David Cummings on Startups

Category: Operations

  • Weekly Team Update Email

    One of my favorite business communication and accountability tools is the weekly team update email. As simple as it sounds, when done well, it helps align everyone in the company and provide visibility into the most important metrics. Here’s a simple template for a weekly team update email:

    • Intro
      • Quick paragraph summary of last week
    • Annual Goals
    • Quarterly Goals
    • Quarterly Priority Projects
    • Sales
      • The top three weekly metrics for the sales team, or for smaller teams, the top three metrics for every person on the sales team (e.g. calls, appointments, deals won, new recurring revenue, etc.). By having every sales rep listed with their metrics, it provides transparency and peer-pressure to hit their numbers.
      • Comments or highlights from last week (e.g. the name of a big customer win or story from the team)
    • Marketing, Services, Support, Engineering, Operations, etc. (each has their own section, just like the Sales section)
      • The top three weekly metrics
      • Comments or highlights from the week
    • Culture Highlight
      • A story or example from the week that exemplifies the company culture and recognizes one or more people

    In more sophisticated companies, not only will the CEO send out a weekly team update email to the entire company, but the leader of every department will send a department-specific update to their respective team.

    One weekly email, while not trivial to make, is incredibly valuable for accountability, alignment, and visibility throughout the company. And, it’s also good to include investors, advisors, and mentors on the email.

    For entrepreneurs thinking about 2016 New Year’s resolutions, add weekly team update email to your list and become a better leader.

    What else? What are some more thoughts on the weekly team update email? Also, let me know if you want more details on our process to auto-generate these emails.

  • Traction: Get a Grip on Your Business

    In the entrepreneurial world there are three popular books that outline a full suite of strategies and techniques to efficiently run a company. Two of them have been discussed here previously: Mastering the Rockefeller Habits / Scaling Up and The Advantage (including the Six Critical Questions). Another, popular how-to startup book is Traction: Get a Grip on Your Business.

    Here are the six key components from Traction that make up the Entrepreneurial Operating System:

    • Vision – Do they see what you are saying?
      • Answering the eight questions
      • Shared by all
    • People – Surround yourself with good people
      • Right people
      • Right seats
    • Data – Safety in numbers
      • Scorecard
      • Measurables
    • Issues – Decide!
      • The issues list
      • The issues solving track
    • Process – Finding your way
      • Documenting your core processes
      • Followed by all
    • Traction – From luftmensch to action!
      • Rocks
      • Meeting pulse

    Entrepreneurs looking to run a more productive startup would do well to read the book Traction: Get a Grip on Your Business and implement the ideas.

    What else? What are some more thoughts on the book Traction?

  • Challenges with Objectives and Key Results

    After yesterday’s post on Objectives and Key Results (OKRs), one of the more common questions was about the challenges that come with implementing and using them. For most organizations, any serious change is tough, especially one that involves significant time on a regular basis and coordination of every person in the business (many companies are trying to lighten up on their processes like Accenture dropping their annual performance reviews and rankings).

    Here are some challenges with objectives and key results:

    • If an organization is already averse to accountability, adding a system to track and manage the most important goals of every person in the company, and grade them, will be extra difficult
    • OKRs require significant amounts of coordination and one-on-ones between managers and direct reports at all levels of the company, creating more “work” for managers, especially ones that don’t like managing
    • Transparency of OKRs, and their corresponding grades, makes it difficult for companies to ignore their underperformers, and high performers will be more likely to leave if management doesn’t address low performers
    • Ongoing planning and strategy requires real leadership and effort, and some people are content to leave things just the way they are, but doing nothing is a conscious decision

    The next time an entrepreneur complains about challenges with organizational alignment, accountability, and growth rate, ask them about OKRs and what they do to get everyone working together.

    What else? What are some other challenges with objectives and key results?

  • Objectives and Key Results – OKRs

    Creating, managing and aligning goals is always a challenge for entrepreneurs, especially ones that haven’t experienced it in other organizations. Two approaches I’m fond of are SMART Goals and Objectives and Key Results (OKRS). Today, let’s take a look at OKRS. One of the best resources out there is the Google Ventures video titled Startup Lab Workshop: How Google Sets Goals – OKRS. Think of OKRS as goals for every person in a company such that all priorities are aligned and measured.

