Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: PJM Consulting

Will Smartphones Replace PCs?

Smartphones are taking over the world–the tech world, at least. The computing buzz these days is decidedly mobile. The question is “where does it end”? Do Smartphones continue their growth until they are the dominant or sole computing platform, or does this trend stop somewhere short of that? Let’s look as some of the factors that will drive the market:

Processors

The state of microprocessors used in Smartphones will go a long way in deciding the ultimate outcome of this discussion. We’ve seen similar scenarios to the Smartphone phenomenon before, and history tells us that microprocessors will keep progressing on all three major computing platforms. History also says that applications have always grown in size and capability to take advantage of the increased level of processing power and memory available at a given cost. In addition, desktop PCs (and laptops to a lesser degree) don’t have the extreme power constraints that a pure mobile platform like a Smartphone does. If historical trends hold true, it won’t bode well for Smartphones becoming the dominant computing platform, because PCs will continue to have an inherent advantage in software capability due to more powerful hardware. If there is a leveling off in PC processor capability, Smartphones will have more of a chance to overtake them as the primary computing platform.

Screens

Screen size and power consumption are also very important to this argument. Until holograms become standard, screen size will always be an important factor is choosing where to do your computing. This doesn’t bode well for a total Smartphone takeover of computing.

Keyboards

Keyboards are an analogous issue to screens; once voice input becomes standard in the computing world, keyboard size will seize to be an issue, tilting the field toward Smartphones. But until this happens, all but the insane will prefer typing on a PC keyboard over anything available in the Smartphone world (although there have been definite improvements in Smartphone keyboards).

Batteries

Battery life is also a major driving factor in the capability of Smartphones. While mobile processors and memory will almost certainly continue to provide greater compute capability at lower power consumption, desktops essentially have no power constraints (except for the very green-conscious). Even laptops come with an assumption of working at least part of the time where they can be plugged in. There could come a day where batteries are so powerful and hardware is so miserly in power consumption that battery life is no longer a major issue. Until that day, however, the checkmark goes to PCs.

Software

There are two aspects of software that are important to this discussion. The first is the number and breadth of applications available–the Smartphone category has already blown through this checkpoint. Hundreds of thousands of applications are already available on Smartphone platforms. Smartphones are already in the mainstream from a software assortment perspective. The second question is the sophistication/capability of the infrastructure software available, to ensure whether bleeding edge technology can be used on a platform. While Smartphone infrastructure and tools aren’t t yet as powerful and mature as what’s available on PCs, things are moving fast and I don’t see this as a major issue preventing Smartphone dominance.

New Hybrid Smartphone/Laptops

This embryonic platform holds the promise of being a game-changer in the market, tilting the advantage towards Smartphones as your primary (and possibly only) computer. What I’m referring to is a normal Smartphone “docked” into a laptop accessory shell, providing a larger screen, keyboard and maybe even bigger battery while using the same interface and software available on your Smartphone. This allows all of your files and computing occur on a single device, which would represent a major breakthrough for users. It’s the holy grail of computing. You may have seen ads for one of the early models, the Motorola Atrix “Lapdock”; or heard about the recently announced ASUS Padfone hybrid Smartphone/Tablet. It’s still very early in this segment and definitely uncertain how it will turn out. As in any early market, prices are still high, and the early devices don’t quite work as well as you’d like. But the paradigm is a powerful one. If the companies bringing out these devices stick with it, continue to innovate and introduce next generation devices that meet market expectations, this is a product that could truly be a PC killer. Only time will tell if this category will become the next generation of computing, or peter out like so many other great ideas that weren’t carried out to the required maturity.

I realize that tablets are becoming an important part of the computing ecosystem, but for simplicity I’ve considered them a next generation laptop in the context of this discussion.

I can’t say I know how this eventually works out. If I had that type of view into the future, I’d be in Vegas placing bets rather than writing this article. But using history as a guide, I think all three major platforms–desktops, laptops and Smartphones–will be with us for a long while.

I do think there will be a re-alignment in computing market share among the main platforms. I see desktops continuing a slow decline in share and eventually becoming specialist computers, used only where the ultimate in computing power is required. Smartphones have already staked their claim as the new growth platform. How far this growth goes is the only question. The wildcard is the new hybrid category. I believe that these devices could become the dominant primary computing platform if the hybrid Smartphone/laptop category takes off–which is far from a certainty at this time. If hybrids don’t take off, I believe screen, keyboard and processor limitations will prevent Smartphones from becoming the dominant computing platform anytime soon.

