Some Thoughts On Non-Competes

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.

Productivity Hacks

I've added some productivity hacks over the last several months. Here are 5 that have been working well for me lately:

1. File, Do, Defer. I've started using the "file, do, defer" system. I look at a task (in Wunderlist, a great to-do list manager) or an email in my inbox and decide if it needs action or not.  If it doesn’t need action I either delegate it or file it. If it does need action and takes less than 3 minutes, I do it. If it will take more than 3 minutes I’ll defer to a time when I have more bandwidth and focus. To keep me focused on the 3 minute rule I’ve begun using the Pomodoro app for Mac that tracks the time I spend on a task.  This isn’t to make me rush through the task it’s to make sure I stay focused on it and get it done quickly and don’t get distracted.
2. Working Offline. I’ve been doing this for years and can’t recommend it enough. I put my email in offline mode, close Slack and focus on initiating rather than responding.
3. Virtual Assistant. I’ve hired a virtual assistant for personal tasks. There are lots of great services out there but I use FancyHands which has been great. My virtual assistant does everything for me that I don't want to do -- they have have coordinated my move, found me a couch, helped plan a vacation, changed my cable service, researched health insurance plans and booked a New Year's Eve dinner reservation. I’m constantly scanning my to do list and looking for low-value tasks that I can outsource. It's low cost and a massive time saver.
4. Soylent. I’ve begun drinking Soylent, a meal replacement drink that supposedly contains every nutrient needed by the human body. It’s fantastic. It allows me to have breakfast on the go and sometimes lunch on the go so I can maintain energy with zero time commitment. It’s incredibly helpful on hectic days.
5. Make projects seem small. We all have those projects or tasks that need to get done but seem hard and time consuming and stressful and keep getting put off. I read about a productivity trick in the book Getting Things Done to help deal with this problem. The trick is that you think about the thing you need to do that you keep putting off and on the bottom of a piece of paper you write down the outcome that you want with regard to the project  -- e.g. what is success? Then break it up until small tasks and write those as a list on the rest of the page. Going through the process of breaking the project into small tasks makes it seem so much easier and actually gets you somewhat excited to go do it.

Hope some of these are helpful.

5 Questions To Ask Yourself Before Joining A Startup

I had a good conversation the other day with a former colleague who’s considering making a move to very early-stage startup. I shared with him the list of questions I ask myself before I make a commitment to working with a startup and thought I’d share them here as well.

A quick disclaimer: startups are inherently risky and these five questions aren’t designed to help you avoid a high level of risk. That’s not the point. These questions are designed to help ensure that you understand the risk and make you a bit more comfortable that you’re making a good decision.

Here they are:

1. Do you have confidence in the people, particularly the leadership team? There’s a great quote from Peter Drucker that I can’t seem to find where he points out that, when a company finally succeeds, more often than not, it will find that it will end up selling a different product at a different price to a totally different set of customers than it initially had planned. The point is that the startup doesn’t have to have the perfect idea or the perfect product to be successful. What they have now probably isn’t right. And that’s ok. What’s important is that you’re working with an ultra-talented team that can iterate and execute like crazy. I’ve written before that the most critical traits for people working in startups are grit, humility, curiosity and adaptability. If you find that the team you’re working with has these traits you’re off to a good start.
2. Has the founder(s) earned the right to know a secret? If what this startup is doing is so valuable, why isn’t someone else doing it? More often than not the reason is that the founder knows something that other people don’t. Or at least knows how to execute in a way that others don’t. It’s important to be able to understand the secret that the startup knows and to understand why they know it and others don't.
3. Can the investors/board articulate how the business could be massive and why it’s defensible? Prior to making a jump, when possible, it’s important to talk with some of the investors and board members. This is a good way to test their engagement and confidence in the company and alignment with leadership. Really push them on why they invested. Ask them what they think the core of the business will be and what they think will come after the core. If they can’t confidently articulate this in a way that makes sense it’s a clear red flag.
4. Can you see yourself being truly passionate about the work you'll be doing? Startups are tough. You’re fighting an uphill battle most of the time and there are lots of highs and even more lows (at least at the beginning). If it's easy then it's not valuable. I’ve found that dealing with the pain of working at a startup is a lot easier when I truly believe and care about the mission of the company. If you don't care about the impact you'll have beyond your own personal benefit then you'll find that the tough days are a lot tougher.
5. What are 3 reasons it could fail? Again, most startups are long shots. And it’s important to be humble enough to know that you can fail. If you can’t articulate 3 reasons that it could fail, then you either don’t understand the business well enough or you aren’t taking the risk very seriously. Do your diligence such that you understand as many risks as possible and the reasons it might not work out. If after truly understanding the risks and potential pitfalls ahead you really feel like you still want to make the move then you've probably found a good fit.

The Convergence Of Private & Public Valuations Is Good For Employees

There’s been a lot of talk in the tech blogosphere over the last couple of weeks about the convergence of private and public valuations. One of the things that hasn’t been talked about all that much is how important this convergence is for employees at early-stage companies. I was talking to a founder recently and he was telling me that he really struggles with the tradeoff between the importance of showing the world that his company has a unicorn-like valuation versus the importance of keeping his valuation low so that new employees can see lots of value in a follow-on round or an IPO.

On one hand, being a unicorn gets you lots of good press and attention and is for good sales and good for recruiting. On the other hand, a huge valuation makes it hard to deliver value to employees in the form of stock options — if you’re already a unicorn, it’s likely that future employees have missed the big uptick and equity becomes a lot less valuable from a compensation perspective. When you have a potential bubble in the private market and normalcy in the public market, lots of employees are going to find their options are deep underwater. Castlight Health learned this the hard way following their IPO last year (see image below).

