Morettini on Management

General Management and Marketing Advice for Software and Tech Companies

Tag: technology

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

No 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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Promoting Software and Hardware Products through the VAR Channel

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

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

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

End user demand creation

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

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

VAR recruitment

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

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

Cooperative marketing with the channel

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

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

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

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

2 Comments by admin on March 26, 2010
filed in Promotion, VARs
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Startup Mistakes by Software and Tech Companies

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

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

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

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

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

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

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

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

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

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

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

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

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

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

1 Comment by admin on September 14, 2009
filed in Corporate Strategy, General Management, Software/Product Development, Startup/Early Stage
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Inside TeleSales versus Outside Sales in Software and High Tech Companies

There are many ways to deliver your software and technology products to the market. For example, one and two step distribution through third party channels, direct marketing/sales over the Internet, OEM relationships and many variations of these, as well as other methods.

One classic method of delivering products to the marketplace is by using a direct sales force. Within the direct sales methodology, two of the most popular variations are an outside sales force and an inside telesales group.

Inside sales forces utilizing telesales are cheaper per rep, so your cost of sales is reduced, and you can potentially afford more reps. Outside sales forces can provide additional credibility and stronger relationship with the account. How do you choose between the two methods? Does it sometimes make sense to use both? Let’s take a look at some of the key aspects to consider when making this decision:

PRODUCT COMPLEXITY AND LENGTH OF SALES CYCLE
Probably the most important consideration in this discussion is the complexity of your product offerings, and the corresponding typical length of your sales cycle. Simple products with shorter sales cycles obviously lend themselves to the less expensive telesales approach. If you have a complex product that requires more in the way of hands-on demos, application engineering and other high-touch sales support, an outside sales force may be warranted.

BRAND STRENGTH AND STAGE OF COMPANY LIFECYCLE
Another important factor is the position of your company in the marketplace. Take an example of two companies selling the same product, to the same market. The newer company with less market presence and a weaker brand may require an outside sales force to maximize its market penetration. The more established brand and company might be able to get by with a lower cost inside telesales approach in similar circumstances.

PRODUCT PRICING
Product price is another important element in this discussion. All things being equal, higher priced products are more likely to require outside sales, while more modestly priced ones may be able to be sold effectively with only an inside sales force. Low price products, unless sold in high volumes, may just not profitably support the use of an outside sales organization.

TARGET CUSTOMER PROFILE
Is the target company large or small, is the prospect themselves young or old, progressive or traditional? It’s important to understand your customer profile and buying style in deciding how best it will be to sell to them. This is of course often decided on a case-by-case basis for individual customers. But in making this decision on how to structure your direct sales force, it’s important to characterize your target market in aggregate. For example, if the bulk of your target market is older, traditional companies and you are trying to sell to their IT departments, you’d better strongly consider building an outside sales force. Many of these customers come from the old “Glass House” era that was dominated by IBM, and are used to having sales people physically call on them. On the other hand, your prime prospects may be in a newer, SMB market segment that has prospects who are more comfortable with remote communications methods. These folks also have less staff, and less corresponding time to meet with outside reps. These targets may be well-served by a competent inside sales force.

HYBRID SALES STRUCTURE
In some cases a mix of inside telesales and outside reps works best. Here are two examples of when this might be optimal: 1) Outside reps for Major Accounts, Inside reps for the rest of the territory and 2) a product with a low sales price that lends itself to an inside sales force, but the product is something that major accounts can use in great quantities, justifying an outside sales force to call specifically on these accounts.

COMPANY CAPITALIZATION
How much money does the company have? Sometimes, there just isn’t enough capital to initially invest in an outside sales force, even if the situation ideally calls for it. In these cases, it makes sense to start with an inside sales force, and do the best you can. There are many ways to compensate in this situation, even if it’s not ideal. We’ll cover the details of this scenario in another article. Suffice it to say that it’s preferable to get by with a sales structure that may not be optimal, rather than bankrupt the company with an outside sales force that it can’t yet afford. I’ve seen this occur more than once in my practice at PJM Consulting.

SUMMARY
Like any other key structural decision that senior management faces in developing a software or technology company, it’s important to carefully consider the details of your particular circumstances. Many times managers will quickly settle on replicating what they know, and are comfortable with from their past experience, or simply attempt to copy what the market leader does. Both of these approaches leave you vulnerable to a potential critical strategic mistake. Be thoughtful upfront in your approach to how to structure your direct sales force, and you are likely to be rewarded with optimal push in your chosen market segment.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on February 5, 2009
filed in Corporate Strategy, Startup/Early Stage, sales
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What Happens to Apple after Steve Jobs?

