Category Archives: Uncategorized

Short Video on the Host Analytics Mission

This is just a quick post to highlight a short video we made that answers three questions about Host Analytics:

  • What is our core mission at Host Analytics?
  • How is Host Analytics transforming the EPM market?
  • What’s in store for Host Analytics?

Here it is:

Make a Plan That You Can Beat

Seven words that changed the world:  “make a plan that you can beat.”

This pithy piece of wisdom was first passed onto me by the sage of Sequoia Capital, Mike Moritz, on the first day of my six-year journey at MarkLogic, during which time we grew the company from effectively zero to an $80M run-rate.  Thanks to Mike’s advice, we made plan in about 90% of those 24 quarters.

What’s so important about making a plan that you can beat?

  • For starters, it helps keep you employed. Few CEOs get axed when they are making plan.  (It can be done, but takes real skill at board alienation.)
  • It forces you to make a balanced plan: sufficiently realistic and sufficiently aggressive.  (“Can beat” means neither “will certainly beat” nor “can achieve if a miracle occurs.”)
  • It means you can predictably manage your cash – the oxygen of any startup. As another quotable Sequoia partner, Don Valentine, used to say:  “all companies go out of business for the same reason; they run out of money.”
  • It forces you to debate important issues up front. To the extent the board wants 80% growth  in 2015 and you believe that you can only deliver 30%, it is far better to have that uncomfortable conversation during the planning process in November 2014 (while you are still achieving this year’s plan) than in July 2015, after you’ve missed Q1 and Q2.   (In July, the uncomfortable conversation is more likely to be about your severance package than the aggressiveness of the approved plan.)
  • It says that you are in control of your business. Whether or not the board loves the plan the eventually approve, the first step in running any business is to be in control of it.  That means being able to predict with reasonable accuracy the results you can achieve.
  • It reduces the tendency to sign up for too much bookings/revenue to “get” more expense. Often managers somewhat arbitrarily decide what expenses they need to be successful, anchor emotionally to that number, and then get “talked up” on the bookings/revenue side in order to hit a given cash flow or EBITDA goal.  This is exactly backwards.  You should put a huge amount of energy into your bookings/revenue plan and work from that to set expense targets.  If you can’t find a workable solution, then argue you have the wrong EBITDA or cashflow goal.  Don’t get talked up on revenue because it’s unpleasant to ask your passionate and anchor-biased managers to cut expenses.
  • It is philosophically aligned with most executive compensation plans. Most boards like gated compensation plans where, for example, executives get 0% of their target bonus up to 85% of plan performance (the “gate”), payout 50% of target at 80% of plan, go linearly to 100% payout at 100% of plan, and then have accelerators beyond that.  These plans reward above-plan performance and severely punish below-plan performance.  As such, any executive who looks at his/her compensation plan should understand the not-so-subtle message it sends:  beat plan [1] (which is, of course, most easily achieved by making a plan that you can beat).
  • You can always speed up later. If you’re ahead of plan after Q1 and your leading indicators look solid for Q2, no board on Earth will not approve a revision to the plan that accelerates growth.   Think of your plan growth rate not as what you aspire to achieve, but rather as what you are willing to be fired for not achieving.  It takes real skill to grow a company at 100% and get fired for missing plan, but I’ve seen that done, too [2].

Some of you may be thinking:  isn’t this all a fancy of way of saying “sandbag” [3].  I think not.  Even if you reject every other argument above, you cannot deny that cash is oxygen to startups, that startups that run out of cash get crushed by dilution when they need to raise money when running on fumes, and thus making a plan that you can beat is critical to managing cash, and indirectly, to the eventual value of company’s common stock.

Make a plan that you can beat.  Seven words to understand.  Seven words to internalize.  Seven words to live by.

 # # #

Footnotes

[1] Whether boards should like this style of compensation plan is debatable because they arguably do not incent risk-taking.  That debate aside, the fact remains that most board do like this style of plan so managers should listen to the message that is very clearly sent.

[2] The real way to know if 100% is good enough should be to look at the market.  If you’re gaining share when growing 100% but missing plan of 120% then in my book you are planning poorly, but executing well.  However, if you are losing share when growing at 100%, you are in a hot market but not executing aggressively enough to win it.  Performance measures should always be normalized to the market, otherwise target-setting and plan-performance ratings are more about negotiating skills than actual performance in the market.  (I’ve seen this one done wrong many times, too.)

[3] Aside:  I believe there are two different types of sandbagging:  (1) consistently under-forecasting – i.e., landing at a result significantly higher than you forecast early in the quarter, and (2) consistently overachieving plan – i.e., landing well above operating plan targets.  Type 1 is bad because it leads to either to needlessly cutting quarterly expenses in response to a weak early-quarter forecast (if you believe it) or simply ignoring the forecast (if you don’t) – in which case what good is it?  Type 2 means either the company is performing tremendously or they are too good at negotiating targets.  Looking at whether you’re gaining or losing market share (or grabbing a greenfield opportunity fast enough) will tell you which.

