David Cummings on Startups

Blog

  • An Accountability Hack for Teams

    Following up with yesterday’s post 6 Steps to Build a Culture of Accountability, and the common response that it requires too much effort, there’s a simple accountability hack team managers should employ: run the weekly team meeting with a Google Sheet or project management system like Trello, Basecamp, or Asana. I know one entrepreneur that runs each leadership meeting with Asana open, every key project on display, and a general “Management” project where any action items that come up from the meeting are recorded as tasks. This level of accountability seems so simple yet few managers do it.

    As a starting point, make a Google Worksheet with two sheets:

    • Projects
      • Name
      • Description
      • Owner
      • Status
      • Done? Y/N
      • Due Date
    • Action Items
      • Name
      • Owner
      • Done? Y/N

    The “Done? Y/N” columns in each sheet make it easy to sort that column alphabetically and see what’s open and what’s complete.

    Managers would do well to follow this simple accountability hack and do a better job of holding each team member accountable. Remember the old adage: what gets measured gets done.

    What else? What are some more thoughts on this simple accountability hack for teams?

  • 6 Steps to Build a Culture of Accountability

    One of the challenges most entrepreneurs face is building a culture of accountability. As much as we want everyone to own their results, most employees can’t answer the three basic questions (who’s my boss, what’s my job, how do I know if I’m doing well). After many years of trial and error, here are the six steps I’ve learned to build a culture of accountability:

    1. Start by answering the three basic questions for every employee
    2. Decide on 3-5 operational metrics with goals that each employee owns and reports on weekly (e.g. story points, calls made, appointments set, marketing qualified leads generated, customer satisfaction scores, billable hours, revenue, etc.)
    3. Review the employee’s day-to-day/week-to-week work at a daily check-in or weekly team meeting along with their metrics
    4. Provide a central system (like a Google Sheet KPIs Dashboard) for each department with everyone’s metrics so that there is peer accountability and visibility
    5. Analyze the personal goals on a quarterly basis as part of the quarterly check-ins
    6. Tie everything together with the Simplified One Page Strategic Plan and help each employee understand how their goals align to the company’s goals

    While this process seems straightforward, very few entrepreneurs actually implement this type of system. Why? It’s requires a tremendous amount of ongoing leadership and management, and most entrepreneurs don’t understand the value. The next time an entrepreneur expresses interest in growing faster and scaling more efficiently, ask them about their existing culture of accountability.

    What else? What are some more thoughts on these six steps to build a culture of accountability?

  • Video of the Week: Tools are Bought, Transformations are Sold – Dharmesh Shah

    Dharmesh Shah, co-founder of HubSpot, has a great talk up titled Zero to IPO: Lessons From The Unlikely Story of HubSpot. As he mentions in the post, the most popular slide says “Tools are bought. Transformations are sold.” That’s been my experience as well and prompted the New Product Categories Require Salespeople post.

    Head on over to OnStartups and watch the video of the week. Enjoy!

  • Moving from General Tools to Prescriptive Solutions

    One of the biggest trends for SaaS over the next five years is new products that offer prescriptive solutions in place of general tools. What I mean is that there are a number of well-defined categories like CRM and ERP that are essentially customizable front-ends to specialized databases (e.g. CRMs are mostly contact management databases). These new products are still going to have the specialized database behind the scenes, but the front-end is more of a business process management system that actually tells the user what to do next.

    Let’s take a look at SalesLoft (disclosure: I’m an investor) as an example of a prescriptive solution:

    • Configure a multi-step cadence that outlines the business process (e.g. flow of emails, phone calls, social outreach, etc. over a period of time)
    • Based on the sales rep’s role, the cadence tells them exactly what to do and feeds up the next activity for them to perform (e.g. call this person now and it has an auto-dialer to dial the phone for them — the software holds their hand)
    • Activities are constantly analyzed in an effort to improve the process and make the sales reps more successful

    Now, compare the prescriptive solution to a standard contact management tool. Contact management tools have the specialized database with contact info, lists of people, etc. but they are merely databases where the user has to figure what to do and how to best interface with it, not business process engines. Look for more prescriptive solutions to emerge that make people much more productive at specific functions.

    What else? What are some more thoughts on moving from general tools to prescriptive solutions?

  • Reported Startup Valuations are the Post-Money Amount

    Several months ago I was talking to an entrepreneur that was out raising a Series A round. WIth over $1 million in annual recurring revenue, the prospects of raising money were good. Only, the entrepreneur was referencing revenue multiples from other startups that had published revenues and valuations without subtracting the amount of money raised from the valuation (e.g. Buffer had $4.6M in ARR and raised money at a $60M post-money valuation). When talking about valuation multiples, it’s important to separate the amount raised from the reported valuation to understand the actual revenue multiple.

    Here’s an example:

    • Startup has $2M in annual recurring revenue
    • Startup raises $5M and has a published valuation of $20M
    • Startup didn’t raise money at 10x recurring revenue, rather the startup raised money at 7.5x recurring revenue as the pre-money valuation ($15M) and then $5M of capital was added to the business for a post-money valuation of $20M

    When reading about revenue and valuations, it’s important to back out the amount of capital raised to get the actual revenue multiple.

    What else? What are some more thoughts on reported startup valuations being the post-money amount?

