Execution Tips That Might Help

The problem with recessions is that you don’t have time to be patient. But patience and belief in your execution is exactly what you need. I’ve listed some stuff below that does work and for many may act as a validation that you are doing the right things:

Business Models:
1. Revisit your cost breakdown between variable and fixed and drop that breakeven point as low as possible. I’ve created a helpful look-up table here that shows how far your sales can drop before you start losing money.
2. Look at all the delivery models for getting your product to market e.g. the academic publisher Springer announced that over the next few years greater than 50% of their book revenue will come from e-books. They see great growth from e-books because of the way scientific books are consumed.
3. Understand the stories that generate money. Summarize the data by product families, by region, by sales team. Seek deep granular reasons for sales traction and dig deep with existing customer relationships to understand failures.
4. Play with all possible cost scenarios to maximize the margins of best selling products.

Sales growth:
1. Go to the “coal face” and ask your sales team to sell to you in a role play. Do you hear compelling business results that will be achieved? Are they articulating the special ingredients that your company executes so well?
2. Examine the diagnostic questions your sales teams are weaving into their rich conversations. Do they sound insightful and focused on the improved performance of the prospect?
3. Does your sales commission reconcile with your business objectives? If it solely based on POs, given the difficulty of this market, you will build a demotivated sales force with nowhere to go. Consider an incentive to get the CEO appointments with the key influencers in the prospect company. In this market it’s imperative to spend face time with the correct people to clarify priorities. E.g. in a recent E&Y survey whilst large banks are executing swingeing cuts in IT and Supply Chain Management, they are investing heavily in Legal and Audit departments to control risk.
4. Ensure your sales teams have adjusted their “cookbooks” (metrics that lead to a salesman going to the bank!) to reflect the fiscally tight marketplace. Hint, it may take dramatically new and improved tactics.

Marketing:
1. Simplify your messaging to articulate instant gratification.
2. Master social media for your business.
3. Stop writing long winded parochial blogs > 600 words.
4. Write in plain English, describing the business results being achieved for clients today.
5. Measure everything and work closely with sales teams to maximize their opportunities.
6. Get on site to hear the vocabulary of your clients. Tailor everything you can to make the collateral feel personal to their issues.
Costs:
1. Link every single cost to sales and study the strength of the relationship. Eliminate or scale down all costs starting with those with little impact on short term (12 months) sales.
2. Revisit the mix of fixed and bonus elements of every employee’s package, starting with the CEO.
3. In a low sales growth environment, brutal decisions are needed on cost priorities. Be smart about achieving your goals by deploying free/low cost software. This is a time to substitute over priced, average suppliers with hungry, attentive, efficient service providers.

Call to action
Twice a week I reserve half a day to meet with owners for a free review to validate their tactics. July and August are booked.

VC Industry - lost the plot

So I'm looking at the latest VC investment numbers, 3 months to June 09 and I'm thinking the VC world has lost the plot!

Let me share with you some very simple numbers. My arms will not leave my body at anytime during this presentation.

2009 figures (3 months to June) show that on average $8.7m was invested in 309 companies. Let us assume that the VC on average held 60% of the equity. Let us assume they are aiming at 10 times their investment. That would mean that all 309 companies would have to sell out on average at a valuation of $145m or $45 Bn in total!

You see I think that logic is broken. There are so few companies that sell out for $145m, never mind 309 of them!

Now let us suppose instead of investing $8.7m on a huge bet we invested $500,000. To achieve the exact same return over 5 years the target company would have to exit at $8.3m. This seems so much more believable. I know so many great start up companies that would benefit from $500,000 and they would blow away an exit valuation of $8.7 million in 5 years time.

Just a thought.

Check out the web site in the link for more fun free stuff.

