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David Stack’s 5 Factors of Scaling Startup Growth From a CFO’s Perspective

Scaling Growth Within a Company

Scaling Growth Within a Company

As the Chief Financial Officer of a startup, driving continual growth is a critical component of the job. In addition to managing accounting, finance, and other areas, focusing on scale is just as important.  One of my early mentors said it best when he asked, “If you don’t think about scale, who will?”

From optimizing your resources to figuring out how to grow revenue while keeping operating costs low, scale is something that any entrepreneur must carefully consider while launching and growing a startup. As a CFO, a big part of my role is helping to guide the constant questions that arise when thinking about scale. Here are five factors to keep in mind as you embark upon scaling your business into the best version it can be.

1. Vision: It’s critical to have an overall and cohesive vision for all of the important staffing, systems, and process decisions that you implement. The impact these decisions will have must be kept in mind for the implementation of your overall business strategy. Hiring a great team or selecting a great ERP won’t ensure success unless there is a crisp vision for how everything will be implemented and managed. Essentially you want to make sure you’re always seeing the forest, and not just the trees.

2. People:  It’s essential that you evaluate staffing plans for the next 12-18 months on a constant basis. Hire “A Players” who understand your vision and are just as excited about achieving its success. You want to have this enthusiasm in your employees, as  there are peak periods of time, such as during fundraising rounds, where the whole team will have to support that effort in addition to performing the normal job requirements.

Beyond talent and enthusiasm, the other key dimension when it comes to building your team is to make sure your staffing plan is aligned with the company’s culture and values.  If you are a data driven company, for instance, you need to ensure that you are building a team that embodies that spirit and embraces that approach.

3. Systems: Similar to your staffing plan, you have to have a plan for all of your internal systems that will cover the next several years.  Evaluating when to upgrade your ERP is the most critical decision you can make.  The key is balancing where you are in the growth cycle, as you don’t want to wait too long to upgrade.  The later you decide to upgrade, the more complex and costly it can be.  Remember that your business management systems should help—not hinder—you. If they aren’t scaling along with you, it’s time to find a better system.

You also need to have an overall plan for all internal accounting and finance systems.  The key part of the plan is to ensure that all other internal systems across all departments will integrate well with all accounting and finance systems.  Having a regular dialogue and standing meetings with cross functional teams can help ensure that decisions are made with full company wide alignment.

4. Culture: As you scale, you’ll add to your team, learn what works, and change lots of things along the way. Stay true to your core values and culture as you grow, and make sure that everyone on your team understands that building for scale is an essential part of your success plan.

5. Scalability:  In order to increase the probability of success and minimize future blockers to supporting the growth of the company, you must obsess about scale! Remember that decisions that are made in the early days can have a far reaching impact in the future.

Pricing is a great example of an area that can have a broad impact on the company as it gains traction and attracts a larger customer base.  Having a focused and straightforward pricing strategy can help to ensure consistency and alignment between Sales, Marketing, Product, Customer Success, and Finance / Operations.  This is essential to help drive positive interactions with customers on an ongoing basis.

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David Stack: How Stock Options Can Help Your Startup Attract and Retain Top Talent

david stack entrepreneurTwitter CEO Jack Dorsey’s recent announcement on giving 1 percent of the company to his employees’ equity pool signals a rising trend among tech startups. Building stock options into compensation packages can be a win-win, because it aligns employees with management and the board of directors.

Empowering your employees with a sense of ownership provides a great incentive to go the extra mile. Partial owners of a company have a vested interest not only in their own performance, but in the long-term success of the whole company. This mindset goes a long way in combating employee churn, helping you to not only attract top talent — but also to hold onto it. Here are five factors to consider when stock options are on the table.

1. Align your mission.

Providing equity to all employees helps to align everyone with the company’s mission and helps to encourage everyone to think more like active owners instead of passive employees. If employees are focused not only on a paycheck but also the future success of your startup, they’ll be more productive and focused on enhancing the company.

