Dances with Elephants

Successful Desktop Developers Failing to Make the Transition to Cloud and Mobile – Part 3 of 3: Build It, Validate It, Monetize It

#1 Build It

You need to sit back and envision how you can address long term customer challenges and needs that cloud and mobile technologies are uniquely positioned to help you address.  The obvious low hanging fruit is customer needs/challenges that happen away from the desktop.  Tools for sales people, field engineers, service providers of all sorts, collaboration of all sorts, and more.  Then you need to build a “minimum usable prototype” – and get it in the hands of your customers.  Don’t try to solve a complex problem.  Target some simple “away from the desktop” pains that is quick to develop, and easy to explain to customers.  Keep it simple so you can avoid time sapping complex discussions around IT, security, integration and so on.

#2 Validate It (Measure, Measure, Measure)

Get the solution/tool in the hands of as many of your customers as you can.  This is all about getting the feedback you need to “get it right” and understand the value of your solution/service.  Again keep it simple so you can quickly and easily make changes as you see how customers are using it (or not using it).  Your original concept may go through some radical changes in direction as its “road tested”.  Again keeping it simple is key – so you can easily follow the feedback you are getting (and not resisting change because you built someone large and costly that is also costly to change). With cloud and mobile based solutions, “metrics” is so so important.  You’ll want to have your solution well “instrumented” so you can see what the customers are doing – how many unique users, how often they use, how much time they use, and so on.  This is very very important as it’s these metrics that you will build your business model upon.

#3 Monetize It

Based on what you learned in the validation phase, you now have hard data to build a business model on.  You can look at various monetization schemes, such as per user, per month, per month, per activity, per model, per analysis run, per team, per company, and so on.  Now you can pull out that spreadsheet – that spreadsheet you wanted to start this process with – and run the numbers based on real customer usage of your new solution.

How long will all this take?  How long will you need to invest in a solution before you know how and if you’ll need to monetize it? 

Don’t know.

This gets back to keeping it simple.  Build the minimum viable solution.  This Build then Validate them Monetize approach is just too painful (emotionally and financially) if you are trying to build something big.  Think back when you started your business.  You started small and simple.  You probably made your first sale after less than one man year of investment – maybe less than half a man year.

Last…

This year the sales of tablets will exceed the sales of PCs (on a unit basis).  The sales of PC’s have dropped for the last 18 months – with no end in sight.  The growth of tablets is double digits (on a percentage basis).  If you want to grow your business, and avoid a shrinking business, getting your fair (unfair?) share of your customer’s investments in mobile computing through solutions based on the Cloud and Mobile devices really is the only way forward.  The train has left the station but you can catch up if you start right now.

Successful Desktop Developers Failing to Make the Transition to Cloud and Mobile – Part 2 of 3: Starting Over

You need to understand what the business model is before investing what can be hundreds of thousands of dollars creating these new cloud and mobile solutions.  Right?  Of Course!

Nope.  No.

You need to go back to the beginning – when you started your business and you weren’t even sure your software had real value and if people would pay for it.  Never mind how much they would pay for it.

Autodesk originally sold AutoCAD for $1000 and quickly determined the price was too low – and a lot of money was being left on the table.  Then AutoCAD was sold in 3 different variations - $1000, $2000 and $3000.  It took Autodesk 6 years to determine the optimum offering was a single product at $3000 per copy.  Do you recall when AutoCAD was sold in its largest market at the time – the United States – with no license protection?  Today that sounds crazy – but at the time it was a competitive advantage that laid a foundation for AutoCAD becoming the drafting standard around the world.  Applying the prior generations of pre PC technologies licensing approaches to the new PC world was a mistake – a mistake more than a few established companies making the transition to PCs made.  One needs to recognize the new Cloud and Mobile paradigm is different – many of our business “reflexes” built up over the last 20 years with desktop software are likely “wrong”.

So what to do?  How does one build a new business leveraging Cloud and Mobile?

