Make your employee development process more effective by focusing on furthering your employees’ natural advantages.

In a recent session at the Kellogg School of Management in Chicago — where I have been commuting every Saturday for the last two years pursuing a degree in Management — I picked up on a new approach to employee appraisal and development: Identifying and amplifying strengths.

This can sound counter-intuitive to traditional HR practices, where employees’ skills and capabilities are evaluated according to some spectrum of competency, and the focus of performance management and appraisal is on addressing “weaknesses” or “areas for improvement”. However, research has shown that compared to these traditional programs, programs that focus on furthering areas perceived as the employees’ strongest capabilities can in fact result in much more effective performance enhancement, success, and promotion to higher responsibilities.

I think this is particularly applicable in organizations that employ knowledge or highly-skilled workers and expect them to excel and constantly renew their skills and abilities. And of course, those are the hallmarks of the fast growing expansion-stage technology companies we work with.

How to Encourage Employees to Shoot for the Next Level Rather than Just Hitting the Bare Minimum

It is true that the employee appraisal process must establish a minimum level of competency for each position in an organizational chart, and the employees at those positions need to satisfy these basic criteria, whether they are specific technical skills, domain knowledge, managerial skills or teamwork ability. However, in a team that is aiming to be best-in-class, if the recruitment and on-boarding process is any good, the team should already have those prerequisite skills and therefore should focus on excelling and taking themselves to the next level rather than ensuring that the minimum bar is met (you can read my 7 Tips for Developing an Employee Development Plan here).

This leads to the essential employee development question: Given their individual skill sets, what should employees be putting their time against to further develop themselves? If they have already met the minimum skill set required by the position, how can they determine the types of skills or capabilities they need to reach the next level?

The Case for Grooming Highly-Skilled Specialists Over Generalists

If we consider an economic model of a competitive market where workers are competing to offer their skills for new positions or promotions, then the best course of action for employees is to emphasize and further their current advantages. After all, that helps to set them further apart from other jobseekers, and makes them more valuable to the employer. In most cases, it is clearly better to be an expert than a jack-of-all-trades and master of none. Given the existing advantages in certain skills, employees tend to gain far more in developing those skills than if they invest the same amount of time and efforts in addressing competencies where they are not as strong.

This approach ultimately allows organizations to develop exceptional domain knowledge experts and leaders who are at the top of their respective fields, and who are happiest and most gainfully employed because they are doing what they do best.

Employee Development Challenges

Building a workforce of highly talented specialists is not something easily accomplished, not only because of the tendency of traditional HR already explained above, but also because of the three following challenges:

1. Employees may want to transition: Management still needs to consider individual employees’ preferences. Some people want to make a move into a field or a position that they are not familiar with or not assumed to be strong with, but they are passionate about it. While this is arguably not efficient in the short term, the employer does have the responsibility to be flexible and accommodate this attempt at transitioning by allowing the employee to explore these options and invest time and efforts in acquiring the necessarily skills.
2. Employees do not always recognize the extent of their own opportunities and potential: Even if an employee is happy in a current position and is using skills that he or she has an advantage at, he or she might not be fully aware of other latent talents that are even more valuable and can provide even better opportunities. Making employees aware of this requires a skilled team manager or talent spotter who can recognize the potential and encourage a shift in the developmental direction, in a subtle and sensitive manner.
3. Specialists are not always the best team players: This development approach will create organizations with very strong individual contributors, but not necessarily the most cohesive of teams. For example, a development team might be very strong in technical skills but weaker in collaboration practices. Organizations with this problem will need to seek out and develop the “glue” — individuals uniquely talented in bringing people together and coordinating projects. These are also special skills that need to be recognized early and developed, just like technical or analytical skills.

If you like this topic, check out my previous blog post on employee development programs.

Mastering Meeting Management

My colleague Nick Petri did a great job on a recent blog post on ways to avoid having non productive and non necessary meetings. He focused on 4 questions you should consider before scheduling a meeting.

I’d like to add four additional questions to the list that participants should also always consider asking the scheduler/organizer before accepting a meeting invite:

1) Does the meeting have a reasonable agenda?

It sounds obvious, but a meeting needs to stick to an agenda in order to to be productive. The agenda helps set the tone and objective of the conversation, moves the discussion along a timeline, and allows participants to prepare for the meeting itself.

2) Is it a meeting or a working session?

A working session is a particular type of group interaction that is often confused with a meeting. A working session is really a brainstorming, hands-on problem-solving exercise that involves multiple parties. It is not a meeting because it does not need an agenda, it does not need to stick to a timeline, and there is no expectation in terms of output such as agreement, opportunities, etc (except for the output of “work”).

3) How soon does the meeting have to happen?

This is a hard question to ask. Everyone who is scheduling meetings wants to have their meeting as soon as possible to get the issue out of their way. However, there are meetings that really do not have that much importance, and do not need to happen on a specific time or date. If that is the case, then why accept the meeting?

4) Who owns the output/outcome of the meeting?

This is quite similar to Nick’s question, “Am I looking for a discussion, or just an update?” because it also tries to get to the heart of the issue:

• Why is this meeting important enough?
• To whom it is important?
• What outcome should the meeting have?

If it is not clear who owns the output of the meeting, then it’s likely that the meeting is just another routine update that should be eliminated from your schedule.

We still have a long way to go to improve our meetings efficiency at OpenView Labs. We love to meet with people and interact, but as always, learning to be more efficient is one of our ongoing goals. That is the only way we can be more effective as consultants and advisers to our portfolio companies and contributors to the tech community.

Do you agree with these questions? What are other questions you can ask to cut down on unnecessary meetings?

This week, I want to cover five ways you can improve your marketing clarity and effectiveness by staying sharp and narrowing your focus to the following very specific points:

1) Focus on a Specific Component, Step, or Stage of the Marketing Program

A marketing program is often anything but simplistic. It typically consists of:

• multiple, concurrently executed campaigns
• a variety of marketing channels
• different types of targeted prospects at varying stages of awareness, each with their own concerns and interests
• a host of different marketing tools to execute and measure impact

Therefore, it would be overwhelming to try to improve everything at once. It would be overwhelming even just to try improving a particular marketing channel or campaign all at once.

To make a dent in the whole program, you will have to choose your battle and pick what you want to focus on first. Ex: The traffic of inbound web leads from the website, or the interactions with your company’s official social media outlets on Twitter or Facebook.

2) Focus on a Specific Type of Activity or Specific Conversion Step

To turn the exercise into something that is actually measurable, you need to focus on a specific activity or outcome that is measurable and is meaningful. For example, let’s say the generation of new inbound web leads relies on three specific conversion points throughout the website. Your first step should be determining which of those conversion points is the most crucial or needs the most improvement (where the largest number of your prospects are getting stuck). Focus on that one conversion point only. Test, iterate, test, iterate, until you are able to see positive results.

It is important to keep your focus as sharp and targeted as possible. Ex: “Improving social media engagement” is too broad and vague. Something like, “increasing the immediate level of engagement with the company’s next marketing announcement on Facebook” is better.

The key to successfully identifying these specific targets for improvement is to think of them as “sticking points” or “bottlenecks” that are hampering your marketing operations, or “leakage” points that are draining away your marketing investments. Defined in those terms, you should identify the most important leverage points that enable better performance for that particular marketing activity or channel.

3) Focus on the Output for a Specific Market Segment and the Target Prospect in that Segment

This is a further filter that lets you better measure and evaluate the effectiveness of the improvement steps. As noted in my previous blog posts, aiming to please a heterogeneous group of targets is a futile exercise that will also confuse any analytical insights you might gain from the whole process. Therefore, it is important to be specific in terms of the content and targets of the marketing activities you want to improve.

Are you aiming your efforts at a particular target segment prospect, target segment customers, or target segment partners, etc? Only by being able to answer those questions with some level of clarity and confidence are you able to have a sharp enough focus for your marketing investment.

4) Focus on SMART Goals that Drive Impact for Doing Business in the Target Segment

Now that you have really defined the target of your improvement exercise, it is important to set SMART goals that motivate you and your team to actually go out and generate results with real impact. Not only do your goals need to be SMART (specific, measurable, actionable, realistic, and timely), they should also correlate with ultimate business goals. They are better as “outcome-driven” goals rather than “activity goals” (aka “quota”), because activity or volume-based goals can be achieved without truly challenging the status quo and making a meaning improvement.

5) Focus on a Closed Loop Process

This should be a process in which improvement steps are first planned, prioritized, and executed, then measured and evaluated against prior performance or benchmarks. Once adopted or rejected, they should then used to generate additional improvement steps or ideas, and the process should repeat. This is an extremely important process to get right. It also requires a lot of discipline to adhere to, especially when marketers can’t wait to execute on their ideas, without ensuring that the impact of those ideas can be measured and replicated.

This all may sound like a lot, but successful marketing organizations have always incorporated most if not all of these principles in how they execute and strategize. And so can you.

Which do you think is better — a small, tightly focused marketing effort or a large, spread-out approach?

It may sound counter-intuitive, but doing less can actually be your best bet to increase your brand awareness and improve your marketing performance.

Marketers tend to be vocal about their lack of resources, support from management, and trust from sales organizations. To be fair, B2B marketers truly do have their work cut out for them. Having to deliver their messages and offers to an increasingly fragmented media landscape, to buyers who are already more than overloaded with constant, ubiquitous advertising, and in the face of equally sophisticated and innovative competitors, B2B marketers often have to rely on more and more spending into whatever the most “hyped” marketing channels are of the moment.

It is important to stay ahead or at least catch up with the market’s development, and this means that a company will need to invest heavily into marketing campaigns and systems. This strategy does work in cases such as Marketo‘s, itself a marketing software vendor, as evidenced by their historical rapid growth rate fuelled by an extremely heavy deficit on sales and marketing spending.

However, I would argue that in marketing, more is not always better. In fact, in many cases, less is more.

This is a topic I have written about before, citing the venerable example of Apple’s early marketing strategy. Let’s dive into a more detailed look now.

Doing Less Makes Accurately Measuring Marketing Impact More Feasible

Increasing brand awareness ultimately means better marketing operations and outcomes; when outcome can be measured by market presence, brand awareness, or inbound traffic or inbound linkage. However, modern web marketing consists of an extremely complex set of tools, channels, and processes that are all interconnected. Improving marketing performance in any way requires continuous optimization across all of the aspects, media channels, and components of the marketing strategy.

Furthermore, it is already extremely hard to figure out whether what you implement actually helps improve the marketing outcomes. The biggest challenge in measuring marketing outcomes is the attribution of improvement or results to specific marketing campaigns or channels. Therefore, it is important to focus on improving one aspect at a time, lest you risk losing the impact of specific improvements in counteracting effects.

In other words, the more you’re doing, the less chance you have of figuring out what you’re actually doing right.

Another typical challenge of improving marketing performance is that companies often try to use a single message or value proposition with too broad a set of prospects, who have heterogeneous needs and therefore will react with varying levels interests to the message and offer. This further complicates any effort to derive any sort of meaningful conclusions on the improvement of marketing performance.

A concrete example is when a new landing page converts at a higher rate than average, but the converted leads yield relatively fewer “qualified” prospects.

Startup Marketing Strategy: Your Goal Should Always Be to Accomplish More While Doing Less

Another argument against purely increasing activities or the volume of marketing is that having measures based on activities, such as number of campaigns conducted, amount of content created, or landing pages created do not align the focus of the marketing improvement with the ultimate business impact of the organization. Therefore, improving marketing should not mean doing more and spending more or doing new tactics.

It is actually even worse if these new tactics, applied purely out of a desire to “do more,” actually result in some sort of improvement in brand awareness, inbound traffic, or conversions. The result can create a false sense of security that you have “figured out” marketing, when in fact you have simply stumbled upon a better process or channel, not necessarily the most optimal. It does not allow you to actually understand the true bottlenecks in the marketing funnel and the buyer’s awareness journey that need to be addressed.

In my next post I will discuss a more systematic process to define a specific action plan for testing different ways to increase your brand awareness and improve your marketing performance while doing less.

Having documented some of the vast diversity of potential strategy partnership opportunities a technology company can explore, let’s switch our focus back to building the business case for investing in the development of a partner ecosystem.

In order to understand how essential a partner ecosystem can be to your company’s growth strategy and path to market dominance, it is best to establish a comprehensive framework. This framework will link the benefits each type or category of partners adds to your company’s strategic and operational strength, and allows us to go further to evaluate the business impact each partnership can have and prioritize partnership development efforts.

Advantages of Building a Partner Ecosystem

Obviously, sales and marketing partners can extend your company’s organic distribution systems, significantly reducing market entry and development costs (this is particularly important for businesses that have natural geographical limitations). In many cases, particular sales channels are the ONLY channel through which a technology can be sold to the end customers, which make some partners an indispensable part of a company’s strategy.

Building sales channels and alliances with established, market leading vendors can also have indirect benefits on overall marketing performance, as the partnership gives your company’s brand and product increased exposure in the market, and offers a “halo” of credibility and confidence for the company, itself.

From a competitive strategic perspective, some partnerships are essential as a defense mechanism, as is the case when a partner can either ally with your company or your direct competitor. Locking that partner into an exclusive relationship can circumvent your competitor from exploiting the same benefits, and reduce the direct competitive pressure on the distribution channels.

However, we also have to be cognizant of the reverse effect — when your company gets locked into a partnership (typically with a larger, more established partner) that can prevent the establishment of partnerships with other, more value-adding partners that are competitors to said partner.

Creating an alliance with a market leading player in the market is a soft, common move to position your company for potential acquisition by the partner. The partnership is a way to explore the potential synergies, align go to market strategy, and reduce informational asymmetry, all of which reduce potential future transaction costs and uncertainty when the larger partner considers acquiring the company.

Even if a company is not planning for an early exit through acquisition by a larger player in the market, as the company scales its revenue up, it starts getting into scale-related impediments such as the vastly diverse product and servicing requirements of an increasingly broad customer base, as well as more stringent customization and on-boarding requirements from enterprise customers.

Even pricing of the product vs. the associated services, which are essential in enterprise sales, can be extremely complex and contentious. A sufficiently large, growing technology company also provides a nice signal that there is a good market opportunity, which makes it an attractive target for competitors, both more scrappy startups that are competing from below and predatory adjacent technology vendors who want to get into a new, lucrative market.

Incorporating some of these potential competitors in win-win partnerships can address those operational challenges, assuage the competitive pressure, and strengthen your company’s presence in the market with your products and allied partners.

Benefits of Building a Network of Third-Party Vendors

Building these technology partnerships is just the first step in the more strategic stage of building a network of third-party vendors, ranging from large technology firms to independent software vendors and individual software developers that build products that enhance and extend your company’s current platform. This can potentially transform a best of breed, point solution into a whole comprehensive, flexible platform that has much more market power and resilience.

A network of developers, just like the network of services providers discussed in my previous post on services partners, can be an extremely valuable external asset that gives your technology staying power and a vast source of innovation. A plugged in network of third-party vendors is also a tremendously valuable asset in the consideration of any potential acquirer in an exit scenario.

Going Global

Lastly, given the increasing trends in IT spending growth overseas, technology vendors will have to look ahead and start planning for international expansion if they are to maintain their growth trajectory and ward off global competitors. They will need to cultivate foreign distribution and services partners to develop new markets and navigate the different business and regulatory environments in each of those new geographical locations.

In my next post in this series, I will explore how to research and develop a list of the most important prospective partners in a given market segment.

A few weeks ago, I wrote about the importance of building a complex, ever-expanding network of partners for expansion-stage companies. However, given the typical resource constraints of expansion-stage companies, the efforts to develop a partnership network tend to come in fits and starts, lacking a systematic approach or an overall comprehensive strategy. Moreover, because partnership building efforts do not have immediate impact on the top line, partnership programs tend to be either quickly written off or narrowly focused on a very small “low-hanging fruits”(i.e. a set of potential partners that are easiest to get and to get revenue from).

By itself, this is not a bad strategy for rapid growth and immediate impact, but it can obscure the fact that there are many other types and forms of partnerships. Companies should keep in mind that there is a wide range of market participants that goes beyond the traditional sales and marketing channels that tend to dominate ecosystem partnership strategy discussion.

I started this blog series with a typology of those sales and marketing channels, and also briefly discussed the partnerships that can be built around the integration of technologies between compatible technology vendors. Today, let’s focus further on the partners whose core business is not selling actual technology products, but rather providing services around or to support these technologies.

As I have mentioned, service providers are crucial to allowing a technology company to provide a satisfying full product experience for its customers. This is true not just for enterprise business software, but also for small business application vendors — for example, Intuit’s Quickbooks product is supported by a cadre of Quickbooks’ certified consultants. When the term “services providers” is mentioned, one may typically think of the system integrators and IT consultants, but in fact, there are many other types of service organizations that live in a technology ecosystem, and all of them are important for various reasons.

Technology Service Providers

The first group are technology service providers: these are typically professional service organizations or individual professionals who work directly with the technology product on a day-to-day basis, either with the end clients, or in conjunction with other partner organizations. One can roughly break them into the following types:

1. Implementation Partners: These are consultants who help customize, configure, and implement technology products. They allow vendors to extend their reach to local markets and ease the process of adoption for complex solutions.
2. Vendor Management Consultants: These are consultants who help end customers manage their vendors, typically from setting the technology strategy, vendor selection, negotiation, and procurement.
3. Custom Development Services: These are specialists who customize and build applications or technology based on off-the-shelf solutions to serve the need of particular clients. They do not typically build proprietary solutions or own much of the IP built, and are more focused on high margin, specialized professional services billing.
4. Joint Technology Service Provider: This is a case when the professional service organization of a vendor acts as the professional service or support service group for another vendor, via a partnership arrangement. Such an arrangement can be mutually beneficial because it allows the vendors to offer support and professional services while pooling the overhead of running such organizations and gain from the economies of scale.
5. Support Service Providers: These are specialists in providing maintenance and technical support for technology products, a task that is typically best done by specialized groups of agents operating at scale.
6. Change Management/Outsourcing Service Providers: These consultants bring major change to the business operations by implementing new business workflows, reduce operating costs by shifting labor to lower cost markets, and typically will bring in new automation and management technology solutions to support their transformative initiative.

Non-Technology Service Partners

The next group can be called “Non-Technology Service Partners”: these are also service organizations who do not work directly with the technology product or sell a service that is directly based on technology products, but are important in influencing the decision of prospective buyers in the market.

1. Target Market Industry Associations: These associations (or lobbying groups) are extremely influential in shaping the perception and evolution of a technology market. In a more mature market, industry associations are powerful, entrenched organizations that hold unparalleled access to buyers and influencers.
2. Technology Standard Developers, Owners, and Enforcers: In a fast-growing or disruptive technology market, the role of standard developers/standard owner coalition is crucial in shaping the buzz around the technology, and in determining the winners and losers of the market.
3. Training and Personnel Certification Providers: Once there is a universally accepted common set of standards for technology solutions in a market, then there will invariably be a group of providers of training and certification services that help further maintain and strengthen those standards. These organizations are very important influencers and endorsers of new technology products.
4. Industry Experts Such as Industry Analysts and Test Labs Analysts: These are key influencers whose discourse on the evolution of the technology and its application to business objectives typically helps to guide major buyers toward their preferred vendors. Building a productive relationship with them will also provide the technology developer with valuable feedback from the market and a glimpse into what the future needs of the market are.
5. Technology Evangelists: Typically technology practitioners, consultants, or even buyers and users themselves, this group will devote significant coverage toward popularizing new technology, a new methodology, or a new way of thinking. For example, the growth of agile development tools came on the heels of spirited, indefatigable advocacy from agile development pioneers like Jeff Sutherland.
6. Business or Trade Promotion Bodies: Local chambers of commerce or local business associations can play an important role in introducing new technology or products to local businesses, as well as to help support small technology firms get financial or marketing support when they are just starting out.

These are just some of the most common and important types of service providers that an expansion-stage technology company can consider partnering with. In my next post, I will share how OpenView helps our portfolio companies identify potential partners in each of these categories in a comprehensive manner, so that they can develop a all-rounded partnership strategy.

Please also read my first post in the series: Building a Partner Ecosystem with Sales, Marketing and Technology Partners

And my follow-up post, The Business Case for Partnership Development

Have You Developed a Partner Ecosystem?

In recent conversations I have had with entrepreneurs, the word “ecosystem” has popped up quite often. There seems to be a significant shift in recent years in strategic thinking about why and when a technology company should consider building or joining an ecosystem, that is, a network of partners, third party vendors, evangelists, and plug-ins providers that revolve around the company’s core technologies and product offerings.

In the past, only large, established technology behemoths like Microsoft, IBM or Apple talked about building and growing an ecosystem. In those cases, the “behemoth” at the center of the ecosystem typically wields enormous influence on their partners and often defines the character of the network. In some cases, they exercise so much power that they effectively hold their ecosystem partners hostage — see the dominant relationship Apple has with its vast army of “unpaid R&D” apps developers, whose plights were recently documented in the New York Times.

Nevertheless, the rise in prominence of such ecosystems has given popularity to the idea that having a value-adding network of partners and collaborative organizations can be an important competitive advantage. Large companies have been very successful at doing so, but we are also seeing the rise of another type of more diffused, less centralized ecosystems that arise organically between technology companies that are more equal and collaborative partners.

Good examples are the fast growing ecosystems that have risen around tech darlings such as Twitter and Pinterest. These have contributed to the increased prominence of ecosystem development in startup strategy development. Having a clear ecosystem development strategy has become an essential part of the growth plan at a much earlier stage in a company’s lifecycle.

Varieties of Ecosystem Partners

To fully appreciate the benefits of having ecosystem partners, we should recognize the full range of partnerships that a technology company can build with other organizations and individuals. The list below will attempt to discuss the most common types of partnerships in the software industry. It is in no way a comprehensive list, but I hope it provides a broad enough starting point for a comprehensive map of prospective ecosystems.

1) Sales and Marketing Partners

When we discuss partner channels these companies come first to mind. They form the distribution network for a company’s product and services and are essential to a successful sales and marketing strategy, as the distribution network lends massive scale to any fast growing technology providers.

• Co-Marketing Partners: Partners who market different solutions to the same customer base.
• Value-Added Resellers/System Integrators: An individual or company that specializes in building complete computer systems by putting together components from different vendors. Unlike software developers, systems integrators typically do not produce any original code. Instead, they enable your company to use off-the-shelf hardware and software packages to meet your company’s computing needs.
• Referrers: Vendors or VARs who do not distribute a vendor’s product directly but can refer their customers to the vendor.
• White Labelers/OEM Partners: Partners who incorporate a vendor’s product/solutions into their own proprietary solutions. Also include “white-labeling” partners who label a vendor’s product with their own branding.
• Bundlers: Resellers who bundle various solutions into a single bundle for their customers. They can be VAR or simply distributors/resellers of unaltered solutions.
• Managed Services Providers: A category that has been growing dramatically in recent years, these are partners that provide not only the infrastructure and initial implementation services but also services to help customer use and manage the product, the network, and infrastructure supporting it.
• Industry-Specific Products and Services Resellers and Distributors: Partners who specialize in providing IT systems/solutions to a particular target industry. They can either resell a vendor’s solution with vertical-specific services or verticalize a vendor’s platform to serve a particular industry.
• Retailers: End retailers of IT or software solutions.

2) Technology Partners

These are technology providers whose products can be integrated into or built upon another vendor’s product. They are essential to the company’s product and market strategy because they allow the company to capture and enter new adjacent markets without having to invest heavily in new product developments for those markets.