Making everyone a partial owner can boost morale and inspire longevity and career growth within the company. It also fosters a collaborative culture. Because the value of stock options depend less on any one person’s efforts and more on leveraging the entire team to succeed, teamwork is in everyone’s best interest.

Read Full Story on Entrepreneur.com

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David Stack: Why Data Storytelling is Essential in the Age of Big Data

David Stack: Why Data Storytelling is Essential in the Age of Big Data

In an age where social, mobile, big data, and the cloud are all converging in new and exciting ways, data storytelling has become more essential than ever. After all, we remember stories, not spreadsheets. A narrative has both meaning and value when it is memorable, personal and impactful. By telling an engaging story with the data to back it up, you’ll be able to reach your audience on an emotional and intellectual level.

4 reasons why data storytelling matters:

1. Stories make data meaningful:

Stories bridge the gap between data science, analytics, and your audience. Whether that audience includes consumers, potential partners or investors, a narrative takeaway is essential to convey how your product or service will solve a particular need. Take the points your spreadsheet wants to convey and embed them within a narrative for a greater lasting impact.

2. Stories tell to sell:

The goal of analytics is often to change how someone makes a decision or takes an action. A story can convey how to get from point A to B more clearly than raw data can—think of it like giving someone a map instead of just a set of coordinates. By showing the destination and how to get there, you are able provide a bridge between raw data and the users who stand to benefit from it. Along the way, you’re also using story to shape your company’s narrative.

3. Stories simplify:

While raw data can be complex and hard to process, putting it in the context of a story boils it down to simple, memorable truths. Data analytics can be too complex for the average audience to digest. Instead, frame those figures in an engaging narrative, and the message will be received loud and clear.

4. Stories crystalize takeaways:

Investors are not necessarily interested in complex data analysis, but rather in the takeaways that speak to a company’s future health. Similarly, consumers don’t care about the back end analytics behind your app; they are interested in how your service can improve their own life in a real and meaningful way. Use data storytelling to put into context the problem that your product solves.

Now that we know why data visualization and storytelling matters so much, let’s take a look at 4 easy ways to improve your narrative:

1. Consider your audience:

Is your story intended for generalists or experts? Consumers or investors? Frame your story by taking into account what the audience already knows versus what they might not yet know.

2. Curate your data:

With so much data available, focus in on the specific data that will help you craft the story you want to tell. In other words, curate your data so the audience can focus on a few, powerful points rather than be distracted by information overload.

3. Be objective:

Present your data objectively to garner audience trust. Use standardized units and don’t let design elements skew the data. Remember, you’re telling a true story.

4. Make it visual:

Go beyond charts and graphs by showing your data in a more visual way. For instance, translating your data onto a physical map gives the numbers real world relevancy while also becoming part of the story. Let your data help you tell the story, not hinder it.

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David Stack’s 5 Commandments of Successful SaaS Startups

David Stack’s 5 Commandments of Successful SaaS Startups

Software as a Service (SaaS) startups will be well positioned for success if they follow these 5 steps:

1. Clearly Define Value

Before taking your product to market, you should be able to easily explain the value you’re providing. What need does your product satisfy? Who are your potential customers and will they be willing to pay for the solution you’re providing? Even if your product is technically complex, you want to have a simplified answer about how it will improve your potential customers’ lives in a very specific way. This will also go a long way toward your marketing campaigns.

2. Look beyond the Freemium

From Dropbox to Github to Zendesk, there’s no shortage of SaaS startups finding major success through the freemium model. If you’re product is good enough to entice a high rate of conversion from free to paid users, it can be a great way to grow. There are a lot of naysayers about the freemium model, though, warning that it’s a costly trap to get stuck with a customer base of freeloaders. To create enough buzz around your product to capitalize on a strong user conversion rate, you should carefully consider which features should be offered in the free model, and which features to reserve for paying customers. Evernote co-founder Phil Libin spoke to the Wall Street Journal about the freemium model, noting that it needs time to work. Fewer than 1% of Evernote’s freemium users became paying customers within a month; after two years, that number was up to 12%.

