January 30, 2006

Show Me the Metrics!

Posted in customer service, Economic Model, Execution, management, Metrics, Sales at 11:57 pm by scottmaxwell

About 10 days ago I interviewed a VP Sales candidate for one of my portfolio companies. The more I think about our conversation, the more I like him. I walked out of our conversation thinking that he would be perfect for any B2B software or SAAS company. Why?

This particular candidate pulled out his personal operating report and explained to me how he knows what is going on every day (even when he is on the road with customers) and what he does when particular metrics drop below a certain level. He showed me the different levels of his report so that he could see his deals moving through the sales pipeline and how each salesperson and sales group was doing vs. their benchmarks. He also explained how predictable his system is in forecasting sales as well as determining when he needed to add resources at various stages of the sales process. Finally, he was able to explain how his system allows him to accurately predict the results of adding new resources and, just as importantly, how he is able to relatively easily recruit and train people to follow his system. Separately, he has relevant experience and success managing several models of distribution (including telesales, field sales, and channel sales), each of which has its own unique best practices. Also, we were able to get a reliable reference that echoed what the candidate had said.

He did not quite “have me at hello,” but he did have me about 10 minutes into our discussion. I knew going in that he had relevant experience and was known for making his numbers, but it was his approach of managing to metrics that got me. Why?

When you can accurately predict your results in each operating unit, it means less risk and a greater opportunity to scale your company without blowing your capital (missed quarters get more and more expensive as you grow!). Being able to make accurate predictions also means that:

  • You have an operating model (not just a collection of people), which allows you to scale better,
  • You understand the key drivers of output in your operating model,
  • You are consistently managing the unit to your operating model,
  • You have a set of early warning signs (your key drivers) that you can focus more attention on when they get below certain thresholds (i.e., it helps you to know where to spend your time),
  • You have a set of measures that you can benchmark against other companies to understand where you have opportunities to move to best practices, and
  • You know when you need to add staff or other resources well before you get caught short.

Finally, the understanding of the above gives you a solid platform for experimenting with new approaches and accurately evaluating the effectiveness of the new approaches (thereby allowing you to kill the approaches that don’t work and expanding the approaches that do work).

Over time, the nature of emerging growth companies is that they move from simpler approaches to more sophisticated approaches (more specialists, more channels of distribution, more products, more marketing channels, more approaches to customer service) and you want to make sure that you continue to evolve in the right direction (note: this is not an argument to get more sophisticated as an end to itself, just that getting more sophisticated leads to better operating results as you growl…you clearly need to keep your operation as simple as possible).

Metric driven management can and should be applied in every functional unit in an expansion stage company, from product development activities (e.g., project management, bug fix reports, usability testing) to marketing (lead generation ROI, website path analysis, shopping cart abandonment, number of daily quality leads) to sales (e.g., movement through the sales funnel, salesperson activity analysis) to customer service (response time, close rates, close times, etc.) to overall customer satisfaction measured both qualitatively (surveys, interviews, etc.) and quantitatively (usage reports, retention rates, etc.).

The key to getting the right metrics program in place is to eventually understand the minimum number of measure that give you an accurate understanding of the state of your company.

Some Caveats:

  • Many (most?) very early stage companies can get by without metrics-based management, as there are very few people in the organization, the processes you have are quite simple, and you can manage staff a lot easier. But as soon as you start getting any measurable number of users/customers, metrics-based management starts becoming useful, and as you grow more metrics become difficult to live without.
  • There is no sense building systematic operating models and a set of metrics if you are not going to manage to them. I have met many intuitive managers who don’t get (or don’t want to get) this approach. If you don’t believe in the approach, shoot me a note or comment to this post. If you don’t completely get the approach, hire someone to work for you who does (I have done this multiple times at my portfolio companies).
  • Once you lock into a set of metrics (it will take some time to determine the best most simple metrics), you should try to use the same metrics over time. I am amazed when I go into certain board meetings and see a different set of metrics each quarter…sometimes managers feel the need to present the metrics that show off the accomplishments of the company…I would rather see the metrics that show the improvement opportunities for the company…this is where the real upside is!

