Category Archives: Strategy

What It Takes to Make a Great SaaS Company

I’ve been making a few presentations lately, so I thought I’d share the slides to this deck which I presented earlier this week at the All Hands meeting of a high-growth SaaS company as part of their external speaker series.

This one’s kind of a romp — it starts with some background on Kellblog (in response to some specific up-front questions they had), takes a brief look back at the “good old days” of on-premises software, introduces my leaky bucket concept of a SaaS company, and then discusses why I need to know only two things to value your SaaS company:  the water level of your bucket and how fast it’s increasing.

It kind of runs backwards building into the conclusion that a great SaaS company needs four things.

  1. An efficient sales model.  SaaS companies effectively buy customers, so you need to figure out how to do it efficiently.
  2. A customer-centric culture.  Once you’ve acquired a customer your whole culture should be focused on keeping them.  (It’s usually far cheaper than finding a new one to back-fill.)
  3. A product that gets the job done.  I like Clayton Christensen’s notion that customers “hire products to do jobs for them.”  Do yours?  How can you do it better?
  4. A vision that leaves the competition one step behind.  Done correctly, the competition is chasing your current reality while you’re out marketing the next level of vision.

Here are the slides:

The Three Marketing Books All Founder/CEOs Should Read

Few founder/CEOs come from a marketing background; most come from product, many from engineering, and some from sales, service, or consulting.  But few — ironically even in martech companies — grew up in the marketing department and consider marketing home.

When you combine this lack of experience with the the tendency that some marketing leaders and agencies have to deliberately obfuscate marketing, it’s no wonder that most founder/CEOs are somewhat uncomfortable with it.

But what’s a founder/CEO to do about this critical blind spot?  Do you let your CMO and his/her hench-agencies box you out of the marketing department?  No, you can’t.  “Marketing,” as David Packard once famously said, “is too important to be left to the marketing department.”

I recommend solving this problem in two ways:

  • One part hiring:  only hire marketing leaders who are transparent and educational, not those who try to hide behind a dark curtain of agencies, wizardry, and obfuscation.  Remember the Einstein quote:  “if you truly understand something you can explain it to a six-year old.”
  • One part self-education.  Don’t fear marketing, learn about it.  A little bit of fundamental knowledge will take you a long way and build your confidence in marketing conversations.

The problem is where to begin?  Marketing is a broad discipline and there are tens of thousands of books — most of them crap — written about it.  In this post, I’m going to list the three books that every founder/CEO should read about marketing.

I have a bias for classics here because I think founder/CEO types want foundational knowledge on which to build.  Here they are:

  • Positioning by Al Ries and Jack Trout.  Marketers frequently use the word “positioning” and after reading this classic, you’ll know exactly what they mean [1]. While it was originally published in 1981, it still reads well today.  This is all about the battle for the mind, which is the book’s subtitle.
  • Ogilvy on Advertising by David Ogilvy.  Ogilvy was the founder of marketing powerhouse agency Ogilvy and Mather and was the king of Madison Avenue back in the era of Mad Men.  Published in 1963, this book definitely shows signs of age, but the core content is timeless.  It covers everything from research to copy-writing and is probably, all in, my single favorite book on marketing. [2]
  • Crossing the Chasm by Geoffrey Moore.  The textbook classic Silicon Valley book on strategy.  Many people refer to the chasm without evidently having even read the book, so please don’t be one of them.  Published in 1991, it’s the newest of the books on my list, and happily Moore has revised it to keep the examples fresh along the way.

