Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: high tech

Is Outbound Marketing Dead?

The craze in the marketing world these days is “Inbound Marketing”–otherwise know as “content marketing”, “permission marketing”, “new marketing” “modern marketing” and a few other buzz-terms. The definitions may vary slightly, but they’re essentially variations on the same theme:

Potential customers find you, rather than you (the marketer) approaching them.

The current commentary on marketing methods goes like this:

People are insanely busy these days, and constantly inundated with marketing offers of all kinds, causing them to tune them out. Traditional outbound methods such as direct mail/email, advertising, etc. no longer work as a result. The answer is to use inbound marketing methods, defined as to driving traffic to your website via search engines, content (such as blogs and videos) and social media. Since these users have found you, they are by definition more attentive and better qualified targets.

Of course, although this discussion is very hot in the marketing world today, it isn’t really a new topic. It’s an argument about Push vs. Pull marketing, concepts which have been around nearly since the beginning of marketing as a science. At any rate, the preceding paragraph makes a lot of sense, does it not? No denying that getting boatloads of prospects finding you is a good thing.

The problem I see is that like most “trends”, the inbound marketing case is being grossly overstated. There is no doubt that the Internet has enabled pull/inbound methods grow to a degree not previously possible. If you’re a software or tech company marketer, in almost every market/product situation you should be leveraging online inbound methods to the max. But is that all you should be doing?

Of course not. Some companies may be able to fill their pipelines using only inbound methods. But this shouldn’t be an either/or discussion. In almost every situation, both inbound (pull) and outbound (push) should be used. They are not competitive methods; they each serve a different purpose, and are actually very complementary. Let’s take a look why:

Different psychographic profile of prospects

Prospects are not a homogeneous group in any market. They come in all shapes and sizes–early adopters, mainstream buyers, late adopters, etc. As a result, they respond to different stimuli, and have different buying styles. Many want to be totally in control and never have any “invasive” marketing targeted at them. But for every person that is offended by any offer directed at them, there are others who are happy to receive a timely, targeted offer which saves them money–as well as time– in searching out a software or hardware product they need. This is especially true for some very busy folks, and others that absolutely hate the shopping process. Outbound marketing can be a real advantage with these prospect profiles.

Different stage in the buying process

This is a key point which someone relatively new to marketing may not understand. If you have a prospect in the active buying stage, inbound marketing works great. Since they are out searching for your product or service, if you’ve done a good job on inbound marketing activities, there is a good chance they will “find” you. But what about those target prospects that aren’t yet in active buying mode? Should you just be ignoring them? I think not. First of all, you absolutely want to get a leg up on your competition and get your message to them as early as possible. By doing this, you’ll be on their short list of vendors to check out when they are ready to buy. But the right offer can also turn that future prospect into an active buyer–without so much as a look at the competition. What happens to your odds if yours is the only marketing message they see? Outbound marketing is much more effective than inbound in this scenario.

Timing vs. budget

From a marketer’s perspective, outbound and inbound marketing may fulfill different needs. Inbound marketing may provide a solid, day-in-and-day-out flow of leads and revenue. Outbound marketing can provide a more instantaneous bump to your numbers. Think PPC advertising vs. SEO. An inbound marketing technique like SEO is probably the more powerful activity in the long run, but and outbound method like PPC advertising can start creating business almost instantly. This outbound marketing bump can be very useful during slow periods where you’d like to “smooth out” your numbers, when you’re just getting started, during a busy (but competitive) holiday buying season or to give extra emphasis to a new product introduction.

Targeted Offers

Since you have greater control with respect to when a prospect will be exposed to an offer, it’s much easier to provide urgency and that critical timeliness component via outbound marketing. In addition, targeting can also be easier with outbound methods.  Direct outbound marketing, in particular, can be highly targeted if good lists are available.

Push and pull on the same prospect

Lastly and very importantly, this really isn’t an either/or argument–as I stated earlier. When discussing inbound and outbound marketing, we’re really still just talking about push and pull by other names. As any good marketer knows, push and pull work together. The number of total marketing impressions matters–more impressions increase your odds. This is fundamental brand-building. As an example, it’s well documented that PPC ads and organic results on the SERP converts better than either alone. So don’t choose between inbound and outbound marketing–use best practices in both methodologies to optimize your marketing results.

So what do you think? Will all your investments going forward be toward inbound Marketing activities, or is there still room in your budget for outbound methods? I’d love to hear your plans and opinions–post a comment to weigh in on this discussion.