The Box S-1, Delayed IPO, and the Genius of Tien Tzuo

While I did my own post on the Box S-1, I also noticed that fellow CEO blogger, Tien Tzuo of Zuora, had done a post of his own with the catchy title These Numbers Show That Box CEO Aaron Levie is a Genius.  I saw the post, clipped it to Evernote, and I decided to read it on my next flight.

That trip was a few days ago and at 35,000 feet I decided that Tien Tzuo was also a genius.  Not because he did a nice post on Box, but because he is devising an new accounting for SaaS companies which reflects them more accurately than current GAAP, and – rather amazingly– I’m guessing he came up with this more than 5 years ago.

You see, being a natural cynic, I had tended to dismiss Zuora’s “subscription economy” mantra as part Silicon Valley narcissism (lots of businesses have been selling subscriptions for a long time —  just because it’s new to us doesn’t mean it’s new to the world) and part marketing pitch.  In hindsight, I think I dismissed it too quickly.

While I’d seen one of Tien’s presentations, the concepts didn’t resonate with me until I read his post on the Box S-1.

I’ve always believed two things about SaaS companies and GAAP:

  •  GAAP P&Ls are not particularly reflective of the state of a SaaS business.  (Because expenses are taken now, but revenue is amortized going forward.)
  • The faster a SaaS company is growing, the less reflective the GAAP P&L is.

Box provides an extreme example of the second point, so it’s a good one to study.

However, with the exception of the CAC ratio, I’d defaulted to using other existing metrics that I thought captured things better, such as bookings and cashflow.  What I’d never tried to do was invent a new set of metrics that actually capture a SaaS business better – and that’s exactly what Tien has done.

Here are Tien’s core SaaS metrics:

  •  ARR (annual recurring revenue).  Everybody uses this one.  Tien however makes the clever and basic observation that current quarter subscription revenues * 4 is a good proxy for starting-quarter ARR.
  •  Gross recurring margin (GRM).  ARR – annualized COGS.  Tien argues this is the true gross margin on the business, and is equivalent to the steady-state gross margin if the business shut down all sales and marketing and stopped growing.  By Tien’s math, Box has GRM of 79%, Workday 83%, ServiceNow 78%, and Salesforce 85%.
  • Recurring revenue margin (RRM).  ARR – annualized ( COGS + R&D + G&A).  Tien argues this is margin on the recurring part of the business, including the recurring costs of delivering the service, enhancing it (as SaaS customers expect) and operating the business.  It notably excludes S&M, which is seen as a discretionary expense driver by how fast you want to grow.  By Tien’s math, Box has an RRM of 20%, Workday 28%, ServiceNow 40%, and Salesforce 57%.
  •  Customer acquisition cost (CAC) ratio.   I’ve covered this ratio extensively already, so I won’t redefine it.  I will note that Tien calculates Box’s CAC at around 2.0, which is higher than my estimate of 1.6.  However, we define CAC slightly differently (mine is based on new ARR, his on net new ARR) so I would expect mine to be lower since it’s not offset by churn.

And when you look on Tien’s metrics, Box looks pretty good.

If Tien’s Right, Why has the Box IPO Been Delayed?

Because Wall Street doesn’t care right now.  I think there are a number of reasons for that:

  • The general shellacking that SaaS stocks have taken in the past few months.  Many are off around 50%.
  • The unsustainable cash burn.  You might think it’s easy to back off growth, but it’s not. Growing fast means hiring like crazy and hiring like crazy adds the annualized cost of the new staff to your run rate.  Last I checked, Box was burning $20M+ per quarter and unless cash comes from somewhere that hiring party will end abruptly and unpleasantly — in the short-term at least.
  • Lifetime value concerns.  Tien’s math is silently predicated on a 100% renewal rate, and thus a high customer lifetime value (LTV).

Let’s look at this in more detail.

Tien’s metrics assume that if you have $150M in ARR and you turn off growth sales and marketing that you stay $150M forever.  That’s not true.  You actually enter a decay curve where you shrink by your churn rate each year.

Upsell and price increases can more than offset churn resulting in the hallowed negative churn rate, in which case you would actually grow every year, even without sales and marketing.  This appears to be the case at Box which claims a 123% net customer expansion rate.

So if the future looks like the past, things look pretty good for most SaaS companies and for Box in particular.  But what driver underlies that assumption?

Switching costs:  the cost of switching from offering A to offering B.  High switching costs ensure a high renewal rate regardless of whether you are delighting customers.  (Think of all those folks who write big maintenance checks to SAP or Oracle; they’re usually not “delighted” in my experience.)

