Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: startup

Software Company Diversification

One of the difficult strategic decisions that software industry management teams have to make is finding the delicate balance between “focusing on the core business” and “not putting all of your eggs in one basket”.

One obvious way of differentiating how much diversification is appropriate for a specific company is by company size and maturity. A brand new startup better be very focused on doing one thing well or they may not last very long. A large, established company generally needs to have at least several new irons waiting in the fire as initial products and market segments mature, or they risk shrinking in size rather than continuing to grow. The two ends of the spectrum are pretty obvious, but there is a wide continuum of situations in between where the proper strategy isn’t as obvious. Let’s look at some factors to consider when formulating your own diversification strategy:

How much growth is left in your primary business/market/technology

This may be the first thing you should consider when contemplating the diversification question. If you’ve hit on a huge market opportunity with a lot of room to run and have gained good traction, it’s often unwise to develop “eyes bigger than your stomach”. In this environment your best growth opportunity is usually keeping your eyes on that single ball. Everything else being equal, a focused strategy is always easier to execute than a diversified one. So if you have explosive growth prospects ahead as far as the eye can see, it’s better to defer the diversification decision for sometime down the road.

Competition level in your primary business

Strong competition in your primary market is often a factor that can cause a management team to either look toward diversification or decide it needs to focus on it’s core market-depending on the details. The key is how competitive you are: if you are very competitive and yet caught in a heated battle with that strong competition the choice is often to stay focused. However, if that competition is so strong that your company is an also-ran, a decision to diversify is often taken. On the other end of the spectrum if the competition is weak, that may also allow you to more easily take on some diversification without the risk of losing hold of your profitable core business.

Level of available resources

This is a big key; if you only have the resources to do one thing well it’s critical to keep you focus on a single ball. It doesn’t matter if you have five great ideas–pick the one you think is best and sell out to be successful there. I often see early stage managers make this mistake. They aren’t sure which of their ideas is the best and this uncertainty causes them to split their very scarce resources among multiple paths. Unfortunately, this usually dooms them to not gaining critical momentum in a single area. It’s also important to measure all types of key resources when considering this factor, not just financial. Do you have enough skilled engineers, marketers or management bandwidth? If any of these or any number of other resources are in too short supply, diversification at this time is probably a bad idea.

Ease of extending proprietary technology into adjacent markets

This requires an evaluation of your existing IP. Often software companies have cutting edge technologies that can be adapted to other market segments and provide a similar differential advantage as in the initial core market. But what if the technology is very specialized, or you just can’t see another good market opportunity to invade using your existing technology as your entry advantage? In these cases it’s best to be realistic and look at other ways of diversifying, such as acquiring new technology/product categories via M&A that are usable in your current segment.

Can you create or acquire new technologies which your existing market wants?

There’s a lot that goes into answering this question. A lot of it relates to your technical staff–are they specialists in your existing technologies, or do you have the type of talent that is constantly coming up with outside-the-box ideas and potential new products?

If there isn’t fertile ground internally for innovative new ideas you many need to look at acquisitions which can bring fresh technologies and products to your pipeline. These don’t need to be huge, costly acquisitions; often you can acquire highly innovative startups which are little more than a small engineering team, a core product and a few initial customers.

Also, are your product managers identifying unmet needs from your existing user base? This is usually crucial to bringing SUCCESSFUL new products to existing markets, whether driven by internal development or acquisition of external technologies/products/companies.

Diversifying to Completely New Markets with Completely New Products/Technologies is very dangerous

Above all you want to avoid moving into a completely new market with a completely new product/technology. The odds of pulling this off successfully are very low, roughly equivalent to that of any brand new startup company. If fact, this is often referred to as a “restart”. It generally occurs when a company looks forward and sees certain failure ahead due to a hopelessly out-of-date technology or an evaporating market segment (often due to a technological sea change). I often see this from managements that are very discouraged and desperately seeking “greener grass on the other side of the fence”. But of course the grass isn’t always greener. This approach should be viewed as a last resort only; every attempt should be made to diversify into an area where there is some technological or market experience.

Like most strategic decisions, diversification in the software business isn’t inherently good or bad. The circumstances really dictate how much you should pursue. What do you think about the strategic tradeoff between focus and prudent diversification?–leave a comment below with your experiences and views.

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

No Comments by admin on January 13, 2013

filed in Business Models, Corporate Strategy, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, Uncategorized

5 Factors to Evaluate Whether You Have a Winning Corporate Culture – Video

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 December 7, 2012

filed in Corporate Strategy, General Management, Operations, SaaS, Startup/Early Stage, Videos

How Important is a Strong Rolodex in the Software and Hardware Business?

I get this comment all the time: “We’re looking for a VP-Sales/VP-Business Development/Sales Manager/Sales Rep with a strong Rolodex in the (pick your market segment) market”. But how important is a rolodex in the IT business? In my opinion, not as important as many people seem to think…..

