About Javier Rojas

Recent Posts by Javier Rojas

High Growth Companies & Team Development…

Key Takeaways from Kennet Partners’ Dinner Panel on High Growth companies…..the following story is part 1 of a 2 part series on a panel Kennet Partners held for high growth companies.

What do great high growth private companies have in common?  My partners and I hosted a conference for high growth companies and executives last month around the INC 500 event in National Harbor, Maryland to discuss this topic in detail.   Our motivation for the panel topic came from a book called “The Breakthrough Company” by Keith McFarland (review here) that explores this topic in detail – think “Good to Great” for companies going from $5M to $250M.

McFarland’s book covers several themes relating to growth: shifting goals from the founder’s success to that of the company; investing in new markets and approaches (including how and when to do that); and making the transition from being nimble to competing with scalable advantages.  In the spirit of the book, we invited a great group of capital-efficient founders to discuss some of the books major themes and their personal experiences.  The panel speakers, listed below, all led fast growth capital-efficient companies that achieved high value outcomes.

• Bill Edwards: Bill was part of the founding team of Siebel where as CTO/VP of Engineering he helped the company grow revenues from zero to nearly $2 Billion in 6 years, through an IPO and a successful exit to Oracle.
• Scott Hammack: Previously, Scott was CEO of Cyberguard which he turnaround and sold for $295 million to Secure Computing.  Prior, Scott founded and was CEO of MasterChart, a company he bootstrapped, grew rapidly and sold to Allscripts for $125 million in 2000.  Scott is currently the CEO of Prolexic, a Kennet portfolio company in the cyber security space.
• Frank Fawzi: Frank is CEO of Intelepeer, a fast growth VoIP provider of on-demand, cloud-based communications services that recently filed an S-1 with the SEC for an IPO (the company is a Kennet portfolio company).  Prior, Frank founded, built, and subsequently sold CommTech Corporation, a bootstrapped, fast growth leader in the communications software sector, to ADC for $178M.

In the first part of the panel discussion, we discussed the topic of team development.

Team Development – Power of the Team versus the Power of the Founder

A big challenge we often find in bootstrapped companies between $5-$100m in revenue is that the company can be founder centered.  Decision-making is really the founder working with department heads to make key decisions. This can work early on but the company runs into trouble as it grows.  Founders/CEOs need to focus their employees on the company’s success rather than the founder’s success. As organizations grow, the organization’s ideas, decisions, and employees need to focus on building the company.  McFarland refers to this important step as “Crowning the company”.

Panel Question: How important is a strong CXO team? How do small companies attract and recruit important CXO hires?

Bill Edwards (Selected Quotes):

-“A company needs to have a big vision to recruit top executives.  A big vision will attract and retain high quality / senior executives.  Siebel had a big vision from the beginning.  This vision attracted high quality people that can run their respective business units through each stage of growth.

For example, Siebel’s marketing accomplishments are largely attributed to its marketing executive.  Siebel wanted to create a tradeshow around CRM (Customer Relationship Management) when none existed.  DCI was one of the companies running tradeshows, and they were not convinced of the market potential of CRM.  DCI wanted a return, so a deal was struck that guaranteed them a profit.  Siebel would cover any DCI losses.  In return, DCI would highlight Siebel in all CRM tradeshows as the biggest sponsor and give Siebel all the keynotes in perpetuity.  Moreover, by carefully managing expenses and ensuring strong partner sponsorship, the first (and all subsequent) shows were profitable.  Only a highly capable executive could have pulled this off.”

-“Another important lesson in team building is to replace people that are not working quickly, especially people that do not fit with the company’s values.  Siebel went through a number of CFOs in its first several years until one with the right skills was found.

-“Using references, particularly blind references from your network, is critical to recruiting top quality people.”

-“In addition, recruiting people that are doers is important.  Some people have impressive backgrounds, but CEOs, founders, and managers need to understand what they did, not just what the company did.”

Frank Fawzi (Selected Quotes):

-“Company’s also need to keep in mind the timing and revenue stage of the company in making hiring decisions.  As a company scales, the company needs to bring in more experienced executives that have managed larger organizations in the past.   Founders and CEOs also need to make the right judgment calls and hire/let go of executives at the right time without delaying the process, since it becomes harder to terminate someone as more time passes – especially if the founder/CEO develops loyalties with early employees.“

-“Creating a strong work ethic in the company is also crucial.  Companies with great teams need to create a culture where expectations are set very high for every employee.  Employees and executives need to constantly deliver and exceed expectations.”

Scott Hammack (Selected Quotes):

-“If the company is a startup in a basement, similar to my first startup called MasterChart, then the founder/CEO needs hard working managers that are very smart and hands-on operationally.

If the company is broken and is more of a turn-around situation, similar to my CEO role at CyberGuard, then the founder/CEO needs to bring in new people and replace underperformers quickly.

If the company is working well, but missing key positions, then it needs to ensure all positions are filled with great people that can continue to scale the company.”

-“Leadership and teamwork are crucial at every point in the company’s life. I would set a plaque in the offices of all my managers to emphasize an important principle: Leaders build teams that build a business.”

-“Another key lesson learned building teams and companies is tracking employees using KPI’s.  A company needs managers that can measure an employee’s performance effectively. Even in positions that are not easily measurable, leaders need to create new ways to measure people.  For example, if a manager cannot track someone using sales figures or project deadlines, then measure an employee’s task completion status.”

Moneyball by Michael Lewis; How Applied Analytic’s Changed Baseball

Moneyball is hardly a new book. Written in 2003, it’s back in the spotlight these days as anticipation builds for the Brad Pitt-starring movie adaptation in September. But while sports and Hollywood might be the big focus these days, there are several lessons startup owners can take away from the story.

Author Michael Lewis explains how a baseball team applied analytics to compete with wealthier competitors and, in the process, changed baseball. It’s a rare case study for entrepreneurs showing how analytics can enable them to identify and execute a disruptive strategy in virtually any market.

Billy Beane, general manager of the Oakland A’s, took advantage of new sources of data to help pinpoint weaknesses in what had long been the standard approach in baseball, based mostly on intuition and rules of thumb. Beane determined which attributes really contributed to winning games, enabling him to snap up undervalued players and trade away the overvalued. The result: He competed with the Yankees, a team that had three times his budget for acquiring talent.

