Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: growth

Does Your Company Have a Winning Culture?

I’ve been reading Bill and Dave (subtitled: How Hewlett and Packard built the World’s Greatest Company) by Michael Malone. He’s a great writer, and it’s an important business story; I heartily recommend it.

Being an ex-HPer, I have tremendous respect, bordering on reverence for the “HP Way”, which was the basis for the culture at Hewlett Packard for so many years. With the benefit of hindsight, it wasn’t perfect and there were definitely things I’d change. But you can’t argue with the results. Bill and Dave essentially founded Silicon Valley, and built an unbelievably successful company that grew like clockwork for nearly four decades. The HP Way is long gone and the company is nearly unrecognizable from the one I worked in. But to this day I don’t believe they’ve ever had a full year of negative profit results.

The term “Corporate Culture” has been defined many different ways by a lot of people, some of them so complex as to be unreadable. Here’s a definition that’s probably as good as most:

“The specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.”

Maybe you have a better definition, but this one’s probably adequate for our discussion here.

Anyway, Malone’s book got me to thinking about corporate cultures at tech companies and their effect on a company’s performance. It’s something that I think is really undervalued in too many of today’s corporations. It’s often dismissed as a squishy, “soft” issue that’s unimportant to analytical senior managers.

Regardless of my HP bias, there have been a lot of very successful companies that have been built with very different cultures relative to HP’s in its heyday. One notable contrast would be IBM, a peer and competitor which as an east coast-based company had a much more traditional, hierarchical, button-down culture. But the IBM culture was revered as well, and the company was also wildly successful for a long period of time. As the saying goes, there’s more than one way to skin a cat (a very unfortunate idiom–who thought that one up?).

Cultures have been categorized many different ways including but not limited to “Work Hard, Play Hard Culture”, “Tough-Guy, Macho Culture”, “Process Culture”, “Bet-The-Company Culture”, and many more. In my mind, none of that matters much. What matters, in my opinion is does the culture drive positive results.

So you might surmise that the easiest way to define a great corporate culture is to look at financial results. That’s fine in the long run; with the benefit of hindsight, there probably is no better way to identify a great corporate culture than the decades of financial success such as HP and IBM enjoyed. But in the short run, financial results can be deceiving. It’s entirely possible to have a great short run of success even with a poisonous company culture.

So what’s the best way to measure whether you’ve built a great culture? The details vary at various successful software and hardware companies, but what are the common ingredients of a culture that sets the stage for long-term success? Here’s my shot at a list of the key attributes of winning corporate cultures:

Employees want to stay

For me, this may be the best gross indicator of a winning corporate culture. I know, you might say “That could means it’s a country club” with excellent compensation and low demands. But how often do you actually see that in a high performing company? Very seldom in my experience. In reality there is a great propensity for employees to take the view that “the grass is always greener”, and long to go somewhere else.

The best people rise to the top

This is another really key indicator of a company culture “clicking on all cylinders”. Particularly in larger organizations, political skills often are the dominant talent required to rise to the top of the org chart. There’s nothing wrong with this–it’s a skill set that’s very important to successfully influencing large, complex organizations and moving them in the right direction. The ability to connect with people and bring them to your position cannot be understated as a needed attribute of a corporate leader. But it’s important that these political skills are also paired with strong business savvy. The best leaders not only have the ability to “win the internal meeting”, but also the analytical and decision-making skills to drive the company to win in the marketplace. Sadly, all too often I’ve seen that those rising to the top are not exceptional in both these categories. A great corporate culture should facilitate the identification, retention and promotion of such well-rounded leaders.

Employees speak well of the company to outsiders

Everyone loves to bitch about their job and idiosyncrasies of where they work. But I find that in companies with the very best cultures, the word gets out about how great a place is to work, because great places to work are frankly, very rare. This means that you’ve created such a great environment that your employees brag about it to their friends and external colleagues, overcoming that very strong human propensity to view their jobs in a negative light.

Opinions flow freely without fear of retribution

This one probably isn’t a hard and fast rule. I’ve seen traditional hierarchical organizations that were very successful. In those instances, you tend to see opinions flow down from the top much more often than you see them flowing openly from below. But I believe in most successful “modern” corporation cultures, this is a pretty typical attribute.

