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Evaluating New Ideas

July 2, 2010

How do you decide if a project is worth the investment? I worked for a company recently that had a general policy about how they spent money. Every category (i.e., Sales & Marketing, R&D, etc) was measured as a percentage of revenue. This works great as operating metrics in a mature business, but it actually prevented the company from investing into new ideas that had no revenue. I find many larger companies struggle to allocate investment dollars to new ideas for this very reason, so I thought it might help to provide some perspective on the issue.

This subject is also timely as I’m working for a company that made a significant investment into a new product and they have asked me to help make it a success. This led to a conversation about how we should measure success. I’ve suggested that the owner treat the product as an early stage investment. So how do you evaluate an early stage investment fairly? I sat through a Venture Capital (VC) workshop recently and the presenting VC listed his criteria. It was very simple, and went as follows:

Team
Great Product
Large Market
Business Model
Timing

The above criterion are a very fair way to decide the odds of a startup being successful, but it doesn’t address the return on investment. Generally, an early stage investor is looking to get 10x or more out of any seed investment within three to five years. These are much bigger numbers than the average company looks to achieve on an operating basis, but seed investments carry much more risk. VCs also aren’t thinking one and done. They are making many investments knowing that only a small percentage will succeed.

We live in an age where most of our leading companies are struggling to innovate. As an example, I live in the Seattle area and this is the most frequent indictment of Microsoft. My experience in larger companies is that they simply don’t think like VCs when new ideas are presented. Every company should set aside some seed money for new ideas, and should evaluate them as early stage investments. If they did they would solve their innovation dilemma and they would have a lot less great minds leaving them to go start their own businesses.

Most people who leave mature businesses to start their own company do so out of frustration, not because they think they are going to get rich. If you want to keep your best ideas and people I suggest you think more like a VC and less like a mature company the next time an employee presents a new idea.

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Sometimes Less is More

June 16, 2010

You might have noticed that it’s been a while since I last updated my blog. Since I last posted, I took on the position of President of Atalasoft and I have been deeply involved in launching the next version of Vizit, the company’s universal viewer for Microsoft SharePoint.

I first got interested in Vizit when I was at Captaris. At the time my team was looking to pull together a value added bundle around SharePoint that would add several image centric components and provide a more complete DMS or ECM experience. It was clear to us that Microsoft needed a partner in this area that could provide a broad bundle of capabilities and International support.

Part of our bundle was something we described as RightView. Microsoft’s solution to viewing in SharePoint is to have the user open the application associated with the document. We wanted to eliminate the need for users to have every application, the time to launch these applications, and the hassle of converting documents to accommodate whatever version of the application the user had available. We also wanted to provide the user an experience that was more closely aligned with other ECM offerings.

The RightView plan was to private label Atalasoft’s Vizit , which we believed was the best viewer for SharePoint in the market. It also had a nice “web scan” feature that enabled a casual user to scan into a repository without leaving SharePoint. Unfortunately, we were in deep discussions to sell the company and we never completely executed the plan.

Over the past year Atalasoft has had the first generation of Vizit in the market. As mentioned above, the first version of Vizit had many image centric features that were influenced by Atalasoft’s legacy in imaging and also by my Captaris team. During the last year the company learned the imaging aspects of Vizit are valued by a niche audience, but the broader market truly values the ability to view over 300 different document types without downloading any software or opening a single application. Today the company launched Vizit 3.0 in two packages: Vizit Essential (Universal Viewing), and Vizit Pro (Universal Viewing + Imaging).

Those of you who have been around me for any period of time have probably heard my “Bob” story. Bob is a guy who starts a software company in his garage to serve a customer need no one else is addressing. Usually Bob gets his first product close enough to this need to get at least a couple of customers. If Bob is smart he then listens closely to his customers and quickly adapts the product to fulfill the complete need. This takes him to the sweet spot in the market and he is wildly successful (another great software company is born). Unfortunately the story doesn’t end there.