I realize that this is a contrarian viewpoint among those of us in the technology business. Some may even view it as “stupid”. However, it’s not in any way a spontaneous comment, but an opinion I’ve developed over a long period of time. I’m sure I’ll get a lot of push back on this opinion, since it flies in the face of conventional wisdom. Here’s my argument:

What a rolodex does for you

First of all, of course a strong rolodex in a specific market segment is a good thing. To say otherwise is silly. But what does it really do for you? It may get a phone call returned or a meeting set up faster that it otherwise would. This is of course helpful, but far from critical in my mind, especially compared to other factors I’ll explore below. I should point out there are some market segments that are so closed that they appear almost tribal in nature. In those cases, including one example which is mentioned later in this article, a strong rolodex can move to near the top of the list of critical success factors. But in my experience these situations are rare and far from normal.

Many other things have to line up first

I’ve always maintained that sales reps get too much blame when they fail, and too much credit (and often outsized monetary rewards) when they’re successful. SO many things have to be done well in a company for a rep to have a chance. The executive managers must first capitalize the company adequately, or usually nothing works very well. Product Marketing must properly define a market opportunity that matches well with the company’s intellectual property and technical capabilities. The R&D folks must create a product which makes a contribution to the marketplace, offering a differential advantage over competitive offerings. Maybe all of this seems obvious; but none of it is easy. A lot can go wrong, and I believe every one of these activities is more difficult and important than having a pre-existing rolodex in the market. Even it this wasn’t true, it’s really difficult to attract the right sales reps (with or without an strong rolodex in your segment) without evidence that the above activities are going well.

Most important attributes for a technology sales rep

Smart – This may seem obvious, but all too often people looking for a “quick hit” underrate it’s importance or don’t adequately investigate intellect in their new sales hires.

Technology acumen – There are many good sales reps in the world. But regardless of whether we’re talking about hardware, semiconductors, traditional software or SaaS, there are far fewer that have the education, training and ability to quickly absorb complex and fast-moving technology that is fundamental to our business.

Work ethic – While intellect and technical competence are important, selling still isn’t brain surgery. But it’s a really difficult job that takes persistence, hard work and the self-confidence to keep going in the face of a lot of rejection. There is no substitute for a strong work ethic in a consistently high performing sales rep.

Ability to build relationships – this is key- and shouldn’t be confused with having a large rolodex of names and phone numbers. Just because someone knows a lot of people doesn’t mean those prospects necessarily wants to hear from them, or trusts them enough to buy from them. In many cases it’s just the opposite. If you have strong relationship-building skills, you can do it over and over again across any market segment. Give me a strong relationship-builder with no existing contacts in a market segment over a weaker relationship-builder who knows everyone in the segment–any day of the week.

Market segment experience and rolodex – these are beneficial qualities, there is on doubt. But I believe they are down the list in importance relative to those listed above.

An example of where your Rolodex IS CRITICAL

Now just because I don’t think a strong rolodex generally leads the list of important attributes in the software or hardware business, that doesn’t mean I feel that way in every case. The best example of when it’s VERY important is when raising capital from institutional sources, such as venture capitalists. Not only is it important to personally know them (or get an introduction from someone who knows them well) before a fund-raising approach, it’s critical to a bizarre degree. It’s not universal, but if you approach many VCs without leveraging an existing relationship you may in fact have blown any chance with them in the future, no matter how impressive the value proposition of your business. So this is a case where having a strong rolodex in place is paramount–but the details of this is better left for another article.

That’s what I think about the importance of a rolodex in the technology marketplace. I’ve personally moved among many different market segments in my career and don’t consider it all that difficult. The most difficult part is often convincing someone it isn’t all that difficult! While it can be helpful to have a strong rolodex, I believe it is placed way too high in many folks priorities in most cases. If you disagree–post a comment below and tell us why, or just provide us with the wisdom of your own rolodex-related experiences.

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 December 2, 2012

filed in B2C, Business Development, Corporate Strategy, General Management, Product Marketing/Management, SaaS, Startup/Early Stage, enterprise software, hardware, sales

A Software Startup Video Case Study

No Comments by admin on November 18, 2012

filed in Business Models, Corporate Strategy, Distribution Channels, General Management, Mergers & Acquisitions, Software/Product Development, Startup/Early Stage, VARs, Videos, enterprise software, sales

Musings on Software Market Segmentation and TV Morning Shows

I like to check out one of the morning TV shows on one of the major US-based networks for a few minutes, as I’m eating my breakfast cereal. There are 3 major programs on at the start of the day: NBC’s Today Show (the traditional market leader), ABC’s Good Morning America (the perennial runner-up) and the recently re-branded CBS This Morning in (last place for many years).

So what the heck does this have to do with software market segmentation, you ask?

I’ve been struck by how much the morning show race reminded me of the software industry has become more vertical over time. In particular, there are some strong parallels between the software business and the morning shows with respect to the product being “soft enough” to make relatively easy product changes as part of a new segmentation strategy.

Recent changes in strategy on the TV morning shows

The Today Show has been the “10,000 lb Gorilla” of the morning shows since the beginning of the category. They’ve had a large lead over their competitors across multiple changes in on-air personnel and even societal cultural changes over the years. The Today Show’s format has been aimed at a “horizontal” audience–a little bit of something for everyone. They start with hard news at the beginning of the show and it gradually becomes “lighter”, transitioning to Pop culture, celebrities and gossip as the show progresses through its marathon 4 hour time slot.