I’ve written several times on Steve Jobs and Apple, one of the most fascinating companies and executives that we’ve seen in the history of high technology.

I don’t mean to make this a morbid article; the current speculation on Steve Job’s health has been well-documented. I hope that Mr. Jobs is fine, and that he has many more years of good health, with a continued long reign at Apple.

But it does raise a slightly different question that is interesting to ponder. There has always be a “cult of personality” surrounding Apple and Steve Jobs. In fact, when Jobs recently announced that his recent weight loss was do to a minor hormone imbalance rather than a reoccurrence of cancer, the stock was up 4% that day. Mr. Jobs is joined at the hip with Apple in the investment community and public’s eyes. Jobs will leave Apple at some point, hopefully to go into a happy retirement, as I stated above. Regardless of the circumstances of his leaving, what will become of the company once he is gone?

I can think of no tech company more closely associated with a founder/CEO than Apple and Jobs. Gates and Microsoft certainly are in that league, and I’m sure that you can think of others. But I doubt if you can think of any combination that is clearly more high profile and closely-linked.

Jobs has obviously been a major driver of Apple’s current success, and has enriched its many shareholders and other stakeholders. While it may be blasphemy to the Apple faithful, especially in recent times, in my opinion he has also been responsible for some of the company’s periodic downturns. Whether viewed strictly as the company’s savoir, or also an unstable dictator that has wrought big swings in the company’s performance over a long period of time–it’s undeniable that an unusual amount of responsibility has laid in Job’s hands–especially for a company of Apple’s enormous size. He is known to be detailed-oriented and involved (from a positive perspective), and a micro-manager and poor delegator assuming a more negative viewpoint. The basic premise of this article is that once he leaves Apple, there will be a leadership vacuum. This isn’t necessarily a prescription for catastrophe–but it is rarely a good thing for a company, at least in the short term. So what are the broader lessons we can glean from this fascinating situation with respect to managing high tech businesses? Apple really isn’t a rare case–tech companies cultures are built around their founder/CEO quite often, as I see often in my practice at PJM Consulting. This is a case study that can be instructive for many managers. Let’s take a look at a few potential lessons:

Difficult or Odd Corporate Culture
There is obviously much to be admired about Apple’s corporate culture, since it is a very successful company. Yet by many it is considered to be somewhat dysfunctional from a management standpoint. Much of this can be attributed to having a leader with a very strong and quirky style. Cultures tend to develop haphazardly as companies grow, even if its leaders have given some thought to the issue. In a corporation, everyone has a boss and other constraints put on them by the company’s social structure. This tends to dampen the effects of dysfunctional behavior by people up and down the organizational chart. The exception to this is the Founder/CEO who is the head of the organization. Much like the old story about the “Emperor who has no Clothes”, no one in an official capacity will call out the person at the top of the org chart on their bad behavior, decisions and eccentricities. This is dangerous and can lead to a culture and company policies becoming embedded with inappropriate ideas for no good reason, sometimes based on what lower level people BELIEVE the CEO would want. The takeaway is that leaders (especially strong ones) must take care not to have TOO GREAT an influence on the culture of the company simply because of their personal style.

Corporate Succession
Strong leader such as Jobs often tend to run companies in a dictatorial manner. They also have a tendency to have a “self-centric” view of the world, and don’t give sufficient thought to planning for the company’s future after their tenure. This may work well while they are in charge, but can lead to a company in disarray when they leave. It’s not clear that there is a clear successor, or strong group of potential successors, in place to follow Jobs at Apple. For a company of the size and stature of Apple, most people would think that this isn’t a good idea. Founding CEOs and Senior Executives with a similar organizational impact need to force themselves to step back from the present, and plan for a future without themselves. This isn’t a comfortable thing for many people, but is critically important for the full potential of their legacy to be fulfilled.

Dangerous Concentration of Responsibility in a Single Person
In a startup, the founders often wear many hats, and make all of the important decisions themselves. No doubt that Jobs and Wozniak personally handled nearly everything when Apple was formed. This is a very proper operating model for a startup. As a company grows, at some point it becomes a VERY INAPPROPRIATE model, and can put the company in great jeopardy. What if that leader has a heart attack or is in some other way unable to fulfill their critical role? Chaos can occur, and the company’s decision-making can be paralyzed, especially in the short term. In addition, I believe that the old saying of “two heads are better than one” usually holds true. I’m not one to endorse decisions-by-committee, but many corporate situations are complex and inherently risky, and the decision-making in these circumstances can benefit by having several strong viewpoints. CEOs should ensure that important decisions include at least some level of peer discussion and review, to avoid blind spots and major mistakes.