During Bob’s adaptive stage his developers focus on adding features that the masses really need. Once the need is fulfilled the developers still need to do something, so the company starts developing features for niches. After adding niche feature after feature Bob finds himself with a product that is cumbersome to use to meet the core need he originally set out to fulfill. At this point the next “Bob” comes along and cleans his clock (software is so much fun).

Over the last year Atalasoft learned the SharePoint market really needed a great viewing experience, and many of the imaging functions met only niche customer needs. Unlike most companies they had the brains to not push forward, but to scale back and focused on the core need (a great viewing experience for SharePoint users). This is something you rarely see in the market, and I believe they have created a product that really hits the right spot in the market.

Now obviously I am biased by being part of the company, but keep in mind this is why I joined. I also didn’t make the tough call to scale back. I would encourage you to not take my word for it, but to go and see the product for yourself. The product launched today and you can learn more on the web site (www.atalasoft.com/products/vizit) where you can see and interact with it.

I’ve also been having fun putting together a marketing program around this product, and I’ll talk about this in my next post. I’m finally getting a chance to take a few risks on the marketing side, which you’ll get a small taste of in today’s press release (www.atalasoft.com/company/press-releases/vizit-pr/atalasoft-claims-vizit-saves-the-average-customer ). Atalasoft has a young and energetic team, and I’m really having a great time working with them. You’ll get a better feel for this in the next couple of weeks as we execute around the rest of the marketing campaign.

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Sometimes Its Better To Be Third

June 5, 2010

Everyone seems to think that it is best to be first to market, but I’m not sure I believe this. First means you really have to convince everyone there is a better/different way of doing things. Even when you are right it takes time. You have to fight the fact that no one wants to go first, usually in a company that is completely unknown and unproven.

How many times have you seen a new start up come up with the right idea, bang there heads against the wall, and eventually go under trying to prove they’re right. Then the next guy comes in with the same idea and benefits from all the hard work. In many ways I think this is what is happening in a couple of markets I’ve been close to recently.

In video surveillance analytics there are companies like Object Video and BRS Labs that are investing massive dollars to be able to identify threats within live video. These are heavily VC funded firms that have massive R&D budgets, but little market traction. In the ECM world everything is moving to SaaS but will the players like SpringCM and others who have taken ECM stacks to the Cloud survive long enough to reap the benefit?

These are two very interesting markets as one is trying to take recognition algorithms and tune them for a specific security purpose, while the other is taking mature technology and simply offering it in a different way. My belief is that the surveillance companies will go bust before they refine the technology and establish a market presence. The ECM side is much tougher to call, but I believe once the SaaS business model is proven the big ECM players (EMC, Oracle, IBM, Microsoft) will all want to compete. Will that startup live long enough to get eaten, or will they simply get run over when the elephants start to stomp around?

I did a startup in 2003 with the idea that I would mine massive consumer databases amassed by the credit card companies to understand consumer behavior, and then use mobile 3G technology to determine where a person was so I could customize marketing pitches that fit the moment. I still believe the idea was right, but I was way before my time. Right now there are a whole bunch of companies that just got large amounts of VC funding to chase the same idea. They are in a better position than I was on the mobile front as 3G is established now, and most people have GPS. 3G was just rolling out when I did it. On the down side consumer privacy is heightened after breaches at Facebook and Google and they’ll have to fight this wave. My bet is you’ll see this technology take off shortly and soon you’ll be getting a lot of unwanted ads on your mobile device.

I also think it helps to have more than one person in the market. It adds credibility to what you are doing. I’ve heard many VCs don’t like to back someone if they don’t have a competitor. The logic is simple: “if its such a good idea why isn’t anyone else doing it?”. I think this makes a lot of sense. There is an old saying “be a quick second”. I believe ultimately first and second pave the way for third, and the third guy has it much easier. It’s also much easier to understand what will work when a couple of companies have gone before you.

Next time you have a great idea consider timing when looking at your strategic plan. You can save yourself a great deal of pain and be the guy who reaps the reward if you time it right.

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Jumping to Conclusions

May 22, 2010

I was informed recently that several readers had jumped to a wrong conclusion about the business I described in Chemistry. The stories that I share on my blog are designed to help people manage through difficult situations.

