I recently had the chance to sit down with Scott Sambucci from SalesQualia on his Startup Selling Podcast to discuss: The Selling Process vs. The Buying Process in the Enterprise Sale. We covered a wide range of topics, including the most common mistakes entrepreneurs make when selling into large companies, selling innovation and building and managing teams. Check it out below on Soundcloud or on iTunes.
Whenever I interview someone that recently worked at a startup that went out of business I ask them why it failed. How analytically someone answers this question says a lot about them. But the truth is that I'm mostly asking because I'm curious. I want to know what to look out for.
More often than not, the answer comes down to one thing: dysfunctional leadership. More specifically, for some reason, leadership didn't communicate well and couldn't make quick decisions.
Tomas Tunguz had a great blog post on this topic recently, titled the Challenge of Uncertainty. From the post:
Slow decision-making can be paralyzing for a company.
Management teams should check themselves occasionally on the speed and quality of their decision-making. It will almost always deteriorate over time. There are dozens of little things that can weigh down management and cause them to slow the pace -- too many direct reports, too many meetings, not enough meetings, new personalities, fear of telling the truth, personal issues, different communication styles, poor prioritization and on and on. All of these things will come up at some point. How well a leadership team weeds through this stuff and finds a way to continue to make good, speedy decisions might make the difference.
I’ve found that one of the most important things an executive can do is to regularly identify the “issue of the day” for their company or their team or their group and to address it with urgency.
Peter Drucker refers to this as identifying “what needs to be done?” Ideally, it's one thing, but definitely not more than two.
The discipline to continuously have this in mind and to have the emotional intelligence to be able to accurately identify the issue of the day is difficult and something that separates great leaders from the rest.
The issue of the day could be a number of things: some are opportunities, some are problems, some are strategic, some are tactical, some are elated to business problems, some are related to people problems. An example could be launching a product that will create a large growth opportunity or retain a specific set of customers; onboarding new managers and making them into productive leaders or something as small as fixing a commission policy or plan that is frustrating for top salespeople. The key is the ability to recognize the issue and measure its importance and urgency in comparison to the hundreds of other burning issues that could be addressed.
One of the most difficult things about determining the issue of the day is that different people will often have different perspectives on what the issue of the day actually is. The board, the CEO, the executive team, the line managers will often have different opinions. Getting alignment here is crucial. And, just as important, if alignment can’t be gained across all relevant stakeholders, the executive must make the call on what's most important now and focus on that thing more than any other.
Back when I was working at Next Jump, an e-commerce company that enabled big brands to offer their products and services at a discount to large employers and customers of large consumer marketers, our primary objective was to drive spend through our website.
My specific job was to drive user acquisition. I was focused on acquiring more companies to buy the product for their employees and then to get employees (users) to register an account and keep coming back. My colleague, I'll call her Jane, was in charge of site merchandising and had the job of converting those users into buyers once they came to our site. So my job was to get people to our site, and her job was to get people to buy once they arrived.
Every week our teams would meet to review results. We’d start by focusing on the total spend on our site during the previous week. Some weeks the numbers would be up and some weeks they'd be down. In the weekly meeting, our leadership would look at Jane and ask what happened during the previous week. Frequently, Jane would look at me and say, “we didn’t have a lot of spend on the site because we didn’t have a lot of traffic.” Other weeks I would look at Jane and say, "we had plenty of traffic but that traffic didn’t convert into spend."
This was obviously unproductive. We were pointing fingers at one another and defending our impact on the overall number which meant that nobody was responsible for the overall number.
Our solution to this problem might seem counterintuitive: we created silos.
We came up with something we called “the box.” My team had the job of getting people into the box (get people to the site) and Jane's team had the job of making good things happen once they were in the box (get people to buy things once they were on the site). My primary metric was weekly unique users and Jane’s primary metric was conversion of those users (spend per unique user).
This changed everything. We set up specific metrics for each team where neither one of us could ever blame the other. My team wasn’t measured on overall spend (something we couldn’t control alone) and Jane’s team wasn’t measured on overall spend (something her team couldn’t control alone). We were measured on our slice of the spend metric (users and conversions) and if we both did our job we had a great week. This change created crystal clear ownership and accountability which led to lots of creativity and powerful initiatives to drive each teams' numbers. Our overall spend numbers started heading up and to the right.
