David Cummings on Startups

Category: Corp Culture

  • Culture Fit Trumps Productivity

    Several years ago we were having a heated debate on our management team about a team member that was very productive but a poor corporate culture fit. Logically, everyone knew the person had to be let go. Practically, everyone kept going around in circles debating the short-term productivity hit and what that would mean to our startup.

    I argued we should let the person go immediately. In the end, we spent six months debating it before finally letting the person go. Culture fit always trump productivity. Here are a few things to think about:

    • Do you look forward to seeing the person each day in the office?
    • How much productivity is lost by good corporate culture fits working with the non corporate culture fit?
    • What type of precedent does this set for future culture decisions?
    • What are the worst possible scenarios when this person is let go?

    It’s never easy firing an employee. In fact, it’s the worst part of being an entrepreneur. With that said, it’s part of the job, especially when working hard to maintain a strong corporate culture. Culture fit trumps productivity.

    What else? What are your thoughts on the idea that culture fit trumps productivity?

  • Corporate Culture Alignment in a Company Acquisition

    As mentioned in the post ExactTarget and Pardot Join Forces, the majority of acquisitions fail due to poor corporate culture alignment. While it seems like companies win or lose on the basis of their technology, more often than not it’s due to their corporate culture behind the scenes. A strong corporate culture doesn’t mean that everyone is nice and likes each other, rather, it means that the people who work at the company are aligned around core values that are consistent. The core values could be that people are aggressive and assertive or that people are positive and self starting — there’s no judgement on the actual values, only that they are consistent.

    Here’s ExactTarget’s core values:

    • Treat people well
    • Be easy to do business with
    • Stay true to permission
    • Make clients look like heroes
    • Empower marketers through software
    • Make decisions like an owner
    • Have an entrepreneurial spirit
    • Pursue our goals as a team

    Here’s Pardot’s core values:

    • General: be the best place to work and the best place to be a customer
    • People: positive, self-starting, and supportive

    While the words used to describe the two different company’s core values don’t overlap, for all intents and purposes, they attract the same people. With people of similar personal values brought together through an acquisition, the chance of success is significantly improved.

    What else? What are your thoughts on corporate culture alignment in a company acquisition?

  • How Do you Crack the Nut on Recruiting Technical Talent

    The shortage of software engineering talent is real. Not a day goes by that I don’t hear or read about a startup lamenting how hard it is to find strong technical talent to join their team. It isn’t that there aren’t people out there  looking for jobs. As a startup, it’s especially important that the engineers on staff are smart and get things done.

    Recruiting technical talent is an especially tough nut to crack as engineers are typically introverted making them less likely to reach out to people to learn about new career opportunities, talent is in such high demand that employers already coddle their IT departments, and there’s real uncertainty in the type of overall work experience when switching jobs.

    Here are some ideas to get better at recruiting technical talent:

    Cracking the nut on recruiting technical talent is a tough, long term proposition. Expect 6-12 months of hard work and serious investment to see results. In the end, the quality and quantity of talent on your team is going to seriously influence your level of success.

    What else? What are some other ideas to recruit technical talent?

  • The Critical Time Between Employee Offer Letter and Commitment

    Recruiting great employees who are corporate culture fits is one of the most rewarding, and most difficult, aspects of building a startup. Creating the best place to work with strong, aligned values does wonders for the recruiting process. Even so, there’s a part of the recruiting process that doesn’t get the attention it deserves: the critical time between employee offer letter and commitment.

    Here are some ideas to increase the chance of that great potential hire accepting their offer:

    • Provide a deadline in the offer to create a timeframe and expectations for a response
    • Talk on the phone and describe how excited you are for them to join your team before sending the written offer (delivering the message in person or over the phone is much more impactful)
    • Maintain an open and continuous dialogue while working hard to address any concerns they might have
    • Allow for negotiation of compensation but be weary of too much back and forth

    Changing employers, especially when joining a startup, is a big decision. Once an offer is sent to a potential employee, it’s critical to work hard to see the process through to a commitment to come aboard.

    What else? What are some other best practices around the time between an employee is given an offer letter to them signing on?

  • Scaling Corporate Culture in a Startup

    Earlier today I had the opportunity to talk to Charlie Goetz’s Emory entrepreneurship class. Every time I talk to a class I work hard to emphasize the importance of corporate culture, especially how it’s the only sustainable competitive advantage within the control of the entrepreneurs. Now, in an MBA class, all students have several years of work experience, and thus first-hand interaction with one or more corporate cultures. When I start talking about corporate culture to MBA students, they appreciate it more than students that haven’t had full-time jobs.

    One of the questions asked by a student today was “how do you scale the corporate culture as the business grows?” Here are a few ideas:

    • Implement culture check teams to provide checks and balances during the hiring process
    • Require unanimous consents from all interviewers when making a new hire
    • Regularly tell stories of positive corporate culture anecdotes
    • Include culture values in the quarterly check-ins
    • Physically embody the corporate culture through colors, objects, and visual cues

    Scaling a corporate culture in a startup is hard. Not scaling a successful corporate culture will make scaling the business 10 times more difficult.

    What else? What are some other ideas to scaling corporate culture in a startup?

  • Accelerated Second City Office Expansion Due to the Talent War

    With the ongoing war for talent in startups, especially in the money centers of California and New York, there’s going to be an increased focused on expanding to another city, with a separate talent pool, earlier in the startup lifecycle, when compared to historical standards. Traditionally, it wasn’t until a startup reached a critical mass in their scale that they would look for a second full office, not simply a light-weight sales office (e.g. Google has a massive engineering office in New York City). As for Atlanta, I know of at least two fast-growing software startups based in Florida, one based in South Carolina, one based in NYC, and two based in San Francisco (Square has an office in Atlantic Station in Midtown, Atlanta) that have full engineering offices in Atlanta. This trend is only going to accelerate.

