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Morettini on Management
General Management and Marketing Advice for Software and Tech Companies
Category: Operations
Has the Virtual Tech Company Arrived Yet?
If you go back to predictions over the past 20 years or so, we should all be independent contractors, heavily utilizing technology to work full-time from home in temporary teams, within virtual software & hardware corporations throughout the world.
Has it happened yet?
More than one definition of virtual
First of all we need to define what virtual can mean, as it can mean different things to different people. The two main ways I would segment “virtual”:
- Workers who are working remotely from a main physical corporate location
- Worker who are full-fledged “employees” such as temps, sub-contractors, interims and consultants
For the purposes of this article I am referring to both of these definitions when I talk about the virtual company. Workers fitting each of these definitions have the potential to offer companies increased flexibility, lower fixed costs and higher skill levels for a given project/function at a specific point in time. Of course, in many cases a worker could fit into both of these definitions.
Virtual adoption varies by function and industry
In general, companies that are early adopters of technology tend to be those that are further down the path of virtualization. This makes sense, because technology itself is a very strong enabler of the ability to use the virtual model. In the old days it was much harder to be adequately connected as a non-employee and working remotely with only a landline phone and fax machine. So industries that adopt technology faster tend to virtualize faster as well. Old line industries that have stayed with manual methods longer tend to rely more heavily on the on-premise, full-time employee model. Of course some industries just don’t lend them themselves to heavy virtualization; it’s hard for physical retailer to virtualize most of its jobs. Also, there are always exceptions to this type of generalization on an individual company and manager basis. Virtualization also varies widely by function as well. As alluded to above, it’s hard to virtualize a retail clerk. On the other end of the spectrum, programmers and some call center employees can be located wherever phone service and an internet connection are available. There are many, many other attributes that influence how quickly a particular industry or company proceeds down the virtualization path. Companies very concerned about security, for example, often evolve in this direction much more slowly than industries and companies where security is less of a concern.
Tech companies are definitely on the leading edge of the virtual trend
The Internet and related technologies have provided a tremendous platform for driving more rapid acceptance of the virtual work model. Since software and hardware companies tend to be early adopters of productivity enhancing technologies, it’s only natural that the virtual work model is progressing faster in tech companies than in most other industries. Even in companies that still rely primarily full-time employees, it’s very commonplace to work from home occasionally, or attend meetings remotely while they’re on the road via video conferencing or online meeting software. In my consulting business, I also do see quite a few small or early stage software companies who are using primarily or completely a virtual business model.
All things considered—on premise employees are still preferred
There’s no doubt there has been a slow march toward the virtual corporation over the last decade or two. In my experience, however, most hiring managers still prefer a full-employee sitting in the office next to them over all other options. There are obviously many, many exceptions to this. But on a overall basis I believe this is overwhelmingly true. People still are most comfortable with the feeling that they will be able to deal with their subordinate in person, and would rather have the added comfort of a full-time permanent employee they believe they will be able to get to know and count on heavily over the long run.
The reality is that there are trade-offs to both the virtual and old standard on-premise, full-time employee approaches. The virtual approach offers flexibility, better matching of cost and workload and the potential for a better skill fit for a particular project. The on-premise employee approach is favored because of stability, known availability, cultural fit and company-specific training. In a perfect world a mix of both would be utilized, and every project and position would be evaluated on an individual basis to decide which model is a better fit for a particular situation. I do think that in many industries this will come to pass eventually. But old habits die hard and I don’t expect we’ll totally get there in my lifetime.
So what do you think about how virtual the world is—and how virtual it becomes in the long run? What has been your experience? Post a comment and share your thoughts on where we’re at in this long running trend.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
Are There Any Software Segments The Cloud Won’t Swallow?
It’s become pretty clear in the last couple of years that we are heading irrevocably toward a cloud-dominated future in the software business. The evidence is irrefutable. To attempt to get a traditionally licensed PC or enterprise software business funded by an institutional investor would be a suicide mission these days.
Whether it’s SaaS, PaaS, IaaS, Cloud-based, web-based, Internet-based—WHATEVER, it’s all still basically the same thing. Some folks get very snippy about all the different definitions, but they are all just different segments or interpretations of the same model: Software hosted outside of the customer’s premises and available via an Internet browser. Although the technology has improved dramatically over time, it’s really the same basic idea as ASP (application service provider) model from back before the Internet stock bubble burst.
In many cases this trend is happening for good reasons, with the primary one being the simplicity the model offers end-users. But like anything, it’s not the perfect fit in all instances. For example, I’m still not convinced this model will ever be definitely cheaper than solutions that rely more on local computing power. For that to happen, I think we’re going to need to go back to the era of much cheaper dumb terminals to replace our powerful PCs. Having all that desktop power and storage (and the associated costs) sitting on your desks unused is pretty inefficient.
In addition, I also don’t believe SaaS and other cloud-based variants are necessarily the most profitable business models for every software vendor, even though institutional investors love it. I recently had a conversation with a venture capitalist and I asked him why the VC community was so in love with software in the cloud, specifically SaaS-based models. After some discussion about the various elements of SaaS and customer premise-based software models, it really came down to something simple: traditionally licensed software companies are valued at 1-3X revenue and SaaS-based companies are valued at 5-6X revenues. Of course, it’s all about the money and this makes perfect sense. But will this valuation gap be sustainable, or is it a market inefficiency that will go away over time? But I digress, that’s a topic for a different debate….
