11/02/07

11:28:59 am, Categories: Entrepreneurship, Technology, Business Trends, KPO  

Nicholas Carr has made a career by telling all who will listen that IT Doesn’t Matter. Even though my career is deeply entrenched in the IT & high-tech industries, I have to admit that Mr. Carr has a valid point. During many afternoon musings over tea with my friends (you know who you are!), a hotly debated topic continues to be “Whether IT is really headed the way of electricity”. A seasoned IT executive we have worked with for a while continues to remind us that not long ago, most large enterprises used to have Vice Presidents for Electricity. This was a time when uninterruptible power supplies (UPS), diesel generators and battery packs were complex technologies. Generating enough power to run a large corporation used to take quite some doing. Today, in most contexts, we can afford to take uninterrupted power supply for granted and hence, we do not see many senior executives holding the Electricity portfolio. The question then begs – Will the CIO become obsolete in a similar vein?

The high-tech industry has seen several inflexion points that have significantly influenced its course. Key course corrections were driven by:

• Mainframe computing (The 1970s – 1980s)
• Client / Server computing and ERP / CRM (The 1990s)
• Web-based computing (Late 1990s and early 2000s)
• Software as a Service or SaaS (Early 2000s)
• IT off-shoring (Mid 2000s)

Each of the above trends drove significant new market activity and IT spending from enterprises. If Mr. Carr’s predictions are correct, what will drive the nail in the coffin for IT? One scenario comes to mind. SaaS vendors like Salesforce.com have established traction with small & mid-market customers and are beginning to make a dent with larger enterprises. It is not hard to imagine that in a few more years, SaaS vendors could deliver fully functional (ERP scale), industry-specific, reliable, secure, configurable / customizable offerings? If larger enterprises do indeed jump on to the SaaS band-wagon, Mr. Carr’s predictions don’t just seem on the mark, but they seem rather imminent.

My goal in this posting isn’t just to validate Mr. Karr’s predictions, but to take the argument a bit further. The figure below portrays my humble perception of how enterprises are already undergoing significant transformation.

As I mentioned earlier in this posting, just better adoption of SaaS by larger enterprises will be enough to drive IT outside the enterprise. My contention is that this argument could easily be extended to non-core business processes in an enterprise. The already existing & viable business process outsourcing (BPO) market is testament to this trend. Companies such as GE and Citibank set up call center, customer & technical support operations in India several years ago. More than a dozen mid-sized BPO companies in India are now offerings services that include payroll processing, financials & accounting, billing and other back-office functions. And at the heels of the BPO trend is knowledge worker outsourcing, also called KPO, which addresses business processes that require deep domain & industry knowledge. Examples include legal research & patent filings, market analytics, sales & marketing support, drug research & discovery and financials equity research. McKinsey, the management consulting company, has had a research & analysis shop in India for a while now. As has Gartner. Just the simple fact that a large, educated, low-cost and easily accessible labor pool is available off-shore has put the BPO & KPO trends on over-drive. And if Mr. Carr’s predictions about IT are true, the commoditization & outsourcing of non-core business processes isn’t far behind.

What does all this imply? I believe that the enterprise of the future will look a lot different from what we are used to today. Just a quick anecdote here. We recently had a few new cities incorporate themselves in the greater Atlanta metro area. Two of these new cities have outsourced most of their operations to CH2MILL. This includes all their payroll, billing, tax collection and other back-office functions. The elected council members legislate and drive the cities’ agenda. Everything else in the background just hums along, like electricity.

Sampath

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09/23/07

08:30:38 pm, Categories: Sales & Marketing, Business Trends, KPO  

After having seen the book “The World is Flat” on several best-seller lists, I finally picked it up last week. If I could toot my own horn for just a minute, my previous post on Knowledge Process Outsourcing comes to pretty much the same conclusions that Thomas Friedman arrives at in this book. Admittedly, my language isn’t as flowery and I don’t have very many witty anecdotes to mix things up.

But one thing did stick out for me from Friedman’s book. In addition to the powerful undercurrent of Knowledge Worker Outsourcing (as Friedman calls it), the other significant accompanying development, and the topic of this post, is that of the global labor pool.

