Quota is not a dirty word

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“We are ALL in sales” – Dale Carnegie

I used to think that quota was a dirty word. It struck me as restricting freedom and potentially forced the exploitation of trusted customers and prospects to drive the bottom line results. But I was wrong. In reality, a quota is a number that is useful to incent certain behaviours. The trick is to incent the appropriate behaviours. It is a contract between a sales person and an organization about how to compensate behaviours based on outcomes.

“Quota is a direct path to clarity and accountability.” – Shawn Yeager

So many entrepreneurs can benefit from contracts with defined outcomes. I was chatting with a startup last week about the numbers he agreed to with his VC to unlock the next tranche of funding. He mentioned that he wasn’t going to meet the numbers, but he still expected the VC to unlock the funding. My advice to him was very straight forward, it was to figure out how to achieve the agreed to numbers, or immediately open a conversation with the VC about missing the numbers due to changing market conditions and see if the tranche can be renegotiated. In the case of this entrepreneur, the numbers were in the funding contract, and I fully expected the VC to hold the entrepreneur to deliver on these numbers. The numbers and metrics exist to help assess the risk and the ability of an entrepreneur to deliver.

The secret with an early stage company is to set appropriate metrics, quotas and growth numbers that incent the correct behaviours out of entrepreneurs. The good news is that there are a lot of examples of SaaS, B2B and consumer metrics that can be used.

There are a lot of different sources of metrics and numbers. Each of the numbers needs to be considered in corporate revenue goals, past historical performance, current product development stage, market share, budget, etc. The targets and growth numbers need to be established.

I’ve taken to requiring all of the startups I mentor, to establish 3 metrics that we discuss in our mentorship meetings. Each of the metrics must be clear enough for me to understand, for example:

  • Number of paying customers
  • Number of registered users
  • Churn rate
  • Number of pageviews or unique visitors

And each metric should have the current measurement, the predicted growth rate and the actual target number. I try to start each conversation around the metrics. And any issues related to the market conditions, learnings, corrections, etc. Then together we set the targets as part of the planning for the next meeting. This may include a redefinition of the metrics. The trick for me as a mentor is to try to help identify what metrics I think are most useful for the startup and founder to focus on next.

What are the metrics other entrepreneurs track? How do you set your targets and quotas?

What are the metrics and growth rates that investors like ExtremeVP, Real Ventures, iNovia Capital, GrowthWorks, Rho and others want to see from prospective early-stage companies?

  • http://davidcrow.ca/ davidcrow

    I really like the sales metrics from StartupDesi about sales metrics. 

    http://startupdesi.com/2-metrics-to-measure-start-up-performance-million-days-goal-days/

    The goal is to hit $1MM/year in revenue. This is a breakdown of daily sell rate + stretch days to hit this target (target $2,857/day * 350 days/year = ~$1MM in revenue). You can then measure your performance against this number. 

  • http://chill.ly Max Cameron

    Hey David, 

    Nice post. I just published a post on our blog about the metrics we’re looking to achieve by the time the Chill.ly beta is released. I was planning on talking with my co-founder about re-evaluating the number of signups I committed to getting on board, but after reading your post I think I’ll just bite my lip and keep hustling. 

    http://bigbangtechnology.com/post/experiments_in_early-stage_customer_acquisition_esca

    Best

    Max

  • http://startupcfo.ca/ Mark MacLeod

    Hey David, when you boil this down it’s about setting goals. Individuals that are goal-driven out execute those that are not. Every time! Same thing for teams. Same thing for companies. How do you know what’s possible if you don’t push yourself? And in a World of almost infinite choice for how we spend our time how will you choose wisely and get the right things done without clear upfront goals? 

    So, whether it’s quotas, KPIs, objectives, etc, etc, I’m all over them. And yes, it’s easy for me to say this now as an investor. After all we live a deliverable-free existence right? Wrong. I’ve been surprised by just how busy we are and how many demands we have on our time. So, while we don’t have quotas, the partners at Real do set individual weekly objectives every Monday am and report back on them the following week. It’s all about execution.

  • http://davidcrow.ca/ davidcrow

    I keep wanting to be more data and metric driven. It’s sessions like SaaSMath that drive a focus on wanting to compare behaviours to norms. 

    I love the use of weekly objectives. Quotas are very much a sales concept. But I’m glad to hear that you’re setting goals and targets for entrepreneurs. 

  • http://startupcfo.ca/ Mark MacLeod

    To be clear, the weekly goals are for ourselves internally. I think we’d be overstepping our bounds to have weekly objectives for the companies. But we do have very clear operating milestones and bi weekly check ins on those. Also, we are in the process of building what we hope will be the mother of all dashboards to help us manage our companies and benchmark conversion rates and other metrics for our companies to hit.

  • http://twitter.com/ealeyner Eli Aleyner

    I had the same revelations about Quotas and Metrics, Deadlines. The more projects I get involved in both at work and outside of work the more I realize the importance of those tools to: 
    - Understand the level of commitment and risk from involved parties
    - Set expectations and timelines for decisions
    - Create a framework to evaluate my own and other’s performance

    Its interesting that those tools were created for a reason. and they work.

  • http://igniter.com Igniter

    Easy to set metrics. Hard to find the few good ones. Often used to assign blame. Best used to focus attention.

  • http://about.me/paulsullivan Paul Sullivan

    Good message David.  Couple thoughts:
    1. Whatever the quota being set is, achievement usually relies on the support of the team, so it is prudent to discuss and agree on the goals rather than spring a number on them after having met with investors/board/advisors, etc.
    2. Quotas should be part of that kitschy but timeless”SMART” goals approach to running the business – specific, measurable, attainable, realistic & timely.
    3. Sharing in the success (we used to ring a bell and push around a cart of liquid celebration around the office when we closed a deal or hit a specific target) is important to keep everyone engaged.

