Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

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The New Corporation and Chronic Unemployment

This article is written primarily for my US readers, although anyone participating in the US marketplace may also have an interest.

As I write this article, US unemployment has been stuck stubbornly at 9% or above for 2 ½ years. The after effects of what has become known as the Great Recession are lingering, and there is no sign of a fast turnaround coming down the pike. The reasons that the Great Recession occurred have been reported and debated ad nauseam for the past several years. Basically it was a severe financial bubble, and historians have told us from the beginning of this downturn that recessions born of these circumstances lead to particularly slow and painful recoveries.

A major question comes to my mind as we endure this long-term economic pain: Is the US in a long-term structural decline? Looking at the issue dispassionately, all great civilizations/powers/countries in history that have risen to great prominence had an inevitable decline. In my business career, I’ve had a tendency to consider this question every time we’ve entered an economic downturn, which has happened several times in my adult life.

At times I’ve been pessimistic about the reasons that the great days of the United States may have run its course: Depleted natural resources, ballooning debt, declining educational standing, hollowing out of the manufacturing base, high costs of doing business and a high standard of living leading to a much has “hungry and motivated” populace. All have played a role in my thinking previously. Other emerging countries without the above stated disadvantages seemed to be poised to run past the US.

Added to these older fears has been a new one, high unemployment, which appears more then ever to have a structural rather than cyclical basis. This is being caused in part by a phenomenon which from a business standpoint is considered a good thing: The previously highly inefficient large corporations in this country have finally figured out they didn’t need all of the people they used to employ (and lay off during recessions, only to rehire them at the peak of the next upturn).

I have worked in and with very large corporations as well the smallest startups. If you’ve read this column for a while, you’ll know that I’m a long-time critic of the inefficient ways of big business. But finally, large corporations seem to have figured out that you don’t need layers and layers of bureaucracy to conduct business. There are many reasons for this change, including primarily productivity increases from technology, and a trend toward flatter organizations. But the net result is that large corporations have been, in aggregate, extremely profitable during the worst economy of our lifetime. This is great for shareholders, but terribly frightening for job-seekers and economists. Because it appears this do-more-with-less attitude means that many people will be out of jobs (in their former professions) permanently, with the economy stuck in the mud due to reduced consumption growth.

This is a pretty dire picture, and not an unrealistic one. Is this the end of the line for the US as a great economic power, with a reduced standard of living going forward for its citizens? I am optimistic that it’s not the case– and here are some of the key factors why I believe in a better future:

Entrepreneurship and Small Business Capitalism Unleashed

One of the very greatest strengths of the US economy, and indeed US culture, is the tradition of entrepreneurship. I believe it’s because we are a nation of immigrants and everyone had to create there own place in society. Relative to other countries, there are fewer people who were handed what they have. Go back no more than a generation or two in most families, and someone was pulling themselves up by the bootstraps. We have entered a phase where many people are again being forced to reinvent themselves, just like our immigrant forefathers. The way many previously earned a living is no longer possible. As stated above, those large corporations have figured out that they won’t need legions of people anymore; as many of those tasks are now being done by automation. Even those still in the biggest companies can’t expect to be there long term; lifetime employment is mostly a thing of the past. People will need to view their careers in a much more self-sufficient manner. There is much pain that has already come with this, and there will be much more yet to come. But this represents the efficient redeployment of labor that is at the core of capitalism. While painful, these labor resources will eventually find a way to make a living in a new way, ultimately expanding our economic activity and renewing growth. They will start new small businesses, invent new things or re-brand themselves as efficient “on-demand” contractors for larger companies. This will be a gradual process, but over time it will lead to a larger and more stable economy.

Innovation

We need the next big thing! The last time the economy was looking this moribund from the long view; the mainstreaming of the Internet saved the day and unleashed a torrent of innovation and economic growth. Of course, this also led to one of our more recent bubbles, but that’s a subject for another day. Over the history of the US, inventions of this type have created great economic progress: the cotton gin, the light bulb, telephony, the airplane, the mass production line, the computer, the Internet, etc. These great American inventions have played a major role in building the world’s largest economy, and indeed the world economy as a whole. Have we lost the recipe for these creations? I don’t think so. The American culture of capitalism and individualism is still the perfect crucible for great innovation. My only questions are what the next big thing will be, and when will it happen? I can’t wait!