    Here are the slides from the video courtesy of John Doerr when he first introduced them to Google’s founders:

    • Objective
      To develop a workable model for planning as measured by:

      • Key Results
        • Finishing the presentation on time
        • Completing a sample set of 3 months objectives and key results
        • Have management agree to institute a trial system for a 3 month period
    • Example pro football team
      • General Manager
        Makes $ for owners

        • Win Super Bowl
        • Fill stands to 88%
      • Head Coach
        Win Super Bowl

        • 200 yd passing attack
        • No. 3 in defensive stats
        • 25 yd punt return avg
      • Public Relations
        Fill stands to 88%

        • Hire 2 colorful players
        • Get media coverage
        • Highlight key players
      • Defense
        #3 Defense

        • Less than 100 yds passing
      • Offense
        200 yd passing attack

        • 75% completion
      • Special Teams
        25 yd punt return

        • Train blockers
      • News Staff
        Highlight key players

        • 3 Sunday feature articles
      • Scouts
        Hire colorful players

        • Visit to colleges
    • Benefits
      Why use objectives and key results

      • Disciplines thinking
        (The major goals will surface)
      • Communicates accurately
        (Let’s everyone know what is important)
      • Establishes indicators for measuring progress
        (Shows how far along we are)
      • Focuses effort
        (Keeps organizations in step with each other)
    • Typical Process
      • Staff Meetings and One-on-Ones
      • Corporate Objects
        ->
      • Department Objectives
        ->
      • Group Objectives
        ->
      • Individual Objectives
    • Communication
      • 1:1
        • Private
        • Develop/negotiate key results
        • Monitor progress
      • Staff Meeting
        • Group
        • Develop/negotiate objectives
        • Evaluate group performance
      • Typical Cycle
        • Q1
          • End
            • Develop Draft Q2 at Staff
            • Start Q2 KRs
        • Q2
          • Beginning
            • Grade Q1 KRs at staff
            • Final Q2 KRs
          • Late Beginning
            • Present graded Q1 and new Q2 KRs at company meeting
          • Middle
            • Monitor Q2 KRs at staff
          • Late
            • Establish Q3 KRs
        • Q3
          • Grade Q2 KRs
          • Final Q3 KRs
    • Some Basic Hygiene
      • Maximum 5 objectives with 4 key results
      • 60%+ objectives from bottom up
      • All must mutually agree – no dictating
      • One page best – 2 maximum
      • Not a performance evaluation weapon
      • 60 – 70% “Grade” = Good
        40% = Bad
      • Continue incomplete key results only if they are still important
    • End Product
      • Everyone is working towards the same result
        • Focuses effort
        • Fosters coordination
      • Keeps organization tuned in
      • All operations have linked objectives and key results that support the company
      • Are fun to do!

    More notes from Google Ventures on OKRs:

    • Keys to OKRs
      • OKRs are:
        • set quarterly and annually
        • measurable
        • set at personal, team, and company levels
        • publicly available to the entire company
        • graded each quarter
    • Elements of an OKR
      • The objective..
        • is ambitious
        • feels a tad uncomfortable
      • The key results..
        • clearly make the objective achievable
        • are quantifiable
        • lead to objective grading
    • Personal / Team / Company
      • Personal OKRs define what the person is working on
      • Team OKRs define priorities for the team, not just a collection of all individual OKRs
      • Company OKRs are big picture, top-level focus for the entire company
    • Sample Personal OKRs
      • Objective
        Accelerate Blogger revenue growth

        • Key Results
          • Launch “Monetize” tab to all users
          • Implement AdSense Targeting to increase RPMs by xx%
          • Launch 3 revenue-specific experiments to learn what drives revenue growth
          • Finalize PRD for Blogger Ad Network, secure eng allocation to build in Q1
    • Sample Personal OKRs
      • Objective
        Grow Blogger traffic by xx% over organic growth

        • Key Results
          • Launch 3 features that will have a measurable impact on Blogger traffic
          • Improve Blogger’s 404 handling, extend time on site, and pageviews per session on sessions that start with a 404 error by xx%
    • Sample Personal OKRs
      • Objective
        Improve Blogger’s Reputation

