David Cummings on Startups

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  • Notes from Mike McQuary at EO Nerve Atlanta 2012

    EO Nerve Atlanta 2012 kicked off today and was a big success. The theme is Dream | Challenge | Lead and the events to support it have been excellent. First thing this morning we were inspired by Dr. Martin Luther King’s “I Have a Dream” speech in video and live re-enactment form. After that we heard from the CEO of a NYSE company followed by Mike McQuary, the co-founder of Mindspring/Earthlink as well as Wheego, one of only three companies in the United States to have a completely electric car on the market today.

    Here are some notes from Mike McQuary’s talk at EO Nerve Atlanta 2012:

    • Mike was sleeping on the floor of the studio apartment of Charles Brewer when Charles quit his job and said he wanted to start a company based on a strong culture of people that he liked, and the business idea didn’t matter
    • Mike was the operations guy and Charles was the visionary for Earthlink, which grew to thousands of employees in only a few years
    • Org charts should be flipped upside down whereby the leaders are serving the employees
    • Don’t have offices or reserved parking spots as that creates unnecessary hierarchy
    • Mike personally interviewed the first 1,000 Mindspring employees for corporate culture fit
    • Earthlink hired people who were passionate about helping other people, and then trained them on the skills
    • Integrating Earthlink and Mindspring into one company was the hardest thing because the cultures were very different
    • Mike walked away from Earthlink when he realized he’d regret not spending time with his four little kids
    • As leader be careful what you say because it’s taken differently
    • Make sure you have hard metrics to measure success
    • Wheego was started after Mike saw the documentary Who Killed the Electric Car and heard the sound of the voice of customers who were passionate about the product, just like his customers at Earthlink

    Mike did a great job sharing anecdotes and advice from his entrepreneurial experiences. Mingspring was a massive success and I hope Wheego turns out the same way.

  • Email is Your #1 Security Weakness

    When people think of cyber security and identity theft one’s email account doesn’t come up nearly as often as it should. An email account is the number one security weakness for 99% of the startups out there. Just think about the “Reset Password” option for the sites you use on a regular basis — online banking, QuickBooks Online, Amazon.com, Google AdWords (a savvy bad guy can run up your bill driving traffic to an affiliate program in China), etc.

    Jeff Atwood’s recent post Make Your Email Hacker Proof recommends the same solution I recommend and use personally.

    All startups should use Gmail with two-factor authentication enabled for personal and business email. Yes, it makes it more annoying to sign into Gmail from a random laptop but it’s totally worth it. The idea is that you sign in like you normally would with a standard password and then you use a separate program on your smart phone (or get a number texted to you) that has a random second password. This second password is the key since it is much harder to steal as it changes every 60 seconds and is created on the fly.

    If your email account contains important information or is connected to another account that’s important, and has a “Password Reset” function, Gmail with two-factor authentication is the way to go.

    What else? Do you agree that email is your #1 security weakness?

  • Thinking About Sales Rep Compensation Plans

    Sales rep compensation plans are super important and super challenging. There’s a necessary element of incenting the right behavior while keeping things straightforward and easy to understand. Too often companies make the compensation plan a tome with a corresponding Excel file required for some spreadsheet jockeying just to understand the different commission levers.

    Here a few ideas to keep in mind when developing a sales rep compensation plan:

    • Incent the right things — not all revenue is created equal so consider gross margin, profit, etc when incenting results
    • Make the commission policy easy to understand — money is one of many motivators so make it clear how things work
    • Don’t pay full commission unless quota is attained — quota is the minimum a rep should do and should be readily attainable by the right person
    • Don’t cap commissions — why companies do this is beyond me
    • Always have a timely plan — it’s demoralizing to reps to say the plan is changing but then to not deliver it when the year starts
    • Recognize the stars — provide additional awards, incentives, etc for the top performers
    • Align commission payments with revenue received — once the company gets paid the rep should get paid
    • Strive for plan stability — Constantly changing the comp plan can be demoralizing so try to minimize changes and maintain consistency

    Sales rep compensation plans are challenging but by following the keep it simple approach, customer interests, company interests, and sales rep interests can all be aligned.

    What else? What are some other ideas for sales rep compensation plans?

  • Team Members Scaling From Front Line to Executive

    When a company is just getting started it’s critical to get ‘A’ players on board that are excited to roll up their sleeves and do whatever it takes to be successful. As the startup grows and matures, one of the most difficult things is developing the early team members to scale as the business scales. It’s super tough to go from front-line team member to an executive managing a fast-growing department.

    Here are some items to look for in team members that aspire to scale as the business scales:

    • Executive presence – a level of confidence and professionalism that reflects strongly on the company
    • Penchant for bigger-picture thinking – getting the job done is great but successful executives need to be thinking about long-term strategies, metrics, and ways to improve
    • Strong communication skills – in-person discussions, team meetings, and conference calls should be productive and facilitated in an effective manner (great public speaking skills are a nice bonus)

    As team members express a desire to scale with the organization, set proper expectations and ask hard questions regarding their ability to deliver as an executive at the next level.

    What else? What other thoughts do you have on team members scaling from front line to executive?

  • Raising Limited Money to Get Key People Formally Involved

    Most startups should not raise money. Some exceptions include when it’s a winner take all market (like eBay), winner take most with a huge valuation boost (like Salesforce.com), or very capital intensive (like a hardware business). In this context “raise money” means the traditional large sums of money over multiple rounds approach. There’s another  approach that isn’t talked about as frequently: raising limited money to get key people formally involved.

