Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Year: 2008

Integrating Sales and Marketing at Software and Technology Companies

In some, but not all tech companies, the Sales and Marketing functions are managed separately. They are separate, but closely related functions that some people (especially technical folks) have a tendency to confuse. Normally, there is a VP or Director heading up the Marketing department, and another VP or Director leading the Sales staff. But it is also not unusual to see a VP or Director of Sales & Marketing who leads both functions at once.

This all seems benign enough, so what’s the issue? The issue comes when actual revenue fails to meet the forecast–that’s when the finger-pointing usually begins. Unfortunately, not meeting forecasts is a common event in technology businesses, where forecasting of new software and tech products can be particularly challenging. When that finger-pointing starts, it often breaks out first between the Marketing and Sales departments–here’s how the ensuing “discussion” might go:

SALES: “You haven’t planned products that our customers want to by. You’ve priced them too high. And those leads that you’ve spent SO MUCH money on that you are giving us aren’t qualified, and are essentially worthless to us.”

MARKETING: “You’re not selling the right products as we directed, or presenting the positioning of our product line properly. All you do is try to sell on price, constantly discounting and hurting our margins. If you’d follow up on all the leads we gave you, get off of the golf course and work more than 4 hours a day, you’d be well over quota and the company would be doing fine.”

Sales folks and Marketers are different types of people, and tend to view the world differently and from their own selfish perspectives. This often nasty “discussion” as simulated above is far from uncommon, and can get pretty ugly–which can really hurt a company in trying to reach its goals. So what’s the right way to get the Sales and Marketing departments to work together as a team, avoiding all of this counter-productive ugliness?

SOLUTIONS TO REDUCE POTENTIAL CONFLICT

The VP of Sales & Marketing
One way to greatly reduce this conflict is to have a common leadership for the Sales and Marketing functions. This usually means having a VP-Sales & Marketing in your organization. If you can find the right person to fill this role, this can actually be a very good solution. Having a single leader can go a long way toward eliminating or at least greatly reducing this conflict, assuming he has a balanced background and perspective, and is fair, not favoring one department over the other. Good people to fill this role are out there–but are very rare, in my opinion. There are far more managers who have been put in the position of VP-Sales & Marketing than there are those who were suited for the role. Most of the time you end up with a manager that understands one function well, and gives short shrift to or completely screws up the other function. . You will often find this combined VP position in companies that are not “marketing-intensive”, where the sales function is the dominant aspect of the job. If the Marketing function is truly less important, a company can get by with this structure, although it usually isn’t ideal. You can read more about the issues with a VP-Sales & Marketing role in a previous article that I’ve written entitled “Big S, little m“.

CEO Demands Communication and Cooperation
If care isn’t taken, the very different personality types in sales and marketing can lead to some pretty intense conflicts. I’ve been a soldier, captain and general in this war–and let me tell you, it isn’t pretty. I’ve also (effectively) filled the role of VP-Sales & Marketing, which is a story for another day. Much like the battles between Marketing and Engineering that I’ve previously written about, I have seen this battle play out regularly in the companies that I have worked for as an employee, as well as at many of my clients in eight years as a consultant at PJM Consulting. Things can get out of hand very quickly, and paralyze a company. In many cases, the key is how the CEO handles the situation. He must go well out of his way to be a fair arbitrator in these discussions. Even the most benign comment can appear to show favor to one side, in the eyes of the other. Don’t ignore or deny the problem, or assume it will be handled at the VP level. It is the CEO’s responsibility to prevent, recognize and fix this problem. Be careful that you don’t inadvertently make decisions or set up policies that reward or tolerate company politics.

Departmental Social Integration
I recommend planning activities which allow sales and marketing counterparts to get to know each other as “people” outside of their project activities. In many ways a successful outcome is all about relationships, so closely monitor the personal relationship between VP-Marketing and VP-Sales. Also, make sure that the VPs are monitoring the relationships below them. Ensure both VPs are open and honest with about the relationship between departments. Also watch for arrogance (especially from “experienced veterans”) when screening potential new hires for either department that will interface with the other –arrogance often usually the trigger which starts the battle rolling

Integration of Departmental Functions
Encourage the sales department to get marketers in front of their customers. Hire marketing people that have had some sales or business development experience, who understand dealing directly with customers–and know what’s it like when your living depends upon making your quota. Insist that the marketing department include the sales folks in determining what a “qualified lead” looks like. If you can get agreement on this up front on this important issue, much of the finger pointing goes away when things don’t go as planned.

Joint Goals and Compensation Structure
It currently isn’t common to design department or individual goals which cross marketing and sales functions, but if you can find a way to do this, you are structurally setting up the desire and need for close cooperation. Design goals and MBOs to reward the two departments for working together. Also, don’t ever allow one department to “get ahead” by blaming the other–tie them together as much as possible in your goal setting.

SUMMARY

To limit issues between sales and marketing functions and ensure that they “sing from the same sheet’, make sure to pay close attention to the individual departmental activities, which can nevertheless greatly effect the perceived performance of the other department. Optimizing the cooperation between sales and marketing demands an up front look at things such as the corporate structure at the highest levels, the social fabric of the company, compensation structure and use of MBOs, and formal cross-departmental reviews so each department can influence the other department’s approaches. All too often in my practice at PJM Consulting, these things aren’t taken into consideration until after the fact–when things have already blown up and there is a mess to clean up.

That’s my view on this all too common conflict. What has been your experience in this area? Post a comment and begin a discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

3 Comments by admin on December 11, 2008
filed in Corporate Strategy, General Management, Marcom, Product Marketing/Management, Promotion, enterprise software, sales
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Structuring a High Tech Sales Force

There are many ways to organize a sales force. In my opinion, there is no one “right” way. There is only the BEST way for unique circumstances of your current company.

Like most aspects of developing a software or technology company, there are guidelines, but no exact roadmap to building a successful sales force. In my practice at PJM Consulting, I often suggest that a management exercise like structuring a sales force should begin with a series of questions:

What stage of development is your company in?
This important, because an early stage company may not have the resources to fully fund the outside sales force that may be ideal for its situation. Or the company may want to sell primarily via an inside sales force, but hasn’t had enough early success or nailed down the sales process sufficiently, to sell effectively through this less “high touch” method. Stage of development can be as important as what the ideal “steady state” organization would look like–don’t over shoot your development stage in designing your sales organization.

What are you asking your sales force to do?
Are you using your sales force primarily as closers, supported by strong marketing, etc — or will your sales force be doing a lot of cold calling, handling the customer “cradle to grave”? In general the more you are asking your sales force to do, the more “high touch” the structure needs to be.

What markets are you targeting?
In some markets (such as many enterprise IT market segments) an outside rep knocking on the customer’s door is absolutely expected, and essential. In other markets (like many SMB markets), this type of attention would be considered a nuisance, not a service. It’s important to understand what the target customers want and are expecting in a sales interface.

What are your product price points?
The implications of this question are usually well understood. High priced products can support a more expensive outside sales force, and may require one to make the sale. Lower priced products can’t usually be sold profitably this way, and an inbound or outbound telesales operation is often the optimal structure.

