Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Category: Startup/Early Stage

Startup Mistakes by Software and Tech Companies

Starting a company, any kind of company is the hardest thing to do in business. Sez me.

It’s also one of the most rewarding and fun, if you’re built for the startup experience–though not everyone is. Technology startups have their own unique challenges. There are many different ways to drive off the road, some of which I list below. Keep in mind that no startup is perfect, and mistakes will be made. The future can not be forecast, and in a software or tech startup you’re often flying nearly blind without a map, because you are trying to do something new and different.

In the end, if you are able to make it through, overcoming your mistakes may be the most satisfying part of the whole startup experience. So keep in mind that it’s almost impossible to play a perfect game. On the other hand, it’s crucial to steer clear of the mistakes which are often avoidable–because you only get some many chances to recover from errors.

Here are some of the common, often avoidable missteps to be aware of:

Too little capital
Sometimes this is unavoidable–but if you really don’t have enough capital maybe you shouldn’t start up in the first place. Activities such as software product development are notorious for going way past schedule and over budget. Most products don’t move like a knife through butter with the first modest promotional campaign. So build a decent amount of backup money into your plan, because things rarely go as planned. If they do, great, you can use the money to accelerate growth. But when things don’t go well, you’ll at least give yourself a fighting chance, if you’ve set aside a bit of money for a rainy day.

Don’t try to be a “Big Company” right off the bat
Many startup management teams are jealous of the resources available to their established competitors. These folks can become “Big Company Wannabes”, a classic formula for going out of business early. Don’t spend your precious time and resources on activities that don’t efficiently bring the product out, or market it. Period. Lavish trade show booths, company parties, expensive or large offices, administrative assistants for all the execs, etc., etc. Don’t hire a lot of big company people who don’t have early stage experience–they are prone to the types of costly waste listed above.

No backup plan
It is a startup and you have to expect little margin for error in reaching success. But that’s no excuse for a lack of strategic planning–within the constraints of your resources. A backup plan might be something simple: software companies going to open source if your high-priced commercial strategy meets resistance, a service-oriented revenue strategy with a cheap or free product, using a channel rather than building a full sales force, licensing your technology instead of marketing a full product to end users. It depends on your circumstances, but do try to have some type of a contingency plan going in.

The “Techies know everything” syndrome
This is a common malady in tech startups, because many new software and tech companies are led by management heavy in experience from the engineering or software development side of the business. Usually these folks are very smart, but in some cases also a bit full of themselves, unable to know their own blind spots. Those blind spots often appear in marketing and sales (which every engineer and software developer knows are easy, non-complex activities). The really smart guys quickly figure out those other parts of the business besides the tech stuff is hard as well, and make adjustments through education and bringing in outside expertise.

The “Technology is everything” syndrome
This is a corollary to the bullet point above. The technology and product is crucial in a tech startup, since it is usually the basis for your competitive advantage. But it’s not everything, and many a startup has failed despite great technology and an exciting new product.

No marketing budget or in-house expertise
Believe it or not, I see a lot of companies with little or no promotional budget. Its insanity, but they only have enough money to get the product built, apparently thinking “if you build it they will come”. This is nearly always a failure mode. If there is someone with marketing expertise among the founders, they usually won’t allow this to happen. So secure a marketer on your founding management team, or at least find a close advisor you will listen to, early on.

Under-estimating time to market
This is a very common mistake. By definition, you are trying to do something new, which isn’t forecast-able. So don’t believe your own pretty Gantt charts–garbage-in equals garbage-out when it comes to schedules. Don’t count on making it to the big trade show, commit to costly promotional activities with no recourse, or let the developers all plan to leave for that well-deserved month in Hawaii. Get the product done first. I tell you this with many painful experiences as a teacher, both personally in software and tech companies and through my clients.

Under-estimating time-to-success
Even if you are able to get the product out on time, that doesn’t mean version one will hit the ground running. They often crawl, stumble and fall at first. After all, this is your first opportunity at really accurate market research. Even if the product is right on target, finding the marketing mix that works is generally trial and error. Many products don’t find success until their second version is released, so have some money in the bank, and some emotional bandwidth available for this possibility.

Introducing a “buggy” product
This is one of my biggest pet peeves, especially for software products. Most products aren’t fully stable when the developers think it is ready. They work on it so long and hard, that human nature wants it to be finished near the end–and dangerous shortcuts can be the result. Dedicate as many resources as you can spell to ensure a credible, third party view that the product is as stable as it can be, before the market gets the opportunity to “debug it” for you. You only get one chance to make a first impression. If the situation is bad enough, it can cost you your business.

There are my thoughts on what critical mistakes to avoid in a technology startup. I’m sure many of you have your own lessons and ideas to share. Post a comment to start the discussion! Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

13 Comments by admin on September 14, 2009
filed in Corporate Strategy, General Management, Software/Product Development, Startup/Early Stage
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Compensating the High Tech Sales Force

A very controversial topic within many software and other tech companies is how to best compensate the sales force. How much is required? How much is too much? What’s the best mix of salary and incentive comp?