• Platform Extenders/Third Party Application Developers: These are add-ons or plug-in providers who build applications on top of the platform offered by your company’s product or another company’s product. They help extend the functionality of the solutions, increase the value of the platforms to end users, and form a solid base of support for the company’s products.
• Implementation Tools Providers: These are software vendors who specialize in “tools” that help customers better use your company’s product or platforms. They add value to your product and enhance its reach and competitive advantage in the market.
• Strategic Technology Integration Partner: Another vendor whose technology can benefit from deep integration with your technology to strengthen both products’ features and competitiveness. For example, integrating web analytics with email marketing solutions to provide an A to Z, closed loop marketing and analytics package for the end customers.
• Verticalization Specialists: In many cases, customers from different industries have very different data model usage levels or functionality requirements that your company is not willing to build into the core product’s roadmap, because the market opportunity in those niche vertical industries is too limited. That’s where verticalization specialists come in. These are specialist companies that focus on customizing software platforms to build industry-specific solutions for these customers. Their business models allow them to focus on the niche industries (by offering a whole range of solutions, not single point products), and they are better positioned to serve customers in those industries.
• Joint Product Strategy Partner: These are technology vendors with whom your company can jointly develop and market a unique product to capture a specific market segment of customers that have unmet needs the product makes addressable.
• Platform Providers: In contrast to platform extenders, platform providers are vendors whose platform your technology depends on. You want to build a long term strategy with them so that there is a mutually beneficial relationship that leads to tighter integration and better technologies for both you and the provider.
• Major Platform Users/Technology Licensees: In contrast to platform providers or platform extenders, users are vendors whose solutions are built on top or customers who are utilizing your platform heavily. They are typically thought of as customers, but should ultimately be considered another type of partner, because of the level of influence they will have on a company’s backlog and reputation in the market. By treating them as partners, a company can align its product and distribution strategy better with these major customers for the mutual benefit of both.

Note: For any technology ecosystem, there exists an entire universe of relevant service providers who are often overlooked because they do not directly resell or market technology products, or because they do not offer technology products themselves that can be integrated into a vendor’s technology stack.

However, for any technology company to offer a full whole product to its customers, service providers are crucial to the strategy. They help fill the gap in the service that can not be addressed by product features, and they also play important role in evangelizing new products and solutions, even before the sales and marketing strategies take root.

In the next post of this series, I will discuss the different types of professional service providers that exist in an ecosystem, along with the opportunities and challenges associated with building partnerships with them.

What factors should you consider when building out your consulting services organization for the first time? As with building any organization, there are always three critical aspects to consider: People, Organization, and Processes.

People

More than with any other team in a technology company, the professional services team’s very survival is absolutely dependent on the talent and dedication of its team members. The best professional services talent has the rare combination of technical expertise, a collaborative working style, and a customer-centered attitude. Senior professional services team members, like those at consulting organization, also must be great leaders to their teams, mentors to junior members, and innovators of the services products.

In no organization is employee development as important as in a professional services organization, because having good employee development programs helps to retain and develop employees, allowing the team to be more successful, which then allows it to attract even more talent in a virtuous cycle.

Because a professional services team is so dependent on the productivity and effectiveness of each of its team members, the company’s leaders and the professional services leaders need to be cognizant of the evolution of the working environment, team culture, and level of motivation, and also have the skill and experience to address issues with a lot of finesse. Addressing them well requires a different skill set than, let’s say, building a hard-charging sales team, or getting a creative marketing team together. The most important roles and qualities to consider, first and foremost are:

• Since professional services work is heavily dependent on great teamwork, you must identify the roles required in a successful engagement, such as the project developer, the client coordinator, or the implementer.
• These client-facing team members typically need a supporting team that consists of specialists, internal coordinators, and product/services innovators.
• Each role should then be defined by the required hard and soft skills, level of experience, and special ability that makes a team member ideal for the responsibilities of the role.

However, these roles should not be totally fixed in stone — there must also be options for team members to grow or transition from one role to another as their skills and experience accumulate and interest change over time. Therefore, the company must describe a developmental plan for professional service team members and stipulate how they can progress through the plan they choose.

Organization

Having strong team members is not enough to ensure success — those members can only thrive in a structure that helps them succeed in their engagement and strengthen the long-term viability of the organization.

Because professional services engagements are heavily team-oriented, team members will thrive under strong, well-structured organization that brings consistency and ensures smooth coordination and transition from task to task.

At the same time, because professional services are typically very project-driven with a high level of variation in demand, workload, and variety of tasks, the organization needs to be flexible and minimalistic — that is, to do away with unnecessary layers of management and hierarchy.

Another key characteristic of the successful professional services organization is that it should be outward and forward-looking. It should be structured so as to easily absorb new capabilities, new team members, and new responsibilities. Again, this is achieved by having a flexible and open structure that does not pigeon-hole team members into specific, permanent roles or responsibilities, which often results in them becoming desiccated over time.

Processes

Lastly, the professional services team needs processes that will bind the team together, smooth out growing pains, and give the organization the flexibility needed to adapt to changing customer requirements and marketing demands. Strong processes also bring consistency to project planning, time estimates, and resource allocation, which all ultimately contribute to making the team stronger, the engagements more profitable, and the customers more satisfied.

Processes should not be limited to rules and regulations because teams also need processes to better collaborate, make good decisions, and on-board new team leaders more quickly.

There needs to be a process to help build new processes, or to adjust existing processes, because an organization will always have to evolve over time and therefore needs a framework to adapt to change and innovate.

Do you have any thoughts on how to build professional services teams for software companies?

Image provided by: Confused.com

Mid-level managers and executives in all organizations have got a bad rap. They are typically the first to be cut when a company needs to trim its managerial layers in the name of “streamlining” operations (aka cost cutting). Rightly or wrongly, they are often singled out for being the cause of the bureaucratic desiccation of the company’s workforce.

But they are also the hardest working bunch around.

Mid-Level Management: Stuck Between a Rock and a Hard Place

Mid level executives spend much of their time at work torn between trying to please the relentless strategic exhortation of the senior management team and at the same time, wrestling with the hands-on human resource and operational challenges of managing teams of enthusiastic but unorganized and inexperienced entry-level employees.

Their work as team managers and project owners is always subject to the withering evaluation of higher ups, who typically have an unrealistic expectations of how projects are actually done (having done none of that work for years), and who have typically lost touch of new methodologies, operational challenges, and constraints their mid level executives have to deal with on a daily basis. As a result, senior management tend to forcefully push through drastic changes that can cause major disruptions to day-to-day businesses, adding more headaches to the poor managers under them.

At the same time, these managers need to build and grow highly functional project teams from the raw, untested talents of university recruits or entry-level millennial-generation employees who can have lots of enthusiasm but can also be challenged with short attention spans. Middle-level managers are really on the forefront of the new managerial revolution, as companies are now having to deal with an increasingly virtual, more mobile, and more vocal workforce — a phenomenon even more pronounced at knowledge-based environments like technology companies and professional services firms.

To be an effective team leader and project manager today, mid-level executives have to be in tune with these attitudinal changes and flexible with each individual employee’s development needs and ideal working style. At the same time, they also need to be able to impose a team-focused culture and a sense of focus and discipline that ultimately will bring the team together.

Crucial Bridge Between High-Level Strategy and the Boots on the Ground

Mid-level managers form an essential line of defense for company’s culture, its employee retention, and its future growth. Being the only link between the management team — whose attention is understandably focused on strategic matters — and the actual work being done, either in product development, sales, marketing or customer services, it is the middies who the organization truly relies on to:

• Implement strategic changes
• Perpetuate its winning culture
• Identify early warnings of issues with customers, products or employee recruitment and retention

Being the most internally visible “managers” at work, the middies also serve as the role model for entry level, front line employees. Their successes demonstrate a career advancement path to these employees, while their failures represent lessons to avoid and learn from.

I can go on and on about how middle level managers are truly the organizational lifeblood of a growing organization, but I hope you are convinced they play an incredibly important role. It is crucial to nurture their ranks and grow their ability and preserve their effectiveness if you want your company to be scalable and successful for a long time.

photo: h.koppdelaney

For software companies selling to business, selling into increasingly larger and more sophisticated customers is one of the key strategies to get rapid, scalable growth.

Why a Skilled Professional Services Team is Crucial

An essential requirement for any such enterprise software solution is the implementation and professional services that come with such a complex, costly solution. A sufficiently powerful software platform that will be playing a major role in the client’s business (hence justifying its cost and stickiness) will invariably require complex integration with the client’s existing IT infrastructure and other software solutions, as well as some level of customization. For it to be successful, it will also require a thorough training process, which needs to involve not only the future users of the software but end consumers of its data and outputs.

Most of these activities need to happen to either onsite at the client’s premises or via in-person teleconferences. Much of the client’s technology infrastructures still reside in the client’s data center, behind the firewall, and, besides, when it comes to getting users familiar with new software interfaces, nothing beats person-to-person training and coaching.

Most major technology vendors staff a large professional services group that do implementation, customization, and customer success-oriented training that have become an indispensable part of their package of solutions to their enterprise customers. To compete successfully with these companies and establish a strong presence in the enterprise market, expansion0-stage companies will need to develop an effective professional services organization, as well. This poses a number of major challenges for the company:

Resource Utilization & Feature Prioritization

As with most early stage software companies, the center of gravity of the organization has probably been the product organization, and the focus of the company has been to build a general, all-purpose platform that can serve all customers with minimal customization. Building a professional services organization whose goal is to customize the solution and tailor it to the customer needs will invariably create conflicts in resource utilization and product feature prioritization within the organization.

Recruiting and Managing a New Team

Not having built a professional services organization before, the company is likely to stumble as it tries to recruit for the team, fill in the different roles in a professional services group, and manage the team for profitability, success, and customer satisfaction.

Temptation to Shift Focus Away from Core Product Offering

Many companies become dependent on the professional services organization to get into major enterprise customers by offering “strategic services” or “pilot implementation” at deeply discounted rates. While this is a good tactic to get in your foot in the door and win a customer, it hurts profitability and makes the company too dependent on a human resource-intensive revenue model. Ultimately, the professional services organization needs to be running at break-even, but should not be the driving force of the sales strategy, as it should still be the company’s core software product that makes the difference.

Hiring and Retaining Top Talent

The most valuable asset of a professional services organization is the skills and personal relationships of the professional services staff, and therefore the main challenge with building such an organization is with recruiting, developing, and retaining the talent.

In my next post, I will discuss how companies can plan ahead to prepare for these issues, even in the earliest days of their expansion-stage growth, when the professional services demand is just beginning to take shape.

Boise, Idaho: Where Dreams Took Flight

In recent weeks, air travelers and aviation industry insiders have undoubtedly been following the unfolding saga of the burning battery packs that have led to the global grounding of all 787 Dreamliners, considered to be Boeing’s aircraft of the future. It is a disaster that might end up costing Boeing billions of dollars in compensation for its customer airlines.

I have previously written about how pursuing breakthrough innovations like the “Dreamliner” can easily lead to runaway projects that become extremely costly — both financially and strategically — for companies. I wrote that blog post hoping that Boeing had seen the last of its troubles with the Dreamliner, and was personally looking forward to fly on a 787, myself, some time soon.

I guess I will not mind waiting for a little bit more.

However, what I want to write about today, while still related to airlines and airplanes, is a story about the entrepreneurial daring and technical breakthroughs of the very first commercial airlines in the beginning of the last century. Not incidentally, it also involved two of the biggest players in the on-going 787 saga: Boeing and United Airlines, two companies whose histories were woven together from the start in the early days of aviation history.

A Very Special Place in Aviation History

Boise is able to boast it is the birthplace of two of the largest airlines in the United States, which have since merged to become the largest airline in the world — United Airlines. That may be somewhat surprising to consider as you walk through Boise’s modern, spacious, calm, and ordered single terminal airport. It feels as far away from the chaos and overcrowding of modern hubs like Chicago or Dallas as Boise is from those hubs by flight.

I only learned about Boise’s central role in the history of the airline industry recently, having just visited Boise to meet with our portfolio company Balihoo, an innovative leader in local marketing automation and a respected role model in the local startup community.

In 1925, aviation pioneer Walter Varney started Varney Air Lines and won the first private contract for airmail service in the United States, just as the Postal Service was taking away the US Army Air Corps’ mandate to carry all airmail in the country. On April 6, 1926, Varney Air Line’s chief pilot, Leon “Lee” Cuddleback, flew the first Contract Air Mail flight between Boise, Varney’s headquarters, and Pasco, Washington. This could be considered the beginning of modern commercial airline service,as we know it with regular flights between fixed destination on a fixed schedule.

Varney Air Lines later on became part of a much expanded Varney Air Group, which was then sold into William Boeing’s United Aircraft and Transport in 1930, an integrated aircraft manufacturing and airline holding corporation that was ultimately broken into United Airlines and Boeing in the 1930s.

In 1934, Walter Varney took his chances at building an airline again, this time founding Varney Speed Lines, focusing on airmail and passenger service in the American Southwest region. This company also took its first flights out of Boise, Idaho. Later on it was bought by Robert Six and eventually changed its name to Continental Airlines.

Thus, it was sort of a reunion of descendants when United and Continental merged again in 2011 to become the largest airline in the United States. Boise, having continuously been served by United Airlines service since 1933, could rightfully claim to be one of the birthplaces of modern commercial passenger air transportation.

Entrepreneurship and Innovation Lessons from Early Aviation Pioneers

The entrepreneurial spirit of the pioneering Varney Air Lines company was remarkable — they were trying to do something unprecedented and extremely risky. In 1926 aviation remained very much the reserve of the daredevils, the rich, and the military. The Army Air Corps handled airmail, flying was very dangerous, and there was yet to be a commercially viable airline.

The decision of the government to open up airmail services to private contractors was the impetus for commercial growth, much like some of the recent government-sponsored technological initiatives, but it still required enterprising owners and pilots to take up on these contracts and prove that there was a viable business in flying airplanes.

In a fascinating parallel to the starting up of the iconic technology and software companies we often hear about, Varney Air Lines started out with a few small, lightly-powered aircraft, just a few pilots (who had to convince their families that they were not crazy to accept the job), and what larger competitors considered to be the most undesirable niche.

Focus on an Underserved Niche Market

The designated route through Boise, CAM Route 5, was considered the least commercially viable route — flying over “cow towns” in the northwest frontier of the country.

Starting from a niche allowed Varney Air Lines to hone their craft and climb up the learning curve without having to deal with a major competitor. It also provided the company the opportunity to really figure out its business model, identify its customers segments, and determine the right type of business to support them.

Adapt and Pivot as Quickly as Possible

Like with all startups, the early days were not without drama and setbacks: the very first delivery Westbound was two days late, because the aircraft was forced to land 70 miles from its destination. The pilot had to borrow a horse from a nearby farm house and rode with the 300 pounds or so of letters to the destination post office.

Yet, Varney also demonstrated tremendous agility and responsiveness to the market, undergoing several major adjustments in what later startups would call “pivots” – they quickly upgraded their planes, started flying passengers, and expanded their routes, ultimately merging and growing into United Airlines.

Always Be Looking for the Next Opportunity

Later, when Varney started what would become Continental Airlines, he also targeted the American Southwest region as a starting point, another underserved market. Continental went on to pioneer lower fare strategies, adopting new aircraft technologies among many other innovations, growing to become the fourth largest airline in America before merging with United Airlines.

The stories of the airlines that started out in Boise and ended up dominating a large chunk of air transportation in the US is a great reminder of the lasting reward that daring entrepreneurship and mold-breaking innovation promises, even as we pause to consider the woes that Boeing is going through with its Dreamliner.

For even more history, illustrated by rare photography, please visits the few links below:

The history of the first private Contract Air Mail routes: http://www.aerodacious.com/ccCAM005.HTM

The history of United Airlines: http://www.uahf.org/united_history_01.asp, http://avstop.com/history/historyofairlines/united_airlines.htm

What innovation lessons can we learn from aviation’s more recent triumphs and struggles? Please share your thoughts in the comments below.

We all know talent is the most important resource for a technology startup. As companies get into the expansion stage, they have to take their talent acquisition capability up a notch in order to maintain the burgeoning rate of growth. For example, if they needed to hire one or two employees a month before, now they need to hire 10-20 per quarter.

OpenView is keenly aware of that need, and we have invested heavily into our recruitment support for our portfolio companies. At OpenView Labs, we have a team of six full time talent specialists who help our portfolio companies recruit a wide range of positions, from front line sales executives and back-end engineers to UX designers, marketing managers, and executives like CFOs, VPs of Product. We also help our portfolio company build their own “talent factory” — a disciplined, scalable approach for acquiring and retaining talent in the expansion stage.

However, just as economic principles require that companies try to both acquire customers and retain them, in order to truly power YOUR company’s explosive growth in the expansion stage a great human resource team needs to be great at both talent acquisition as well as talent retention and development.

Employee Retention & Development is Just as Important as Talent Acquisition

Too many companies tend to neglect the current employee development process, either because they do not want to deal with the “perceived” overhead, or because of a persisting “startup” mentality — everyone will grow as fast as possible with the company, learn through trial and error, and naturally find a right place for themselves.

This mentality is a powerful force of self-motivation, an incredible source of innovation, and engine of growth for a company in the early stage. However, in the expansion stage, more employees are added in a wider range of roles, responsibility and expertise, and it is impossible to assume that everyone will develop at the same pace and find a place that is most suitable with them. They may quickly find that the work is overwhelming, or that there is no clear developmental path for them in the long term for the company, and will be tempted to look elsewhere for better development opportunities.

Therefore, organizations will need to formalize the career development of its employees, which benefits both the company and the employees. The employees have more certainty in their long-term career development plan and the ability to actively manage their career, while the company retains and grows its talent, and is actually to plan for future talent growth and development.

7 Steps to Building an Employee Development Plan

How do we put in place such a mechanism without creating too much HR overhead for the organization? Consider the following seven steps, which are the habits of highly successful talent organizations:

1) Define clear paths and development routes for each junior and mid-level role in the organization, and establish a process to actively monitor and track the development of the employees, benchmarking their performance against the plan on a regular basis.

2) For each role, the developmental path should not be a short-term 1-2 year plan (that is the job of annual goals), but rather take a more long-term look into the future. The path should be defined as a combination of the following aspects:

• Progression of the employee’s role, scope of authority, and responsibility
• Expectation of career achievements/contributions that define each increasingly senior roles/positions
• Hard skills (technical skills, domain knowledge, certification) expected at each level/position
• Soft skills (leadership, communication, consensus building) expected at each level/position
• The future opportunities and challenges for the employee in each level/position

3) Develop a set of standards/measurements that allows the company and its employees to objectively assess the employee’s performance and ability at each of the level of the development plan here.

4) Define cross-functional developmental paths so there are opportunities for people to switch between different business lines and career paths, if they have the skills and knowledge.

5) Set aside management time for development, taking into account the employee development plan is not a one-off initiative. It should be considered a major part of the long term’s human capital strategy, and requires the support and involvement of not only the HR executives, but also the rest of the management team.

With the leadership’s support, the employee development plan gains more credibility with the employees, leading to higher participation and higher achievement.

6) Communicate the plan and the process to the whole organization in the most transparent way possible. Expect questions or even disagreements, but try to win the opposition to your side.

7) Review and adjust elements of the employee development program on a regular basis, especially when the company’s change in strategy, leadership, or with a major acquisition.

How do you actively address your employee development and retention?

Requirements of Exceptional Product Managers

Over the years, I have thought a lot about the evolving job requirements of a project manager in a fast growing, entrepreneurial organization like OpenView, or in our own portfolio companies. Technical and market expertise requirements aside, a really good project manager needs to have a dizzying range of organizational, people, and analytical skills in order to be truly successful.

Having the right “lean” and “agile” mindset is also extremely important because without agility and a true sense of urgency, project teams will never be able to complete what they are asked to do, and risk forever falling behind fast-moving markets and customers requirements.

In previous posts, I have offered tips to improving Scrum product ownership, dealing with the prioritization problem, retaining a true sense of urgency in expansion-stage companies, and maintaining the culture of innovation in your organization, and all of those are issues that great product and project managers are able to effectively deal with everyday.

But there is really a much harder problem that hits before all of these organizational, people, and resources issues kick in. It is the problem that vexes Project Managers the most, yet typically receives the least attention. It is the problem of not saying, ‘No’.

The Biggest Problem for Product Managers

I am sure every project manager out there has been involved in a project where, after hundred of hours of work, the team is exhausted — burned out from project creep, missed deadlines, communication breakdowns, and worst of all, the realization that they should have said no to the very idea of the project in the first place.

It really falls on the project manager to be that resolute voice of reason – but alas, it is also the hardest thing to do.

How do teams get going on projects they shouldn’t have started in the first place? Hindsight is 20/20, but achieving that type of clarity is difficult when the project is first presented.

Here are six reasons why product managers have a hard time saying no, and why that often lands their projects in trouble:

1. Most projects are proposed with the best intentions in mind: The majority of proposed projects will be valuable as long as they are done right. Sometimes, even standard cost/benefits analysis will also fail because they typically underestimate costs (by both underestimating project cost and opportunity costs).
2. Project managers are expected to produce “completed projects” and “outputs”: Therefore, it is hard for them to refuse to take on more projects.
3. It is always tempting to say ‘Yes’ to projects that appear simple, resource-light and easy to do: In reality, the  ”no brainers” often tend to be the ones most likely to run away because the project team is overconfident.
4. Projects that appear to be a quick simple hit often aren’t: They tend to consume more resources than you expected, because project work begets more project work and scope creep is impossible to avoid.
5. Projects tend to have inertia: It is hard to stop working on a series of project once you start going down a particular path. It takes a very alert project manager to detect this tendency and strive to stop the flow. When a project is part of a master plan, it is even harder to say no and change course, because inertia grows with mass.
6. Project managers sometimes have trouble seeing the big picture: They are often too deep into their own projects, their methodologies, and their obsession with efficiency to see how their outputs fit or fail to fit together in a grand plan.

It is hard to do, but leaders need to learn to do it better. Failing to say ‘no’ to the wrong or inappropriate projects will cause major drag on the company’s precious resources, demoralize the team, cause employee attrition, and can crush an expansion-stage company on the brink of breaking out into the mainstream.

In my next post in this series, I will discuss the types of “wrong” projects that should be rejected, and how project managers can say ‘no’ to those projects better.

Do you agree saying “no” is a project manager’s most difficult challenge?

Last week I shared a few quick fixes to update a website to 2013 layout and navigation standards, based on what I learned from some of the most successful B2B software companies. These companies also do very well in another aspect:

The content and design of their sites are consistent and project a very distinct “feel” that is reflective of the character of the company. In other words, the website comes to life and speaks to the web visitors as if it is truly an ambassador of the company.

There are a few quick changes that you can make to your website content to let it project a more human character and speak better to your visitor, thereby conveying your value proposition more clearly and enhancing the visitor engagement.

Start and end with what your customers care about most

Focus on their needs and the benefits of the product. Companies still use too much corporate speak or technical jargon when they write for their websites. This tendency makes many websites very similar, and causes visitors to lose interest right away, even at the very first page.

To engage your visitors, think of the words and phrases they are likely to have on their mind when they are searching for a solution like your product. Use those phrases as section headers or key links on your site.

Feature a user persona that people can connect with

Companies tend to describe their product in a vacuum (ex: It does this/it does that for you, and therefore it is valuable). That approach won’t endear the product to your customers and users, because it presupposes who they are and what they want.

Instead, consider the people who will be buying and using your product, and think of ways you can describe who they are and how they would use your product.

Use these terms and develop personas to build your content on your sites, and do not hesitate to feature the personas prominently. See customer service software company Zendesk for a good example to follow. The visitors will see themselves in these personas and can then better understand your product’s functionality and benefits to them.

Feature more real customers and case studies

Another the way to create an emotional connection with your prospect customer is to feature other customers just like them. That means doing away with corporate brochures and staid case studies.

Case studies should feature customers speaking in their own words, in their own environments, and telling their own stories. Your company and your product should fade into the background. After all, customer success stories are really about the success of the customers, not the success of the company.

Add a phone number

It is quite astounding, but not every company makes it easy to contact them via the phone, even though this is such a basic, fundamental way of communication.

With the widespread use of VOIP and virtual mailboxes, there should be no reason while a company does not prominently display a phone number for its customers and prospects to contact it.

