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Archive for the ‘strategy’ Category

Let’s Try Another Verse of Your SaaS Company Does Not Need a Sales Force

Posted by Bob Warfield on May 23, 2014

MorpheusNoSalesForceIt’s time for another installment of what some of the Enterprise Irregulars have called the Jason and Bob show.  Jason and I have disagreed on a fair number of issues over time, though we have also agreed on a lot.  Jason’s had a great run and is now in the rarefied atmosphere of VC’s.  All of his material is thought provoking and well worth a read.

Today, we’re going to talk about Outside Sales or indeed the question of whether SaaS companies must have a sales force at all, inside, outside, or otherwise.

Jason’s post today is “Inbound or Outbound Sales? The Answer is Yes.”  In it, he argues that

There’s a meme, a CommonThink, among certain segments that Outbound Sales is Bad, or at least, a Little Unseemly.  And maybe a lot bit Old School.

That we’re in a new world of sales, a new consultative world, where leads come in, prospects can try and learn before they even talk to a human, and then, a sales rep thoughtfully answers questions, models business process change, and helps them decide how and why, and if, to buy.

And that’s true.  We are in that world.  Inside sales is terrific.  Warm leads are great.  Live trials of easy-to-use-and-deploy web services really have changed the game.

And yet …

The reality is, by revenue, this isn’t the way the majority of the world buys.

My role here today is to cast a dissenting vote, and to explain why.  In fact, this one’s been argued between us before so I’ll just refer you gentle readers to my original response to get the ball rolling:

Does your SaaS company have to have a sales force?

In that article I make the case that, no, your SaaS company doesn’t automatically need Outside Sales. It’s a function of who you need to sell to and that’s a function of what your solution costs. The more money involved in an individual sale, the more likely you need Outside Sales.  This isn’t really news or something I made up, by the way.  I learned it at the knee of one Geoffrey Moore, he of the Chasms and Gorillas and such.  I find it makes a lot of sense to think about how you need to sell based on the size of the transaction involved.  In hindsight, it’s obvious that a very expensive purchase carries a lot of risk and that a large organization will need to involve many people and ultimately a highly placed decision maker to get it done.

Jason does tip his hat to this notion with some remarks about selling to SVP’s, but I believe it’s something that startups need to think really carefully about very early on.  Horses for courses. What’s the right way to sell for my specific product and opportunity?  You need to make a conscious choice during the very early stages of the startup about what your strategy will be in this respect, because it’s going to have a profound impact on what sort of company you’re building, what kinds of skills you will need, and even the capital needs of your venture.

Jason mentions the “meme” that Outbound Sales is Bad.  Surely that’s damning with faint praise, but there are sound reasons why that meme is out there.  He says, “by revenue, this isn’t the way the majority of the world buys,” referring to purchasing without the need for Outside Sales.  Au contrare, Jason.  I don’t believe it and I have never seen any data to support it.  In fact, you don’t have to look far to see that the biggest revenue is associated with offerings that don’t require either inside or outside sales. Think Apple, Walmart, et al. Their selling is totally self-service and marketing-driven. Not software? How about Google or Facebook? Oh, not business enough? What about Github, Amazon Web Services, or many other ventures that are hugely successful.  While we’re at it, let’s look to where the majority of the profit, not the revenue goes and the differences are even more stark in favor of finding models that don’t require Sales.

What if that’s the real opportunity–start something that works and doesn’t require Outside Sales.  Or if you prefer, consider the potential for disruption that going into a market with a product that can work without Outside Sales offers. That’s exactly what PC’s did to the Minicomputer vendors. The Rolex-clad, scratch golfing, Armani suited crowd with good haircuts laughed at the little computer stores and the pathetic IBM PC.  Ken Olson himself laughed at them all the way to the point where DEC disappeared and was never heard from again and in a very short span of time.  Hitting an Outside Sales-driven industry with a solution that requires no sales creates the Mother of all channel conflicts for the poor sales-driven company.  It is just as toxic to companies with Sales Forces as Subscription models are to Perpetual License models.

The other reason the meme is strong is capital requirements.  Outside Sales-driven opportunities are going to require more capital to finance their longer sales cycle.  It’s unavoidable when you have to wind your way through the organizational complexity that’s there to stop a company from foolishly spending its money without proper checks and balances on your expensive solution.  SaaS itself is already capital inefficient because it pulls expenses forward and pushes profit out over time relative to getting it all up front in the Perpetual License model.  We live with it to get to the pot of gold at the end of the rainbow, but what if we could at least mitigate it by selling a product cheap and easy enough that it didn’t need Outside Sales or even Inside Sales?

That’s how the companies I’ve mentioned got to be so big so quickly.  That’s why this so-called meme is a real business strategy that’s disruptive and must be considered by any startup.

Figuring out how to leverage strategies like this in new markets where you can be supremely disruptive to the incumbents is what successful startups are all about.  Don’t be a slave to tradition.  You’re not here to build another SAP.  You’re here to build the next generation by disrupting SAP and Oracle.  SaaS is probably not enough to do that, though some argue otherwise.   I think many of those are confusing disruption with room at the bottom (great link from Jason, BTW).  The thing is, everyone’s doing SaaS now, so what’s different about your story?

 

Posted in bootstrapping, business, enterprise software, Marketing, strategy | Leave a Comment »

Random Thoughts on Customer Engagement, CRM, and Social CRM

Posted by Bob Warfield on May 13, 2014

Can Enterprises learn to talk WITH Customers rather than AT them?

Can Enterprises learn to talk WITH Customers rather than AT them?

I read with interest Paul Greenberg’s, “Random Thoughts on CRM.”  They don’t call Paul the “Godfather of CRM” for nothing, and this post got some old neural circuits firing again just like it was yesterday.

The gist of the article was about how a much larger market, called “Customer Engagement”, will eventually subsume CRM and make CRM just a feature of the larger Customer Engagement matrix.  The process of assimilation is already underway and presumably resistance is futile.  Paul characterizes Customer Engagement as involving all that is CRM plus the following:

 

  • Customer journey management
  • Customer experience management
  • Customer analytics including sentiment and text analysis
  • Social listening
  • Gamification engines and platforms
  • Customer engagement platforms (broad definition here)
  • Feedback management systems including ranking, rating engines)
  • Reputation management engines
  • Customer interaction engines (e.g. Epiphany, Exact Target)
  • Self-service knowledge engines
  • Community platforms
  • Social networks
  • Personalization engines
  • Communications platforms that foster customer communications (parts of unified communications fit the bill here though UC is a lot more than this)
  • Enterprise video chat/conferencing
  • Customer Effort Scoring (score on what you do. Thanks to Esteban Kolsky for this one). How much effort does a customer make
  • Loyalty and Advocacy systems

I wholeheartedly agree, and it was as I was reading that list that I suddenly had my epiphany:

Customer Engagement is nothing more than Social CRM writ large.

Or if you prefer to be a little less dramatic, Customer Engagement is the Second Coming of Social CRM.

Whether you believe Social CRM failed, was an idea before its time, or is simply percolating along and growing steadily, I can’t think of a better way to describe Social CRM than to say that it’s all about Customer Engagement.  The difference between Social CRM and Conventional CRM is almost entirely a matter of perspective:  are you talking WITH your Customers or talking AT your Customers?  CRM talks AT them.  It values them solely as leads to be qualified and sold to or as an expense area in the case of Customer Service to be minimized.  Paul’s list of Customer Engagement activities is nothing more than a list of what sorts of conversations can be had WITH Customers and what tools may be available to facilitate those conversations.

That problem of talking AT your Customers (and yes, “Customer” must be capitalized in this era when those who can’t learn to talk WITH them will start to increasingly lose) is a cultural problem born of seeing Customers as accounting line items and metrics rather than as PEOPLE who can choose to do business with us or not. Social CRM skeptics back in the day (seems so long ago since I was part of that world) danced around the cultural issues–they were sure Social in the Enterprise couldn’t work just because Enterprises were all about Command and Control and not what it takes to be Social.  Not all Enterprises are, BTW.  Companies like Southwest Airlines come to mind as counter-examples.  But by and large, Enterprises are very much about Command and Control.  I believe that a close relative of the Innovator’s Dilemma is what I will dub the “Politician’s Dilemma.”  It’s what happens when an organization grows large enough that the primary skill needed for advancement is not creativity or the ability to make good decisions, it’s the ability to be a good politician.  It’s been the undoing of at least as many large organizations as the Innovator’s Dilemma, and it is also closely related to those pesky cultural problems that prevent Enterprises from seeing Customers as Customers rather than $customers (and I wish I had an even smaller font for “customers” and a bigger one for “$”).

Here’s where I wonder about Paul’s view that Customer Engagement is, in fact, going to eat CRM.  I wonder because I can’t see much evidence these cultural biases that prevent Enterprises from being good at CRM have even remotely diminished.  Perhaps over time the Internet will exact a toll on their callous disregard for real Customer Service.  Certainly the frictionless exchange of information about what a Company’s products are REALLY like and what it is REALLY like to deal with that company help.  But, our fixation in the 80′s, 90′s, and 2000′s with reducing regulation and empowering ever larger monopolies (and hence the 1%) has been a powerful counterbalance to any renewed sense of egalitarianism the Internet brings.  Simply put, it’s business as usual for these companies.

Paul brings up the 4 largest companies in the CRM space:  Salesforce, SAP, Oracle, and Microsoft.  It’s funny, but with the possible exception of Salesforce, you couldn’t ask for a stronger list of the Who’s Who of having abused their customers and maximized their Bully Pulpit Status.  Perhaps by being (or seeming to be) the exception, this is precisely what has driven Salesforce’s growth.  I certainly know people that work there and talk about it in much more glowing terms than the other 3.  Let’s leave Salesforce aside and ask about the other 3:

What are the chances that SAP, Oracle, and Microsoft can actually learn how to talk WITH Customers and not AT $customers well enough to participate in Customer Engagement at a more empathetic level than, say, researchers watching mice in mazes?

I’m not optimistic, and I don’t think Paul is either.  He offers the following critique of the four companies:

  1. Salesforce.com – They are getting so big and so process driven that a lot of the creativity that characterized the company is starting to seep out.
  2. SAP – The continuous politics at this company are forcing it to step on its own feet every time they make progress – and we start again.
  3. Oracle – They are totally locked and loaded into their customer experience messaging and it’s the wrong message to send to the marketplace.  This prevents them from thinking in terms of ecosystems – which is a 21st century requirement for a large company’s success.
  4. Microsoft – They are moving quickly but still don’t have the messaging down at all. They send mixed messaging signals to the market and they are hard to read. They need to clarify this right away, since they have successfully accomplished a radical transformation of their customer-facing applications for the better. Now the world needs to hear it.