Despite the book’s age, its lessons are timely because virtually every business today has access to a treasure trove of data sources—such as the explosion of mobile and social applications, and their data exhaust—that it can use to compete disruptively. And Lewis has an amazing gift for both captivating readers and enlightening them about how things really work.

Here are the points that worked for the A’s in a way that any business can apply.

Big ideas from “Moneyball”

Challenge convention.
Every industry has rules and conventions worth challenging. Google changed search by looking at data correlating to documents rather than at text analysis, the industry standard. Netflix figured out how to monetize the long tail of movies rather than following Blockbuster’s mega-hits model. In your market, what’s the biggest element of waste your customers and employees face? If you had perfect information and could fix that problem, how big would the payoff be? Billy Beane could no longer afford to hire talent that didn’t generate wins. Because his team had a limited budget, he had to find another way.

Look for data or create your own.
The data that the A’s used to spot inefficiencies was widely available, so you’d think every team would have acted on it. Instead, many teams hired data analysts but then ignored their advice. Finding a breakthrough answer is easier than finding the will to capitalize on the new insights. Therein lies a great opportunity for entrepreneurs: They can start with a clean slate.

The A’s got their data from a baseball enthusiast (and night watchman) named Bill James, who brilliantly perceived that baseball stats failed to determine what really affected the outcomes of games. Look for people like James in your market who track interesting data sources or who have counter-market views on how the industry should work. Or develop your own data and data crunchers.

No PhD required.
The A’s had a college graduate with a degree in economics do most of their data crunching. You don’t need an expensive statistician to start; you need someone good with spreadsheets who can do basic statistics and regressions analysis such as a bright economics major college grad.  If the opportunity is big and untapped (important for a bootstrapped entrepreneurial venture), simple tools will help you spot it. You can bring in experts to squeeze out incremental value later.

Less money is more.
It’s no accident that one of the league’s poorest teams came up with this revolutionary approach. Developing and applying analytics is not expensive, but it does require time, focus, and willingness to make changes. This too favors bootstrapped companies – modest capital dictates a different approach.

Look for runs, not wins.
It would have been difficult to create a model that simply predicted wins—too many variables affect the final score. Instead, Beane focused on the most important variable: runs. Statistics showed that if you generate more runs, you usually generate more wins, allowing Beane to focus on what created runs: avoiding strikeouts and getting on base. And so on-base percentage became the stat to manage: Walks, relatively unimportant before, increased in value. Base stealing was discouraged; the risks outweighed the gains.

In your business, what is a major variable that can lead to a good outcome? Think about who’s likely to read your content, go to your site, or attend your webinar. Focus, not just on predicting what delivers the outcome you seek, but on predicting what “moves the ball forward” more efficiently.

Applied knowledge

I’ve used analytics successfully in multiple ventures. In my prior career as an M&A banker, I developed a model to predict when a company would likely pursue a sale, based on variables such as the founder’s prior success, and the business’s revenues and growth rate relative to the market. Using this model, we invested in and spent time with founders most likely to benefit from our experience in commanding a high exit value. The results were stellar.

Link to the movie trailer on Moneyball, the new movie based on the book.

I submitted the following story on Moneyball to Venturebeat back in June – it is quite relevant given the recent release of the movie.

Big Ideas From SWITCH by the Heath Brothers

One of the biggest challenges entrepreneurs have is managing change – for prospects, customers and employees.    Using research studies and integrating ideas from top authors with related insights, the Heath  brothers, authors of the best-selling “Made to Stick,” have woven a concise, actionable formula for managing change and illustrated it with real life stories to drive the message home. It’s simple and powerful.

“Switch” addresses two parts of the decision-making process: analytical and emotional (the Rider and the Elephant).  It’s a good way to understand why people behave as they do, address both parts of the process and achieve change

Big Ideas from “Switched”:

Making change happen is a three-part challenge. The more you address each part, the more successful you will likely be:

1.      The Rider (our analytical self). Give clear guidance to the Rider to address his tendency for analysis paralysis in any change situation

2.      The Elephant (our emotional self).  No action or change takes place unless our emotional self is bought in, motivated, has clarity and is not ‘spooked’.  He is slow to move but steadfast when put in motion

3.      The Path – Most change problems are about situations, not people – and these can be controlled. Create a path that minimizes friction while reinforcing the needs of the driver and the elephant, and you can make big changes happen more easily

Big changes start small is a recurring theme of the book.  Our ‘riders’ have a tendency to believe that big changes need big solutions. We often shoot ourselves in the foot before we even start.

Tactics that work with the rider include:

• Finding bright spots – Narrow in on something that works – then copy and promote it
• Scripting critical moves – Our ‘riders’ love to analyze, rather than take action.  A carefully scripted starting action breaks this log jam
• Pointing to the destination – With a vision of the end goal, our ‘riders’ stop debating and start thinking about how to make it happen

The elephant and rider have to work together, though. Otherwise, the elephant is immovable and the rider becomes exhausted. Motivating and removing ambiguity for the elephant is critical.

Important tactics include:

• Finding the Feeling – The elephant works on emotion, so make people feel something to take action
• Shrinking the change – Elephants get scared of unachievable goals. Break the problem into small steps and show that you are already making progress
• Minding the environment – People are much more affected by their surroundings than we would expect.  To keep the elephants marching in the right direction, don’t make radical changes. Instead, tweak the environment – making the change as easy as possible.  Amazon’s 1-click shopping made online buying easier and Rackspace became more customer-oriented by getting rid of its call waiting system, forcing customer support to pick up the phone quickly.
• Building Habits – Habits that reinforce the change increase your chances for success.  Use ‘action triggers’ – environmental landmarks that trigger a change. You can lay out your clothes the night before so that you are ready to work out in the morning, or clear your email while drinking your morning coffee, for example.
• Rallying the Heard – Get the group moving in a direction and it will keep supporting itself (although the social dynamics can be tricky).  To make a revolutionary change, your change leaders need free space to meet in private and develop their own language.

Applied knowledge:

Change is a constant in my portfolio companies and in our organization.  Perhaps the most insightful part of “Switch” is the idea that big changes start small.