Is your product more of a commodity sale, or is there a longer, more complex sales cycle?
Commodities lend themselves to lower cost inside sales, as well as a higher mix of channels. The more complex your sales cycle, the more likely your company will need a captive, outside direct sales force.

This is just a sample of key questions to ask yourself as you design your sales function. There are many more relevant questions that should be asked, depending upon the specific situation. I won’t attempt to cover them all, or this article will become a book. Once you’ve done a good job of asking and answering the relevant questions, it’s time to actually start designing your organization. Below are some of the personnel types and organizational structure that a software or tech company would typically consider as part of its sales organization:

SALES REP TYPES

Outside Reps
This is the classic sales rep style that has been around since the beginning of time. In the “old days” even consumer products were often sold this way (those of a certain age can remember the “door to door” Fuller Brush Salesmen). But this is the most expensive form of sales person, and depending upon the market, products and other factors, is not always the most efficient or even effective. There are still a lot of companies that sell almost exclusively through outside direct sales forces. But in companies where they direct outside sales reps do exist, they are often used more sparingly, in combination with other types of reps and channels.

Inside Reps
This is a favorite form of rep for commodity products, companies that sell heavily through third party channels, and inexpensive, higher volume products. Inside reps can also be used effectively in a “teamed” approach with outside reps, helping to optimize a territory. They may source or qualify leads for the outside reps, handle smaller accounts in the territory or generally act as a “junior sales rep” to the more senior outside reps.

Hybrid Reps
This rep type is my own invention (the term is at least). This rep is part outside rep, part inside rep. A rep of this type would be appropriate for those “tweener” products and markets, which don’t fit neatly into a pure inside or outside model. For example, software products with an average sales price of $5-10,000–too low cost to be sold strictly through an outside sales force, but maybe too complex or expensive for a pure phone sale. Hybrid reps spend most of their time in the office on the phone, but also travel modestly, approximately one trip/month. Example trips might be to staff trade shows, visit channel partners and call on major accounts. This type of rep may be very appropriate for early stage companies that can’t yet afford to build out full inside and outside sales organizations.

Sales Managers
This is pretty self-explanatory, but not every tech company can afford a classical, full-time sales manager. Often you will see individual reps reporting to a manager of another function in startups, and occasionally you will see the concept of a “producing manager”, who has line sales responsibilities in addition to management. This personnel type is very important to setting the tone for your sales organization, and is applicable to managing all rep types within any organizational structure.

Sales Administrator
A specialist that you tend to see in larger sales organizations, or at least those that have a lot of complexity (a lot of return activity, inventory management, repairs, rep splits, etc.)

SALE ORGANIZATION TYPES

All of the organizational types listed below can be commonly found as the dominant sales organizational type in many companies, as well as in combination with each other in larger, more complex companies:

Region-specific organizations
This is probably the most common organizational structure, which may include any of the sales reps types, who are assigned to specific territories. In many cases I favor this arrangement, as it tends to be the most unambiguous to measure and manage. The downside is that certain regions can prove to be much more naturally fertile than others, which can make the management process more difficult to do fairly. You also may lose the advantages that certain reps may have in terms of contacts or vertical market knowledge which lies outside of their geographic region.

Channel-Specific organizations
This is the second most common sale organizational type, which of course tends to be found in companies which make strong use of third-party sales channels. There may be a direct sales force, a VAR or retail sales force, an OEM sales force, and so on. Sometime there is an “intermixing of these organizations, for example, an “overlay” VAR channel rep as part of a direct sales force.

Industry-specific organizations
Likely the least common of organization types, but one which is very appropriate in certain circumstances. For example, a tech company which has very different value propositions in a number of vertical industries, where “insider status” in important to selling into a particular vertical market, or the product offerings are arranged by vertical market.

SUMMARY
There are many possible sales organization types and styles for software and tech companies. Many different ways of organizing can work–and the people you have are always more important than organizational structure to your ultimate success. But by carefully considering your company’s specific situa
tion, and matching your organizational structure to your market, products and available resources, your company will have the best chance of achieving sales optimal results.

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

1 Comment by admin on November 5, 2008
filed in Corporate Strategy, Distribution Channels, General Management, Operations, Pricing, Retail, Startup/Early Stage, enterprise software, sales
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Google Chrome–a Strategic Platform or just another Browser?

Google’s new Chrome Browser came out a few weeks ago to quite a bit of attention. It’s big news 1) because it’s from Google and 2) it brings back memories of the “browser wars”, and seems like it could potentially signal the next big battleground in the intense rivalry between Google and Microsoft.

I’ve downloaded Chrome and played with it a bit, but this isn’t intended to be a technical review of Chrome’s merits. It seems reasonably snappy, and has Google’s typical minimalist design philosophy, including a single box for multiple functions (search, address bar, etc.). Your personal preferences will decide whether you like that or not. It has some nice features such as tabbed browsing, which theoretically should prevent one bad browser window from crashing all open browser windows–much like when Windows became multi-threaded. Nice stuff, but doesn’t really fundamentally change the browser game. But technically it’s still a beta anyway (of course just about everything is with Google), and it will evolve over time–so it’s not really time to judge it from a technical perspective anyway.

What I want to do is to examine Chrome as a strategic move by Google with respect to the software and online worlds–what does it really mean, where will it take the market, and what are its chances for success?

Let’s take a look at some of the potential ways that Chrome could affect the marketplace:

A Better Browser
Of course, PR propaganda always will say that this is the “real” reason for bringing out a new product such as this. When I was at HP we used to call this “making a contribution to the market”. Google in particular often gets sanctimonious about this type of thing, with all their “do no evil” and saving the world stuff. Does the world really need another, better browser? Not sure. Firefox and Safari, to name two, are already probably technically superior to IE, and while they’ve made some inroads in the marketplace, they still trail Microsoft by a wide margin. But history tells us that competition is a good thing, and a step forward on major platform like a browser can certainly be thought of as a gateway to allow software innovation to develop faster. Having a company like Google enter the fray should increase rate of innovation that’s possible in the online market.

An Application Development Platform
This is the position that many pundits suspect may be the major impact of Google’s move. In their introduction, Google talked quite a bit about “remaking” the browser for Web 3.0, if you will. And a fresh approach does make sense, given that Internet Explorer was conceived long before serious online applications were envisioned for the Web. With SaaS and Web 2-3-4.0 currently all the rage, having a browser platform designed from the bottom up to accommodate online software applications should be a good thing. If it’s all it’s cracked up to be, this could conceivably be a game-changer and a real threat to Microsoft. The key here is how much of the talk about re-architecting the Browser is real, and how much is hype. This will become more apparent over time as Chrome is further developed, and application developers take a look to see if there truly are features they can take advantage of to build better online apps for users.

An Additional Way To Track User Behavior
This is one of the more cynical viewpoints as to the major motivation behind Google’s introduction of Chrome. The thinking is that this is one more insidious move by Google to “big brother” your online activity. It’s no secret that Google uses web activity data they collect by various means (such as Google Analytics) to fine-tune their advertising business. Certainly owning browser could be seen as the “holy grail” towards creating a complete characterization of online activity. What else might they use this data for, in addition to fine tuning their advertising platform? That’s the question and concern.

