David Cummings on Startups

Category: Operations

  • Radical Focus: Achieving Your Most Important Goals with Objectives and Key Results

    Christina Wodtke recently published a great book called Radical Focus: Achieving Your Most Important Goals with Objectives and Key Results. As expected, the author takes the reader through a fable of a young startup that is ambling along making progress in certain areas while struggling with alignment and focus. After a mentor introduces OKRs to the team, they are slowly infused into the organization and the company takes off.

    Here’s how the author describes the system:

    1. Set inspiring and measurable goals.
    2. Make sure you and your team are always making progress toward that desired end state no matter how many other things are on your plate.
    3. Set a cadence that makes sure the group both remembers what they are trying to accomplish and holds each other accountable.

    While it sounds simple in theory, in practice it takes a good deal of time and discipline. I’m a proponent of setting goals and using a system to help manage the goal process.

    What else? What are some more thoughts on the book Radical Focus and the idea of goals based on OKRs?

  • 9 Simple Weekly Metrics for Seed Stage SaaS Startups

    There’s always a balance between tracking too many metrics and too few metrics. What I’ve found is that most seed stage entrepreneurs aren’t diligent enough in tracking simple metrics on a weekly basis. Of course, the seed stage is mostly about finding product/market fit and finding a repeatable customer acquisition process (see the four startup stages in eight words), so most activities should be customer focused.

    Here are nine simple metrics seed stage SaaS startups should track weekly:

    • Cash on hand
    • Weekly burn rate
    • Monthly recurring revenue
    • New customers
    • Lost customers
    • Marketing qualified leads
    • Sales demos
    • Active sales opportunities
    • Customer net promoter score (NPS)

    Cash on hand, weekly burn rate, and monthly recurring revenue are the three most important metrics as they indicate how many weeks left until running out of money and how fast the top line is growing. Configure a basic Google Sheet or goal/metric tracking system and record these nine simple metrics every week.

    What else? What are some other metrics that should be tracked weekly for seed stage SaaS startups? Here’s a more comprehensive list of SaaS metrics to track.

  • Track Metrics Weekly

    Recently I was talking to an entrepreneur about the critical metrics they track (also called KPIs). As we got into it, I realized they were tracking their metrics on a monthly basis, and not a weekly basis. Hmm, I thought, a month is much too long of a time period for tracking the things that are truly critical to the business. In addition, these metrics are mostly forward-looking items that are a precursor to what shows up in the financial statements (which are backward-looking), so it’s important to know if something is off as soon as possible.

    Here are a few thoughts on why it’s important to track critical metrics weekly:

    • Metrics typically have a relationship with other metrics (e.g. a percentage of marketing qualified leads become sales qualified leads and customer satisfaction scores relate to customer renewal rates) making it important to know if something’s not right quickly
    • It often takes multiple reporting periods to see if something is trending the wrong way, making monthly reporting too long of a time frame
    • Teams usually meet weekly, making a weekly metric cadence timely (and helps foster a culture of accountability)

    Check out the Google Sheet for KPI Dashboards and track critical metrics weekly.

    What else? What are some more thoughts on tracking metrics weekly?

  • Balance Quantity Metrics with Quality Metrics

    As a follow-up to 2 Metrics Startups Need to Start Tracking, the idea of measuring employee satisfaction and customer satisfaction fits in well with a section from Andy Grove’s book High Output Management. In the book he says:

    Indicators tend to direct your attention toward what they are monitoring…So because indicators direct one’s activities, you should guard against overreacting. This you can do by pairing indicators, so that together both effect and counter-effect are measured.

    The idea is that if there’s too much emphasis on purely quantitative metrics then people will optimize for that and hurt quality. Intuitively, this makes sense as we’ve all seen when the push for one thing reduces the quality of another (e.g. focusing exclusively on signing a large number of customers only to find that some didn’t meet the ideal customer profile and churned quickly).

    Whenever designing goals and their corresponding metrics, always keep in mind the balance between quantity and quality, and find pairing indicators.

    What else? What are some more thoughts on the idea of balancing quantity metrics with quality metrics?

  • 3 Core Operating Documents to Complement the Meeting Rhythm

    In addition to a strong meeting rhythm at Pardot, we developed three core operating documents to run the business. Of course, we used great line-of-business applications like Salesforce.com, Pardot, and Zendesk to run different departments, but we needed a central view of the business for accountability, alignment, and visibility.

    Here are the three core operating documents we used:

    While there was a good bit of ongoing copy-and-paste to keep these three documents current, the value was immense as we scaled to 100+ employees. Building a high performance company requires a strong culture, strong communication, and strong operational excellence.

    What else? What are some more thoughts on core operating documents that complement the meeting rhythm?

  • Revising the Simplified One Page Strategic Plan

    After publishing the original Simplified One Page Strategic Plan (OPSP) over four years ago, I’ve met and worked with dozens of entrepreneurs that use it (see Requiring a OPSP Prior to Meeting). Based on these meetings, and on-going feedback from entrepreneurs that have incorporated it into the day-to-day running of their companies, it’s time to freshen it up.

    Here are the changes:

    • Removed S.W.O.T. Analysis – This section didn’t resonate with entrepreneurs as it wasn’t as relevant to all levels of the business (it’s a good senior management team exercise but not necessary company-wide).
    • Added a Current Value to Goal Metrics – Instead of having Goal Value and Baseline Value, having Start Value, Current Value, and Target Value is more understandable and makes it more of a living document that should be visited weekly/monthly now that it has a slot to track the Current Value.
    • Moved the Goals and Priority Projects to the Bottom – Most of the OPSP is static text that doesn’t change often (e.g. the core values and purpose). By moving the goals and priority projects to the bottom, the top part is fixed and the bottom part is dynamic.