One of the reasons bootstrapped companies are often successful with little capital is that they often look to prove their value initially and profitably on a limited scale, then grow profitably from that point by replicating their success.  By highlighting their prior successes – their bright spots – and focusing where they can be most effective (and capital efficient) they build momentum to eventually make big changes happen.

At a glance:

Authors: Chip and Dan Heath

Who should read it: Entrepreneurs, Marketers, Managers, Educators, Parents

This review also appeared on Venturebeat’s Entrepreneur Corner.

Return Leaders: Ajay Shah, Smart Modular Technologies Inc.

I have known Ajay Shah for more than 15 years. His success runs counter to the approach of most technology companies in Silicon Valley, and provides valuable insights in today’s technology market. Rather than rely on a technology breakthrough to create a large market, he created an innovative business model in a rapidly growing existing market: device memory systems.  Another recent example of a company that had success following a similar market approach is Motricity. The company had an IPO last year and built its business by solving a customer problem for market leaders in a fast growth market consumer portals for mobile carriers.

Below is an interview I had with Ajay Shah on how he built Smart Modular, the interview was published on SandHill.com last year.

Some leading companies arrived at the top without taking early venture capital funding. Today’s market may call on companies to be more prudent in how they apply capital to generate returns. In this continuing series of discussions with founders whose capital-efficient businesses are recognized “Return Leaders,” Kennet Partners Managing Director Javier Rojas sat down with Ajay Shah, co-founder of Smart Modular Technologies, to learn how he bootstrapped his startup to create a billion dollar revenues business with only $80,000 of initial capital in just 11 years.

JUST THE FACTS
Name: Ajay Shah
Title: Co-founder
Company: Smart Modular Technologies Inc.
Headquarters: Newark, Calif.
Date Founded: 1988
Venture Capital Raised/Used: $80,000
M&A Exit/IPO Valuation: IPO valuation of $500 million; $2 billion purchase by Solectron
M&A Exit/IPO Return Multiple: Very High/Not Meaningful Figure
Company Description: Smart Modular Technologies, Inc. designs and manufactures dynamic random access memory, computer memory modules, solid state drives, compact Flash cards, flash-based storage, and embedded storage systems for original equipment manufacturers. It sells products directly and through independent sales representatives primarily to major OEMs that compete in computing, networking, communications, printer, storage, and industrial markets. Communications companies comprise the bulk of the sales.

I have known Ajay Shah for more than 15 years. His success runs counter to the approach of most technology companies in Silicon Valley, and provides valuable insights in today’s technology market.

• Rather than rely on a technology breakthrough to create a large market, he created an innovative business model in a rapidly growing existing market: device memory systems. Investors call these businesses “execution plays” because they require great execution instead of innovative technology.
• Identifying a customer problem that his employer, Samsung, did not want to address, he jumped into the market with existing customers and support from a large corporate partner.
• Through excellent execution and continued product expansion, he grew the business to $1 billion in revenues.

The low cost and easy deployment of technology today is creating billion dollar market opportunities for entrepreneurs who can innovate new business models. These new billion companies often start as capital-efficient execution businesses. Here is how Ajay started.

Javier Rojas: How did Smart Modular get started?
Ajay Shaw: In 1989, I was director of marketing for Samsung’s memory business. I noticed customers kept asking for custom memory devices. We would send them to other companies to design and manufacture the product, but they wanted a more integrated solution from a dedicated provider. Together with Samsung’s Head of Application Engineering, Mukesh Patel, I proposed a new internal business to meet the requirement, but after several trips to Korea, Samsung’s management said, “no thanks.” They saw the memory market as a high volume business poised for rapid growth and did not want to create and manage custom designed solutions within it.

So, Mukesh Patel, my wife Lata Krishnan (who left a great position at Montgomery Securities to become our CFO), and I started a company ourselves. Samsung supported us on the condition we committed to a six-month transition period. This worked great for us. We used this time to develop the business plan and put together some of the first products, while working to meet their customers’ needs. We didn’t fully prototype the products, but designed and developed them with a little bit of our own money.

JR: How long did it take you to break even?
AS: Six weeks after leaving Samsung in 1989, we had a product, two potential customers designing our product into their devices, and an agreement from Samsung to supply memory in a tight market. Eight weeks after starting we had a customer, Network Equipment Technologies, and enough revenue to break even within the first quarter without taking a salary. We also had about 10 employees.

JR: Sounds like an amazing start. How did you handle the need for a manufacturing facility? Those aren’t cheap.
AS: This was in the middle of a tech downturn, so there was a lot of excess capacity. We went from outsourcing to manufacturing the product ourselves within four months by sub-leasing real estate on terms that didn’t require us to pay until the company generated cash. Manufacturing equipment vendors had new products sitting on the shelf, so Lata negotiated with them to lend us the money to buy their new equipment and rent space to make our product. This made a good first impression when customers came to visit. It was key bootstrap creative financing that got us going; early in the process, we took $80,000 from a friend of my father-in-law to build inventory.

JR: How long did it take for revenues to ramp?
AS: In 1989, our first year, we generated $3 million in revenues and became profitable. Back then margins were between 40 and 50 percent, but that didn’t last. Memory devices became plentiful the following year, pushing Samsung to increase business with us, which drove up revenues to more than $10 million.

IBM came in shortly after. They wanted to purchase our product, but their payment terms were lousy and we didn’t have enough money to fund inventory requirements. So, when we turned them down, Big Blue offered to guarantee specific purchases, which pushed Smart Modular Technologies’ revenues to $80 million in 1992. They prepaid before Smart Modular Technologies paid the vendor. IBM became a big customer and the positive working capital cycle allowed us to extend business elsewhere.

Apple, Cisco, Hewlett-Packard, and Sun Microsystems became customers after we landed IBM. It really shows how fast things can come together after being validated by a major vendor. Cisco was very small then. Operations Manager Tom Fallon (now Infinera CEO) and Randy Pond (now Cisco EVP of Operations, Processes, and Systems), who reported to Fallon, spent time at our manufacturing facility monitoring operations. Both men spent lots of time hanging around our operations.