A Way To Drive More Search Traffic And Adwords Revenue
Along the same lines as the bullet point directly above, owning the browser could be seen as the ultimate in terms of driving web traffic toward Google’s Adwords online advertising. The first thing you see upon downloading Chrome is the opportunity to switch to Google as your default search engine. How much will they do in this regard, either subtly or in a straightforward manner? As stated above, at a minimum, it gives them the opportunity to make Google the default search engine, which is critical to their base business. Only time will tell how much of a factor this is in Google’s Chrome strategy.

A “Real” Competitor Aimed At Microsoft IE To Make Them Defend Their Turf
Of all the bullet points I’m raising, this is the one I’m most sure of. Google and Microsoft are locked in one of those classic death matches for online software supremacy, and don’t miss an opportunity to tweak their arch-rival and make them sweat a bit. Going back to the application development argument above, there is a feeling that Chrome could serve as the basis for a suite of online Google apps to threaten obsolescence for Microsoft’s desktop software business. I don’t doubt that Google may try to do this. But even if from a technical and marketing perspective Chrome is only a modest success, it almost certainly will get Microsoft’s attention and cause them to expend resources and management attention on browser technology, to an extent they may not have preferred.

SUMMARY
Chrome is intriguing, but it’s too early to tell for sure what the major reason is for this Google initiative. They may not even know for sure themselves at this point. But the product, and more importantly the move itself, will likely make Microsoft react. The ensuing competition should be all good for the user and developer communities, as long as it doesn’t take us toward another tiresome and market-paralyzing “platform API” war. I’ll be following the future development of Chrome closely to see where it takes us–how about you?

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

No Comments by admin on October 9, 2008
filed in Corporate Strategy, Product Marketing/Management, SaaS, Software/Product Development
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Structuring Channel Discounts for Software and Technology Companies

Selling through sales and distribution channels of various types is very important to many software and tech companies. Yet channel programs, and specifically discount structures, are often thrown together quickly and haphazardly, without looking at any real hard data. Let’s examine some of the key items it’s advisable to consider, when structuring a channel discount program:

Market Norms
The absolute first place to start when considering channel discounts is to survey the SPECIFIC market that you are entering. By this I mean look at similar products through the EXACT profile of channel partners you are considering selling through. For example for consumer software, retail margins of 15-18% are common, whereas for a specific VAR segments the discount norms may be in the 25-40% range. If your discounts fall too far below the market norm, your program will likely fail. If discounts are set much higher than the market norm (without good reason), your company will be leaving considerable profits on the table. It is very important to do upfront research on actual conditions in your segment–don’t just “assume”! Preferably, you want to find out what your direct competitors are offering in terms of a channel program. This may seem obvious. But in my consulting practice at PJM Consulting, instead of using objective data, I see significant numbers of companies use their own theories about what the right discount structure SHOULD be from their perspective. This often ends up being the main reason for a painful “restart” of their channel program at a later date.

Product and Pricing Strategy (Street Price)
Channel discount structures cannot be constructed in a vacuum. They are but one component of your overall product and distribution strategy. As such, they must be consistent with the overall goals you establish for the product. If you are seeking to penetrate a new market or a new channel, it may be wise to be more aggressive than the market norms to gain market share and shelf space. If your market is more mature and you are in a harvest mode on a particular product line, it may be wise to minimize channel discounts to maximize profitability. In any event, consider channel discounts early in the product planning phase as part of your overall product pricing strategy.

Type of Channel
There are many different types of partners for software and tech companies that fall into the category of “channel resellers”. Computer retail, mass market retail, Value-Added resellers (VARs), Systems Integrators (SI), Domestic Distributors, International Distributors, Manufacturers Reps–and many more. Each of these reseller types are quite different from the others, and each add different types and levels of value to your distribution systems. Yet every one that you distribute through will be competing with the others (as well as your direct sales model), at least indirectly.

Multi-Channel Pricing Equity
It’s important if you are selling through more than one channel (including direct sales) to attempt to equalize, as much as possible, the street prices charged by the various channel types. The best way to do this is to consider the costs incurred by the various types of resellers in delivering your products to the target customer. For example, a VAR that provides support, pre-sales consulting and other services may need a higher level of discount to achieve an adequate profit margin than a retailer that simply is providing shelf space might. In reality, the retailer is likely to have a lower street price, but it is important to try to minimize this gap. Otherwise the VAR who may be providing important services to a segment of your customers may be driven out of the market, and refuse to sell your product–which is not in your company’s interests. The most common practice which causes inequities in channel pricing is a volume-driven discount model. New entrants to the channel often use this approach–why wouldn’t you want to incentivize volume sales by giving the biggest discounts to the largest volume sellers? Although this may work fine if you have a monolithic reseller channel, where all the players have the same business model and offer the same value add, it otherwise will quickly cause the problems discussed here. The resellers possessing the lowest cost structure and providing the lowest value-add will quickly dominate the market, driving the high-cost/high value-add resellers away. This may be ok with you; just make sure you explicitly consider this possibility before embarking on a volume-driven channel discount strategy.

Value Added
One of the things that I recommend considering explicitly up front is: what is the key value-add that you are seeking from the channel? Is it pre-sales consulting, installation services, post-sale support, shelf space and inventory for immediate customer access, or one of many other factors? Make sure you understand what channel value-add is most important to you, and build protections into your discount structure for the reseller type who best provides this value.

Components of Discounts
It’s not always necessary (or wise) to offer a single, monolithic discount level for resellers. How you structure your discounts components should be closely tied to your product and pricing strategy–what you are trying to accomplish with your overall channel strategy. For example, if you are trying to manage your street price at a certain level, it can be dangerous to offer a large discount to certain types of resellers who may pass that discount on as a lower street price. Yet this segment of resellers (for example, retailers) may be an important, high volume channel for your product type. In this case, it may be wise to offer additional, conditional discount for activities that you value. Again as an example, to keep your street price up but incentivize a high level of activities through retail, you could offer a high level of added discount for approved co-op marketing activities. A segmented discount structure driven by costs and value-add, rather than volume, is often the most effective structure to maximize multi-channel sales. This will also limit discount-driven reductions in street price, which ultimately can severely reduce profit levels and incentives to sell for both the vendor and all channel partners–if not properly controlled.

SUMMARY
Creating a Channel Discount Strategy and structure is NOT a theoretical exercise. It should be primarily a tactical exercise based on a realistic view of market conditions, and include collection and analysis of objective market data. While what you hope to accomplish with your discount strategy is important, the overwhelmingly most important factors in creating your discount strategy should be what is happening in your segment of the channel–and what will work best for your company. Try not to create a structure based on what you’d like to see with respect to the channel. Focus on creating a pragmatic, workable strategy upfront, to avoid an unsuccessful channel entry and painful restructuring that results. If you are new to the channel game, seeking outside assistance may help you avoid experiencing one of these painful false starts that happen frequently in the channel.

