Digital Disruption: Driving Market Leadership, Chapter by Chapter

Seven and a half years after launching BloomReach, I knew we needed a framework to evaluate where we came from, and more importantly where we are going.

As a maturing startup, the framework notion became crystal clear late last year when we acquired Hippo, a content management powerhouse based in Amsterdam. It was a new era for us, just as a new era was dawning in the digital economy. And Hippo? A new era there, too. Just as we came together as one company, Forrester named Hippo a Strong Performer in its 2017 Wave for Web Content Management Systems.

Which brings us back to the framework and how to build that. I scoured literary formats for analogies. A poem? Too removed from reality. Blog? Lacks the nuance of our journey. A movie? Too continuous, without breaks.

Ultimately, I settled on a book — one story with clear breaks, namely chapters, that build on each other, leading to a climax. Each chapter is a mini-story onto itself. New characters arrive as the chapters change, and older ones move on. Some protagonists (often the founders and investors) stay constant but seek renewal. Sometimes the chapters involve taking a step back, but mostly they involve a jagged sense of forward progress.

Thinking about our start-up journey in the form of chapters has been hugely important to the psychology of BloomReachers. The chapters give our investors and our teams clarity about the primary goals, the primary leaders, the most important priorities and how each chapter connects to the previous one and leads to the next one.

Perhaps the most important thing about thinking in chapters is that it allows you to close (and celebrate) one chapter and psychologically open up a new one. At BloomReach, we’ve just embarked on Chapter 3. As we talked about our latest chapter (which started late last year), we printed T-shirts (“Welcome to Chapter 3”) and we asked everyone to come to work the next day as if they’d joined a new company.

A new chapter is all about progress and change, but there are some unmovable objects in this story – the core values, the core DNA and the core mission.

The start-up journey is long – so a framework to break it up allows everyone in the company to actively recognize that a number of things need to be different with the new chapter. Different people (allowing us to ask, “Is he or she a Chapter 3 leader?”), different priorities, different processes (We are trying a new operational scaling methodology.) and an active evolution of the strategy. It also allows us to think about our value creation in step functions – knowing that early in a chapter, we need to write more of the story to realize the next milestone.

Each of our chapters has lasted about 3 to 4 years, not coincidentally what it takes to build something meaningful and representing the average vesting period of an employee’s stock options in the fast moving world of Silicon Valley.

Our Story: Chapters 1 and 2

So, how did we arrive at Chapter 3? Naturally it makes sense to start with Chapter 1. Chapter 1 in the digital economy was all about acquiring customers. It was about optimizing organic search, driving customers to a website. It was about digital leaders competing — and working to out-compete others — for a bigger share of customer acquisition.

BloomReach was there, writing its own Chapter 1 by using machine learning and a deep understanding of consumer behavior and web-wide demand to offer organic search technology for e-commerce that instantly matched individual consumers’ intent with web owners’ content at scale. Our Organic Search was a boon for enterprises. It was good for consumers, too, providing more relevant landing pages. By the end of Chapter 1, we had a large percentage of the leading e-commerce retailers in the United States on BloomReach.

Our DNA in Chapter 1 was all about back-end data scientists and a true culture of optimization for e-commerce. Our business model hinged on that value creation. But it wasn’t enough.

In Chapter 2 of the digital economy, business leaders built on Chapter 1 and focused on maximizing their investments in digital marketing and commerce to deliver higher rates of conversion and order value. Chapter 2 for BloomReach was about making sure businesses were seeing maximum lift in traffic and revenue; making sure they were squeezing the highest possible margins out of the products and services they sold.

Chapter 2 tools were about data and data science to provide digital marketers the insights they needed to target offers, promotions, and experiences to identified customer segments. In Chapter 2, our customers sought to invest in new tools to optimize the customer buying journey. Hence, the proliferation of startups in marketing and commerce technology.

BloomReach led the way into Chapter 2 with a Commerce Search product that improved and personalized site search and navigation. And we doubled-down on that success with Compass, a tool that provides merchandisers with instantly actionable data to present the right products to the right customers. With Chapter 2, BloomReach became a multi-application company across organic, site search, personalization and merchandising —all in e-commerce. We also took our product suite international — to the United Kingdom.

We needed to build new muscles to make Chapter 2 work. We needed the ability to cross-sell, build a technology foundation for three products and the ability to find three product/market fits at the same time. It is no accident that one of the fastest growing hiring periods for BloomReach was in 2012/2013 – at the onset of Chapter 2.

Our Next Journey: Chapter 3

Which brings us to Chapter 3, just in time for the third chapter of the digital economy — a more sophisticated, real-time economy. Chapter 3 represents a world in which consumers are demanding that those providing products and service on the web not only understand them as unique individuals, but that they also understand the context of their lives and the context of the moments they are living in – knowing that sometimes they are in “research mode”, sometimes in “buy mode” and sometimes in “entertainment mode.” Chapter 3 is about building durable brand power and customer relationships by truly understanding and servicing each customer as a unique individual. Chapter 3 moves beyond optimizing the customer buying journey to optimizing the entire customer lifetime journey. Chapter 3 is about buying long-term competitive differentiation through customer experience.

The consumer in today’s age is not sympathetic to the disconnected customer experience that has come out of fragmented optimization stacks and data silos of Chapter 2. And our enterprise is tired of 100 point solutions that each claim to deliver ROI but don’t move the needle. But consumers remain in a state of extraordinary flux —rapidly moving between devices, platforms and experiences. They expect the entities they deal with, our customers, to keep up with innovation, but coherent innovation.

Chapter 3 involves bringing the outcome-driven, machine-learning technology we have applied in commerce, across every other vertical — brands, government, healthcare, education, media, financial services and others. To that end, we are focused on “horizontalizing” our technology stack. It also requires us to ensure that we don’t use one platform to build our digital experiences, and another to optimize them.