What I know about Management Dashboards

As we struggle to manage our businesses in these challenging times, I’m a little surprised there is not much air-time given to – what we should be measuring and how we should use it. So here are a few ideas - Things I know about Management Dashboards:

1. Monthly financial results need to be available by the 7^th working day after the month end. Any longer and your operations team are asleep and the information is becoming more useless by the second.
2. Every material metric should be accompanied by a “significance statement” explaining why you should be worried or happy. (even a few words helps)
3. All actual metrics should have comparables under budget, forecast and last year.
4. Financials of all business units should explain the story of what just happened using the great secret truth – there are only two reasons for every financial variance – volume and yield. E.g. you sold $2.4m more software (that would be nice) because – you sold 100 more units at $19k = $1.9m and you sold 500 units in total at $1k more each unit = $0.5m, making up the $2.4m. Important to know stuff like that.
5. Trends over time are much easier to see from graphs.
6. Graphs need to be clearly labeled and their meaning understood by a 7^th grader.
7. Written reports should be one/two pages long with relevant and interesting backups relegated to appendices.
8. 70% of businesses that go bust are forecasting profits for the three months post going bust.
9. Technology has leveled the playing field of knowledge – a great curious question can now be answered almost every time by the system or if you like – work out, what questions you need answers to, before revamping your metrics system.
10. Sales metrics need to be traced back to the behavior of a specific salesmen before accountability kicks in (and therefore action).
11. Salesmen behavior is influenced by reliable real time data, long before the failure to produce a PO is public knowledge.
12. Trailing 12 graphs are powerful visual tools that extract the distraction of seasonality.
13. There is only ever one Approved Annual Budget – subsequent changes are called Revised Forecasts otherwise you will be in a hell of a state!
14. A Budget is a spreadsheet interpretation of a set of material, comprehensive policy statements.
15. In almost all occasions if metrics look interesting their wrong.
16. All metrics covering all departments are connected – metrics don’t recognize silos, departments – they just keep coming at you from every direction.
17. A cash flow and a profit & loss are merely the difference between your two balance sheets produced at the beginning and end of a time period.
18. Perfectly accurate monthly financial statements 10 days late are useless.
19. What you measure relates directly to what you are - the business you are in. Parochial ratios that you need to measure, not relevant to 90% of other companies, are a good thing.
20. Walls are great places to show accurate sales data measured on a consistent basis and displayed in a recognizable format.
21. Measuring the reliability of forecasts improves the reliability of forecasts.
22. Stopping the facts getting in the way of a good story can prove fatal.
23. Understanding why we are successful is as important as why we fail.

MITX Events - Free Social Media Tools

There were so many great tips and tricks given out at yesterday's MITX event I felt the need to blog about my take from the session. Panellist details are here:

Web Sites/Tips mentioned:

1. Slideshare.com - open an account and start sharing, get your words picked up by the search engines
2. ACME.com - see who links to you and your Google ranking
3. Flickr - turn your powerpoints into jpgs and upload your manifesto
4. Twitter Grader - Explore your ranking on Twitter and much more
5. Do one really good white paper and syndicate like crazy, push it through all the channels
6. GetSatisfaction.com a great site for connecting with customers and employees
7. Give more than you get in the social media world
8. Always link your blog to clear next steps, e.g. a potential webinar, web site resources, graduate your audience towards engagement and ultimately sales
9. The objectives of your marketing campaigns are key to the metrics you measure. I would put it more fundamentally than that - the business you are in, the unique market you intend to dominate -- determines what you measure.
10. Twitalyzer - fascinating analysis on how influential your are at tweeting
11. Facebook Insights - check out new metrics using Facebook Advertising
12. Check out Linkscape - optimize SEO rankings
13. Check out Ad Lab Microsoft - for metrics guidance
14. Spydermate -another great SEO tool to improve rankings

The overall picture in this exploding world of social marketing is that it is possible to obtain jugular dashboards as a start for free but I would encourage bringing in the experts to really maximize your exposure.

Good luck! More general advice on growing businesses can be found here where I've published some great one pagers.

The Compelling Arguments for SaaS

Around $9 Billion of the $284 Billion software market is currently sold using an online method, Software as a Service or SaaS. The online market is growing at 40%, the traditional market at 3%. So what's all the fuss about? Well I am convinced that buyers of software get a great deal with SaaS but it could lead to seriously reduced margins for the vast majority of software vendors.

