4 Things Enterprise SaaS Companies can Learn from Pokemon Go

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If you are anything like me, you have spent a little too much time over the last week capturing Pokémon. And you have spent less time working out and more time in the Pokémon Gym. And if you are in the B2B Enterprise Apps space, you might think that time was a complete waste. But take heart, if you read on, I will tell you what we can all learn for our Pokémon Adventure.

1.It’s a Mobile Only App

Pokémon Go is a Mobile App! It’s not a Web App with a subset of functionality for mobile. It’s not a mobile first app. IT IS A MOBILE ONLY APP! Sure it has website with some promotion and education material, but you can’t play the game on the web.

Nine years after the launch of the iPhone, Enterprise Tech is still struggling with the mindset of building great mobile apps. And while there may be fewer business apps that need to be mobile only, we really need to “action” the concept of mobile first. We talk about it, but we don’t do it.

We need to grasp these concepts. The primary computing device of most business people is a mobile phone. There are 2B active mobile devices connected to the Internet and connected mobile device numbers eclipsed desktop in mid 2013. (3 years ago!!!)

There are some jobs and applications that need a big screen, but they are increasingly the minority. I think most people still often feel they need to be a desktop or laptop to “get serious work done”. But IMHO, that’s because we make substandard enterprise mobile apps. Salespeople would adopt CRM faster if our mobile apps were better. Service applications would be better loved if customer service people could do their work on the phone. Marketers would use the Marketing automation systems more if the mobile apps did not suck so much.

There are a couple of enterprise apps that have a decent job here. Email for Microsoft and Google have pretty damn good mobile apps. Outlook is particularly good in my opinion. There are times when I am sitting at my desk with my laptop in front of me, doing email on my phone. Mobile is actually a better interface for quickly scanning, archiving and doing quick replies. Another shout out has to go to Expensify. It’s a very good mobile app that allows you to get the job down quickly. And lastly Slack. Great mobile app. Period. Full Stop.

 2. Pokémon Application Design is Awesome

No training needed for Pokémon Go. No Tutorials of video instruction needed. The app is intuitive in a way that great consumer and gaming apps are. The major functions are intuitive and all the functions are easily discoverable. I am not a gamer, but it was pretty clear to me that the game navigation was done through walking. I was not clear how the landmarks, gyms and Pokémon capturing worked, but you could easily learn it by doing. I clicked the landmark, spun the disc and then it became obvious to me that I could collect the Pokeballs and eggs. I tried to get in the gym, but the app told me I needed to be at a higher level to get in. Captured my first Pokémon after my phone vibrated and alerted me to its proximity. Throwing the Pokeball took my about 15 seconds to learn and once I captured my first Pokémon the app easily helped me discover the Pokedex and other functions you need to play the game. Lastly, one of the key usability features is that the game is easier at the beginning and harder as you play. If I immediately wandered into a gym or tried to capture a Pokémon that keeps bursting from the ball, I would have more easily given up on the game.

Lets face it. We don’t design Enterprise mobile apps like this. We tend to need tutorials; we cram a lot of features into the apps. Usability and discoverability are usually treated as second-class citizens to function and business process.

 3. Partnership was key!

Pokémon Go was created through a deep partnership between Niantic Labs and Nintendo. It’s actually more than a partnership; Nintendo owns a big part of the company that produced the game. The technology and application created by Niantic Labs is incredible, but this phenomenon does happen without the incredible worldwide Pokémon franchise built over the years. We know this for sure, because Niantic built a similar app without Pokémon. It’s called Ingress. It is by all accounts, a great game and it has a cult following. But it has 1M users compared to the 26M users of Pokémon Go built in only 12 days!

Enterprise software firms are not usually great partnering companies. We like to create our technologies, stacks and ecosystems. We like to keep things under our control and we have a hard time creating deep and meaningful partnerships that create new intellectual property.

4. It takes time and patience.

Enterprise startups and technology companies are famously impatient. We tend to launch products, measure them and if they do not meet with success, we move the engineering resource to another project.

Pokémon Go is being called an overnight success, but it was  a long time in the making. I remember meeting with John Hanke in the Google SF office 4 years ago. He had already been working on this geospatial gaming thing for a while. I am not exactly sure when he started working on it, but it was not built in June. He built an App/Game called Field Trip that I downloaded and tried. Field Trip lead them to other products and then to Ingress. And Ingress led to Pokémon Go.