Ask yourself whether the essential cultural virtues needed to thrive in a world of Customer Engagement are likely to be strong or weak in the light of those criticisms?  Even for Salesforce, eliminating personal initiative and emphasizing management by excessive process is a sure recipe for stopping any real conversations with Customers.  It’s hard to change for all the same reasons that once the Peter Principle has taken hold, you can step back from it.  People are hired by bosses who hire the sort of people they want to hire.  Bosses who think of Customers as $customers don’t hire people who think “Customer.”  They hire more $customer people.  Sure, you can add a few Customer lovers here or there, but they drown in the sea of $customer people.  It’s a vicious cycle that can’t be undone.  Command and Control never goes softly into that Good Night, least of all because it is very Commandingly In Control.

What does it all mean?

Optimistically, it means that these four will eventually give way to a New Guard of some kind.  I’d like to think that’s true everywhere and in every industry that finally understands the Customer is King.  Taking that view is a powerful Engine of Growth for new ventures.  It is disruptive in much the same way SaaS has been to Enterprise Software because where SaaS was a business model change that could not be achieved, Customer Engagment is a Cultural Model change that is too hard to achieve.  It’s relatively easy to hire a new CEO or merge to make a new entity.  So far, we are tragically short of good Existence Proofs that this New Wave is underway.  There are precious few Southwest Airlines and an endless stream of Ego-Du-Jour companies that power to the forefront or that cling tenaciously to the monopolies they already own.

Fundamentally changing the culture of a company?  That’s darned near impossible.  I’m not sure I’ve ever seen a successful example of it outside the fawning press releases and interviews telling us how transformative some new CEO has been, all of which turn out to be false hopes.  More’s the pity.

Postscript

Paul Greenberg’s response, via Facebook:

Bob, I read the post. I’m more optimistic than you on this, though I really liked your post. Also, these are random, and to be fair to the Big 4, I also noted what I liked big picture about each of them too. I just don’t have a black and white view of this at all. its a nascent, roiling market at the moment and lots to come of it hasn’t happened yet – and is indeterminate. Also, I agree with you totally that this is what you called Social CRM writ large though my take is a little different. You’ll see more on this in a series of major pieces that will be coming leading to the next book. Social CRM was the progenitor for customer engagement – it didn’t fail, like social business morphing in its short life to digital transformation, social CRM now CRM morphed to something much larger and more encompassing that the parent was/is. CRM becomes the operational components of the engagement market. You are a helluva writer, by the way. Seriously good.

Paul is not just a brilliant CRM analyst, but a gentleman and renaissance man of the sort that is seldom seen these days.  I know him via my past life in Social CRM and the Enterprise Irregulars.  Thanks Paul!

Posted in business, customer service, Marketing, strategy | 1 Comment »

The eBay Turnaround that Never Had to Be: Now Here’s the Rest of the Story

Posted by Bob Warfield on February 13, 2014

Read an interesting account of John Donahoe’s turnaround at eBay in Business Insider.  It’s a fascinating discussion that revolves around relatively few premises for how the turnaround was accomplished.  Here are the money quotes:

He de-emphasized eBay’s auction business and started describing the company as a “technology partner” to retailers small and large. eBay added clients Home Depot, Macy’s, Toys ‘‘R’’ Us and Target, helping them cope with a world dominated by Amazon.

So, making eBay a first class technology partner to large bricks and mortar retailers.  Great idea, more on that in a moment, but first, a couple more quotes from the article:

For example, eBay never bothered to develop sophisticated search technology. This made it dependent on Google ads, which took a bite out of profits. And it made it hard for users to find products they wanted to buy, dragging down sales.

Likewise, eBay under Whitman never developed a product recommendation algorithm to match Amazon’s — despite the fact that Amazon credits 30% of its sales to the tool.

Better search, and the ability to do merchandising and product recommendation like Amazon’s.  What if I told you eBay was offered a finished technology solution to each of these problems way back in 2001 and they completely blew it off as uninteresting for their business?

Trust me, I know, because my startup, which was called PriceRadar.com, was the group offering the technology.  We met numerous times with Jeff Jordan at eBay, and even had offices across the parking lot from eBay headquarters right there in Campbell.  We had built a sophisticated textual data mining technology, and had decided this technology could be hooked up to eBay’s data to produce a unique selling proposition.  We would visit with our customers, who were major bricks and mortars retailers like Sharper Image and West Marine, to name two companies that had worked with us.  Walking into a meeting we came to show them something special, something unexpected.  After sending our web crawler to visit their online catalogs, we could generate a report telling them exactly which of their products they could sell on eBay for just as much as they were selling in their catalogs, how many they could sell without depressing prices, exactly how to optimize their listings including which keywords, what time of day to list and close the auction, which eBay “extras” were worth paying for, and so on and so forth.  The software would even let them allocate quantities of product which we would then list on eBay for them to drop ship when the auctions closed.

The bricks and mortars retailers loved it–it was easy to sign them up.  For them, it was an extremely cheap way to add new customers to their house list.  You know, that list that causes them to dump endless catalogs at your doorstep if you order anything from them?  Our fees combined with eBay’s fees were a pittance compared to their existing marketing costs to add a new name to the house list.  So that’s quote #1, making eBay a first class technology partner to bricks and mortar retaillers.

That’s not all we could do.  The site was called “PriceRadar.com” because it had an extremely powerful search engine that was adept at finding listings that were hopelessly lost if you tried to find them with eBay.  We also tracked affinity patterns–if you bought “X” you were also likely to buy “Y” and “Z”.  Plus, we generated endless analytics that the eBay people had no way to track on their own.  They were always surprised and interested when we visited with this information.  It included things like a fine grained breakdown category by category (and I’m talking our categories, not theirs, a taxonomy of thousands of micro-categories) accounting of exactly where their business was coming from.  So much for quote #2 as well–better search and product recommendation.

So what happened?  Why did eBay pass on this opportunity way back in 2001?

Call it an idea ahead of its time.  We offered them the technology in 2001, but it wouldn’t be until 2005 that they’d start to massively lose market value.  By 2008, Meg Whitman was ready to move on and leave Donahoe as her successor.  All tragically avoidable if the article was right about the cure.  But, that’s just it–you would’ve had to see very far ahead to realize it.  4 more years is forever in High Tech.  It was probably starting to get scary even 2 years after our offer, but still, that’s a long time in the Dog Years these companies live in, and they would’ve handily rationalized early problems as being a temporary effect of the 2001 Dot Com crash that would go away.  Then there was the issue of eBay’s culture at the time.  Business Insider describes it well:

Partly, the issue was obvious: eBay had gotten fat and happy. For 10 years it had been a huge success, riding a wave of Internet adoption. During the mid-2000s, eBay was notorious for meetings that always ended in applause — even when the news was bad.

But eBay also had a problem attracting and retaining innovative, entrepreneurial people into its executive ranks.

The fat and happy part and the lack of innovation were terribly obvious every time we met with them or interfaced with their humongous software back end.  They just didn’t quite seem to understand what we were telling them about better search and what I pitched at the time as “Merchandising like Amazon’s.”  Things were so good it just didn’t seem like it was worth the effort to make things better.  They’d narrowly survived making their technology scale–we used to see the news trucks parked every day at eBay so they could run a story about how the site had gone down.  When you’re getting Boundless Growth and Unbridled Demand just for showing up at work, why rock the boat with any new ideas?

Then there’s that ole bugaboo called, “Innovator’s Dilemma.”  You have to be prepared to cannibalize your own business lest somebody else (like Amazon) decides to do it for you.  The most substantive objection eBay had about our technology was that they were afraid it would alienate the mom and pop businesses that were responsible for the Lion’s Share of eBay’s listings.  The message was something along these lines:

We’re afraid that if you make it super easy for Sharper Image to suddenly have a big eBay presence the mom and pops will take that as eBay competing against them and they won’t like it, they’ll pull out.

I tried hard to explain that they had no place else to go–they were hopelessly dependent on eBay.  There were no other easy partners who could create an e-commerce presence for what had been small bricks and mortar independent retailers.  At PriceRadar, we had interviewed dozens of the most successful resellers on eBay in various categories and learned that many of them had closed their bricks and mortar storefronts because eBay was so lucrative they’d rather sell online out of their home offices than pay the overhead of owning an actual physical shop.  Many of them had unique merchandise that the big retailers didn’t have anyway.  The eBayers would listen politely, smile, and then move on.

If you’re curious, here’s what the old PriceRadar site looked like in 2000:

PriceRadar

We had even signed Gary Burghoff as a spokesman!

That was the Consumer Search front end circa early 2000.  There was another client used by the Retailers to list their products on eBay via our service.  We did a number of unique things at PriceRadar, many were things people said couldn’t be done.  Like downloading all of eBay’s auction data and processing it on SQL Server–the Unix guys all said we’d have to have Unix and Oracle to make it scale, but we didn’t.  We made it through the scaling hurdles that had plagued eBay in a relatively short time, handling their data volumes in our architecture.  Today, it would’ve been called a “Big Data” application, but back then nobody had heard that term.  The search algorithms were very sophisticated and involved a mix of computer algorithms and live human “taxonomy experts” that fine tuned the results by creating special search rules on the micro-categories.  In the end, it was a bust.  When we started, there were lots of auction houses out there, and it seemed like a super sophisticated search engine monetized by retailers who wanted to list was a great plan.  Unfortunately for us, network effects meant that eBay controlled that entire space in a relatively short time.  Once they were the only game in town, they were also the only buyer in town.

Too bad for all concerned eBay didn’t realize we had the solution for a lot of problems that would nearly kill the company.  PriceRadar was a great lesson in market timing and exit strategies in the face of network effects and derivative businesses.  It’s also the failure I regret most as the product and technology were dynamite.

