My Interview With Yesware

Last week Jessica Stillman, a freelance writer for the Yesware Blog, contacted me to do an interview on the topic of CRM compliance. See the full interview here. One of the fundamental challenges with CRM compliance is that sales reps often don't understand why managers need them to do lots of data entry because they don’t know what managers are actually doing with the data.  The main point I made in the interview was that managers should be much more transparent on this. Not only should they show their reps how they use the data to manage their business and make good decisions and communicate what’s happening on the ground up to the board and executive team, managers should take it a step further. They should actually allow their reps present directly to the executives and/or board using reports that pull their own individual data from the CRM system.

I found that doing this is extremely empowering to reps and dramatically reduces the friction that comes from low CRM compliance.  If you find this topic interesting, I recommend checking out the full post.

Deviating From Your Core Competency

Related to Mondays post on core competences, it's worth mentioning that there are instances where deviating from your core competency can be a good idea. In fact, some businesses are able to leverage their initial core competency to enter entirely new businesses. And in some cases those businesses have become the major driver of profits. One example of this was General Motors. Everybody knows that General Motors' core competency was making and marketing automobiles. What many people don't know is that back in the early 2000s, most of their profit was generated by their financing arm, GMAC.  So in reality, their core competency wasn't making cars, it was lending people money to buy cars. GMAC was eventually spun off; likely to allow GM to put their focus back on making and marketing cars, and because the car business was dragging down the value of the financing business.

Lots of other businesses find that financing can be more profitable than their core business. Every time I go to a clothing store like Banana Republic they practically beg me to sign up for their store credit card. They're willing to give consumers huge discounts on their clothes (their core product) just to get them to sign up for their credit card. Sure, they probably have found that their credit card carrying customers are more loyal and buy more clothing when they shop, but I guarantee a large portion (in some cases, a majority) of these stores' profits comes from their credit card businesses.

Another example of an industry that has deviated from its core competency is higher education. Large schools like Harvard have found that they make a lot more money managing their endowments than they do selling tuition. Depending on the year, Harvard’s endowment has made 5, 10 or even 20 times more than they've made in total annual tuition. Further, in 2004, Harvard’s top five endowment managers made $78 million in annual compensation – that's 100 times more than the school's president made in the same year.

So, arguably, Harvard's core competency – and frankly, core business – isn't delivering a great education, its real core competency is managing its assets.

Of course there's nothing wrong with using your core competency to create a second, more profitable business. It reduces business risk and contributes to growth. Shareholders love it. But it can reduce focus.

As I wrote on Monday, trying to be good at too many things is dangerous.  And when you get too big, putting your focus in too many places puts the thing that you do really well at risk. And losing focus on that thing is even scarier when that thing is propping up an even more profitable business.

Sticking to Your Core Competency

I've been thinking a lot recently about companies and their core competencies. The idea that a company with a few employees and only a little bit of capital that focuses on only one thing can do that thing more effectively than a billion dollar company with tens of thousands of employees is hard for many people to comprehend. Bijan Sabet wrote about this a while back when he pointed out that so many of the embedded iOS apps have been replaced by applications from tiny startups. From his post:

The default notes app has been replaced by Simplenote

The default messenger app has been replaced by Kik

The default calendar app has been replaced by Calvetica

The default music app has been replaced by exfm, soundcloud and rdio

The default mail client has been replaced by Sparrow

Granted, Apple wasn't necessarily competing aggressively in all of these areas.  But the reality remains that a small group of people that focuses on one thing will always outperform a large group that focuses on lots of things.

With some of this in mind, I came across a blog post by Paul Levy last week on the increasing trend of large health systems getting into the payer space. Due to the growing pressure on reimbursement rates and the increasing prevalence of population health, it only makes sense for health systems to be inclined to cut out a middleman (the private insurers) and become more horizontally integrated. Health systems are finding that they can organize and work directly with large pools of patients (employers, trade groups, unions, etc.) and, potentially, insure and care for them more cost effectively.