We need one, self-learning platform that powers our digital experience. To do that, we felt we needed to bring together the Web Content Management space (since content is what most of the web is) with the personalization space. The platform needed to be one thing but remain open to myriad third parties plugging in.

Chapter 3 moves beyond the science of marketing and reaches for the magic of marketing, the data-optimized ability to consistently deliver a brand’s promise with every customer interaction and at every moment that matters, all while riding on a single Digital Experience Platform – one that is open and intelligent.

Building those strong bonds with consumers is the mission of every one of BloomReach’s customers. They are intent on transforming their businesses and driving competitive advantage and digital success through customer experience. And we are intent on helping them.

Scaling Up: Leading Chapter 3 to Help our Customers Accelerate Digital 

BloomReach began writing our own Chapter 3 with the acquisition of Hippo. Now Forrester research has validated both that vision and our approach to it, by naming Hippo, a Strong Performer in its Forrester Wave for Web Content Management Systems, Q1 2017.

We couldn’t be more excited to be leading the way in the latest chapter, not just for BloomReach, but for each of our customers and the digital economy as a whole. Chapter 3 changes the game for us in terms of people (we have started to bring on new leaders in new leadership roles), priorities (we are focused on the overall digital experience space), business model (simplifying our business model to enable long-term partnerships), addressable market (an expansion from commerce to multiple verticals), geography (adding in Europe, the Middle East and Africa), operational processes (using a new methodology called “Scaling Up”), product priorities (moving aggressively to ensure customers see the value of a single platform) and ecosystem (adding more channel and ISV partners). Bottom line – a lot is different for us, as it is for the market.

We are in the midst of a dramatic business transformation, the urgency of which is underscored by Hippo’s inclusion in the Forrester Wave for WCM.

We are gratified, but not surprised, that the Forrester Wave recognized the power of our Hippo team as a Strong Performer in the WCM space. It’s a tremendous beginning for Chapter 3, but we’re just getting started.

Sell before you Buy

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Many of us operate at work like we shop at a grocery store.  At a grocery store, we might smell the oranges, check which brand of cereal we want to try and contemplate what is on sale.  We’ll walk around, consider the options, and ultimately put the winners into our carts and walk out the door.

We know how to buy.

A lot of how we work comes from the same instinctual behavior.  We’re interviewing candidates before we sell them – considering them like the bucket of oranges. We are thinking about which software vendor to work with – a lot like those boxes of cereal. We are evaluating technical options – considering which one is the right balance of return vs. cost. We are qualifying sales opportunities – thinking carefully about – and sometimes over-thinking – the question of which one deserves our time and attention.

Fundamentally, we operate like buyers or consumers first. But here’s the issue if you are an entrepreneur or working at a startup:

No one in the world cares about you. You have no currency. You have no money. You’re lucky to have anyone spend any time on your business when there are so many successful companies to spend time with.

So, reverse how you operate. Sell first, buy later.

The “buy first” mentality comes from a large company orientation. Oracle can be in “buy first” mode since everyone knows them.  If you’re at a startup, and you try to “buy first,” you’ll be choosing from poor alternatives.

Let’s talk about specifics.  Suppose you’re recruiting, and you prioritize choosing among incoming resumes or interviewing the selection of candidates that are high quality from that group. Fundamentally, you’re choosing from poor candidates. None of the best candidates care enough about your startup to apply. Instead, focus your time on selling to the best people – spend 80% of your time recruiting them to interview and 20% of your time selecting.

Suppose you’re thinking about which of five potential features makes the most sense to build. You can spend a lot of your time evaluating which one is most doable (that’s “buying”) and then push it out to your teams to sell. The alternative would be to spend most of your time “selling” (or validating in product-management-speak) and then only evaluate feasibility on what you know would move the needle.

Suppose you’re meeting a potential vendor – a PR firm, a software provider or a law firm.  Our natural tendency would be to start by assessing them. However, the best vendors in the world fundamentally shouldn’t work with you, because you have a high probability of amounting to nothing.  Start the opposite way. Seek out the best vendors in the world and sell them on your vision and the future potential of your startup. Then evaluate.

Finally, let’s get to sales.  You’d think that the one group of people who would certainly be focused on selling are salespeople. But even in sales, how much time do we spend thinking about compensation plans, territory alignment, qualification, adherence to Salesforce, preparation for those meetings, internal alignment, qualifying deals vs. the pure act of selling – persuading someone to buy something they fundamentally don’t have to?  Of course, all of those are important activities but do they matter if we don’t have demand for our products?  Shouldn’t we be spending 80% of our time on the latter?

As startup leaders, we are not grocery store customers. We are grocery store clerks at the corner store competing against Wal-Mart, Safeway, Whole Foods and Trader Joe’s.  And the landlord is happy to throw us out.

Sell authentically. Sell often. And, sell before you buy.

Image from Farmer’s Market by Pabak Sarkar licensed under CC by 2.0

Building a Culture of Profitable Growth

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Silicon Valley is embracing the new reality of constrained VC markets, lower exit multiples for technology businesses, and a much more balanced perspective on risk versus return. As the cost of capital has gone up, both sides of the entrepreneurial ecosystem (investors and founders/CEOs) have taken predictable positions. Investors are a lot more bearish on funding, in large measure because the assumptions that underlie their Internal Rate of Return models are uncertain and they are busy funding portfolio companies. Founders and CEOs are engaged in belt-tightening – as we’ve seen from fellow SaaS companies Optimizely, high-flier Zenefits and a range of others. Internet businesses have arguably fared worse. A lot has been written about the rapidly narrowing mismatch between public and private company valuations.

The point of a business is to make money, and too few Silicon Valley businesses, including us at BloomReach, do.  As one CEO told me, effecting a culture change from unprofitable growth to profitable growth is “the hardest thing I’ve ever done.”