Over time, though, things started to break down. Because we were so silo’ed my team wasn’t focused on the overall company goal, we were focused on our team goal. So my team would do whatever we could to drive users to the site regardless of the impact on spend. We would repeatedly promote offers from Target and Best Buy (brands that had 'mass appeal’ and would drive traffic but had relatively low value discounts with low conversion rates). This would drive a ton of traffic to the site, but the traffic didn't convert. Similarly, Jane was focused on conversion so she would promote the best offers on the site (30% off Juicy Couture, as an example). Users would come to the site expecting to see an offer from Best Buy and would see a great offer from a brand they had no interest in and a not so great offer from Best Buy. This led to a low-quality experience, lower spend, and user churn. Overall growth in spend began to slow down.
In response, we quickly setup processes to begin working more closely together. We had to fix the disconnect. We had to collaborate.
We built a monthly merchandising calendar that every team member could access in real-time. We set up several 10-minute check-ins so that the acquisition team knew exactly what the site merchandising team was promoting each day and which offers were converting at the highest rates. The acquisition team would send all marketing emails to the merchandising team prior to sending to users to get their sign off. We used data from the acquisition team to convince the mass appeal brands to offer deeper discounts.
At first, these efforts forced collaboration. But over time the collaboration became much more organic. The teams became inclined to be collaborative. After a few weeks, the numbers started to head back up. That said, we definitely didn’t abandon the silo’ed metrics for each team. Hitting those metrics was still the primary job of each team. What changed was the approach we took to hitting each of our metrics. It was about transparency and collaboration and a broader focus on what was best for the company as a whole.
The point here is simple: not having silo’ed metrics is a bad thing and being too silo'ed is a bad thing.
As an example, sales teams need to have silo’ed sales metrics that they’re accountable for to force ownership and creativity and high performance. But if the sales team is only focused on one top line metric and nothing else, over time they’ll be motivated to close deals that may be bad for the company and will lead to high churn rates. They have to have a silo’ed metric but also be forced to consider what’s best for the company as a whole.
Companies get in trouble when they lean too far towards one side. Telling groups to just work together to drive an overall number leads to a lack of accountability and creativity. And too much separation leads to a lack of collaboration and focus on the broader goal.
Well run companies find a balance and learn to silo and un-silo.
Recently someone asked me how I get comfortable that I'm hiring great people. Obviously there’s a ton of work that goes into making a hire so I won’t go into all of the detail. But just before I’m ready to pull the trigger there are four checkpoints I use to make sure I’m making the right call.
- I can clearly point to something about them (beyond functional expertise) that they can do (or I believe they will be able to do) at a world-class level.
- Credible, smart, successful people say amazing things about them.
- If I strip away their credentials, I'm still really fired up about making the hire
- The reason they bounced from one job to the next doesn’t concern me, it inspires me.
There are obviously lots of other things I could add to this list but I’ve found that I'm generally making a great hire when these four things are in place.
I recently reread Peter Drucker’s The Effective Executive. The entire book is gold and much of it is centered around the way we manage time. This is how he describes time:
"The supply of time is totally inelastic. No matter how high the demand, the supply will not go up. There is no price for it and no marginal utility curve for it. Moreover, time is totally perishable and cannot be stored. Yesterday’s time is gone forever and will never come back. Time is, therefore, always in exceedingly short supply. Time is totally irreplaceable. Within limits we can substitute one resource for another, copper for aluminum, for instance. We can substitute capital for human labor. We can use more knowledge or more brawn. But there is no substitute for time. Everything requires time. It is the one truly universal condition. All work takes place in time and uses up time. Yet most people take for granted this unique, irreplaceable, and necessary resource. Nothing else, perhaps, distinguishes effective executives as much as their tender loving care of time."
Time is a pretty unique thing. I’ve recently started the habit of evaluating how I spend my time by looking back on my calendar every couple of months. When you’re going from meeting to meeting to meeting all day it’s really easy to think you’re spending your time wisely. I’ve found that I’m often not. And doing a frequent look back helps me change that.
Harry Stebbins had a great interview with venture capitalist Michael Dearing on the 20 Minute VC Podcast a couple weeks ago. Michael talked about a trait that he looks for in founders and startup teams that he refers to as "personal exceptionalism". This is the idea that a person believes that they are special and that their outcomes are going to be "outside the bounds of normal". They’re not arrogant, they just strongly believe that they can produce results far greater than the mean.
This idea really resonated with me; not as an investor but as a person that hires a lot of people and builds teams and is constantly trying to scour through candidates to find the best of the best. The notion of personal exceptionalism really captures what I look for. Rather than try to explain the concept myself I've transcribed Michael's comments on it below. Spot on.
People are complex and every situation and every environment is different. So it's extremely difficult to apply a blanket set of attributes that will lead to success in any job.
I’ve found that this is particularly difficult with “strategic sales” roles in a startup. By strategic sales I mean a role where a salesperson is selling a highly innovative product into a large organization that requires a large investment of time and/or money from that organization.