Because of the emergence of crowdfunding, angel syndicates, private exchanges, and a lower regulatory bar to invest in early-stage startups, it’s likely that we’ll start to see much more consistency between private valuations and subsequent public valuations. Also, don’t underestimate tools like eShares that help founders manage complex cap tables. I can vividly remember being at a startup where we didn’t want to give out stock options to consultants for no other reason than it would’ve added too much complexity to our cap table. It's a lot easier for a private company to manage thousands of investors than it used to be.

A founder’s desire to push for a massive valuation is perfectly understandable. It creates a buzz that helps recruit employees and close big deals. But when founders push too hard for a private valuation that won't hold up when employees find liquidity, it's bad for the team that built the company in the early years. It's great to see private and public valuations beginning to converge.

Managing The Enterprise Deal (Panel Notes)

Earlier this year I participated in a panel for the NYC Enterprise Sales Meetup. The topic of the panel was Managing the Enterprise Deal. It was a great discussion and I thank Mike and Mark for inviting me to participate. Prior to the panel, the moderator provided us with a list of questions that we should be prepared for. In preparation for the discussion I wrote down some rough answers to each of the questions and I thought I'd post my notes here. It's great to see that Enterprise Sales Meetup has expanded to other cities over the last few months. I highly recommend attending one if they're in your area.

Questions:

How many deals do you think a high level business to business professional can manage?

This depends on the salesperson's goal and the average deal size. Generally, salespeople should have a pipeline that is 3x their goal. So if your goal is $1MM and your average deal size is $250k, then you need to be working 12 deals.

What are the best tactics you find to manage a pipeline effectively?

To me it comes down to good stages and good tipping points. I recommend using 4 or 5 stages of a deal, and then for each stage assign actions or things you need to get done before you can move them to the next stage (tipping points). This ensures that there's consistency across deals and ensures the salesperson isn't kidding themselves when they say they have 3 deals 'in contract'. The stages I use are generally something like, Lead, Decision Maker Engaged, Project Design, In Contract, Closed Won. The tipping points for each stage depend on what you're selling, but it could be things like contract sent, legal work completed, technical review completed, etc.

Do you believe in mapping out a process for your company to manage deals?

Absolutely. You need consistency across stages and tipping points. And you need a funnel so you can determine where you're getting stuck.

How do you qualify deals?

Typically I would come up with 3 or 4 elements that I'm looking for from a prospect. Size, revenue, technical setup, management structure, etc. Over time you can iterate on these as you discover what makes a good prospect that leads to good revenue.

How do you find your deal sponsor?

You have to nail down the one or two business metrics that your product impacts and then find the people who are responsible for those metrics.  If X metric goes up at the company you're selling to, who is going to get a bonus at that company? That's the person that should drive the deal for you.

Who else do you need besides a sponsor, what other personas do you see?

Project Managers. You want to push for a strong Project Manager that is totally sold on your product and can get it launched and can help you get the deal done. After the executives are sold, so much of enterprise sales is about simple project management and driving the deal through the prospect's buying process. It's really hard for big company's to buy things. You need a partner at the company that can help you get it done.

How do you build a relationship with your sponsor?

One thing is frequency of communication. I always try to set up a weekly check-in. Those consistent check-ins force you to get to know one another. The other thing is I try to make their job really easy. Keep communications really short and simple and show them how to buy your product. Map out their own buying process and track them on it.

How do you determine the buying cycle and process?

You try to identify trends across organizations on how they buy. Who needs to be involved? Who needs to approve? What kinds of meetings need to happen to get to that approval? And then you start to map out the ideal buying process that works for you. If you don't have one, make one up based on what you do know. And map to that.

How do you map out the decision-making team?

Again, another useful way of mapping out a decision-making team is to show one from another client and get them to react to it. Make sure you show legal, technical, compliance, procurement, business people, etc. so nothing gets missed.

How prevalent do you think consensus decision-making is?

It's huge. I've never seen a large company buy without consensus. You have to tell everyone that is involved in the decision-making process your story. Everyone has to support the concept.

How do you use or overcome the startup stigma?

Use it as an advantage. By definition you're disrupting the old way of doing things.. You're doing something much bigger. Inspire them. I find most people want to get better and recognize that the status quo isn't working. Tap into that. Challenge them. The way they are doing things now is not acceptable anymore. Get them to see that and get them on your side. The size and stage of your company is irrelevant compared to the problem you're solving.

How do you establish an ROI, is it even that important?

It's important, but it's often not as important as you think. I think most businesses buy primarily for emotional reasons, rather than rational reasons (prospects buy with their heart and justify it with their mind). So when you come up with your story, it's important that you focus on how your story makes people feel. Most buyers aren't going to believe your ROI anyway.  It's about emotion. And most big companies aren't as metrics driven as salespeople would like them to be. Your focus should be on getting the team you're selling to a bonus at the end of the year. And you need to understand what are the levers that will drive that bonus.

If you have a brand new offering how do you overcome the need for an ROI? 

The easy answer is a pilot. But the bigger answer is that you have to sell them on your vision and the thing you're trying to disrupt. They have to believe in you, in your company, in your priorities and in your team. That's the hard part. Then you can provide them with a rough ROI that gets them comfortable they're going to make their money back. Use the "what you would have to believe" approach where they only have to believe that you will move the numbers a small amount and they'll still make their money back. Be conservative.

How do you add value in your interactions dealing with other executives?

