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For Executives, Entrepreneurs, and other Digerati who need to know about SaaS and Web 2.0.

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 »

Will Context Eat the Software Industry?

Posted by Bob Warfield on September 23, 2013

ManBehindCurtainI read with interest fellow Enterprise Irregular Michael Krigsman’s recent post, “Context Will Eat the Software Industry.”  Kudos for the excellent link baiting paraphrase of Marc Andreesen’s “Software is Eating the World.”  Andreesen is right, but I’m not so sure about Michael’s hypothesis.

He is centered in some thinking about Content Marketing and why some Content Marketing, specifically Enterprise Content Marketing, is not so hot:

The best content speaks directly to the reader, listener, or viewer. However, creating great content requires a nuanced understanding of the audience, which precisely explains why most enterprise content sucks. Content without empathy misses the target and quickly falls into the trap of jargon and sameness.

To see the effect of bland content marketing, try a test. Examine marketing materials for directly competing products from the major enterprise software vendors and try to discern significant differences in messaging and positioning. You’ll likely discover that the major vendors tend to look similar; remove the product name and see how the competitors all sound similar. I tried a variant of this test and the results demonstrated how bland enterprise marketing become as it regresses to the least common denominator.

From this he sees Content that is increasingly targeted to specific readers (e.g. targeted to Context) as the answer.  Let’s talk about that.

First, in the spirit of Full Disclosure, I want to point out that I make my living as a Content Marketer.  I don’t do it as a service for others, but it is nearly exclusively how my bootstrap company, CNCCookbook, sells its wares.  As a result, I have spent a lot of time thinking about it and trying to get better at it.  I’ve been extremely happy with the results so far.

Now, what about Context?

Context is critical to the extent that there must be content available that speaks to the reader well enough to move them to some action.  If you can do so, you’re Content Marketing.  That action may range from buying a product to promoting a brand (i.e. telling others about it) to (especially in an Enterprise setting) being predisposed to favor or at least not block a brand.  I list those in roughly the order of importance.  While it’s great to have lots of people who’ve heard of you and think positively of you, if they never bother to tell anyone else and nobody buys your products, you’re not going to make it very far.

At this stage, I should point out that Enterprise selling is special.  I have been there, done that, and gotten the T-shirt, frequent flyer miles, and hotel breakfasts that comes of selling multi-million dollar Enterprise Software.  For that world, the costs are such that you don’t just get somebody to whip out a credit card after reading a pithy article on your blog.  Instead, you may get them to exhibit enough enthusiasm that you can regard them as a sales lead.  This will start the corporate CRM gears in motion and somebody from sales will contact them.  One could argue and probably win the argument that the whole point of Sales is to provide a finely honed and real-time sense of Context.  It is the Sales Team that puts feet on the ground inside the customer’s organization.  They get to know the players, the politics, and all the details of the buying decision being made.  That is the essential key context for such a transaction.

Does that mean Context is unimportant for Enterprise Content Marketing?  No, of course not, but it is an important nuance to be aware of and I will come back to it shortly.

The next thing I want to discuss is how Context can be implemented, because that seems to be the gist of how Context might eat the Software Industry.

Here Michael has some choice Bill Gates quotes:

Content is where I expect much of the real money will be made on the Internet, just as it was in broadcasting.

and:

A major reason paying for content doesn’t work very well yet is that it’s not practical to charge small amounts. The cost and hassle of electronic transactions makes it impractical to charge less than a fairly high subscription rate.

As Michael points out, micropayments are available from Paypal and many others these days, so that isn’t the problem.  The problem is that, as with making Ballmer CEO for so long, Bill Gates was wrong.  Content isn’t where the real money was made.  In fact, the real money was made by software supplying Context.  You will know what that means more familiarly if you think about names like Google and Facebook.  If you think about Content being where the real money would be made, you’d be thinking of Yahoo, and we all know how that turned out.

Context via Self Selection

This brings up an important first principle of Context, which I will call the Principle of Self Selection:

Context is implicitly applied when people search for content or go to a place where their preferred content is particularly rich.

One corollary of the Principle of Self Selection is that when a Content Marketing team is micro-managed too much to, “Stay on message,” they wind up not creating content that can self-select a broad enough range of Contexts.  I suppose we should not be surprised as the essence of Enterprise Software and the biggest weakness of both the Software and the Companies is that it is overly focused on Centralized Command and Control.  This is perhaps the foremost reason why Social continuously hits brick walls in the Enterprise–something so egalitarian is toxic to hardcore Command and Control.  It encourages too much fraternization with the enlisted and noncoms.  Command and Control is also tragically short on the empathy that Michael points to as being so important.  The higher ups rarely think of themselves as being in the Customer’s Shoes.  The ones that do have typically been the ones I have enjoyed working with the most, but they’re not always the most successful.  I’m not sure anyone ever accused Larry Ellison of having too much empathy.

It has been my observation that most organizations with awesome Sales teams have lousy Marketing.  One wins out over the other, and scratch golfing sales guys are bread to be genetically superior to marketers in the face to face arena.  The marketers simply lose at politics, and it is even worse for the quant jocks that are essential to great Content Marketing.  This is a problem, because when you’re Content Marketing, you cannot simply parrot the party line–you must create real value.  This means your Content Team needs to have some motivated stars who are empowered to do something great.

There is also a subtle mindset difference with Content Marketing.  Let’s call it the Principle of Jiu jitsu:

When Content Marketing, you must give away something of great value to build trust.  In doing so, you cannot overtly sell anything.

It is called the Principle of Jiu jitsu because like the ancient martial art, it gives where the opponent is strong and pushes hard where the opponent is weak.  The opponent is strong at resisting sales pitches.  We are trained to consider whether the spam will be worth it if we give over our email to get a white paper, for example.  In Content Marketing, we give them such fabulous content without the Sales Pitch or demand for email that they give us their email gladly to make sure they don’t miss any future free content.  This is tough for a lot of Sales people to grasp.  They’re used to the idea of using their Jedi mind tricks to machine the prospect into submission, “Sign here, these ARE the droids you’re looking for.”  In fairness, most of them are smart about giving their personal charisma for free to get to deliver the sales pitch, and that is sort of close to what’s being done by Content Marketing, but yet different.  BTW, it’s even tough for most Marketing people to grasp.  They will tell you to do things like remove all the navigation from your landing pages so that once the prospect winds up there, they have no choice but to fill out the lead form.  Sadly, this increases short term lead gen at the cost of long term trust.  Think carefully about your business and your sales cycle.  Is it really as short as you thought, or did it go through multiple iterations, coming on and off the forecast over the course of even a couple of years as the prospect came up to speed?

To capitalize on self-selection we serve up a smorgasbord of content, make sure it is SEO-optimized for search engines, use analytics to identify what’s working, and then double down further with more similar content.  Quite apart from killing software, that approach is only enabled by a bunch of analytics software, not to mention the software at Google that delivers them to your doorstep.  Seeing your content through the SEO lens as well as the reader’s lens is a subtle art that has to be learned over time.

