How to build to last (or at least grow for a good while)

One of the advantages of the software-as-a-service SaaS (or even a more broad Web 2.0) business model is that the starting costs could be relatively low and even with a few (good) engineers it's possible to reach a revenue-generation point in a short amount of time.  However, what do you do so you are able to profitably grow after you hit the first-revenue point?

As part of my consulting and advisory work, I have been involved in several SaaS companies this year.  Two of these companies helped me understand what kind of approach it takes to build a company for the long haul.  One of them: by not doing as they did; and the other one: by trying to do what they did.  Note that both companies were based on brilliant ideas.

Earlier this year I worked with a local internet advertising company which shall remain nameless (the protect the innocent).  Let's just call the company "J".  J was a very based on a very clever idea to use a mobile platform and integrate it with the internet to enable local merchants for advertising (to local markets).  I was consulting with them as their chief operating officer and as part of that I repositioned the company as a SaaS company and got them to a fund-able state (in a very un-funding market!)

J's CEO was the one who had come up with the idea.  She was an early employee of an early internet company (i.e. mid 1990's), but altogether she wasn't internet technology-savvy.   So, she decided to contract out software developers to build the technology.  The company was still getting formed, so she had decided that the employees (contractors and others) will all work remotely from home office, library, Starbucks, etc. - after all, that's one of the benefits of starting an internet company.  Due to her management style, she wanted to be the broker for all information sharing.  In addition, "to cut costs" we never got together early in the process to define terminology, hand-offs, procedures, etc. - and decided to instead do it on the fly when we needed it.

None of the above prevented us from moving forward, creating a product, marketing it, selling it, etc.  But ....

1.  Since we had contracted out all of our software development, every time (literally) we needed a product feature enhancement or a new capability added, we had to decide and approve first the cost of estimating the development cost, and then the cost of actually performing the development.  Even a small feature update or bug fix caused a decision point.  We spent more time deciding on minor iterations than actually performing the iterations.  The team spending time on these decisions was at not expense (we were all "paid for") but the software development was an expense.  In more cases than none we decided to postpone the bug fix or the feature update, in order to save on expenses.

Making minor (and even major) iteration on product capability is a critical part of product formation in a high technology company, and we were handicapped by not being able to nimbly address them.

2. During the early days of startups, what is really important (and cannot be replaced) is the free and open brainstorming.  In their early days companies brainstorm on everything:  product, business model, personnel, financing, selling points, everything .... down to the color and the location of an item on the website.  Some of these decisions are more or less critical to business, and some are not, but even the ones that are not critical to the growth of business might be a key emotional enabler for personnel issues - at every brainstorming session there are emotional stakeholders.

Not having a common work place, we either had these brainstorming sessions on email or on the phone, which a) are extremely ineffective, and b) do not meet the emotional needs of the stakeholders.  I can't believe how much money we didn't save by not meeting face to face everyday for a good number of hours.

3.  When we did meet, we spent a fair number of minutes making sure we're all talking about the same thing.  One example: We once had a conference call to decide what needs to happen on our "landing page".  This conference call included people from the Los Gatos, Saratoga, Santa Clara, Sunnyvale, Campbell, as well as somewhere in Pennsylvania.  For 20 minutes at the beginning of the meeting the discussion was going around circles.  It suddenly became obvious to me that the term "landing page" had different meaning to different attendees.  So once I suggested to first define the term, everyone agreed (in relief) but we spent the next 40 minutes discussing the definition itself.  That meeting did not achieve what it was meant to achieve.  This is only one example, but a telling one!

Then ....

A couple of months later, I started my advisory role at Xuropa.  Xuropa had been in business for about 9 months.  They were almost at the product release point.  But they had done things differently (than J).

1. Xuropa's founders included a technologist (software developer) - a very capable one.  The original seed technology was not contracted out.  This had two major benefits:  1) the code base was not a hack done by several short-termed developers and it was constructed by one single team and "all parts of the software were talking together"; 2) The cost was already incurred, so each enhancement was not a new "expense" and hence not subject to an ROI discussion.  As a result,  when I suggested an update or feature enhancement, it was done quickly -- sometimes in a matter of minutes: the developers were involved from the first day so they knew exactly what and where needed to be changed - they would just make the change if they agree with it.

2. Xuropa had an office space - nothing luxurious but very functional.  Many might argue with its necessity, especially with the costs involved and in such an early stage.  Xuropa took a very interesting approach.  They started with an office space to get the company started and to a solid and stable point, and only then they decided to become "remote" to minimize the costs.  They had realized that the brainstorm time together in the early days is critical and worth far more than any savings they would make by not having an office space to collate everyone.

