Archives for: 2007

12/27/07

11:13:25 am, Categories: Entrepreneurship, Technology, Business Trends, KPO  

The Management Consulting industry has changed quite a bit over the past decade or so. And the off-shoring phenomenon has added a new element to the mix. Thought I would put together a back-of-the-envelope model for how I see Management Consulting continuing to evolve over the next 10 years.

If you mentioned Management Consulting in the 1990s, the key firms that came to mind were McKinsey, BCG, Bain and then, the Big 6 (Anderson, C&L, PW, KPMG, E&Y and Deloitte). The first 3 firms were focused exclusively on strategy consulting. The Management Consulting units of the Big 6, however, had more expansive offerings that included BPR and IT Design & Delivery. That is, the Big 6 not only advised on solutions to their customers' business problems. They also delivered these solutions. One of the things I distinctly remember about the 1990s is how Management Consulting firms would shy away from “low-value”, long-term, outsourcing relationships. These types of deals, typically focused on IT outsourcing, were pursued by EDS, IBM and maybe towards the end of the decade, by Accenture as well.

Off-shoring in the late 1990s and specifically in the early part of the current decade created new markets. The SWITCH companies (Satyam, Wipro, InfoSys, TCS, Cognizant and HCL) all have significant traction in IT markets (Engineering, R&D, Custom IT, ERP / CRM). The business process outsourcing market took a long circuitous route to maturity and now compares favorably with the IT market in India. As I mentioned in a previous article on BPO, the SWITCH companies have established sizeable BPO lines of business as well, either through acquisitions or organic growth.

The most interesting development I find in this context is the development of the KPO market. I view this as the natural evolution of strategy consulting. I remember the days in the 1990s, when a handful of well-dressed management consultants would engage with a customer for a couple of months. And after a series of interviews and mid-night sessions, we would deliver a well-crafted presentation on the strategic solutions to the customer’s imminent business problems. In the industry, we used to call our deliverables “credenza-ware”, because most of our presentations would gather dust on the CxOs’ credenzas. What the last few years have revealed is that with India’s large, latent pool of well qualified research analysts, strategic advise can be delivered at such a granular level that it is immediately actionable. This is what we have been doing at SalesQB. We do not just deliver PowerPoint presentations to Sales VPs on how they could execute their sales strategy. We provide personalized sales support to individual sales reps on specific deals & accounts that they are chasing. This is what I call Operational Analytics.

Fast-forward to the 2010s. I think Management Consulting firms will have to evolve and demonstrate strong Advise & Analytics capabilities that are tightly coupled with their current BPR, BPO and IT capabilities. And I think Accenture is already on the right track with its emphasis on Consulting, Outsourcing & Technology. It will be interesting to see how the SWITCH companies morph their identities from IT service vendors to business service providers to leading Management Consulting firms …

Sampath

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11/06/07

John Chambers, CEO of Cisco, once said that “there is no substitute for being in the right industry at the right time.” By that account, the BPO industry in India is where one should be today. Several of my readers have asked me to put together a primer on BPO. So here goes. We will look at what BPO is, the key numbers, the industry structure & its evolution, key trends and some potential roadblocks.

Outsourcing is a well understood, tried & tested management process that global companies have been using to move to a “boundary-less” organizational model. From its initial focus on cost-cutting, outsourcing is now increasingly viewed as an enabler for long-term competitive advantage, process efficiencies and co-innovation. Most of the media noise over the last decade has focused on IT outsourcing (ITO) – Think helpdesk support, data center operations, application delivery & support. Business process outsourcing is the process equivalent of ITO – Think payroll processing, financials & accounting and customer support. And then, there is the off-shoring dimension. Countries such as India, China and South Africa have been vying for a share of the global outsourcing market. In this post, I will treat outsourcing & off-shoring differently to the extent I can, so that the big picture is a little clearer.