As Friedman points out in his book, with the advent of cheap & copious bandwidth, inexpensive computing power and well-accepted global trade practices, we are now at a point where pretty much any knowledge intensive “project” (used loosely) can be chopped up into pieces, each individual piece could be worked upon in a remote corner of the world and the disparate pieces could then be aggregated into the end product in yet another part of the world. Think of this as the new global, knowledge supply chain.

A cousin of mine just started his UG studies. For the past two years, the family was counseling him on the discipline that he should be focusing on. He finally decided on pursuing a business major because, as the thought went, regardless of all the changes in products, industries and globalization, companies will always need general managers.

Most of us in the high-tech sector have seen significant changes over the past 2 decades. The Telecom industry has gone a full circle from divestiture to consolidation, with consumers driving rampant product substitution (cell phones for land lines, IPTV for cable, VoIP over WiFi for cell phones). The product developments in other parts of the high-tech sector (ERP, CRM, Web Apps, Security, Networking) also seem like a big, long blur. Couple that with the huge IT outsourcing & off-shoring trend, and it becomes difficult to recommend that anyone start a career in IT in the US at this point in time, unless there is a well-defined, long-term niche market that is being targeted.

Given the rapid changes in products, industries and globalization that we continue to see, my cousin’s decision to pursue a career in general management seems like an appropriate hedge. Friedman also brings up this question in generic terms in his book. What will the Knowledge Worker Outsourcing trend imply for our children’s careers?

The answer, in its simplest terms, is the very title of this post. A global labor pool is emerging. Whereas, previously one could evaluate the local, regional or national labor conditions & demand for a particular skill set therein and choose a career path, now career aspirants will have to do the same evaluation, but on a global scale, before they decide on a career.

In a previous post on entrepreneurship, I had talked about the need for entrepreneurs to quickly pick up global skill-sets. After reading Friedman’s book, I am of the opinion that the need for global exposure and skill sets is not just limited to entrepreneurs, but is important to anyone pursuing a serious, professional, knowledge-intensive career.

Thoughts?

Sampath

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08/24/07

08:18:44 am, Categories: Entrepreneurship, Sales & Marketing  

I had a moment of clarity a couple of days ago on how a start-up should think about positioning its products & services in the market to achieve the most traction. I will go into this in a bit more detail when I pen the SalesQB Diary for 2007. But even in general terms, there is a key lesson to be learnt, I think.

Take a look at how SalesForce.com evolved. It focused on providing CRM / SFA functionality to SMBs as a simple, one-size-fits-all, on-line service at a low monthly rate. Compare this to the huge, highly customized CRM implementations that larger enterprises went through at 7, 8 and 9 figure tabs. But the key point is that CRM in larger enterprises was an established phenomenon before Salesforce.com could do what it did. Yes, Salesforce.com had to invest a huge amount in marketing in its first year ($25M, according to their own financials) before it could gain traction, but that was to convince the market about the viability of the Software as a Service (SaaS) model, not about the value of CRM.

Think about other major product & service categories in the high-tech space, such as websites, Internet connectivity, network equipment and enterprise applications, and you will notice that they first gained traction in larger enterprises and then made it to mid-sized and smaller companies. You will also notice that high-tech vendors use progressively lower cost sales & delivery models as they move to the mid-sized and smaller market segments. And the numbers justify this approach. Deals in larger enterprise customers tend to be in the 6 – 9 figure range, those in mid-market customers tend to be in 4 – 7 figure range while smaller customers would be hard-pressed to justify any deals larger than $10K. This is why sales to enterprise customers are made through field sales reps, those to mid-market customers are done through a combination of field & inside sales reps and sales to smaller customers are garnered primarily through marketing & small doses of inside sales.

So, what is the point? My theory is that products & services that start of as being “discretionary” have the best shot of gaining traction with larger, enterprise customers. Once there is media attention in this space and industry / financial analysts start tracking it, then the mid-market becomes a viable customer segment. It is only after the above two precedents that the product or service category can be sold to small business customers profitably.