And low switching costs, in my opinion, are Box’s potential Achilles’ Heel.  As a customer, and a happy one, I intend to renew for a while.  But if something better came along, well, it’s just not that hard to switch.

Put differently, Box’s file sharing isn’t that “sticky” — compared to a CRM or ERP system (and all the work you do to configure it, write reports, et cetera).

Put differently once more, what Box sells is much more of a commodity than other enterprise software offerings.

Despite that, this issue isn’t obvious in my opinion:

  • Switching costs can take subtle forms.  You can argue that part of Amazon’s success has been of the switching costs associated with account setup.  It’s not a huge cost, per se, but seemingly enough to cause me to just buy off Amazon instead of using Google Shopping or another price comparison engine.  Electronic wallets were supposed to fix this, but they didn’t.
  • Brand/trust.  Switching costs can also include what you lose in brand/trust by moving off an existing known supplier.  Box will certainly try to argue that leadership, trust, and brand are a big part of their value, and a cost to those who move away from them.
  • Entry barriers.  Box and Dropbox have both raised huge amounts of money and will work hard to create barriers to entry.  Switching costs to new entrants are only relevant to the extent there actually are new entrants.  The fundraising Box and Dropbox have done have basically scared, for the time being, everybody else out of the category.

So is Box theoretically very sticky?  In my opinion, no.

Might Box end up sticky in practice?  Quite possibly yes.

In which case Tien is right, and he’s a genius.  Which in turn makes Aaron Levie one, too.

Woe is Media: Lessons from Tidemark’s PR

[Major revision 5/11/14 5:10 PM]

  • “All media exist to invest our lives with artificial perceptions and arbitrary values.”  — Marshall McLuhan, philosopher of communications theory and coiner of the phrase “the medium is the message.”
  • “Modern business must have its finger continuously on the public pulse. It must understand the changes in the public mind and be prepared to interpret itself fairly and eloquently to changing opinion.”  — Edward Bernays, widely known as the Father of Public Relations and author of Propoganda [1].
  • “No one ever went broke underestimating the taste of the American public.”  — H.L. Mencken
  • “Don’t hate the media, become the media.”  — Jello Biafra, spoken word artist, producer, and formerly lead singer of the Dead Kennedys.

In this post, I’ll take some inspiration from Jello Biafra, “become the media,” and do some analysis of Tidemark’s most recent PR hit, a story in Business Insider entitled This Guy Arrived in the US with $26, Sold a Startup for Half a Billion, and is Working on Another Cool Company.  Since Host Analytics competes with Tidemark, see the footer for a disclaimer [2].

I’m doing this mostly because I’m tired of seeing stories like this one, where it’s my perception that a publication takes a story wholesale, spin and all, from a skilled PR firm and sends it down the line, unchallenged, to us readers.  I’m going to challenge the story, piece by piece, and try not to throw too many competitive jabs in the process.

Let’s start by analyzing the headline.

“$26”

While this may be true, it strikes me as exactly the kind of specifics that PR people know journalists love and a number that actually sounds better than say $30 or $25.  Perhaps CG (see footnote [3]) actually had $26 exactly in his pocket on arrival, but did he really have no other resources whatsoever on which to to rely?   Let us beware that it is not only the specificity of the $26 that makes the claim interesting, but also — and more importantly — the implication that he had nothing or no one else on which to rely.  Arriving with $26, not knowing the language, and having no friends/relatives is certainly much tougher than showing up with $26, a brother in Brooklyn, and $2,000 in the bank.  Which was the case?  I don’t know.  Given the overall quality of the story, and the author’s general susceptibility to spin (which we will show), I’d certainly wonder.

“Sold a startup for Half a Billion.”

To me, this clearly implies that CG was either:

  • Founder/CEO of a startup that sold for half a billion dollars, or
  • CEO of a startup that sold for half a billion dollars (while he was CEO)

He was neither.

CG was not a founder of OutlookSoft, nor was he ever CEO. He was CTO.  CTO’s don’t sell startups; CEO’s do.  Phil Wilmington was OutlookSoft’s CEO.

CG had founded a company called Tian Software which, per CG’s own LinkedIn profile, was acquired (not “merged” as the story later says) by OutlookSoft in 2005.

Now let’s challenge the half-a-billion.

My sources say SAP acquired OutlookSoft for $350M plus a $50M earn-out, making the deal worth $400M — not $500M.  This is sort of confirmed in another Tidemark PR marvel, here, which says “short of $500M,” a very nicely PR-packaged way of saying $400M.  A few phone calls to SAP alums and deal-makers in the valley might well have confirmed the lower price.