It’s important to define strategic sales because the skill set required to be able to close strategic deals is very different from the skill set required to close smaller, more defined, "transactional" deals. Often, success in transactional selling comes down to simple hard work and effort. If you analyze a transactional sales funnel you'll see that there actually isn’t a huge difference between conversions for high performing salespeople and conversions for low performing salespeople (by conversions I mean things like 'phone call to meeting set' and 'meeting held to verbal commitment'). Success in that world often comes down to volume. More calls = more sales.
While there’s certainly nothing wrong with good old-fashioned hard work -- in fact, it's a requirement -- strategic sales is almost exactly the opposite of transactional sales. Conversions really matter and lead qualification is even more crucial because strategic deals require a huge time commitment from the salesperson. And there are massive differences between the conversion rates of high-performing salespeople versus low-performing salespeople. A high-performing strategic salesperson can convert 100% of their meetings into an active sales cycle; a low performing strategic salesperson may convert none. Literally zero. Strategic sales is not a numbers game.
Ben Horowitz likes to say that closing a deal with a large organization is like passing a law in congress. And it’s even harder than that when selling innovation — there's no set process for the buyer to buy within their organization or budget to buy the product. And in a startup, you’re small and nobody knows you and you don’t have a clearly defined sales process and you don't have perfectly polished sales materials. It’s really difficult.
I've thought a lot about the attributes that are most closely correlated with success in strategic sales. I've seen a lot of successful strategic salespeople and a lot of unsuccessful strategic salespeople. It's a problem I've been trying to understand for years.
Recently I’ve spoken to a number of people I trust on this topic and here’s where I think I’ve landed. Here are the four key attributes of a successful strategic salesperson.
In order to solve a complex problem you need to fully understand it. How does the buyer buy? Who has influence in the organization? What value do customers see in the product? What does the customer do during the day? How is the buyer bonused or promoted? What other options does the buyer have?
I could literally write 100 more questions like this. A strategic salesperson must always be wondering about the answers to these questions. They should constantly be learning from their customers, their leadership, their colleagues, the media, their competitors and anyone else that will talk to them. They need to be obsessing about the problem and trying to build a story and a solution and constantly iterating their approach.
A person that doesn’t have this level of insatiable curiosity simply won’t figure it out. They'll get stuck.
I’m fusing two attributes together with this one but I think it’s necessary. Any type of sale will inevitably lead to lots of rejection of the salesperson, the product and the company. This sucks. It’s painful. It’s even worse when selling innovation because there will be prospects that think the idea is crazy and will never work and the buyer has no process or defined way to buy the product. In order to get through this the salesperson must be a winner and must have a winning attitude and know that they can overcome. And they must have the grit and determination to keep getting up after they get knocked down. It may sound cliché but it's true. I've never met a pessimist that was good at strategic sales. There will be an endless number of reasons why it won’t work and the only people I’ve seen that will push through have a high level of optimistic grit.
I used to joke that there are two types of salespeople:
1.) The type of salesperson that flies home from a bad meeting with a prospect and sits on the plane mentally blaming the product, the marketing team, the legal team, their boss or the prospect that just doesn’t “get it."
2.) The salesperson that sits on the plane thinking: How could I have answered that one question better? What else should I add to the presentation? What should I take out? What’s the context of the person that didn’t like the product? Where are they coming from? Does the product I’m selling threaten some of the people in the room? What went well in that meeting and what didn’t go well in that meeting? Who can help me get better?
The second approach requires an immense, almost unnatural level of humility. It’s human nature to point fingers when things don’t go well. It’s also often perfectly reasonable -- because it might actually may be someone else’s fault! But placing energy into #1 is a losing approach. Obsessing about the things that we can control is the way to win. So much energy can be soaked up by complaining and blaming others. Great strategic salespeople transform the energy that most put into complaining and blaming and point it toward improvement.
Ability to educate and inspire
I’ve written before that people buy with their heart and justify it with their mind. This is why I advocate not showing a lot of numbers in an initial sales presentation — the prospect doesn’t know or trust the salesperson yet and they’re generally not buying for ROI anyway. They’re buying because of the way the product makes them feel.
As a result, when selling innovation it’s crucial that the buyer be on board with the salespersons's mission and buy in to their perspective on both the problem they have and the way that the salespersons's company is going about solving that problem. The sale has to be somewhat fun and interesting and educational and insightful. It can’t be boring. I don’t mean that the salesperson has to personally be super charismatic or an amazing presenter (though that helps), I mean that they have to be intelligent and interesting and insightful. The buyer has to want to get behind the company and the product -- they have to become a true advocate.