The catch word in the above para is “discretionary”. If a small business customer absolutely has to do something, such as tracking its financials and paying taxes, then associated products & services could well be directed at the small business market segment first. An example being QuickBooks. And if a product or service is developed only for small business customers, such as dentists or veterinarians, then obviously my theory doesn’t apply. But, if a product or service starts of being discretionary (not a “must-have”), then the ease with which traction can be accomplished in its formative years decreases as you go from large to mid-sized to small customers. And the reasons are obvious. Small business customers tend to be risk-averse and not have cash to burn. They need to be strongly persuaded about the value of a discretionary product or service, which is very hard to do with just marketing and inside sales. Field sales reps, meeting with executive decision markers in person at larger enterprises, tend to be a good bit more persuasive.

The situation is not completely black or white though. Sales cycles in larger enterprises tend be long, anywhere from a few months to a year or two. Sales cycles in small business tend to be less than 2 – 3 months, if not smaller. Field sales reps are also a lot more expensive to hire than inside sales reps. So, the sales overheads for enterprise sales are a good bit higher. Compare this to spinning your wheels with smaller customers, when that market is not yet ready for reaping, and achieving sub-par sales performance.

So, as an entrepreneur, think about what you sell, how ready the three key markets are (enterprise, mid-market and small), what your average deal sizes will be, how long you expect your sales cycles to be, what your sales overheads will be, whether revenue generation is more important than profitability, when you expect to raise external working capital, what the VCs / lenders you approach will look for in a company (revenue, profitability, number of customers) such as yours and then trust your gut.

Sampath

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06/12/07

04:19:08 pm, Categories: Entrepreneurship, SalesQB Diary  

The Idea

Early in 2006, we formed our Advisory Board and brought on Ravi, Ashok and Shiv, a heavy hitting team with an extensive background in enterprise apps, start-ups and investment banking. Right about this time, we were introduced to a general partner at a Tier-1 VC firm in the Bay Area over coffee. We connected very well with the general partner and at the end of our brief conversation, he asked us to think about using a Web 2.0 go-to-market strategy and said that if we adopted that approach, he would be willing to fund us.

Web 2.0 was the trend of the year in 2006. JigSaw, VisiblePath, LinkedIn, Plaxo and other similar companies had adopted Prosumer go-to-market strategies and secured VC funding. And with the impetus of this promising conversation with a Tier-1 VC firm, we turned on a dime and went Web 2.0

The Funding

Funding at this point was still coming from our consulting operations and the family retirement fund, though the hope was that before the end of the year, we would have closed on a Series A round.

The Pedal to the Metal

So, we slowly backed off from the promising sales conversations we were having with Fortune 1000 companies late 2005 and developed the third generation of our product, or should we say our “service”. We launched the Web 2.0 edition of our sales coaching service in August 2006, along with some social networking elements thrown in.

We came up to speed on how sales worked in the Web 2.0 space, and realized that marketing, advertising and sales were all one dizzying continuum. We engaged PR, SEO and Email Marketing as our primary marketing vehicles. We got a fair bit of traction from Email Marketing and signed up close to 150 users for our free offering before the end of 2006.

We continued to have conversations with the Tier-1 VC firm and opened new channels with other VC firms that played in this space as well. The goal was to raise money, bolster our marketing efforts, sign-up a ton of users for our free offerings, create a ground-swell and make money from “to-be-determined” premium services. Déjà vu, anyone?

The Lessons

In hindsight, I am not convinced that Web 2.0 was the right go-to-market strategy for the type of services we were offering. LinkedIn, Plaxo and JigSaw were successful because they offer what I would call “casual” offerings. That is the users can use these services to complement what they are already doing. If they stop using these services, their world is not adversely affected. Whereas, SalesQB’s services directly affect the way reps sell. We were recommending how reps should position their offerings in each deal, develop value propositions & business cases, and sell to decision makers. This is serious stuff. Once you take SalesQB’s recommendations in a deal, you better stick with it till the end. Bottom-line, if a rep applies SalesQB’s recommendations consistently, he will come out ahead. But the operative word is “consistently”.

Herein is the disconnect. For a rep to find SalesQB’s services useful, he has to pay for it, take it seriously and commit to it. The Web 2.0 approach of providing a free offering, sign-up a ton of users and then figure out how to make money didn’t make sense for the value we were attempting to deliver.

As a Web 2.0 company, it is also very tempting to draw comparisons with established Internet players (eBay, Google, MySpace, JigSaw), wishfully think about gaining just 2% of that coveted market. Or keep drawing analogies with emerging trends like social networking / media, SaaS, tagging and Wikis and dilute your focus. Bottom-line, you are selling services to a target market. Unless you provide a simple way for your users to do their job faster, better, cheaper, your offerings will not gain traction.