Context via Machination

Of course self-selection is not the only way to establish Context.  There is what I will call, “Context by Machination”, where software establishes Context in real time based on what it is sensing.  Two examples would be Responsive Web Design and Marketing Automation.

Responsive Web Design is simply designing a web site so that it changes based on the device being used to access it.  This is done so mobile viewers have a better experience.  It’s blunt Context, but Context nonetheless.

Marketing Automation is a bit more subtle.  It means a lot of things, but in this case, let’s stick to Marketing Automation as observing what actions a prospect takes and serving up content based on those actions.  Ultimately, the content served up can even be the first call from telesales wanting to see if the budding relationship should be expanded to a full blown sales cycle.  A lot can be gained from this notion of Context.

To give an idea, let me tell a personal anecdote from my college days.  I’m a car nut and would haunt the local exotic car dealerships.  There’s no way I could’ve afforded such a machine as a college student, but I was not deterred.  Inevitably, a salesman would approach and try to determine if I was a serious prospect or or a tire kicking joyrider (that’s me!).  I would be taciturn, and would steadfastly refuse to ask any performance-related question.  Never ever ask how fast the car would go, for example.  Instead I wanted to know such things as, “How reliable are these cars?  What does it cost to repair one?  What’s the insurance premium likely to be?  Can they be driven in the rain?”  The salesman always took these sorts of sober questions as coming from someone who was trying to imagine what it would be like to live with one of these fiery beasts on a daily basis–a real buyer in other words who was over the romance of it.

So it is with what the Marketing Automation people call, “Lead scoring.”  So you read a white paper.  That’s good.  But did you look at the system requirements, for example?  Did you try the pricing calculator out with an interesting number of seats?  Did you look at the salesy content, or just the free value content?

Based on the lead scoring, the system can decide which emails to send to you.

This can be especially potent if you have a completely closed loop software company.  What I mean by that, is a software company where every single contact happens via the Internet:

-  They read your content on the Internet to get interested.

-  The software runs in the Cloud.

-  Customer Service is handled over the Internet.

In a world like that, the lines between Marketing, Product, and Service should rightfully become blurred.  You are always Marketing because SaaS renewals are so darned lucrative.  If they’re in the Product, why have them bail all the way out and go to a separate web site to get Customer Service?  Wouldn’t it be better if the Service people can directly see what’s happening in the Product as it unfolds with a problem?

It creates an extremely powerful combination to combine all three and view them essentially as one User Experience (UX) that has to be optimized for the entire cradle to grave lifecycle.  That’s Context via Machination at its finest.  I haven’t seen any companies that really optimize that end to end experience.  You get the Marketing Automation companies like Marketo and Eloqua at one end, and there are starting to be Product companies at the other like Totango.  It’s an interesting opportunity.  I haven’t even seen many companies that operate in that realm of Contextual Integration, but probably the biggest and best would be Amazon.  Funny how we’re still trying to get to what the CRM world originally called the “360 Degree view of the Customer.”

So, quite apart from Context Eating the Software Industry, that Man behind the Context Curtain’s name is “Software.”  If you don’t have keen Software chops in your Marketing, Product, and Customer Service worlds, you are missing several tricks.

Postscript

Heidi Cohen makes the problems with Enterprise Content Marketing even more obvious with her 3 Surefire Ways to Kill Content Marketing:

1.  Contains Too Much Marketing Hype and Buzzwords

2.  Lacks Truly Independent, Unbiased Information

3.  Is Too General To Be Effective

Yup.  You see all three constantly in Enterprise White Papers, blogs, and other content marketing.

Posted in business, Marketing | Leave a Comment »

You Have to Have an Overseas Dev Team to Scale? Baloney!

Posted by Bob Warfield on September 7, 2013

Baloney1ba·lo·ney 2 also bo·lo·ney (b -l n ) Slang. n. Nonsense. interj. Used to express disagreement or exasperation.

Recently, I was doing something on LinkedIn, and it asked me to endorse various people’s skills like it often does.  One face in particular popped out at me:  Anders Hejlsberg.  I’ve known Anders for many years, so I immediately had to check what it was about.  In this case they wanted me to endorse that Anders knows something about Software Engineering.  Unfortunately, it was a simple Endorse/Don’t Endorse interaction, because I would like to have said that Anders knows about as much about Software Engineering as the Pope knows about Catholicism.  You see, Anders is a Technical Fellow at Microsoft.  But beyond that, he is one of the most brilliant Software Engineers I’ve ever known.  I met him when I was VP of Engineering at Borland and he was the guy that built Delphi, or Turbo Pascal as it was known when I first came to Borland.  He went on to do C# and a whole lot more for Microsoft after leaving Borland in 1996.  Not only is he a brilliant Software Engineer, he is also one heck of a nice guy.

By now you’re wondering, “What does Anders Hejlsberg have to do with Overseas Development Teams anyway?”

Let’s start with why I even bring up the overseas subject.  To put it simply, I needed to pen a rebuttal to Jason Lempkin’s Wall Street Journal article which says essentially that all SaaS companies are probably going to have to have an overseas dev team because its just too hard to hire talented Software Engineers.  In fairness to Jason, he did say “probably”, but he said it so softly it’s clear he doesn’t mean it.  I disagree violently with the conclusion, to put it mildly.

The thing is, most software companies go about developing software all wrong.  They get pushed in all sorts of directions when people who don’t know much of anything about Software Engineering (i.e. non-technical CEO’s, VC’s, and the like) insist things be done a certain way because someone else they’re familiar with did it that way and succeeded.  There may be limited correlation, but there is absolutely no causality.  It’s not like we technical types have a monopoly on that stuff, I’m sure there’s plenty of Technical CEO’s telling their sales and marketing people similarly poorly informed things.  But the thing is, it happens a LOT more often to the technical types.  Plus, we techies often don’t have the backbone and interpersonal skills to stand up very well when a CEO or Board Member gets up a good head of steam about some issue.  Sometimes having technical leads who can’t stand up and disagree is intentional.  I would say that in over half the VP of Engineering jobs I’ve ever interviewed for they were looking for someone who would demurely take stone tablets from some other source–product management, sales, the CEO, or some “visionary”–and just get it done on time and one budget.  And by the way, do it quietly and without disturbing the other functions.  Needless to say, I was “over qualified” for those positions.

A lot of companies do a lot of things wrong, but Software Development is different.  It takes longer to build software.  It’s harder to change direction at the last minute.  And by the way, did you notice?  They’re called “Software” companies.  They’re not called “Sales” companies, “Marketing” companies, or “CEO’s best notion of the moment” companies.  It’s important that you actually be competent at building software in order to have a real “Software” company.