We are surrounded by successful examples in the Business to Consumer world.  Google was in business for a few years before trying to make any revenue.  It was several years before it became clear their business model was all about advertising – tapping into marketing budgets.  They had no idea they were going to make money by selling advertising for the first few years – never mind how much money they should sell advertising for.  And you know, Google sell’s advertising differently - primarily through on-line auctions – completely different then how advertising was sold in the past.  Imagine their competitors in the early day when the advertising firms didn’t know a search engine could become a competitor for advertiser dollars.  Never mind they totally differently advertising sales paradigm.

It was only a few years ago that Facebook got their business model figured out – and only the last year that they proved one can make large amounts of money with mobile device based advertising.  And Twitter is just now figuring out their business model – several years after launching their business.

The point I am making is one cannot just create a business model as an intellectual exercise to prove you should invest in new business area.  You need to step back to when you first started your business and didn’t know if, when and how customers would pay you money for your software.  You built it, and were pleasantly surprised to learn people would pay for it – and then sorted out what the value is and what you could charge people for your software.

It’s time to do that again.

Successful Desktop Developers Failing to Make the Transition to Cloud and Mobile – Part 1 of 3: The Problem

You can skip these next few postings if you are under 40 years old…  :-)

In the beginning, a long time ago, when the business was new – and the desktop with perpetual licenses was the only way – developing a software business was straight forward.  The hardest thing to do was setting the “per copy” price – and maybe considering site and company-wide licenses.  If you got the pricing wrong, it was easy enough to change it.  Within a year of starting your business, you had figured out the appropriate price point – at least what the ball park was the price needed to be in.  As business developed creating a product line was a logical next step – having several products at various price points. But for most companies, the pricing – monetization - structure of the business was set long ago.  And as revenue grew changes to the basic business structure were small and infrequent.  And as revenue grow, you grew more risk averse – making business model changes nothing more than a rare passing thought.

Now you are looking at what to do around adding a cloud and mobile offering.  It’s obvious the old per copy pricing structure is not appropriate.  But is per user per month the right answer?  It depends.  Cloud and Mobile solutions are often sold to people that will be more casual users of your technology – whether that be a few minutes to an hour a day.  Some of the early adopters of design and engineering related cloud and mobile technologies are in the construction space where people are used to thinking and budgeting by project – with the number of potential users changing constantly as a project goes from concept through detailing to construction, on to commissioning and then to long term operations. Per user per month pricing models are a lousy fit for project based industries.

Many cloud and mobile technologies in the design and engineering space are all about getting the design information in the hands of people that historically only had access to derivative information – PDFs, DWFs, static images, tabular data derived from the designs, and so on.  Getting these people access to design and engineering data in real time – their getting their derivative views of the design information in real time – is of great value eliminating mistakes from old and down rev design data being used – and allowing rapid changes/improvements in design and engineering because EVERYONE that uses the data can access the most up to date info in real time. You know the value of your desktop apps to users that use your apps for many hours every week – but what is the value of cloud and mobile software to infrequent users – and users that use and create value based on the design data in very different ways and amounts?

You’ll likely be selling to different people too – the same companies you sell to now but into different departments – departments that are upstream (like sales and marketing) and downstream (like construction, manufacturing, and maintenance) from the people you know today.  These new potential buyers have very different needs, sensitivities, and budgets then the people you work with today.

So how do you build a business (licensing, pricing and sales) model to base (justify) your developing new cloud and mobile offerings?

B2B Social – I finally get it

I have been struggling to see the clear and strongly compelling value for social technologies in a B2B environment for the last two years.  Though having spent time looking at - and personally working with - social technologies including Twitter, Facebook and LinkedIn, I haven’t found it very compelling for B2B (sure LinkedIn is not bad for marketing yourself).  They are very compelling social technologies worth lots of money to folks marketing to consumers – B2C.  But for B2B, it’s been unfulfilling.  Am I too old or just a Luddite?

