David Cummings on Startups

Category: Operations

  • SMART Goals for 2015

    With 2015 almost upon us, it’s a good time to review goals for the next year. When I talk with entrepreneurs, I enjoy asking about their big-picture goals. Too often, I’ll hear “my goal is to build a successful tech company.” Great, what does successful mean (here’s my definition of a successful business)? That’s when I like to drill in and talk about SMART goals:

    • Specific – What exactly are you going to accomplish?
    • Measurable – How can you track it?
    • Actionable – What steps do you need to take?
    • Realistic – Is it truly feasible to accomplish the goal?
    • Timeline – When will it be finished?

    The next time you think of goals, think of SMART goals.

    What else? What are some other thoughts on setting SMART goals?

  • 7 Criteria for Effective Feedback

    Buffer has a great post up titled How to Give and Receive Feedback at Work. The idea is that feedback is incredibly important, yet many people don’t give or receive it well. Over the years, I’ve had many feedback related conversations and can attest to its inherent challenges.

    Here are 7 criteria for effective feedback from the post:

    1. The feedback provider is credible in the eyes of the feedback recipient
    2. The feedback provider is trusted by the feedback recipient
    3. The feedback is conveyed with good intentions
    4. The timing and the circumstances of giving the feedback are appropriate
    5. The feedback is given in an interactive manner
    6. The feedback message is clear
    7. The feedback is helpful to recipient

    Head over to How to Give and Receive Feedback at Work and commit to providing and taking better feedback at work.

    What else? What are some other thoughts on feedback?

  • Build a Quick Financial Model

    Whenever I talk to an entrepreneur about an idea, I like to ask about the financial model. Now, I don’t expect them to have the exact pricing down (I know pricing changes a ton — see here, here, and here) or to have a complex financial model, as that’s not a good use of time. What I do want to know is that they’ve thought through things as they currently stand.

    Here’s what a quick financial model might look like:

    Column 1

    • Revenue
      – Sales reps
      – Customers added
      – Customers lost
      – New monthly recurring revenue
      – Total monthly recurring revenue
    • Payroll
      – Cofounder 1
      – Cofounder 2
      – Engineers
      – Sales
      – Commissions
      – Other employees
      – Taxes
    • Expenses
      – Office
      – Infrastructure
      – Marketing
      – General
    • Cash
      – Cash on hand
      – Total Revenue
      – Total Payroll
      – Total Expenses
      – Monthly cash flow
      – Remaining cash on hand

    With these items in column 1, the next 12 columns represent the next 12 months with the corresponding values either manually inputted (like number of sales people) or dynamically calculated (like remaining cash on hand). This entire financial model should be built in less than an hour from scratch and updated on a regular basis as new information about the business model is learned.

    What else? What are some other thoughts on a quick financial model for startups?

  • The First 30 Days for a New Sales Rep

    When interviewing sales reps, one of the most common questions we receive as an interviewer is “what would the first 30 days look like if I earned the job?” While the first 30 days will vary from company to company, there’s still plenty of commonality. Here’s an example first 30 days for a new sales rep:

    Week 1

    Week 2

    • Build a prospect list of 100 people that fit the ideal customer profile (preferably with SalesLoft)
    • Practice cold calling with the script for 30 minutes per day with the sales manager
    • Sit in on five prospect demos
    • Sit in on five client onboarding calls

    Week 3

    • Cold call 25 prospects per day
    • Practice cold calling with the script for 30 minutes per day with the sales manager
    • Sit in on five prospect demos
    • Sit in on five client onboarding calls

    Week 4

    • Cold call 50 prospects per day
    • Schedule four demos
    • Sit in on five prospect demos
    • Coaching session for one hour per week with the sales manager (preferably with Rivalry)

    The first 30 days for a new sales rep is all about shadowing existing team members as well as training with the sales manager. Then, by the end of the month, it’s time for live calling and prospecting. Training is a critical part of the sales rep on-boarding process.

    What else? What are some other aspects of the first 30 days for a new sales rep?

  • Scaling Up: Rockefeller Habits 2.0

    Last week I started reading the new Verne Harnish book Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0). Verne’s version 1.0 of the book, Mastering the Rockefeller Habits, is one of the top five books I recommend to entrepreneurs. My favorite business tool, the Simplified One Page Strategic Plan, is from the book. While the first book was more of a quick read, this new one is much longer and has more of a textbook feel (I bought several hardback copies to keep for other entrepreneurs).

    Here are the sections of the book:

    The Introduction – Tools for Scaling Up

    • The Overview – People, Strategy, Execution, Cash
    • The Barriers – Leadership, Infrastructure, and Market Dynamics

    Scaling Up People

    • The Leaders – The Face and Pace of the Company
    • The Team – Attracting and Hiring
    • The Managers – Keeping and Growing (Educating) the Team

    Scaling Up Strategy

    • The Core – Values, Purpose, and Competencies
    • The 7 Strata of Strategy – The Framework for Dominating Your Industry
    • The One-Page Strategic Plan – The Tool for Strategic Planning

    Scaling Up Execution

    • The Priority – Focus, Finish Lines, and Fun
    • The Data – Powering Prediction
    • The Meeting Rhythm – The Heartbeat of the Organization

    Scaling Up Cash

    • The Cash – Accelerating Cash Flow
    • The Accounting – Driving Profitability
    • The Power of One – 7 Key Financial Levers

    I’m looking forward to digging in to Scaling Up: How a Few Companies Make It…and Why the Rest Don’t (Rockefeller Habits 2.0) and seeing what’s new.

    What else? What are your thoughts on Scaling Up and Mastering the Rockefeller Habits?