It's a lot of work for a company to buy something. It requires security reviews, legal reviews, budget reviews, consensus building and many other activities. It also creates a lot of risk for the champion. If they're going to go on the line and buy an innovative product they have to be excited and inspired.
Great strategic salespeople continuously inspire, excite and educate their prospects.
It was nice to see the news a few weeks ago that Massachusetts House Speaker Robert DeLeo vowed to put new limits on contracts that prevent employees from working for competitors. "Non-competes" that restrict the free movement of talent from one company to another can do real damage to an individual's livelihood and the economy at large. Many people believe that the reason that the explosion of successful tech companies happened in Silicon Valley is because of California's effective ban on employee non-competes. Allowing talent to flow to the best organizations without friction is good for a local economy.
Unfortunately, over the past several months I've seen lots of startups going in the opposite direction by including aggressive non-compete terms in employee agreements.
Many companies take it a step farther and require 'no-poaching' terms in their vendor contracts and even try to collude with other local startups and agree to not steal one another's employees.
I don't think companies fully understand the damage that's being done with these types of arrangements. Let me explain.
Imagine that you're working for a startup in Buffalo, New York (Buffalo actually has a pretty hot startup community by the way). And imagine that there are another 20 tech companies in Buffalo that, at some point, you could go work for -- you have the talent they need and you'd potentially like working for some of these companies. Then imagine that the startup you currently work for requires you to sign a non-compete as part of your employment contract. Then you learn that your company requires all of their vendors and customers and partners to sign an agreement that precludes them from poaching your company's employees.
As your company grows, the number of other companies that can demand your services around your home has dropped from 20 to, say, 12. Suddenly 40% of the companies that would potentially demand your services now can no longer demand your services. So the demand for your services has decreased 40%. You're now 40% less valuable than you used to be.
At a minimum, a company doing this to their employees is unethical. At its worst, it's illegal (Apple, Google, Intel and Adobe recently paid a $415 million fine for colluding on no-poaching efforts to suppress employee wages).
When a company creates an agreement where another company cannot poach its employees, they are artificially reducing the value of those employees and their ability to make a living.
Again, the spirt of this is understandable. Hiring and training employees is expensive and companies want to fight to keep their best people. But addressing employee churn through contracts is a backwards way of handling the problem.
The better (and harder) way of dealing with the problem is to create an environment where good employees feel valued and are being challenged and are working on difficult problems and are developing professionally and personally and are being compensated fairly. Writing contracts to compensate for shortcomings in these areas is cruel and likely very ineffective in the long term. And it's nice to see that the state of Massachusetts is catching on and pushing for legislation that will protect employees and the local economy.
The best way to keep employees loyal is to act in a way that deserves loyalty.
Several years ago when I was working with an e-commerce company we came up with a framework for how to grow transactional shopping revenue. We called it "the Box".
The idea was to get shoppers into the box (acquire new users and get them to come back to our sites regularly). And then, once they were in "the box", to make good things happen (get them to buy lots of stuff).
We setup two separate teams: one team was focused on driving traffic and the other was focused on converting that traffic into dollars.
The "traffic driving" team didn't worry about shopping conversions and the "conversion" team didn't worry about driving traffic. We put the teams in silos and told them to focus on their goals. The thinking was that if both teams did their job, overall revenue would grow.
The beauty of the framework was that when weekly revenue grew, we could very easily determine who deserved credit. Was the increase caused by something that the traffic driving team did or something that the conversion team did? Very rarely was it both. Neither team could hide behind another's success. We could easily identify the initiatives that we're contributing to overall revenue and those that weren't. It seemed like a great model.
But we quickly saw that the structure we setup caused some problems.
The traffic driving team, in an effort to drive traffic (as opposed to revenue), found some quick, easy and suboptimal ways to drive traffic to our sites. For example, they'd email millions of users with an offer from a high-end car company. The response rate would be great and traffic grew, but nobody bought (low conversions). Users just clicked around and looked at the cars because they were interesting. Most weren't planning to buy, or if they were they were planning to buy offline.
At the same time, the conversion team put brands that converted well (such as Target and Wal-Mart) front and center on our websites. While those brands did convert well, they produced small average order sizes and didn't pay us a significant commission. Combine that with the fact that the traffic driving team wasn't pushing shoppers to the offers that the conversion team was promoting and we quickly found that our user experience was disjointed.
It became clear that we couldn't have our teams operating in silos. To maximize revenue, they had to work together. They had to collaborate. They had to do more than just their own job.
This initiative underscores the challenges around siloed teams and metrics. When high performing people are given clear objectives with quantifiable metrics attached to them, they'll very often accomplish those objectives. And there will very often be unintended consequences from that accomplishment.
