John Gardner: Leaders Detect and Act on the Weak Signals of the Future

Written by Sean Murphy. Posted in 1 Idea Stage, 5 Scaling Up Stage, skmurphy

Some excerpts with commentary from “On Leadership“  by John W. Gardner.

There is such a thing as the “visible future.” The seedlings of [future] life are sprouting all around us if we ahve the site to identify them. Most significant changes are preceded by a long train of premonitory events. Sometimes the events are readily observable.”
John W. Gardner “On Leadership”

Marcelo Rinesi advised “the future is an illusion, all change is happening now” and Peter Drucker told us to “systematically identify changes that have already occurred.” From an entrepreneurial perspective you can often transplant a solution from one industry to attack a similar problem in another: as William Gibson suggests, “the future is already here, it’s just unevenly distributed.” This model for innovation brokerage requires that you be open to new solutions to old but pressing problems and that you scan more broadly to find them. Gardner offers his own explanation for why opportunities are overlooked:

“…the future announces itself from afar. But most people are not listening. The noisy clatter of the present drowns out the tentative sound of things to come. The sound of the new does not fit old perceptual patterns and goes unnoticed by most people. And of the few who do perceive something coming, most lack the energy, initiative, courage or will to do anything about it. Leaders who have the wit to perceive and the courage to act will be credited with a gift of prophecy that they do not necessarily have.”
John W. Gardner “On Leadership”

There is always a value in closing the deals that are in front of you and making this month’s payroll. But there is a risk in getting caught in the treadmill of the urgent. Gardner offers a prescription for leaders and leader/managers to differentiate themselves from managers trapped in the immediate crisis.

  1. They think longer term—beyond the day’s crises, beyond the quarterly report, beyond the horizon.
  2. In thinking about the unit they are heading, they grasp its relationship to larger realities—the larger organization of which they are a part, conditions external to the organization, global trends.
  3. They reach and influence constituents beyond their jurisdictions, beyond boundaries. In an organization, leaders extend their reach across bureaucratic boundaries—often a distinct advantage in a world too complex and tumultuous to be handled “through channels.” Leaders’ capacity to rise above jurisdictions may enable them to bind together the fragmented constituencies that must work together to solve a problem
  4. They put heavy emphasis on the intangibles of vision, values, and motivation and understand intuitively the non-rational and unconscious elements in leader-constituent interaction.
  5. They have the political skill to cope with the conflicting requirements of multiple constituencies.
  6. They think in terms of renewal.

John W. Gardner “On Leadership”

I think this is a good list, even for bootstrappers who are worried about keeping the lights on this month. You have to devote 10-20% of your time to problems in the longer term, and connections and initiatives that may not bear fruit next week but perhaps in three months or a year or two. The last suggestion, to consider how to renew skills, relationships, and shared values, is also a critical one for the long term.


More on Drucker’s suggestion for sources for innovation:

“Innovation requires us to systematically identify changes that have already occurred in a business — in demographics, in values, in technology or science — and then to look at them as opportunities. It also requires something that is most difficult for existing companies to do: to abandon rather than defend yesterday. ”
Peter Drucker in “Flashes of Genius

Discovery Kanban Allows Firms to Balance Delivery and Discovery

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Design of Experiments, Video

I believe that Patrick Steyaert’s Discovery Kanban offers critical perspective on how large organizations can foster the proliferation of Lean Startup methods beyond isolated spike efforts or innovation colonies.

I think Patrick Steyaert has come up with an approach that builds on what we have learned from customer development and Lean Startup and offers an orchestration mechanism for fostering innovation and operational excellence. I think  this will prove to be a dynamic approach to managing innovation that will be as significant as Saras Sarasvathy’s Effectuation, Christensen Innovator’s Dilemma and Innovator’s DNA, and Ron Adner’s Wide Lens. I believe it’s going to become part of the canon of accepted principles of innovation because it offers not only a way to frame the challenge of balancing discovery and delivery, but a mechanism for planning and managing them in parallel.

Discovery Kanban is a synthesis of a number of distinct threads of entrepreneurial thinking–Lean Startup, Kanban, OODA, PCDA, and Optionality–into an approach that helps firms address the challenge  of executing and refining proven business models in parallel with exploring options for novel business opportunities. The reality is that you have to manage both current execution and the exploration of future options whether you are in a startup that is gaining traction and needs to develop operational excellence (or an innovation colony that now wants to influence the existing enterprise) or and enterprise that needs to avoid the “Monkey Trap” of escalating investment in a business model that is reaching the end of life instead of parallel exploration of a number of options for new business units.

At the extremes startups are viewed as scout vehicles–suitable for exploration to find sustainable business models–and established enterprises are viewed railroads, very good at moving a lot of cargo or passengers along predetermined paths. The reality is that almost all businesses need to manage both excellence in execution while not only keeping a weather eye on new entrants fueled by emerging technologies and disruptive business models but also exploring for adjacent markets that can leverage their established competencies and new competencies required by current customers.The Lean Startup and Customer Development models have fostered a broad understanding of the need for iteration and hypothesis driven product probes. Kanban models have shown the value of making work visible to enable the shared understanding that makes cultural change possible.

Dan Scheinman’s Blue Ocean Venture Strategy: Target Entrepreneurs Over 35

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Funding

Dan Scheinman (@dscheinm) graduated from Duke Law School in 1988  and went to work as an associate at DLA Piper  before joining the Cisco legal department. Once inside he worked his way up to General Counsel, then ran corporate development which included managing minority investments and acquisitions, and finally was general manager for Cisco’s Media Solutions Group before striking out on his own in 2011 as an Angel investor with an unusual–for Silicon Valley–investment thesis: supply “seed plus” financing to entrepreneurs with track records (another way of saying “over 35″). From his Angel List profile:

I am looking to fund great companies who are going to run out of seed money but are not ready for the A round yet. Operationally useful (helped Cisco go from 80M in sales to 40B), but also useful at ground zero. Invested/on boards at Tango, Arista, Zoom and more. To date, have funded 7 companies.

Sarah McBride profiled him in December 2012 with “Moneyball, valley-style: Investor uses age bias to advantage, funds older entrepreneurs,” noting:

When he started looking around for start-ups in which to invest, Dan Scheinman noticed something: twenty-something entrepreneurs building Internet companies usually had a much easier time lining up early financing from venture capitalists compared to their forty- and fifty- something counterparts.

Age bias, increasingly acknowledged as a widespread phenomenon in Silicon Valley, has created opportunity too. “I was so excited you would not believe when I saw the pattern,” Scheinman, the former head of mergers and acquisitions at Cisco Systems (CSCO), recalls.
[..]
Scheinman generally invests $50,000-$250,000 as part of a $1-$2 million funding round. He takes an active role, helping to line up other investors, generally taking a board seat, and providing strategy advice. Scheinman says he is pro-entrepreneur, no matter the age, but finds it easier to invest off the beaten track.

Scheinman elaborates on his strategy in a January 2013 profile by James Grundvig: ” ‘Moneyball’ Comes to Silicon Valley: What Technology Investor Dan Scheinman Sees

“Venture capitalists of Silicon Valley won’t invest in founders who are more than thirty-five years old. They don’t do it. Knowing that, I look at being a contrarian — an opportunist — to find opportunities where the herd isn’t,” he said.

“A typical venture capital firm will look at 1,000 business plans each year. They will invest in fifteen of them. They are trained for pattern recognition. By reviewing so many (startups) they see common patterns on which type businesses should succeed,” Mr. Scheinman said. “But there’s a problem.

“I sat on a venture capital pitch before. Some entrepreneurs don’t pitch well. But instead of engaging them, those in the room looked away. I realized I had to go to the source and ask questions. Go deep. Assume nothing. Look beyond the pattern for bigger returns,” he answered. “Like in Moneyball, I look out of pattern. That includes founders who are more than thirty-five years old.”

Noam Scheiber also talks to Scheinman as part of his research on “The Brutal Ageism of Tech:Years of experience, plenty of talent, completely obsolete?”