Net/net:  we have blown the headline to bits.  The $26 claim is suspect (if quite possibly true) while the very impressive “sold a startup for half a billion” is simply false.  It wasn’t half a billion.  It wasn’t his startup.  He didn’t sell it.  QED.

I know that neither CG nor Tidemark wrote this headline.  Someone at Business Insider did — and quite possibly not the journalist who wrote the article.

So perhaps we’re just caught up in headline sensationalism.  The Horatio Alger message still sells well in America and the SEO people at Business Insider know it — the URL for the story is:    www.businessinsider.com/christian-gheoghre-rags-to-riches-story.

Before digging into the story itself, we should observe that this is basically the same story as this one that ran on CNET over a year ago:  Escaping the Iron Curtain for Silicon Valley.  This raises a question that is difficult for me to answer.  It’s a cool story, no doubt, but the tech blogs are news blogs and old stories aren’t news.  So why even write the same story that CNET did 15 months earlier?  Is it possible they didn’t even fact check enough to know?

Let’s dig into some of the lines from the story.

“Today’s he working on his fourth successful startup, having sold all of his previous ones, including his third one, OutlookSoft, to SAP for $500M.”

I count two:  Tian Software and Tidemark.

The story itself contradicts the idea that Saxe Marketing “was CG’s” in saying, “[Andrew] Saxe hired CG” — i.e., if CG was “hired” he was not a founder and ergo the company was not “his.”   The name of company itself — Saxe Marketing, as opposed to Saxe & CG Marketing — additionally reinforces that.

As discussed above, you can’t call OutlookSoft “his,” nor can you say he sold it.

If we said, “CG spent 10 years toiling on two startups, one that got sold to Experian for $32M and one that was acquired by a private company at an undisclosed valuation” — would it have the same impact?  Methinks not.

“Taught himself English by listening to Pink Floyd.”  

I have no doubt that CG listened to Pink Floyd in his home country and that he learned (probably quite strange) words from so doing.  From my experience with second-language songs, it’s actually quite difficult to learn words and much easier to learn pronunciation.  Many of my French friends can sing English songs, but only in a phonetic way.

So, to me, this rings partially true but it also rings as something a PR person would grab onto faster than swimming across the border.  “Wait, you learned English listening to Pink Floyd.  Oh!  We’ve got to use that.”

So, to have some fun with this one, let me imagine the conversation he had with the immigration officer on arriving at JFK:

INS:  “So why are you entering America?”

CG:  “We don’t need no education.”

INS:  “So you’re not on a student visa?”

CG:  “We’re just two lost souls swimming in a fish bowl, year after year.”

INS:  “So you’re coming to to get married, then?”

CG:  “You raise the blade, you make the change, you re-arrange me ’till I’m sane.”

INS:  “Ah, a medical visa, excellent.”

This spin-taking was harmless.

“He taught himself to code by hacking into video games on [a Commodore 64] machine.”  

Frankly, I’m not sure you could “hack into” video games on a Commodore 64, but I guess that sounds better than saying “wrote BASIC programs on a Commodore 64” like the rest of us.  If I had to guess, you probably got the source code since BASIC wasn’t a compiled language so there was no “hacking” to get in.  You were in if you wanted to be.

The CNET story somewhat contradicts this account saying CG “played games on the C64” but he later bought a “Sinclair ZX and taught himself some programming.”

Details, yes, somehow programming a C64 or ZX isn’t good enough for the narrative:  he had to “hack into” them.  All part of the journalist embellishing the (probably already embellished) details in order to make CG larger than life and get a lot of hits on the story.

“[He got] a masters [sic] degree in Romania in mechanical engineering with a minor in computer science. But the degree wasn’t recognized and accepted once he got here.”  

If there were ever a field in which people care about what you can do as opposed to your degree, it’s programming.

Recognized (by whom?) or not, CG was not a limo driver who knew nothing about programming and miraculously started a software company.  He had a master’s degree in engineering and computer science.

“Immigrant with master’s in computer science founds software company” would probably describe about half of all Silicon Valley companies.

Business Insider insists on the Man Bites Dog approach of “Limo Driver Founds Software Company” to the point of explaining away the master’s degree because it interferes with the narrative.

“He launched a second startup, TIAN, and merged it with a company called OutlookSoft.”

Tian was not “merged” with OutlookSoft; it was acquired by them, per CG’s own LinkedIn.  Why the spin?

“OutlookSoft did a form of big data known as business analytics.”

There was nothing whatsoever “big data” about OutlookSoft, which was a business performance management company that did planning, budgeting, consolidation, and analytics.  Gratuitous buzzword inclusion, and nothing more.  Presumably inserted by the PR firm and swallowed whole by the journalist.

“Tidemark also does business analytics/big data, but it’s designed for the modern age: it works on a tablet and runs in the cloud.”  