If you’ve read anything I’ve written before, you’ll find my next comment familiar:

It all depends on your particular situation.

There is no across-the-board best practice for optimizing your sales force’s performance via compensation strategy. Every company, market and competitive landscape is different at any given point in time.

Let’s take a look at some of the more common variables and how they might affect your compensation strategy:

Established brand vs. startup
If you’re a startup, plan on paying your sales reps more. It will be harder to attract great reps as a startup, unless you are in a special situation with an incredibly hot new product (of course, every startup CEO thinks this way about their product!). You may need to pay reps a higher base, and certainly richer commissions than your established competitors. Some of this can be mitigated if you are offering an equity opportunity, as discussed later. But for sure, prospective reps need to believe that there is a good chance they can make more money at your startup, or you won’t be able to compete with established companies for the same level of folks. That’s just a fact of life.

Price Point
If your price points are higher, you may need to pay a higher base salary, if the total number of sales made will be low. Lower price points lend themselves to higher commissions and lower bases, because the rep will be able to start making money sooner, and more regularly.

Length of sales cycle
The sales cycle aspect is pretty straightforward, and tied closely to the price point discussion above. Price points and sales cycles almost always have a direct relationship. High price points lead to longer sales cycles, and low price points to shorter cycles. It’s harder to compensate heavily on commission if there is a long sales cycle, because sales reps need to eat regularly, too. If you have a product that takes a long time to sell, make sure that you have a decent base salary for your reps, if you want to keep the good ones.

Growth vs. harvest
Companies generally highly value reps that can sell new products and into new accounts–they want to pay for growth. So the more you are asking your reps to do what is considered to be the hardest thing in sales — sell “new”– the higher the commission structure should be. Selling “new” is the highest form of risk in sales, and it should be compensated by the highest reward. Selling established products and selling into established accounts (harvesting) is not as risky, and as a result can often carry lower commission structures.

Initial sale vs. ongoing revenue
Similar to the growth vs. harvest discussion, sometime you are selling a product that has upfront revenue as well as ongoing revenue, typically from updates, replacements or services. You generally want to pay higher commissions for the upfront portion than you do the ongoing revenue. A good example of this is a traditional software license with an annual maintenance fee. If you pay commissions on the maintenance portion at all, in most circumstances the payout should be lower than the incentive on the upfront license fee.

Commodity vs. missionary sales
Commodity sales lend themselves to high commissions and low (sometimes even zero) base salaries. This is because sales cycles are usually short for commodities, and since they are by definition in big markets it’s easier to make a base level of sales and resulting commissions, even for a new rep. By the very nature of commodities the rep’s service is often a major differentiating success factor, so a comp mix toward commissions rewards the exceptional rep to really work hard. Missionary sales, on the other hand, require a great deal of patience by the rep, as well as a lot of hand-holding and relationship building. To keep good sales reps in such a situation, it’s important to have base salaries which are adequate to enable the best sales reps to exhibit patience with the long sales process. Missionary sales are an area that really demands both high bases and strong commission structures, as they are one of the most demanding forms of selling.

Hunters vs. Farmers
Hunters obtain new accounts while Farmers maintain and maximize the sales into existing accounts. These two situations require two different sales personalities, and the compensation packages should be different as well. The hard-charging hunter will require a decent base salary, but really needs the high commission structure to keep him motivated. The Farmer is likely to be a more stability-oriented, relationship-building style of rep. A relatively higher base and lower commission structure is usually more comfortable for reps in situation.

Equity
In most cases, the playing field is slanted toward established companies when it comes to compensating and attracting sales reps. Equity participation can be the great equalizer for startups in compensation. Every company has a different view of how broadly to offer equity. But a startup that offers equity participation to its sales force can often give up less in cash compensation. For risk-taking reps, equity can even be the deciding factor in recruiting, in some cases. The lure of equity that might grow into a significant stake at a successful startup can help pull a rep from a more established job.

So what specifically should you be paying your reps? Laying out actual numbers is beyond the scope of this discussion, because there are too many factors and potential situations to generalize. All the factors above come into play in structuring a sales compensation package, as well as factors such as inside vs. outside sales. Every situation is different, and competitive factors also come into play, if you’re competing directly with your rivals for reps. Local market circumstances, as well as the overall economy, can also play a strong role in setting the final package.

Above all, if you want to optimize the performance of your sales force using compensation as a tool, you must do your homework. Don’t just quickly come up with something that “sounds good” or is “how you’ve done if before”. Analyze the situation of your unique company at this particular point in time, and at certainly consider at a minimum the factors mentioned above.

That’s my thinking on how to compensate your sales force–what’s yours? Post a comment below or shoot me an email if there is a particular situation you’d like to discuss.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

2 Comments by admin on August 17, 2009
filed in Distribution Channels, Startup/Early Stage, sales
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The Future of Venture Capital Funding in High Tech

Like almost every aspect of the current economy, Venture Capital Fundings of High Tech and Software startups are way down.

