You Should Scale Your Tech Company Sales Force When…..

Many people would finish the above sentence with something like “when you ship your first product”, “when you start your company” or “as soon as possible”. All have a similar meaning–everyone needs sales revenue and would like as many salespeople as possible to drive revenue growth. It seems logical that these are all appropriate responses–but in my experience it’s not always the case.

 

First of all, I’m using the term “scale your tech company sales force” in a very flexible way. I really mean taking it up to the next level, whatever that may be at the present time. That means different things to different companies, who have different sales business models and are at various stages of development. For example, in a ground floor start up “scaling the sales force” might mean hiring your first dedicated, professional sales rep! In early startup circumstances, early sales activities are often performed by company founders or senior executives (and rightly so). At a more intermediate level of development this might mean going from 1-3 in-house reps to hiring an outside field sales force covering your home country and organized by region. At the highest level of development, scaling the sales force could mean hiring a large number of sales employees in every developed region of the world (regions outside of the home market are often handled early on in a company’s sales organizational development by resellers, distributors or other partners). While these events are very different in a lot of ways, they all represent major points of inflection in the composition of your sales organization and potentially your sales process as well. The important things these three “step up” examples all have in common is that they cost a LOT of money and usually bring quite a bit of change in the way your company does business.

In most growing software or hardware companies management is often chomping at the bit to move to the next level of revenue growth, which often means greatly expanding the sales force to fulfill and drive that growth. But as I alluded to above, sometime you can hire sales people (or scale up the sales force) too soon. So first, I’m going to flip the original sentence around and detail when I think you SHOULDN’T scale up your tech sales force. Here’s 4 potential circumstances which may indicate that scaling up your sale force at this time may be a bad idea…

 

Cartoon describing a bad outcome when prematurely scaling your tech sales force
A Cautionary Tale on Premature Tech Sales Force Expansion

Product not really ready

This is the technology business–you’re not selling peas or perfume. There is considerable risk that any new software or hardware product may be very buggy in the period immediately after it ships. This is always a tenuous time, when caution should be exercised with respect to not getting too far ahead of the situation by implementing too quickly next steps of any kind. In addition to sheer buginess, sometimes products just disappoint in the marketplace for a number of reasons: The price may be too high, you’ve not picked the proper distribution channels, product planning wasn’t perfect – leading to key features that the market requires but are missing in this version, etc. In these cases, massive hiring of new sales reps would be very ill-timed and possibly even counterproductive, so it makes sense to hold your powder until the product is ready to make real headway in the marketplace — which is when you’ll be able to maximize your sales force ROI.

Another common product-related issue is when the product is stable and able to meet the needs of the market, but due to the early stage of the product category/technology it requires an extreme amount of technical hand-holding. In this particular situation it may still make sense to scale the sales force, but it may require quite a bit more in technical support, field support engineers than you might have counted on. If the new sales reps cannot sell the product somewhat independently, the ROI of scaling the sales force is greatly reduced when compared to products that they can handle themselves with a reasonable amount of training and modest levels of tech support. In these circumstances you may be better served deferring massive sales force expansion, to conserve most of your capital until the product is more mature and can be sold in a more traditional, sales-driven fashion. A more modest mix of a few additional sales folks along with beefed-up technical support resources may be in order in the interim.

 

Sales process not fully developed

This is a common occurrence that I find with companies that are very anxious to grow. They are able to make those very difficult initial sales, either completely filling out a good list of reference customers, or maybe even going well beyond that. Possibly they’ve even made some very impressive sales to blue chip customers, whose names will carry great weight as they attempt to sell to the rest of the broader market segment. But in many cases those sales have been made with a great deal of hand-holding (sometimes by scarce senior resources), customization, massive discounting and the like. Of course, to get those early critical sales anything and everything necessary SHOULD be done. But at this point it’s not unusual that every deal has been difficult, unique and has required resources or policies that just can’t be duplicated in a wider sales campaign. What really sells the product? No one knows, because every deal has been different and often required unusual efforts to close. In essence, there is no repeatable sales process that the new sales force can be successfully trained to use. This is a prescription for failure when you scale up your sales effort. I find it to be a common reason that companies with initial promise often fail to reach the potential that their management feels is achievable. Any expansion of sales activities, whether by an internal employee sales force or external sales channel, must be grounded in a well-understood sales process that can taught to and repeated by the sale resources you are tasking to bring in the orders.