The other two major shows have taken a real beating at the hands of NBC in the ratings, with many tweaks to their formats and even more turnover in personnel over those many years. Fundamentally they have tried to compete by “building a better Today Show”, essentially competing head on with the market leader in a horizontal fashion. But over the last couple of years, ABC and more recently CBS have changed their strategy, utilizing a much sharper segmentation than at any point previously. ABC has essentially gone “younger and lighter” over the last couple of years. The show has the least serious tone and is the most “fun” of the three, focusing a lot of time on pop culture and other topics skewed toward younger viewers. It’s paid off. Good Morning America has taken a clear lead over the Today Show due primarily to this new segmentation and to a lesser extent some personnel missteps at NBC.

After many years in last place, CBS has segmented sharply in the other direction with a shorter 2 hour program focused almost entirely on hard news and staffed by serious, credible news people. It’s too early to say how successful this will ultimately be for CBS, but they have won over this writer and have picked up some market share overall-I’m watching consistently CBS in the morning for the first time. The Today Show has been struggling to remix it formula and regain its clear lead, looking much like a complacent large company that has grown fat, dumb and happy as a result of years of unchallenged success.

Software Market Equivalents

Ok, enough about TV morning shows! How does this relate to segmentation in the software market? A very similar situation albeit in a B2B rather than B2C market, is the ERP software market. The ERP market is also a very large, horizontal market–a mass B2B software market, if you will. Just about every company in the world needs some type of ERP software to run its business, from an entry-level, basic accounting application like Intuit’s Quickbooks all the way up to very expensive, complex enterprise suites such as offered by Oracle, Microsoft, SAP and Sage.

This of course is one form of verticalization–segmentation by target customer size and sophistication. Intuit and Oracle aren’t targeting the same segments. But the ERP market is so large that over time it has also segmented by industry; nearly every industry group of any significance now has ERP software vendors with specialized applications aimed at a narrow industrial segment.

Another similar example is Medical Practice Management Software. The last time I looked, there were over ONE THOUSAND software vendors with products targeting this very large market. You would think the software requirements of most medical practices would be pretty standard across the board. But because the market is so large and lucrative, nearly every market segment (Surgeons, Gynecologists, Dentists, Chiropractors, etc.) has it’s own sub-market of competitors, with applications that speak that particular medical practice’s lingo and strictly models its business processes.

I have a personal example from earlier in my career that illustrates how important segmentation can be as part of a software company’s overall strategy. I took over as CEO of an early stage mapping software company with excellent technology but an unsophisticated business strategy. While the company had a neat technical advantage over its larger competitors, the product otherwise was positioned directly against the market leaders in that space. The primary distribution channel for the mainstream mapping products of the time was computer and electronics retailers, a notoriously tough and expensive channel. I was able to make some headway in penetrating this channel. But even with our technical feature advantage it was already too late in the game and we lacked the resources to compete and win head-to-head with the larger market leaders of that time.

So we quickly came up with a segmentation strategy that proved quite helpful. Initially we took out some features away from our primary product and created an entry level product priced far below the mainstream mapping products. This allowed us to occupy the price leader position targeting the most price-sensitive consumers, and distribute through both consumer/gaming software stores of the time as well as mass market retailers such as drug and grocery stores. The mainstream mapping software players had almost no presence in these channels due to their higher price points. This entry level product, created with minimal development costs, allowed us to generate cash flow to fund our longer term segmentation strategy which was to target the B2B market. The mainstream mapping products were fairly generic and used by business people as well as consumers, but really designed for any consumer with no business-oriented features to speak of. We were able to create a premium, business-focused version of our product which we positioned as the mapping products for mobile workers/road warriors such as sales reps and service technicians. We included important business-specific features, such as integration with the popular CRM systems of the day, which weren’t found in any of the other mainstream mapping products of the day.

Important considerations in segmentation strategy

Hopefully we’ve established that segmentation of your software market can be a very powerful tool to compete with and outflank strong competitors and ultimately maximize the value of your business. So what are the important things to consider in formulating your segmentation strategy? Let’s look at a few:

Horizontal vs. Vertical – The first thing to consider is how horizontal your segment currently is and how vertical you think you need to be to compete effectively. There is a fine line here; the more horizontal you can remain (targeting multiple segments with the same product) the higher your product’s ultimate profit potential. But you must be realistic about your market position–go as “vertical” as you need to win–or your profit potential is likely zero!

Market Maturity – The more mature the market is when you enter, the more likely it will be important to segment smartly and attack a vertical niche. Of course this or any single factor shouldn’t be used in a vacuum to create a strategy–many factors need to be considered in your segmentation decision.

Market Size – The larger the market size, the more likely it is that it’s ALREADY segmented and will likely force you to do the same. There are several prominent potential exceptions here, listed in the bullet points below.