Micro-Management
Strong leaders, especially those who are able to create a company from the ground up like Steve Jobs, are often “type A” personalities and micro-managers. This may be highly efficient when a company is in startup mode. Later on, however, it can lead to a lack of development of people down in the organization, as well as paralyze the organization’s ability to make quick decisions. The most effective leaders are those who are able to “let go” much of the decision-making as the company grows, while keeping their fingers on the pulse of what’s truly important. This is a very fine line to walk, no doubt, but it imo being able to successfully pull this off is one of the more important attributes of the very best corporate leaders.

Bench Strength – Can Worthy Managers Survive Under A Strong Leader?
Along the same lines as the Succession discussion above, attracting and retaining talented managers lower in the organization is usually critical to a company’s current success. If the leadership of the company tends to be dictatorial, micro-managers who hold on to most of the responsibility, lower-level managers may become demoralized. The management team needs to be developed, and feel like they have real responsibility and some control of their own destiny. When the guy at the top is holding on to all the power, strong leaders further down in the organization have a tendency to move on to other companies, where they feel like they are making an impact and have an opportunity to progress. The best leaders ensure that the conditions are in place attract, nurture, develop and retain the management talent required for a company’s continued growth and success.

SUMMARY
Apple is a great tech company, and Steve Jobs is one of our industry’s legendary entrepreneurs and managers. Yet every company, even highly successful ones like Apple, has holes in its game. There are many strong leaders much like Jobs at the head of software a
nd tech companies. Too often their strength is manifested with a very short term view of the organization. Although difficult to do, the strongest leaders operate with a view on not just optimizing the immediate issues facing them, but also plan ahead so that the company can function well even without their personal involvement. Often this means suppressing some of their own natural tendencies so that the overall organization can more fully develop. The resulting decentralization of power reduces a number of risks that are inherent when too much depends on a single individual. That’s my own view–post a comment if you have additional views to add to this discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on January 9, 2009
filed in Corporate Strategy, General Management, Operations
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Integrating Sales and Marketing at Software and Technology Companies

In some, but not all tech companies, the Sales and Marketing functions are managed separately. They are separate, but closely related functions that some people (especially technical folks) have a tendency to confuse. Normally, there is a VP or Director heading up the Marketing department, and another VP or Director leading the Sales staff. But it is also not unusual to see a VP or Director of Sales & Marketing who leads both functions at once.

This all seems benign enough, so what’s the issue? The issue comes when actual revenue fails to meet the forecast–that’s when the finger-pointing usually begins. Unfortunately, not meeting forecasts is a common event in technology businesses, where forecasting of new software and tech products can be particularly challenging. When that finger-pointing starts, it often breaks out first between the Marketing and Sales departments–here’s how the ensuing “discussion” might go:

SALES: “You haven’t planned products that our customers want to by. You’ve priced them too high. And those leads that you’ve spent SO MUCH money on that you are giving us aren’t qualified, and are essentially worthless to us.”

MARKETING: “You’re not selling the right products as we directed, or presenting the positioning of our product line properly. All you do is try to sell on price, constantly discounting and hurting our margins. If you’d follow up on all the leads we gave you, get off of the golf course and work more than 4 hours a day, you’d be well over quota and the company would be doing fine.”

Sales folks and Marketers are different types of people, and tend to view the world differently and from their own selfish perspectives. This often nasty “discussion” as simulated above is far from uncommon, and can get pretty ugly–which can really hurt a company in trying to reach its goals. So what’s the right way to get the Sales and Marketing departments to work together as a team, avoiding all of this counter-productive ugliness?

SOLUTIONS TO REDUCE POTENTIAL CONFLICT

The VP of Sales & Marketing
One way to greatly reduce this conflict is to have a common leadership for the Sales and Marketing functions. This usually means having a VP-Sales & Marketing in your organization. If you can find the right person to fill this role, this can actually be a very good solution. Having a single leader can go a long way toward eliminating or at least greatly reducing this conflict, assuming he has a balanced background and perspective, and is fair, not favoring one department over the other. Good people to fill this role are out there–but are very rare, in my opinion. There are far more managers who have been put in the position of VP-Sales & Marketing than there are those who were suited for the role. Most of the time you end up with a manager that understands one function well, and gives short shrift to or completely screws up the other function. . You will often find this combined VP position in companies that are not “marketing-intensive”, where the sales function is the dominant aspect of the job. If the Marketing function is truly less important, a company can get by with this structure, although it usually isn’t ideal. You can read more about the issues with a VP-Sales & Marketing role in a previous article that I’ve written entitled “Big S, little m“.