Posted in business, strategy | 2 Comments »

The Problem With Replacing CEO’s, Boards, and Governance at Big Co’s

Posted by Bob Warfield on February 1, 2014

At some point, Silicon Valley VC’s, whom I am not always entirely complimentary of, decided it was easier to teach a Founder to be a decent CEO than it was to teach a Big Co Exec to fill in what they’d lose if a Founder left.  That doesn’t mean they don’t replace CEO/Founders, but it used to be an almost guaranteed matter-of-course.  The VC’s have it right.  We saw that unfold at Microsoft almost to the day Bill Gates handed the reigns to Steve Ballmer.  I believed then and believe now that Microsoft needed a Fighter Pilot and instead got a Moist N’ Easy Snack Cake Salesman.  Sorry Steve, you’re a good man, but you were not the right man for Microsoft.

Now the Microsoft Board is apparently on a path to making Satya Nadella, the President of their Cloud Business, Microsoft’s new CEO.  I read with interest in a WSJ article that he is asking Bill Gates to give him advice on Technology and Strategy.  That was my first red flag for this candidate.  Advice on Technology and Strategy?  Isn’t that exactly what’s been so badly lacking at Microsoft since Ballmer took the reigns?  Did he and Bill Gates just not talk?  Or is it possible that the company actually needs to find someone that knows enough about Tehnology and Strategy to chart their own course and actually dare to get Microsoft to do something different from what hasn’t been working all these years?

I read in The Telegraph the following from one of Nadella’s former computer science professors this ringing endorsement:

Former teacher and MIT director Vinod V Thomas told the Times of India he “cannot vividly recall” Mr Nadella as he “didn’t figure in either ends of the spectrum”, but added that records showed he was “a first-class student who achieved distinction.”

Any attempt to find out what Nadella has been doing for most of his career meets with a brick wall.  We know he did something for Sun Microsystems and that he has been at Microsoft for 22 years.  As the Telegraph article concludes:

Despite his enormous success in the tech industry, Mr Nadella is not the biggest user of Twitter. He has not tweeted since July 2010, and the messages he has posted are enthusiastic, but not particularly enlightening.

That seems to be basically this guys M.O.–he’s quiet, heads down, and steady.

Is this really what Microsoft needs?  Quiet, heads down, and steady?  I mean love her or hate her, at least Marissa Mayer has shaken up Yahoo to an extent.  At least Meg Whitman had done something everyone had heard about before she took over HP.

“But wait,” you say.  Hasn’t Nadella run one of Microsoft’s most important and successful divisions, the Cloud division?  Isn’t that a foward looking part of the empire?  Not really.  It didn’t take any great imagination or strategic prowess to deliver Microsoft to its present Cloud market position.  Microsoft was very late to the Cloud, played it very safe, and has yet to accomplish much there.

Herein lies the problem:  Boards want to hire the safe choice.  They don’t want to hire someone who will shake anything up until it is far too late.  They want consensus.  They want everyone to play nice.  They want to have nice informative Board meetings where they can get their two cents in and everyone in the room will nod sagely and take the advice.

There’s really only a couple of guys I’ve come up with who can make a difference for Microsoft.  Either Bill Gates can come back as CEO, or Jeff Bezos could add Microsoft to Amazon and go from there.  Neither one is apt to happen, so be ready to watch Microsoft flounder further.

Posted in business, strategy | Leave a Comment »

Evil VC Seeks Minions for World Domination

Posted by Bob Warfield on January 30, 2014

EvilSeeksMinionsIf we substitute “Venture Capitalist” for “Evil Genius”, the placard on the right describes the Silicon Valley Startup Culture perfectly.  Yes, you young hopefuls, your friendly neighborhood (that’d be the Sand Hill neighborhood) VC really does expect you to sacrifice your lives in a play for world domination.  They don’t care about building a nice little $100M a year software business–that’s peanuts, doesn’t move the needle on the fund.  Son, it’s just not enough tonnage.  Must be prepared to work 24-7 for fascist psychopath for close to no pay.  Yep, that’s about the size of it.  They won’t even try to hide the fact–they write about how you should accept as little pay as possible.  In 2008 Peter Thiel went on record saying the best predictor of startup success is low CEO pay.  Really?  That’s the best predictor VC’s have come up with?  Thiel is not the only VC to suggest it, not even close, and they’re largely successful at getting what they want–75% of founders pay themselves less than $75,000 a year.

What about that business of “Messy death inevitable?”

I suppose it’s a function of how you define “Messy”, but the “death inevitable” part rings true.  VC’s these days want startups capable of reaching $1B in revenue.  The reason, as one explained to me over drinks, is that they make their exit when the startup IPO’s.  But in order to IPO at a reasonable valuation, they have to be able to paint a picture for those buying public shares that the company has years of growth left.  That’s how the Greater Fool theory works–you can never let people discover they’re the last ones and the valuation has peaked.  So what happens to $1B Unicorns?  First, by quantifying things at $1B, we learn that the Utility Curve for VC’s is drastically different than for most Founders.  Offer Most People $10M after 10 months of effort when they’ve never made even $1M, and an awful lot of them will say, “Yes.”  The VC’s will resoundingly say, “No,” and they’ll tell you that anyone who says “Yes” never should’ve raised VC in the first place.  BTW, I have been through that scenario personally and I can tell you it was a harrowing experience.

Getting back to that $1B Unicorn, the odds are not at all good.  Only about 0.07% of Consumer and Enterprise VC-Backed companies become those Unicorns.  That means, Dear Impressionable Young Founder, that your odds are one in 1428.  The odds of winning on a single number at roulette are nearly 40x better, and you don’t have to bet years of your life on the roulette number.  One in 1428 odds of achieving World Domination.

That Messy End will come about because of the inevitable terms in your legal documents with your financiers and because of how the system operates.  Consider if you had worked hard to achieve a modicum of success and sold a company for millions but none of the founders or employees got anything at all out of it except a job with the buyer while the VC’s saw a positive (but inadequate in their eyes) return.  Wouldn’t that be a messy end?  The key term in your documents that leads to tears is the “Liquidation Preference.”  Supposedly the market standard is 1X but I’ve seen numbers as high as 3X in some cases.  Now let’s suppose you’ve got a company that is sold for $50M.  That’s a lot of money: many would regard that as a successful company.  But, it’s only successful to the investors to the extent it generates a return on their investment.  Suppose they’ve put in $40M and have a 1X liquidation preference.  That means they get back their $40M right off the top.  Now there’s $10M left to split between the investors, founders, and other employees.  You’re probably diluted pretty good at this time, so let’s say non-Investors are getting $4M.  Suddenly your $50M sale is getting you more like $1M than the $5M you and your co-Founder expected.  It gets worse–with a 2X or 3X liquidation preference, you get nothing.

Make no mistake–the VC’s feel perfectly justified in all of this and see it as emminently fair.  Fred’s example from that link sure sounds fair, but as some of his commenters point out, it attaches no value to the sweat equity of the Founders and employees.  They may have worked years of their lives at sub-standard pay ($75,000 a year?) and not be entitled to a dime in a scenario where VC’s are getting all of their money back.

“NO Weirdos?”

Yes, the VC’s prefer to invest in the Old Boys Club.  Minorities and women will have a tough time breaking in, not that they are Weirdos in any sense, but the homogeneity of the VC Startup Club and especially of the VC’s themselves is strong.  You need to have gone to the right school and have the right background.

The VC’s BTW, are (mostly) not really Evil.  But they have certainly done everything in their power to create a set of rules that overwhelmingly favors their own success, even at the expense of Founders.  Looked at in the cold light of reason, it’s hard to argue it isn’t pretty much as the plackard about Evil Geniuses suggests, at least metaphorically.  Why then do Founders seek Venture Capital?

After talking to lots of Founders seeking advice (I’m on my 7th Startup, have founder 4 of the 7, and have had 3 happy liquidity events), I have concluded the primary motivator for Founders seeking VC is that they want to reduce their risk.  It’s ironic.  VC’s these days don’t accept Founders until they’ve forced the Founder to remove as much risk as possible.  You have to create a Product, find an Audience, and demonstrate Traction before they’ll put a dime in.  Or, you have to give away a surprising amount of your company for surprisingly little capital if you go the Incubator or Angel route.  Yet, these Founders are largely worried about two things they believe can reduce their risk.  First, they want knowledge.  They want people who have succeeded to tell them how to succeed.  Second, they want connections.  The Incubator promises to put them in touch with the VC’s when the time comes.  The VC’s promise more VC’s, talented executives, and many other contacts.  Founders want to be part of the Network.

Experienced Founders are less about the connections or knowledge, they’ve realized they can get connections and knowledge more easily in Silicon Valley than almost anywhere in the world.  Scratch the push for connections and knowledge up to inexperience on the part of young Founders.  Experienced Founders just want the VC’s check.  They want to get where they’re going faster and with the certainty that plenty of money in the bank promises to bring.  VC’s hate to be courted simply for a check.  It eliminates their view of how they differentiate their firm and belittles the possibility they will make a contribution from the Board.  Yet, even many VC’s share the view of many experienced Founders that aside from Cash, VC’s often add negative value.  No less a personality in the VC world than Vinod Khosla says 70 to 80% of VC’s add negative value.  If you look at the impact forcing a company to take unlimited risk in the quest to becoming a $1B Unicorn has, I would suggest that many companies that could have been successful by any non-VC standards and happily profitable got pushed too far and left behind a smoking crater when they fell short of joining the Unicorn Club.

One of my favorite bloggers is Seth Godin.  He writes about this odd conundrum perfectly in his short post, “How much does it cost you to avoid the feeling of risk?”  He’s talking about the risk of putting yourself out there, and it’s no different for Founders.  The VC’s are asking you to do most of the work of creating a successful company before they put any money in.  They’re asking you to do it on your dime.  Unless you have it thoroughly in your heart and soul that  you won’t be happy until you’ve created a Facebook or Google-sized success, forget the VC.  Finish the remainder of the work to create a profitable company instead of raising VC.  That’s the real essence of reducing your risk.

Turning your happy little company into a VC Startup is the first step on the ladder of radically increasing your risk because you’re committing yourself to swinging for the fence.  No bunts, no singles, doubles, or triples.  Swing for the fence, and if you miss, you’re a failure.  Make no mistake about it:

VC’s increase your  risk.

Posted in bootstrapping, business, strategy, venture | 2 Comments »

How Moore’s Law Put Apple in the Driver’s Seat and Cost Steve Ballmer His Job

Posted by Bob Warfield on January 24, 2014

With the Mac’s 30th anniversary, lots of folks are writing all sorts of articles about it, so I thought it only fitting to bring up my own thoughts on what happened and how Apple got control away from Microsoft.  It’s not a theory I have seen anywhere else, but it’s the one that makes the most sense to me.