It takes some time to build an overnight success. It reminds me when I was part of the Google Apps launch. We started with Apps in Education and then after we launched the commercial enterprise product, we did not sell a single license to a large company for 13 months!!!

I understand and support the concept of failing fast, but we need to remember that most initial product concepts will not have immediate success. We need to be able differentiate between failure and “market not ready” or “we are short of minimum viable product”.

So, if you in Enterprise tech and think you are just wasting time by playing Pokémon Go, take heart. Learn these lessons and it will more than justify your Charmander chasing time investment.

Microsoft/LinkedIn – The Greatest Large Tech Acquisition of All Time!

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Woah. $26.2 Billion. That’s a lot of money. Even in a world where we have become numb to “Uber” large numbers, this is a big deal. And most big acquisitions turn out poorly. Lets list a few: HP/Compaq; Autonomy/HP, Veritas/Symantec, Oracle/Sun, Google/Motorola….need I go on?

So there are many who will be skeptical, but here are three reasons why this will be the greatest large tech acquisition of all-time.

LinkedIn Data is a once in lifetime resource

Data about our professional lives is very, very valuable. As a businessperson, I live in LinkedIn and increasingly in their mobile app. Business is built on connections and every meeting or potential meeting starts with one question: “Do I know this person or do I know someone who knows this person.” LinkedIn is the only professional resource that can quickly answer this question. If Facebook deleted my account and connections, it would be inconvenient for me. But if LinkedIn deleted my account and my 2500 connections, I would be devastated. LinkedIn is mission critical to every professional. If you are hiring, marketing or selling, LinkedIn is a resource that you cannot do without.

Better yet for Microsoft, LinkedIn does not and likely will not have significant competition. The network effects of LinkedIn are too great. I mean would you join another professional network as an individual? Of course not! It would be too much hassle to maintain your data and connections on two networks. 

The Companies’ Products are Complementary and will be “Better Together”. 

Microsoft has at least three product areas that will directly benefit from some deeper LinkedIn integrations.

First, Directory Systems. Microsoft was the unquestioned leader in on premises directory systems and is moving that aggressively to the cloud. But LinkedIn is the real directory system of business now. We don’t need a business card, an email address or a phone number to keep connected now. If we are connected on LinkedIn we will always be able to contact that person. Creative product integrations here could be very powerful.

Second, Office 365 and LinkedIn could be very powerful together. Calendar integration in LinkedIn’s mobile app is already a killer feature, but infusing email, calendar, collaboration and documents with your external business network could open up a new level of functionality that others would find difficult to match.

Third. Dynamics and CRM. Microsoft is not the leader here and before this morning’s announcement it was difficult for me to see how MSFT did not continue to lose share to Benioff and Salesforce.com. But an integrated Dynamics/Sales Navigator platform could be a game changer. Sales managers love CRM, but salespeople don’t. Salespeople use CRM systems to record activities, but increasingly they use LinkedIn and Sales Navigator to connect with customers and prospects. Sales Navigator is still an early revenue stream for LinkedIn. It’s less than 10% of their revenues! Customers are clamoring for more integration between CRM systems and LinkedIn Data. If Dynamics has a first mover advantage on that, then it could really help in the battle versus Salesforce.com. Moreover, Sales Navigator could get a huge lift by leveraging the Microsoft corporate sales force. MSFT has relationships and contracts with every large company and can reach the mid market through its extensive partner network. Selling Sales Navigator through that network could provide the type of synergy that even the most aggressive investment banker did not model.

Artificial Intelligence and Machine Learning.

Do not groan. These words are the basis for most Silicon Valley jokes right now. But over the longer term, they are very important. And with all due respect to my LinkedIn friends, I do not believe they were positioned to be leaders here. It is very hard for LinkedIn to compete with Google, Amazon, Facebook and Apple here. And yet LinkedIn has a treasure trove of data that the world’s best AI and Machine Learning people would love to have. I would love to see more predictive features out of my LinkedIn data. They could start with better algorithms for my LinkedIn news stream. :-). But that’s the tip of the iceberg; applying AI to this data might provide insights for professionals that we cannot even imagine today.