Don’t have to overpay to attract talent

You might think of this one downstream result of positive vibe from the previous four categories. If you’ve created a fair, stimulating, challenging and comfortable work environment, you don’t have to work very hard to restock it with new employees. In many cases you won’t even have to look for them–they will find you. In companies with the very best cultures, outsiders practically beat down the door to get hired. That means your pay packages won’t need to “set the market”, they’ll just need to be “in the market” to attract great talent.

So that’s my list–what’s yours? What’s your view on which company has the finest corporate culture? Post a comment to expand the discussion.

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

No Comments by admin on January 15, 2012
filed in Business Models, Corporate Strategy, General Management, Startup/Early Stage
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Extending Your Technology With Spinoff Products

Many software and hardware businesses, particularly smaller ones, are religiously focused on a specific vertical market. As well they should; focus is one of the most important attributes that can bring a business from startup to a strong growing business. This is often one of the key areas I concentrate on with many of my consulting clients. Many businesses just can’t turn down any sort of deal, no matter what the effect it has on their existing product development plans or other key corporate initiatives.

But there is another side to the focus issue. Many tech companies have developed excellent, mature technology bases at huge expense. If that basic technology has a horizontal appeal, it can be quite profitable to spend a modest amount of additional effort to bring that technology to other adjacent markets that the company is currently not serving.

Care needs to be taken, of course, to not spread your marketing efforts too thin. But if you’re smart about it your company can increase, sometimes dramatically, the return on its product development investments. Let’s take a look at a few potential tactics, all of which I’ve used successfully both at companies I’ve run and with consulting clients:

Customize your products for adjacent markets

As an example, maybe you have an ERP software package aimed at retail markets. It might be quite easy to customize the product for other inventory-oriented businesses, such as distribution or service/repair businesses. By doing this you’ve created a potentially large new revenue source, at a fraction what building that product from scratch might cost. The trick in this instance is often marketing the product–read below for a couple of ideas on how to accomplish that without doubling your marketing budget.

Private Label/OEM products

Private labeling or OEMing your product to another vendor can be an excellent way to extend your product development ROI. It might be as simple as partnering with a non-competitive vendor who takes your existing product “as is” or with minor modifications, as well as changing the product identity and labeling. The target partner would be a company very strong in a market segment that you aren’t successful in, have no interest in directly marketing in, or simply is beyond your resource level. If done well, this is a win-win for both companies. Your company gets additional revenues with little to no additional costs (“pure profit”), while your partner gains additional revenue in it’s target market–without any product development investment.

Integration & bundling with other products

One of the best things a software vendor is to create a “developer’s version” of it’s product, which essentially consists of creating APIs (application programming interface) to the software. This allows easy integration with complementary software applications and even hardware. Back when I was CEO of a mapping software company with limited resources, we created a developer’s version which enabled both integration and bundling with a number of complementary applications, notably in the real estate and CRM segments. Once again, this tactic required only modest product development investment and enabled us to draw revenue from a number of different markets. We would never have had the resources to pursue these markets if we tried to build a new product from scratch as a company would traditionally do.

Different price points

Using my favorite mapping software company example, we were often forced to think creatively to wring out as much revenue as we could out from our existing technology. One of the other tactics we used was “de-feature” our existing $99 high-end consumer application to create a $9.95 version, which we then sold through mass market retailers of all kinds. Not only did this create more revenue, but the high volume business also created a bunch of opportunities to upgrade these entry level customers to our higher-end core product. This is a strategy I’ve used many times; you almost can’t go wrong when creating a larger customer base for your technology. I use the simplistic phrase “the more you sell, the more you sell” to illustrate the advantages of this approach.

Business vs. consumer version

At that very same mapping software company we used one other great approach to extending your technology: creating a B2B version of our consumer product which was aimed at road warriors such as sales and service professionals (the converse works just as well). The B2B version had a few additional features and we sold it via different channels and strategic partners. It didn’t have the unit volume of the consumer version, but the margins were much higher.