Recently, I spent the afternoon upgrading my PC.  I added 2 higher capacity SSD disks, a new graphics card, and a new power supply.  I had planned to add a CPU with more cores, but I couldn’t find it and frankly, I didn’t look all that hard because I knew it wasn’t going to matter very much.

Upgrading my PC is something I used to do like clockwork every 2 years.  I looked forward to it and always enjoyed the results–my computer would be at least 2X faster.  While it didn’t always feel 2X faster, the previous machine (when I still had access to it or one just like it) always felt a lot more than 2X slower.  Life was good in the upgrade heyday for the likes of Microsoft and Intel.  Steve Jobs was this idiosyncratic guy who made cool machines that you couldn’t upgrade easily.  Everyone knew Microsoft had stolen a lot of Apple’s ideas but it was okay, because heck, Apple stole a lot of ideas from places like Xerox PARC.  There were Mac users, but they were a tiny minority, so tiny that Jobs was actually fired from his own company at one point.

Fast forward to my recent upgrade experience.  I hadn’t done an upgrade in 5 years, didn’t feel like I had missed much, and didn’t spend nearly as much money on the upgrade as I had in those times past.  Before that prior upgrade it was probably at least another 3 or 4 years to get to an upgrade.  That one 2 upgrades back was largely motivated by a defective hard disk too, so I’m not even sure it counts.

Times have sure changed for Intel, Microsoft, and Apple too.  Apple is now the World’s Most Amazing company.  Microsoft is in the dumper, Steve Ballmer has lost his job, and Intel just announced they’re laying off another 5000 people.

What happened?

People will say, “That Steve Jobs was just so brilliant, he invented all these new products around music, telephones, and tablets, that nobody wants PC’s any more.”  In other words, Apple out-innovated and out-Industrial Designed Microsoft.  They even changed the game so it isn’t about PC’s any more–it’s all about Mobile now.  We’re firmly in the Post-PC Era goes the buzz.  VC’s are in a rush to invest in Mobile.  It’s Mobile First, Mobile is Eating the World, mobile, mobile, mobile, yada, yada, yada.

But I don’t know anyone who has quit using their PC’s.  Quit upgrading?  Absolutely!  Putting a lot of time on their mobile devices?  Yup.  But quit using PC’s?  No.  Absolutely not.   There are many many apps people use almost exclusively on PC’s.  These are the apps that create content, they don’t just consume it.  One could argue they are the ones that add the most value, though they are not the ones that necessarily get the majority of our time.  Some people are totally online with Office-style apps, but they still much prefer them on their PC’s–no decent keyboard on their tablet or phone.  Bigger screens are better for spreadsheets–you can never see enough cells on the darned things.  And most are still using Microsoft Office apps installed on their PC’s.  CADCAM, which is my day job, is totally focused on desktops and maybe laptops.  Graphic Design?  Photoshop on a PC (well a Mac, and probably a laptop, but they sure don’t want to give up the big gorgeous monitor on the desk much).  Accounting and Bookkeeping?  That’s my wife’s daily work–Quick Books.  Enterprise Software?  Yeah sure, they got mobile apps, but mostly they’re desktop.  Did people unplug all the desktop clients?  No, not even close.  They simply killed the 2 year upgrade cycle.

People will say Microsoft was just too slow, copied without ever innovating, and missed all the key trends.  There is no doubt that all those things were true as well.  But think about it.  Apple has always been great at Industrial Design and Innovation.  Microsoft has always been slow and missed key trends.  Remember the old adage that it takes Microsoft 3 releases before they have a decent product.  That’s been true their entire history.  Something had to be different for these two companies and their relationship to the market.  Something had to fundamentally change.

What’s wrong with Microsoft and Intel has little to do with people quitting their use of PC’s and switching over to Mobile.  It’s not a case of choose one, it is a case of, “I want all of the above.”  There are essentially three things that have happened to Microsoft and Apple on the desktop:

#1 – People stopped upgrading every two years because there was no longer a good reason to do so.

#2 – People who wanted a gadget fix got a whole raft of cool phones and tablets to play with instead of upgrading their PC’s, and Microsoft botched their entry into the mobile market.

#3 –  People who wouldn’t consider spending so much money on a computer that couldn’t be upgraded when it would be clearly obsolete in 2 years suddenly discovered their computer wasn’t obsolete even after 5 years.  So they decided to invest in something new:  Industrial Design.  I can afford to pay for fruit on my machine, just like I used to pay for polo players on my shirts back in the Yuppie Age (I like cheap T-shirts now).  It’s the age old siren’s call:  I can be somebody cool because of a label.

#1 was an unmitigated disaster for Microsoft, and the carnage continues today.  #2 was a botched opportunity for Microsoft they may very well be too late to salvage and it created a huge entre for Apple.  #3 cemented Apple’s advantage by letting them sell high dollar PC’s largely on the basis of Industrial Design.

That’s the desktop PC market.  The server market has been equally painful for Microsoft, but we’ll keep that one simple since Apple doesn’t really play there.  Suffice to say that Open Source, the Cloud, and Moore’s Law did their job there too.  The short story is that there is still a certain amount of #1 in the server market, because machines don’t get enough faster with each Moore’s Law Cycle.  They do get more cores, but that largely favors Cloud operations, which have the easiest time making use of endless more cores.  Unfortunately, the Cloud is hugely driven by economics and doesn’t want to pay MSFT for OS software licenses if they can install Open Source Unix.  Plus, they negotiate huge volume discounts.  They are toe to toe and nose to nose with Microsoft.  So to those first 3 problems, we can add #4 for Microsoft’s server market:

#4 –  Open Source and the Cloud has made it hard to impossible for Microsoft to succeed well in the server world.

Why did people quit upgrading?

Simple put, Moore’s Law let them down.  In fairness to Gordon Moore, all he really said was that the number of transistors would double every 2 years, and that law continues in force.  But, people used to think that meant computers would be twice as fast every 2 years and that has come to a bitter end for most kinds of software.

If you want to understand exactly when #1 began and how long it’s been going on, you need look no further than the Multicore Crisis, which I started writing about almost since the inception of this blog.  Here is a graph from way back when of CPU clock speeds, which govern how fast they run:

Notice we peaked in 2006.  What a run we had going all the way back to the 1970′s–30 years doubling performance every 2 years.  That’s the period when dinosaurs, um, I mean Microsoft, ruled the world.

Oh but surely that must have changed since that graph was created?  Why, that was 7 or 8 years ago–an eternity for the fast-paced computer industry.  In fact, we are still stuck in Multicore Crisis Tar Pit.  A quick look at Intel’s web site suggests we can buy a 3.9 GHz clock speed but nothing faster.  By now, we’ve had 4 Moore Cycles since 2006, and cpu’s should be 16X faster by the old math.  They’re not even close.  So Moore’s Law continues to churn out more transistors on a CPU, but we’re unable to make them go faster.  Instead, the chips grow more powerful by virtue of other metrics:

-  We can fit more memory on a chip, but it runs no faster.  However, it has gotten cheap enough we can make solid state disks.

-  We can add more cores to our CPU’s, but unless our software can make use of more cores, nobody cares.  It’s mostly Cloud and backend software that can use the cores.  Most of the software you or I might run can’t, so we don’t care about more cores.

-  We can make graphics cards faster.  Many algorithms process every pixel, and this is ideal for the very specialized multi-core processors that are GPU’s (Graphics Processing Units).  When you have a 4K display, having the ability to process thousands more pixels simultaneously is very helpful.  But, there are issues here too.  Graphics swallows up a lot of processing power while delivering only subtle improvements to the eye.  Yes, we love big monitors, retina displays, and HD TV.  But we sure tolerate a lot on our mobile devices and by the way, did games really get 2X visually better every 2 years?  No, not really.  They’re better, but it’s subtle.  And we play more games where that kind of thing doesn’t matter.  Farmville isn’t exactly photo realistic.

Will Things Stay This Way Forever?

Microsoft got shot out of the saddle by a very subtle paradigm shift–Moore’s Law let them down.  Most would say it hasn’t been a bad thing for Microsoft to become less powerful.  But it is a huge dynamic that Microsoft is caught up in.  Do they realize it?  Will the new CEO destined to replace Steve Ballmer realize this is what’s happened?  Or will they just think they had a slip of execution here, another there, but oh by the way aren’t our profits grand and we’ll just work a little harder and make fewer mistakes and it’ll all come back.  So far, they act like it is the latter.

And what of Apple?  They’re not the only ones who can do Industrial Design, but they sure act like that’s all that matters in the world.  And Apple has made it important enough that everyone wants to do it.  Don’t get me wrong, I love Industrial Design.  One of the reasons I like Pinterest is it is filled with great designs you can pin on your board.  Is Apple really the only company that can do competent Industrial Design?  Do they have a monopoly on it to the extent that justifies their current profit margins?  Color me skeptical.  Think that new Mac Pro is more than industrial design?  Is it really that much high performance?  The Wall Street Journal doesn’t think so.  How about this hacker that made a Mac Pro clone out of a trash can:

GermanProHack2

GermanProHack

Is it as slick as the real thing?  Aw heck no.  Absolutely not.  But it was made by a hobbyist and professionals can do a lot better.  Companies like BMW are getting involved in this whole design thing too:

BMWAngleView

How Can Apple and Microsoft Win?

Apple has the easier job by far–they need to exploit network effects to create barriers to exit for the new mobile ecosystems they’ve built.  They’re not doing too badly, although I do talk to a lot of former iPhone users who tried an Android and believe it is just as good.  For network effect, iTunes is fabulous, but the video ecosystem is currently up for grabs.  Netflix and Amazon seem closer to duking that out than Apple.  Cook should consider buying Netflix–he may be too late to build his own.  Tie it to the right hardware and it rocks.He should consider buying Facebook too, but it may not be for sale.  Network effects are awesome if you can get them, but they’re not necessarily that easy to get.

Meanwhile, Apple will continue to play on cool.  I’ve been saying to friends for years that Apple is not a computer company, it is a Couturier ala Armani.  It is a coachbuilder ala Pininfarina.  It is an arbiter of fashion and style, but if the world became filled with equally as fashionable artifacts, it isn’t clear Apple could succeed as well as it does today.  Those artifacts are out there.  Artists need less help than ever before to sell their art.  Fashion is a cult of personality, packaging, and perception.  We lost the personality in Steve Jobs.  That’s going to be tough and Apple needs to think carefully about it.  They seem more intent on homogenizing the executive ranks as if harmony is the key thing.  It isn’t.  Fashion has nothing to do with harmony and everything to do with temperamental artistes.