That’s my view of how best to create a channel discount structure. I welcome you to post a comment with your own thoughts on this important technology management decision.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on September 8, 2008
filed in Distribution Channels, Pricing, Product Marketing/Management, Retail, VARs, enterprise software, hardware, sales
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Competing with Entrenched Software & Technology Industry Giants

A few years ago I was reading an article in the business section of our local newspaper about a new Search Engine name CUIL (pronounced Cool). I already knew about CUIL, because I had noticed that it had just recently indexed the PJM Consulting website. One of their claimed differentiating factors was that they’ve their search index was twice as large as Google’s is. In addition, they believe that they had improved the ranking algorithms, and they also present the results in a different way. The results offered fewer results per page, but more comprehensive information on each site, and often included a photo or other graphic. The premise of the article was that it could have a chance to be a real competitor vs. Google, or at least Yahoo and Microsoft, for market share in the huge search business. The founders had impressive pedigrees and came from Google on the technical side.

While the article gave credence to the possibility of CUIL being a potentially serious competitor to Google, Yahoo and MS, it also pointed out that quite a few companies have attempted to enter this fray, creating barely a blip in search engine market share to date.

I took a quick peek at CUIL–the presentation was definitely different and possibly superior for some tastes. But in my quick look I wasn’t terribly impressed with the relevancy of the search results. No matter how you present the data, the relevancy of the results is paramount in search. I stuck with Google, as it appears just about everyone did.

Did CUIL meet with any success at all? Well, they’re no longer in business, closing up shop in September 2010. They were barely around for two years. They’re took on what is arguably the most powerful technology company in the world today, attempting to compete with them in their core area of strength. So you can’t say that the odds of success were high, which they rarely are for any startup. And this might be the ultimate tough market to enter at this point. Microsoft has continuously poured money into competing with Google with little success, most recently with BING and the partnership with Yahoo. But this IS the technology business; everyone gets at least a puncher’s chance. The key to survival (if not success) is usually how well they execute, and it didn’t appear that CUIL executed very well.

But execution aside, what’s the best way to go about competing in the software and technology industries today? Should you just steer clear of the elephants of the industry? Many believe this is prudent, but I think it is not always necessary. Well, maybe going directly at Google’s search engine isn’t the best bet! But it wasn’t so very long ago that is was nearly impossible to get a venture capitalist to fund a company that was perceived to compete in a category with Microsoft (which could be viewed as MOST categories of the software business). Yet a short time later, Microsoft is considered in many ways a dinosaur, one that is quite beatable (don’t get the impression that I’m writing MS off–I’m not. Redmond may yet rise to dominate again).

If it isn’t insane to compete with the giants, what are some best strategic practices that an early stage tech company can adopt to give it the best chance to survive and thrive, when entering market categories with large, entrenched competitors?. Let’s take a look at a few ideas:

Make Sure that you can Differentiate – This would seem obvious for any business, but when you are going up against a huge company with a good brand–well, don’t even try it without significant differentiating factors. They don’t need to be product related, necessarily–it could be free and outstanding support, better price points, exceptional ease-of-use, or many other things. But don’t kid yourself–you will need REAL differentiation.

Pick a Niche, any Niche–at least to start – It is important to pick a small enough niche so that you can provide that true differentiation discussed above. Your investors may want you to attack a huge market, but if you don’t have that influence pushing you in that direction, pick a small area that you can have a higher chance of dominating when you’re new. If you are successful in your initial niche, you can then broaden out into adjacent segments. Down the road, maybe you take on the giant “head-on”; but starting out is NOT the time for this.

Raise more money than you think you will need – Every once in a while a new company will “hit on all cylinders” from the very beginning. But in my consulting practice at PJM Consulting, I rarely see this. In fact, a good part of my practice is helping companies “pick up the pieces” after their initial business plan or execution has gone awry. No one likes to give up more equity than they need to, but things usually take longer to start working than you initially project. There are usually too many things that you don’t know, until you really get into the marketplace. Plus, it’s generally easier (and cheaper!) to raise a bit more money at first, than it is after that first misstep. A little extra funding in the bank can be a good insurance policy against a capital crisis early on.

DON’T try to be like them - A common mistake that I often see early stage companies make is trying to “be like the giant competitor”. Sometimes this comes from an inferiority complex, and sometimes because the founders come from one of the giant companies themselves. The last thing you want to do is create a big company bureaucracy. In most ways, you want to operate VERY DIFFERENTLY from you huge, slow-moving competitor. Resist the urge to create huge amounts of process before your company size dictates it as necessary. Be very careful about hiring away senior executives from you giant competitors, unless you are certain that they also have successfully operated in an early stage company before. Stay as fast and nimble for as long as you can–that is a primary advantage at this stage of a company’s development.

Recognize the giant’s execution weaknesses and beat them there – Analyze the large competitor’s business, and try to create your differentiation where they are weakest. It could be faster customer service, better channel relations, better ease-of-use, etc. If you concentrate your differentiation where they are doing the poorest job, it will accentuate the difference to the marketplace, and you will have a better chance of your advantage being recognized.

Focus, Focus, and Focus – This advice can be viewed as the culmination of the points above. Make sure that you don’t try to do any more than you can do EXCEPTIONALLY WELL at this stage. You can always expand your focus later. Remember, there is a good chance we would all be speaking German, if Hitler hadn’t prematurely opened up a second front with Russia in World War II. The tech landscape is littered with companies that followed an analogous strategy, with similar disastrous results (Novell and Netscape are two former high-flyers that immediately come to mind).

SUMMARY

As an early stage company entering a market where a major company or two are the known leaders, make sure that you don’t “bite off more than you can chew”. You can always expand your focus after initial success. Contracting your focus is usually quite a bit more painful, and many companies don’t make it through that transition. That’s my advice on how to attack a large, entrenched competitor. As usual, I’d be interested in seeing your comments.

Phil Morettini

PJM Consulting

www.pjmconsult.com

pm@pjmconsult.com

No Comments by admin on August 15, 2008
filed in Corporate Strategy, Financing, General Management, Pricing, Product Marketing/Management, SaaS, Startup/Early Stage
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Integrating the Marketing and Engineering Functions at Technology Companies

In most tech companies, Product Marketing and Product Development/Engineering are managed separately. There is usually a VP over the Product Development function and another over the overall marketing function, which usually includes future product marketing/planning.

While this is certainly an appropriate way to organize a tech company, there is a great danger in one are when it comes to these separate operating “silos”: the planning of new products.

I have a particularly strong opinion on this topic, with an extensive product marketing background and also having worked as a product developer earlier in my career (albeit in a non-tech business).

With respect to current products, the silo approach isn’t much of an issue. The day-to-day activities of the marketing and engineering departments are very different, and can be managed separately quite successfully.

It’s in the future product area that things can get messy. Product Marketing and Product Development both have a key role to play here, if the company is to optimize the process of planning, developing and introducing the best new product possible. The problems is that at every level, from the VP-level down to the engineering project managers and marketing product managers, the product marketing and engineering functions are often staffed by individuals with very different world outlooks when compared to their direct counterparts in the other department.