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If you want to tell me about your results from or projections for your operations, my preference is that you show me the metrics!

Are You Building an Army of Evangelists?

Posted in culture, customer service, marketing at 8:33 am by scottmaxwell

While large companies have had a growing trend toward hiring “technology evangelists,” it is becoming clearer to me that institutionalizaing the approach (i.e., setting goals, formally staffing the roles, responsibilities, processes, metrics) has increasing benefit in emerging growth technology companies.

What is “Evangelism”?

James Pethokoukis has a good U.S. News overview article, Spreading the Word, on the approach used by several companies (you have to sit through an annoyingly long 10 second ad to see it, but the article is worth it).

In my view, the key issue is all about how the emerging growth company organizes to leverage available communication channels and external influencers to both “get the word out” and, possibly more importantly, “get the word in!

Why Now?

This probably does not take a lot of explanation, but the increased number of impressions formed by online activity (forums, blogging, domain-specific directories, etc.) makes the benefit associated with evangelism much higher for all companies, and the positive ROI now extends down to extremely small companies.

Some Viewpoints…

Guy Kawasaki, the first technical evangelist when he worked for Apple, has a recent post The Art of Evangelism. Declan Elliott has some good thoughts and links on the topic. Guy’s approach is a little too “religious” for my taste, but it works for him as well as the causes he evangelizes (you can, of course, tune the message to your customers’ taste).

Robert Scoble is probably the best known current Evangelist, working for Microsoft. He has a follow-up to Guy’s note with his point of view. The comments are also a great read (note the different viewpoints on the use of the “evangelism title vs. other possible titles for the activity). Another must-read is Robert Scoble and Shel Israel’s new book, Naked Conversations (reviewed here), which gives a great overview on the use of blogging for creating conversations with the people that make up your market (not sure about the title however…the image of Robert Scoble naked is not appealing to me).
Church of the Customer Blog has some of their thoughts on customer evangelism vs. corporate evangelism (Ben and Jackie also offer up their books and other material on making your customers evangelists. I have read them and found them to be full of great practical ideas for building customer evangelists…their blog is well done and on my reading list too…

How to get started…

Ben and Jackie have some practical ideas on getting started in their post How to become a Customer Evangelism Evangelist The key here is just to get started in some capacity…even by just opening your eyes to the opportunity. See this view from a emerging growth company from 2% Creativity Blog.

January 27, 2006

Are you Nickel and Diming Your Customers?

Posted in customer service, management at 9:47 am by scottmaxwell

I have been traveling internationally this week (one of the reasons for my sparse postings) and I had an interaction as customer that made me examine how not to train your people.

Briefly, I was at the Airport in Munich Germany waiting for my flight to Moscow. I purchased a cigar at a shop using a credit card (I did not have any Euros, only U.S. cash). Then, I asked for some matches. The woman behind the counter told me that the matches were $0.10 Euro (a dime). I still did not have Euros and the credit card had already gone through for the cigar. I offered either U.S. cash or my credit card again.

At this point, the woman behind the counter could have offered to give me the matches, taken my U.S. cash, or even taken my credit card. Instead, she told me she couldn’t take the credit card for such a small purchase, wouldn’t take U.S. cash, and didn’t offer to give me the matches (I didn’t ask either, as I wanted to see what she would do). I walked out of the store with a cigar and nothing to light it with.

Needless to say, the lack of matches left a bad feeling for the shop, the airport, and even the country that was several orders of magnitude greater than the price of the matches…

What I took out of the experience:

1. If you train your customer service staff on policies and procedures, they are likely to follow them (e.g., matches cost money, don’t accept U.S. dollars, no credit card purchases below a certain threshold). Perhaps interjecting some principles (e.g., make sure the customer is treated well, don’t nickel and dime!) and allow your staff to break the rules when the result from the rules seems to go against the principles. This issue is particularly bad at large companies, but I continue to see opportunities for improvement at many small companies, including this small shop in the Munich airport…

2. If you don’t train your people on thinking about the needs of the customer and how your product might work for them (or not work for them) before the purchase is complete, you might end up with mismatched expectations.

postscript: I am writing this post from 30,000 using Lufthansa’s in flight internet connection. The airline and the country shot up a few orders of magnitude when I turned on my laptop in flight!

