Tag Archives: Startups

Kellblog Predictions for 2019

Because I’ve been quite busy of late with the sale of my company, I’m doing a somewhat quicker and lighter (if not later) version of my annual predictions post.  Here goes, starting with a review of last year’s predictions.

2018 Kellblog Predictions Review

1. We will again continue to see a level of divisiveness and social discord not seen since the 1960s. HIT.  Hard to argue I need to justify this one.  Want to argue about it?

2. The war on facts and expertise will continue to escalate. HIT. Unfortunately, the President is leading the charge on this front, with the Washington Post fact checker tallying 7,645 false claims since taking office.

factchecker

3. Leading technology and social media companies finally step up to face ethical challenges. MAJOR MISS.  Well, I nailed that the issue would be critical, but boy did I overestimate the maturity of the management of these companies.

4. AI will move from hype to action, meaning bigger budgets, more projects, and some high visibility failures. HIT, I think.  See this McKinsey report for some interesting survey data on AI adoption and barriers to it.

5. AI will continue to generate lots of controversy about job displacement. HIT. While the optimists say AI will create more jobs than it will displace, many still worry conversely.  Since the prediction was about the controversy continuing, we’ll call it a hit.

6. The bitcoin bubble bursts. MAJOR HIT.  This one partially redeems me for over-estimating Facebook’s management.

btc

7. The Internet of Things (IoT) will continue to build momentum.  HIT. See this Forbes article about data from Dresner Advisory’s 2018 IoT Intelligence Market Study.

8. The freelance / gig economy continues to gain momentum with freelance workers poised to pass traditional employees by 2027. HIT.  Per this Forbes article, 57M people now participate in the gig economy in some way.

9. M&A heats up due to repatriation of overseas cash.  HIT. Per Berkery Noyes, software M&A deal value was up nearly $100B over 2017.  To the extent this was due to overseas cash repatriation I don’t know, but it certainly was a factor.

m-and-a

10. 2018 will be a good year for cloud EPM vendors. MAJOR HIT.  Anaplan went public, Adaptive Insights was acquired by Workday, and Host Analytics was acquired by Vector Capital. 

With 9 hits, two of them major – and with only one offsetting major miss — I should probably just drop the mike and get out of the predictions business.  But no guts, no glory.

Kellblog’s 2019 Predictions

Reminder to see the disclaimers in my FAQ and remember that these predictions are not financial or business advice – they are made in the spirit of fun.  To the extent they’re concrete, that’s to make the game more interesting so we can better assess them next year.  Here we go.

1. Fred Wilson is right, Trump will not be president at the end of 2019. I think Fred’s also right on virtually all of the other predictions made in his epic post, which I won’t attempt to summarize here. Read Fred’s post – and just make sure you read to the end, because it’s not all doom and gloom.  So, as a Kellblog first, prediction #1 is a pointer.

2. The Democratic Party will continue to bungle the playing of its relatively simple hand. Party leaders will continue to fail to realize that the way to beat Trump is not through a hard-left platform with 70% tax rates that caters to the most liberal Democrats – but a centrist, pragmatic, people- and business-friendly platform that certainly won’t be enough for the far left, but will be far better than the Republican alternative for all Democrats, and most importantly, give centrist Republicans a realistic alternative to what their party is offering them.  The Democratic Party will continue to be more concerned with making statements than winning elections.  This may cost it, and the Nation, dearly.

Remember the famous Will Rodgers quote: “I am not a member of any organized political party.  I am a Democrat.”

 3. 2019 will be a rough year for the financial markets. Political problems in the USA, Europe, and increasingly Latin American.  Trade wars.  Record deficits as we re-discover that trickle-down, tax-cut economics don’t work.  Threat of rising interest rates.   Brexit.   Many folks see a bear market coming.