Market experience of the company - Do you know the market well, and just as important, are you known by the market? In cases where you’re known and understand your market well, it raises your odds of success even entering with a more horizontal approach.

Levels of funding – Big companies with massive resources or heavily funded startups may be able to successfully use a horizontal approach, although many confident late entrants of this type have failed in a variety of software market categories.

IP/Technology & other strategic advantages – A true innovator with market changing IP may also be able to attack and win in an established market using a horizontal approach, as they are effectively changing the ground rules of the market. But again, I’ve witnessed many companies very confident in their technical advantage that have ended up with their hats handed to them when competing head on in an established market.

Important upfront decision–but never too late to change

Like any important business consideration, it’s far better to optimally segment the market for your products up front then to wait until you are FORCED to do so. But just like a morning TV show, in the software business it’s relatively easy–at least compared to other technology categories such as computer hardware or semiconductors– and almost never too late to modify your target segments.

What’s your feeling on how best to approach segmentation in the software business? Post a comment so we can all benefit from your experiences.

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 21, 2012

filed in B2C, Business Models, Corporate Strategy, Distribution Channels, Pricing, Product Marketing/Management, Retail, Software/Product Development, Startup/Early Stage

Separating Technology Wheat from the Chaff

In software and hardware businesses new ideas, technologies and products come down the pike at a rapid-fire pace. Many fail immediately and some muddle along before finally fizzling out. Some meet with modest success. Only a very select few turn into long run big hits. How can you tell which products will become hits, out of a sea of mediocrity?

Not many people can differentiate between these new ideas, technologies and products at an early enough stage to profit massively from it. Keep in mind I’m not talking about small successes, but the really big ones. The ability pick the big winners out early is a rare skill set, yet one that is applicable across a wide swath of functions including general management, product planning/management, inventors, venture investing, stock analysis/selection and many more.

Short of having a brilliant mind, multidisciplinary worldview and the ability to see the future—how do you go about maximizing bets on what will hit it big and what won’t? Here are some questions that may be useful to ask when making your evaluation:

Does it solve a fundamental problem, bend a cost curve or create a new playing field?

Not every new product is based upon a fundamental technical breakthrough—but it sure helps! After all, innovation is still the basis of the technology business. This is where you look first when seeking big ideas you can profit from, something that fundamentally changes the game in a particular marketplace. One of the most spectacular examples of a breakthrough that met all three of these criteria is the personal computer. It solved some fundamental problems of the time associated with mainframe computing, certainly bent the cost curve of computing downward (and continues to due so even today) and created an entirely new ecosystem with broad societal implications. Meeting all three of these criteria is a very tall order that you won’t see often, but passing one of these three tests is almost essential for a big-time winner with staying power.

Where does it fit in the marketplace?

There are certainly many great stories of fundamental research breakthroughs without immediate, obvious market applications that ultimately found a market and became a great hit. The problem occurs when the second step—finding a market—is given short shrift, or skipped completely. This can happen when there is pure excitement and the folks funding the project have a purely technical viewpoint. The number of big successes without expert market vetting is actually pretty rare although there have been some spectacular exceptions.

We’ve all heard of the invention of super glue by accident. And Thomas Watson Senior, Chairman of the IBM Corporation in 1943 was quoted as saying: “I think there is a world market for about five computers.” Five units do not make a commercial market, but IBM made the investment anyway—and look how that turned out. But in reality the number of fundamental breakthroughs in the research lab dwarfs the number of truly successful, innovative new commercial products. So it’s important to not get too excited about these breakthroughs until a commercial application becomes obvious and realistic. Avoid at all costs the proverbial “Cure looking for a disease”, regardless of the almost mythical stories of a few massive winners borne from purely technical circumstances.

How does it compare to alternative solutions, both current and forecasted?

After deciding the breakthrough isn’t a cure looking for a disease and which market segment it fits in, it’s also very important to evaluate how it stacks up vs. rival technologies and products. And not just with respect to a current market snapshot, but looking forward as well. Forecasting really comes into play here; which technical platform has the longest runway? An example is satellite TV vs. Cable TV. When Satellite TV came into play it took a lot of market share quickly by providing innovative new services which the utility-like Cable TV companies were slow to match. But in the long run the wired infrastructure of the CableCos may provide a strategic technical advantage in that long running battle that may enable a more advanced and diverse product set.

Do the owners have what it takes to bring it to market?

This question applies not only when evaluating someone else’s product or technology—but also your own. Realistic self-reflection is important here. There have been some great new innovations that have been wasted due to bad marketing, lack of financial resources or just plain ignorance and incompetence. These weaknesses often lead to the “ arrows in the back of the pioneer”, where the folks that initially bring out the “next big thing” fail or are quickly overtaken by a more tactically skilled competitor, who improves on the idea and/or out-executes them in the market. The software spreadsheet market is instructive here, conjuring up images of several bigger fish progressively swallowing smaller ones. Visicalc was the original spreadsheet innovator overtaken by Lotus who was then in turn overtaken by MS Excel. The resources and capabilities of the innovation’s owner matters a great deal in the long run.

