Technology Acceleration

Technology is a GOOD THING. Well, most of the time it is.

I’m sure you’ve seen articles bemoaning the NEGATIVE role that technology advancement has played in our lives. I have recently joined the ranks of those doing the bemoaning.

Gadgets are Great

Don’t get me wrong—I’m a tech guy through and through. I’ve chosen to work in the technology industry for 20 years, and I love gadgets as much as the next guy. I’ve got TIVO, a laptop, a cell phone, Wi-Fi, all the standard Hi-Tech fare. I’m an email fanatic. With great anticipation I’m eyeing high end Home Theater equipment; just waiting for prices to drop a little more, and for standards to settle a bit. I love many of the things that technology does to enrich our personal lives, and I embrace the productivity improvements that it brings to doing business. And I believe that those who create new technologies and products ALMOST ALWAYS have good intentions, from a societal perspective.

The Law of Unintended Consequences

But I also believe that the law of unintended consequences is alive and thriving in the technology marketplace. In creating products and services that didn’t previously exist in our world, the good is sometimes offset (and occasionally overwhelmed) by effects on the negative side of the ledger.

Take automobiles, for example. Certainly cars are no longer an example of new technology. But at the turn of the century, they represented one of the greatest leaps forward in technology, and have had wide-ranging, positive societal effects. Autos provided a completely different level of personal mobility, with too many positive effects on our daily lives to list. For businesses, the enhanced business productivity was so enormous that it not only lowered costs, but also allowed totally new businesses to be conceived. Autos and the internal combustion engine that enabled them, are truly among the great inventions of all time.

However, do you think the inventors of the internal combustion engine and the automobile had the foresight to envision the amount of pollution this invention has ultimately created? Not to mention the greenhouse gas effect, which is causing significant warming to our global climate, with potentially devastating consequences?

Of course, they couldn’t. I think this should cause those of us in the technology biz to pause and reflect a bit.

Negatives with Positives

There are many more innovations that one could list as having major negatives associated with great leaps forward. Cell Phones are another such example. They have provided a leap forward in society, that while not quite as profound as automobiles, approaches the same level. They’ve provided great productivity gains for businesses, and have allowed us to stay connected in our personal lives, like never before. But haven’t they also contributed negatively to our ability to get away, relax, and enjoy some uninterrupted privacy? I feel this has been a big negative for society, and it’s one of those steps that probably can’t be undone.

I think even the most driven Type A’s among us believe that human beings need at least SOME time to recharge our batteries. Just to get away from it all and relax. Technological advancements have connected us to the extent that it’s very hard to do that. You used to be able to take a vacation or a day off, and honestly say you didn’t have a phone or an Internet connection available. If you say that now, people might begin to question your veracity. It’s possible to be connected nearly everywhere—as a result, it becomes less acceptable than ever be “disconnected”.

This leads to the biggest complaint I have about the unintended consequences of the technology revolution:

The general speeding up of our lives.

I’m exhausted--I'll bet you are too
For context, most people would consider me a type A personality. So this isn’t the complaint of some mellow, laid-back surfer dude. I generally embrace a fast paced life, and particularly enjoy the ability to make progress in business in a rapid-fire matter. But honesty compels me to admit that, at times, the pace of modern life even overwhelms me.

I live out the most gnawing example of this “Acceleration” of our lives every day on the freeways of Southern California. I live in San Diego, which granted, is a big city. And big city traffic has, of course, never been much fun. But San Diego isn’t New York or Paris by any stretch of the imagination, when it comes to congestion, or the attitudes of the locals. So I don’t think I’m reaching for the extreme here.

Compared to even 10-15 years ago, life on the freeways has become hell. I am a pretty fast driver, but on the freeway, it’s never fast enough. No matter how fast you want to go, there is always someone coming fast upon you—tailgating and itching to get past you. And it isn’t enough to just get around you. The guys in the BMW 3 series have to accelerate and weave in and out of traffic, like it’s the 20th lap at LeMans.