At BloomReach, we have set the course to achieve the triple play — the kind of recurring revenue scale that provides an ability to tap public markets, best-in-class growth rates, and profitability. We believe that’s what creates long-term sustainable value.  We just raised $56 million in capital, so some might ask – why are you worried about driving to profitability now? Now is exactly when we should be worried about it, so we control our own destiny and don’t have to make tough choices to achieve the triple play. Fortunately, we have the benefit of a natural history of capital efficiency and strong unit economics to help get us there, but I fully expect it to be really hard – maybe the hardest thing I’ve ever done.

Building towards profitable growth requires a metamorphosis in the culture of one’s business in so many ways.

  • Hiring: We intend to use the favorable hiring environment to hire extraordinary people, but we’re fully committed to raising the bar from an already high standard. The natural instincts of a growth-only business are to hire as fast as possible and against a “headcount plan.” That’s not what gets one to profitable growth. Every hiring manager must ask the question — “Is this incremental hire going to move the needle on growth or profitability? Is it going to meaningfully upgrade my team?”
  • Shorter-horizons on investment: There are a ton of good investments to be made, and in a non-capital constrained world, the question is — “Is this investment going to get us a return?” In a capital constrained world, the question is —  “Is this investment the lowest risk, shortest horizon, highest return choice?” Are your marketing programs the ones that have a history of results? Are your product investments sufficiently oriented to where the revenue is rather than where it might be? What’s the risk of achieving those returns?
  • Investments in productivity and cost-control: You only get to profitability if you spend less than you make. And focusing only on the top line is like fighting with one hand tied behind your back. The natural ethos of Silicon Valley is to build and sell great products. That’s important in any market environment. But what about productivity tools for your customer success team? Or initiatives that help bring down your Amazon Web Services spend? Do you celebrate those victories with the same passion as a new feature or product?
  • Leveraging teams in every geography: At BloomReach, we have teams in India, the U.S. and the UK. There is a cost to effectively leveraging teams globally, but doing so can make a huge difference in effectiveness and the cost structure. We built a significant product (BloomReach Commerce Search) in India. Of course, teams will always have good reasons for why proximity to HQ or the market matters. But the reality is, if you don’t leverage geographic diversity – you compound the profitability challenge.
  • Alignment within your executive team and your overall leadership: You’re not going to get to profitable growth if you’re doing it alone. As we started the journey towards profitable growth, our CFO pulled us all together to map out a range of scenarios (around growth vs. profitability) and we committed together to the mission of profitable growth. An aligned leadership team goes a long way towards good decision-making.
  • Just say no: At times, the decisions to not spend are really painful — a hire you’d really like to make, a trip you’d like your team to take, an initiative you’d really like to start. You’ve done all the context-setting possible but there will come a point on your journey where you’ll just have to say, “No.” It will be highly unpopular, but it’s necessary.
  • Answering the question,“Is the company in trouble?”: Not growing headcount super-fast can somehow feel the same as reducing your employee base. The psychology of the change from growth-only to profitable growth, requires over-communication of the message that growing costs at a slower rate than revenue growth is exactly the way for a successful company to win.  This is particularly true when certain teams are working on growth-oriented initiatives and others are working on profitability-oriented initiatives (important for each set to stay focused on their objectives).
  • Over-index compensation and culture initiatives on the great people you have: If you have a  dollar to spend, spend it on the key people you have that help make you great, and the environment around them that helps them succeed and thrive. At BloomReach we invest a ton in culture and citizenship. I’d rather hire a little slower and over-index on the proven winners than over-hire but sacrifice culture.
  • Getting rid of the growth-only mindset or marginal-contribution people: There are some people in your business who are only well suited for a growth-only mindset. You’re not going to change them. It’s time for them to move on. There are others who are OK performers, but not great – move on from them.
  • Don’t over-correct: In a drive towards profitability – your team can interpret your goals as only about profitability. That’s a mistake. Growth still matters a ton, it’s just got to be accomplished in a smarter manner.

The journey to bring the triple play to BloomReach is going to be a tough road, and it is one that is paved with good, balanced decisions. When the temptation to spend the extra money with an uncertain result comes up, remember that the ultimate choice you have to make is – do you want to subject your company to the whims of fickle financial and venture markets or do you want to control your own destiny? I want us to control our own destiny.

Image from Balance Scale by Sepehr Ehsani licensed under CC by 2.0

How Do Leaders Find their Inner Donald Trump

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Let’s start here:  I think it’s an abomination that Donald Trump is a legitimate political candidate for president.  There is very little that he has said or done that I agree with.  But if you step back, you can’t deny that he has exceeded expectations, drawn tremendous passion for his candidacy and been highly effective in countering predictions of self-destruction.  So what can we learn from his approach to the Republican nomination?

