David Cummings on Startups

Blog

  • 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).

  • Startup CEOs Should Sell Deals

    Continuing the sales rep theme from yesterday, one of the topics we debated earlier this week at the EO Accelerator group was that of the startup CEO selling to prospects. Startup CEOs wear many hats, and sales should be one of the top priorities. This is particularly applicable in consulting companies where it is more of a partner-type sale requiring extensive domain expertise in addition to building trust and rapport.

    One of the sentiments at the meeting was how difficult it is to both sell new deals and continue to manage the day-to-day operations. When the topic of hiring sales people came up, everyone lamented about how they’ve never had success bringing on a business development person. My advice to entrepreneurs in this position is simple: hire an appointment setter and relationship coordinator to enable greater economies of scale with the partner-level selling. Expecting someone to come in and be as effective as the CEO at selling isn’t a reasonable expectation, but setting up processes and people to make the CEO more successful at selling until the business reaches a point where the CEO is no longer needed for that role is a strategy I recommend.

  • Sales Reps, Sales Reps, Sales Reps

    I’ve been hearing a good bit of discussion lately from entrepreneurs that are looking to find talented sales people to help take their businesses to the next level. Finding good sales reps is hard. Finding good sales reps is even harder in this economy. Why? The best sales reps are confident in their ability to sell, love nurturing relationships with people, and are almost never out of work.

    Entrepreneurs, myself included, have a tendency to think that just hiring more sales reps is the easiest lever to pull to accelerate growth or profitability. My gut says there are many more short term, readily identifiable ways to grow sales or profitability, and these should be exercised before hiring sales reps. Here are some quick ones:

    • Increase prices
    • Fire unprofitable clients
    • Collect payments faster
    • Ask suppliers for a discount
    • Ask vendors for longer payment terms

    Look for ways to grow sales and margins in current processes, and then expand sales and marketing.

  • Goal Setting

    Towards the end of today’s meeting with the EO Accelerator accountability group that I mentor on a monthly basis, we got into a discussion about goals. We went around the table in my office and I quickly realized that almost none of the entrepreneurs there (five not counting me) set goals for the month, quarter, or year — I was very surprised.

    As a group, we decided to set three objective, numeric goals in our businesses for this quarter and next. At our December meeting, and meetings going forward, everyone will share their progress report towards the goals. In my company, we set our goals on a quarterly, annual, and three year basis as part of our one page strategic plan. My advice is to do a one page strategic plan, update it quarterly at an off-site, and make it part of the company routine.

    Note: For companies with fewer than 10 employees, I’d still set quarterly and annual goals, but not worry as much about all the details in the one page strategic plan.