At this point in my career I have been in literally dozens of businesses. Most of the people I send a link out to may only know me from one or two. My profile also does not tell the entire story, as within a company I may have managed many different business units. I also have been routinely asked to help out sister businesses.

I hope I add enough value in each post’s message that the enjoyment you get from reading a post is in its content not in the speculation around what business or company might be referencing.

For the record, those speculating about the Chemistry post are way off base.

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Change vs. Replace

May 20, 2010

I received a question today about my last post. I was asked if I thought you could get someone out of hunker down mode by putting them in a customer facing position? This question touches upon two issues that I think are fundamental to management.

First, many people can’t be saved. Once a person tunes the company out they can be very difficult to recover. I have found however that many people respond very positively if you come in fresh and listen to them. Many times the employees know exactly what needs to be done to turn the situation around but no one is listening. If you aren’t making a sweeping change be very careful trying to change a person.

I wrote in a previous post that you can’t fundamentally change a person. If a person is hunkered down they most likely didn’t have an outgoing personality to begin with. If they did they would most likely have flamed out versus hunkered down. Matching the personality and core skill set to the job is critical. If the person doesn’t have the right personality or skills don’t give them the job.

This leads right into my second point, which is personality really matters in customer facing roles. I’ve found that a lot of companies don’t seem to recognize that people in customer facing roles are the face of the company. You have to be real selective with people on the fringe (this being the space between the company and its customers). I believe you need to hire people who are naturally outgoing and positive. There are more than a few companies that use personality profiling for this very purpose.

Once a person tunes out the company you have to decide how much effort you will make to save them, versus simply replacing them. My experience is the odds of success replacing a person is much greater than changing them. This isn’t to say that hiring a new person is easy, but it is easier than changing a person that has tuned out. My best advice is focus on hiring people who come recommended from a person you trust. You also need to act quickly once a person tunes out otherwise they poison the well (see my last post). Changing a person is not the fast or sure path.

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Chemistry

May 13, 2010

I’ve been neglecting my blog over the last couple of weeks while I wrapped up my interim assignment. I’m back to a more normal schedule and looking forward to contributing again.

Today’s topic is Chemistry, which I think is an often overlook or misunderstood concept. A business needs to be greater than the sum of its parts. This comes from teamwork and collaboration between the employees. When you add a person to a business they need to make the people around them better.

As a business gets larger it becomes harder and harder for one person to make a difference. Certainly the person at the top always matters, but can one person be a catalyst for change? It depends on the current chemistry of the organization. Let’s keep the rest of the discussion simple and narrow it down to three types of companies: good chemistry, average chemistry, and bad chemistry.

Add a strong personality to company with good chemistry could just as easily backfire as create an incremental gain. If you have good chemistry and real strong people and you bring in a superstar with a skill set that is redundant, chemistry will be fractured. The existing people will feel threatened by the person you’ve added and wonder why you don’t have faith in them. You’ll find having more is less in this situation. If you add a superstar to a company with good chemistry that has complementary skills to the team it likely will raise the bar for everyone. This type of add is how you become greater than the sum of the parts.

It’s easier to improve a mediocre company by adding a new hire as a catalyst. In one of Jack Welch’s books he talked about the type of person they sought to hire at GE. Key things they looked for were people with Energy and Edge. A high energy person with a bit of an edge is likely to raise everyone’s game in an average company. Even if the skill set is redundant this person is likely to challenge everyone to produce more.

Adding the high energy-edge person will almost always fail in a company with bad chemistry. The strange thing is they’re the ones most likely to do it. It really doesn’t matter if the skill set is complementary or redundant. This person will do one of two things when they are added. They might become like everyone else (the vortex), or they quit. Either way it doesn’t change anything.

Let’s talk about what I like to call the bad chemistry “vortex”. Several years ago I was asked to take on a business unit with about 200 people that was severely underperforming. When I first entered the building I was struck by how quiet it was and how there didn’t seem to be any interaction between the employees. I held several early town-hall meetings and discussed the need to communicate and work together, but nothing changed.