Integrate your communications channels into a single place

Most companies are doing a great job of using social media channels such as Twitter and Facebook to extend their reach and engagement with customers, users, and prospects. However, this extension sometimes comes at the expense of the more traditional channels, such as the company’s news section, press releases, and blogs or corporate announcements.

Making your site’s news section more interactive and integrated with other real time communication channels, for example, will enhance all of them.

Explain your pricing model

One key impediment to website engagement is the lack of trust and fear of uncertainty on the side of the prospective buyer. Even if your prospect isn’t price-sensitive, not knowing the pricing model — let alone the concrete price levels — will make it harder for them to consider contacting you or spending more time investigating your product offerings.

This is especially important when there are competitors who are more transparent with their pricing models.

Explaining your pricing model does not have to mean you have to make sure all the price levels are exposed and laid out. In fact, in many cases you shouldn’t lay everything out because it might confuse your prospects even more. Giving out clear outlines and price ranges on your website, however, will help dispel a lot of uncertainty and reluctance on the part of the prospects.

What other website content fixes have you tried and can recommend?

Do you make software for business? Here are some simple ways to refresh your website design and grow your business in 2013.

So the world didn’t end last December, after all. Now what? We survived, and even if you didn’t plan for it, now is time to make plans and resolutions for the New Year before your competitors sprint ahead and leave you in the dust.

If your company sells software or technology to businesses, one resolution you should have every year is to review and update your website design. It is probably the most important channel of communication you have at this stage. Given the myriad forms of web-based communications available today, and the extremely innovative web design community, website design practices evolve at a very fast pace. What is cutting edge today can be totally outdated in a couple of years.

Of course, there are several fundamental, timeless prerequisites that will always be a part of any design strategy, such as a logical information architecture, ease of use, simplicity and accessibility, etc. But layout styles, navigational elements, typography, and color schemes are all continuously adapting to new web users preferences and tastes, which are heavily influenced by their social networking and mobile surfing and apps usage behavior.

If you do not have a lot of time and resources to improve your website this year, at least consider one of the following five easy fixes to make your site easier to navigate and make your visitors happier:

1) Simplify Top Navigation Menu Items

The days of the long, extensive top navigation menus are numbered. Most companies should have just five to six items in their top menu. Those items should focus on what the customers care about most — the product, the features, case studies or pricing.

Corporate information such as team information, careers page can be linked to from the bottom of the page. Check out the websites of Ariba Networks or Freshbooks to see the minimalist menus in action.

2) Larger Text Size, More Space

During the Web 2.0 years, large, garish texts were all the rage. Today, not only should taglines and slogans be in a large font size, the rest of the text on the page should also be large sized and widely spaced. This is probably influenced by the increased use of tablets for surfing, which typically requires websites to have larger link targets for the imprecise touch of the fingers.

Check out Hootsuite’s website below to see how large text makes the page a lot lighter, fresher, and lets the attractive visual elements shine through.

3) Organize Your Resources Section Better

With the rise of content marketing, all B2B technology companies are generating a lot more content and are now struggling with ways to make it all easy to find and consume. Without a good content classification and search system, all your content will lose a lot of its value.

Obviously content marketing powerhouse Hubspot has a great resource section, but customer service darlings Zendesk also boast a well-organized resources section that incorporates blog, whitepapers, analytics, and events.

4) Use Action Words for Product Features

B2B companies typically struggle to fully communicate the complete awesomeness of their product to their customers, because by nature, their products tend to be complex and sophisticated. Today we are seeing how many B2B companies have broken down the language barriers, eschewing corporate jargon and technical terms by using action words and phrases to describe what their products do.

5) List All Product Features on a Single Page

Another typical issue with B2B technology websites is the dense, unattractive product feature description page. Not only are they laden with technical terms, they are also typically spread over multiple pages, making it troublesome for the web visitor to go through and make sense of it all. Companies like Zendesk utilize a long-form, single-scrolling page to list all of their product features on a single document, while providing an additional navigation bar and other navigational tools to let the visitor jump through each section.

These should all be relatively simple fixes because none of them require you to alter the entire layout of your website or create new creative content or copy for the site. They are all aimed at making the site more navigable, the content easier to consume, and the core message more understandable.

One Last Tip

If you haven’t already, you should really consider implementing a navigational tool to let your customer self-select themselves into the appropriate market segment, so that you can provide them with the most targeted content and showcase to them. Check out my blog post from last year on this topic for some cool examples of how B2B website content can be segmented.

In my next post, I will share five additional fixes to make your website speak more personally to the visitors.

How has your company improved its website recently? What other tips and suggestions can you share?

Three years ago, I wrote a blog post about future technology trends. Two years later, I wrote another post looking back to my predictions and found that while I was spot on for major themes like mobile payment and cloud computing, I missed the growth of daily deal sites and the socialization of education technology, and underestimated the sea change in mobile health technologies.

I was also over enthusiastic on power management platforms — but the advent and popularity of Nest was definitely a step in the right direction — and e-government — perhaps because a lot of investment has actually gone into cyber-security (on the public side), or grassroots organizational capability (on the private side, in support of the recent hotly contested election cycles).

However, my main takeaway from the exercise in 2012 was that I needed to make my review and new predictions more often, lest my predictions be outdated and hopelessly outstripped by the rapid pace of disruptions in technologies nowadays.

For example, some of my 2012 predictions have already been borne out: crowdsourcing has really achieved mainstream success, people are spending more and more time on non-search engine driven discovery platforms, and mobile devices are surely revolutionizing how people work in traditional industries such as manufacturing and service.

So, what is in store for the year 2013?

1) Big Data Will Become Mainstream

Big Data has been a buzzword for the last few years, but I predict that 2013 will be the breakout year for all manner of Big Data, from NoSQL databases to high performance business analytics platforms. The technologies are already there, but many startups and major players have been toiling away at building market-ready solutions and the market for them. In 2013, they will find the mass acceptance of customers and the maturity of business use cases for Big Data platforms.

2) Tablets Will Define Everything We Do

Tablets — all shapes and forms — are rapidly becoming the device of choice for many people. The great rivalry raging between Google, Samsung, Apple, and Microsoft only helps to empower the innovative impetus that leads to better applications, better user interface, and more versatile usage of the tablets at work and in everyday life.

An example of this trend is the app “Chromatik“, which aims to revolutionize how people learn music by making the process of reading and practicing with sheet music — with or without a teacher or other musicians — incredibly simple and portable.

3) Get Ready for More HR Software Disruptions

What I did not anticipate in 2012 was the rapid consolidation of the Human Resource Management technology market, with the acquisitions of Taleo and SuccessFactors. However, in 2013, this market is ripe for disruption. Younger, more nimble companies are making disruptive innovation in all aspects of human resource software and technologies.

Job boards are becoming more interactive and engaging, company review websites like Glassdoor are gaining traction, and data-heavy applications are transforming performance management and employee motivation at major corporations. Meanwhile, employee-oriented benefits and health management platforms are helping companies make dramatic strides in providing better work environment and benefits for their employees.

 4) We’ll See a New Wave of Marketing Technologies

Last year saw the coming of age of SaaS marketing companies, with the successful IPOs of ExactTarget and then Eloqua (which has since been acquired by Oracle). Innovations are happening at such a rapid pace in this space that in 2013, we’ll see a whole wave of new marketing technologies that will challenge the dominance of larger players and conventional wisdom about how marketing should be done.

The newcomers will offer best-of-breed solutions, focused on specific, discrete areas of marketing automation, such as retargeting, high volume delivery (Sendgrid), high volume content optimization (Sailthru), automated list vending (Marketfish), automation of local marketing tasks, and social CRM.

 5) Rise of New Content Platforms

In 2013, I believe that content creation will be taken to a whole new level, as companies are now finally finding out ways to help customers deal with the information overload of the social media age.

For example, LinkedIn has developed an extremely successful content platform with thought leaders providing extremely high-quality content for its business-oriented network. Social media aggregators like Circa or Rebelmouse let users define ways to filter through the mass of content they receive through their social networks and other information sources. Then there are platforms like Medium or Storify that allow users to reproduce that data in their preferred format and republish it back to the world, but along with their own words and perspectives.

I fully expect to see more innovations in this space and a definite trend towards empowering content creation and delivery by the end users themselves.

6) Wearable Computing

Wearable computing is truly coming of age because the technologies have finally caught up with the vision and people have become used to having and carrying “smart” devices. These devices — such as the Shine by startup Misfit Wearables — are also becoming more standardized and easily connected to the cloud or other devices, which make sharing of the data easy and effective.

Furthermore, wearable computing is being commercialized not only by major players (like Google with its 3D goggles), but by startups and enthusiasts, powered both by traditional VC funding and crowd-sourced efforts on Kickstarter. I expect this trend to continue, and by the end of 2013 many people will be very used to wearing the devices. We may even see an entire network of users develop for them.

What do you think of my predictions? Am I spot on? What disruptions do you see shaking up the tech industry in 2013?

At OpenView we entered our fourth year of blogging in 2012, and our team at OpenView Labs committed to an aggressive schedule of one blog post per team member per week.

Over time, our effort has generated an enormous amount of content. For those of us who have been around since the beginning, we’ve now written nearly two hundreds blog posts, each. Just keeping track of what we have written and making sure we refer back to it can be a challenge! That is why this year I am posting a year-end review of my own blog entries, so any interested readers can quickly capture the essence of my blogging themes and focus for 2012.

This list is also meant to help me navigate my own content in the future, so please forgive the personal slant of this post.

1) Startup Marketing: When Less is More

This is a rather popular post and one that I think is helpful for any startup technology executive. The theme is simple, but often overlooked: there is always more marketing to be done, but that doesn’t mean it needs to cost an arm and a leg.

2) Does Your Website Speak to the Right Audience?

If you continue to follow my blog over time, you will find that I tend to emphasize strategic segmentation and focus in marketing strategy. It reflects OpenView’s essential belief that a company can only grow profitably in the expansion stage if it focuses its resources and operational strategy on set of target segments. This post discusses ways in which a company’s website content and information architecture needs to be tailored to the right target segment prospects.

3) Sales Force Compensation: Challenges of Growth

This post is the start of a blog series about the art and science of sales force compensation. It is part of a larger theme that I tend to go back to time and again: challenges and opportunities facing companies that are undergoing massive growth.

4) Can You Do Market Research for Free?

As the leader of OpenView’s market research team, I tend to write a lot about market research techniques and tools that are meant to help either our portfolio companies when they need to do market research or my own market research analysts when they are working with the portfolio companies. This post lists out eight different internal data sources that a market researcher can leverage to infer key insights about the customers and users in any project

5) A Sense of Urgency in the Expansion Stage

This blog post touches on a theme I have worked a lot on this year: how to enhance and improve the impact that OpenView Labs teams are making with our projects working with the portfolio companies. A key concept we have worked on is demonstrating “A true sense of urgency,” and how it can be maintained and encouraged both within OpenView and in our portfolio companies.

Thank you for reading my blog in 2012. Let me know if there is anything I can do to improve my posts in the coming year!

• An Essential Lever of Growth for Expansion-Stage Companies
• Optimize Your Prices to Power Growth
• Develop a Long-Term View
• Focus on Value

Ways to define Value for your Pricing Strategy

In my previous blog posts, I have discussed at length the complexities of establishing an enterprise pricing structure, the dials on the model to optimize revenue and growth, and building a long term view of the price strategy. In this last post in the series, I want to go back to an even more fundamental concept: Value.

Pricing is really about establishing and communicating the value that your product or service brings to your customers. The price of a product really needs to be consistent with its value in the following aspects:

• It is the value that your target customers will realize by using the product or service in the intended use case, compared to the case where they do not have a similar product or service
• It is a value that your target customers can perceive and are used to measuring or (even better) quantifying
• It is communicated in measures or metrics that the customers are familiar with and that they believe are important
• If your product or service delivers any value in conjunction with other peripheral products and services then your price needs to account for the incremental values or costs of these externalities.

Image by Tom Buford Marketing

A software product can be valuable in many different ways. For example, it can be an essential enabler of a business function, such as sales force automation. In a brand new market created by a disruptive technological innovation, there is no historical data or competitive pressure to set the price at any particular level. In this case, the value of the product can be considered as the value of having that particular business function, which can then be measured as outputs generated by this new business process, or improvement in productivity of existing processes, increase in outputs (sales), or reduction in waste.

For more mature product categories there are more competing products, and therefore there will be price competition and far more options for the buyers. For most companies, the value of software is typically determined by the laws of supply and demand, and tends to be driven down due to price competition. In such a case, most of the value of the software will be tied to how it is differentiated from the competition by offering unique functionalities or scalabilities that are not easily replicated by competing products.

In such a market, having a focused customer segment is crucial. By building features that are valuable for a particular market segment, the company produces a product that is more valuable for customers in those segments, and can therefore charge a premium price over competing products. It is also important not to get overly distracted by price reactions of customers outside of youe target segments, because your pricing model is probably not right for them in first place (at least not in terms of how they perceive the value of the product).

Another thing to consider is that the value of the product does not simply scale linearly with usage or complexity. Your product is vastly more valuable, for example, when it has a built-in network effects, whereby the more people use it, the more valuable it becomes. If your product can leverage the value of its network of customers, you should price it with this exponential growth in mind. This is an example of a positive externality whose values only become important as the product grows in scale, but need to considered in evaluating the overall value of the product.

Establishing the value of the product is also important because it adds clarity to the pricing model and makes communicating it to the customers a lot easier. To avoid causing sticker shock, the pricing model needs to speak to the values that customers are familiar with, and ultimately, it needs to be consistent with how the success of the product is measured.

Why not establish the measures of success upfront and link them with pricing components, so your customers automatically have a product success scorecard that doubles up as a price list? 

For example, if you know that customers in your market typically require a ROI of 20% on technology investments, then your pricing needs to be consistent with this — after taking into account all costs and benefits associated with your product — from the perspective of the customer.

To wrap this up, I would like to recommend a few additional thought provoking blog posts by experts and practitioners on the same topics. Many of my thoughts were guided by them:

Startup Tis for Enterprise Software Pricing by Dharmesh Shah

How to Price New Enterprise Software by the Oulixeus team

Most Common Enterprise Software Pricing Models by Paul Rudo

The High Cost of Enterprise Software by Craig Mullins at Database Trends and Applications.

• An Essential Lever of Growth for Expansion-Stage Companies
• Optimize Your Prices to Power Growth
• Develop a Long-Term View
• Focus on Value

The Long View: Pricing Decisions for sustainable growth

In my previous blog posts, I discussed the basic building blocks of a pricing structure for enterprise software licenses. In this blog post, I would like to take a longer-term view of pricing decisions, because nearly every company will invariably have to make major changes to its pricing model over time to accommodate its growth and evolving target markets.

Image from KukuChew.com

Most companies start out with a pricing model that is very straightforward, simple to understand, and easy to sell. As the company grows its product platform and evolves upstream to larger, more potentially profitable customers, however, this model eventually ceases to be appropriate.

Therefore, even as you’re taking the first steps to develop an enterprise pricing structure outline, you have to consider the long term consequences of your decisions and make sure measures are put in place to ensure the company’s revenue model is appropriate at each stage of the company’s evolution.

1) Building Flexibility into Your Pricing Structure

If you know the way you price a product will change in the future, then don’t hamstring yourself with a simplistic but unscalable pricing model. Think through the dimensions of growth and complexity that customer implementation may eventually grow into, and build these into your pricing model.

At first, when you are just beginning to get enterprise-level paying customers, you may have to do this on a case-by-case basis, but over time the experience tailoring these deals and their pricing structure will allow you to evolve your pricing model.

2. Decoupling Entry Level and Enterprise Solutions

Many companies start out selling a simplified, SMB-oriented business application that eventually acquires enterprise-level features and functionalities (especially requirements around security, scalability, and user management). One way to evolve the pricing model is to try to decouple the entry level and the enterprise solutions as much as possible, going as far as making your branding and marketing for them very distinct.

Even if both products might rely on the same technical platform and infrastructure, decoupling the products can help reduce the sticker shock when early clients have to adjust to new pricing models. It can also help enforce more focused marketing activities, since the target markets for the two solutions — and therefore the go-to-market strategies, as well — are very different.

3) Price Consistency with Cost Structure

This sounds like a basic thing that applies to all pricing decisions, but it is very often overlooked when a company starts making adjustment to its pricing models. Even though we do not suggest a “Cost Plus” pricing model, it is important to recognize the different types of costs that go into serving a customer beyond the standard Cost of Goods Sold and Cost of Sales data.

For example, a company might be tempted to build out an incremental, module-based pricing model to fully “utilize” or “monetize” the breadth of its platform offering. However, the long term costs of these add-ons may not be just the cost of goods sold or product development, but the costs of the incremental customer services and professional services that are required to fully utilize these add-ons, as well.

4) Establishing a Culture of Pricing Discipline and Transparency

Knowing that pricing structure will change in the future, it is important that the company gains customer trust that its pricing decisions are rational and ultimately made to ensure the company’s long-term sustainability, which is important for the customers’ success as well.

Therefore, even before any changes are contemplated, the company needs to enforce a culture of price discipline and establish a reputation for pricing transparency. Customers should be confident that the company is always consistent with its stated pricing policies, and that any change the company puts in place is the result of rational and careful considerations, rather than a last-minute or temporary measure puts in place to raise revenue or profits at the customers’ expense.

5) Collaborating with Customers to Evolve Pricing Strategy

When it comes to reconsidering its pricing structure, a company’s customers may be the best sources of information. A company should engage with a sample of customers from its target segments to propose any potential changes to its price structures early on. The customers’ feedback is important to help the company understand whether a price change will be accepted or not, and lets the company tests out communication and transition strategies to ensure that the changes do not cause a drastic backlash.

Working with customers to develop a new pricing structure will also let a company learn more about the pricing models that the customers are aware of and used to — and determine what they really care about most. At the end of the day, pricing should really reflect the value the product/service is generating for the customer and how the customers perceive this value.

In the next post in this series, I will explore the idea of value and how it can be communicated to your customers via your pricing strategy.

View all the posts in this series on Enterprise Pricing Strategy:

• An Essential Lever of Growth for Expansion-Stage Companies
• Optimize Your Prices to Power Growth
• Develop a Long-Term View
• Focus on Value

In my previous post, I kicked off my series of blogs on pricing for enterprise deals by discussing the two fundamental aspects of a pricing strategy:

The pricing discrimination mechanism: By which a company can create different tiers of customer demand, requirements, and charge different prices accordingly.

The way and extent to which the specifics of pricing is disclosed or kept confidential: Each datum of information on pricing dramatically changes the dynamics between buyer and vendors.

However, in a way, the word “pricing model” is misleading, because most companies still have to customize their price to specific customers in one way or another, discretionary discounting (by salespeople or account managers) being the most common.

Especially in the enterprise world, each customer always wants to have a “special” package that is tailored to their needs and their ability to pay.

What are the other levers in a price structure that can be tweaked to both satisfy the customers’ specific demands and generate top line growth and bottom line profits for the company? Five basic options come to mind:

1) Payment Structure and Terms

With the same sticker price, you can structure the payment stream in many ways.

For example, for a subscription-based business, you can consider annual payment upfront, monthly payment, or quarterly payment.

Obviously, from your company’s cash flow management point of view, having more payment earlier is better, but ultimately there must be a compromise between your demand to have more cash upfront and the customers’ inevitable desire to hold on to their cash as much as possible.

If you charge by usage and you are sure that your product will add tremendous value to the customer, then you can be even more aggressive and require a guaranteed usage/payment level of contract. This has two benefits: turning a usage-based business into more or less a subscription business, and incentivize the customers to fully utilize your product (to get their bang for the buck), which ultimately makes your product stickier in their organizations.

2) Discounting

I have touched on discounting in pricing strategy previously, but did not go into it in-depth because it’s worth a whole series of blogs by itself.

A company can set out transparent guidelines for its non-discretionary discounting policies by considering discounting for volume purchase, for longer than standard contracts, for guaranteed payment schemes, for usage growth guarantees, for specific promotional campaigns, or for replacing existing solutions, etc.

As I have noted, the important thing to consider is not just how much to discount, but how to communicate the strategy so that the customers actually see the drop in price as value to them.

Beyond this, there is also a whole layer of discounting that salespeople can determine in the field. I will not go there now, as it is more relevant to sales compensation strategy. There has been some ground breaking research on the pros and cons of encouraging discretionary discount tactics in enterprise software sales, which I encourage you to check out if interested.

3) Non-Monetary Benefits

Non-monetary components of the pricing strategy can be extremely useful for companies in the earliest stages. The reason is that in this stage, the value for the customers has not been fully established and therefore major enterprise customers might not easily accept a hard dollar price.

In this situation, having a non-monetary component to the deal can be tantamount to a major discount or barter that is mutually beneficial for both sides.

Examples can include:

• Use of customer’s technology
• Opportunity to co-market
• Opportunity to feature the customer as a showcase or case studies, etc.

4) Price Protection Package

A major concern of enterprise software buyers is the future increase in prices, especially for upgrade to new version, expansion of usage, or for continuous maintenance. Therefore, if the vendor offers price protection as a component of the package, this will sweeten the deal without forcing the vendor to give away major discount.

Having the price protection package will also help overcome the buyers’ reluctance to commit to a new, relatively unknown vendor, which is typically one of the main reasons why smaller companies find it extremely hard to break into the enterprises.

5) Optionality 

A vendor can go even further by giving offering customers optionality, such as the ability to expand their usage at the same price level, or the ability to access new features or new products from the company (in the future) either at a discount or integrated into their existing modules at no additional charge.

This sweetens the deal for some customers. While it does not alter the price or the immediate cash flow it might have a more long-running impact in the future.

Are there other components of a pricing structure that I’ve missed here?

As you put together the first cut of a pricing model, remember to think about the eventual evolution of the company, as well. Your pricing strategy is not going to be static — it has to evolve as the company grows and expands its target market.

Therefore, you should structure your pricing model with enough flexibility so that in the future you can change key elements of the model without causing major disruption and backlash from your customers and targets.

In my next post I will discuss how companies typically develop their pricing strategy, and how they should continually evolve the pricing structure over time using inputs from the customers and related market players.

View all the posts in this series on Enterprise Pricing Strategy:

• An Essential Lever of Growth for Expansion-Stage Companies
• Optimize Your Prices to Power Growth
• Develop a Long-Term View
• Focus on Value

In my previous post, I highlighted the costs of acquiring and serving a customer, some of which are quite elusive and hard to quantify. What I hoped to make clear is that having large enterprise customers can put extreme stress on the company’s P&L in unanticipated ways.

One effective way to counter the unpredictable costs of serving enterprise customers is to have a rational, evolving, and effective pricing structure and licensing model. The price list is a powerful revenue management device that expansion-stage companies have to learn to master in their quest for growth.

In this current post and subsequent posts, I will discuss the main considerations around establishing an enterprise pricing strategy and the different perspectives that inform this decision.

First, let’s discuss the most basic aspects of a pricing model:

Discriminating Price Levels and Communicating the Pricing Model

Price discrimination

The fundamental characteristic of Enterprise-level pricing strategy is that the vendor has to price discriminate its customers in some ways, because of the vast diversity of businesses types, scales, and usage needs that exist in the enterprise market. This is usually accomplished using one or more of the following devices:

Establishing a Variable Component of the Price:

This establishes the rate of growth of the price based on the scale of the license. Most often, this is based on the number of users (for business applications like CRM, HRM software), volume of usage (number of transactions, number of message, volume of storage), number of process/servers, or number of accesses to a network.

Bundling/Unbundling of Modules

Another distinct feature of business software is that they typically come in stand-alone capable modules that offer different functionality or address different needs, even if they are all related to a common platform. Different customers will require different “bundles,” and having tightly integrated bundles allow the vendors to offer more than just a collection of disparate tools and price differently for the sum of the parts.