That’s my forecast–what’s your opinion on the direction computing will take? Do desktops eventually go away completely? Are they replaced by a Smartphone/laptop hybrid device? Do two of these three platforms survive, or will all three co-exist in the future as they do now?  I’d be interested in your own forecast–leave a comment to further 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

3 Comments by admin on June 12, 2011
filed in Business Models, Corporate Strategy, Software/Product Development, hardware, market research
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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
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International Expansion: Partner or Invest?

This is an age-old question facing software and hardware companies. In this article we’ll examine the pros and cons, as well as the specific conditions that should drive your decision process.

Two basic options confront a tech company considering a foray outside of their home market:

  1. Set up your own subsidiary hiring your own employees to “put on the ground”
  2. Partner with established traditional distributors or strategic partners in the target foreign market

Let’s look at some of the key factors to consider when designing an international business development strategy:

Available Capital

How much money does your company have available for international expansion? If the answer is “not much”, this alone can be the deciding factor in your decision. If capital is very scarce, you’re almost forced to start out using distribution partners. This isn’t all bad, in my opinion. Using partners initially when you are an international newbie is a much lower risk way to start, and allows you to learn this part of the business without “losing your shirt”. I’ve seen a number of control-oriented management teams invest large amounts of money by putting people on the ground in subsidiaries, only to waste it in spectacular failure. Often this failure is due to inexperience.

Product Price and Complexity

If you have a high priced, technically-complex product with a long sales cycle, you will tend to benefit more than others by having people on the ground in the foreign market. These are the types of products which are most often sold directly, even in home markets. In this scenario, even if capital is tight and you can’t afford to put down a fully-loaded subsidiary with a dedicated direct sales force in every foreign market, it still may make sense to put some folks on the ground. As an example, you might be able to afford a channel sales rep and a couple of field engineers to support a large network of sophisticated local country distributors and VARs, across an entire continent like Europe or Asia.

Management Skills

What is the skill set of your corporate management team? If no one on the team has any experience with indirect distribution, for example, it’s going to be pretty tough to successfully build a working distribution channel in FOREIGN MARKETS which are far from home, in more ways than one. In this case, the most cost effective thing to do is to add someone to the top management team with the requisite skills and experience, or at least retain a long term consultant. Going without this hire often seems the cheaper route initially, but in most cases this end up being “penny-wise but pound-foolish” in hindsight.

Local Market Cost Structure

Each foreign market should be evaluated individually before deciding an approach for that market. For example, in large emerging markets with low costs (such as China, India, Brazil for many verticals) it may make sense to put your own people on the ground, regardless of the distribution strategy. When costs are low and the market is strategically important in the long run, the relative benefits of having your own subsidiary are high. In a high cost market with lower sales potential (Switzerland and Norway may be good examples for some businesses,) relying exclusively on a dedicated local partner may be a better way to go.

Availability of Partners

In some cases what may be the best strategy for your company and market in theory is overridden by facts on the ground. Many vertical software and hardware markets have a well established set of distributors and resellers dedicated to their marketplace. In these cases it’s relatively easy to find an appropriate distribution partner. But what if you’re in a business in which this ISN’T the case, which is not all that unusual? Or maybe there is an established channel, but you’re late to the game and all the obvious “good” partners are tied up with your competitors. Sometimes you may choose to not enter that market immediately. But if the geographic market is considered strategic, then you will need to choose a course that looks sub-optimal in theory. That might mean biting the bullet and outlaying the investment to start your own subsidiary. Or, you might find a local entrepreneur with the skill set to set up a new distributorship. If it’s a geographic market that you just HAVE to participate in, then you will find a way!

There are obviously a wide range of combinations and intermediate options, but “partner or invest” represent the extreme ends of potential strategies. In many cases (particularly large, established markets) the optimal distribution strategy will be a combination of these two main approaches: pairing a wholly-owned subsidiary with local distribution partners. In smaller markets, partnering with an established distributor or strategic partner may be the only viable strategy. In other cases, the optimal strategy may be dependent on the specific factors of a particular marketplace (local costs, available partners, etc).

What’s most important is to closely analyze your specific company’s situation and vertical market, as well as the “facts on the ground” in each individual geographic market. Resist the temptation to simply copy your competitor’s strategy or fall back on approaches that you are comfortable with from other vertical and geographic markets. That is how you make mistakes.

What’s your approach to international expansion? Post a comment and share your own personal experience.

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 March 13, 2011
filed in Business Development, Business Models, Corporate Strategy, Distribution Channels, VARs, enterprise software, hardware
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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
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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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Should Microsoft Break Up?