Another problem Apple has is an over-reliance on China.  They’ve already had some PR problems with it and they are moving some production back to North America.  But it may not be enough.

Most people don’t realize it, but $1 of Chinese GDP produces 5X as much carbon footprint as $1 of US GDP produced here in America.  In a world that is increasingly sensitive to Global Warming, it could be a real downside if people realized that the #1 thing they could personally do to minimize it is to quit buying Chinese made products.  Apple can fix human rights violations to some extent, but fixing the carbon footprint problem will take a lot longer.  Apple is not alone on this–the Computer and Consumer Electronics sectors are among the worst about offshoring to China.  But, if the awareness was there, public opinion could start to swing, and it could create opportunities for alternatives.  And fashion is nothing but public opinion.  Ask the artists that have fallen because the world became aware of some prejudice or some viral quote that didn’t look good for them.  That’s the problem with Fashion–it changes constantly and there’s always a cool new kid on the block.

Microsoft has a much tougher job.  The thing they grew up capitalizing on–upgrade cycles–no longer exists.  They have to learn new skills or figure out a way to bring back the upgrade cycles.  And, they need to get it done before the much weaker first generation networks effects of their empire finish expiring.  So far they are not doing well at all.  Learning to succeed at mobile with smart phones and tablets, for example.  They have precious little market share, a long list of missed opportunities, and little indication that will change soon.  Learning to succeed with Industrial Design.  Have you seen the flaps around Windows 8?  Vista?  Those were mostly about Design issues.  Microsoft doesn’t worship Design with a capital “D” as Apple does.  It worships Product Management, which is a different thing entirely, though most PM’s fancy themselves Design Experts.  Microsoft is just too darned Geeky to be Design-Centric.  It’s not going to happen and it doesn’t matter if they get some amazing Design Maven in as the new CEO.  That person will simply fail at changing so many layers of so many people to be able to see things the Design Way.

Operate it autonomously from the top the way Steve Jobs did Apple?  The only guy on the planet who could do that is Bill Gates and he doesn’t seem interested.  But, Gates and Ballmer will make sure any new guy has to be much more a politician and much less a dictator, so running it autonomously from the top will fail.  Actually, Bill is not the only one who good do it–Jeff Bezos could also do a fine job and his own company, Amazon, is rapidly building exactly the kinds of network effects Microsoft needs.  The only way that happens is if Microsoft allows Amazon to buy it at fire sale prices.  Call that an end game result if the Board can’t get the Right Guy into the CEO’s seat.

The best acquisition Microsoft could make right now is Adobe.  It still has some residual Old School Network effects given that designers are stuck on Photoshop and their other tools.  Plus Adobe is building a modern Cloud-based Creative Suite business very quickly.  But this is a stopgap measure at best.

Can the upgrade cycle be re-ignited?

There is a risky play that caters to Microsoft’s strengths, and that would restore the upgrade cycle.  Doing so requires them to overcome the Multicore Crisis.  Software would have to once again run twice as fast with each new Moore Cycle.  Pulling that off requires them to create an Operating System and Software Development Tools that make can harness the full power of as many cores as you can give it while allowing today’s programmers to be wildly successful building software for the new architecture.  It’s ambitious, outrageous even, but it plays to Microsoft’s strengths and its roots.  It started out selling the Basic Programming Language and added an Operating System to core.  Regaining the respect of developers by doing something that audacious and cool will add a lot more to Microsoft than gaining a couple more points of Bing market share.  Personally, I assign a higher likelihood to Microsoft being able to crack the Multicore Crisis than I do to them being able to topple Google’s Search Monopoly.

Let’s suspend disbelief and imagine for a minute what it would be like.

Microsoft ships a new version of Windows and a new set of development tools.  Perhaps an entirely new language.  They call that ensemble “MulticoreX”.  They’ve used their influence to make sure all the usual suspects are standing there on the stage with them when they launch.  What they demonstrate on that stage is blinding performance.  Remember performance?  “Well performance is back and it’s here to stay,” they say.  Here’s the same app on the same kind of machine.  The one on the left uses the latest public version of Windows.  The one on the right uses the new MulticoreX OS and Tools.  It runs 8X faster on the latest chips.  Plus, it will get 2X faster every year due to Moore’s Law (slight marketing exaggeration, every other year).  BTW, we will be selling tablets and phones based on the same technology.  Here is an MS Surface running an amazing video game.  Here is the same thing on iPad.  Here’s that app on our MulticoreX reference platform that cost $1500 and is a non-MulticoreX version of the same software on a $10,000 Mac Pro.  See?  MulticoreX is running circles around the Mac Pro.  Imagine that!  Oh, and here is a Porsche Design computer running MulticoreX and here’s the Leatherman PC for hard working handy men to put in their garages, and here is the Raph Lauren designed tablet–look it has design touches just like the Bugattis and Ferraris Mr Lauren likes to collect!

ShelbyGT500KR

Performance is back and it’s here to stay!

Can it be done?

As I said, it is a very risky play.  It won’t be easy, but I believe it is possible.  Microsoft already has exactly the kind of people on staff already that could try to do it.  We were doing something similar with success at my grad school, Rice University, back in the day.  It will likely take something this audacious to regain their crown if they’re ever going to.  They need a Skunkworks Lockheed SR-71 style project to pull it off.  If they can make it easy for any developer to write software that uses 8 cores to full effect without hardly trying, it’ll be fine if they have no idea how to do 16 cores and need to figure that out as the story unfolds.  It also creates those wonderful lock-in opportunities.  There’ll be no end of patents, and this sort of thing is genuinely hard to do, so would-be copiers may take a long time to catch up, if ever.

This is not a play that can be executed by a Board that doesn’t understand technology very well or that is more concerned about politics and glad handing than winning.  Same for the CEO.  It needs a hard nosed player with vision who won’t accept failure and doesn’t care whose feathers are ruffled along the way.  They can get some measure of political air cover by making it a skunkworks.  Perhaps it should even be moved out of Seattle to some controversial place.  It needs a chief architect who directly has their fingers in the pie and is a seriously Uber Geek.  I’d nominate Anders Hejlsberg for the position if it was my magic wand to wave.

It’s these human factors that will most likely prevent it from happening moreso than the technical difficulty (which cannot be underestimated).

Posted in apple, business, multicore, platforms, software development, strategy | 2 Comments »

Good Customer Experience Trumps Good Customer Service. Bad CUX Trumps All. A Tale of Chukka Boots and Photoshop.

Posted by Bob Warfield on January 22, 2014

ChukkaBootsGood Customer Experience trumps Good Customer Service, even if you are Zappo’s.  My wife quit buying shoes from Zappo’s after they sent her the wrong pair of shoes for the third time and she had to return them.  They didn’t do it all on the same transaction, it happened over a fairly long period of time.  And yes, the Zappo’s Customer Service people were wonderful as always.  But it didn’t matter–the underlying Customer Experience was giving her the wrong shoes and she only allowed that to happen so many times before she gave up on them.

I had a similar experience with Zappo’s, but I didn’t even get as far as Customer Service.  I have bought shoes from them once–a nice pair of Clark’s Chukka Boots.   Great!

Some time later, I went looking for some tennis shoes.  I have a penchant for bright red shoes of the most exotic design possible that I wear when I go to hear live music.  I went straight to Zappo’s, found a pair of shoes I wanted, and tried to purchase.  I expected to be able to use my Amazon account, given they’re owned by Amazon and all, and it looked like I could do that, but I actually couldn’t quite make it work.  I don’t have an account on Zappo’s, because in a time of data breaches like Target’s, I open as few accounts as I can.  So I moved on.  It came time for me to buy another pair of shoes and I went  back to Zappo’s again, thinking that companies as savvy as Amazon and Zappo’s would surely have fixed the problem.  I found the shoes I wanted and tried once more to buy them.  No joy.  I could find no way to buy on my Amazon account and did not want to spend the time opening a Zappo’s account.

Not only did Zappo’s lose the sale of 2 pairs of shoes, but I just won’t go back there again.  It isn’t clear to me Amazon cares much, because in the end, I did buy those 2 pair from Amazon.  But if there was a good alternative I was familiar with, I would’ve skipped Amazon too, just for annoying me.

Now, how hard would it be for Zappo’s not to send my wife the wrong pair of shoes 3 times?  She doesn’t buy shoes all that often, so it was surprising it happened to her so many times.  And how hard would it be for Amazon to make it easy for me to buy shoes from Zappo’s with my existing Amazon account?  Come on, this can’t be rocket science for a company like Amazon.  If Google can figure out to put a birthday logo on their search page on my birthday because it picked up my birthdate somewhere in their far flung empire, Amazon can let me buy Zappo’s shoes with an Amazon account, right?

Fast forward to this morning.  I was doing something and fired up Adobe Photoshop CS3 (yes, I have had it for a long time!).  It immediately announced I had 2 days left to activate or it would die.  Great, I did remember it asking a few days ago.  I had tried and it kept telling me it had an Internet connection problem.  I knew it wasn’t at my end, nothing else was complaining, so I figured I try again–they surely had fixed their problem by now.

No joy.

I was forced to use their phone activation.  With some trepidation I dialed the toll-free number and waited.  I really hate phone support.  It just isn’t ever a happy thing.  Ever.

Eventually, it had me key in a 24 digit serial number followed by a 32 digit activation code using my phone’s keypad.  Wow, that was a joy–not!  But, Photoshop at least did pop up a box that had the phone number to call plus these two lengthy codes to make it easier.  Unfortunately, the phone robot announced my activation code did not have enough digits.

WTF?!??  This was exactly the same code that Photoshop was telling me was the one to use.  How could it be wrong?

I tried twice, to no avail, at which point it told me to hold for a support representative.  Good, I was ready to let some human being know what I thought about all this after having used the software for several years.  Unfortunately, after a 5 minute wait, the Adobe side announced that they were no longer handling activation problems by telephone and gave me a URL I would have to visit with my browser to fix it.  Of course my blood pressure went up to the next DefCon level.

I went to the page suggested and couldn’t find even a hint of clue about what to do.  It was kind of a haphazard FAQ that only listed a few things, none of which could possibly be at issue.  When I got to the bottom, there was a Chat button with a message that cheerfully informed me I could get on right away with an agent if I would simply click.  So I did.