Though he had ascended to head of acquisitions at Cisco during his 18-year run there, he always felt as if his quirkiness kept him from rising higher. His ideas were unconventional. His rhetorical skills were far from slick. “I’m a crappy presenter,” he told me. “There are people in a room whose talent is to win the first minute. Mine is to win the thirtieth or the sixtieth.” Back in the early 2000s, he proposed that Cisco buy a software company called VMware. It did not go over well. “Cisco is a hardware company,” the suits informed him. Why mess around with software?

Most Silicon Valley investors, he came to believe, were just like the suits at Cisco: highly susceptible to “presentation bias” and, as a result, prone to shallow conventional thinking. “Paul Graham”—the founder of Y Combinator, the world’s best-known start-up incubator—“says the most successful [investor] makes his decisions in twenty-four hours,” Scheinman told me dismissively. It was time to set off on his own.

The only question was what to invest in. “I could see the reality was I had two choices,” Scheinman told me. “One, I could do what everyone else was doing, which is a losing strategy unless you have the most capital.” The alternative was to try to identify a niche that was somehow perceived as less desirable and was therefore less competitive. Finally, during a meeting with two bratty Zuckerberg wannabes, it hit him: Older entrepreneurs were “the mother of all undervalued opportunities.” Indeed, of all the ways that V.C.s could be misled, the allure of youth ranked highest. “The cutoff in investors’ heads is 32,” Graham told The New York Times in 2013. “After 32, they start to be a little skeptical.”

I think the idea of working with older investors on seed plus gives Scheinman several opportunities and creates several risks:

  • Opportunities
    • Longer track records, easier to do due diligence on them as people and managers.
    • Older entrepreneurs may see risks more clearly than opportunities but probably better able to execute in the face of setbacks.  They are probably better able to  dodge some potential setbacks
    • Less competition for the deal, potentially a friendlier or at least less adversarial relationship
    • Funding amount is commonly sought but not often available, less competition more demand
  • Risks
    • Because these are “undesirable” Scheinman will have to help them to transition from “not a good idea” to “numbers are so good how did we miss this.” He will lose the benefit of the doubt going with older entrepreneurs for follow on funding (e.g. an A round after seed).
    • Unless he is “last dollar in” (which may also be deals worth searching out) he needs a clear plan to support the team for what they will need for a follow on “A round” presentation at time of funding.

Related posts

Building a Business Requires Building Trust

Written by Sean Murphy. Posted in 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, Sales, skmurphy

“Don’t take business advice from people with bad personal lives.”
Frank Chimero “Some Lessons I Learned in 2013

One of the hallmarks for success in a business-to-business market is the ability to form personal relationships as well as professional business relationships. I am always dismayed when I read advice that advocates bait and switch or other forms of con games that erode trust and make it difficult for any startup to build relationships.

Anyone who always puts themselves first ends up with bad personal life. Startups that are only clear on their own needs rarely outrun the same fate. It’s the difference between a focus on funding or an “exit” and a focus on building a business.

Working with bootstrappers sometimes puts us on teams that are in desperate circumstances. Where they are able to translate time pressure and resource starvation into a bias for action from a change in perspective they often succeed–or at least move beyond the current crisis: success, like the horizon, is an imaginary line you can approach but never seen to cross. But where they use it as an excuse to take shortcuts that abuse prospects trust we sometimes have to part company. It does not happen very often, and it hasn’t happened in more than a year, but perhaps three or four times in the last decade we have had to walk away from a sales or marketing strategy we didn’t feel was in the long term best interest of the startup or their prospects.

“Fame is something that must be won.
Honor is something that must not be lost.”
Arthur Schopenhauer

Related posts

  • Treat Social Capital With The Same Care as Cash
  • De Tocqueville on Concept of “Self Interest Rightly Understood”
    You meet people who have a clear understanding of their own needs and seem to spend no time on anything else. But the deals that they make seem to based only on fear and threat. To create real opportunities in your own business requires that you explore and understand the needs and aspirations of your current and potential customers. To bring them ideas that will improve their lives and businesses requires that they trust you have their interests at heart when they talk about current problems that may expose their weaknesses and shortcomings
  • Keeping Your Customers’ Trust [Includes a Recap of Weinberg's 11 Laws of Trust]
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  • Sustaining Is More Important Than Starting
  • David Foster Wallace: The Only Choice We Get is What to Worship especially this section from Wallace’s talk:
    But of course there are all different kinds of freedom, and the kind that is most precious you will not hear much talked about in the great outside world of winning and achieving and displaying. The really important kind of freedom involves attention, and awareness, and discipline, and effort, and being able truly to care about other people and to sacrifice for them, over and over, in myriad petty little unsexy ways, every day. That is real freedom. The alternative is unconsciousness, the default-setting, the “rat race” — the constant gnawing sense of having had and lost some infinite thing.
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    One of the key tasks we help early stage teams with preparing for and executing successful negotiations.  There is a belief among some engineers that the best marketing and sales people are the most accomplished liars. In my experience nothing could be further from the truth. Most negotiations have long term consequences and involve interacting with people that you will encounter again and who know others you will encounter in the future.  I always assume that at some point in the future the folks I am negotiating will know the full truth of the situation and that very few secrets remain that way for long. In George Higgins‘ novel “Dreamland” a character remarks “I never forget and I always find out. ” I assume that about anyone that I am negotiating with.

Getting More Customers Workshop on March 25, 2014

Written by Theresa Shafer. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, Events, skmurphy, Workshop

Getting More CustomersLet’s face it, finding customers can be quite a challenge. In this interactive workshop, we will cover a variety of proven marketing techniques for growing your business: attendees will select one or two that fit their style and develop a plan to implement them in their business in the next 90 days.

  • Speaking – small groups, large groups, conferences, …
  • Writing – blogging, newsletters, articles, …
  • What Other People Say About You – referrals, testimonials, case studies, …
  • Getting Found When and Where Prospects are Looking: adwords, Craigslist, trade shows, SEO/SEM, …

March 25, 2014 9am-12:30pm
Sunnyvale, CA
$90 includes lunch

Register Now

“This workshop provided great material to bounce off of. SKMurphy created a fertile space for me to think about my business and plan a concrete step forward. Thank you.” Paul Konasewich, President at Connect Leadership

Recap Semifore MVP Clinic: Selling To A Team of Diverse Experts

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Audio, skmurphy


Series profile
Thinking about this using an OODA loop model – — Observe -> Orient -> Decide ->  Act

  • Orient part is sensemaking — its own kind of fast learning
  • Often takes a long time in a complex situation (e.g., all situations where learning is involved); subject to error because it’s “culture bound”
  • What we do
    • Asking what you see
    • Asking what are interactions (including between people, process, platform, and practices)
    • focused on  asking good questions / suggesting questions to research;  avoid giving advice
  • Audience: other entrepreneurs

Hosts

Presenter profiles (see extensive write up a “Semifore Execs Share Bootstrapping Lessons and 2014 Scaling Up Plans at Jan-17-2014 MVP Clinic)

  • Robert Callahan, COO Semifore, Inc.
  • Herb Winsted VP Business Development and Customer Care, Semifore, Inc.
  •  Semifore, Inc: niche software player in Electronic Design Automation founded in 2006 with a focus on tools for memory map management

Initial questions

  • How do we scale and grow the business
  • What strengths or accomplishments will you build on
  • What existing or constructed vantage-points (data-collection opportunities) have been or will be most useful?
  • What capabilities need to be developed
  • What’s the primary barrier or key challenges you need to overcome
  • talk about product and challenges -    cross functional nature
  • talk about what you have learned – making sense of current experience
  • look ahead 2014 talk about plans

Problem profile

  • complex sales environment
  • education / learning involved
  • many prospective clients have rolled their own
  • side issues = standards, interaction with purchasing
  • Usually find a pre-existing culture / product team /  team
  • more complex sales and adoption problem
    • touches hardware team (e.g. system architect, RTL developers)
    • software developers
    • documentation specialists
    • documentation consumers – e.g. verification and validation team
    • plus “team in larger team or org issues”

This is a mid-course correction conversation. We have a viable product that’s now robust

How do you scale the business?
Competitors are “in-house” solutions – first generation build out.  Semifore product replaces spreadsheets and in-house Perl scripts that represent a career path for internal tool developer

Questions from Audience 
Q: How many employees does Semifore have?
A: five direct plus some other outsource teams we draw on for specialized resources

Q: Do you monitor feature usage and see which ones are used and which ones are not? Do you remove unused features?
A: it’s on-premises software, there is no monitoring except in conversation with customer. Will be deleting some obsolete standards but have to provide a lot of legacy support and backward compatibility

John observed: consider inserting learning & feedback loops here.