Renewed Work Ethic

While the US has in fact become a bit fat, dumb and happy over the years as prosperity ensued, I for one don’t believe this is necessarily a permanent condition. The new economic conditions have a way of rekindling work ethic. Indeed for some the competitive instincts are flowing like never before. For many survival instincts are kicking in, and there’s nothing more powerful than that. All in all, I believe that the United States populace still possesses a very strong work ethic, and this will be one of the factors that kick-starts our economy once again.

Renewed Savings Rate

This is something that hasn’t received as much attention as some other adjustments to the economic rough times. The US has historically been a country of savers; however, in the go-go years of our latest bubble the savings rate actually went NEGATIVE. This is of course completely unsustainable by anyone’s math, and portended the economic collapse. The renewed savings rate over time will heal consumer’s balance sheets, leading to greater spending down the road, a more stable economy based on purchases aren’t made largely on credit, and greater capital formation for new enterprise. This is one of the more bullish signs I see for a renewal of economic growth, although this will have a long-term effect rather than a short term one.

Political Reconciliation

Winston Churchill famously said: “The Americans will always do the right thing… after they’ve exhausted all the alternatives.” The right thing that needs to happen today is for the political culture to come back toward the center, where historically elections were won and deals consummated during governance. The two ends of the political spectrum currently look very far apart and unable to deal with each other well enough for the government to run effectively. Indeed, the two parties are as far apart as they ever have been in my lifetime with moderates having been run out of both parties. But if you look back at the longer history of our country, this isn’t an unusual situation; the political classes have always come back to the center eventually, as the electorate inevitably gets sick of extremism and governance gridlock. The sooner this happens, the better, no doubt. But history tells us that it will occur.

So those are my crazy thoughts of optimism as we slowly crawl out of the Great Recession hole. What’s your forecast on the future growth of the US economy? Where are we headed, and does it end happily?

Post a comment with your own views on this subject. 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

8 Comments by admin on November 12, 2011
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Wireless Communications and the End of Landlines

Hi, my name is Phil, and I am a landline user.

There, I’ve said it. I feel like I’ve admitted a dirty little secret–maybe should even enter a 12 step program of some sort. After all, I’m a long time, devoted tech guy and lover of gadgets of all kinds.

I was a very early and heavy business user of cell phones, and loved having one. Not quite as early as the initial “brick” stage, but soon thereafter. And of course the mobility provided by cell phones and laptops initially, and now Smartphones, has been a boon to business and personal productivity worldwide. Particularly in the third world where communications infrastructure was way behind, wireless technology has enabled these areas to leapfrog over fixed wired technologies entirely into the wireless present.

Wired telephone service definitely appears to be going the way of the dodo bird. A study by the CDC shows one in four households the US now do not have a wired phone, and more than 50% of adults age 25-29 have only a wireless phone.

Wireless technologies have changed our lives, and for the most part for the better. There is no doubt about this.

I love having the mobility cell phone and the computing power of a Smartphone most of the time. But there are some downsides to our developing total commitment to this new technology, which is why I still have multiple landlines at my disposal:

Call Quality

To me, this is the biggest reason to still maintain a landline. If I’m talking to a client, especially for the very first time, I much prefer the predictable QOS a wired phone line offers. Mobile phone technology has improved dramatically over the years, with much greater bandwidth available, and technology that can more efficiently use it. But the mobile phone companies have generally used this added bandwidth to add data services and stuff ever more calls into a fixed amount of bandwidth. As a result, the call quality of mobile phones is still highly variable and often much lower quality than a POTS line. Add in dropped calls, dead zones and the like and conducting business over a mobile phone can be still be frustrating. Mobile phones are ubiquitous of course, so everyone understands. But it isn’t the most professional way to conduct business.

Cost

Some save money by using their mobile phone exclusively and eliminating landlines. If you are a heavy cell phone user by preference or necessity that probably makes a lot of sense. But if most of your calls don’t really NEED to be made on the go, sometimes the opposite is true. A standard, flat fee landline can be pretty cheap compared to most cell phone plans; again, if you really don’t require the constant mobility. In addition, pre-paid cell service has become very inexpensive (in the US, at least), saving considerable money vs. many contract cell phone plans, while also provide greater flexibility in switching service and phones or dropping service. Depending on your usage patterns and needs, the mobile service-only option isn’t always the cheapest.