CEO Demands Communication and Cooperation
If care isn’t taken, the very different personality types in sales and marketing can lead to some pretty intense conflicts. I’ve been a soldier, captain and general in this war–and let me tell you, it isn’t pretty. I’ve also (effectively) filled the role of VP-Sales & Marketing, which is a story for another day. Much like the battles between Marketing and Engineering that I’ve previously written about, I have seen this battle play out regularly in the companies that I have worked for as an employee, as well as at many of my clients in eight years as a consultant at PJM Consulting. Things can get out of hand very quickly, and paralyze a company. In many cases, the key is how the CEO handles the situation. He must go well out of his way to be a fair arbitrator in these discussions. Even the most benign comment can appear to show favor to one side, in the eyes of the other. Don’t ignore or deny the problem, or assume it will be handled at the VP level. It is the CEO’s responsibility to prevent, recognize and fix this problem. Be careful that you don’t inadvertently make decisions or set up policies that reward or tolerate company politics.

Departmental Social Integration
I recommend planning activities which allow sales and marketing counterparts to get to know each other as “people” outside of their project activities. In many ways a successful outcome is all about relationships, so closely monitor the personal relationship between VP-Marketing and VP-Sales. Also, make sure that the VPs are monitoring the relationships below them. Ensure both VPs are open and honest with about the relationship between departments. Also watch for arrogance (especially from “experienced veterans”) when screening potential new hires for either department that will interface with the other –arrogance often usually the trigger which starts the battle rolling

Integration of Departmental Functions
Encourage the sales department to get marketers in front of their customers. Hire marketing people that have had some sales or business development experience, who understand dealing directly with customers–and know what’s it like when your living depends upon making your quota. Insist that the marketing department include the sales folks in determining what a “qualified lead” looks like. If you can get agreement on this up front on this important issue, much of the finger pointing goes away when things don’t go as planned.

Joint Goals and Compensation Structure
It currently isn’t common to design department or individual goals which cross marketing and sales functions, but if you can find a way to do this, you are structurally setting up the desire and need for close cooperation. Design goals and MBOs to reward the two departments for working together. Also, don’t ever allow one department to “get ahead” by blaming the other–tie them together as much as possible in your goal setting.

SUMMARY

To limit issues between sales and marketing functions and ensure that they “sing from the same sheet’, make sure to pay close attention to the individual departmental activities, which can nevertheless greatly effect the perceived performance of the other department. Optimizing the cooperation between sales and marketing demands an up front look at things such as the corporate structure at the highest levels, the social fabric of the company, compensation structure and use of MBOs, and formal cross-departmental reviews so each department can influence the other department’s approaches. All too often in my practice at PJM Consulting, these things aren’t taken into consideration until after the fact–when things have already blown up and there is a mess to clean up.

That’s my view on this all too common conflict. What has been your experience in this area? Post a comment and begin a discussion.

Phil Morettini
PJM Consulting
www.pjmconsult.com

1 Comment by admin on December 11, 2008
filed in Corporate Strategy, General Management, Marcom, Product Marketing/Management, Promotion, enterprise software, sales
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Structuring Channel Discounts for Software and Technology Companies

Selling through sales and distribution channels of various types is very important to many software and tech companies. Yet channel programs, and specifically discount structures, are often thrown together quickly and haphazardly, without looking at any real hard data. Let’s examine some of the key items it’s advisable to consider, when structuring a channel discount program:

Market Norms
The absolute first place to start when considering channel discounts is to survey the SPECIFIC market that you are entering. By this I mean look at similar products through the EXACT profile of channel partners you are considering selling through. For example for consumer software, retail margins of 15-18% are common, whereas for a specific VAR segments the discount norms may be in the 25-40% range. If your discounts fall too far below the market norm, your program will likely fail. If discounts are set much higher than the market norm (without good reason), your company will be leaving considerable profits on the table. It is very important to do upfront research on actual conditions in your segment–don’t just “assume”! Preferably, you want to find out what your direct competitors are offering in terms of a channel program. This may seem obvious. But in my consulting practice at PJM Consulting, instead of using objective data, I see significant numbers of companies use their own theories about what the right discount structure SHOULD be from their perspective. This often ends up being the main reason for a painful “restart” of their channel program at a later date.