All of that said, even after that experience, I still strongly believe that managers must create clear, measurable metrics for every employee in the organization that only that employee can control. It's a crucial part of an accountable, high performing organization.
But at the same time managers need to closely monitor whether or not those siloed metrics are positively or negatively impacting the overall health of the business. Setting up a framework where individuals and teams are focused on producing impactful work week to week is the (relatively) easy part. Getting multiple teams focused on snyergistic activities that add to the overall value of the business is much more difficult. And much more important.
Vinod Khosla interviewed Larry and Sergey from Google a couple weeks ago. I recommend watching the entire thing when you have some time.
At one point Larry explains the fact that the average Fortune 500 CEO's tenure is approximately 4 years. He notes that it's really, really difficult to solve big problems in 4 years. Twenty years, maybe. But 4 years, no way. So as a result we have a system where our largest companies are acting in a way that is very short-sighted.
We all know the stories of the giant, successful companies not seeing how things were changing and ignoring the little upstarts only to eventually get toppled by them. We've always chalked this up to naivety and arrogance on the part of large companies. Polaroid is a great example. They ignored the digital camera and didn't recognize what its impact would be until it was too late and eventually found themselves bankrupt.
But when you consider Larry's point, that CEOs are only focused on 4 years out, you can see how it actually made sense for Polaroid's leadership to ignore the digital camera. New innovations move slowly, the best thing for Polaroid's stock price (in the short-term) was to continue to focus on their core business -- not to pivot and get ahead of a trend.
We're about to see the same thing happen to big car companies. Self driving cars are the future. And they're going to operate much differently than the cars we have today. But it'll take a while, maybe 10 or 15 years. If you're the CEO of Ford or General Motors, why should you redirect your resources away from regular cars, if you're really only worried about the next four years? You're much better off focusing on the here and now. Very logical, but also the thing that will wipe them out of the self driving car business. We can see it right now, it's going to happen, but they won't do anything about it.
I'm not arguing that companies should have 20 year terms for their CEOs, but companies do need to recognize that their short-term focus paralyzes the company in dealing with trends and getting ahead of the small upstarts. Companies would act very differently if they were looking further around the corner than the tenure of their leaders allows.
Back in 2005, Union Square Ventures -- the well-known NYC-based venture capital firm -- converted the homepage of their website into a blog. Brad Burnham, one of USV’s partners explained their reasoning at the time.
"We realized that our thesis evolves incrementally as a result of our dialogue with the market, and that the best way to manage that was to accept that we would never get to an answer, so we should just publish the conversation. The best way to do that is with a blog. So here it is."
A few months ago, they took this a step further and turned their website into a conversation, allowing anyone to share links and discuss topics related to the firm and the firm's investments. They also now cross-post their own blog posts and even take pitches from entrepreneurs on their site. Really cool.
In some ways, it’s surprising that an institutional investor would be so open and willing to have a public conversation about their investments and their investment strategy. VCs don’t have hard assets, they don’t have engineering talent, and they don’t have a product. Their entire value is really their investment thesis and their ability to execute on that thesis. So it’s a pretty bold move for them to open up all of that intellectual capital to the world.
But as Brad noted, he believes that opening up the conversation actually puts them at an advantage.
I’d love to see more companies be as open as USV, and to begin having open conversations with their employees, vendors, partners and customers. Personally, I’m constantly having conversations with my colleagues and with the market about the things I’m working on. These conversations help me get better at what I do. Part of the reason I write on this blog is to help me think things through.
What USV has done is scale their conversations and their ability to get better at what they do enormously. Instead of just having conversations with their colleagues that sit across the hall, they're having conversations with (potentially) anyone in the world. That kind of scale has to put them at an advantage over other VCs.
The obvious concern with this approach is that opening up the conversation about your work and what your company does will give away sensitive, proprietary information that would put the company at a disadvantage against the competition.
But I think there are two critical insights here that strongly counter that concern.
- With very, very few exceptions, companies don’t have some secret and final solution that will drive their success. As Brad notes, most growth and success comes incrementally as a result of perpetual interaction with the market. The thesis is never final, it is always evolving. This is true of nearly every company.
- Just because you can view and participate in the conversation that a company is having doesn't mean you can recreate what that company is doing. When I write about a new approach I'm taking, by the time someone reads it, internalizes it, and acts on it, I've already moved on and improved on that approach. In addition, my approach is probably wrong for you anyway. You're in a different situation, have different resources, have different connections, have different opportunities and different constraints. It's useful for us to have a conversation, it will help us both. But it doesn't put either of us at risk.
