David Cummings on Startups

Category: Operations

  • Sales Department Management Structures for Startups

    As product/market fit is achieved and a repeatable customer acquisition process found, it becomes necessary to start scaling out the sales department. A sales department, like any department, requires strong leadership with a combination of customer-first thinking and metrics-oriented actions. After you’ve avoided the early VP of Sales temptation, hired and trained a couple sales reps that are making quota, it becomes time to recruit the sales management. Always remember that the best sales reps don’t usually make the best sales managers.

    Here’s an example sales department structure:

    • VP of Sales
    • Two sales directors
    • Eight sales managers
    • 64 sales reps

    In this growth stage startup example, the sales department has 75 people (not counting sales assistants, sales engineers, etc) with a pretty standard hierarchy. Building a sales department is hard but having great leadership and managers makes it much easier.

    What else? What are your thoughts on sales department management structures for startups?

  • The 3x Rule for SaaS Inside Sales Rep Quotas

    Inside sales is rapidly becoming the go to sales model for Software-as-a-Service (SaaS) companies. More startups are following modern selling models like Predictable Revenue where a heavy emphasis is placed on efficient emailing and calling while using the web to help make appointment setters much more effective. After the appointment setter tees up the demo for the inside sales rep, the inside sales rep takes over all the way to close.

    One of the things I like to do is to learn about the sales compensation models of other startups, especially the base salary and variable compensation from commission, which when combined equals the sales person’s on target earnings. After that, I’ll ask about quota in terms of annual recurring revenue to get a feel for expectations.

    Almost always, the annual recurring revenue quota for a SaaS inside sales rep is roughly 3x their on target earnings.

    Here are some examples:

    • $30,000 base salary with $30,000 commission target ($60k OTE) results in an annual quota of $180,000 in new recurring revenue
    • $50,000 base salary with $50,000 commission target ($100k OTE) results in an annual quota of $300,000 in new recurring revenue

    Now, most quotas are based on new annual recurring revenue and very little of quota is based on one-time professional services revenue, which is common with SaaS businesses. The next time you’re thinking through quotas for SaaS inside sales reps consider the 3x rule.

    What else? What are your thoughts on the 3x rule for SaaS inside sales rep quotas?

  • LED Scoreboards for Startups

    Continuing with the metrics and KPIs posts over the past two days, I next want to talk about scoreboards. Scoreboards, just like they sound, are large displays with the latest metrics for team members to know exactly where the team/department/business stands. Now, you can get a massive 55 inch LED TV with 1080p HD for under $900 from Amazon.com, mount it on the wall for under $100, and get an old MacMini for a couple hundred dollars to power it. Whenever people come into our office, one of the most common comments is on our LED Scoreboard and how they’re impressed we share the information and make it so accessible for everyone.

    Here are a few web apps to power the LED scoreboard:

    LED scoreboards are a great way to empower and align team members with the latest metrics in a centralized manner. Startups should consider LED scoreboards for their office.

    What else? What are some other thoughts on LED scoreboards for startups?

  • KPIs and Startups

    Key performance indicators, or KPIs, have been around for decades as business jargon representing the metrics that matter most. Too often, I see startups measuring a ton of different things (which is good) and then making everything important (which isn’t good). The idea is to measure a bunch of stuff, but for the purposes of getting all team members on the same page, there should be a minimal number of KPIs that are shared and talked about regularly with the management team and company — the metrics that matter the most.

    Here are some example KPIs that a startup should consider tracking on a weekly/bi-weekly/monthly basis:

    • Cash on hand/runway in months
    • Current annual recurring revenue (ARR)
    • New ARR
    • New customer churn ARR
    • Current weighted sales pipeline
    • New marketing qualified leads
    • New sales qualified leads
    • New clients implemented
    • New bugs
    • Current recruiting pipeline

    KPIs are an important part of a startup and should be made as simple and effective as possible.

    What else? What are some other key performance indicators you like to track?

  • Hiring, Hiring, Hiring

    Hiring is on the tip of the tongue for almost all entrepreneurs I’ve talked to over the past few months — there’s something going on. Perhaps the economy is getting better for certain sectors or I’ve randomly been talking to a group of entrepreneurs that happen to be doing really well (likely some of both). Regardless, hiring is always a big deal and especially now with so many startups aggressively competing for talent.

    Here are a few ideas to keep in mind when hiring:

    • It’s better to take your time to find the right candidate that fits your culture than it is to hire someone that’s good enough (this is always the case!)
    • Use Topgrading for management positions and a slightly abbreviated chronological in depth survey for more junior positions
    • Internal referrals are always the best candidates, so provide a generous referral bonus
    • If it’s a position that you’re going to need a large number of people on staff over time, consider developing a farm system or a straight-out-of-college training program
    • Awards like being the fastest growing company or the best place to work are great social proof and should be used as part of the recruiting process
    • Institute a unanimous approval process for everyone that interviews the candidate so that all team members are empowered to veto a prospective hire

    Hiring is tough. The startups that hire the best people for their corporate culture and market win. Never stop working on improving everything you do related to hiring.

    What else? What are some other ideas around hiring for startups?

  • Working with Contractors in a Startup

    Contractors are an important part of the startup world. Some people really enjoy the variety and nomadic aspect of being a contractor. Some people seek the higher pay and time-frame driven approach to a project or company. Contractors also work well when there are specific skills that are needed for a short period of time, making the hiring of a full-time person not available or not affordable. Whatever the case, contractors should be considered part of the startup mix.