Once again there have been discussions in the press about breaking up Microsoft. Years ago it was the government pressing the issue because of Microsoft’s perceived monopolistic hold on a number of software markets. Now it’s being driven by shareholders, unhappy with the stock’s unimpressive performance over the last decade. MS management is not fond of the idea of being broken apart, as management’s tend to feel. Unless the CEO is a financial engineer by background, the management team generally has no interest in breaking up their kingdom. But is a breakup the best way to go in the long run for the company? Will MS shareholders be best served by such a strategy? Let’s go to some of the pros and cons.

Pro Breakup Arguments

A breakup could unlock value not reflected in the MS share price-

The share price has been roughly flat over the last eight years. This is for a company that still dominates many computer markets, and is enormously profitable. Something isn’t right. Some would say that some parts of this huge company are over shadowed by the dominant businesses, and therefore aren’t fully valued. Specifically, you could break out some fast growing businesses that might demand a higher multiple. Conversely some slow-growing, but large businesses which generate large amounts of cash flow could become great dividend payers, like the GM or AT&T of their golden years.

There are also some potential advantages not so obvious to financial engineers:

Smaller, less bureaucratic operating units

This is not to be underestimated in its power to unlock value and growth. Anyone who has ever worked in a large company, and then gone to a startup, can testify to what freedom from the corporate bureaucracy can bring. Everything happens faster, and innovation is unleashed. Thoughtful risk-taking is allowed, and hopefully encouraged. If you haven’t seen it, it’s hard to understand the huge change that can take place in employee attitudes and behavior when working is a more entrepreneurial environment.

Greater focus

Focus is one of the keys to most successful businesses, but is hard to quantify. When you are very large and feel the need to continue to grow, it’s easy to lose your way. Senior management has only so much bandwidth, and can have expertise in only so many areas. Once this bandwidth is exceeded or new business activity drifts into areas outside of core expertise, mistakes start to happen. When a business becomes too large and diverse the management almost always becomes sloppy, and sloppy wastes money and reduces profitability.

Greater ownership

If structured properly, folks usually feel greater ownership and work harder, knowing what they do might actually make a difference. Not to mention that they are more likely to be recognized and rewarded for their efforts which actually grow the business.

No Place to hide

This is true both for sub-par employees and poorly performing businesses. There are many places to hide in a bureaucracy. With large profits and so very many people, staff jobs abound without a clear need, and real jobs that need to be done are broken up into such small pieces that accountability for the bigger picture suffers. New business units can be run as money losers for years as pet projects of a senior executive. In a leaner, more focused organization, both these phenomenon tend to go away.

Con Breakup Arguments

Synergies

Many would say that you’d give up a lot of great synergies in any breakup. The Office business was built in large part on the shoulders of the Operating System business, as an example. And Microsoft has stayed very focused on software (with a few high profile exceptions like the X-Box), so many of the businesses do relate to each other in relevant ways.

Brand power

This may be the greatest argument, in my mind, against breaking up Microsoft. The power of the Microsoft brand is enormous; put the Microsoft name on any new software or computer-related product and, at a minimum, it becomes an immediate contender in it’s category. Many mediocre software products have become category leaders almost strictly due to the power of the Microsoft brand. In any breakup one of the companies would retain that brand, and the other progeny would certainly be large enough to establish strong brands quickly. But would it ever be the same?

Tradition

To some folks, it just wouldn’t feel right. This is Microsoft, after all. The alpha dogs of software. One of the great pioneers and dominant companies of American high tech. To some, it would be unthinkable to destroy such an American icon, like tearing down the Statue of Liberty.

This all comes down to preferences and judgment in the end. Some like scale and dominant brands like today’s Microsoft, others prefer the speed and flexibility that comes with smaller business units. Many believe that there is nothing like a dominant industry player to drive profits, while those with a contrary view would say that visibility of individual businesses and less bureaucracy lead to greater returns. In my opinion, every major corporation runs its course as a successful entity, eventually faltering under its own weight as it suffers the excesses of success. The trick is in knowing when this point comes–and it’s often not obvious, except in hindsight.

My view is that Microsoft has likely reached a point where a break up makes sense. You could segment MS into several still very strong separate compaies, which I believe would free them to focus on specific markets with much less bureaucratic drag. That’s my view–what’s yours?

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 November 29, 2010
filed in Business Models, Corporate Strategy, General Management, Mergers & Acquisitions, enterprise software
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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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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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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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Will Microsoft’s BING Finally Bring Success in the Search Engine Market?

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

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

HOW LIKELY IS SUCCESS?

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

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

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

I call them the Terminator of High Tech.

TERRIBLE TRACK RECORD IN ONLINE SERVICES

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

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

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

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

HOW CAN MS OUTFLANK GOOGLE?

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

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

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

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

No Comments by admin on June 5, 2009
filed in Corporate Strategy, General Management, Online Marketing, Uncategorized
tagged , , , , , , , , , , , ,
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