I was recently reading over a list of startup advice (you know how those numbered lists grab the eyeballs) a VC had put forward on Facebook as being excellent.  I got as far as #8:

8) Should you have a technical co-founder if you are not technical? No. If  you don’t already have a technical cofounder you can always outsource  technology and not give up equity.

I quit reading in disgust so I could go on to see just exactly what sort of software this guy builds.  Mostly, he seems to have parlayed a pretty basic web site into a sale to TheStreet.com.  From there, he’s mostly in the business of telling everyone else how to succeed.  There are so many of these Dale Carnegie types out there these days.  He does not appear to be a Software Engineer, though perhaps he has played one on a TV show somewhere.  This stuff makes me nuts.  Companies that think software is easy to build.  A venture ecosystem that needs to invest in lightweight products because the founders have to pay to get it built on their nickel.  CEO’s that couldn’t care less about building something that can actually change the world, they just want to throw something out there as cheaply as possible so they can spend more on this month’s lead generation.  Bubble riding, in other words.

Whatever happened to the days when people actually had to build something of note?  Something that might change the world, even a little bit, and not yet another eyeball aggregator?

Let’s put that rant aside and get back to the question of whether you will have to have an overseas dev team to scale.  I will put my stake in the ground thus:

You have a choice for your software company:  you can either choose to be excellent at building outstanding software or you can choose to build adequate software cheaply.  The latter path will ultimately be even more expensive than the former, but you’ll be left holding junk instead of a real product.

I’ll warn you I’m being very polite when I talk about software being “adequate.”  Software is hard.  It is the most complex stuff we humans build, at least until we start building organisms from scratch by tinkering with DNA.  Many things that people say are harder are basically software, things like CPU chips.  There’s this little problem in the software world–we don’t know how to get lots of Software Engineers to be able to work effectively together.  There are entire disciplines such as Agile Programming that try to deal with this problem.  We’ve known about the problem almost from the beginning of software.  It was well articulated in the relatively ancient Brooks classic, “The Mythical Man Month.”  It turns out, we’re only good at getting 7 to 10 developers working smoothly together.  Any more than that and you’d better be able to break the software down into modules that are very independent.

If that’s the fundamental limit, how do you build great software?  Here’s a hint:  you can’t do it by hiring more people onto the team.   Instead, you must focus on building great software with fewer better Software Engineers.  You must focus on breaking down the software into modules that work and play well together, something that is also very hard to do and can’t be offshored.  That’s hard core architecture that takes brilliant Software Engineers communicating well with all the groups.  I have never seen a product module that couldn’t be built with about 10 engineers provided they’re the right 10 engineers, they’re well managed, and they’re operating in a culture that supports their needs.

Anders, back in the day, built the Pascal software he is famous for almost by himself.  He had a little help, but surely not a giant team half of which was located overseas.  I have done the same with every product built over my career.

When I took over the VP of Engineering job at Borland, it was the darling of the software world.  We had our share of problems, and one of them was profitability.  I was directed to make cuts.  It didn’t take me long.  I zapped all the consultants I could find and reduced the maximum team size to 10 developers or so.  Not one single product slipped schedule as a result of it.

So what’s the deal with this big overseas software push?

In exchange for making the acknowledged weakest link in software development (communication) much worse, we get to hire lots more people.  At one point, Oracle would trade 2 open reqs overseas for 1 open req here on our shores (Redwood Shores to be exact).  They discovered over time what a bad idea that was and ended the practice some time ago.

Companies the size Jason suggests must go overseas, $3 to 4M in ARR, are still way too small to need to go overseas.  They’re still finalizing fundamental architectural underpinnings.

I can already hear the refrain, “That’s nice, Bob.  But I can’t hire enough good Software Engineers, what else can I do but go overseas?”

If you can’t hire, and I don’t doubt there are companies that can’t, you need to look much closer to home to find the problem:

-  Perhaps your company doesn’t value developers and act like the “Software” in Software Company matters.

-  Perhaps the head of your engineering group is not an inspiring figure.  Will walk-on-water developers follow her or not?  Does she know lots of walk-on-water developers who she can bring on?  Why not?

-  Perhaps your product vision is just not interesting to walk on water developers.

I’ve seen all of these problems in varying degrees at various places I have visited.  I went to a video ad company one time that was proud of the density it could pack developers into.  They had long benches and developers were literally shoulder to shoulder.  There was a strong “no telecommuting” policy in place on top of that.  Sales and marketing had conventional cubes, by contrast.  I wonder if management in that company was aware that software development requires intense concentration and focus?  In the heyday of Borland, each developer had their own private office.  Close the door and you could get some serious work done.

By the way, amidst all the hand wringing about there not being enough visas (more evidence we can’t hire enough developers and we must go overseas!), there is more than one study out that says it’s all a sham.  We are graduating more STEM graduates than we can even put to work.  Most of them don’t stay in their field and wages have been stagnant since 2000.  Does that really sound like a market where you can’t hire developers?

I have interviewed at companies where the developers begged me to come on board and save them from Sales and Product Management.  They wanted to be released from dealing with one unrealistic deadline and shoot for the moon set of specs after the other, because they were failing at every single one.  They had no voice in setting any of it up.  I wonder if the VP of Sales turned CEO set his sales quotas up to be unachievable time after time?  If he was, Sales was no doubt failing there too.

Too many customer demands to keep up with?  Hogwash (time for a word other than “Baloney”).  Build an architecture that’s intended to keep up with customer demands.  Build one that is customizable at the outset.  Salesforce did.   I ran engineering for Callidus Software through their IPO.  That companies processes sales compensation for the biggest companies in the world.  If you don’t think sales constantly fiddles with comp plans and that every company does it differently, you don’t know that market.  Our differentiator was that we had the only product that could deal with those customer demands and still scale to the levels giant companies like Sprint and Allstate needed.

Let’s wrap this up.  We will probably agree to disagree, but I want to summarize.

Good software is not expensive to build nor is a good software team hard to hire for.  The reason is simple–you only need 10 really good people to do almost anything.  Once those 10 are working well, start thinking about how to modularize your software for the next 10 person team.  You can start to get real business-changing things done with a lot less than 10 too, that’s just the maximum.

If you have any doubts, try tearing apart the financials for Salesforce.com.  They have managed to build the world’s most successful SaaS company with relatively few developers.  Fewer than their peers according to the numbers: the percentage of expenses that go to R&D is small compared to many other SaaS companies.  The architecture of their product is rich and sophisticated.  That didn’t happen by accident, it happened because they understand what I’ve been trying to say here.  They hired for quality, not quantity.

Bad software, on the other hand, is very expensive.  It is expensive because you’re throwing a wall of bodies at a problem that cannot be solved by a wall of bodies.  They will build something that is ultimately unsatisfying and unmaintainable.  They will not produce good architecture or good user experience.  They will not produce sustainable competitive advantage in one of the few areas software companies can have such advantages.  They will fail and your customers will be unhappy.  Your competition will love it.