So with very, very few exceptions, I think more companies should begin to open up their internal conversations, challenges and ideas to the public. In the book The Wisdom Of the Crowds, James Surowiecki talks about the fact that across multiple applications (business, military, psychology) large groups of average people are much smarter than any small group of elite thinkers. I think it's a mistake for companies to think through their challenges in private. A company's likelihood of success is much greater if they open up their challenges to the 6 billion people outside of their walls -- in addition to the small group of individuals inside them.
Put simply, in most cases, the long-term benefits of open conversations are far greater than any potential short-term risk.
If you have a job, especially if you have a good job, that pays a decent wage, the odds are that it's only a matter of time before your employer outsources, automates, or finds a way to do the work that you do more cheaply. And when they do, you're either going to take a pay cut or you're going to be out of work. The days of working in the same job for 30 years, getting a nice watch every decade, and a retirement party at the end are long over.
In a global economy, mediocrity is unsustainable. Companies must constantly be getting better -- faster, smarter, more profitable. Successful companies are perpetually searching for ways to cut costs and add efficiency, and that includes getting rid of expensive humans.
Given this, to survive in this world, most of us have two options:
The first option is to fight it. Stay below the radar and try to fit in. Make friends with your boss and delay the inevitable. Don't make a raucous, don't try to scale things. Stay quiet and stay out of the way. This is not a bad short term strategy. It will likely work for some amount of time. But in the long-term, the forces of profitability and efficiency are going to catch up with you and your average performance will be out the door.
The other option -- the much, much better option -- is to embrace this reality. Instead of fighting it, actually help your company outsource, automate or cheapen the things that you do. You should help make your job more scalable. There's nobody in a better position to identify which tasks can be done more cheaply and which tasks can't. Help your company identify those things that can be done more cost effectively and come up with ideas on how they can be done more efficiently and advocate for it. You don't want to be doing that kind of work anyway. You want to be doing the hard stuff that adds value. And this will allow you to spend more time on the stuff that your company needs.
And after you’ve scaled your current work, do it again. Keep cannibalizing your own job.
Of course, depending on the complexity of your job, it could take a long time to cannibalize yourself. In some cases it could take years.
Also, note that once you cannibalize yourself, you don't have to leave your company. Just the opposite. You should be thriving at your company and getting promoted, or at least spending more time on more valuable work (which you should be compensated for).
So in your job today, keep producing -- writing great code, building great products, closing big deals, etc., but while you’re at it make sure you’re aggressively looking for ways to scale -- before somebody else does.
The other day I wrote about the unbundling of web services. That's where an aggregator comes along and adds value by pulling lots of different services into one place -- Craigslist and Facebook are good examples. As these companies become successful, competitors come in and bite off little pieces of their service and build slick apps that do one thing really, really well. StubHub and AirBnB are good examples of apps that are 'unbundling' Craigslist.
With this in mind, I came across this chart noting that later this year mobile internet usage is going to exceed desktop usage.
As mobile usage overtakes desktop usage, specialized apps that do one thing really well are going to be more and more important.
As we know, the challenge with a mobile app is that they're very limited in what they can do. You can't do as much on an app as you can do on the desktop. So as mobile becomes a bigger part of our lives I think we'll see more and more of this unbundling.
But I think we'll also see more and more bundling of retailers and merchants. That is, we're not going to download multiple grocery store apps or multiple clothing store apps or multiple travel apps.
Using myself as an example, I travel a lot. I book with 5 different airlines and probably 6 different hotel chains. As we move towards more and more mobile usage, am I going to download 11 apps? Of course not – I’m going to download one -- Expedia.
The interesting paradox with mobile is that while it will certainly continue to force innovation and specialized, "unbundled" web services, it will also drive lots of "bundled" retailer and merchant applications. Consumers will increasingly demand (and need) less and less clutter on their screens.
In short, the apps that will win the fight for real estate on our home screens will be those that serve a very narrow function very effectively (buying a plane ticket) while at the same time offering the broadest variety of options (tickets from every carrier).
Benedict Evans has a phenomenal post up on his blog where he discusses the future of LinkedIn. Go read it, it’s excellent. In it he talks about the law of bundling and subsequent unbundling of web services. He uses Andrew Parker's brilliant image below to illustrate the point.
Craigslist came along and bundled everything into one place and, as a result, completely dominated. They destroyed multiple businesses in the process (including the rental and roommate web service I worked with just after college). They were immensely successful.
But now we're seeing the unbundling of Craigslist. Small players are coming in and biting off small pieces of their business and providing superior value. AirBnB does room rentals better than Craigslist, StubHub is a better ticket reselling service, LegalZoom is a better place to find legal services, etc.
Craigslist detractors believe that this will be death by 1,000 cuts.