 

Capital not available to invest in sales force long term

I’ve also seen this issue kill or cause great retrenchment in a number of tech companies. What happens is that the product appears ready and the company believes there is a repeatable sales process in place. The decision is then taken to go full speed ahead on hiring initial sales reps or if the company more mature, scaling the sales force further. But the gotcha is that there really isn’t a capital base in the company to handle the additional burn rate this creates, which can be very substantial when adding significant numbers sales people for the long haul. The assumption is made that the product is great, so sales will “take off” and the new sales force will “pay for itself” in no time. Sadly, in most cases this is wildly optimistic. There is a learning curve under the best of circumstances and in the tech industry in particular too many things can go wrong, as discussed in other parts of this article. It is usually imprudent to expect new sales people to begin paying for themselves within the first 6-12 months. If they do, great! But you need to have the financial wherewithal to stay the course if things don’t immediately go as hoped. Sales people should be seen as a long term capital investment, not viewed like a short term or one-time investment like a marketing campaign. So before you make that huge investment in increasing your sales force, make sure that you have the financial staying power to absorb an early negative cost impact before your ROI kicks in.

 

Company infrastructure not ready for a larger sales force

Above I alluded to a few key issues that can torpedo the effectiveness of a greatly expanded software or hardware sales force. On a broader scale, with a greatly expanded sales force often comes a large uptick in the demands upon other parts of the company, which I’ll refer to generally as the “company infrastructure”. Do you have an HR department that can properly recruit, on-board, train and service the needs of the new sales recruits? Is there adequate office space and technology to house them and enable them to work effectively? Is the marketing department staffed adequately and does it have sufficient budget to create the lead flow to keep the expanded sales force busy, or will they be forced to spend time more inefficiently doing a lot of cold-calling (which I often refer to as “door-to-door marketing”). Maybe most importantly in the tech business, are there adequate technical resources available in the form of sales engineers, demo units and liaisons to the development team so that deals aren’t held up waiting for technical support? These questions may seem obvious on the surface, but I see many companies that are “in a hurry” skip one or more of these steps and go right to massive sale hiring–figuring it out as they go along. Sometimes it works out fine – but often it ends in catastrophe.

So if the points above detail when you should be cautious about expanding your sales force, then when should you scale up your sales team? I’ll finally flip the discussion back around and tell you how I would finish the sentence contained in this article’s title: You Should Scale Your Tech Company Sales Force… only after you’ve made sure your entire company is ready. Expanding the sales team prematurely can be very costly and disruptive. Under bad circumstances it can really put a hitch in your growth plans — and in extreme, overzealous cases I’ve even seen it kill a few companies along the way.

So above is my list of items that I believe should slow down the scaling of your sales force. Is your list similar? Am I off base? I’d love to hear your point of view. Post a comment to add to the list above or take exception to the whole concept.

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7 Biggest Issues Faced by Management Teams in Mature Software Companies

So you’ve broken through that difficult startup phase, become profitable and maybe even have reached a dominant share of you market segment. Times are good and that usually lasts for a while. You’ve become what’s known as a mid-sized or even a large software company. In much of this article we’ll refer to this stage as “mature”.

But there comes a time when you hit new bumps in the road. Growth is slowing–or stopped — maybe even going negative. You’ve reached saturation in your market, or some hungry, disruptive new players have entered the picture and are chipping away at your existing business. The problem is you’ve never really “made it” in the software business; things just change too quickly to rest on your laurels for very long. Even once they’ve triumphantly gone from the upstart to an established brand name, it’s important for software company management teams to stay vigilant. As Andy Grove of Intel used to say “only the paranoid survive”.

Past those startup issues that can kill a software business so quickly, there are unfortunately almost always an upcoming new set of challenges. What are those issues most likely to be and how should you handle them? Here are a few possibilities it makes sense to prepare for:

 

Image showing the Software Company Business Cycle
Which Direction will your Software Company Go?

Continuing growth

Whether it’s because you’ve saturated your segment or new competitors are nipping at your heals, this is probably the biggest concern that keeps software CEOs and management teams up at night. Maybe you’re even still growing nicely in absolute unit or dollar terms, but there is a perception of slowing growth because the denominator has grown so large that % revenue growth numbers have become puny. So what’s a software CEO to do? I like to say that there are 4 ways to grow: M&A, horizontally, vertically and geographically. I’ll discuss M&A as a special case a bit later in this article. I’d rate these four approaches in order listed above in terms of riskiness, as well as potential to add to growth. Higher risk usually yield higher reward–if successful.