There is pressure on virtually every segment of our economy, and the worldwide financial system is in by far the greatest disarray of our lifetime. The preferred exit strategy for Venture Capitalists, the IPO, pretty much shut down quite a while back. Financial returns at Venture funds have taken a hit like everything else financial, and VCs are definitely not in good position to attract new capital in the near term–given the current frantic flight to quality by investors. Things look dire in the VC business. There are even suggestions by many people, including some prominent VCs, that the long running and revered Venture Capital business model is “broken”, and that it will cease to exist as we now know it.

So what really is going to happen? Is the end of the world near? (well…maybe, based on the news headlines every day). Will a software or technology entrepreneur be able to fund their company via the VC route in the future? Let’s take a look at some of the things I expect to see happen.

SHORT TERM AND LONG TERM IMPLICATIONS
First of all, I don’t believe the end of the world is near. Nor do I think that the Venture Capital business is going away. There is a fair bit of pain left to go in this very down economic cycle, and the VC business will be no exception. So in the short term, new VC funds will have a difficult time raising money, startup capital will remain very tight, valuations will be lower and the whole experience of raising money will be even more painful than normal (and it’s always painful). Many VC-backed startups which haven’t gotten sufficient traction have been told if they don’t have 12-18 months of cash in the bank, additional funds won’t be forthcoming. But make no mistake, there are software and tech companies closing funding rounds every day. VCs still have not deployed a very large amount funds they raised in better times–that money needs to be put to work. There is still money out there in the short term for deserving business plans. And in the long run, the economy will rebound and things will go back to “normal”. I do believe that the Venture Capital business needs to make some adjustments, however–so it will probably be a “new normal”.

HOME RUNS VS. SOLID SINGLES AND DOUBLES
One of the staples of the VC business model has been finding “home runs”, meaning those companies that can grow large enough for an IPO. These are few and far between. VCs have always said they would gladly invest in 5 to 10 failures to find that one big hit. The IPO market has essentially gone away for the time being, which puts a lot of pressure on the basic premise of how to make money as a VC. I’ve always thought the “big hit” model was lunacy, and akin to throwing darts at a board–it’s so hard trying to pick out who the huge winners are going to be a startup stage. There’s a lot of luck involved in a company getting to an IPO, and even more luck involved in picking them out at birth. This strategy seemed to work fine when the markets were consistently heading up and to the right, and quite a few companies could do an IPO and get a billion dollar market cap. But I’ve always thought the very basis of investing and company building is in finding those companies that can give you a return on your money, skillfully balancing risk and reward. Considering those companies that have truly developed a strategic advantage and a sound business plan, some of them may get very big, others not so much–depending upon the specifics of their target market and business. But VCs for years have been basing investment decisions almost solely upon huge markets and the potential for the big hit. I think it was lazy investing, and that part of the VC business model may need some adjustment.

VC COMPENSATION MODELS
As VC fund size and limited partner returns increased during this golden era of VC funds, so too did the compensation to the General Partners of the fund. When funds and returns were outsized, limited partners swallowed hard or looked the other way. It’s analgous to a mutual fund with a hefty management fee–when the returns are great, it’s no problem. But in times like today, the small fees associated with an index fund look pretty good compared to that underperform mutual fund with active, expensive management. VC fund Annual Management Fees which have typically been in the 2-3% range will likely be reduced, or maybe even go away entirely. The 20% carry standard will probably hold, and may even go up and bit if there is heavy pressure to reduce the management fees. LPs won’t mind the carry if they are realizing good returns. What does this mean for the software/tech entrepreneur? It may not mean much, on the surface. But I do think it will require VCs to do more homework on their potential investments, which possibly gives an edge to those entrepreneurs will less dramatic, smaller business plans, but better risk profiles.

THE OXYMORON OF “LATE STAGE VENTURE CAPITAL”
I’ve always thought that the idea of “late stage” venture capital was kind of a joke. However, the Venture Capital business has been moving this direction for quite a while. Part of the reason is that VC funds have gotten so big that it’s hard to deploy all of the money with “real” startup investing. And also it’s a less risky way to get to that big IPO payoff. But really, these late stage funds have gotten pretty similar to Private Equity firms, except their time horizon may be shorter. So maybe these investors should really just be re-classified–in many ways they don’t look anything like their early stage brethren. At this stage, there are usually many other potential sources of capital. I believe that this late stage segment of the venture capital business is one that is due to shrink the most in the near term.

CAPITAL-EFFICIENT BUSINESSES VS. KISSING FROGS TO FIND THE “BIG ONE”
I think that the Venture business will trend back to true startup investing, and will reduce it’s reliance on the long home run as its basic method of making money. This is where they really add value to the “business-creation value chain”. What I expect to see is a renewed search for businesses which are “capital efficient”. What I mean by this are companies that will turn an invested dollar into a high multiple of that investment, in terms of revenue, profits and valuation. You might say this has always been true. But the key difference, I believe, is that that venture funds will be smaller, and as a result will feel less pressure to fund high risk, high ceiling businesses where a lot of capital needs to be deployed. As I stated earlier, VCs with large funds have previously felt that the economics of their business demanded this approach. With smaller funds, I believe that capital efficient businesses in smaller markets will no longer be ignored. Solid singles and doubles may come back in vogue (for those of you that understand baseball analogies!).