December 22, 2005

How David Can Beat Goliath- Summary of Strategies

Posted in culture, customer service, David vs. Goliath, Economic Model, finance, management, marketing, Metrics, Product Development, Sales at 11:50 am by scottmaxwell

This post is an overall summary of the David vs. Goliath Series and meant to act as a pointer to all of the posts in the series. There are three overarching points for the series:

  1. Emerging growth companies have several natural advantages over larger companies that they can amplify,
  2. Large companies have several advantages that emerging growth companies can minimize, and
  3. Emerging growth companies can (and should) take a series of specific short-term actions that over time will accumulate into a long-term defensible competitive advantage (by amplifying their advantages and minimizing the large company advantages)

I can’t emphasize enough how important it is for emerging growth companies to think through these issues and develop a clear point of view on what they are trying to achieve. Regardless of the long-term goal (a sale of the company or remaining independent), building a defensible advantage will make life much better for you (easier time in the product markets, better growth, better bottom line, higher valuation, etc.). Of course, once you know what you want to achieve, you need to execute against it!

The Nine Major Themes:

  1. Create an Information Advantage. The emerging growth company has the natural advantage of being closer to the customer that the large company. You can truly capitalize on this advantage by taking steps to increase the information flow into your company even more.
  2. Create the Time Advantage. The large company has a disadvantage as it grows, as solid communication between employees gets much much more difficult as companies grow. This communication difficulty turns into a time advantage for emerging growth companies, as larger companies have difficulty doing anything quickly, while emerging growth companies, with their smaller staffs, can turn on a dime. The emerging growth company can take several steps to capitalize on this natural advantage.
  3. Create the Scope Advantage. The emerging growth company has the ability to focus on one product market. The larger companies naturally need to increase their scope in order to sustain growth. The emerging growth company can exploit this natural advantage by staying focused and continuously improving “ownership? of its product market.
  4. Create the Scale Advantage. Large companies have difficulty seeing and/or addressing small markets, even if they are very high growth. This gives the emerging growth company time to establish a foothold in the market as well as create some level of defensibility before the large company enters the market.
  5. Create the Innovation Advantage. Large companies have difficulty executing against certain types of innovation (for example, innovations that cross department boundaries, such as new products with new channels of distribution and new customer service approaches). If emerging growth companies innovate against these natural advantages, they can create an edge against the large companies.
  6. Set Your Operating Point Closer to the Funnel Singularity. This is the strategy of allocating your resources against nailing the customer experience at low price points to the customer instead of allocating significant resources against sales and marketing activities. If you do this well in the right markets, you can create a large, profitable business that is very difficult for the large companies to compete against. This is a classic strategy, but the internet-based sales and marketing approaches now allows the strategy to be executed more aggressively.
  7. Attenuate Goliath’s Strengths. The large company does have some natural advantages itself. The posts below address each of the large company advantages as well as what the emerging growth company can do to minimize the large company strengths (and in many of the cases, create an edge):
  8. Defend Against Goliath’s Attack. No matter what you do, if you are successful then Goliath will eventually attack. These posts address the nature of Goliath’s attacks as well as how the emerging growth company can set up in advance to defend against the attack. I point out that the results of the attack will be determined well in advance of the attack! The two posts are:
  9. Execute Against Execution. All of the prior posts are about what the emerging growth company can do to create a strategic advantage. This post is about how to maximize the pace of your company toward the series of goals that you have set for your company. The higher your pace toward your goals, the faster your company will develop into a large profitable company with a defensible competitive advantage.

I am going to take a breather from this series for now, but I do intend to put together the implications for each department so that some of the more esoteric points will be made more tangible for each functional group. When I post each of the functional implications, I will place a link on this post below so that this post will act as the index of the major strategies in addition to the specific implications for each function.