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

4 Comments by admin on May 16, 2011
filed in Online Marketing, Product Marketing/Management, Promotion, Social media
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Should Your Sales Reps Cold Call?

In this article we’ll take a look at arguments on both sides, and recommend when and how much cold-calling makes sense.

This is an age-old question in sales. Some would say that’s what sales people should be doing. Others believe that if sales reps have to cold call, it’s an indication of poor marketing and very inefficient. I often refer to cold-calling as DOOR-TO-DOOR marketing, because you’re really combining the introductory marketing and sales functions in one phone call or visit. The question: is this a good or bad thing?

Many factors come into play when deciding how much cold-calling is appropriate for a particular rep/company/product/market combination:

Ease of Prospect Identification

This is a crucial factor when deciding whether or not to include a lot of cold-calling in your sales mix. If prospects are easily identifiable, it makes much more sense to start contacting them than if your reps have to dig for hours to find an appropriate prospect.

Commodity vs. Complex/Missionary Sale

It’s very difficult to cold-call prospects when selling technology products or services which are very new or difficult to grasp quickly. Prospects are all busy trying to do their jobs, are overwhelmed with offers via every media and contact method, and tend to tune out cold calls that aren’t of obvious use to them. In these cases, using marketing methods to educate and identify prospects first tends to work a lot better than strict cold-calling. For commodity items that people know they need, a timely cold call can lead to an immediate sale that a competitor might have otherwise gotten.

Cost Per Lead

How to divide your investments in marketing and sales is often driven by the relative costs of each. How effective are your outbound and inbound marketing programs? If your marketing cost per lead is very high, in some cases it might make sense to skip the lead gathering altogether and get right to the sales call. I caution that this usually isn’t the case, but it’s possible. Also, whether this makes sense also depends on many other factors such as those discussed here, notably the ease of prospect identification.

Market Size

This factor is most relevant with respect to cold-calling for tiny niche markets. For example, if you have a software product with a multi-million dollar price tag aimed at 100 or less total prospects. In this case, it doesn’t make sense to put much money into outbound or inbound marketing programs if these prospects are easily identifiable. Time to call them up or pay them a visit, as soon as possible!

Time of the Day/Week/Month/Quarter

If it’s the end of the day (literally or figuratively) and all the leads have been followed up on, it’s DEFINITELY time to cold-call. Every sales organization or individual rep should have a game plan on how to prospect on their own, when all the warm leads have been exhausted. It’s either that or it’s time to head to the golf course (which happens too often, and tends to not raise sales much!).

Big Ticket vs. Low Price

In general, sales forces are costly. If you have a product with low revenue per sale, it’s suicidal to rely strictly on cold-calling. Unless your reps are working on a commission-only basis (not recommend, for reasons outlined in other articles), it’s a prescription for a low or even negative margin sale. Low-priced products absolutely require an efficient marketing engine to generate a large amount of low cost leads which lead to easy sales. With a big ticket product, the economics work better and more easily allow a sales-intensive approach.

So what’s my summary view of cold-calling? It’s hard to generalize, as I’ve outlined with some of the factors discussed above. But I believe that there is a place for it in the overall sales plan. I also believe, however, that in most cases if reps are doing 100% cold-calling–or even the majority of their time–then the company is operating at far less than peak efficiency. A 100% cold-calling sales force is usually indicative of an institutional lack of marketing expertise. This usually means less revenue and profits generated for the company than would be with a more balanced sales/marketing approach. Integrated sales and marketing is what works best in the great majority of situations.

With respect to individual reps, if they are forced to cold-call often, you’re probably underutilizing them. But if a particular rep is reluctant or completely unwilling to cold-call when the situation demands it, you may have a rep to consider replacing. There are always exceptions to such generalizations for specific companies and market, but with cold-calling I believe they are few and far between.

I’ve outlined some ideas about when, where and how much cold-calling is appropriate in sales. This is a topic that is much debated–what’s been your experience? Post a comment below so we can have the benefit of your view.

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 April 11, 2011
filed in B2C, Business Models, Startup/Early Stage, sales
tagged , , , , , , , , ,

Is SEO a Legitimate Marketing Technique?

I have definite ideas on this question. But what got my attention recently was a reference to SEO in a prime time television show (one of the legal dramas) on one of the major US networks. It went something like this:

Lawyer: “What are you concerned about?”

Client: “I’m concerned that the jury will have a negative reaction to my profession; a lot of people don’t like what I do”.

Lawyer: “What is it that you do?”

Client: “I perform search engine optimization.”