Product and Pricing Strategy (Street Price)
Channel discount structures cannot be constructed in a vacuum. They are but one component of your overall product and distribution strategy. As such, they must be consistent with the overall goals you establish for the product. If you are seeking to penetrate a new market or a new channel, it may be wise to be more aggressive than the market norms to gain market share and shelf space. If your market is more mature and you are in a harvest mode on a particular product line, it may be wise to minimize channel discounts to maximize profitability. In any event, consider channel discounts early in the product planning phase as part of your overall product pricing strategy.

Type of Channel
There are many different types of partners for software and tech companies that fall into the category of “channel resellers”. Computer retail, mass market retail, Value-Added resellers (VARs), Systems Integrators (SI), Domestic Distributors, International Distributors, Manufacturers Reps–and many more. Each of these reseller types are quite different from the others, and each add different types and levels of value to your distribution systems. Yet every one that you distribute through will be competing with the others (as well as your direct sales model), at least indirectly.

Multi-Channel Pricing Equity
It’s important if you are selling through more than one channel (including direct sales) to attempt to equalize, as much as possible, the street prices charged by the various channel types. The best way to do this is to consider the costs incurred by the various types of resellers in delivering your products to the target customer. For example, a VAR that provides support, pre-sales consulting and other services may need a higher level of discount to achieve an adequate profit margin than a retailer that simply is providing shelf space might. In reality, the retailer is likely to have a lower street price, but it is important to try to minimize this gap. Otherwise the VAR who may be providing important services to a segment of your customers may be driven out of the market, and refuse to sell your product–which is not in your company’s interests. The most common practice which causes inequities in channel pricing is a volume-driven discount model. New entrants to the channel often use this approach–why wouldn’t you want to incentivize volume sales by giving the biggest discounts to the largest volume sellers? Although this may work fine if you have a monolithic reseller channel, where all the players have the same business model and offer the same value add, it otherwise will quickly cause the problems discussed here. The resellers possessing the lowest cost structure and providing the lowest value-add will quickly dominate the market, driving the high-cost/high value-add resellers away. This may be ok with you; just make sure you explicitly consider this possibility before embarking on a volume-driven channel discount strategy.

Value Added
One of the things that I recommend considering explicitly up front is: what is the key value-add that you are seeking from the channel? Is it pre-sales consulting, installation services, post-sale support, shelf space and inventory for immediate customer access, or one of many other factors? Make sure you understand what channel value-add is most important to you, and build protections into your discount structure for the reseller type who best provides this value.

Components of Discounts
It’s not always necessary (or wise) to offer a single, monolithic discount level for resellers. How you structure your discounts components should be closely tied to your product and pricing strategy–what you are trying to accomplish with your overall channel strategy. For example, if you are trying to manage your street price at a certain level, it can be dangerous to offer a large discount to certain types of resellers who may pass that discount on as a lower street price. Yet this segment of resellers (for example, retailers) may be an important, high volume channel for your product type. In this case, it may be wise to offer additional, conditional discount for activities that you value. Again as an example, to keep your street price up but incentivize a high level of activities through retail, you could offer a high level of added discount for approved co-op marketing activities. A segmented discount structure driven by costs and value-add, rather than volume, is often the most effective structure to maximize multi-channel sales. This will also limit discount-driven reductions in street price, which ultimately can severely reduce profit levels and incentives to sell for both the vendor and all channel partners–if not properly controlled.

SUMMARY
Creating a Channel Discount Strategy and structure is NOT a theoretical exercise. It should be primarily a tactical exercise based on a realistic view of market conditions, and include collection and analysis of objective market data. While what you hope to accomplish with your discount strategy is important, the overwhelmingly most important factors in creating your discount strategy should be what is happening in your segment of the channel–and what will work best for your company. Try not to create a structure based on what you’d like to see with respect to the channel. Focus on creating a pragmatic, workable strategy upfront, to avoid an unsuccessful channel entry and painful restructuring that results. If you are new to the channel game, seeking outside assistance may help you avoid experiencing one of these painful false starts that happen frequently in the channel.

That’s my view of how best to create a channel discount structure. I welcome you to post a comment with your own thoughts on this important technology management decision.

Phil Morettini
PJM Consulting
www.pjmconsult.com

No Comments by admin on September 8, 2008
filed in Distribution Channels, Pricing, Product Marketing/Management, Retail, VARs, enterprise software, hardware, sales
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Competing with Entrenched Software & Technology Industry Giants

I was reading an article in the business section of our local newspaper recently about a new Search Engine name CUIL (pronounced Cool). I already knew about CUIL, because I had noticed that it had recently indexed the PJM Consulting website. One of their claimed differentiating factors is that they’ve their search index is twice as large as Google’s is. In addition, they believe that they have improved the ranking algorithms, and they also present the results in a different way. The results offer fewer results per page, but more comprehensive information on each site, and often include a photo or other graphic. The premise of the article was that it may have a chance to be a real competitor vs. Google, or at least Yahoo and Microsoft, for market share in the huge search business. The founders have impressive pedigrees and come from Google on the technical side.