Inevitably, if care isn’t taken, these very different personality types can lead to some pretty intense conflicts. I’ve been a soldier, captain and general in this war–and let me tell you, it isn’t pretty. The battlefield often is a company’s strategic plan, which ends up in a trampled mess. I have seen this battle play out regularly in the companies that I have worked for as an employee, as well as at many of my clients in eight years as a consultant at PJM Consulting. It sometimes gets so ugly it paralyzes a company, putting it at a severe disadvantage vs. competitors who have less of a conflict.

THE “WRONG” WAYS TO HANDLE THIS POTENTIAL PROBLEM

Unfortunately, most CEOs that I meet are not all that in tune to how damaging these conflicts can become.

Often they will ignore or deny the problem, thinking it is a responsibility to be handled at the VP level.

Another strategy that I have seen companies put in place is to extract the product planning function from the marketing department, and put it under engineering. This will often greatly reduce or eliminate the conflict, but it akin to throwing the baby out with the bathwater. As I said earlier, both marketing and engineering have a key role to play in product planning. This strategy effectively removes the voice of the customer, which is a key role that the marketing department should be playing in any successful software or tech company. As much as product developers think it looks easy, they almost never have the mentality or experience to accurately read markets or customers. Almost no one is great at everything; monitoring and reading markets, and technical product development, are two very different skill sets. Having both mentalities involved in a positive way leads to far better products in the end.

Finally, if they happen to have come from one side of the battle or the other, CEOs sometimes “take sides” in the battle–predetermining the winner. The problem is there is never any real winner in this battle–and the only certain loser is the company and its shareholders.

A CEO can choose to let Marketing have the upper hand–and this may work out adequately in commodity products where there is very little engineering differentiation. In any other circumstance, results will likely be sub-optimal.

Or he can let Engineering win and dominate the planning process–which is a very common occurrence in early stage, technically-driven software and tech companies. But this generally only works well for products made by engineers, built for engineers (the early days of Hewlett Packard are an example of this strategy working successfully). For every company that has used this approach successfully, there are probably hundreds or even thousands that failed in large part because of it.

Ultimately, to make sure that this conflict and its dire consequences are to be avoided, there is one key thing that needs to happen:

IT IS THE CEO’S RESPONSIBILITY TO PREVENT, RECOGNIZE AND FIX THIS PROBLEM.

So what steps can a software or tech CEO take to be on the lookout for this problem–and more importantly, what can they do to prevent it from developing?

*It’s all about relationships: closely monitor the personal relationship between VP-Marketing and VP-Engineering
*Make sure that the VPs are monitoring the relationships below them
*Make sure they are both VPs are open and honest with you about the relationship between departments
*Plan activities which allow engineering and marketing counterparts to get to know each other as “people” outside of their project activities
*Be careful that you don’t inadvertently make decisions or set up policies that reward or tolerate politics
*Design goals and MBOs to reward the two departments for working together
*Don’t ever allow one department to “get ahead” by blaming the other–tie them together as much as possible
*Hire marketing personnel that can talk the language of engineers
*Screen product development hires who will interact with Marketing for the not uncommon attitude that engineers are “superior” human beings
*Encourage the marketing department to get product developers in front of customers
*Watch out for arrogance when screening potential new hires for either department that will interface with the other –arrogance is usually the trigger which starts the battle rolling

SUMMARY

Marketing/Engineering conflict over the product planning process is a common problem that is often overlooked by tech company CEOs. A certain amount of creative tension can exist between the two departments, and be totally healthy. All too often, though, this tension turns into a bloody fight which is destructive to the company’s prospects. It is not “fait accompli”, however. It can be minimized and even prevented by a watchful and proactive CEO.

That’s my take on a common issue which is rarely discussed out loud. Have you had your own issues in this area? Post a comment to add to our discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on July 8, 2008
filed in General Management, Marcom, Operations, Product Marketing/Management, Software/Product Development, hardware
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Trade Shows for Software & Technology Firms – Do They Still Make Sense?

Let’s talk about what, for some people, is a marketing method from a bygone era: Trade shows, or Trade Fairs, as they’re referred to in most places outside of the US.

At one point in time, Trade Shows were a staple in most every tech company’s marketing budget–shows like Comdex, PC Expo, Network World and a host of others were annual rites of passage. But in this Internet age, they have been greatly reduced in the marketing mix, if not taken completely out of the picture.

There are many reasons for this. First and foremost, the ROI of tradeshows was always very questionable for most exhibitors. In marketing departments everywhere there were sharp discussions during budget time, on whether to continue the expense of the major shows. They always seemed important to be at, but usually it was pretty difficult to make a direct correlation to enough actual revenue, to justify the large expense. As the Internet became more prominent, this ROI looked even worse in comparison–as it did for many other “offline” marketing methods, such as traditional direct mail and print advertising.

So are tradeshows now obsolete? Probably not, but many marketing folks might say that they are on the endangered species list. So when, if at all, do traditional trade shows still make sense today? And what should your goals be, if you do decide to invest in a show or two? Let’s take a quick look at 4 points relevant to each of these two questions.

4 REASONS IT MAKE SENSE TO GO TO A TRADE SHOWA CONTRARIAN APPROACH
One of the major enduring tactics of marketing is to “zig when your competitors zag”. If you are in a market where a show is still well attended, but vendors are starting to stay home rather than pay for booths, you may have an opportunity. If your competitors aren’t there, you have a larger, captive audience of prospects to strut your stuff to. One of the basic tenets of a good marketing program is to find a “communications channel” which isn’t too crowded. With trade shows falling out of favor in marketing budgets, there is potential to benefit from a contrarian approach in some markets.

INTRODUCTION INTO A NEW MARKET
This is always one of the strongest reasons to attend a few shows. If you have a brand new company, or your company is entering a market space it hasn’t previously participated in, a couple of well-selected shows can be a very good investment. Remember, you only get one chance to make a first impression.

INTRODUCTION OF A NEW PRODUCT
Much like a company entering a new market, a new product introduction is a very traditional reason to exhibit at a trade show. In my opinion, introducing new products at shows has historically been over-estimated as a marketing tactic. Sure, the press is there covering the show, but if 50 other vendors are also announcing new products, your new product might get lost, or at least get less press coverage then if you announced two weeks before or after the show. Remember the comment above about over-crowded communications channel?. In some cases, announcing at a show fits this description. This can still be a very sound marketing tactic–just do careful research and planning to ensure it is a net positive.

IMPORTANCE OF HIGH TOUCH
If you have a product that absolutely requires some hands-on or personal selling before prospects buy, trade shows can be an excellent investment. For example, if the product is quite expensive, or an expert demo sells far more than prospect downloads from your site. I have a software company client at PJM Consulting who is in a market where expert demos are essential; they have grown the company, to a great extent with trade shows, and almost always can demonstrate a profit on their show budgets.

4 GOALS TO ENSURE A HIGH RETURN FROM A TRADE SHOW

PRESS COVERAGE
This is always one of the most important reasons to go to many shows. If it is an important show, the press will be there in full force. You really need to plan PR tactics ahead of time, however, as all of the other exhibitors have the same goal of getting press appointments and coverage. It is CRITICAL to plan far ahead in securing appointments with target editors, and have a “tease” of substantial news to obtain the appointment. Editor’s schedules fill up far in advance. Properly planned, the show can pay for itself here by eliminating the need for a dedicated press tour. But if not well planned, you will end up “wasting” your product introduction or other news, resulting in little or no press coverage.

