David Cummings on Startups

Blog

  • Start With More Interns to Grow the Startup Community

    At tonight’s Flashpoint meeting I had the opportunity to talk with Heath Hyneman (@hhyneman) and hear his ideas around improving the startup community. One idea really stood out to me: get technical talent from local universities involved in the startup community as early as possible through paid internships. Strong technical talent, once in the workforce, will rarely have to update their resume as there is so much demand for their skills, and job opportunities are abundant.

    Big companies, especially local Fortune 500 companies, have huge internships programs due to their size. As a college student, the company or experience that’s most familiar becomes the default choice for a full-time position post graduation. Without exposure to the startup community, a college student is much less likely to look into startups as a career path.

    As a long term strategy to grow the startup community, interns are a great way to start. Startups need to make a concerted effort to start recruiting on local campuses and build their technical talent pipeline early.

    What else? What are your thoughts on getting more interns involved with startups to grow the startup community?

  • The 3x Rule for SaaS Inside Sales Rep Quotas

    Inside sales is rapidly becoming the go to sales model for Software-as-a-Service (SaaS) companies. More startups are following modern selling models like Predictable Revenue where a heavy emphasis is placed on efficient emailing and calling while using the web to help make appointment setters much more effective. After the appointment setter tees up the demo for the inside sales rep, the inside sales rep takes over all the way to close.

    One of the things I like to do is to learn about the sales compensation models of other startups, especially the base salary and variable compensation from commission, which when combined equals the sales person’s on target earnings. After that, I’ll ask about quota in terms of annual recurring revenue to get a feel for expectations.

    Almost always, the annual recurring revenue quota for a SaaS inside sales rep is roughly 3x their on target earnings.

    Here are some examples:

    • $30,000 base salary with $30,000 commission target ($60k OTE) results in an annual quota of $180,000 in new recurring revenue
    • $50,000 base salary with $50,000 commission target ($100k OTE) results in an annual quota of $300,000 in new recurring revenue

    Now, most quotas are based on new annual recurring revenue and very little of quota is based on one-time professional services revenue, which is common with SaaS businesses. The next time you’re thinking through quotas for SaaS inside sales reps consider the 3x rule.

    What else? What are your thoughts on the 3x rule for SaaS inside sales rep quotas?

  • A Day in the Life of a Growth Stage Startup CEO

    One of the questions I get from entrepreneurs is “how has your day-to-day changed going from a seed stage startup to a growth stage startup?” The three core responsibilities of a CEO never change: make sure there’s enough cash to keep going, help set the vision, and get the right employees on board. For my first year as a seed stage CEO, I spent most of my time writing code (~40 hours/week) and the rest of the time doing whatever it takes to be successful (20 – 30 hours/week). Now, five years later, things are much different.

    Here’s what a typical day looks like:

    • 10 minute daily check-in with the executive team
    • One or two one hour catch ups with a department head (meet with each department head bi-weekly)
    • One to two hours working on strategic projects (usually juggling 2-3 strategic projects at any one time)
    • One hour reading blog posts and books (usually read one business book per month)
    • Miscellaneous meetings, email, and other work

    As you can see, the ratio of doing front-line work to managing people changes dramatically as the startup gets larger. Days go quickly and are very productive.

    What else? What does a day in the life of your startup look like?

  • LED Scoreboards for Startups

    Continuing with the metrics and KPIs posts over the past two days, I next want to talk about scoreboards. Scoreboards, just like they sound, are large displays with the latest metrics for team members to know exactly where the team/department/business stands. Now, you can get a massive 55 inch LED TV with 1080p HD for under $900 from Amazon.com, mount it on the wall for under $100, and get an old MacMini for a couple hundred dollars to power it. Whenever people come into our office, one of the most common comments is on our LED Scoreboard and how they’re impressed we share the information and make it so accessible for everyone.

    Here are a few web apps to power the LED scoreboard:

    LED scoreboards are a great way to empower and align team members with the latest metrics in a centralized manner. Startups should consider LED scoreboards for their office.

    What else? What are some other thoughts on LED scoreboards for startups?

  • KPIs and Startups

    Key performance indicators, or KPIs, have been around for decades as business jargon representing the metrics that matter most. Too often, I see startups measuring a ton of different things (which is good) and then making everything important (which isn’t good). The idea is to measure a bunch of stuff, but for the purposes of getting all team members on the same page, there should be a minimal number of KPIs that are shared and talked about regularly with the management team and company — the metrics that matter the most.

    Here are some example KPIs that a startup should consider tracking on a weekly/bi-weekly/monthly basis:

    • Cash on hand/runway in months
    • Current annual recurring revenue (ARR)
    • New ARR
    • New customer churn ARR
    • Current weighted sales pipeline
    • New marketing qualified leads
    • New sales qualified leads
    • New clients implemented
    • New bugs
    • Current recruiting pipeline

    KPIs are an important part of a startup and should be made as simple and effective as possible.

    What else? What are some other key performance indicators you like to track?

  • Thinking About Startup Marketing Metrics

    Marketing metrics are great in that they provide objective, concrete evidence as to how things are going. With the rise of digital marketing, marketing automation, inbound marketing, growth hackers, and more, marketing metric awareness is growing even faster now. Startups, with a clean slate, can measure anything and everything. Only, most don’t build a culture of marketing accountability and ingrain it into their startup ethos.