The article gives credence to the possibility of CUIL being a potentially serious competitor to Google, Yahoo and MS, while pointing out that quite a few companies have attempted to enter this fray, creating barely a blip in search engine market share to date.

I’ve taken a quick peek at CUIL–the presentation is definitely different and may be superior for some tastes. But at least at this early stage, in my quick look I wasn’t terribly impressed with the relevancy of the search results. No matter how you present the data, the relevancy of the results is paramount in search. I’ll be sticking with Google for now, but will keep an eye on CUIL to see how it develops over time.

Will CUIL succeed? It’s of course way too early to tell. They’re taking on what is arguably the most powerful technology company in the world today, attempting to compete with them in their core area of strength. So you can’t say that the odds of success are high, which they rarely are for any startup. But this IS the technology business, so you’ve got to give them at least a puncher’s chance. Like it usually is, the key will likely be how well they execute.

But execution aside, what’s the best way to go about competing in the software and technology industries today? Should you just steer clear of the elephants of the industry? Many believe this is prudent, but I think it is not always necessary. After all, it wasn’t so very long ago that is was nearly impossible to get a venture capitalist to fund a company that was perceived to compete in a category with Microsoft (which could be viewed as MOST categories of the software business). Yet a short time later, Microsoft is considered in many ways a dinosaur, one that is quite beatable (don’t get the impression that I’m writing MS off–I’m not. Redmond may yet rise to dominate again).

If it isn’t insane to compete with the giants, what are some best strategic practices that an early stage tech company can adopt to give it the best chance to survive and thrive, when entering market categories with large, entrenched competitors?. Let’s take a look at a few ideas:

Make Sure that you can Differentiate – This would seem obvious for any business, but when you are going up against a huge company with a good brand–well, don’t even try it without significant differentiating factors. They don’t need to be product related, necessarily–it could be free and outstanding support, better price points, exceptional ease-of-use, or many other things. But don’t kid yourself–you will need REAL differentiation.

Pick a Niche, any Niche–at least to start – It is important to pick a small enough niche so that you can provide that true differentiation discussed above. Your investors may want you to attack a huge market, but if you don’t have that influence pushing you in that direction, pick a small area that you can have a higher chance of dominating when you’re new. If you are successful in your initial niche, you can then broaden out into adjacent segments. Down the road, maybe you take on the giant “head-on”; but starting out is NOT the time for this.

Raise more money than you think you will need – Every once in a while a new company will “hit on all cylinders” from the very beginning. But in my consulting practice at PJM Consulting, I rarely see this. In fact, a good part of my practice is helping companies “pick up the pieces” after their initial business plan or execution has gone awry. No one likes to give up more equity than they need to, but things usually take longer to start working than you initially project. There are usually too many things that you don’t know, until you really get into the marketplace. Plus, it’s generally easier (and cheaper!) to raise a bit more money at first, than it is after that first misstep. A little extra funding in the bank can be a good insurance policy against a capital crisis early on.

DON’T try to be like them – A common mistake that I often see early stage companies make is trying to “be like the giant competitor”. Sometimes this comes from an inferiority complex, and sometimes because the founders come from one of the giant companies themselves. The last thing you want to do is create a big company bureaucracy. In most ways, you want to operate VERY DIFFERENTLY from you huge, slow-moving competitor. Resist the urge to create huge amounts of process before your company size dictates it as necessary. Be very careful about hiring away senior executives from you giant competitors, unless you are certain that they also have successfully operated in an early stage company before. Stay as fast and nimble for as long as you can–that is a primary advantage at this stage of a company’s development.

Recognize the giant’s execution weaknesses and beat them there – Analyze the large competitor’s business, and try to create your differentiation where they are weakest. It could be faster customer service, better channel relations, better ease-of-use, etc. If you concentrate your differentiation where they are doing the poorest job, it will accentuate the difference to the marketplace, and you will have a better chance of your advantage being recognized.

Focus, Focus, and Focus – This advice can be viewed as the culmination of the points above. Make sure that you don’t try to do any more than you can do EXCEPTIONALLY WELL at this stage. You can always expand your focus later. Remember, there is a good chance we would all be speaking German, if Hitler hadn’t prematurely opened up a second front with Russia in World War II. The tech landscape is littered with companies that followed an analogous strategy, with similar disastrous results (Novell and Netscape are two former high-flyers that immediately come to mind).