EFFICIENCY OF INDUSTRY NETWORKING
Networking with the other exhibitors is often overlooked by many vendors. The focus is generally solely on customers, and maybe distribution channels. Often many companies with complementary offerings are attending exhibiting, along with a few competitors. This can be a great arena to begin or continue discussions with potential strategic partners. At a minimum, makes sure to set aside some time to walk the show floor, and see who might have synergy with your company. Even if you’re pressed for time, shake a few hands and gather some business cards–it can be an excellent setup for future discussions.

LOCAL CUSTOMER VISITS
This is also an area that holds potential to lift your show budget’s ROI, which is often overlooked by many exhibitors. You are flying staff to a faraway city–why not go in a couple of days early, and call on a few potential major customers? At a minimum, make sure you get those free show tickets that often go to waste out to local prospects in your database, so they can come to the show for a meeting or demo at your booth.

LOCAL CHANNEL VISITS
In the same vein as visits to customers, it makes a lot of sense to call on current or potential channel partners, once you decide you’ll be spending money going to a show in a certain region. Add a couple of days to your trip and visit a few key partners and prospective partners in the area. And make sure to invite them to the show well in advance and supply those free tickets, so you can see many more later at your booth.

SUMMARY
If you just fly to a city, set up your booth, and wait for new customers to flock by to see you–you are likely to be very disappointed in your return on investment. But if you use a tradeshow as a hub for a variety of related activity, adding a couple of key shows into your marketing mix can still bring a very nice ROI. The key is preparation and planning, to make sure your results are optimized. I’ve outlined a few reasons why it may make sense to exhibit at tradeshows/trade fairs even today, along with some ways to maximize your return. What’s your reason for attending tradeshows in the Internet Age? And what concrete results do you hope to achieve? Post a comment to continue this discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

2 Comments by admin on June 5, 2008
filed in Distribution Channels, Marcom, Promotion, Retail, VARs
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The End of Customer Service

No one answers the telephone anymore.

At least, technology companies in the US surely don’t. With big companies, you are either presented with an endless phone tree–”press 1 for a company directory”–or the newest innovation in communications technology: the cheerful “automated voice attendant”. In many cases these attendants, and several other “innovative” service options, can lead to a great deal of frustration for customers and prospects.

As a consumer and business buyer I’ve found this frustrating, not to mention an incredible productivity sink. As a High Tech industry executive and consultant with a strong marketing background, I find this practice curious at best–and insane at worst!

Think about it–how many BILLIONS of dollars companies spend trying to get the attention of potential new customers–most of who are going to need to contact the company at some point. Yet it seems that once we’ve got their interest, or God forbid, they’ve signed up as an actual customer–we are doing everything possible to keep them away. Doesn’t anyone remember the old marketing adage about current customers being your best source of additional business? Management guru Peter Drucker once said “The purpose of business is not to make a sale, but to make and keep a customer.” Apparently not many people agree with this, or have forgotten it, because “modern” customer service practices are doing there best to drive these folks away. Let’s examine some of the new customer service approaches:

OUTSOURCED CALL CENTERS IN OTHER COUNTRIES

This may be everyone consumer’s favorite new “pet peeve”–calling an American company based in Chicago, or Iowa or San Jose–only to be connected to some call center somewhere in India. Often this leads to a very, very frustrating experience. Companies are going this route for support as an expense driven decision–to obtain cheaper labor. But the reps on the end of the line are often poorly trained, probably aren’t employees of the company that you are calling, and often don’t speak English with an accent that is easy to understand for most Americans. Are there good reps who give great service available in these call centers? Certainly, I have spoken to more than a few. But compared to the “good old days” of local support, the average caller experience has degraded significantly. Add this to the initial frustration that the caller who is dialing has because of a problem with his or her new $1200 PC–and you don’t get a prescription for a happy customer.

PHONE TREES

This one has been around a while, but the increasing complexity of the tree, and well as the difficulty of exiting it to get to a live person, has continually made the situation worse. You can literally spend 5-10 minutes just navigating the phone tree these days. Oftentimes, callers just give up–which appears to be what companies want. I’ll discuss below why companies shouldn’t.

AUTOMATED ATTENDANTS

As I discussed above, this is one of the more recent scourges of the besieged customer with a problem. Ironically, Automated Voice Attendants have been made possible by a really nice leap forward in voice recognition technology. And there is no doubt that these products have come a very long way from the days in which they were first implemented. But talking to a machine is at this point still inherently inferior to speaking with a real human. I endorse the use of these Automated Attendants, but they should be used judiciously. I would still utilize them only at the very beginning of calls, and not require them to take a customer too far down the line of getting their problem addressed. Also, please make it easy to get away from them to a live human. With the high market share of some of the Automated Attendant companies, I am having far too many conversations with the same perky, Stepford Wife-ish-sounding artificial female voice. It’s getting a bit creepy. While we’re at it, let’s talk about my biggest customer support pet peeve. With all of the sophisticated software available today, why is it that I have to give my account number and god knows what else to this robot lady, and then repeat all of the same information to the first live person that I speak with, as well as everyone that they transfer my call to? I understand security concerns, but geez! Hasn’t anyone heard of data sharing and company firewalls?

“INTERNET COMPANIES”

The advent of the Internet has allowed for the creation of the ultimate small company: one man or woman, behind an Internet site. These companies invariably list no contact phone number or physical address. You can only email them for support, or if you’re really lucky, IM them. Unfortunately, potential customers figured out that this is likely a one man operation long ago. They will be reluctant to buy your product as a result, because they don’t believe you are “for real”, or at least they won’t be able to get good support. If you have the capability of offering real support, I urge you not to present your company in the image of one of these “Internet companies”. If you do, it will cost you business.

FEE-ONLY TECH SUPPPORT

I won’t deny that is some cases tech support fees are justifiable, and necessary. Even for consumer tech products. But in most cases tech support, and least at some level and for some period of time, really needs to be bundled into the base product offering. This trend came about with the intention of making tech support a “profit center”. While I believe that tech support can drive profits, in many cases it shouldn’t be done by attempting to extract additional money from customers (especially upfront or on the initial call) for the right to call in to get product issues fixed. There is a standard of care that most customers believe is fair: Help them get the product installed, up and running. Take care of any bugs or product defects. If you don’t meet this standard, you will likely pay for it yourself–in reduced customer satisfaction and loyalty.

I want to emphasize that I am not a racist, market protectionist, political isolationist or technophobe. I have nothing against a man or woman working in a call center India, doing their best to do their job. I’m also a tech guy, and certainly love the idea of using technology to increase labor force productivity. But as a marketer, above all else, I believe in the old axiom: THE CUSTOMER IS ALWAYS KING. Customer service today is not treating the customer as King, but like the lowest creature on the food chain. It’s possible that we are just undergoing a period of “growing pains”, implementation issues, and the new customer service methods discussed here will be the way to go in the long run. Maybe technology maturity and some additional training for the folks in those faraway call centers will correct the current painful situation.