When it hits primetime TV, you know the topic has entered the consciousness of the masses. And in this case, not in a good way!

For the uninitiated, SEO is an acronym for “Search Engine Optimization.” Wikipedia defines SEO as “the process of improving the visibility of a website or a web page in search engines via the “natural” or un-paid (“organic” or “algorithmic”) search results”. This is done by various methods, but the two most important aspects are creating relevant content on your website, and gaining links to your site from outside websites.

How can this be so bad? Well, like any other form of marketing it can be taken to extremes. Because it’s so valuable to appear near the top of a search results page in a search engine like Google, some will do practically anything to make that happen. And that’s what causes the problems. Techniques that the Search Engines consider inappropriate are called “Black Hat”; the page results that are listed inappropriately are referred to as “search spam” or “SEO spam”.

All this simply means that when you type in a search phrase into Google, for instance, you are presented with a bunch of websites that aren’t appropriate for what you were looking for. I’m sure you’ve all done a search, and the top sites that pop up have absolutely no value. The results might show a poorly constructed “Directory” aimed at a particular vertical topic, but really isn’t useful except to its owner trying to get Ad clicks. Or a site stuffed with a huge number of articles–none original or written by the site owner, and sometimes even modified by computer program to make it look “original”, but in actuality making it practically unreadable to humans.

Arguments for SEO

  • It’s just a marketing technique like any other, just like Press Relations in the “real” world. Why can’t you use all the tools at your disposal to make sure that your website is visible to your target audience?
  • “White Hat” SEO techniques are above board and available to everyone. What’s wrong with writing appropriate content for your site, and requesting backlinks from other compatible sites on the web? If you do a better job than your competitors, or they don’t choose to use these methods, that’s simply you beating them in the marketplace.
  • White Hat SEO is really just an acceleration of and a focus on the very things that happen naturally for a successful company on the web: Attractive onsite and offsite content, with a large number of links to your site from other sites with a compatible focus.
  • The “Black Hats” will always be around–the only way to avoid being left in the dust by these scoundrels is to use (legitimate) SEO techniques to compete for position in the search results–or they win by default.

Arguments against SEO

  • Any technique designed ONLY to move a website up in the search engine results pages (SERPS) is by definition cheating and not legitimate.
  • SEO is a slippery slope; there really is not sharp dividing line between “white hat” and “black hat” techniques.
  • Search Engines work best without any efforts to circumvent the “natural” results; any manual intervention to change them is a distortion of the real world, and therefore inefficient for the market.
  • Buying or otherwise obtaining links that you wouldn’t get naturally is deceptive, and therefore of no value and even immoral.
  • Content stuffed with keywords simply to rank high–rather than inform–is also of no value and is ruinous to the beautiful Internet.

The irony of this controversy is that inbound marketing techniques like SEO originally held the promise to marketers of largely avoiding the negative stigma associated with more direct methods. Now, it appears that the term “SEO” has gotten a negative connation in the web marketing world, much like all direct email marketing is considered by many to be SPAM. It’s apparently gotten bad enough that the term “SEO” has completely fallen out of favor with some; “Content Marketing” and “Inbound Marketing” are two new code phrases for what really is just SEO in a repackaged form.

My view is that this is a real shame. In the email world, there are legitimate direct email marketers, offering real products and doing their best to target their offerings to interested prospects. These companies shouldn’t be lumped in with Spammers who are nearly breaking our email systems with endless numbers of fake Viagra ads. In the same way, companies using standard SEO methods to ensure their target prospects can find them, shouldn’t be thrown together with the black hats who distort search engine results while trying to make a quick buck. I realize many folks don’t make this distinction. What’s your view? Post a comment to let us know where you come down in this argument.

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

7 Comments by admin on February 15, 2011
filed in B2C, Corporate Strategy, Marcom, Online Marketing, Promotion
tagged , , , , , , , , , , , , ,

Choosing an Advisory Board for your Tech Company

Advisory Boards have become a very chic addition to software and hardware companies over the last 5 or 10 years. So what are the key criteria you should use in putting together an advisory board? Well examine this issue below.

Prior to the 5-10 year period mentioned above, it was rare to hear of a company that had an advisory board. What’s driven this trend? For public companies, it’s mostly because desirable advisers who formerly would have served as on the Board of Directors may shy away, as a result of additional potential liability in that role. For private companies, I believe it was the recognition that those filling private company board seats primarily are there because of ownership (VCs, local angels, founders etc.), and may not have all key domain or technology expertise important to the company at the board level.