So there are a few ideas on how to extend the use of your IP to increase your overall ROI. What are your ideas on creatively utilizing existing assets to create additional growth? Please post a comment with your own thoughts so we can all benefit.

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

1 Comment by admin on December 5, 2011
filed in B2C, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, enterprise software, hardware
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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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Why is Intel Buying McAfee?

Intel’s $7.68B announced acquisition of McAfee raised more that a few eyebrows, both in the marketplace and on Wall Street. Does it make sense? It’s hard to say at this point. So much depends upon execution, as well as potential synergies seen by Intel’s management which may not be obvious to outsiders.

 The price is almost 4X McAfee’s most recent annual revenue. That’s very, very pricey in almost everyone’s view. I’ve read a number of columns by others which analyze this deal from various viewpoints.

 Let’s look at several potential rationales for this deal:

 Diversification into software and services

Intel can’t grow in PC semiconductors forever, and is very dependent on the semi business, which can be quite cyclical. Theoretically, attempting to grow by increasing software and services as a percentage of the business makes a lot of sense. But Intel hasn’t been very successful in the past in this very endeavor, which I’ll discuss more below.

 Technology synergies

Intel’s management has provided justification for this deal by talking about embedding security into its chips, as well as valuing highly McAfee’s embryonic security efforts in mobile devices and the cloud. I think these all have strategic merit–but are they worth anywhere near $7.68B?

 Cost synergies

While overlapping functions can lead to cost savings in many acquisitions, there are probably not a lot of costs to be taken out in this one. McAfee is a big company, in a different business than Intel’s core business. Sure, there may be some common functions like HR and finance that can be combined to some extent, but I don’t see cost savings to a material degree here.

 Use of cash flow

Intel generates a LOT of cash. They are one of the most successful tech companies of all times, and their PC processor business is nearly a monopoly, with terrific margins. So the cash is available, and it doesn’t make much sense to have it sitting in the bank earning 1%. THAT will kill your return on assets metric! It needs to be reinvested, or retuned to the shareholders…

 Growth

On the surface, buying a big software company could be a good growth strategy for Intel. Assuming as there is a good return on investment, then why not? It’s going to be hard for Intel to grow much farther in processors. About the only area big enough to make a big difference in their processor business is in mobile. This is a very competitive arena which they’ve failed miserably in to date.

 So that’s some of the reasons you might use to do a deal like this–but is that reality?

 The real reason deals like this happen

CASH: The biggest reason that this type of deal happens is because it can. In this particular case, tech companies like Intel want to be seen as growth companies. It seems to kill tech companies to pay their cash flow out in dividends. But once your company gets to a certain size, it’s hard to be a growth company. A lot of bad acquisitions happen in the process of trying to continue growth status past a reasonable point. But is this the best return on assets, or use of cash flow, for the stockholders?

 Why there is a good chance this acquisition won’t succeed

PRICE: Intel paid dearly for a very established security software player. They paid for the McAfee brand–but will they keep investing in it in the long run? History says that this business will eventually morph into “McAfee by Intel” and they “Intel Security Software”, if the business stays with Intel in the long run. Built into the price was also a large number of retail customers, a dealer and distribution network — but does Intel really want these things? If not, why pay for all of them?

 TECHNOLOGY: Listening to Intel, this seems to be a technology play–but McAfee is universally not considered to have the best technology in the space. They win to a great extent on brand and sheer market presence at this point–like many large companies. Since the price paid was very high–why not buy a smaller player with much better technology to integrate with silicon–for much less?

 CULTURAL FIT: Semiconductors and software are very different businesses. I’ve spent a lot of time in both. I have always said that the “Common Business Sense” that a management team falls back on when stressed, is a real problem when they are making decisions in an unfamiliar business. It doesn’t seem like brain surgery to manage a software business with a semi background, but there are subtle differences that tend to have massive consequences. Intel has bought a number of software businesses in the past–how many of them can you name? There is a reason for this, they tend to disappear in the large semiconductor bureaucracy and eventually wither away.