Expanding geographically with existing products that are already very successful in your home market (especially if that market is the US – the most competitive in the world) is generally the easiest way to obtain additional revenue growth of the 3 categories. Unfortunately, by the time a software company is considered “mature” much as that geographic growth potential has likely already been realized. The next category: expanding vertically or selling additional new products to your existing customer base can also be very fruitful. But in many cases you’re already selling them the product categories that fill their greatest need and are the least competitive, or the ones you’re best suited to provide. Lastly, growing horizontally, or selling to a new market often looks very attractive, because it represents a true green field for new growth. But this is also the easiest place to fail. In many ways it’s like being a new startup again, with many of the associated risks and challenges. Success with a new horizontal growth strategy is most likely if you are able to leverage existing product technology or other differentiating IP in the new market segment.

Image Depicting that Controlling Costs is one of the 7 biggest Issues for mature software companies

Controlling software company costs to maximize profitability

While not as dramatic an issue as the growth problem listed above, I have found that controlling costs in a successful, mature software-based business can be quite challenging, but it’s also terribly important. It’s that cash flow maximized by cost control that often enables the growth initiative so important to the company’s continued success. On the surface, this might appear curious as it shouldn’t be that hard to control costs once you’ve grown into a substantial company. But in my experience, success leads to excess. The original management team that had to scrimp on every little expense finally feels like they’ve got room to breath–and take a little too much advantage of it. Or a new management team is brought in from an even larger company to “manage the next phase” and they are accustomed to much larger budgets. Those company offsite meetings move from the Holiday Inn to five star resorts. New staff is hired permanently to solve what is really a short term, or correctable process issue. Or people are hired just because you can afford to–something that was unheard of in the tight startup phase. In general, “nice-to-haves” suddenly become essentials.

The keys to controlling these excesses due to new-found prosperity is twofold:

1) Proper incentives to managers to “do the right thing for the business” rather than their own career. For example, if the pay structure of managers is based at least partially upon how many direct reports they have, what are you incentivizing them to do? Build their empire, of course. I find it really helpful to move P&L responsibility down to the lowest practical levels and make sure pay packages are aligned with the types of metrics important to a efficient P&L management.

2) Have a strong CFO/Controller who has real influence. I want to emphasize here that there is a delicate balance that must be served in this area in a tech company. I have seen many companies destroyed by a strong financial manager that counts nickels so closely that it adversely affects the organization’s long term goals. This can be especially devastating in a software company, where marketing and product innovation are usually crucial to long term success. So the CEO needs to be astute enough to empower the finance guys to just the right degree to maintain efficiency of operations, while not choking off the lifeblood activities of the company. I consider this one of a CEO’s most important–and most difficult tasks.

 

Software M&A the right way

Acquisitions are of course just another way to continue growth (as mentioned above), but one which presents its own special set of challenges–as well as greatly elevated risk compared to other growth initiatives. I find this is often a favorite activity of the CEO of an increasingly mature software business. And it can make a lot of sense when done properly. As organizations grow it becomes increasingly difficult to drive innovation and the corresponding organic growth that comes with it. The reasons for this are better left for another discussion. Because of this phenomenon, mature software companies often look to M&A as a way to replace that internally-generated organic growth as it slows. But acquisitions are also a great way to get fired; statistically most of them end up as failures. I find the biggest problem to be that the drivers of M&A deals are too often a) ego, akin to bagging that big game on safari or b) driven by purely financial metrics.

Software industry acquisitions should be driven by FIT–both technologically as well as the “softer” (but no less important) considerations. How does the acquisition target’s product fit in the market with your existing products? How compatible are the two code and technology bases, ESPECIALLY if it’s going to be important to combine products into a single product offering over time. This is the biggest problem when buying a direct software competitor; if you’re not able to combine the two products into a single offering that serves both existing installed bases in a reasonable time–you’ve usually accomplished very little. And spent a lot of money doing it. Companies that buy direct competitors more often than not end up losing most of the installed customer base of the product that ultimately gets the short end of development resources picked off by their competitors lying in wait.