  • http://davidcrow.ca/ davidcrow

    Blamestorms are better way of assigning blame. 

  • Craig

    My first sales territory taught me the value of breaking the year down into smaller pieces (months in that case). Doing this helps avoid the dangerous “No problem, I have X months to hit that target” thinking. Start missing a few monthly or weekly targets and you’ll focus quickly on correcting rather than waiting.

  • http://engag.io/ William Mougayar

    So what happens when the startup misses their numbers? Did the VC ask for a penalty of some sort, e.g. an increased share ownership (I’ve seen this being thrown in). Otherwise, numbers don’t mean anything if they aren’t achieved.

  • http://davidcrow.ca/ davidcrow

    The date of the next tranche is still in the future. I would assume that the tranche could be delayed until such numbers are met (or an open discussion around rewriting this part of the funding contract). 

    I have met so many startups that are not able to “call the numbers”, when it comes to sales or other. The focus should be on building a repeatable, reliable set of business performance metrics that lets you as a founder run your business more effectively at each stage. 

  • http://davidcrow.ca/ davidcrow

    Agreed!

    This was the shocking realization for me. The numbers are bad. They help guide the behaviours that are expected of a salesperson (or in this case entrepreneur). 

  • http://engag.io/ William Mougayar

    Agreed, but the trick is to evolve from the start-up mode where you’re acquiring users/clients without due respect to the rigidity of budgets, to the mode where there is some predictability and discipline to the financial numbers. 

    This reminds me of Steve Blank’s excellent essay “Why Accountants don’t run startups”, http://steveblank.com/2010/04/15/why-accountants-dont-run-startups/ where the title says it all. The last thing I want is an investor with an accountant mentality asking me- oh you over by x% on this line item.

    It’s like when you’re on full throttle and trying to take off, you’re consuming a whole lot more gas than when you reach cruising altitude. Again, the trick is to know exactly when/how you are to be judged on your take-off aptitude vs. your cruising altitude. 

  • http://davidcrow.ca/ davidcrow

    I think you’re taking the cop out answer on this one William. 

    The point of quota and other metrics is to build a predictable path. It’s not for investors. It’s for you to better understand the ebb and flow of your business. This means being able to understand the Lifetime Value of a customer. To be able to calculate the ARPU based on your pricing scheme. Be be able to better predict. The goal is set goals and targets, it’s about being able to predict the acceleration needed to get to flight (and using your metaphor there are basic physics and equations to calculate this). 

    It is not about being profitable. It is not about constraints. It’s about trying to find a business model, get to product/market fit, create a repeatable sales process. This is exactly what the @sgblank:twitter presentation is about. 

    * Customer Acquisition Cost
    * Viral coefficient
    * Customer Lifetime Value
    * Monthly burn rate
    * Pageviews
    * Conversion Rates

    All things that are present in early-stage highly scaleable startups. 

  • Dan Morel

    @davidcrow – the number of comments are awesome in this post.  Unfortunately it only did average on page views, and thats our goal so we beat the competition, so I think if you could stick to producing content that hits our required page views more readily, like the Hot$hit list article, it would be much appreciated.  Specifically this is to useful and not flame-y enough (this is an allegory about metrics)

  • Dan Morel

    @startupcfo:disqus   I have two problems.  
    One problem – I’m not sure I agree that setting goals == solving the execution gap.  I wish it were so easy.  The perfect example – hockey stick revenue curve.Second problem.  The biggest, hardest problems you solve are generally not based on goals or based on metrics.  Here are three really hard super important decisions that a startup has to make that are probably far more emotional/gut decisions than they are based in goals or based in data.  ”hire up and scale – i.e. take a leap of faith”, “pivot – i.e. accept failure”, “fire somebody”.  If you wait for the data to be super crystal clear on any of these – it probably means you are too late, especially firing somebody (or pivoting (you run out of cash).Another example – the best way to save costs is not via goals & metrics to manage by.  The best way is to have a tightwad, assholish, mega negotiating CEO/mgmt team who hate f’n spending and distill that within the company (within reason).  I’ve seen CEOs with all kinds of cost/margin goals/analytics with “cash is king” written all over motivional posters in their offices, who can never keep cash in hand because there is an execution gap… not a goal-setting, metric analyzing gap.  (“hey this super awesome BD guy became available and I had to hire him”).i.e. there is something to that Paul Graham-ian “persistence trumps intelligence because everything takes longer than you think it will” philosophy that makes metrics and goals a bit less meaningful.  This one, point 5 -> http://www.paulgraham.com/really.htmlAnd of course, metrics/data driven attitudes turn into 70 page board novellas because data and metrics always beget more data and metrics and micro-projects to manage some metric by.  Churn data witch-hunts can kill as bad as churn itself can.

  • http://davidcrow.ca/ davidcrow

    Hahhahahah,nice. 

    The great news is that page views is one of our metrics. A qualitative metric on the quality of the comments is another. When I read @fredwilson:twitter AVC.com I read it for both the articles and the comments. The goal is to make our comments reach a similar quality. 

    Plus I’m glad to see that @40d8766d8e22e120acc5299662901db8:disqus is lowering the overall quality of the comments. 

  • http://davidcrow.ca/ davidcrow

    Vanity Metrics http://techcrunch.com/2011/07/30/vanity-metrics/ on @TechCrunch:twitter is a good post about the importance of measuring the right things.