Those guys have always existed on the highway, you say. And you’re right. But the lack of common sense and courtesy seems to have spread throughout the driver-sphere like a bad flu. These days, you try to move into a lane in front of a soccer mom, in a huge SUV, at your own peril. She may be toting two kids in the back, and of course is talking on her cell phone (those cell phones again!). But she’s also caught that LeMans mentality, and no way she’s going to intentionally concede that position to you—let alone the extra ten feet of highway to a “competitor”.

I find it especially ironic how the technology acceleration has made other pieces of useful technology obsolete. My favorite example is how the speedup on the freeways has eliminated the need for what was once an essential piece of safety technology for drivers: the "indicator", or "turn signal". It no longer serves a useful purpose on the road. Should you put your indicator on before changing lanes in front of that soccer mom? Ten years ago you certainly should have. But 2005 soccer mom puts the pedal to the medal, and cuts you off to prevent you from “moving up a spot” in the unofficial Freeway LeMans. These days, using this once essential technology now only “indicates” to everyone else that it’s time speed up, to prevent you from making that lane change! God forbid if you need to get to that lane to exit the highway; that next exit down the road better suffice if you don’t want to risk a crash. Soccer moms don’t glare at you menacingly while cutting you off like the guys in the BMW 3 series will, but the effect is just the same. It's a jungle out there.

So what’s the takeaway to this rant?

Can downtime make a comeback?

Once again, I believe that the law of unintended consequences is hard at work. There is a big market being created that while not completely ignored, is underserved. That’s the market for enabling our lives to slow back down. Don’t misunderstand. I don’t mean “giving us more time in the day”. That time generated by productivity-enhancing devices, seems to just fill back up with more frenetic activity. I mean actually slowing us down, so we can re-charge, to sprint another day. This might be a difficult concept for companies to get their arms around, so that they can create new products and services to capitalize on it. But business formation and product creation around this theme would be really revolutionary, and potentially very rewarding.

So the next time you’re sitting on the side of the road with a flat tire—and a dead cell phone battery— write me a note. Assuming your wireless Internet connection is still up. I’d love to get your thoughts.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

US Government Sales & Marketing

What’s the difference between selling to the US Government and selling to the Commercial market?

It’s like night and day.

Sales and Marketing to the government is truly the flip side of commercial activities. You really can’t believe how different these markets are--until you’ve actually come from one side--and tried to go over to the other. I emphasize, tried, because it usually doesn’t work out very well!

First of all, in the Government world, the term "marketing" is a standard term. But its meaning in the government world is very different from its definition in the commercial world. When you hear someone talk about “Marketing” to the government—they really mean SELLING. That’s in large part because those businesses that deal primarily, or exclusively, with the government really don’t do much in the way of marketing in the commercial sense.

Everything's Different

In a traditional government contractor, there is usually no one with a sales title. There are often a couple of people with grand titles like “Vice President of Marketing” or “Vice President of Business Development”. These people have very little in the way of real marketing responsibilities--they are the chief sales people of the company. They are usually former government employees, and in the case of a military contractor, often an ex-general or ex-colonel. Key to their hiring was that they are very well connected in the government or service branch that the company is targeting. Included in their charter are some “light” Marcom activities--putting together data sheets, and coordinating a few targeted trade shows. In addition to the dedicated “Marketing People”, much of the technical selling of individual deals is done at the project manager level.


Of course, it’s not just the sales & marketing functions that are so different in the government world vs. commercial. Almost everything is! The typical government contracting business model more closely resembles a grocery store, than it does a typical high tech company. Margins are very thin, but profit is pretty much guaranteed once you’ve secured a contract. Up front R&D (“IR&D” in government terminology) is generally discouraged, as it’s a great way to lose money. IR&D can also be funded by the government; that is utilized heavily, but it has limitations. Spending an amount(without government funding) that would be modest in the commercial world on up front R&D can easily wipe out the thin margins that the government contracting business yields. The government contracting model works like this: Hire an ex-employee from the agency that you are targeting your “marketing” at. Leverage that relationship to secure the contract, with a minimum of up front product development expenses. Then hire the people to staff the project, and of course do a good job executing the project. Add new “marketer” from another agency and repeat.

