Monthly Archives: August 2009

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A little while ago, we had a great guest post here by Jason Cohen titled “Why
Your Startup Shouldn’t Copy 37Signals or Fog Creek”.  In it, Jason makes
some great arguments on why you shouldn’t copy successful startups like 37signals.  I (mostly) agree with Cohen.  Blind
copying just doesn’t work for reasons Jason Fried (CEO of 37signals) outlines in
a follow-up article. 

Here’s what Fried had to say:

“Here’s the problem with copying: Copying skips understanding. Understanding
is how you grow. You have to understand why something works or why something is
how it is. When you copy it, you miss that. You just repurpose the last layer
instead of understanding all the layers underneath.”

I (mostly) agree with Jason Fried too.  When you copy, you do miss a lot of
what made what you are copying successful.  But, although copying specific
things is ill-advised, drawing inspiration from and copying certain
practices can often work quite well. 

Here are the things I think you should copy from 37signals:

1.  Share your expertise.  Whatever it is you are passionate
about or an expert in — share your information.  Contribute to the community. 
Help others learn.  Blog, podcast, speak — whatever works for you.  Jason and
the 37signals team are phenomenally good at this.  They blog, they speak, they
wrote a fantastically practical
book.

2.  Be your own customer.  Try (if you can) to eat your own
cooking.  A product works out much better when you use it yourself.  Solve your
own problems.  Fix the things that annoy you the most.  Beyond just 37signals,
there are lots of examples where people built software that succeeded in part
because they use it themselves.  GMail comes to mind. 

3.  Minimize unused inventory.  Don’t write a bunch of code
that not a lot of people are going to care about and you don’t need
today.  We have a tendency to “design for the future” and add features
or architectural elements with the expectation that they’ll be useful someday. 
Wait for that day.  You might “overpay” if/when you do get around to needing it
(because it’s more expensive to add things later), but on average, you’ll be
better off not writing that code that you don’t need just yet.  This is not an
excuse for poorly designed software — it’s an argument for being selective as to
where you design in future expansion. 

4.  Take a stand.  Have an opinion and take a stand. 
37signals does a great job with their “less is more” stance.  They have a
passionate position and are willing to defend and debate it.  You don’t have to
take extreme positions on everything, but there should be something you feel
passionately about that you don’t just pick a happy, non-controversial
middle-ground.  Ideally, it’s this particular idea that your startup is centered
around.

5.  Charge early, charge often.  There is no shame in
putting a price on your product.  Doesn’t matter how early it is. Just give
customers an easy way out.  Let them decide whether your product is
worth paying for.  If not, keep cranking.  Too many startups feel like they need
to have the “perfect” product before they can begin charging for it.  That’s
almost always a mistake.  Charge early.  Once you start charging money, all
sorts of good things start to happen (for example, customer feedback starts to
happen, because you actually have customers).  Then, try to charge as
often as possible.  Instead of “big chunks” of money changing hands, try to move
to smaller, recurring chunks.  Many SaaS businesses function this way (with some
sort of subscription or “pay by the drink” model).  It works.

6.  Contribute Some Bits Back:  As you know,  David Heinemeier Hansson, a
partner at 37signals is responsible for the phenomenally successful Ruby on
Rails.  This benefits them more than the “positive karmic loop” thing.  By
contributing to the open source community, they’re able to leverage the power of
that community and make the platform they use for their own stuff much better. 
But, please don’t misunderstand me.  I’m not suggesting you should go out and
try to build some platform/framework.  In fact, please don’t try and go
do that (99.9% of us should not be obsessing over building platforms/frameworks
— particularly folks like you and me).  Just find ways to contribute
back — even if they’re small ways.  It’ll help in at least two ways:  You’ll
develop better stuff and you’ll attract better people.

7. Build A Community:  Software companies these days
are about more than just the product — they’re about the people around the
product.  This includes both those that built the product’s users.  Invest the
time and energy to foster a vibrant community that connects the people that care
about you, the company and the products.  Allow customers to engage with each
other.  This is useful not just from a “more value in the software” perspective
— but it also helps with respect to competition.  If a big, 900–pound competitor
comes after you some day, it might be easy for them to build some of your
product features, but it will be much harder for them to steal your
community.   

Are you a 37signals fan?  Did you read “Getting Real”?  If so, what other
practices or philosophies do you think they use that most other startups should
emulate? 

Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  130,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter: @dharmesh.

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I’m going to go on a bit of a rant here.

I’m miffed that the industry term for the process whereby  startups invest
in building their businesses is called “burning cash”.  If your startup is
burning cash (as shown in the cartoon above), you’re doing it wrong.  You
should’t be burning money, you should be investing money —
with the goal of growing your business.