3. Focus on Product

Especially crucial if you opt for a freemium model is making sure to focus on the quality of your product, from development to design. A recent survey of successful SaaS startups by Groove HQ found an average trial to paying customer conversion rate of 11%. Therefore you want to make sure your free version has low marginal and marketing costs. A simple user friendly product is more likely to attract converters than one that necessitates customer service and troubleshooting. The flipside of this is that you want to avoid the common trap of providing a flimsy free model and a great paid model—the gap between the two is simply too big. Provide users with a useful tool that solves a common problem in a free model, and entice them to upgrade to the paid version with even more great features that they’ll actually want to use.

4. Take Churn Seriously

Now that you’ve built a solid product and hopefully have experienced a high free to paid conversion rate, it’s time to think about churn. You want to keep your paying customers for life. Client acquisition and retention are two different issues that need to be addressed with separate marketing campaigns at the different user bases. Churn is a huge factor in determining company valuation and long term profitability, so make sure you’re tracking churn through cohort analysis and more importantly, offering great customer support to keep churn rates low.

5. Implement Strong Security

The increasing prevalence of sophisticated cyber attacks makes implementing strong security a top priority for SaaS startups. In fact, there’s a growing crop of Security as a Service companies that have grown up hoping to capitalize on this growing need for ironclad server protection. Not only do you want to mitigate attacks on sensitive company data, but also on your customer’s sensitive information. Putting in place strong measures for threat mitigation and security is an important measure in ensuring future customer satisfaction and growing trust in your product.

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David Stack: Conquering 3 Common Challenges Faced by SaaS Startups

David Stack: Conquering 3 Common Challenges Faced by SaaS Startups

As an ever-growing number of companies shift to Software as a Service (SaaS) models for their infrastructure needs, a growing number of entrepreneurs have taken their startup ideas to the cloud, offering solutions to everything from customer service to supply chain management. The cloud computing model makes a lot of sense, considering it’s more affordable, scalable and reliable than traditional onsite IT. SaaS aims to simplify functionality so that a company or individual can drive their service with a dashboard (as opposed to needing an advanced computer science degree). It’s an exciting time to be launching a SaaS company, but like any endeavor worth doing, achieving success doesn’t come without its challenges. Here are 3 common hurdles faced by SaaS startups looking to create sustainable growth and profit, along with insider tips on how to overcome them.

1. Conducting Cohort Analysis

There’s a lot of data to analyze when trying to get a SaaS startup off the ground, but some of the most important information to be gleaned comes from cohort analysis. Cohort analysis takes the data from a given platform or application and rather than looking at all users as one unit, it breaks them into related groups for analysis. This provides great metrics on improving user onboarding, free trial conversion rates, churn, and customer lifetime value. With payback periods often longer than startups would like, it’s essential to retain as many early free-trial customers as possible. Converting these free trial members to lifelong paying customers will ensure profitability.

Gartner has found that 80% of your SaaS startup’s future revenue will be generated by just 20% of your current customer base, meaning it’s critical to identify the correct 20% as early as possible. Cohort analysis is the best way to do that. Check out this great lesson from Nick Franklin of ChartMogul on how to easily calculate your startup’s trial-to-paid conversion rates, and how to improve them. Cohort analysis can also be used to help you find takeaways about product acquisition by device type and user language. For a more in-depth discussion of forward thinking cohort strategies, check out Mode Blog’s post.  Hubspot also has a great post on cohort analysis with a free trial conversion rate template.

2. Onboarding Users

Another common hurdle in SaaS territory is onboarding users through free trial conversions. The goal here is to have as little product abandonment and churn as possible. Successful SaaS startups convert a high percentage of free trial users for long-term paid recurring subscriptions. So how do you do this? Your free trial should demonstrate to a potential subscriber why they need your product in their life. It should do so in 5 minutes or less. To do this, your user interface should be designed to communicate sufficient value for a customer to convert to a paying user. To do this, you need to be able to define what success looks like for your customer base. What are they hoping to achieve through your product? What’s their desired outcome in using it? Identifying these desires will help you achieve a higher trial conversion rate. Useronboard.com is a great resource to study the onboarding processes of successful startups that have come before, from Apple Music to Twitter. This post on growth hacking site conversionXL contains helpful tips and tools for optimizing your customer onboarding process and tracking it through funnel analytics. The bottom line is that your company’s profitability depends on converting a high rate of free trial users into lifetime subscribers.