  • The SOP Continuum

    One of the reasons startups are able to beat large incumbents is that they can move faster and stay closer to the customer. Only, as the startup grows, more process and bureaucracy is introduced as people specialize in smaller and smaller functions. I like to think of this as the SOP Continuum:

    Seat Of Pants (SOP) <———-> Standard Operating Procedure (SOP)

    • Seat Of Pants – Everything is done on the fly. Nothing is documented. Action is fast but quality and consistency can suffer.
    • Standard Operating Procedure – Everything has a process and documentation. Things are done as quickly as the plan allows and bottlenecks can be common. Consistency is high.

    Entrepreneurs would do well to pay attention to the SOP Continuum in their own companies and find the right balance based on the stage of the business.

    What else? What are some more thoughts on the SOP Continuum?

    Thanks to Karen from One Team Consulting for the idea.

  • 2 Most Important Lessons Learned as an Entrepreneur

    Earlier today I was talking to several college students at the Atlanta Tech Village and one of the people asked “what’s the most important advice you have for these budding entrepreneurs?” Easy, I said, here are the most important lessons I want every entrepreneur to know:

    1. Stay Close to the Customer – Too many entrepreneurs fail by building a product without customer input from the beginning. The challenge of finding product/market fit is real, and even if you find it, you can lose it. Forever, it’s important for entrepreneurs to stay close to the customer.
    2. Culture is King – People like to debate what’s most important: shareholders, customers, or employees. The answer: employees. How do you attract and retain great people? Build a great culture.

    Yes, there are a number of other important lessons I’ve learned as an entrepreneur but these are easily the two most important. While these two ideas sound pretty straightforward, most entrepreneurs fail before they can appreciate them.

    What else? What are your two most important lessons learned as an entrepreneur?

  • Performance-Based Equity for Semi-Active Business Partners

    Over the years I’ve talked with at least three different entrepreneurs that have given away a large chunk of equity to a semi-active business partner (non co-founder) only to have the involvement not meet expectations. Now, I’m talking about a role similar to an advisor where the person will help out but doesn’t invest any cash and doesn’t have a committed number of hours per week in the business. Whenever I hear this I ask why they didn’t make it a performance-based equity plan and, naturally, I get a blank stare. A performance-based equity plan is just what it sounds like: equity vests when certain goals are achieved (e.g. when you deliver X million in deals, you get Y percent of the business).

    Here are a few thoughts on performance-based equity for semi-active business partners:

    • Never give away equity in a startup without expectations being clearly defined (this isn’t limited to semi-active business partners as it’s also applicable to advisors and consultants)
    • Always have a buy/sell agreement that defines what happens if someone leaves the business
    • Similar to a vesting schedule, provide a schedule for the performance-based equity such that once a milestone is met, more equity vests (e.g. achieve X and 1/3rd vests, achieve Y and the next 1/3rd vests, and achieve Z and the final 1/3rd vests)
    • Know that if the person doesn’t want the equity to vest based on performance, they aren’t likely to deliver (if they’re confident in the value they’ll add, they’ll agree to a plan)

    My recommendation: make equity performance-based before bringing on a semi-active business partner. If the partner delivers the value, everyone will be happy. If the partner isn’t able to deliver the value, the startup retains the equity.

    What else? What are some more thoughts on performance-based equity for semi-active business partners?

  • 5 Sales Tips for Seed Stage Startups

    After talking to many entrepreneurs, I’ve found that one of the co-founders (usually the CEO) sells the product to the first 25+ customers (ideally 10 Unaffiliated Customers). Once the startup raises money, or starts generating enough revenue, the most common next step is building out a sales team in search of a repeatable customer acquisition process (see tips going from product/market fit focused to customer acquisition focused). Here are five sales tips for seed stage startups:

    1. Decide if inside sales makes sense
    2. Build a sales playbook
    3. Develop an ideal customer profile
    4. Hire sales reps in pairs
    5. Follow Predictable Revenue using SalesLoft
    6. Bonus: Resist the temptation to hire a VP of Sales

    For entrepreneurs where sales comes naturally, this part is fun and exciting. For entrepreneurs less comfortable with sales, this part is incredibly hard. Regardless, use these five tips and increase the chance of sales success.

    What else? What are some more sales tips for seed stage startups?

  • Video of the Week: Godfather of SaaS Jason Lemkin

    In honor of the SaaStr annual conference, our video of the week is Jason Calacanis interviewing the Godfather of SaaS, Jason Lemkin. Enjoy!

    From YouTube: Jason sits down with the “Godfather of Saas,” Jason Lemkin, to discuss everything from the SaaS (software as a service) industry to angel investing criteria, from Lemkin’s current venture Saastr, to what the field has in store. We learn about the history of SaaS, why we owe a huge debt to Salesforce, and why so few enterprise customers “try before they buy.” The two Jasons further discuss Microsoft’s foray into SaaS, why “lockin” is a myth, the successes of — and differences — between Slack and HipChat, Lemkin’s SaaS investments (including Talkdesk, Algolia), why founders don’t make great VCs, Lemkin’s criteria for an investment (hint: the founder has to be better than him) and Lemkin’s advice on lifetime value to budding SaaS startups. Finally, the Jasons posit what would happen if Google or Microsoft came out with a free Slack competitor (protip: do not get arrogant about your engineers), the hurdles in monetizing a free product, why an acquisition might cost nothing for a big tech company, the mistake many companies made in 2008 and 2009, why choosing the celebrity investor isn’t always the best idea, the sheer volume of startups today — and much more.