The Numbers

OK, let’s dive right into it:

  1. According to TechNewsWorld, the global outsourcing market (including all services, industries & geographies) is estimated at over $5 Trillion

  2. Gartner estimates that total Global IT spending in 2008 will exceed $8 Trillion

  3. Depending on which analyst you ask, the Global IT outsourcing market is anywhere from $100B to $600B. The more concrete numbers here are around the off-shoring component. According to NASSCOM, the Indian IT industry (includes a small BPO component) raked in $24B in 2006 and $32B in 2007. NASSCOM estimates that the Indian IT sector will generate $60B by 2010. As of 2007, the Indian IT sector employed 1.6M people. That is 1.6M jobs that did not exist a few years ago!

  4. Now for the BPO numbers. According to IDC, the global BPO market in 2008 is estimated to be around $680B. Gartner estimates that the off-shored component of BPO in 2007 is $25B. And NASSCOM estimates the size of the Indian BPO sector in 2007 is $8.4B. That is, India currently has 33% of the global off-shored BPO market and that less than 5% of the global BPO market is off-shored. Most estimates put the size of the Indian BPO market by 2010 at $20B. As of 2007, the Indian BPO sector employed 553K people. Again, these 553K jobs did not exist 4 years ago. And McKinsey estimates that the Indian BPO sector will employ over 1M people by 2008.

  5. And while we are discussing numbers, let us also talk about KPO. Evalueserve estimates that the Indian KPO sector will generate about $10B and employ 250K people by 2011

These numbers aren’t as outrageous as FaceBook’s reported $15B valuation by Microsoft, but are staggering nonetheless. The IT, BPO and KPO sectors in India are looking at a CAGR of 20-40% over the next 5 years. Remember John Chambers’ pearls of wisdom?

The Services

Let’s come back to the topic of our blog – BPO. What is it? PwC suggests that the BPO market could be broadly broken down into three functional areas:

  1. Business Administration – Payroll, HR, Finance and other general back-office functions

  2. Supply Chain Management – Procurement, Warehouse / Inventory Management, Transportation & Logistics

  3. Sales, Marketing & Customer Care – Analytics, Acquisition, Retention, Cross & Up selling

More specifically, the key BPO services that have been offered by Indian vendors over the past 5 years are:

  1. Customer & technical support services (a.k.a Call Centers)

  2. Telemarketing services

  3. Helpdesk services

  4. Insurance processing

  5. Data entry, transcription & conversion

  6. Scanning & OCR services

  7. Bookkeeping & accounting services

There is a fair bit of grey area between BPO and KPO services. I think of BPO services as those that resemble the proverbial assembly line, with maybe a little bit of data reconciliation and research involved. Processes that require deep domain or industry knowledge, research & analysis, taking a step back & looking at the larger picture, are what I would consider to be in the realm of KPO services. Having said this, BPO services now include a number of sub-categories such as:

  1. Legal Process Outsourcing (LPO) – Starting with low-end transcription work, these services now include patent processing, market identification, litigation documentation & legal research

  2. Research Process Outsourcing (RPO) – This is the R&D in the bio-tech and pharmaceutical sectors (drug discovery, clinical trials etc)

  3. Human Resource Outsourcing (HRO) – From its humble beginnings, this sector has grown to include payroll management, training, staffing, benefits administration, retirement planning & compensation consulting

  4. Medical BPO – Apollo Hospitals in India is now offering outsourced hospital administration services

  5. Procurement BPO – This is the management and / or execution of one or more procurement activities, all the way to outsourcing the entire procurement function

The Industry Structure & Evolution

According to a recent PwC report, BPO in India evolved in four distinct waves:

  1. In the 80s and 90s, Fortune 1500 companies like AmEx, GE and CitiBank setup call center and back-office operations in India. These were “captive” units. That is, they were owned and operated by the parent company. So, in essence, this wasn’t outsourcing per se. Rather, a multinational corporation was just leveraging a global labor pool

  2. Then, in the early 2000s, venture funded BPO companies, like Spectramind, sprung up and provided BPO as a service

  3. Next, leading IT services companies like Wipro, InfoSys and HCL leveraged the natural synergies with their IT & software business and extended their offerings to include BPO. Most of these firms built BPO capabilities through acquisitions rather than organic growth

  4. Next, we are now seeing domain / industry specific players, like TechMahindra, entering the BPO market to “verticalize” their offerings

Sanjeev Kumar, a PhD candidate at UMich’s Ross School of Business, and his advisor, Prof. M.S. Krishnan, have come up with the following model to describe how BPO is evolving. I think this model is very descriptive, though I would argue that what they call BPO 3.0 is being referred to as KPO in the trade rags. For Sanjeev’s complete article, click here.