I find it interesting that when venture capitalists (VCs) take money from
their limited partners (LPs), they don’t say:  Hey, we’re going to take your
money and go burn it on a bunch of different startups.  Why?  Because
that’s not what they do (not the good ones anyways).  What they do is
invest the cash in the hopes of generating a good return.

So, I’m going to ask that all startups that have raised funding to no longer
use the term “burn rate”.  Instead, lets call it what it is (or should be):  An
investment rate. As in “our startup has an investment rate of about $400k/month”.

Oh, and if you really are burning cash, please start using smaller bills. 

Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that’s @dharmesh).

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First off, just to be clear, I’ve never been a sales person.  I’ve never even played a sales person on TV.  All the points below have been pulled from startup sales teams that I think work pretty well (including the team at my marketing software startup).

Building Startup Sales Teams

1.  Don’t hire sales people too early.  In the early days, the founders should be able to sell (and should be selling).

2.  You don’t need sales people, you need sales.  Don’t think VP of Sales — think “Revenue Engineer”.  (Not the greatest analogy, but just like you won’t hire a development “manager” as one of the first 5 people in a startup, you shouldn’t hire a sales “manager” either).  Don’t get caught up in fancy titles — focus on dollars in the door.

3.  Don’t hire several sales people at once.  Your goal is to figure out the “pattern” of what kinds of people are best based on what you’re selling and who you’re selling it to.  You need some feedback from the system so you can continue to iterate on your hires.

4.  If you’ve never hired or been around sales people before, be prepared for a bit of a shock to the system.  They’re not bad people, they’re just different.  If you’re an introverted geek like me, it’s helpful to remember that your startup needs to sell stuff.

5.  Resist the temptation to create complicated compensation plans.  If it requires a spreadsheet to figure out the commission, it’s too hard.  You’ll have plenty of time to confuse sales people later — start simple.

6.  Agile methodologies can work in sales as well.  Iterate!  Refine your demo script, your slides, and any other collateral information.  Capture the lessons learned by the best-performing people and spread it to the rest.

7.  Sales people will generall act in mostly rational (but often surprising) ways based on incentives.  The rules of the game defines the behavior of the players.  You were warned.

8.  ALWAYS connect incentives somehow to ultimate customer happiness.  If you reward just “deals getting done”, you’ll get deals — but at too high a price.  You might get push-back that sales people don’t control/influence customer happiness, but they do.  They “pick” customers, they set expectations, they control the degree of “convincing” applied.

9.  Make sure you understand the economics of your business.  Figure out your total COCA (Cost of Customer Acquisition).  This includes sales people, marketing people and marketing campaigns.  Quick example:  Lets say you paid a sales person $10k, a marketing person $10k and you spent $5k on Google AdWords (for a total of $25k) last month.  If you sold 10 customers last month, your COCA is about $2,500.  Different businesses have different needs in terms of sales vs. marketing spend.  Make sure neither is too far out of whack.

10.  Your life-time-value (how much revenue you expect to generate per customer) should be higher than your COCA.  No, I did not need a degree from MIT to figure that out.  Once your LTV is a multiple of your COCA, you’re ready to start turning the knob and scaling the business a bit (hiring more sales people).  But, if your LTV is way lower than your COCA, proceed with caution.  If there is no hope for LTV getting higher than COCA, you’ve got a problem.  Don’t try to hire additional sales people until the economics sort of make sense.  If the car is pointed towards a brick wall, hitting the accelerator is not a good idea.

11. Track data maniacally (even if it’s just in a spreadsheet).  Information you will want includes:  What was sold, who sold it, when, for how much, etc.  This data will be invaluable later as you start to scale.  For example, you should be able to answer the question:  We had 14 customers cancel last month — who sold those customers?  Is there a pattern?  In the early days, you likely won’t have the volume (or the time) to analyze the data — but you should at least capture it for future use.

12. Your pricing should be in line with your sales structure.  For example, you can’t expect to have an outside salesforce (that meets with customers in person) if your average deal size is only $10,000.  The math won’t work. 

13. Once you get beyond three or so people, running your sales in a spreadsheet will become painful.  Start looking at CRM systems (like Salesforce.com). 

14.  Start watching the shape of your “funnel” as early as possible.  How many leads are you getting a month?  How many turn into opportunities?  How many of those convert into paying customers?  Once you understand your funnel, you can slowly start tweaking your system to fix the “leaks”.

That’s all I’ve got for now.  For those of you that have built early-stage sales teams, what are your ideas and insights?

Looking for other startup fanatics?  Request access to the OnStartups LinkedIn Group.  100,000+ members and growing daily.

Oh, and by the way, you should follow me on twitter here (that’s @dharmesh).

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