So for those purely commercial readers out there, this must sound pretty different than what you’re used to. That’s only because it is! There is no Product Marketing/Product Management function in a true government contractor. In the government world your “market” is one customer, or a small number of customers, who are basically specifying the product for you. There are a few sales people, but as I mentioned earlier, they’re called marketing people. The actual marketing tasks are few and far between—collateral creation, trade shows, a party here or there.

Difficult to make the Jump

As you imagine from the discussion above, it’s difficult to move between the two worlds. That’s the reason that nearly EVERY government contractor that has tried to enter commercial markets in any major way has failed abysmally. Government-oriented companies typically don’t have the entrepreneurial cultures found in commercial high tech companies. They lack fundamental Market Evaluation and Product Planning skills required for success in the commercial world—because it’s not required in their core market.

Senior managers at Government contractors are often profoundly aware of all of this. They may intellectually understand that they need to do things differently for their companies to make the jump to the commercial side. But especially if they have been very successful in the government business, a difficulty emerges that won’t be obvious on the surface. And this is the worst of all: Successful senior managers tend to fall back on their what I like to call their “Common Business Sense”, when they encounter new or stressful situations. Often they don’t even realize that they are doing it. Unfortunately, when an executive with a government contractor utilizes their “common business sense” to make a decision involving a commercial business, the results can be disastrous. The “right way” of doing things in the two businesses are so fundamentally different that it would work out better if they took the OPPOSITE path from what their instincts told them. Not an easy way to do business.

Commercial to Government

So what’s a C-level manager in a commercial company, which would like to secure some government orders, to do? Given the different business cultures of the two markets, it seems pretty daunting. Those poor government guys who have tried to go commercial have had their hats handed to them—does the same fate await me?

Fortunately, it doesn’t necessarily need to be so bad. If you are selling services, or highly customized products, you may need to closely replicate the government-contracting model, if you are going to be successful. If you are selling fairly standard products, however, it may be possible to gain significant government business leveraging your normal commercial marketing efforts.

A few years back, I was running a startup commercial software product group within a company that was otherwise a pure government contractor. It was a diversification effort for the company. Our sister groups within the company were all very successful, and extremely well connected within government contracting and procurement circles. I expected, and was promised, a lot of help in placing our products in large quantities within various government agencies and military branches. For a lot of different reasons, that help never materialized. But a funny thing happened—this startup software product group ended up with 40% of its revenue from US and foreign governments. This was without a government-specific product, no real marketing advantage provided by our well-connected parent, and no special government emphasis in our sales and marketing programs. Contrary to popular belief, if you have a great commercial standard product that has use within the government, the agencies and branches will find a way to purchase it. Our product was aimed at Network Administrators, and their needs were similar to their commercial counterparts. The government market is huge, and we did well in the government sector. With a few modest investments, however, we could have done even better. So what steps should a commercial company do to maximize its penetration in the government marketplace?

Tips for Success

Create a great product—Above all, your market research and product planning are the starting point to success. Make sure to include a few potential government customers in your upfront planning, which should ensure that you don’t miss any special requirements they might have. This is a huge market you don’t want to miss.

Have a modest entry-level price for your product—Even if in a production environment your product costs hundreds of thousands of dollars, or even millions, it’s very helpful to have an entry-level price of less than a thousand dollars. This will allow a motivated prospect to acquire your product initially by “going around” the laborious, lengthy, confusing—and often competitive—contracting process. Even if you have to go through a contract later to secure the full production purchase price, the bidding process may then be “written to your specifications”.

Hire an experienced government sales executive—This can NEVER hurt. It really helps having someone who knows his way around your target agencies, to head your Government Sales Division.

Place your products on the GSA schedule via an established Government Reseller—Getting on the GSA (Government Services Agency) via your own company is a long and complex process. For most commercial entities, it isn’t worth the effort. It’s much easier to give up a few margin points to a reseller already on the schedule. It’s much easier for him to add your products. They won’t do much for you in the way of promotion, and I’ve found that being on the GSA schedule in most cases isn’t REQUIRED to buy your products (although some will tell you otherwise). But it does make it easier for the customer inside the government, and if nothing else, raises their comfort level. They will know that they won’t face a major hassle to buy your product.

That’s my take on selling to the US government. Hopefully there’s a nugget or two in there that can help you. Post me a comment with a few of your own tips.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Do High Tech Acquisitions Make Sense?