Q: Do you have any services revenue?
A: We have  a hybrid license. basic level charge, tiers of users (groups of 10). we sell licenses in batches of 10 with a decreasing cost per incremental seat even as total site license fees go up. We have some project support service fees; there are also fees for “global license”

Q: Tips for growing from small groups to more users in the companies.  How to encourage spread inside customer
A: We believe the following have been key to our success:

  • spend face time with customers
  • dealing with the internal script-writers “who can do stuff.”
  • sales opportunity: when the script-writer leaves

Q: What percentage of customers did you have pre-existing relationships with (from Magma, as an ex-employee of that company, etc.)?
A: really only first customer, most of the rest were “cold starts”

Q: Also, is the tool compelling to any functional area as is, or is it compelling primarily because there’s a lack of resources for the previous internal approach?
A: a bit of both.  solutions exist in organizations that are not visible to management.

Notes from Live Session

Walking around the issues –

Rob: in the Valley back when disk drives looked like washing machines.  Finance roles, then managing channel and tech support.  EDA for last 15 years.  External advisor to Semifore, joined the firm a couple years ago.  growing the business from boutique to a real business.

Herb: business development VP — customer facing activities. started in the electronics business back in the ’70s. Projects in Europe, Japan, US, involved with Semifore since 2008. Semifore is the “right size” for connecting directly to customers.

Have both survived and added customers.  Tool crosses several different disciplines,  enabled by high level

Some standards IPXACT and System RDL but for the most part replacing either custom scripts or Excel input based techniques.
Rich Weber drew on experience at SGI, Cisco, Stratum One to create cross-compiler
selling to sw, firmware, and documentation teams proliferating from early beach heads

Respond to customers quickly. agile response.  Keeping customers.

Initial sell to a small team.  from 10 users to 100 in the same company. tool goes viral.  education challenges to begin using the tool.  Support requests are often enhancements to connect with their local requirements.

How to proliferate. Getting information early in the design / development process. Measure speed.  Perceiving the activity outside “my silo.”  It’s a blazingly fast product once it’s in place.

Q: does tool help to measure design cycle impact?
A: It’s really a technology driven company working with engineers who focus primarily on technology, but our customers live in a business environment. more recently customers are coming in and asking for automation of the creation of these architectural descriptions. Once the tool is adopted there is a shift from create the “perfect document” to ‘good enough distributed widely’.
Semifore enables a start from a terse description that can be elaborated.  EDA Process Workshop in Monterrey – need a good plan more than a good tool

Herbie: Making the transition from supporting a wide variety of design styles to a smaller subset that the industry as a whole seems to be converging on.
Sean: similar to what happened in networking where there was a convergence from “multi-protocol” to IP and Ethernet.

As an introduction strategy Semifore offers a sandbox model.

John: have you thought about a user conference where you can share lessons learned and foster “viral process”?

  • Rob: good idea, we could do it in the Valley
  • Herbie: one challenge is a lot of our customers are direct competitors and don’t allow us to talk a lot about what they are doing or even that they are using it.
  • John: breakfast at Coco’s might actually kick this off; talk about failure as much as glossy success. provides access to design ideas and source of marketing insights.
  • Sean: first Verilog user group was very low key.  It was at Denny’s.

Rob: engineer to engineer conversations have been of great benefit, but we have trouble translating that into business impact.

  • Sean: boiled frog problem- registers grow incrementally.  complexity ….  how to trigger the epiphany that “it’s getting hot”.  how describe the environmental question about increasing complexity.
  • Rob: we see people saying “we can’t manage any more. please help”
  • Sean: need to crystallize this customer’s business insight into tools for engineer customers at other firms (including prospects) into a compelling business proposition. Problem has scaled from hundreds to tens of thousands of registers

Sean: What is one thing that would change the equation:

  • Herbie: go to next level in revenues. A potential contract on the horizon would generate more human resource.
  • Rob: finalize and accurately describe tool functions, so can present / educate people at higher levels of the organization..

Q: What is your licensing model?
A:business predicated on one year licensing deals, renewals are based on internal uptake not multi-year contractual obligations. Avoids some issues where customers wait for end of quarter/year asking for large discounts

John: your great strength is your engineering view, but is this in some ways a weakness? Could you do more to see into the customer organization w/o more revenue?
Rob: A senior VP engineering has a P&L and a business view. We are a small tool in price, it’s hard to get their attention.

Take-Aways

  • Herbie: this session was out of our normal activity.  appreciate opportunity.  learned working inside orgs & managing projects: the reality of business situation, putting together the fifth team.
  • Rob: better mousetrap doesn’t always sell.  Semifore has good technology.  challenge is to refine the messaging.  describe “breakage is around the corner.”
  • Sean:  need to explain to prospects that they have gotten used to dealing with “broken”. I think Semifore’s challenge less in engineering more making business case to pragmatic buyers.

Semifore Execs Share Bootstrapping Lessons and 2014 Scaling Up Plans at Jan-17-2014 MVP Clinic

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, EDA, Events, skmurphy

Semifore , Inc. was founded in 2006 by Richard Weber based on his system design experience at several startups and some larger systems firms. All of them struggled with the need for  tools and methods to keep the hardware architecture in sync with software architecture and to ensure that the development and customer documentation was up to date. He developed an application that worked from a common specification to generate high level hardware description language specifications, software source code, and human readable documentation for the memory maps and configuration/control register behavior. Semifore has bootstrapped growth since 2006 and has seen their offering adopted at a number of major semiconductor firms. and system houses.

  • What: Semifore Execs Share Bootstrapping Lessons and 2014 Scaling Plans
  • MVP Clinic Format: Webinar with shared note taking in a PrimaryPad
  • When: Fri-Jan-17-2014 10am PST
  • Cost: No Charge
  • Register: https://www3.gotomeeting.com/register/251287126
Register Now

We have two members of the Semifore executive team joining us 10AM PST on Fri-Jan-17-2014 for a discussion of what they have learned about their success so far as a niche player in the Electronic Design Automation space and their plans to scale up in 2014. You can register to take part in the conversation at

  • Rob Callaghan, COO of Semifore Inc.
    Rob was previously  Vice President of Operations for sales and technical support at Magma Design Automation. Prior to Magma, he was Group Director of Business Development as well as Director of Sales Operations at Cadence Design Systems. He has worked with other large electronics firms such as L.M. Ericsson, Amdahl Corporation, and Memorex Corporation in the functions of Product Marketing, Field Operations, Finance and Accounting. His expertise includes strategic and operational planning, operations management, market research, and financial operations for organizations such as direct sales channels, product marketing, R&D operations, corporate business development, corporate mergers and acquisitions and strategic investments. He has a BS in Finance from the Menlo School of Business and a MBA from Golden Gate University.
  • Herbie Winsted, Vice President of Business Development and Customer Care
    Herb is a veteran of over 26 years in the EDA and Semiconductor industries. He has held positions of Director Business Development and Director IC Implementation and various individual contributor assignments at Cadence Design Systems. He has also assumed management responsibilities for CAD teams and IC layout groups at National Semi, GEC Plessey, and AMD. Herbie has also lead hundreds of multi-discipline automated layout projects in different roles at Silicon Valley Research (Silvar-Lisco) working with major Semiconductor companies worldwide. He has excelled at team building and establishing both business and personal relationships at every level of the organizations he has serviced. He has wide experience in creating marketing messaging, training, and sales collateral. He has always put customer requirements as his highest priority and excels at finding practical solutions that satisfy all parties concerned.