  • Be authentic:  Perhaps the number 1 reason Trump voters are attracted to him is that he feels unfiltered.  No reasonable Republican political adviser would advise him to attack George W. Bush in the state of South Carolina (where Bush is enormously popular) or boast about his billions of dollars.  In a political environment with so much spin, people value authenticity.  And Donald Trump just comes across as being willing to “tell it like it is”, with no sacred cows that he is not willing to take on.  Authenticity may be among the most important aspects of leadership.  The team may not always agree with you, but they respect authentic leadership and transparency.  At BloomReach, we’ve always believed in truth as a core value; it’s at the core of authenticity.
  • People love a winner and a battle:  We will destroy the other candidates.  We are going to win the nomination.  We are going to win on trade again.  We are going to win with our military.  We are going to win against Russia or China.  We are going to win against corporate interests.  The Trump candidacy is built on winning.  And winning works.  It works in the market and it works in leadership.  It’s important to convey confidence that the team is winning and that victory is inevitable.  While I’m sure Trump, like all leaders, has moments of self-doubt, he doesn’t convey them.  If the leader doesn’t think they will win, why should anyone else?  There are bogeymen everywhere in the Trump candidacy – Fox News, the Pope, his political opponents, Mexicans, Russians, ISIS.  Enemies can be tremendously galvanizing.  It’s a proven tactic in business – Oracle vs. SAP vs. Salesforce, Google vs. Microsoft vs. Apple, Facebook vs. MySpace.  Battles draw attention, focus the mind and force us all to take sides.
  • There is no such thing as bad PR: Press coverage of the Donald Trump candidacy has been unprecedented.  His statements are so bombastic that the press (and his adversaries) have no choice but to report on it and comment on it.  What does that do?  It brings him free media coverage.  It makes him the best interview on television. It also, as they say in politics, sucks all of the oxygen out of the room. We can learn a lot from that approach.  In a world with a lot of noise, breaking through is hard and many businesses can benefit from a more aggressive PR strategy simply to draw attention to themselves and away from their adversaries.
  • Outcomes, not details: Much of what bothers people about Trump’s answers to questions is that he consistently ignores questions of “how?”  He sticks to outcomes.  We will build a wall on the border and Mexico will pay for it.  How will we convince Mexico to pay for it?  Not relevant.  We will defeat ISIS.  How?  No answer.  We will create the largest number of jobs in the economic history of the country.  How?  No details.  But here’s what we miss:  Voters are ultimately electing leaders, not policies.  And most teams don’t see more detail as greater leadership.  The details are there to provide confidence in a strategy, and ultimately to validate the leader’s plan.  But just as so many political leaders are so focused on policy proposals, many business leaders are focused on strategy details.  We need to remember that too many prosaic details don’t necessarily inspire confidence in great outcomes.
  • Believable irrationality can work:  One of the underlying assumptions of the Trump candidacy is that he will be a better negotiator than anyone else – with Putin, on trade, with China and with anyone else.  Here’s the believable part of that.  Negotiating with an irrational leader is pretty hard.  How do you negotiate with the leader of North Korea when he may actually use a nuclear weapon?  Does anyone doubt that Donald Trump might actually be insane enough to threaten our relationship with Mexico or bomb the Middle East?  If he’s willing to say the many irrational things he does, maybe he is actually crazy enough to do those things.  And that probably puts him in a good negotiating position.  Business leaders can learn from that.  There are times where a little bit of irrational intransigence can benefit your company’s negotiating position.  Perhaps you’re negotiating a tough contract with an employee or a customer and you’re down to a final negotiating point, even a small one.  Try just completely walking away from the deal when your counterparty believes you’re close.  Your deal might just improve materially.

There is no doubt that the Trump candidacy has challenged the core values and assumptions of so many of us.  I’m embarrassed for our country that he is a legitimate candidate.  But even I can learn from an insane man.
Image from Donald Trump by Gage Skidmore licensed under CC by 2.0

Creating Generational Leadership

It’s the struggle of every start-up leader, across roles, – how to create multilayer, generational leadership to scale through the much longer journey of a start-up than many employees are able to stay around for.  Some of the most successful technology companies (witness Twitter most recently) have their founders return to the helm during perilous times.

Should startups care about generational leadership? Absolutely. Generational leadership is not about CEO succession – it is about ensuring that a business can thrive even when great people leave.

The paradox is this: Technology startups are built on the mythical “A-player,” someone who contributes at 10x the normal human being. Suppose you have the good fortune of recruiting such an individual. What happens when they leave? Won’t the business performance in that individual’s domain equally suffer by 90 percent?

Now, that doesn’t work. So what do you do?

  1. Try to create a business that doesn’t need 10x performers, then try to hire them anyway: Is the sales process unbelievably complex? Are the technical requirements extremely nuanced? Both would require 10x performers. A more scalable approach creates the kind of process or the kind of software that can be built by mere mortals.
  2. Make it the responsibility of every leader to have a succession plan in place: As a founder or CEO, you can’t step into every possible job – and in an employment environment as robust as Silicon Valley, people are going to leave. But great leaders think of themselves as owners first (because they are with the stock they earn) and worry about what happens to the value of their shares on the day they move on.  This applies to every level of the organization.  Of course, this assumes you’ve created an ownership culture.
  3. Actively promote the next “vintage” of leaders: There will come a moment when the people that helped you build the early stage business either move on voluntarily or involuntarily. The key is to create the next vintage – the ones who are not motivated by pure creation at the early stage but rather by the stage of business you are at.
  4. Hire versatile leaders: Versatile leaders are ones who can, in the worst case, do the jobs of the people who report to them.  They might not do it as well as the person they are replacing.  In fact, if they are empowering leaders, they will enable their team rather than micromanage it. But when they face an inevitable departure – they can step in.
  5. Put people in jobs that are tests: The clearest way to test if you have generational leadership is to challenge individuals to take on responsibilities that are beyond their current job function. Do they step up? The best promotions are absolutely obvious.
  6. Always be recruiting for key roles: Its the transition from key people that is most scary, but if you’re always recruiting, it gives you confidence that the business won’t skip a beat.

It’s important to work really hard to retain the best people. But there comes a time when it’s the right time to let great people go. You might have “saved” them multiple times, persuaded them to stay on with you, but their heart is elsewhere. Perhaps they have turned negative. Perhaps their demands have become unreasonable. To create generational leadership, you have to have the courage to test it. When the moment comes, trust in your grand plan.  Trust the next generation.

