David Cummings on Startups

Category: Operations

  • Startups and Disability Insurance

    One area that is often difficult for startups is insurance. Difficult in the sense that being so small, with so few employees, if any, rates are typically high and options are low. Now health insurance is always considered the most important insurance, and it is, but another type of insurance that isn’t talked about as frequently is disability insurance.

    In the past two weeks I’ve talked with entrepreneurs that mentioned situations where disability insurance would have been valuable. One entrepreneur had an employee with cancer that took significant time off. Another entrepreneur had a key employee that was pregnant and needed bed rest for the last two months of the pregnancy. In both cases, disability insurance would have been beneficial but the entrepreneurs didn’t have it.

    Short term disability insurance usually pays 60% of the employee’s salary for up to 12 weeks, with a maximum of $5,000 per month while long term disability is usually more customized. At a cost of $30 – $70 per employee per month, it becomes clear that having a single issue arise more than pays for itself. Hopefully, an issue will never come up.

    My recommendation is to look into disability insurance and purchase it if you can afford the payment. Insurance is usually cost effective and helps give piece of mind to the entrepreneur and team members.

  • Tools to Manage Tasks and Projects

    I’m always interested in learning how teams work within companies including tools they recommend. Methodologies like Getting Things Done (GTD) by David Allen has been great for me (I don’t follow it completely but did take several pieces from it). Today I had an entrepreneur shoot me an email and ask about project management software, so I wanted to share some tool ideas for both tasks and projects.

    Tasks and Projects:

    • Email – make a special folder to put action items in
    • Google Spreadsheets – this is my favorite when it is something simple and I don’t want much overhead
    • GQueues – good for task management with tight Google Calendar integration
    • Basecamp – great for lightweight project management that just works

    Of course, tasks and projects aren’t the same thing, so this list is just a starting point. My advice is to try out several tools and start using one to make your startup more productive.

    What else? What other tools do you recommend for tasks and projects?

  • Boredom in Startups

    Boredom and startups don’t go together. By the very nature of a startup there are always 100 things to do because there is a lack of resources and people to execute on all the ideas. At today’s EO Accelerator accountability group, one of the entrepreneurs mentioned he was bored with doing a certain part of the business related to a third-party service. When he used the word bored I knew what he really meant: that function was no longer adding value to the business.

    My takeaway from that conversation was that as soon as something becomes boring or doesn’t add value, immediately kill it. Too much cruft gets added along the way as the business grows and leaving things in there that you don’t care about only makes it worse.

    What do you see that should be stopped in your business? Can you get rid of it?

  • Milestones for New Sales Reps

    Hiring an effective sales team is one of the most difficult challenges for a technology entrepreneur. It isn’t that there aren’t good sales people out there, it is just that sales is usually foreign to technologists, and like non-technical people trying to hire technical people, it is hard to determine who will be successful. Sales people can be even more challenging to figure out because by their very nature they are good at selling, especially themselves.

    One of the best things to do as part of hiring a new sales person is to establish success milestones. These are milestones for the sales rep to achieve during their first six months to a year, assuming you have a consultative sales process with a decent learning curve. Here are some categories to measure:

    • Call conversations logged
    • Demos scheduled and completed
    • Opportunities created
    • Opportunities closed won (sales made!)

    Of course, these are standard metrics to track for sales people. What I’m emphasizing here is to have specific numbers of each that are required to be met for every 30 day period to stay on the bus until quota is achieved. What gets measured gets done.

  • Business Sustainability

    At our monthly EO Accelerator accountability group today we had the chance to discuss business sustainability. By sustainability, I mean the ability for the company to exist and thrive without the entrepreneur present. It is the proverbial “what happens if I get hit by a bus” question that is typically hard to answer. The general consensus of the group was that sustainability is important, and getting there requires serious training and trust of at least a general manager. Most people in the group were on the cusp of having a sustainable business but were probably an average of 12 months away.