The Holy Grail of PR these days is social, mobile, cloud.  This sentence scores a 2 out of 3.  For what it’s worth, I actually think this is part of their strategy, so in this case it’s not buzz-wordy journalism, it’s the clear communication of a buzz-wordy strategy.

“More importantly, it is designed to be what CG calls a ‘revolution at the edge’ with a ‘Siri-like interface.'”  

Revolution at the edge is both buzz-wordy and meaningless.  Siri is definitionally not revolutionary because it was launched 4 years ago in 2010 and based upon natural language and speech recognition technology that was more than a decade old.  What was revolutionary about Siri was its inclusion in a mass-market, consumer product.

I’d say a Siri-like interface for BI has been discussed since the Natural Language Inc (NLI) was acquired by Microsoft in the late 1980s.  If nobody’s noticed, it hasn’t worked.  Turns out the specificity of human language is not precise enough to directly map to a database query — even with a semantic layer.   But, hey, let’s go pitch the idea because it sounds cool, the journalist probably has no idea of the history and doesn’t realize that no CFO wants to say “Hey Tiri, I want to hire 3 people next quarter and increase average salaries 3.5%.”

“It’s like Google mixed with Wolfram|Alpha.” 

That’s like saying it’s nuclear fusion mixed with a perpetual motion machine.

While it may indeed do voice recognition like Siri, I can assure you it is not like Wolfram|Alpha (press the link to see just one example).   This seems an easily challenged assertion, but it gets repeated as a sexy soundbite.  Great packaging of the message to just flow through the media channel.

The first rule of PR is to have good metaphors and that certainly a good one.  The first rule of journalism, however, should be to challenge what’s said.  How is it like Wolfram|Alpha exactly (and there’s a lot, lot more to Wolfram|Alpha than a question-style interface).

“In the first 18 months since his product became available, his company is on track to hit $45 million in revenue, CG told us, growing 300% year over year. It has about 45 customers so far, with, on average, 180 business people at each customer using the product.”

We’re going to need to analyze this last set of claims one at a time.

  • “In the first 18 months.”  Tidemark was founded in 2009, so it’s about 5 years old.  While PR is cleverly trying to reframe the age issue around product availability, you’d think a journalist would want to know what happened during the other 3.5 years.  As it turns out, a lot.  The company was originally founded as Proferi, with an integrated GRC and EPM vision.  When that failed, the company “pivoted” (a euphemism for re-started with a new strategy) to a new vision which I’ve frankly never quite understood because of the buzzword-Cuisinart messaging strategy they employ.
  • “On track to hit $45M in revenue.”  Frankly, I have a lot of trouble believing this, but it’s happily stated without a timeframe and thus impossible to analyze.   Normally, when you say $45M, it implies “this fiscal year.”  But it could be anything.   Is it simply “on track” for doing $45M in, say, 2016?  Or, maybe it’s a really misleading answer like $45M in cumulative revenue since inception?   To paraphrase an old friend, saying $45M without a timeframe is like offering a salary of 100,000 but not mentioning the currency.
  • “Growing 300% year over year.”  Most journalists and some PR people confuse tripling with growing 300% which is actually quadrupling.  But let’s assume both that the math is right and we are talking annual revenues:  this means they did $11.25 in 2013 and are on track to do $45M in 2014.  To do this in revenues means an even bigger number in bookings (due to amortization of SaaS revenues).  I banged out a quick model to show my point.

Tidemark analysis

  • “Growing 300% a year.”  The far easier way to grow 300% year, of course, is to do so off a small base.  If you do some basic math on private company numbers and it doesn’t make sense, you probably shouldn’t repeat them.  Net/net:  a journalist who hears 200% or 300% growth claims should first make sure the math is right, and second default-conclude it’s off a small base until proven otherwise.
  • “It has 45 customers so far with 180 [users at each customer].”  Some quick math says $45M/45 = $1M/customer, which is Workday-class large and ergo highly suspect.  Slightly better math (using my quarterly model) suggests $800K/customer in ARR, which is still huge — by my estimates $100-$200K ARR is a nice deal in EPM.   Combining this with 180 users/customer implies an average price of $4.5K/user/year — 150% of the list price of the most expensive edition of Salesforce.com.  ERP-sized deals, deals 4-10x the industry average, deals done at 150% of Salesforce’s list.  It doesn’t add up.

I should also note that LinkedIn says Tidemark has 51-200 employees which is generally not consistent with the numbers in my model.  Moreover, I can find searching for words like “account” [executive] or  “sales” [executive], only fewer than 10 people who appear to be in sales at Tidemark.

Overall, I conclude that the $45M is more like 2014 bookings or maybe cumulative bookings since inception than any annual revenue figure.  The numbers just don’t hang together.  If I had to pick a figure, I’d guess they are closer to $10M in revenues in 2014 than $45M.