Craigslist isn't alone. This is exactly what Facebook has been going through over the last several years: Twitter is attacking the status update, Foursquare is attacking the location feature, Instagram is attacking photo sharing (so much so that Facebook was forced to buy them), Vimeo is attacking video sharing, etc.
Of course, while unbundling is bad for the bundler, it’s great for the consumer. Consumers get more value, more features and easier to use web services.
When I saw the Craigslist image I couldn't help but think of the large EMR (Electronic Medical Record) companies -- Epic Systems, Cerner, Athena, Allscripts, etc. These companies have provided immense value by bundling and integrating a massive amount of clinical data with a nearly endless variety of healthcare related software services. They manage ambulatory clinical data, inpatient clinical data, practice management, patient communication, prescription filling, patient scheduling, billing, meaningful use compliance, population health, specialist referrals, patient engagement, risk management and many other things under the same platform. And just like Craigslist and Facebook, they've benefited hugely as a result.
But you can begin to see some cracks in their armor. As clinical data moves to the cloud, more and more startups are coming along and biting off small pieces of the EMR business and providing better value. This is the beginning of the unbundling of the big EMRs.
That said, what's easy to do in b2c software isn't so easy in b2b software. There are significant switching costs associated with switching health IT vendors and most hospitals and health systems are very risk averse and will take their time adopting new technologies (it's much easier for an individual to buy a ticket on StubHub than it is for a hospital to buy a new patient portal).
But with the dollars that are flowing into healthcare focused venture capital and the excitement around those investments, it’s only a matter of time before we see this unbundling accelerate and see more value flowing to providers and patients. And that's a good thing for our healthcare system.
Last week I came across this article titled, Balancing AMC Mission, in the New England Journal of Medicine. The article talks about how Massachusetts hospitals – specifically Mass General and Brigham & Women’s – have reduced costs in response to Massachusetts' healthcare reform bill passed back in 2006. As part of the reform, these hospitals participated in risk-based based contracts with commercial payers and Medicaid and Medicare. The contracts, covering 400,000 lives, have them share risk for medical expenses for patients who see primary care physicians (PCPs) in their network. If the cost of caring for the patients that see a PCP in their network exceeds that of a comparison group, they pay a penalty; if it’s lower than the comparison group, they share in the savings.
A lot of people have compared this approach – commonly known as an ACO (Accountable Care Organization) -- to the HMO failure of the 1990’s. The authors in the article point out a few reasons why this time it’s different that I thought were worth posting here:
- While the focus of the approach is on coordinating care through a PCP, specialists are much more involved in the coordination this time through automated referral management, virtual visits from specialists, team based care and home monitoring. As an example, they’re reducing costs for diabetes care by automating referrals to diabetes counselors and they’ve identified opportunities to do phone consultations with specialists, as opposed to face to face visits.
- They’ve added 71 “high-risk care managers”. These managers work closely with the PCP in coordinating the care for 200 high-risk patients. The additional investment in this population is a huge step forward. As we know, the 80/20 rule applies to healthcare – 20% of patients drive 80% of costs.
- They’ve consolidated all of their clinical and administrative systems into one electronic system – allowing for better, more efficient care coordination.
- Risk is now shared across their hospitals and their physicians group as opposed to centering risk and responsibility on the PCP.
These are significant differences that have resulted in some early signs of cost reduction. It’s refreshing to see super successful, massive hospitals getting on board and innovating as we move towards a system that manages health instead of manages sickness.
Last week Jessica Stillman, a freelance writer for the Yesware Blog, contacted me to do an interview on the topic of CRM compliance. See the full interview here. One of the fundamental challenges with CRM compliance is that sales reps often don't understand why managers need them to do lots of data entry because they don’t know what managers are actually doing with the data. The main point I made in the interview was that managers should be much more transparent on this. Not only should they show their reps how they use the data to manage their business and make good decisions and communicate what’s happening on the ground up to the board and executive team, managers should take it a step further. They should actually allow their reps present directly to the executives and/or board using reports that pull their own individual data from the CRM system.
I found that doing this is extremely empowering to reps and dramatically reduces the friction that comes from low CRM compliance. If you find this topic interesting, I recommend checking out the full post.
Related to Mondays post on core competences, it's worth mentioning that there are instances where deviating from your core competency can be a good idea. In fact, some businesses are able to leverage their initial core competency to enter entirely new businesses. And in some cases those businesses have become the major driver of profits. One example of this was General Motors. Everybody knows that General Motors' core competency was making and marketing automobiles. What many people don't know is that back in the early 2000s, most of their profit was generated by their financing arm, GMAC. So in reality, their core competency wasn't making cars, it was lending people money to buy cars. GMAC was eventually spun off; likely to allow GM to put their focus back on making and marketing cars, and because the car business was dragging down the value of the financing business.
