David Cummings on Startups

Category: Operations

  • Monthly and Quarterly Meetings

    Following up on my previous post about our weekly meeting rhythm, I wanted to make sure and capture what we do for our monthly and quarterly meetings. I’m a big fan of Patrick Lencioni’s book Death by Meeting, so we’ve implemented a schedule that is a hybrid of Lencioni’s recommendation combined with our own adaptations. Here are my monthly and quarterly meetings:

    • Monthly
      – Financials review
      – All hands meeting (company-wide update)
      – Leadership strategic meeting (on occasion)
    • Quarterly
      – Celebration
      – Leadership off-site

    Having a consistent rhythm, with different, special purpose meetings, has proved to be very effective for us and I recommend it to other entrepreneurs.

  • Weekly Meeting Rhythm

    We recently updated our weekly meeting rhythm by moving our weekly leadership tacticals from Fridays at 2pm to Mondays at 10:15am. After doing Friday afternoon tacticals for several years, we decided that Monday morning made more sense in conjunction with our KPI dashboards. Now, we start the week with our daily check-ins and then go right into our leadership tactical.

    Here are the weekly repeating events on my calendar:

    • Daily – Check-ins
    • Monday – Leadership tactical
    • Tuesday – Sales workshop
    • Wednesday – Manager workshop

    Everything else I do is scheduled on an ad-hoc basis.

  • More Thoughts on KPI Dashboards

    We made another round of tweaks to our Google Spreadsheet KPI dashboard today, and I wanted to share them here. As you might remember, I’ve talked about using Google Spreadsheets for KPI dashboards two times before on this blog. My excitement for them hasn’t waned at all. Here are the next set of changes that we made:

    • Added a new column where the rows represent the running average of each of the KPIs so we can see how our average compares to our goal
    • Updated the cell conditional color coding so that values that are empty show up with a light gray background, but only if a value of zero isn’t allowed (e.g. one KPI is the average number of billable hours per person for our services team, which will never be zero)
    • Took the average value from the first few weeks and made that our goal for this quarter, as our main task right now is establishing a baseline for the different KPIs

    I encourage all entrepreneurs to start tracking different metrics in their business and capture them weekly in a color-coded spreadsheet.

  • Update on Google Spreadsheet Dashboards

    Now that we’ve been using Google Spreadsheets for our KPI Dashboards over the past two weeks, as previously discussed earlier this month, I wanted to provide a quick update on what’s working well and what’s not working so well. Let’s jump right in and talk about what we’ve learned.

    • The color coding based on percent of goal really does work well. Instead of spending the first five minutes of our weekly tactical going around and saying our KPIs for the previous week, we only talk about the yellow and red cells, meaning items below goal get more attention.
    • We don’t have too many weeks of data, but I can already see how over time we’ll be able to quickly identify trends based on a short glance at the cell colors.
    • Each week the previous week’s values are copied into a new column to be filled out Friday afternoon for discussion at the Monday morning meeting. Google Spreadsheets doesn’t have an easy way to make certain cells in the formula fixed, resulting in having to update 10+ formulas each week. Does anyone know a better solution?
    • The Google Spreadsheet is shared with the rest of the company providing greater transparency for all team members.

    Overall, I think Google Spreadsheets for KPI Dashboards work great and I highly recommend it to other managers and entrepreneurs.

  • KPI Dashboards for High Growth Businesses

    One of the biggest challenges of a high growth business is managing communication. Paradoxically, communication within a company must increase exponentially as the number of employees grows. As more employees are hired, more layers of management are put in place, more planning must happen, and finally more communication must take place in a variety of forms. Dashboards with key performance indicators (KPIs) are a good communication mechanism to get team members on the same page.

    Our most recent project has been updating our internal KPI dashboard based on recommendations in the book Mastering the Rockefeller Habits. Currently, we’re tracking the following on our dashboard:

    • Current ratio
    • Recognized revenue
    • New bookings
    • New bugs
    • Percentage of productive engineering hours

    As you might have guessed, it is simple and not quite holistic enough to capture input from all of our different departments. We’re working on moving our dashboard to track the following categories, broken out by department:

    • Sales
      – Bookings
      – Weighted Pipeline
    • Marketing
      – Qualified Leads
      – Opportunity Value from Marketing Leads
    • Services
      – Billed Hours
      – Overrun Hours
    • Support
      – New Tickets
      – Closed Tickets
    • Engineering
      – Development Hours
      – New Bugs
    • Operations
      – Current Assets
      – Average Days Sales Outstanding

    In addition to expanding the number of metrics we track, the other major change we’re implementing is color coding the values based on percent of goal. The Google Spreadsheet cells are colored according to the following values:

    • Red: 0 – 74% of goal
    • Yellow: 75 – 89% of goal
    • Green: 90 – 109% of goal
    • Dark Green: 110%+ of goal

    I’m excited about the changes we’re implementing. Let me know about experiences in your company related to KPIs and dashboards and I’ll keep you posted as to how it works out for us.

  • Mastering the Rockefeller Habits

    This morning I had the opportunity to attend the Mastering the Rockefeller Habits workshop facilitated by Verne Harnish at the new St. Regis hotel in Buckhead. Put on by EO Atlanta, the event was over-subscribed and well received. As for the content, Verne does a great job synthesizing ideas from a variety of other well known authors into a cohesive plan for high growth companies to follow.