3.  From what I understand, Xuropa's founders spend a good part of their first 6 months defining terminology and processes.  This made the company extremely efficient in meeting times and other exchanges.  Emails became shorter and shorter without losing any of their specificity and content.  Conference calls and meetings were efficient.  A few weeks ago, I had a blog post on doing better rather than just doing more.  A lot of companies advocate over-communicating to make sure things move forward without a glitch.  I prefer communicating better rather than just more, and if the terminology and processes are defined in advanced, it's very easy to just communicate better.

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I'm not hoping to rewrite the book "Built to Last".  Nevertheless, a few observations, just this year, made me realize that there's always the tendency to think penny wise and pound foolish.  If one is building his company for the long haul, he needs to resist the urge.

My visit to Facebook (the company)

I visited Facebook last week.  I've gotten a lot of emails asking me about how my visit was so I promised everyone that I'd do a blog post about it.

It was a very interesting experience.  I went there to see a friend who is working in the R&D group.  What I saw there was a great feeling of team, bright individuals, innovation, energy, and openness.

It reminded me of EDA in the late 80's -- at least my experience in VLSI's software group.  VLSI was a renegade semiconductor company which started the ASIC model along with LSI Logic.  Everyone viewed us as they view Facebook today: "This is all cool stuff, but how are they going to make a profitable business out of this?!!

At that point, VLSI only hired the best from the best schools (as Facebook does today).  We were mostly in our early 20's (as Facebook today).  We worked together, had lunch together, partied together, shared housing together, even dated (as in Facebook today): Work was more than just work (and in fact to this day some of my closest friends post-college are those I met at VLSI).  As my friend and I had lunch in the Facebook café (yes, it was free food!), I noticed a lot of similarities with those days in EDA.

As it always happens, EDA matured (as semi had before that) and companies became "corporations".  Work became just work.  It really makes me wonder about the whole dynamic around corporations: less entrepreneurial, closed, paranoid, ....  I always wondered, for example, why don't corporations use Macs.  Macs are better (performance), must safer, cost compatible, and open.  My thought: Macs just don't fit the bill because they're just not "corporate".  As it turns out, corporations are also having a hard time today dealing with Facebook, or social networking in general - Facebook is not "corporate" either.

In the mid 90's, corporations were struggling to deal with "this internet thing".  A lot of companies were limiting employees access because they feared employees would just waste their time browsing.  I used to hear that argument all the time.  Could you imagine if someone would limit the use of the internet at work today?  All employees (and management) would be up in arm asking "how'd we get our jobs done?!!"

So 15 years later and now corporations are questioning Facebook.  They're looking for ways to limit employees time on Facebook, or other social network/media for that matter.  Instead they can be greatly leveraging it.  There is an insightful article in FastCompany magazine this month about how Cisco is embracing social network within the company to dramatically invigorate innovation and leadership.  It's a bold move by John Chambers (Cisco CEO), one that requires openness, something not typically "corporate".

Cisco's vision is highly appliable to electronic design companies.   Xuropa is enabling professional networking dynamics built around technology-networking (a la social-networking) focused on the entire electronic design supply chain.  Xuropa's platform is something that electronic design companies can leverage (just as Cisco's already doing using other social/professional networks), to revitalize innovation and leadership, and significantly impact the bottom line.

Back to Facebook:  We, as high tech professional, have been taught to believe that someone needs to have a need first, and then we'd create the solution -- and more complicated the solution the better.  As I talk around the industry, I run into people who are upset (and even belligerent) about why Facebook is getting so much attention.   "What are they trying to solve?", I'm often asked.

What I find Facebook's genius to be is that they (most likely by luck, and perhaps because they just didn't know anything different) identified a trend (that people spend more time on the web than TV, phone, radio, writing letters, reading books, etc. combined) and created a fairly simple platform to enable what people would usually do on TV, phone, etc.  They didn't wait for a problem, they just closed their eyes and imagined "what if ...".  That is really the genius behind the Facebooks, the Nings, and the Xuropa's.

How Detroit can do better, not just more

Just as I finished my last post on doing better, not just more, I thought about another great example.  I have been following a company named Better Place since last August.  I have also met with some of the executives to learn more.  Better Place is the company planning to make a broad infrastructure around electric vehicles including a widespread of recharging and battery change stations.  Better Place has an absolutely great vision, not to mention a Steve Jobs like leader (Shai Agassi, CEO) who has already lined up not only big corporation but also countries behind this vision.

As I was thinking about how we, as an economy, or as a planet can do better, not just more, I thought about Better Place.  As discussions and policies are taking place on bailing out the US automobile manufacturers, all I was seeing proposals on how to do more with less.  If you saw my last post, I made the point of doing more with less is focusing on the wrong things.  We always need to step back and think of doing better with less.

