Looking Back at 2012

2012 was a super busy year for me that included lots of big changes. I thought I'd take a few minutes to capture some of the more notable events of the year. January was moving month. After five years of living on 22nd street in NYC, I moved one block up and two blocks over to the Flatiron neighborhood. I'm glad I made the move; I'm in a much nicer building with a doorman, a concierge, a couple of game rooms and -- most important -- a great roof-deck.

February was a difficult month. In the afternoon, on Wednesday the 8th, my father passed away.  It was a very difficult time for my entire family. But the funeral was a wonderful tribute to his life and I'm proud to say that we sent him out in style. There was a great obituary chronicling much of his life in all the local papers and the funeral drew a large group of family, friends and former colleagues. It included a military funeral ceremony followed by a wonderful reception where we laughed, cried and remembered his life and accomplishments. I know it was exactly what he would have wanted.

February was also the month that I made the difficult decision to resign from Next Jump (after being there for there for more than five great years) to pursue an awesome opportunity with a healthcare technology start-up.

March brought some free time as I took a few weeks off before starting with the new company. Early in the month, I took a trip out west. I flew to California and stayed with a friend in Hermosa Beach for a couple of days, then drove to Carmel, Big Sur, San Francisco and ended the trip with three great days of snowboarding in Lake Tahoe before flying back to New York. It was an awesome trip and just what I needed to recharge before starting the new job. Towards the end of the month, I also caught a Celtics game with my Mom and made a quick trip down to Fort Lauderdale for work.

April was a complete blur with the start of my softball season, a bunch of work travel, a bachelor party in Las Vegas and a wedding in Miami.

May included a busy streak of client meetings – I spent nights in Boston, Philadelphia, Baltimore, Washington DC and Chicago. I also closed my first big strategic partnership at work. And along the way I found some time to catch a great Reckless Kelly concert at the 9:30 Club in DC.

June was a fun summer month. I played a bunch of softball, caught a Red Sox game at Fenway, saw a Felice Brothers concert in Brooklyn and took my first trip to Coney Island.

July was pretty busy. I made a three day trip out to Minneapolis for work. I got to explore the town quite a bit and catch a Twins game. Though the highlight of July was my friend's wedding in Los Angeles. They picked a great spot in Redondo Beach overlooking the Pacific. Here's a shot of some friends and I before the fun started.

August was another busy month with lots of travel. But the highlight was my brother bringing my sister-in-law and my niece up to Boston to celebrate his birthday. We spent a couple days showing my niece some of the Boston landmarks. And we took this shot at Samba Steak & Sushi House, a great Japanese Steakhouse just west of Boston.

September brought my first overnight sailing trip out on the Long Island Sound.  I took this shot as the sun was setting. Great trip.

October brought hurricane Sandy to New York City. I captured some of my thoughts on the tragedy here. I made my first trip down to Nashville to accept my company's Best Place to Work  award.  And I made a trip back up to Boston to get away from the flooding and to catch an awesome Ryan Bingham concert at the Royale Nightclub. I took this shot of the Flatiron building in NYC the day the hurricane started. The streets were empty at rush hour that day, but nobody knew the devastation that was coming to the area at that point.

November was a crazy month. One of my writings was published on a popular healthcare blog. I caught a Patriots game and the Celtics home opener. I also made a trip out to Chicago for work. My Mom came down to NYC for Thanksgiving. I took a couple days off and we kept busy; we saw Lincoln and The Lion King musical, went to the top of the Empire State Building, had some great meals and visited the World Trade Center Memorial. Here's a photo of one of the waterfalls at the exhibit. Someone laid a rose over their friend's name.

December brought me back to Chicago for work and back to Boston to watch a miserable Patriots game in the pouring rain. The month was full of holiday parties. And I was recognized as the top performer on my team at my company's annual meeting. Though the highlight, of course, was spending a week down in Virginia with my family for Christmas.

I'm sure there's lots of good stuff that I'm leaving out, but I'll leave it there for now. 2012 was a good year...but I'm ready for 2013. Happy New Year everyone.

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.

#DemandAPlan

Image via Fred Wilson.

Facebook's 15%

You may have noticed that there are fewer posts in your Facebook feed these days. The reason? Facebook is now selling its ‘sponsored posts’ feature to individual accounts in addition to business accounts. So now, when you post an update to Facebook telling your friends that you’re going to the gym or looking forward to watching your favorite television show that post only appears in approximately 15% of your friends’ news feeds. But, if you pay a small fee (I hear around $5 to $10) Facebook will show that post to a much larger group of friends. This change has caused quite a bit of frustration for Facebook users. And rightfully so.  Many businesses and individuals have spent massive resources acquiring Facebook followers and have been using Facebook as a way to engage their customers for years. You can understand the frustration among businesses and individuals that suddenly have to pay to speak to their own network.