As Apple grew into a major company in 1993 and 1994, they became nervous with our ability to supply the company with product because we were so small. They convinced Samsung to reverse the order of the business. Rather than sell us memory so we could build the device into the product, they sold the memory with our modules directly to Apple. This meant less revenue, but we were still paid for our value-added services. As a result margins looked much healthier and we didn’t need as much cash. Revenues in this period were:

JR: That’s amazing growth. Why did you decide to purse an IPO in 1995?
AS: That’s an interesting question. As founders, we weren’t going to get liquid, at least not initially, so the primary drivers were other shareholders and customers. First, employees had now been with us for a number of years and wanted liquidity for their equity, or at least a clear path to getting it. Also, it helped with customers. Compaq and Hewlett Packard were prospective customers that wanted to see us having the financial resources and transparency that comes with being a public company. Obviously it would make us more secure, but I suspect they also wanted transparency to have a better view on what our margins were.

Finally, we also acquired a company called Apex Data to enter the data communications market. That product acquisition wasn’t successful but the team, technology, and credibility it provided allowed us to form a new division that grew to more than $250 million. The investors in that company also looked for liquidity, which also drove us toward an IPO.

The stock was rocky after the IPO. It first went very high, then collapsed. We kept focused on the business and kept growing.

JR: Sounds like you were all set with financial resources, what happened next?
AS: The next five years we grew very fast. Our memory business was strong, but we realized that we needed to get into some new areas for additional growth and to diversify. The first was communications, as I mentioned before. The Apex team and their capabilities helped us land HP in this market. We then signed Qualcomm and Toshiba. We grew from virtually zero revenue in 1994 to a $250 million business by 1999. This market was driven by the rapid growth of telecom company investments in new communication equipment.

The other big market for us was embedded systems. These were basically racks of computer boards loaded with customer software and custom chips to deliver a custom appliance. We grew this to about $30 million in revenue organically and then we acquired Compaq’s (formerly DEC’s) operations adding $100 million in revenue in 1998. This market was driven by enterprise networking requirements with Cisco being a major customer. By 1999, this was a $140 million business. Memory made up for the rest of the growth, more than doubling our growth from 1995 to 1999. Here was the annual breakdown:

JR: Why did you merge with Solectron in 1999?
AS: By this time, we had grown the business to a sizable level and would need a partner to keep expanding or enter new markets. As founders, we were also ready for some liquidity and the $2.2 billion acquisition was attractive for $120 million in earnings.

Solectron, a contract manufacturer for the electronics industry, wanted to expand their offerings services by becoming a product company. They had an embedded systems group, Force Systems, like ours with $150 million in revenue, so combined we had a $300 million division.

Prior to the merger, Smart Modular Technologies generated about $1 billion in revenue. The newly formed Solectron Technology Solutions Business grew to about $3 billion during the next two years. In that time we acquired a few other businesses.

In 2002, when new management came in, I left Solectron’s board. At the time, margins dropped and manufacturing continued its move to China. The CEM divested the solutions group in 2004. I led a group that bought it back with another partner because we liked the business and believed we could revive margins.

JR: What lessons did you learn from the experience?
AS: Most people ask if I’m glad that I didn’t take VC funds other than money from small investors. It worked out well for us, but as I look at what others accomplished in this period, I feel a partner could have helped us accomplish more. Institutional money allowed others to take more risks and professionalize sooner. Smart Modular Technologies professionalized but not in the same way or timetable. This may have lead to a bigger outcome, but we will never know.

Two key lessons I learned:

1. When you see a customer problem not being addressed by your company, look to see if that might be an entrepreneurial opportunity. The opportunity that was presented to us required great execution, not technology innovation, but it was sizable just the same and well suited to our skill set. This brings me to my second point.
2. To pursue an execution-focused business it helps to have some large company management skills—they certainly favored us—and you need to execute flawlessly while you are growing rapidly. That’s not easy to do but it was what led customers to grow their business with us, providing strong references to others.

Made to Stick : Why Some Ideas Survive and Others Die

One of the most important roles we can play as entrepreneurs is to inspire and motivate, evangelizing our ideas to recruit partners, employees, customers and capital.  It’s a 24/7 job and mastering the skill is vital.  Yet I, like most entrepreneurs, have a healthy skepticism for much that passes as lessons in marketing communications or ‘Marcom’.  Advice is often based on ‘spin management’ and lacks concrete, actionable recommendations.

This is why this book is so wonderful: it provides a concrete formula for making your messages stick and spread.  There is a formula for being a master at evangelizing great ideas and the Heath brothers have captured it.   If you remember nothing else remember this – the reason you are not doing as well as you could in your communication is that you know too much.  Amazing but true – read on.

The authors have developed a formula to rate any message or presentation on exactly how memorable and effective you are likely to be in your call to action. Even better, the formula can be tested and also shows you how to improve.  The model was developed based on analysis of a broad range of proven and effective messages ranging from famous speeches like Aesop’s fables, to sports quotes, successful lesson plans and advertising messages. It also combines a splash of neuroscience to support why the brain needs these elements to hold on to an idea.  The resulting formula can be used to significantly improve your ability to define the core message. Use it to get people’s attention, get them to believe you, get them to care and then finally – get them to take action.  And the best part is that the Heath brothers practice what they preach so there are lots of interesting stories with surprising turns, that demonstrate the power of their advice.

Why should we listen to the authors? Chip Heath is Professor of Organizational Behavior professor at Stanford Business School, teaches on the subject and has spent 10 years researching it.  His brother is a researcher at Harvard Business School, works in the new media textbook market and has also spent years researching how to most effectively communicate ideas to students to make them stick.  The two teamed up to distill the lessons they have learned into this handy guide.

The Big Ideas:
The Curse of Knowledge – This is the prime culprit in non-inspirational communication.  The more you know the worse you are at spreading the word. There are several reasons for this:

First it is very difficult to think like a novice when you are an expert, yet most messages are targeted at those who know less about your subject than you do.  You cannot solve the problem by trying to imagine that you are not an expert because ‘you can’t get there from here’.   You need to use techniques (like those provided in the book) that force you to speak their language.