I am a firm believer that new technology has to be a LOT better than the old way to get people to change behavior.  The consumer social technologies are clearly delivering that – a LOT better way for us to keep up with friends, reconnect with old friends we lost touch of, helping families with members spread across the country and globe, making new new friends, arranging social events and much much more. The “old way” of telephone, and linear email and text just wasn’t getting the job done.

Now I have seen the light 

It’s the B2B focused social “SHARING” technologies that include web services like Chatter, Yammer – and more recently at my company, Autodesk 360 Pro.  Increasingly these B2B sharing sites are becoming Facebook for us business types.  Why settle for sending an email to my team (38 people located around the world) that would lead to several “side threads” with various team members – when I can just post it for everyone to see, comment, like/dislike, and post related information?  Why limit my team from sharing through limited linear email and text – or struggle with the ugliness of a conference call meeting with team members in 10 different time zones?  Why limit the ability to for my team members to deliver content on a subject in whatever format they so choose - photos, spreadsheets, Word and GoogleDocs, links, videos and more – that can be shared from their device of convenience?  Why just share information with a limited number of my staff because of my limited bandwidth to field email responses – when questions can be shared and answered by the team?  Why not use the new social technologies to quickly create teams “on the fly”, get the job done and then disband the team a few months later?  Why not quickly build teams that span organizations and talent outside Autodesk tying them together in a flexible real time “stream” of communication, sharing and innovating?  Why not let team members and partners share information in the way best for them – whether sitting at their desktop, using a phone or tablet, through a browser on a friend’s device – wherever and whenever?  Why do I struggle getting my team to go beyond my personal limitations – when I can empower all of them to run in front of me?

I finely get it.  It’s been near two months now since I made the leap to flexible powerful B2B social, and as I was looking for from the beginning, the clear and strongly compelling value is there. 

Its NOT about marketing.  

Its about efficient and powerful sharing, collaboration and teamwork.

And I am never going back.

As my kids told me a few years back, “email is lame”.  Yes it is.  Just took me a few years to really and deeply get it for the B2B environment I live in.

So…

If you dance with an elephant, what is their social strategy and technology – and how are you planning to leverage it?  Because if you don’t have a social answer your current and future customers are going to leave you for someone who does.  If your favorite elephant doesn’t have a clear strategy for how they are going to help their and your joint customers collaborate freely and easily, it’s time to find another elephant.

Breaking through a Growth Stall

Thought I would give you a brief summary of recommendations for getting your business growing again after sales have plateaued and you aren’t sure how to kick start another high growth phase.  I work with a number of partners that, with the first year or two of starting their business, they quickly grew to near $1 million dollars per year and 10 or so people – and then stopped growing.  I also frequently see partners reach a plateau when they reach 50-60 people and sales of $6-8 million. 

Not IMO coincidentally, these “growth stalls” are when a business needs to add another layer of management.  At 10-12 people, further growth requires the founder to hire managers and cede responsibility for many day to day activities.  At 50-60 people the founder now needs to start developing a second level of management and ceding some long term business development decisions to them.

Much of the following, which I have seen in action while working with partners, comes from an interview of Frank V. Cespedes, a senior lecturer in the Entrepreneurial Management unit at Harvard Business School.

Failing to become the market leader

Failing to become a leader in your market – a leader in a niche industry on a global basis or a leader in a specific geographic region within a large industry, is a common reason for a growth stall.  You have had good success selling your product or service “locally” but have struggled to expand your geographic reach and/or expand sales of “new” products or services to existing customers.  First – why does it matter whether you become a market leader in your industry?  It’s pretty simple.  Market leaders have lower cost of sales and marketing then non-market leaders.  This is driven by customer behavior – market leaders have been vetted by the industry so I don’t need to invest as much time and effort qualifying a supplier the market has already agreed delivers good value and is reliable.  The lower cost of sales and marketing creates higher profits and increased ability to invest in expanding sales, invest in expanding your product line, and the ability to “as needed” discount your product and services to win key accounts.