IS MONEY REALLY “SMART’? OPERATIONAL EXPERTISE VS. FINANCIAL GUYS
I’ve always felt that the idea of “smart money” has always been a fallacy, or least one that was greatly overblown in the Venture Capital business. I know that there are A LOT of people that will disagree with me on this point. A lot of startup advisors will tell you that it’s imperative to raise money from investors who will provide much more than cash. I think it’s a bunch of malarkey. No doubt that there are some experienced, skilled and very well-connected VCs that can provide a strategic advantage to entrepreneurs, who are fortunate enough to attract them as investors. But with money being a commodity, this is mostly about a VC firm trying to differentiate and provide a value-add. Fundamentally, the need for capital and the need for advice and other business assistance aren’t tied at the hip. Both are o
ften needed, but they don’t need to come from the same place–they are important, but separate ingredients to the successful startup recipe. If you can get both in one package, that’s great. But too many VCs present themselves as experts in areas where they’ve really just been investors. This is especially true for those many VCs that come from a financial background, rather than from a high tech startup management background. Frankly, entrepreneurs need to be careful of utilizing faulty advice, regardless of whether it comes from someone who has put money in their company or not. Having money in a pocket should not be confused with operational knowledge or expertise. I’m not sure whether it will happen or not, but I’d like to see the Venture Capital business present a more realistic view of the value that they are adding–it’s not the same in all cases.

SUMMARY: WILL VC FUNDING GO AWAY?
The short answer is “definitely not”. I do think that the bubble excesses have highlighted some weaknesses in the Venture Capital model. There will be adjustments to it–just like there will be adjustments in many other businesses, as a result of our economic duress. I’ve offered some ideas to get everyone thinking–please feel free to disagree, or otherwise add to the discussion. I’d welcome everyone to post a comment, if you have an additional take on this always interesting topic.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on March 2, 2009
filed in Financing, Startup/Early Stage
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Inside TeleSales versus Outside Sales in Software and High Tech Companies

There are many ways to deliver your software and technology products to the market. For example, one and two step distribution through third party channels, direct marketing/sales over the Internet, OEM relationships and many variations of these, as well as other methods.

One classic method of delivering products to the marketplace is by using a direct sales force. Within the direct sales methodology, two of the most popular variations are an outside sales force and an inside telesales group.

Inside sales forces utilizing telesales are cheaper per rep, so your cost of sales is reduced, and you can potentially afford more reps. Outside sales forces can provide additional credibility and stronger relationship with the account. How do you choose between the two methods? Does it sometimes make sense to use both? Let’s take a look at some of the key aspects to consider when making this decision:

PRODUCT COMPLEXITY AND LENGTH OF SALES CYCLE
Probably the most important consideration in this discussion is the complexity of your product offerings, and the corresponding typical length of your sales cycle. Simple products with shorter sales cycles obviously lend themselves to the less expensive telesales approach. If you have a complex product that requires more in the way of hands-on demos, application engineering and other high-touch sales support, an outside sales force may be warranted.

BRAND STRENGTH AND STAGE OF COMPANY LIFECYCLE
Another important factor is the position of your company in the marketplace. Take an example of two companies selling the same product, to the same market. The newer company with less market presence and a weaker brand may require an outside sales force to maximize its market penetration. The more established brand and company might be able to get by with a lower cost inside telesales approach in similar circumstances.

PRODUCT PRICING
Product price is another important element in this discussion. All things being equal, higher priced products are more likely to require outside sales, while more modestly priced ones may be able to be sold effectively with only an inside sales force. Low price products, unless sold in high volumes, may just not profitably support the use of an outside sales organization.

TARGET CUSTOMER PROFILE
Is the target company large or small, is the prospect themselves young or old, progressive or traditional? It’s important to understand your customer profile and buying style in deciding how best it will be to sell to them. This is of course often decided on a case-by-case basis for individual customers. But in making this decision on how to structure your direct sales force, it’s important to characterize your target market in aggregate. For example, if the bulk of your target market is older, traditional companies and you are trying to sell to their IT departments, you’d better strongly consider building an outside sales force. Many of these customers come from the old “Glass House” era that was dominated by IBM, and are used to having sales people physically call on them. On the other hand, your prime prospects may be in a newer, SMB market segment that has prospects who are more comfortable with remote communications methods. These folks also have less staff, and less corresponding time to meet with outside reps. These targets may be well-served by a competent inside sales force.

HYBRID SALES STRUCTURE
In some cases a mix of inside telesales and outside reps works best. Here are two examples of when this might be optimal: 1) Outside reps for Major Accounts, Inside reps for the rest of the territory and 2) a product with a low sales price that lends itself to an inside sales force, but the product is something that major accounts can use in great quantities, justifying an outside sales force to call specifically on these accounts.