The Key Trends

  1. One key trend we have seen is for service provides to “move-up-the-value-chain”. Wipro, InfoSys and other Tier 1 ITO vendors have entered the BPO space in the last 2 – 3 years. I think the CIO / CTO mind-share that all the ITO vendors are clamoring for is pretty diluted. So, these vendors are moving to more of a solution focus, rather than a pure technology focus. And after BPO, the next logical step will be for these vendors to include KPO services (BI, Analytics, Strategic Advise) in their portfolio

  2. The attrition rates are coming down, especially as the BPO vendors move to Tier II and Tier III cities in India. Some recent estimates put the attrition rates at around 15% for non-voice BPO services

  3. India’s share of the global off-shored BPO market has been declining. So, we are seeing Indian BPO vendors establishing beach-heads in other countries such as China and Ireland. HCL recently bought an Irish call center and used that as leverage to get a sizeable BPO contract from British Telecom

The Key Roadblocks

  1. The weakening dollar will continue to be the “monkey-wrench” for Indian BPO vendors. The only solution for these vendors is to continue to deliver higher-value services that justify higher bill rates. The other hedge strategy that is already underway is to start building capabilities in cheaper off-shore destinations

  2. The huge employment numbers suggest that there will be significant HR issues in the near future. Putting together a labor pool with millions of “BPO worthy” employees will take a minor miracle, even with India’s large educational infrastructure

The Key Takeaway

I understand that most of us in Corporate America who wear IT or business operations hats are wary about BPO & off-shoring. We can continue to debate what these trends & numbers mean for the American economy and employee. My key goal in this post is to establish that BPO & off-shoring are real, big, growing and here to stay. Make sure you think about this when launching your start-up or planning your next career move.

Sampath

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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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04/20/07

04:15:27 pm, Categories: Entrepreneurship, SalesQB Diary  

The Idea

This is the year I left IBM. Had a gut feel that there were major inefficiencies in how reps tackle solution selling (a.k.a complex sales). It was obvious to me that for reps to effectively sell solutions, they required deep industry & domain knowledge to establish credibility with decision-makers. And having had an enterprise apps background, I started thinking that there had to be a way to package the knowledge required for solution selling, very similar to how “best-practice” business processes are packaged in enterprise apps. With this little nugget of wisdom, I quit IBM and started-off on my own.

The Funding

I didn’t have much of a net worth to begin with. So, I started off doing IT consulting, something I had been doing for the past 8 odd years, to bootstrap SalesQB. The idea was to do consulting and put food on the table, and then bootstrap SalesQB with the positive cash flow. A tried-and-tested funding model, except that it takes a lot of perseverance, mid-night sessions and family commitment.

The Pedal to the Metal

Now came the hard part – figuring out what to sell and whom to sell to. We decided to take a crack at the small business CRM market, which was beginning to get a lot of media attention that year. Over the course of 2004, we developed the first version of our product. A full-fledged CRM application and then some. We had a plug-in called OppCoach™ that provided opportunity specific sales coaching. If you had an opportunity in your CRM system, OppCoach would ask you a few questions to determine the sales context and then recommend a customized sales methodology for that specific opportunity. In this version of our product, we didn’t have industry or domain knowledge embedded as yet. But I am proud of the fact that we had a full fledged product that could have gone toe-to-toe with Siebel, SalesForce.com or any other leading CRM / SFA product out there.

We determined that the best way to take a crack at the small business CRM market was to partner with regional IT resellers. So, we went to a Gartner conference called Small Business Vision, where Gartner was trying to bring ISVs like us together with regional IT resellers. We went to a conference in Orlando to meet with IT resellers in the South-East.