    Here are some startup marketing metrics to consider:

    • Lead funnel:
      Visitor
      Prospect
      Marketing qualified lead
      Sales qualified lead
      CRM opportunity
      Closed deal
    • Lead channel volume and cost:
      Affiliate
      Pay per click
      SEO
      Referral
      Email
      Facebook
      Twitter
      Trade show
      Cold call
    • Site traffic types:
      Direct hit
      Social
      Referral
      Search engine (branded and non branded)

    Marketing is more scientific and metrics driven now, especially with the advent of online marketing. Startups would do well to build simple Google Spreadsheets and start tracking a variety of metrics. Over time, it’ll become clear what’s working, not working, declining, and improving in value. What gets measured gets done and measure what matters.

    What else? What are some other startup marketing metrics you like to track?

  • Inside Sales Management in Startups

    With the rise of the Software-as-a-Service (SaaS) business model, there’s more focus on inside sales as part of the customer acquisition process due to the lower deal values compared to enterprise software. Enterprise software, having been popular for several decades, has a large number of experienced executives, even if most aren’t right to be a VP of Sales for a seed stage startup. Consultative inside sales and consultative field sales are very different.

    There’s a lack of experienced inside sales management talent for startups.

    Here are a few thoughts around inside sales management for startups:

    • Look to develop a leadership pipeline internally on the sales team through training, mentoring, and coaching
    • Remember that the top sales person isn’t usually the person you want to be a sales manager since selling and sales management are different skills (and the best sales people should make more money than sales managers)
    • Consider two different types of sales managers: inspirational/motivators vs analytical/quantitative (not mutually exclusive, but often different types)
    • Find managers who aren’t from a sales background, but are excited about coaching people, and consider them for sales management

    Inside sales management isn’t easy to find but the right talent makes all the difference in a startup. Work hard to find the right person and don’t settle.

    What else? What are some other thoughts on inside sales management in startups?

  • Career Paths are Tough for Early Stage Startups

    Once a startup finds a repeatable business model and gets out of the seed stage, they then enter early stage (e.g. 20 – 50 employees) before (hopefully) moving on to growth stage (50+ employees). With five employees in a startup everyone wears multiple hats and things are so crazy the topic of career paths don’t often come up. As the startup matures into a business and the next 20 people are hired, more specialization sets in and the topic of career paths becomes a bit more common. By the growth stage, career paths are a normal part of the conversation.

    Startups have an especially difficult time answering the career path question.

    With all the uncertainty of a startup who knows if it will even be around in a year or two. High end strategy consulting firms like Bain and McKinsey have the motto “up or out” which basically means you’re promoted every two to three years or you’re fired, and that works for that world. For startups, no matter how hard you try, everyone on the team isn’t going to be so entrepreneurially-oriented that they love the feeling of not knowing what’s next.

    Here’s how we approach the career path question in a growth stage startup:

    • Once or twice a year we sit down and talk with each person about career path options (we don’t do annual performance reviews but we do do quarterly check-ins that are simplified reviews)
    • We emphasize that with company growth comes new opportunities, teams, departments, etc but that we don’t have a firm timeline
    • As a philosophy, we want to promote from within whenever possible
    • Team members are encouraged to identify opportunities or challenges that excite them and we work on how to make them achievable

    Career paths are tough for early stage startups. It’s best to tackle them head on and look for ways to be open and transparent with team members while also getting them excited about the potential opportunities and changes that lie ahead.

    What else? What are some other ideas around career paths for startups?

  • Cost Difference Between Employee and Employer Paid Benefits

    One of the common questions I hear is, “Wouldn’t your employees rather have higher pay checks and less benefits?” It’s true that more individual choice is often the better route, and I’m a fan of pushing the decision making down as far as possible. There’s two factors at play here 1) the culture of the company with it’s values and 2) the government’s tax code. Assuming the company places a high value on great benefits, let’s look at how the tax code promotes employer paid benefits.

    Take an example benefit of $1,200 per year per employee for housecleaning provided to all employees:

    • Employer paid benefit cost: $1,200
    • Employee paid benefit cost: $1,200
      Plus employee paid federal income taxes (~30%): $514
      Plus employee paid state income taxes (~6%): $77
      Plus employee paid payroll taxes (~6%): $77
      Plus employer paid payroll taxes (~6%): $77
      Total cost for the employee paid benefit including the employer’s taxes: $1,945

    So, for the employee to pay for the same $100 per month housecleaning on their own, it costs a total of $1,945 to be paid by the employer to a combination of the government and the employee. For the employer to pay directly for the employee’s housecleaning, it costs $1,200, or 38% less. There’s a serious difference between employee and employer paid costs for benefits.

    What else? What are some other thoughts on the cost difference between employee and employer paid benefits?

  • Fundraising Starts with Friend Making for Startups

    A number of entrepreneurs have lamented to me how difficult it is to raise money for their startup. Now, they are trying to raise seed rounds of less than $1 million from angels and aren’t having much luck. Of course, the best time to raise money or get a bank loan is when you don’t need it, but that’s rarely the case for startups. One of the most important aspects of fundraising, and least discussed, is that of investors wanting to invest in and work with people they genuinely like — potential friends if not already friends.

    Entrepreneurs would do well to read How to Win Friends and Influence People by Dale Carnegie at the start of their fundraising process (if not right away). The idea isn’t to be fake but rather to be genuinely interested in the person and the relationship, as that sets the foundation for everything going forward. Some of the most successful fundraisers are also the best at making friends.

    Fundraising starts with friend making as investors want to invest in startups that have entrepreneurs they truly want to hang out with for many years. In addition to finding investors generically, entrepreneurs would do well to find investors that they enjoy being around and have complementary personalities.

    What else? What are some other reasons fundraising starts with friend making for startups?