Of course as soon as the chat window opened, it informed me there were other customers ahead of me in line.  WTF?

Okay, deep cleansing breaths.  After no less than 10 messages informing me I was still waiting (no duh, I know I am waiting), Kumar finally popped up.

Kumar is mostly robot.  He is no doubt based on the old ELIZA simulated psychiatrist program which would always turn your question back around without really ever answering much.  It’s a primitive AI technique that’s been around forever.  Try it if you like, it’s kind of creepy in the same way that Kumar was.  I had to provide a description of my problem up front, and Kumar would ask me questions that were phrased along the lines of what I’d already told it, but that didn’t really add much color to the situation:

“Hi Bob.  You’re here because you can’t activate your Photoshop?”

“Yeah Kumar, that’s what I said in the original description.”

This is where Kumar gets clever.  Every time I respond, I get back a message saying, “Okay Bob, I’ll be back in 2-3 minutes after I check into that and take the necessary actions.”  Literally every single response I made, it would do that.  This is because Kumar, or whatever the real human being is named, is sitting in a giant call center somewhere dealing with probably 100 customers simultaneously.  He doesn’t want to get back to any one of us too quickly lest we monopolize too much of his time and annoy the other customers.  So, he uses all this clever software mostly to stall us customers so he can handle more of us.  Sweet!

He asks me to type in my 24-digit serial number (DOH!), but fortunately, I can just copy and paste it (Hah, outsmarted you bozos!).  Then he goes away for extra long–longer than the 2-3 minutes promised.  When he gets back, he wants to know my email for my Adobe customer account.  Oh boy.  Each piece of information will be asked for at 5 to 10 minute intervals–this is going to be painful and I have an appointment in 10 minutes.  I call the appointment to say I am coming, but I will be late.  It’s taken me 45 minutes with Kumar to get this far.

And then, a bit of magic happens.  Kumar comes back and says it’s all fixed, please try again.  I do, and low and behold, the Internet activation works.  A modicum of happiness ensues and I recall the nuclear bombers my DefCon blood pressure rise had summoned.  Then I started thinking about what had happened. Basically, the only reason online activation, had failed, the only reason I had worried whether I would fail to activate and thereby lose a valuable tool, the only reason I had to spend 45 minutes trying to tell Kumar the two pieces of information needed to fix the problem, the only reason I was getting really ticked off at Adobe, was because they wanted to associate my serial number (Kumar didn’t even ask me for the activation code) with my email.

Remember when I said I didn’t create an account with Zappo’s?  Well I also didn’t bother registering Photoshop.  It used to pop up a box about every 2 weeks asking me to fill out an elaborate form, and I would just tell it to go away.  Eventually it offered me the chance to tell it to never ask again, and I did so, thinking what a relief.  Nowhere did they tell me that eventually some power that be would decide they were going to force me to reactivate software that had already been activated and then put me through a painful experience of apparently having that activation fail, just because they wanted me to register.  A registration they no doubt needed so they can send me better marketing spam.

Can we see by now how to apply the maxim that Good Customer Experience trumps Good Customer Service?  Adobe didn’t really give good customer service, BTW, it was terrible.  I don’t blame Kumar for it.  I blame a Draconian wall and a moat filled with alligators designed to keep costs down on a cost center (Customer Service) that was built by a left and a right hand not knowing each other in a large bureaucratic organization and a marketing organization that only cares about filling its lead hungry maw.  It’s about par for the course with large organizations but it also happens to small organizations that pride themselves on treating customers well.  Tragically, it is so unnecessary and counter-productive too.

Let’s take Adobe’s case.  One could argue they never should’ve resorted to all this to connect my email to a serial number.  Let the man not register.  Or, they could’ve just told me I had to register to activate.  Hell, they could’ve just asked for my email as part of the re-activation and I’d have been happy.  Or they could’ve asked me to login to my Adobe account, also acceptable.  There are endless up front Customer Experience things they could have done to eliminate the need for me to deal with Customer Service at all.  Ironically, it would’ve been cheaper to do that.  45 minutes of Kumar and all those automated voice response systems had to cost something.

I run a one-man SaaS company (actually there are a couple part timers, but I’m making a point).  I do all the Customer Service myself.  Whenever and wherever I can, I try to change the User Experience to eliminate classes of Customer Service I see over and over again.  I have to just to survive.  Best of all, it makes the Customers happier and less frustrated.  The next time you’re gearing up a new release of your software, e-commerce front end, or whatever, ask what you can do to reduce the need for Customer Service.  Find out what the common sources of it are.  Get rid of a few of them every time you ship another release.  It’ll be a Good Thing for all concerned, I promise.

Posted in amazon, customer service, Marketing, service, strategy, user interface | Leave a Comment »

Sales Gets Too Much Credit and Too Much Cash for Selling

Posted by Bob Warfield on November 25, 2013

PutinCookiesOh boy, time for even more controversy.  Did he really just say that Sales gets too much credit?  Shouldn’t everybody be thinking that Sales is Job #1 for Everyone the way NetApp’s Tom Mendoza or countless other former Sales VP’s would?

It’s shocking, I know, for me to say what I just did and I don’t mean in any way to demean Sales. But all too often Sales wants to sit at the top of pantheon, call all the shots, take all the credit, get the biggest comp packages, and generally act like everyone should be working for them.

Boards and Investors eat this up because they’re short-term aligned, just like Sales, but we’ve seen countless times in American Business that there are problems with entrusting everything to the short-term mindset.  Just remember one thing–Steve Ballmer was a Salesman first and foremost, but it was on his watch that Microsoft lost their way.  It isn’t that Ballmer was necessarily a bad guy, or even a bad Sales Guy.  He’ll be the first to point to the steady growth in Microsoft profitability over his tenure.  Yet, there’s something desperately missing from these facile proclamations like Medoza’s in the Forbes article:

In the end, companies exist for one reason: to sell their product or service.  If the company can’t sell its product or service, it will fail–and all of the employees and managers will have to go do something else.  Everything that anyone in the company does, at any time, is secondary to the job of selling.

A company that gets too focused purely on selling their product or service runs the risk of losing sight of the partnership between Company and Customer.  They risk taking that Customer for granted and assuming there’s always more where that came from.  But we live in a world of frictionless communication, where we can cross 6 degrees of separation to pull a reference on any product, company, or person with ease.  We live in a world with a long memory, where bad service and bad product anecdotes live on perpetually on the Internet.  We live in a world where recurring revenue is King.  In short, we live in a world where Customers are Empowered and Sales is increasingly weakened.  The balance is inexorably moving to Customers.

It would’ve been more accurate and more enlightening if the Sales department could’ve been named “Closing” instead of “Sales.”  It’s what most of them do, it’s how they think, and it’s typically when they enter the process.  Of course as soon as you go down this line of discussion, the Sales Exec will back up and start talking very smoothly about a focus on Sales and Customers, but that’s a defensive ploy and largely semantics.  Sales is incented for short term performance, but the war is won in the long-term.  Sales are Closers which by definition is a short-term exercise.  Their employers can’t afford to pay them the rates they get to start any earlier in the Sales Funnel.  They wait for buying intent or, to use the jargon for it: they wait for qualified leads.

Ask yourself what’s harder:  convincing people who already want to buy a product like yours to pick yours, or convincing people they need the product in the first place?  Both are critically important, but a surprising amount of the work involved in either challenge has little to do with Sales.  If a company has no budget for your product category and Sales has to go in and create budget, that sends the sales cycle through the roof.  Especially in tough times like these where “creating budget” means a year of meetings and delays.  Sales is simply to expensive a tool to do that work.

Sales relies on Marketing to do its job right to get the word out so people create budget and then actually contact the company and become sales leads. Without leads, Sales accomplishes little selling. Sales relies on Product to build Products that are worth buying. Without something to sell, there can be little selling. Without decent word-of-mouth and references from Delighted Customers, it is a long uphill battle to sell and competitors eat your lunch.  Without great references and a great brand, what do you have left to compete with except price?  That’s a tough place to be in and still pay for expensive sales people.

Perhaps most of all, real scratch-golfing, Rolex timekeeping, Bally-loafer-shod, and Armani-suit-clad Salespeople rely on Market In-Efficiency for their success.  They need to be Information Gatekeepers.  They have to force you to go through them to learn anything.  They’re the guys who will insist prices not be published so they can negotiate.  They don’t like Content Marketing, they want the lead forms filled out in triplicate before they give a prospect the time of day.  The White Papers you’ll typically get are long on hype and short on substance.  Their sole purpose is to get you into a meeting with the Salesperson.  They’re the promise-them-anything-to-get-the-sale then move on to the next one gang.  I don’t mean to say it like it’s a Bad Thing, but it does promote a certain myopic perspective that is not especially well-aligned with a focus on Delighting Customers.  Ask any CIO who is in the business of buying expensive Enterprise Software what they think and they’ll point to scar tissue and tell you quickly that more transparency is always a good thing.

That’s why I tend to bristle anytime someone argues purely that Sales is Job #1.  At best I’ll settle for having Job #1 be Delighting Customers.

In the end, everyone has a role to play–the Closers, the Marketers, the Makers, the Customer Service people (or Customer Success is an even better way to think of it), and the Bean Counters (if nobody took record of the sale or billed the customer, there was no sale, just the cost of product going out the door).  It’s a Team Effort, and it’s very important to keep some perspective on that, particularly the Customer’s perspective if you expect to succeed in the long run.

Posted in business, strategy | 1 Comment »

Why Pay for Mediocre Marketing Advice When Good Advice is Free?

Posted by Bob Warfield on November 22, 2013

snake-oilOkay, it’s time for somebody to call BS on a practice I’ve seen for a long time.  This will probably get me some negative press, but it needs doing.  The practice I’m tired of goes something like this:

-  Entrepreneur starts up a bootstrapped business.  Enjoys modest success and quits Day Job.

-  Suddenly, they are the World’s Foremost Expert on Marketing, and they want to sell that expertise.

-  Often the expertise costs more than the product that let them quit their Day Job and often they make more on the marketing advice than on their “real” business.

I see this happen countless times, and it just strikes me as wrong.  Sure you made a few bucks with that obscure product that teachers love.  Sure you’re on a jihad against unicorns or who knows what.  Sure you quit your Day Job.  But are you really that big a deal that people should be beating down your doors to buy your marketing advice?  Well maybe.  Perhaps you even say you’re kind of a big deal, and in that particular case, you probably are.  But a lot of these folks just haven’t enjoyed that much success.