If I had to pick only one book, rather than suggesting original classics I’d revert to a summary, Kotler on Marketing, an overview written by Philip Kotler [3], author of one of the most popular marketing college textbooks, Marketing Management. [4]

If reading any of the above three books leaves you hungry for more (and if I were permitted to recommend just a few follow-up books), I’d offer:

  • As a follow-up to Positioning, I’d recommend The 22 Immutable Laws of Marketing also by Al Ries and Jack Trout and also written in the same accessible style.  This book would place second in the “if I only had one book to recommend” category and while less comprehensive than Kotler it is certainly far more accessible.
  • As a follow-up to Ogilvy on Advertising, and for those who want to get closer to marketing execution (e.g., reviewing content), I’d recommend The Copywriter’s Handbook by Robert Bly.  Most founder/CEOs are clear and logical writers who can get somewhat bamboozled by their marketing teams into approving gibberish copy.  This book will give you a firmer footing in having conversations about web copy, press releases, and marketing campaigns.
  • As a follow-up to Crossing the Chasm, I’d recommend Good Strategy, Bad Strategy, an excellent primer on strategy with case studies of great successes and failures and Blue Ocean Strategy, a great book on how to create uncontested market space and not simply compete in endless slug-fests against numerous competitors — which is particularly relevant in the current era of over-populated and over-funded startups. [5]

As founder/CEO you run the whole company.  But, for good reason, you might sometimes be hesitant to dive into marketing.  Moreover, some marketeers like it that way and may try to box you out of the marketing department.  Read these three books and you’ll have the tools you need to confidently engage in, and add value to, important marketing conversations at your company.

# # #

Notes

[1]  The Wikipedia entry on positioning isn’t a bad start for those in a hurry.

[2] Right from the second sentence, Ogilvy gets to the point:  “When I write an advertisement, I don’t want you to tell me that you find it ‘creative.’   I want you to find it so interesting that you buy the product.”  Love that guy.

[3] Of 4 P’s fame.  Kotler’s 4 P’s defined the marketing mix:  product, place, price, and promotion.

[4] Kotler on Marketing is deliberately not a summarized version of his classic, 700-page textbook, but alas it’s still written by someone who has produced numerous textbooks and nevertheless has a textbook feel.  It’s comprehensive but dry — especially by comparison to the others on this list.

[5] I can’t conclude any post on marketing thoughts and thinkers without a reference to one of the great marketing essays of all time, Marketing Myopia, by Theodore Levitt.  It’s old (published in 1963) and somewhat academic, but very well written and contains many pithy nuggets expressed as only Levitt could.

Video of my SaaStr 2019 Presentation: The Five Questions Startup CEOs Worry About

A few days ago, Jason Lemkin from SaaStr sent me a link to the video of my SaaStr Annual 2019 conference presentation, The Five Questions Startup CEOs Worry About. Those questions, by the way, are:

  1. When do I next raise money?
  2. Do I have the right team?
  3. How can I better manage the board?
  4. To what extent should I worry about competition?
  5. Are we focused enough?

Below is the video of the thirty-minute presentation.  The slides are available on Slideshare.

As mentioned in the presentation, I love to know what’s resonating out there, so if you ever have a moment where you think –“Hey, I just used something from Dave’s presentation!” — please let me know via Twitter or email.

The Question that CEOs Too Often Don’t Discuss with the Board

Startup boards are complex.  While all board members own stock in the company their interests are not necessarily aligned.

  • Founders may be motivated by a vision to change the world, to hit a certain net worth target, to see their name in an S-1, to make the Forbes 500, or — and I’ve seen crazier things — to make more than their Stanford roommate.  First-time founders with little net worth can be open to selling at relatively low prices.  Conversely, serial successful founders may need a large exit simply to move the needle on their net worth.  Founders can also be religious zealots and take positions like “I wouldn’t sell to Microsoft or Oracle at any price.”
  • Independent board members typically have significant net worth (i.e., they’ve been successful at something which is why want them on your board) and relatively small stakes which, by default, financially incents them to seek large exits.  While they notionally represent the common stock, they are often aligned with either the founders or one of the investors in the company — they got on the board for a reason, often existing relationships —  and thus their views may be shaped by the real or perceived interest of those parties.  Or, they can simply drive an agenda that they believe is best for the company — whatever they happen to think “best” means.
  • Venture capitalists (VCs) are motivated by generating returns for their funds.  Simple, right?  Not so fast.  VC is increasingly a “hits business” where a few large outcomes can mean the difference between at 10% and 35% IRR over a fund’s ten-year life.  Thus, VCs have a general tendency to seek huge exits (“better to sell too late than too early”), but they are also motivated by other factors such as the expectations they set when they raised their fund, the performance of other investments in the fund (e.g., do they need a big hit to bail out a few bad bets), and their relationships with members of other funds represented on the company’s board.