But what is a journalist supposed to do in this situation?  I’d argue:  fact check.  Call VCs and get company size estimates.  Use Google to find similar/alternative stories. See Crunchbase for history. Do some basic triangulation off LinkedIn both in terms of numbers of sales reps and size of company.   Ask industry execs for industry averages.  And if the numbers don’t hang together, don’t publish them.

To wrap this up, yes, I dislike this kind of puff-piece, softball story.  Not because it’s friendly — not all news has to be challenging and analytical and the raw material of CG’s story is indeed impressive — but because it seems to take the PR-enhanced version of it, and swallow it hook, line, and sinker.

The media should do better.  The trade press was crushed by the tech blogs for lack of sufficient value add.  The tech blogs are quickly falling into the same trap.

Disclaimer / Footnotes
[1]  I’m told Autonomy’s Mike Lynch was a big fan of this book.

[2] Host Analytics theoretically competes with Tidemark.  Since we rarely see them in deals, I feel comfortable editorializing about their PR as I might not with a more direct competitor.  Nevertheless, I can certainly be said to have a horse in this race.

[3] I refer to Christian Gheorghe as CG both because his name is notoriously hard to spell, but more importantly because this post is not supposed to be an attack on him — to my knowledge he is a delightful and inspiring person — but rather instead a call-out of the publication that wrote this story and the system of which it is a part.

The Old “Don’t Bring Up a Problem Unless You Have a Proposed Solution” Rule

There’s a rule out there, undoubtedly made long ago, and circulated widely as conventional wisdom that in the workplace you should never bring up a problem unless you have a proposed solution.

For example, consider the following excerpt from this Inc Magazine article, Eight Things Great Bosses Demand from Employees:

Rule 6:  Provide Solutions, Not Complaints.  Complainers are the bane of your boss’s existence. Nothing is more irritating or more boring than listening to somebody kvetch about things that they’re not willing to change.  So never bring up a problem unless you’ve got a solution to propose–or are willing to take the advice the boss gives you.

The argument goes that if you just bring up problems, then you’ll be seen as a whiner, as a complainer, who drones on endlessly about problems that can’t be solved or that no one knows how to solve.

The question is:  is this a good rule?

Let’s take an old example from my career.  It’s 1990, you work at Ingres which is $250M division of ASK, and you compete in the relational database market against Oracle, who is about $1B.  You are getting your ass kicked up and down by Oracle in the RDBMS market.  Management is silently executing a retreat strategy into the application development tools market and worse yet, your parent company, ASK, is betting all-in on a new version of Ingres 4GL that only works on the Ingres DBMS for their next-generation ERP system.

Here are some darn good problems:

  • Oracle is killing us in the DBMS market.
  • We are moving into tools when “runtimes” are increasingly free and there is no money to be made
  • We are double-downing on a proprietary, unstable application development environment instead of using standard tools
  • ASK is suffering from a serious escalation of commitment problem and should not double down on a dying database business.

If you followed the “don’t bring up a problem without a solution” rule then you could never talk about any of these problems.  And they are only the most important problems facing the company (and that would ultimately lead to its undoing).  What if, for example, you ran sales and had no idea what application development tools the company should be using, but simply knew which it should not?  Should you make up a bad solution just so you can talk about the problem?

I can take more recent examples of similar no-easy-solution problems:

  • What do we do about the Internet?  (At Business Objects in 1996, when we were 100% Windows client applications.)
  • What do we do about NoSQL?  (At MarkLogic in 2009 when we were a closed-source non-relational DBMS into a strong open-source trend.)
  • What do we do about Zendesk? (At Salesforce in 2012 after acquiring Assit.ly and mistakenly seeking synergy vs. trying to use it in a major blunting initiative.)

Let’s look beyond the business environment and see some problems that we couldn’t talk about if we followed the rule:

  • Mid-East peace
  • Cancer
  • Global warming

“Sorry Jimmy, if you don’t know the solution to global warming then you shouldn’t bring it up because you’ll just be whining.”

Obviously, I think it’s a stupid rule.

The correct rule is:  don’t whine.

It turns out the hardest problems, the most important problems, often have no obvious solution.  So if you prohibit discussing them, you cripple our organization and limit discussion only to easier, more tactical matters, akin to re-arranging the deck chairs on the Titanic.

10 Things Never To Do at a Business Dinner

Business travelers spent $260B in 2012 with food services being the #1 source of expense.  Salespeople love dinners with customers and prospects. Marketers love networking dinners.  We have customer advisory board dinners, pre-board dinners, awards dinners, relationship-building dinners, team dinners, customer appreciation dinners, partner summit dinners, project completion dinners, analyst dinners, investor dinners, … the list goes on and on.