So, that’s my take. Its bold- The Greatest Large Acquisition in the History of Tech! I hope that once the acquisition is complete that MSFT continues to break out revenue results for LinkedIn so we can track it progress.

And Congrats to both Microsoft and LinkedIn!

The Way Forward

B2B Cloud: 3 Steps to Aggressive Growth Without the Excess of the Past

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So the B2B Tech valuation meltdown of January and February has stabilized. After a dizzying fall for cloud companies that have gone public, the market has not only stabilized, but bounced back. The Bessemer Cloud index is now off only 16% for the year. Salesforce, Workday, Box have reported good quarters. And private companies DOMO, Slack and Asana bucked the trend by raising money at excellent valuations.

So can we all head back to the go-go days of lobster salad lunches and prolific spending is search of growth and market domination?

I mean you can if you want. But I hope that most sane people are taking the opposite approach. Raising private capital for all but a few select companies will remain hard and expensive. The public markets and now the private markets have sent a clear signal to those of us running cloud companies: STOP LOSING SO MUCH MONEY!

In retrospect, it is easy to understand how we got here. With interest rates at zero, an influx of cash flowed into our space that was unprecedented and made money almost free. Many startups were funded and spaces became more competitive than they would normally be in emerging markets. Startups in turn, spent that money on engineering, on sales, on marketing, on nice office space and on lobster salad lunches. Worse than that, funding and market capitalization became the outcome. Large rounds and high valuations became the metrics for success. Companies used them to establish themselves as the gorillas in each category and attempted to use that status to get the best employees and to win customers.

But enough is enough. If public companies are going to devalued because of their lack of profits, and private companies are valued at even higher multiples, then the need for change of direction has never been more clear: STOP SPENDING SO MUCH MONEY TO FUEL GROWTH

At the same time, to be clear, if you are a tech startup, you have to continue to grow. You can’t simply stop spending, fire staff, curtail budgets and see growth rates slow. Most startups will struggle to get anywhere near cash flow breakeven without growing to the point of critical mass. Those companies that have reached critical mass and could be cash flow breakeven, must grow to establish valuation multiples.

So, the way forward to clear. GROW WITHOUT THE EXCESS OF THE PAST. I mean really, what we were thinking when we have public companies who spend more on sales and marketing than they have in gross revenues! I mean, there is aggressive and then there is just plain crazy. The truth is, we startups have been acting like big companies. We have been raising large amounts of money and trying to brute force growth through spending on sales and marketing; No marketing event was too expensive, no campaign was too expansive. We hired Account Executives, Sales Development Reps, Sales Engineers, Account Managers, Industry specialists, Channel reps, Customer Success mangers and we layered on a good dose of management along with it. Lets face it. We just got fat! It was like a huge brunch buffet and we just pulled our chairs up to trough and kept gorging.

The good news is we actually know how to fix this. We are smaller, nimbler smarter companies. We can let the Ciscos and HPs of the world gaze at their navels and complete company reorganizations while we move fast. We know how to do this, we just forgot because money was free and somebody started a bonfire with a bunch of Benjamin Franklins!!!

Here are the concrete steps to take immediately in order to keep growing while spending like a startup.

  1. Stop Selling and Marketing to Companies that Won’t Buy 

Huge amounts of money were wasted by marketing and selling to companies that will not buy the products we have been selling. In our rush to grow into our valuations, we insisted that every company could benefit from our product and we started selling and marketing very broadly. We sold and marketed to small companies and mid sized companies, and to every large company. We sold to every industry and we expanded internationally quickly. We acted like we had never read “Crossing the Chasm” and we raced as fast as we could to broad markets.

Not only did this produce very high customer acquisition costs it also left us with a broad customer base to service. And if our product didn’t fit well in a certain market, we had low customer satisfaction and those customers are starting to churn. Yikes!

So here is what we must do. We must go back to tight targeting. Look at your customer base and segment that customer base by who uses and values the product. That will define your sweet spot. That is the segment that you have product market fit. Then focus your sales and marketing efforts on that segment. If you want to try other segments, select one or two and do some very targeted experiments to see whether you can penetrate that market.