Then, there is the Clayton Christensen puzzle on whether you try to create & lead a new market or try to position yourself as a niche player in an existing market. One of the co-founders of KPCB is on record saying that it is immensely easier to create a small place for yourself in an existing market than to create a new one. If only our egos allowed us to see the wisdom in this comment.

Even with a Web 2.0 go-to-market strategy, one has to think about what one’s priorities are – revenue or growth at all costs. For example, would it make sense to create a user base of 1M users for your free offering (possibly at a huge marketing cost), and have 1% of your users (10K) pay for your premium offerings. Or would it make more sense to just target 10K paying customers to begin with. It all depends on what your offerings are, and how much of a “networking effect” they create & require. LinkedIn, Plaxo and JigSaw are examples with “networking effects” entrenched in their offerings. However, with SalesQB offerings, we could just have focused our meager marketing dollars on creating a small paying user base to begin with.

So here we are. Three years into our company, essentially selling the same solution (deal-specific sales coaching), but still trying to figure out how best to sell it and to whom. Goes to show how critical product management is for a start-up. Needless to say, after three years of constant mid-night sessions & self-financing SalesQB, some cracks were showing up in the amour. We have given ourselves till mid 2007 to raise funding and take SalesQB to the next level. Let’s see what 2007 throws at us.

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05/05/07

04:15:52 pm, Categories: Entrepreneurship, SalesQB Diary  

The Idea

After licking our wounds from the small business CRM battlefield, we decided to position OppCoach as a stand-alone product that could plug-in to any CRM system. The natural ally, with this approach, seemed to be Sales Training companies. So, we started figuring out how to make a dent in the sales training market.

The Funding

Funding at this point was still coming from our consulting operations. The thought process was that if we could get a few customers to sign-up, our valuation would grow exponentially and we would have to give up less of our equity when we did a Series-A round

The Pedal to the Metal

Early in 2005, we developed the second version of our product. A stand-alone sales coaching product that provided opportunity-specific sales coaching and industry / domain knowledge. We retained the name OppCoach and even integrated it with SalesForce.com. We identified a conference hosted by the Professional Society for Sales & Marketing Training and got ourselves a booth there. We headed to the conference in Amelia Island, Florida, and started networking.

We met with numerous, leading sales training companies (Porter & Henry, Forum, Trainque etc). Each of them was thoroughly impressed with what we had to show. The CEO of Porter & Henry went to the extent of saying that OppCoach provides the coaching & mentoring to reps that sales managers ought to but don’t.

Then came the rub. I talked to the CEO of Porter & Henry and asked if he would be interested in partnering with us. He didn’t mince his words. He said that partnering with us wouldn’t make sense for his firm, because we would be going after the same customer dollars, and thus cannibalizing each other’s sales opportunities. I tried to come up with revenue sharing models and synergies, but the ice didn’t break. It didn’t help that the sales training market is incredibly fragmented, moves at a glacial pace and doesn’t really appreciate “software” solutions.

In the second half of 2005, we fine-tuned our positioning a bit, and started directly targeting sales training groups in Fortune 1000 companies. We were having very good conversations with brand name companies (Pfizer, P&G, Canon etc) and making good progress. Most customers we talked to would leave the meeting excited about the prospects and potential opportunities. By the end of 2005, we hadn’t closed any deals. Obviously, sales cycles for new solutions in Fortune 1000 companies weren’t going to be quick. So, we hunkered down and waited with bated breath for 2006.

The Lessons

Selling solutions is very different compared to selling services. Completely different value propositions, sales cycles and capital requirements. Our management team had a good bit of experience selling services, but selling solutions took a good bit of getting used to.
In retrospect, even though we had a good bit of traction with sales training groups in Fortune 1000 companies, I realize now that we weren’t targeting the right decision makers. Sales training groups typically “don’t do software”. The decision-makers we should have been targeting are those who also bought CRM / SFA systems, namely Sales VPs who are in charge of overall sales operations. Goes to show that just zeroing in on a target market isn’t sufficient. You need to go down to the target decision-makers and present compelling value propositions. We were learning hard-earned lessons, albeit at the end of a very sharp stick …

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