Even if you get the product/market/technology fit right and the deal’s numbers add up, there is still one area that destroys the value of many acquisitions. That’s those “soft factors” I alluded to above. When it comes to software/SaaS industry M&A, it’s the people, stupid! The most key assets of any software business walk in and out of the building every day. Mergers strike fear into many employee’s hearts and send them heading for the exits. Others stay but are alienated by the foreign culture and new management instantly foisted upon them. These soft factors that are so crucial to M&A success are often largely ignored, or left for post-close consideration–when it’s often too late. Doing M&A right is the topic for another article. My general advice is to stay away from those very large deals which can jeopardize a company as well as deals with direct competitors, unless they’ve been thoroughly vetted from EVERY angle and are really slam dunks. Better to focus on small acquisitions that bring cutting edge technology (M&A as a proxy for R&D innovation) or an entry point into a new market segment.

 

Motivating and keeping software industry innovators

One of the things that change slowly and subtly as you grow is the type of employees that find you attractive. No longer are you the young exciting startup offering lot’s of options at pennies per share. But the company’s enhanced stability now becomes more attractive to folks that have a more conservative nature. There is nothing inherently wrong with this; as companies grow the nature of many jobs change and a different temperament is sometimes appropriate. But it’s important to keep in the mix some of the innovative, risk-taking, hard-chargers that were attractive when you were a startup, along with those with a more conservative approach to business. To do this, you will need to maintain some vestiges of the startup days, at least for certain roles within the company where innovation is a crucial element. This can lead to a real balancing act as a more process-oriented culture often takes hold. But it’s important to be aware of this issue and structure appropriate pay packages, incentives and the authority to make decisions– cutting through red tape when necessary–in the areas identified as requiring innovation. Otherwise those key people that drive much of your growth with be doing it for your upstart competitors.

 

Navigating major software technology and market shifts

While technology has become important to literally every business today, it’s the lifeblood of a software-based business. Missing the next inflection point in key technologies can ultimately mean the death of a software company, no matter the size of the business. By inflection point I’m referring to the emergence of new platforms, SaaS business models, change in programming languages/tools, etc. A common occurrence in the software business is that an existing market leader with a large installed base is often outflanked by emerging competitors using the latest technological advantage. Mature companies are often slow to act and afraid of prematurely introducing new products that are seen as possibly jeopardizing an existing revenue stream. These new competitors can move aggressively because unlike the established player, they have no existing revenue stream to protect, or installed base to nurture. This is of course what has happened broadly to the large traditionally licensed on-premise players, as they’ve been ambushed by new SaaS and cloud-based entrants into their market segments. If the new entrants are successful at significantly chipping away at the incumbent’s market share, the more mature player is then forced to respond in kind, albeit belatedly.

Often by the time they do respond the more mature companies are faced with an almost impossible issue, what I call the “shrinking snowball problem”. This occurs when the existing market leader’s installed base revenue is shrinking faster than the revenue being generated by the new product/platform. When this happens it can lead to disastrous consequences from a financial & stock market perspective, even if the new platform revenues are growing briskly and faster than the competitors. For this reason I believe once you see an emerging technology trend that you believe will become mainstream, it’s advisable to jump in as early as possible–even if it means “obsoleting” your own products. Because it you don’t, someone else inevitably will. If you do it early enough you have a much better chance of reach critical mass on the new technology/product before that snowball of existing revenue melts completely. I find this is one of the more common critical mistakes made by mature software companies, especially public software companies necessarily driven by the quarter-to-quarter thinking of public stock markets.

 

Software market/technology creep

Above I discussed the need to be open to adopting new technologies at an early stage. While this is very important, conversely there is another problem develops if you don’t do this properly. It’s akin to buying the newest fashions every year, but never cleaning out your closet. Pretty soon the closet becomes an unmanageable mess. Similarly, if you’re always adding new products and technologies–especially across a wide swath of diverse markets, the company will eventually become a “software conglomerate”. The conglomerate business model lost favor many years ago because of its inherent manageability. The problem occurs because it’s often difficult to axe a product line or technology that is still bringing in revenue, for obvious reasons. But at some point this becomes penny-wise and pound foolish as product lines pile up, as there are many hidden costs that accumulate with such complexity. Among these issues are the real financial inefficiencies that come from running a weak or declining business. But no less important are the opportunity costs associated with the senior management team having to expend precious bandwidth to manage all of these disparate businesses. For this reason I recommend an annual review not unlike the spring cleaning of your closet, taking a hard look and eliminating businesses that no longer make sense.

