David Cummings on Startups

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  • Covey’s Priorities Quadrant System for Startup Product Management

    Stephen Covey has a well-known quadrant system for priorities that is beneficial for product management in startups. Here’s how it works: there are four boxes based on not important & important up the left and urgent & not urgent across the top in order to prioritize what needs to be done. It looks like this:

    The startup urge is to work in Quadrant 1 – important and urgent. Yes, the important and urgent things need to be done but the mistake I commonly see is not enough time spent in Quadrant 2 – important and not urgent. Quad 2 is often infrastructure, big picture, or long-term items that have significant compounding effects. Whereas the general time allocation is likely 90/10 with 90% in quad 1 and 10% in quad 2, the more successful startups consciously do 80/20 with 80% in quad 1 and 20% in quad 2. The next time you look at potential product features, put them in quad 1 and quad 2 buckets and see how the time allocations stacks up.

    What else? What are your thoughts on using Covey’s priorities quadrant system for startup product management?

  • Startups Don’t Lose a Deal Over One Feature

    Recently an entrepreneur was telling me about a customer he lost due to a missing feature in the product. The customer absolutely had to have this feature, and without it, wouldn’t be moving forward. Naturally, the entrepreneur was depressed thinking he needed to add this new feature right away. Hearing this I asked a few quick questions:

    • Do 80% of your ideal customers need that feature?
    •  Is that feature the highest priority?
    • Was your relationship with the customer strong enough that they were telling you the whole story?

    That last question is the most important.

    Most customers that point out a single feature for leaving are doing that as a nice way out. 

    The reality is that more times than not the customer was sold by the sales rep of a competing product. It’s true, the competing-product sales rep provided talking points to the customer and gave an easy way out with competitive intel — being outsold is never fun but it happens all the time. The next time you hear that your customer is switching because of a missing feature, remember that your company got outsold by a competitor.

    What else? Do you agree that when a customer leaves for one single feature they were sold by a competitor’s sales rep?

     

  • Sales Development Rep Pilot Metrics from Sales 2.0

    After seeing it mentioned on another blog I picked up the book Sales 2.0: Improve Business Results Using Innovative Sales Practices and Technology by Anneke Seley and Brent Holloway. The authors do a good job making the case for sales development reps, telesales, and using the web as part of the selling process. For those versed with the modern B2B SaaS customer acquisition model of the past five years it won’t be much new information but those transitioning from a traditional enterprise sale to a hybrid model or more telesales, this is a strong primer.

    One question I see frequently is around metrics for sales development reps. Here are example sales development rep (SDR) metrics from the book for a 12 week pilot period (pg 173):

    • Number of outbound calls and e-mails per day/week/pilot period including ramp: 45/135/1521
    • Contacts (connects, returned calls and returned e-mails) per day/week/month at 12 percent rate: 5/15/183
    • Percent of contacts in A lead category: 4 percent
    • Number of contacts per pilot period in A lead category: 7
    • Percent of contacts in B category: 6 percent
    • Number of contacts per pilot period in B lead category: 11
    • Average deal size: $80,000
    • Pipeline value per month (A & B leads): $1.44 million

    So, a trained sales development rep spends three months prospecting, connects with five people per day, and generates seven hot leads and 11 warm leads. These numbers are inline with what I’ve heard from other entrepreneurs and show that SDRs work if the economics of the deal make sense.

    What else? What are your thoughts on these metrics with sales development reps?

  • Leadership Development Questions from The Secret

    Continuing with yesterday’s post on the book The Secret by Ken Blanchard and Mark Miller, there were a number of good discussion questions as part of leadership development. While there were too many to list here I wanted to capture some of the key ones.

    Here are some leadership development questions from The Secret:

    • What is the purpose of your team?
    • How can you communicate your vision of the future to your team?
    • What are ten specific things you could do to engage individuals more effectively in the work of the team and the organization?
    • How are you encouraging the development of your people?
    • What systems or processes in your area of responsibility need to be changed to enhance performance?
    • How could the areas under your leadership be structured differently to enhance performance?
    • How many of your people would say that you have made a significant investment in their lives?
    • What are the ways you have expressed appreciation for work well done in the last thirty days?
    • What do I want to be true in the future that is not true today?