3. Creating Buyer Personas

Buyer personas are fictional, generalized representations of your ideal customers that are a key tool in inbound marketing efforts. Creating personas is essential for understanding and attracting the kinds of customers you want. From product design to marketing, having a deep knowledge of the audience you’re targeting allows you to tap into the narrative you want your company to tell. Pulling users into your story leads to greater engagement, which leads to more growth. So who are your ideal customers? What are their buying habits? Their backgrounds? Their pain points? The more info you compile on them, the better. Strong buyer personas are based on market research as well as insights you gather from your actual customer base through outreach like conducting surveys and interviews. The Hubspot blog has a free template you can download to create buyer personas. Get to know your ideal customers like the back of your hand, and you’ve got a much better shot at speaking their language.

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David Stack’s 5 FAQs About Serving on a Startup’s Board of Directors

David Stack’s 5 FAQs About Serving on a Startup’s Board of Directors

Last April, I gave a presentation to the employees at BrandYourself, where I serve on the Board of Directors. We were talking about creating a strong company culture, but I also wanted to give members of this growing online reputation management service a sense of what happens on a Board of Directors. I thought they might be curious about the kinds of business decisions that come into play when advising a startup for long-term growth and profitability.

One of the exciting things about talking with people who choose to work at startups over larger companies is how curious they are about all parts of the company. There’s a refreshing sense of transparency in the startup world, where it’s often all hands on deck. As such, I came away from meeting with BrandYourself employees impressed by the questions they had asked. What follows is a distillation of our discussion, with answers that I’ve been able to reflect on more in my continued role as a board member since then. I thought the resulting dialogue would be of interest to others in the startup world who may be looking to assemble a great Board of Directors or simply to consider entrepreneurship from another perspective.

1. How has your finance background been useful in assessing the viability of startups?

In addition to understanding the fundamentals of a company’s financial statements, it is critical to understand key metrics associated with SaaS (Software as a Service) companies.  The key dimensions I focus on are the size of the market opportunity, the quality of the management team and investors, the quality of the product, and the metrics / unit economics.   It’s ideal to have strong indicators across all of those dimensions.

2. Tell us about your role as CFO at HubSpot, where you supported the company’s rapid growth from a Finance and Systems perspective.  

In the early days when I joined, HubSpot had 30 employees and was at a $1M revenue run rate.  I was tasked with building out the accounting and finance team, along with managing the rest of G&A including HR, Legal, Facilities, etc.  In addition a key responsibility was putting together the vision for accounting and finance systems that integrated with the company’s infrastructure.  Hiring a great staff to help execute on the system’s vision was critical. Meeting all of the accounting requirements—like successfully completing the annual audit—was another big milestone along the way.  By executing these plans with a lot of hard work, we were able to support the company’s growth to $100M in revenue and 700+ employees during my tenure.

3.  How did you come to be on the board of reputation management start-up BrandYourself, and what has that experience been like?  

I was introduced to a BrandYourself BOD member via a mutual colleague who was an investor in my company.  BrandYourself was looking for an independent BOD member who had experience in supporting the rapid growth of a SaaS company and also has knowledge of the Marketing space.

4. Can you share an insider tip on turning a great idea into a successful business with a sustainable business model? Maybe something that you feel is not done enough in the world of startups?  

An old adage that folks always cite but often times don’t execute is to hire people that are smarter than you.  That is a huge focus of mine when building out teams to help support the rapid growth of software companies.

5. How do you see a CFO’s role in shaping the short and long-term success of a tech startup?

In addition to managing all of the blocking and tackling related to the accounting and finance teams, the CFO must also be skilled at being the liaison for all of G&A during the early years.  The most critical way a CFO can help impact a company’s ability to scale is by focusing on supporting the Operational and Strategic decision making within the company.  By being a strong business partner to the CEO and the rest of the management team, a CFO can really make an impact and help the company achieve those goals.