Background for discussion

Semifore Inc. is a software startup in Palo Alto Ca. The company provides a software product platform that automates and manages the register information for the Hardware / Software interface during the definition, specification, implementation and verification phases of the ASIC and/or FPGA design process. The company is privately held and has no external investors. It was founded in 2006 by Richard Weber who is currently the CEO of the company.

Currently the company has over a dozen paying  customers which are using the platform to deliver their chip sets to customers. Logo’s such as Altera, AMCC, Microsoft, and other large firms have embraced the tool and associated design methodology to reduce their design cycle time and improve their product functionality.

Semifore’s products are used by Systems Architects and designers, Verification Engineers, Software Development Engineers, and Technical Publications teams inside of Semiconductor companies.

The company has been funded via “bootstrapping” and is operated solely from operating cash flow. This has provided sufficient funds to get through the product development and early customer engagements that allowed Semifore to market, test, and refine the technology to a state of high reliability and functionality with low post-sales support requirements. The product does what we say it does and once it’s installed the product often goes viral.

The company has relied on trade show attendance and word of mouth to secure additional sales leads to qualify and move to a product demonstration. The customers for this product, are for the most part, currently internally developing their own solutions in this space.

Market / Customer Challenges (Lessons Learned 2006-2013)

  1. Internal solutions are viewed as “free” and they get the job done today. The cost is buried across many functions within the customer and the time hits they take are part and parcel of the “design silos” in most organizations.
  2. The teams that have “created” the internal solution often have a vested interest in keeping them alive.
  3. The currently employed internal “methodology” touches many organizations that may not be the purchasing entity or the driver for the decision or have the ability to overrule and drive a central technical solution throughout the organization. Many large customers have several different of internal solutions in this design space.
  4. This design problem is very niche and eclectic and often is not highly visible to upper engineering management. It’s noise to them. Education at all levels is required for buy in on this kind of tool.
  5. Internal solutions tend to be limited to file transforms and depend on rigid input formats to produce useful results. Very little true design intelligence for detecting correct semantics and interface capability to other tools or standards.
  6. There is considerable confusion regarding the status and capabilities of the “standards” that support this particular design methodology that adds to the tendency to “wait and see “ before making buy decisions.

Key Goals for 2014

  1. Expand the adoption by existing customers who have embraced the tools and succeeded using them in production.
  2. Build on current success to add new customers, large and small.
  3. Determine level of participation in existing standards committees and explore offering our proprietary language as a standard with endorsement from existing customers.

Update Fri-Jan-17: here is the audio for the event.

Product Market Fit Metrics

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Rules of Thumb, skmurphy

Q: I am considering metrics for an add-on new product launching in a well established company that  makes equipment to test electrical cables (for the last 29 years). We are introducing a new product that is an add-on to existing products (it is only useful if used with the existing product). This is a project that was pushed by our founder and has been developed for the past year. We were able to get a little bit of feedback along the way from customers but not much.

I recently moved into the product manager  position and one of the things I am trying to do with this project is set some metrics we can use to judge the success or failure of the project–something we have not really done before. This cheap product is not designed to make a lot of money itself, but the hope is that because of this add-on product we will be able to sell more of our main product. To that end I’m trying to come up with some way to help judge if that is really happening or not.

Below is what I have so far as possible options for key metrics to watch after we launch the product:

  • Total units sold (I see this as one of the least useful, but it feels like it has to be there for completeness)
  • Total Orders (i.e. how many companies are ordering them – goes along with units sold but tells more of the story)
  • New Customer Orders (Orders from first time customers – sign that we won business because of the new add on)
  • Orders with main product (These are orders from existing customers, but for new equipment with the add on)
  • Orders without main product (These are orders from existing customers without new equipment – implies retrofitting)
  • Repeat orders (Orders from customers who previously purchased the add on – implies they like the add on)
  • Website Interest (Individuals who navigate to the information page – implies right marketing message, compare to sales numbers)
  • Win/Loss Mentions (Number of times add-on product is mentioned as a influencing factor in a successful sale)

My questions are:

  1. Are these actionable metrics?
  2. Will these really provide me insights into the success of the project or help me to know when we need to change something?
  3.  Do you have better suggestions for metrics? Which are the best to focus on?

A:  At a high level, there are two sources of sales growth for an existing product:

  1. Selling more units to current customers (perhaps because they find additional uses for your primary offering or your add-on removes a blocker or dissatisfier for use in new areas).
  2. Selling units to new customers who have not purchased from you before. Here again you should look for attach rates – how often was the secondary offering included in the offer.

I think the metrics you outline are well thought out and would enable you to assess whether or not the addition of the new product is either driving greater adoption in existing customers or adoption by new customers. Here are two additions to consider:

  • Measure not just first order but a re-order from a new customer as a rough proxy for satisfaction in the same way you measure re-orders from existing customers (or split re-orders as from established or recent customers)
  • You don’t mention customer satisfaction or net promoter score; you might want to include those in your assessment (in particular if you can do a “before and after” to judge the impact of your add on offering).

One thing to probe for in conversations is what do current (or new) customers stop buying, stop doing, or stop wasting as a result of buying your add on. What are you replacing or substituting for (either with the primary product or the combo product). That might give you some additional insights into the total value of the combo offer (old plus add on).  This is initially more qualitative but you may be able to create categories or metrics as you continue to engage. See “The Early Bird Already Has The Worm” for some additional suggestions on this.

One final thing to consider would be to create a bundle that can be purchased if you can message for a category of customer applications/needs/use-cases that would benefit directly from the combo. In the beginning this could simply be bundling into the same shipment but if there is enough distinct demand it may be worth considering creating a single package or an integrated product that blends the combination. The theory here is that over time the retro-fit orders will subside and customers will either order the single or the bundle but not the add on stand alone if they understand it’s value for one or more applications.

Taking a step back the real question is what to design next, not whether to kill the add on product or not. The development costs for the add-on are sunk. Putting it a different way, you should have a consistent approach for evaluating whether to kill/obsolete/end-of-life any of your products that you are applying on a regular basis depending upon average or expected product lifetimes. Your competitors are hard at work attempting to obsolete your products as well as their own. Detecting when they have been successful or planning for how to beat them to the punch is worth doing systematically.

Proving the founder/owner wrong conclusively (or right) may be a less valuable use of your time than addressing the real issue: what are the top problems you need to solve to continue to grow your business. If you can, get the founder to expose the thought process and the data and customer stories that were examined or formed the context for designing the add on. See if there are additional insights for new products to be investigated. Also, I would not be too quick to discount practices in a company that has lasted 29 years: your firm is undoubtedly doing a number of things well and you want to take care not to break what’s working as you instrument the product management process and potentially start to kill products.

If you spend all of your time trying to measure decisions that were made before you took the role it’s not as useful pushing for additional conversations with customers, non-customers (who you believe might buy from you), your sales team, your support team, and channel partners. As a product manager you need to help the firm determine where to invest engineering/design efforts to address key opportunities. Of these the harder conversations to target are with non-customers (either  ‘no longer customers’ or ‘never were customers). See “Non-Customers Are Where Important Changes Often Start” for some more on this.

I think the original question points up the need for an ongoing assessment of “product/market fit,” even by mature or established firms with established products. Here are two related posts that suggest the search for a scalable business model does not have a finish line, all businesses must revisit this challenge periodically:

How To Thrive After An Acquisition

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Founder Story, skmurphy

Q: I was CTO and co-founder of a small technology startup that was recently acquired by a much larger firm. We have a two year earn out that I would like to collect. I see myself as a serial entrepreneur (this is my first successful acquisition but I have founded or co-founded several less successful startups in the last decade) but realize I should probably learn how to thrive in a large  firm environment as well.  In the next two years I would love to have learned how to operate in a public company  and to have a few solid wins where I’ve shifted the acquiring company’s business in a positive direction. Any advice about keeping sane and happy, and making sure I could actually make an impact at the new company.