In this light, it’s clearly simplistic to say that everyone is aligned around a single goal:  to maximize the value of the stock.  Yes, surely that is true at one level.  But it gets a bit more complicated than that.

That’s why it’s so important that CEOs ask the board one question that, somewhat amazingly, they all too often don’t:  what does success look like?  And it doesn’t hurt to re-ask it every few years as any given board member’s position may change over time.

I’m always shocked how the simplest of questions can generate the most debate.

Aside:  back in the day at Business Objects (~1998), I suggested bringing in the Chasm Group to help us with a three-day, strategic planning offsite.  I figured we’d spend a morning reviewing the key concepts in Crossing the Chasm, at most one afternoon generating consensus on where we sat on their technology adoption lifecycle curve, and then two days working on strategic goals and operational plans after that.

Tech-Adoption-Lifecycle-01

With about 12 people who had worked together closely for years, after three full days we never agreed where we sat on the curve.  We spent literally the entire time arguing, often intensely, and never even got to the rest of the agenda.  Fortunately, that didn’t end up impeding our success, but it was a big lesson for me.  End aside.

So be ready for that simple question to generate a long answer.  Most probably, several long answers.  In fact, in order to get the best answer, I’d suggest asking board members about it first individually (to avoid any group decision-making biases) and then discuss it as a group.

But before examining the answers you can expect to this question, let’s take a minute to consider why this conversation doesn’t occur more often and more naturally.  I think there are three generic reasons:

  • Conflict aversion.  Perhaps sensing real misalignment, like in a bad marriage the CEO and board tacitly agree to not discuss the problem until they must.  You may hear or make excuses like “let’s cross that bridge when we come to it,”  “let’s execute this year’s plan and then discuss that,” or “if there’s no offer on the table then there’s nothing to discuss.”  Or, in a more Machiavellian situation, a board member may be thinking, “let’s ride Joe like a rented mule to $5M and then shoot him,” continuallying defer the conversation on that logic.  Pleasant or unpleasant, it’s usually better to address conflicts early rather than letting them fester.
  • Rationalization of unrealistic expectations.  If some board members constantly refrain “this can be a billion-dollar company,” perhaps the CEO rationalizes it, thinking “they don’t really believe that; they’re just saying it because they think they’re supposed to.”  But what if they do believe it?
  • The gauche factor.  Some people seem to think it’s a gauche topic of conversation.  “Hey, our company vision statement says we’re making the world a better place through elegant hierarchies for maximum code reuse and extensibility, we shouldn’t be focusing on something so crass as the exit, we should be talking about making the world better.”  VCs invest money for a reason, they measure results by the IRR, and they can typically cite their IRRs (and those of their partners) from memory.  It’s not gauche to discuss expectations and exits.

When you ask your board members what success looks like these are the kinds of things you might hear:

  • Disrupting the leader in a given market.
  • Building a $1B revenue company.
  • Becoming a unicorn ($1B valuation).
  • Changing the way people work.
  • Getting a 10x in 5-7 years for an early stage fund, or getting a 3x in 3-5 years for a later stage fund.
  • Showing my Mother my name in an S-1 (a sub-case of “going public”).
  • Getting our software into the hands of over 1M people.
  • Realizing the potential of the company.
  • Selling the company for more than I think it’s worth.
  • Getting acquired by Google or Cisco for a price above a given threshold.
  • Building a true market leader.
  • Creating a Silicon Valley icon, a household name.
  • Selling the company for {a base-hit, double, triple, home-run, or grand-slam} outcome.