There are some very good (and maybe not so good) reasons that certain segments won’t come completely under the spell of cloud-based computing. Let’s take a look at a few areas where I forecast the cloud won’t become dominant:
Banking
This is one of the toughest software market segments there is. Banks are notoriously difficult to penetrate, and security is paramount. I believe this will be one of the toughest segments for cloud-based solutions to penetrate, and will be even harder to dominate. Certainly they’ll be a lot of cloud-based applications in non-critical functions. But anything that gets at the core banking functions, including customer data or money will be kept private. That might be a traditional on-premises solutions or private cloud-based apps, but anything sensitive from a security viewpoint will be held tight.
Government
I believe this will be a similar situation here to the Banking market. Certainly the Cloud has already penetrated many areas of the government, and will continue to do so. But there are larges segments of government services where the data is just too sensitive. We’ve seen a lot of embarrassing breaches lately with respect to intelligence data that absolutely needs to remain secret. I think we’ll see a pullback from this data being available via the Internet, rather than moving deeper in that direction.
Open Source and Mobile
Outside of the cloud, these are the two software segments that institutional investors will still put money into. It’s true that many mobile applications have a cloud-based back-end, and a lot of Open Source platforms are used to generate cloud-based apps. But both of these areas represent code that will sit on customer-controlled assets and will slow the adoption of a centralized model where all computing is done in the publicly-accessible cloud.
Buyers vs. Renters
Some folks just like to own stuff. While the rental model works for many due to the reduction in software and hardware investment, which saves capital for other purposes, others feel that renting is wasteful. Indeed, SaaS and other lease/rental-oriented models aren’t necessarily the cheapest in the long run. This is really a psychographic attribute that isn’t likely to change among those so-inclined.
100% Service Levels required
The Internet is a long way from the old AT&T Ma Bell monopoly when it comes to service levels. Have you ever had the power go out at a company you work at? In this day and age, when that happens, everything immediately stops. With the every-increasing reliance on Internet-based technologies (and being accelerated by cloud-based apps), the Internet connection going down can have roughly the same effect. The Amazon EC2 Cloud Services outage in April 2011 gives a sneak preview of what can happen to productivity levels if service levels are compromised on a wide scale or for a long period of time.
Security Conscious (and the Paranoid)
There are many out there among us that have their own safes rather than using a Bank’s safe-deposit box, or are building safes rooms or bomb shelters to protect against perceived threats they view as inevitable. Many others are simply very cautious and prudent, and that means holding things close to the vest and not embracing the newest technologies until they are viewed as bulletproof. The profiles vary from the prudent to the paranoid, but the common thread will be slow or no adoption of technologies that are viewed as giving up control of something important.
As we embrace cloud-based applications at an extremely fast rate, my own feeling is that we are headed toward a major, high-profile event that will slow adoption considerably. I’m not sure what form that will take, but it could easily be a major data security breach that causes real damage to a lot of people, or an Internet-based outage that brings a bunch of businesses to their knees. There are many examples already which support that these types of events are quite possible. Several times a year now I get a notice that my private data has been compromised by one vendor or another. The Amazon EC2 outage discussed above already gave a number of people pause about being held captive by this model.
So that’s my take on some areas we’ll see little (or at least slow) adoption of public cloud-based software models. Do you see other areas I left out? I’m sure this will be a bit controversial as well—some out there disagree and believe the Cloud will take over the world. I’d like to hear from all of you, regardless of your view. Post a comment to add to the debate.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
Optimal Levels of Formal Process in High Tech Companies
The level of process in an organization is a pretty esoteric topic that I haven’t seen discussed very often, or in very much depth. Yet I believe it is critically important to any CEO looking to grow a company, particularly a software or hardware technology based company.
The reason I believe it is so important is that, in aggregate, how process-oriented your company culture is effects every nook and cranny of company operations. Oftentimes, however, senior management doesn’t even explicitly think about how much process they want governing company operations. More often than not, this part of the culture grows in a random and haphazard manner, driven by unforeseen key events that shape the level of process. Sometimes the level of structure varies dramatically by department. In these cases, managers below the senior executive level usually are driving department cultures that may or may not be process-oriented, depending upon their own operating styles. The key takeaway here is that process levels often aren’t being driven strategically, but occurring tactically or even haphazardly. This is usually a mistake–here’s why I think so.
In technology companies, in particular, the level of processes can make or destroy your business. There are three reasons that I feel there is much more sensitivity in high tech companies to process levels:
- The rapid evolution of technology and technology markets
- The need to innovate if you want to thrive in technology businesses
- The necessity and difficulty of constantly ‘taming” new technology
I’ll use as an example a recent experience with a client to illustrate my point. The client is a small but growing software company. They have in their culture a high level of chaos, as is common with many growing, young software businesses. The company was bootstrapped and grown out of what started as a service business, and possesses very little in the way of corporate controls or processes.
On the positive side they are very responsive, fast-moving and innovative, able to capitalize on changes in technology and inefficiencies in the market. These are very important qualities in a software startup, particularly one of the thinly capitalized variety. These attributes are the very reason they’ve been able to crack through the very early stage that kills many startups, and has allowed them to grow and thrive.
But there’s a flip-side to this type of unstructured corporate environment, however. This company lacks the discipline that is required to “stick to the plan”. Indeed, there is very little planning going on to begin with! This operating style fits great in the segments of the business where innovation is critical, such as conceiving new products. But in other areas where a more disciplined, structured approach is important, performance is much lower and is a drag on company results. While excellent at conceiving and quickly prototyping new products, follow-on releases often come out much later than planned. QA is not a formal function and the initial new releases and documentation are lower quality than they could and indeed should be. The website has very little oversight and is littered with a lack of consistency, broken links, old content and grammar & spelling errors. We’ve worked on correcting these problems — carefully — without killing the very environment that is enabling success. It’s tricky to fix without “throwing the baby out with the bathwater”.
