David Cummings on Startups

Blog

  • Bottom-Up Forecast for 2010 Planning

    Three years ago I was at a TAG event listening to one of the more accomplished software CEOs talk about sales. Towards the end of the presentation, he made a statement that has stuck with me to today: build your sales goals for the following year from the bottom up based on your existing sales reps productivity in the current year. If your reps aren’t making quota now, don’t expect them to make quota next year without some serious overhaul. If you need to make a bigger number, don’t have good sales reps in your recruiting pipeline, and have a six month ramp up time before a rep is productive, include that in the model.

    As much as technology companies are driven by cool, ground-breaking products, it really comes down to sales and revenues. My advice for entrepreneurs is to only do bottom-up sales forecasts as part of their planning process.

  • Bonuses Don’t Drive Performance

    I’m of the same opinion of The Globe and Mail article “Bonuses don’t mean better performance” where the author cites several examples in the real world as well as academic research of bonuses not improving output in non-manual labor roles. In my company, we don’t do bonuses, but rather we focus on above-average pay, a great work environment, and positive corporate culture. My line of thinking is that people automatically incorporate the bonus into their standard compensation, and don’t separate fixed from variable pay.

    This strategy won’t work for everyone, but I encourage entrepreneurs to proactively decide on their desired type of corporate culture and compensation strategy, and not just blindly follow the plan from their previous employer.

  • Much Ado About Nothing (re: Competitors)

    Too often, I find first-time entrepreneurs are extremely worried about competitors. Yes, every industry and market has tons of competitors (unless you didn’t do your homework) but the reality is that most markets are big enough to support lots of companies. In addition, competitors usually do one or two things well, at most, and leave other areas for your company to focus. Worrying about competitors is typically much ado about nothing.

    Another key to differentiation is to stay the closest to your customers in your market. This means that the entire company is truly geared towards successful customer relationships, service, and results. Successful clients will talk to other prospects, act as references, and provide invaluable feedback. Only once you’ve lost several competitive deals to a competitor should you dig in and start developing a strategy for that situation. Until then, focus on selling and staying close to your customer.

  • Determining a Sales Quota

    One of the strategies we employ to determine a sales quota is to decide on the appropriate on target earnings (OTE) for the type of sales rep that makes sense for the product and market. OTE is the base salary plus commission for hitting quota in a calendar year. Here are some example OTEs:

    • Sales rep that handles mostly in-bound leads for a product that isn’t too complex: $30k base + $20k commissions = $50k OTE
    • Sales rep that cold calls and works in-bound leads with a semi-complex product: $30k base + $50k commissions = $80k OTE
    • Sales rep that sells a complex product face-to-face with extensive travel: $100k base + $100k commissions = $200k OTE

    Once you’ve determined the type of rep, sale, and desired OTE, backing out the quota based on commissions should be a simple math exercise. My advice is to get OTE right and make commissions fair with no cap on earnings.

  • Hurry Up and Wait

    One of the more frustrating aspects of being an entrepreneur is that of moving faster than those around you. This is due to the entrepreneurial mentality of making decisions with limited information and trusting your gut. We’ve all seen it before: hurry up and wait. This phenomenon is present with many constituents including:

    • Partners
    • Investors
    • Customers
    • Employees

    My advice for entrepreneurs is to have several initiatives in motion such that while you’re moving so fast, and waiting, progress is bound to happen due to the law of averages.

  • Salesforce.com’s Dreamforce Tradeshow

    I’ve just finished up my second day of the Salesforce.com Dreamforce tradeshow and must say that I continue to be impressed with the quality of the event. Salesforce.com’s budget is rumored to be $10 million for this one week conference, and it really shows. With keynote speakers like Colin Powell, bands like the Black Crowes, and 19,000 attendees, there’s sure to be something for everyone.

    My advice for entrepreneurs still stands that tradeshows should be used as business development events whereby you schedule as many meetings as possible with partners, customers, press, and analysts. The chance to meet up with people face-to-face should not but wasted and tradeshows still have a big role, even in our internet-enabled world.

  • Winner Take All Markets

    The famous software blogger Joel Spolsky has a post up Does Slow Growth Equal Slow Death? where he talks about their challenges in the market and the concern that the market they compete in is a winner take all type market. In that type of market, if they aren’t number one, they’ll be marginalize. I’m of the same belief as the 37signals guys in their response to his post Bug Tracking Isn’t a Network Effect Business where they argue there’s room for many successful bug tracking software companies that appeal to different segments of the market, and solve unique problems.

    For entrepreneurs, my advice is to think critically about your markets and whether or not they are winner take all type markets (e.g. eBay for auctions) or if there’s room for several winners. Most markets support many successful companies.

  • Duke Global Entrepreneurship Network

    Tonight I had the opportunity to attend my first Duke Global Entrepreneurship Network (DukeGEN) event at Pier 38 (Dogpatch Labs) in San Francisco. The event was well attended by over 50 Duke alumni and it was graciously sponsor by Duke alum Josh Felser, who previously founded Spinner (sold to AOL) and Grouper (sold to Sony).

    In addition, this is the annual Duke Entrepreneurship Week with many events and speakers on campus. It’s great to see the entrepreneurial spirit alive and well.

    I recommend entrepreneurs get involved in community and networking events.

  • Alternative Funding

    Seth Godin, one of the most prolific bloggers and inspirational marketers, has an interesting post on his blog titled “Debt, equity and a third thing that might work better.” He’s spot on that banks aren’t in the market to take on risk, and thus will only lend against collateral that’s already in place. Another point, which isn’t mentioned in the article, is that equity financing is even more “expensive” now than a couple years ago because of that point about the banks. Only now, it is much worse.

    What I mean is that previously, banks were more apt to lend against capital purchases like new equipment or an acquisition with a smaller amount of money down. At one point is was possible to get up to 12x leverage on money, so a $1,000,000 piece of equipment could be purchased for $80,000 assuming good free cash flow or profits to service the debt. Well, as banks have gotten even more risk-averse, they are requiring 20 – 30% down, if not more.

    This has made it much harder for businesses to finance projects. In turn, the difficulty to get bank deals done has resulted in more high quality businesses looking to raise equity to fulfill contracts or to expand. This has provided investors and VCs more established, less risky investment options with which to choose from, creating even more of a gap in the market for capital for more risky, early stage deals.

    I do think some more dialog on alternative funding and business building strategies is warranted.

  • Mindshare Hook Analogy

    We were going to a restaurant in Atlantic Station for brunch today and my wife mentioned she wanted to stop by H&M. I had heard of H&M before but didn’t have a context for their type of positioning in the market. My wife started describing that they had trendy clothes at really low prices. In my mind, I immediately formed an analogy and said that it’s like IKEA for clothes. She said, “yes, exactly.”

    Developing an analogy is critical for hooking into existing mindshare when explaining a business. Finding a brand or analogous situation makes it easier for people to remember what a business does and how it is positioned. For technology companies, I also recommend making an analog analogy whereby the technology is related to a non-technology company (e.g. when Amazon.com was first launched, it was like the Borders or Barnes & Noble of the web).