As a result, advisory boards are very much in vogue, sometimes to great effect–but often not. I’d compare this phenomenon to strategic partnerships. In strategic partnering, you’ll see everything from deals that greatly benefit both companies, to others which start and end with a vague press release. Similarly, many companies seem to put together an advisory board just because it’s the “thing to do”. This is just a waste of time, of course. Like most anything, if you put little thought and effort into it, very little usually comes back.

Let’s take a look at some criteria that could be useful in putting together your particular group of advisers:

Domain or technology expertise

This may appear obvious, but I see a lot of advisers on boards that are there just because they know someone, or maybe possess specific expertise that just isn’t core to the company’s success. I believe it is very important to use your advisory board to fill holes in your management team’s knowledge or experience.

Access to capital

This is a common reason that CEO’s will recruit an advisory board member, especially in early stage companies where capital needs are a critical strategic topic. But I’m not sure that this is always the best use of an advisory board seat; unless raising capital will be almost a constant need. I prefer to fill advisory boards with more scarce talents specific to the company’s market and technology.

Access to distribution channels

Distribution access is another common motivation in seeking advisory board members. I believe this is a very legitimate goal for your board, especially if the adviser truly has special access, or if distribution expertise is a real weakness within the company.

Honest and straightforward counsel

It’s very important to attract experts who aren’t afraid to challenge the management team’s view of the world and “common business sense”. Of course as advisers they need to be tactful in how they convey their viewpoints. But “Yes Man” panel that makes senior management feel good is of no real use, and can even be harmful by reinforcing a false sense of reality.

Available bandwidth

I believe this is a criterion that is very critical, and is often overlooked. I see companies rejoice when they are able to convince a high profile, “heavy hitter” to join their advisory board. While the name may look great on a company backgrounder or on your website, the reality is often that their time is spread too thin to be of real benefit to you. So make sure that you have a frank discussion, and reach agreement on what level of involvement they can actually have with your company.

Motivation

This is the most important criterion of all, in my opinion. Probably also the one on this list that is used the least in considering potential advisers. It’s easy to get excited about someone that fits perfectly what you need on paper. But you will find many folks that are interested strictly from a self-promotion viewpoint. It’s exposure for them, and looks good on their resume. There’s nothing wrong with this, as long as it’s not the sole or primary motivator. Others may think it will help them in getting to use their services in the future. Or they may have some more sinister reason for getting close to your company. So make sure that the candidate’s reasons for engaging are above board, and that your interests align. I’m not trying to create paranoia in anyone’s mind. But I believe that the adviser’s motivation is the single greatest indicator of success or failure in this role. Don’t ignore it.

So there’s some basic advice to consider when putting together your software or hardware company advisory board. Many of you have done this as well. Post your own advice, successes or horror stories in the comment section below so we can expand this discussion interactively.

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

2 Comments by admin on December 7, 2010
filed in Corporate Strategy, Distribution Channels, Financing, General Management, Startup/Early Stage, hardware
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How Soon Should Your Software or Hardware Company Go International?

This is a question that frankly doesn’t come up often enough at early stage tech companies. There is usually an assumption that you first conquer your home market, and then sometime way down the road, when you are already flush and successful, it will be time to expand internationally. US-based tech companies are most guilty of this often questionable thinking.

What’s wrong with this approach, especially for US-based companies? After all, the US is the largest market in the world, and it’s far easier to sell to customers close by, then it is halfway around the world. With this the case, why should you use your scarce early-stage capital in a risky international expansion? This is how the thinking goes.

The problem is that you may be leaving significant low-hanging fruit on the table, at the very time that you need those customers the most. Let’s look at 4 important reasons to go international as soon as possible:

Reasons for Early International Business Development

Early adopters needed

As an early stage software or hardware company, you need to find early adopters of your product. These folks fit a certain psychographic profile, and they are rarer than the average customer. You sometimes need to cover the earth to find them. Limiting your geographic net unnecessarily only makes the job harder.

Distribution partnerships can provide tremendous leverage for a young company

This is one of the big reasons to go international that newbies don’t understand. They think that with all the money they are spending to penetrate the home market, selling internationally will be much more expensive yet. Not necessarily. In many markets, you can find distributors who will take on much or most of the marketing and sales load, reducing your investment tremendously and allowing you to leverage their existing relationships–rather than “starting from scratch”.

Many markets are less competitive than your home market, especially if it’s the US

Unless your home market is a tiny one, there are most likely many underserved markets available to you that have a lot of low hanging fruit. Why? Every startup software or tech company thinks the same and focuses initially on their home market. Since the bulk of the tech business is located in the US, it’s by far the most brutally competitive of all.