SUMMARY

As an early stage company entering a market where a major company or two are the known leaders, make sure that you don’t “bite off more than you can chew”. You can always expand your focus after initial success. Contracting your focus is usually quite a bit more painful, and many companies don’t make it through that transition. That’s my advice on how to attack a large, entrenched competitor. As usual, I’d be interested in seeing your comments.

Phil Morettini
PJM Consulting
www.pjmconsult.com
pm@pjmconsult.com

No Comments by admin on August 15, 2008
filed in Corporate Strategy, Financing, General Management, Pricing, Product Marketing/Management, SaaS, Startup/Early Stage
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The End of Customer Service

No one answers the telephone anymore.

At least, technology companies in the US surely don’t. With big companies, you are either presented with an endless phone tree–”press 1 for a company directory”–or the newest innovation in communications technology: the cheerful “automated voice attendant”. In many cases these attendants, and several other “innovative” service options, can lead to a great deal of frustration for customers and prospects.

As a consumer and business buyer I’ve found this frustrating, not to mention an incredible productivity sink. As a High Tech industry executive and consultant with a strong marketing background, I find this practice curious at best–and insane at worst!

Think about it–how many BILLIONS of dollars companies spend trying to get the attention of potential new customers–most of who are going to need to contact the company at some point. Yet it seems that once we’ve got their interest, or God forbid, they’ve signed up as an actual customer–we are doing everything possible to keep them away. Doesn’t anyone remember the old marketing adage about current customers being your best source of additional business? Management guru Peter Drucker once said “The purpose of business is not to make a sale, but to make and keep a customer.” Apparently not many people agree with this, or have forgotten it, because “modern” customer service practices are doing there best to drive these folks away. Let’s examine some of the new customer service approaches:

OUTSOURCED CALL CENTERS IN OTHER COUNTRIES

This may be everyone consumer’s favorite new “pet peeve”–calling an American company based in Chicago, or Iowa or San Jose–only to be connected to some call center somewhere in India. Often this leads to a very, very frustrating experience. Companies are going this route for support as an expense driven decision–to obtain cheaper labor. But the reps on the end of the line are often poorly trained, probably aren’t employees of the company that you are calling, and often don’t speak English with an accent that is easy to understand for most Americans. Are there good reps who give great service available in these call centers? Certainly, I have spoken to more than a few. But compared to the “good old days” of local support, the average caller experience has degraded significantly. Add this to the initial frustration that the caller who is dialing has because of a problem with his or her new $1200 PC–and you don’t get a prescription for a happy customer.

PHONE TREES

This one has been around a while, but the increasing complexity of the tree, and well as the difficulty of exiting it to get to a live person, has continually made the situation worse. You can literally spend 5-10 minutes just navigating the phone tree these days. Oftentimes, callers just give up–which appears to be what companies want. I’ll discuss below why companies shouldn’t.

AUTOMATED ATTENDANTS

As I discussed above, this is one of the more recent scourges of the besieged customer with a problem. Ironically, Automated Voice Attendants have been made possible by a really nice leap forward in voice recognition technology. And there is no doubt that these products have come a very long way from the days in which they were first implemented. But talking to a machine is at this point still inherently inferior to speaking with a real human. I endorse the use of these Automated Attendants, but they should be used judiciously. I would still utilize them only at the very beginning of calls, and not require them to take a customer too far down the line of getting their problem addressed. Also, please make it easy to get away from them to a live human. With the high market share of some of the Automated Attendant companies, I am having far too many conversations with the same perky, Stepford Wife-ish-sounding artificial female voice. It’s getting a bit creepy. While we’re at it, let’s talk about my biggest customer support pet peeve. With all of the sophisticated software available today, why is it that I have to give my account number and god knows what else to this robot lady, and then repeat all of the same information to the first live person that I speak with, as well as everyone that they transfer my call to? I understand security concerns, but geez! Hasn’t anyone heard of data sharing and company firewalls?

“INTERNET COMPANIES”

The advent of the Internet has allowed for the creation of the ultimate small company: one man or woman, behind an Internet site. These companies invariably list no contact phone number or physical address. You can only email them for support, or if you’re really lucky, IM them. Unfortunately, potential customers figured out that this is likely a one man operation long ago. They will be reluctant to buy your product as a result, because they don’t believe you are “for real”, or at least they won’t be able to get good support. If you have the capability of offering real support, I urge you not to present your company in the image of one of these “Internet companies”. If you do, it will cost you business.