I like to use what I refer to as "insight selling". Be interesting. Your pitch should be exciting and provocative and short. Like Peter Thiel says, "say things that others aren't". Be exciting. But also use the approach of not "always be closing" but "always be leaving". Have one foot out the door. Look to disqualify opportunities. The prospect is looking to disqualify you and you should do the same thing. You're both trying to figure out if there's an opportunity to help one another. You're total equals in that sense. Act like it. Also, I try to drip prospects quarterly with tidbits of information that might be interesting to them with absolutely no ask.  You're not allowed to ask for something in these drips.  It could be an article, an insight you picked up from another prospect, etc. Stay on the radar but do not ask for anything. You need to preserve that level of trust and the power dynamic you've built.

A List Of Health Tech Startups

For a while now I've been keeping a running list of the health technology startups I come across sorted by the category they compete in. There are about 100 companies on the list.  I've moved the list over to an open Hackpad that you can find here. Hopefully this list will help people better understand what's happening in the industry, research competitors and even discover new investment and job opportunities.

I've left the Hackpad open so that anyone can add a company or category. Please add any that I've missed (I'm sure there are a lot).

As we move to the "Post-EHR" world where innovation is led by patient and provider needs as opposed to government mandates, I'm sure we'll see even more startups and categories emerge -- so I expect this list to get a lot longer.

Some Summer Reading - 2015

As this amazing summer comes to an end, I thought I'd capture some quick thoughts on some of the books I read over the past few months. I tried to read more history books than business books this year and I found a couple pretty good ones. The list is in no particular order and you can find last summer's post here.

The Wright Brothers by David McCullough.

A phenomenal book about two of America's most accomplished entrepreneurs. It was incredibly eye-opening to read how hard it was for them to build their product and, once they had a successful prototype, how hard it was to actually sell it. It's not clear which part was more difficult. Like most radical innovations, the masses thought their ideas were crazy. Their first planes were sold to clients in Europe because they couldn't find any buyers in the U.S. that were interested in the product. I'm a big fan of McCullough and this is one of his best.

The 4-Hour Workweek by Tim Ferris.

I'm surprised it took me so long to get around to reading this one. This book is full of productivity tips and a really compelling perspective on how to get more from your energy. From only checking your email to once a day to outsourcing most of your personal life, a lot of the tactics he uses aren't for everyone. But his perspective is great and there are a few good tips in here that will work for everyone.

King of Capital by John E. Morris.

This is the biography of Stephen Schwarzman, the founder of the Blackstone Group -- the massive private equity group. This is one of the best books I've read in a long time. The private equity business has always fascinated me and this is a deep dive into how it works and how the best of the best were able to sell it as an asset class. Buying a public company by borrowing money where the only collateral on the loan is the company that's being bought is mind-boggling to me. And this is great deep dive into the personalities of the founders and early employees that gives great insight on how they got these deals done. A great read for deal makers.

Money Master the Game by Tony Robbins.

A colleague recommended this book to me and, given all that has been written about personal finance, I was shocked that I found this book so informative. Lots of solid and practical advice. Robbins spends a ton of time on mutual fund management fees and makes the case that everyone needs to immediately check the management fees that they're paying on their retirement accounts. He points out that they're a total waste of money because less than 1% of managed mutual funds will beat the S&P over a 10 year period. You must move your retirement to an index fund with lower management fees. Over time, these fees will have a compounding negative impact on our portfolio and can cost you literally millions of dollars. Most of us know a lot of the stuff in here but definitely worth reading if you need to brush up on personal finance.

The Johnstown Flood by David McCullough. This book details the tragedy that occurred after a dam that was holding water in a lake at the top of a small mountain broke and poured water into the small valley town of Johnstown, Pennsylvania. The water that poured into the small valley was the equivalent of the amount of water that flows down Niagra Falls for 36 minutes. An incredible tragedy. The writing is great but the story drags a bit and I wish he gave a bit more perspective on the larger impact of the flood.

Dead Wake by Erik Larson.

Dead Wake is the story of the Lusitiania, the sister ship to the Titanic that was sunk by a torpedo fired by a German submarine as it traveled from New York to England. Many believe that this was the key event that brought the United States into World War I. This was hands down the best book I read this summer. It gives incredible detail on some of the individuals involved, including American, German and English political leadership and the captains of both the Lusitania and the submarine that fired the torpedo. It also gives great historical context on what was happening around the world at the time. Like most great non-fiction, this one feels like you're reading fiction for most of the time. Highly recommended.

Ready, Fire, Aim by Michael Masterson. This is a book written by a self-made billionaire that details some of the basic lessons needed to build or grow a business. His message is basically that sales and marketing are the only things that matter at the beginning and gives tips on how to get started. There isn't a ton in here that's terribly new but for entrepreneurs or business-people that aren't used to engaging in sales and marketing activities it might be worth skimming.

The Next Big Thing In Healthcare Technology Will Start Out Looking Really Small

Fred Wilson had a great post last week titled, Bootstrap Your Network With A High Value Use Case. He points out how Waze's initial value proposition was to help drivers that like to speed identify speed traps. But it of course quickly expanded way beyond that and now provides lots more value to lots more drivers. It has become mainstream. Same thing with Snapchat -- it started out as a "sexting" app and has now expanded to more applications and is used by the mainstream. This is sometimes called the "bowling ball strategy" in new product development where you focus on knocking down the first pin by being very focused on one segment and one application and then you gradually knock down more pins (segments & applications) over time until your product works for the mainstream. The idea is to find a narrow niche that loves what you're doing, refine the product and expand from there.