Second, the more you know about a subject, the more your brain shifts into abstract thinking. Subject experts can process ideas at a higher level (it happens without you realizing).   This is exactly the opposite of how novices think: they need concrete information and influence to understand, believe, get engaged and take action.   The curse of knowledge blinds us (Great Concept!).  Get your executives to try the tapping exercise to drive this message home.

S.U.C.C.E.S – The authors have a simple acronym for their checklist:  Simple, Unexpected, Concrete, Credible, Emotional and Stories.  They may seem self-explanatory, but the Heath brothers have and share great insights to make them happen.  You don’t need all, but the higher you score on each, the greater the impact.  You can also use this checklist to ‘score’ any message that gets put in front of you.  Here are some of the highlights:

1. Simple – get to the core of your message and make it compact so it’s memorable. What single word or words define your message? For Southwest, it is that it is THE low cost airline – a defining principal. If people have this insight, will they know what to do? Sharing this requires compactness. Palm founder Jeff Hawkins walked around with a wooden block the size of the product around his neck to communicate his goal. A great tactic is to hijack a well defined idea: for a movie think Jaws on a spaceship = Aliens. This allows you to quickly tap a rich map of defining characteristics and associate them with your concept. Analogies work well here also.
2. Unexpected – You need to get people’s attention in a relevant way. Our brains are brilliant pattern-recognition engines designed to filter out and forget the expected. You need to create unexpected insights relevant to your message to get engaged. A great story is how Masaru Ibuka, Sony’s co-founder, inspired the company to build its first breakthrough product – the pocket radio – at a time when radios were furniture. The shock of the challenge captivated 1000 engineers through an innovation breakthrough and put the company on the map with their first consumer product.
3. Concrete – This is critical to understand and one of the best tools for overcoming the curse of knowledge. Concrete is the common language of novices and experts. The Velcro theory of memory is also a great insight – the more hooks your idea has into the mind, the more it sticks. How do you build those hooks? The answer is that a concrete object focuses and mobilizes the brain. Jerry Kaplan, founder of GO Computer, raised his start up capital from Kleiner Perkins in a few days with the use of a leather notebook to focus their minds.
4. Credible – There are multiple strategies for building credibility and the authors share some great ideas such as statistics. Often poorly used, you need to make statistics accessible. One idea is to use metaphors that people can relate to. For example: About 1000 people die due to hospital mistakes per month: ‘if hospitals were 747’s, pilot error would be accountable for 2 plane crashes a month’. Validate your idea by the best. The Frank Sinatra credibility test is a great insight – market leader validation – ‘if you can make it here you can make it anywhere.’
5. Emotional – Emotion gives people the power to care to take action. To quote Mother Teresa : “If I look at the mass will never act, if I look at the one I will.” Appeal to people’s higher needs and aspirations, often these are more empowering than base instincts like money. What is the benefit of the benefit? The authors make an interesting point on the power of people’s self identity: Voters often vote against their own self interest in favour of the interests of a group with whom they identify.
6. Stories motivate action. They are the best way to get people to act. They communicate lessons and simulate action. They are also easy to retell, spreading your ideas. The best stories aren’t created – they occur naturally, are spotted and then retold. There is a great example of Jared from the famous Subway ad campaign – this powerful story and successful campaign was spotted and initiated by a franchisee and was developed despite the lack of support from the company’s marketing department (curse of knowledge – they hadn’t read this book!)

Applied
The book captures key lessons that I have used for years to help fellow founders communicate their ideas.  Different components are useful in different areas.  As an example, when we speak about the ability to use bootstrapping to create a market leader we don’t quote statistics: we ask ‘What do Microsoft, Dell, Cisco, Ebay and Siebel all have in common?   Answer: They were all bootstrap-financed to between $5 and $60M in revenue.’   This message is unexpected and on point.  My favorite use of these principals is story-spotting.  I love hearing about how other entrepreneurs started and built their businesses.  To me these stories are inspirational – particularly those that did it with modest sums of capital, relying on their own abilities.  They are empowering.  As an example, here is a link to a great story about how Mark Leslie started VERITAS and built it to a $1.5 billion business on primarily a $4M capital investment.

When I get ready to talk to people, I spend two thirds of the time thinking what they want to hear and one third thinking about what I want to say. Abraham Lincoln

_____________________________________________________

From the author:

Hi Javier,

Thanks for reviewing Made to Stick.  I love the Microsoft, Dell, et al, example of the power of bootstrapping.  It’s a perfect example of a situation where a lot of people use statistics (“83.2% of entrepreneurial ventures are bootstrapped, blah, blah…”) but there’s nothing more Concrete and Emotional than that Hall of Fame list of companies—something to inspire every entrepreneur whereas the statistic wouldn’t.

Best wishes,
Chip

_____________________________________________________

Authors: Chip and Dan Heath

Who should read it: Entrepreneurs, Marketers, Managers, Educators, Parents

Note: An abridged version of this review originally appeared on Venturebeat’s Entrepreneur Corner.

Hsieh’s Delivering Happiness, A Path to Profits, Passion, and Purpose

Entrepreneurs are always trying to break new ground, so it is inspiring to look at how others have succeeded.   Tony tells the story here of how he started his two very successful companies, the lessons he learned along the way and a model he has developed for creating intensely passionate corporate cultures.  Unlike business books by researchers that observe trends, this book is about what Tony has learned personally and how he thinks other companies can benefit from his experience.  Interestingly it pulls together many themes for my last few book reviews – Switch, Drive and Made to Stick.   

Tony also likes reading and applying the latest learning from the emerging field of positive psychology (a.k.a. how to be happy).  He is the first entrepreneur that I have seen to take many of the tenets from the positive psychology field and apply them to make his customers, partners and employees work together for a great, shared outcome: very forward-looking and clearly successful.  His insights are helpful for anyone building an organization looking to deliver amazing results.

Why listen to the author?

Tony is a proven entreprereneur having sold his first business, Linkexchange, to Microsoft for several hundred million with a very small venture investment.  His second business is Zappos which he still runs.  He built this to over a billion dollar sale to Amazon.  He is an avid reader of business books and works to incorporate proven lessons into his management approach.  Tony is now looking to help other companies learn from his success.