    These are great discussion questions for peer-to-peer learning as well as mentoring sessions.

    What else? What are some other good leadership development questions?

  • Startup Leadership Book Review: The Secret

    This weekend I finished reading the short book titled The Secret: What Great Leaders Know and Do by Ken Blanchard (of The One Minute Manager fame) and Mark Miller (a VP at Chick-fil-A). Much like the Patrick Lencioni books, it’s told as a fable with the main character going through a leadership mentoring program with an executive at her company. The main takeaway from the book is that leadership is about serving others (servant leadership) combined with the following SERVE acronym:

    • See the Future (vision)
    • Engage and Develop Others (mentoring and training)
    • Reinvent Continuously (try new ideas)
    • Value Results and Relationships (metrics and people)
    • Embody the Values (culture starts with you)

    Forcing each of the items into the SERVE acronym was a bit of a stretch but the core concepts are sound. Leadership, just like any other skill, needs constant work, practice, and development.

    What else? What did you think of the leadership book The Secret?

  • V2MOM Planning Process for Startups

    In Marc Benioff’s book Behind the Cloud he talks about the V2MOM planning process he used at Salesforce.com to grow it into the largest SaaS company in the world. The goal with V2MOM is to create alignment from the CEO through to every front-line employee. V2MOM represents vision, values, methods, obstacles, and metrics.

    A key aspect of V2MOM is that it is done at the corporate level, each department, and each individual. Here are more details of each:

    • Vision – big picture idea for the next 12 months
    • Values – the main 3-5 values for the company
    • Methods – specific tactics to achieve desired goals
    • Obstacles – openly talk about things that are working against success
    • Metrics – key performance indicators

    Again, these five items are addressed by every level and every individual in the organization. Building alignment in a startup, especially as it achieves significant economies of scale is difficult. The amount of communication required grows faster than headcount. V2MOM is a great approach to addressing alignment.

    What else? What are your thoughts on the V2MOM planning process for startups?

  • Notes from the Splunk S1 IPO Filing

    Splunk, a distributed machine data indexing and monitoring application for IT departments, just filed their S-1 IPO paperwork to go public. The IPO process is fascinating, especially the detail with which companies explain their last three years in the S-1 filing. S-1 filings are some of the most detailed, factual information you can read about startups that have achieved strong economies of scale.

    For Splunk’s business model, you can think of it as traditional enterprise middleware software for storing, searching, and monitoring all the log files generated by applications. Software applications, especially web-apps in the cloud, are increasingly distributed across multiple servers making log file analysis very difficult. Splunk solves this problem and many others. It’s a Paul Graham Schlep Blindness business.

    Here are notes from Splunk’s S-1 IPO filing:

    • 3,300 customers as of October 31, 2011 (pg 2)
    • Revenues (pg 2)
      2009 – $18.2M
      2010 – $35.0M
      2011 – $66.2M
    • Key Benefits (pg 4)
      Real-time operational intelligence and visibility
      Compelling return on investment and lower total cost of ownership
      Fast time to value
      Ease of use
      Highly scalable and flexible data engine
      Open, extensible platform
    • Growth Strategy (p4)
      R&D investment
      Sales investment
      Up-sell existing customers
      Build related products
      Grow user and developer community
      Become platform for machine data
    • Perpetual license agreements most common (pg 12)
    • More than 70% of revenues recognized each quarter in 2011 were deals sold that same quarter (pg 12)
    • As of October 31, 2011, nearly half the employees have been with the company less than one year (pg 13)
    • Net Losses (pg 14)
      2009 – $14.8M
      2010 – $7.5M
      2011 –  $3.8M
    • Accumulated deficit of $52.7M as of October 31, 2011 (pg 14)
    • 21% of revenues are from outside the United States in 2011 (pg 17)
    • Splunk is a NetSuite and Salesforce.com customer (pg 21)
    • Sales and marketing offices in Hong Kong, Germany, Singapore, and United Kingdom (pg 47)
    • Splunk is a traditional enterprise software vendor and does not have a cloud/SaaS model (pg 47)
    • Professional services represent 6% of revenue (pg 47)
    • 188 orders of $100,000+ in first nine months of fiscal 2012 (pg 50)
    • $3M term loan from Silicon Valley Bank (pg 60)
    • Equity Ownership Stakes (pg 121)
      Venture capital firms owns 71.5%
      Hired CEO owns 8.1%
      Co-founders own 6.0% and 5.7%