FEE-ONLY TECH SUPPPORT

I won’t deny that is some cases tech support fees are justifiable, and necessary. Even for consumer tech products. But in most cases tech support, and least at some level and for some period of time, really needs to be bundled into the base product offering. This trend came about with the intention of making tech support a “profit center”. While I believe that tech support can drive profits, in many cases it shouldn’t be done by attempting to extract additional money from customers (especially upfront or on the initial call) for the right to call in to get product issues fixed. There is a standard of care that most customers believe is fair: Help them get the product installed, up and running. Take care of any bugs or product defects. If you don’t meet this standard, you will likely pay for it yourself–in reduced customer satisfaction and loyalty.

I want to emphasize that I am not a racist, market protectionist, political isolationist or technophobe. I have nothing against a man or woman working in a call center India, doing their best to do their job. I’m also a tech guy, and certainly love the idea of using technology to increase labor force productivity. But as a marketer, above all else, I believe in the old axiom: THE CUSTOMER IS ALWAYS KING. Customer service today is not treating the customer as King, but like the lowest creature on the food chain. It’s possible that we are just undergoing a period of “growing pains”, implementation issues, and the new customer service methods discussed here will be the way to go in the long run. Maybe technology maturity and some additional training for the folks in those faraway call centers will correct the current painful situation.

BIG OPPORTUNITY TO GAIN AN ADVANTAGE

But my guess is that those corrective measures are a long way off. In the meantime, there is a big opportunity for savvy software and tech companies to use this “gap” that has occurred in most company’s customer service, to gain a strategic advantage in their market segment.

Unfortunately, in my Software and High Tech Practice at PJM Consulting, I find that customer service operations are usually an afterthought to senior management–especially in early stage companies. It’s understandable, since it doesn’t appear to be part of the strategic core that will mean the difference between success and failure for a young company. But in today’s world, used properly, customer and tech support can indeed be a strategic weapon.

Not only can good support cement the relationship with the customer and build long term loyalty, but don’t forget that you’ve got a customer on the line! Remember the old adage I mentioned above about your current customers
being the best place for incremental business? Once you’ve satisfied the caller’s concerns, you have an opportunity to educate them about new offerings, present them with a special offer, etc. The possibilities are nearly endless to profit from this customer interaction. This interaction by the way REQUIRED NO INCREMENTAL MARKETING EXPENSES TO INITIATE. Companies don’t realize the opportunity that they are leaving on the table, both to increase customer loyalty, and sell incremental offers to existing customers.

DIFFERENTIATION FROM COMMODITIES

Let’s talk about a specific example: HP & Dell in the PC business. I’m an old HP alumnus, and until recently, a long time Dell customer. Over a long period of time, customer support, specifically technical support– has gone from a major strength, to a nightmare for customers of both companies. At various stages of the customer ownership lifecycle, both of these companies throw every obstacle I’ve discussed in this article at you–Endless phone trees, automated voice attendants, email-only or IM-only tech support, and clueless representatives in foriegn call centers. PCs are as close to a commodity as anything in the High Tech business these days. These two market leaders, along with their competitors, are pretty much slugging it out on price (and brand, which means less and less in a standards-driven market like PCs). This is certainly not the way to achieve high gross margins, let alone customer loyalty.

Personally, I’d pay 10-15% more to buy a computer from a company who guaranteed good, local tech support. I run my business on my PC; when a problem occurs that I can’t fix on my own, it is often excruciatingly painful. I’m sure that these companies don’t believe that I, or many others, would pay more. But if a PC company put forth a well-developed marketing message touting their emphasis on technical support and customer service–and stuck with it–they would obtain a customer for life. Now, I may not have been willing to pay such a premium 10-15 years ago, before real customer service “ended”. I may have gone for the lowest price. But with personal service and support nearly gone the way of the Dodo bird (become extinct), things are different. Since good, personalized tech support has become a scarce commodity–it is therefore an opportunity that some smart company can exploit.

SUMMARY

There’s a big opportunity out there for smart technology companies to go against the current trends in customer service and tech support. Make it easy for people to reach you, using whatever method they prefer. I’m suggesting short phone trees, live operators, and an adequate number of representatives to eliminate long waits. Focusing completely on expense control or technology solutions, not personal service, is a mistake for tech companies. Savvy, “forward-thinking” software and tech companies can increase market share and customer loyalty with an “old school” approach–personalized customer service and support.

That’s what I have to say about the state of customer and tech support today–what’s your opinion? Post a comment if you’d like to discuss this further.

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

1 Comment by admin on May 6, 2008
filed in Corporate Strategy, General Management, Operations, Retail, sales
tagged , , , , , , , , , , , , ,
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