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David Stack’s 6 Factors to Creating a Great Board of Directors for Your Startup

David Stack’s 6 Factors to Creating a Great Board of Directors for Your Startup

In recent startup news, the virtual assistant startup Zirtual went from a bustling company with over 400 employees and more than $5.5 million in funding to a ghost town overnight. Without warning or explanation to employees or customers, Zirtual shut down all of its operations in the middle of the night on August 10. While business model scalability and quickly changing markets are major challenges for startups, it also highlights a larger issue in the sink or swim world of startups—the need for a rock solid board of directors steering the ship.

Every startup hopes for success, but long term sustainable growth and profitability is far from a given. Startups that do achieve long-term success all have one thing in common: they seek out and follow the guidance of a well-rounded board of directors whose knowledge, experience, and perspective shapes the direction of the growing startup. The board might not get the limelight often, but its crucial role is to make decisions on behalf of stockholders for the good of the company, while also advising the CEO.

Most U.S. based startups have boards with a unitary structure with an odd number of directors for voting purposes. While the specific needs of a startup’s board will vary depending on what stage of growth it’s in, as well as whether it’s public or private, here are six factors to consider when forming a BOD for your startup:

  1. Start Early: While establishing a board of directors is required by law when startups begin looking to raise outside capital, it’s a good idea to build the board framework early on, because it signals to potential investors that you’re serious about success. Longtime entrepreneur and venture capitalist Brad Feld shares useful advice on this topic in a Wall Street Journal article: “While you’ll often get advice to just have a ‘board of advisers’ at the beginning, I’ve found that the formality of a board of directors is helpful to the entrepreneur by creating an additional level of commitment from the directors.”
  2. Think long: Choose advisors whose past experience can influence where you’d like your company to be in six months, a year, two years—you get the idea. Seek out directors with experience scaling growth and revenue, rather than ones who may have previously only worked with early stage startups.
  3. Leverage your Networks: If you’ve always looked up to a successful entrepreneur or mentor in your field, consider asking them to be on your board. Leverage your investors’ networks, too: like all relationships, creating a good Board of Directors requires chemistry that’s best honed in real life, by cultivating word of mouth recommendations or existing relationships. Even if your startup is built entirely in the cloud, keep your feet on the ground with real life advisor relationships that you can trust. 7975205041_2c198e09d9_k
  4. Fill Your Weak Spots: Play to your strengths by addressing your weaknesses, and seek board members who excel in the areas where you do not. If product design or business development are your strengths, great, but you’d do well to seek out seasoned experts in raising capital, advising investors, and any of the other key factors to startup success that are not your forte.
  5. Consider Culture: Not all startups are founded by your stereotypical jeans and t-shirts wearing computer genius types. While many startups embrace a more laid back work culture, your board members should create harmony with the personalities and values of startup founders. Finding a good fit from a cultural standpoint will help keep the lines of communication open and easy.
  6. Embrace Change: Successful startups change fast. Ideally a board of directors keeps pace with dynamic changes and continues to advise your startup accordingly, but realize that changes to the board are normal in startup territory. As your startup grows, so too should your board. And as your board grows, the individual stake and voting power of each member decreases, meaning it’s essential that every member of the board act with the company’s best interests in mind. Board members might step down as the company grows in a new direction or receives new rounds of funding. If you find yourself needing to fill a board seat along the way, consider the factors mentioned above. Likely your long term vision will have shifted since you launched your startup. Your network has probably grown. You may have identified additional weak spots. And your company culture may have changed along the way. Use change to your advantage as you ride the wave of your startup’s success.

Remember that a successful startup is only as strong as its board of directors. According to a new posting on Zirtual’s website, the company has now embraced a more transparent approach, with an FAQ page about how and why they ran out of money, and how they are reopening under acquisition by startups.co. Putting in place a stellar board of directors is a great way to mitigate roadblocks like this at your startup.

Image: Flickr/Reynermedia

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