Posted in business, software development, strategy | 3 Comments »

Feedly Progress Report: Not So Good

Posted by Bob Warfield on August 30, 2013

SadFeedlyI’ve been using Feedly since the demise of Google Reader and wanted to give a progress report on how that’s going.  Not that you won’t have already had to make a decision on an alternate, but perhaps this will be helpful for Feedly if not everyone else.

First the good news:  Feedly is great as a desktop browser app.  I am very satisfied, and if it weren’t for the mobile issues I’ll get to momentarily, I would be a committed and enthusiastic paying customers.

The bad news is all about the Mobile App.  Put simply:  it doesn’t work.  I started out fairly unhappy with Feedly’s mobile app, and I have written about it before.  Initially, it didn’t work at all.  Eventually, they fixed that bug, and now the mobile app doesn’t work because it is too frustrating to be useful.  I waited a reasonable interval before writing this to see if a fix would be forthcoming and whether it was just me.  No, and no are the answers.  You can Google “Feedly Mobile Crashes” and find plenty of references to this–there are even people commenting on Feedly’s Blog about it.

The problem is it crashes frequently.  If I click on every article I want to read, it will easily have crashed at least once every 10 articles.  The problem is, when it crashes, you lose the article you were trying to read.  The sequence goes like this:

1.  Click on article to read it.

2.  It starts loading.

3.  At some point, it may even look like you are done loading the article, Feedly crashes and you’re left staring at the iPad desktop.

4.  You go back into Feedly, and it has already marked the article as “read”.  It’s gone, long gone, and you’ve missed your chance to read it.

At this stage, the Feedly Mobile App is really only useful for clearing out articles you don’t want to read.  You don’t dare try to use it for reading articles you’re interested in, because sooner or later (and mostly sooner in my experience), it’s going to zap your article before you’ve had a chance to read it.  DOH!

It’s annoying as heck, though it hasn’t quite risen to the level where I am ready to drop Feedly altogether.  What it has done is made me spend less and less time reading feeds on my mobile devices (iPad mostly).

The thing that puzzles me is why they haven’t fixed it.  Even if they can’t fix the crashing (looks an awful lot like Safari crashing, which also happens a lot if you try to read Google News), they could change the software so it doesn’t mark the article as “read” until you get safely back into the list of articles without crashing.  That would make it dramatically less frustrating and stressful to use.

Of course I could also ask one more time (as many commenters on other posts about this have), why doesn’t feedly make it possible to simply use their browser version?

I recommend not paying Feedly for their enhanced version until they make a decent mobile app or get out of the way and let us access the service via browser.

Posted in customer service | 1 Comment »

The Trend to Part-Timers, Freelancing, and Consultants Over Full-Time Employees

Posted by Bob Warfield on August 8, 2013

FreelancerOffshoring, Outsourcing, the switch to freelancers instead of full-time employees, and all of the other ways big business wants to shed expenses at no apparent cost is a trend that’s well underway.

Shortcuts all have a price of one kind or another. Usually that price is hidden from the bean counters that wanted to do these things for short term profit bumps regardless of the impact on quality, visibility into what was being done on behalf of a company, actually creating value that belongs to a company and is reproducible, making sure that talent is loyal and believes in the company and its goals, and so on.

As for freelancing, when you force someone to stand on their own two feet, when they have to learn to fish for themselves, suddenly, they get a much clearer picture of their real value to the organization and of the organization’s value to them. Successful freelancers are some of the hardest people to recruit on the planet because they know the organization doesn’t bring them much value while they are creating a great deal of the real value.  That’s why you have to pay consultants more.

If you find yourself having to go it alone, it will start out very scary.  You’re going to have to stretch to learn to wear more hats.  You have to learn to market yourself, for example, and to network to find business.  Cast off your fears and welcome those challenges.  Quit trying to join a large organization or get Big VC to back your idea.  You can go it alone more than well enough to come out way ahead.  After all, business wouldn’t be doing this to you unless they didn’t value you all that much.  That tells you something about how they will treat you if they did decide to hire you.  OTOH, you are also undervaluing yourself.

Why make the same mistake as the business whose decision you so disagree with?  Recognize your inestimable value and get to work for yourself.  Enjoy being your own boss.  Embrace the change and use it to improve your life.

Posted in bootstrapping, business, strategy | Leave a Comment »

It’s In Google’s Best Interest to Kill Marketing Channels They Don’t Own

Posted by Bob Warfield on July 24, 2013

The folks at MailChimp recently did an article that analyzed open rates for emails and how they were affected by Google’s new Gmail tabbed user interface.  There’s not a huge amount of data yet, but there are 3 consecutive weeks of reduced open rates in the wake of the new tabbed interface.  Here’s the graph from the MailChimp article:

Gmail tab open rates

There’s no question that open rates are down in the wake of the tabbed UI for Gmail…

This is not particularly surprising.  Personally, I don’t find the tabbed interface useful at all–it just means I have to look in more places to finish reading through my inbox.  If I do run short of time, it is the promotions tab that suffers.  The MailChimp folks say that it is very hard to write email that doesn’t get stuffed into the promotions tab too.  What a pity Google didn’t put Google Reader on a tab instead of Promotions and Social.  It wouldn’t been a lot more useful, but that’s beating a dead horse.

Marketers are going to be disappointed by this development because email remains one of the most powerful weapons in there arsenal.  Unfortunately, here is a newsflash:

It’s in Google’s best interest to kill or damage any marketing channels they don’t own.

They don’t really help in any way with email marketing, so anything they can do to reduce its efficacy means you’re that much more likely to shift dollars to areas they do own.  They get nothing when your successful SEO leads to lots of results through good organic search results so they’re only to happy to limit the information you can get about how people found your site and thereby make your SEO that much less effective.  In fact, they’ve basically declared all out war on SEO’s.  They are the enemy because they reduce your need to spend ad dollars with Google.

Expect more of this as time goes on.  Big companies can’t resist using their clout to do this kind of Evil.  In the original PC days, the Evil was perpetrated by controlling shelf space.  If you owned all the shelf space, nobody would ever see the Little Guy’s innovative new products.  In today’s world, they want your eyeballs focused entirely on parts of the Internet that contain their ads.  As their growth and profitability slow down, they’re only going to play these kinds of games more often to try to prop things up.