Image from 3 Generations of MacBride Men by Scott MacBride licensed under CC by 2.0

Winning the “Show Me” Software Battle

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Maybe the most important metric in a SaaS world is “ACV” – annual contract value. It answers a lot of questions: What is the “book of business” in your company – i.e. if we never made another sale, what would the annual revenue of the company be once all currently signed deals are implemented? What is the price point of the product? (The ACV divided by the number of customers)? What are the growth-rate trends the company experiencing (rate of growth of ACV)? What can churn tell you about the company (ACV losses)? But the first two letters in ACV might be the most revealing: “Annual” and “Contract.” Those two letter make a fundamental assumption – that customers are willing to make longer-term commitments to software providers without meaningful proof of value.

That’s where the world has changed. In the 1990s, the leading software providers – Oracle and SAP – sold on-premise software. There was no notion of term for the software – you paid millions of dollars for the software and on an ongoing basis for support. The software provider realized revenue regardless of whether the customer realized any value from it and life went on. Let’s call that the age of “You pay no matter what.”

In the first decade of this millennium, the world moved to SaaS. Let’s use Salesforce as the prototypical example of that software. Salesforce will demo its software for you. It will agree to annual contracts and push you to commit to as many years of contractual  obligation as possible. It only will recognize revenue when you start using the software. Enter ACV: the value of the business is a function of how many dollars you have under contract. CRM software along with HR Software (Workday) have made a living replacing on-premise software offered by Oracle and SAP. The entrenched software goliaths recognized this threat, positioned themselves as adaptable and many went on buying sprees to acquire their way to protect market position. They largely relied on the same business model as their predecessors – but they did it by hosting the software in the cloud and charging annually. Software 2.0 was a “Pay as you go, but commit” world.

That brings us to today – a world where the new, leading application companies follow the “Show Me” software business models. Go to the home page of Dropbox or Box, and you’ll prominently see a “Free Trial” offer. Tableau will give you a trial of its business intelligence software and leverage usage to grow their revenue as you exceed the number of free user licenses. Demandware follows the Gross Merchandise Value (GMV) – in effect tying Demandware’s revenue to its customers’ revenue. These business models are a reflection of the reality of customer buying behavior – customers want proof of value and real ROI for software purchases. They don’t just want business cases; they want provable ROI.

When people buy this type of software, they expect it to work, and they expect it to deliver the intended value. Building a company in the “Show Me” age requires both an exceptional product and a highly analytical go-to-market model, with a thoughtful integration between the two.  Founders and executives who attempt this challenge are best placed ensuring that their teams reflect both sides of the coin. The “Show Me” age requires entirely different competencies than companies of prior generations, and many executives at startups and large tech organization alike don’t understand which keys and costs are most important to employ, especially at scale. The top examples include:

Achieving a Great Pilot or Proof-of-Concept Program (POC): Great “Show Me” applications should win POCs and Pilots. At BloomReach, we run multiple types of pilots or POCs – those that demonstrate real revenue results and and those that demonstrate user engagement. For the “Show Me” software buyers, a good pilot and POC program should have an extraordinarily high revenue opportunity, accelerate the upfront sales cycle, have clearly defined success criteria, and require the customer to make a commitment of some kind (time or money typically).

An Analytical Account Management Team: If customers are looking for “Show Me” software, that orientation will extend well past the initial sale into the long-term relationship. One of the biggest issues that many tech leaders don’t understand is that your account management team should have individuals with strong analytical skills, often from quantitative consulting backgrounds – supported by a “Data Analyst Team” that can work with customers to quantify ROI. The account management team will often track the customer’s ongoing usage of its software or the other key performance indicators (KPIs) that justify the business case, knowing that a decline may portend customer dissatisfaction. Account management isn’t  just about taking people to dinner or mitigating issues; it’s about being a partner that adds business value – creating stronger internal champions – every day.

Customer Satisfaction Metrics for Everything: Many companies measure overall customer satisfaction, but miss out on pieces of the sales and customer engagement process. For example, an oft-ignored part of the customer engagement process is implementation often because it comes after a deal has been signed – but good implementations lead to good customer satisfaction, which is a key ingredient in “Show Me” software.

“Show Me” Products: Many SaaS Companies include dashboards that help a customer understand the value they receive directly in the product itself. I recently downloaded the MyFitnessPal app. In addition to showing your caloric intake and exercise, it’s constantly providing trending information – reinforcing the idea that each additional data point they record for you is essential to your future fitness program.

A “Show Me” Business Model: Everything we know about SaaS metrics is challenged by the “Show Me” paradigm. What is the idea of “contracted” value in Demandware’s GMV model?  Should the CAC ratio be calculated pre-POC or post-POC?  How do we measure lifetime value in a world where accounts can grow or shrink rapidly based on customer satisfaction? Designing a business model for profitable and rapid customer acquisition, while ensuring the level of revenue predictability that investors desire, requires significant innovation. Forecasting in a world of customer-deal variability can require a different financial competency.

Taking Risk: The competitive and crowded market of disruptive technology in today’s landscape forces software vendors to assume more risk – risk that previously was shared more equally by the buyer. In addition, there’s an ever-growing movement even now within the “Show Me” software age to bring the best data chops to the table first – both people and data sources. Buyers are gravitating toward companies that offer unique data that proves and advances their business case and are willing to share the risk to achieve that business case.

A lot about the “Show Me” software world is very positive because it rewards the nimble start-up over the big, entrenched software company. It creates significant business-model challenges for those larger software companies.  In particular, large software companies live in a world of rigid processes with rigid financial models and the rigid requirements of Wall Street. A “Show Me” world totally permits exceptional financial performance, but does not reward rigidity.  The “Show Me” world also produces better-quality software – because that’s the only type of software that customers will really buy and stay engaged with, enabling the upstart with the better product to challenge the large software company with a distribution advantage. It also intricately ties the sales process and the customer-success process together – creating a more sustainable basis for customer engagement. It favors a cross-sell, up-sell model of selling – enabling software companies that deliver to grow even faster. Of course, not everything is positive. We can take the “Show Me” orientation to an unnecessarily absurd level – turning down projects that make obvious sense because the supporting data may not be crystal clear (data analysis can be murky). The idea is that some things so obviously provide a benefit that the specific ROI is irrelevant. This may sound counter-intuitive coming from the CEO of a big data company, but when our data obsession makes us miss the forest for the trees, it reminds me of a line from my friend Robert Chatwani (former eBay Marketplaces CMO and current CMO of Teespring). “What’s the ROI of your Mom?”