COMPANY CAPITALIZATION
How much money does the company have? Sometimes, there just isn’t enough capital to initially invest in an outside sales force, even if the situation ideally calls for it. In these cases, it makes sense to start with an inside sales force, and do the best you can. There are many ways to compensate in this situation, even if it’s not ideal. We’ll cover the details of this scenario in another article. Suffice it to say that it’s preferable to get by with a sales structure that may not be optimal, rather than bankrupt the company with an outside sales force that it can’t yet afford. I’ve seen this occur more than once in my practice at PJM Consulting.

SUMMARY
Like any other key structural decision that senior management faces in developing a software or technology company, it’s important to carefully consider the details of your particular circumstances. Many times managers will quickly settle on replicating what they know, and are comfortable with from their past experience, or simply attempt to copy what the market leader does. Both of these approaches leave you vulnerable to a potential critical strategic mistake. Be thoughtful upfront in your approach to how to structure your direct sales force, and you are likely to be rewarded with optimal push in your chosen market segment.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on February 5, 2009
filed in Corporate Strategy, Startup/Early Stage, 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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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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Strategies for a Technology Market Slowdown

Is the world economy slowing down? What are the implications for technology companies?

Recently, technology stocks (along with the stock market in general) have tanked. There is a credit crunch that shows no signs of abating, and inflation is rearing its ugly head in some markets, and political gridlock seems to be the order of the day.  Is the economy headed for a “double dip” recession–taking technology businesses down the drain with it?

I don’t think so, but I’m not in the business of forecasting such things. Tech stocks are often affected more severely than average in an economic downturn, which affects technology industry investment and ultimately tech growth rates.

So what should you do if you’re the CEO of a software or hardware tech business?

Be Prudent, But Don’t Panic
Now’s certainly not the time to stick you head in the sand, and hope the economy doesn’t get any worse. It almost certainly will; but more importantly, how will it affect your company? That’s what you need to ponder. Is your product a “must have” or a “very nice to have”? Obviously the “nice-to-haves” will have a tougher time in a declining economy, and should plan accordingly. So take the time to analyze you situation, and make a forecast for your own business, based up the unique circumstances of your market and company. Remember, hope is not a strategy.

Look For Opportunities to Outflank Weaker Competitors
For strong players, declining economies can be a great time to pick up market share from weaker competitors. If you have the resources and can do it safely, now might be the time to run a promotion, or selectively increase your marketing. It’s counter-intuitive to most managers’ instincts. But weakening the competition during a downturn can lead to stronger growth when things turn back upward.

Slow Near-Term Expense Growth, But Don’t Compromise Long-Term Initiatives
In most cases, companies will want to carefully monitor, and possibly cut back on their spending. You want to make sure that you don’t put your company in jeopardy, by have expenses out of sync with flat or declining revenues. But try your best to keep intact the initiatives that are critical to long-term growth. You must continue to think long-term as well as short term, assuming you don’t get in a situation where your survival is at stake. Cut back on advertising and office space if you’re seeing a slowdown–but make sure you don’t cut the product development project which will lead to growth 18 months hence. These can be tough decisions, but they really separate the long-term successful CEOs from the flash-in-the-pans. Almost anyone can manage when times are good.

Limit The Growth Of Your Staff
While prudent spending can be wise during a downturn, aggressively increasing the size of you staff usually isn’t. There are always exceptions, of course, but adding too much staff can really bloat your fixed cost structure, in a manner that limits your management flexibility. Unfortunately, many companies are often most aggressively adding staff at the end of a growth cycle–just in time for the downturn. If this leads to layoffs, it can have a devastating effect on your company’s morale.

Although layoffs are sometimes necessary, they are always painful and hurtful to the company culture–unless the company culture is already of the “Attila the Hun”, cutthroat variety. The founders of one of my former employers, Bill Hewlett and David Packard, ran HP for many years with a rule of thumb that limited staff increases to 25% of revenue growth. This helped them avoid the natural inclination to hire someone new every time a new task was identified. I believe was an important factor in many years of smooth growth–without layoffs. This particular metric might not be right for your company, but something similar could prove to be a useful damper on excessive hiring.

Make Sure That You Have Money For A Rainy Day
While it’s no time to panic, it IS time to make sure that you have the financial resources necessary to comfortably cruise through a downturn.  Availability of funds and terms will only get worse if the  stock market heads down further and the credit crunch continues. Also, make sure that you have available the largest line of credit possible with your bank. It may cost you an extra few thousand dollars a year, but its excellent insurance, if you are surprised on the downside. If you’re in startup mode and financing yourself on credit cards and home equity lines–maximize your future access to these as well! Whatever your sources of funds, make sure now that you’re financially well prepared for whatever the future holds.

Be Poised For The Next Upturn, Whenever It Happens
I mentioned earlier that you should try your best to keep long-term initiatives alive. In that same vein, your thought processes should CONSTANTLY be focused on the next upturn, in all of your decision-making. Again, this assumes that your survival isn’t in question. For example, while massive hiring isn’t usually wise during a downturn, you want to always be open to unique opportunities that may not come along often. Say there is a talented executive available, only because of the downturn. If you can safely afford him or her, snap them up now, before a competitor grabs them. Or retain a talented consultant to position yourself with a new technology direction or market segment when growth inevitably climbs. Downturns often present opportunities to improve your business when the next growth cycle occurs. But you need to be “looking ahead” and making good decisions now, to take full advantage of the upturn when it finally does.