 

Staying relevant–and learning new tricks

Lastly, the senior executives of many businesses that are perceived to have “made it” tend to become more conservative over time. Once you’ve established and are leading a real, successful business, there is a natural tendency keep doing what got you there. Often there is also a shift in thinking and policy toward risk-aversion, because now there is actually something to lose! Unfortunately, our industry changes very fast; activities that were bleeding edge yesterday will be seen as dinosaurs tomorrow. The risk of becoming irrelevant in any market segment is great, without constant innovation. This is somewhat true in every business, but in software-based businesses you really can’t afford to be too conservative. And this starts at the top with the senior management team. This is the overarching message that I believe executives of mature software businesses really need to take to heart.

 

The above is obviously an incomplete and very subjective list. What does your list look like? Please expand on this discussion if you have a point of view. Post a comment to add to the list above, subtract from it, or propose your own.

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Has Interim Management & Virtual Employment Reached Critical Mass?

Are we heading towards what some have termed the “1099 economy”? For those of you outside of the US, 1099 refers to the tax form which defines money earned as coming from “contract work” rather than as a permanent employee of a company.

I’ve heard that the era of the contract/temp/interim/consultant worker has arrived many times during the last several decades! Is it really here today? Color me a skeptic, but let’s explore…

Maybe the virtual workforce is arriving…

A recent article headline by TechCrunch read “In the Future, Employees Won’t Exist“. The article goes on to discuss the phenomena of the new “sharing economy” companies such as Uber and several others. There are even more of that ilk the article didn’t mention that are also very successful such as Freelancer.com and Instacart. These companies are definitely disrupting and modernizing market segments that have been slow to change over time. But it’s very possible that this business model will be limited to distinct market segments with very particular characteristics.

In addition, the UK-based Interim Management Association recently reported a 23% uptick in inquires, a 5% increase in actual interim assignments and a 12% increase in interim assignment length. But I hesitate to apply these statistics to other areas of the global economy. Europe and the UK in particular have long been strongholds of the interim business. This is due mostly to the stringent labor laws which make firing employees difficult–and therefore giving great pause prior hiring them. These laws probably present a special case for the interim business which won’t ever apply outside of the Eurozone.

Lastly, a late 2014 article in Entrepreneur Magazine also detailed how small business have been increasing their use of contract labor as a percentage of total expenses. So maybe there really is a growing trend in the direction of “on-demand” labor across broader markets.

But maybe it’s not…

On the other hand, I see no personal evidence of a trend toward Interim and contract labor. My personal interests lie generally with knowledge workers (rather than low cost labor) and specifically in the interim executive and management consulting segments. Even more specifically this interest lies with those topics within software and hardware companies, where my the bulk of my firm’s consulting and interim practice is conducted. In these areas I see progress toward broad acceptance of “contract-style” work to still be quite slow, especially in areas within a tech company that are viewed as “core” to the business.

In my own anecdotal experience most managers–and I find this to be generally true across all geographic, demographic and vertical categories in the technology industry–still strongly prefer a full-time employee sitting at a desk or in an office within their normal view. I’m actually quite surprised to believe that this is still the case in 2015, especially among the younger demographic which has grown up with technology-driven communications. But I really haven’t sensed all that much of a change since I began my consulting and interim management career.

Will this eventually change–and progress much like we find Uber disrupting the taxi business today? Maybe. But I’m not convinced yet that it will ever happen and I expect it to still be a very slow transition even if it does.

I don’t want to imply that very few folks out there are open to contract workers generally and interim management specifically. But what I do find is that senior executives tend to be in one camp or the other on this issue; there are very few who are wavering in the middle. Imo, the segment of senior executives that are very open to or enthusiastic about Interims are definitely in the minority and their numbers don’t seem to be increasing very rapidly.

This is an image showing advantages of Interim Management in Tech Companies
Interim Management Can Provide Great Value in Tech Companies

When and why interim software & hardware company management makes great sense

So for those who are open to this approach, what are some of the good reasons to consider an interim executive? Let’s quickly discuss a few:

Immediate Stability in Times of Need – Interim managers can make a tremendous difference in times of change and crisis – which tend to happen frequently in fast-moving tech businesses. Even for a role where you believe a permanent employee is vital, it may easily take a 3-6 month search to find the right person. What happens to the organization in the meantime? Maybe that role remains empty during that period, creating a vacuum of leadership. Or an ill-prepared junior manager is temporarily lifted into that role. Maybe worst of all, you rush the search for a permanent replacement and “botch it” as a result. Bringing in an experienced senior interim executive who can start within days, hits the ground running and can fill that role for as long as required can add great stability to your organization.