 Typical M&A ISSUES: Key McAfee personnel will have a tendency to “cash out” and leave after the acquisition. This is a normal issue in M&A, and when the acquirer is in a different space, this can be a particular problem. Possibly the fact that McAfee is already a large public company may reduce this issue. But if the real assets of a software company (the people) walk out the door, there isn’t much left for your $7.68B.

 In summary, I view this as a very questionable move by Intel. Intel has some very smart folks in management. Maybe they have some great strategic and tactical plans in mind, but if so, they’re keeping it all to themselves. For the stated reasons of embedding security in chips, mobile security and the cloud, they could have bought 2-3 innovative security software companies with bleeding edge technology–for a fraction of the price they’ll pay for McAfee. If this acquisition is to pay off, Intel will need to figure out how to leverage the McAfee brand, consumer franchise and distribution channels. I just don’t see this happening in the long run–I hope for Intel shareholders sake I’m wrong. Acquisitions are an area with room for a variety of opinions–what do 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

5 Comments by admin on September 7, 2010
filed in Business Models, Corporate Strategy, General Management, Mergers & Acquisitions, enterprise software
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Starting and Growing a Software Company in a Difficult Fundraising Environment

Some would say that it’s ALWAYS a difficult time to raise funds for a startup company. In general, I’d agree. With the exception of a few brief moments, such as pre-Internet Bubble in the late 90’s where money was being thrown around like air, fundraising is hard. There are a few lucky folks that don’t sweat this startup task, like repeat entrepreneurs who hit it big the first time, or those with truly obvious ground-breaking IP. But for most it’s a grueling and soul-sucking necessity.

 Today fundraising for a startup company is tougher than every. The Venture Capital (VC) business is in disarray, with the number of active firms in the process of shrinking. The financial crisis and general economic malaise has made finding capital from nearly every source more difficult, from traditional banks to angel investors. So if you’re planning on starting a company today, it might be time to get creative.

 Most of the ideas presented here are applicable to any type of company. But for those smart about it, a software-based business is one that can be started and grown with minimal, or zero, outside capital. This has always been true in the software business, but a number of developments have made bootstrapping even a more realistic possibility today. You will need to accept upfront that it can be done, and structure everything you do with minimal financial resources in mind.

 Successfully bootstrapping is tough if you’re a first time entrepreneur, especially for those that have been working in large companies, with all the trapping that come with that. But embracing the proper attitude early on is essential if you’re going to have to bootstrap your company, at least in the beginning. Let’s examine some tactics that can increase the odds of startup success:

 Understand early-on the level of capital you’ll have available

This is crucial. Most get going on their business, moving ahead and worrying about funding once they have a business plan, prototype/beta, etc. Only then do they put together an investor pitch and think about how much money to raise. But it can be really helpful to have a realistic view as early as possible how much money will be available to you in the early days. No question this is hard to do and by definition the result will be inaccurate. In reality, a number of things will dictate how much money you’ll have available: Management team reputation and track record, investment contacts, dilution philosophy, local investment resources, business model, IP, etc. The key point here is to do your best to understand how much money you’ll realistically have available at startup and early on….

 Structure your business accordingly

….then design your business model to fit your prospective available funding. In reality, this rarely happens. Most design their business, and then try to raise money to fund it. As a result, for example, I see people start enterprise software companies, with complex products at high price points that demand a team of outside sales reps and field engineers with $150-250K comp plans. Most startups won’t be able to attract the funding to support this sales model. Or adopting a Software-as-a-Service (SaaS) approach, without planning for the added operational expenses required with a SaaS model, essentially taking on the role your clients IT department. If you can match your business model to your expected capital resources from the beginning, your chances of success go way up.

 Start while you’re still working

One of the best things a startup entrepreneur can do is to start working on your business while you still have a job. This is especially true of the technically-skilled software company founder. Many software companies have been started by a sole programmer, writing the initial product on his or her laptop while sitting at home in the kitchen. It’s one of the beauties of the software business; you can create a product with very little capital investment. Of course, care needs to be taken that you don’t use any of your employer’s resources or do anything on company time. Make sure that you aren’t violating any of agreements signed with your employer. But once you stop working to start up a new venture there’s no telling when your personal income will start flowing again. So do as much as you can, before cutting the cord with your steady income.