BIG OPPORTUNITY TO GAIN AN ADVANTAGE

But my guess is that those corrective measures are a long way off. In the meantime, there is a big opportunity for savvy software and tech companies to use this “gap” that has occurred in most company’s customer service, to gain a strategic advantage in their market segment.

Unfortunately, in my Software and High Tech Practice at PJM Consulting, I find that customer service operations are usually an afterthought to senior management–especially in early stage companies. It’s understandable, since it doesn’t appear to be part of the strategic core that will mean the difference between success and failure for a young company. But in today’s world, used properly, customer and tech support can indeed be a strategic weapon.

Not only can good support cement the relationship with the customer and build long term loyalty, but don’t forget that you’ve got a customer on the line! Remember the old adage I mentioned above about your current customers
being the best place for incremental business? Once you’ve satisfied the caller’s concerns, you have an opportunity to educate them about new offerings, present them with a special offer, etc. The possibilities are nearly endless to profit from this customer interaction. This interaction by the way REQUIRED NO INCREMENTAL MARKETING EXPENSES TO INITIATE. Companies don’t realize the opportunity that they are leaving on the table, both to increase customer loyalty, and sell incremental offers to existing customers.

DIFFERENTIATION FROM COMMODITIES

Let’s talk about a specific example: HP & Dell in the PC business. I’m an old HP alumnus, and until recently, a long time Dell customer. Over a long period of time, customer support, specifically technical support– has gone from a major strength, to a nightmare for customers of both companies. At various stages of the customer ownership lifecycle, both of these companies throw every obstacle I’ve discussed in this article at you–Endless phone trees, automated voice attendants, email-only or IM-only tech support, and clueless representatives in foriegn call centers. PCs are as close to a commodity as anything in the High Tech business these days. These two market leaders, along with their competitors, are pretty much slugging it out on price (and brand, which means less and less in a standards-driven market like PCs). This is certainly not the way to achieve high gross margins, let alone customer loyalty.

Personally, I’d pay 10-15% more to buy a computer from a company who guaranteed good, local tech support. I run my business on my PC; when a problem occurs that I can’t fix on my own, it is often excruciatingly painful. I’m sure that these companies don’t believe that I, or many others, would pay more. But if a PC company put forth a well-developed marketing message touting their emphasis on technical support and customer service–and stuck with it–they would obtain a customer for life. Now, I may not have been willing to pay such a premium 10-15 years ago, before real customer service “ended”. I may have gone for the lowest price. But with personal service and support nearly gone the way of the Dodo bird (become extinct), things are different. Since good, personalized tech support has become a scarce commodity–it is therefore an opportunity that some smart company can exploit.

SUMMARY

There’s a big opportunity out there for smart technology companies to go against the current trends in customer service and tech support. Make it easy for people to reach you, using whatever method they prefer. I’m suggesting short phone trees, live operators, and an adequate number of representatives to eliminate long waits. Focusing completely on expense control or technology solutions, not personal service, is a mistake for tech companies. Savvy, “forward-thinking” software and tech companies can increase market share and customer loyalty with an “old school” approach–personalized customer service and support.

That’s what I have to say about the state of customer and tech support today–what’s your opinion? Post a comment if you’d like to discuss this further.

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

2 Comments by admin on May 6, 2008
filed in Corporate Strategy, General Management, Operations, Retail, sales
tagged , , , , , , , , , , , , ,

Retail Distribution of Software Products

Selling software at retail at one point in time was the “Holy Grail” for consumer, home office and small office software suppliers. That’s where the volume was. Everything that a company did starting up was intended to build enough volume to get into a distributor, so they could then pursue shelf space at the major retailers of software.

But oh, how times have changed. The advent of the Internet and wide availability of broadband has made nearly every consumer and small business application downloadable with the click of a mouse, and a major credit card. In the meantime, major sellers of software have dropped like flies (CompUSA, Computer City) or have de-emphasized software in their retail assortment.

PROFITABLE retail distribution of software, which has been a major challenge for software companies dating back more than 20 years, has gotten tougher every year, as the retail distribution pipe shrinks. And even twenty years ago, it was already very tough, for small software companies, in particular. I’ve even seen a credible authority recently predict that distribution of software through retail outlets will CEASE TO EXIST within five years.

IS RETAIL SOFTWARE DISTRIBUTION DEAD?

So should you forget about retail as a potential distribution channel for your consumer or SMB software application?

First of all, it’s my opinion that the near term extinction of retail software distribution is greatly exaggerated. While it has been in decline for a very long time, and will continue to decline, it still has some life left. There is still quite a bit of software sold at retail. There are still some reasons that people buy at retail. And last but not least, nearly every thing in high technology takes more time to “go away” than the pundits predict. People just don’t change their habits that quickly, no matter the technological reasons for that change to occur. Among several reasons people still buy at retail:

WHY PEOPLE STILL BUY SOFTWARE AT RETAIL

Impulse – They are in a store looking for something else, and happen upon a product that looks neat or useful. In this respect, software benefits from this “in-store effect”, much like any other retail product.
Credibility – Buying software, or any other item over the Internet from some unknown company, is scary for many people. Just the fact that it’s in a “touchable” package, and is “blessed” by the retailer stocking it, gives comfort to many, especially the mainstream and late adopter types.
Physical Media – Most folks want a backup copy of the application which they’ve put out good money for. Sure, you can burn a backup CD on your own. But to some folks that’s technologically challenging–and seems like a lot of work to others.
Internet Phobia – There still are folks, more than want to admit it, that just aren’t comfortable with the Internet, particularly the ecommerce aspects.

WHEN SHOULD A SOFTWARE VENDOR CONSIDER RETAIL DISTRIBUTION?

So in some cases, software vendors should still give consideration to packaging their products for retail distribution. What are the elements which may make retail still a viable distribution channel for a particular product line?

* A VERY hot product – In one of these rare instances where you’ve hit a product home run, it’s beneficial to get your product in as many channels as possible. When you have a product “selling like hotcakes”, retail can be ideal to help you maximize your return on the high demand. Make sure that you’ve proven that it’s a brisk seller via other marketing and distribution methods BEFORE you enter the retail channel, however.
* A well-known brand – Almost nothing helps product sell through retail as much as a well-established brand. There is almost never anyone to “sell” your product in a retail store. You are relying almost soles on the box copy to be your salesman. In this situation, the credibility of a strong brand is often the difference between a customer purchasing, and leaving the box on the shelf.
* A related portfolio of products that can be sold to the same customer. It is very hard to make money on a single product being sold through retail channels. The upfront marketing programs and thin margins make breakeven a huge challenge for a single product company. However, if you can profit indirectly even if you just break even on the actual retail sale, by building your customer list and selling related products to them–that’s a huge advantage.
* Add-on services to sell – Much like having a large portfolio of products, a single product vendor can also have a greater chance at profitability if the “retail product” is a front-end to other revenue generating services. Maybe the product leads to subscriptions to an add-on web-based service, or there are custom forms or other tangible supplies that can be sold to users of the software application.