Fax

Yes, this is an old technology and going away fast. And there are online solutions to get around not having a landline and physical fax machine. But when fax is called for, it’s still pretty convenient to do it the old-fashioned way.

Courtesy

Unfortunately along with YOU having the ability to communicate from anywhere, so do the hordes of people around you. Does she really need to be on that call (loudly) while checking out in front of you in the grocery store? Or check that email or text will flying down the freeway at 75 mph? And the very personal things people will say on a mobile phone in public never cease to amaze me. Just because you can, doesn’t mean you should. I once had a guy Google on his Smartphone as I tried to interview him for a job.

Ability to “Get Away From it all”

After call quality, this is the next most important reason I don’t rely exclusively on a mobile phone. If you don’t’ have a landline as your primary number, everyone thinks you’re always available, and I’m very available anyway. While there are obvious benefits to this, at times it can get to be too much. In the not that distant past people understood if you took you an hour to return a phone call. Now many folks are upset if you don’t respond to an EMAIL instantly. All of this technology has accelerated business and has made us more efficient in many ways. But I do believe that it’s also important have some uninterrupted time be able to recharge your (personal) batteries, or do some solitary strategic thinking about an important problem. Being disconnected for just a while can be really helpful in many ways.

The bottom line is that 98% of us don’t really “NEED” all of this mobile technology. For doctors or others in some type of emergency response profession, it’s an absolute requirement. But for most of us, it’s really a want and a convenience, not an absolute need. I’m not sure many people understand that these days.

Most really enjoy the power and convenience of our modern mobile technology. But if you ever have a day where you feel like you’re overwhelmed by it all, try backing off a bit. Leave your phone at your desk (or at least in your car!). Go for a bike ride, read a book at the coffeehouse or hit the gym for an hour or two. Get totally disconnected, if only for a short while. Go Old School. You might find that you actually like it.

So that’s my rather obscure opinion on the state of communications technology–am I being silly? Post a comment and let everyone know what you think.

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

2 Comments by admin on January 16, 2011
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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

5 Comments by admin on January 24, 2010
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Will Microsoft’s BING Finally Bring Success in the Search Engine Market?

Microsoft’s new search service is called BING, and takes a contrarian approach to the simple Google Interface. The BING interface is kind of a cross between Google and the Yahoo Directory, with a bit of Expedia, MapQuest, Shopping.com, UTube and Flicker thrown in for good measure. Never accuse Microsoft of being modest in their ambitions–this site takes on directly just about every major category in the online world.

I’ve given BING a quick look. It’s polished and appears pretty comprehensive. The search results don’t seem to be that much different from previous Microsoft efforts, although the interface’s major categories may allow the finding of information more quickly than an elegantly simple one like Google’s–if you know upfront the category of information that you’re looking for.

HOW LIKELY IS SUCCESS?

Will they succeed? They have many times before in similar situations. They’ve been laughed at and written off in quite a number of markets over the years. MS has a bad corporate habit of releasing poor products in their first one, two, and even three incarnations. Any other company would give up after so many failures in a particular segment-but not Microsoft. Don’t forget that as a software company, Microsoft has always seemed to believe that it is their god-given right to sell every line of software code written in the world.

There are many examples of Microsoft rising from the dead in software market segments. In spreadsheets, Excel was at one point in time a speck on the wall compared to Lotus 123. WordPerfect had a commanding lead over MS Word in word processing back in the DOS days. And a large number of MS Network Operating System Server software offerings (beginning with LAN Manager) were considered a joke relative to Novell Netware, for the longest time back in the 90s.

In all of these situations, Microsoft had the last laugh, soundly beating their seemingly entrenched and unbeatable rivals in large market segments. As a result of this corporate history, they believe that can beat anyone and rarely give up. Occasionally, I have seen them back off, notably after several tries competing with Intuit in personal financial software. But if it’s considered a strategic, core segment by MS, they will throw a huge amount of resources at the segment, take large losses, and not give up until they’ve broken through.

I call them the Terminator of High Tech.