Very quickly we figured out that we were having a hard time rising above the Small Business CRM noise. All the big CRM vendors (Microsoft, Oracle, Siebel and SalesForce.com) were hammering the small business market that year and our family retirement fund didn’t quite have the wherewithal to taken on these 900 pound gorillas. Furthermore, there were 2 dozen more CRM vendors (Pivotal, ePiphany, SalesLogix etc) that were trying to enter this market.

We gave up on the idea of taking our offering to the small business CRM market and started looking at ideas for 2005

The Lessons

Most of our leadership team had a management consulting, enterprise apps and technology-heavy background. We were very entrepreneurial and had launched sizeable practices within management consulting firms. However, when we decided to target the small business market, we should have consulted closely with someone who knew how product management worked in the small business market. It took us close to 4 months of spinning our wheels to figure out that we were headed nowhere with this approach.

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04/11/07

02:49:33 pm, Categories: Entrepreneurship, Business Trends, KPO  

Caution! Dire predictions ahead.

Now that we have figured out the true impact of BPO, we are being thrust into the middle of the KPO trend. For the uninitiated, business-process-outsourcing (moving IT delivery & operations offshore) was a $157B global phenomenon in 2006 and is expected to grow at a CAGR of 10% for the next few years. Knowledge-process-outsourcing (KPO) deals with the outsourcing of knowledge related activities. If you can think of an insular knowledge-intensive business function, it can probably be outsourced. Examples of functions that have already been outsourced include medical transcription, legal research (patent analysis & preparation), pharmaceutical / drug research & trials and financial research (M&A deals, equity analysis). OfficeTiger, one of the leading KPO firms, is targeting a $400B market for general research in the US. Other more conservative projections talk about the KPO market reaching $17B by 2010. For reference, it was about $2.5B in 2006.

With the open, easy flow of information across global borders, nations like India, China & Philippines are beginning to flex their muscle. The big advantage they have is a huge, low-cost, educated labor pool that has a flair for research and analysis. For example, the loaded cost for a research analyst in India is hovering around $15 / hour at present. If an enterprise can get an insular, knowledge-intensive business function done in another country at a third of what it costs here, it would be tough to argue against outsourcing that function. True, we need to factor in the language, time and cultural barriers. But these factors are not insurmountable, as we have seen in the last 3 – 4 years with BPO. And the fact remains - We are in an age of knowledge commoditization. If a knowledge-intensive business function is not a core competency or critical to its competitiveness, an enterprise would be hard-pressed to NOT outsource it.

So what are the implications of this trend? I think that most business functions in most industries will be impacted to some extent by KPO by 2015. The only business functions that will not be adversely affected are those that require on-site presence at customer premises, like sales & customer service. The only industries that will not be adversely affected are the services & retail industries, for similar reasons. There are several projections out there that estimate that China will account for 20% of the World GDP by 2015, based on its manufacturing prowess. I predict that the KPO trend will enable India and some of the key south-east Asian countries to account for over 5% of the World GDP by 2015 as well. A quarter of the World GDP being accounted for by a handful of countries in Asia. Sounds like fiction? Think again. All indications point to this scenario emerging within 8 to 10 years!

So what does this mean for Corporate America? There is a lot of literature out there that talks about Innovation being the only sustainable, competitive advantage for American enterprises. I would like to take that thought a bit further. Innovation in its current sense deals with continually revamping your product & service portfolio and target markets. I don’t believe that such a complacent approach to Innovation will help. We might even see the outsourcing of the Innovation business function, if we keep it this simple! To stay truly competitive, I believe that American enterprises will need to constantly keep re-inventing themselves by redefining their value chains and appropriately positioning themselves in the new value chains. And American enterprises would do well to borrow a couple of pages from the playbooks of successful entrepreneurs to develop this kind of agility in short-order.

Thoughts?