Is it defensible?

This is what often separates the “flash in the pan” from a true long term winner. Defensibility can be defined by the traditional technology means of patents, copyrights and trade secrets. But there are more subtle ways of defense that can be very successful in the long run: branding, entrenched distribution channels, strategic partnerships and cost advantages.

Especially in the software and hardware businesses there are tons of fast followers, who are lying in wait for an emerging trend or new market segment, where they can apply deep resources and tactical skill to out-execute the pioneers. In hardware markets the major Japanese manufacturers long ago mastered this model by taking US inventions and productizing them cheaper and better. The large Korean manufacturers then found success with this same model and most recently it’s been replicated by the Chinese. In the software business Microsoft and other large software companies have grown by either mimicking or buying up technology leaders who have pioneered a new market segment. However it’s done–make sure the next big thing is defensible before betting on it becoming a big-time, long term winner.

Does it pass muster from every angle?

As stated earlier, it really helps to be a “renaissance man” man with a multidisciplinary worldview. But people meeting that description are in very short supply, so it’s really important to employ experts across several key disciplines such as technology, finance, manufacturing and marketing, to evaluate market potential and possible weaknesses. In the technology business marketing and technology are usually the key differentiating factors, so at a minimum make sure that expertise is brought to bear in those areas during your evaluation.

There you have my view—how to do separate the winners from the losers. Post a comment with your own view of this very debatable topic.

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 September 8, 2012

filed in Business Development, Business Models, Corporate Strategy, Distribution Channels, General Management, Product Marketing/Management, Software/Product Development, Startup/Early Stage, market research

Has the Virtual Tech Company Arrived Yet?

If you go back to predictions over the past 20 years or so, we should all be independent contractors, heavily utilizing technology to work full-time from home in temporary teams, within virtual software & hardware corporations throughout the world.

Has it happened yet?

More than one definition of virtual

First of all we need to define what virtual can mean, as it can mean different things to different people. The two main ways I would segment “virtual”:

Workers who are working remotely from a main physical corporate location
Worker who are full-fledged “employees” such as temps, sub-contractors, interims and consultants

For the purposes of this article I am referring to both of these definitions when I talk about the virtual company. Workers fitting each of these definitions have the potential to offer companies increased flexibility, lower fixed costs and higher skill levels for a given project/function at a specific point in time. Of course, in many cases a worker could fit into both of these definitions.

Virtual adoption varies by function and industry

In general, companies that are early adopters of technology tend to be those that are further down the path of virtualization. This makes sense, because technology itself is a very strong enabler of the ability to use the virtual model. In the old days it was much harder to be adequately connected as a non-employee and working remotely with only a landline phone and fax machine. So industries that adopt technology faster tend to virtualize faster as well. Old line industries that have stayed with manual methods longer tend to rely more heavily on the on-premise, full-time employee model. Of course some industries just don’t lend them themselves to heavy virtualization; it’s hard for physical retailer to virtualize most of its jobs. Also, there are always exceptions to this type of generalization on an individual company and manager basis. Virtualization also varies widely by function as well. As alluded to above, it’s hard to virtualize a retail clerk. On the other end of the spectrum, programmers and some call center employees can be located wherever phone service and an internet connection are available. There are many, many other attributes that influence how quickly a particular industry or company proceeds down the virtualization path. Companies very concerned about security, for example, often evolve in this direction much more slowly than industries and companies where security is less of a concern.

Tech companies are definitely on the leading edge of the virtual trend

The Internet and related technologies have provided a tremendous platform for driving more rapid acceptance of the virtual work model. Since software and hardware companies tend to be early adopters of productivity enhancing technologies, it’s only natural that the virtual work model is progressing faster in tech companies than in most other industries. Even in companies that still rely primarily full-time employees, it’s very commonplace to work from home occasionally, or attend meetings remotely while they’re on the road via video conferencing or online meeting software. In my consulting business, I also do see quite a few small or early stage software companies who are using primarily or completely a virtual business model.

All things considered—on premise employees are still preferred

There’s no doubt there has been a slow march toward the virtual corporation over the last decade or two. In my experience, however, most hiring managers still prefer a full-employee sitting in the office next to them over all other options. There are obviously many, many exceptions to this. But on a overall basis I believe this is overwhelmingly true. People still are most comfortable with the feeling that they will be able to deal with their subordinate in person, and would rather have the added comfort of a full-time permanent employee they believe they will be able to get to know and count on heavily over the long run.

The reality is that there are trade-offs to both the virtual and old standard on-premise, full-time employee approaches. The virtual approach offers flexibility, better matching of cost and workload and the potential for a better skill fit for a particular project. The on-premise employee approach is favored because of stability, known availability, cultural fit and company-specific training. In a perfect world a mix of both would be utilized, and every project and position would be evaluated on an individual basis to decide which model is a better fit for a particular situation. I do think that in many industries this will come to pass eventually. But old habits die hard and I don’t expect we’ll totally get there in my lifetime.

So what do you think about how virtual the world is—and how virtual it becomes in the long run? What has been your experience? Post a comment and share your thoughts on where we’re at in this long running trend.