Unbiased Expertise –  Often bringing a senior interim executive into a software or hardware business can bring great benefits of it’s own, regardless of the situation you are bringing them into. An interim will walk in with a fresh, unbiased look at your business; he or she hasn’t been influenced by the ongoing body blows they may have taken while within the bunker in your company. Bringing an interim manager in between permanent employees can as a result often offer great benefits, even if the timing of filling the role doesn’t appear critical.

Unencumbered by Politics or Career Planning – Along the same lines as the unbiased expertise detailed above, interims are usually not adversely influenced in their decision-making by internal company politics or the perceived need to toe the company line to keep their career moving ahead. If you have an “emperor has no clothes” type of issue–and you might, but don’t know it–an interim is in better position to “shoot straight” and “tell it how it is” on the critical issues of the day.

Top, Experienced Talent – In many circumstances it may not even be possible to hire a permanent employee of the same caliber that you can retain in an interim. Maybe you have an under-capitalized startup, require long hours due to explosive growth, have a business in short-term free fall or your company has developed a bad reputation as a place to work. These usually aren’t impediments to bringing on top interim talent; interims expect difficult circumstances and view them as a challenge. You could hire a permanent employee of lesser pedigree. But why not first consider bringing in a more talented interim, who can improve the situation and allow you to hire a better permanent manager in the future as a result?

Sense of Urgency – Sometimes it’s easy for a permanent employee to view a problem as something to “deal with tomorrow”. Interim managers serving in hardware or software companies have a shorter timeframe to make an impact, so they are generally in a bit more of a hurry to effect positive change. Many times technology companies can become stagnant in certain activities and the influence of an interim manager can reinvigorate the necessary process of constant change and improvement, which is so important in software and hardware-based businesses.

Find and use the best person at the best price – Lastly, it may make great sense from a value perspective to hire an interim manager for your tech company. This may not seem realistic to many readers, since the rates charged by interims usually greatly exceed the pay rate of a corresponding permanent employee. This difference is usually one of the biggest impediments to the hiring of interims. But in reality, this common comparison is often one of “apples to oranges”. Interims don’t receive benefits, annual bonuses, stock, etc., which greatly adds to an employee’s true cost. If you need to get rid of an employee who doesn’t work out, the cost goes up greatly due to severance benefits. In addition, permanent employees are often hired to perform “jobs”, when really what you need are “projects” with a real end date or goal. With this ill-advised hiring you’ve added to your permanent overhead needlessly. I see this hiring frequently adding to a creeping rise of the fixed cost of the business over time. This type of permanent hire probably has one of the biggest negative impacts on your business in the long-term.

What’s your view on interim managers and the emerging temp economy?

This article is necessarily colored by my own anecdotal experience. What has your experience been? I’d love to hear your own stories and opinions on this topic. Post a comment below with your own take.

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Balancing Strategy and Execution in Tech Companies

Most of us have heard some variation of the old axiom “Don’t worry about strategy, it’s all in the execution”. I often say myself that I prefer an average strategy and great execution to the opposite.

Dilbert cartoon depicting strategy without aligned tactical execution

But the reality is that in most cases in a tech business you need to do a pretty good job at both to be successful. There are exceptions, of course. A hot brand or very large company may be able to get away with either an uninspiring strategy or clumsy execution on occasion. But even at large software or hardware companies, if that happens too often results are bound to suffer. At startups and small companies even one instance of bad strategy or poor execution can be the death knell for the company.

 

So how do you make sure that both your strategies and execution don’t let you down? Below I toss out a few things you might want to consider:

 

Not just good ideas but realistic ones

While it usually does–and should–start with strategy, in most cases it’s best not to be too “Blue Sky” in your approach. Or maybe you start off allowing blue sky ideas, just to make sure that the innovation juices are allowed to flow so you won’t miss promising strategies. But I’d recommend that at some point in your strategy process you include an explicit step or filter by asking: “This is this a promising strategy – but is this realistic?” And what’s the definition of realistic? A strategy that can be EXECUTED by YOUR company. Not by some undefined company, not by a huge company with unlimited reach and resource, but by YOUR company. That’s the essence of a realistic strategy.