Image from Colosseum-Rome-Italy by Sam Valadi licensed under CC by 2.0

Thinking While Doing: The Entrepreneurial Skill

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Every time a fellow entrepreneur talks to me about a tough fundraising process, they seem convinced that the problem is potential investors failing to see the business’ potential. Although investors may cite things like market size, technology or stage, the real reason is often that they don’t believe in the entrepreneur and the team. In other words, it’s not them. It’s you.  They just can’t tell you that.

So what makes a good entrepreneurial team?  There are some traits that are easy to read.  What are the backgrounds of the founders?  Are they complementary or overlapping?  Do they have the DNA to pull off the venture they are attacking?  What kind of leadership qualities do they have?  Are they trustworthy?  Do they exhibit tenacity?  All of these are good questions, but I’ve come to the conclusion that the most important attribute of the highest quality entrepreneurial teams is “Thinking while Doing.”

What does that mean?

As we’ve grown BloomReach, I have discovered the challenge that most scaling (and larger) companies face.  To align a larger organization requires planning.  Planning requires a lot of meetings.  A lot of meetings means a ton of (sometimes) unproductive time.  And all of that can really slow things down.  Don’t get me wrong – I think driving alignment towards objectives is among the most important things a leader can do.  But the process of doing so creates a highly linear dynamic:

  1. Create a strategic plan.
  2. Socialize that plan with members of the leadership team.
  3. Solicit bottom-up input from the larger team.
  4. Finalize that plan with the team.
  5. Share it and receive input from your board.
  6. Start planning on execution.
  7. Lay out the execution plan in detail.
  8. Refactor the strategic plan based on execution realities (and argue over priorities).
  9. Communicate the plan broadly including “why” it’s the right plan
  10. Execute with great focus.

Repeat steps 1 through 10.  Nothing is wrong with that process — except that in order to meet reality (fast-changing markets, fast-changing execution considerations, team limitations etc. etc.), it’s just too slow.

A great CEO (which I aspire to be but am nowhere near) can execute the above process flawlessly and thoughtfully, driving both a great strategy and great execution.  On the other hand, the entrepreneurial mindset means breaking that process as one deems necessary if it leads to better outcomes.  It means thinking while doing.  Let’s take a set of examples.  What if the market is not responding well to an early product?  The corporate mindset would wait until the next strategic plan before killing it.  The entrepreneurial mindset would change the product strategy on the fly, independent of the “company goals.”  What if the headcount plan suggests hiring 10 more people, but circumstances suggest those 10 people would not be particularly productive until a new leader is identified?  The corporate approach would cause the company to execute on the plan anyway (until the next budgeting cycle). The entrepreneurial leader would kill that headcount, independent of what the plan says.  What if a number of customers were not happy and the company decided that a product re-think was the only way to satisfy them?  The entrepreneurial leader would apply a “by any means necessary” approach to retaining those customers while the product was being worked on.

Thinking while doing is really hard.  Most organizations are set up for the leadership and the board to do the thinking and the team to do the doing.   That is a broken approach in an entrepreneurial company – everyone is accountable for thinking and everyone is accountable for doing.  And both need to be done in parallel.  Good planning is valuable to get everyone on the same page towards a great set of goals and with a winning strategy based on current information.  But the entrepreneurial mindset requires everyone to be totally prepared to throw out the part of the strategy they are executing on in favor of whatever works.  Often that can cause short-term alignment issues or even hurt feelings.  But as long as the culture of your startup is one that is oriented to outcomes and not process – all is forgiven.  Entrepreneurs at all levels know that alignment is key in the long term. They will certainly communicate actively when they are “throwing out the strategy,” but they will likely do it anyway.

Both thinking and doing are equally important.  Many teams I meet are super-scrappy and show great traction, but when challenged, they can’t clearly articulate why their approach is the winning one.  Equally, many teams have the most thoughtful plans, but little to show for it.  The magical startups have both. When investors ask you to present your plan, then follow that up with a series of questions about traction – they are in effect asking you if you can think while doing.

Having a well run strategic-planning-to-execution process, while maintaining an entrepreneurial mindset (which by definition means breaking that process when it’s the right answer) is a brutally difficult judo move.  But the best businesses do it.  The next time you’re thinking about whether you have the right entrepreneurial environment, ask yourself three basic questions:

  1. Do you have a great plan that everyone buys into?
  2. Do you have world-class execution skills to make that plan a reality?
  3. Do you have a mechanism for everyone in the company to throw out and refactor their part of the plan when they feel it’s the right answer?

If you’ve answered yes, yes, yes – you’re set with a scalable, yet entrepreneurial, culture of excellence.


Image from Dancing Thought Bubbles by Alice Popkorn licensed under CC by 2.0

Vertical SAAS Companies Are Becoming the Ubers of Software

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When you think about it, it was only natural that the first wave of SaaS and cloud companies went about their businesses in a horizontal way.

After all, they were making a run at disrupting the enterprise tech giants of the 1990s — Cisco, Microsoft, Oracle, SAP. The big legacy companies were all automators for horizontal business processes (think finance or HR) or core infrastructure (routing or databases). With the SaaS-ification of enterprise software, it followed logically that the SaaS and cloud pioneers would also be purely horizontal – simply moving the work from on-premise to hosted multi-tenant (like Workday for HR and financials or Salesforce for CRM).