TERRIBLE TRACK RECORD IN ONLINE SERVICES

Of course, this isn’t a pure software market, its online services. The problem for Microsoft with Bing and the search engine market in general is that they’ve been floundering almost completely, for a long period of time, in online services. In fact, they’ve not had much success in their history online at all. This is especially noteworthy in contrast to their domination of the desktop software business, and the competitive advantage their desktop monopoly should provide them in online services. Yet they’ve done poorly in almost everything online, and are a distant third in search engine marketing–not even all that close to a fading Yahoo.

So as most pundits will confirm, Microsoft has been terrible in the online world. This does not bode well for the possible success of Bing. But as I alluded to earlier, there is another side to this equation.

MICROSOFT CONSIDERS ONLINE SERVICES IN GENERAL AND SEARCH ENGINE MARKETING SPECIFICALLY, TO BE ABSOLUTELY AT THE CORE OF THEIR FUTURE SUCCESS–AND EVEN THEIR SURVIVAL.

Yes, this hugely successful company has always been a bit paranoid–which may be a bit on the humorous side given their overall success. But it has worked well for them over the years. It has given the company a sense of urgency which is very hard to generate in corporations of their size and stature. So anyone with a sense of history would be foolish to rule them out.

HOW CAN MS OUTFLANK GOOGLE?

But how are they going to defeat their competitors, mostly notably Google, this time in the online world? In my quick evaluation, I didn’t see anything technically revolutionary, such as demonstrably more-relevant search results. Some people may prefer the Bing category-oriented interface better than Google’s, but it will be a matter of taste–I can’t see an overwhelming advantage here. In past cases MS may have overwhelmed a segment with marketing, or simply given away a product, to ensure defeat of a rival they feared could grow into a broad line Software competitor (Novell, Netscape, etc.). It’s unclear to me what strategy they will be able to take to defeat Google, which is a dominant, embedded brand with wild profitability in Search Engine Advertising. But I believe they fear the Google franchise and know they need to crack to code to online success if they are going to retain their position in the long run. So don’t expect any throwing in the towel any time soon.

Maybe Microsoft will hit upon some innovative strategy that will enable them to win the day in this crucial market. But the one thing I can think of right now, that may work in their favor, is deep pockets, longevity and sheer persistence. Google has also been unable to achieve success outside of their domination in their core Search Engine Marketing segment. This is very analogous to Microsoft’s struggles outside of desktop software. The Search Engine advertising segment will eventually mature, and there are already some early signs of slowing. Plus Google risks killing the goose that laid their golden egg by raising their “Auction” bid rates to levels that will make it hard for their customers to make money–don’t get me started on that. Advertisers may eventually take their advertising budgets elsewhere. So for MS in this crucial platform it may be a matter of hanging around, making incremental improvement to their Search Engine offerings, until Google shoots itself in the foot.

Doesn’t sound like much of a strategy, I know. But stranger things have happened. Let me know what you thing of Microsoft’s launch of Bing. Post a message or drop me an email.

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

No Comments by admin on June 5, 2009
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Strategic Acquisitions for Software and Technology Companies

Acquiring new products or whole companies is a popular activity for many growth and market-share oriented companies. Is it a good idea?

Well, as I often say–it depends. I get involved in company or product acquisitions quite often in my consulting practice. There is nothing inherently good or bad about acquisitions in the technology business. However, there is nothing inherently bad about opening a restaurant, either. Nonetheless, a very high percentage of restaurants (I’ve seen figures as high as 90%) fail within 5 years. The failure rate for acquisitions may not be quite as high as for restaurant startups, but technology acquisitions are also judged to be failures at shockingly high rates. Caution should rule when approaching either of these very popular activities. As I’m fond of saying about success or failure in any complex business activity–the devil’s in the details.

Common Motivations for Acquisition Activity

Let’s examine the common reasons that acquisitions are considered in the first place:

1) It’s exhilarating and “sexy” to buy another company
2) Growth for growth’s sake (often pushed by investors)
3) The belief that buying a competitor is the ultimate “victory”
4) A consolidating market (often commoditizing) where there is only room for a few large players
5) Diversification
6) A great strategic fit where 1+1 truly equals 3

As you might have guessed, reasons 1-3 above aren’t great justifications for such a risky activity. Number 4 can be a good justification, but often this is given as the rationale, when the actual market case doesn’t truly support it. Number 5 can be a good or bad rationale, depending upon whether the business case really calls for diversification–or if focus would make more sense. Number 6 is by far the best reason to acquire a company, particularly if you aren’t an industry giant, pitted in a death match with another titan of your marketplace.