I was reading recently about the proposed merger between StorageTek and Sun. Two major technology companies, one making a comeback from bankruptcy and the other mired in a long slump, with several years of negative predictions about their business prospects.

I am not an insider and don’t know the specific details of this merger. It seems to make at least some sense, as Sun has not historically been strong in Storage, which is StorageTek’s forte. Sun has been Private Labeling storage systems from a company here in San Diego for the past several years (probably doesn’t bode well for that supplier!). So having Storage Technology in-house could be a big plus for Sun. The analysts have generally panned this deal, however. They don’t think it does anything to reignite Sun’s growth, which is what they’re looking for. I don’t have enough solid knowledge of the situation to decide whether it’s a good idea from a strategic perspective or not.

What I do know is that it probably will fail.

ODDS AGAINST IT

Predicting failure is a pretty big statement for someone with limited knowledge of the specifics of the deal. But I can make that statement because numerous studies have shown that 40-80% of all mergers fail. That’s a whole bunch of investor money down the drain. And in High Tech, it seems like it’s very hard to find an example of a really good merger or acquisition.

Of course, there are examples to the contrary. Computer Associates built a huge business and shareholder value with an aggressive acquisition strategy, over a long period. Cisco Systems has made many acquisitions of smaller technology companies, purportedly with great success. They profess to have the “secret sauce” on how to make acquisitions a success-and maybe they have. These are two high profile examples of large companies succeeding with M&A as a major part of their strategy. But for every Cisco or Computer Associates, there’s probably 10-20 who have failed with a prominent M&A strategy. Symantec made claims like Cisco for a long time, but recently ended up unraveling a number of their acquisitions. The recent HP-Compaq mega-merger hasn’t panned out too well (especially for one former rock star CEO name Carly!).

TOUGH FOR THE UNINITIATED

So how do deals usually work out for the “average” company that might make an acquisition every couple of years or so? Not very well, in my experience.

I have been involved in numerous acquisition projects, both as a consultant and on the inside of an acquirer. I spearheaded one project internally which led to acquisition of a software company, which I then had to integrate into my business unit I was running at the time. You know what? The buying is much easier than the integrating!

And this, I believe, is where the great majority of mergers and acquisitions fail. People at the top fall in love with the “deal”—the strategic fit, the potential boost in short term revenue, the new products added to the portfolio, and generally with the “numbers” of the deal. Investment Bankers and M&A consultants emphasize the financial terms and other “hard” aspects of the potential deal—to the near exclusion of the “soft” factors of the deal. Most of all, I think it’s easy for senior management to become “deal-junkies”—quickly addicted to the adrenaline rush that comes with deal making. Unfortunately, all of this tends to obscure a really important fact. In High Tech, when you acquire a company, you don’t really gain ownership of the people—the key factor that makes a company in our business a success or failure.

MANY PATHS TO FAILURE

The integration of the two organizations and their employees is almost always an afterthought. No one gives much thought to this aspect until Senior Management has already decided they want to do the deal. Then it’s time to start to figure out how two, often disparate, cultures will mesh. In reality, these steps should be reversed—the cultural fit should be studied very closely at first, then other factors of the deal should be examined. IF THE CULTURES DON’T FIT--USUALLY YOU HAVE A DISASTER ON YOUR HANDS. It won’t matter how well the numbers work, how much cost you can take out, or how much geographic or product synergy you envision. It will be a disaster.

Sure, there are many other ways an acquisition can turn out badly. Let’s list a few:

Integration of MIS: There have been many good companies that have struggled (or even choked to death) trying to integrate incompatible back office systems

Product Integration: This is especially true in the case of software companies. A software company “takes out” a competitor. They then spend the next five years trying to integrate the two code bases. Or they kill one of the products, alienating the user base they just acquired. This one occurs over and over again.

Overlapping Brands: The HP-Compaq merger is a good example of this problem. HP paid a huge price for Compaq, and much of the value was in the Compaq brand. Did they need another brand—and what have they done with it since the merger? To this day, I don’t know which brand of computer I should consider buying—HP or Compaq. They kept both, and haven’t segmented them in any meaningful way. This causes confusion as well as duplicitous expenditures. What's worse, many times one of the brands is simply ditched—which is the equivalent of throwing millions (or billions!) of dollars out the window after your purchase.