Related to healthcare, this blog has talked a lot about centralizing patient data with the patient, as opposed to multiple medical records across multiple healthcare providers. Most would agree we need to get to this place but the path to getting there isn't terribly clear. Patients aren't clamoring for it yet and there will likely be some resistance from software vendors and healthcare providers as it flies in the face of the strategy of owning the data and, by extension, the patient.

My guess is the way that we're going to get there is similar to the way that Waze built a massive maps business and Snapchat built a massive photo sharing business -- it's going to start with a small niche.

I can see an application that has built a network of highly engaged users with a very specific and highly sensitive medical condition that shares important clinical information back and forth between provider and patient becoming the starting point for consumer-driven patient data. Big software vendors will likely ignore this application because it impacts a small niche and the patients will be highly engaged because their affliction is such an important part of their lives. Once the product is refined it can be extended to other patient segments with other medical conditions and it'll grow from there.

As Chris Dixon likes to say, "the next big thing will start out looking like a toy".

In this case, the next big thing in healthcare technology will start out looking really small: a simple tool that serves a very small, but highly engaged set of patients.

How Much Should A Startup Charge Its Early Customers?

Last week I had a conversation with a founder about how much they should charge their first few customers. Cost plus a fee? Slightly below the incumbent? The same as the incumbent? Some fraction of the estimated ROI? My answer to this question is pretty simple: charge as much as you can get, charge whatever the market will bear.

At an early stage, a founder's time and focus is the firm's number one asset. Any compromises made in getting less than the absolute maximum amount that a client will pay creates an unrecoverable opportunity cost. Early-stage companies can't afford to not charge what the market will bear.

Pushing for the max more has other benefits. It helps to determine the product's real worth and the real challenges the client is having in buying the product. When pricing makes buying too easy you don't get a good sense of the challenges you'll encounter down the road, you don't get the real story. It also generates a level of respect from the client (we've all heard the stories of people appreciating things more because they cost more regardless of the true value).

Finally, often a startup's instinct will be to charge less because it'll move the deal along faster. This is a myth. The opposite is true. The larger the deal the more attention it will get, the more senior people will need to be involved and it'll move faster as a result.

This post isn't meant to say that you shouldn't negotiate, do a pilot and be flexible where and when it makes sense. You should do all of that. But in lieu of a defined market price, charge a simple one -- the absolute most that you can get.

The Interface Layer & The New Economy

I've been thinking a lot about this notion of the "interface layer" in web services and how it's changing the economy and the way money flows. The concept of the "interface layer" is pretty simple. It says that the old economy was about building tangible infrastructure -- cars, buildings, stores, etc. And the new economy is about building really slick and beautiful and easy to use web services (interfaces) on top of that infrastructure;AirBnB for lodging, Uber for ride sharing, OpenTable for restaurants, Expedia for planes, etc. These companies don't own buildings, cars, restaurants or planes, but they make a lot of money by allowing consumers to easily access these things. It's no longer about building infrastructure, it's now about building beautiful, slick, mobile, easy to use 'layers'.

One of the big complaints about these layers (or interfaces) is that many believe that they commodotize the underlying asset. Uber users don't really care which cab company the driver is a part of, they just want the cheapest ride that gets them from point A to point B. This detachment from the brand drives down the cost of the ride and drives down the income that goes to the driver. Uber is commodotizing drivers. And drivers need to think really hard about how they're going to separate themselves from the pack if they want to continue to charge a premium.

Uber's layer is winning the taxi space.

But with the increasing use of mobile and the decreasing use of the desktop web, mobile is quickly becoming a platform on its own. And soon, instead of Uber being the 'commoditizer', Apple's iPhone or Google's Android could easily commodotize Uber.

Let me explain. Today, if I want a ride somewhere I go to Uber or Lyft or Sidecar or some other app to book a ride. This is a bit clunky in that it's hard to know which of the services has the best option for me based on the time of day and where I want to go.  I have to download all of the ride sharing apps and scroll through them to find the best deal.

Of course I'm not the only one that's annoyed by this. Very soon (if not already) we can expect that there will be services that will aggregate all of the top ride sharing apps into one so I can pick the best option for me (just like Kayak does for plane tickets).

This would be really bad for Uber. Now they're the one getting commoditized. 

But when mobile is a platform, it gets much worse.

Apple and Google could easily add their own layer on top of these aggregation layers. At some point soon, instead of going to the Uber or Lyft app, I could just open up Siri and say, "give me a ride to SoHo". And Apple will scan all of the ride sharing apps or ride sharing aggregators (even if I haven't downloaded them from the App Store) and deliver the best result. This is absolutely what Siri wants to become -- the entry point to the web.

In an extreme example, I could tell Siri, "take me to my friend's apartment and let's stop somewhere to pick up a bottle of wine that pairs well with Italian food." Siri then decides which ride sharing app, which business directory app, and which wine app to use to bring me the best experience.

Apple could easily cut a deal with a ride sharing aggregator, Yelp and HelloVino (a wine discovery app) and take a fee from each of them. In this case, not only is the Uber driver getting commodotized, so is Uber and so is the ride sharing aggregator.

This is an important issue for any web based service to think about. The new economy might be less about the battle for the most beautiful interface and more about the service that can get closest to the user. And it's beginning to look like platforms rather than interfaces might win the war.

How Mobile Is Impacting Facebook & Healthcare Strategy

Many people used to believe that Facebook was an extremely defensible business and that it would be almost impossible for another social network to compete. It has grown to an enormous scale with massive troves of data and more than 1.5 billion monthly users. The thinking around their defensibility was that because all of your friends and photos and updates are already stored on Facebook, it would be tedious and unnecessary to switch to another social network. Everything you need is there. Why go somewhere else?