But a funny thing seems to have happened on the way to building horizontal SaaS companies.  As venture capitalist Marc Andreessen has pointed out, cloud software didn’t just decide to eat on-premise software, it decided to “eat the world.”  And it turns out that the business world has many more “vertical” problems than “horizontal” problems.

Let’s define what we mean by vertical SaaS. Vertical SaaS refers to building a software platform, often enhanced by vertical data, to dramatically transform an industry or collection of industries. Guidewire (valued at $3 billion) transforms the insurance industry. Veeva (valued at $3.5 billion) transforms the pharmaceutical industry. Opower (valued at $500 million) transforms the utility industry. And Palantir ($10 billion +) applies data science and software to transform government. These companies don’t get the buzz of Salesforce, ServiceNow, LinkedIn or NetSuite (or even Slack). But they represent the true cases of “software eating the world.”

Data is the differentiator for many vertical SaaS businesses.  Because they don’t need to serve wildly different customers, they can invest in accumulating data that creates a disproportionate competitive advantage (some have taken advantage of this and some haven’t yet). Palantir can build a database of threats. Demandware has the opportunity to build a deep understanding of inventory across its customers. The data assets, when coupled with intelligent software, can do a lot more than automate a business process – they can transform industries.

The vertical SaaS businesses might just be better businesses than the pure horizontal ones. If we look at recent trading metrics, the median public horizontal SaaS company is expected to grow 28% in 2016 and have 2% EBITDA margins in 2015. The median vertical SaaS business is expected to grow 22% in 2016 and have 17% EBITDA margins in 2015.  Does it really make sense to trade an 8x difference in profitability for a 27% increase in growth rate?

Of course the root cause for the difference in performance here is the efficiency of sales and marketing. The payback periods on sales and marketing for a horizontal SaaS company are about 28% worse. That makes sense because the incremental sales and marketing cost-to-sell in an industry where “everyone knows each other” is significantly lower than in cases where customers are wildly different from each other.

Which brings us to Uber and a clue as to where SaaS is headed. A lot of what we could see from the vertical SaaS companies is being foreshadowed by next-generation, industry-specific consumer platforms.

In the 1990s, consumer software had a horizontal orientation. There was Microsoft’s desktop software and Adobe’s tools for creative endeavors. The first generation of cloud-based software applications for the consumer (like Google for search or Facebook for social networks) have taken broad consumer use cases and turned them into valuable software companies.

The more recent crop of consumer Internet companies have been fundamentally vertical – they have taken a specific industry and used software + data + integration with the real world to build highly valuable businesses worth tens of billions of dollars. Uber’s core differentiators include its easy-to-use software, its database of consumers and their locations, and its integration with fleets of vehicles in real time. Airbnb applies the same logic to house-sharing. Several others attack healthcare or groceries. Why couldn’t the next (and current wave) of vertical software businesses do the same?

The knock on most vertical software businesses has been total addressable market (TAM).  Conventional wisdom suggests that the TAM for a vertically-oriented business must be smaller than that of a horizontal business since you are fundamentally selling to fewer people.  But that’s not thinking outside the box.  Because vertically-oriented businesses can go deeper into their target vertical than horizontal ones can, they end up not just picking up a lightweight business process and automating it, but rather solving much deeper and more significant problems for their target industries. This enables them to command significantly higher prices (which increases the TAM).

More profoundly, the addressable market for the best vertically-oriented businesses is not just the size of the current software market in that industry, it can be the size of the industry as a whole!  Just as Uber’s TAM is not just how much consumers previously spent on taxis, it may be the size of the transportation industry as a whole.  And when we look at those numbers, the TAM for vertical software-as-a-service is very, very large. Consider B-to-B businesses that serve industries like food distribution, for instance.  Sysco alone does $45 billion in revenue.

Attacking large B-to-B markets with software has the potential to create companies that are larger than Salesforce is today. In fact, the set of public SaaS companies that serve vertical markets have only scratched the surface of the possible. We are not far from a world when technology is not a subset of the economy; it is the economy.

Image from Vertical by vonderauvisuals licensed under CC by 2.0

The Evolution of One Entrepreneur’s Vacations

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I know your first question.  Do entrepreneurs take vacations?  Absolutely.  I just got a chance to spend four days in a beautiful Hawaiian beach town and it made me reflect on the evolution of my vacations as a founder/ceo.  The vacation-eschewing, Jolt-cola-drinking, 24-hour-hacking founder culture is primarily the stuff of urban legend.  Entrepreneurs are like everyone else.  They burn out.  And without vacations, they burn out faster.  Any entrepreneur that believes in never taking vacations is either lying or the leader of a company that simply won’t be around very long.  Vacations are as important to the success of an entrepreneurial venture as work ethic.  In fact, if you can’t check out, you can’t be productive when you’re checked in – and that ultimately impacts your start-up’s success massively.  You certainly can’t connect with family the way you need to – and that impacts your start-up’s success massively too.

But taking a vacation as a founder is REALLY difficult.  You have an emotional connection to the company you started and can’t imagine it surviving even a day without you there.  If you’re like me, you’re typically a workaholic – and get a rush out of working a little harder.  And you live in an ultra-connected world, which means vacationing isn’t as simple as going someplace else.

I took my first vacation as a founder at least about a year and half after we started BloomReach.  We were really small then (fewer than 6 people) and the idea of one of us not being around for a week was impossible to imagine. The likely loss in velocity was just too disconcerting to contemplate.  Things got interesting when I took my first vacation.  I ended up heading to the beach, where I pretty much worked like I was at home.  The early-stage start-up vacation is simply an exercise in transplanting and pretend-vacationing.  The root problem with my early vacation was that I was too much in the flow of critical path items.  Customers needed to be signed. People needed to be recruited.  Products needed to be released. I was a bottleneck to progress in all of them. Whenever I opened my inbox, it had more emails to respond to than I had minutes to type.