Bundling/Unbundling of Services

Another way to differentiate the prices is to allow customers to choose or customize the level of service and support they enjoy. The vendor is possibly the best placed organization to provide the highest quality support and services, and pricing for different levels of specialized service and support separately from the right to use/access the software help unlock that value.

Special prices / pricing tiers

There are also differentiated pricing levels that do not fall under those described above. They arise due to special circumstances (for example, a young company needs to acquire a major customer, or strikes a special deal with a potential acquirer), or the unique business model or sector a company sells to.

Examples include:

• Unlimited, all-you-can-eat licenses: for customers that are so large that they would pay an unreasonably high amount if the variable pricing model is applied
• Umbrella licensing: striking a special deal with a parent organization that in turn distributes its access to its subsidiaries or affiliates
• Revenue share: really a special case of usage-based pricing, but instead of usage, it is revenue-based pricing

Pricing Communication

Communicating the pricing structure to the customers and the market is just as important as setting the pricing structure, itself. Here, a vendor in a competitive market faces some difficult questions:

1) How Much Detail to Make Public

Does the company publish the whole price list or pricing structure, or should it just explain the structure without giving actual number? Should it only disclose pricing at the lower tiers (where competition and commoditization have made the pricing among competitors to be almost equivalent) and require enterprise customers to “call for details”?

Having fully disclosed pricing will definitely reduce sales and marketing costs dramatically, yet few vendors are willing to do so.

One might think that a vendor chooses not to disclose its pricing solely for rent-seeking behavior. Without publicly available prices, a customer is at a disadvantage in negotiation.

However, price disclosure is also linked to the price discrimination techniques we discussed above. If a company develops very tailored, specific pricing tiers for distinct group of customers, then disclosing such a complex model might confuse the buyers more than help them.

2) Disclosing Discounting and Negotiation Policies

The company has to also disclose whether its prices — if public — are going to be negotiable in anyway, and if so, how much is negotiable.

Many companies do not do this, but others are very clear about their negotiation and discounting policies. Again, there are pros and cons for each stance.

Having stated negotiation policies may encourage price-sensitive customers but increase costs of sales because customers are more likely to try to get a discount. Stating no negotiation policies allows the company to be disciplined about its pricing model and cause the interested customers to self-select.

3) How Strictly to Enforce Pricing Disclosure

While non-disclosed pricing information can generally be considered proprietary information, the fact of the matter is that customers do talk among themselves and to others in the market, and sooner or later the market will have some level of information about the pricing levels. The challenge for the company is to decide how strongly it wants to protect this information asymmetry to maintain an edge versus a competitor or in negotiation.

These are simply the most basic aspects of structuring pricing — setting and communicating the price. Do you have any comment on these  ideas?

In my next post, I will discuss other important considerations for a complete pricing strategy: cash flows, discounting practices, non-monetary benefits, price increases, pricing for partners, refund and reimbursement practices. I will also share a number of online resources from pricing and software experts that touch the same topic to enrich the discussion.

For many early stage enterprise software companies,  the cost of customer acquisition and service is a real, knotty problem that plague CFOs and investors alike.

Here are the reasons:

1. You typically have relatively few large customers whose pattern of usage and consumptions are so heterogeneous that there is no common way to understand the cost of service of each customer. Every single customer is an exception to the simple cost of customer acquisition and gross margin dependent economic and financial model that technology company typically build to manage their business.

Your economic model therefore has to make too many generalizing assumption about the cost and revenue of each customer, and is susceptible to unanticipated spikes in costs that you can not always plan for.

2. The cost is not always recordable/trackable.  In many cases, the cost of acquiring or serving a customer is not really recordable. For example, if a company tries a mix of marketing initiatives from which it generates demand and ultimately clients, it is not always easy to carry out proper attribution to really understand the exact marketing cost associated with each of the clients.

3. The cost is not always easily quantifiable.  The cost of serving a customer can be a missed opportunity to serve another customer that eventually leads to better product and better revenue. Below, I will highlight a few types of opportunity costs that are not easily calculable or even be estimated.

4. There are unquantifiable, non financial effects. Those effects nevertheless can negatively impact your company’s performance, growth, and ultimate success in the market.

Given the difficulty of doing so, we nevertheless should try our best to understand the cost of a customer and truly build it into the economic model. I want to start first with a checklist of costs that should be in a financial and economics models, and then identify those non-financial or non-quantifiable costs that you need to consider when thinking about your customer strategy.

Typical financial/economic costs incurred by acquiring and servicing the customer: 

• Cost of goods sold: This should be straightforward enough to keep track of and calculate. Refer to our earlier blog post on COGS for a more detailed definition.
• Cost of sales: Would any sales manager be able to truly quantify the cost of managing a sales opportunity from the beginning to the very end? We can think of salespeople’s time, travel costs, software costs, sales engineers’ time, or costs of sales tools. But since the sales team’s time is not infinite, choosing to go after one deal but not the other is implicitly already incurring a cost, which as I mentioned above, may not be quantifiable but is very real
• Cost of marketing: We have already mentioned how hard it is to attribute the true cost of marketing to each customer
• Cost of customer support
• Implementation cost / professional services (that are not already considered COGS): this can be a major cost center for an enterprise software company. Even some SaaS companies require heavy upfront implementation work, such as integration with clients’ APIs or data interfaces, or customizing of software look and feel, or with other 3rd party providers. Check out our series of post on professional services costs accounting for more information on this.
• Account management

Some types of economic, non-financial costs that are often overlooked or not quantified

- Product roadmap “hijack”: A big customer tends to dominate the relationship with its vendor. Just like in the cautionary tale of Walmart suppliers, selling complex software to major clients are fraught with hold-up problems where the client applies economic and reputational pressure on the company to make it work like an outsourced development organization building a solution that is totally tailored just for the client’s need.

- Exclusivity cost: Some clients demand exclusivity so that a company cannot sell to its competitors, while others do not but because they have become your customer and their direct competitors are wary of buying from you as well.

- Management focus cost: Having major customers requires the whole management team to be actively selling and account managing constantly. This is definitely a major cause of distractions for the management team. Clearly, listening closely to the customer is important, but some clients seek far more than their share of attention. Interestingly, this is also an issue if you have a vast number of small, low value customers. Their feedback, inputs and requirements can also outweigh their share of the business, and will cause just as much distraction.

- Premature scaling cost: This is more or less the “failure” cost. In order to serve big, early customers, a company has to act bigger than it is. It has to scale up all of its functions and grow out of its current scale to serve the customers. However, building a scalable organization takes time and people, and scaling too quickly and prematurely can lead to major mistakes and painful redress.

- Opportunity cost: Given that a company’s capacity to add and serve customers is finite, sooner or later the company will need to make tradeoffs between potential segments, potential targets, and potential customers — one less customer you can support, one less opportunity. In a way, getting a customer means that the company lets go more of its own direction and priorities in the market.

Non-economic effects that will still impact your business

- Potential loss of top employee to customer: Some customers can lure away your star employees, especially those that work closely with them and have done great work  for them. Given that they are typically big enterprises, they will have no problem offering a very attractive package for these employees.

-Having the wrong type of customer: This can cause  your organization’s focus to drag, limit your ability to pivot when needed, and give you the wrong type of “revenue,” which can ultimately affect how the company values itself and its strategy.

Did you notice the torrent of media reports on the tepid reception, contentious internal power struggle, and smothering UI design failures of the Windows 8 operating system? The new Windows UI has even been the object of ridicule for something as small and silly as Microsoft’s inability to settle on a name.

But think a little bit about Microsoft’s position. It’s not like it could have gotten any worse.

Every now and then, the tech world gets to observe how a mature iconic tech titan tries to rouse itself out of long term decline, brought about by long, slumbering years of fat, brand-driven, monopolistic profits. The company realizes it has lost its competitive edge, and tries to pull itself back from the verge of disaster.

Such a turnaround requires gutsy, painful, and extremely visionary strategy. The company’s inertia alone is enough to deal with, let alone trying to satisfy notoriously unforgiving tech customers.

Microsoft is trying to do exactly that — in the biggest, boldest, and riskiest move we have seen in years.

I do not want to repeat the chorus, but given how Microsoft has struggled to stay relevant in the last five years this is really impressive — they adopt a totally new, relatively untested UI paradigm, throw their support wholeheartedly behind touch screen computers, and really put their money where the mouth is.

Image by Techspot.com

I remember a very similar moment about two years ago, in the tense anticipation of the release of the first tablet computer — the iPad. I wrote a blog post about how Apple was writing a new chapter in the world of computing. I predicted then that the true impact of the iPad was not about having yet another gorgeous entertainment device, but about ushering in an era of accessible, versatile touch-screen-based computing that would infiltrate even more of our lives than PCs, iPods, or mobile phones would. I thought Apple would stay at the forefront of this revolution for years to come, given their head start in hardware, software, and a thriving app ecosystem.

But now Microsoft is vying for leadership of the next stage with a fully touch-screen-optimized UI that cuts across mobile phones, tablets and desktop computers. There’s chance that Apple’s legacy just might be taken over by Microsoft.

In a sense, this is really Microsoft’s way of getting back into the game (or simply into the game). They were behind and now they’re attempting to seize back the competitive advantage.

In the 1980s, Microsoft struggled mightily for years to achieve UI parity with Apple, weathering a landmark intellectual property suit over things that we take for granted now such as the trashcan. They were late to the game of graphical, window-based (no pun intended) user interface, yet steadily held their course and improved over time — even as critics panned their efforts and the market (initially) looked away.

Do you see where that got them? By 1990s, they had built the extremely popular, functional Windows 3.1 (my first real introduction to graphical UI), and never looked back since. The 30-year reign of window-based graphical UI dominance has ended, and Microsoft has once again braved creative destruction to regain their mojo. I admire them for that.

Here are four other reasons why Microsoft’s move was a calculated gamble that I think will ultimately pay back handsomely:

1) An important idea in technology is the steep learning curve that a company has to climb when it introduces a new technology or tries to play catch up. Microsoft understands this game better than most companies — they have caught up not only on the GUI, but also the gaming console market, and (for a brief time, Internet browsers).

To get into the future, Microsoft is putting all of its weight (and its own future) into the new computing paradigm, as represented by a UI that is radically different from what any other competing desktop OS’s currently offer. By having to roll it out to hundred of millions of users, Microsoft is climbing up Mount Everest using the hardest, riskiest approach.

However, because they have to serve so many users, they will get a lot of experience quickly, and will be able to innovate and improve at a much faster rate than competitors will be able to.

2) Microsoft’s big gamble is also striving to recapture the all-important “end user,” whose experience, enjoyment, and happiness Microsoft has neglected for far too long. These users have drifted away into Apple’s interlocking ecosystems of sleek devices. Even as the corporate users were tied down to Microsoft’s Windows operating system, they reacted by refusing to upgrade to Window’s latest versions (until a few years ago more than 50% of computers were still running Windows XP. I was doing so until March of this year).

By giving up the traditional Windows and approaching the users from mobile devices, Microsoft is trying a bottom-up approach again to gain new users and recapture wayward ones. I would imagine they will get a totally new user to use Windows Mobile 8 first, on a phone, and then move them on to the tablet, before finally settling into the workhorse PC. Microsoft’s re-ingratiation with the user will be complete then. In addition, they get to sell their OS to us at least 3 times!

3) Microsoft is also trying to do something very unusual and bold with another important component of a modern OS: building a functional, vibrant app ecosystems by starting with desktop apps.

By offering the same operating system that spans all devices, Microsoft is offering mobile apps developers the promise of true one-size-fits-all development, not to mention immediate access to a gigantic market of existing PC users who are upgrading to Windows 8. This can potentially let them catch up very quickly to the scale and importance of the Apple Apps store, which, like the Google Android apps store, is still not yet fully cross platform (even between IOs and Mac, or different versions of Android).

4) While Apple has been extremely successful in building a mobile OS, and Google can be lauded for popularizing the open, flexible Android operating system, both have yet to crack the code on building workhorse OS’s like Windows, or even the different distribution of Linux.

Apple still maintains both Mac OS and iOS as related but not exactly identical OSes, while Google Chrome OS is still very much a niche player. That leaves Microsoft in the position to attempt to offer a truly single OS experience across devices again. Given Microsoft’s histories with antitrust issues, this might or might not be bad for innovation and user’s experience in the future, but as a strategic move, Microsoft is clearly aiming to leap ahead of both Apple and Google.

2007 was also the start of OpenView’s commitment to implementing Scrum as an organization — across all teams and functions. I was first certified as a Scrum Master in 2008, and have been actively practicing Scrum ever since, having been a Scrum Master at OpenView and later on a Product Owner for the Research and Analytics Team.

Then, as now, we find that while there are a lot of challenges for us in adapting the Agile methodology to non-development work (at OpenView Labs, for example, we have a scrum team of recruiters, a scrum team of market research analysts, etc.), these challenges also allow us to learn Scrum in a new way. And they give us plenty of talking points when it comes to sharing Scrum war stories with other Scrum practitioners.

Courtesy of ScrumAlliance.org

The two-day Scrum Product Owner training was a great refresher on the core principles of Scrum and how it applies to changing development practices and challenges.

I also walked away with a number of improvements for our own Scrum implementations. While these may not apply to all Scrum teams (because of our team’s unique characteristics) I hope they can be helpful for product owners who are looking to refresh their teams and infuse a fresh set of ideas to take their productivity to the next level.

Improve Your Process

• Improve retrospectives by reviewing waste (I will highlight the seven types of waste in product development / project management in a subsequent post).
• Get someone to own the list of impediments – this is essential to having a long term, serious process to identifying and resolving impediments.
• Demo half way through. Or, in the case of a non-development Scrum, get early feedback, even before the first full version of any output.
• Think about optimizing inputs so less time is wasted on clarifying inputs and re-estimating stories.

Grow Your Team Professionally

• Improve communication skills for all team members.
• Build a team manifesto so the team can have a set of core values and vision that brings its member together.
• Identify potential for cross training and skill cross-fertilization, so the team becomes more evenly skilled.
• Think of each impediment as an opportunity for learning. That will help encourage a positive attitude towards impediment identification and removal.

Be Smarter with Your Project/Release Planning

• Increase flexibility by planning to fill only 70% of capacity of each sprint.
• Have regular, disciplined backlog grooming so that the backlog does not go stale/obsolete.
• Spend more time on planning and describing acceptance tests, so the product built is closer to what is planned, and what is planned for each sprint is more realistic.
• Do proper release planning.

Take Responsibility to Narrow Your Team’s Focus

• Think about the Pareto rule – 80% of the needs can be addressed by 20% of the work. Therefore, your team’s focus should always be on solving 80% of the requirements/needs with the first 20% of their effort.
• Reject projects you do not see as having real impact. They will only rot your backlog, demoralize your team, and burn you out
• Focus on completing tasks before taking on new projects. This is similar to being very disciplined about backlog grooming, but it takes an even longer-term view.
• Be prepared to slow down to catch-up with technical debt, because technical debt will ultimately hurt the team’s ability to focus.

Measure the Right Metrics

• Measure time-to-market as the true measure of project completion and your team’s effectiveness.
• Focus less on individual team member efficiency and emphasize overall project process efficiency, instead. That is a measure of how concentrated a team’s effort is on a given project over the duration of the project.

For more Scrum related resources, check out our Scrum Process and Resource Guide, one of our videos series with Jeff Sutherland, and Scrum Inc.’s Scrum Lab Q&A website.

In my previous post, I discussed a problem that often becomes the Achilles Heel of many a startup: failure to scale the product. I painted a rather dire prognosis of the situation — virtually no company’s product is going to scale at the company’s level of growth.

Courtesy of Paysimple.com

My goal in this follow up post is to note the common vital signs and reasons why a company’s product might not be scaling as well as the financial and economic indicators are suggesting. If executives are able to recognize these issues earlier on they have a better opportunity to devise ways to address them.

Here are five early signs that your company’s product is not scaling:

1) Technical Scalability and Customer Service Issues

This is a hard one to miss. Increased downtime, customer complaints about product reliability, internal loss of productivity due to fire fighting in the R&D department, etc. All of these are tell-tale signs you have a problem.

Customer service issues might also be caused by an immature customer service organization, which is a crucial element of a scalable whole product offering.

2) Product Scope Creep

The warning signs for this problem, on the other hand, are often easy to miss. However, they can be tracked down with a strong PM organization. Issues include:

• Too many feature requests
• Increased technical debt
• delayed release
• last minute insertion of a “must have” feature
• feature bloat (new releases focus on adding new one-off features instead of pushing the vision of the product)

3) On-Boarding Issues

Customers are taking longer to get on-boarded to your platform, implementation of new customers cause major stress in the on-boarding team, leading to slower time to revenue and lower customer satisfaction

4) Growth of Customization and Implementation Services

This is related to the scalability of the product and product strategy. More customizations suggest that the platform is not evolving fast enough to satisfy the majority of the needs of the market, and you are trying to win by offering one-off features as opposed to showing true product vision and leadership.

5) Pricing Inconsistencies

These are caused by both product bloat (there are too many non-standard features that can be added or removed from the price sheet, making each deal a unique exercise in aggressive discounting and salesmanship), or simply a lack of discipline in the sales process (which, in turn, is a sign of lack of repeatability and scalability in sales).

Ultimately, a product leader will have a lot more negotiating power, and caving under pricing pressure is a sign that the product has not grown enough to meet the broader target market that the company is trying to win.

So your product isn’t scaling. What do you do?

The main thing to take away is that at any given point in a growing company’s life, its product is never fully set to scale along with it. It is always going to be just a few steps away from breaking due to the tremendous strain of growth on the company.

Scaling requires constant vigilance and efforts from the management team to recognize these early signs of failure, and to address them by putting in place the resources and processes required for the product at the next level of growth (note I said next — the fact is the current level of growth is already being surpassed).

Lastly, this is not about throwing more resources into R&D to build the next Dreamliner. The next level might actually require a better customer service organization and/or a more rationalized professional service offering. Each of those is part of a successful whole product strategy.

An important skill in venture capital is pattern recognition. A good VC is expected to learn from her past experiences — both successes and failures — with startups, and to bring that experience to the table with new ventures.

Failures are especially important to take note of and learn from. Perhaps even more so than successes. For one thing, you typically have a larger dataset (failures often outnumber success — such is the expected risk of venture capital investments), but there is also the consideration that failures are caused by wrong decisions that can be avoided in future similar circumstances. By comparison, studying best practices from successes can be misleading and much more difficult to repeat.

Courtesy of AYTM.com

In my short five years at OpenView so far, one of the most common patterns of failure I see is a very simple one:

The Company’s Product Does Not Scale

Before we read too much into this, I need to qualify this observation:

• Product here means the Whole Product: in other words, the entire experience that the company offers its customer across all stages of customer lifecycle, inclusive of touch points with the application software, the hardware, implementation, configuration, customer training, customer service, and upgrading experience.
• Scale here means to grow and evolve with the company’s lifecycle in a way that is both sustainable (from an economic model perspective) and defensible (from a technological or competitive advantage perspective).

I think this is an obvious idea that is on every CEO’s mind, but unfortunately, more often than not it has to take a backseat to more pressing operational issues such as pricing or sales and marketing budget. Scalability issues generally aren’t something you can easily recognize in the everyday routine of the company. To do so requires a comprehensive, holistic view of the company’s whole product that really connects the dots between these disparate functions and their growing pains.

But the scaling of the whole product is essential to the company’s success because it really determines whether the company has a long term, sustainable competitive “scale” advantage that helps it compete with both larger incumbents and with smaller, younger startups at the same time.

Unless companies are actively establishing the following scalable processes around their whole product experience, they risk growing too quickly:

• Continually building new feature and product extension to maintain product leadership
• Scaling out customer on-boarding, customer training, and customer support to support a broader, more demanding customer base without sacrificing on the quality of service
• Scaling out the product offering to satisfy more extensive customer requirements, customizations, and complex implementation without draining the company’s resources and margins

Each of these are issues that only rear their ugly head when the company has to weather market shocks or competitive pressure that puts strains on the overall system. They are only detectable when the system that supports them is already close to the breaking point, and when the product is already failing to scale. In other words, by the time they become noticeable it is often already too late. Many companies have to go back to the drawing board and execute a painful pivot in order to get back to a more stripped down, scalable model that they know better and are more comfortable with.

In contrast, with sufficient scale (in revenue, in resources, and in market presence), a company is more able to weather economic shocks, competitive pressure, and major change in executive management, all the while staying on its growth course despite these challenges. Therefore, it’s essential for any successful growth strategy to actively address failure of the company’s product scale.

In my next post, I will discuss how to anticipate the points of scaling failures by observing tell tale signs within different parts of the organization, and how to utilize that information to address the issue in a timely manner.

Product Marketing: Balancing Market and Product driven strategies

Diverse as our portfolio companies are in their sectors, industry focus, product technology, and geographical reach, we find time and again that they sooner or later found it extremely important to have a well resourced, well organized Product Marketing function. In many cases, our recruiting team has helped them — or are actively helping them — find the talents for these positions as well.

Our Research and Analytics team often work closely with the product marketing managers at the portfolio companies because they are at the unique nexus that links the product strategy with the company’s market strategy. With our market research capability and expertise, we provide them with market segmentation, buyers insights, and competitive analysis, and also assist them with turning these insights into information that is used in building both product roadmap and go to market strategies.

Given the importance of this topic, I am very pleased that OpenView Labs is featuring a great series of articles on the role of Product Marketing in startups and expansion stage companies, by Saeed Khan (@saeedwkhan) of On Product Management. In this series, Saeed explains in great detail (and with great visuals) the right definition of Product Marketing, and how such a function should be best built and nurtured within the company. Saeed has been a prolific blogger who has thought long and deep on the challenges of building and marketing successful products, and we appreciate very much his contribution to our site.

Again, I highly recommend  the two-part series for anyone who is passionate about building and marketing great products:

Part I – Defining Product Marketing

Part II – Implementing Product Marketing

I took a few weeks’ off from my Sales Compensation Strategy blog series to focus on wrapping up my team’s quarterly goals and our Q3 projects with the portfolio companies. There is a lot of work in ensuring that internally our Labs teams are achieving the goals we have set for the quarter, and that we’re well on our way to accomplishing our annual goals. But there is even more work involved in aligning our goals with our portflio companies’ via our projects, and then assessing our impact over the past quarter and planning for the coming one.

So I can very much understand the dual sense of excitement and pressure many sales team members and leaders at our portfolio companies and other expansion-stage technology companies feel here at the end of the quarter. There is definitely going to be some hectic dealmaking, last ditch efforts to close deals to hit the quarterly quotas, even focus on renewing and upgrading existing customers whose contracts are about to expire. This is doubly hard for expansion-stage, venture-backed companies because they naturally have very aggressive sales growth expectation and are also typically fighting bigger, more established competitors.

Which then brings me to the last topic of my discussion on sales compensation strategy for the expansion stage: how to reward and retain top early sales leaders.

As in my previous post, there are some distinct issues that come to a head when a company exits the startup phase and enter the expansion stage:

• It needs to grow its sales team and establish a real management structure over the sales team, which tends to grow into one of the largest groups of employees in the organization. The managerial challenge of technology sales at the expansion and growth stages are formidable and the company’s survival really depends on getting the right level of leadership.
• Promoting an early sales person who has been successful (most often one of the early sales people) can be a natural strategy, but it is one that’s fraught with risk. While the newly appointed leader learns his or her way around sales management the company meanwhile has to bounce back from losing a full-time deal maker. The new sales leader may not in fact have the right sales management skills to succeed in the long run, thus creating even more risk for the company’s growth.
• Bringing in a new veteran to lead the sales team is what many VCs would advise their portfolio companies, but the company might risk losing its early successful sales people who find their aspirations for sales leadership thwarted.
• The new stage of growth also typically requires higher quotas or larger deal sizes, and therefore more challenging sales opportunities. Commensurately, to continue to retain and motivate the sales people, companies need to evolve their sales compensation plans, as well. They might become more highly leveraged with commission, for example, or the top sales people can be granted equity to ensure their long term interests align with the company’s growth.
• Another challenge with retention is that many early sales leaders are the Renaissance Reps — talented Jacks of all trades who can effectively run a 1-man sales force with minimal support. However, it is very hard to keep finding more and more of those reps to help the company growth. At some point, a more scalable, less individualized sales organization needs to kick in, and the early sales people might not find the new environment most suitable for them anymore. Of course, there are many examples of founding sales people who grow with their company and continue to lead their team successfully through all the growth, but there are just as many cases where the startup VP of Sales fits into the expansion stage as well as a round peg in a square hole.