Ineffective triage

This is very much related to failing to become a market leader – in that one tries to do too much, tries to be too many things to too many people.  If you are pursuing too many different types of customers, becoming a market leader in one industry segment is hard to do – never mind trying to become a leader in several industry segments at the same time. 

Likewise, trying to grow software sales (whether an app or a web service) while also aggressively pursuing growing a services business is fraught with pitfalls.  The way you manage a software company is way different then the way you manage a consulting services business – management structure, KPIs, financial structure, people management and more.  This is the most common trap I see – companies that started with a software strategy, found growth and profitability slow to develop – so grew their consulting services business.  The trouble is their vision and business structure stayed one of a software company which creates a number of conflicts with the consulting services ide of the business that is paying the bills.  Consulting services companies love complexity and high touch – while software companies are trying to eliminate complexity and high touch through infinitely scalable code.  Consulting services companies are selling bodies and hours – where headcount grows linearly with business growth – very different then a software business with a more fixed headcount that grows much slower than sales.  Are you a services business or a software business (again web services is in the software bucket)?

Another triage trap is geographic.  Are you focused on developing your business regionally, in one or a few countries or in several countries?  As with focusing on a narrow set of customer or choosing to grow a software or consulting business, you cannot grow your business in more than a few companies at one time.  And yes this means turning some business that “walks in the door” away – because of the long term support costs it will inevitably lead to.  If you have a strong business in your home country or region (say Central Europe), sure you can pursue growing the business in 1, 2 or 3 additional countries – but more than that is asking for trouble as “hidden” costs and inefficiencies sneak into your company trying to support customers in faraway lands.  If you are pursuing breaking into a “big market”, such as the US, Japan, Germany or China, where there is lots of local competition, you’ll need to be more focused yet.  Think you can tackle developing your business in a few new countries and one or two of these “competitive shark tanks”?  Think again.

See Frank Cespedes answers to these questions…

Q: Why is it important for companies to select the right customers? Along these lines, what's the difference between what your article terms as partitioning and segmenting a market?

Q: In the article's step-by-step process, you emphasize the "ideal customer profile." Can you talk a little about that?

Some additional late breaking wisdom on a related topic - from "Morettini on Management" - "Growing from a Startup to a Mid-Market Software or Hardware Company".

 

Should you call the Doctor? Part 4 of 4 (M&A)

How often have you been involved in a merger or acquisition?

For most people it’s never – and for a few its once, with fewer yet more than once. Very few people have been involved with several acquisitions on the buy side, and an order of magnitude fewer have been involved in several acquisitions on the sell side. So when you are considering a life change that includes selling your business, there is a lot you don’t know, just like when you purchased or sold your first house – much of the process is a bit mysterious. So selling your business is definitely one of those times you want to engage a professional who has been through the process several times before – and has seen what works, what doesn’t work, and what to watch out for.

• Do you sign that “do not shop” agreement before talking to a potential acquirer?
• The potential acquirer is also a large potential competitor – how much do you let them know/see?
• How do you value a cash+stock offer versus a competing all cash offer?
• Should you agree to the 5 year non-compete clause – that with a 3 year employment contract can have you sitting around for two years "cooling your heels" unable to use your skills?
• What do you tell your employee’s about the employees of a partner or competitor asking detailed questions about your business?
• Do you need to restructure your business to make it more attractive (increase its value) to a suitor?
• How do you avoid losing key employee’s during the uncertainty of an acquisition?
• What happens if the deal falls through at the least minute?
• What is the likely tax bill – and what can you do to minimize it?

You may only ever sell a business once in a lifetime, and you have many years of your blood, sweat and tears invested.

You sure don’t want to muck it up.

So this is another one of those times you want to get professional help, and this is not the time to pinch pennies, or depend upon a friend or relative that doesn’t have the deep expertise and experience in M&A you really need. You want and need someone very experienced and real good.

So how do you find a good M&A Consultant?