Summary
Once again, now is not the time to panic. But it is an important time to plan. Anyone that can predict what will happen with an economy should go to the nearest casino–no need to waste your time with a software or technology company! So I suggest that it might be wise to do a “best-most likely–worst” 2 year forecast now, and try to plan as best you can for the two extreme cases. Post a comment and let me know your thoughts on how the economy and the tech industry will fare in the coming months.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on January 14, 2008
filed in Business Development, Corporate Strategy, Financing, General Management, Mergers & Acquisitions, Software/Product Development, Startup/Early Stage
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Negotiating and Working with Large Technology OEM Partners

The Holy Grail for many software and technology companies, especially the early stage type, is the big deal. Everyone is looking for the big deal, the one that will fund the company’s early activities, provide market credibility and momentum in the marketplace. Of course, if it goes well, there can be nothing better. Many times the big deal takes the form of an OEM partnership with a much larger company. But often when these deals do happen, they end up fitting in the category of “be careful what you wish for”.

TARGET YOUR OEM PARTNERS CAREFULLY
This is where it all starts, good or bad. It’s important to pick compatible partners. Companies looking for large OEM partners are often blinded by the potential of what the OEM can do FOR their business. They often fail to pay any attention at all to what the OEM might do TO their business!

Can the partner cause severe channel conflict? Will they tie the small company up in endless meetings, procedures and negotiations? Do they have a corporate structure and culture so foreign to your way of doing business, where you end up pulling your hair out from frustration–unable to accomplish even the most simple business objective without moving mountains? Sometimes with large companies, its difficult even figure out who you need to speak with–let alone get a prompt, unambiguous answer.

Get to know your partners well before you sign a deal. It’s tempting to rush in before “they change their mind”, but the actual relationship is critical to potential success. It’s like dating before a marriage–no matter how attractive the partner is, you need to make sure you can live with them later on.

NEGOTIATE FROM STRENGTH
I don’t like to do deals with people that are sure they have the upper hand. If they think they can push you around–they almost certainly will. Usually one partner needs the other to a greater extent, but you want to try to avoid dealing with partners where you have no leverage at all. It generally doesn’t’ turn out well. Make sure that you negotiate a deal that you can live with. Above all, you need to have a “line in the sand” that you won’t cross–and be prepared to walk away if the negotiations cross that line.

This can be a painful and difficult thing to do when you are seeing big “dollar signs” in your eyes–and fear if you stay strong, you might blow the deal. But remember, you have something that the other side wants as well–or they wouldn’t be talking to you. If you don’t know what your minimum successful deal looks like, and you aren’t prepared to walk, you may sign a deal that you will regret. Not to mention tying up your time and resources, which might have been used working with a more compatible partner.

WORK ON EVEN TERMS
Once you’ve negotiated a deal that you can live with (and hopefully prosper with!), it’s time to get to work with your partner. Try to keep things as fair and even as possible in the relationship. Of course, it’s important to be accommodating to your partner, and respect the differences in operational procedures. Big OEMs will usually move slower than you, be more process-oriented and structured, and include more people in the relationship. All of this is fine, but it needs to be tempered so that the larger partner doesn’t “swallow all of you available resources whole”. It can easily happen if you don’t guard against it. They have more resources than you (but will always think they are busier!) as well as more process-driven requirements that need to be met. But don’t be afraid to draw the line at a reasonable point, and remind them that you have fewer people and resources available. Suggest a phone meeting instead of flying three people across the country–ask that they come to your place, rather than always trekking to their headquarters. Propose that one of there folks spearhead writing that joint position paper, instead of some scarce resource in your company–you get the picture. Sometimes larger companies will smother you without even knowing they are doing it–don’t be afraid to remind them that you need to do business a little differently.

KNOW WHEN TO SAY “NO”
If you’ve tried everything you know, politely, to keep the relationship equitable and reasonable–but it just isn’t–don’t be afraid to say NO. I meet many smaller company executives in my consulting practice whojust don’t feel they can do this with a larger partner. They’ll talk tough in internal meetings, but when back in discussions with the partner, the tough talk turns to submission. They just feel like the partner is too important to their business to risk ever offending them in any way. That attitude is a prescription for servitude for your company. I’m not suggesting being unpleasant; in fact, when standing up to a larger partner, it’s critical to be calm, polite and non-defensive. But by all means be firm in delivering the message of what your business can, cannot–and won’t'–do. If you don’t, what could be a profitable relationship can turn very sour.

HAVE REALISTIC EXPECTATIONS
The last point I’d like to convey is that it’s important to have reasonable expectations in partnering with large OEMs. Many companies go into these deals believing they will be “company-makers”. In my experience, this rarely happens. Understand what the OEM can do for you, and build your business model around the most conservative projections of their performance that’s possible.