Facebook did have quite a bit of defensibility back when the predominant access point to the service was the desktop web. Moving your data to a new social network was painful and impractical. But now that the main access point to social is our mobile phone (more than half of Facebook’s traffic comes through mobile) things have changed dramatically.

We now carry around all of the key elements of a social network on our cell phones. Our phones carry our location, our photos and our address book and allow us to message anyone at no cost from anywhere in the world. With the click of the touchscreen we can view and connect with all of our friends on a new social network and instantly recreate our social graph. We can take a photo and instantly send it to a multiple social networks. We can easily join different social networks with different groups of friends focused around different needs. The friction of leaving Facebook and joining a new network has disappeared. This wasn’t possible with the desktop web, or it was at least much more difficult.

As a result of the increasing use of mobile, we’ve seen lots of new social networks emerge (there are now dozens of social networking apps with 1 million+ downloads in Apple’s app store, including Kik, WhatsApp, Tumblr, Google+, Instagram, Snapchat and many others).

This increased use of mobile has reduced the friction of launching a new social network to near zero and as a result has shifted ownership of data away from the network and back to the individual. Trying to own the data and lock-in the consumer is no longer a viable strategy.

Facebook is well aware of this and has adjusted by rapidly buying up many of these new networks. We’ll likely see more acquisitions like these in the months to come.

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Over the last several years, large healthcare provider organizations and healthcare software vendors have been employing a similar strategy to that of Facebook. Health systems have been growing by buying up ambulatory, community-based sites and employing doctors to build out giant systems that can offer clinical services across the entire continuum of care giving the patient no reason to go anywhere else. In parallel, providers and software vendors have been creating a single patient record (including blood tests, physician notes, imaging and other data) that flows across the entire provider organization and can be easily shared with providers across the system. This avoids all of the classic frustration associated with having to fax your x-rays from one provider to another. Everything exists on the web in one single record. Providers then roll out a patient-facing portal that lays across the patient record where the patient can access all of their data (mostly through the desktop web).

The strategy is simple. Providers are telling the patient to 1.) stay with us because we do everything and you don’t need to go anywhere else and 2.) you can’t go anywhere else because we have all of your data.

But as we saw with Facebook, now that a consumer’s primary entry point to the web is their mobile phone, this strategy has some flaws.

Not only do our phones enable messaging and carry our location and address book and photos, they can also carry data on our movement, our sleep, our heart-rate, the prescriptions we’re taking, our body temperature and, with the use of implanted devices, much, much more. This real-time data that we carry on our phones is arguably more valuable than the data stored in our clinician’s patient record that only gets refreshed while we’re sitting in the examination room.

Increasingly, providers will own some patient data but the patient will own more data and better data.

Like Facebook, healthcare providers are trying lock in their customer by owning the data. But the increasing use of mobile has changed the game. Just like social network users can effortlessly syndicate their own data out to multiple social networks, a patient will be able to syndicate their real-time clinically relevant data out to multiple providers, regardless of which system they’re associated with.

Mobile has put patients in the driver’s seat.

Meanwhile, with the emergence of home care and tele-health and urgent care clinics and apps and implants that manage more serious and chronic conditions, in many ways healthcare has actually become more fragmented. The traditional providers may be consolidating, but new players are creating new channels for care and causing more fragmentation across the industry. Where and when and how care is delivered is being completely reshaped.

But unlike Facebook, large healthcare providers can’t buy their way out of this conundrum. First, because they don’t have enough cash (most are non-profits with microscopic profit margins) and second because healthcare is local. Health systems are no longer just competing with the hospital across the street, they’re competing with web services that are available to the global market.

As a result, large provider organizations are going to have to consider new ways of providing value and will have to select which segments of patients they want to serve.

In short, they can’t own the patient because they can’t own the data.

The idea of locking the patient into one network of providers was always a bit flimsy. But the strategy was somewhat understandable. A lot of this was driven by the trend towards value-based payments and the convenience of 'owning' a patient under that model.

But the lessons of Facebook are clear. Locking up the data is not a path to success.

Social networks and healthcare providers must focus on what they do best and focus on serving the consumer they want to serve and abandon their attempts to win by owning data that isn't theirs to own.

The Importance Of Relationships In Enterprise Sales

One of my favorite questions to ask when interviewing a potential sales hire is: “given your experience in sales, if you had to write a book about sales, and you wanted to sell a lot of copies, what would be the theme or the thesis or the title of the book, what insight would you bring?” Much to my dismay, the candidate will often sit back and say something like, “that one is easy, relationships, it’s all about relationships”.

This is a disappointing answer. And it also isn't true. I don’t think it is all about relationships. Especially when selling innovation. People buy from a seller because they think they believe it'll move their company forward or, more selfishly, they'll get a raise or a promotion or a bonus at the end of the year after they roll out the product. They don’t buy from a company because they like playing golf with the salesperson.

That said, for some products it's different. For some products, successful selling is driven by good relationships.

This got me thinking about which products are sold based on relationships and which aren't.

I think a lot of it is driven by the life-cycle stage of the product and the level of competition in the product's vertical.  For example, when Salesforce.com when out to sell their first cloud-based CRM product to its first group of customers, it wasn’t about building a relationship. It was about convincing early adopters to completely rethink the way they manage their customer data. It was about getting big companies that were stuck in their ways to make a massive mind-shift. You can't do that with a relationship. You do that with thought leadership and creating a vision and great communication. Of course, it probably didn't hurt if they built a nice relationship along the way but there’s no way that was what was driving their deals at that stage.