And here’s another piece of advice. Be honest with yourself about how much engineering must be done to your product to reach a new market. Most companies want to expand to new segments by adding sales and marketing expense. But here is one of the lies we tell ourselves in startup land: “The existing product is great and we can expand to new markets without much product effort. If we get the right sales people, customers will get the transformative nature of our technology and not ask for frivolous features“.

Here is the truth of the matter. If you want to expand into a new markets, you need to do it with engineering first. If you want to be international, you need to do the work to make your product multilingual. If you want to sell to enterprise, you will need to build security, compliance and integration features. If you want to sell into specific industries, you will need to build features to fit that industry.

So, there is step one. Define where you have product market fit and concentrate your sales and marketing in that area. When you are ready to expand to new areas, lead with engineering and conduct some more pinpointed sales and marketing efforts.

  1. Make Sure you have the Right Sales Model

Lots of companies have not spent enough time on this. There are four predominate sales models: a) high velocity touchless sales, b) inside sales, c) field sales, d) channel sales. But also there is a lot of nuance in each model. There are multiple roles in each model, especially for those companies selling to large companies.  So this should be revisited for all companies with an idea of selecting the best model and optimizing it. See my blog post on this.

I think most companies are not wildly off on their sales model. But most companies that have not optimized each role within the sales process and many are using the most expensive models on market edges. You need to define the roles, key activities of each person in the sales process and ensure you have the right ratios. In the “free money” period we have tended to specialize too much in sales roles and mimicked complex and heavy sales models built for large companies. Here is a news flash: If you want to disrupt large companies, don’t act like them. Beat them with speed and flexibility, not the heft of your sales force.

In addition to getting the right sales model and role definition, you need to define the handoff and roles with marketing and customer success. In many companies marketing can own the lead generation and nurture function and in some cases take the sales process further down the path. Also, many companies can use customer success and post sales to do expansion and second product selling. Don’t be afraid to make customer success an integral part of your sales model.

Sales model definition needs more thought that we have given it in the past few years, where we have thrown money at the problem.. Not only are we wasting money, but many sales and marketing processes suffer from “school bus” selling where we load the vehicle with too many people on every sales call and sales step.

  1. Follow a Sales Process

Sales is not a random series of events. Most sales cycles follow a common set of steps that must be executed to win a deal. The failure to follow an agreed upon sales process has two catastrophic implications. First your win rate drops because you miss important steps in the sales process. Second you waste a huge amount of company resources doing hurried, unexpected sales steps that are not efficient. As a further negative consequence, sales organizations that do not follow process lose the confidence of the rest of the organization. In particular, product and engineering see the sales team as unorganized and reactionary. This, in turn makes them less responsive on the “real” opportunities.

You don’t need to hire a team of consultants to fix this. Your people actually know the optimal steps to win a deal, but most companies haven’t had the discipline to write the process down, train on it and find a way to make the process stick. A good sales process will define 5 things: 1) Sales step name, 2) Typical activities, 3) Owner and roles of each step, 4) Resources used and 5) Deliverables.

I always think you can build and define this in a couple of weeks and then iterate on it constantly.

So let me summarize. We are tech startups. We must grow aggressively. We have gotten too fat and undisciplined during the free money period. It is eminently possible through simple steps to aggressively grow without starting a cash burning bonfire.

What do you get when you take a crappy company and cut it in two?

HP  is about to calve off its enterprise business and make itself into two companies. It held an analyst briefing today about the imminent process and there was not much good news there.

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Nothing would make me or most of Silicon Valley happier if this somehow turned into a fairy tale  ending. HP is an iconic company, perhaps the Valley’s first mega business. Its founder’s families are renowned philanthropists and Meg Whitman is a very talented executive navigating some treacherous waters in an old boat.

But there is just no chance for a happy ending. HP is a gigantic iceberg. The world’s fourth largest technology company at over $100B in revenues. But it has been shrinking for a long time.  You can argue all you want about execution, but if you are in crappy businesses, no amount of execution helps. If I were the Mckinsey-like consultant that was advising HP , I would have made them create four piles for their business.

  • Plle 1 – The great businesses. Those are businesses in growing markets and where we are the leader.
  • Pile 2 – The good businesses. Those businesses in growth markets where we are not yet the leader.
  • Pile 3: The crappy businesses. Businesses  in declining markets, but where we are the leader.
  • Pile 4 – The really crappy businesses. Businesses in declining markets where we are not the leader.