Given the possibility of a list as heterogeneous as this, doesn’t it make sense to get this question on the table as opposed to in the closet?

I learned my favorite definition of strategy from a Stanford professor who defined strategy as “the plan to win.”  The beauty of this definition is that it instantly begs the question “what is winning?”  Just as that conversation can be long, contentious, and colorful, so is the answer to the other, even more critical question:  what does success look like?

EPM, Project Orion, and the Beginner’s Mind

I’ll always be thankful for my time at Salesforce both because I met so many amazing people and because I learned so much.  I learned about the importance of Trust in a SaaS company (and was drilled in the mantra, “nothing is more important than the Trust of our customers.”)  And I learned about shoshin, the Zen concept of the Beginner’s Mind.

The Beginner’s Mind
It’s not unusual when working at Salesforce to hear about Zen concepts or get an email reply from Marc containing only a Zen proverb.  But of all the concepts I learned about, the most powerful and elusive was shoshin, a concept that Benioff says he adopted from Steve Jobs.  Per Wikipedia:

Shoshin (初心) is a word from Zen Buddhism meaning “Beginner’s Mind.” It refers to having an attitude of openness, eagerness, and lack of preconceptions when studying a subject, even when studying at an advanced level, just as a beginner would.

Shoshin is powerful because it enables you to take a fresh look at an old problem.  Shoshin is elusive, however, because it requires you to step outside your paradigm — the filters through which you see the world — which perhaps sounds easy, but can be incredibly difficult.  In fact, in what I all the paradox of knowledge, the more you know about something the more difficult it is to break out of your paradigm, to get outside the metaphorical box.

As an example of this, our head of products, Sanjay Vyas, recently went to a silent, ten-day vipassana meditation retreat.  Vipassana means “to see things as they really are”  and is a technique that has been passed down from the Buddha by an unbroken chain of teachers to the present day.  At the retreat, the first phase is three days spent simply trying to calm the noise in your mind.  Only then, after three days of silent meditation, are you ready to start to attempt to see things as they really are.  Such is the difficulty in breaking free from a paradigm.

The Problem We Approached With a Beginner’s Mind
What problem did we try to see with a Beginner’s Mind at Host Analytics?  End-user planning, budgeting, and forecasting (three key pieces of enterprise performance management, also known as EPM).  Why did we do it?  Because despite decades of great success within finance organizations, we believe that EPM has under-penetrated the overall market.

Far too many people rely solely on Excel for planning/budgeting and far too many EPM end-users build budgets in Excel and mail them to finance as opposed to using the EPM system.  The same is true for reporting, where far too often users drop out of the EPM system and into Excel to make reports and charts.  (This is less true of Host users due to our strong reporting, but the trend remains true at an industry level.)

While as EPMers, we take great pride in our category and, at Host, in our ability to move enterprise-class EPM to the cloud, we must recognize that at some level EPM has failed to deliver against its broad vision of accountability and empowerment.  To get to the bottom of this, as Clayton Christensen has often observed, you can’t just talk to your customers to understand your market, you need to understand non-consumers as well.  All those Excel-only or primarily-Excel users are Christensen’s non-consumers, so we decided to talk to them.  Here’s an example of what we heard.

“I hate budgeting.  They made me attend the meeting to look at these tools.  I don’t want to use any of them.”  — Chief Legal Officer

We heard this over and over.  The average business user would seemingly prefer a root canal to working on the budget.  Yet we knew these same business users were passionate about metrics, empowerment, accountability, and performance.  So where had the whole category gone wrong?  Thus was born Project Orion.

By Finance For Finance
We realized that for forty years EPM has been designed by finance for finance (or even more specifically, by FP&A for FP&A).  EPM vendors did a great job of listening to EPM customers.  And EPM customers, particularly EPM buyers, often had job titles like Vice President of Financial Planning & Analysis (FP&A).  These were the people who selected the tools.  These were the people who bought the tools.  But, these weren’t always the people who used the tools.  An important part of EPM is to roll it out broadly across an organization, meaning to put the tool into the hands of business end-users, budget owners, in all the various departments.