This is just one example, and of course the level of process needed to run IBM optimally is fundamentally different from that of an early stage software startup. In your particular company, it may be very important to have a high level of formal process in one department–and just as important to minimize the level of process in another. This may be quite different altogether in other companies.
So how do you know that you need to adjust your level of process in a strategic sense? Here are a few guidelines to get you thinking about where your process level stacks up vs. what may be optimal:
Your competitors are beating you to the punch
This is a sure sign that you are bureaucratic and process-oriented relative to your market. While there may be good reasons for the processes you have installed, being consistently behind in responding to market needs can have a very negative effect on your growth prospects.
You are constantly releasing “flawed” products into the market
This is the converse to the first point above. It usually indicates you moving too fast, with too little process and structure in product development, QA and release. In truth, the end results of this approach is usually worse that being beaten to market.
Employees are complaining about so much process
I always listen to what employees are saying; they are the “canary in coal mine”, often a leading indicator of issues that later show up in your financial statements. The caveat here is that these types of complaints can also indicate a hiring problem. Make sure you’re not hiring people who’s operating style aren’t a good fit with the way the company needs to operate.
Employees are complaining about the lack of process controls
The converse to the point directly above is when employees are complaining about how much chaos exists in the company. While the point above about watch for hiring mismatches rings true here as well, this is often the time you need to take a hard look at adding some structure to how you operate.
There’s absolutely no “chaos” in your organization–and little or no innovation as well
I have a rule of thumb when it comes to pricing new products: if no one is complaining about price, you probably are leaving money on the table. My “chaos corollary” is similar: if there is no chaos in your operations that folks are complaining about, you probably have created an environment so process-oriented it will limit your innovation and resulting revenue.
Generally speaking, I have a bias towards a little less process and a bit more chaos in software and hardware companies. Often excessive process is just a bad band-aid covering up poor hiring practices. Nothing allows you to minimize process like a strong, responsible, empowered group of employees. Creating the environment to hire and retain highly responsible people generally leads to a company getting done everything it needs to, with a good level of innovation to boot–while keeping formal process to a minimum.
I recommend holding off adding new processes until you absolutely have to, because going the other direction is much more difficult. But in fact, it’s important to have the proper balance if you want your company to function optimally. Analyze what the proper level of structure and process is not just for your company overall, but in each discrete operating segment of your business.
There you have it–my view on how to analyze and instill the proper amount of formal process for your company. What’s your view on this topic? Post a comment to expand the discussion.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
The Rise and Fall of Novell
Once again one of the great brand names of High Tech has been prominently in the news, this one for it’s demise as a standalone company. This time it’s Novell, Inc. Attachmate announced that it had closed its purchase of Novell, which becomes a brand of Attachmate. The price was $2.2B–not chicken feed, but much less than the promise held by this company in the distant past.
This company holds a special place in my memory. In the early 90’s the Novell name was synonymous with Networking. The company was a pioneer in Corporate Networking, and played a major role in helping to create this market as we now know it. When I entered this market in 1990, the company’s core product, NetWare, held a commanding 70%+ market share in the networking software space, which was already very large at the time, and growing at a rapid rate. It was in this environment that I began my first general management position, starting up a systems and network management software business. Netware being the dominant NOS at the time, I got a very close look at the company’s activities, and some of the decisions and events that began Novell’s long decline. Novell is still a $1B business, but in terms of power and prominence, they are a shadow of the company I kept a close eye on in the 90s. There’s been speculation that the company would be an acquisition candidate for some time, so the news isn’t a big surprise. But it’s a story which is a cautionary tale, and many lessons for tech company management teams that don’t want to “blow it”.
So what caused the unfortunate change in fortunes for this former industry high-roller?
It’s a familiar story, actually, especially for those of you who are regular readers. The Novell story is particularly interesting, because several factors, each one itself capable of wreaking havoc on a solid company, came together to put this company into a long nosedive.
MICROSOFT-ITIS
The first problem was what I call “Microsoft-itis”. Novell became very successful on the back of its flagship NetWare platform, which drew the attention of Microsoft. Microsoft tends to become unhappy when any other software company grows too big, too fast. The upstart is then viewed as a potential threat in Redmond, as well as the fact that the market this other company has helped grow now becomes large enough to be attractive to MS. So the first problem was getting in the gun sight of Microsoft. Now, it’s hard to blame the company for this, it’s more of a side effect of success. This situation has caused problems for many a company, and is enough unto itself to throw a large majority of companies off their game. To have Microsoft target you is quite disconcerting, and if you don’t make the right decisions, you may be in serious trouble. How a company reacts to this challenge is critical, and in truth, often life or death.
ARROGANCE
Unfortunately, in some cases, being targeted by Microsoft sometimes builds a company up in its own view. It’s almost a baptism into the big-time. Microsoft is worried about us; we’re a peer to them now! We must really be smart! This leads to a false sense of security about the company’s true position in the market, leading to the second factor which can bring a company down—Arrogance.