Posted in business, Marketing, strategy | Leave a Comment »

Don’t Bury the Map With the Treasure: Thin Clients Trump Apps in Walled Gardens

Posted by Bob Warfield on July 10, 2013

FeedlyBugOne of the questions every SaaS company will have to be able to answer for their customers is, “What happens if you go under?”  It’s actually a fascinating question, and one you have a chance as a vendor to think about and turn to your advantage.  For example, one of my SaaS ventures was Helpstream.  We had the unpleasant experience of being shut down by our VC’s shortly after the 2008 crash, but we tried to do well by our customers.  As it turned out, our architecture made it very straightforward for us to offer those folks the chance to host their own Helpstream instance and keep going rather than have to stop cold turkey.  There are still customers live on the software as a result.  I won’t go into all the details of how this was accomplished, but suffice it to say our architecture made us very nimble about being able to create multi-tenant apartment complexes that could house anywhere from 1 to a couple of thousand tenants on standard Amazon EC2 + S3 infrastructure.  Thus it was trivial for us to set up a customer as their own tenant in their own apartment house and hand them the keys.  This is not something you could say about something like, say, Salesforce.com, or many other SaaS offerings.  Building on a commodity cloud like Amazon can have its virtues.

In the perpetual on-premises license days, we had source code escrows.  In the SaaS/Cloud era, it makes sense to codify what happens in the event of a dissolution of some sort.  As the Helpstream example shows, it’s possible to do something that makes enormous sense for customers and thereby give them a greater sense of security, something that the Cloud is not often known for.

Unfortunately, things also go on in the Cloud that have nothing to do with a particular vendor, but that actually make things much worse for customers.  I present the example of Feedly and the Apple App Store.

As most of you will know, Google discontinued Google Reader, forcing those of us who need such a thing to seek alternatives.  I looked at a good half dozen during the warning period and eventually settled on Feedly.  Let me be clear that this is still not a decision I regret, but I am forced to endure a not so pleasant aspect of the way Feedly works on my iPad.  There is a problem in that Feedly is set up to seamlessly transfer you from Google Reader to Feedly.  That part is good.  What is less good is that Google changed some aspects of the API and created a little problem for the Feedly app.  Feedly works great for me on my desktop, because I can access it via web browser as a thin client.  It is dead to me on my iPad because of this problem.  Feedly mistakenly thinks it is overloaded with users, a surprisingly plausible story in the wake of Google Reader shutting down.  In fact, this is not the case.  There is simply a bug that causes the iOS Feedly app to mistakenly report this problem.

Now here is the problem:

Since iOS is a walled garden, and Feedly has to wait until Apple approves a fixed version of the app, they are stuck.  It’s been 7 days and the app still doesn’t work and a fix has not been approved.  As my headline says, the map is buried with the treasure because Apple is presenting them from fixing a very obvious problem.  Feedly has no real answer for this, and Apple isn’t telling them an ETA on approval either.  It’s hard to be impressed with either Apple or Feedly based on how all of this is rolling out.  You’d think whatever process Apple uses would be aware of how many people use Feedly (it’s millions) and could find a way to expedite an obvious fix.  Apparently the Monarchy of Cupertino cannot be bothered with such mundane details as customer happiness.

Meanwhile, I have to ask myself, “Why can’t I run the Feedly thin client in the Safari browser on iOS?”  That would be so handy right about now.  Yet, they seem to have been at pains to ensure that if you are on an iPad, you surely must use their app and are to be prevented from accessing the thin client that works so well on my desktop and that would have prevented this nuisance.

Folks, the next time you’re using your tablet and you go to some website and it offers to download an app, skip it.  That app is not going to improve your user experience enough to be worth the trouble.  You are only going to encourage them not to keep their thin client working well on your platform.  And someday, you may wish the map hadn’t been buried with the treasure the way the Feedly guys did it.  Don’t frequent the Walled Garden.  Don’t encourage it at all unless you absolutely must.

This was all tragically avoidable, and I hope Feedly will take note and pave the way for their thin client to work on iOS so the next time they don’t have to wait on Apple.  Those of you at other companies, don’t let this happen to your customers!

Posted in apple, cloud, saas, service, strategy | 3 Comments »

What If You Fired Your 8 Million Most Influential Users?

Posted by Bob Warfield on June 19, 2013

trumpfiresyouWhat if you were running a big web business and you fired your 8 million most influential users?

Would that be a smart thing to do?  Would your shareholders be happy?  Would your board be happy?  What possible reason could you have to do such a thing?  What perceived advantage would offset the cost of annoying your 8 million most influential users?

Lest you think this is some imaginary scenario, firing 8 million influential users is exactly what Google is doing as it shelves Google Reader in less than a month.  Google is firing the likes of Om Malik, for example, and Seth Godin who says RSS is still the most efficient way of reading blogs.  Google says they’re doing it for lack of traffic, but as I’ve written before, that’s a bogus argument.

Let’s start with how I get to 8 million.  That number is from an email I just got from Feed.ly, who are introducing a Cloud version and say that since the Google announcement they’ve gone from 4 million to 12 million users.  Even better is that these are not just looky-loos–Feed.ly says that 68% are accessing the service on a weekly basis so they’re real users.  That’s 8 million right there, but the truth is the numbers are probably much higher for a number of reasons:

-  There are bound to be quite a few that will wait to the bitter end to migrate off Google Reader.

-  There are a lot of other services besides Feed.ly that have gotten their share of defectors.  Feed.ly happens to be my current favorite alternative, but I have no doubt the others are successful growing from the Google debacle too.

-  There are potentially even larger players in the offing, with Digg about to offer up its alternative and there is even a rumor Facebook may make it possible to bring your feeds into Facebook for reading (smart move on their part if so).

With Google Reader shutting down July 1 (just 10 days) and some of these big new players getting here only slightly before the shutdown, it should be no surprise that there’ll be a lot of last minute jockeying before the post-Google Reader market has stabilized.  One thing seems certain–with this many people moving around and this many companies putting forward products, RSS is far from the dead duck Google and some others have claimed it to be.   That’s great news for bloggers, many of whom depend on RSS driven traffic to keep growing their readership through compound interest.

Okay, we’ve established there are millions of people Google is firing, but are they “their most influential users?”  That all depends on how you define “influential”, but I look at it this way:

-  They’re people that consume a lot of content and are savvy users of the web else they wouldn’t bother with the complexity of an RSS Reader.  In other words, these are the web’s power users.

-  They are Bloggers, Journalists, and Influencers.  These people need a power tool like RSS to be able to consume the Firehose of Information they need to be on top of their games.

I don’t know why you wouldn’t call such people the most influential users Google has available to it.  If you have any doubt, go to virtually any post about the Google Reader debacle and read the comments (I should add that the Google Reader audience are hugely more likely to participate via comments and other means).  I just picked a few examples to show:

-  Wired’s Christina Bonnington writes that Google Reader was axed because people no longer consume the news that way.  It’s too old-fashioned.  Instead they want the “push” delivery that services like Google+ can offer.   The comments are virtual explosion decrying that notion and you don’t have to get far before someone says they don’t want to read the news Google thinks they should read, they want to read the news they want to read.  It’s also funny to read in this article an others the guess that Reader had “several million users” when we now now it was much greater than that.  Google simply let people believe the service wasn’t popular because it served their purposes.