For Facebook, though, the move makes a lot of sense. They’re a public company now, and the market wants to know how they’re going to continue to add shareholder value.  And given that there are reasons to believe that their user growth is beginning to top off, there’s lots of pressure on them to monetize their user base.  Offering a paid product to their entire base of users – which, by the way, equates to about one seventh of the world’s population – is arguably a step in the right direction.

Of course, what’s good for Facebook’s stock price in the short term may not be good for its users. Beyond the anecdotal frustration, Mark Cuban and others are advising their companies to pull back from using Facebook as a primary marketing channel. And some of the bands I follow on Facebook have asked their users to begin following them on Twitter instead.

Facebook has to walk the thin tightrope of providing an accessible and valuable platform to the masses while it tries to monetize more and more of their user base. In the past, shareholders could argue that Facebook may have leaned too far towards providing the free platform. With this change, they’re now leaning in the opposite direction. They'll have to adapt their product and communication strategy to figure out how they can continue to thrive using this new model – and they better hope their users stick around while they do.

Results From My Super Bowl Commercial Experiment

5 years ago when I started this blog, I had a theory. The theory was that participating in big, broadcast marketing was a bad strategy. And that companies that continued to participate in it would likely see their stock prices fall over time. To test this theory, I selected a group of 6 companies that ran television commercials during that year's Super Bowl and noted their stock prices with the intention of measuring their performance against the S&P 500 index. The 6 companies were Pepsi Co., E-Trade, Anheuser Busch, Coca Cola, Bridgestone and FedEx.

Anheuser Busch was of course acquired by InBev back in 2008 so 5 years later that leaves me with 5 companies to test my theory. Here are the results:

• The S&P 500 outperformed the mean of the Super Bowl stocks by just over 13%.
• The S&P 500 dropped 2.2% during this period and the 5 Super Bowl stocks dropped 15.3%.
• The S&P 500 outperformed 3 of the 5 Super Bowl stocks.
• Only one stock price increased during the period (Coca Cola by 22%)
• E-Trade's stock price ell by 83%.

Given the small sample size, I'm not sure the data is all that conclusive. But it certainly doesn't conflict with my theory. So I'll stand by it for now...

Conscious Capitalism Talk

Here's a great talk that my former marketing professor, Dr. Raj Sisodia, gave at TEDxNewEngland about a month ago. The talk addresses how the world has changed dramatically in recent years and encourages our large corporate institutions to change too. Dr. Sisodia was without a doubt my favorite professor in business school and this talk reminds me of one of his great lectures. I hope you enjoy it.

[youtube http://www.youtube.com/watch?v=O8faXr6WhCM&w=420&h=315]

Insights From Jeff Bezos

[youtube http://www.youtube.com/watch?v=kA_0W4hIhuA&w=420&h=315]

Somebody sent me this video of Jeff Bezos being interviewed by Charlie Rose back in 2011. The purpose of the interview was to announce the new Kindle that came out at the time. In the first part of the interview, Rose really pushes Bezos on how the Kindle competes with the iPad. I loved watching the way that Bezos responds. Brilliant. If you don’t have time to watch the entire video, here are the key lines/insights for me.

• The Kindle doesn't compete with the iPad. It is the best device for long form reading. Amazon has made no tradeoffs in building the best product for long form reading.
• Amazon isn’t providing the experience, that’s Hemingway’s job. They are providing the ability to enjoy that experience.
• The number one thing that Kindle users are doing is reading Stieg Larsson. The number one thing iPad users are doing is playing Angry Birds.
• Reading a book on an iPad is like reading while someone is pointing a flashlight in your eyes.
• Amazon doesn’t want to be the 79th tablet. They want to be the best at what they do.
• He urges employees to not wake up worried about competitors, but to wake up obsessing about the customer.
• Amazon doesn’t force customers to pay for its own inefficiencies.
• Business is not a zero sum game. Competitors can thrive together.
• Amazon’s mission is similar to Sony’s missions when they started.  Sony’s mission was to make Japan a leader in building quality products. Their mission was bigger than themselves.

ACOs, Consolidation & The Cost of Healthcare

There was a good article in Becker's Hospital Review the other day pointing out 8 key issues that hospitals and health systems are facing in 2013. In it, Tom Carson, a partner at Welsh, Carson, Anderson & Stowe talks about how ACOs are shifting more power to hospitals:

The biggest flaw with ACOs is that they are driving more power to hospitals — not to doctors. Very scary, and I am a hospital guy. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up in a midsize market — and doctors don't have that capital. So hospitals are pitching that they will be ACOs, and buying up practices. Ever meet a hospital administrator who wants to work to empty his beds? This means more power in expensive institutions, more consolidation of those giants — and more bricks and mortar and more costs. And with zero antitrust enforcement in the last 30 years in the hospital world, we are cruising for regional hospital-based oligopolies — not good for doctors, patients or our hopes for a more efficient system. And the well-intentioned concept of ACOs is feeding that fire.