Strategy Graphic showing Ansoff-Matrix and software & hardware diversification danger

Matching capabilities and markets

One of the critical things that must be considered early on is the fit between the company’s capabilities and the target market requirements. Because of this, it’s almost always less risky to stay within the 3 “closest” quadrants to your current business using the common Ansoff matrix as the strategy construct. That fourth, riskier quadrant is the one at the upper right. This “diversification” quadrant is where you’re heading toward a new market segment with a new product or technology. This is where the greatest execution risk lies, because you may not have the right technology or marketing skills to serve this new target segment. While it’s not impossible to have success with this “riskier” strategy, it becomes all the more important to take a careful inventory of the company’s capabilities and map that against the requirements of the new target segment.

 

Aligning strategy with execution capabilities

So how do you make sure the chosen strategy will be well-executed? It’s important to be self-reflective as an organization and not just chase what might appear to be the most lucrative opportunity out there. Ask yourself at least a few key questions about potential alignment, such as the samples below:

 

Is your organizational structure properly set up? For example, if you have a highly centralized or matrixed organization, but are trying to implement a strategy that relies on data collection and fast decisions which can only occur lower in the organization – you’re likely doomed to fail.

Do you have the right skills/competence? If the organization is heavy on technology expertise but light on marketing skills or cost-competitiveness, it’s going to be tough to compete in a mature market segment where margins are thin, if your entering with little product differentiation. Better to pick a earlier stage or smaller tech market segment in this case, or wait to enter this segment when you can create a large technological advantage.

Are your incentives appropriate? Say your sales force’s compensation is primarily based upon volume and existing products are relatively easy to sell. In this case the sales folks are heavily incentivized to “mine” existing accounts and sell the current products. Yet you’re pursuing a new strategy that bets the company on penetrating a completely new customer base, with a new product that has a long sales cycle. In this situation you’re way out of alignment on the sales side with the new strategy–and likely screwed.

Do you have buy-in throughout the organization? It doesn’t matter how elegant the strategy or how well you’ve matched your capabilities with market requirements. If the folks who are going to implement the strategy aren’t on-board — you’re almost certainly headed for failure. Don’t formulate strategy and throw it over the wall, no matter how good it is. You need to involve the people who will have to implement it and get their input, at the earliest possible stage. In the real world it’s better to have an average strategy that everyone is dedicated to implementing, over a great one that the rank & file ends up sabotaging.

 

Do you have an execution mentality?

I’ve seen many “strategy-oriented” technology organizations and executives fail at their chosen strategy because of an organizational imbalance between strategy and execution. Because the strategic component is where their interest lies, not enough effort and resources is expended on the execution piece of the equation. This mentality often leads to prematurely discarding a strategy and moving onto the next one. But execution is rarely perfect at the outside of any new strategy. The best executing companies are patient and systematic at improving their execution, giving the strategy every opportunity to succeed before throwing in the towel and changing course.

 

In the end, both matter

It is obvious that both strategy and execution are very important to achieve success in most circumstances and always important to maximize that success. In the end, the most important thing in a software or hardware company is to make sure that your organization is not imbalanced toward one of these key components or the other.

 

That means doing your best to stay balanced in your thinking, but also bringing in folks that are stronger at execution to balance a strategy-oriented team. Or vice versa, if your company is better at execution than strategy. This will not only balance the discussion in the room when key decisions are being made, but will also give you the best chance of both formulating the best strategy and executing it optimally.

 

The message in the previous paragraph may also seem obvious. However, I find that executives have a strong tendency to “hire in their own image”, which greatly increases the chances of an “imbalanced” team. It’s important to guard against this in your hiring.

 

 

That’s my take on balancing strategy and execution in the technology business. What’s your view? Chime into the discussion with you own comments below.

 

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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You Should Hire Your First Product Manager When……

In a technology startup company there are many functions that are deemed “critical”. Unless the company is heavily funded – probably by institutional capital – even some of the most critical functions are often not individually staffed in the beginning. Much of the time a founder or early employee splits time between several functions, doing the best he or she can.

While not ideal, this is often necessary in the startup world and in many cases things turn out just fine in the end. One of the functions that I consider critical to long run success–but often isn’t individually staffed at the startup phase–is product management. In reality, most early stage companies don’t even consider product management to be a role that is critical to fill early on–and worst case–maybe ever. This is a topic near-and-dear to my heart, as I started my tech industry career in a product management role and faced the decision of when to hire full-time product management staff as a startup CEO.