-  Andrew Chen says he is dropping RSS and his readers need to sign up to his email list.  His article purports to show the death of RSS in a single graph, which is of the number of people searching for RSS.  It’s telling that the very first comment is from Seth Godin who tells him in no uncertain terms he has a bad idea there (“The patient is dying, and you’re busy telling his loved ones to put their feet on the respirator hose.”).  Godin goes on to explain in detail why Chen is wrong and commented on Chen’s other post about RSS too.  Nearly all the many commenters disagree with his analysis and tell him they’ll miss him and won’t sign onto the emails.  I left him a comment myself on the fallacy of using Google searches for RSS to decide the issue.  As far as I know, he is sticking to his guns though.  If you’re a blogger, you’d be silly cutting off your nose to spite your face like this.  I also think it’s interesting that as I write this, Andrew hasn’t gotten a single comment on any of his subsequent posts.  I don’t know if that means his audience doesn’t find them interesting or if they moved on with his RSS feed antics.

- Moz.com’s Reader-A-Week post in search of alternatives has great commentary on the alternatives and a great comment thread that shows the reactions of ordinary users.  If nothing else, it shows how many alternatives are available and how many readers are interested.

Most of these kinds of articles get more comments and engagement than the average for the blogs hosting them, which is just another indication that these are influential, or at least highly engaged users.

So why would Google fire 8 million of its most influential users?

Many have expressed opinions and many are wrong.

Forget the articles that say it happened because RSS was dying.  RSS is a power user niche offering that is alive and well as the millions of users and dozen odd companies scrambling to take over for Google show.  Google wanted people to believe that usage had dwindled to a few million but in fact it’s much larger than that and likely larger than usage for Google+.

Forget the articles like Bonnington’s Wired piece or How-to-Geek’s piece that claimed the model is old and dying and that there are better alternatives.  The truth is that there aren’t any better alternatives for efficiently consuming large amounts of news, at least not yet.  There are, however, alternatives for people who want to do something other than efficiently consume a firehose of information.  That’s okay, we like choices.  It’s when companies and marketers insist things have to be black and white in order to further their agendas that we should be annoyed.

Here’s the real reason, and it is a simple, typical-big-company sort of thing:

Google Reader is being shuttered because Google thinks that will help a more strategic product (Google+) to be more successful.  They want to force us to chose and rely on inertia and their brand to shift people to Google+.  They’ve convinced themselves that Google+ is so much better strategically, that they don’t care if they lose a lot of people along the way.  They don’t value those people and generating any kind of growth for G+ through reduction in expense elsewhere is a good thing according to the way Big Co’s keep score and run their internal politics.

Writer’s like Victoria McNally call it out like it is, but the majority seem to have bought Google’s story that RSS simply died out too fast.  Keep that in mind the next time some pundit is predicting the demise of a thing.  It may only have entered what Gartner calls the “Trough of Disillusionment”, which is only a trough compared to the ridiculous peak of any hype cycle.

What will this mean going forward?

Watching my own usage patterns, it will mean I spend less time in the Google Empire.  That’ll be a bit of a disappointment for them, because they’re looking to grab more mindshare through this move, but I think they’re going to be rudely surprised.  I used to alternate between shutting down all news and interruption driven sources to get real work done and going through my sources of news and interruption:

- GMail for email

- Google Reader for RSS and specifically for news and information most relevant to my work and interests

- Facebook for casual news and information about friends

- Google News for general news about what’s going on in the world

You can see that Google had me pretty solid except for their arch-nemesis Facebook.  This is where introducing an RSS Reader that integrates in a sensible way with Facebook would be awesome.  I am only too happy to flip between tabs on a single app to access these sources.  If we think about what’s stick or not, Google doesn’t own much that is sticky because they don’t own the sources of the content.  Facebook actually owns the sources of their postings.  So, if they were to add email, RSS, and general news, it would be a pretty compelling news portal.  They could lock up a lot of eyeballs for long periods of time.  The cost to add such capabilities should be fairly low.

Yahoo is another organization that ought to be on top of this stuff, though it isn’t at all clear they can think clearly enough and respond quickly enough to get there.  Newcomers and smaller players like Feed.ly and Digg have an opportunity to land and expand in their ability to give people access to more and more news sources.

If any of these players can actually get together a coherent strategy and deliver, shutting down Google Reader could turn out to be Google’s biggest strategic error to date.  Especially because all those millions of influencers they fired will be telling others who believe in them exactly what the best alternatives to Google are.

Posted in business, Marketing, strategy | 8 Comments »

Too Many Would-Be Entrepreneurs Are Thinking About Their Ideas, Companies, and Investors All Wrong

Posted by Bob Warfield on April 19, 2013

snake-oilAs so often happens, the serendipitous intersection of one too many notes from the same chord in a short time have prompted me to post.  In this case, I am seeing a lot of evidence that would-be entrepreneurs just don’t think about their ideas, their companies, or investors as they should.

Case in point: I recently had dinner with a friend to do some catching up.  He explained that another mutual acquaintance had an absolutely brilliant idea for a startup.  My friend really wanted to be a part of it, and he confided that they were thinking of going the Y-Combinator route.  I’m sure it’s annoying to my pals (especially the ones who are themselves Angel or professional VC investors), but any conversation that focuses more on the investors than the idea and business models immediately launches me down a set path that the recipient often finds a little bewildering if not downright antagonistic.  Despite all that, I asked my friend why he wanted to go with Y-Combinator?  Why get any invested capital at all?

He spent quite a while, too long really so it only lit my fire brighter, talking about the $30,000 they would receive in exchange for 15% of the company.  I asked him to explain what the $30,000 would allow him to do that he couldn’t otherwise accomplish on his own.  After all, $30,000 is really not very much money.  This goes to the heart of one way Entrepreneurs don’t think right about their plans.  If $30,000 seems like a lot of money to you, if it seems like an enabler of some kind, it’s my belief you’re using it to solve the wrong problems, and that in fact, they aren’t real problems to start.  You’re thinking of using it to quit your Day Job, to hire others, or to pay for advertising.  You don’t need to do any of that, as it turns out.

Let me explain–I’m a firm believer in Bootstrapping ala 37Signals.  Their formula is pretty simple–you can build a company on 10 hours a week while you keep your day job.  David HH wrote a great post on this not too long ago entitled “All or Something “.  The gist is that you don’t need to adopt an all-consuming commitment to get something interesting done.  The intro to his article is worth reading carefully:

One of the most pervasive myths of startup life is that it has to be all consuming. That unless you can give your business all your thoughts and hours, you don’t deserve success. You are unworthy of the startup call.

This myth neatly identifies those fit for mission: Young, without obligations, and few if any extra-curricular interests. The perfect cannon fodder for 10:1 VC long shots.