On the other hand, when Benjamin Moore sales reps sell paint to a commercial real estate developer, it probably is very much about the relationship. The products are more of less the same, so it comes down to price, and how much the buyer likes the seller.

This chart illustrates my point:

When a product is brand new and innovative, relationships matters less than when the product is mature and commoditized by lots of competition.

Of course, the line is probably not this linear. For the first 1 or 2 customers, relationships typically matter a lot (often these are friendlies) and the importance of relationships probably levels out at some stage of product maturity. But I don't want to over-think the simple point.

It’s worth salespeople taking some time to think about how they sell and whether or not the product they're selling is at the right stage for their skill-set.

You might not want a relationship salesperson selling structural innovation and you might not want a disruptive salesperson selling paint.

The Death Of Enterprise Sales

A few weeks ago I was chatting with a guy that specializes in something called "disruption consulting". Basically he goes into mature companies and works with their management teams to help them think through how they would disrupt their own business. This is a healthy exercise for large, successful organizations and something individuals ought to think about with regard to their own company and -- more importantly -- their own role in their own company. This got me thinking about enterprise SaaS sales and the theory that salespeople have become less of a necessity in this new world. As I've written in the past I actually think the opposite is true. Sales is growing, not shrinking, in importance. That said, here are some of the trends that I've seen out there that are giving the skeptics some ammunition:

1. Micro budgets. With the 'consumerization' of enterprise software, lots of companies are letting their employees directly buy and expense their own productivity tools circumventing the traditional buying process. 
2. Pay-per-use contracts. Traditionally enterprise salespeople have sold large buckets of access to their software -- e.g. Salesforce has negotiable pricing tiers based on the number of licenses purchased. Companies like Slack and others are getting away from this model and are pricing based on who actually uses the system. At the end of a month, they look at how many people logged-in and then send an invoice accordingly. This pushes the revenue responsibility pendulum far away from sales and much closer to product.
3. Freemium enterprise software. This is a model where software can be accessed for free by an individual employee and an enterprise deal gets triggered at some critical mass of employee usage (e.g. B2E2B).
4. Standardized contracts. More enterprise software companies are creating click-through agreements that can't be negotiated by the buyer. And there does seem to be a very slow but steady move towards more consistency across companies in what they want a contract to look like. Corporate attorneys will make this really difficult, but the idea does seem to be gaining momentum. 
5. Data in the cloud. The advent of the cloud has made the old-fashioned, big, CIO-based sale a bit less prominent. Cloud-based software programs require much less of an implementation burden and thus much less of the need to sell the bureaucratic IT department. That said, much of the work these teams do has moved towards integration into the cloud, which still requires a hefty sales process.

There's no doubt that the landscape in enterprise sales has changed. And all of these trends are worth watching. But what the skeptics miss is that this is nothing new. Buyers and sellers always been trying to minimize the cost of their transactions. These are just new variations of that process. It simply means that to stay relevant enterprise salespeople must continue to shift their energy towards larger, more complex deals and higher value sales activity.

When real estate listings became available to everyone on the web, real estate brokers didn't disappear (in fact, there are more of them now). They simply started focusing on higher value activity. Instead of their core asset being access to listings, their new asset is helping someone navigate the process of buying a home (over half of home buyers find their home online, but 90% still use a broker to make the purchase).

Similarly, when employees begin buying their own software, enterprise sales teams will just shift their activity towards more strategic, higher value deals. They'll focus on the things that can't be bought or implemented by a single employee.

In short, enterprise sales drives new and incremental growth. It's the hard stuff. The easy stuff gets automated. And diffusion of the greatest innovations and the highest value deals can't be automated.

Companies that aren't growing their enterprise sales teams are likely either very early-stage and don't have enough product to sell, or they're later stage and aren't trying hard enough.

Why Are Salespeople Paid On Performance?

Andreesen Horowtiz had a great podcast a few weeks ago on the topic of Getting Sales Right.  It was a conversation between Peter Levine, a GP at the firm, and Daniel Shapero, who helped build LinkedIn’s initial enterprise sales team. Levine asked a question about sales compensation, and why are salespeople paid mostly on commission where almost every other role is paid a flat salary. Surely companies care about getting the best out of every employee, why isn’t every employee paid mostly on commission?

Two interesting insights came out of this discussion.

1. Salespeople are unique in that they spend most of their time facing the outside world and are constantly being told ‘no’. They face rejection on behalf of their company all day long. To offset some of this pain, when they finally do get a yes and a big win, it’s something that should be celebrated; both in the form of compensation (commission) and public recognition. The commission helps keep salespeople motivated to go get the next one in the face of all that rejection.
2. There have been studies that suggest that when a person is paid largely on commission, they’ll tend to go after a win at all costs. They’ll look for shortcuts and take the quickest path to success. There are lots of roles where that “win” isn’t so easy to define and measure. Further, for some roles like product and engineering, shortcuts could cause longer term damage and stifle creativity and long term thinking.

For these reasons most of the sales teams I've seen are paid largely on commission. But the other side of this issue is the failure rate of sales versus other roles. In nearly all of the companies I’ve worked with, salespeople fail at a far higher rate than any other role. This also begs the question, why?

Are recruiters just really bad at hiring for sales roles and really good at hiring other roles? Of course not. In my view the reason for the discrepancy is that the performance of a salesperson is easy to measure. If a salesperson is failing, everyone knows it. If an engineer is failing it's not as easy to see. That's why you'll often see 30% variances in termination rates between these roles.