 

My definition of product management

First I should explain how I define what a product manager is, as folks use this label for a variety of roles in a company. I use what I believe is a pretty classical definition. In my world, a product manager resides in the marketing department. It’s helpful and often very important that the product manager has enough technical savvy to credibly engage with the product developers, but a product manager doesn’t necessarily need to have an engineering or software development background to be successful.

I also tend to use the terms product management and product marketing interchangeably. Product management has two inter-related, but distinct roles: as a Product Planner for new products and as a Product Marketer of current products. His or her primary product planning focus is to ensure that products developed by the developers or engineers actually meet the needs of a specific target market. The primary product marketing focus is controlling the marketing mix to optimize the ROI of the whole product portfolio.

The product manager needs a very different skill set from developers and is primarily outwardly focused, on understanding the marketplace and customer. They do need to have enough technical capacity to be able to match markets/target customers with the core technologies and development capabilities within their company. Lastly, in most cases the developers don’t work directly for product management (or vice versa). The relationship between a product manager and the lead development manager in planning a new product should be that of a give-and-take, collaborative approach. I often call this relationship a  “two-headed-monster”, although I realize this is a very inelegant term most don’t want to be part of!

Too early for product management?

So how long can you get away without having a full-time product manager as defined above? In most cases, in a startup tech company the original product idea has come from one or more of the founders. Because of this, they are very often experts on the technology being developed, or insiders in market the product is targeted at. Even if founders and senior early stage management may define themselves very differently, they often have skills that can at least partially fill the critical roles of a product manager. So early on in the life of a startup when the complexity of the company is rather low – usually a single product focused on a single customer – it’s possible to successfully utilize a menagerie of folks who together fulfill the product management role. Now this doesn’t always work out; I see plenty of startups fail where stronger product management skills may have made the difference. But companies do make it past this phase a fair percentage of the time.

A lack of proper product management can kill product development

Too late!

Unfortunately “too late” is something that usually sneaks up on an early stage company. Sometimes chaos has ensued, or at the very least things aren’t going all that well. For example, developers are making all the feature decisions in a vacuum (or becoming amateur marketers!) because there isn’t anyone in the company with the marketing skills or bandwidth to serve as the separate “voice of the customer”. Or planning and development of new products is going fine, but current products are foundering in the market because of those same bandwidth limitations, or a lack of product marketing expertise (pricing, promotion, distribution, etc.) because it hasn’t been brought into the company. Maybe up to this point both new product planning and current product marketing were being handled capably by the patchwork of time-shared executives. But now instead of an initial single product or two, there are now 3 or 4 current product and more in the planning phase – possibly aimed at different target markets. Important things aren’t getting done because there just isn’t enough appropriately-skilled bandwidth to go around.

 

When Product Management MUST be implemented

If you recognize any of the situations described in the previous paragraph, it’s past time for dedicated product management. But if you’d like to avoid the chaos described above when you’re too late implementing a separate product management function, there are some operational situations that may serve as warning signs  if you want to avoid waiting too long:

  1. Newly release products are receiving a lukewarm or cool market reception
  2. Sales of existing products are stagnating before their time
  3. There are multiple products being developed that are based on different technologies, or several products are aimed at different target customers.
  4. IN AGGREGATE the founding management team just can’t (or just can’t any longer) fulfill all of the critical product management roles, including current and future products.
  5. There are an increasing number of new products being planned in the development pipeline as well as several existing products in the market to be managed
  6. One particular product is a very important revenue source to the company by itself and demands highly-focused attention

It’s important to note that the first full-time product manager in a company may not be dedicated to a SINGLE product. The first product manager may in fact be in charge of several products. But until you have an employee dedicated SOLELY to being a product manager–whether of one or many products–you haven’t really implemented a product management function in the company.

In an ideal world there would be a product manager in every tech startup from the very beginning, but this is often not feasible financially. I’ve laid out above some of the key ways to make sure this initial lack of full-time product management doesn’t trip you up as you grow. What’s your view the evolution of product management in a tech startup?  Post a comments below to fill us in on your thoughts.

Follow Phil Morettini and Morettini on Management via Twitter, Facebook, LinkedIn, RSS, or the PJM Consulting Quarterly Newsletter. Contact Phil directly at info@pjmconsult.com

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