    Overall there were no surprises and everything was representative of a fast-growing traditional enterprise software company. Traditional enterprise software companies are valued around 2-3x revenues, so I expect Splunk to trade at 4-6x revenues due to the high growth rate.

    What else? What are your thoughts on the Splunk S-1 IPO filing?

  • SaaS Leaky Bucket Number

    Software-as-a-Service (SaaS) has a number of important metrics for the business model with one of the most important being customer renewal rates / customer churn. Josh James, the co-founder of Omniture, which was bought by Adobe for $1.8 billion a couple years ago, sent this tweet out last week:

    http://twitter.com/#!/joshjames/status/154644835490463744

    The idea that they’d sign up 1,200 customers per month and have 800 customers leave per month drives home the need to closely watch customer renewals. The ratio of new customers to lost customers is critical and now has a formal name:

    Leaky Bucket Number = New Customers Per Month / Customers Lost Per Month

    Note that it doesn’t take into account the average revenue per new customer vs the average revenue per customer that leaves as well as customer upgrades or downgrades. Generally, it’s a good metric to monitor because it’s easier for people to understand we signed 29 customers and lost 11 customers because it continues to keep the number of lost customers top-of-mind. And, it’s especially important for this number to be greater than one otherwise the startup is losing more customers than it’s adding.

    What else? What do you think of the SaaS leaky bucket number?

  • #1 Failure of Idea-Stage B2B Startups

    Last week I was talking to an entrepreneur about an idea-stage B2B startup. After a few minutes of casual talk I asked for the pitch: tell me about the idea. Now this wasn’t a technology idea, so I didn’t have much experience, but it still didn’t sound right. I wasn’t clear why a business would pay for it and how it would be distributed. A few minutes into the idea I went for the hardest question that represents the #1 failure of idea-stage B2B startups:

    What did 10 potential prospects of this product say when you asked them about it?

    Crickets.

    The entrepreneur hadn’t talked to prospects yet. It’s much easier, and more fun, to get feedback from other entrepreneurs compared to talking to prospects. There’s a fear that the idea isn’t good enough and needs to be refined before talking to prospects. Unfounded. The number one failure of idea-stage B2B startups is not talking to prospects immediately and pursuing customer driven development.

    What else? What are some other mistakes idea-stage startups make?

  • Results Only Work Environments (ROWE) for Startups

    Today’s EO Accelerator quarterly education day was on people and more specifically accountability. As part of the material there was a lengthy discussion on results only work environments (www.goROWE.com). ROWE is the idea that results are what matter, not people being in the office from 8am – 5pm daily.

    Here are some tips when considering a results only work environment for startups:

    • Start with one telecommute day per week for everyone in the office and work through the kinks of everyone being able to work remotely (e.g. laptops, phones, etc)
    • Define the results for every position (the result for some positions is very simple like greet visitors at the front desk between certain hours whereas for others it can be more difficult)
    • Implement a no vacation tracking policy (e.g the policy is two words: be reasonable) as a baby step to ROWE
    • Make meetings optional and see who goes and doesn’t go as a proxy for the quality and value of the meetings
    • Work with one department to be ROWE before rolling it out to everyone else

    ROWE is continuing to grow and expand with startups being one of the best places for them.

    What else? What are your thoughts on results only work environments for startups?