The best companies I've seen are aware of this and take this on as a challenge and expose these numbers and try fix the imbalance.  If the termination rate of a sales team is 40% and the termination rate of other roles is 5% then non-sales managers either aren’t measuring performance or they don’t have a high enough bar for success. Measuring success in non-sales roles is hard (that’s a topic for another day). But measuring the difference in the failure rate of a non-sales team versus a sales team is easy. And an important thing to expose. 

Disruption & Access

I came across thIs chart the other day on Twitter showing camera production from 1933 through 2014.

This chart is great because it perfectly illustrates the good and bad parts of disruption. Better, more portable cameras destroyed the incumbents (Polaroid, etc.). But at the same time these innovations massively increased access to and use of cameras (this is the point that most people miss). It's estimated that there were more photos taken in the year 2014 than there were in all of the years prior to 2014. That's incredible.

The fact is that while disruption can cause some short term pain it almost always results in a greater good for those in the industry. More people travel because of Expedia. More people go out to dinner because of Open Table. More people listen to music because of Spotify. More people get a ride because of Uber. And on and on.

This is perfectly analogous to what needs to happen in healthcare and education. We need the incumbent analogs to go away and the innovators to take over and give access to a lot more people at a much lower cost. We just need the regulators to get out of the way and allow it to happen.

Some Thoughts On Apple & Software For Cars

The tech world is buzzing about the rumor that Apple's plans to build a car. They bought Beats a while back because they needed talent that knows how to make things that people will wear (e.g. a watch). And now they're hiring talent from Tesla that knows how to build cars and software for cars. Benedict Evans had a great post on this topic on Saturday where he offered lots of ideas on the risks and benefits of such a venture. Please go read it if you're interested in this kind of stuff.

I wanted to point out two key points he made in the post here.  From the post:

...can Apple create new value in the industry in the way that it did in phones?  With the iPhone, Apple created a new price segment and (with Android following) made the phone industry's revenue much bigger - the average price of a phone sold has more than doubled since 2007. But cars are, pretty obviously, more expensive than phones. Many people can find $400 for a better phone or, this year, a smart watch, if they're persuaded that they really want one, but rather fewer can find an extra $40,000 for a better car, or to replace their car every two years instead of every 4 or 8.  If you're in the market for a $20,000 car, there is very little that anyone can do to a car that will put you in the market for a $60,000 car. Cars do not come out of discretionary spending.

This is an important point. The iPhone was such a success largely because, in reality, they created a new (high-end) category that didn't exist before. The beauty of that high-end category is 1.) it's actually a mass market category because most people can afford a iPhone -- lots of people that make $50k a year have the exact same phone as people that make $30 million a year and 2.) people buy a new device every two years (that's a pretty nice recurring revenue stream for a hardware business).

Generally, neither of these factors have existed in the car business (most people can't afford high-end cars and the average driver replaces their car about every 10 years).

That said, these dynamics are changing a bit. Celebrities like Leonardo DiCaprio have been photographed driving around in a very affordable Prius (Frank Sinatra wouldn't have been caught dead in a low-end car). And while it's unlikely that the masses will start buying a new car every two years, it is becoming clear that fewer and fewer people are going to need to own their own car -- both because of the astounding growth of on-demand rides and the coming emergence of self-driving cars.

Benedict writes about this later in the post.

...self-driving cars might support both an on-demand model and an AirBnB model for cars - does your car drop you off at work and then roll off into the city to earn you some extra money driving other people around? Would people want to do that? Would that reduce the opportunity for 'dedicated' on-demand vehicles? Who knows. Of course, it's also possible that self-driving technology, said to be a decade away now, will remain a decade away indefinitely, as so many other AI projects have done.

In short, on-demand rides, shared self-driving cars and artificial intelligence are going to lead to massive changes in the way we get around and the way we manage our own personal transportation and the things that we do while we're travelling. And all of it -- I mean all of it -- is going to be driven by software that will become a large part of our day-to-day routine. Apple has to be in the middle of that. Apple has to make a car.

Healthcare Technology: Who Owns The Data?

A couple weeks ago I was listening to a panel discussion with a bunch of venture capitalists and someone (I can't remember who) made the point that the value of so many of today's web services comes down to one question: "who owns the data?" For example, while Uber has some nice UI/UX, the real reason they're so valuable is that they own the data. For them, the data is knowing where all the cars are located. I go to Uber because I can quickly locate and communicate with the drivers in my area. I like the app, but the real value is the location data. Same thing with AirBnB. It's not the app, it's the data they have on all the properties that I'd like to rent.

With this in mind, last week I read that Stanford Healthcare announced that they built the first patient facing app that integrates data from devices such as Fitbits and Withings scales into Apple's Healthkit app. Apple can than transmit that data to the patient's provider through the provider's patient portal app (in this case, MyChart, which is built by Epic Systems, a huge health IT vendor that builds software for hospitals and health systems).

This is an enormous step forward for the integration of patient captured health data with provider captured health data. It's awesome news.

But as all of this finally starts to come together, it begs the question: who owns the data?

Or, at scale, which company benefits the most from all of this data floating around?

Stanford? Withings? Fitbit? Apple? Epic?

Well, Stanford is very local, and isn't terribly focused on data collection, so it's probably not them.

Withings, Fitbit and other device makers contribute a relatively small part of human health data so at least for now they're not going to own a large piece of the data pie.

Apple still only owns well under half of U.S. smart phone market share -- and that number is expected to shrink. And they own even less of the market share of the chronically ill patient segment that can really benefit from this kind of data exchange.