The Big Ideas:

Develop Core Values – Tony woke up one day after having built a successful startup and realized he wasn’t happy with the culture he had built.  Not excited about going to work every day he decided the best move was to sell his company.  He decided that in his next company, Zappos, he would develop a set of core values among the team so he would always enjoy being with the people at work.  He outlines the process he went through at Zappos to develop and ingrain the culture.  It seems to have worked since he was initially reluctant to sell Zappos to Amazon.

Focus on a Core Competence – At Zappos, he wanted to not just build a company but rather to pursue an inspirational mission.  In discussions with his founders, they concluded THE thing they would focus on would be insanely great customer service.  With a reputation for amazing service they would be able to expand well beyond shoes to be an ecommerce vendor of a wide range of products.   As a low margin ecommerce vendor of shoes this is an expensive and, at the time, risky decision.  Not just an empty proclamation, they made three audacious moves to purse this goal: they walked away from 30% of their revenues overnight, they brought their warehouse capabilities inhouse (in Kentucky) and finally, they moved the entire company from San Francisco to Las Vegas (then almost 100 people).

Develop a great team – Tony realized that he would only be able to achieve his vision of delivering amazing service if he had the best people working together and that they were trained and focused on the goal.  He calls this the “Pipeline” for the pipeline of talent.  He has an innovative talent development program that starts with four weeks working on the customer service desk, incentive pay to leave after four weeks (to weed out the noncomitted), extensive training on the Zappos way of doing things and then a step by step progression to make sure that successful employees are seeing steady progress and career growth.  I was very impressed with Zappos University, and ongoing program of distilling what Tony and others have learned from leading business books to help employees continue to improve. By continuously investing in the pipeline of talent, he will have a steady stream of future leaders to drive growth and realization of their shared vision.

Transparency – Probably one of the most interesting programs Tony put in place to promote, ingrain and promote the Zappos culture is that they annually publish a book about what the Zappos culture means to the employees and partners.  By making it community generated and visible, he has a feedback loop to make sure that everyone knows what it means to work with Zappos and spotlight potential issues.  They also host tours and share much more information with partners than most ecommerce vendors.   The theme for these initiatives and others he mentioned are transparency – make your goals, actions and results visible to build trust.

Pulling it all together – Tony calls his program BCP which stands for Brand. Culture and Pipeline.  In his view a company’s core competence becomes what it is known for, so that becomes the company’s Brand.  The company’s core values and mission statement define a unified Culture so if people are really living to the values and mission, the culture will be easy to identify.  Zappos has 10 core values;  they are pretty interesting and, like all else in Zappos, a bit different.   And the Pipeline of great talent, trained to execute against the core values and focused on the shared mission creates and unstoppable force.  What is striking about Tony’s view is that thinks about very long time horizon to achieve his very ambitious goals so he can make long term investments in junior talent that few competitors would seriously pursue.
Long term View – This long term vision can be a problem for investors that have shorter time horizons.  The result was that Zappos was bought by Amazon but Jeff Bezoz, Amazon’s founder and CEO had so much respect for the model that they agreed to run Zappos as an independent business, giving Tony and the Zappos team room to pursue their vision.

Lessons Applied

As an investor in a range of businesses, a constant is the importance of working with great teams.  Founders and executives with a strong and coherent set of core values and a strong mission are the most successful.  One of my companies had 5 well defined core values:  drive, integrity, collegiality, humility and intellect.  By embracing these values, we were able to manage a large scale recruiting effort growing to over 400 people with a homogeneous culture.  These values, coupled with an inspirational mission enabled us to assemble a great team and grow dramatically in people and revenues.   They also helped us build a set of lifelong relationships that have transcended that business.

Happiness is that state of consciousness which proceeds from the achievement of one’s values. Ayn Rand

Author: Tony Hsieh

Who should read it: Founders, Entrepreneurs, Managers, Coaches, Teachers

This review was first posted at VentureBeat’s Entrepreneur Corner

Guns, Germs, and Steel: The Fates of Human Societies

Guns, Germ and Steel is a ‘must read’ for entrepreneurs – one of the best reads in the last few decades. It is all about innovation; not just in technology but in other major areas that impacted the development of societies: farming, writing, and politics.  The book explains why it is that the Spaniards conquered the Incas instead of vice versa.  Sure, the Spaniards had the ships and the guns but how is it that they got them first? The question is historic but still relevant; what is it that determines which society wins when they come into conflict? In answering that, the author helps us understand the current distribution of wealth, power and influence among states. It also sheds light on the connection between the pace of innovation and the scale and level of interactions between societies. Not bad for 400 pages!

Jared Diamond is worth listening to. His background is unique: he has training in evolutionary biology, and biogeography, and is a linguist.  He has studied hundreds of societies in South America, Africa, Indonesia, Australia and New Guinea and has developed a model for how those societies evolved as well as the geographic forces that supported them.  He makes his historical detective work interesting: not unlike a CSI episode, explaining why the conclusions are the only logical answer.   The book won a Pulitizer Prize and is recommended widely:  McKinsey Global Research, for example, bought copies for all their partners (smart guys!) because of its valuable insights.

Here are the author’s big ideas:
In the evolutionary quest of societies, the peoples of all continents started in relatively equal positions 13,000 years ago.   The determination of which societies ended up with wealth and power was largely driven by the accident of geography and the availability of indigenous plants and animals suitable for domestication.   Here’s how:

1. An Equal Start. After 7m years of evolution as humans, about 100,000 years ago, there was a mass migration, and all the continents were populated. Each had a seemingly equal opportunity to succeed economically and politically. Africa had the highest population and was the source of all emigrations. Europe, China and the Americas had significant resources and Oceania was well ahead in water navigation.  All were hunter-gatherers.
2. Farming Kicked Off The Race. Those who discovered farming first got a head start on the innovations that would begin the path to world leadership.  The Americas started to farm 5,000 years ago, but  the Fertile Crescent had a 4,000 year head start, which led to big differences in the evolution of societies.
3. Geography, Not Ability, was the Determining Factor. The availability of plant species and native animals that could be domesticated was a key factor & a function of geography.  The size of the landmass  was another key consideration – specifically the amount of land on a horizontal axis so that, humans, plants and animals could travel within the same climactic environment.
4. Innovation & Farming. Innovation led one society to do better than another.  Farming, as opposed to the hunter-gather nomadic existence was a major innovation.  Farmers could support larger population densities, because of the calories available per acre/labor input.  Societies fed by farmers, developed specialists such as soldiers, inventors, artists and politicians. Soldiers helped societies grow in population size by making it easy to annex tribes (brutally or peacefully).  Innovations in politics made it possible to manage larger communities: bands transitioned to tribes, tribes to chiefdoms and chiefdoms to states.  The increase in population in turn led to more inventors and inventions. The influences flowed both ways, innovations in technology made it easier to conquer and improved farm productivity.  Larger populations had larger armies and required better political organization to survive.
5. Geography Has Many Implications. Other geographic  factors also determined success in maintaining the pace of innovation.  China has an optimal land mass and resource base.  They innovated before the West in many areas including: ship building, gunpowder, paper writing.  By 1400AD, they were clearly ahead.  However China has a highly unified society: they virtually wiped out competing languages thousands of years ago, and this contributed heavily to an exposure to the risk of bad decision-making by a single leader. China destroyed its ship industry in 1400s and, more recently, endured a cultural revolution in the 1960s and 70s.   Europe by contrast was decentralized with multiple competing states – an advantage in innovation.  As an example, Columbus sought funding 5 different times from different states and leaders to support his explorations. Born Italian, he switched allegiance to three different countries in order to secure funding.  Once one European country saw success in the New World, the others felt compelled to follow.  It seems the ideal model is a society that can share innovations and coordinate efforts but is also decentralized to enable innovation to flourish: much like the capitalism in the United States or the entrepreneurial model of Silicon Valley.

This is a fraction of the insights the author offers – the mere scaffolding for the model.  Why do we ignore the effect of great men? What is the role of religion and its important role in societal evolution?  Why did peoples in adjoining and shared geographies fare differently?   The author creates hundreds of “knowledge gaps” for the reader and then goes on to entertain you by filling them with answers.

How to apply this:
A book about our evolution over 13,000 years may not provide pointers for daily management but there are a number of valuable lessons in it.

It is astonishing to step back and look at what we have accomplished as a race in the last 13,000 years after 7 million years of evolution.  What a great tribute to the role of innovation in the improvement of the quality of life.  Even more impressive is how the pace of innovation is accelerating, especially in the last 100 years.  As someone dedicated to businesses at the forefront of innovation, I found the book very motivating.

• Innovation is made possible by native resources (such as plants, animals and metals) and the ability to exchange and assimilate innovations based on proximity to other innovators.   Historically the pace of innovation exchange was based on geography – either the size of a continent’s east-west axis or its proximity to other continents.  Today’s equivalent of that knowledge transfer mechanism is the internet.  Eighty percent of the world’s population now has access to some form of the internet through cell phone access or better.  The pace and diffusion of innovation will accelerate as the internet and broadband adoption connects people on the planet providing education, communication and wealth creation/exchange opportunities.  As an an example, the government of Paraguay recently committed to buy laptops for every student in the country – amazing.  Appreciation for how innovation diffusion led to where we are today, coupled with technology interconnections we have and are developing, suggest the pace of innovation will continue to accelerate.
  
• The book has implications for how we should look at different races.  The fact that all people have comparable innate abilities is not a new concept.  However, Jared Diamond’s explanation for how the fate of races/societies has been determined by essentially a historical accident eliminates any question of ability as a cause.  This represents an opportunity and a challenge.  An opportunity because it means that with the proliferation of knowledge and training, we have a large untapped pool of talent that can join the global economy in a meaningful way.  It represents a challenge to take action since there is no justification (based on ability) for the current location of wealth creation beyond historical accident.
  
• The two major variables in the pace of innovation are population density and population size.  Greater density means more people can be fed by a given amount of human and geographic resources, which in turn frees up more human and natural resources for art and technological innovation. The larger the population, the more applicability innovations have.  As an example, the first printing press was built by the Greeks years before the Guttenberg press. However, the size of the population that was able to read and embrace the technology was limited, so it never took off.  Increases in population density and size bring powerful economic benefit from globalization and innovation gains we can expect to see as a larger portion of the world population is fully engaged in the global economy.   Want a large growing market? – target emerging demands in developing countries.
  

Perhaps the most useful insight lies in understanding where we came from.  Knowing this is incredibly helpful to understand why things are as they are and where we are going.  The primary constant in the last 13,000 years is that innovation is accelerating and we either embrace innovation or to get absorbed by those that do.

Author: Jared Diamond

Who should read it: CEOs, Founders, Managers and Entrepreneurs

The New Strategic Selling: Unaddressed Pain Points

The New Strategic Selling is the single best book on sales I have ever read; it lays out a process that for sales management is intelligent, customer solution focused, and analytical. I have employed these principals personally and have had one of my companies standardize on the methodology.  It is highly effective in developing a common language for prospects, resource allocation, marketing investments and growth expectations.

If you are sales oriented and know Miller/Heiman you may find some of my applications below of interest.  The real benefit is not sales process but sales management improvement and the ability to get to key decision makers effectively.  If you have a non-sales background, this book is critical since it will give you a punch list of questions to ask your sales managers to gauge the quality of a pipeline. It will also help you understand the resources you need to provide to help get to the economic buyers in your customer base.  Just like you innovated your product, you need to innovate how to get people to listen and provide solid feedback on their needs, be it through purchases or by vocalizing unaddressed pain points.

Why should you listen to Miller/Heiman?  These guys have provided sales consulting for hundreds of top Fortune 500 corporations.  The book was first written in 1985 and updated/rewritten in 2005 as The New Strategic Selling, and this stuff works.  Sure there are new things to consider in selling and I will cover some of these in upcoming books but the program and principals here are as sound as they were when they were introduced.