The Perils of “Configuration” to Dumb Down the Interface
The universal answer to the end-user question was dumb it down.  Configure it.  Take the product that was built for a heavily analytical, highly skilled, finance professional — and FP&A people are whip smart — and dumb down the interface for a business end-user.  Hide some menu items.  Remove some toolbar buttons.  Take away some tabs.

That was the conventional wisdom.  Take a product built for one person and configure it for use by another.  Now some EPM vendors were better than others at this bluff, some had slicker interfaces that would be relatively more appealing than others.  But amazingly, nobody ever said,  “wait a minute, what if we designed the product for people who actually used it?

Thank to shoshin, that’s exactly what we did with Project Orion at Host Analytics.

Task-Oriented Design
Instead of starting with what we had, a template-oriented product built for finance people, and a desire to twist/configure into something else, we started with a blank sheet.  We asked business end-users what they wanted to do with an EPM product.  Those end-users gave us a three-part answer:

  • We want to be able to quickly figure out where we stand relative to the plan.
  • We want help in determining where we are going to land on the current quarter — and to optimize that result.  (Not an easy problem, mind you.)
  • We want to get the next period planned in line with objectives and targets.

And we want to do all of the above quickly and easily because, much as we love this stuff (and we don’t), we’ve got a business to run.  This idea, what we came to call the stand / land / planned message, became the center of Orion design.

How We Knew We Were Onto Something
We noticed quickly that people had strong reactions to Orion, which typically fell into one of two types:

  • Reaction 1:  “Holy Cow, why didn’t I think of that?  It’s kind of obvious in 20/20 hindsight.”
  • Reaction 2:  “That’s not needed.  You just need to configure your way out of the problem.”

In the early days, we got a lot of reaction 2 — particularly from our internal EPM experts, who were somewhat blinded by the paradox of knowledge.  The internal resistance was, at times, intense.  But that resistance told me that we were onto something.  We were challenging the conventional wisdom in a way that could lead to a major breakthrough.  And the more we asked people outside Host, and the more we showed Orion to business end-users, the more convinced we were that we had made such a breakthrough.

The same chief legal officer who said “I hate budgeting” above, said this:

“When I look at Project Orion, it’s clear that you are the only folks thinking about me.  I could and would use this tool.” — Chief Legal Officer after seeing Orion.

Tips on Adopting a Beginner’s Mind
We’re launching Project Orion today and proud both of the software we built and how we came to build it.  We believe Orion is a breakthrough product that is going to change the EPM market.  All because we looked at an age-old problem in EPM with a Beginner’s Mind.

I’ll finish the post with some tips on how to take a shoshin approach that we learned along our journey — and which happily don’t involve 10 days of silent meditation.

  • Put a mix of veterans and neophytes on the project.  This will reduce the paradox of knowledge and naturally bring in some fresh eyes.
  • Confront tough facts.  The data says lots of people still use only or primarily Excel despite 40 years of EPM.  That’s a fact.  The question is why?
  • Challenge the team to document hidden assumptions.  Configuration as the solution to the end-user problem was one such huge assumption.  You can only go outside the box when you know its edges.
  •  Talk to non-consumers.  Talking to customers is great, but it can create an echo chamber.  Talk to non-consumers, too, particularly when fishing for breakthroughs, and ask them why they have not purchased in the product category.
  • Embrace resistance.  View resistance as a good sign, as a sign that you’re changing something big, and not just as a yellow flag.
  • Test early and often.  Go back to the non-consumers you interviewed and ask if your prototype would change their mind.  Iterate in response.

 

 

Can You Solution Sell without Selling Solutions?

Yes.  And for those who get the distinction, I’d might add, somewhat obviously.