Dueling Managements: This is symptomatic of that really funny deal, the “merger of equals”. No one decides who will run the company until after the merger is final. This results in an internal “struggle to the death” for control of the company for the next year or two, while the remaining competitors run past.

Channel Conflict: Maybe both companies have large dealer networks with a lot of overlap. Or the acquirer is primarily a direct seller, and the target primarily sells through the channel. These issues can be some of the toughest to manage. If done poorly it will lead to large, sudden revenue reductions.

Exit Strategy for the Target: Often times there doesn’t even need to be “cultural” people problems for disaster to strike. If the acquired company views the deal primarily as an opportunity to “cash out”, there will be a mass exodus of key people to the nearest beach, people that you need for the acquisition to make sense. Or worse yet, they stay and become working zombies until their obligation runs out. It’s pretty hard to put effective “golden handcuffs” on everyone.

IT’S THE PEOPLE, STUPID

There are many more ways to failure than I could list. But they are all minor in scope compared to the likelihood of the “culture clash”. To begin with, all of the people in the company being acquired are “freaking out”. Will I have a job? Will I being doing the same thing in the combined company if I keep my job? Will I have the same benefits? Who will I report to? I’ve heard the managers in the new company are raving lunatics who eat their young! In the acquiring company often the same fears exist to a slightly lesser extent. All of this leads to suspiscion and distrust between employees of the two companies.

A proposed merger is an opportunity for the rumor mill and imaginations to run wild. Key talent is now open to exploring what opportunities might be available in the outside world. Sometimes the brain drain might start almost immediately, well before the deal is even consummated. So the problems begin early on. The stage may be set for failure, and the ink isn’t even dry on the merger agreement. All the while the guys in the Executive Suite are toasting themselves with Scotch, and patting themselves on the back. Eventually they get around to forming a committee to look at “integration issues”. But management focus usually doesn’t really shift to this potential culture clash until the merger is consummated--and the fires have already start. Productivity crawls to a halt, while new turf battles emerge. People you don’t want to lose are leaving left and right. The guys in the suits don’t know what hit them--until the wall of fire is too high to extinguish.

ACQUISITIONS CAN WORK—BUT SHOULD COME WITH A WARNING LABEL

I hope that all of this doesn’t come off as negative to the extreme. It’s only meant to caution. There are actually many good scenarios that can lead to successful acquisitions. Software companies who look to buy to fill a hole in their product line or aquire technology to quickly jump on an emerging market segment, as an example. These types of deals can make tremendous sense, if executed properly. I’ll talk about more about acquisitions scenarios and success factors in a future column.

But in Software and other High Tech markets, product cycles are short and differential advantages are fleeting. As a result it’s all about the people, since differential advantage needs to be continually re-created. So the next time you think about making an acquisition to solve a business problem or accelerate your growth—think about the people first.

I’d like to hear about your M&A experiences—drop me a note.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/

Big S, little m

Don’t worry; this isn’t going to be an article about Sado-Masochism! Well, come to think of it, that term may apply to what some founders and senior managers in startups are doing to themselves and their companies. What I’m referring to is the VP who gets hired to manage both the Sales and Marketing functions. Oftentimes this turns out to be a job we call “VP-SALES & marketing”. Thus the phrase “Big S, little m". The position is usually offered to a crack sales guy or gal, who also happens to have a marketing title somewhere in their job background.

JUST GO GET THE ORDERS

To high tech insiders the meaning is clear. The anointed candidate will be expected to go out and beat the bushes for customers, and bring in new orders quickly. Oh, and by the way, Mr. VP, you’ll also be in charge of producing data sheets and attending a few trade shows. You know, all that marketing stuff!

In most of these cases, I would recommend that anyone being approached for a job like this run in the other direction as fast as possible. These positions are usually classic “traps”. The attitude is “We’ve got a great new technology; all we need is someone to go knock on a few customer’s doors and bring the purchase orders back to headquarters".