This may sound like a broken record, but once again it’s about checking references. You need to take the time to talk with several business owners that the Consultant helped sell their business – talking to people that were in the same potentially stressful and highly emotional position you are in.  Along with helping you verify you have a great M&A Consultant, talking to other people that sold their business will giove you the confidence you'll need to get through the whole - sometimes messy - process.

What is it going to cost?

These M&A Consultants don’t come cheap – but if they do their job well you can potentially get 20%, 40%, 60% or 100% more for the sale of your company than if you “did it yourself”.

One M&A Consultant I am familiar with – that has been on both the selling and the buying side a number of times – and has deep understanding and relationships across the design and engineering software industry - is Ascentage Group.

So that wraps up “Should you call the Doctor?” set of postings. I hope you find it of value! Don’t be bashful dropping me an email – or contacting any of the companies mentioned if you want to kick some ideas around but are just not sure. Calling in a Doctor – putting you on a path to potentially having to make some hard decisions – is bound to make anyone nervous.

Should you call the Doctor? Part 3 of 4 (Research)

How do you make pricing decisions?  How do you decide what new app to develop?  How do you choose what country to focus your investments in?  When did you last talk to your current and target customers about what they think about you and your competition?

Do you make these important decisions based on a “feeling”, by asking your staff, or by talking to a handful of customers? That is how many/most small technology businesses make these key decisions that have dramatic impact on future sales growth and profitability.

There is a better way.  You can and should get professional research help.  Trying to do quantitative and qualitative research on your own is full of pitfalls – as you and your team will always be limited by your preconceptions and lack of research expertise.

How much data analysis expertise does your company have?  How familiar are you with best practices for surveying and running focus groups?  Again it’s likely you have little expertise in these areas – yet having good/great objective data to base important investment decisions will result in better decisions and more predictable results. 

Having a good research partner will help you turn unpredictable decisions based on hunches into fact based decisions that are more likely to be successful – and when they are not, you’ll more likely know why (learning why an investment didn’t work is a good use of your money – versus an investment that didn’t work and you don’t know why and therefore may make the same mistake again).

Can you afford to engage a good research firm? 

You can.  For just $5k you can get started with a small targeted research project – that has the potential to impact your business by hundreds of thousands of dollars in the next few months.  Maybe a price sensitivity analysis which could potentially impact your top and bottom line in just the next quarter or two?  Maybe research on what your target customers think about your website or marketing materials – that will potentially help you dramatically increase the number of sales leads you get every month. As you see ROI and build a trusting relationship with your research partner, you can move on to longer term research projects such as competitive analysis, and sizing up new markets in new countries you are considering investing in.  With a modest investment in research, you can remove a lot of uncertainty and subjectivity from key decisions you need to make effecting investments of hundreds of thousands of your dollars. How can you afford not to get some professional research done?

So how do you find a good research firm? 

Like anything, getting good references, and having a quality discussion with the references, is the place to start (sound familiar?).  Of course their having a broad variety of experience doing research work in technology markets is a prerequisite.  Be sure to ask them to share with you a research project they have already completed that is similar to the research project you are considering having them work on first.

One professional research partner Autodesk has a lot of experience with – having completed over 200 research projects for Autodesk – is Business Advantage (based in the UK though doing business worldwide).  Does this mean they are “too big” to do research for a small technology business?  Not at all.  They are doing research for a number of small businesses too – including a few Autodesk partners.

Next we’ll talk about the use of Merger & Acquisition Consultants when you are ready to “cash out” but are unsure how to go about it – how to avoid common mistakes that can result in your leaving a lot of money on the table and/or leaving your best customers feeling betrayed and abandoned.

Should you call the Doctor? Part 2 of 4 (Business Check-Up)

Do you see your doctor every year or two for a general check-up?  You know that time when the doctor pokes, prods, gets blood tests done, and will often give you advice on changes you should make in your lifestyle to stay healthy (exercise, diet and so on).  And once in a while the Doctor spots a problem you overlooked – or have been ignoring the symptoms of.  Do you ever ignore symptoms?  Many of us do. Sound familiar?  And your business is no different.