Lots of other businesses find that financing can be more profitable than their core business. Every time I go to a clothing store like Banana Republic they practically beg me to sign up for their store credit card. They're willing to give consumers huge discounts on their clothes (their core product) just to get them to sign up for their credit card. Sure, they probably have found that their credit card carrying customers are more loyal and buy more clothing when they shop, but I guarantee a large portion (in some cases, a majority) of these stores' profits comes from their credit card businesses.
Another example of an industry that has deviated from its core competency is higher education. Large schools like Harvard have found that they make a lot more money managing their endowments than they do selling tuition. Depending on the year, Harvard’s endowment has made 5, 10 or even 20 times more than they've made in total annual tuition. Further, in 2004, Harvard’s top five endowment managers made $78 million in annual compensation – that's 100 times more than the school's president made in the same year.
So, arguably, Harvard's core competency – and frankly, core business – isn't delivering a great education, its real core competency is managing its assets.
Of course there's nothing wrong with using your core competency to create a second, more profitable business. It reduces business risk and contributes to growth. Shareholders love it. But it can reduce focus.
As I wrote on Monday, trying to be good at too many things is dangerous. And when you get too big, putting your focus in too many places puts the thing that you do really well at risk. And losing focus on that thing is even scarier when that thing is propping up an even more profitable business.
I've been thinking a lot recently about companies and their core competencies. The idea that a company with a few employees and only a little bit of capital that focuses on only one thing can do that thing more effectively than a billion dollar company with tens of thousands of employees is hard for many people to comprehend. Bijan Sabet wrote about this a while back when he pointed out that so many of the embedded iOS apps have been replaced by applications from tiny startups. From his post:
The default notes app has been replaced by Simplenote
The default messenger app has been replaced by Kik
The default calendar app has been replaced by Calvetica
The default music app has been replaced by exfm, soundcloud and rdio
The default mail client has been replaced by Sparrow
Granted, Apple wasn't necessarily competing aggressively in all of these areas. But the reality remains that a small group of people that focuses on one thing will always outperform a large group that focuses on lots of things.
With some of this in mind, I came across a blog post by Paul Levy last week on the increasing trend of large health systems getting into the payer space. Due to the growing pressure on reimbursement rates and the increasing prevalence of population health, it only makes sense for health systems to be inclined to cut out a middleman (the private insurers) and become more horizontally integrated. Health systems are finding that they can organize and work directly with large pools of patients (employers, trade groups, unions, etc.) and, potentially, insure and care for them more cost effectively.
While on the surface this may seem like a great idea, Levy points out in his post that many large hospitals have enough problems improving their existing businesses in this complex and rapidly changing healthcare environment:
Here's what I think, based on unscientific site visits, surveys, and discussions with hospital leaders. The vast majority of hospitals--and especially academic medical centers--have barely begun to crack the operational problems that exist in their facilities. The quality and safety of patient care are substandard, compared to what they might be and what has been demonstrated in comparable facilities. The degree of patient-centeredness, likewise, needs major work. Finally, the engagement of front-line staff in process improvement efforts is scattered.
Despite this, 1 in 5 health systems intend to become payers by 2018. And this is where the notion of core competency comes in. Given the massive transition that healthcare is going through -- from managing sickness to managing health -- might some health systems be wise to focus on improving and creating a competitive advantage on what they already do well? As opposed to entering a complicated and risky new industry (health insurance company profit margins generally hover around a very low 4% and the industry is subject to paralyzing state and federal regulation).
Just like Apple has wisely decided to focus their best energy on building great tablets and smartphones and to allow someone else to build great mail and calendar apps (on top of their platform), it might make sense for health systems to continue to focus on improving the quality and efficiency of care and cutting the costs of their existing operations, and to let someone else be great at the underwriting and actuarial work.
Last week Penelope Trunk had a good post on 5 things she was wrong about. I've found over and over again that people that are alright with being wrong are far more successful (and pleasant to work with) than people that have to be right. People that can be wrong have the right mix of confidence and humility -- two of my favorite qualities in a colleague. I recommend reading Penelope's full post, but in the excerpt below she captures why being able to be wrong makes people more successful. I liked it so much that I thought I'd post it here.
The real reason I don’t mind being wrong is that you can’t ever be right in a way that matters if you’re never wrong. Think about it: if you are right on something where everyone knows you’re right then it doesn’t matter that you’re right. If you are right about something where people think it’s surprising, then you take a risk of being wrong but you also open yourself up to the joy of surprising yourself with your own insight. It’s a risk high performers are willing to take.