First of all these are a great set of goals: stay sane and happy and learn how to make an impact in a large firm. Here are a couple of suggestions:

  • Attend manager / new manager training: this will allow you to meet other managers in the firm and make connections. It’s also a way to learn the “unwritten rules” of your new employer.
  • Ask to be assigned another manager as a mentor for an on-boarding period (60-90 days), with mutual consent you can continue beyond that point.
  • Attend the “engineering bagel meeting” or “nerd lunch” or brown bag lunches: if there isn’t a regular (e.g. once a week twice a month meeting where engineers present work that they are doing, offering to help organize an event where folks bring in lunch and can meet in a room or over Webex where one engineer presents some recent results and others can ask questions. Presentation might be 6-12 slides 15-20 minutes followed by Q&A and general networking. Rotate speakers from different groups and teams including your own.
  • Attend Miller Heiman sales training or Solution Selling sales training: protecting your budget and “tin cupping” from other departments for requisitions and project funding benefits from sales skills.
  • If your company was not the first acquisition seek out other CEO’s and founders whose company was acquired by your firm–whether or not they are still with the company–and ask for a coffee break or quick call to get some advice on what to watch out for and what they have found helped them.

Living in Anticipation With Schrodinger’s Leads

Written by Sean Murphy. Posted in 3 Early Customer Stage, 5 Scaling Up Stage, EDA, Sales, skmurphy

The following is a real conversation–at least to the best of my recollection–from a few years ago.

We met with a startup that had made a few sales of a translation product and was also doing some consulting work that leveraged the capabilities of the next generation product they were developing. The current product was in production use at several firms. The two founders were engineers who each had more than decade of practical experience doing the kind of technical translation work that they had developed the product to help automate.

They had invited us in to see if we could help them generate more leads and close more deals. We met in October in their office, it was  a 20′ by 20′ space in a small complex chock full of other technology businesses. They had a conference table up front, one desk along each sidewall, and a row of bookshelves along the back full of technical manuals and papers.

They told us and they had attended an industry trade show a few months earlier in June, which prompted me to ask, ”Just to help us get some understanding of your current sales process, what happened to the leads you gathered from conversations at the trade show?”

The CEO got a smile on his face and said, “we got about three dozen business cards from folks who stopped by the booth and were interested in our software!”

There was a pause that lengthened and I realized I needed to probe further.

“So what happened next?” I asked.

The CEO said, “well, two of people who gave us cards called within a few weeks after the show and we sold three licenses to one of them, the other decided not to go forward after we gave them benchmark results.”

This was great news. “50% is a great close rate after a demo for a product that costs $7,500 dollars:  what happened with the rest?”

The CEO jumped up and said, “We still have the leads.” He walked to the back of room and pulled out a small cardboard box about the size of one they ship 250 business cards in. He brought it back to the table and opened, taking out a bundle wrapped in tissue paper. I was reminded for some reason of the way that people who collect comic books or baseball cards carefully pack away the items in their collection.

He unwrapped the bundle and there were about 30 business cards in the middle. “See: we still have the rest of the leads. They are all right here!”

“Would you like us to put together a simple campaign where we e-mail them an update of what’s happened since the show and call them once or twice to see if they are interested in a longer demo or an evaluation?” I asked.

“No, that’s not why we asked you to come in, these guys will call when they are ready,” he answered.

So, that was their sales model, they would demo at a trade show and answer the phone. As we talked a little more I realized that they could not face initiating a follow up conversation, it was easier to imagine the leads appreciating like a mint condition stamp or collectible action figure in an unopened box. In their mind the prospects were becoming more desperate and at some point would have to call them.

Whether your odds of closing a lead are one in two or one in ten you cannot treat an opportunity like Schrodinger’s cat, possibly still alive as long as you don’t look too closely. The only way to get better at sales is to start following up and having serious conversations with prospects.

Many B2B startup teams find early customers by doing business with people they already know and referrals from friends that come to them as warm leads. But in order not only to sustain but to grow your business you have to learn how to do business with strangers.

See also “Six Tips for Writing an E-Mail to a Prospect or Potential Partner

For why they actually called us in see Price Based On Your Value To The Customer’s Situation

Engineering Your Sales Process Workshop Feb-8 Early Bird Closes This Weekend

Written by Sean Murphy. Posted in 2 Open for Business Stage, 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, Events, Sales, skmurphy

Register Now Just a heads up that the early bird rates for our next “Engineering Your Sales Process®” Workshop close Sun-Jan-28.

This is the same workshop that Scott Sambucci and Sean Murphy offered at the Lean Startup Conference in December 2012 but we are limiting the attendance to 12 entrepreneurs to allow it to be even more interactive and in depth. Our focus is on entrepreneurs who are selling complex new products to businesses and face these challenges among others:

  • You can’t get potential customers to call back.
  • Prospects won’t make a decision.
  • Prospects like what they see in beta and ask for extensions but will not buy (yet).
  • Your deals stall.
  • Prospect stays with the status quo.

This interactive workshop will help you learn from these problems by using conscious planning and experimentation. Traditional sales training stresses “every no moves you closer to a yes.” Our approach to engineering your sales process says instead, “What looks like noise is often actually data.” Designing and debugging a repeatable sales process is key to a sustainable business, and we’ll address how to diagnose common problems to determine likely root causes. You will leave with a scientific approach to understanding your customers’ needs and their buying process so that you can scale your business in harmony with it.

ABOUT THE SPEAKERS:

Sean Murphy, CEO of SKMurphy, Inc. has taken an entrepreneurial approach to life since he could drive. He has served as an advisor to dozens of startups, helping them explore risk-reducing business options and build a scalable, repeatable sales process. SKMurphy, Inc. focuses on early customers and early revenue for software startups, helping engineers to understand business development. Their clients have offerings in electronic design automation, artificial intelligence, web-enabled collaboration, proteomics, text analytics, legal services automation, and medical services workflow.

Scott Sambucci is the Chief Sales Geek at SalesQualia, a company dedicated to improving sales performance. With more than 10 years in Silicon Valley and 15 years in sales, management, and entrepreneurial roles in the software and data industries, Scott merges the attributes of a successful salesperson and entrepreneur, putting his experience to work for SalesQualia clients every day. He’s lectured at numerous universities across the world, presented at TEDxHultBusinessSchool in San Francisco, and recently published  ”Startup Selling: How To Sell If You Really Really Have To And Don’t Know How.”

Register Now

Impatience For Success Works Against Learning

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Consulting Business, skmurphy

Q:  We’ve sculpted our product in a niche that was  a subset of the larger target audience. But it is not a niche product–and our investors agree–it’s aimed at the the middle of the bell curve. We feel impatient with our progress and are considering a significant investment in a traditional PR firm; we hope this will dynamite our whole effort with a big splash.

Most successful products start out in a niche and move to a sequence of larger/adjacent niches. Some examples:

  • Facebook started at Harvard and moved to the Ivys before conquering the world.
  • Google is rolling out their high bandwidth fiber solution in Kansas City not nationwide.
  • Proctor and Gamble launches most new consumer products in a test market to learn more before scaling up.

This is normally because

  • your offering will provides more value to a small subset of the total population it may ultimately appeal to.
  • there may be to be ecosystem or supporting vendors/applications in place to really be useful
  • social proof and word of mouth are easier to establish in a niche and a new product lacks both, which retards its acceptance among pragmatics, early majority, late majority, and laggards.

I would be careful not confuse the demand curve you seem to be promising your investors with the current market you can readily access, and the subset of prospects who are willing to abandon their current solution to embrace yours.

Traditional PR involved actual relationships between the PR agency and journalists, analysts, and other opinion makers. The traditional PR professional would ask a number of tough questions of the client as a proxy for the journalists et al to improve the story before the client told it to anyone else. The PR professional had a reputation to maintain with the writers (who were few because they were associated with an expensive printing press or radio/TV station) and was careful to vet the story for “newsworthiness.”