So that leaves Epic, the 30-year-old health IT vendor that currently owns a medical record on well over half of the U.S. population. They have long-term contracts with large providers and (presumably) a long-term contract with Apple and will likely cut deals with Android and other smartphone operating systems in the near future.

In short, more than anyone else, Epic will own the data.

But this raises all sorts of new and interesting questions and conflicts. Will Stanford allow Epic to share its patient records with other Epic providers? Will Stanford allow Epic to share its patient records with other health IT companies? Will Epic allow Stanford patient records to be shared with other health IT companies? Will Apple allow Epic to share data captured from an Apple device with data captured from an Android device?

As I've written before, it seems to me that in the long-term, the answer is a Mint.com for Healthcare, where the patient truly owns the data. But in the meantime, the question of "who owns the data?" will be watched closely by investors, app makers, providers, health IT companies and patients. It's going to be fascinating to watch this play out.

The Unintended Consequences of Individual Metrics

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.

Mint.com For Healthcare

Vince Kuraltis, a healthcare IT consultant, tweeted this the other day:

He’s referring to the fact that each of his healthcare providers has a different patient portal run by a different IT vendor with a separate log-in and separate data and functionality. Providers are launching patient portals to allow patients to view clinical records, refill prescriptions, email their providers, etc. The point is to better engage patients in their health. It's a very important effort. But as Vince points out, the disconnected and fragmented experience can be really frustrating for patients.

This challenge is quite similar to the challenge that banking faced years ago as they took their customer experience online. Personally, I have accounts with Bank of America, Fidelity, eTrade, American Express and a few others. All of these accounts have separate web “portals” with separate log-ins. That's frustrating. But not really. Because I spend very little time on any of them. Most of my time is spent on Mint.com, where I’ve integrated all of these accounts into one place. From there, I can view all of my transactions and balances, track expenses and create budgets. It's great. It's has award-winning UI/UX and everything is one place.

Mint has taken the bottom-up approach. They started by building a platform for the consumer. And the consumer allows data from multiple vendors to be integrated into their account.

Healthcare needs a similar bottom-up approach.

We need a portal that allows us to integrate all of the data collected on us from our dentist that runs Dentrix software, our primary care doctor that runs eClinicalWorks, our gastroenterologist that runs Epic, our wife’s OBGYN that runs Cerner and our child’s pediatrician that runs Allscripps. All of that data could be neatly compiled into a really user-friendly website (and app), similar to Mint. If I move to a new area and select a new primary care provider, she could simply tap into my account and view all of my scans, test results, prescriptions, etc.

As we consider all of the controversy around forcing EMR vendors to become more interoperable and share patient data with one another, in some ways, you can argue that this isn’t their role.

Why should Bank of America freely pass data they’ve captured about me to Fidelity (a competitor)? They don’t want to do this because they want me to stay with them, not make it easy to use other vendors. Why is that any different than asking UCLA Medical Center to pass my data to USC Medical Center? It would be nice if they did, but I'm not sure it's the government's role to force them to do something that might not be aligned with their competitive interests.

The bottom-up, consumer led approach circumvents this entire conflict. We need a patient portal that starts with the patient, that allows providers (and their EMR vendors) to plug-in (if they'd like). Not the other way around.

Real World Healthcare vs. Venture Capital

Fred Wilson, the well-known venture capitalist, wrote a blog post last week with some technology predictions for 2015.  He touched briefly on healthcare:

the health care sector will start to feel the pressure of real patient centered healthcare brought on by the trifecta of the smartphone becoming the EMR, patients treating patients (p2p medicine), and real market economies entering health care (people paying for their own healthcare). this is a megatrend that will take decades to fully play out but we will see the start of it in 2015.

All of these predictions are spot on, of course -- the patient will become more and more in control of their care.

But if you talk to the people on the ground you'll find that these things aren't really being talked about or worked on at the provider level.

Case in point, John Halamka, the CIO of Beth Israel Deaconess Medical Center, considered one of the most innovative thought leaders in healthcare technology, wrote a post the other day reviewing some of the key health IT issues on his plate during 2014 with some predictions for 2015. In short, he's focused on implementing software that will facilitate accountable care workflows inspired the Affordable Care Act; meeting government electronic medical record adoption standards (Meaningful Use); and complying with government regulations around the protection and security of personal health information (HIPAA).

These are very different things than the things that guys like Fred Wilson are thinking and talking about. Venture Capitalists are completely focused on the patient. Real world healthcare operators (CIOs) are primarily focused on meeting government requirements.

This disconnect -- or, at least, that degree of separation from the patient -- isn't the fault of CIOs; they have no choice but to focus on the urgent and intense demands coming from the government to ensure that they continue to receive government incentives and avoid penalties.

Venture Capitalists are focused on where healthcare technology and the patient are going (e.g. where the money will be). Given the intense regulation, health system CIOs don't have that luxury.

All of that said, for the most part, I think government intervention into healthcare IT has been a good thing. Healthcare execs are totally focused on efforts to increase quality and reduce cost. Most stakeholders (providers, payers, regulators) have gotten behind value based care payment models -- the winds are all going in that direction. And providers are now fully onboard with electronic medical record adoption (at last check ~80% of providers are using them). None of this could've happened this quickly without government intervention.

But now that the groundwork is laid, it's time for the government to back off a bit and let the market start to drive more of the innovation in healthcare IT. Providers need the room to move their businesses and IT investments away from meeting the requirements of restricting, top-down government initiatives and closer to providing tools that are centered-on and built around the needs and desires of the patient.