Beat your competition to the punch

Getting to a market early can often mean the difference between success and failure. If you’re the first one in a country or region, the early adopters and other low-hanging fruit are there for you alone. You will get your pick of the best distribution partners, and your product category will be “fresh” news for the media. Once established, it will be hard for later arriving competitors to push you down the market share ladder, even if they are larger than you overall.

So when should a company go International? The short answer is as soon as you can possibly do it. But what’s most important is to fully evaluate when “as soon as you can” actually is.

What to Evaluate Prior to Deciding to Go International

Your product must be stable

This should go without saying, but the only thing that causes a greater catastrophe than an unstable product is an unstable product distributed worldwide! Don’t do this–make sure things are solid before venturing away from where it’s easiest to “babysit” early problems.

Your product must be “market-tested” in your home market

While I’m a proponent of aggressive international business development at an early stage, there is such a thing as “too early”. Make sure that you know your product has a market before going far away from home. It’s a pointless exercise to be recruiting distributors and customers in foreign markets with a product that doesn’t really hit the mark, and one which doesn’t even had a reference customer list. If you can’t gain 10 or 20 or 30 customers close to home, heading far away likely won’t help.

Inventory or License only

Businesses that involve large amounts of inventory are one of my exceptions to aggressive early international development. That means hardware companies generally need to be more careful that software companies. Companies that distribute through retail channels involve more inventory than those who sell via VARs or direct, so they also need to be more cautious. The issues that come with inventory such as repairs and returns are exacerbated by borders and distance. So if you’re inventory intensive, maybe start with one smaller market rather than a large regional rollout, to test that everything goes smoothly before placing a big bet.

Direct or Channel distribution

If you have to establish your own local foreign operation, hire a bunch of people, rent office space, etc–you generally need to wait. Most startups can’t afford this type of risk and investment. However, although some feel this route is their preference due to control, it’s generally not mine. It’s quite risky and slows your international progress rate down significantly. Most companies can start out by using partners, and usually this is a good long run strategy as well. If you’re wildly successful and really feel the need for total control, you can always buy out distributors later on.

English or Local Language

English is the universal language of technology. In some vertical markets (such as IT software) English language-only products are fine. These are markets where you can make the fastest penetration after proving your product in your home market. If you do need local translations, they really aren’t that expensive in most cases and can be done quickly, and distribution partners can often help. But make sure that you don’t skimp on a good translation; nothing will hurt your local credibility more than language that isn’t proper, or at worst, makes no sense.

Safety, Legal or Electrical Specifications

This is also an area that can slow down the potential for fast international market development. Many countries or regions have safety or electrical standards that will require product modification or testing (and thereby investment). There are also legal aspects that need to be considered (European privacy laws when selling security or marketing software, as an example.) Don’t let these stop you from doing an evaluation of your international prospects, but these factors can change the calculus of your decision making.

SaaS

If you’re a software company using the SaaS model there may be very little downside to early international business development. If latency isn’t an issue for your product, you may need no international investment at all. Or maybe you need your servers hosted in other parts of the world to reduce latency issues, but this shouldn’t be a huge investment. You still need marketing in the local markets, either by your own direct (albeit remote) methods or through partners. But given the potential rewards, these investments should be a small price to pay.

Process or Cultural Differences

When you first go into a foreign market, it’s important to understand that you can’t fully comprehend the local culture, as well as how commerce functions. Listen more than you talk at first. Hire a consultant if you can afford to. Partners can also help greatly here. But if you are a savvy international business person it certainly raises your odds when attacking foreign markets early on.

Existing Demand

Are there customers “chomping at the bit” for the benefits your product offers? Or will there be a bit of an education process and a long sales cycle? Obvious existing demand is a key indicator for aggressive international business development.

The bottom line is that going international quickly can be a big boost to early growth for a tech company. Be careful, but not overly cautious. Evaluate your specific situation, and take the plunge if the odds are with you. What’s your take on the proper pace for international business development? Post a comment or send us your story.

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 October 12, 2010
filed in Business Development, Corporate Strategy, Distribution Channels, Retail, SaaS, Startup/Early Stage, VARs, hardware, sales
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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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What is the Best Place to Locate a Tech Company?

There are many great places in the world where software and technology companies thrive.

Outside the US, India has a rich history and deep resources in software development.