Novell had plenty of excuses to be arrogant, even without Microsoft’s attention. They were truly dominating the Network Operating System business. The brand was dominant, the product was good, and the worldwide distribution network of VARs and distributors was second to none. Sales people at Novell no longer had to sell—they took orders. That led to a need to keep the big ball fast growth rolling, even as the market matured and became quite large. Wall Street, you know. Novell became known as a company that pushed, rather than created via pull marketing. There were numerous channel-stuffing scandals, so sales people could make their quarterly numbers and max out their bonus. No matter, things were well in hand, Novell was on a roll.
The closest competitor at the time was Banyan, with their VINES operating system. Banyan had a nice niche in the largest, WAN oriented corporations, but was no threat to Novell’s dominance. There was also a fast growing peer-to-peer player, Artisoft, who had a nice niche in the entry level market. Again, Artisoft posed no serious threat. And then there was Microsoft, with its alliance on the LAN Manager NOS with 3Com. At the time, Microsoft’s distribution strategy was still to primarily be an OEM supplier, preferring to let others take the lead in bringing the product to the end user market. They had piggybacked the hardware vendors with DOS and the emerging Windows 3.0, and were attempting to use that strategy in the Networking market with 3Com as their main partner. 3Com at the time was a dominant networking hardware vendor. They also teamed with many suppliers of UNIX software to create private label versions of LAN Manager for each UNIX flavor—HP UX, for instance. There were about 17 other platform partners, as I recall. It looked like a formidable syndicate which could challenge Novell for market leadership.
However, like many early Microsoft entrées into new markets, the offering was a joke. LAN Manager ran on top of OS/2, which should tell you something about its lack of success, right there. Technically inferior, with too many players involved to advance and support it, LAN Manager never gained significant traction vs. Netware, even with huge amounts of money being poured into development and marketing. Major new releases would be announced, each which was supposed be the one to give Novell a run for its money. It became a running joke in the network business. At this point, Novell looked invincible.
LOSING FOCUS
Then the arrogance at Novell rose to new levels. Apparently thinking Microsoft couldn’t beat them at their own game, Ray Noorda and senior management at Novell decided to also take on Microsoft on their own turf. Not only that, but to compete across many, many categories. They decided they wanted to become the new Microsoft, and in doing so opened a multi-front war against a larger competitor, with far more resources (See Hitler opening up the Russian front in the War against the Allies).
Novell bought WordPerfect to compete with MS Word, Quattro Pro to compete with Excel, and announced a dizzying array of additional new initiatives. (See Netscape taking a similar approach in its heyday, as well as Google is now, as we speak—that ought to be interesting). No one, I repeat, NO ONE, has won a multi-front war with Microsoft. The people that have fended them off (which is a small list), when MS has put them in their headlights, have done so by sticking to their knitting, and playing by the rules of their own market segment. Intuit is a notable example, which was able to keep MS in a minor role in the Personal Financial software segment, by advancing and focusing on its own offerings and current market.
WHAT HAPPENED?
Well, many of you who have been in High Tech for a while probably already know the result. Microsoft finally split with 3COM, developed Windows NT, essentially building Networking into the Operating System. This finally began to hurt Netware, and although it wasn’t an immediate rout, over time NT became the clear winner. The terminator of Redmond can be knocked down, but they almost never give up—they just go deeper into their pockets, and keep on coming.
The acquisitions that Novell made were already second or third tier products, and their markets were outside of Novell’s core market and competency. Drained of resources and fighting losing battles on many fronts, Novell was soundly defeated, ultimately selling off many of its acquisitions, retrenching and changing their strategy—quite a few times over the years, I might add. They went into a long, slow decline, and once this begins at a large company, it’s very difficult to truly turn it around.
WHAT IF?
So what would have happened it Novell hadn’t reacted like Netscape later did, choosing to battle it out toe-to-toe with Microsoft, blinded in a fit of rage and bravado? What if they had followed a similar strategy to the one that Intuit took? What if they had marshaled their resources, and kept their focus on maintaining the lead they had in Network Operating Systems and related businesses—which were pretty big markets in their own right? Hindsight is always 20/20, but my guess is that they would have had a much better chance of continued success—and possibly avoided the headlines in the Trade Magazines of the last few weeks.
Have you seen similar missteps in your own companies or markets?—please post a comment below to share the insights.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
Growing from a Startup to a Mid-Market Software or Hardware Company
Every stage of a company’s growth holds unique challenges. In my opinion, startup to about $2M in revenue for a software company, and startup to $10M for a hardware company is the hardest phase of all. But growing a business is almost always hard, and there are several natural revenue levels where companies tend to “get stuck”.
As in the hardware/software contrast above, revenue levels for different business models can be quite different. So it’s hard to generalize strictly upon gross revenue levels. But undoubtedly there are stages that every company goes through (startup to profitability, profitability to stable small company, stable small company to midsized company, etc.) which represent points of inflection in terms of the way a company operates. For example, you need quite a bit more formal process to operate a large company than a very small one. The methods of capitalizing a large company are very different from a bootstrapped or VC-backed startup. There are many more possible examples; I’m sure you get the picture. For this article we’ll focus on growth into the Mid Market stage.
First of all, there is no perfect definition of a “Mid-Market” company. People have defined it many different ways: by number of employees, revenue level and many other factors. For the purposes of this discussion, we’ll define a Mid Market company as one having between 100 and 999 employees. . Let’s take a look at some of the major changes required to successfully grow from a startup to a mid-market sized company:
Hiring
As a startup or smaller company, you’re often restricted by resource realities with respect to who you can hire. Startups are often forced to hire people with less direct experience than they’d like, and pay them less than the going rate in cash compensation. You often can’t fill every hole, even all the ones that you think are critical. People have to wear two or more hats, and the type of people you can attract might be those that really prefer the small company environment, or are dreaming big dreams based upon the stock options. In short, it’s continuous compromise. As you grow into the mid market you have more resources to pay market rates, and are generally more attractive to a larger pool of employee prospects.