    Here are a few reasons why startups with expand to a second city faster than historically:

    • Talent pools in a geographic area are only so large, creating excessively high demand for talent in the money centers like San Francisco and Silicon Valley
    • Money centers also have exceptionally high costs of living and housing prices, making it more desirable to have a significant office presence in a second city where costs are lower (Trulia is based in San Francisco but has hundreds of employees in Denver)
    • Video conferencing (e.g. Google Hangout) and cloud-based collaboration apps are better than ever, making it easy to work in separate physical locations
    • Acqui-hires are more common now, making it more likely startups will look for acui-hires in other cities to be the basis for a new office location

    Second city office expansion is already taking place faster for startups, but entrepreneurs aren’t talking about it as frequently as they should. Look for it to be even more commonplace over the coming years.

    What else? Do you think there will be accelerated second city office expansion due to the talent war?

  • Beware of Unnatural Acts Leading to Startup Team Burnout

    Recently I was meeting with an executive from a startup talking about lessons learned. She recounted the story of a startup she joined that was doing was well and kept raising more and more money. After a substantial series D round, the bar was set so high for revenue growth by the investors that the executive team knew it wasn’t attainable. Against the odds, the startup was able to deliver and meet the expectations for a short period of time.

    There was one major problem.

    She described their meeting revenue growth targets as requiring “unnatural acts” meaning the team was working 80 hours per week and rapidly approaching burnout. It wasn’t sustainable. Unfortunately, the entrepreneur had promised the investors they could achieve certain results. After two quarters of hitting the numbers, the wheels fell off. The startup’s growth slowed considerably, the market shifted, most of the executive team left, including the entrepreneur, and the venture-back startup is in zombie mode now.

    Beware of unnatural acts leading to startup team burnout as it isn’t sustainable.

    What else? What are your thoughts on unnatural acts resulting in burnout?

  • Employee Equity in a Salary Multiplier Context

    Yesterday’s post titled Common Equity Grants for Startup Employees gave broad, simple amounts of equity for employees of a funded startup, which serves as a good starting point. In reality, things are much more nuanced with amount of salary being one of the biggest drivers of equity (e.g. more salary results in less equity). Another recommended way of determining the amount of equity for a position is to do it as a multiple of the market-rate salary in the context of the four year business goals.

    Here’s an example of employee equity in a salary multiplier context:

    • Employee position: $100,000 market rate salary for a software engineer with some experience
    • Startup raised $2 million on a $3 million pre-money valuation for a $5 million post-money valuation
    • Entrepreneurs decide the target equity goal for the employees is to make 2x their market-rate salary in value after four years (equity has four year vesting with a one year cliff)
    • Assume the startup doubles in value each year by executing well and growing revenue with these being example valuations (these are valuations, not revenue):
      Year 1 – $5 million
      Year 2 – $10 million
      Year 3 – $20 million
      Year 4 – $40 million
    • Assume 50% dilution from future funding rounds (so really need 4x their market-rate salary to get to 2x after dilution)
    • $200,000 as a percentage of $40 million is 0.05%
    • Double the 0.05% to account for dilution taking out half and you have 0.1% to start

    So a software engineer with a $100k salary would get equity amounting to 0.1% of the business for a startup that just raised a funding round, but still at an early stage. If the entrepreneurs wanted to offer a greater multiplier on salary, or if the business was more mature with respect to valuation, the percent ownership with be adjusted appropriately.

    What else? What are your thoughts on employee equity in a salary multiplier context?

  • Strong Corporate Culture is Intentional

    Earlier today I had the opportunity to attend the Atlanta Business Chronicle’s 2012 Best Places to Work Awards ceremony at the Georgia Aquarium. A best places to work award ceremony is really a large celebration of business leaders that believe in the importance of corporate culture. My takeaway from the morning: a strong corporate culture is intentional.

    Here a few thoughts from the best places to work awards ceremony and winning company commentaries:

    • Employees are clearly put ahead of customers and investors
    • Shared values are critical (one winner said they look for people that are nice, passionate, smart, and fun)
    • Happy workspaces set the tone (an open, office-free environment was the recommendation from one winner)
    • Multi-year award winners are common, showing that intentional corporate culture continues indefinitely

    The next time you hear an entrepreneur talk about their great team, culture, or environment, there’s a good chance they’re intentional about making it great. Remember that corporate culture is the only sustainable competitive advantage that’s within the control of the entrepreneur.

    What else? What are some other thoughts on strong corporate culture being intentional?

  • Employee Loyalty is a Strong Non-Valley Benefit

    Recently I’ve heard increased talk from entrepreneurs and venture capitalists that employee loyalty and retention is an even more serious issue in the Valley that isn’t as top-of-mind for entrepreneurs considering where to locate their startup. The idea is that in the Valley there’s a culture of people moving jobs every year to try and get in early at the next pre-IPO startup, and, of course, most startups don’t make it, so people keep changing jobs quickly.

    For us, we have over 100 employees, have been in business five-and-a-half years, and have only had five people voluntarily leave us (along with ~10 that have involuntarily left). Building a strong corporate culture and great place to work is an incredible competitive advantage anywhere, but especially powerful is markets outside the Valley that have greater employee loyalty and less turnover.

    The next time you think through pros and cons of your startup’s city, add employee loyalty as an important factor.

    What else? What are some other thoughts on employee loyalty as a strong non-Valley benefit?