With the rise of new media and dramatically lower costs of publication/distribution for text, audio, and video these relationships have changed. But it’s still important to cultivate relationships with writers, analysts, and other opinion makers whether you do so directly or with the help of an agency.

One of the better books on the changes that the Internet brought to media and marketing is The Cluetrain Manifesto which is available on-line at http://www.cluetrain.com/book/index.html

Most of the teams we work with are targeting niche markets (at least initially) where it’s more effective to take part in ongoing conversations in a few communities focused on the need, problem, or technology. There are very few true overnight successes and banking on a big bang launch over the steady accumulation of customer case studies and endorsements (both formally in your own messaging and informally through “word of mouth” in communities with a natural interest in your offering) seems shortsighted. At a minimum you should have a Plan B for what you will do if the “launch” fails in third party media–it should not be to go out of business.

If you cannot think of two of three alternatives to a “big bang” launch that spread the same budget and effort over a longer period of time that allows for experimentation and iteration–and therefore more learning–you should probably think harder.

As the Kamikaze pilot instructor said to his class, “I want you to watch carefully because I am only going to do this once.” It’s hard to learn from a big bang launch.

The goal of a marketing interaction isn’t to close the sale, any more than the goal of a first date is to get married. No, the opportunity is to move forward, to earn attention and trust and curiosity and conversation.

Seth Godin in “Free Coffee, Next Exit

You Tried: It’s OK To Make a Change

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage

“In restless dreams I walked alone,
Narrow streets of cobblestone.”
Simon and Garfunkel, “The Sounds of Silence”

Nothing new ever works, but doing the same thing over and over again without variation or detecting and correcting mistakes is insanity (or at least bureaucracy). So many startup overnight success stories that stress the importance of passion and persistence leave that part out. In the early going especially you are always wrestling with whether to:

  • Retry without variation: persevere using the same methods to achieve the same near term goals.
    • This is the absence of learning.
    • Retry without variation (not wasting any time trying to learn) is an anti-pattern beyond third or fourth iteration. Unless you are playing a slot machine or are in a similar situation where you can either make one move or not play
  • Retry with variation: adjust your methods but keep aiming for the same near term results.
    • This is single loop learning. Also called Plan-Do-Check-Act or Build-Measure-Learn or “being in flow.”
    • Here the challenge is more complex: how to recognize the limits of a particular approach and try a different one. It’s easy to switch between strategies or techniques that you are comfortable with, but it cam be intensely uncomfortable to learn a new approach and incorporate it into your repertoire. Starting over as a novice can be daunting.
    • the goal is not achievable or there are better near term goals given your current resources and knowledge.
  • Play a different game: challenge your assumptions, change your goals, give up or defer one or more current objectives and abandoning some or much of your current approach.
    • This is double loop learning. Also called “lateral thinking” by Edward DeBono or associating in Innovator’s DNA.
    • Here the challenge is to determine if another technique or strategy–one that you may be unfamiliar with or have little expertise with–will allow you to reach your goal, or if you need to adjust your goals to something that’s feasible.

Chris Argyris developed the concept of single loop and double loop learning. In his “Teaching Smart People How to Learn” he outlines a set of attitudes that work well to foster single loop learning but create a “doom loop” when a change in goals (double loop learning) is required.

There seems to be a universal human tendency to design one’s actions consistently according to four basic values:

  1. To remain in unilateral control;
  2. To maximize ‘‘winning’’ and minimize ‘‘losing’’;
  3. To suppress negative feelings; and
  4. To be as ‘‘rational’’as possible—by which people mean defining clear objectives and evaluating their behavior in terms of whether or not they have achieved them.

The purpose of all these values is to avoid embarrassment or threat, feeling vulnerable or incompetent.

If these four rules are your working default it is very difficult to engage in double loop learning.

  • unilateral control: works against getting a broader perspective from others, asking for help and advice.
  • minimize losing: you have to admit to yourself that your current approach is not working if you are going to question your assumptions and change goals and/or methods.
  • suppress negative feelings: sometimes it’s necessary to feel bad to develop the willingness to change and improve.
  • clear objectives and pass/fail thinking: innovation requires a willingness to tolerate ambiguity, allow for evolving objectives that are fuzzy, and say better or worse not pass or fail.

I don’t think it’s a matter of “getting comfortable with failure” as much as “getting comfortable at getting better” instead of holding yourself to a standard of perfection. I think it’s less about “failing fast‘ and more about “failing well” or “failing safely.” Single loop learning is being in flow, double loop often requires a period of discomfort, uncertainty, and restless dreams.

See also

Case Study: eMOBUS Experience With SKMurphy

Written by Sean Murphy. Posted in 5 Scaling Up Stage, skmurphy

We normally we work with a team of two to five engineers or scientists who have working technology and deep domain knowledge but who need help identifying and exploring opportunities for scaling up their business based on building long term customer relationships that provide recurring revenue. The eMOBUS team knew how to sell and had deep domain knowledge for cellular spend management, they wanted practical insight into how to incorporate software technology into their service offering in a way that aligned both with customer needs and larger technology trends.

Moe Arnaiz, CEO of eMOBUS co-founded the company in 2005 to bring stability to the fragmented world of mobility management. Under Arnaiz’s direction, eMOBUS has grown from an idea into a rapidly growing cloud computing company – providing web services and licensing its platform to various VAR’s and consulting companies. eMOBUS is the only mobility management platform to take a preventative cost containment approach, which has earned the respect of industry leaders such as Netsuite, Johnny Rockets, Master Halco and Swinerton Builders. Moe honored as one of “40 under 40″ to watch by San Diego Metropolitan Magazine in 2010.

SKMurphy has helped us with several key transitions in our business over the last four years. The impact on our business has been to move from a carrier reseller model under increasing margin pressure and shrinking differentiation from other resellers to a fast growing technology enabled service organization who offers a platform that is so compelling that we are licensing our technology to other providers in addition to continuing to use it to power our own business.

From the beginning Sean challenged us to change our perspective from acting as an agent for the carrier to an advocate and trusted advisor for our customers. This resulted in a shift in our focus from procurement and transactions that migrated a customer onto a different carrier to a monthly service that monitored their business needs and current billing,  making adjustments as necessary to get them the most cost effective configuration with either their current carrier or a new one.

As we continued to work with SKMurphy they helped us to identify and explore opportunities where software-enabled solutions not only allowed us to scale the business but allowed us to focus on building long term relationships with our customers that provided recurring revenue.

They were also helpful in recruiting our CTO, who has migrated our business from Excel and Quickbase to a cloud solution that is scalable to the needs of our growth plans. This migration to the cloud has also enabled us to offer a platform as a service to telecom expense management firms who wanted to add a mobility management component to their offering. Through out the process, SKMurphy provide insight into the technology trends that we should leverage.

I think two of the hardest challenges that a startup faces are hiring the right people and winning the early deals that establish credibility. Both of these problems are ultimately the CEO’s responsibility. Sean was available as needed, working nights and weekends when we did. What was surprising was that each new level of deal required us to learn a new way of selling.

We have other advisors whose sales, financial operations, and technology insights we value, I think where Sean has been most helpful was in thinking through and then executing the switch to a software-enabled services firm selling subscriptions from a rep firm focused on the next sales transaction.

As the CEO I have gathered a team of talented advisors because I want to make effective decisions. Their value is in the questions that they ask that force me to look at the problem from a variety of perspectives.

The Unfortunate Return of the Mainframe IT Mindset

Written by Sean Murphy. Posted in 5 Scaling Up Stage

“Software developers and users come from very different perspectives, software developers always see an update as a good thing. We’re biased, because we have an emotional attachment to our own work, towards thinking that the next update is going to be the greatest thing ever. I wish developers throughout the industry would recognize the cost that we inflict upon users because of our obsession with constant change.”

