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

When the CEO Becomes a Soldier

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We think of the CEO as the corporate equivalent of a general – planning out the strategy, deciding which battles to fight, determining what resources to apply in the pursuit of which efforts, leading teams into battle and motivating the organization. The parallel between general and CEO is at best an incomplete one. In a startup, the CEO is as much soldier as general.

Superior execution is too important in a startup for the CEO to be only a leader. In its earliest stages, startups require everyone to contribute 200% and the CEO is no different.  Yet as the company grows in people, products, revenues and complexity – there is a tendency to assume that the CEO morphs into the order-barking general.  Nothing could be further from the truth.  Sure, as a company scales, the leadership traits of the CEO become increasingly important, but just as important is the CEO’s ability to step back into the role of individual contributor, and at times, just follow orders. I’ve learned that the assumption of most of the organization will be to always assume that the CEO is acting in a leadership capacity, so communicating that I’m playing one of the other roles proactively becomes extremely critical so that others can step up to the other roles. Here are some scenarios where I think about being an individual contributor even as BloomReach becomes a Company of 250 people:

  •  Selling a big deal: The customer always wants to talk to the CEO and well-placed involvement in driving a big deal could shorten a sales cycle by months or even create a deal where none existed. At the scale we’ve achieved, I’m not likely to be close enough to the details to drive the strategy around closing the deal. I’m more focused on taking orders from the sales rep or the broader account team.
  •  Closing a key employee: The recruiting team has likely laid a lot of the foundation for the discussions and the interview process is probably nearly complete. My job now is to help close the deal. There are certain questions from a candidate (value of the equity, vision of the company) that a CEO is best placed to answer. Being involved in closing a hire can make a big difference.
  •  Tackling a difficult conversation with a customer or an employee: Maybe our system has failed a customer. Maybe we have not delivered on an employee’s expectations.  By the time the CEO has been one of these situations,he or she is playing the role of firefighter. In situations of this kind, while I may not have been directly involved in the problem build-up, it becomes my job to calm the situation and identify a fruitful next step (which at times can be to part ways).
  • Building consensus around a key product decision: In this role, the CEO has become product manager. Often, in the murky world of product strategy, key stakeholders can have different perspectives on direction.  Ideally, the product managers and product marketers drive the decision.  But sometimes, that just doesn’t happen.   It then becomes the CEO’s role to gather the data, drive to a decision and then enroll those stakeholders in the decision.
  • Being a thought-partner to key executives and leaders: There are plenty of cases where the CEO is advisor, not decision-maker. Maybe a team is thinking about restructuring and considering alternatives. Maybe an investment decision is being made. There are plenty of decisions that shouldn’t be made by the CEO, but the CEO can serve as a counselor – provided he or she is comfortable knowing that the counsel may or may not be taken.  The culture of the organization needs to permit dissent – otherwise advice can easily be misinterpreted as orders.

The cases of CEO as soldier are often ones where the leverage gained from being an individual contributor can create outsized outcomes for the company and where the CEO is uniquely placed to deliver those outsized outcomes (i.e. it’s unlikely someone else can be found to play that role as effectively).  I’ve tried to be extremely deliberate about when I’m playing the role of leader, when I’m playing the role of advisor, and when I’m playing the role of soldier.   It’s important that the soldier role not be the dominant one, otherwise the CEO will crowd out others and ignore critical leadership duties.

Nonetheless, getting back to being a situational soldier can be extremely empowering for leaders as the team grows. While management can be fun, it can also be wearisome and the subset of days when one gets to own a product decision, own a sale or own a hire, can very much feel like a return to one’s roots, in the trenches.


Image from Army Ten-Miler Salute by The U.S. Army 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

Do You Have Practical Courage?

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Nobody makes Hollywood movies about characters that don’t have courage.  The warrior who goes to great lengths to put himself or herself on the line for his or her brother-in-arms.  The sports star who dared to take the game winning shot. The executive who bet the business on a new direction when the forces at play suggested otherwise. The doctor who is prepared to try an experimental treatment.  The investor who bets against market forces and wins. These are the stories of legend and heroism.  The trouble is – plenty of sports stars miss the last second shot, execs throw their companies into turbulent times with moon shots that don’t work, investors can get fired for countercyclical decisions and doctors can get sued for excessive risk-taking. How should you think about approaching your own work-life?  How should you evaluate the level of “courage” you should have when making a decision that affects your career and your business?

The answer is to have “practical courage.”  Practical courage involves making courageous decisions that lead to non-linear outcomes for yourself and your business but in a way that is inherently practical.

You can apply practical courage to a whole range of situations.  Making practically courageous choices is really hard. The temptations are on one extreme or the other. You will have a large number of people in your life telling you that the path ahead on the courageous decision is really hard, and that one should take the easier road. You will have others who prey purely on emotion. You will hear people say “greatness comes from taking a big bet blindly, believing in yourself and just doing it.”  Neither is practical courage and fighting the two polarizing forces is what practical courage involves.  Ask yourself a few questions to help you make a practically courageous choice:

  • Do you have the unfair advantage of knowledge or facts that others don’t have?  Peter Thiel calls it “the secret” in his book Zero to One.  When Mark Zuckerberg turned down a $1 billion offer from Yahoo!, he likely did not do it because he simply didn’t want to be acquired. He had knowledge about the potential impact of a social network that Yahoo! (and likely many Facebook stakeholders) just did not have.  When Andy Grove bet Intel on the microprocessor business and away from the memory business, he knew that one was a path to commoditization and the other was a path to real growth. They could make the courageous choice because they had information that the market did not.
  • Can you be practical in the short term but right in the long term?  Practically courageous choices often involve short-term – long-term tradeoffs.  If you make a big bet on a new, more risky choice that is likely to be right in the long term in a way that can be practically pulled off in the short term you have found the zone of practical courage.  The lean startup methodology that Eric Ries has talked about is inherently about practical courage. It involves rapid innovation in a clear direction, but it limits investment until early market feedback is positive.  Promoting someone with high potential can be courageous.  Promoting someone with high potential, but with a backup plan in case they fail is practically courageous.
  • Have you considered the true downside case?  I thought a lot about downside when I decided to be an entrepreneur. It can be a tough decision to leave a good job and great career prospect, until you consider the downside case. I started to think of my education and my previous work experience as an “insurance policy.” I had the good fortune of enough qualifications to get a job anytime, so what’s the real downside case of taking a bit of risk?

Being practical is a path to incremental improvements over the status quo.  Being courageous without practicality is like betting at the Casino.  But practical courage can give you a truly unfair advantage on a path to tremendous success. Developing an intuition for practical courage is not a science.  It is an art, and one that the best leaders have learned.  It involves collecting a lot of data and genuinely paying attention to it.  But it ultimately also involves having the inner strength to take a set of data points that are inherently grey and having the courage to trust your gut.

 

Image from by David Goehring licensed under CC by 2.0

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