There is no perfect, textbook answer to this very thorny issue. In our portfolio companies, we have seen both successes and failures around early sales leaders in many forms. Here are my humble thoughts on the right strategy to anticipate and resolve these issues:

• Plan for it at the start of the venture: If you do have a chance, think of the long term when deciding on the first few sales hires or the co-founding sales leader. Think of the type of sales organization that ultimately works in your target market, and look for those who are flexible enough to adapt with the company as it finds the right model and the path to growth.
• Confront issues early on: Because sales is the lifeblood of a growth-driven company, it is essential that sales problems are addressed early on. Closely monitor the sales organization and strategy, and detect early signs of issues that signal the need for change. Do not ignore these signs in the name of focus on “growth”.
• Be transparent: It is important to be transparent with the sales team, clearly conveying and explaining the growth strategy, their strengths and weaknesses, and the long-term plan. Because strategy evolves so quickly at the start-up and expansion stage, it is important for the management team to over-communicate, to make sure everyone is on the same page. Even a slight perceived lack of transparency on a change in strategic direction might have a huge impact on the team, especially early employees.
• Be decisive: The expansion stage is also that crucial stage when the company solidifies its core teams, their culture, and the foundation of future development. Getting the right people on the team and in the leadership roles is what the senior management team alone can and will have to do. Given we have seen so many ways sales management can falter so rapidly, it does not help if the issues are identified, but the major changes are not implemented with a true sense of urgency.

Please check out my other blog posts in this series on Sales Compensation Strategy at the expansion stage:

• Part I: Common challenges in growth stage sales compensation strategy
• Part II: Encouraging bread and butter deals over elephant hunting with the right incentive structure
• Part III: Controlling costs while maintaining aggressive growth

Design a sales compensation strategy that supports your company’s growth

Last week, as part of my series on growth sales compensation strategy, I discussed designing incentives that encourage more predictable revenue streams by encouraging sales execs to focus equally on large and small deals in their pipeline. This week, we consider the opportunities and perils of  compensating a rapidly growing sales force.

For hard-nosed expansion-stage SaaS technology company executives and investors, it is common wisdom that when the company achieves favorable customer acquisition economics (characterized by having a high enough CAC ratio or Magic number) then the company should invest aggressively in sales and marketing to capitalize on its momentum. At that point a dollar invested in sales and marketing pays back more than enough for the company in terms of long term, recurring revenue.

In high growth B2B technology companies, once a company has achieved a certain scale and market dominance, revenue can enter a period of hyper growth, up to 20-30% per quarter, and 100% per year. If the average reps’ quota is not dramatically increased, then that means the sales team has to grow almost as much year over year. Very quickly, the sales and sales support personnel will constitute a large portion of the employee base, and potentially an even higher portion of operating costs.

In order to stay on the aggressive growth curve, the sales manager needs to plan to rapidly add qualified new sales team members, but at the same time he or she also needs to contain and control the growth of sales costs. Plan too conservatively and the company misses an opportunity to invest early in bolstering its sales team and fails to achieve its growth goals. Invest too aggressively and the company’s costs base grows uncontrollably, outstripping the revenue growth and eating into reserve capital or requiring a sooner-than-expected fund raise.

This can be aggravated by a lack of sales cost controls, especially if the sales team is growing rapidly and its compensation structure becomes more complex with multiple sales roles, measures of performance, and incentive payout schedules. Typically, at the early stages, sales compensation can be easily tracked and planned for because there are few sales persons, a simple compensation and incentive structure, and a low enough deals volume to be tracked closely at the management level. This can change within a few quarters of rapid sales force and deal volume growth, however, and typically companies are either not prepared or do not have the resources to track the growing, increasingly complex sales cost structure as closely as before. It can be incredibly difficult to recognize early warning signs or to make a quick adjustment.

Therefore, even with great sales and marketing economics, sales management needs to consider a number of factors in planning out the growth of the sales force:

• Understand the sales learning curve that applies to the company/product market, and where on the curve the company is. This is another key indicator to determine the rate of growth of the sales team (as part of overall go-to-market investment).
• Analyze key growth drivers. Companies should carry out marketing attribution analysis to understand the best sources of leads and the best marketing strategies. They should also forecast the growth of the pipeline due to new investment in marketing. This is important because it ensures that sales and marketing go hand in hand in investing for growth. I have written an earlier post on three marketing performance analyses that can be done to help identify and prioritize these key growth drivers, and also another recent post on doing marketing analysis using internal databases and how these can all be helpful in sales and marketing decision making.
• Build and continuously update a sales capacity model based on the company’s historical sales data and comparable industry benchmarks. The model’s parameters should be constantly adjusted over time with updated sales reps’ productivity, average deal size, conversion rates, average opportunity age, as well as marketing indicators such as cost per leads, average volume of lead per rep, etc. There can be different models for different sales roles: a capacity model for Lead Generation, another one for inside sales, or for field sales reps. Only by incorporating these data points can the management have a realistic projection of the sales revenues and costs associated with the investment in sales team.
• Start to adjust the sales compensation plan so that it matches with the company’s growth and maturity. Not only does this help with rationalizing and controlling sales compensation costs, it will also help get newly hired sales reps on the right track early on, and spare them potentially painful adjustments in the future.

However, as we have learned from the recent economic crisis, companies’ growth trajectories are too often hampered by unforeseeable factors, and even with the best models and analytics there will be a lot of uncertainty around the balance of sales revenue and cost growth. So together with the growth of the team, it is important to grow the management capability by investing in sales management staff with analytical experience, improving sales performance measurement systems, and investing in a sales compensation management system like Callidus or Xactly.

In my upcoming post, I will turn to the topic of how to retain and develop top early sales people in a rapidly growing organization on the cusp of breaking out.

In the mean time, please visit my earlier posts on sales compensation strategy:

• Part I: Common challenges in growth stage sales compensation strategy
• Part II: Encouraging bread and butter deals over elephant hunting with the right incentive structure

In my previous post on the common challenges of sales force compensation design for expansion stage technology businesses, I highlighted how the lumpy nature of the opportunity sizes can throw off the sales incentives plans by encouraging sales execs to focus on hunting large elephants at the expense of bread and butter deals. That is not necessarily a bad thing — one can say that for a growth business, what really matters is a fast growing, accelerating top line and that huge deals, while typically a pain to win and a pain to service, are essential to sales teams beating their numbers and generating growth investors’ excitement.

But an over-reliance on large deals and a sales culture that emphasizes hunting these elephants can have an insidious effect on the way a company achieves its numbers and ultimately its growth DNA. By optimizing for a large deal-focused strategy, the sales team typically has no time to cultivate a steady flow of small to medium-sized deals that can close faster and require a lot less customization. Having a small number of large deals makes it very hard for management to accurately predict revenue numbers more than a few quarters out, and it also hamstrings efforts by sales managers to establish more systematic sales forecasting, as their numbers will be often thrown off the large variance due to those out-sized opportunities. It is also much harder for junior sales reps to achieve meaningful results if they do not have enough support in winning smaller, easier deals to start with. Yet they are often expected to be able to ramp up to the level of more seasoned large deal hunters.

Having the sales team focus on large deals results in a much more sporadic, impressionistic gauge on the market, because the deals always have specific requirements and structures, preventing the company’s management team to really find its growth sweet spot, which should be a group of repeatable, steadily flowing deals from targeted market segment(s). As OpenView’s founder Scott Maxwell wrote, the key to successful sales is to be at bat often and have high close rates, rather than focusing on the one-off out-of-the-park home run.

How can sales management refine its sales compensation structure to encourage salespeople to balance between hunting for elephants and building a steadier pipeline of standard deals?

From what we have learned from our work with OpenView’s many portfolio companies and from the industries, there seem to be a number of solutions:

• Specifically reward achievement of shorter-term quotas on both deal amount and number of deals to encourage reps to produce a steadier flow of opportunities rather than putting all of their quarterly or annual efforts into landing a small number of large deals.
• Go even further: Penalize reps for not hitting shorter term quotas by reducing/witholding their total incentive payment/commission even if they hit quarterly or annual quotas with the larger deals
• Large deals typically have a large professional services or implementation services component, and they can also be multiple-year commitments. Decoupling the true “high-margin” revenues component from the low margin, less scalable services revenues and rewarding higher commission rates on the former will also encourage reps to be more clear-eyed when evaluating larger deals and dissuade them from wild goose chasing.
• The sales incentives plan should reward upfront cash payment more generously than future commitment, or it should delay the commission payouts for future commitments to later quarters. That will help align sales people’s focus with the company’s priorities in the expansion stage, which is fast growth with a strong cash flow. This strategy does carry a risk of backfiring, however. It can potentially encourage sales people to close short term, small upfront deals while forgoing opportunities for longer term commitments. Still, the risk of wasting sales focus and effort on chasing long term deals and not winning the low hanging fruit is even more detrimental to the company’s growth, as explained above.

Ultimately, the right solution is to refine the sales compensation structure and to gradually segment out the sales team so you have multiple teams focusing on the different types of opportunities, which all call for different selling strategies and behaviors. It would be much easier to rationalize the different sales teams’ incentive plans then. As I have noted in the previous post, even though most companies do not have the resources to do so at the early expansion stage, it is important to start planting the seed of the future team structure early enough.

Setting up an inside lead generation team that can ultimately evolve into an inside sales team does not have to be a huge investment in time and resources. For example, at OpenView, we have helped multiple portfolio companies build and scale out their lead qualification team in a few quarters with very reasonable investments, and we’ve seen some of these teams effectively transition into very effective inside sales forces over a short period of time. It can start out with just a single team member or two, yet the impact on pipeline generation and the predictability of the revenue is more than immediate.

In my research, I have found a number of ideas on this topic, and I encourage you to check them out as reference:

• Jeff Saling has a great post with very specific parameters on this and other sales compensation considerations at Cloudbook.net: http://www.cloudbook.net/resources/stories/sales-compensation-and-incentive-plan-principles-for-enterprise-saas-and-cloud-teams
• Philippe Botteri’s 2009 post on SaaS sales compensation is still regarded as a great starting point: http://cracking-the-code.blogspot.com/2009/01/building-your-saas-sales-compensation.html
• InsideSpin has a nice overview with some great ideas and benchmarks to go with: http://insidespin.com/sales-topics.php#compensation

In my next post, we will move on to sales cost (both salary and incentives) and sales capacity planning for a fast growing sales organization — a far reaching issue that requires a combination of deep analytics and an accurate read of the market to get right.

Sales force compensation is a very challenging and sensitive topic to broach from any number of angles. To people outside of or not familiar with the sales profession, there is unfortunately too much stereotyping of sales compensation as over the top, condoning aggressive sales tactics, and out of touch with the rest of the company’s compensation structure. Within the sales profession and management executives, there is constant debate around the right compensation structure as a mixture of performance-based commission versus base salaries.

To date, most of the literature and research out there typically focus on two types of organizations:

• Mature organizations or organizations in mature markets with a sizable, established sales force. For them, the challenges are most acute in maintaining and improving sales productivity through fine-tuning and continuously adapting the sales compensation structure.
• Innovative, one of a kind companies with a new business model or compensation structures that either go against the common wisdom or have some novel characteristics. For these companies, the key challenges will be how they will sustain these models as the company matures and starts having to fend off competitors and copycats.

I find that there is still not a lot of great case studies or discussions around a special set of companies that are of most interest to us at OpenView — fast growing, expansion-stage technology companies. From our experience, these companies are typically at a point where they have a good product, have found a proven market that accepts that product, but need to rapidly ramp up their sales force to capture a broader market and create enough momentum to take them to the next level.

Of course, to do this well it requires a combination of great management leadership, judicious strategy, and a receptive, growing marketplace. But sales execution and sales force growth and motivation, in particular, is one of the key differentiators for companies in this stage.

We see three distinct sets of challenges around sales compensation, which I shall discuss briefly here and explore further in upcoming articles:

• Compensation for a sales force that is selling both very large deals and much smaller deals, when the sales force is not large enough to be segmented by deal size/market. This is very common with companies selling infrastructure software, which can be used by small technology customers or major corporations. There is always a balance to be made between encouraging sales people to hunt the large but risky “elephants” while at the same time ensuring that the company still has sufficient coverage of bread and butter smaller deals, as these deals help ensure a more predictable stream of new revenue.
• Compensation and cost planning for a sales force that is growing rapidly on the company’s momentum in the market. On the one hand, sales costs can quickly become uncontrollable if the company does not master the sales learning curve and plans to add / promote its sales people appropriately. A deep analytics challenge that arises in this situation is to understand how much of the growth is dependent on marketing investment as opposed to sales efforts, separately from the market’s organic growth.
• Retention and promotion of the top early sales persons. It is not clear how fast growing companies should compensate their top sales people, who typically account for an outsized proportion of their deals. Promoting an early top sales person into a managerial role (like a VP) risks hurting short-term sales productivity, increasing their commission risks outpacing the company’s growth, and granting of options reduce the pool for future senior management hires. Making these decisions harder is the fact that the first few successful salespeople tend to be the Jacks of all Trades — renaissance salespersons whose versatility tempts the management to rely on them more and more.

In the next few blog posts, I will explore these challenges and how companies are addressing them, hopefully bringing out some interesting insights that will help sales management design more effective compensation strategies for fast growing companies.

And while most investments start that way, it isn’t long before some companies’ euphoria gives way to disaster.

Unfortunately, starting from the notorious “Webvan” of the dotcom bubble, the high tech “deadpool” is infamously littered with many examples of ventures that either had no business accepting outside capital, or had issues that couldn’t simply be solved by more money. That many startups fail is not ground breaking news, of course, because venture-backed startups are risky investments and have a very high rate of failure, by definition.

The more relevant issue is why they fail. In my experience, it happens for five simple reasons:

1. The product isn’t a must-have in the long run

A lot of nifty, trendy software startups produce nice products that appeal to early adopters. They’re good enough in the first few years, but they might not translate into mainstream appeal as the business begins to scale. And if you haven’t cornered your market or your customers can’t live without your product, then what’s the point of trying to grow bigger with outside capital?

2. The technology architecture isn’t scalable

It’s one thing to support a handful of customers early on. It’s quite another to support thousands (or millions, if you’re Facebook or Instagram) of customers. Unfortunately, far too many businesses assume that their technology can scale with their customer growth. When something inevitably goes wrong and they aren’t prepared to deal with it, that seemingly small issue can sink the entire business.

Imagine what would have happened if Instagram hadn’t been able to support the million new Android users it received in just 12 hours last April. Instead, the popular photo sharing application handled the influx seamlessly and signed a $1 billion acquisition offer with Facebook less than a week later.

3. The business model isn’t sustainable

It’s not uncommon for unprofitable companies to receive very significant outside capital investment (see: Groupon, Pinterest, and Twitter) that let them continue to operate unprofitably for a long time. And while unprofitability isn’t necessarily an issue in the startup and early growth stages, not having a profitable economic model in place for the product you plan to sell is a huge problem.

A lot of founders think that the only reason they aren’t making money is because they aren’t selling enough of their software. But if the economic model that supports the business is ultimately unprofitable, then that assumption is a fallacy. As you sell more of an unprofitable product, after all, you’ll simply be more unprofitable.

4. The senior management team is inept

For almost any business, bad management is bad management. If you haven’t assembled a forward-thinking senior management team that can set the right course for your business, then the company is doomed. Moreover, good management at one point in the company’s lifecycle can be totally inappropriate (or even bad) management at another stage in the company’s growth. So it is essential that the company’s management is always looking to upgrade itself, and be wary of complacency. Ultimately, no amount of outside capital can rectify a senior management team’s failings, as it is the senior team that decides its own fate.

5. The company doesn’t know what it wants to be

Given the right execution and strategy, almost any company can scale once they have avoided the previous four pitfalls. But what is it trying to scale to? Do you want to be a platform? Are you strategically acquiring customers in the hopes that the business will eventually be bought out by a competitor? Too few companies ask themselves what they want to be when they grow up. They lack a vision for the future and, as a result, misappropriate the capital they receive from outside investors. Before they know it, the money’s gone and their investors aren’t willing to pony up any more.

The good news? Failure doesn’t have to be a death sentence.

Twitter is a perfect example. The social network had several catastrophic outages earlier in its early development, largely because the product wasn’t scalable and the competitive landscape was stiff. But the company swallowed its pride and was quick to admit its shortcomings, digging itself out of the aforementioned pitfalls before it was buried for good.

That’s the real key to scaling, after all. Yes, raising venture capital can help you grow your company. But building a great, big business has far more to do with execution and vision. Cash should simply be used to support those two things, not as an alternative to good management and strategy.

Image Credit: renjith krishnan / FreeDigitalPhotos.net

I must say this: we are still in the Stone Age of SaaS Marketing!

The industry is still missing the point about marketing SaaS product and that is why SaaS customer acquisition costs have been so unattractive. Yet, everyone is still trying to paint a rosy picture of eventual profitability and sustainable customer acquisition costs, and using that to justify sky high valuations and market capitalizations.

Even for companies that start out with a nice, lean and profitable customer acquisition model (not necessarily profitable in accounting terms, but in the sales and marketing vs first year booking terms), as they scale up and start trying to inorganically grow their business, their marketing costs shoot through the roof, and the sales team never look back. But, as I have pointed out before, sometimes more marketing does not mean better marketing.

I think a huge missing component of SaaS marketing is the failure to explain and sell the “customer experience” and through it to connect on a personal level with the buyers and users. And this is not because SaaS marketers are not good marketers – they are great software product marketers, but they have only focused on the “Software” piece and neglecting the “Service” piece of their offering.

We need to look back to good old Service Marketing principles to glean some valuable lessons.

Service Marketing, the marketing of (often human-rendered) services (not of physical, transferable goods), is the ugly stepchild of what we typically considered classical marketing. Unlike the classic marketing setup for an actual product, a “service” has several distinguishing (and perhaps extinguishing – in the sense that it makes marketing it a lot harder) features:

• intangibility: it is not a physical entity that can be viewed, evaluated and tested. In fact, it is the ultimate “experiential” good.
• inseparability of production and consumption: the service rendered is also the service consumed, therefore, the quality of the service is tied closely to how it is produced and consumed – there is no “recall” or  ”mass quality control” of these services
• heterogeneity: because service is often done by people, for people, it takes on a manner of customization and variation, and the perception of its quality and value differ greatly
• perishability: one can’t stock up a “service”, nor can one transfer a service from a customer to another without major modification

Being increasingly more of a “Service”, a SaaS product clearly faces the same type of challenges:

- Intangibility leads to difficulties on both the marketer and the prospect in the buying cycle: it is harder for prospects to evaluate the SaaS product until it has been used for some time. It is hard for the marketer to prove the value of the product and show off  the return on investment.

- If we look at SaaS product as a service, then it makes sense why pricing SaaS is always so confusing: a service cannot be priced too rigidly because it needs to address a wide range of requirements and usage demand, but its prices can not be too variable because it will affect the company’s economics models and cause a lot of distrust in the customer base

- The most important measure of value for a SaaS company comes from the ongoing whole product experience, which incorporates customer service, support and user experience, is paramount. It is well known that performing a good service is the most important marketing weapon for a service marketer, and a SaaS marketer has to ensure that the technology performs, the service is available (99.9% SLA), and that the human interaction is also superb. It is incredibly hard to do this well - there are not a whole lot of SaaS companies that are well known for their great customer experience, not because of the lack of trying, but because of the immense and impossible scope doing it well, especially for complex B2B enterprise applications.

Apple’s strategic weapon is the great whole product experience that they create for all customers, from the beautifully designed hardware, the intuitive user interface, the classy retail stores and helpful sales associates, to fantastic software that do not fail to work, but it is because they have the scale and the skill to control all of the components of their supply chain (literally and figuratively). SaaS companies are still along way from this mastery.

My colleague Firas Raouf is also speaking on a very similar angle:  marketing the cloud is all about delivering the service, at the Mass Technology Leadership Council today.

In my next post, I will discuss how we can turn these challenges into opportunities, leveraging the very differences that stumble unsuspecting software marketers when they try to sell SaaS product.

Image provided by: Fancy Heat

This is why IBM, the grand-daddy of IT companies, has been able to renew itself and continue its transformation from a hardware (product) heavy vendors into an all encompassing, solutions centric, services-focused powerhouse.

How do young, expansion stage SaaS companies leverage on this knowledge and become better at marketing the service they offer? Again, lessons from successful service businesses should give some guidance to how they can lean on the pecularities of service marketing. Below are some techniques that have been found successful in classic service organizations, and some thoughts on how they can applied for SaaS companies:

- Be more personal: To differentiate from the crowded marketplace, SaaS companies need to always be selling the personal experience, the personal achievements the end users and buyers can associate with using the product, rather than simply flaunting the technical specs or feature richness. Even though many SaaS companies are selling to businesses, it is all too often to forget that businesses are run by people and the decision makers are ultimately still looking for a good, personal customer experience.

- Build concrete business cases: As with service offering, SaaS purchase can be hard to justify, as it is spread over a long period of time, and that tends to force SaaS companies to underprice or offer generous payment plans to reduce the upfront costs or commitment. Instead of falling into that vicious cycle, SaaS companies should focus on showing tangible immediate values of using the service, and build concrete, quantifiable business cases around that.

- Create strong organizational image: As any SaaS business incorporates cloud computing in the sense that the clients’ data is stored outside of the customer’s firewall. Being on the outside, SaaS offering needs to be rely on a strong, trustworthy organizational image to give prospect customers the same sense of assurance. Moreover, as we noted, it is harder to transfer an unit of “service”, and thus there is no direct way for SaaS vendors to signal their quality or success, unless it is so well demonstrated in the public that everyone knows about it. To do so, we can consider the following specific tactics:

• Have public and consistent mission, vision and values
• Emphasize selection and training of client-facing employees to ensure excellent interaction
• Build thought leadership in the industry as an innovator, an industry supporter

- Focus on whole customer experience/customer intimacy: Many companies should do this, but SaaS business needs to consider this the most important task because the service only means value if it satisfies the needs of the customers. For them, focusing on customer intimacy as a discipline means:

• Actively manage the customers relationship
• Emphasize customer onboarding and support as a strategic component of the offering
• Measure and constantly seek to improve customer experience

- Focus on and prioritize the right segment: However, the intensive focus on holistic, end to end customer experience means a heavy weight on the company’s resource. This can only succeed with a razor sharp focus on the best customer segment, and focus on serving the best customer even better:

• Be willing to turn away customers that are not a good fit to limit the amount of resources spent on them
• Develop different level of customer support services to so that customer services resources are allocated proportionally to the customers’ value and fit with the company’s model

If you want to explore further in this topic, check out Hinge Marketing’s rich set of resources on Service marketing techniques, many of which are readily applicable to SaaS companies, as we have mentioned here.

http://www.hingemarketing.com/library/article/changes_in_the_professional_services_marketing_mix_traditional_vs._online/

http://www.hingemarketing.com/library/article/elements_of_modern_professional_services_marketing_1_research/

http://www.hingemarketing.com/library/article/how_to_build_a_high-value_high-growth_professional_services_firm_video/

The short answer is “Neither of the Above”. If you are not familiar with the term, then let me quickly explain its origins: it is term used by Steven Krug, as part of the title for his book “Rocket Surgery Made Easy“, in which he did not write about any form of surgery, nor any rocketry. Instead, the book used Rocket Surgery as a metaphor for the mythically expensive, complex usability testing process, which Krug has broken down and reconstituted as simple, cheap yet incredibly effective user testing methodology.