    My recommendation is for entrepreneurs to keep in mind what it’ll take for the business to operate without them and ensure the proper planning has been done.

  • Update #2 for Google Spreadsheet KPI Dashboards

    Continuing my posts from earlier in the year on using Google Spreadsheets to manage KPI Dashboards (here, here, and here), there are several areas we’ve been able to improve. Let’s look at them now:

    • Use absolute cell references for the goals so that when you copy and paste a column to represent a new week, the goals are persisted (yes, this is junior-level knowledge for most Excel users, but was new to me)
    • Put the goals in a separate sheet and then insert a new column each quarter reflecting the new goals, so that the previous goals are maintained and can be tracked over time, as well as maintaining existing KPI percentages
    • Incorporate a hidden row that represents the percent complete of the current quarter so that KPIs can be based off that, if applicable (e.g. some KPIs, like number of trouble tickets per week, aren’t time sensitive whereas others like a specific recurring revenue target, are time sensitive)

    We’ve found the Google Spreadsheet KPI Dashboards to be very effective for us and are going to continue using them next year.

  • Bessemer 5 Cs of SaaS Finance

    Continuing my series of posts of on software as a service (SaaS) financials from yesterday, let’s take a look at Bessemer’s great set of slides online titled the 5 Cs of SaaS Finance. SaaS really is a very different business model when compared to traditional software and Bessemer highlights some of the critical metrics. The Bessemer 5 Cs of SaaS finance include the following:

    • CMMR – Committed Monthly Recurring Revenue
    • Churn
    • Cash
    • CAC – Customer Acquisition Costs
    • CLTV – Customer LifeTime Value

    My recommendation is to pay close attention to these key performance indicators and to read through Bessemer’s slides for all the details.

  • SaaS Financials – Cost of Goods Sold

    After reaching out to one of our company advisors today about advice on software as a service (SaaS) financial metrics, I felt it would be prudent to start documenting them in a series of posts. SaaS, being a newer delivery model, when compared to traditional, installed software, isn’t as well understood with regard to financial metrics.

    Generally, cost of goods sold (CoGS) for SaaS companies will include:

    • Hosting and monitoring of the application
    • Licenses and royalties for products embedded in the application
    • Services related to on-boarding the customer
    • Support and account management
    • Credit card fees and commissions to partners

    For more SaaS CoGS info, please see the Dealer Ignition post or the LinkedIn Q&A.

  • When to Hire

    One of the challenges of running a bootstrapped business is determining when to make the next hire. Funding, being severely limited, must come from banks (including credit cards) or customers buying the goods or services. Banks, as we know, aren’t in the market of lending money without collateral to back it up. So, when do you increase the monthly nut and hire a new employee?

    My recommendation varies based on the type of business. Let’s look at a few:

    • Traditional installed software — start hiring once current assets are equal to the three times the trailing 90 days monthly average (known as the GPA)
    • Software as a service — this one is easy due to the recurring nature of the business (just hire once the cash is coming in)
    • Hybrid with part up-front and part recurring — look at the percentage of revenue that is recurring and discount the GPA value by that percent

    Determining when there’s enough momentum and cash to hire more people is difficult. I hope this advice helps.

  • Bottom-Up Forecast for 2010 Planning

    Three years ago I was at a TAG event listening to one of the more accomplished software CEOs talk about sales. Towards the end of the presentation, he made a statement that has stuck with me to today: build your sales goals for the following year from the bottom up based on your existing sales reps productivity in the current year. If your reps aren’t making quota now, don’t expect them to make quota next year without some serious overhaul. If you need to make a bigger number, don’t have good sales reps in your recruiting pipeline, and have a six month ramp up time before a rep is productive, include that in the model.

    As much as technology companies are driven by cool, ground-breaking products, it really comes down to sales and revenues. My advice for entrepreneurs is to only do bottom-up sales forecasts as part of their planning process.