    Here are a few recommendations when working with contractors in a startup:

    • Set clear expectations if this is a temporary-to-permanent type opportunity or purely temporary as well as responsibilities, goals, and desired results
    • Ensure that the contractor is putting in enough hours per week over enough months to be worthwhile due to time necessary to ramp up and become productive (e.g. you might want at least 15 hours per week for three months)
    • Incorporate tools like Google+ Hangout or Meetings.io into the process, especially if the contractor is working remotely (which is often the case with contractors)
    • Recruit and interview contractors in the same manner as team members so that there’s continued corporate culture alignment

    Contractors are an important part of the startup world and entrepreneurs would do well to learn how to incorporate them into the mix.

    What else? What are some other recommendations when working with contractors in a startup?

  • Google+ Hangout Link for Repeating Events

    Google+ Hangout is a big part of how we communicate internally, or at least it was up until a couple months ago when Google disabled the permanent link. After the feature was removed, we had to generate a new link every time we met (daily check-in, weekly executive meeting, weekly all hands meeting, etc) creating quite a bit of friction and frustration because of the extra work and the fact that the link of each Hangout was obfuscated due to the hidden browser URL bar.

    Thankfully, with the new Google+ Events feature, there’s a nice permalink workaround, first published by the team over at Singly.com. The idea is that you create a Google+ Event far into the future, make it an online event, and then take the Google+ Hangout URL that is produced and use it over and over again until that date is met.

    Here’s how to do it:

    • Create a new event on Google+ Events
    • Give the event a date far into the future, like the year 2020
    • Go to Event options -> Advanced and click on Google+ Hangout
    • Save the event
    • Share the link to the Google+ Hangout on your repeating Google Calendar event

    This method isn’t as effortless as the previous approach but it works well and makes recurring Google+ Hangouts easy and frictionless.

    What else? What are some other tips for Google+ Hangouts?

  • The Broken Windows Crime Theory Applies to Startups

    Every detail counts. It isn’t that every detail needs to be planned in advanced but that every detail needs to be addressed. According to Wikipedia, the Broken Windows Theory says the following:

    Monitoring and maintaining urban environments in a well-ordered condition may stop further vandalism and escalation into more serious crime.

    For startups, it isn’t about further decay but rather about setting the tone organization-wide that details matter. Details in the product, details in the corporate culture, details in the office, and details in how people are treated matter. You can still launch a minimum viable product and have the details for the feature set covered, even if it is sparse.

    People are smart and pick up on what’s acceptable and what’s not acceptable. It’s hard to set the tone that some details matter and others don’t. A better approach is that all details matter, like the broken windows theory implies, and some details have a higher priority than others. The next time you see an issue or a detail not addressed, consider the implications and organizational approach.

    What else? What are your thoughts on the broken windows theory for crime applying to details in startups?

  • 3 Unconventional Steps for the Hiring Process

    Hiring great talent that’s a strong corporate culture fit is one of the top responsibilities of a CEO, regardless of being a startup or established company. As part of hiring great talent there are three main areas to think through: casting a wide net to get candidates into the recruiting pipeline, assessing their culture fit and ability to do the job, and finally convincing the select few to join the team. For many types of positions there are plenty of quality candidates and the hiring process becomes the challenging area.

    Here are three unconventional steps for the hiring process:

    1. Written essays for all positions – a candidate’s ability to write correlates with the ability to do the job, regardless of position, more than anything else
    2. Culture checks by the founders and/or culture team – have people in the hiring process that are exclusively assessing corporate culture fit to build the strongest culture possible and to add checks and balances for hiring managers that get anxious to fill a position
    3. Unanimous approval – require 100% yeses from everyone involved in the hiring process regardless of seniority or position

    The idea isn’t to make the process as burdensome as possible but rather to build the best team. Spending more time in the hiring process makes sense considering the extensive amount of time you’ll spend with the person once they’re hired.

    What else? What are some other unconventional steps for the hiring process?

  • Build a Minor Leagues System for Sales Reps

    Continuing with yesterday’s post on Sales Rep Training Programs for Startups, it’s also important to build a farm system where you can nurture and train junior outbound cold callers (business development reps) into polished senior account executives. I like to think of this as a minor leagues system whereby reps have an automatic promotion to the next level based on results, not timelines.

    Here’s an example minor leagues farm system progression for sales reps:

    • Try outs – Business development rep that does outbound calling and sets appointments — makes the team once a certain number of appointments have been completed
    • Single A – Account executive with entry-level salary and quota while continuing to refine the skills and working towards a goal (e.g. $3M in bookings or $1M in annual recurring revenue)
    • Double A – Nice salary, quota, and on target earnings increase with a new, incremental goal (e.g. additional $3M in bookings or $1M in annual recurring revenue)
    • Triple A – Additional incremental bump in salary, quota, and on target earnings with a new sales target to reach the highest rank
    • Major leagues – Senior account executive title for the most successful reps with the highest salary, quota, and on target earnings

    As you can see, the model isn’t that complicated since it has a series of promotions based on results, often with the increase in quota making the increase in salary functionally equivalent financially for the company. Plus, junior people trying to get into sales like seeing a 5 – 10 year career path laid out in front of them that’s based on performance, and not time or seniority.

    What else? What are your thoughts on building a minor leagues system for sales reps?