Jono Xia quoted in a Computerworld article “Ex-Mozilla worker rails against developers’ love of constant change, frequent updates” July 16, 2012. He was answering questions related to two blog posts

In “Everybody hates Firefox updates” he offers three reasons why users hate updates:

  1. The download/restart takes forever and interrupts your work with a bunch of intrusive dialog boxes.
  2. The update may break stuff that you counted on, either by removing features you were using, or by breaking compatibility with other software you use. Maybe the developers never tested your use case, or worse – they tested for it but decided it didn’t matter because only 2% of users used it. Tough luck to you if you’re one of those 2%.
  3. If they changed the interface, your productivity will be lower than usual until you’ve spent a bunch of time learning a new interface. Even if the new interface is “better”, in some theoretical way, to some hypothetical average user, re-training yourself to use it is nothing but a time sink.

It is almost as if SaaS vendors are mimicking the behavior of mainframe IT groups from the 1980′s:

  • We can only support one system.
  • We make upgrades when it is convenient for the system administrators.
  • We don’t have time to plan for a rollback, it’s faster just to flash cut to the new system and continue patching and updating to fix the consequences.

The reality is that your customers have complex workflows that are not entirely under your control but dependent upon your software. Much has been made about the cost savings of supporting only one version but I think that is less important than the cost you can impose on customers with interface incompatibilities and forced updates. One model to consider is supporting at least three releases in parallel:

  • old and reliable: the devil you know, but obviously with fewer features.
  • current production version: more features and some bugs
  • new or beta: more features and more bugs

Also develop the capability to roll back a change if it’s clear in the first 48 hours that there are serious problems. With on premises software your customers will take this upon themselves to run several versions in parallel, but SaaS offerings for business customers need to consider allowing concurrent version in use at the same customer. This allows you to tell when a new feature is actually useful because customers choose to adopt it.

“Innovation is not what innovators do but what customers adopt.”
Michael Schrage

Four Excerpts from Valve’s Employee Handbook That Belong In Yours

Written by Sean Murphy. Posted in 5 Scaling Up Stage, Rules of Thumb

A link to Valve’s Employee Handbook made it to front page of Hacker News recently and I can see why, it makes for very interesting reading. Here are four excerpts you should consider for your company’s employee handbook:

“This company is yours to steer–toward opportunities and away from risks.”
Valve Company Handbook (first edition 2012)

This recognizes a reality that echoes Kevin Kelly’s “we are all steering.” I sometimes encounter entrepreneurs who want to hire (or have hired) employees who are waiting to be told what to do;  it’s amazing how little leverage this model affords a business. It may be necessary for a junior new hire but Valve’s model undoubtedly unleashes a lot more creative energy and insight.

“We are all stewards of our long-term relationship with our customers. ”
Valve Company Handbook (first edition 2012)

In his 2011 analysis of where Cisco had failed to manage incentives, Larry Lang observed that a mature firm faces serious challenges in maintaining an employee focus on customer relationships when cultivating internal relationships is often a more reliable model for advancement and increased compensation. What is significant about Valve’s approach is that they trust everyone to interact with customers and feel responsibility for the relationship–it’s not just the job of the sales or marketing or customer service group.

“Everyone is a designer. Everyone can question each other’s work. ”
Valve Company Handbook (first edition 2012)

Intel has a model for “constructive confrontation” as well; the risk is that it can encourage rude and destructive behavior. In his description of “The Cabal: Valve’s Design Process” (linked from the Handbook) Ken Birdwell outlines some lessons learned from the intense interactive group sessions:

  • Square Pegs: practically speaking, not everyone is suited for the kind of group design activity we performed in the Cabal, at least not initially. People with strong personalities, people with poor verbal skills, or people who just don’t like creating in a group setting shouldn’t be forced into it. We weighted our groups heavily toward people with a lot of group design experience, well ahead of game design experience. Even so, in the end almost everyone was in a Cabal of one sort or another, and as we got more comfortable with this process and started getting really good results it was easier to integrate the more reluctant members.
  • Smaller teams initially. For current projects, such as Team Fortress 2, the Cabal groups are made up of 12 or more people, and rarely fewer than eight. The meetings ended up being shorter, and they also ended up spreading ideas around a lot quicker, but I’m not sure I’d recommend that size of group initially.
  • Include an expert from every functional area (programming, art, and so on). Arguing over an issue that no one at the meeting actually understands is a sure way to waste everyone’s time.
  • Write down everything. Brainstorming is fine during the meetings, but unless it’s all written down, your best ideas will be forgotten within days. The goal is to end up with a document that captures as much as is reasonable about your game, and more importantly answers questions about what people need to work on.
  • Not all ideas are good. These include yours. If you have a “great idea” that everyone thinks is stupid, don’t push it. The others will also have stupid ideas. If you’re pushy about yours, they’ll be pushy about theirs and you’re just going to get into an impasse. If the idea is really good, maybe it’s just in the wrong place. Bring it up later.

Because Valve has no formal hierarchy, or has a fluid hierarchy, they need a process like cabals to act as a crucible for making sure that all of the relevant people have been consulted and a decision is quickly communicated widely. I think there are different process needs when you are in discovery or exploration mode vs. delivery or execution mode and the nature of questions or challenges need to align with needs of the project.

It helps to make predictions and anticipate nasty outcomes.
Ask yourself “what would I expect to see if I’m right?”
Ask yourself “what would I expect to see if I’m wrong?”
Then ask yourself “what do I see?”
If something totally unexpected happens, try to figure out why.

There are still some bad ways to fail. Repeating the same mistake over and over is one. Not listening to customers or peers before or after a failure is another. Never ignore the evidence; particularly when it says you’re wrong.

Valve Company Handbook (first edition 2012)

I think this model for planning is the single more important take-away. You need to write down in advance what success, failure, and the boundaries of the expected are. In the middle as you are making the switch from discovery to delivery it’s easy to persevere needlessly or pivot endlessly or simply stall. Being clear about what constitutes a success that merits further investment, a failure that triggers plan B, and an anomaly that requires further study make it less likely you will lose your way.


Michael Abrash posted “Valve: How I Got Here, What It’s Like, and What I’m Doing” on April 13, shedding more light on Valve’s model:

So Valve was designed as a company that would attract the sort of people capable of taking the initial creative step, leave them free to do creative work, and make them want to stay.
[...]
Trust is pervasive. All of Valve’s source code is available to anyone in Perforce, and anyone at Valve can sync up and modify anything. Anyone can just up and work on whatever they think is worth doing.
[...]
To be clear, Valve hasn’t magically repealed the realities of developing and shipping products. We’re all human, so teams sometimes argue (and sometimes passionately) about what to do and how to do it, but people are respectful of each other, and eventually get to a consensus that works. There are stresses and more rigid processes when products are close to shipping, especially when there are hard deadlines for console certification. Sometimes people or teams wander down paths that are clearly not working, and then it’s up to their peers to point that out and get them back on track.
[...]
Also, don’t think that people randomly come in every day and do whatever they feel like doing.
[...]
People commit to projects, and projects are self-organizing; there are leads, but they’re chosen by informal consensus, there’s no prestige or money attached to the label, and it’s only temporary – a lead is likely to be an individual contributor on their next project. Leads have no authority other than that everyone agrees it will help the project to have them doing coordination. Each project decides for itself about testing, check-in rules, how often to meet (not very), and what the goal is and when and how to get there. And each project is different.
[...]
It’s hard to believe it works, but it does. I think of it as being a lot like evolution – messy, with lots of inefficiencies that normal companies don’t have – but producing remarkable results, things that would never have seen the light of day under normal hierarchical management.
[...]
Valve’s long string of successes, many of them genuinely groundbreaking, is strong evidence that the hypothesis that creative people are the key to success is in fact correct, and that the structuring of Valve around those people has been successful.

Startup Stages Overview Video

Written by Sean Murphy. Posted in 1 Idea Stage, 2 Open for Business Stage, 3 Early Customer Stage, 4 Finding your Niche, 5 Scaling Up Stage, skmurphy, Startup Stages

This is Sean Murphy for SKMurphy, Inc.  I want to talk to you about our startup stages model and understanding that risk reducing milestones that separate each stage.