But too many people don’t get it.  Too many folks equate “solution selling” with “selling solutions.”  In fact, they’re quite different.  So, in this post, we’ll try to make the world a better place by explaining the difference between selling solutions and solution selling [1].

What is Solution Selling?

First and foremost, Solution Selling is a book [2].  And it’s a book written by a guy, Michael Bosworth, who, if memory serves, was trying to sell Knowledge Management Software in the 1980s.  Never forget this.  Solution Selling wasn’t written by a guy selling easy-to-sell products in a hot category, such as (at the time) Oracle database or PeopleSoft applications.  Solution Selling was written by a guy trying to sell in a tough category. Look at the subtitle of the book:  “Creating Buyers in Difficult Selling Markets.”

Necessity, as they say, is the mother of invention.

When you’re selling in a hot category [3], this is what you hear from the market.

“Yes, we’re going to buy a business intelligence tool and Gartner tells us it should be one of Cognos, Brio, and you — so you’re going to need explain why we should pick you over the other two.”

Nothing about value.  Nothing about problems.  Nothing about ROI.  We’ve already decided we’re going to buy one and you need to convince us why to buy yours.  [4]

When you’re selling in a cold category, the conversation goes something like this:

“A what?  An XML database system?  Wait, didn’t Gartner call that ‘the market that never was’ about two years ago — why in the world would anyone ever buy one of those.” [5]

In the first case, the sales cycle is all about differentiation.  In the second case, it’s all about value.  In the first case, it’s why buy one from me.  In the second, it’s why buy one at all.

Solution selling is the process of identifying a business problem that the product solves, finding the business owner of that problem, and selling them on the value of solving that problem and your ability to do so.

To use my favorite marketing analogy [6], solution selling is the process of selling the value of a ¼” hole.  Product selling is talking all about the wonderful titanium that’s in the ¼” drill bit.

For example, at MarkLogic we sold the world’s finest XML database system and XQuery processing engine.  In terms of market interest, that plus $3 will get you a tall latte.  That is, no one cared.  You could call up IT people and database architects and database administrators all day and tell them you had the world’s finest XQuery engine and no would care.  They weren’t interested in the category.

Certain businesspeople, however, were quite interested in what you could do with it.

  • If you called the SVP of K-12 Education at Pearson and talked about solving the tricky problem of customizing textbooks to meet many and varied state regulations, you’d get a call back.
  • If you called an intelligence officer at your favorite three-letter agency and talked about gathering, enriching, and querying open source content to build next-generation OSINT systems, you’d get a call back.
  • If you called the SVP of Digital Strategy at McGraw-Hill and talked overall about how the industry needed to separate content from the container in building next-generation products in response to the massive threat to media caused by Google, you’d get a call back.

Simply put, if you called a person about an important problem that they needed to solve, they’d call you back.  Whether they’d buy from you would come down to the extent they believed you can solve the problem based on several factors including a technology assessment, conversations with reference customers for whom you’ve solved the problem before, the cost/benefit associated with the project, and whether they wanted to work with you. [7]

What is Selling Solutions?

Geoffrey Moore refers to an important concept called “whole product” in Crossing the Chasm.  And it’s the idea that you’re not just selling technology platform to your beachhead market, you’re selling the fact that you know how to solve problems with it. Solving those problems might require hundreds of hours of consulting services, integration with complementary third-party software packages, and data integration with existing core systems.

But nobody said the “whole product” had to be packaged up, for example, as a set of templates that you customize that help accelerate the process of solving the problem.  This is the zone of “solutions.”

Many companies, early in their lifecycle for focus reasons or late in their lifecycle to increase the size of a saturating market [8], decide they want to package up a solution after repeatedly solving a problem in a certain area.  This often starts out as leftover consulting-ware and over time can evolve into a set of full-blown applications.