They’re also easier to rile up with tales of milk and honey at the end of the rainbow, or the modern equivalents, “compressing your working life into a few years” and “billon dollar waves”.

But running your life in perpetual crunch mode until the buy-out or bullshit-IPO fairy stops by your door is not surprisingly unappealing to lots of people.

In fact, what you do might even be better and more successful if you take your time by only working 10 hours a week on the idea.  I’ve seen this for myself with my CNCCookbook bootstrap.  The problem is you think you know exactly the right thing to build and if you could only get it done, riches would be yours overnight.  The reality is that nobody knows exactly the right thing to build in a vacuum.  You benefit by interacting with the market, and it takes time for the market’s message to come back to you and be properly infused in what you’re building.  You can’t infuse it at a 100 hour a week pace because it simply doesn’t come to you fast enough.  It requires a feedback loop and a little more gradual change.  This applies not just to the product itself, but to achieving a content-audience fit and then growing that audience to an interesting stage.  If you think otherwise, then you’re not being realistic.  You’re looking for that long-shot of completely unbridled demand that will seize your company and carry it in the vortex to the Land of Oz.  You’re looking for that 10:1 VC long shot.  Unfortunately, you don’t have a portfolio so that the 10 that didn’t work before the 1 that did doesn’t sink you.

Here’s the other issue–if you can’t overcome the kinds of problems $30,000 will solve without the $30K, you may not have the right idea or you may not have the right team for the idea.  Creating a successful multi-million dollar company is a big accomplishment.  If all it took was $30K, a little advice, and some networking, there’d be a lot more people with their own multi-million dollar companies.  There’s a set of skills your team must have.  There’s a set of qualities your idea and market must have.  Without them, $30,000 won’t begin to fix the shortfall.  $30K is just a convenience, not a solution.  It’s not even aspirin, it’s a vitamin pill.

So $30,000 is actually not really very useful to someone that is focused on the 10 hour a week plan.  Certainly it isn’t worth giving up say 15% of your company and potentially a lot more than that in terms of control and heartache that will still be there long after the $30,000 has been spent.  To his credit, my friend did get off the $30K after a little while and suggest that having all that networking and mentoring would be worthwhile.  That’s actually something I see as being much more valuable, but in truth, it actually isn’t all that hard to come by in Silicon Valley.  After all, the networking is one reason why we put up with so much cost to live here, isn’t it?  If you think you need an incubator to be mentored, to ask questions, and to learn how to do it, ask yourself how that’s any different than signing up for a bunch of the Anthony Robbins-style self-help seminars?  You know the kind–some flashy personality is telling you they have all the answers and they’re willing to share them so that you too can be a multi-bazzillionaire loved by everyone.  All for a price.  Guess what, this works for some people, but for most, they could’ve had the same answers without much effort.  I told my friend I’d be happy to help him understand how to launch and build a business having founded 4 software companies and been involved in 7 software startups.  I also told him the cautionary tale of those making their livings off such advice.

Hacker News is a good place to find such people, and I’m not picking on HN for it, that’s just where the paying customers are for these peddlers.  I call them the Entrepreneur’s Self-Help Gurus.  Don’t get me wrong–there are some dynamite folks out there who can and will help you, but I’m referring to a different sort of group.  These are folks who did something that if examined closely, was not an especially big deal.  Yet now they’re making more than they ever did on the not-especially-big-deal telling other people how they did it.  “I’ve got the secrets, and I’ll share them for just a small fee.”  Perhaps they created a software company in an odd little niche, never cleared more than $100K with it, but now they’re making $200K and more telling others how to do it.  To me, there is something wrong with that picture.  Just for kicks, I signed up for a bunch of the more popular pay-for-content mailing lists.  You can get them on sale all the time from AppSumo, for example.  After going through about four of them promising everything from SEO expertise to how to get 10,000 Facebook followers, I finally quit.  I hadn’t managed to learn a single useful thing from them.  In fairness, if I had been at the very beginning of my journey, they might have helped a little, but everything they had to say that was useful was available for free on some blog somewhere on the Internet that I had already read.  FWIW, I keep a clipping blog of such information I call Firehose Press.

I finally realized, that what these people were selling, was not the information, but the confidence to use the information.  That’s not something I really needed, and I hate to be a wet blanket, but if that’s what you need, are you sure you’re ready to be an entrepreneur?

One more thing on the subject of networking–you can go have coffee with so many extremely talented and successful people in Silicon Valley at the drop of a hat that it’s ridiculous.  People here are incredibly generous with their time.  Heck, if Y-Combinator fascinates you, go look up the Alumni and go ask them what they learned there and what they got out of it.  You just need to find a friend of a friend to introduce you and most decent people will share a cuppa joe with you.  Why not?  I often do.

Okay, so maybe the networking mentoring isn’t the thing.  What about all those juicy introductions to VC’s?  I have several problems with this one too, being the VC Curmudgeon and all.  It isn’t that I haven’t dealt with the VC’s.  In fact, they’ve been involved with every company I’ve been with until this latest one.  Let’s start with the intro process.  It’s not hard.  You need a CEO who they would want to talk to and an intro from someone they know.  If you have such a CEO, they can get that VC intro from someone they know.  VC’s actually want to meet people, they just want to meet people who won’t waste their time.  Same with Angels only it’s even easier to meet one of them and you might not need that CEO quite yet (but you will, so may as well find them so they can help you from going too far astray).  You don’t need Y-Combinator to meet these people.  What you need to meet a VC is pretty simple:

-  A product finished enough to be sold.

-  Real paying customers who will say extraordinary things about your product.

-  Traction.  The amount varies with the space, but there needs to be evidence that pouring gasoline on the fire will make it bigger in a hurry.

Too many entrepreneurs think investors want to give them cash to make some or all of those three things happen.  I won’t say it can’t work that way, but it works less and less that way every day in the Valley.  Y-Combinator, for example, used to invest more than $30K.  Most of the VC startups I’ve done raised a couple million dollars on a slide show and a team.  Those days are long gone.  You’re going to have to bootstrap to a greater or lesser degree (and mostly greater) anyway, so you may as well get started learning how to do it, even on 10 hours a week.  In fact it’ll be better if you limit yourself to 10 hours a week–it will teach you to focus.  The realization that I had to bootstrap to raise VC is what set me on the bootstrapping path, by the way.

Too many entrepreneurs think they need something to be able to be entrepreneurs.  They need money, advice, connections, confidence, permission, or at the very least, a guru they pay to tell them how it’s done.  But here is the amazing thing: you don’t need any of those things.  You can do everything that needs to be done in 10 hours a week to build a very successful multi-million dollar a year company.  Do that first, ahead of worrying about investors, and you will be 10x better off.  Because, here’s the thing, if that company explodes with a growth rate beyond your wildest dreams and you need a lot of capital right now just to keep the site up and running, that’s not a crazy home run extraordinary case for the VC’s.  That’s what they expect to see.  That’s what they’re looking for to get their checkbooks out.  That’s table stakes and we’ll see where it goes from there, whether you can monetize it, whether you’re the right ones to run it, and whether it is a passing fad.  If you have a deal at that stage, congratulations.  You’ll have to beat the VC’s off with a stick, and you’ll be able to dictate your terms.