  • 5 Financial Best Practice Metrics for SaaS Masters

    One of the great things about Software-as-a-Service (SaaS) is the level of predictability it provides, especially on the financial side. Over the past 10+ years, as SaaS has hit the mainstream, a number of financial best practices emerged. Here are five financial metrics every SaaS entrepreneur should know:

    1. SaaS Magic Number – The ratio of last quarter’s new recurring revenue relative to the previous quarter’s sales and marketing expense should be less than one (if < 1, then spend more on sales and marketing, otherwise if > 1, then figure out how to make sales and marketing more efficient)
    2. 3x Recurring Revenue to Sales Compensation Rule – The fully burdened cost of an inside sales rep should be 1/3rd, or lower, of the new annual revenue required by quota, and field reps should be even lower (e.g. if a rep makes $50,000 all in per year, they should bring in over $150,000 in new annual recurring revenue, with some models going up to 8x recurring revenue to sales compensation)
    3. 3x MRR Lines of Credit – Banks that understand the SaaS model will often lend money at a rate of 3x the monthly recurring revenue (e.g. $500,000 per month in recurring revenue results in a line of credit of $1.5 million)
    4. 2.5x Growth Rate Valuation Multiplier – The growth rate of a SaaS company drives the valuation at approximately 2.5x the growth rate on top of a base valuation that’s double revenue (this is highly subject to the whims of the market and timing).
    5. 3%+ of Monthly Churn is Deadly – The hidden killer for SaaS startups is churn, and churn above 3% on a monthly basis is considered deadly (assuming the startup has some modest scale and accounts for the early exit customers)

    Over time, more financial best practice metrics will emerge as the industry matures. Regardless, these five metrics are a great place to start.

    What else? What are some other financial best practice metrics for SaaS masters?

  • Consulting Services Within Product-Based Startups

    Recently I was talking to an entrepreneur that had a working product and a handful of paying customers. We got to talking about the market and amount of custom, one-off services required to on-board a new customer. Halfway through the conversation, he paused, looked down, and said something to the effect of “I wish we could automate more of our functionality but it’s going to require serious consulting services for each new account.” Without missing a beat, I responded that there’s nothing wrong with needing a services component to make customers successful. While entrepreneurs dream of everything being automated, self-service, and high margin, plenty of super successful companies have a required services component.

    Here are a few thoughts on consulting services within product-based startups:

    • Productize the services whenever possible to ensure consistency and scalability
    • Make sure the consulting fees relative to monthly fees are inline (see our lessons learned with Post Mortem on a Failed Product)
    • Consider partnering with other consulting firms or independent contractors to grow services capacity without more in-house staff
    • Allocate product engineering cycles to add functionality that reduces the amount of consulting effort over time, if possible

    Consulting services are common even within product-based startups. Entrepreneurs would do well to embrace services to make customers successful and find a balance between consulting and product revenue.

    What else? What are some more thoughts on consulting services within product-based startups?

  • Run the 10x Scenarios

    Dreaming about the future — it’s one of my favorite things. As a thought exercise, I enjoy going through growth scenarios. Here are some questions I like to ask:

    • What will happen when everything in the company is 10x larger? How will things work? What will break down? Where are we strong? Where are we weak?
    • What will happen if we make our engineering team 10x larger? What engineering projects would we accelerate? What new products or initiatives would we go after?
    • What will happen if we make our sales team 10x larger? How much larger will other departments have to be to support them?
    • What will happen if we started generating 10x the number of leads every month? What would the sales and marketing departments look like with that type of volume?

    At the next management strategy session or off-site retreat, run 10x scenarios and get everyone thinking about the future and major growth.

    What else? What are some more thoughts on running 10x scenarios?

  • Benefits of a Downturn for Strong Startups

    Famous entrepreneur and venture capitalist Marc Andreessen just put out a tweetstorm telling people to worry that many startups are spending excessively. While the overall landscape is nothing like the dot-com hey day, there are a number of signs that things have over heated. If funding dries up and a number of startups shut down, startups that have meaningful growth metrics or are profitable do see several benefits:

    • Talented people hit the market (right now, there’s a shortage of experienced sales people and software engineers)
    • Recruiting becomes less competitive (until the next hot area emerges)
    • Investors will make fewer investments and flock to higher quality startups (though valuations will be lower)
    • Subleases for cool office space become readily available
    • Noise in the marketplace from competitors dies down (assuming a number go out of business)

    Downturns are never pleasant but strong startups will benefit from a correction. Of course, this only affects markets that have had access to large amounts of risk capital, and there aren’t too many of those.

    What else? What are some other benefits during a downturn for strong startups?

  • Bootstrapping After Raising Money

    Typically, the term bootstrapping in the entrepreneurial world means that the founder(s) used their own money and sweat equity to get a new business off the ground. Only, more and more entrepreneurs are saying that they want to bootstrap the business, even after having raised an angel round (I’ve been guilty of this in the past as well). So, what is it? Bootstrapping or being capital-light?

    What the entrepreneurs are trying to say when they call it bootstrapping after raising an angel round is that they want to continue growing the business without any additional outside investment (e.g. be a customer-funded company going forward). Bootstrapping implies being lean and scrappy as resources are limited. An investor-funded company can be lean and scrappy as well, but once a startup raises money it’s often perceived as being flush with cash that will be readily spent.

    My proposal is that entrepreneurs that build their company without any outside capital are bootstrapping and ones that only raise angel money are capital-light. Results are what matters, not terminology, but it’s good to be on the same page when talking about financing strategies with entrepreneurs.

    What else? What are some more thoughts on bootstrapping after raising money?