The Authors’ Big Ideas:

1. Complex Sales = Multiple Constituents:Break down executives at prospect companies into four groups of buying influencers. Each has a different frame work/ agenda to be understood and mapped out: the Economic buyer (the key decision maker), Technical buyer, User buyer and your Coach. The goal of the process is to identify how each one views your proposal on a scale of +5 to -5. Anyone you haven’t spoken with or that is negative gets a red flag. You want to manage down your red flags and find proposal alternatives that yield positive views. Where you can’t you have a risk. Miller/Heiman offers a specific process – “blue sheets” to quantify these points, track progress, assess risks and allocate time.
2. Buyer Attitudes: Each buyer influencer falls into 4 modes regarding the problem you are solving.  They won’t buy if they don’t see a problem.   Do their perceived desired results match the expected results based on their current course?  If so, they are not good candidates to buy – they are in ‘Even Keel’ or mode 1.  It’s important to note that it doesn’t matter whether they really are on track or not, just that they think they are on track.  If there is real problem ahead but they don’t perceive it – ‘Over Confident’ mode 2 – they aren’t going to buy. A lot of sales time (entrepreneurial capital) is wasted in the category.  The people worth investing time in are in ‘Growth’ mode 3, – they see an opportunity and know they are not on track to achieve it or ‘Trouble’ mode 4, – they don’t see themselves maintaining current results.  Trouble mode prospects tend to be the best since you can potentially help them address a fear of losing what they have versus growth mode prospects where you are addressing their greed for a gain. Fear tends to be a better motivator than greed.
3. Concept Selling : One of the most powerful concepts in the book. Your organization should be able to get to the economic buyer. The key is information – specifically providing access to information that solves their organization’s problems/goals. This isn’t feature/benefits; it about addressing their strategic concerns of problems they have and are trying to solve. This concept is similar to Habit 6 in the 7 Habits. This can be developed by your organization, (good idea to really know your customer intimately), by a guru that you bring to the table or by peers – pulling together a community of peers to share/address best practices. If you are committed to success do all three! This is a key tool for entrepreneurs!
4. Win Results: In managing a sales process, your executives need to focus on personal wins for each buyer in an account. These are intangible and not quantifiable. Getting your execs to focus on finding these and addressing them starts lining up your company to meeting personal needs versus filling a procurement requirement and changes the game. This is Habit 6 again. Similarly, you need to get a Win deal if your meet their needs. This is often price but also address non -price needs: product feedback/input, length of commitment, time investment for success and reference-ability.
5. Ideal Customer (I love this!) Great companies don’t look at every sale the same, they profile the ideal customer for a solution. It’s not just about a product/price fit but whether the organizations share similar values. We can’t always be choosy but doing the right work up front on where to spend time is often the best investment you can make.
6. Sales Funnel Management- The key asset in a sales organization is time. Each $100,000 dollars an entrepreneur invests in sales buys them a fixed amount of time based sales capacity, x hours in a year. Sales management is really about managing those hours: where they should be allocated to maximize effectiveness. The funnel is the road map: prospects at the top need light touch and regular tending or you will go from feast to famine. More investment goes to the smaller list in the middle of the funnel while those at the bottom need maximum effort to secure your fair share of wins. The Miller/Heiman approach load balances time across all three areas to assure an even flow of output with predictable results. Their time allocation model is effective though I have some additional suggestions below.

How to Apply This Book:

I have been applying these principles as an entrepreneur in my companies for over 20 years so it’s great to be able to share some of my experiences.  Here are some insights on applying the lessons in this book:

1)  Concept Sale:  The best advice in the book and the most useful exercise in strategic selling. In a prior business, I was successful in helping entrepreneurs sell their companies for very high prices.  One of the free services I offered was to create a market map of all the buyers in a narrow market segment (say web based applications) and all the innovative, emerging companies.  This was based on extensive face to face interviews.   Rather than keep this information to ourselves, we published the confidential information with our market predictions to everyone that mattered.  With this we got input to refine our understanding on where everyone’s interests stood.  When it came time to help an entrepreneur, we could save them time by connecting them only with those most interested that would pay the best price.  Yes many people did deals with this information without our help.  No problem – that was our gift – we did great for/with those that hired us.

2)  Customer profiling:  The second point is that resource allocation on timing is where the art of a successful organization lies.  As an entrepreneur who values every dollar, and whose vision success is at stake, it’s difficult to delegate the resource allocation decisions to your vP of sales and even worse, to individual sales execs.  So I recommend, after arming with the tool of the concept sell, to develop a well qualified list of your best prospect profile.  There is so much information available now this can be done before anyone needs to pick up the phone.  Get a data analyst for sales ops, develop deep success profiles and prioritize on prospects for which you are best positioned to solve problems.  Imagine the perfect set of data to pinpoint your efforts – it exits, just get it (See SuperCrunchers). If you don’t know who that is then you need to learn, perhaps through trial and error, and this needs to involved direct access by the entrepreneur on key prospects/accounts to gain insight on the solution/problem fit.  The best selling is done before calls are made when you have set up your sales executives to succeed.

3) Dynamic To Do Lists-   A challenge I have always had is how to prioritize your sales time to optimize results (what do I do next?).  One of the tools I have developed an found helpful is the ability to take a pipeline and define a probably of success and expected value for prospects in each stage ( this is standard if you have gone through a rigorous process like Miller/Heiman though there are many others. What I found helpful, and is unique is my dynamic ordering process: calculate the expected value of each prospect given their stage, and subtract it from the expected value if they moved to the next stage. This is my Pipeline Expected Gain or PEG for each of my prospect to dos and now it helps me prioritize my time (FYI – this is not in the book but in line with the thinking).  Now you can prioritize your day, week or months to maximize PEG gains.  You may need to tweak the values a bit to make sure your reflect likelihood of success at each stage but a good pipeline handicap should be fairly close.   The nice thing about this approach is that it is a dynamic pointer to the most productive use of your most scarce and valuable resource: your time.  I haven’t employed dynamic lists across an entire sales force but I would expect this to be effective in optimizing team resource allocation as well.

If these techniques seem interesting and you would like to apply them to your organization, you should hire a sales process consultant to develop a structured approach to help you manage sales.  Sales management is a science not an art and if it’s not your “thing” you can learn it: sales management acumen is a critical skill and avoidance/delegation is not an option. The key is to develop a framework like the one above and begin iterating on identifying performance gaps/bottlenecks and resolving them.

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Authors : Robert B. Miller and Stephen E. Heiman

Who should read it: CEOs, Company Founders, Entrepreneurs, VP Sales, Sales Execs

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