The good news for buyers:

1. Great concept for tight budget, pay and play
2. Reduce admin costs and hassle of rolling out new software across all the users
3. Reduced hardware costs
4. Great for cash flow, no more large enterprise license payments
5. Software always up to date with all the new features
6. Difficult to customize however CIOs are now recognizing the huge wasted effort and expense of underutilized features in tailored software
7. Switching costs relatively low
8. Concerns over security and data leaving the business, outside the firewall. Watch Sox exposure. However you have to ask, is your internal security really any better than an outside supplier.
9. Clearly certain defense, intelligence, Pharma type companies may resist the SaaS model because of security worries but even this is changing
10. Difficult to integrate SaaS software with existing in-house software eg to achieve smooth workflow processes. (however this is also the case with existing disparate client/server systems
11. Ultimately after SaaS software gains enough users it is usual for the buyer to sit down with the vendor to talk about volume pricing deals (as they would in traditional software deals)
12. However cost savings may be less over longer periods (see Gartner analysts comments)

The issues for software vendors:

1. Building/renting sever capacity for
   hosting the service is becoming easier using Cloud Computing
2. Metrics management is key, eg Monthly Recurring Revenue or Committed Monthly Recurring Revenue (CMRR), CMRR growth, Churn (attrition rates) and cash generation.
3. Customer acquisition costs (CAC) are vital. Customer Lifetime Value ratios are vital. The web architecture allows deep and detailed analysis of customer behavior which allows dashboard type metrics worth measuring.
4. Watch scaling sales force too quickly
5. Sales lead times can be shorter than traditional sales model
6. Commission structures tricky but manageable – watch rewarding the correct behavior (no maintenance renewals in SaaS models)
7. US seems to be a few years ahead of Europe
8. No shelf ware concept ie if the customer isn’t using your product you are in trouble. It’s on demand computing like switching on the lights – need to over-service clients
9. Watch bandwidth of service regarding outages and servicing the customer
10. Avoids customizations of software (most of the time)
11. Staffing needs: Inside sales teams and how to motivate them.Outside sales teams needed eventually to close the enterprise type deals. Customer service professionals and technical support vital, VP Marketing probably more important than VP of sales
12. Ability to use aggregated data to share trends with your customer

Large software groups have a massive cultural issue on their hands (see WSJ article here) and many may need to hit the acquisition trail to garner that knowledge and culture quickly enough. Smaller software companies need to wake up to the fact that their overpriced client/server/maintenance model is over or at least build SaaS product offerings into their Product Road Map.

Twitter: Why and How I use it

How:

1. Go to Twitter.com and sign up.

2. Start Tweeting on key messages you care about.

3. Big difference between Facebook and Twitter. On the former you have "friends" who see each other's stuff. On Twitter you "follow" someone, bit like stalking, and hopefully they follow you but it is not guaranteed.

4. Think of Twitter more as an "announcement' based micro-blog.

5. I've found the best way to control and engage in conversations is through "Tweetdeck". Download Tweetdeck (or Seesmic Twitter) for free which gives you a great Dashboard to manage the tweets from people you follow in one column, then add a column for your own tweets so you can instantly see what you have said. Add a further column to spot tweets on key subjects say on Software as a Service (SaaS) by typing #SaaS in the search box along the top or #Bing, the new search engine by Microsoft. That # sign is very important. Twitter arranges stuff using # prior to words as a signal to trap those words.

6. At the top of Tweetdeck just type your 140 characters, anymore the screen goes red alerting you to cut it down. Spelling errors underlined in red.

7. People that follow you and that you follow are now connected. Therefore you can now Direct Message them eg say you are going to a function that evening and you want to know whether IanDSmith is going too! Just go to IanDSmith’s picture, hover over it, pick the top right hand box and DM. Type your message to Ian and hit enter.

8. Again with Tweetdeck in front of you, look at the top right hand corner, tick the Facebook box and now you have a live stream of all your Facebook updates.