As Detroit is looking for ways to do more with less (and with taxpayers' money), there is no doubt there are lots of innovation occurring around electric cars.  You just have to browse the internet for 10 minutes to see how much is actually happening and how much dollars are being invested in it.  As long as Detroit thinks about doing more with less, I can bet that the new innovations will not come from there.  I won't be surprised, however, if the innovation comes from somewhere else (e.g. most likely Silicon Valley).  If it can be done - it will be done. 

If Detroit doesn't shift their mindset off of Auto 1.0 - regardless of how much and how often the US government bails them out, they will totally be left out when Auto 2.0 comes around.

Do better, not just more

I remember throughout my career, every time the economic situation was tightening, I kept hearing from my bosses and other executives to "do more with less".  And needless to say, every time I heard that phrase, I found it extremely insulting.  As if I wasn't already doing more with less?!!  To me it always sounded as if I was being told I was getting fewer resources (and perhaps needed to cut people), more work is getting piled on me, and that it really doesn't matter what the quality of the results are.

What people don't realize is that one **can** instead focus on getting more (even with fewer resources) by doing things better.  And doing better doesn't necessarily mean doing more.

So how would you just do better?  The key to the answer if finding how to do better with less.  In my opinion, doing so relies heavily on how open you are to adopt new ideas.  Doing better with less means not necessarily doing the same but instead finding ways to fundamentally create a **positive** change (and not necessarily change for the sake of change).

Let me clarify with an example: Let's say you spent $5,000 on a trade show and collect 500 leads.  500 for $5,000 leads may be a great or mediocre outcome depending on the industry, the trade show itself, etc.  so take that just as an example.  There are tons of ways to try to do better with less - one example being just improving the booth messaging (more clear, more targeted, more interesting, etc.) and hence spending $3,000 to shooting to get 600 leads  However, do get the more dramatic value is to step out and think about why you're attending trade shows in the first place.

In my consulting practice, most clients are going through severe cost/benefit analysis, especially on trade shows.  What is driving this re-evaluation is the change that is taking place in sales and marketing in general.  Up to recently, marketing was what I refer to as "broadcast" marketing - the vendor(s) as well as users closely associated with the vendor(s) broadcast an integrated message to a target audience.  In the last few years (predominantly since 2004), sales and marketing is taking on more of an "engagement" model.  Marketers are not engaging target audiences in discussions and make their (still integrated and campaign-driven) points through communities, discussions, and blogs.

If you think engagement marketing only applies to consumer market, you're fooling yourself.  In 2005, when I was VP of marketing and business development at Calypto, I was pitched by our PR agency to start looking at blogs as a way to reach our audiences.  My reaction was that I was being **pitched** for more services and ultimately being asked to spend more money with the agency (which I'm sure was partly the case).  So I dismissed the idea quickly.  Blogging was probably too early for the deeply technically rooted electronic design industry, but I do acknowledge that I wasn't being open to doing things "better".  Three years later, and I see evidently that smart marketers, even in the electronic design industry, are turning into leveraging communities and blogs to reach their audiences **better** (and doing it with less resources).

Another example: Virtual trade shows have been around for a couple of years now - but they're built on the conventional broadcast marketing paradigm.  Virtual trade shows **could** probably allow you to do more with less.  However, there are key new technologies out there to accommodate the shift to engagement marketing.  One great example is Xuropa.  Xuropa is a new community (with all of the bells and whistles), built around the electronic design community, which enables user-user and user-vendor discussions, engagement, and even collaboration.  It not only provides for broadcast marketing, but these days we're dealing with a whole new set of sophisticated users who dislike being broadcasted to and would rather prefer to have an active voice with their vendors.

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Bottom line:  There are many ways to approach the "need to do more with less" pep talk.   However, to "get the most" you might need to step out of the box and look for new ways and technology to exceed your objectives.  Doing this might also avoid turning off your employees by the pep talk, and instead motivate them and bring new energy during the budget crisis.

Back on!

Alright, alright!!  It's been a while since I posted to this blog.  My absence wasn't really because I didn't have much to write about, and it has certainly not been for the lack of ups and downs in Silicon Valley.  it had more to do with not having much readership when I first started.  But now that I have other blogs signed up to syndicate my posts, I have a keener motivation to share.

In my last post (in late July 2008) I brought up a question that was driven by a friend (an executive in a semi equipment vendor) having seen **some** signs of recovery.  A lot has taken placed since then.  An economic recession has been "declared".  The Sequoia Capital so-called "Presentation of Doom" has been viewed all over the world.  Barak Obama was elected president.  We have seen a series of layoffs, in or outside of Silicon Valley.  And financial bailouts are in the making.  I guess all of these events have answered the question posed in my last post: It was probably wishful thinking on my friend's part.