His approach emphasizes short, straightforward tests that can be done with a wide range of testers that allow product designer and user experience designer to get quick feedback and fresh ideas to improve a software/website incrementally.

This week, I ran the first usability test myself, with our team intrepid Market Research Intern, Rene Miller. The application I wanted to test is an internal analytics tool used by our team to capture and analyze complex set of data. It is under constant use by our team and thus we are always improving it and making it more useful and intuitive to us. However, I wanted to follow through with the Rocket Surgery methodology and give it a try with Rene, who hireto was not aware of the software and how it worked.

The setup of the test was simple:

- I reused the templates provided in the book, printed the checklists, the introduction templates etc. I wrote a test script with 9 tasks which vary in length and complexity, but is nothing mind boggling or impossible to do. I thought the test would take about 1 hr, but it ended up taking a total of 2.5 hrs to go through.

- I set Rene up in the testing terminal, which is essentially my Mac Book Airlaptop, connected via Thunderbolt cable to a 27in Mac monitor. Below is a photo of the actual setup

User Testing Station

- Before the test itself, Rene was given some time to watch some instructions video for the application to familiarize himself with the tools, but he was not given access to the software itself

- To record the session, I installed a trial version of Silverback. I had previously created a small video with this tool and thorugh that it was a great screen recorder for Usability testing purposes

- I went through the checklists again to make sure that I did not miss anything important, and then asked Rene to start. The test was on! As Rene carries out the tasks listed, he spoke his thoughts aloud and tried to highli

The Testing Process

One thing I cannot emphasize enough is that time really flies in these tests. Because of the interactive nature of the format, the level of details I was asking from Rene, and the free-flowing nature of some of the tasks, we ended up having to split the session into 2 session, one about 1 hr long and the other 1.5 hr long, to accomplish all the tasks in the script.

I was nervous about the ongoing, spoken feedback as the tester carried out the tasks, because having been so close to the software itself, I was afraid I would take some of the feedback too personally and felt discouraged with the number of issues that would be uncovered (which I was sure would be plenty).

However, it was actually great! I got to see how someone brand new experiments with the software and accomplishes cool things, and I did not feel too hurt about the issues that he raised, because I know that those are important and will help improve the product tremendously.

The Results

So surviving Rocket Surgery is not so hard – it was a great time that actually flew by too quickly. Why I loved it? Because it opened me up to a totally different customer experience and user mindset from my own experience and other team members’ experiences. Rene’s newness to the application allows him to point out usability issues that our team has overlooked before, simply because they were too used to it.

Not only that many usability concerns were uncovered, new ideas for improvement and productivity were created, on the spot, or right after, during the recap of the test. It seems that as long as the participants are intellectually engaged, we will have really valuable feedback and innovative ideas for the product.

I will be writing more about how to turn these insights into concrete product improvements ideas and the challenge of prioritizing those in the backlog.

I was wrong! My prediction of the sea change was too modest. The iPad has accomplished two things: it fully cemented Apple dominance in the world, and reshaped how people use devices in the new era that we can call the Post-PC world. All of this within the last 2 years!

The statistics are indisputable: Apple devices, once only popular in the niche circles of the hip, the artistic and the loyal Mac fans, are now found in 50% of US households. Like the TV or the radio before, the Apple interface, the Apple experience is now the mainstream.One can say that it is an Apple world rather than a Post-PC world, but I would want to emphasize that Apple is defining the what it is to be post-PC.

Image provided by: Silicon Valley Insider

The competition has been unsuccessful in launching any iKiller – as far as we can see, in the last 5 years, Apple defines what it is to have smart phone, what it is to have a tablet, what is it to have an ultralight laptop, and all of these are jealously guarded under the Apple brand, so competition can’t even compete or copy in anyway. Apple sells so much of those devices that they totally dominate the supply chains, they dictate the ebb and flow of global supplies for mobile device chips, for LCDs, for micro lasers, and a host of other things. This might sound like a pean to Apple’s greatness, but it is simple just a compendium of facts about the brand’s total domination.

To further evidence the coming of the Post-PC era, we also know that Apple is rapidly encroaching into the domains of business IT, primarily with the iPhones and the iPads, but I will not be surprised that the “I”nvasion of corporate offices will continue and widen with the Mac Book Air, Mac Book Pro and iMac.

Apple can do this because they have the guts to aim for the most ambitious prize – changing the rules of the games, predict what the consumers want out of mobile devices rather than following well worn path, even if they were late comers to the market (as it happened with iPods, or the iPhone).

Apple wrote its own rules when it comes to product design and product features, sometimes sacrificing product specs or functionalities for overall experience (remember how the first iPhone had bad email – but it did not matter, because people used the iPhone to surf the web and play), and won the game for the minds of the consumers.

Apple had gutsy, all encompassing marketing strategies that towers over competitors in style and taste.

The incredible thing is that in their re-invention of the what a mobile interactive entertainment device can be, Apple is going to compete heads on with more than just PC or table makers. For example, within 3 years, iPads sales will soon catch up with that of the latest gaming consoles such as Xbox 360 or PlayStation3, and the iPad is already better than these consoles in many ways and can replace them for many entertainment and gaming uses.

The reason for this is that unlike the consoles, that are built in long cycles, Apple has gone through 3 iPads in 3 years, constantly improving the specs and lead the product down a totally revolutionary path.

Unlike the home gaming consoles, Apple iPads are meant to be self-contained, self-sufficient unit that can be both a home gaming console (when paired with Apple TV or Airplay), or a powerful mobile gaming console. Its touch screen makes it user friendly to all types of consumers, and thus immensely widen its reach and appeal. Both PC makers, home entertainment centers  and game console makers miss this point, and thus their products look woefully archaic compared to the sleek, fast and incredibly versatile iPad.

While I celebrate diversity and competition in the market, I can’t help but be deeply impressed by how the world of consumer technology is being shaped and changed drastically by the impetus of innovation led by Apple. I thank Steve Jobs and his successors for re-imagining how we can use computers and giving us the wonderful devices that we use today.

image provided by: Flickr

A few years ago, our founder and senior managing director Scott Maxwell wrote a series of influential posts on “The Lonely CEO”. He made a powerful case why the CEO at the expansion stage is indeed among the loneliest jobs there are. The CEO alone shoulders the responsibility for the growth and continued success of a young, fledging company, while trying to balance the demands of customers, investors, the aspirations of his employees, and the whims of the marketplace.

A recent study, cited by the Harvard Business Review, further confirms this observation with some very concrete data on a large sample of CEOs across the industry and stages of the company’s lifecycle:

Findings from our inaugural CEO Snapshot Survey™ (PDF)reveal that half of CEOs report experiencing feelings of loneliness in their role, and of this group, 61 percent believe it hinders their performance.

Clearly, being a leader of an organization and having the prestige and material rewards associated with such position also require a huge emotional toll and lot of sacrifice for them.

The article also points out that first-time CEOs are even more susceptible to the stress and sense of isolation that comes with new-found authority and responsibility. This is particularly important for us because as a Venture Capital firm, we work with many first-time founders and entrepreneurs and have a chance to partner with some of them as both investors and consultants, and these are issues that we need to be extremely aware of and be sensitive to.

The article also points out 3 main strategies to help alleviate this for CEOs:

• Accept Reality: This might be the most fundamental, and can only be done by CEOs themselves. To cope with the loneliness better, they would want to accept it as part of the responsibility they need to shoulder, part of the job, and tackle it head-on instead of trying to avoid it.
• Seek Support: Another article in the series by Scott Maxwell listed many ways and places to get support for the lonely CEOs. Check these great, practical suggestions out.
• Keep Moving: An essential quality of great leadership is decisiveness and confidence. The CEO’s can-do attitude has an incredible, magnetic effect on the employees morale and success, while indecision will further exaggerate the overwhelming feeling of powerlessness and isolation. I have also written about how to avoid paralysis by analysis and how to learn to start executing on a strategy early enough.

In addition, in a recent post, I discussed the challenge of balancing the CEO’s time spent on the inside or outside, in meeting or in reflection, and it seems that the hectic travel and meetings schedule can contribute to the sense of loneliness and isolation that CEOs feel as well. Having more internal face to face time with the senior managers will strengthen the internal support team and keep the CEO more grounded as well.

Hope that there will be more resources and articles that help recognize and address these issues – CEOs deserve to be happy, motivated and focused on building great organizations.

image provided by: shwep / Flickr

Now that you have raised your first multi-million dollar institutional venture funding round, you are rounding out your team from the top to the bottom. Your helpful VCs and advisers suggest no-brainer strategies to capture the massive market opportunity that your product and funding are now able to capture. Yet suddenly, all around you, you sense a gradual but unmistakable infusion of inertia throughout your organization. This comes in many flavors:

• Simple projects require many more participants and stakeholders, and thus take longer and become more contentious
• Simple decisions require many more approvals steps and double-checking and thus take longer to be made
• Your managers are not as willing to take risks as before; they make fewer decisions, deferring more of them to their superiors
• Some new employees appear to be just riding along, either lost or indifferent, unless you spend the time to harangue them on company’s values
• Your product is not evolving as fast as it was – the development team is always complaining about technical debt, customization and customer support calls

In short, what used to characterize a fast moving, agile technology startup starts to fade away, and the organization as a whole seems to have lost its innate sense of urgency – an urge to capture the market opportunity, win over the customers, and build something great in as little time as possible.

Of course, I could be rather extreme here in listing out all of these issues and giving a dire prognosis for a company entering the expansion stage. Moreover, this is not because the company or its people have gotten worse in any way. Indeed, I think most companies do a really good job of maintaining their culture, core values and the customer focus they had when exiting the startup phase and entering the expansion stage, when they build out their processes, their economic model and get ready to scale these up.

However, there is a logic behind the pessimism, and again, it really is very simple, even though its impact is stated in such dire terms mostly to grab your attention. Turns out that when your company enters the expansion stage, it needs to double up on its energy levels, it needs to work extra hard on its agility, and it needs to put twice the focus on having the sense of urgency. The growth in organizational size and complexity as the company grows is an important factor in this. With more employees and more layers in the organization, messages, ideas and execution take more time to percolate through. With a larger and growing customer base, of course it is getting harder to please the increasing number of requests and complaints. Your trusted associates, many of whom probably helped found the company, are now being asked to manage people instead of doing the work themselves, and for many, it would be a difficult transition because they might have never needed to delegate.

Moreover, decision making slows down because decision now seems to matter more, because more money is at stake, more livelihoods are put at risk, and more outputs are expected.

Even if each person and department in the your company is instinctively slowing down by a little bit because of the new scale and complexity of the organization, the cumulative outcome can really take the winds out of your growth sails.

Again, it is not going to be solved by just blaming the employees and the loss of the culture of the organization. To counter the growth of inertia, the best solution is to emphasize even more the important of having and demonstrating a true sense of urgency. The leaders of the company need to demonstrate it themselves and steer the organization along this, using the following 5 pillars of true sense of urgency:

- Organizational alignment and commitment: Despite its growth, the whole organization needs to always fully internalize and commit to the mission, vision and values of the company. Very importantly, agility needs to be part of the values, as we further explain below.

- Business impact focus: All employees have to think about business impact in all that they do at work, so that they can constantly prioritize and re-prioritize their activities so that maximum impact is achieved that align with the organization’s vision and goals. A focus on business impact also prevents long, drawn out projects that run away because there are too many cooks in the kitchen, or because the goals are unrealistic, because it brings into focus the diminishing returns of additional resources on the projects.

- Agility, or “scrappiness”, in the startup lingo: The company needs to still think and act like a startup in many ways, especially when it comes to dealing with customers, or developing new products/services. The leaders need to constantly emphasize this attitude, and reward employees who continue to demonstrate flexibility and agility in dealing with new situations.

- Risk taking: A startup is constantly taking risks, and by taking calculated risks, your organization is where it is now. The expansion stage is still too early to be risk-averse, and you need to reward decisive risk taking behaviors at all levels within the organization, as long as the bets are taken with robust, logical supporting arguments.

- Recognition of demonstrated sense of urgency: To really build a robust culture that values agility, impact and experimentation like described above, it is essentially that these qualities are recognized, reinforced and rewarded. Not only that the leaders need to show these values, but they need to learn to recognize them in their subordinates and single those instances out to inspire the rest of the organization.

Further reading: I have also written on a more specific aspect of this in my earlier post on keeping the innovative culture alive as your company grows.

image provided by: Stuart Miles / FreeDigitalPhotos.net

This statement about education sounds like a platitude that one would say when they run out of ideas on economic development topics. Investment in education is a no-brainer, risk-free, universally accepted strategy. Everyone can accept it.

But not everyone has the vision and conviction to actually invest into education for a specific purpose, to really achieve a concrete goal. States are now cutting back on education funding, and legislators argue inconclusively about how to improve our supposedly failing education system. We can’t stop hearing about how the U.S. school system is under-performing, that our children are not being educated correctly, and that we are falling behind in science, mathematics, technology. We even hear that our vaunted higher education system is not producing enough engineering, computer programmers and scientists to help us maintain our innovative edge over up-and-coming research superpower like China or India. Yet, for the most part, the discussion hovers around the theoretical, the macroeconomic, policy-making level, and remains distinctly removed from the majority of the society.

It is thus so empowering and admirable that Fred Wilson has lent his support and enthusiasm to solving part of the education quandary in a very specific but potentially tremendous way. I am referring to the Academy for Software Engineering in NYC, recently announced by Mayor Bloomberg, a high school project behind which Wilson and his wife are throwing full support. The school is still very much in developmental phase, with a recently hired head and advisory board, but it represents a bold initiative, an inventive solution and an inspiring hope.

If this works out, it would be a great model for other cities in the U.S. and the world to provide a suitable environment for kids who aspire to learn the skills and mindset of software programming. This is incredibly important, because even as the Information technology has led to tremendous productivity innovation in science and engineering, traditional engineers and scientists are finding that their tasks are being made a lot more efficient with the help of computer software, yet the software itself still requires a huge, highly skilled and highly manual staff (it’s still a lot of typing of code on an editor) of computer engineers. And that is the heart of our massive lack of good software programmers – there is not just enough of them to build all the software that we can think of.

By investing in education, Wilson is investing for the really long term, investing in the far future to build a competitive edge of resources and talent for NYC for years to come. It is also admirable because this is going to involve many parties, requiring a lot of dedication in monitoring and coordinating the stakeholders, and is still a very risky project.

I remember going to a wonderful high school in Singapore and specializing in computer science, physics and mathematics in the equivalent of junior and senior year in the U.S. I would have computer programming class almost everyday for two years, and really got a chance to whet my appetite in programming in multiple languages, learning about the ins and outs of stacks and queues, linked and doubly linked lists, constructing mini applications, learning about the software development cycle (unfortunately, we didn’t get to learn the Agile Methodology, it being still new back then) etc. The reason for this is that Singapore’s education system was very conscious of the needs to impart engineering skills early (to those who want to learn it), and provided the right support and environment for that learning, so that it can provide the best engineering and technology talent to its economy.

I think each city should think about its competitive advantage and resource requirements in the same way, and learn from the experiment at the AFSE in New York. Boston, for example, will also benefit from such a center, and I would be glad to support such an endeavor.

image provided by: hooverine / Flickr

It might sound counter-intuitive, but for a fast-growing Internet technology company, sometimes less marketing is better. Before you disagree and point me to the examples of runaway startup marketing success such as Dropbox, Pinterest or Fab.com, please let me explain what “less” really means and the pros and cons of doing “less” marketing.

There are 3 way “less” marketing means for me:

• Less attention from the general press (in some specific cases, less attention from the tech blogosphere)
• Less coverage of the marketing tactics and marketing channels
• Less promotion, less $ spent to acquire new customers

First, let’s just point out all the issues with adopting “less” marketing:

• If we do not spend a whole lot of time getting the blogosphere and media attention, we will not get much press, we will not get the desired TechCrunch “bump” in traffic so crucial to many startups. We won’t get nice reviews done by Walter Mossberg on the WSJ that drive thousands of new customers to sign up.
• If we do not use or spend enough on multiple channels, including of course Google AdWords, a smattering of blog-based display ads, or even some mobile ads, we would risk not generating the momentum and growth that we need to demonstrate to our next round investors of our runaway success. As a result, we might just run out of funding and have to close shop.
• Without press coverage and sufficient presence on the market, we will lose the first mover advantage, and will have a hard time differentiate ourselves against our competitors. (who will undoubtedly spring up right after any first mover)
• Lacking presence and hype in the market, it would be increasingly hard for us to recruit top-tier talents, especially developers talents, who spend most of their waking hours online.

So aren’t we shooting ourselves in the foot with this pig-headed idea that we should do less marketing? Here comes some counter arguments to think about:

• In a recent interview, marketing guru Regis McKenna, whose all encompassing Apple marketing strategy I had reverently wrote about, said “Less attention is better,” and cited the example of the Big Blue 1984 ad run by Apple as an example of where “More” is worse – the ad generated a lot of attention, but it did not generate the right type of reaction in the desired type of customers. It grabbed all the attention, it drove away corporate buyers, and became the iconic representation of the Mac, even as Apple was losing money. Attention actually makes it harder to segment the product.
• More attention, more promotion leads to a lot of new customers or sign-ups, which we tend to thing is always a good thing. Not so for a scrappy, fast-growing startup. The product probably still needs some tweaking (even after an extremely successful beta launch), the company needs to figure out the rest of the whole product experience package: customer onboarding, customer training, customer services. Imagine trying to recruit people for these positions, while training them at the same time, and expecting them to deliver the perfect customer experience to the hordes of early adopters who flock to our service after a mention in the press. Somehow, it tends to disrupt more than benefit the company.
• As McKenna also points out, “attention” is impossible to segment, because attention is not driven solely by needs or usage intent. When a company opens the floodgates too early to get the coveted mass of customers for the elusive “network effect,” it is surrendering a lot of its control over the customer experience and product direction, because it will have to start responding to the customers’ needs, its product road map starts to branch into different specific directions, based on how the customers’ feedback and influence are going.
• Avoiding lack of segmentation is also the reason why we should not spend a whole lot to acquire new customers and cover the full spectrum of modern online advertisement. With the typical startup-level amount of resources dedicated to marketing, it is going to be impossible to run, manage, analyze and optimize many marketing channels, for multiple segments at the same time (especially if we do not know the segment extremely well). More likely than not, spending more and doing more marketing might actually make it worse because the complexity renders any performance measurement impossible.
• The last advantage in laying “low” is that we do not wake lumbering competitors up, and we also do not build such massive hype and expectation (the Color app first launch comes to mind), that when we inevitably fail to deliver that high expectation, we risk a major backlash and subsequent lapse into irrelevance. Again, if we do not spend a whole lot on market exposure efforts, we will be able to control the expectation, avoid sending a massively threatening (but toothless) message to our potential competitors, and generally be able to launch and hone the product, build a loyal, responsive community of customers in peace before scaling up to the next level.

The startup and early expansion phase of a company invariably is the “War” phase, to borrow the Peacetime CEO vs Wartime CEO terminology invented by Ben Horowitz. Sometimes we might feel that marketing strategy is the drum corps, the shock troops of the market battlefield essential to ensuring victory. But as Sun Tzu says “To subdue the enemy without fighting is the acme of skill” — i.e., sometimes Less is More.

Image provided by: emilywjones

In Ben Horowitz’s influential article on Peacetime CEO/Wartime CEO, he quoted a very memorable line from Andy Grove, the legendary Intel CEO, who chastised a subordinate who came late for a meeting: “All I have in this world is time, and you are wasting my time.” Time is the CEO’s single most important and yet most easily wasted resource.

Indeed, even though the CEO is the head of the whole organization and is mostly free to delegate or re-allocate resources at will, he really has very little room to maneuver when the resource constraints, goals and myriad demands of the market are taken into account. This is even more prominent in a software technology company’s growth stage, the unique period when the company takes its proven product and economic model to scale. The operational challenges associated with the transformation can be overwhelming because they permeate all aspects of the organization: people and team development, corporate governance, financial management, continued product innovation and, most importantly, sales and marketing optimization.

The result is that the only resource that the CEO has full and almost complete control over is his/her own time. It is extremely precious, in part, because it is so scarce and is the least scalable of all resources. That’s true not only for the CEO, but for the whole organization and, by extension, its investors, customers, and partners.

The CEO’s limited time is absorbed by everything from:

• Internal meetings with other executives for product and market strategy planning
• Building and developing the management team
• Rallying the rank and file employees
• Quarterly meetings
• Meeting with customers and prospects
• Negotiating with partners
• Presenting the company’s vision in the markets
• Raising funds for growth and operations
• Exploring strategic with potential acquirers and acquisition targets

There is clearly not enough time in anyone’s world to make all of those things happen, yet we typically expect CEOs to lead and accomplish them all.

So, while it might sound preposterous, as an employee, a stakeholder, a customer or a partner you should be asking, “Mr. CEO, what are you doing with your time, our most precious resource?” That question is not meant to challenge the CEO nor be directive to what the CEO knows best about, but rather it is a rhetorical inquiry. It’s important for everyone to understand the CEO’s time and how it is spent, employing the same overall resource focus and optimization challenge that the organization needs to solve to grow and prosper.

There is no prescriptive model for how the CEO should maximize his or her time, because each company has a unique set of challenges and opportunities that calls for a unique combination of activities. Horowitz’s thoughts on Wartime vs. Peacetime CEO draws a good contrast for the CEO’s focus in the comfortable “peacetime” and the growing “wartime” periods.

A.G. Lafley’s classic article for the Harvard Business Review titled “What only the CEO can do?” highlights the activities that the enterprise CEO can ill afford to delegate or ignore, namely connecting the inside and the outside via the four key activities:

1. Defining the most important outside constituency
2. Deciding the business the organization is in
3. Balancing the present and the future
4. Shaping values and standards

What does of all this mean for an effective CEO’s day-to-day schedule? Are meetings with the team more important than meetings with prospective customers? And when should the CEO be inward looking, focused on developing the organization or its future products, as opposed to bringing the vision to the market?

A recent article on the Wall Street Journal titled “Where is the Boss? Trapped in meetings” cites the “Executive Time Use Project,” where professors at HBS and the London School of Economics studied the daily schedules of CEOs to a minute level of detail. The study found that most CEOs are spending one third of their time – about 18 hours per week – in meetings, while only spending about about six hours working alone. Much time is also spent traveling (no doubt to some of the meetings) and on telephone calls and conference calls (another form of meeting). It is not surprising that CEOs all recognize the mismatch and almost universally “pine for more solo time to think and strategize.” But they also find it difficult to break out of the typical mold and its expectations.

A related study of CEOs’ meetings found that external meetings are not correlated with better performance, while internal meetings are.The same article also quotes CEOs who appear to have more control of their time, noting that they either spend less time in meetings, a lot of time working alone, or delegate time in short, iterative “touchpoints” rather than formal meetings. The research insights and the anecdotal evidence points to the importance of time management for CEOs and hopefully provides some ideas for CEOs who want to strike a better time balance. Doing that would allow them to better steer and support the organization’s growth and success.

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In the hyper-competitive software industry today, marketers are under a lot of pressure to perform. We have discussed many reasons why this is the case:

• As marketers and their consultants become increasingly sophisticated with Adwords campaign optimization, high performing keywords are getting very expensive, and even longer tail keywords, once the domain of SEM adventurers, have become the staples for almost any search marketing campaigns. The typical campaigns now consist of thousands of keywords and are being managed professionally by highly skilled consultants, freelancing experts on platforms like Trada, or being automated with complex algorithmic bidding. The net result is that SEM, once the mainstay of technology marketing, is becoming harder to win, and instead is becoming a staple that everyone needs to be excellent at to even compete.
• Social Media Marketing, once considered the frontier of online marketing, has come of age with unstoppable force. Given the explosion of social media channels and volume, marketers are playing catch-up with the medium to master social media and turn their social media marketing investments into actual results. There are a lot of opportunities to expand the marketing funnel with social media and having a well featured, effective Social CRM platform like CoTweet or Hootsuite is an important step. However, because everyone is playing catch up with the technology, no one is at a distinct advantage.
• Inbound Marketing and its closely related cousin Content Marketing are extremely powerful concepts that span more than just a single marketing channel or channel type. The evangelizing efforts by marketing software vendors and content marketers like HubSpot, Junta42 and MarketingProfs have helped brought these techniques into the mainstream consciousness of digital marketers. In these areas, software and technology marketers are becoming very proficient and sophisticated, and competition is just as intense as in more traditional marketing channels.