Hopefully, most of those reading will recognize that this is a recipe for a very unhappy outcome. The founders and senior management will be unhappy with revenue and profits, the VP will be unhappy because he’s likely to get fired in 9-12 months. The other employees will be depressed and talking about how “Sales & Marketing” is the weak link in the company. And the investors, of course, will be very, very cranky.

Why does this occur? It often occurs when the key senior decision makers (CEO, CFO, Founders, etc.) don’t have a background or appreciation for the difficulty of the sales function. And it's even more likely to happen when there is no key decision maker with a background in Marketing. The decision maker’s attitude often includes an over-confidence in the role that superior technology plays in the overall success of a company.

IS TECHNOLOGY ENOUGH?

Certainly having a defensible technological advantage is a major factor in the success of a high tech company, especially when that company is in startup mode. The problem arises when management believes this is enough to “win”. How hard is cold calling and knocking on doors for a sales force with an unknown company name? Not to mention an unproven product, which may solve a problem the customer may not yet know exists? I’ll give you a hint—it’s really, really hard!

Likely there is a lack of understanding of the crucial role marketing plays in establishing a new product in the marketplace. There may be a view that marketing is some theoretical, squishy function that is a waste of money, or maybe something that has value but the company just can’t afford. Management thinks, we’ll introduce the product, sell a bunch and build the marketing function later. Unfortunately, that thinking is as backwards as can be, and will usually lead to the unhappy results discussed earlier in this article.

Why IS marketing so important, and why is it such a critical mistake if it isn’t a major part of the new product process? It’s because marketing is crucial in every phase of introducing and growing the revenue of new products, from conception until end-of-life. In the beginning, an engineer may come up with a great new technology that appears to allow someone to do an existing task better. Or maybe it allows someone to do something that wasn’t even possible before. But that’s really just the beginning of the product development process. Product engineers aren’t trained to closely match customer needs with the features of this whiz-bang new technology. Often they think it’s easy - you just go ask the customer what he wants! But customers often don’t tell you the truth; sometimes they lie, and sometimes they don’t even know what they really want (this is the topic of a future column). And even if they tell you the truth, it’s important to make sure that what these customers are telling you is representative of your entire target market segment. This is a task that looks intellectually easy on the surface, but for a lot of reasons, it’s very difficult to get right.

Sometimes companies do get it right even without an experienced, professional marketing function in place. Let’s assume for a moment that they do. There’s still a very long way to go before those purchase orders start pouring in. The product must be positioned properly, relative to the direct and indirect competition in the market. It needs to be priced so that the market is willing to take a close look, but not so high or low that it retards the product’s long-term profit potential. Will it be distributed only through the company’s direct sales force, or should we court VARs, distributors, retailers or OEMs? What kind of pricing can we offer those partners without creating gray markets or channel conflicts? And please, let’s not forget about creating a bit of demand for those poor guys and gals in the sales force. Cold calling really does suck! It’s not good for anyone, the sales reps or the company’s profitability. It will “burn out” your sales force in no time.

Marketing programs that generate hot leads, or even complete sales, are much more cost-effective than relying on highly paid (but beleaguered) sales reps to do their own inefficient “door to door” marketing. And how should we generate those leads? Via PR, Advertising, Direct Marketing, Partnering, Search Engine Optimization, Paid Search Engine Ads, Trade Shows? The Marketing folks are the strategic quarterbacks of the organization who should be driving the answers to these questions—as well as executing the strategy within the required parameters.

IT MIGHT WORK—BUT DON’T BET ON IT

So does “BIG S, little m” NEVER work? Well, in some cases it not only works, it is even appropriate. Take the example of a semiconductor company selling a very niche chip to a vertical segment. They might have only 50 potential customers. In this case you REALLY CAN go ask the customer what he wants, and easily ask enough of them that you will end up building products that will apply to your entire target segment. With respect to lead generation, the target market is so small that traditional outbound marketing programs don’t make sense anyway, and that “door to door” marketing by your sales force might work just fine.

But I propose to you that this example scenario is the classic “exception that proves the rule”. In many, if not most cases, “BIG S, little m” will lead to failure - or at the very least, suboptimal performance. That’s my view—as always I’m very interested in hearing yours.

Phil Morettini
PJM Consulting
http://www.pjmconsult.com/