9. I look for tweeters that share my interests and start to follow them.

10. I focus my tweets on ideas, quotes, articles, information that will help owners of businesses maximize growth. I’m looking for remarkable thinking, action, making things happen.

11. To maximize the impact of my 140 characters, I use tiny.url to shorten my links, thus maximizing my ability to say something useful.

12. Really good stuff is Re-Tweeted by me, as I spot it. Dead easy with Tweetdeck, hover over picture, bottom left square is Re-Tweet.

13. Occasionally I’ll give a personal update on my hobby of competitive masters track.

Why:

1. It’s another opportunity to get your manifesto out there, to add value to your community, to give something back, to add value.

2. It incentivizes me to stay current, blogs, FT, WSJ, HBR, Inc Magazine etc. Once read i grab great content and tweet it.

3. It allows me to cross-reference stuff happening on my web site or my blog.

4. It allows me to join conversations on events in real time. (Although clearly full scale blogging is better)

5. I can follow the companies I’m working with and spot conversations they are having and thus stay on point when I’m making observations.

6. I expected to meet like minded software entrepreneurs and I have: and because some of them were New England based, I was able to meet for coffee and start collaborations on a personal level.


Fears Overcome:

1. A big time suck: solution, I try to keep tweets to 10 minutes every day around lunchtime.

2. Watch spammers: I don’t follow everyone who follows me.

3. Nothing to say: Solution, surprise yourself. I think it forces you to define what your strong coat is, what you really feel strongly about.

Where is it going?

Who knows, but it is a very effective tool to keep aware of the big issues that impact your sector, communicate with your customer base, signpost great knowledge to your community and build your influence.

Negotiations – A Checklist to Improve the Odds

There are a million books on negotiation but busy executives don’t need a book, they need a cheat sheet! I offer these tips based on buying & selling businesses, negotiating with unions, negotiating with venture capitalists, turning around a software group and best of all winning arguments occasionally with my two teenage daughters! We negotiate every day of our lives: sales meetings, staff salaries, policy changes, vacation locations, budget cuts, acquisitions. Life is a negotiation.
I’m framing this advice around a major commercial negotiation between two reasonable parties.

Possible Tactics

1. Always clarify the up to date position. e.g. you mentioned that a new sales order was imminent the last time we met, tell me more.

2. Try to establish the housekeeping of the meeting; prospective agenda, time allowed, anyone joining via conference call. (this has the subtle advantage of establishing you as de-facto chairperson)

3. It is essential that your team stay relaxed and focused. Think of it as gears in a car. If you start the meeting in fifth gear and you get stressed, excited, over zealous – you have very little emotional capacity to go upwards and you will explode! Stay in first gear and seamlessly move up the gears to make a critical point but remember to come back down again. (see here)

4. Your team leader dictates the pace. Never speak unless invited to do so by the team leader. Don’t interrupt a silence. A professional team can make this look very natural.

5. Use questions to understand a specific stance, assumptions can be dangerous.

6. On the other hand if you are relying on key assumptions in making a point e.g. the price of a company, please state clearly the main facts you believe to be true including forecasts to allow yourself an escape route if circumstances change.

7. Be yourself which in my case means never bluffing.

8. Don’t try to be smart e.g. with respect it is clear from your spreadsheets presented that there is a flaw in your numbers.

9. Watch body language very carefully especially of the people not talking.

10. Difficult issues should be put to one side to keep the momentum moving forward.

11. Use time outs sparingly but effectively to gather your thoughts and garner input from the team.

12. On big points please believe in what you say. It will show.

13. If advisers are involved it is highly recommended that on really big points you deploy the “Principals Only” tactic. e.g. the acquirer and the seller excuse themselves to retreat to a separate room to agree a deal on that key point.

14. The word “help” is underutilized. As in, perhaps you could help me understand how you win the majority of your business.

15. Rudeness and sarcasm don’t work even if you’re British.

16. Document agreements along the way and make great theatre of the volume of points agreed.

17. Close on clear next steps with a timetable and agree action for non-compliance.