As we cross the 225-person threshold at BloomReach, my vacations feel pretty different.  Sure, in Hawaii there were the one or two phone calls I absolutely had to take and re-orient my day around.  There was the occasional mind-wandering from the family back to work.  But for the most part, I checked email about twice a day and didn’t do a whole lot beyond that.  As I was on the plane ride back home – I opened my email and found that I could get through it pretty quickly. It wasn’t that there weren’t critical items for me to tackle – it’s just that none of them could be tackled via an email task list. I had about 5 big problems to think about – like an under-performing team or the long term strategy for one of our product lines or ways to continue to drive incremental growth.  All of them required a lot of thinking, significant in-person communication with key folks, some data gathering and multi-dimensional action.  Most were urgent topics, just not ones that could be tackled at a vacation in Hawaii.  The vacations changed because the role has changed.  We now have a terrific team to tackle the extremely important day-to-day challenges of the Company.  But as the team has grown, structural challenges like the topics mentioned above become more thorny and less easy to address.  Given the nature of how vacations evolve as one’s role evolves, I think an Entrepreneur should also change the way he or she takes them.  In the earlier days – take them a bit more frequently but for short bursts (a long weekend here or there).  The days are long so you need to constantly re-charge but you can’t be away very long.  As the Company grows, take them less frequently but for longer periods of time (perhaps a week or 10 days).  That might enable more of an ability to “disconnect” and greater clarity of thinking to tackle the thorny challenges.

One of my investors, Scott Sandell from NEA, advocated to me that I take a three-week complete check-out vacation every year.  I’m not enlightened enough to be there.  After four or five days, I’m pretty excited to come back to work.  But I do see his point.  As you grow in role and responsibility, the quality of your decisions become a lot more important than the quantity of actions you take.  And that quality requires a clear mind – one that comes from genuine vacations.

Loss Aversion is a Path to Mediocrity

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The story of great companies degenerating into good ones is a common one. What happened to Nokia in the cell phone industry or Dell in the computer industry? What happened to Circuit City or AOL? Even closer to home, what about companies that at one time were going to disrupt the world and went from almost great to truly mediocre? Groupon? Zynga? While different aspects of business strategy and execution were certainly at work, the one consistent factor across companies who were “almost great” or “formerly great” is that they develop a culture of loss aversion. In a strange way, the most risk-seeking of individuals, start-up entrepreneurs, can very quickly forget the greatest asset they had in building their companies – a willingness to take irrationals risks, and tolerate losses if they fail. They can quickly become loss averse and set their companies on a path to mediocrity.

Where does loss aversion come from? The author Daniel Kahneman in his book “Thinking, Fast and Slow” writes at length about loss aversion. One of his key observations is that human beings behave in irrationally risk seeking or risk averse manners (versus the probability-weighted expected value). If presented with the choice of winning a $1,000 with a 10% probability or making $120, many would be risk seeking and go for the $1,000 choice (though the expected value is lower). With losses, the opposite is true. If there is even a small chance they may lose what they have earned, people will go to great lengths to protect against the loss. They will buy insurance for exorbitant amounts. Companies will make bad long-term choices in favor of shorter term ones to protect against missing their quarterly earnings and taking a loss on the value of their stock. They will be loss averse.

The interesting thing is that many of the best companies start by being risk-seeking. They dream of amazing things – they take risks on markets, people and products. They take risks that most existing companies would not deem feasible and when those risks pay off, they pay off in significant gains. And yet, as those companies become more successful they become fundamentally risk averse. That risk or loss aversion manifests in so many ways: they under-invest in new products; they are unwilling to hire people with less experience; they spend money on risk-mitigation systems; they build in all kinds of cushions into their forecasts and they take their marketing in a conservative direction. Why do the most risk seeking of individuals, entrepreneurs, become loss averse? For a variety of reasons:

  • Short-term gain, long-term loss: As companies grow, the consequences of loss aversion are often not felt immediately. They are felt over time as investments become non-productive. But in the short term, it can often feel like the conservative decision is the winner. The experienced hire might not be the right one long term, but often looks better in the short term.
  • Fear of losing everything: It’s so hard to build a successful startup, that the pain of losing everything is nothing short of emotionally scarring. Aspiring to greatness, seeing that goal come into view and then failing is a devastating fear that pushes many leaders in a more conservative direction.
  • Baggage of success: Even a reasonable modicum of success comes with baggage. Scaling the product seems to need an unending number of people. Scaling sales and marketing seems to need an unending amount of investment. Scaling the operations can feel like the hard 20% that takes you from 80% “good enough” to 100% “great.”

We try hard at BloomReach to prevent loss aversion from naturally setting in (and don’t always succeed). We allocate a certain percentage of our R&D efforts to more experimental projects. We identify certain roles where we are willing to promote people without the experience for the role. We establish a cultural value in “thinking” – and promote out-of-the-box thinking in a range of areas. We actively have conversations about whether or not we are making the right trade-offs between “innovating” and “scaling.” We discuss failure openly. We try to ensure that the short-term choices we make are leading us to the long-term destination we are trying to reach. It gets harder and harder to make these choices as we grow and scale. And yet it becomes ever more important. Loss aversion seems to compound as one grows. Each individual becomes loss averse. Each team inherits each individual’s loss aversion and layers on a new layer of it. Each function hedges on the other functions, feeling like they cannot take risks without the cooperation of other functions. And then the CEO and founders inherit all of that loss aversion and add a new layer of conservatism for presentation to the Board and shareholders.

Loss-aversion is among the most corrosive behaviors at a startup that is aiming for significant impact and growth. The road to mediocrity is paved with a thousand “rational” decisions. Lets make sure we all make a couple of well-timed irrational ones.

Image from Risk-Onyx Edition by Derek Gavey licensed under CC by 2.0

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