Like most people I thought I could change this by simply adding a couple of strategic hires. I added one person to a key function and it didn’t work. Then I very carefully seeded change agents in management positions in the most critical areas. The result was a big thud. Not only did it not change anything, but these people quickly became like all the others. My frustration continued to build.

Finally, I asked high performing managers from other businesses I managed to get engaged and give me their opinion. After about 30 days they all came back and said it was hopeless. People were hunkered down and you simply couldn’t get a feel for what was causing the problem.

Not being a person who gives up easily, and never one to shy away from risk, I decided to make a sweeping change. I cut over 75 people on one day. My thought process was to keep those who I thought had potential, but had been sucked into the vortex. I figured if we simply forced them to do more they would rise to the occasion. I was surprised by what happened next.

When it comes to letting people go I tend to be hands-on. I believe reduction need to be handled delicately and most managers simply don’t have the experience. In the process of letting these people go there was a theme. For the first time in my career I had people thank me when I informed them their job had been eliminated.

Many of these people’s jobs had been greatly or reduced or completely eliminated over time. They lived in fear that someday someone would find out that they really didn’t have much responsibility. To avoid being found out they isolated themselves from others. They were thanking me for bringing this isolation and their paranoia to an end.

Now the above example is quite extreme, but I’ve seen it at other places. For one reason or another people reach a point where they feel they don’t matter and crawl into a cocoon. The longer they stay there the higher the level of paranoia that develops. When many people do the same thing it feeds on itself.

Imagine trying to get something done in an organization like this. Every person you go to offers no help or direction. They simply want to be left alone. It doesn’t take long before you simply give up or quit. When you give up you start to behave just like these people. The more people that do it, the harder it is to fix.  You eventually reach a point where the only choice is a sweeping change. Most businesses don’t survive sweeping changes. You simply can’t replace the majority of people and expect to succeed.

The lesson to be learned here is to never let the above situation take root. This is easier said than done, but at its root are managers who don’t make the hard people calls. If the person’s job was eliminated give them a chance to fill another open position. If there isn’t a fit cut them. It doesn’t matter how good they were before, you can’t keep people who don’t have jobs or don’t fit the jobs you have. If you have someone who isn’t performing, don’t minimize their responsibilities coach them to improve. If they don’t improve let them go. I know this sounds harsh but if you don’t do this you will create the bad chemistry vortex and jeopardize the entire business.  Proactive management is required constantly to keep a business thriving.

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Uniqueness

April 16, 2010

I find it strange that most companies don’t focus on developing some form of uniqueness. To separate yourself from the pack you need to do something different. Most companies seem to want to standout, but they try to do so by following the latest trend in their industry. This path is me-too thinking, as generally everyone is taking it.

Another challenge with uniqueness is getting your employees to recognize that it only matters if the uniqueness is valuable to customers. Ask the people you work with what the company can do to be innovative and you’ll likely get some very stale ideas, followed by something completely off the wall ideas that are completely unrelated to the customer you serve.

You develop uniqueness through innovation. Innovation is a highly misunderstood concept. I worked at one company that was very process driven, and they attempted to put in an “innovation process”. It was like they thought they could bottle it. The process did more to stifle innovation than it did to foster it.

The first thing you have to realize is that a good idea can occur at anytime and can come from anyone. Don’t assume the people with the titles will be the innovative thinkers. In reality their job is to spot the innovative idea when it emerges and to prioritize it highly.

One method I’ve used to get the creative juices going is brainstorming. I like to keep it simple, I always start out by talking about customer needs, and then try to get others to engage in how we better serve them. Once they get the feel for the openness of the conversation they engage.

I did this a year or so ago with a group in Germany. I’ve been told that Germans can be very difficult to engage in a brainstorming conversation, but I got one of the best ideas I’ve heard in a long time from the group. If you get people to drop their guard and think in terms of customer value, you’ll be surprised by the good ideas that just popup.

The leaders job is to recognize the good ideas, capture them, and then make sure people focus on making them a reality. My belief is the execution is the hard part. There are an abundance of good ideas out there if you know how to look for them, just open your eyes.

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