David Cummings on Startups

Category: Entrepreneurship

  • Remote Work’s Role in the Future of Work

    Remote-first companies, once an odd side-show with few household names (Automattic is likely the best known), has now become a daily topic with major companies like Shopify, Twitter, Square, most of Facebook, and more announcing that they’re moving to a remote work model permanently. The world was slowly moving this way, and Covid-19 accelerated it by 20 years — that’s a good thing.

    Now, I’m not a fan of the name “remote work” to explain that employees don’t have to work in a corporate office, but I understand the rationale. Other terms like “work from home” don’t capture the freedom of being able to work anytime, anywhere (wanna work from the beach? go for it!). Shopify’s CEO, Tobi Lutke, calls it “digital by default“, which is interesting, but too difficult to understand for it to win the naming game. My favorite choice: work.

    Work is work, regardless where you want to do it. “Work” becomes the default and “office work” is going into the office to do work. We’re already working at home, at the coffee shop, on the train, etc. even if we have a traditional office job. Work has been detached from an office for years.

    With work moving away from being office-centric, how do offices fit in? Offices are still critically important. Only their size and design needs to dramatically change. Face-to-face collaboration is superior to digital collaboration, but most collaboration doesn’t need the overhead of in-person meetings. Office space, whether shared or dedicated, becomes primarily for collaboration, meetings, and the subset of employees that don’t have access to a high quality work setup (e.g. poor internet connection or kids at home).

    Some companies will want dedicated offices that have their own style and feel. One CEO described it as wanting to have 10 cities each with one floor of office space instead of having 10 floors in one building in one city. Employees still don’t have to be in one of those 10 cities. Work is work. If an employee does like going into an office (hello extraverts!), plenty of cities are available.

    Co-working spaces are going to get even more popular. As companies move to the modern work arrangement, and away from traditional, dedicated offices, co-working fills the space need for in-person meetings and collaboration, but in a way that is 10x more flexible and affordable. Need five desks for employees that have a six-month project? Done. Need an event center to have a 100-person all-hands meeting once a month? Done. The company’s needs are met with lower cost and greater flexibility.

    The human-to-human connection has never been more important, yet now has to be more intentional than colleagues sitting together in the same place.

    Remote work is now just work. The future has arrived and we’re better off for it.

  • 5 Controllable Factors in the Pardot Story

    One of my favorite questions to ask is “why are you an entrepreneur?” I like to understand the motivation and drive for the person. Also, I’m interested in entrepreneurs that want to control their own destiny (an answer that resonates with me!). Of course, you can’t control much of anything in the world other than the most important things — your attitude, your actions, and your behaviors.

    Entrepreneurs that I meet with like to tell me they want to build the “Pardot of X” where X is some industry or type of product. I’ve come to primarily understand this to mean they want to build a SaaS company that doesn’t involve raising money and does involve selling it for a meaningful amount of money. While that’s a worthwhile goal, I like to share the controllable factors in the Pardot story.

    Here are the five most important controllable factors from the Pardot experience:

    1. Employees-First –
      Our focus on culture was maniacal. Employees came before customers and all other constituents. Everything we did internally was focused on our core values of positive, self-starting, and supportive. The ultimate reason we succeeded was because of our people.
    2. In the Path of Revenue –
      Our product unequivocally helped our customers make more money. We showed return on investment. We showed value. Our product helped turn marketing from a fuzzy role to a metrics-driven role.
    3. Must-Have Product –
      Our product was the core of the majority of the B2B marketing functions. If you ripped it out, many of the marketing channels stopped working (email, lead forms, etc.). It was not a nice-to-have.
    4. Complementary Co-Founders –
      Adam and I are very different yet complemented each other incredibly well. We knew our strengths and weaknesses and built an awesome organization.
    5. Focused Solution –
      Our product delivered the most value with the best experience possible at the $1,000/month price point. We were focused on providing the most bang-for-your-buck in the SMB market, and we executed well. This was especially important as our market was so noisy.

    Notice that timing is nowhere in these factors, even though it‘s easily one of the most important considerations. We didn’t know if we had good timing. We didn’t know when to start. We did know that by entering the arena, we gave ourselves a chance. And we got it right.

    Control what you can control. Everything else is noise.

  • Quarterly Review Formats for Employees

    Last week I was reading the excellent Iacocca: An Autobiography of Lee Iacocca — one of my favorite book genres is life adventures of people who created or changed an industry. Here, the stories are superb, and one of the comments by Iacocca caught my attention. The author writes:

    If our stockholders had a quarterly review system, why shouldn’t our executives?…I’ve asked my key people a few basic questions:

    What are your objectives for the next ninety days?

    What are your plans, your priorities, your hopes?

    And how do you intend to go about achieving them?

    Now, the book was published in 1984. 1984! When I started my entrepreneurial career full-time in the early 2000s, people were still talking about annual reviews. Annual reviews never made sense to me. A year was much too long of a time frame with most of the review comments being the current, top-of-mind items.