Companies usually turn to OEM products from partners to fill niches that they don’t fully understand, or don’t feel would pay back–if they invested in developing it themselves. It is very rare for products licensed or resold from partners to get anywhere near the push that internally-developed products do. Be realistic about this, and you won’t be disappointed. If revenue exceeds your conservative expectations, you’ll be overjoyed.

SUMMARY
That’s my condensed advice on working with the big software and technology OEMs of the world. This is a common activity for many companies–what’s been your own experience? Post a comment and let me know your own view.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on December 14, 2007
filed in Business Development, Corporate Strategy, Distribution Channels, Software/Product Development, Startup/Early Stage, enterprise software, sales
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System Integration vs. Product Development

I’ve recently engaged on assignments with two new clients. Both of them have businesses selling to large, blue chip customers. Customers of the size that are used to “having it their way”; as a result, getting a deal with them often includes the need for a lot of customization.

The interesting thing about these two clients is how they perceive and approach that need to customize.

A Tale of Two Companies

Company A views customization somewhat as a pain and distraction, something to be controlled–I am assisting them with creating a standard solution offering menu outlining the “Base” offering, with a list of options available at an added cost. They really want to discourage certain customizations, absolutely won’t do some things that will be asked, and want to make sure that they charge dearly for items that they find painful. They have the classic mentality of a product company; they want to do the amount of customization necessary to make a large sale to this important customer–but NO more than they have to.

Company B, which also considers itself a product company, has a very different mentality about customization. They welcome it, pride themselves on it, and position themselves to these potential large clients as someone that can quickly bring solutions to the client, customized to their desires. They want their big account reps to be scouring the big accounts for unique pain points or opportunities, which might fall within the company’s core capabilities, enabling them to propose a customized solution. In fact, up till now, their product development approach has really been to find out what individual accounts want–and build it for them.

So which of these two business models is the best way for technology companies to go?

System Integration Business Models

Advantages:
*More flexible and able to change with shifts in the marketplace
*Not as capital-intensive due to less “betting” on upfront product development
*Easier to grow business organically with internally-generated capital than in a product business

Disadvantages:
*Less risk due to lower upfront investments
*More competition; System Integration is an “easier-entry” business
*Generally lower operating margins
*Growth is less scalable than a product-oriented company

Product-Focused Business Models

Advantages:
*Provides greater opportunity for strategic advantage and resulting fast growth
*Less competition if a product/brand/technology differential advantage is created
*Can scale much quicker if a hit product is developed
*Higher operating margins if product is successful
*Usually more marketing-driven and less labor-intensive
*If creating a very large company is the goal, much easier to raise outside capital

Disadvantages:
*Much more risk of “crib death”, resulting in complete capital loss if first product has problems in development or marketing
*Harder to “get over the hump”; success is harder to come by, and success often happens as a step function after a difficult startup period

First of all, I want to emphasize that there isn’t necessarily a “wrong” approach with either of these business models. You can make a lot of money pursuing either model. Both of the companies I have used as models have managed to attract blue chip customer which would be the envy of any company. What we are really talking about here is the difference between a classic product-driven company and a system integrator.

Company A is that classic product-driven company. They customize when they have to, but also have a point where they will say “no”.

Company B also self-identifies itself as a product company, and in fact they have built their business around a small number of standard offerings. But as their core strategic advantage they really are utilizing relationships, the ability to customize beyond what standard product companies (especially larger ones) are willing to do, as well as to react very quickly to customer requests. They’ve built a very nice business doing this, but have some frustrations as well. They are highly dependent upon a small number of major accounts for virtually all of their revenue, and have the major revenue/profit swings that are associated with this type of business–up one year, back down the next. They also are in constant fear that a larger company will come along and “take away” their marketplace, because they’ve continuously failed to create new products which build upon a core offering which is very dated technologically. The core offering appears long-in-tooth and vulnerable. This company is very account-focused, and the lack of a market focus has kept them from being able to create additional, broadly marketable products which provide them with a strong proprietary advantage (and causes a lack of sleep at night!)

Company A understands who they are and what they want. That doesn’t guarantee success, but it makes it much easier to build a plan that everyone agrees on. At that point success or failure usually depends upon execution, unless the plan is awful. If failure ensues in this scenario, more times than not, the problem is in execution. Company B’s biggest problem is that they are floating right in the middle between the two business models. They are trying to leverage both of these business models, and struggling with execution, in some ways with both.

SUMMARY
It isn’t impossible to combine these two business models successfully. I’m sure that many of you can’t point to several examples of such a very successful compromise. In fact, many technology companies combine both of these models to some extent, with good success. But I find that usually, a company identifies itself primarily as a product company first, or a systems integrator. That identification is their strategic focus, and takes precedence when prioritizing the use of always scarce assets.

The secondary business model is usually utilized on an opportunistic basis. Product companies integrate and customize as needed to get a big deal. Integrators create “products” to fill the needs of a big account, and sometimes happily find they are saleable to other accounts. Occasionally, these “products” prove so widely saleable that they are spun off into a separate product company, or the integrator changes its focus into becoming a full-blown product company.