Sampath

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03/20/07

As an entrepreneur starting a Web 2.0 company, I have often made the mistake of adopting the “build-it-and-they-will-come” attitude toward our offerings. As I mentioned in a previous article, it is seductive to draw comparisons with significant trends (social networking, Web 2.0, SaaS, Enterprise 2.0, Services 2.0 etc) and large success stories (Google, Yahoo, eBay, MFG.com, SalesForce.com) and think “If only we could capture 3% of that market …” There are a slew of Web 2.0 entrepreneurs out there today who are thoroughly convinced that their offerings will change the world, but are not seeing any market traction.

I was reading a book called Freakonomics on a flight home and had a moment of clarity. In this book, the authors talk about all human behavior being influenced by three types of incentives; financial, social and moral. They go on to explain several confounding phenomenon just based on this premise.

I started thinking about using just this approach to predict whether Web 2.0 offerings would gain traction. Very simply, think of your offerings as an incentive program. What is in it for the user to get excited about using your offerings? What is his financial incentive to do so? What is his social incentive to do so? And in the case of not-for-profit organizations, what is his moral incentive to do so? If you have compelling answers to do the above questions, you offerings will probably gain traction. If not, starting working on your next idea.

Now I realize that taking a hard look at the value of a company’s offerings is not really a novel idea. But I do think that thinking about Web 2.0 offerings (the audience for which is typically an individual) as an incentive program makes a lot of sense.

Thoughts?

Sampath

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03/12/07

04:12:20 pm, Categories: Entrepreneurship, SalesQB Diary  

This is an attempt at maintaining a journal on how SalesQB evolves over its lifecycle. If things go well, hopefully this journal will serve as somewhat of a blueprint for successfully launching start-ups. If not, well, you will get some concrete ideas on what NOT to do!

For obvious reasons, this journal is a bit dated. That is, I will describe what SalesQB’s inner workings and machinations were for the previous year. We continue to deceive ourselves into thinking that we are smarter than the rest and that we are working on ideas that no one else knows about …

Happy reading.

Sampath

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02/26/07

02:35:26 pm, Categories: Entrepreneurship, Business Trends, KPO  

Entrepreneurship in the high-tech sector will undergo some dramatic changes over the next decade. I have developed a little visual model for the processes used by entrepreneurs to raise money, hire exec talent and develop & support products. Big caveat here. My experience is primarily in the high-tech sector and the only offshore experience I have today is in India. So, please extrapolate to other sectors and the BRIC (Brazil, Russia, India, China) block as appropriate.

A couple of notes on how I came up with the above model.

  • The model in the 1980s is pretty obvious. This how the Ciscos & Oracles started
  • The model in the 1990s started leveraging the BPO trend to move the product development & support functions to India
  • The 2000s, particularly 2005 - 2006, have seen the emergence of a new breed of start-ups in India. By some accounts, over 200 KPO startups have been launched in India in 2006. Also, we saw most Tier 1 & 2 VC firms from the Bay Area set aside funds to seed India based companies. On average, these funds have corpuses to the tune of multiple hundred million dollars! Sequoia Cap, for example, has an India focused fund of $400M. Today, the situation in India is that there is too much money chasing too few deals. My unvarnished assessment is that this smells like the Bay Area of the mid 1990s where there were many good technologists but few seasoned entrepreneurs. But as with most dire situations, this too shall improve. Which leads us to the 2010s
  • The 2010s, I believe, will see a good set of start-ups in India, particularly focused on KPO (Knowledge Process Outsourcing) offerings. The availability of money, a sustained advantage in the KPO market, improving infrastructure & a maturing labor force will be the cornerstones for a large number of these start-ups. By some measures, the Indian KPO market will be the same size as its BPO market ($17B) by 2010. I have already run across several KPO firms that have good ideas & less than stellar management, but have secured seed funding. Deja vu, anyone? Hopefully we will have the business discipline to not get too excited and remember the key lessons from the mid-1990s.