    When we were building Pardot, and working towards establishing our company as one of the top market automation platforms, we modeled our quarter review process based on a variation of Patrick Lencioni’s recommendations. Everyone answered the following questions in a simple Google Doc and shared it with their manager and direct reports:

    What did you accomplish last quarter?

    What are you going to accomplish next quarter?

    How can you improve?

    How are you following the values?

    Simple. Effective. Repeatable. Regardless of the quarterly review format used, it’s important to develop a rhythm that aligns the team and focuses everyone on the mission.

    Figure out what your team needs and consider these two different approaches to the quarterly review process.

  • The Canada Rule in Startups

    Yesterday I finished reading That Will Never Work: The Birth of Netflix and the Amazing Life of an Idea by Marc Randolph, the founder of Netflix. Told through the format of a live narrative, Marc does a great job capturing the ups and downs of the first five years of the Netflix journey. One of the recurring themes throughout the book is the importance of the Canada Rule.

    The Canada Rule was originally introduced by Marc when they debated at Netflix whether or not to expand to Canada. Netflix was small, but growing fast domestically. Canada, at roughly 10% of the size of the United States, was obvious for geographic expansion, but would add significant complexity. The Canada Rule, simply, is to focus on the core business and not get distracted by expansion ideas. Do one thing, and do it well.

    The old adage still rings true: many more startups died of indigestion than starvation. 

    The next time someone brings up a great expansion idea, but takes away from continuing to improve and optimize the core business, invoke the Canada Rule. Focus, focus, focus.

  • Strategies in Our Control and Scenarios Outside Our Control

    While many startups have already done brutal layoffs and expense cutting, there’s still the same amount of uncertainty, if not more, in the world. Sequoia Capital has an excellent post up titled The Matrix for COVID-19 with a visual way to think through potential strategies in the control of the entrepreneur vs macro scenarios outside the control of the entrepreneur.

    Entrepreneurs generally have a strong locus of control and extreme uncertainty exacerbates the desire to control things. The best course of action? Develop multiple plans to address potential scenarios. In the example matrix above, it references three scenarios with lockdowns ranging from three months to 12 months along with three plans range from no change in operating expenses to cutting operating expenses by 25%. For many startups, cutting expenses by 25% won’t be enough, and a more aggressive plan is necessary.

    Entrepreneurs should develop multiple plans under different scenarios and do their best to control what they can control.

  • Digital Simplification in Time of Crisis

    As the crisis continues with an indefinite timeline, I’ve been looking for ways to simplify digitally. Now that I’m doing multiple Zoom calls per day, and not getting the same variety of face-to-face interactions, I’ve been more conscious of regular screen time outside the professional context.

    Here are a few of my changes:

    • Turn off all iPhone notifications, including the Lock Screen, Notification Center, Banners, and Badges for all apps. The only notifications allowed? Texts and calls. That’s it. Removing my Slack and Gmail notifications greatly simplified things.
    • Turn on Do Not Disturb for all hours outside normal working hours and enable Allow Calls from Favorites. Shut everything down when you aren’t working. Everything. We don’t need more interruptions.
    • Remove distracting apps like the News app. I found myself constantly reading the news, and with much of it was about the crisis, I was hurting my focus even more. Eliminate noise. 
    • Combine the email inbox and to do list into one. I use my Gmail Inbox and the excellent Snooze function to constantly prioritize what’s important, and when. New to do list item? I email it to myself and then Snooze it to when I focus on it. If I have extra time, I visit the Snoozed folder in Gmail and look at the outstanding items. Constant reprioritization.

    With time, I’m sure more ideas to simplify digitally with emerge. I’m pleased with the progress so far and recommend these easy changes. And, of course, these changes should have been done prior to the crisis.

    What else? What are some more ideas to simplify digitally?

  • Culture Deck in Time of Crisis

    With the continuing health and economic crisis, one of the areas that needs even more attention is the culture of the organization. With layoffs, furloughs, and other dramatic changes, people are hurting, both inside and outside the organization. One of the areas to resort back to, or create fresh, is a culture deck.

    The most famous culture deck is from Netflix, having been viewed nearly 20 million times (also, an updated one is available).

    https://www.slideshare.net/reed2001/culture-1798664/4-Seven_Aspects_of_our_Culture

    Here are notes from the Netflix culture deck:

    • Seven aspects of the culture
      • Values are what we Value
      • High Performance
      • Freedom & Responsibility
      • Context, not Control
      • Highly Aligned, Loosely Coupled
      • Pay Top of Market
      • Promotions & Development
    • Values the following nine behaviors and skills
      • Judgement
      • Communication
      • Impact
      • Curiosity
      • Innovation
      • Courage
      • Passion
      • Honesty
      • Selflessness
    • Adequate performance gets a generous severance package (meaning, people that are OK get fired)
    • A team, not a family
    • The Rare Responsible Person
      • Self motivating
      • Self aware
      • Self disciplined
      • Self improving
      • Acts like a leader
      • Doesn’t wait to be told what to do
      • Picks up trash lying on the floor
    • Netflix Vacation Policy and Tracking – there is no policy or tracking
    • Netflix Policies for Expensing, Entertainment, Gifts & Travel: Act in Netflix’s best interest
    • Managers: When one of your talented people does something dumb, don’t blame them. Instead, ask yourself what context you failed to set.