The most important thing, in my opinion, is to understand who you are, and what you are trying to accomplish strategically. It’s the company’s that are trying to leverage both business models at once, without one model taking the lead, that gets itself in a heap of trouble. That’s my opinion–what’s yours?

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on September 21, 2007
filed in Business Models, Corporate Strategy, Financing, Operations, Software/Product Development, Startup/Early Stage, VARs
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The Haphazard Development of People in Early Stage High Tech Organizations

Many entrepreneurs start out giving little thought to how they will grow their embryonic technology business in the long run. They are totally focused on designing and releasing the first product, or making that first sale. This focus is usually a very positive thing in a new company, since grandiose plans of startups have a way of getting derailed by the harsh realities of trying to survive.

Other more organized and contemplative entrepreneurial types have a master plan all laid out, including the steps on how they are going to grow their company all the way to the happy exit they have planned. This approach can be of great benefit as well; even though things won’t go exactly as planned, it’s great to have a road map that you can adjust as conditions change.

One thing that many younger organizations don’t do so well, is in planning the development of their staff. Don’t misunderstand; there are a lot of development opportunities for employees of newer and smaller companies. But this development often just “happens”; there is little thought that goes into it. A job needs to be done–and a particular body is more available than any other. The fit may not be ideal–and the amount of training given minimal. But the person is thrown in to sink or swim, because like the old saying “necessity is the mother of invention”. It needs to happen, and it often works out well a surprisingly large amount of the time, given the haphazard way in which this “personnel development” often occurs.

But is this optimal, even within the constraints of a hard-charging software or hardware company? Most of the time, with a bit of foresight and a strategic pause, you can increase the odds of successfully stretching your current staff, into areas where expertise or experience are lacking. Below are five simple steps that may greatly increase your success rate in growing

Consider Psychographic Profiles Of Candidates In Your Hiring Choices
Like most things that are done in company development, if you hire the right people, things are likely to turn out better–no matter WHAT curves the marketplace throws your way. So try to think ahead when hiring that next entry-level employee, to fill the open clerical or support role. What other activities may need to be done in the near future? In what areas could this new employee be grown? Are you hiring the most flexible candidate, the type that will be most comfortable when you try to “stretch” them into an unfamiliar role? Will they freak out at being asked to perform a new and challenging activity, or will they embrace it as an attractive career growth opportunity? Try to think ahead, and the answer to your next personnel crises might be right down the hall.

Plan Ahead As Much As Possible
As mentioned above, it’s really useful to try to think ahead to what functions will need staffing in the next 3, 6 or 9 months. This type of strategic thinking is difficult for many early stage managers, who are focused on getting through the end of the month. Unfortunately, this mentality often leads to hiring the person that will save a few nickels in initial salary, or has the most experience for the immediate position–therefore “hitting the ground running” with the least amount of training. But if you factor the medium and long term needs of your business into your hiring decisions, you may hire different candidate–who may add much more to the growth of the business over time.

Train At Least A Little–Don’t Just Throw Them To The Wolves
Startups have a tendency to “throw people in the pool and see if they’ll float”. Many times managers will ask an employee to get started, and just do the best they can in the short term. It’s often a crisis situation, and the manager intends to come back and train them when things settle down a bit. Unfortunately, in early stage companies, the situation NEVER settles down. As a result, you end up with an employee that fails, feels abandoned and neglected, or develops bad habits that become hard to undo. While it’s hard to find the time or resources to provide training, for most people, it’s an important factor in ultimately achieving success. So make it a priority to give the person in a new role some basic training, no matter what it takes.

Supplement And Train Using Consultants As Mentors
One great way to provide training and support to employees in new roles is to get some outside help. Many smaller companies don’t believe that they can afford consultants, because their price tags for providing expertise and short term work are much higher than permanent employees. But that is usually “penny wise, but pound foolish”. Most jobs that need doing, also need to be done right. If there isn’t the expertise or senior management bandwidth available to train and support the employee in the new role, the job may not be done the way the manager intended–costing the company far more than the amount that outside help would. In these instances, an outside consultant is actually a very cost-effective way to prevent costly early mistakes, as well as putting the employee solidly on a track to long-term success in their new role.

Allow Room For Errors
Margin for error is usually less in early stage companies, with a resulting amount of high pressure to “get things right the first time”. But it’s unrealistic to think that someone new to a job, with minimal experience and support, will do everything perfectly the first time. Startup managers need to factor this into to their expectations, and plan for results to be a bit uneven at first. It’s especially important that the demeanor of the manager makes the employee feel comfortable to take educated risks in the company’s best interests, without feeling like any missteps could cost them their career.

SUMMARY
It’s true that early stage tech companies can’t afford to engage in the same type of organizational planning and personnel development that occurs in most giant corporations. However, that is somewhat offset by the vast opportunities for development that are found in these fast-changing, non-bureaucratic environments. Early stage tech companies are well served if they force themselves to engage in just a fraction of the planning done in larger corporations. Post a comment and let us know what you think about organizational development in startup companies.

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

2 Comments by admin on June 24, 2007
filed in Corporate Strategy, General Management, Startup/Early Stage
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