 Do it yourself and don’t be wasteful

Entrepreneurs often find that they can actually do things they never dreamed they could. When dealing with scarce capital, it’s critical to make sure that you actually NEED to pay someone else to accomplish a particular task before parting with your cash. This will lead to personally doing a lot of mundane activities that you don’t really want to do. But it’s important to take those duties on early on to conserve cash. Also try not to waste money on ANYTHING, not just labor. Count those paperclips! The corollary to this is when you really do need outside help, DON’T SKIMP and just do an unacceptable job internally. Bad marketing is an example of this for the technically-oriented founder. This can be truly penny wise and pound foolish, and can cost you much more money in the long run than you save in the short term. Recognize what skills you just don’t have that are absolutely critical to the business, and save money elsewhere so you can afford outside assistance in those crucial areas.

 Don’t reinvent the wheel

I referred earlier to it being easier than ever to build a software company with minimal capital. Development tools have matured to make development quicker than ever. Many target platforms have much less memory constraints, reducing the time needed to produce code that is extremely memory-efficient. There are many pre-built modules for standard functions available for a modest cost. Ten years ago it might have taken a half million dollars to build a quality website that you now can replicate for a few thousand dollars. As a software startup, make sure that you scour all pre-existing resources for things that you can use, before you build them yourself.

 Outsource and off-shore, if appropriate

Another area responsible for much lower costs in starting a software business is the potential for outsourcing/offshoring. This isn’t for every company or every situation, but where it makes sense, it can both reduce your costs significantly and expand the availability of critical development resources. While everyone would prefer the developers under their own roof, in many cases there just isn’t the right talent where the company is located–or the budget to fully staff with full-time, onsite employees.

 Don’t ignore international markets

A big area which most software companies ignore initially for their products is international sales. It’s natural to want to focus on your domestic market first. But doing this exclusively can cost you some excellent growth opportunities, even from the very beginning. This is particularly true for US-based companies. The US is the toughest market in the world. It’s the biggest, and the bulk of the software industry is located there (all looking at the US market first….). As a result, the competition is almost always less in non-US markets. So there is low hanging fruit to be had, plus you can partner in many markets with distribution partners whom have existing market presence, and can take on much of the marketing investment required to gain traction. All of this can mean an excellent return on a modest investment. Once you’ve invested so much to create valuable product IP (which is very “perishable”, by the way), don’t limit your return on that investment by focusing on a narrow geography, if at all possible.

 Don’t give up and enjoy the journey

Don’t ever give up prematurely. The most important thing is to keep grinding until you start to gain traction. Starting up and growing a software company is an exciting–and difficult–endeavor. Above all, I believe you need to be able to enjoy the journey, in addition to having your eye on the end prize–success. There will be difficult times where you need the willpower and stubbornness to push through. Often startup success is found by staying alive long enough for good fortune to find you.

 That’s my advice on starting up a software company and growing it in relatively tough times. Post a comment if you have your own experiences to add.

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

3 Comments by admin on August 8, 2010
filed in Business Models, Corporate Strategy, General Management, Startup/Early Stage, enterprise software
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Is HP acquiring Palm a good idea?

To answer the question posed in the title, it definitely is if you’re Palm!

A long time player and sometime innovator in the mobile device marketplace, Palm was rapidly losing steam, market share and relevancy in the hyper-competitive Smartphone market. The company had staked its future on its new WebOS software platform and the recently release Pre SmartPhone.

 After a long period of decline due to an aging product line built on an obsolete software platform, the Palm Pre and its WebOS software was introduced to critical acclaim by industry reviewers and pundits. Had these introductions come a few years ago, they might have indeed turned around Palm’s fortunes.

 But competition in the SmartPhone marketplace has heated up to a white-hot level. After a promising early start, sales momentum of the new Pre products stalled, and this “last-stand” product introduction proved to be too little, too late. At nearly the first sign of Pre sales weakness top Palm executives began bailing out, while Telco partners quit promoting the product heavily, and it was also being dropped from the assortment of major retailers such as Radio Shack. The end was clearing in sight for this handheld industry pioneer.