    In the book, the general theme is centered around John D. Rockefeller’s focus on business rhythm, data, and priorities. My takeaway from the event is that when you implement this methodology, the business and corresponding team members have a process to follow that actually eliminates wasteful activities and focuses everything on what is needed to be successful.

    In my company, we don’t follow all the steps recommended by the book, but we do do the following:

    • One page strategic plan with our mission, vision, values, BHAG (big hairy audacious goal), three year goals, annual goals, quarterly goals, and several other pieces of information
    • Scoreboard which, for us, is a large LCD TV in our lobby that has a Google Spreadsheet with key performance indicators related to revenue recognition and new customer wins
    • Rhythm of meetings with daily check-ins, weekly tacticals, monthly strategics, monthly all-hands, and quarterly off-sites

    The book is well worth the time of any entrepreneur serious about building a high growth business.

  • Three Financial Tips for Growing Businesses

    Last week I had the opportunity to participate in the EO Accelerator quarterly education day as I’m the Champion for the Accelerator program on the EO Atlanta Board. Each quarter we have an all day education event taught by a certified facilitator that flies in for the program. The program, for entrepreneurs with revenues under $1 million, is three years long, with rolling admittance and unique content on the topics of People, Strategy, Money, and Sales. This was Money day.

    Money day was taught by Greg Crabtree, one of the most entrepreneur-minded CPAs I’ve ever met. Greg runs a firm in Huntsville, AL that charges a flat monthly fee, typically $400 – $1,000, to clients in exchange for fixed quarterly accounting services and unlimited advice. Greg provided several frameworks for thinking about financial concepts in business, that are especially helpful for entrepreneurs.

    Salary Cap

    The idea behind the salary cap comes from professional sports, like the NFL. The way to calculate it for your business is to take all your non-labor costs on a trailing 12 month basis and subtract that value from your trailing 12 month revenues. Why is this good to measure? It helps you focus on the maximum amount the business will bear for labor costs before the company won’t be profitable. Too often, entrepreneurs add new staff before the business warrants it and this provides a value to monitor. Note that looking at your trailing 12 months expenses and revenue is typically better than looking at annual values on a calendar year, for the purposes of making decisions like hiring.

    Core Working Capital

    One question I’ve asked many times, and been asked many times, is “How do I determine how much I should have in the bank before expanding/hiring?” Core working capital (CWC) is the answer to that question. CWC, according to Greg’s recommendation, is two months of monthly operating costs in cash in the bank after the following:

    • Taxes
    • Debt payments (he recommends no debt or line of credit)
    • Current liabilities

    Of course, the amount of desired working capital will vary from business to business, but this simple rule of two months of cash in the bank is a good starting point.

    Profit Margin Goals

    The third take away from Greg came in the form of profit margin goals. Greg’s advice was that businesses should strive for a 10% profit margin after fair market wages are incorporated for all principals in the business. Here are the three common profit ranges for a growing business:

    • 5% range – the danger zone
    • 10% range – the target for most businesses
    • 15% range – doing extremely well, especially if the business has scale

    I hope these three financial ideas for growing businesses are as beneficial to you as they are to me. Thanks again to Greg for doing a great job.

  • Some Thoughts on Sales Commission Strategy

    Sales commissions are a tricky thing. Once you put them in place, it is difficult to change them without the sales team being demoralized that their compensation is going to go down (even if it isn’t!). The goal, generally, is to minimize base salary and maximize performance based compensation. Here are some thoughts on strategy:

    • Align company interests with the commission (e.g. have commission percentages based on the profitability of the item being sold such that things like license revenue have a higher percentage commission than services revenue)
    • Significantly reduce compensation if quota isn’t hit (e.g. cut the standard commission in half if quota isn’t reached for the designated time period)
    • Don’t limit the up-side (e.g. don’t put a cap on the maximum amount a sales rep or account manager can make)

    Sales, and management of a sales team, is one of the most difficult, and rewording, aspects of a business. Good luck!

  • Entrepreneurial Force Multipliers

    I was reading an article about technology in the military/police context and the term force multiplier kept being mentioned. Naturally, I thought it was an interesting term in the entrepreneurial/business world. Here is Wikipedia’s entry on force multipliers:

    A force multiplier refers to a factor that dramatically increases (hence “multiplies”) the effectiveness of an item or group.

    Here are some force multipliers:

    • Product development — not one-off features for a specific client but rather opinionated features that fit a focused vision
    • Investment capital — particularly when you have the basis for a repeatable sales process that is profitable and/or gains market share
    • Search engine optimization — PageRank operates like the Richeter Scale such that each incremental increase results in substantially more credibility

    What are the force multipliers in your business?

  • Thoughts on the Employee Hiring Process

    We’ve been spending quite a bit of time lately doing interviews and hiring new people, as we’re experiencing significant growth in both of our product lines. Here are some quick thoughts:

    • Come up with simple bullet points of the types of characteristics you look for in the person and include those in the actual job posting (e.g. good natured, professional, self-starting, etc. are what we look for)
    • Identify some easy ways to filter resumes (e.g. in-bound emails from @aol.com addresses and those without a full paragraph or two in the email message itself are immediately deleted, without even looking at the resume due to not being tech savvy enough as well as not interested enough)
    • Do phone interviews first, followed-up by in-person interviews, and include the Top Grading techniques if it is a manager position or requires several years of experience

    Good luck!