What makes for a great Doctor?  Along with all that training they get, the really great doctors are good because they see lots and lots of patients just like you.  They have a broad experience making it easier for them to both identify symptoms and proscribe how to best cure.

Maybe you have a mentor or partner that you use to bounce ideas off.  Maybe you don’t.

Once a business gets beyond 10 people and over $2m in annual revenue, I strongly recommend you get your business its first “physical”.  Call in a professional that has broad and deep experience with small technology companies to look at what you are doing, and identify areas for improvement.  I am sure you know areas of your business that “don’t feel right” – but you aren’t sure what to do about it.  Getting a fresh look from an outside without a vested interest can be enlightening – and can help you get your business back on the growth path.

Can you afford to engage a good business Doctor (Consultant)? 

You can.  For just $5k you can get started with an initial business analysis – that has the potential to impact your business by hundreds of thousands of dollars.  Sure it might lead to your investing $20k with the Doctor – but the ROI can easily by 10X – if not 100x.

So how do you find a good Doctor (Consultant)? 

Like anything, getting good references, and having a quality discussion with the references, is the place to start.  Of course their having a broad variety of experience working with small technology companies is a prerequisite.

One small technology business consultant I have seen a few of our partners have a great experience with is Phil Morettini (based in Southern California).

Next we’ll talk about the use of professional research to get your business back on the high growth path.

Should you call the Doctor? Part 1 of 4 (Intro)

Many small technical software business owners started out as practicing professionals – animators working with 3ds Max, Civil engineers working with AutoCAD, Architects designing buildings in Revit, designers working with Alias Design and Inventor, and so on. They had a design problem to solve or saw an opportunity to create a great solution for themselves – and then took a leap of faith to take create a new business to commercialize the solution.

So many small technology business owners/founders have relatively little experience running a business. They learned sales and marketing “on the job” and created a software development process on their own or with a very small team. The business grew organically as the software matured and customer relationships broadened and deepened. The great part is many many people created and grew great profitable businesses from scratch funded by business profits.

But as with all businesses, the time comes when the owner finds the business becoming difficult to manage and/or sales and profit growth slowing – and they are not sure “why” and “what to do”.

Is this you?

My next three blog posts will be all about “calling in the Doctor” to help you diagnose what is going on with your business and market – to help you get your business back on the rapid sales and profits growth path. I’ll be looking at three different situations when you should seriously consider “calling in the Doctor”.

• Business Check-Up (time for your periodic general physical check-up)
• Research (identifying growth opportunities)
• Mergers & Acquisitions (shopping your business and getting the maximum value)

Potpourri

Most of the following “nuggets” are care of my team’s “chief ideator” Arvind Thangli. Enjoy (I did)!

Why “Big Tent” ecosystems work better than “curated gardens”

http://sethgodin.typepad.com/seths_blog/2013/03/most-people-most-of-the-time-the-crowd-fallacy.html

Those who ignore history are doomed to repeat it

http://sethgodin.typepad.com/seths_blog/2013/03/pitch-your-tent-where-its-dry.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+typepad%2Fsethsmainblog+%28Seth%27s+Blog%29

Social B2B Best Practice - Harvard Business Review

http://hbr.org/tip/2013/03/08/build-a-better-online-network

Elephant Best Practice

http://blogs.hbr.org/cs/2013/01/three_elements_of_a_successful_platform.html

Software Company Diversification by Morettini on Management

http://www.pjmconsult.com/index.php/2013/01/software-company-diversification.html

Selling and Marketing Software Through the VAR Channel: Morettini on Management Video Series

http://www.pjmconsult.com/index.php/2012/11/selling-and-marketing-software-through-the-var-channel-morettini-on-management-video-series.html

Software Product Marketing: Horizontal vs. Vertical by Morettini on Management

http://www.pjmconsult.com/index.php/2013/02/software-product-marketing-horizontal-vs-vertical.html