        • Key Results
          • Re-establish Blogger’s leadership by speaking at 3 industry events
          • Coordinate Blogger’s 10th birthday PR efforts
          • ID and personally reach out to top xx Blogger users
          • Fix DMCA process, eliminate music blog takedowns
          • Setup @blogger on Twitter, regularly participate in discussions re: Blogger product
    • Grading the OKRs
      • .6 – .7 is your target
      • Scores matter less than the process
      • Company-wide scoring reinforces commitment
      • Use low grades to reassess: worth doing? What will we do differently to achieve our objective?
    • Publicly Grading the Company OKRs
      • Company-wide quarterly meeting
        • grade last quarter’s OKRs
        • get OKR owner to explain grade, explain adjustments for upcoming quarter
        • set this quarter’s OKRs

    Entrepreneurs would do well to watch the objectives and key results video and implement them in their company.

    What else? What are some more thoughts on objectives and key results?

  • 16 Startup Metrics for Entrepreneurs to Master

    A16Z has a great post up titled 16 Startup Metrics that outlines many of key metrics investors look for and entrepreneurs often get incorrect. I’m guilty of this: when I went into one of my first investor pitches 10 years ago, I talked about revenue when it really was bookings, and the VC politely corrected me.

    Here are the 16 metrics to test your knowledge before reading 16 Startup Metrics:

    1. Bookings vs. revenue
    2. Recurring revenue vs. total revenue
    3. Gross profit
    4. Total contract value vs. annual contract value
    5. Lifetime value
    6. Gross merchandise value vs. revenue
    7. Unearned or deferred revenue … and billings
    8. Customer acquisition cost … blended vs. paid, organic vs. inorganic
    9. Active users
    10. Month-on-month growth
    11. Churn
    12. Burn rate
    13. Downloads
    14. Cumulative charts (vs. growth metrics)
    15. Chart tricks
    16. Order of operations

    Every entrepreneur should read 16 Startup Metrics and understand the metrics applicable to their startup.

    What else? What are some more startup metrics that are important?

  • Revenue-Based Financing for Startups

    After last week’s post on Early SaaS Loans Before Bank Credit Lines, a couple people mentioned Lighter Capital as an alternative lender that does revenue-based financing. The idea is that instead of the normal venture debt model, which is interest plus warrants in the business, revenue-based financing takes a percentage of revenue over a certain period of time, typically five years.

    With a starting point of $1 million in revenue, an annual growth rate of 30% per year, and a fee of 10% of revenue for a $500,000 loan, here’s how it might look:

    • Year 1 – $1,300,000 in revenue, fee of $150,000
    • Year 2 – $1,690,000 in revenue, fee of $169,000
    • Year 3 – $2,197,000 in revenue, fee of $219,700
    • Year 4 – $2,856,000 in revenue, fee of $285,600
    • Year 5 – $3,713,000 in revenue, fee of $371,300
    • Total fees (which includes repayment): $1,195,600

    Simply doubling the initial money over five years results in a 15% internal rate of return, so borrowing $500k and repaying $1.2 million is just a bit higher when thinking of interest rates for a normal loan. I don’t know if this is exactly how Lighter Capital works, but I believe it’s directionally correct.

    The next time an entrepreneur asks about alternative lending options, mention revenue-based financing as an option.

    What else? What are some more thoughts on revenue-based financing for startups?

  • Metrics to Raise a Series A

    Continuing with the metrics theme from yesterday’s post Most Metrics Don’t Matter at the Beginning, a logical follow-up question is “what are the ideal metrics to raise a Series A?” EquityZen has a good post from last year on just this topic: The Metrics Required for Raising a Series A Round. Here are the key metrics to raise a Series A for each type of startup from the post:

    • Ecommerce – $12 million annual run rate
    • Consumer App – 50,000 daily active users with 25% month-over-month growth
    • SaaS – $1 million annual run rate and 100% year-over-year revenue growth
    • Marketplace – $12 million gross market volume with 20% month-over-month growth

    The next time an entrepreneur says they’re going to raise a Series A, ask if they have the appropriate metrics based on their type of business.

    What else? What are some other thoughts on the metrics to raise a Series A round of financing?