But please, be careful–just because you can hire differently, doesn’t mean you should. I’ve seen folks get drunk on hiring at this phase, and get loaded down with overhead that makes running the business to optimal profitability much harder. There is also a tendency to go after people with big, blue chip company resumes, which can be very dangerous. If these candidates don’t also have experience in smaller companies, you’re setting yourself up for a very premature and inappropriate culture change. It’s important to guard against building a big company bureaucracy in a middle market company.
Business processes
Much like in hiring, there is often a tendency to want to add too much process, too soon. In fact, I believe this is the absolute biggest danger executive management needs to guard against during this transition. The CEO and senior team are usually very aware that the business is outgrowing its current level of checks, balances and controls. Inevitably there is a need for additional and more formal processes. The typical mistake I see is that instead of adding carefully and gradually, folks want to radically change the business overnight. The result is often a still-modest-sized business operating like one with 20,000 employees: Meaning operating VERYSLOWLY. Guard against this! Mid Market companies still need to rely on speed and agility to compete with the corporate giants, who have many more competitive advantages that you can’t yet replicate.
Scope of target market
Around the mid market stage, a single-product or single market segment company may be running out of room to grow at the rates it has historically enjoyed. This is a day of reckoning and a danger point that stops many promising companies in their tracks. If you need to expand into new products or markets, make sure that you do so rationally. Don’t go out and acquire a company in a complete different business, because your investment banker thinks it’s undervalued and a great buy. Do “diversify” into “adjacent” markets, taking one of your existing technologies into a different market, or introducing a new technology or product category to your existing market segment.
Capitalization
This is the stage where you absolutely need to hire a serious CFO with financial market savvy and connections. Many startups have someone with a CFO title whose background is really accounting and financial controls. Or possibly and outsourced, part-time CFO. This usually is fine up to this stage. But once you are talking about opening new offices, funding a new market focus or new line of product technology, the game has changed. The skill set of controlling the company’s simple expenses, dealing with angel and VC investors now becomes inadequate. The company needs someone that understands raising money in institutional financial markets, along with the contacts that go with that knowledge. Budgeting and controls will also start to become more decentralized, requiring a different financial management style, as the company continues to grow into the upper end of the mid market phase.
Distribution and regional offices
As your business grows into new markets and product categories, your distribution system must often change and grow with it. This might be the time that you begin to open offices in all the key geographic markets of the world. But don’t do this “just because it’s time”. It should be done only for good business reasons, such as increasing marketing in countries where a distributor won’t or can’t do what’s necessary. It might also be the time that a single distribution channel business needs to become multi-channel. For example, a direct-only company adds retail or VAR channels. Again, avoid the temptation to do these types of things because your business has grown to a certain stage. It adds complexity and overhead to your business, so make sure there are sound business reasons for the change.
Product Development
Moving to a different customer set or new base technology can have a profound effect on the product planning and development process. It is often at this stage that you must stop relying on a single set of market veterans or insiders, who have been successful in bringing out products due to deep, long-term domain knowledge in your original market/product focus. Now is often the time where there needs to be a bit more standardized product planning and development process, as you broaden both the number and scope of development projects.
The bottom line is that as you grow out of the startup phase, the way your business operates necessarily will need to adjust to continue strong growth. The biggest danger here is trying to “get big” before your time. While the big blue chip companies are often envied, trying to duplicate their current mode of operation while you’re just entering the mid-market stage is probably the best way to ensure that your company will never reach that blue chip status. “Get big” in the way you operate cautiously–because once you’ve bureaucratized your business, it’s very difficult going back.
That’s my take on going from a startup to mid-market. Share your own growth stories with us to start a discussion.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
A Case Study in Bad Customer Service
In my opinion, the quality of a company’s customer service is BY FAR the most important ingredient of the numerous factors that go into a company brand reputation. Unfortunately, there are too many companies–even of the large, successful variety–that just don’t get it.
I wrote previously about “The End of Customer Service“. With people pinching pennies due to the great recession, it doesn’t appear that things have gotten any better.
The impetus to write further on this topic came from a recent, painful personal experience. The source of my pain was DIRECTV.
Troubling developments for a long-time customer
I have been a DirecTV customer for roughly 13 years. This is a long time for a relationship with any consumer products or services company. I initially fell in love with the programming offered by the company, especially they wide variety of sports. I still find their programming compelling. Initially, I also found the customer service and support to be first rate in the beginning. Unfortunately, over time the level of service has declined from first rate to astonishingly bad.
The level of customer service began slowly deteriorated about five years ago. I suspect that it did because the company was struggling to show a profit. It appears somewhere in that timeframe management of the company transitioned from a customer-orientation to focusing strictly on short-term profitability. This led to some short-sighted policies, which I believe could eventually lead to the death of this company.
A long series of customer service and equipment incidents over the last several years left me so frustrated that I decided I could no longer remain a customer, and became resigned to finding another TV service provider.
