for a few minutes made me realize that this happens all the time. People go to grad school instead of traveling the world because it’s more of a known quantity. People join a big company instead of a startup because it’s perceived as safer. The easy way is easy for a reason but it’s important to think hard about whether it’s the best.

    What else? What are your thoughts that an easy way out makes it harder to do the more challenging opportunity?

  • How Much Profit Should be Reinvested in a Startup

    Recently I was discussing with an entrepreneur an interesting question: how much profit should be reinvested in a successful startup? Of course, if there are VCs or institutional investors, the answer is all of it as the focus is to get as big as possible as fast as possible. Now for bootstrapped startups and some angel-backed startups, once the startup is profitable it’s up to the co-founders to decide how much profit to reinvest in the business.

    If the startup is growing fast, ideally all the profit would be reinvested. Here’s a simple formula I like to use:

    Pay yourself 25% more than your lifestyle calls for until you have two years of savings then just pay the minimum to maintain your lifestyle

    The idea is that there’s some peace of mind for having sufficient personal savings while at the same time maximizing the investment in the fast growing startup.

    What else? How do you determine how much profit should be reinvested in a startup?

  • Organizational Health as the Next Corporate Frontier

    Yesterday I started reading The Advantage: Why Organizational Health Trumps Everything Else in Business by Patrick Lencioni, one of my favorite authors. So far, it’s another must-have book in an entrepreneur’s collection.

    Lencioni uses the term “organizational health” and explicitly says he doesn’t like the term “corporate culture” because it’s over used. I disagree. He uses the subtitle “Why Organizational Health Trumps Everything Else in Business” and corresponding book content is nearly identical to my favorite saying that corporate culture is the only sustainable competitive advantage completely within the control of the company.

    Another interesting point he makes is that management teams are so strong, on average, with strategy, operations, marketing, etc that those are much less of a differentiator than they used to be. Talent is still extremely important but for companies of size the managers are good enough in the main functional areas. Now, the real differentiation comes from organizational health and the softer, internal people side of the business.

    I’m looking forward to reading more of the book and can already recommend it to entrepreneurs that believe a strong corporate culture is critical to success.

    Note: The Six Critical Questions for Every Entrepreneur.

  • Tungle.me + Email Signature = Self-Service Meeting Signups

    I’m a fan of Tungle.me, the service owned by RIM/Blackberry, that allows for collaboratively scheduling one or more Google Calendars. With Tungle.me you can also make your personal calendar selectively available to anyone that you provide a custom link, while blocking out days / times of day, and making the contents of any already scheduled events say “busy.”

    Sales people have a killer feature on their hands: they can put a personal Tungle.me calendar URL in their email signature and say “Schedule a demo immediately.” The prospect or contact they’re emailing can click that link and schedule a time to talk, which automatically sends an email to the sales rep notifying them of the new event.

    I was skeptical at first if anyone would take the initiative and schedule a demo with a sales rep this way. Now, I’m a big believer as I’ve seen it happen many times. It works great!

    Tungle.me in an email signature results in self-service meeting signups, which is awesome for sales people.

    What else? What are your thoughts on using Tungle.me in email signatures to make it easy for people to schedule meetings?

  • Large Customers as Edge Cases with SaaS Products

    Software-as-a-Service (SaaS) is an extremely efficient model for product development since the delivery components and upgrade cycles are controlled by the vendor (an inordinate amount of time is spent supporting configuration environments with installed applications). There’s one edge case with SaaS product that isn’t talked about much: unusually large customers.

    In the installed software world, unusually large customers typically require more expensive or exotic hardware and the problem is somewhat solved. With SaaS it isn’t as easy because SaaS applications are often sharded whereby clusters of customers are grouped on the same database, but individually delineated. As the customer base of the product grows, the SaaS company adds more and more shards. This breaks down with an unusually large customer when the customer is so large as to not fit in an isolated shard or with the standardized hardware used to power the other shards is not powerful enough.

    Modern technologies like Cassandra and HBase provide amazing scalability across a cluster of machines and solve the scale problem. Unfortunately, the tools to develop against them aren’t as simple and powerful as tools for standard databases like MySQL and PostgreSQL, but they are rapidly improving.

    Some ideas to deal with the unusually large customer edge cases with SaaS products include the following:

    • Data size allotments with fees for additional storage
    • Setting upper-bound limits for certain categories of data and not allowing overages
    • Isolating the account to a dedicated shard

    My recommendation is to think through scalability limits early on and address them in advance of customers reaching them.

    What else? What thoughts do you have on large customers as edge cases with SaaS products?

  • The Value Multiplier to Only Raise Angel Money

    After the post last week outlining an example value multiplier of 5 to raise VC money, an entrepreneur pointed out to me that some startups choose a middle ground between bootstrapping and raising institutional money: exclusively raising angel money. Comparing angel investors to VCs is relatively straightforward but there isn’t much talk about startups that only raise money from angels.

    Only raising money from angels would be considered for a more capital-light business with the idea that there might be three rounds over five years raising amounts more modest than from VCs (e.g. $500k, $750k, and then $1 million for a total of $2.25 million). By raising money from angels it’s likely that there wouldn’t be the typical 1x participating preferred liquidity preference and that the angels wouldn’t require selling roughly 1/3rd of the company for each round (the 10-20% range would be more likely).

    Let’s look at the math from purely a co-founder’s financial return for only raising angel money vs bootstrapping:

    • As a co-founder you own 40% of the business with another co-founder that owns 40% and a stock option pool representing 20%
    • At the end of five years you still own 40% assuming you don’t raise money and don’t have any dilution
    • As a co-founder that owns 40% of the business, assume you raise three rounds of angel financing (roughly one every 18 months). Assume angels buy approximately 15% of the business with each round of financing and assume the option pool grows by 5% (less hiring with less money), so multiply the ownership stake by .8 (representing the amount sold to the angels and the amount for the new option pool). Here’s the math: .4*.8*.8*.8 which equals 20.5%.
    • Assume everything else is equal, which it isn’t, the value multiplier to raise angel money is 2. That is, it makes financial sense to raise angel money if the business will be significantly greater than 2 times more valuable in five years.
    • A quick example: if you can build a company worth $10 million with no angels, the same company would have to be worth $20 million for the personal gain to be financially equivalent.

    Raising angel money, depending on the terms, is likely to be slightly more entrepreneur-friendly than institutional money, but still requires the full commitment of a board and other fiduciary responsibilities.

    What else? What are your thoughts on the value multiplier to only raise angel money?