Brazil, China and Eastern Europe also are emerging, low cost development centers. All of these areas are better know for outsourced software development services, however, and are only slowing emerging as homes of actual product-based companies. China and the “tigers” of Southeast Asia are known as low cost manufacturing (and in some cases low-cost development) centers.

Canada is promoted by many as the best place in the world to conduct software development, due to aggressive tax credits and other government incentives.

Israel has become an important center of networking and security development.

The point is, I could probably write a book on the many places tech companies thrive. But in the interest of brevity, I’ll use US-based locations as examples in this article, while discussing what regional attributes in general are important to consider when locating a new operation or complete company.

Labor cost considerations
This is obviously, very, important. But I contend that it’s not everything, especially in the tech business. You still need access to all of the key components that make a software or technology company successful–regardless of cost. Having said this, where in the country you locate can have a pretty major effect on your cost structure, and therefore your competitiveness over time. If for example you decide to locate in the Bay Area, you will be paying the highest salaries, rent, etc when compared to just about everywhere else. You may believe it is worth it, and of course there are strategies such as outsourcing that can be used to reduce some of that cost disadvantage. But it is important to understand what effect location will have on your cost structure, and plan for that effect.

Product development resources
Generally the most important consideration with respect to product development resources is to locate in an area where there is access to the talent flowing out of engineering colleges. This might be a major metro area, but it also could be a smaller city (with the advantage of lower overall costs) which is the home of a major university. For example, most of the Big Ten Universities have small tech clusters located in their regions, even though they are mostly located in smaller cities. It also helps to be located in an area where developers WANT to live–warm weather and recreational opportunities tend to dominate this aspect of discussion. Another factor is what type of developer you’re looking for. For example, if you’re involved in the wireless business, you will be hard-pressed to find a stronger preponderance of development talent than you will in San Diego. If you decide to locate in any area where your access to developers is limited, outsourcing is no longer an option but a necessity, and will play an important role in your success or failure.

Management resources
Access to management resources is strongly correlated with whether or not a region has a critical mass of tech companies. As a result, the Bay Area is superior to anywhere else with respect to the overall depth of management talent. But I think this is often overplayed (especially by those residing in the Bay Area!). There is arrogance by some in the technology business that says if you don’t live in one of the major tech centers, you couldn’t possibly be a top-notch tech executive. The reality is that not every talented person wants to live in the Bay Area or Boston, so they executive talent be found everywhere. If you’re putting together a startup, only a small cadre of senior executives is needed to launch successfully.

Lifestyle preferences
This is an important consideration, and a highly variable and very personal factor. I contend that it’s important to be happy if you’re going to be successful in business, at least in the long run. If you’re a skier, it might be great for you to locate operations in Boulder, CO. If you love the beach or are a tri-athlete, San Diego is a great choice. If you love cultural activities New York or San Francisco might be ideal. If you’re all business all the time, you can’t beat Silicon Valley. Know who you are and what you like, and set yourself up somewhere you won’t regret in the long run.

Outsourcing
Outsourcing today is a factor that can be the great equalizer with respect to locating your company. For example, you strongly desire to locate in the Bay Area because of the overall tech business climate, access to capital and senior management talent, but are worried about development or manufacturing costs. Done correctly, strategic outsourcing can overcome those issues.

Where do the traditional high tech centers of the country rank for you?

Here’s my ranking:

Tech Center Costs Developers Management Lifestyle
Bay Area Worst Highest Highest Good
Boston Worst Plentiful Plentiful Good
Southern California High Good Good Great
Austin Moderate Good OK Good
North Carolina Moderate Good OK Good
Smaller-metro areas Lowest Scarce Scarce OK

Before anyone screams that I’m short-changing their area, this is obviously VERY subjective. This is my take, and what is important is that you create your own grading system before deciding where to locate your operations. Some may consider a smaller area which isn’t a traditional tech center to be an IDEAL location. Others might feel that Bay Area is a great place to live. A lot of this is simply personal taste.

What’s the most important location attribute?
The one most important consideration is the preferences of you or your team! What’s key to keep in mind as you make this decision is to think globally and long term about what’s important. The beginning of a new company business unit is an opportunity to start with a clean sheet about what’s important for the business, as well as the founders personally. Don’t just start up you new business in a location because “you’re already there”, maybe because the parent company is there, or you just lost or quit an employee position. This decision will have many implications down the road, and once you make it, your flexibility to overturn it will be much more limited in the future. The bottom line is that while geography should play a role in your decision, no place is perfect; you can start up and successfully run a tech company just about anywhere is you plan up front.