Ask some basic questions:

1.  What was their signature success that qualifies them to be your marketing mentor?

2.  How big was that success really?  How does that compare with what you hope to achieve?

3.  How many times have they succeeded like that?  Silicon Valley is filled with one trick ponies.

4.  Did they succeed only in frothy bubbly times, or do they have some success when times were tough?

5.  Did they product a big liquidity event or earn a great income year after year?

6.  If their core business is so great, how come they have time to be selling marketing advice?  Why are they selling marketing advice?

7.  If this advice is so special, are the other marketing luminaries quoting them?  Are they even part of that set?  Or are they just being quoted by their customers?  You know, the people that buy these things because they don’t know?

Young Entrepreneurs are vulnerable.  They’d have to be to give up a big chunk of their company for very little cash just so they can be part of an incubator they can learn from.  That’s another one of these deals that’s in the same category for me–you’re paying a lot for some advice that seems mediocre relative to what you can get absolutely for free.  Yeah sure, maybe you’ll make contacts that matter.  Guess what?  It’s not that hard to make contacts and there are cheaper ways to network.  Most successful people are surprisingly generous with their time and advice if you approach it right.

OTOH, maybe this incubator thing is just something you do so somebody will hang a credential on you that dispells some of your insecurity. You think that credential is so others will respect you, but mostly people respect success, not the promise of success.  A lot of this stuff is just getting in the way of getting on with it.  There is no group you can join, no person you can talk to, no degree you can get that will guarantee success.  It’s all up to you, and one of the first things you have to learn is how to sift through all the inputs and get what you really need while ignoring the rest.

I just hate to see people being taken advantage of out of ignorance or insecurity.  I’ve done 7 startups now, founded 4 of the 7, had 3 successful Big Exits (2 acquisitions and an IPO), 3 failures, and 1 very happily still going company.  That’s a pretty reliable track record where small business is concerned.  You don’t get that many hits accidentally.  I did my first run straight out of college in Houston, Texas at the tender age of 23 where there weren’t any incubators or anyone to ask for advice.  Most people thought I was weird or nuts for trying to start a software company instead of getting a real job.

When I was first getting my current bootstrapped company, CNCCookbook, going, I bought a bunch of those marketing products I’m railing against.  6 or 7 of them.  Each one was $75 to $300.  There was LOTs of information there to read.  Lots of formulas for success.  I was hungry to find the knowledge that had to be valuable because it wasn’t available for free.  I had everything from how to get 10 zillion followers on Facebook overnight to the you-betcha-sure-thing Guide to SEO.  But a funny thing happened.  Not one single one of those expensive products taught me anything I hadn’t already learned for free–not one of them!

We live in the age of Content Marketing, Inbound Marketing, or whatever you want to call it.  Many people are giving away extremely high quality information for free, just to get your attention, so they can sell you a real product or service.  You don’t need to pay a bunch of money for Joe-Average-Entrepreneur’s-Startup-Secrets-Snake-Oil-Course.  Real success stories are dying to tell you everything they know.

How can they do that?

It’s a time honored tradition in modern marketing.  So long as they have something else to sell, they give away valuable content free to earn your trust, interest, and attention.  I’ve used this method to build my CNCCookbook web site up to 2 million visitors a year–huge for the CNC Machining niche market.  It’s not that hard to do, but it takes some time, it takes some determination, some love for the subject matter, and the ability to write.  Personally, I think establishing contact with an audience via your content is a critical first step every startup needs to take–even before they have anything to sell.  I didn’t invent this idea–really talented marketing people did, and they’re out there today desperately trying to give away their best ideas to you!

Where’s the good free stuff?  Metaphorically, it is falling from the Internet sky on marketing blogs everywhere.  Seek out the most successful marketing software companies.  You know, the ones that really get content marketing.  There is a vast amount of great information pouring forth from their blogs.  You can even get materials a lot like the “marketing courses” these other guys sell by signing up for a white paper–no charge, they just want you to fill out a contact form.  You gotta believe marketing people who can successfully sell marketing software to other marketing people might just know a little something about marketing!

Here’s my short list of great blogs from marketing software companies:

KISSmetrics

Unbounce

I love split testing

MailChimp

ManageWP

SEOMoz Daily

Buffer Blog

Totango Blog

WordPress.com Blog

ComScore Voices

Get Elastic

Next, find companies selling marketing services such as SEO or other services.  Or they may be marketers that don’t sell anything to other marketers, but they’re just driven to write.  I guess I consider myself in that category.  I love to share information and ideas.  Again, there’s a ton of them with great blogs:

Analytics Talk

Chris Brown’s Branding and Marketing

Convince and Convert

Digital Marketing Blog

Futuristic Play by Andrew Chen

Heidi Cohen

Seth Godin

Quick Sprout (He’s Kind of a Big Deal)

IdeaLaunch

Jeff Bulla’s Blog

Marketing Tech Blog

Marketing Experiments Blog

SaaS Growth Strategies

Spatially Relevant

These people know each other.  They quote each other.  They respect each other.  If you want to learn from an expert, see who the other experts listen to.

Entrepreneur Resources abound too.  Get the word from fellow entrepreneurs and VC’s, but don’t pay for it.  You’ve got Hacker News full of from the horse’s mouth information by entrepreneurs and for entrepreneurs.  You’ve got more and more VC’s going on line to tell you what they think.  You’ve got tons of bootstrappers from 37Signals to SmugMug on down to guys like me, all telling you what they think and how they did it.  And they’re telling you all of that for free, or in some cases for the modest price of a cheap book like 37Signals or Seth Godin.

Stick all of those feeds into your RSS reader, then go find more.  Click through the links in the articles from these blogs–they lead to other rich sources of information.  Fill it up until you’ve always got a few hundred unread articles.  But try very hard to at least scan everything until you’ve got a good feel for what you’re missing if you don’t read.  While you’re scanning, start a ToDo list.  These are ideas from the articles you want to try and topics you need to research more fully.

Too much to read?  What’s the matter, you don’t have time to actually learn what it takes to be successful?  You need to be like a sponge early on, and none of those wanna-be-pay-me-for-my-sure-thing-courses are going to make that any easier than just reading this stuff that’s available for free.  In fact, they’ll make it worse.  They will also bury you in content, then they’ll send you endless emails trying to sell you even more content.  The difference is you are paying them your cash before you even know what you’re really getting.  Plus, you’re reading from one or a few sources and you don’t get to see what correlates and corroborates and resonates across many sources.  These guys I’m pushing above are giving it away for free and you can scan it and delete it if it isn’t of interest.  You’ll get the Gestalt view of it.  You’ll get a gut feel for how it all fits together.

What could be a more valuable way to invest your time?

Still not enough time?  You can add my own clippings blog, Firehose Press, to your RSS Reader.  Those are articles I culled from the Firehose–I subscribe to about 200 blogs–on marketing.  Articles that were good or that moved me to add something to my own personal ToDo list.  It gets updated less and less frequently because once I’ve learned the lesson, I don’t bookmark the same lesson over and over again.

Once you reach the stage where your ToDo list is getting long and you are skimming and deleting more than you’re seriously reading, you’ve lifted the plane off the runway.  Hopefully you’re reaching and audience and your next challenge is to get better at it.  You’ve now got an RSS Feed that’s filled with new ideas for your hopper every single day.  New A/B tests to try.  New tactics and strategies.  New ideas for content.

Good for you.  Instead of buying fish, you’ve now learned how to fish.  Go forth and be prosperous.  But don’t package up what you learned into some cheezy course or seminar.  You got there standing on the shoulders of others.  Help the next guy–reach down, grab their hand, and boost them up.

Posted in bootstrapping, business, strategy | 5 Comments »

Does Your SaaS Company Have to Have a Sales Force?

Posted by Bob Warfield on October 7, 2013

used_cars_SalesmanAny time absolutes are being bandied about, I have to do the fact check.  Sorry, it’s just an automatic reflex.  We live in a world that is largely gray and seldom black and white.  This was never more true than in the world of startups.  Entrepreneurs need to see both sides of every coin before they cast their lot in any particular direction.  BTW, I get Jason’s posts directly via email thanks to Google+ (bloggers, take notice), so I seem to disagree with him fairly often.  It’s really more that his posts get to the top of my queue more often than others–I love a great deal of what he writes.

Fellow Enterprise Irregular Jason Lempkin just penned a post, “Curse of the Middlers:  Why Happiness Officers Can’t Stand in for True Sales Professionals.”  It’s a decent article if you start out a priori thinking you must have a Sales Force, but it never really delves into the question of whether you need a Sales Force.  That’s a pretty darned important question that goes to what your basic business model is going to be.  There’s a little bit of hand waving about the possibility of companies like Atlassian or 37Signals which have not needed sales forces.  Jason basically says:

Well maybe you can.  More power to you.  As long as there is enough momentum in your business to hit your revenue goals without a true sales team, then by definition you don’t need one.

I don’t think this is right.  It isn’t a question of whether there is enough momentum and it certainly isn’t the case that adding sales can always increase momentum.  Sales is not something you can necessarily add to any business and expect it to make a difference.  It is integral to what the business model is in the first place.

Let’s drop back a few paces and you’ll see what I mean.  I was with a startup one time who had the luxury of having Geoffrey Moore (Mr Chasm Crosser) come in to advise us about the business.  If ever there was a guy who understands the arcane alchemy of how to combine products, markets, marketing, and business models in successful combinations, it’s Geoffrey.  His view of the whole Sales thing is that it is a question of ASP’s.  Below a certain ASP, a Sales Force won’t work.  The numbers we talked about were along these lines:

0 – $15,000:  Forget the Sales Force.  Focus on reducing the friction to purchase.  This is where the Atlassians and the 37Signals thrive.  These are pure Marketing plays, and there are zillions of successful businesses that work this way.  One could argue most successful businesses do.

$15,000 – $100,000:  No Man’s Land.  It’s too much money to expect the buy to put on their credit card, yet it is too little to field a Sales Force profitably.  You can argue Telesales works here, and it can towards the upper end.  This is also traditionally good territory for Dealer networks, which is yet another business model.

Over $100,000:  Prime Sales Force Territory.  When I worked for Oracle, Sales used to tell us product people that if they couldn’t charge at least $100K, they wouldn’t even look at the product, even as an add-on to something else.