So what does this mean for the entrepreneur? I think the entrepreneur of the 2010s has to:

  • Develop global expertise in short-order. GPs at tier 1 VC firms are on record saying that outsourcing of some sort is now a requisite in business plans, because otherwise, the start-up is wasting the VC's money
  • Hire cross border exec teams. Critically, the entrepreneur will need to ensure that his professional network is well balanced and reflects the reality on the ground
  • Gain first hand experience of the emerging markets. It is a question of when, not if, the BRIC block will transform itself from a cost center to a key market that entrepreneurs will need to be acutely aware of. My bet is that will happen in the early part of next decade (2011 - 2015)

Would be glad to hear what you have to say ...

Sampath

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02/07/07

There is a mind-numbing amount of information in the public domain about how Web 2.0 and Enterprise 2.0 will change the world for ever. This article attempts to provide an entrepreneur’s perspective on these trends and distill the key issues with a bit of common sense. The term Web 2.0 was first coined by Tim O’Reilly to denote a new breed of Internet services companies. The key traits of companies in this new breed, according to O’Reilly, were:

  • They were platform plays. E.g. eBay & YouTube
  • They had a social networking component. E.g. MySpace, Skype & Amazon
  • They had community driven content. E.g. Wikipedia & eBay
  • They released users from the software development lifecycle, meaning that users would access Web 2.0 services using a simple web browser. In tech-speak, this is called Software as a Service or Saas

Whether the above differentiators really warrant a new category or not is debatable. One could easily argue that these basic characteristics should have been incorporated into most, well thought-out “Web 1.0” Internet companies that were launched in the mid 1990s and that we are only now coming around to fully understand the implications. Nevertheless, Web 2.0 is a handy way to characterize these companies & somewhat comprehend the implications.

From its consumer underpinnings, Web 2.0 evolved over 2005 – 2006 to take on an enterprise flavor. Terms like Me, Inc., Prosumer and Enterprise 2.0 have been used to describe companies adopting this approach. Examples of companies in this space include SalesForce.com, SugarCRM, NetSuite etc. The case that is being made here is that business services can be delivered using a consumer model to professionals, hence the Prosumer go-to-market strategy. According to Philip Lay at TCG Advisors, the cornerstones of Enterprise 2.0 are

  • Software as a Service or SaaS
  • Service Oriented Architecture (SOA, read Web Services) and
  • Open Source Computing (E.g. Ajax)

Philip rightly points out that now (2007) is not the time for us to get overly excited about Enterprise 2.0. We are not going to see Fortune 500 companies jump onto this bandwagon and move all their front & back office applications to an Enterprise 2.0 model in a big way. What we will see is niche solutions being brought to market with this model, focusing on narrow audiences & their key business problems. Over the next decade or so, the broader Enterprise 2.0 market should pick up a good bit of steam.

OK, now for the entrepreneur’s perspective. My thoughts on launching an Enterprise 2.0 start-up:

  • It is seductive to get caught in the jargon / tech-speak and draw analogies with companies with eBay, Google & Amazon. Have been guilty of getting caught in that trap myself on several occasions. Instead of getting carried away with technologies and analogies, focus on pressing business problems that your core audience loses sleep over today
  • Deliver compelling, comprehensive solutions & value propositions to these critical business problems. How will you get your target audience what they need faster, better, & cheaper? SaaS & Web2.0 are just enablers. How will you deliver highly targeted, personalized, context-driven business services to individual professionals? How will you incorporate “mass-customization” into your solutions?
  • Ensure that there is a large market for the solutions you are offering and that you have a scalable plan to get to the finish line

Thoughts?

Sampath

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01/31/07

Sales reps have long struggled with positioning their products and services to deliver the most business value to their customers. Successful sales reps will attest to the immense benefit of robust, professional sales methodologies. Others will confirm the need for deep industry knowledge to deliver business value. And the insightful sales rep will emphasize the need to “think-on-your-feet” to dissect the customer’s business issues and map them to product features. I believe that the key to successful solution selling is the seamless integration of all the above three components; a robust sales methodology, deep industry knowledge and the intelligence to apply the methodology and knowledge to a deal’s unique business context. Let’s now spend a few cycles on each of these components.