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

1 Comment by admin on August 13, 2012

filed in Business Models, Corporate Strategy, General Management, Operations, Startup/Early Stage

Is Your Tech Business Marketing or Sales Driven?

Software and hardware business are often segmented by the vertical or horizontal market they’re targeting, their technology platform, small vs. large companies and so on. One of the important ways to segment tech businesses, which isn’t often discussed, is by whether the company is sales-driven or marketing-driven in their customer acquisition strategies.

A balanced approach

Now some reading this article may ask “why wouldn’t you take a balanced approach”? Indeed, I don’t mean to suggest that either sales or marketing should be absent in the customer acquisition efforts of tech companies. There are a few scenarios that could be drawn up to support such a singular approach—but very few for sure. There are also some situations where the customer acquisition circumstances are “in between” in price, complexity, market size, etc. and you end up with a fairly balanced approach between marketing and sales. But in my experience the sales or marketing function will rise to the lead, more often than not.

Key criteria in choosing customer acquisition techniques

There are several considerations that often drive whether marketing or sales will dominate:

Product Complexity – This often decides whether or not a product can be truly driven to purchase by marketing or whether significant sales rep intervention will be required to close a deal. It should be noted that when product complexity is high, marketing support in the form of sales tools (examples: case studies, road map presentations by product management) will still be very important in the sales cycle. But this will generally be a sale that is driven by the sales force with marketing in a supporting role.
Product Price/ Typical Sale Size – The smaller the product price and typical sales size, the more likely you’ll be able to acquire customers exclusively through marketing, or in conjunction with inside sales that is largely “taking orders”. Conversely, products that cost a lot may require the extra interaction provided by an outside sales force (and the deal size also justifies the cost of the sales force).
Market Size – Very large markets with lots of customers are more easily and cost-effectively reached with effective marketing. A tight market with a small number of total prospects (think nuclear power plants) will usually be served almost exclusively by an outside sales force with minimal marketing intervention.
Use of Channels – While companies selling heavily through channels often need reps to call on the channel partners, far fewer channel reps are required than if the reps are dedicated to direct selling. Generally the heavier the use of third party channels in the customer acquisition approach, the more heavily the mix will lean toward investment in marketing.

Marketing driven keys to success

Adequate marketing funds – If you’re going to be marketing-driven in your customer acquisition approach, you better dedicate enough money to fund marketing programs with superior performance. To do otherwise will cripple your business.
An objective, data driven culture – The beauty of a marketing-driven approach is that it can take much subjectivity out the management of optimizing your customer acquisition activities. Especially in this era of highly measurable online marketing, decisions should be made on what the data says—not on the whims of the CEO or some other senior executive.
Excellent inside sales in support – Except for very simple, low cost products where marketing can truly drive the sale all the way to completion—these days that often means a software download, SaaS signup or physical product order—it’s still important to have an efficient (but low cost) inside sales operation supporting your marketing machine.

Sales driven keys to success

Great sales people – Hiring good people is so very important in every area, but when your relying on an expensive outside sales force to drive revenue—you better hire the best reps you can afford and attract.
Success driven comp plan – If your success depends upon them, make sure your sales reps become really happy only when the company is happy as well.
Good marketing support in the form of lead generation programs and sales tools – Unless you have a tiny market with obvious, easily identifiable prospects, it’s still very important to have a marketing function which generates leads as well as supplies good sales tools.

The best approach isn’t always chosen

Unfortunately, logic and situation analysis doesn’t always win out when designing a customer acquisition strategy. Usually by the time a company grows to be large, their approach is in line with what’s best for the business. Of course, your chances of growing to be a big company are reduced if you make serious errors in sales and marketing strategy. But in any event, by the time a company is big they are usually utilizing both sales and marketing heavily and in the proper balance.

Startups and early stage companies are another matter. Often the emphasis on either sales or marketing is based on the experience of the founders and senior executives. If they’ve been successful in the past and their new company has a similar focus, maybe it’s fine and their approach works again. But a problem occurs when these executives start up a very different type of company than they’ve had success with in the past. It’s human nature to fall back on what I refer to as your “common business sense”, which is formed by your personal background and past experiences. This is when you can get a misalignment between what a company needs and the approach taken in the sales & marketing mix.

Even worse still is when the customer acquisition approach develops more or less haphazardly. This can happen when the founders of a company really don’t have much functional experience in sales or marketing. This occurs somewhat frequently in software and hardware companies, as many startups are created by technical types. In these cases there may be a fairly unsophisticated approach to both sales and marketing—and whatever works early may end up dominate. For example, a sales rep is hired who has some success, so the model becomes hire a lot more reps and turn them loose without much (or any) support on the marketing side. Or an early direct email campaign or online advertising generates some sales, so money is poured into that method. Unfortunately, these may not be the best approaches strategically for the business in the long run.

That’s what I think about Sales vs. Marketing driven orientations in software and hardware companies. What do you think? Post a comment with your own opinions or stories about what drives customer acquisition in high tech companies.