In swoops HP to save what little shareholder equity was left. HP is on a roll, and in conjunction with their upward momentum they seem to be intent on acquiring everything available for sale, as well as competing in nearly every category of the technology business. This particular acquisition appears to me to be particularly high risk/high reward. It raises several key questions:

 Did HP pay too much?

Probably. The price HP is paying for Palm is about $1.2M, while most knowledgeable industry observers had placed the value below $500M. This is hard to understand for the casual observer, but you must remember that a company is worth what the highest bidder is willing to pay. Except for those on the inside of the deal-making, no one knows what the sizes of the competitive bids were. So it’s a bit pointless to speculate whether they paid more than they needed to. The better question is what is the intrinsic VALUE of Palm to a company like HP?

 A case can be made in this situation for bidding at a price that will prevent the transaction from dragging out. Software loses value quickly–especially in a fast-moving market like SmartPhones, and this is largely a software acquisition. Another big key to the valuation question is whether or not HP is able to hold together and retain the Palm team, especially the key developers. In most cases, buying a software business (which is the key asset of Palm) without the team is nearly worthless.

 Can HP compete in the SmartPhone business, and should they?

This is a huge question in my mind. Hewlett Packard is definitely becoming the 10,000 lb gorilla in the tech business. But even the biggest giants reach a limitation on resources, most importantly senior management bandwidth and market segment knowledge. IBM at one time looked much like HP today, competing actively in nearly every important technology market. Eventually IBM lost traction and did a painful restructuring focusing on services. Microsoft is huge and still dominant in software, but they’ve been far from successful everywhere they’ve invested. There are many examples in the tech business of competing in too many competitive markets at once. The often-used analogy (which still rings true) is to Hitler opening up a two front war by invading Russia. The old joke goes that had he been more focused, we might all be speaking German today. I am very skeptical of Hewlett Packard being able to win in all of the major markets they appear to be serious about at the moment.

 Can putting two losers together ever create a winner?

Not usually. I can’t think of a single high profile successful instance of this, although I’m sure it’s happened before. It usually doesn’t work in such a highly competitive market as SmartPhones, however. Palm was around 5% market share and fading fast.  HP is very successful overall, but its iPaq SmartPhone has less than .1% market share–I’ll bet most of you are shocked to hear that HP was even in the SmartPhone market prior to this deal! When there is a reason that both companies are unsuccessful, it’s very difficult to change the equation simply by combining. Mergers often create more problems then they solve, regardless of how good they look on paper.

 Having said all this, there is some synergy here. There is a belief is that one reason the Pre wasn’t gaining much traction was Palm’s precarious financial position. No one wants to carry around a phone that could soon become an orphan. The HP acquisition should help immensely on that front. Hewlett Packard certainly has the financial might, industry muscle and influence to improve the position of a well regarded platform like the Palm Pre and WebOS platform.

 Will HP be patient and persistent enough to win in SmartPhones?

To me this is the biggest question. If you asked me 10 years ago I would have said no. As a former HP employee, at one time this wouldn’t have been the type of market that I would expect Hewlett Packard to have success. But since them I’ve seen the company persevere for decades as an also ran in the low margin, down and dirty PC business, and finally push Dell out of the top spot. There was a time when Dell (and a few others) used to laugh at HP in the PC market–but that ended a while ago.

 I’m convinced that this ever more powerful version of HP can succeed in SmartPhones if they so choose. But as discussed above, even in a giant company like this, can they win so many tough fights across so many difficult market segments? That is a different question entirely–and something may have to give. They might not be able to win on all fronts.

 Bottom line

The bottom line for me is that HP can probably muscle their way into the SmartPhone market if they want to bad enough. But can they do it while they also compete with Cisco in networking, IBM in services, and Dell in PCs–just to name a few? Even for a successful industry giant like Hewlett Packard is today, I believe in the concept of “biting off more than you can chew”. That is the real risk. One thing I think for sure is that this won’t play out quickly. Only time will tell whether HP ultimately has the market knowledge, patience, tenacity and will to win in this hit-driven and brutally competitive market. What’s your take on this high profile acquisition? Post a comment to rev up a discussion.