The final straw
My last customer service experience was what put me over the edge. I had payed $400 for an NFL programming package, only to find 2 games into the season that one of my two receivers was no longer capable of receiving this premium programming. It wasn’t really a technical issue, but a decision by DirecTV to no longer support this specific programming on that type of receiver. The receiver worked fine otherwise, and in fact had some key features not available on the more contemporary DirecTV models of comparable capability. I had paid good money for the receiver and had given the company a large premium programming fee for the NFL package that year (and many previous years), and I had not been told prior to renewing football subscription that year that the receiver would no longer receive this programming.
A few years back DirecTV had come under the control of Rupert Murdoch, which led to an equipment partnership with one of Murdoch’s affiliated companies. I have one of these as my primary receiver, and it contains some of the worst software I’ve ever seen in a consumer electronics device. Because of this, I would have preferred to continue to use my old receiver, which works great. But I wanted to be able to access my expensive NFL package on my second receiver, and I felt that I was at least entitled to one that could do this without losing other features important in my current receiver–at not cost, given the circumstances.
What ensued was a Keystone-Cop like series of customer service episodes punctuated by poorly trained service reps, extremely long phone-support hold times and multiple equipment shipments back and forth. I won’t bore you with every detail, but it started with an initial call which required 15-20 re-dials just to get through to the “hold” point, followed by a 1½ hours wait time. I’d like to say that was the worst part of the experience, but things actually went downhill from there.
At the end of this saga, I knew more about the internal customer service processes and procedures at DirecTV than most of the representatives I spoke with. It wasn’t hard; most of them seemed to be clueless. Some of them were good people trying hard to help me–others just didn’t caret. But many were inexperienced or poorly-trained, and nearly all of them were overwhelmed by the sheer complexity required to accomplish even the simplest task. Long story short, my simple request for a replacement receiver that would leave me happy paying DirecTV in excess of $100 every month was never fulfilled.
Even the CEO couldn’t make it right
It was at this point I’d had enough, and was resigned to the fact that I needed to change TV service providers. It wasn’t what I wanted–I felt I’d been pushed into a corner by the company’s arrogance and incompetence. But first I needed to blow off some steam, and so I wrote an email to the DirecTV CEO, detailing my painful experience. To his credit, he immediately and personally responded, apologizing and agreeing that what happened to me should not have happened. He asked if he could still make the situation right, and promised to have his personal representatives contact me to fix the situation. I was pleased by his reaction.
I was quickly contacted by a member of the DIRECTV Customer Advocate Team, a small top-secret group that you wouldn’t be aware of if you hadn’t interacted with the highest levels of company management. She was very nice and understanding, and told me that she was empowered to do just about anything that was required to make me a happy customer once again.
Apparently she was empowered to do anything except fill my very simple request.
She offered me a lot of things, many which were desirable. But I was a bit stuck on principle at this point; I wanted to be able to watch my expensive NFL package on a second receiver with comparable features, with no additional money out of my pocket.
She told me she could take care of this, but with one big condition: I’d be locked in to 24 additional months with DirecTV. Apparently, any new equipment sent to a customer automatically triggered this additional 24 month commitment, which no one had the power to override–no exceptions.
Complete idiocy–and very bad business
Here there is a customer who has stayed with a company for 13 years and loves their programming, but has been treated badly by customer service, and feels wronged. Making him happy is going to cost you probably $25 extra to send him a premium receiver instead of a basic one. He’d like to find an excuse to stay, but ready to leave due to frustration. The response is to try to lock him in for 24 months against his will?
I was wondering: are there any managers trained in Marketing at DirecTV? Is there anyone in upper management that has actually ever dealt with a customer? Or are they all accountants?
So for all the software developers and manufacturers out there, what are the takeaways from this customer service tale of the absurd?
Takeaway Lessons
Your product/service isn’t everything – I still love the DirecTV programming, but will be leaving because everything else surrounding it has turned bad.
Train your people – There is often a lot of turnover in the customer service department, and it’s easy to skimp on training for people that might not be there too long. If you don’t want to ruin your brand, Train & Retain! These folks ARE the company to the customers calling for help.
The customer is king – regardless of how desirable your offering is, the customer has alternatives. Treat him badly, and he will vote with his feet–its human nature.
Lock customers in with value, not contracts – that’s where you’ll find loyalty and long-term profitability. 24 month contracts will only create animosity with your customers–and represent a big opportunity for
an upstart, more customer-focused competitor.
Don’t be arrogant – Regardless of your market position, if a customer truly has been treated shabbily, swallow hard and do whatever it takes to make it right. Install a customer service culture of taking care of the customer, almost regardless of direct costs. The hidden costs of angry customers are very high from word of mouth and other bad publicity–especially in the Internet Age.
Don’t let your accountants set Marketing and Customer Service Policy – As described above, the easily traceable short-term costs savings which are the focus of the financial guys, will be overwhelmed by less obvious negative effects on future revenue, due to damage to your brand.
So that’s my sad story, and hopefully some valuable lessons for all of us as we formulate marketing and customer service policies. Do you have a customer service story of your own, negative or positive? Have a different view on the state of customer service today? Share with us in the comment section below.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
Cloud Computing, SaaS and Such–Have We Read This Story Before?
I have this incredible feeling of déjà vu.
Cloud computing and Software as a Service is all the rage. In my practice at PJM Consulting, I am very involved in software startup activity. Nearly every new software company that I see today is being built on the Software as a Service business model. It’s all the rage–so much so that it appears that any self-respecting software entrepreneur would be embarrassed to start a company using the traditional software licensing model. Even if an entrepreneur was so inclined, good luck finding a VC who would even consider funding such a company. No one wants to look like a dinosaur.