Years ago, I accepted the fact that – like many – I am a hypocrite when it comes to the stock market.  Yes, I absolutely believe that it’s theoretically impossible to time the market.   But yes, I’m entering 2019 with a high allocation to cash and intend to keep it that way.  Hum.  Try to reconcile that.

For fun, let’s makes this concrete and predict that the BVP Emerging Cloud Index will end 2019 at 750.  I do this mostly to provide some PR for Bessemer’s Index, officially launched via the NASDAQ in October, 2018, but which was built on the back of five years of Bessemer maintaining it themselves.

4. VC tightens. Venture capital funding has been booming the past several years and – for the above reasons and others (e.g., the fact that most VCs don’t product enough returns to justify the risk and illiquidity) – I believe there will be tightening of VC in 2019.  If you agree, that means you should raise money now, while the sun’s still shining, and try to raise two years of capital required in your business plan (with some cushion).

dwk-2mru8aaof8b

If things follow the recent trends, this will be hardest on average and/or struggling companies as VCs increasingly try to pick winners and make bets conservative in the sense that they are on known winners, even if they have to overpay to do so.  In this scenario, capital on reasonable terms could all but dry up for companies who have gone off-rails on their business plans.   So, if you’re still on rails, you might raise some extra capital now.  Getting greedy by trying to put up two more good quarters to take less dilution on your next round could backfire – you might miss one of those quarters in this increasingly volatile environment, but even if you don’t, VC market tightening could offset any potential valuation increase.

5. Social media companies get regulated. Having failed for years to self-regulate in areas of data privacy and usage, these companies will likely to face regulations in 2019 in the face of strong consumer backlash.  The first real clue I personally had in this area was during the 2016 election when Facebook didn’t just feed me, but actually promoted, a fake Denver Guardian story about a supposedly dead FBI agent linked to “her emails.”  I then read the now-famous “bullshit is highly engaging” quote from this story which helped reveal the depth of the problem:

Or, as former Facebook designer Bobby Goodlatte wrote on his own Facebook wall on November 8, “Sadly, News Feed optimizes for engagement. As we’ve learned in this election, bullshit is highly engaging. A bias towards truth isn’t an impossible goal. Wikipedia, for instance, still bends towards the truth despite a massive audience. But it’s now clear that democracy suffers if our news environment incentivizes bullshit.”

I won’t dive into detail here.  I do think Sheryl Sandberg may end up leaving Facebook; she was supposed to be the adult supervision, after all.  While I think he’s often a bit too much, I nevertheless recommend reading Chaos Monkeys for an interesting and, at times, hilarious insider look at Facebook and/or following its author Antonio Garcia Martinez.

6. Ethics make a comeback, for two reasons.  The first will be as a backlash to the blatant corruption of the current administration.  To wit:  the House recently passed a measure requiring annual ethics training for its members.  The second will have to do with AI and automation.  The Trolley Problem, once a theoretical exercise in ethics, is now all too real with self-driving cars.  Consider this data, based on MIT research in this article which shows preferences for sparing various characters in the event of a crash.

crash

Someone will probably end up programming such preferences into a self-driving car.  Or, worse yet, as per the Trolley Problem, maybe they won’t.  While we may want to avoid these issues because they are uncomfortable, in 2019 I think they will be thrust onto center stage.

7. Blockchain, as an enterprise technology, fades away. Blockchain is a technology in search of a killer application.  Well, it actually has one killer application, cryptocurrency, which is why it was built.  And while I am a fan of cybercurrencies, blockchain is arguably inefficient at what it was built to do.  While Bitcoin will not take down the world electric grid as some have feared, it is still tremendously energy consumptive –in coming years, Bitcoin is tracking to consume 7.7 GW per year, comparable to the entire country of Austria at 8.2 GW.

While I’m not an expert in this field, I see three things that given me huge pause when it comes to blockchain in the enterprise:  (1) it’s hard to understand, (2) it consumes a huge amount of energy, and (3) people have been saying for too long that the second blockchain killer app (and first enterprise blockchain killer app) is just around the corner.  Think:  technology in search of a business problem.  What’s more, even for its core use-case, cryptocurrency, blockchain is vulnerable to being cracked by quantum computing by 2027.