We break the startup journey into five stages.  In each stage you will explore different options and converge on a key risk reducing milestone. Starting from idea or formation, moving through open for business, early customers, finding your niche,  and scaling up.

In the Idea and Formation stage you are searching for a customer need, a problem solution fit, and a team. You know you are done when you have a problem that energizes a team that is mutually accountable and jointly capable.

In the Open for Business stage you are searching for a business model and proof of value. This allows you to formalize the team commitment and make firm offers at a price.

In the Early Customer stage you are searching for proven value, and the proof is that customers actually pay you, not just tell you that they will pay, they actually pay. That’s only possible once you are set up and are able to transact business.

In the Finding Your Niche stage you now have a target customer type that you are going to select from customers that you have already done business with who reference each other’s buy decisions.  You need to learn the domain language of that specific customer set and learn how to find similar customers.

In the Scaling Up stage you are now looking for product scale. This requires that you have a repeatable scalable process, that you can identify additional niche markets , and identify additional opportunities. What was heroic has to become routine. Now you are adding employees who are specialists.

In each stage we see this same pattern of exploration and convergence. You are going to look at many options and then converge on key solutions.

Thank you, this has been Sean Murphy for SKMurphy, Inc. We help technology firms find early customers and early revenue.

Zoom In For Traction, Zoom Out For Impact

Written by Sean Murphy. Posted in 2 Open for Business Stage, 4 Finding your Niche, 5 Scaling Up Stage, skmurphy

“If you’re doing something big, people will compliment you. Most will give you accolades or be quietly supportive. But it’s those who simultaneously support and challenge you who can help.  The best teams know this. They embrace feedback and seek criticism. They find ways to change and improve. And they know that when someone criticizes them, it’s an indication of respect. Only the people who really care risk helping us improve. ”
Brendan Baker in “Seek Knowledgeable Criticism” h/t to Rafe Needleman

Your startup is  a work in progress.  When most entrepreneurs evaluate where they are it’s difficult not to include the promising future they foresee naturally ensuing from current efforts (or on bad days the certain doom no matter what they do).

The first self-assessment to make is “do we have traction?” By traction I mean the ability to set and hit goals that increase your knowledge of the market or reduce the risks associated with becoming viable. There are many milestones that are necessary to enable a real goal that in and of themselves don’t increase your knowledge of the market or reduce the risks associated with viability. Some examples:

  • Getting incorporated, registering a domain, getting a bank account, getting a Federal Tax ID, etc.. These are all important steps to be able transact business that no one on your team may be familiar with, but they are  not goals. They don’t reduce your risk or increase your knowledge of the market.
  • Spending money on tools, equipment, services, etc… You may never have hired an attorney or an accountant before or setup an account on a cloud service , and it’s possible to pick the wrong person or provider, but it does not reduce your risk.

If you don’t have traction you need then zoom in and narrow your focus. Ask for specific advice on how to understand the market opportunity, verify that you have identified the key risks that you face in the near term, and how to reduce or minimize one or more risks that you face. Here the most helpful criticism can take the form of questions:

  • How are we measuring … how far have we come since…
  • Who are we benchmarking our progress against and why?
  • What have we already tried to solve this problem and what has been the result? What have we learned?
  • What is the real problem that we are trying to solve?
  • What can we accomplish in the next two to three weeks with the folks already committed to the team.

These questions can provoke a conversation that can help you form a plan of action for the next few weeks that will improve your traction. Once you have that plan you can present it to friends and advisors for feedback and critique.

The second self-assessment to make, if you are satisfied that you have traction is to determine what are the next set of  realistic goals that, once achieved, will significantly enhance your viability or impact for your customers. Now is the time to zoom out and consider a broader context for your next set of actions.  Here the most helpful criticism can take the form of different questions:

  • How close are we to your next goal? What should we start measuring once we achieve it? What metrics no longer matter or are now counterproductive?
  • What relationships have we created that can now help you grow your business?
  • What are the most significant constraints on our growth or ability to add value to customers?
  • What problems have we promoted in solving the ones that we faced earlier?
  • What core values do we need to hold on to as we grow?
  • What specialists do we need to add to the team on a temporary,  part time, or full time basis?

Once you have those answers reviewing them with customers, partners, and advisors can yield additional insight.

Learning From Netflix: Lenny Greenberg’s Response

Written by Sean Murphy. Posted in 5 Scaling Up Stage, skmurphy

Lenny Greenberg, Founder and CTO of Assistyx, e-mailed me a long and thoughtful response to my “Learning from Netflix” post. In fact it was is good that I am publishing it with his permission.

There are a lot of lessons we can learn from this:

  • It was smart for Netflix to look at their streaming and DVD business differently and treat them as to different operating models. Running them operationally as separate businesses was necessary. – Having a separate pricing model for both was inevitable. Bandwidth and streaming content isn’t free. This separate pricing was inevitable. They could have survived the poor roll-out over time; we can all theorize how to best communicate a price hike.
  • It was a huge mistake was to imagine that the splitting of the businesses operationally and from a revenue perspective required two totally separate businesses under different names. A large part of Netflix’s value is their brand; in one stupid move the value of that goodwill plummeted. They were willing to toss aside the goodwill of the Netflix brand very casually. If you have built a great name, leverage it, don’t toss it. Even laundry soap companies know that.
  • No one seemed to care a bit about the customer and their ratings, queues, and ease of use. This was inexcusable. Even companies as backward and clumsy as AT&T have figure out how to give you a single bill.

Assuming that these types of strategic decision require some board approval; one wonders where all the “smart” people were.

As for disrupting their own business, they did that when they introduced streaming and got wide adoption. They were willing to cannibalize their “cash cow” to stay competitive. That was important. Splitting the user experience and rebranding was disruptive, but not in the good way.

My question is, did they resuscitate the Blockbuster brand from near death?

Refine and Curate Your Thoughts as FAQs, Articles, and Talks

Written by Sean Murphy. Posted in 4 Finding your Niche, 5 Scaling Up Stage, Blogging, Consulting Business, Rules of Thumb, skmurphy

Prospects gain an appreciation for your expertise and ability to understand and to solve their problems through what you write, what you say, and what your customers’ say about you. You should have a plan for developing referrals and testimonials, but I want to focus writing and public speaking as opportunities to demonstrate your expertise and give prospects a reason to believe that you can assist them. These outbound messaging strategies will complement your referral program and are essential to attracting new customers and cultivating valuable long-term business relationships.

Here are some suggestions for practices that will help you routinely refine and curate your thoughts.

Written content:

  1. Collect Good Questions & Your Good Answers: When you get a good question from a prospect or a customer take the time to write up a succinct answer in a follow up e-mail (even if you have answered it in a phone call or face to face meeting).
  2. Refine & Generalize Your Good Answers: save your e-mail in a special folder for “good answers” and set aside time every week or month to reviewing and refining it so that it becomes a more general answer that’s applicable to more than just the person you initially answered it for.
  3. Start a FAQ on your website: If you don’t have one it’s worth considering starting a “Frequently Asked Questions” list. If a particular question indicates you have a defect in our standard presentation or marketing materials it’s more appropriate to fix the source of the question instead.
  4. Reformat Your Generalized Good Answers: Convert good answers into articles or blog posts.

Talks

  1. Make the Time to Rehearse: Always leave time to rehearse in front of at least one other person before you give the live talk.
  2. Record Your Talks: Record at least the audio for your talks and listen to both your presentation and any Q&A. Listen to it again a few days later and a month or two later.
  3. Consider Writing an Article: either as a leave behind instead of your slides or as another blog post.
  4. Never Give a Talk Only Once:  Considering the cost in time to develop and rehearse a good talk, you want to find at least three opportunities to give a talk or variations on it.
  5. Videotape A Good Talk In Front Of An Audience: Once you have given a talk two or three times live either do a video recording of it or arrange to have later versions videotaped. You will look and sound much better in front of a live audience with a talk you are comfortable giving and this will come through on the video. Consider editing it into a couple of 5-10 minute chunks if you can to use as teasers,  summaries, or good stand-alone content.

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