Because business dinners can be so powerful, I am a huge fan of them as a marketing tool.  However, I’ve also been a part of many “dining accidents” over the years — the most infamous being the “white burgundy and stone crab incident” at Estiatorio Milos — almost invariably due to a combination of lack of focus on the business goals of the meal, lack of pragmatism, and lack of adaptation to changing circumstances.

As a result of these experiences, I have composed this list of 10 things never to do at a business dinner.

10.  Lack clear goals.  Whether we’re organizing a 1-1 meal for the CEO and a key customer or a 56-person customer appreciation dinner, everyone on the team should understand the goals for the meal.  Every member of the team should understand why they are there and what they are supposed to do.

9.  Eat in a noisy restaurant.  A universal purpose of a business dinner is for people to get know each other.  That is not going to happen when it’s loud, especially if your guests are a bit older.  Some restaurants are just incredibly noisy (e.g., Wolfgang’s on Park Avenue with a parabolic tile ceiling).  Sometimes private rooms can be quite loud as well, especially if they are not really cut off from the main room.  Avoid live music at all costs.  Avoid low ceilings.  Beware converted bank vaults and train stations.  I’ve seen more business dinners die on this hill than any other.  Fun or hip doesn’t matter if people can’t hear each other.

8.  Have tables bigger than 8.  If people are going to get acquainted, they need both a quiet environment and a table small enough so everyone can hear everyone else.  One friend has a rule that if you want one conversation at a table, then you should limit table size to six.   I think you can go up to 8, provided your team members know there is supposed to be one conversation.  Avoid rectangular tables which greatly limit the number of people with whom one can speak.

7.  Bring too many people.  One advantage of clear goals is that they help in deciding the guest list.  If the goal is to recognize the hard work of a 24-person team, great:  go get 3 tables of 8.  If the goal is for the CEO to build a relationship with another CEO, then either hold a 1-1 dinner or a 2-2, where each CEO brings a lieutenant.  But don’t say you’re having a CEO relationship dinner and bring your sales VP, sales director, account manager, and CFL rep.  It ends up like dating with an audience.  Don’t invite people just because they are in town — you can easily unbalance a dinner by bringing 9 of us and 3 of them, turning it into a multi-conversation, intra-company event to which a few customers are invited.  When in doubt, say no.

6.  Mis-level the crowd.  I think the most important part of networking dinners is that each participant feels like he/she gets value from meeting every other participant.  So if you’re hosting a 16-person CMO dinner, make sure the invitations are non-transferable so you can say “no” when several CMOs want to send their advertising or PR directors at the last minute.  While your PR director may enjoy having dinner with a bunch of CMOs, it’s unlikely to work in reverse.  The worst case is when two CMOs show up and are surrounded by 14 PR directors:  your intended target ends up feeling out-of-place.  It is far better to have 6 CMOs when you were hoping for 16 than it is to have 6 CMOs and 10 PR directors.  Burn that into your brain.  Tattoo it to your wrist.  Don’t not prioritize filling up seats at the cost of mis-levelling the dinner and destroying the event concept.  You can build on a great 6-person CMO event in the future.  You are dead when you host a mis-leveled event.

5.  Leave seating to chance.  Since we’re investing peoples’ valuable time (and probably $100 to $200 per head) in the event, we shouldn’t leave anything to chance.  For larger events, use place cards.  For smaller events, pre-brief the team on who to direct where.  It’s a disaster, for example, when at a square table, you place the two people you want talking next to each other, instead of across.  Make sure it doesn’t happen.  (And if it does, change it per rule 2 below.)

4.  Take more than 2 hours. Business dinners are business.  If you want to add a social part, go the bar afterwards for drinks.  It’s very awkward to leave a business dinner in progress and someone could  end up missing their train and getting in trouble with a spouse, because they expected a business dinner and you ran a lingering social event that took 3.5 hours.  In general, the more senior the invitee, the more likely the dinner is “just another calendar slot” as opposed to a social opportunity.  So when having dinner for 4-6 people at a restaurant (and I’m not in Europe), I tell the waiter in advance that my goal is to be done in two hours and that we want to have two courses and possibly dessert — no shared calamari pre-appetizer, no extra-salad (i.e., salad plus appetizer) shoved in as they love to do at Morton’s.  Just an appetizer per person, a main course, and when the time comes, a decision about dessert.  If things start to go too slowly, have some pre-appointed to leave the table, speak to the waiter discretely and say “get it moving.”  On dessert, if asked first, my answer is, “no thanks, just an espresso.”  If the customer  subsequently orders then I can always join in afterwards. Overall, by respecting your guest’s time, you increase the odds they will say yes the next time you invite them out.