    Take a look at the new Google Doc Template and try out the revised Simplified One Page Strategic Plan — I think you’ll like it.

    What else? What are some other areas of the Simplified One Page Strategic Plan that should be revised?

  • When to Start Tracking Operational Metrics

    After reading about the Simplified One Page Strategic Plan, one of the common questions I get is “when should we start tracking metrics in our startup?” Basic things like cash, burn rate, and customers/users should be tracked immediately, but what about the dozens of other things that can be tracked? Generally, my recommendation is to start getting more operationally focused once product/market fit is in place and the search for a repeatable customer acquisition model is on (see the four startup stages in eight words).

    Here are a few more thoughts on when to start tracking operational metrics:

    • Finding product/market fit is all about building a product that customers love and are passionate about — that’s the main focus for everyone on the team.
    • Small teams (e.g. four people in a room) all know what’s going on. When the startup hits 10+ people, it’s time to add more metrics tracking and accountability (if not sooner).
    • With more scale on the people side comes more need for scale on the metrics side (e.g. operational metrics for sales, marketing, engineering, support, operations, etc.)
    • Start with something simple like a Google Spreadsheet KPIs Dashboard and iterate from there

    Most startups never get to the point where they have to worry about operational metrics because they don’t get past the product/market fit phase. For the ones that do, consider three buckets of metrics: financial, employee happiness, and customer happiness. And, start simple with the operational metrics and add more over time.

    What else? What are some more thoughts on when to start tracking operational metrics in a startup?

  • MSPOT Strategy Document for Startups

    Brian Halligan, CEO and co-founder of HubSpot, has a great post up titled Scale-up Leadership Lessons I’ve Learned Over 9 Years as HubSpot’s CEO. One section of the post, called Documenting Strategy, talks about their equivalent of the Simplified One Page Strategic Plan. They call it the MSPOT document and is has the following components:

    • Mission: Rarely changes
    • Strategy: Annually changes
    • Projects: 4 or 5 big annual initiatives
    • Omissions: Projects we decided not to fund
    • Tracking: Numbers we are looking at to see if we are on track

    Omissions is a section I haven’t seen before and represents a cool idea: what projects that were under consideration are explicitly not going to get done. Most strategy docs focus on what needs to be done, but people still hope other strategic projects get attention. An omissions section helps make it clear what isn’t going to be done so that people are more focused on what is going to get done.

    Entrepreneurs would do well to have a strategy document that gets updated on a regular basis and is shared with every stakeholder.

    What else? What are some more thoughts on the MSPOT strategy document for startups?

  • Critical Metrics for SaaS Companies

    Ali Rahimtula has a great post up titled Fundraise Like a Pro Using this Internal SaaS Metrics Playbook. As expected, Software-as-a-Service (SaaS) startups have a number of common financial characteristics that make it fairly straightforward to analyze how well the business is doing. At their core, SaaS companies are desirable due to the recurring revenue, high gross margin, and general predictability of the model. Each of these components is reflected in the metrics.

    Here are some of the critical metrics for SaaS companies from the article:

    • MRR over time
      • Beginning of period MRR
      • + New customer MRR
      • + Existing customer expansion MRR
      • – Churned MRR
      • – Downgraded MRR
      • = End of period MRR
      • Growth
    • Customer counts
      • Customers add
      • Customers lost
      • End of period customers
    • Quick ratio
      • (new MRR + expansion MRR) / (cancelled MRR + downgraded MRR)
    • Churn
      • Gross MRR churn (inc. downgrades) ($)
      • Gross MRR churn / previous period MRR (%)
      • Logo churn (#)
      • Logo churn / previous period logo count (%)
      • Net MRR expansion (%)
      • Net MRR churn (%)
      • MRR retention (%)
      • Customer renewal rate (%)
      • Dollar renewal rate (%)
    • Cohort analysis
      • Average revenue per account
      • Price per seat
      • LTV
      • Conversion to paid rate
      • Average contract length
      • Months paid upfront
      • Engagement metrics
      • Customer conversion
      • Sales cycle time

    SaaS entrepreneurs would do well to read Fundraise Like a Pro Using this Internal SaaS Metrics Playbook and get a more detailed understanding of their metrics.

    What else? What are some other critical metrics for SaaS companies?

  • Changing Goal Targets Midway Through the Quarter

    Several years ago, in the early days, I remember us putting down a company-wide sales goal for the quarter that proved to be much too ambitious. With most of the quarter done, and it clear we weren’t going to hit our goal, I changed the goal target to one we would hit and explained we made a mistake when setting it. This was the wrong approach.

    Here are some thoughts and questions about changing goal targets midway through the quarter:

    • When setting goals, it’s important to be consistent around expectations. Are goals meant to be achieved? Are they stretch goals?
    • If a goal is changed midway, how changeable are the other goals? What makes one changeable and another not changeable?
    • When reviewing past quarterly goal performance (e.g. year in review), how do you account for how well you did with setting and meeting quarterly expectations? How is longer term analysis affected by changing goals after they were set?

    While it might seem trivial in the early days, it’s important to set the tone and seriousness of company-wide goals. Changing goal targets midway through the quarter should be avoided. Rather, keep the goal target and be transparent about why it wasn’t hit and what will be done differently going forward.

    What else? What are some more thoughts on changing goal targets midway through the quarter?