So here is why there can be no happy ending for HP, I don’t see any businesses that go in Pile 1 or Pile 2. They only have really, really crappy business and just plain crappy businesses.

Let take a quick recap:

The PC business . It’s a huge business for HP ( Thanks Carly) and they are a leader here. But we all know the PC market is declining, upgrade cycles are slowing and margins have always been a challenge in this business. The only people that made money on PC’s  were Gates and Balmer. And Michael Dell. Lets not forget him. Made lots. Very smart man.

Q3 Results: Personal Systems revenue was down 13% year over year with a 3.0% operating margin. Commercial revenue decreased 9% and Consumer revenue decreased 22%. Total units were down 11% with Notebooks units down 3% and Desktops units down 20%.

So let’s put this one in Pile 3 – Just Plain Crappy.

The Printer business.  Another huge business for HP. They are leaders in printers. And more importantly ink! I have an HP printer in my den that I bought 5 years ago. No need to upgrade it. I print a few things every month on that printer. I am carrying around a huge phone, a tablet and a ultra thin laptop, so why would I print anything. I can just show it on my device. And if people need a copy, then thats what Dropbox is for, isn’t it?

Q3 Results: Printing revenue was down 9% year over year with a 17.8% operating margin. Total hardware units were down 2% with Commercial hardware units down 6% and Consumer hardware units flat. Supplies revenue was down 6%.

Let’s put in pile 3 – Just Plain Crappy.

 

Enterprise Group: This has enterprise servers, storage and networking. Networking is actually a decent business, but HP is not the leader here. It could get a pile 2 rating. Even if you go cloud, you need networks,  sometimes even more networking, But HP is not the leader here.  Enterprise Servers are not a good business. People still need these, but with more workloads shifting to public clouds, this market is shrinking. Private cloud should be an opportunity, but with fewer buyers and better server utilization, you can expect to see further margin compression in a declining space. And Storage, if there was a Pile 5, it would be in that.  Hugely impacted by the cloud. This is a race to zero business. Declining market, declining prices, poor margins, need I say more.

Q3 results: Enterprise Group revenue was up 2% year over year with a 13.0% operating margin. Industry Standard Servers revenue was up 8%, Storage revenue was down 2%, Business Critical Systems revenue was down 21%, Networking revenue was up 22% and Technology Services revenue was down 9%

You could argue, this is the pile 3 business, but the overarching cloud trends are not good here. Pile 4.

Enterprise Services: HP bought the old EDS business. And when I say old, I mean Ross Perot old. (Admit it, when you read the name Ross Perot, you were tempted to go the Dead or Alive webiste, weren’t you? Let me save you the trouble, he is alive. 85 years old. Still kicking himself for that James Stockdale running mate choice.)

Tech consulting is still a growth business, but not the kind of consulting that HP does. Their expertise and business model is at least one generation old. But if you need some COBOL debugged they could handle that.

Q3 Results: Enterprise Services revenue was down 11% year over year with a 6.0% operating margin. Infrastructure Technology Outsourcing revenue was down 13%, and Application and Business Services revenue declined 7%.

Pile 4. Really, Really Crappy.

Enterprise Software. Unfortunately, this is almost all on premise software and most of it pretty old in the tooth. Acquisitions with the potential exception of Opsware have been weak to say the least. While Oracle has been making some nice cloud acquisitions, HP has been licking its wounds litigating with Mike Lynch. Enterprise software is getting eaten by the cloud. HP is only shrinking at about 6%, but look for increasing rates of decline in the near future.

Q3 Results: Software revenue was down 6% year over year with a 20.6% operating margin. License revenue was down 11%, support revenue was down 3%, professional services revenue was down 8% and software-as-a-service (SaaS) revenue was down 4%.

How could SaaS be down 4%? Must be really crappy SaaS.

Definitely, Pile 4 – Really, Really crappy.

So, there you have it. We would all like a happy ending here. But unfortunately only the investment banks will get one. They will make money in the split and then I suspect make some nice fees on the sales of the Enterprise business (to IBM?) and the Personal Group (to Lenova?)

Sorry. It s jungle out here.