The competitiveness and costliness of marketing campaigns described above is due to the fact that with the increasing access (anyone can use Google Adwords, anyone can get access to the major ad networks out there) and transparency of marketing channels performances, marketers can find better marketing channels and make better selections, and the better channels are therefore becoming even more popular and competitive.

Does it mean that despite all of the exciting developments in marketing strategies and technologies in the last few years, we are back to the zero-sum game where the bigger budget wins simply because there is more to spend? Where can fleet-footed upstarts challenge flat-footed incumbents who have grown rich and lazy in their dominance?

One way to think about this is a reconceptualization of what a marketing channel means and when a marketing channel is appropriate for your product/industry. As Content Marketing experts have rightly pointed out, today communication with prospective buyers is a multi-directional process, where customers are becoming more vocal and proactive about seeking out information that they need on products they care about, even as they get more proficient in tuning out blatant advertising and other broadcast-style media. But exactly because of the multi-directional nature of this communication, there are more possible touchpoints, and there are more ways to deliver a message, and there are many more types of messages to be delivered. That is where we think the less known marketing channels await your discovery.

We now think of marketing channels as distributed in concentric circles, depending on the type of messages that they carry to the prospects:

• Product Features/Benefits: Channels that carry primarily content topics that are directly relating to specific product features, their functions, distinctive use case, business benefits unique to the product and its competitors
• General Industry Topics (including Competitors and Partners): Channels that deliver content topics relating to the large product market that the product fits into, either in terms of industry vertical, or application functionality, topics relating to competitors and/or partners (resellers, services providers, add-on providers, enablers)
• Direct Personal Benefits: Channels that deliver topics relating to the buyers’ personal goals and objectives, pain points/needs that can be addressed by the product and its functions, which might or might not be directly correlated with the actual functionality of the product.
• Behavioral/Contextual Match:  Marketing channels that deliver content that match well with the buyers’ personal habits (behavior), or the context of their information consumption (how they typically get information, what type of contact they have with various sources of information and media in their everyday lives).

In a way, this is a recognition that Content Marketing has expanded our definition of what marketing can do and should do. As the messages become broadened, so too are the applicable marketing channels. For example, a typical marketing campaign involves placing an ad in a trade publication about how better your product is compared to that of your competitor. Its more updated version is bidding on Google Adwords with the keywords on the products and its benefits, and placing ads that highlight your products’ key differentiation, especially vis a vis the competitors’. As noted above, these tactics become expensive and really spark an advertising war for existing customers, while give free new market exposure to your competitors.

But we can be a lot more creative than that. Firstly, we can think about what the prospects really care about and how they will go about solving those issues. If you have a proper target segment, then the issues that your prospects face should overlap with what your product or service can offer, and you can possibly do this a lot better than alternative solutions. Our message then is not necessarily about “differentiation” or “features”, because it is too far fetching for the immediate needs of the prospects, but rather about first empathizing with the prospects on their concerns, and second, inspiring them to take the next step to learn about it.

The message then opens up a whole slew of potential venues to talk to the prospects, many of which are going to be outside of the typical product market specific channels everyone is competing so hard for. For one, social content channels like YouTube, Vimeo, Slideshare, Scribd are great platforms that allow your message to be available to a broad set of audience at minimal costs. However, what about building a useful mobile app and release it for free on the various App Stores? The app does not have to be a mini version of your product – it just has be useful to the same prospects in some ways. It should not be extremely complex or even complete – it is just a mean to start a conversation with the prospect.

If your target audience is sufficiently large, then you can take a page from the consumer marketing playbook: put your message along the everyday path a prospect takes (literally). To target travel-heavy executives (in general management, advertising or sales), for example, inserting helpful messages on their printed boarding passes, or offering free branded stationery at the airport or transit hub can be a simple but effective way to start a dialog with them.

Another example: Developers frequent sites like Stackoverflow.com, Slashdot.com, whose advertising rates have increased considerably. But they also attend local user groups meetings, and love programming contests or mashups contests.

Thinking of the prospects’ everyday path will also let you find potential co-marketing channels partners that you do not think of before, because they were not in your product market. You should think of the tools that they use, their interactions with colleagues, partners and vendors, their environments, their routines, and find suitable touchpoints for your message. For example, It can be a well-frequented local spot, which you can access through location-based services such as Square or Facebook Places.

That is not to say only new marketing channels make sense. For example, last year Central Desktop, a portfolio company of ours, was very successful in a combined direct mail and online campaign. It was nicely reported and analyzed by Marketing Sherpa as an example of effective multi-channel, multi-modes marketing.

Our upcoming best practice series on Marketing Channels Discovery and Prioritization will elaborate further on this, and focus on the discovery of these lesser known marketing channels that can be incredibly effective for your marketing efforts.

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Industry Interviews are informational interviews conducted with participants in a market that the company is selling into, typically not with customers or potential customers. The goal of the interview is not to collect standardized responses for the purpose of quantitative analysis, but is to capture the varied nuances and trends in the market, from the perspective of each market participants.

Why do Industry Interviews?

We have written on the needs to gather and analyze data on your target and adjacent markets, and also highlighted many different types of analyses to get to valuable insights on the market and the customer. However, aggregate data often fail to reveal subtle nuances of early market trends, or special customer needs that ultimately evolve into major market opportunities over time. We can try to get to these insights by gathering data directly via primary research with market participants. While primary market research typically means interview, survey or focus group with customer or potential customers, we could not overemphasize doing interviews with other important players in the market: Market experts, industry analysts, investors, third-party vendors and consultants, services providers. The goal for traditional market research (aka talking directly with customers/prospects) is to directly uncover insights on the customers’ attitudes, needs and use cases so that the company has very clear profile of the customers to which it needs to target its product, marketing and sales effort. The goal for the interviews with other participants is broader and more fluid – it is to detect early signs of industry trends, to see the customers and the products from an objective perspective, and to help situate the company more strategically and holistically with other players in the same market. Let’s explore Industry Interviews more in the next sections

When are Industry Interviews most often used?

Industry Interviews can be used in almost every market research and analysis project – they are great in the initial exploratory steps of a full scale market segmentation project, essential in market diligence analysis, helpful in guiding new product development surveys etc. The important thing to note is that these interviews should be adapted to the project they are supporting – the questionnaire length, the types of questions, the balance between open-ended and fixed responses questions, and the order of importance of those questions.

What is asked in Industry Interviews?

Industry Interviews are typically heavy on open-ended questions because of their exploratory nature. What also sets them apart from customer-focused primary research interviews is that respondents are not typically asked to assuming the role of a buyer, but are often asked for objective observations on the market. Industry Interviews are also typically prefaced with more in-depth introduction which explains the context and goals of the research project to set the right framework for the respondents in answering the questions.

In later posts, my team members and I will be exploring in more details the various aspects associated with developing and executing industry interviews of various types. I do want to cap off this short introduction with some tips I have picked up in our various research projects here at OpenView Labs:

The Dos

• Do extensive secondary research ahead of time to sharpen focus of questions and avoid unnecessarily confirming validated facts.
• Be up-front about time commitment with potential respondents: get a good estimate of the length of the interview by rehearsing it several times in full with your team members.
• Ask (politely) for referrals to additional respondents.
• Be sensitive to the role of the respondent: Do research on the respondent’s role, responsibility and areas of expertise in their organization before the interview.

And the Don’ts:

• Assume basic facts, unless they have been fully validated by other respondents: Interviewers might appear to be overly self-confident, dogmatic, or even arrogant if they assume too much about the topic being discussed, and rush through the “ground-setting” stage of the interviews because they believe that there is nothing else to know.
• Ask more than you hear: Be flexible in the order of questionings, and be willing to dive deep and/or give the respondents that appropriate air time to explain themselves. Because these interviews have so few standardized answers, the interviewer has to be extremely attentive so as to capture even the slightest nuance in the open-ended answer.
• Ask for personal judgement/decisions such as “would you buy” or “would you invest”, because it forces the respondent to put themselves in others shoes, and use their own personal views to make decisions for others. Such questions and responses do not have a whole lot of value, because they are not capturing the objective market participant viewpoint, which is the goal for the interview.

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Why hire a market data analyst?

Recently, I fielded several requests from our portfolio companies in looking for potential support in market trends and data analysis. I wanted to know what the analyses are for, and whether they would be done on a regular basis.

Turned out that a common scenario is happening across several of our portfolio companies that are more mature in their development: the senior management, in particular the CEO or the Chairman, is looking to make a strategic decision and needs concrete data and insights to support his or her decision. Whereas while it was a startup, the company’s market opportunity was obvious and large enough for its management team to make quick, “hunch”-based decisions with limited and incomplete data, today the company has a far more difficult, ambiguous decisions to make, and each false move can be extremely costly in terms of capital and opportunity cost. In a larger company, many more strategic options become available, ranging from acquisition of a smaller competitor or complementary vendor, launching a new product, adjusting pricing and bundles, segmenting the customer base, and therefore the increased scrutiny over decision making and the demand for reliable, rigorous data analysis.

While the OpenView Labs Research and Analytics team is very well positioned to render the services, when I think about how this need really arises from the new stage of development the companies are in and the increasingly complex, data-driven market environment today, I find that it is important that our companies have this capability in house, which they can develop and specialize over time to be even more responsive and finely tuned to the peculiarities of their markets. This is consistent with a new, rising breeds of “strategic data analysts”, who are becoming important, thanks to the growing availability of market data sets and cloud-based, scalable “Big Data” analytics tools. This person will be the right hand resource of the CEO, and he/she will be responsible for finding and analyzing market data associated with the strategic decisions being made, through which he/she will develop and present strategic insights and recommendations to the CEO (and to the rest of the senior management team).

How does a market data analyst help with Strategy Development?

A Market Data Analyst is very specialized in carrying out research and analysis assignments to help the company’s senior management understand trends in the market, the customer base and the competition. The following types of assignments typically fall understand their responsibilities:

- New Market Opportunity: identification of new market opportunity, market size, market competitive landscape

- Competitive Intelligence: analysis of competitors strategies, pricing, market penetration, win and loss rates

- Macro market trends: Identification of market trends, regulatory changes, projected growth (decline) of product market, and diligence emerging competitors.

- Strategic Alliance and Acquisition: research to identify and prioritize potential partners and acquisition targets

- Operational Metrics development and ongoing monitoring: implementation of operational dashboard comprising the most important KPIs and leading indicators of corporate performance.

What makes a great market data analyst?

How do you know when you find a great market data analyst? The following qualities are must haves for the position – at OpenView, we look for the same profiles when hiring for our Market Research Analysts:

1. A natural affinity for numbers and data: Numbers, spreadsheets and calculations will be 90% of the work, and one has to be naturally inclined to them to be happy and successful in this position.
2. A scrappy/can-do attitude: A crucial part of research and analysis is to devise new research methods, or find new, alternative data sources, often under pressure of a looming deadline. A scrappy/can-do attitude is important in that situation because it calls for resourcefulness and a sense of urgency.
3. An eye for patterns: While we assume that anyone with some mathematical skills can eventually learn how to do research and analysis, having an eye for potential patterns in a set of data is a rare gift yet extremely important for this job. In many cases, there will not be enough good data to run a rigorous regression analysis, but a perceptive eye can identify potential patterns and correlations that can be further tested.
4. Passionate about Business: While this job revolves around data and analytics, it is important to know that the outputs are meant to make an important impact on the business, and the analyst is expected to translate mathematical results and insights into business recommendations or projection.
5. Skills with online research: The data analyst, first and foremost, has to be able to find and evaluate data sources, utilize data collection tools independently and resourcefully.
6. Basic programming skills: Data analysis tends to get overwhelmingly complex quickly, thus sooner or later, one will have to start using scripts and programming tools to automate onerous, time consuming data management tasks.
7. Ability to communicate clearly and concisely: People either over emphasize this ability, or disregard this requirement completely. In order for the data analyst to be truly successful, they have be able to present, defend and deliver their recommendations. Moreover, even in every day communications with senior management, the data analyst has to become extremely clear, extremely precise so as to minimize any time the executives need to spend understanding and overseeing the research project.
8. Tenacity: As with all research jobs, there is always a lot of trial and error involved in getting to the right answer. To do their job well, the Data Analyst needs to have natural tenacity and a “never say die” attitude

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Good market research is essential to developing and executing great marketing strategies. At OpenView Labs, our Research and Analytics team assists the portfolio companies with major marketing research engagements to help them identify and prioritize segments in their markets, develop and test competitive advantage statements for their marketing, and select the top market influencers for their influencer marketing campaigns. Those projects typically involve a great deal of data collection through either surveys and/or interviews with market participants and are thus quite time and resource intensive. Thus, while very desirable, such projects are not always suitable for a company that is looking to research their customers but do not have the resources to support the external data collection efforts.

However, we often overlook the host of internally available data on customers and their behaviors that a company naturally collects in its course of business everyday. As we shall see, these data sources are sufficient, in many cases, as the sole inputs for other types of market research projects, and can also provide extremely useful preliminary inputs to a larger project, especially in helping guide and narrow the scope of the primary research efforts.

Whenever we start a market or customer research project, we look for the following common internal operational data sources and try use them if they are available before looking for external data sources:

1. CRM Data

This is the data that is collected by the sales (new sales and account management) and marketing team throughout the sales cycle from demand generation to prospecting, opportunity management to closing as well as post-sales activity such as onboarding and renewal management. This data is often stored in a database where each customer or prospect is a record, to which data such as firmographics information, contacts, needs, use cases, interaction histories, pass and current opportunities, prior and current contracts is added overtime. Because of the customer-centric nature of the data, this database lends itself excellently to customer-level analyses. However, CRM database(s) are also notoriously messy. There are always issues with duplicates, inconsistent formats, missing data points, that deter the use of CRM Data, especially by non-sales and marketing team members who are unfamiliar with the quirky ins and outs of the database.

2. Customer Support Database

Most companies have a support-ticketing system, sometimes together with self-service support forum and knowledgebase. Some integrate this into the CRM database (when the underlying platform is flexible enough, such as Salesforce.com). The basic unit of data here is a support case or ticket, together with customer information and all support-related interaction with the customer. This database lends itself often well to analyses of customer use cases, product features and usability issues.

3. Web Traffic Data

Web Analytics tools are not for just the Web marketing folks. They are not even just for the marketing folks. With the increasing sophistication of Web analytics tools, Web traffic data reveals a lot more about the behavior, needs and characteristics of two important segments of the market: people who are interested in learning about your company and the existing customers who go to the website to login to the product, or to find support information. It would be even better if the website analytics is hooked seamlessly into the in-application analytics (for web-based, hosted applications),

4. Customer Billing/Invoicing Information

The invoice and billing records are relatively “boring” data pieces that when coupled with other data sources, paint a comprehensive financial/economic narrative of the customer’s lifecycle, and are essential in analyzing customer lifetime value, and thus the profitability of the company’s economic model.

5. Customer Renewal/Cancellation Information

In subscription or SaaS companies, customer retention is so important that every time a customer fails to renew or extend, the account manager or customer support representative tries hard to capture data on the customer’s reason to cancel. It can be notes on the conversation with the customer on the cancellation, or the text of the cancellation emails. Some companies go even further in trying to standardize these information by categorizing the reasons into a pre-defined set. But equally important is data/notes on how and why customers renew or expand their usage. Unfortunately, this does not get as much attention as the cancellation data, and both sets of data are often overlooked or only superficially analyzed in research projects.

6. Customer Usage Data

This is information often stored very deeply in the IT infrastructure that support the product itself. Usage can be as simple as the number of users, the average number of concurrent users, the amount of data stored, the amount of documents created, and so on. The data, when analyzed per customer, reveal the other side of the customer’s financial/economic narrative: the actual use of the product, and by proxy, the actual value the customer gain from the product. Too often, this data is overlooked because it is hard to get and hard to interpret. One common issue is the mismatch between customer ids in the production system and that of the CRM system.

7. Marketing Automation Performance Data

Separate from both Web analytics and CRM data, a new types of datasets have arisen in recent years, mirroring the growth of sophisticated, massive marketing automation tools, from best of breeds such as ExactTarget (email marketing), HootSuite (Social CRM), to comprehensive suites (Marketo, Eloqua). These tools are structured quite similarly to CRM databases and thus can be used in very similar manner. But because they are also often process-driven, analysis of processes such as conversion rates are typically done.

8. Prior Customer Surveys and Research Data

Last but not least are overlooked data from previously executed research projects. The main reasons they get overlooked are because a.) They did not always originate from the department that is working on the new project, b.) They were not done for the same purpose as the current projects or c.) Turnover at the staff levels cause older, less commonly accessed data files to be misplaced or considered “undecipherable”. All of these reasons should not deter the use of older data. Even though the data might have been collected for another purpose, they could still provide a great starting point for anyone looking to understand the customer or the market better.

So what types of market research projects can be done with these internal data sources? We are going to list here the few that are most common:

1. Web Referral Analysis: By tracing back the Web referrals of visits to the website (using Website Traffic Data), we will find the main sites/sources that are sending visitors to the website, and find ways to optimize them to get even more traffic (of the right type).

2. Lead Source Analysis: Taking the Referral Analysis further, by cross referencing the Website Traffic Data with Marketing Automation and CRM databases, we can develop an all encompassing understanding of the main sources of leads (direct, referrals, and paid) and their relative performance.

3. Lead Prioritization Analysis: Having analyzed the Lead Sources, we analyze the leads further into the prospecting cycles by identifying the leads that go the furthest into the prospecting cycles, and then develop a predictive model based on known lead’s properties to prioritize them, so that we can prioritize leads that historically have the highest chance to convert to the next stage.

4. Website Conversion Analysis: Go even further into the sales cycle, we can combine Web Traffic Data and CRM Data to analyze the conversions that happen at various stages in the sales cycles, from conversion from visitor to a lead, from a lead to a webinar attendee, or to a trial user, and from trial user to paying customer. The basic principle of conversion analysis is to see the ratio of the inflows and outflows of the conversion point and find factors that impact that ratio. Each of these conversion points can be optimized using design, copywriting and user experience techniques that potentially improve conversion rates significantly.

5. Sales Win/Loss Analysis: Another type of conversion analysis can be done with the same principles, but on opportunity history data, which lives in the CRM. This is the Win/Loss analysis for each of the stages of the opportunity life cycle.

6. Customer Growth (Customer Lifetime Value): This classic analysis, favorite of many VCs and Retailers, can be done using the Customer Billing Information, or, in conjunction with Customer Usage Data, describe how customer grow or churn away over time (in terms of both revenue and usage). The Customer Usage/Billing growth analysis will also reveal pricing dysfunctions (for example, when some group of customers’ are paying too much or too little because of their particular usage pattern) and opportunities to optimize the onboarding process. Further slicing the data into time-based or segment-based cohorts then provide powerful insights into how the business has evolved over time (for example, with successively larger groups of customers that uniformly grow faster).

The above are just some of the exciting research analyses that we can execute on internal databases to help optimize sales and marketing operations. Best of all, these databases are yours to use and analyze at any time!

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In a comprehensive analysis of all potential marketing channels a company can use to target its selected market segments, competitive research is a very important step. The competitor’s marketing tactics are a good set of inputs for the overall list of applicable channels, and the concentration of channel types or media will give some additional insights into whether certain types of marketing channels are more appropriate or have been more successful in the markets. This information is so important that we typically suggest that at least a lightweight competitive marketing channels analysis is done before the project is fully planned out for execution. The insights from this preliminary research will inform the key content areas as well as the marketing channels that deserve the most in-depth research in the process.

However, when one searches for “Competitive Research,” one typically finds the “competitive research” process described in many SEO and SEM resource websites which give the impression that it is the extent of online competitive marketing channels. But as we shall see below, there are many other venues where important clues can be found, leading to more direct discoveries of marketing channels or marketing campaigns executed by the competitors.

When these evidences are compiled together, a fuller picture of the marketing channels and tactics being used by the competitors will emerge. Moreover, these techniques are equally applicable to reviewing related vendors, or even partners marketing channels, because those are all potentially applicable marketing channels for your company.

1. Website Analysis

Everything really starts with an analysis of the official Web presence of the competitors (or related vendors). The website readily lists social marketing channels the company is utilizing, the events section typically lists past and upcoming conferences that the company attends or sponsors, the “News” section gives clue to the most important media mentions of the company. Other potential, if not common marketing channels are: strategic alliances, virtual events, cause marketing, speaking opportunities and co-marketing opportunities. Already a solid, if unsurprising, set of marketing channels can be found by a systematic review of the competitor’s websites.

2. News Mention

To more exhaustively analyzed the traditional media channels that the company uses, one can use the Google News search engine to find mention of the company’s name (as well as its CEO/Chairman). This should give a list of articles on/about the company in recent years, and we can also further analyze the reporters behind those articles as they are truly the levers of influences at those organizations.

3. Google General Research

To even more exhaustively capture any other media/Web mentions of the company that might have not been indexed by the News Mention, we would run a generic Google search for the company’s name, the main product’s name, and the CEO’s names. These searches will review non-media appearance of the company in the following types of marketing channels: awards, exhibition, personal awards (for the CEO), product awards, product reviews, product test labs, as well as less traditional channels: online forums, media sharing social networks, or blogs that mention the company.

4. Social Media Mentions

If the competitive research is focused on online influencers, then running a social media mention search is a good idea. Twitter, Facebook, LinkedIn, Yelp, Foursquare, etc. all have specialized search engines for their content, and site-specific search will be more effective at identifying social media mentions of the company, its founders, and the product. By tracing back to the source of social media mentions, we typically find new potential online influencers, or new, lesser known marketing channels whose trace is captured in the social media bustle.

5. SEM Intelligence

SEM Intelligence refers to the monitoring, review and analysis of competitors’ paid search engine strategies. Companies like Spyfu.com or Keywordspy.com routinely capture paid search engine placements, pricing and ranking among the top millions of web pages on the Internet. With a small fee, they even automatically monitor competitor’s keyword choice, spending budget, landing pages and ad copy. As mentioned above, this area is well researched and you can find a lot of tools and advanced techniques on the SEOBook.com website.

6. Backlink Analysis

While most SEO specialist is familiar with doing Backlink Analysis on their own website, doing Backlink Analysis on competitors’ websites is just as helpful. When the list of backlinks are sorted by Google Page Rank and/or Alexa or Compete Traffic Rank, the competitor’s most important inbound links are identified, and many of them will be actual marketing channels while many others will indirectly lead to relevant marketing channels. Unfortunately, with the demise of Yahoo! Site Explorer, one has to try out new backlink research tools, or use the more basic, less reliable Bing WebMaster Tool or the Google inlink search parameter (link:domain.com).

7. Job Ads / Employees Profile

The next two techniques are truly bordering on digital detective type work. A competitor’s marketing channels and strategies can be inferred from the capabilities of its internal marketing team and its outsourced marketing consultants/agencies. To do so, one can review the competitor’s marketing employees profiles on LinkedIn (or Twitter) and identify key marketing channels-dependent skill sets that they have as well as marketing agencies they work with. These all provide important clues to the kind of skills and expertise the company needs for its operations. Job Ads for marketing positions are similar because they also describe exactly the type of skills and expertise the company is looking for, potentially to execute certain marketing campaigns on certain marketing channels.