This leads to a super interesting question. That is, will the regional pricing power that comes from the consolidation that is required to form an effective ACO actually offset the cost reduction that was intended when the model was formed? In other words, will ACOs actually increase, instead of decrease, the cost of healthcare?

Escape Fire

I watched Escape Fire: The Fight to Rescue American Healthcare the other night, a documentary on healthcare that was a 2012 Sundance Film Festival Winner.  The film doesn't offer any revolutionary ideas but it’s very well done and gives the viewer an excellent picture of the challenges facing the U.S. healthcare system.  It’s also pretty entertaining.  The film's title was inspired by the Mann Gulch forest fire in Montana back in the 1940's -- a super interesting story in its own right.

The film also does a great job of laying out some interesting and powerful healthcare related statistics. I thought I’d capture some of them here:

• The cost of healthcare is expected to hit $4.2 trillion annually within the next four years (20% of our GDP)
• 20% of patients account for 80% of healthcare costs
• 75% of healthcare costs are caused by preventable illnesses
• Average cost of healthcare in the U.S. = $8,000 per person; versus $3,000 in other developed nations
• There are only two countries that allow pharmaceutical companies to advertise directly to consumers: New Zealand and the United States
• Since 2000, premiums for employer health plans have risen at 4x the rate of inflation
• Smoking is responsible for 1 in 5 deaths in the U.S.

If you're interested in the U.S. healthcare system and where it's heading I highly recommend checking out Escape Fire.

Groupon, Chest Pain And Consumer Behavior

It was unfortunate – but not very surprising – to see the news this week that Groupon laid off a portion of their 10,000 employees. If ever there was a predictable bubble, it was daily deals. But it was fun while it lasted, and you can see why there was so much overinvestment in the space. Groupon’s pitch to merchants was to ask them to take a loss by making a super compelling offer that consumers couldn't resist. The offer would generate tons of new customers that would come back and make profitable purchases for years to come.  On the surface, it seemed pretty compelling.

With the Groupon news in mind, I spent some time this week thinking about the problem of hospital readmission penalties in the healthcare industry.  For those that don’t know, the government is trying to improve accountability and the quality of patient care by imposing financial penalties on hospitals that have high rates of 30 day hospital readmissions.  Depending on the rate of readmission, the government will reduce Medicare payments by as much as 1%.  For an industry with very thin margins, this is a pretty big deal.

One of the major challenges with hospital readmission penalties is that now doctors have to not only care for the patient effectively during the initial encounter, they’re now responsible for changing the patient’s behavior after they leave the hospital.

Here’s an example: imagine an older man that doesn’t take care of himself.  He smokes, eats fatty foods, lives a sedentary lifestyle and hasn’t visited a doctor in years. One day, a pain in his chest becomes so severe that he is forced to check himself into the emergency room.  After spending a couple nights in the hospital getting treatment, he starts to feel better. When he’s finally discharged, the doctor recommends that he stops smoking, follows a cardiac diet, takes a prescribed medication, and visits a cardiologist for a checkup every week for the next 6 weeks.

But this is a person that is not used to doing any of those things. The problem that caused him to appear in the hospital – severe chest pain – is not an immediate problem for him anymore.  He feels fine.  So the hospital is being asked to significantly change the behavior of someone without the initial (and powerful) motivator in place. As a result, he’s very likely not going to follow the doctor’s orders and he’s very likely going to reappear at the emergency room.

It occurred to me that this is the fundamental problem with the daily deal industry.  Groupon has the same challenge that hospitals have.  Just like severe chest pain, their deals change behavior. Most of the people that buy half-off skydiving, or cooking classes, or services at the super expensive nail salon, weren’t planning to do those things until they saw the deal sitting in their email inbox.  But because the deals are so compelling (50%+ off) they bought them anyway and, as a result, Groupon was able to flood their merchant clients with lots of new business.

But it’s because the initial deal is so compelling that it becomes nearly impossible for Groupon to reliably deliver on their ultimate promise of bringing their merchants new, loyal and profitable customers.  Just like severe chest pain, the daily deal changes behavior.  It forces people to do something that they wouldn’t normally do.  But without a continuous and powerful motivator in place (like chest pain or 50% off) the doctor can’t get the patient to come in for an electrocardiogram and the nail salon can’t get the customer to come back for a second manicure.