Looked at in those terms, it becomes fairly straightforward to understand whether you need a Salesforce or not.  Let’s consider some potentially extenuating circumstances, and also consider as an entrepreneur whether you want to try to steer towards one of these or some other (realizing you probaby wouldn’t ever want to steer towards, “No Man’s Land”).

I Just Started My SaaS Company and No Way Am I Getting $100K.  None of Them Do.

Yep, it’s true.  Welcome to the world of needing reference accounts.  You don’t start with $100K sales day 1.  Not even year 1.  If you have an offering capable of commanding such sales,  You won’t be ready to take them down until you’ve gotten enough credibility through reference accounts to satisfy they buyers you’re worth betting on.  The last Big Sale + Sales Driven company I worked for was Callidus.  I was with the company from $12 million in revenue through IPO.  You could see tangible results each time a bigger customer was signed up.  Nobody ever liked being your biggest customer unless there were no alternatives or it was such a screaming deal they couldn’t lose.  But, as soon as you could point to someone bigger, suddenly you had almost infinitely more credibility.  Steadily climbing that ladder of bigger and bigger sales is important to a Sales Driven company.  Until you get there, you won’t be very capital efficient, which is a big problem when Bootstrapping Enterprise SaaS that has a Sales Force.

What if I Tilt Slightly Up-Market?

Jason has another good post, “Why Tilting Just a Smidge from Self-Service Can Grow Your Revenue 30x.”  I like the post a lot and think about its ramifications for my own company, but I’m skeptical of a lot of the numbers in there.  For example, Jason says single seat SaaS churns at a rate of 2.5% to 4%.  Annualized, that comes out to 24-36%.  He goes on to say that 5 seat deals churn at 1-1.5% a month and that over time the churn will be negative because some customers will add seats faster than other customers churn.  My problems with this are four-fold.

First, Jason shows the single seat numbers with churn factored in and concludes you keep the customers for 8 mos and that therefore they are only worth $240.  He gets there by arguing the customers are only around for 8 mos on average.  But there’s a better way to do the math since one of the great charms of small ASP businesses is they have a lot more customers.  They don’t have just one or a handful like a Big Ticket company.  If we model it that way, I get an ASP for the year of $290 to $324 per seat.

Second, Jason shows no churn on the 5-seat deal after having said there’ll be 1.5% per month.  Let’s be fair and factor in the 1.5%–that means a seat is worth $331.74.  That’s starting to be a lot closer to the $324 a seat a good single seat sale company can achieve.

Third, Jason conflates the number of seats sold with the likelihood the deal will close.  He’s up front about saying that he thinks Sales will make a deal more likely to close no matter what in the Happiness Officer post.  As he says, “More deals will both open, and close, when you have a trained sales professional working with your prospects.”  But this is a problem of how you measure it.  If you count the deals closed as the percentage of Sales Leads closed, he is right.  A good sales force will do very well on that metric.  But, Sales Leads is the wrong metric for this comparison because they have already self-selected buying interest.  they were qualified six ways to Sunday else the VP of Sales excoriated the VP of Marketing for sending him crappy leads.  We should drop back and count all visits to the company’s web page and then take the percentage of those closed to get a real Apples-to-Apples comparison.  Looked at another way, there’s always far fewer but bigger transactions with a Sales Force.  For purposes of this example, it simply means it isn’t quite right to throw down 5 seats against 1 seat and call that Apples-to-Apples.  If we had to throw down # of seats, it should be adjusted by the relative close rates.  But we don’t know what they are, so I’ve got to stick to comparing single seat numbers.

Fourth, Jason says churn will be negative over time for Sales Driven SaaS.  You should be so lucky.  If that were common, why do so many SaaS IPO candidates get looked at so carefully for churn?  Why do we see so many articles about SaaS unprofitability that call out churn?  Why do so many get called on the carpet over it?  At the same time, he takes it as an article of faith that the churn rates for single seat sales must be much higher.  Why?  Where’s the data?  Let’s talk about great brands selling to individuals that have very little churn.  I’ll just start right at the top and mention Apple.  Don’t like Apple?  Well how about Google?  Dropbox?  37Signals?  Atlassian?  SmugMug?

We shouldn’t confuse nice to have impulse purchases, which can happen to Sales Driven SaaS too, with powerful brands, products with lock-in, products with network effects, and products that are just too good to be without.

Here’s what I will readily agree to:

Tilting slightly up-market may increase your multiple-seat sales revenue by 30X.

Here, I’ll use language similar to Jason’s about this case:

Well maybe you can.  More power to you.  As long as there are enough multiple-seat opportunities for your business, you might benefit from a true sales team.

It’s really a function of whether whatever team features your software offers make it interesting enough to the team that they’ll bite.  If they do, it’s great news.  Just make sure they’re closing big enough deals (back to that Geoffrey Moore business) and that they’re not deals you could’ve closed anyway without them.  For my own business, I already offer volume purchase discounts on 3, 5, and 10 seats and they sell well.  I will be adding some Team features to see how much that accelerates, but until I get some really BIG deals, I just don’t need a Sales Guy to close a few multi-seat deals.

Note that at some point, you will automatically be able to add a Sales Force.  You’ll be dealing with enough large companies that they will insist on the kind of care and feeding a Sales Force can give them, and it’ll be worth it to oblige.  Just don’t think that has to happen too early.  It certainly didn’t happen very early for Amazon Web Services or for Google.

But Won’t Sales Always Increase the Dollars I Can Sell For?

This is another one I have to differ with.  Jason spells it out pretty clearly when he says, “Sales professionals know how to maximize the revenue per lead.”  Hang on, do you really think an individual sales guy knows how to maximize revenue per lead better than say the people at Walmart who maximize revenue per shopper?  What about the people at Amazon who do the same thing?  Substitute the people that design promotions for any E-Commerce site.  Why would we assume every Sales Rep can automatically do a better job?

OTOH, having come out of the Sales Compensation business with Callidus, I will tell you that one of the most effective ways to improve the bottom line is to change the sales comp plans to give them less flexibility in what they negotiate.  Gaining alignment between an individual sales person and overall revenue and profitability is extremely difficult.

The way to look at this is to consider who in the organization will be responsible for maximizing revenue per lead (or profit if that is more important as it sometimes is).  If nobody is responsible for maximizing sales per lead, then Jason has a point.  The Sales Guy has an advantage: he can look the customer in the eye, and if he is good, he will see how much money is in their pocket and take most of it out.  The Marketing Guy has an advantage:  he has lots more transactions than a Sales Driven company, he can measure the results of experiments much more accurately with analytics, and over time he can hone a promotion strategy that maximizes revenue per shopper.  The only way to tell who actually does better would be to compile metrics of the profitability and revenues of sales-driven vs revenue-driven companies.

Once you start thinking of the Sales Guy as the one who offers promotions by negotiating price, you’ll be a lot wiser to the issues where their agenda (make quota, go to club, buy a new car, yada, yada) may not be that well aligned with the overall company’s agenda.  For example, I find there is a certain frequency with which I can offer my marketing-driven promotions.  If I have them too often, all I am doing is lowering my average selling price.  If I have them too infrequently, I am lower my close rates as some people will only buy if they get a deal.  Can you really coordinate your salespeople to such a cycle?  Some you can, some you can’t, but you will have to work at it hard in either case.

One aside is that there is a natural tension between Marketing and Sales.  It is very hard to get an extremely high quality Marketer to join a Sales-Driven company (hard to get very high quality product people too, hence Enterprise software is often not the paragon of software virtue).  They don’t want to be under the thumb of that Sales Guy.  They don’t want to be constantly blamed when numbers are missed.  But eventually, if the CEO is good enough, he will create a situation where the company can attract and retain both and he’ll see to it that they work and play well together.  Interestingly, I have seen this work best when you have a CEO that was a Sales Guy who isn’t on his first CEO gig.

One last point here–the role of Sales is to make the market they’re in less efficient in hopes of increasing profitability.  That’s the real reason why you can’t get much real information without filling out a lead form.  This approach works, unless someone is disrupting you by making the market radically more efficient.  That brings me to my next point:

Important Counter-Example:  Lack of Sales Force as Disruption

The history of the modern computing landscape is one of increasing efficiency disrupting sales forces that wanted the markets to be inefficient.  That’s how mass markets emerge in new fields–they kick down the doors, offer unprecedented lower price points, and tell people things they never knew before.  Think IBM or DEC scratch-golfing Sales Guys having to go against the neighborhood computer store.  That was a painful disruption that neither survived when it came to the PC market (or indeed, their whole market for DEC).  They had to retreat up market.  Think the neighborhood computer store, which essentially was just smaller time sales people, competing with online sellers like Dell.  One more turn of the wheel and those guys were in trouble.

Once a market encounters meaningful disruption of this kind, it is extremely hard to put the genie back in the bottle.  After all, how do you argue that more information and lower prices are bad to customers?  The only defense is to retreat up-market.  The disruption involved in trying to change a Sales-Driven company into a Marketing-Driven company is at least as bad if not worse than going from On-Premises to SaaS.  I’m not sure I know of any successful examples where someone pulled it off.

Entrepreneurs, take note: if you can figure out how to take a crusty sales-driven market and turn it into something coin operated (insert credit card here, pay low fee, get product now), you can go disrupt a market.

So I Shouldn’t Ever Need a Sales Force?

Not so fast!

There is the matter of what your ASP’s will be–at a certain point ($100K for sure, maybe less), you will have to use a Sales Force.  To a certain extent this will be governed by the nature of your product.  Can it add enough value to relatively few people?  Will Enterprises require an all-or-nothing decision?  Such factors will dictate.

But suppose you have a blank sheet of paper.  You want to start a brand new SaaS company.  What should you aim for?

The choice here, for me at least, is easy–I’ll take the low ASP marketing-driven ideas every time.  We live in a time when you have to bootstrap on your own dime as far as possible before you can get any outside capital.  Cash flow is king.  Insights into where to double down and where to fold are king.  The web is there as a relatively frictionless resource to get the word out about your offering.  I don’t want to wait for sales cycles.  I don’t want to wait to close large enough sales to have built credibility.  I want the insights that come from analytics on large numbers of transactions today.  I want my customers lifecycle from prospect to happy subscriber to be one integrated UX on the web.

That will maximize my chances of growing a company to cash flow positive.  That will maximize my early growth potential.  Down the road, I will be able to look at whether I want to raise capital and whether I want to try to fire up a sales force to sell Team Editions.  Meanwhile, I’ve got a web company to focus on.

Posted in business, Marketing, strategy | 9 Comments »

 
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