  • Most Metrics Don’t Matter at the Beginning

    I love metrics. I love understanding all kinds of different aspects of the business. What’s improving? What’s declining? Only, for the first 12-18 months, most metrics don’t really matter. Yet, entrepreneurs are constantly fretting over them. Besides revenue and customer count, popular metrics like cost of customer acquisition and churn rate aren’t meaningful due to a limited number of customers.

    Here’s what matters in the first 12-18 months:

    • Revenue – Getting that first $100,000, or better yet $250,000, in recurring revenue, shows there’s the kernel of something meaningful
    • Unaffiliated Customers – While signing up friends and warm referrals is standard, the real test is signing the first 10 or 20 unaffiliated customers — the customers that buy the product because it solves a serious problem, and not just because someone wants to help you personally
    • Product/Market Fit – A level of usefulness and functionality that meets customers needs and truly adds value (see Initial Product/Market Fit)

    When an entrepreneur talks about metrics, and has a handful of customers, point out that the focus should be on increasing the customer count, and not analyzing things where there aren’t enough customers to be statistically significant. Most metrics don’t matter at the beginning — keep it simple.

    What else? What are some other thoughts on the idea that most metrics don’t matter at the beginning?

  • Financial Projections for Startups

    Recently I saw another one of the dreaded financial charts in a startup’s executive summary: $0 revenue today and $25 million in revenue in year three. Whenever I see this, I immediately know that the CEO either a) doesn’t have any startup experience or b) hasn’t done the appropriate homework. Can a company go from $0 to $25 million in three years from a cold start? Yes. Does it make the startup look credible in an executive summary? No.

    Here are a few thoughts on financial projections for startups:

    • Study the Inc. 500, especially technology companies. What does the revenue ramp look like there? These are some of the fastest growing companies in the country, and annual revenues like $1M to $4M to $10M are more the norm (and incredibly high growth).
    • Build a bottom-up forecast based on number of leads generated, conversion from lead to opportunity, number of trained sales reps, average sales cycle, average sales price, and conversion from opportunity to close.
    • Find a simple financial model online (e.g. here’s a SaaS metrics one) and adapt it (don’t build or use a super complicated financial model as it’s overkill without relevant operating history)

    Every startup should build financial projections. Even if there are many unknowns, it’s important to see how things might work, how gross margins make the model viable (or don’t! — see HomeJoy), and what the major drivers are for the business.

    What else? What are some more thoughts on financial projections for startups?

  • SaaS Business Model and Metrics

    David Skok has an excellent presentation over on Slideshare about the SaaS business model and metrics with the 3 Stages of a Startup. David’s blog, For Entrepreneurs, is one of the best out there for startups, especially Software-as-a-Service ones. Here are a few notes from the 85-slide SaaS business model and metrics deck:

    • Conserve cash while searching for product/market fit and a repeatable customer acquisition process. Once found, invest heavily.
    • With SaaS, the company actually loses money for some period of time (e.g. the first 12 months) with each new customer before becoming profitable. Because of this, companies that are growing faster are actually losing more money. More growth = more losses.
    • Cost to acquire a customer needs to be less than the lifetime value of a customer
    • Customer lifetime is defined as 1/churn rate, therefore the greater the monthly churn rate, the shorter the customer lifetime
    • Negative churn is a goal whereby revenue growth from existing customers is greater than revenue lost from existing customers
    • Common variable pricing axes are features, users, and depth of usage
    • Retention rate should be analyzed both as customer retention rate and dollar retention rate
    • Customer happiness index is a way to predict the likelihood of churn as well as the business value of the application
    • Ideal cost to acquire a customer is less than or equal to the first 12 months of revenue
    • Lifetime value of the customer should be 3x or greater than the cost of customer acquisition
    • Monthly recurring revenue is the core metric for the business
    • Salesperson on target earnings should 5x less than their quota (e.g. $60,000 in compensation for a $300,000 new annual recurring revenue quota)
    • Different sales models are increasingly more complex and 10x more expensive at each stage: freemium, no touch self-service, light touch inside sales, high touch inside sales, field sales, field sales with sales engineers
    • 3 keys to SaaS success: acquisition, retention, and monetization

    If you’re in a SaaS business, go read SaaS business model and metrics with the 3 Stages of a Startup.

    What else? What are some other key components of the SaaS business model and metrics?