At most software companies, particularly bigger ones, when you start talking about packaged solutions, this is what you mean:  the combination of know-how and leftover intellectual property (IP) from prior engagements not licensed as software product but nevertheless used to both accelerate the time it takes to build the solution and reduce the risk of failure in so doing.

For example, during my time at MarkLogic, we often debated whether and to what extent we should create a packaged custom publishing solution or simply think of custom publishing as a focus area, something that we had a lot of know-how in, and re-use whatever leftover IP we could from prior gigs without glorifying it as a packaged solution.  Because the assignments were so different (publishers used as the the platform to build their products) we never opted to do so.  Had we been selling a business-support application as opposed to do product development platform, we probably would have.

The Difference Between Solution Selling and Selling Solutions

Solution selling is an approach to (and a complete methodology for) the sales process.  Selling solutions means selling packaged, typically application-layer, know-how typically built into a series of templates and frameworks that help accelerate the process of solving a given problem.

They are different ideas.

You can solution sell without a single packaged solution in your product line.  To again answer the question posed by the title of this post:  Yes, you can solution sell without selling solutions.

Solution selling is simply an approach to how you sell your product.  Certainly it can be easier to solution sell when you are selling solutions.  But it is not required and one is not tantamount to the other.

# # #

Notes

[1] In fact, rather perversely, you can sell solutions without solution selling.  If your company built a custom-tailored solution to solve a specific business problem and if you sold it emphasizing the features of the solutions (i.e., “feeds and speeds”) without trying to understand the customer’s specific business problem and its impacts, then you’d be guilty of product-selling a solution.  See end of the post.

[2] Which has largely been replaced by the author’s next book, Customer Centric Selling, but which – like many classics – was better before it was “improved” in my humble opinion.

[3] Which leads to one of my favorite sayings:  “if you have to ask if you’re working in a hot category, you’re not.”  If you were, two things would be different:  first, you’d know and second, you’d be too busy to ask.  QED.

[4] Which results in what I call an “axe battle” sales process, reminiscent of knights in heavy armor swinging axes at each other where each is blow can be thought of as feature.  “We have aggregate awareness, boom.”  “We have dynamic microcubes, boom.”  And so on.

[5] Gartner did, in fact, say precisely this about this XML database market, but that didn’t stop us from building MarkLogic from $0 to an $80M revenue run-rate during my six years there.  It did, however, provide a huge clue that we needed to adopt a solution-selling methodology (and bowling-alley strategy) in so doing.

[6] “Purchasing agents buy ¼” holes, not ¼” bits.”  Theodore Levitt.

[7] Because a startup can only develop this fluency and experience in a small number of solutions, you should cross the chasm by focusing on an initial beachhead and then build out into other markets through adjacencies (aka, bowling alley strategy) as described in Inside the Tornado.  In many ways, the solution selling sales methodology goes hand in hand with these strategy books by Geoffrey Moore.

[8] Geoffrey Moore calls these +1 additions that help grow the market as the once-hot core technology market saturates and you need to switch back to a solution focus if you wish to increase the market size.

The Strategy Compiler: How To Avoid the “Great” Strategy You Couldn’t Execute

Few phrases bother me more than this one:

“I know it didn’t work, but it was a great strategy.  We just didn’t have the resources to execute it.”

Huh.  Wait minute.  If you didn’t have the resources to execute it, then it wasn’t a great strategy.  Maybe it was a great strategy for some other company that could have applied the appropriate resources.  But it wasn’t a great strategy for you.  Ergo, it wasn’t a great strategy.  QED.

I learned my favorite definition of strategy at a Stanford executive program I attended a few years back.  Per Professor Robert Burgelman, author of Strategy is Destiny, strategy is simply “the plan to win.”  Which begets an important conversation about the definition of winning.  In my experience, defining winning is more important than making the plan, because if everyone is focused on taking different hills, any resultant strategy will be a mishmash of plans to support different objectives.

But, regardless of your company’s definition of winning, I can say that any strategy you can’t execute definitionally won’t succeed and is ergo a bad strategy.