It’s all well and good–there is definitely a real trend toward SaaS and Cloud Computing, with many good reasons for it. But most high technology trends are initially a bit over-hyped, and tend to get ahead of themselves. In addition, this particular story seems ever so familiar to a tech veteran that’s been around for a few of these cycles.
The first bit of history this reminds me of is the old terminal/mainframe model from the early years of computing. There were some real advantages to this model, but also some big disadvantages as well–which opened the door for the golden age of PCs and networking.
The second era that the current SaaS wave reminds me of is “Web 1.0″, when Web-based hosted software (then called ASP rather than the modern SaaS terminology), was first going to take over the world. The current trend seems so very similar because it was around the Web 1.0 years of the late 90s/early 2000 when the traditional software license business model was first proclaimed dead. At that time nearly every new business plan was based upon an ASP model.
So some of this fast-moving Cloud Computing or SaaS trend is new–but much of it could be viewed as recycled from past trends. Let’s look at the Pros and Cons of this computing model:
ADVANTAGES
* Enables “Utility-Style” computing – variable expense instead of. capital investment
* Allows an end run around overwhelmed IT departments (like PC networking did)
* Supposedly “On-demand”–use only what you need, when you need it
* More efficient use of compute resources by time-slicing large farms of cost-efficient computing resources
* Web-based allows anywhere, anytime availability
* Off-site storage of data assists disaster recovery preparedness
DISADVANTAGES
* Immature and inherently more difficult Security
* More difficult integration with other applications
* Internet latency
* Internet reliability
* Data resides outside the company firewall
* Costs over time aren’t necessarily lower for customers
* Lower margins for software vendors–aren’t always accounted for in current pricing
SUMMARY
I believe that the trend toward computing in the cloud will continue, but there will be some stumbles and pullbacks along the way. Cloud Computing and SaaS has some inherent strengths–but also some under-publicized weaknesses. Many software vendors are overlooking the weaknesses at this time, as is typical of any new and hyped technology. Traditional licensed software hosted by the user still has its strengths and a definite place in the market. Like many mature technologies and business models, the death of traditional software licensing has been greatly exaggerated. Once the early hype passes, decisions on whether to computer within the firewall or in the cloud will once again be made on the individual merits, costs and user needs for a particular application within a particular company. That’s how I see it–post a comment with your opinion so we can look at all viewpoints.
Phil Morettini
PJM Consulting
http://www.pjmconsult.com/
Effective Management During an Economic Crisis
This month we’re doing something a bit different–we have a guest post from Holly McCarthy. Please be aware that Ms. McCarthy is not affiliated with PJM Consulting, and the views expressed in this post are her own.
In the current economic climate, there is much that can still be done to turn business around. Certainly, technology has come a long way in helping businesses to maximize productivity with a minimum amount of manpower. While this is a great advantage over the economic crises of years past, the fact remains that effective management and leadership is still a key factor in maintaining the integrity of any business that wants to stick around after the dust has settled.
Leading by Example
Management will need to take the reins of companies and lead by example for the best results as the economy continues to waver in the coming months. Being able to roll up one’s sleeves and get down to business will show employees just what it takes to get the job done right. Unemployment is at its highest in nearly sixteen years, so many people may be in fear of losing their jobs. Showing that you are ready and willing to help out in the trenches will help boost morale and bring your team together in the process.
Ask for Input
Crowdsourcing is becoming increasingly more popular among businesses. While you may not wish to go outside the scope of your company for ideas, asking those who work for you for suggestions and ideas helps bring employees together and builds a stronger office culture in the process. Getting ideas from those within the company and giving credit where credit is due is a very effective way to turn things around and get your business back on track.
Trim the Fat
Unfortunately, there comes a time when a company must make the decision to let go of some employees. Take time to carefully evaluate your staff and find out where the weak links are. Some duties may need to be consolidated into other positions and this should be done within reason. The employees who are left will more than likely be happy to take on a few extra duties to secure their jobs. Although this is not the best possible solution, it may be the only way to help keep a business afloat.
Be Proactive
It is very important in these times to refrain from being reactionary. While things may continue to change from day to day, create a plan of action for keeping your doors open beyond the crisis. What changes can be made? Where can money be saved? Look at all of your options and leave no stone unturned; figuring out a way to stay afloat and ahead of the curve should be your number one objective until things turn back around.
This post was contributed by Holly McCarthy, who writes on the subject of the job search. She invites your feedback at hollymccarthy12 at gmail dot com
What Happens to Apple after Steve Jobs?
I’ve written several times on Steve Jobs and Apple, one of the most fascinating companies and executives that we’ve seen in the history of high technology.
I don’t mean to make this a morbid article; the current (and now long-running) speculation on Steve Job’s health has been well-documented. I hope that Mr. Jobs is fine, and that he has many more years of good health, with a continued long reign at Apple.
But it does raise a slightly different question that is interesting to ponder. There has always be a “cult of personality” surrounding Apple and Steve Jobs. In fact, Apple stock often swings wildly on days when news about Jobs health comes out. The company has done well during short periods when he has been away, but Mr. Jobs is joined at the hip with Apple in the investment community and public’s eyes. Jobs will leave Apple at some point, hopefully to go into a happy retirement, as I stated above. Regardless of the circumstances of his leaving, what will become of the company once he is gone?
I can think of no tech company more closely associated with a founder/CEO than Apple and Jobs. Gates and Microsoft certainly are in that league, and I’m sure that you can think of others. But I doubt if you can think of any combination that is clearly more high profile and closely-linked.