8. Oracle enters decline phase and is increasingly seen as a legacy vendor. For decades I have personally seen Oracle as a leader.  First, in building the RDBMS market.  Second, in consolidating a big piece of the enterprise applications market.  Third, more generally, in consolidating enterprise software.  But, in my mind, Oracle is no longer a leader.  Perhaps you felt this way long ago.  I’d given them a lot of credit for their efforts (if not their progress) in the cloud – certainly better than SAP’s or IBM’s.  But SAP and IBM are not the competitors to beat in the future:  Amazon, Google, and a rejuvenated Microsoft are.  The reality is that Oracle misses quarters, cloud-washes sales, and is basically stagnant in revenue growth.  They have no vision.  They have become a legacy vendor.

The final piece of this snapped into place when Thomas Kurian departed to Google in a dispute with Larry Ellison about the cloud.  DEC’s Ken Olsen once said that Unix was “snake oil” and that was the beginning of the end for DEC.  Ellison once said roughly the same thing (“complete gibberish”) about the cloud.  And now the cloud is laughing back.

9. ServiceNow and/or Splunk get acquired. A friend of mine planted this seed in my mind and it’s more about corporate evolution than these two companies in specific.  The pattern is that highly successful companies go through phase I ($1-$100M hypergrowth) and then phase II ($100M to $1B build-out) and then, once past a billion in revenues either (1) stay growth- and vision-focused like Salesforce or (2) drift towards a stewardship mentality where the people and perks are such that everyone makes a lot of money if they just keep on keeping on.  I’m not an expert in ServiceNow or Splunk, but I have tracked them from a distance for a long time, and I think they are drifting towards stewardship mode.  If I’m right, that will make them possible M&A targets in 2019.  They’re both great businesses that mega-vendors would love to own – especially if “on sale” due to a bear market discount.

10. Workday succeeds with its Adaptive Insights agenda, meaning that Adaptive’s mid-market and SMB presence will be greatly lessened.   Most people I know think Workday’s acquisition of Adaptive was a head-scratcher.  Yes, Workday struggles in financial apps.  Yes, EPM is an easier entry point than core financials (which, as Zach Nelson used to say, were like a heart transplant).  But why in the world would a high-end vendor (with average revenue/customer of $1M+) acquire a low-end EPM vendor (with average revenue/customer of $27K)?  That’s hard to figure out.

But just because the acquisition was, to be kind, non-obvious, it doesn’t mean Workday won’t be successful with it.  Workday’s goals are clear: (1) to unite Adaptive with Workday in The Power of One – including re-platforming the backend and re-writing the user-interface, (2) to provide EPM to Workday’s high-end customer base, and (3) to provide an alternate financial entry point for sales when prospects say they’re not up for a heart transplant for at least 5 years.  I’m not saying Workday can’t be successful with their objectives.  I am saying Adaptive won’t be Adaptive when they’re done — you can’t be the high-end, low-end, cheap, expensive, simple, complex, agnostic, integrated EPM system.   Or, as SNL put it, you can’t be Shimmer — a dessert topping and a floor wax.  The net result:   like Platfora before them or Outlooksoft within SAP, Adaptive disappears within Workday and its presence in the mid-market and SMB is greatly reduced.

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Disclaimer:  these predictions are offered in the spirit of fun.  See my FAQ for more and other terms of use.

How to Manage Your First Sales VP at a Startup

One of the hardest hires — and one of the hardest jobs — is to be the first VP of sales at a startup.  Why?