So let’s say you’ve actually thought it through, and have used sound analysis and judgment in deciding to pursue an acquisition. Congratulations for passing the first test–but there are still myriad things that can trip you up, on the way to acquisition success:

Great Ways to Fail

First acquisition done “on your own”–I strongly urge all first time acquirers, whether of the product or company variety, to seek assistance. Acquiring a company and even a product is very complex, with a lot of places to trip up. Retaining an experienced hand that has seen and gone through the mistakes before, can prevent you from the most expensive education of your life.
Bad cultural fit–In the excitement of an acquisition or a merger, people have a tendency to not look past the surface. It’s much like dating an attractive potential mate, and proposing based upon infatuation, without establishing whether there is common ground in the way you live your lives. This is the business equivalent of marriage, folks. Compatibility in business philosophies and practices is crucial–and often overlooked, until after the fact, when everything is unraveling.
Poor organizational integration– Even with an excellent evaluation of potential partners, a great many mergers fail based on the execution of integrating the organizations. That’s because it is HARD. You are generally merging two organizations with disparate operating styles, as well as overlapping functions and people. Fear, uncertainty and doubt of the individuals involved can by ITSELF scuttle a potentially great fit. This area is often quoted as the reason most acquisitions fail.
Poor product integration–This is the reason a lot of acquisitions in software and high tech should be called off early in the process. It is often very difficult to rationalize how you are going to support two different code bases or technologies, aimed at the same market. The plan usually call for integrating them over time, but that often proves to be very difficult from a technical perspective. This is a real red flag when buying a direct competitor. Yet the price of the merger in high tech often assumes that the products can be integrated acceptably, without losing customers from either of the existing products. Unfortunately this is usually a very tall order
Paying too much–Price plays a big role in software and technology acquisitions. Due to high growth rates and the perceived need to move quickly in fast-growing, competitive technology markets, acquisitions are often priced in multiples of revenue. This is in contrast to the more conservative multiples of EBITDA in other less dynamic industries. Often the target isn’t even profitable yet, but still commands a high price-to-revenue multiple, due to the “hot” nature of the market space, and perceived value of the acquired technology. This high price puts a severe strain on downstream execution of the merger to be “perfect”, as discussed above.

So with all of the landmines out there in the acquisition arena, along with the high failure rate, is it simply nuts to consider acquisitions? Doesn’t it make sense to just stay away from them? NOT NECESSARILY.

Sound Approaches to Pursuing Mergers

Buying innovation–This often happens when companies reach a certain size; they simply lose their ability to innovate. Rather than innovate internally, they do so by acquiring small companies with market-changing technologies, which may not have the resources to fully exploit in the marketplace on their own. Even though multiples here tend to be high, risk is somewhat mitigated relative to internal Research and Development that might not “pan out”, and the size of the acquisition is often very modest, relative to the resources of the acquirer. This is an example of a true 1+1=3 strategic fit. This strategy has been used with great success by Cisco, Microsoft, and many other large companies with successful acquisition programs.
Buying companies or products that truly fill a hole in your offering–While some companies tend to overuse this as justification, acquisition of a reasonably priced company or product at just the right time, can mean the difference between continued growth or inevitable stagnation.
Buying undervalued assets–This is harder to do in high tech than in other industries; high tech companies have a habit of overvaluing their businesses and technologies. But an executive team with a key eye for a bargain can often pick up a diamond in the rough, for example a division that has suffered because it isn’t a good fit with the parent company’s core business
Truly appropriate diversification–Sometime you run out of steam in your current market, and the amount of cash flow generated by your current business dictates that an investment in another growth area may be prudent. The key here is to pick a market segment adjacent to the existing business, or at least a business that the management team can easily adjust too. However, management teams often are over-confident and deceive themselves, and end up investing in an area where they really don’t belong.

I could go on and talk more about acquisitions for a very long time. But instead of putting you all to sleep, let’s begin a dialogue on this topic. Inform us of your own Merger and Acquisition stories, best practices, and cautionary tales.