3.  Order very expensive wine.  Here are a few things that can go wrong when you do:  [1] the wine is bad and you end up distracted with the whole rejection and re-tasting process, [2] the attendee is subject to a company policy where he/she has to pay his part of the meal (e.g., government, journalists) so you backfire screw them on their expense report, [3] people love it and you drink three bottles, tripling an expensive proposition, [4] you look pretentious, [5] your company looks wasteful and poorly controlled, [5] your three employees drink it but the customer subsequently announces he doesn’t drink wine and you end up treating the crew and not your customer.  When I lived in France, our classiest sales VP had a simple rule: order Sancerre.  It’s neither too cheap, nor too expensive.  It comes in dry, aromatic white (sauvignon blanc), mild-bodied red, and even rosé (both pinot noir based) so most people will like it.  I’ll demo the Sancerre principle on the wine list from the tony Village Pub, one of the best restaurants in Silicon Valley, where a Corton-Charlemagne will set you back $400 and a Kistler single-vineyard chardonnay $250.  The Sancerre weighs in about $130.

2.  Not roll with the punches.  Entertaining is always full of surprises and you need to roll with them.  We once arrived at The Triomphe in NYC only to find ourselves literally surrounded by a loud, drunken, office Holiday Party.  On arriving, we knew we were dead, so we dispatched a team member to find a quieter spot and did about 3 blocks away.  If a snowstorm wipes out 30% of your attendees, you better eliminate some tables and redo your place settings.  The key thing to remember in rolling with the punches is how to preserve the original goals of the meal.  Twice, I’ve been in cases where 4-5 employees had gathered at a very expensive restaurant (e.g., Morimoto) waiting for a group from a customer who never showed up.  In this case, rolling with the punches should mean eating somewhere else because the company shouldn’t be dropping Morimoto-style dollars on a basic mid-week traveling dinner.

1.  Order the tasting menu.  There are four problems with tasting menus:  they are expensive, they take the whole table hostage because they are ordered on an all-or-nothing basis, they take a long time to serve, and they don’t fill you up. The thing I hate most about tasting menu is not the first check — the $900 check for 4 — it’s the second check, the one for $100 for sliders and wings at the sports bar afterwards.  I am so opposed to tasting menus on business dinners that I actually try to avoid restaurants that offer them; I try to reduce the odds to zero that one person, typically a new employee, will provoke the chain reaction that results in the whole table ordering one.  I’ll do a tasting menu at a business dinner only if we are a small group of known foodies who will order the wine pairings, take three and a half hours on the meal, greatly enjoy it, and not run to McDonald’s right after.  Otherwise, stay away.

I could add as “rule 0” don’t get drunk, but frankly I’ve not seen that rule broken terribly often at the business dinners I’ve attended.  More often, I see it broken at company events — which is a whole different blog post.

I hope you find these rules, and the thinking behind them, helpful to you in optimizing all your business dinners.

Bon Appétit!

I’m Now An Enterprise Irregular

Just a quick post to announce that I’ve joined the diverse group of practitioners, consultants, investors, journalists, analysts, tech executives, and full-time bloggers — known as the Enterprise Irregulars — who share a common passion for enterprise technology and its application to business in the 21st century.

I’ve been a big fan / reader of the Enterprise Irregulars blog and tweetstream for years and think there’s nothing like it in enterprise software.

I was quite honored to be asked to join the group and am very happy to be on board.  In so doing, I’m reconnecting with many old friends and colleagues:

  • Anshu Sharma, with whom I worked at Salesforce.
  • Evangelos Simoudis, with whom I currently work at Host Analytics where he sits on the board of directors.
  • Dennis Moore, with whom I worked at Ingres … we’re talking all the way back to like 1987 or so.
  • Esteban Kolsky, a customer strategist who followed us when I was at Salesforce on the Service Cloud.
  • John Taschek, with whom I worked at Salesforce and who I knew in his journalistic life prior.
  • Jeff Nolan, who I’ve met in and about the Valley and with whom I’ve had some lovely Brunello di Montalcino.
  • Jevon McDonald, who I met during the GoInstant acquisition at Salesforce.
  • Merv Adrian, a fellow data aficionado and someone who I’ve known since his days at Giga.
  • Paul Greenberg, a CRM author and expert … and ditto on the Brunello
  • Ramana Rao, with whom we partnered when he was at Inxight and I was running MarkLogic.
  • Sameer Patel, who I’ve met in and about the Valley.
  • Zoli Erdos, publisher of Enterprise Irregulars and Cloud Ave, and who I’ve met in and about the Valley.

And those are just the folks I already know in some way!  The full list of Enterprise Irregulars is here.

Now all I have to do is to finish the labor-of-love that I’ve been writing on SaaS renewals rates.  I should be done in about a week.