A Google search for sales methodology returns over 8 million hits! There is certainly no dearth of sales methodologies out there. Leading sales methodologies include those from Miller-Heiman, Sandler and Porter Henry. A good bit of money is spent by enterprises on training their sales reps on these methodologies. But research conducted by the Society for Sales & Management Training reveals that over 80% of the skills taught in a classroom are not applied by sales reps in the field. With sales reps and their managers juggling numerous deals at the same time to meet their monthly quotas, it is small wonder that these methodologies fall by the wayside. Yet another example of something that looks great on paper, but doesn’t work in real-life.

In a previous post, I talked about the issues with sales intelligence tools out there that attempt to provide a sales rep with industry knowledge. The major failings with the sales intelligence offerings in the market today are that they are too coarse (categorized only by industry sector) & not personalized, and they do not focus much on sell-side insights. All these result in the sales rep having to plough through a mountain of information to identify the industry knowledge that would be applicable to each of his deals. Not an ideal situation when time is one of the sale rep’s scarcest resources.

Even if a sales rep has the bandwidth to apply a sales methodology and has identified the industry knowledge relevant to a deal, he has one more challenge to tackle - the deal’s business context. Some clarification here. A sales methodology, by its very nature, is generic and will need to be morphed to be relevant to a deal. Examples of issues that could influence how the methodology is applied in a deal include whether the sales rep’s organization already has an existing relationship with the customer, the types of external / internal competition that the sale rep will face, dynamics in the customer’s organization structure etc. It takes significant effort to determine how to apply a generic sales methodology in a specific deal. Similarly, just having access to the relevant industry knowledge is not sufficient. The sales rep still has to figure out how to apply the industry knowledge to develop a compelling value proposition, draw the customer’s attention and then map his product / service features to the value proposition. Understanding the business context of a deal and then figuring how to apply a generic sales methodology and industry knowledge requires intelligence, the ability to “think-on-your-feet.”

So where does all this rambling lead us? To my contention, that for sales methodologies & industry intelligence to be useful, they need to be tempered with the unique business context of each sales opportunity. And what better framework to develop such a personalized solution than Web 2.0? We think this a good idea and have been working on it for a while. Check out the SalesQB Diary category, if you are interested in our progress ...

Sampath

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01/10/07

11:48:11 am, Categories: Sales & Marketing, Business Trends, Web 2.0  

When you talk about a sales rep’s network, the first image that comes to mind is that of a rolodex. We have all heard of the anecdotal sales rep that goes through his rolodex to sell his current employer’s solutions, switches to another employer, goes through his rolodex again and continue the cycle. No one doubts the importance of a sales rep’s ability to generate leads by leveraging his network. But solution selling introduces some twists.

A recent special HBR issue on Sales talks about four different social networks that sales reps need to develop to effectively sell solutions. The social network described above is only the first of the four social networks that are crucial to the sales rep’s success. Here are the remaining three.

Once the sales rep has identified a prospect using his first social network, he will need to develop a complete picture of the decision makers (org structure, personalities, preferences etc) in the account who will be influencing the deal. Herein comes the second social network. Leveraging his network of other sales reps who target this account, his coach in the account and account-specific research, the sales rep will need to identify the decision makers and the roles they will be playing in the deal.

Next, in today’s market of ever-more-sophisticated business solutions, the sales rep will need to network with the appropriate decision makers and vendor partners to develop a solution. In B2B sales, the chances that the sale rep will have all the products / services to deliver the complete business solution are very slim. Most enterprise projects involve 2 – 3 vendors, each bringing specialized products / skills to the table. So, the sales rep will need to jointly envision the business solution with vendor partners and position it in the account for a win-win-win (customer, himself and partner). This is the sales rep's third social network.

The fourth social network kicks in when the rep is trying to close the deal. At this stage, the sales rep needs to sell on the basis on business cases, ROIs and references. He will need to pull in past customers, industry analysts and champions within the account to convince the executive sponsor about the value of the deal.

Needless to say, it would be incredibly short-sighted for sales reps to focus on just the first of the above four social networks. In the B2B sales, the latter three networks are just as important. We never said solution selling was going to be easy, did we?

Sampath

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