Category: Operations

Real estate is tough for startups. There’s the unpredictability with where you’ll be in 24-36 months combined with one of the last remaining old boys network (at least in Atlanta). The best thing for startups to do is go the sublease route. Unfortunately, with the sagging commercial real estate market many of the subleases have dried up as companies that went out of business turned their space back over to the landlord and the macro economy has been soft for several years now resulting in enough time for many subleases to be rented by tenants.

Subleases are most plentiful right after the economy turns downward and companies put excess inventory on the market. When things are starting to pick up, even so slightly like now, companies hold on to excess space longer in the event things do continue to improve and the space is needed. Fast growing startups have an even bigger challenge because they are hiring people so quickly they need an even larger amount of unused space on hand to accommodate the growth. There’s no easy equation.

The best thing to do, absent a sublease, is to look for flexible landlords and build into the contract things like an option to break the lease early if you out grow it, right of first refusal on adjacent spaces, and flexibility to move into other spaces in the same complex without penalty. Yes, flexibility is the most important consideration for direct deals.

What else? What other thoughts do you have on real estate for fast growing startups?

We’re mixing things up this quarter and doing quarterly check-ins instead of quarterly performance reviews. OK, so they are pretty much the same thing but we tweaked the naming to reflect that this is a conversation with your manager/direct report, it isn’t tied to an immediate raise/promotion, and is important for aligning goals. I’ve talked about performance reviews several times before. Here are the questions we ask now:

1. What did you accomplish this quarter? (List top 5-10 accomplishments)
2. What 3-5 goals will you focus on next quarter?
3. How can you improve?
4. How are you embracing the company values? (Please provide specific examples.)

The quarterly check-ins are frequent enough to remember what you accomplished and infrequent enough to not be burdensome. My recommendation is to do something similar to facilitate communication and feedback on a regular basis.

What else? What other ideas do you have about check-ins/performance reviews?

One of the phenomenons we encountered a year ago was money coming in faster than we had budgeted for in a significant way. Now, yes, it is a high class problem to have and it’s easy to think that that would make for some nice short term profits. Well, we’re focused on growing and building a large business in a small, fast growing market with strong competitors. The interesting thing is that we’re scrappy as part of our company culture but with this market opportunity we had to loosen the purse strings for growth.

Here’s what we did as a result of growing faster than expected:

• Increased our marketing budget substantially
• Started working with recruiters to find additional team members as we’d tapped our existing team for referrals (half our employees come from referrals and we do a $1,000 employee referral bonus)
• Bought MacBooks and giant monitors for everyone
• Added catered Flying Biscuit breakfast every Monday morning

Could we have saved some money and gotten by in a cheaper manner? Yes. Did we feel like with our size and scale we could afford to experiment more and enjoy some of life’s niceties a bit more? Yes. There’s no right or wrong answer but we felt that loosening our purse strings for growth was a great move and we’re already seeing results.

What else? What changes have you made as your business has grown?

Key performance indicators (KPIs) have been discussed several times before (here, here, and here). In general, we do two KPIs per department and discuss them at our weekly tactical if a value is out of line. There’s always the tendency to try and complicate things by adding one, two, or three more per department but I’ve found that it is hard enough to concentrate on a couple things let alone five different items multiplied out by several departments (sales, marketing, services, support, operations, and engineering).

One thing to note is that KPIs should be revisited at least quarterly for both the goals for that quarter as well as the items being measured. I’ve found that we usually change one KPI completely each quarter to try a new metric to see if better represents one of the two most important numbers for a department. Most individual KPI goals change each quarter in an upward manner but some stay pretty steady (e.g. engineering average of 32 burn down hours per week per developer).

My recommendation is to keep KPIs simple and to revisit them at least quarterly. KPIs should be fluid metrics that are constantly improving, but not complicated.

What else? What other tips do you have about revisiting KPIs?

Continuing the post from earlier in the week titled Startup Financial Models after Product/Market Fit, I wanted to talk a bit more about financial projections. Too often an entrepreneur asks for feedback on their executive summary, slide deck, and financial model only to have the financial model show a top-down projection. A bottom-up projection is a much better way to do it. Let’s look at a few details:

• A top-down projection is often something like “we’ll sell $500k the first year, $3 million the second year, and $10 million the third year” without detailing what it takes to actually achieve those results
• A bottom-up projection details the tactical items like number of sales reps, sales rep quota, hiring plan, percent of sales reps that won’t work out, ramp up times for sales reps, ad spend per rep or per new client, etc
• A bottom-up projection more accurately outlines the assumptions and thought process of the entrepreneur, which then allows advisors or investors to offer more valuable feedback
• A bottom-up projection helps the entrepreneur better budget for the startup and it often shows it’s more expensive than expected to reach the goals

My recommendation is to do bottom-up financial projections to better understand the business and what it takes to be successful.

What else? What other ideas do you have about financial projections?

The last thing many technology entrepreneurs want to do is to become spreadsheet jockeys but once product/market fit has been achieved one of the next things to do is to develop a comprehensive financial model. Yes, before product/market fit you need to have a good idea if the business is potentially viable, and some spreadsheet work is necessary to understand the business economics, but this should be a simple exercise. Post product/market fit the financial model should be much more detailed.

Here are some resources to help build and think through a financial model:

• Bessemer’s Creating a Financial Plan for your SaaS Business
• Ryan Carson’s SAAS Model Google Spreadsheet
• Docstoc Financial Model Projections
• Guy Kawasaki’s Financial Models for Underachievers

Ideally there would be example financial models online that could be easily customized but the nature of most startups is that there are company-specific nuances requiring heavy customization. My recommendation is to familiarize yourself with as much as you can related to financial modeling while enlisting help when possible.

What else? Do you have any tips or examples for startup financial models?

Two weeks ago I was talking to an entrepreneur about the proliferation of B2B web apps. He asked me what tools we use, and after thinking about it, I realized we have quite a few different systems in use. Here’s most of what we have:

• Cascade Server – content management system
• WordPress – blogging
• Pardot – marketing automation
• Inacct – mid-market accounting tool
• QuickBooks Online – small business accounting
• Google Analytics – web analytics
• Google AdWords – pay-per-click advertising
• Newton – HR applicant tracking system
• Criteria – HR personality test system
• Salesforce.com – customer relationship management
• SugarCRM – customer relationship management
• Litmus – email client rendering tests
• Rigor – web performance management and monitoring
• ZenDesk – help desk software
• Tender App – knowledgebase and help desk
• Lighthouse App – issue tracker
• JIRA – issue tracker
• VisitorID – caller ID for websites
• Basecamp – project management
• GitHub – source code management
• Beanstalk App – source code management
• GoodData – reporting and business intelligence

Yes, there are some categories with multiple systems in there due to different teams using different products. The growth of quality, affordable web apps continues to amaze me and I look forward to adding more systems in the future.

What else? What are some other apps you like related or unrelated to the ones listed above?