    For another excellent example, check out the HubSpot Culture Code: 

    https://www.slideshare.net/HubSpot/the-hubspot-culture-code-creating-a-company-we-love

    Use this crisis to think through the culture, and what it should be with time. A culture deck is a great way to communicate the ideas.

  • Startup Cash Considerations in Crisis

    With most startups in crisis mode, one of the top considerations is cash management. The ability to raise capital has been greatly diminished and things are likely to get more challenging before they get better.

    Steve Blank has an excellent post from Jeff Epstein titled Action Today for CFOs with recommendations like:

    • Evaluate your when you run out of cash in a worst-case scenario
    • If you don’t have 24 months worth of cash, consider the following:
      • Draw down your lines of credit and view the interest payments on them as buying insurance
      • Sort all vendors by how much you spend and call each asking for a discount or loan to spread out payments further into the future
      • Cut marketing programs that don’t have a demonstrable ROI
      • Implement a hiring freeze
      • Let people go
      • Cut all salaries by a certain percentage
      • Tightly monitor collections and mitigate problems

    Some more cash saving ideas:

    • Eliminate all discretionary expenses (require any purchases over X to go through the CFO or CEO)
    • Remove any subcontractors or consultants
    • Determine which vendors you much have and which ones are nice-to-haves
    • Suspend the 401 (k) match
    • Ask employees to take unpaid time off, convert to part-time, or a leave of absence

    Entrepreneurs are generally optimistic, glass-half-full people, and now is one of the most challenging economic climates we’ll see.

    Cash is always critical, especially so in a crisis.

    The number one reason startups die is that they run out of cash.

  • Weekly Communication

    In Patrick Lencioni’s latest book The Motive, he writes that leaders make their organizations healthier by “reducing politics, confusion, and dysfunction and increasing clarity, alignment, and productivity.” In today’s turbulent world, the need for strong organizational health has never been more important.

    Entrepreneurs often struggle with a lack of clarity and alignment due to weak communication.

    The more turmoil, the more communication required.

    The more uncertainty, the more communication required.

    The more chaos, the more communication required.

    Regardless of the times, entrepreneurs should send a weekly email update to their constituents — employees, advisors, mentors, and investors. People want to know what’s going on. People want to help. Regular email communication is the most repeatable, and scalable, method.

    As for the format of the email, go with something simple:

    • Purpose of the company (repeat it every time!)
    • Recent customer story
    • Recent culture story
    • Goals with current progress
    • Any other highlights (employee, team, department, etc.)

    That’s it. Communicate in a variety of manners, repeat the message, and make the foundation a weekly email.

  • Churn, Churn, Churn

    For years I’ve been telling entrepreneurs that a high net renewal rate (and net dollar retention) is one of the most important SaaS metrics. While net renewal rate is important, two people in the last week have told me gross churn — both logo and dollar — is more important. And I believe them.

    Why is gross churn more important? Let me count the ways.

    • Black and White Value – With gross churn, the math is straightforward: how many customers (or dollars) are up for renewal at the start of the time period vs how many renewed. Pretty easy. Now, for net renewal rate, things get more complicated. Do temporary upgrades/downgrades count? What about deals with subsidiaries or related businesses? You could ask 10 different SaaS companies how they calculate net renewal rate and get 10 different answers. Gross churn calculations should always be the same.
    • Ability to Understand – Similar to the first point, it’s much easier to rally the team around a gross renewal rate since it’s easier to understand and calculate. Say we start the year at $10 million in annual recurring revenue and have 20% gross churn, we know directionality that we need to sign more than $2 million of new recurring revenue to grow (assuming no upgrades/downgrades). Now, if we can get better and only have 10% gross churn, we only need to sign more than $1 million of new recurring revenue to grow. Pretty simple.
    • Recurrence of Upgrades – People love talking about their > 100% net renewal rate, myself included. Only, it’s much more nuanced than upgrades outweighing churn and downgrades. Are the upgrades across every cohort or do customers primarily upgrade in their first year (implying they’re still rolling it out) and not upgrade after that? Do customers often downgrade in year two or three implying they finished a component of a project or transformation? Are the upgrades primarily from a specific vertical and has that vertical been tapped out? Net renewal rate can become less compelling with a more detailed analysis of the cohorts.

    SaaS entrepreneurs should focus on the gross churn rate and ensure it’s as low as possible (under 20% annually for SMB and under 10% annually for enterprise). The old saying that’s it cheaper to retain a customer than sign a new one has never been more true, and is even more important with SaaS.

    Make fighting churn a top priority of the company.