While on the surface this may seem like a great idea, Levy points out in his post that many large hospitals have enough problems improving their existing businesses in this complex and rapidly changing healthcare environment:

Here's what I think, based on unscientific site visits, surveys, and discussions with hospital leaders. The vast majority of hospitals--and especially academic medical centers--have barely begun to crack the operational problems that exist in their facilities. The quality and safety of patient care are substandard, compared to what they might be and what has been demonstrated in comparable facilities. The degree of patient-centeredness, likewise, needs major work. Finally, the engagement of front-line staff in process improvement efforts is scattered.

Despite this, 1 in 5 health systems intend to become payers by 2018. And this is where the notion of core competency comes in. Given the massive transition that healthcare is going through -- from managing sickness to managing health -- might some health systems be wise to focus on improving and creating a competitive advantage on what they already do well? As opposed to entering a complicated and risky new industry (health insurance company profit margins generally hover around a very low 4% and the industry is subject to paralyzing state and federal regulation).

Just like Apple has wisely decided to focus their best energy on building great tablets and smartphones and to allow someone else to build great mail and calendar apps (on top of their platform), it might make sense for health systems to continue to focus on improving the quality and efficiency of care and cutting the costs of their existing operations, and to let someone else be great at the underwriting and actuarial work.

Being Wrong

Last week Penelope Trunk had a good post on 5 things she was wrong about. I've found over and over again that people that are alright with being wrong are far more successful (and pleasant to work with) than people that have to be right.  People that can be wrong have the right mix of confidence and humility -- two of my favorite qualities in a colleague. I recommend reading Penelope's full post, but in the excerpt below she captures why being able to be wrong makes people more successful. I liked it so much that I thought I'd post it here.

The real reason I don’t mind being wrong is that you can’t ever be right in a way that matters if you’re never wrong. Think about it: if you are right on something where everyone knows you’re right then it doesn’t matter that you’re right. If you are right about something where people think it’s surprising, then you take a risk of being wrong but you also open yourself up to the joy of surprising yourself with your own insight. It’s a risk high performers are willing to take.

Yahoo! & Working From Home

Much has been made of Marrisa Mayer’s controversial decision to stop allowing Yahoo! employees to work from home. I've heard pretty convincing arguments for it and against it. I feel pretty strongly about allowing employees to work when and where they’re most productive. Personally, I’ve often found that I can be incredibly productive working from home on Saturday mornings. And not so productive when in the office on a Friday afternoon. And often it can be vice versa. But having the flexibility to manage my own productivity makes me a better employee. Having that kind of control is really important.

But none of this takes into account collaboration with my company and team. There are things that I can’t do on my own time. I have to collaborate with my colleagues, and when and where we do that is not always up to me. So I need to balance optimizing my own productivity with finding time to collaborate and learn and innovate with my colleagues. Ideally, a CEO should allow individuals to manage that balance on their own. But when a company is going through a massive change in management and structure and mission (like Yahoo! is right now) it absolutely makes sense for the CEO to mandate that balance.

Right now, according to Mayer, it appears that Yahoo! is in transition. And in need of better collaboration and teamwork and that’s why she made the decision to bring employees back to the office.

In short, I guess my opinion is to not have an opinion. Those of us that are not on the executive team at Yahoo! can’t really know the circumstances at Yahoo! and, given those circumstances, can't really make an intelligent judgement about the most appropriate work from home policy.

Failure

People of Groupon, After four and a half intense and wonderful years as CEO of Groupon, I've decided that I’d like to spend more time with my family. Just kidding — I was fired today. If you’re wondering why … you haven’t been paying attention.

These were the first two sentences of Andrew Mason's letter to employees announcing that he had been fired as CEO of Groupon following a disappointing fourth-quarter earnings report. The letter goes on to explain some of his failures, as well as express his hope for the future of the company.

It was really refreshing to see Mason take this approach. This guy built an amazing company (I wrote about their growth a while back). And I give him a ton of credit for talking about his failures so publicly. This is so rare in public and private life.

When I interview job candidates I always ask them about the biggest mistakes and failures in their career. Candidates are so reluctant to talk about this topic. They often don't answer the question or talk about a failure where they didn't really fail. They're afraid that I'm going to view their failures as a bad thing.