    By raising limited money you might sell 2 – 10% of the business to get key people participating instead of the traditional 20 – 40% (usually 30%) per round, not because you need the money but because you want them formally involved. You might say you could do that through board seats or advisors — you could, but it’s better if they have some skin in the game through a formal investment as well as the board/advisor participation.

    The next time you want to get a person involved in the business for a long time, and you’re not raising money, consider raising money from them as a way to align interests and formalize the relationship.

    What else? What are your thoughts on raising limited money to get key people formally involved?

  • Sales Rep Metrics for Startups to Track

    Hiring and managing a successful B2B sales team is one of the hardest things to do for technology entrepreneurs. In a previous post, Milestones for New Sales Reps, there were four simple sales metrics to track: call conversations logged, demos completed, opportunities created, and deals won — those are pretty straightforward. As the sales department matures, there are a number of additional metrics to track.

    Here are some sales rep metrics for startups to track:

    • Calls:
      No message left
      Voicemail
      Conversation positive
      Conversation neutral
      Conversation negative
    • Demos:
      Demo 1 Scheduled
      Demo 1 Completed
      Demo 1 Missed
      Demo 2 Scheduled
      Demo 2 Completed
      Demo 2 Missed
    • Opportunities:
      Opportunity created
      Opportunity won
      Opportunity lost
      Revenue booked
      Average days till closed / won
      Lost opportunity revenue
      Competitive opportunity

    This isn’t an exhaustive list but it’s a good start for understanding on a more detailed level how sales reps are performing. These should be measured on a monthly and quarterly basis as well as rolled up team and department-wide.

    What else? What are some other sales rep metrics for startups to track?

  • Quick Management Exercise for Startup Team Building

    In the book The Advantage, Patrick Lencioni argues that one aspect of organizational health is management trust and connectedness. Many management teams don’t have enough trust and rapport amongst each other and that shows when they’re focused on achieving personal and department goals while sacrificing company-wide goals. In order for management to work better together they need to understand more about each other on a personal level.

    Here’s a quick management exercise for startups to help get to know each other better in 20 minutes by each person answering the following questions:

    • Where were you born?
    • How many siblings do you have?
    • What was your birth order?
    • What was the most difficult or challenging part of your childhood?

    Obviously the last question is the most difficult, and the most insightful, for getting to know someone better. The next time you’re looking to building connectedness, try out this exercise.

    What else? What are your thoughts on this quick management exercise for startup team building?

  • An Easy Way Out Makes More Challenging Opportunities Harder

    Two nights ago I realized a phenomenon that’s more prevalent than I expected. As I was sitting down to write my daily blog post I knew I had the topic of Organizational Health as the Next Corporate Frontier readily available since I had just read the start of a book. My thinking was that this was a topic I felt passionately about but that it was an easy one, so I should write about something harder or more timely, and come back to this one when I was at a loss. Only, by having the easy topic sitting there it made it even harder to come up with something else.

    Having an easy way out makes it even harder to do the more challenging opportunity.

    Thinking about it for a few minutes made me realize that this happens all the time. People go to grad school instead of traveling the world because it’s more of a known quantity. People join a big company instead of a startup because it’s perceived as safer. The easy way is easy for a reason but it’s important to think hard about whether it’s the best.

    What else? What are your thoughts that an easy way out makes it harder to do the more challenging opportunity?

  • How Much Profit Should be Reinvested in a Startup

    Recently I was discussing with an entrepreneur an interesting question: how much profit should be reinvested in a successful startup? Of course, if there are VCs or institutional investors, the answer is all of it as the focus is to get as big as possible as fast as possible. Now for bootstrapped startups and some angel-backed startups, once the startup is profitable it’s up to the co-founders to decide how much profit to reinvest in the business.

    If the startup is growing fast, ideally all the profit would be reinvested. Here’s a simple formula I like to use:

    Pay yourself 25% more than your lifestyle calls for until you have two years of savings then just pay the minimum to maintain your lifestyle

    The idea is that there’s some peace of mind for having sufficient personal savings while at the same time maximizing the investment in the fast growing startup.

    What else? How do you determine how much profit should be reinvested in a startup?

  • Organizational Health as the Next Corporate Frontier

    Yesterday I started reading The Advantage: Why Organizational Health Trumps Everything Else in Business by Patrick Lencioni, one of my favorite authors. So far, it’s another must-have book in an entrepreneur’s collection.

    Lencioni uses the term “organizational health” and explicitly says he doesn’t like the term “corporate culture” because it’s over used. I disagree. He uses the subtitle “Why Organizational Health Trumps Everything Else in Business” and corresponding book content is nearly identical to my favorite saying that corporate culture is the only sustainable competitive advantage completely within the control of the company.

    Another interesting point he makes is that management teams are so strong, on average, with strategy, operations, marketing, etc that those are much less of a differentiator than they used to be. Talent is still extremely important but for companies of size the managers are good enough in the main functional areas. Now, the real differentiation comes from organizational health and the softer, internal people side of the business.

    I’m looking forward to reading more of the book and can already recommend it to entrepreneurs that believe a strong corporate culture is critical to success.

    Note: The Six Critical Questions for Every Entrepreneur.