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

1 Comment by admin on April 30, 2007
filed in Business Development, Business Models, Corporate Strategy, Mergers & Acquisitions, Uncategorized
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Free Conference Calls

Let’s talk once again about some great free sites, which help you run your business like a Fortune 500 company–on the thin budget of a startup.
 
Web 2.0 has risen to bring back a multitude of “free” web-based services, which were common before the “original” advertising-supported web companies nearly went extinct after the dot.com bubble burst in 2001. For early stage companies in particular, the return of this “no-fee” model can be a great thing. All you need is to do a bit of searching, and you can find many great services on the web to help you grow you business, efficiently and cost-effectively. I’ve found a couple of sites that will make you look like one of the giants of industry, to your partners and customers, in one important area.

Formal conference calls have historically been the domain of big companies, but no more. Here are two sites that allow you to set up the ubiquitous “dial-in” conference call, to simultaneously connect multiple parties in one call. Everyone gets a dial-in number and pass code for the conference. The two sites I’ve found are very similar in how they work. Both offer a robust, completely free to schedule such calls with a simple web-based interface—while offering an upgraded service, which is available for a small charge.

The two sites operate very similar business models. The major “upgrade” in both cases is a toll-free call in number, for a modest charge. There is also a premium charge for exceeding approximately 100 callers on the conference call (that’s a pretty big conference call for most people!), as well as for calls exceeding several hours, on one of the services. All told, very few restrictions, and a great, FREE, easy to use service—imo. Don’t take my word for it, try them yourself. The two sites are:

www.freeconference.com and www.totallyfreeconferencecalls.com

Let me, and all your fellow readers, know what you think!

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on June 15, 2006
filed in Operations, Startup/Early Stage, Uncategorized

A Special Appeal

To all the loyal readers of the Morettini on Management:

I rarely diverge from High Tech Management topics in this Blog. The following note is about a very important cause to me, and to society at large.

I am participating in the upcoming San Diego Walk for Autism fundraiser, a charity event near to my heart. The Walk for Autism Research is the signature fundraising event of Autism Speaks/NAAR, one of the prominent parent-founded charities which funds Autism Research. I am asking for your generosity and seeking donations as part of my participation in the Walk–all donations going to Autism Research. You can find more information on the event at the San Diego NAAR/Autism Speaks-Walk for Autism website.

The most important reason to contribute to Autism Research is the suffering of the children affected by this hideous disease, along with the difficulties it presents to their families. More than 50 years after it was first described, Autism remains a mystery, and is affecting young children at an increasingly alarming rate–1 -166 children born will be diagnosed with Autism–and now affects millions of people and their families. The scariest part is the huge increase in the numbers over the last decade or so—with no one knowing why. Autism affects all colors, creeds and nationalities. Even today, Autism remains one of the lowest funded of all the diseases that affect large numbers of people. Autism’s cause has not yet been characterized–and badly needs to be, to allow progress on treatments and ultimately, a cure.

The disease is not only a personal tragedy for many, but also a huge societal problem, one that is consuming large amounts of school and medical resources, to care for those affected. A recent conservative estimate of the societal cost of Autism was $35 Billion ANNUALLY, in the United States alone. Yet the US research budget for Autism is typically an order of magnitude lower than other diseases which affect like numbers of people.

There are two ways to contribute, if you are able to make a donation (all contributions are of course Tax Deductible). The easiest way is to donate online. This link takes you to my personal fundraising page on the Autism Speaks-Walk for Autism website. On this page you can painlessly make your donation using any major credit card. If you prefer, you can also make a donation by check. Please make the check out to “Autism Speaks”, and mail it to:

Autism Speaks
c/o PJM Consulting
10644 Amberglades Lane
San Diego, CA 92130 USA
858-792-1062

Your generosity toward this important cause is greatly appreciated.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on May 13, 2006
filed in Uncategorized

My First Post!

Hi,

I’m Phil Morettini. I am a Management Consultant to the High Tech industry, and I am starting this blog to offer my commentary on current events relevant to Management and Marketing in the High Tech biz. I plan on posting often, and would welcome your comments. Let me know what is on your mind, what you would like to see discussed, what you think of my commentary. Any and all opinions are welcome!

No Comments by admin on February 28, 2005
filed in Uncategorized