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

3 Comments by admin on May 14, 2010
filed in Business Models, Corporate Strategy, Mergers & Acquisitions, Retail, hardware
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Is The Tech Recovery Upon Us?

Let’s face it, things still aren’t great economically: unemployment is over 10% nationally in the US, credit is tight for small businesses as well as reduced access to investment capital, and consumer’s moods, while improving are still not positive.

However, while I don’t want to overstate the case, but I do believe we are on the way to recovery. This has strategic implications for software and tech companies.

A look at the positives:

Stock markets on the rise–The Dow Jones Industrial average is up nearly 65% in the last nine months. Tech stocks in particular have been strong: the benchmark NYSE Arca Computer Technology Index is up nearly 95% in the same period. This is from a very deep bottom, of course. But it adds considerable wealth increases optimism, which usually leads to positive momentum.

Search firms are adding their own staff– ExecuNet’s benchmark Search Firm Hiring Index has increased the last two quarters, after many quarters of decrease. This is a nice indicator of expected increased hiring by businesses overall.

Worldwide employment on the rise — Manpower, Inc.’s Global Employment Outlook Survey for Q1 2010 states that the employment outlook is mostly positive in the Americas and Asia-Pacific, while still somewhat mixed in EMEA. Labor market strength in Asia-Pacific, which is becoming increasingly important as a consumer market, is expected to return to levels similar to before the global downturn.

VCs still have lots of money to invest — After sitting on the sidelines in fear (like everyone else with money in their pockets) during this great recession, Venture Capitalists are starting to poke their heads out among the economic green shoots. They were sitting on huge amounts of capital that was raised in the pre-recession bubble environment, much of which is still not invested-but still accruing management fees. I have heard that there are now many limited partners filing lawsuits as a result of their funds lying fallow, which may stimulate an acceleration of VC investments in the coming year.

IT spending is forecast to rise — After several down years and a very bad 2009, Garner is projecting an increase in excess of a 3% in IT spending worldwide in 2010. This is very important, and a bullish signal for the tech sector heading into the New Year.

The IPO market window appears to be opening — Security software company Fortinet had a very successful offering in November. Meru Networks, a supplier of wireless LAN solutions, announced today it planned to raise $86M in an initial public offering. IPOs tend to drive increased capital access up and down the food chain, and that window has been closed for some time. If it opens significantly, that bodes well for growth in the software and tech sector.

No more bubbles – at least anytime soon

We’re not heading toward another bubble anytime soon. It appears we’re headed for moderate, but hopefully sustainable growth as a result of our two catastrophic burst bubble in the last decade. Government debt, commercial real estate and inflation potential are concerns in the long run, but appear to be manageable in the near term.

What should tech companies do?

First of all, don’t be stupid and increase spending if your situation doesn’t support it — credit is still very tight, and access to investment capital still remains below typical levels of the last decade. So make sure your plans are supported by cash flow, or in the case of early stage companies, at least access to reasonable levels of debt financing or investment capital.

If you are able to spend, it’s a great time to grow fast or take share from competitors — when the economy is just starting to take off and buying is accelerating, act before your cautious competitors have come out of their shells.

In general, companies tend to be too conservative in their investment and hiring plans — Take note that hiring tends to peak at the apex of an economic cycle, just before growth slows or turns negative. In fact, many experts consider strong hiring a leading indicator of an economy that’s lost its momentum. I’ve never been a fan of hiring just because you have the money and growth rate to support it. This is a leading cause of bloated cost structures and bureaucratic, slow moving organizations. But most companies are pretty lean in staff after several years of recession. So if you really do need people, it’s more productive to hire them now as we begin an up cycle, instead of waiting until the very end of it as so often happens.

That’s my forecast and advice for the software and technology business sector as we enter 2010. What’s your forecast? I’d love to hear it. Post a comment or shoot me an email to add your own spin to this discussion.

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

No Comments by admin on December 21, 2009
filed in Corporate Strategy, General Management
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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
tagged , , , , , , , , , , , , ,

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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