But what if you don’t have one of those?

Don’t despair.  Remember:  an Enterprise Software Company that puts together a steady-but-not-sexy business and manages to get to $100M in revenue and an IPO is often seen as a failure in VC portolios.  They want the $1 Billion deals.  But you?  Heck, you’d be thrilled to be the 100% owner of a $15 million dollar a year software business with 20 employees that was throwing off cash like crazy and whose customers loved you.  That is unless you are that rare Zuck/Gates/Ellison/Brin type that really does care more for power than money or lifestyle, of course.

One last reference to recent influences that spurred this post.  I saw Jake Lodwick’s post in Pando Daily, “An Acquisition is Always a Failure.”  I understand exactly where this guy is coming from having had 2 of the companies I founded acquired.  Surpass was acquired by Borland and that was the Quattro Pro product and Integrity QA was acquired by Pure Atria.  Surpass was a great acquisition.  I joined Borland, we sold over $100M of Quattro Pro the first year, I moved up through the ranks to eventually run R&D for Borland in its heyday, and it was a fabulous company to be a part of.  I learned a lot.  Pure Atria was a great company too, but it didn’t last.  Six months after I got there it was gobbled up by Rational.  They already had a product with a brand that competed with Integrity QA’s product and it was based in Boston, not Silicon Valley.  Despite Integrity’s product being one of the most innovative things I have ever worked on (Genetic Algorithm-Based Software Testing), it basically never went anywhere because politically, it was stuck in a closet where there was no light.  It exists today as an IBM product called TestFactory, but it’s growth was stunted and it never recovered.

It’s fascinating to read the comments in Lodwick’s article and contrast them with where Jake is coming from.  He says:

Whereas we’d once been free to work on whatever seemed interesting, we now found ourselves in vaguely defined middle-management roles, sitting through pointless meetings where older doofuses who didn’t understand the Web challenged our intuitions and trivialized our ambitions.

That was basically my experience working for Oracle, where I learned a lot, but couldn’t accomplish much.  Similar with Rational.  Big Companies do work much differently than smaller ones, or as Jake says:

They’re another class of entity entirely, more concerned with sustaining their own rhythms and control structures than experimenting with strange ideas from acquired ex-founders. It wasn’t long before I was ejected like a virus.

Then he describes the frustration of being loose with money, but without company all founders who get acquired feel:

With a fat bank account, I was pretty set to do whatever I wanted for a long time. The sale afforded me the ability to make art, invest in other companies, and unwind. But it didn’t take long to realize that my new life was a hell of a lot less exciting than running an independent company had been.

So true.  Then we have the commenters, and as I read through them, it’s hard to see them as being focused on much but the money, whether this is an indictment of what they need to do (investors need an exit/cash out), or whether there aren’t a few examples where an acquisition made a thing far greater than it otherwise would have been (Android).  Most of them missed Jake’s message and wisdom entirely.

Here’s the thing.  At one point Jake talks about getting $50,000 checks each month.  Do the math carefully before you decide you need a VC-scale company to make enough money.  I went through one of those VC-backed Enterprise Software IPO’s, and while I made good money, it was #3 on my hit parade of exits.  Owning a business 100% that plops $50K checks on my desk each month would’ve been a much better deal, and this is to say nothing of all the deals that crash and burn because the VC was driving for a 10:1 Long Shot.  You have to live through a lot of Ramen noodles on the long shots, then maybe you’ll see that big payoff.  Or maybe you’ll have been diluted out of your mind and it won’t be such a big deal.  I’d have been much better off owning that $50K/month business that I could keep on running that doing the IPO I did.

In the end of the Day, as an Entrepreneur, you need to get crystal clear about a few things:

-  How much money do you need to get from your venture?  If $1M a year is a happy number, the chance is a bootstrap is much less risky than a VC deal.  Remember, income equates to investment portfolio about 20X.  That $1M a year income stream requires a $20M liquidity event after taxes before you can live like that without working.

-  How much control do you have to have?  Hey forget whether you’re an ego maniac.  I’m talking of control more akin to artistic control.  The control to deliver on what you do well.  On why everyone always says they love you, but that Boards, CEO’s, and Professional Managers are only too quick to override if it suits their agenda.  If that artistic control to do what you do best is important, adding people who own significant parts of your company can only dilute that control and maybe even result in your being “ejected like a virus.”  OTOH, if you want Bill Gates or Steve Jobs-style control over an industry, you’re gonna need VC’s.  If you want to change the world with Electric Cars and Private Spacecraft like Elon Musk, you’re gonna need VC’s.  Just be really honest with yourself about what you need versus what might be nice to have.

-  Most importantly, how will your venture change your life?  What does it have to accomplish to make you happy?

Too many entrepreneurs get signed up for the promise of (to quote David HH’s article), “compressing your working life into a few years.”  Sounds great, but it better be just a few years to put up with the amount of BS that kind of pressure cooker entails.  And the truth is, it is never just a few years.  It’ll be 10 long years to reach the conclusion, assuming it is a happy one.

Why not start out with a venture that makes you happy every single day you pursue it?  If it has VC potential, you’ll know soon enough and you can decide then what path to take.  If it doesn’t have VC potential, you may still wind up realizing everything you’d hoped for and more.  Even better, it may be at much lower risk.

 

Posted in bootstrapping, business, strategy, venture | 6 Comments »

Om Malik Boycotting Google Keep Because of Google Reader

Posted by Bob Warfield on March 21, 2013

Om’s boycotting Google Keep, and he’s damned right–every word he wrote.

Here’s the money quote for me:

It might actually be good, or even better than Evernote. But I still won’t use Keep. You know why? Google Reader.

I spent about seven years of my online life on that service. I sent feedback, used it to annotate information and they killed it like a butcher slaughters a chicken. No conversation — dead. The service that drives more traffic than Google+ was sacrificed because it didn’t meet some vague corporate goals; users — many of them life long — be damned.

Looking from that perspective, it is hard to trust Google to keep an app alive.

Google is now squarely in the Evil Doing Business, and it will cost them over time to get back out of that penalty box.  Regardless of how well Google Reader may have been doing in terms of revenue and strategic objectives, it was doing what it did for the wrong people to be messing with, starting with Om Malik.  I say that because the primary users were the very people who write the news on the web.  That’s a tough audience to make angry.

If Google was as smart as they claim to be, they’d issue an apology to everyone involved and make Google Reader promise to keep Google Reader happy and healthy for at least 5 more years before evaluating the decision again.

Posted in business, strategy | 4 Comments »

 
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