It sounds obvious, but nevertheless a lot of companies fall into this trap.  Why?

  • A lack of focus.
  • A failure to “compile” strategy before executing it.

Focus:  Think Small to Grow Big

Big companies that compete in lots of broad markets almost invariably didn’t start out that way.

BusinessObjects started out focused on the Oracle financials installed base.  Facebook started out on Harvard students, then Ivy league students.  Amazon, it’s almost hard to remember at this point, started out in books.  Salesforce started out in SMB salesforce automation.  ServiceNow on IT ticket management.  This list goes on and on.

Despite the evidence and despite the fame Geoffrey Moore earned with Crossing the Chasm, focus just doesn’t come naturally to people.  The “if I could get 1% share of a $10B market, I’d be a $100M company” thought pattern is just far too common. (And investors often accidentally reinforce this.)

The fact is you will be more dominant, harder to dislodge, and probably more profitable if, as a $100M company, you control 30% of a $300M target as opposed to 1% of a $10B target.

So the first reason startups make strategies they can’t execute is because they forget to focus.  They aim too broadly. They sign up for too much.  The forget that strategy should be sequence of actions over time.  Let’s start with Harvard. Then go Ivy League.  Then go Universities in general.  Then go everyone.

Former big company executives often compound the problem.  They’re not used to working with scarce resources and are more accustomed to making “laundry list” strategies that check all the boxes than making focused strategies that achieve victory step by step.

A Failure to Compile Strategy Before Execution

The second reason companies make strategies they can’t execute is that they forget a critical step in the planning process that I call the strategy compiler.  Here’s what I think a good strategic planning process looks like.

  • Strategy offsite. The executive team spends a week offsite focused on situation assessment and strategy.  The output of this meeting should be (1) a list of strategic goals for the company for the following year and (2) a high-level financial model that concretizes what the team is trying to accomplish over the next three years.  (With an eye, at a startup, towards cash.)

 

  • First round budgeting. Finance issues top-down financial targets.  Executives who own the various objectives make strategic plans for how to attain them.  The output of this phase is (1) first-draft consolidated financials, (2) a set of written strategies along with proposed organizational structures and budgets for attaining each of the company’s ten strategic objectives.

 

  • Strategy compilation, resources. The team meets for a day to review the consolidated plans and financials. Invariably there are too many objectives, too much operating expense, and too many new hires. The right answer here is to start cutting strategic goals.  The wrong answer is to keep the original set of goals and slash the budget 20% across the board.  It’s better to do 100% of 8 strategic initiatives than do 80% of 10.

 

  • Strategy compilation, skills. The more subtle assessment that must happen is a sanity check on skills and talent.  Do your organization have the competencies and do your people have the skills to execute the strategic plans?  If a new engineering project requires the skills of 5 founder-level, Stanford computer science PHDs who each would want 5% of a company, you are simply not going to be able to hire that kind of talent as regular employees. (This is one reason companies do “acquihires”).  The output of this phase is a presumably-reduced set of strategic goals.

 

  • Second round budgeting. Executives to build new or revised plans to support the now-reduced set of strategic goals.

 

  • Strategy compilation. You run the strategy compiler again on the revised plan — and iterate until the strategic goals match the resources and the skills of the proposed organization.

 

  • Board socialization. As you start converging via the strategy compiler you need to start working with the board to socialize and eventually sell the proposed operating plan.  (This process could easily be the subject of another post.)

 

If you view strategy as the plan to win, then successful strategies include only those strategies that your organization can realistically execute from both a resources and skills perspective.  Instead of doing a single-pass process that moves from strategic objectives to budgets, use an iterative approach with a strategy compiler to ensure your strategic code compiles before you try to execute it.

If you do this, you’ll increase your odds of success and decrease the odds ending up in the crowded section of the corporate graveyard where the epitaphs all read:

Here Lies a Company that Had a “Great” Strategy  It Had No Chance of Executing