  • There is no history / experience
  • Nobody knows what works and what doesn’t work
  • The company may not have a well defined strategy so it’s hard to make a go-to-market strategy that maps to it
  • Any strategy you choose is somewhat complex because it needs to leave room for experimentation
  • If things don’t work the strong default tendency is to blame the VP of sales and sales execution, and not strategy or product.  (Your second VP of sales gets to blame product or strategy — but never your first.)

It’s a tough job, no doubt.  But it’s also tough for a founder or new CEO to manage the first sales VP.

  • The people who sign up for this high-risk duty are often cocksure and difficult to manage
  • They tend to dismiss questions with experienced-based answers (i.e., well we did thing X at company Y and it worked) that make everything sound easy.
  • They tend to smokescreen issues with such dismissals in order to give themselves maximum flexibility.
  • Most founders know little about sales; they’ve typically never worked in sales and it’s not taught in (business) school.

I think the best thing a founder can do to manage this is to conceptually separate two things:

  • How well the sales VP implements the sales model agreed to with the CEO and the board.
  • Whether that model works.

For example, if your team agrees that it wants to focus on Defense as its beachhead market, but still opportunistically experiment horizontally, then you might agree with the sales VP to build a model that creates a focused team on Department of Defense (DoD) and covers the rest of the country horizontally with a enterprise/corporate split.  More specifically, you might decide to:

  • Create a team of 3 quota carrying reps (QCRs) selling to the DoD who each have 10+ years experience selling to the DoD, ideally holding top secret clearances, supported by 2 sales consultants (SCs) and 2 business development reps (BDRs) with the entire team located in a Regus office in McLean, VA and everyone living with a one-hour commute of that office.
  • Hire 2 enterprise QCRs, one for the East and one for the West, the former in McLean and the latter in SF, each calling only on $1B+ revenue companies, each supported by 1 local SC, and 2 BDRs, where the BDRs are located at corporate (in SF).  Each enterprise QCR must have 10+ years experience selling software in the company’s category.
  • Hire 2 corporate reps in SF, each sharing 1 SC, and supported by 2 BDRs calling on sub $1B revenue companies.  Each corporate rep must have 5+ years experience selling software in the category.

In addition, you would create specific hiring profiles for each role ideally expressed with perhaps 5-10 must-have and 3-5 nice-to-have criteria.

Two key questions:

  • Do we know if this is going to work?  No, of course not.  It’s a startup.  We have no customers, data, or history.  We’ve taken our best guess based on understanding the market and the customers.  But we can’t possibly know if this is going to work.
  • Can we tell if the sales VP is executing it?  Yes.  And you can hold him/her accountable for so doing.  That’s the point.

At far too many startups, the problem is not decomposed in this manner, the specifics are not spelled out, and here’s what happens instead.  The sales VP says:

The plan?  Yes, let me tell you the plan.  I’m going to put boots down in several NFL cities, real sales athletes mind you, the best.  People I’ve worked with who made $500K, $750K, or even $1M in commissions back at Siebel or Salesforce or Oracle.  The best.  We’re going to support those athletes with the best SCs we can find, and we’re going to create an inside sales and SDR team that is bar none, world-class.  We’re going to set standard quotas and ramps and knock this sonofabitch out of the park.  I’ve done this before, I’m matching the patterns, trust me, this is going to be great.

Translation:  we’re going to hire somewhere between 4 and 8 salespeople who I have worked with in the past and who were successful in other companies regardless of whether they have expertise in our space, the skills required in our space, are located where out strategy indicates they should be.  Oh, and since I know a great pharma rep, we’re going to make pharma a territory  and even though he moved to Denver after living in New Jersey, we’ll just fly him out when we need to.  Oh, and the SDRs, I know a great one in Boise and one in Austin.  Yes, and the inside reps, Joe, Joey, Joey-The-Hacksaw was a killer back in the day and even though he’s always on his bass boat and living in Michigan now, we’re going to hire him even though technically speaking our inside reps are supposed to be in SF.