What’s your view on where’s the best place or most important attributes to starting a new software or tech business? Leave a comment and clue us in.

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

No Comments by admin on March 29, 2010
filed in Corporate Strategy, Distribution Channels, General Management, Startup/Early Stage
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Promoting Software and Hardware Products through the VAR Channel

With the exception of some software and hardware vendors who sell super-expensive products to the largest enterprises, a large percentage tech companies uses the Value Added Reseller (VAR) channel, to one extent or another. So how do you best go about doing this successfully? Create a great product, throw it to the channel, and sit back and collect the money?

If only it were so. Unfortunately, many tech companies new to the channel find out the hard way that you will fail by taking the word “seller” in the VAR label too seriously. For those of use with experience in the VAR channel, you know that it is still incumbent upon the vendor to create end user demand for their product. Yes, you need to market to VARs as well. And you will take whatever “push” you can get from the channel. But you must have an active promotional program aimed at end users for a realistic chance at channel success.

So what are the best marketing approaches to support channel sales activities? If depends, of course, on the specifics of your product, market, price point, etc. But let’s take a quick look at some popular promotion methods used in conjunction with channel sales. I’ll break it down into three basic categories:

End user demand creation

This is first and foremost the most critical activity. It’s an unfortunate fact that most new players in the channel don’t understand this initially. Many have to learn it through a painful hands-on lesson, which sometimes leads to rejecting use of the channel outright, due to spectacular failure. It may be counter-intuitive, but it doesn’t even matter whether you establish end user demand for your products by selling direct or via the channel. The important thing is that with few exceptions there needs to be serious interest in your products at the end user level if you’re to successfully sell through VARs. In fact, it’s almost always necessary to be successful selling directly to end users, before you can hope to have a successful VAR channel for your products. Almost any end user marketing method that fits with your product type and budget can be used to create this demand, but here are some commonly used promotional types:

• SEO (Search engine optimization)
• PPC (Pay per click) advertising
• Press relations
• White paper marketing
• Targeted online banner advertising
• Direct mail, but traditional and email
• Social media marketing (Blogs, Twitter, Linkedin, Facebook, etc.)
• Trade shows

VAR recruitment

In addition to creating end user demand, you’ll also want to market directly to VARs, to get them interested in actively working with you and your products. An important point to remember is that the VAR channel is very large, and generally segmented into many vertical categories. So however you approach them, don’t waste time (yours or theirs!) by contacting VARs who aren’t doing business in your target end user segments. Here’s some common recruitment approaches:

• Direct email through available VAR lists
• Phone campaign using available lists
• Internet research with direct email or phone approach
• Trade Shows (VARs frequent them, and it’s a great opportunity for personal contact)
• Have a highly successful product with strong end user pull (VARs will find you!)

Cooperative marketing with the channel

Lastly, once you’ve created end user demand and recruited enough VARs to have a “program”, you need to establish standard methods of working with your new partners to create and fulfill demand. VAR programs come in all shapes and sizes depending upon the market, and I’ve seen a wide variety of promotional opportunities included in these programs. One of my personal favorite “getting started” methods is to offer to pay for and execute a direct mail campaign (blind to the vendor, if necessary) introducing you and your product family as a new partner of the VAR. Below are some promotional activities that are very commonly included in VAR programs:

• Co-op advertising/promotion with the vendor provides funding for approved VAR-executed promotional programs up to a set percentage (3-6%) of sales of your products
• Free or discounted demo units
• Special pricing for large opportunities
• Co-selling with your in-house sales force
• Deal registration
• Additional discounts for completing product training, certifications or maintaining premium support levels
• Co-branded product literature and other use of the vendor’s logo
• Website and catalog listings of authorized or “preferred” VARs
• Rebates for volume sales (not recommended; fraught with danger)
• Vendor-funded introductory direct mail campaign

That’s my quick primer on successfully promoting your products for sale through the VAR channel. Many of you have your own experience in this area; post a comment or a question to activate our discussion.

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

4 Comments by admin on March 26, 2010
filed in Promotion, VARs
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VAR vs. Retail Distribution in Software and Technology Markets

There is much talk in the software and technology industry about distribution through the “Channel”. Generically that means selling through some type of a third party company, rather than selling directly to the end customer. But in reality the “Channel” includes a wide variety of disparate types of third party resellers. Today we’ll take a look at when to consider partnering with two of the main channel reseller types, VARs and Retailer–which also happen to be two of the most different.

What’s the difference between a VAR and a Retailer?