Jobs has obviously been a major driver of Apple’s current success, and has enriched its many shareholders and other stakeholders. While it may be blasphemy to the Apple faithful, especially in recent times, in my opinion he has also been responsible for some of the company’s periodic downturns. Whether viewed strictly as the company’s savoir, or also an unstable dictator that has wrought big swings in the company’s performance over a long period of time–it’s undeniable that an unusual amount of responsibility has laid in Job’s hands–especially for a company of Apple’s enormous size. He is known to be detailed-oriented and involved (from a positive perspective), and a micro-manager and poor delegater assuming a more negative viewpoint. The basic premise of this article is that once he leaves Apple, there will be a leadership vacuum. This isn’t necessarily a prescription for catastrophe–but it is rarely a good thing for a company, at least in the short term. So what are the broader lessons we can glean from this fascinating situation with respect to managing high tech businesses? Apple really isn’t a rare case–tech companies cultures are built around their founder/CEO quite often, as I see often in my practice at PJM Consulting. This is a case study that can be instructive for many managers. Let’s take a look at a few potential lessons:
Difficult or Odd Corporate Culture
There is obviously much to be admired about Apple’s corporate culture, since it is a very successful company. Yet by many it is considered to be somewhat dysfunctional from a management standpoint. Much of this can be attributed to having a leader with a very strong and quirky style. Cultures tend to develop haphazardly as companies grow, even if its leaders have given some thought to the issue. In a corporation, everyone has a boss and other constraints put on them by the company’s social structure. This tends to dampen the effects of dysfunctional behavior by people up and down the organizational chart. The exception to this is the Founder/CEO who is the head of the organization. Much like the old story about the “Emperor who has no Clothes”, no one in an official capacity will call out the person at the top of the org chart on their bad behavior, decisions and eccentricities. This is dangerous and can lead to a culture and company policies becoming embedded with inappropriate ideas for no good reason, sometimes based on what lower level people BELIEVE the CEO would want. The takeaway is that leaders (especially strong ones) must take care not to have TOO GREAT an influence on the culture of the company simply because of their personal style.
Corporate Succession
Strong leader such as Jobs often tend to run companies in a dictatorial manner. They also have a tendency to have a “self-centric” view of the world, and don’t give sufficient thought to planning for the company’s future after their tenure. This may work well while they are in charge, but can lead to a company in disarray when they leave. It’s not clear that there is a clear successor, or strong group of potential successors, in place to follow Jobs at Apple. For a company of the size and stature of Apple, most people would think that this isn’t a good idea. Founding CEOs and Senior Executives with a similar organizational impact need to force themselves to step back from the present, and plan for a future without themselves. This isn’t a comfortable thing for many people, but is critically important for the full potential of their legacy to be fulfilled.
Dangerous Concentration of Responsibility in a Single Person
In a startup, the founders often wear many hats, and make all of the important decisions themselves. No doubt that Jobs and Wozniak personally handled nearly everything when Apple was formed. This is a very proper operating model for a startup. As a company grows, at some point it becomes a VERY INAPPROPRIATE model, and can put the company in great jeopardy. What if that leader has a heart attack or is in some other way unable to fulfill their critical role? Chaos can occur, and the company’s decision-making can be paralyzed, especially in the short term. In addition, I believe that the old saying of “two heads are better than one” usually holds true. I’m not one to endorse decisions-by-committee, but many corporate situations are complex and inherently risky, and the decision-making in these circumstances can benefit by having several strong viewpoints. CEOs should ensure that important decisions include at least some level of peer discussion and review, to avoid blind spots and major mistakes.
Micro-Management
Strong leaders, especially those who are able to create a company from the ground up like Steve Jobs, are often “type A” personalities and micro-managers. This may be highly efficient when a company is in startup mode. Later on, however, it can lead to a lack of development of people down in the organization, as well as paralyze the organization’s ability to make quick decisions. The most effective leaders are those who are able to “let go” much of the decision-making as the company grows, while keeping their fingers on the pulse of what’s truly important. This is a very fine line to walk, no doubt, but it imo being able to successfully pull this off is one of the more important attributes of the very best corporate leaders.
Bench Strength – Can Worthy Managers Survive Under A Strong Leader?
Along the same lines as the Succession discussion above, attracting and retaining talented managers lower in the organization is usually critical to a company’s current success. If the leadership of the company tends to be dictatorial, micro-managers who hold on to most of the responsibility, lower-level managers may become demoralized. The management team needs to be developed, and feel like they have real responsibility and some control of their own destiny. When the guy at the top is holding on to all the power, strong leaders further down in the organization have a tendency to move on to other companies, where they feel like they are making an impact and have an opportunity to progress. The best leaders ensure that the conditions are in place attract, nurture, develop and retain the management talent required for a company’s continued growth and success.
SUMMARY
Apple is a great tech company, and Steve Jobs is one of our industry’s legendary entrepreneurs and managers. Yet every company, even highly successful ones like Apple, has holes in its game. There are many strong leaders much like Jobs at the head of software a
nd tech companies. Too often their strength is manifested with a very short term view of the organization. Although difficult to do, the strongest leaders operate with a view on not just optimizing the immediate issues facing them, but also plan ahead so that the company can function well even without their personal involvement. Often this means suppressing some of their own natural tendencies so that the overall organization can more fully develop. The resulting decentralization of power reduces a number of risks that are inherent when too much depends on a single individual. That’s my own view–post a comment if you have additional views to add to this discussion.
Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com
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