This, as they say in England, is a “dog’s breakfast” of  a sales model.  And when it doesn’t work — and the question is when, not if — what has the company learned?  Precisely and absolutely zero.

If you’re a true optimist, you might say we’ve learned that a bunch of random decisions to hire old cronies scattered across the country with no regard for strategy, models, or hiring profiles, doesn’t work.  But wait a minute — you knew that already; you didn’t need to spend $10M in VC to find out.  (See my post, If We Can’t Have Repeatable Success Can We At Least Have Repeatable Failure?)

By making the model clear — and quite specific as in my example above — you can not only flush out any disagreements in advance, but you can also hold the sales VP accountable for building the model they say they are going to build.  With a squishy model, as my other example shows, you can never actually know because it’s so vague you can’t tell.

This approach actually benefits both sides

  • The CEO benefits because he/she doesn’t get pushed around into agreeing to a vague model that he/she doesn’t understand.  By focusing on specifics the CEO gets to think through the proposed model and decide whether he/she likes it.
  • The Sales VP benefits as well.  While he/she loses some flexibility because hiring can’t be totally opportunistic, on the flip side, if the Sales VP implements the agreed-to model and it doesn’t work, he/she is not totally alone and to blame.  It’s “we failed,” not “you failed.”  Which might lead to a second chance for the sales VP to implement a new model.

Book Review:  From Impossible to Inevitable

This post reviews Aaron Ross and Jason Lemkin’s new book, From Impossible to Inevitable, which is being launched at the SaaStr Conference this week.  The book is a sequel of sorts to Ross’s first book, Predictable Revenue, published in 2011, and which was loaded with great ideas about how to build out your sales machine.

From Impossible to Inevitable is built around what they call The Seven Ingredients of Hypergrowth:

  1. Nail a niche, which is about defining your focus and ensuring you are ready to grow. (Or, as some say “nail it, then scale it.)  Far too many companies try to scale it without first nailing it, and that typically results in frustration and wasted capital.
  2. Create predictable pipeline, which about “seeds” (using existing successful customers), “nets” (classical inbound marketing programs), and “spears” (targeted outbound prospecting) campaigns to create the opportunities sales needs to drive growth.
  3. Make sales scalable, which argues convincingly that specialization is the key to scalable sales. Separate these four functions into discrete jobs:  inbound lead handing, outbound prospecting, selling (i.e., closing new business), and post-sales roles (e.g., customer success manager).  In this section they include a nice headcount analysis of a typical 100-person SaaS company.
  4. Double your deal size, which discusses your customer mix and how to build a balanced business built off a run-rate business of average deals topped up with a lumpier enterprise business of larger deals, along with specific tactics for increasing deal sizes.
  5. Do the time, which provides a nice reality check on just how long it takes to create a $100M ARR SaaS company (e.g., in a great case, 8 years, and often longer), along with the wise expectations management that somewhere along the way you’ll encounter a “Year of Hell.”
  6. Embrace employee ownership, which reminds founders and executives that employees are “renting, not owning, their jobs” and how to treat them accordingly so they can act more like owners than renters.
  7. Define your destiny, which concludes the book with thoughts for employees on how to take responsibility for managing their careers and maximizing the opportunities in front of them.

The book is chock full of practice advice and real-world stories.  What it’s not is theoretical.  If Crossing the Chasm offered a new way of thinking about product lifecycle strategy that earned it a place on the top shelf of the strategy bookcase, From Impossible to Inevitable is a cookbook that you keep in the middle of the kitchen prep table, with Post-It’s sticking out the pages and oil stains on the cover.  This is not a book that offers one big idea with a handful of chapters on how to apply it.  It’s a book full of recipes and tactics for how to improve each piece of your go-to-market machine.

This book — like Predictable Revenue, The Lean Startup, Zero to One, and SalesHood — belongs on your startup executive’s bookshelf.  Read it!  And keep up with Jason’s and Aaron’s great tweetstreams and the awesome SaaStr blog.