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 July 27, 2012

filed in Business Models, Corporate Strategy, Distribution Channels, General Management, Marcom, Online Marketing, Pricing, Product Marketing/Management, Promotion, SaaS, Startup/Early Stage

Does Interim Management Ever Make Sense for Tech Companies?

Is there ever a time when hiring an outside senior executive for a short term assignment in a software or hardware company is the right thing to do? If you’re based in the US, the general answer (at least up until this point) seems to be NO.

Obviously there are many exceptions to this statement. But in the great majority of cases when an executive position opens up, the next person in that role is another permanent executive hire. In the small minority of cases where there is someone designated in the role with an “Interim” tag, it’s usually someone from inside the company. In the case of Interim CEOs, it’s often a current board member. Seldom do you see someone come in from outside the company who is brought in on an Interim basis.

This is very much a US phenomenon, however. In Europe (and in the UK in particular), the use of Interim Executives is a much more common occurrence. Why is there is such a different view of this function between the two main areas of the western business world? The use of Interim Senior Managers is increasing in the US, but at a very slow rate. Past the obvious difference in labor laws which make it much harder to reduce the permanent labor force in Europe, I’ve always assumed there is a cultural reason for the European vs. US gap in Interim usage. But I’m really not sure what other reasons there are for the differences in attitude.

So are US companies missing out on a practice that could in some cases be very beneficial to their business? Let’s look at a few circumstances where hiring a senior Interim Executive might make sense:

Covering Gaps

This is probably the most common reason to retain an Interim C-level Manager. An executive has left the company–whether willingly or not. The team left behind needs leadership. You can attempt to fill this gap by temporarily putting the team under a manager of another functional area, but of course this isn’t optimal. This manager usually doesn’t have the right background to manage the function and besides probably has a full plate managing his own functional area. This is the solution you see most often, but it isn’t generally a great solution. If the time gap between the former executive leaving and the new permanent hire coming on is very short, it might be fine. But if the time period the position is open is lengthy (or worse, you hurry into a very fast new hire) the performance of this functional area can really suffer. Bringing in an experienced Interim can often be a great solution to allow you to keep momentum moving in the right direction in the area of concern, while allowing the company to take it’s time and have a careful, thoughtful hiring process for the next permanent executive.

Agents of Change

There are many different reasons that a company might benefit from utilizing a change agent. One of the more common scenarios is a company undergoing financial duress. It’s often very hard for incumbent management to make the hard decisions required to bring the company back into balance, enabling it to continue as a going concern. While a new permanent hire can take the necessary steps, it can sometimes be beneficial to use a transitory change agent like an Interim Manager to take these steps. An Interim can step in and act quickly, while the right permanent hire might take too long in circumstances where timing is critical. Also, under this approach the new permanent hire, whether a CEO, CFO, etc. can come in with a clean slate and begin his tenure on a more positive note.

Another scenario common in the software and hardware business is a rapid change in technology, or some other massive change in market dynamics. In these instances it can be quite helpful to bring in an Interim specialist in the technology or market style to guide the company through a challenging period.

More generally, while most companies highly value their corporate cultures, if care is not taken there is also a tendency for things to become a bit stale over time and worst-case produce an inbred, group-think approach to business. Sometimes a fresh, outside perspective can inject new energy and innovation into problem-solving and other aspects of the company culture, even if utilized only for a short time.

Lastly, sometimes situation arise in companies where conflict over policy or personality is tearing the company or department apart, impacting the organization’s ability to function as team working toward important common company goals. Sometimes this is a transitory issue but it can also be the result of a toxic corporate culture. In these cases, bring in an Interim Manager with no previous “dog in the hunt” can allow him or her to serve in the role of an unbiased, Honest Arbiter to bridge the divide between the warring parties.

Manage a Special Project

The final common reason to employ an Interim Senior Manager in a tech company is the ubiquitous “special project”. There are many good reasons to bring a temporary senior resource on for special projects. Sometimes a project is very, very challenging, and it makes sense to bring in the most skilled, experience expertise possible to raise the odds of success. In other instances you feel confident in the level of internal expertise to bring the project to a successful conclusion, but the proper internal candidates simply don’t have the bandwidth to serve in the leadership role for the project.

In certain circumstances such as an M&A project, a new market/technology investigation or the startup of a new division you may wish to maintain a certain level of discreetness or confidentiality in the early stages of the project.

In many of these special project cases a more traditional consulting engagement could also serve the needed purpose, rather than a deeper and lengthier Interim Management engagement. The proper engagement method depends upon long and how independent the engagement needs to be.

PJM Consulting provides Interim C-level Management Services to software and hardware companies, in addition to our core Management Consulting Services. Contact us using the information below if you’d like discuss a potential need for an Interim Manager.

These are some ideas on why and when you might want to consider hiring an Interim Senior Manager. Space was limited; I’m sure there are many prime areas I left out. Post a comment with your own thoughts on the applicability of using Interim Management in high tech companies.