Let’s start with the retailer, as that’s a bit more obvious. With respect to software and hardware products, we’re talking about computer, specialty electronics and mass market stores, independents as well as regional and national chains. Retail is both a B2C channel and a B2B channel, especially when talking about serving the small and medium size business (SBM) market. While retailers may offer some “value-added” services such as extended warranties, delivery, installation, etc., the main purpose of a retail store is quite simple. The retailer serves primarily as a point-of-sale location, holding inventory and enabling end customers to have immediate access to products at favorable prices.

VARs (Value-Added-Resellers) are in many respects the polar opposite to retailers. The VAR channel is strictly B2B, and sells to both large enterprises and the SMB market. Usually there isn’t a retail storefront–if there is, it’s not a big part of the business. Expensive retail space is avoided to minimize their real estate costs, because walk-in traffic isn’t part of the business model. Unlike retailers, VARs are focused on selling their services, such as installation, configuration, integration, customization, etc, rather than turning over large quantities of products. VARs aren’t interested in having a large “assortment” of products like retailers. This is a key point that channel newbie are prone to miss–at great cost to their company. While VARs do sell products, they are motivated to do so in only two instances:

1) Core products which are strategic because the VAR’s services are built around them
2) Easy to sell, demand-driven commodity products requested by their customer base

If you take just one thing away from this article, let it be this: VARs aren’t dying to sell most products. If your product doesn’t fit into one of the two categories above, you will be pushing on a rope trying to make progress in the VAR channel.

Is one of these channel types “better” than another?

One is not superior to the other. Each reseller type is better for different product types and circumstances. They both can be used quite profitably, but they serve different purposes. It’s important when designing a channel strategy to start with the end customer and work backwards. Where would the end customer like to buy? How important is price vs. services and support? What reseller type best meets the desires and needs of your target customer type(s)?

When you should use the VAR channel

While VARs aren’t product-oriented businesses, in aggregate they are still a very important channel for many product types. If you have a product which requires a high level of support, or “value-added” services such as expert installation, integration with other products, customization or 24/7 support, VARs can play a key role in your distribution strategy. If you have a popular commodity product, they can be useful (in aggregate) to greatly expand your distribution points. The VAR channel is highly segmented by vertical market, so if your product has a vertical orientation (networking, medical, insurance, etc.) this often creates an opportunity for VARs to be an important channel partner.

When you should use the Retail channel

Retailers are usually best for horizontal, commodity or mature products. They are effective at providing broad, immediate access to your products across a wide geographic area. Retailers typically are “inventory turn” oriented in their business models, and tend to work on thin margins. So if keeping your price point low is important while still using a third party channel, they are an excellent choice. Of course the fact that they provide instant access to your products during business hours can be a very important asset.

Can you use both VARs and Retailers for the same product?

Yes, but you must know what you are doing, or you may end up very sorry that you did. Since VARs and retailers bring very different things to your distribution, there is a strong chance of serious channel conflict if you use both reseller types for the same product. The biggest potential issue is degradation of your product street price, because while VARs typically work off high product margins and low turnover, retailers are the opposite. Retailers optimize their businesses for high inventory turnover, while accepting low product margins. The low margin strategy causes the street price of your product to fall for all channels distributing your product. If the street prices drop too low, the margins may drop too far to be interesting to VARs (even though they are focused primarily on their service offerings). Companies new to multi-channel distribution sometime make this problem even more acute by offering price discounts based on volume, which makes the situation even worse. A volume-based pricing strategy favors the higher volume retail channel, and also incentivizes even deeper street price drops, to create higher volumes and resulting better wholesale prices. Multi-channel pricing is a complex area fraught with danger for the uninitiated–new players should solicit outside advice, and tread carefully.

VARs and retailers can be important, high volume distribution channels for many software and tech companies. They can each be primary distribution channels, or combined with direct a sales approach and other channels to form highly efficient multi-channel distribution networks. More distribution is not always better, however. Companies need to know what they are doing when proceeding with a multi-channel strategy, or risk doing great damage to their sales and marketing efforts.

That’s how I view using VARs and retail in your distribution strategy. How do you see it? Post a comment to get a discussion going. Follow Phil Morettini and Morettini on Management via Twitter, Facebook, RSS, or the PJM Consulting Quarterly Newsletter.

No Comments by admin on November 8, 2009
filed in Business Development, Distribution Channels, Retail, VARs
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Startup Mistakes by Software and Tech Companies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13 Comments by admin on September 14, 2009
filed in Corporate Strategy, General Management, Software/Product Development, Startup/Early Stage
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