8. Customer Forums

If the competitor has a large enough pool of customers, eventually these customers will congregate digitally on customer forums. These forums can be company-sponsored, or independently supported, or be part of a larger, more general social forums. The most import thing to know is that these are treasure troves of competitive information. Customer forums are important sources of customer feedback, customer grievances, and are also the first place where new marketing campaigns are disclosed. They can found through a social media search, a general Google search, or a forum-specific search. When reviewing a forum post, we need to always consider it in the context of the discussion thread, and use other posts in the same thread to qualify, disqualify or enrich the information given in the original post.

What is important in each of these methods is the ability to infer and follow the sometimes very scant evidences of a competitor’s marketing activities online. The techniques above are more “starting points” for research, because a single “lead” can take a researcher through many new marketing channels and give hints to other possible channels to be searched for or investigated. For example, if some evidence is found on Twitter about an occasion where a competitor’s CEO is speaking, we can directly validate this by running a direct Google search for the company’s CEO name and the occasion/event mentioned. Furthermore, we can broaden the search by replacing the CEO name with lesser officers, and/or run a general search without constraint on the specific event to capture more evidence on the company’s participation in that event.

Do you know of other online research techniques?

If you want to learn more about applying competitive research techniques, the following are great articles and resources to get you started:

http://www.inc.com/guides/2010/05/conducting-competitive-research.html

http://tools.seobook.com/competitive-research-tools/ (Mostly for SEO)

http://www.cbsnews.com/8301-505125_162-51060253/how-to-gather-competitive-research/

http://www.networksolutions.com/blog/2011/04/using-social-media-for-competitive-research/

http://www.entrepreneur.com/article/220761

http://www.entrepreneur.com/article/222489

http://www.instigatorblog.com/competitive-research-101-for-startups/2011/08/30/

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Recently, our Research and Analytics team has been working on developing a process to help our portfolio companies comprehensively identify and prioritize all marketing channels that are appropriate to their selected product market. This will eventually become a hands-on, self-contained “Research Kit” that our portfolio marketing teams can use when doing such projects on their own, or together with our research and analysis support. A lot of these come directly from our own experience working on similar projects with portfolio companies in the last few years. For example, our Marketing Associate Amanda has touched on identifying “influencers”, and my teammate Brandon has previously written about the art and science of prioritizing marketing channels. I will also be writing another post on competitive research for marketing channels.

A question keeps coming up time and again as we start those projects with the portfolio companies:

“What are the benefits of comprehensively identifying and prioritizing the marketing channels? How do you know if we are not wasting too much time and precious resources doing research, while we should be executing with what we know and what we have right now?”

Granted, there is a lot of virtue in executing expeditiously and seizing the opportunity, especially when you have a fast growing sales and marketing engine in a receptive market. But on the other hand, there are many other reasons why you should consider executing a more comprehensive effort, because the project directly informs the marketing plan development cycle and thus ultimately has impact on the sales and marketing operations of the company.

• Because “knowledge is power”, the output of the process, which is a prioritized list of best marketing channels is the ideal starting point for the marketing team to develop an annual marketing plan that is optimal (because it takes into account of all options and choose the best ones). Moreover, having more options available will spur creativity and experimentation in future marketing campaigns, helping the team to stay ahead of the competition and market norms.
• Its full set of prioritization data is also helpful for the Marketing Team in setting realistic goals that align with their activities based on the marketing channels that are being used. Marketing campaigns results are extremely dependent on the marketing channels and the media, and they often fail to deliver the promised results not because they were not executed well enough or because there is a deficiency of skills, but rather because the goals were unrealistically ambitious for what the channels can deliver.
• It allows the marketing managers to understand the skill sets and expertise they need to invest in to execute the planned strategies. Knowing in advance the skills requirements will help the company make a better hiring and training plan for its marketing team, allowing the team to be scaled up more effectively.
• In addition, the output provides crucial competitive intelligence on how competitors and related vendors are marketing their products to the same market segments, which are important input into the company’s ongoing competitive strategy and positioning.

Ultimately, there is always a trade-off between comprehensiveness and speed of execution. There is no clear right or wrong answer, and not all product markets require an in-depth research effort to uncover the best marketing channels. Still it’s important to consider these benefits of such an effort, especially when its longer term impact on the marketing strategy development is considered.

Around the turn of the new year, I am in a retrospective mood. Having recently written a few blog posts about how OpenView Labs consult with our portfolio companies, I was interested in seeing how our projects have changed over time, since we began working as a value-add team (and then later as a formal team) for OpenView’s portfolio companies. I quickly realized that there was a veritable trove of data on our own operations over the last 4-5 years sitting in our various project management and collaboration systems, waiting to be mined and analyzed, exactly the way my own team would on any research and analytics project with the portfolio companies.

For example, since the beginning of 2009, we have used VersionOne as a firm-wide project management and tracking tool. Every single project is planned, tracked and its tasks archived in VersionOne’s robust database. Going back beyond that, since early 2008, we have used CentralDesktop as our central collaboration platform, and had made a commitment to store and organize all project documents and outputs on CentralDesktop. Looking back at the massive amount of data that we have accumulated over the last 4 years, I was grateful that we made those decisions back in the day.

My main questions were:

• What were the types of projects we worked on over the last few years? Did they change over time? Is there a pattern that correlates our work with the stage a portfolio company is at, or with the macroeconomic environment?
• How deeply does each portfolio company get engaged with OpenView Labs? Is there a time trend?
• How broadly is OpenView Labs engaged with the whole portfolio companies? Why do we work with some companies at some points, and with other at other points?

To answer these questions, I first built a comprehensive list of all project-based engagements we have done with the portfolio companies since 2007 (although OpenView Labs started in 2008, the Labs team members had been working with the portfolio companies on value add projects since the founding of OpenView in late 2006). I excluded the recruiting projects because of two reasons:

• The formal full-time recruiting function at OpenView only started in late 2009 with the arrival of Diana Martz. We had always engaged in substantial recruiting efforts for important roles at the portfolio companies before that, but never did at the same scale as with our full time Recruiting Team now.
• I did not have a chance to fully vet my list of recruiting projects with the current Recruiting Team, and so feel that they deserve a separate, later analysis that focuses only on the last 2.5 years when recruiting is a formal function at OpenView.

Because of time constraints and my inability to validate my lists with all team members at Labs, I am positive that I did not capture all of the projects that we have worked on, but after reviewing our records in VersionOne and CentralDesktop archives and matching them against the entries in my list, I am confident that up to 90% of the work is captured in my data set.

I also did not include one off advisory engagements and the quarterly forum that OpenView Labs organize for the portfolio companies, as my goal was to understand the Project-based consulting engagement that we did in the last 4-5 years.

The VersionOne and CentralDesktop data also helped me in classifying the projects engagement by the Types of Project (which I will explain in more details below), and a rough estimate of the amount of workload involved in those projects, relative to other projects (because our projects were planned and recorded in Scrum fashion, in “points” and “perfect hours”).

There were literally over 100 projects done with varying degrees of complexity and intensity. They fall under the following main categories:

• List Generation: Development of sales and marketing lists in specific segment per the portfolio company’s requests
• Market Research: Primary and secondary research and analysis on a wide range of issues: market segmentation, competitive landscape, messaging, strategic partnerships, M&A targets, customer feedback, software evaluation, marketing channels identification, keyword research
• Marketing Operations: Development and implementation of marketing processes and tools, or optimization of marketing channels or campaigns
• Operations: Improvement of back office operational issues, customer services, professional services, legal and contract review
• Product Management: Process development, management and optimization for product management, product development teams
• Sales Operations: Development and implementation of sales processes and tools, or optimization of sales channels. Note that this assumes that a sales team is already in place
• Sales Team Development: Development or relocation of sales team from the ground up, in particular inside sales and lead qualification teams
• Strategy Planning: Projects that support and facilitate Executive and Board level strategic decision making

As I have already explained elsewhere, there were many lightweight advisory engagements that went beyond these main areas of expertise that were not included in this analysis, simply because they did not become full fledged consulting engagements with OpenView Labs.

Here are some preliminary findings:

1. From 2007 to 2011, our most heavily engaged areas are: Sales Team Development, Market Research and List Generation.

OpenView Labs Project Types

2. While Sales Team Development has always been far and away our most significant engagement area, there are variations from year to year, and Marketing Operations and List Generation are also very important areas.

There is one important observation to make here: Strategy Planning projects typically engage 1-2 resources very intensively over a short period of time (2-3 days), and do not capture the overall amount of workload that is anywhere close to the Sales Development projects, which require ongoing supervision over an extended period of time or Market Research projects, which tend to have multiple team members engaged intensively over a period of several weeks.

3. OpenView Labs typically engages with a portfolio company immediately after the investment is made, and this engagement typically grows dramatically in the next two years, before dropping off in the 4th year, as the chart below shows (it charts relatively growth in workload over the first year’s engagement, averaged over all portfolio companies who have been in OpenView’s portfolio for at least 4 years).

The drop-off is actually what we hope for – over the course of 2-3 years, the engagement with OpenView Labs has helped the company execute its operational strategies, but also helped it in developing internal capability and methodology (through recruitment of key team members and knowledge acquisition/transfer), and thus does not need the support of the OpenView Labs project teams anymore. We like to see it as the outgrowing of the expansion stage of the portfolio company. Again, this is exclusive of the ongoing advisory that we provide, the engagement at the Board Level of our Venture Partners.

Growth OpenView Labs Project-based workload per Portfolio Company (excluding recruiting)

4. The last chart is a somewhat normalized estimate of the percentage of our portfolio companies that were actively engaged with OpenView Labs projects in any given year. It is a rough estimate because some companies went into the portfolio at the very the end of the calendar year, there would not be any opportunity for OpenView Labs to engage with them right then for that year. We also exited from Loyalty Lab in late 2010 and thus continued to consider them part of the portfolio company through the whole year.

This chart in a way mirrors the previous chart. The first crop of OpenView’s portfolio companies (Exinda, VersionOne, Attask, Loyalty Lab, Intronis and Open-E) came on board in 2007, and this batch continued to stay engaged with OpenView through the next 2 years, as we also added more portfolio companies,  reaching a 100% engagement in 2009. The engagement with the first batch then drop off in 2010, even as we brought the next set of portfolio companies onboard (Kareo, uSamp, Prognosis, Skytap). In 2011, we continued the investment pace even further, adding Instructure, Mashery, NextDocs and Xtium to the portfolio, while starting to deeply engage with the crop of 2010, and thus the coverage percentage is rising again, and that is not including the constantly growing recruiting needs across the portfolio companies.

Portfolio Support Coverage

So what is in store for 2012?

If the trends are to be continued, we will have our hands full with many more engagements. Our core areas of expertise such as Sales Development and Market Research will continue to grow, while we also fully expect that we will engage on substantial projects in new areas such as Customer Service or Professional Services.

To support this, next year we are bringing on board 2 new recruiters: Katy Smigowski and Lindsey Gurian, welcoming back our former Sales Analyst Ori Yankelev in the role of Sales and Marketing Associate, and hosting a second Sales Execution forum in January of 2012.

For more information…

Read about OpenView Labs’ engagement models with our portfolio companies.

Read about OpenView Labs’ tools and methodologies.

Read our case studies for more information on specific consulting projects in the last 3 years.

Image provided by: Arvind Balaraman / FreeDigitalPhotos.net

In a previous post, I describe in details how OpenView Labs currently work with the portfolio companies, principally in 3 models of engagements. An important part of our aspirations is to gather and create new best practices across all functional areas, as well as the internal development of best practice tools and methodologies as an integral part of our priorities and resource allocation. Some of these are operational tools to help us organize our consulting engagement, others are consulting tools built for specific types of projects or functional areas. Ultimately, our goal in developing these artifacts is to create basic tools that the portfolio companies can master and customize for themselves across all of their operational departments.

In this post I will describe the key items in the OpenView Labs consulting and operation support toolkit, how we use them, and what we have in plans for the near future.

1. Frameworks

Frameworks are laid out in a very comprehensive, overarching document that aims to describe the essential pieces of a business practice area and their inter-connectedness and interdependence. We typically present a framework in a high level visual graphical form that is accompanied by a more detailed document that addresses the components of the framework. The graphical representation often provides or suggests a systematic “way” to understand and utilize the Framework for the following purposes:

• Defining the ideal organization of the business function and using it as a benchmark/checklist for the current state of the organization
• Defining the ideal organization of the business function and using it as a blueprint for the development of that business function
• Using the framework as a template to brainstorm how each component can be developed, improved, or restructured to improve the overall performance
• Defining the overarching objectives of the business function in relation to the company’s highest level goals, and defining lower level goals/initiatives that contribute to those objectives.

Examples of Frameworks that we have developed or customized are: The Customer Acquisition Framework, The Market Targets Lens Framework, The Product Management Framework, The Inside Sales Framework, and the Strategy Maps Framework (as adapted from Norton and Kaplan’s Strategy Maps)

2. Assessments

An important activity in our engagement with the portfolio companies is to assess the development level of a business function, both as part of due diligence, as well as part of the initial phase of any major, full-fledged consulting engagement around that business function. Assessments are typically medium-length online surveys that are completed by relevant portfolio company’s team members, the composition of which depends on the assessment. OpenView Labs typically coordinates the surveys, and then analyzes the results or assists our Senior Advisors in doing so. The output of the assessment process is typically a measure of the maturity level of the organization in a particular functional area, its outstanding issues, and a list of suggested initiatives that can address the identified issues.

Examples of Assessments that we use are: Product Management Assessment, Product Development Assessment, Customer Service Methodology Assessment, Customer Service Technology Assessment.

We are currently working on another series of Assessments centered around the Market Target Lens Framework: Market Clarity Assessments, Target Buyer Persona Assessment, Target User Personas Assessment, Marketing Channels Assessment, Sales Channels Assessment.

3. Practice/Research Kits

If Frameworks and Assessments are high-level tools meant to be used by senior level executives to understand the issues, frame the discussion and brainstorm solutions, Practice Kits (and Research Kits) are hands-on packages of step-by-step manuals that explain how certain project or activities can be executed to the maximum impact.We have built a variety of kits that serve the needs of both CEO/Senior Management Team as well as managers within Sales, Marketing or Product Management functions. Each Kit contains both a Main document that describes the overall objective and methodology of the activity, and a set of hands-on manuals and templates that are used by all team members involved in the activity, depending on their roles in it.

Example Kits that have been built are: Keyword Generation Research Kit, Influencer Marketing Practice Kit, Retrospective Practice Kit etc. Practice Kits that are in the works include: Marketing Channels Discovery and Prioritization Research Kit, Best Current Customer Segment Research Kit, Web-based Trial Conversion Optimization Research Kit, Lead Scoring Analysis Research Kit.

4. The Scrum Methodology

The Scrum Methodology is fundamental to the way OpenView operates. Our work is prioritized and planned on a weekly basis (into “sprints”), and the Scrum Methodology encourages a disciplined project planning process (whereby activities are planned carefully, sized and prioritized every week) while still supporting our agile ability to timely accommodate important requests from the portfolio companies. The Scrum Methodology helps our team be in full control of our time, gives our project managers the ability to reallocate resources and time according to changing needs, yet with minimal disruption to the work week. The Scrum Methodology shines when our counterparts at portfolio company also follow Scrum, as this creates a natural synchronization of efforts, and thus dramatically simplifies the process of coordination and keeping pace between the two sides.

5. Workshops

Much of our consulting work is done remotely, and the results are often delivered in a document or presentation format over the phone or via Web Meetings. However, we also organize intensive, high-impact workshops on or offsite with the portfolio companies if that is the most appropriate mode.  Workshops we have done in recent years include: Extraordinary Execution Workshop (2 day),  Rapid Strategic Planning (1 day), Sales Planning Workshop (1 day), and Content Marketing Planning Workshop (1 day). In these workshops, our main tools will be the above mentioned Frameworks and Assessments, as they are most appropriate for the high-level executive audience we typically have at these workshops. Typically, a senior OpenView team member (a Partner or Principal) will lead the workshop as a facilitator and guide for the discussion, with the secretarial assistance of other OpenView Labs team members. Workshops are most effective when there are major high-level, conceptual concerns to be discussed and when the objective is to set strategic, high-level goals and initiatives that are fully bought in by the senior management teams.

6. Handbooks

Sales handbooks are effective training documents OpenView Labs developed and honed through our many Sales Team Development projects with the portfolio companies. They are used in when the OpenView Labs team take the lead on developing and training a new inside sales force for a portfolio company, or even when we are supporting a portfolio-led sales development initiatives. Most sales people find the concise and well organized document helpful to their productivity and efficiency, and that it can be readily customized and reused for future sales team members.

7. Other Documents: Blog Posts, Prior Projects Outputs, Compilation of Industry’s Best Practices

It would not be right to exclude a whole diverse groups of documents that often are very useful for us in working on projects with the portfolio companies. Sometimes, what we wanted to get across is already written as a blog post by another OpenView team member, or has been featured in the OpenViewLabs.com website. Similarly, an advantage we gain over time is that as since we document comprehensively each project completed, we usually have a full set of original documents such as work plan, data templates and final outputs for each of OpenView Labs’ projects. Whenever embarking on a new project, we can always relate it to prior, similar projects and initiatives, for which we have a head start with the knowledge and process already honed for the same challenge. In our role as learners and documenters of industry’s best practices, we are also able to create compilations of best practices that can be used as benchmark or guidelines to our portfolio companies that are interested in replicating those best practices.

That’s a lot, but for more information on OpenView Labs’ unique engagement approaches, please:

Read about OpenView Labs’ engagement models with our portfolio companies.

Read an analysis of over 100 consulting projects OpenView Labs have worked on with the portfolio companies in the last 5 years.

Read our case studies for more information on specific consulting projects in the last 3 years.

We went down the street and established ourselves in a half-finished office space on the 3rd floor of 332 Congress Street. In the middle of the chaos and uncertainty of the market, we were quietly starting something new, something we believed would make a big difference for our firm, our investors and our portfolio companies.  It was also an idea with scarcely any precedents nor even blueprints for us to start with. That was the start of OpenView Labs, the full-time strategic consulting and operational support team of OpenView.

Our Aspirations

Our aspirations then, as now, are to offer substantial assistance to OpenView’s portfolio companies’ management, helping them build great companies by gathering, creating, storing, and disseminating best practices across all functional areas.

While the vision remains our guiding principle and has permeated deeply into our priorities and culture, over the last 4 years our methods and organizations have continuously evolved to adapt to changing priorities in our portfolio companies, our own internal growth as a team, and the changing market conditions and trends. Through literally hundreds of consulting projects with every single portfolio company of our funds, we have learned a lot about the most important issues and opportunities they face, and how to best overcome those.

Through OpenView Labs, our portfolio companies have access to both our full-time consultants, who have expertise in recruitment, sales and marketing, market research and strategy development, as well as access to our network of Senior Advisors, who bring expertise in varied areas including Product Development, Product Management, Content Marketing, Customer Service, Professional Services, Legal and Contracting. Because OpenView Labs have evolved so much in the last few years, having grown into its own brand in many ways, it can be very confusing for anyone to understand our basic operating models and how we actually work with the portfolio companies.

Our portfolio companies work with OpenView Labs resources in 3 principal ways:

1. On full-fledged consulting (or recruiting) engagement with OpenView Labs Team:

The OpenView Labs consulting or recruiting project is the most prevalent form of engagement with the portfolio company. In this case, OpenView Labs act as a consulting firm that serves the portfolio companies exclusively (we do not offer our consulting services to non-portfolio companies).

Each project will be managed by a senior team member and might be staffed with one or more analyst with the appropriate skill set and experience. The OpenView project leader can play a number of roles depending on the requirements of the project, ranging from being an Interim Sales Manager to a Research Project Manager, or a head-hunter (in the case of a proactive recruitment effort). On the portfolio company’s side, we typically request that there is a project owner, who ideally will benefit directly from the outputs of the projects, and who has brought about the full support of the portfolio company’s management team. Likewise, the project is fully sponsored by OpenView’s senior management team, as represented by the Partner who in engaged with the portfolio company. Each project typically lasts between 6 – 10 weeks, and involves substantial interaction between the portfolio company’s functional team and the OpenView Labs project team.

While this framework lends itself to any management or operational consulting engagement, our experiences in the last 4 years have shaped our main areas of expertise to match with the most prevalent needs at the portfolio companies.

They are:

• Sales Team Incubation and Development (in particular Inside Sales Teams)
• Recruitment for Sales, Marketing and Product Management Roles
• Market Research (for Competitive Strategy, Messaging, Market Segmentation, Product Management)
• List Generation
• Strategy Planning
• Sales Operations
• Marketing Operations
• Marketing Campaign Development and Execution

To align our resources and organization to these core areas of support, OpenView Labs is organized into 3 consulting teams:

2. On  light-weight advisory engagement with OpenView Labs Team or with Senior Advisor

In this model, OpenView Labs’ team members principally act as advisors, functional or market experts with whom a portfolio company’s executive can share ideas, review operational plans and request for information or feedback. These touch points allow our team to be very flexible in engaging with the portfolio companies, ensuring that we can continue to add value even without a formal project-based engagement, as with our and our portfolio’s limited resources, a full consulting project is not always the most ideal approach. We also utilize these occasions to expose our counterparts at the portfolio companies with new best practices and industry knowledge we have recently gained, through the use of Practice Kits and Assessments (which will be covered in a later post).

This is also a very common way our portfolio companies gain access and support from our team of Senior Advisors. A quick check-in call or follow-up can always be arranged, sometimes within days after a request by the portfolio companies. All of these interactions are also supported by dedicated OpenView Labs team members, so that follow up calls and next steps are always clearly defined, in order to ensure that the engagement achieve maximum impact.

Because of our rapidly growing portfolio companies and our sole focus on the expansion stage, the OpenView Labs consultants become very familiar with a wide range of operational and strategic issues facing growing technology companies. Beyond the core areas of expertise described above, the team is able to consult inquiries on most areas of sales and marketing concerns and provide insights on many technology market segments. In the case we do not have first-hand knowledge of the issue, we will most likely be able to connect the portfolio company with the right expert in that area within our networks of functional experts.

3. On full fledged consulting engagement with Senior Advisor, supported by OpenView Labs Team

In certain cases, an advisory engagement with a Senior Adviser leads to a more substantial engagement, when both sides agree that there is a lot more to work on which warrants a full fledged project.  OpenView Labs will support this project to the extent of our expertise and capacity, but the company will then work directly with said Senior Advisor, especially if the project requires substantial involvement of the Senior Advisor, or similar individual with specialized knowledge and skills. However, OpenView Labs will never propose such a project or engagement without the full support and approval of the Portfolio company.

Besides the above mentioned regular engagements, the OpenView Labs team interacts with the portfolio companies on numerous other occasions:

- OpenView Labs organize the Quarterly Executive Forums, which are typically centered around a set of important functional issues, be it Operations, Sales, Marketing or Product Management. These are occasions for portfolio companies executives to interact with experts in the field, compare notes with their colleagues, and the Labs team’s role is to facilitate and support this engagement.

- When an opportunity arises, we connect portfolio companies executives together to discuss mutual issues and challenges, and disseminate these ideas through our multiple channels: through the OpenViewLabs.com website, our blogs, or directly to the interested portfolio companies executives.

- OpenView Labs maintain connections with over 10,000 executives at growing technology companies via our Newsletters, and many of our portfolio companies’ executives subscribe to the newsletter to catch our thoughts and the industry’s best ideas twice a week via email.

All of these are truly part of OpenView’s broader efforts to consistently bring value and support to our portfolio companies, far beyond what our capital investment means, and far beyond what the traditional VC model calls for. Indeed, every team member at OpenView, not just the OpenView Labs team, savors the opportunity to interact with and support our portfolio companies, especially in areas that we can make an impact.

But for more information on OpenView Labs’ unique engagement approaches, please:

Review over 100 consulting projects OpenView Labs have worked on with the portfolio companies in the last 5 years.

Read about our Toolkits and Methodologies.

Read our case studies for more information on specific consulting projects in the last 3 years.