But failure is a good thing, a great thing actually. Because it shows that you've tried things that are hard and have been through difficult times and persevered. And I want to work with people that have tried hard things and been through difficult times and persevered.

When you try to do great things you're going to fail. A lot. And failing is the best chance to learn. Personally, I learn much more when I fail than when I succeed.

When I interview someone and they can't think of a failure, there are three possible takeaways: 1.) the candidate isn't self aware 2.) the candidate is lying 3.) the candidate has never tried anything difficult. All of these are bad.

I hope we see more business leaders (and interviewees) become more open about their failures like Andrew Mason was last week.

The Photocopier Effect

I've written in the past that one of the secrets to negotiating with partners or potential partners is to always communicate the reasons behind your position. It's critical. The partner doesn't have to agree with your position, but you must explain the business logic behind it. People don't like things that don't make sense. With this in mind, I came across an interesting phenomenon called the "Photocopier Effect" in a Malcolm Gladwell New Yorker article from a while back. The Photocopier Effect proves, scientifically, why it's so important to emphasize the reasons behind your position. From the column:

...Harvard social scientist Ellen Langer. Langer examined the apparently common-sense idea that if you are trying to persuade someone to do something for you, you are always better off if you provide a reason.

She went up to a group of people waiting in line to use a library copying machine and said, "Excuse me, I have five pages. May I use the Xerox machine?" Sixty per cent said yes.

Then she repeated the experiment on another group, except that she changed her request to "Excuse me, I have five pages. May I use the Xerox machine, because I'm in a rush?" Ninety-four per cent said yes.

This much sounds like common sense: if you say, "because I'm in a rush"--if you explain your need--people are willing to step aside.

But here's where the study gets interesting. Langer then did the experiment a third time, in this case replacing the specific reason with a statement of the obvious: "Excuse me, I have five pages. May I use the Xerox machine, because I have to make some copies?" The percentage who let her do so this time was almost exactly the same as the one in the previous round--ninety-three per cent.

The key to getting people to say yes, in other words, wasn't the explanation "because I'm in a rush" but merely the use of the word "because." What mattered wasn't the substance of the explanation but merely the rhetorical form--the conjunctional footprint--of an explanation.

Ecosystems Create More Jobs Than Companies

60 Minutes had a story last week on the increasing impact of robots in corporate America. Because of the technical innovation that continued during the recession, as companies begin to grow again they're finding that they can replace many of the lost jobs with robots instead of people. One of the researchers in the piece points out that Apple, Amazon, Facebook and Google are all public companies and have a combined market capitalization of nearly a trillion dollars. But together, they only have  around 150,000 employees. Which is about half of the size of GE and less than the number of new entrants into the American workforce each month. Sounds like a bad thing, huh?

Not really. What this comment ignores is the ecosystem that these companies have built.  Each one of the companies listed above creates far, far more jobs than the number of employees that work for them directly.

Some examples:

• Apple's app store now has more than one million apps that are built and sold by entrepreneurs that don't work for Apple.
• Thousands of independent merchants sell their goods through the Amazon Seller Program. Amazon gives these sellers access to 200 million+ shoppers each month. Amazon also enables authors to self-publish and sell their work through the platform.
• There are more than 10 million revenue generating apps that plug into Facebook.
• Google's Android app store has more than one million apps built and sold by entrepreneurs that aren't employees.

So when you dig a bit deeper you find that the combined market cap of these four companies is incredibly dependent on the work of an enormous number of entrepreneurs that are making a living through these platforms. So while GE may have more employees than these companies, the number of individual livelihoods that are supported by their platforms dwarf the employee headcount of any American company.

Blocking Out The Competition

Over the last few months, Twitter has removed the auto-preview feature for Instagram Tweets. So now you have to click through the link in the Tweet to see the photo. Presumably Twitter did this to encourage their users to use their native photo sharing application. When LinkedIn redesigned their profile page about a month ago, they dramatically decreased the exposure of a user's Twitter account. In fact, it's not even on the main profile page, you have to click "contact info" to see a user's Twitter account. This is a drastic change given the LinkedIn/Twitter integration that used to exist.