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 June 16, 2012

filed in Corporate Strategy, General Management, Startup/Early Stage, Uncategorized

Optimal Levels of Formal Process in High Tech Companies

The level of process in an organization is a pretty esoteric topic that I haven’t seen discussed very often, or in very much depth. Yet I believe it is critically important to any CEO looking to grow a company, particularly a software or hardware technology based company.

The reason I believe it is so important is that, in aggregate, how process-oriented your company culture is effects every nook and cranny of company operations. Oftentimes, however, senior management doesn’t even explicitly think about how much process they want governing company operations. More often than not, this part of the culture grows in a random and haphazard manner, driven by unforeseen key events that shape the level of process. Sometimes the level of structure varies dramatically by department. In these cases, managers below the senior executive level usually are driving department cultures that may or may not be process-oriented, depending upon their own operating styles. The key takeaway here is that process levels often aren’t being driven strategically, but occurring tactically or even haphazardly. This is usually a mistake–here’s why I think so.

In technology companies, in particular, the level of processes can make or destroy your business. There are three reasons that I feel there is much more sensitivity in high tech companies to process levels:

The rapid evolution of technology and technology markets
The need to innovate if you want to thrive in technology businesses
The necessity and difficulty of constantly ‘taming” new technology

I’ll use as an example a recent experience with a client to illustrate my point. The client is a small but growing software company. They have in their culture a high level of chaos, as is common with many growing, young software businesses. The company was bootstrapped and grown out of what started as a service business, and possesses very little in the way of corporate controls or processes.

On the positive side they are very responsive, fast-moving and innovative, able to capitalize on changes in technology and inefficiencies in the market. These are very important qualities in a software startup, particularly one of the thinly capitalized variety. These attributes are the very reason they’ve been able to crack through the very early stage that kills many startups, and has allowed them to grow and thrive.

But there’s a flip-side to this type of unstructured corporate environment, however. This company lacks the discipline that is required to “stick to the plan”. Indeed, there is very little planning going on to begin with! This operating style fits great in the segments of the business where innovation is critical, such as conceiving new products. But in other areas where a more disciplined, structured approach is important, performance is much lower and is a drag on company results. While excellent at conceiving and quickly prototyping new products, follow-on releases often come out much later than planned. QA is not a formal function and the initial new releases and documentation are lower quality than they could and indeed should be. The website has very little oversight and is littered with a lack of consistency, broken links, old content and grammar & spelling errors. We’ve worked on correcting these problems — carefully — without killing the very environment that is enabling success. It’s tricky to fix without “throwing the baby out with the bathwater”.

This is just one example, and of course the level of process needed to run IBM optimally is fundamentally different from that of an early stage software startup. In your particular company, it may be very important to have a high level of formal process in one department–and just as important to minimize the level of process in another. This may be quite different altogether in other companies.

So how do you know that you need to adjust your level of process in a strategic sense? Here are a few guidelines to get you thinking about where your process level stacks up vs. what may be optimal:

Your competitors are beating you to the punch

This is a sure sign that you are bureaucratic and process-oriented relative to your market. While there may be good reasons for the processes you have installed, being consistently behind in responding to market needs can have a very negative effect on your growth prospects.

You are constantly releasing “flawed” products into the market

This is the converse to the first point above. It usually indicates you moving too fast, with too little process and structure in product development, QA and release. In truth, the end results of this approach is usually worse that being beaten to market.

Employees are complaining about so much process

I always listen to what employees are saying; they are the “canary in coal mine”, often a leading indicator of issues that later show up in your financial statements. The caveat here is that these types of complaints can also indicate a hiring problem. Make sure you’re not hiring people who’s operating style aren’t a good fit with the way the company needs to operate.

Employees are complaining about the lack of process controls

The converse to the point directly above is when employees are complaining about how much chaos exists in the company. While the point above about watch for hiring mismatches rings true here as well, this is often the time you need to take a hard look at adding some structure to how you operate.

There’s absolutely no “chaos” in your organization–and little or no innovation as well

I have a rule of thumb when it comes to pricing new products: if no one is complaining about price, you probably are leaving money on the table. My “chaos corollary” is similar: if there is no chaos in your operations that folks are complaining about, you probably have created an environment so process-oriented it will limit your innovation and resulting revenue.

Generally speaking, I have a bias towards a little less process and a bit more chaos in software and hardware companies. Often excessive process is just a bad band-aid covering up poor hiring practices. Nothing allows you to minimize process like a strong, responsible, empowered group of employees. Creating the environment to hire and retain highly responsible people generally leads to a company getting done everything it needs to, with a good level of innovation to boot–while keeping formal process to a minimum.

I recommend holding off adding new processes until you absolutely have to, because going the other direction is much more difficult. But in fact, it’s important to have the proper balance if you want your company to function optimally. Analyze what the proper level of structure and process is not just for your company overall, but in each discrete operating segment of your business.

There you have it–my view on how to analyze and instill the proper amount of formal process for your company. What’s your view on this topic? Post a comment to expand the discussion.

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

4 Comments by admin on April 21, 2012

filed in Business Models, Corporate Strategy, General Management, Operations, Software/Product Development, Startup/Early Stage, enterprise software, hardware

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