These are a few of the circumstances where I would actually encourage an ISV to consider retail distribution. I want to caution that in the best of circumstances, this channel isn’t for the “faint of heart”. Startup costs are high, margins are generally lower than other forms of software distribution, and there are substantial inventory issues and risks. There’s an old saying in the software business about retail distribution–”the only people who make money at it are the freight companies who ship the inventory back and forth among vendors, distributors and retailers”. In short, it’s a great place to lose money–if you aren’t careful. I highly recommend that you retain an expert to help you through the process, if you are new to retail and decide that it may be appropriate for your products.

There are many more angles to cover on this topic. To name a few, the need for a relationship with a major distributor of software to retailers, what marketing programs to use, the importance of a retail package–and much more. As important as they are, we’ll have to leave the detailed mechanics of getting your software into retail distribution (and making a profit!) for a later article.

SUMMARY

So don’t dismiss retail distribution of your software applications completely, even in this age of Internet instant gratification. But make sure that you are doing it for the right reasons, with a solid plan for how it will benefit your company. If your company is entering retail for the first time, consider retaining an expert to reduce your risk of failure.

I’d enjoy hearing your own experiences with retail distribution, past and present, as well as your attitude about this channel today. Post a comment so we can all learn from your experience.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on April 11, 2008
filed in B2C, Corporate Strategy, Distribution Channels, Pricing, Promotion, Retail
tagged , , , , , , , , , , , ,

High Tech Market Research for New Products

One of the biggest problems in High Tech businesses is the “technology-driven” approach that tends to predominate, especially among startups. Much of this occurs due to the fact the many founders of software and technology companies tend to come from an engineering, programming or other technical background. While a strength in creating a flow of technical innovation, this can be a real problem when companies are planning new products which they hope to find a real market for.

Everyone has a tendency to focus on what they know best; that’s just human nature. Folks spend more time on the issues that they enjoy, are more comfortable with, and are more confident about their ability to make good decisions on. Things that don’t fit into this category tend to be put off, or given short shrift.

The result is often products are well thought out from a technical viewpoint–but much less well so from a “meeting market needs” perspective. While both are important, the market perspective is absolutely critical initially. So what’s the right approach to product planning-oriented market research?

When Should The Research Should Be Conducted?
The answer to this is early, often and forever. The earlier you start prior to design or coding, the more time you will have to obtain the most accurate picture of the market that’s possible. Sometimes there are practical limitations to how early you can start–Trade secrets and patent filings, for example, or the lack of a prototype which may be considered crucial to receiving realistic market feedback. Within these limitations, get out and begin interacting with the marketplace as soon as practical. And don’t ever stop. Markets, especially the software and technology variety, are like living organisms. They are constantly growing and changing. What may be true in the early phases of a market could change dramatically over even a short period of time. Companies tend to develop an internal “common sense” that is used in making decisions, which is based upon past inputs. When doing Product Planning this can very dangerous in a dynamic market.

Who Should Do The Research?
The best way to do this research is what I often refer to as the “two-headed monster” approach: one marketing person, and one technical person. Not a lone wolf if you can help it, and please–no committees. Most often, this would be a Product (Marketing) Manager along with the Engineering Project Manager who will lead the actual development of the project. In the smallest startups, it might be the technical founder and the “business” founder, for example the CEO and CTO, or CEO and VP Marketing. The Business/Marketing manager should be in the lead for this task, but it’s important to note that both camps have a role to play in this endeavor. There are two different perspectives on market feedback, and well as two different priorities in questions to ask. Having both parties involved (assuming there isn’t a dysfunctional relationship) usually leads to the most complete and risk-reducing result. In addition, it often eliminates arguments over priorities later in the process after coding starts (and schedules inevitably begin to slip) If only one can be available, it should be the Marketing side–working closely with the Product Development/Engineering lead to make sure their input is included in the process.

How Should The Research Be Conducted?
This is a really broad question which of course depends heavily on the situation. How much do you have available to you in terms of money and other resources? If you’re in a big company, you may be able to commission some objective research. If you are a startup with modest resources, it usually is an ad hoc exercise of visiting and interviewing potential customers.

What’s most important to keep and open mind, and eliminate your own biases and pre-conceived notions. This exercise needs to be a search for the truth, not an attempt to validate your own theories. Also, make sure that you are talking to the right people. If you are planning a market-creating breakthrough product, you really need to be talking to Early Adopter types, not the guy or gal that only buys after everyone else they know. If you are introducing a product that is very similar to other products in an already large market–but maybe at a lower cost–by all means, talk to those mainstream buyers and even the late adopters. Use the current market phase to guide who to get input from.

It’s great if you have the money to do some formal secondary research, but be careful about confusing formality with accuracy. For example, I know of large companies that spend huge amounts of money on Focus groups, while their Product Managers only reluctantly talk to actual potential customers directly. I find this very dangerous (you might say stupid!). Particularly with breakthrough technology, you tend to find a “garbage in, garbage out” phenomena with professionally managed focus groups. But there is that formal, professional looking report that appears very convincing in the aftermath. They can be great if constructed properly, but I have seen a lot of money spent for a very bad result. If the focus group wasn’t run properly, or the technology is very revolutionary, the results can be total garbage covered in a beautiful wrapper. I always advise that there is a good amount of old-fashion ad hoc research–talking directly to customers–to be used as a sanity check, if not the main research technique. There are exceptions, of course. If you are doing incremental product research, where the product is well-understood and the changes are evolutionary, objective research methods such as surveys may be a great way to get a quick and definitive read on the market’s reaction.

How Do You Know When You’re “Done”?
This really depends on what you are doing, but my general answer is that “you will know when you are done when you get there”. It’s important to not put an absolute time limit on the research, if it is at all practical. In some cases in the real world, this isn’t possible, of course. Sometimes you just have to go with the information that you have gathered up to a set point in time, along with your market common sense, intuition, and gut feel. With incremental product releases, waiting may not be possible or necessary. But if you can avoid it, especially if starting a new company, division, or business area, resist the temptation to “go with what you have”, if it just doesn’t’ feel right. In my experience, when you’ve “done enough” research to begin serious product planning–it’s obvious. You will feel very comfortable with regards to the clarity of the current market snapshoot, and feel you’ve really nailed the wants and needs of the market as it relates to the new product opportunity. Try not to get “antsy” and move forward because you’ve reached the original market research end date on your theoretical timetable. Resist that temptation and keep working until you are CONFIDENT that you are there, unless other factors just won’t allow it.

Summary And Conclusions
Make sure that you do sufficient market research before you begin building products; product development on a developer’s gut feel is most often a prescription for failure. There are a few high profile companies which have entered our folklore that were lucky enough to start that way, but usually this approach will quickly empty your pockets, rather than make you rich.
Include both Marketers and Technologists in the Research if at all possible. In summary:

*Marketing should take the lead on market research for new products
*Always make sure you talk to at least some customers directly and informally
*By wary of formal market research results, if not supported by an informal research “sanity check”
*Make market research a continuous company function
*Don’t stop an individual product-oriented market research project until y
ou are comfortable that you’ve got the correct answer.

There you have my thoughts on market research for product planning purposes. I’d love to hear yours as well.

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

1 Comment by admin on March 10, 2008
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