So LinkedIn is blocking out Twitter and Twitter is blocking out Instagram.

I think this is dangerous for LinkedIn and Twitter. I've written in the past about how difficult it is to build a successful B2C business. Your product has to be so great and so valuable if you want to win. You don't have the luxury of a salesperson whispering in the user's ear giving them context on your decisions or information about what's coming soon and how the product will improve. The product has to be great, right now.

Of course, I don't know all of the facts behind these decisions. But I do know that the effect of blocking out applications that users like is bad. And in a B2C business, what's bad for the "C" very quickly becomes bad for the "B".

Individual Employee Budgets

The other day I wrote about the fast growing b2e2b business model where enterprise software companies make their product available (often for free) to individual employees. Then – after those employees love the product – they put pressure on their employers to buy the premium version or to buy the product for the entire enterprise. While I believe that this model is going to continue to grow at an extremely fast pace in 2013, there is no doubt that it’s inefficient – i.e. the employee has to go through a bureaucratic purchasing department to buy a tool that will make them better at their jobs.

That’s why I believe that, as we see b2e2b grow, I think we’ll also see this inefficiency addressed. That is, we’ll start to see more budgetary control put in the hands of the individual employee. Many companies – even large companies – already give their employees a cell phone budget. I think we’ll see this kind of control flow down to other productivity tools as well to the point that budgets won't be bucketed by division or group or team -- we'll see more and more money flowing into individual employee budgets.

Of course there are internal compatibility, security and scalability concerns that will slow down this trend, but I think this it's something for enterprise focused companies to watch out for in the coming years.

Enterprise Software & The Network

Fred Wilson posted a talk he did the other day on enterprises and networks. Including Q&A, the talk is nearly an hour. For me there is one incredibly important takeaway for software companies that are focused on the enterprise. And that is that in today's environment, in the long term, you must remember that your business model is a commodity, your software is a commodity, your customer service is a commodity and your sales team is a commodity. The thing that will provide you with sustainable, incremental value over the long term is your network of users. That is the one thing that is extremely difficult to copy in the long term. Enterprise focused companies that have large networks of engaged users that are adding value to the product simply because they use the product are the products that will win over the long term. Here are five good examples of enterprise software products that are successfully using their network to increase engagement and product value.

• Yammer (users are an extension of the sales force)
• LinkedIn (users -- i.e. job candidates -- are the product for recruiters)
• Mongo DB (users improve the code by using the product)
• DropBox (users are an extension of the sales force)
• Disqus (user discussion drives increased traffic and engagement to participating blogs)

B2E2B (Business to Employee to Business)

We all know b2b and b2c, and even b2b2c. I'd propose that an emerging software business model is b2e2b (business to employee to business). While it hasn't been called out clearly like this (trust me, I've 'Googled' it) there are many companies that are already using this approach (Yammer, Dropbox, Xobni and others). The way it works is that a company builds a product that can be accessed directly by a single employee of an organization. As the number of users within a company grows and reaches a critical mass, the company then has a salesperson contact the organization to make the upsell -- e.g. business to employee to business.

Of course, this model is interesting in its own right. But there are much larger implications for enterprise software. Chris Dixon and others have talked a lot about the fact that enterprise technology is far behind consumer technology. As I've written before, I believe that the reason for this is that enterprise technology can get away with being bad. For example, if you're a payroll provider and you provide a lousy interface for employees you can get away with it because you only have to sell one person in HR on your product (and then they force ten thousand people to use it). But if you're a consumer site like Mint.com you can't get away with being lousy because you have to sell 10,000 people, one by one. You have to be great or you'll fail.

And this is why the b2e2b approach is so important. It’s radically changing the way enterprise software is built and sold. And as a result, we should see the quality of enterprise technology begin to catch up with consumer technology. And when it does, those big b2b companies that continue to rely on their brand or their sales force to drive sales will begin to collapse.