Posts Tagged ‘business model’

Social 2.0: The Next Wave of Social Applications

The year 2011 belonged to social applications. Several iPhone apps that enabled some kind of social activity were launched last year. There is still no abating of this trend but it is obvious that majority of such applications will die in the next 18 months. After all, how many social networks will you update after you had a good meal or watched a great movie? Many technology pundits are decreeing the death of social networking applications. I have an entirely different take on it. Just like Web 2.0 companies brought real business models and value to dotcoms, it is time for “Social 2.0”, a set of applications that will bring value out of gigantic social databases such as Facebook, Twitter and the likes to solve real problems.

Humans are social by nature and love to brag to their friends and society at large. The Social 1.0 services gave us ways to share our updates with our connections online. The clear winners are Facebook with a friends graph of 800M users and Twitter with loose ties of 150M+ people and between them they accumulate billions of updates everyday. In addition, some specialized networks such as Foursquare capture our other activities. However, the whitespace in this industry has shrunk considerably. There will certainly be a few innovative companies that will provide new ways to connect and share information but it is increasingly becoming difficult and expensive to capture mindshare away from Facebook and Twitter. However, it doesn’t mean that social is a done deal.

While the first wave of social companies was successful in gathering what’s on our mind, our pictures, likes, short updates and check-ins, the next wave of social companies will build value-added applications on these gigantic social databases. Under billions of Facebook and Twitter updates is buried a wealth of information that can help us make buying decisions, quickly find great deals, and help reduce inventory by aggregating demand in real time.  It is time to stop inundating people with multitudes of social networks to get their specific status and move on to mine information gathered by friends and followers graphs. The best of social is yet to come.

Welcome 2012: the year of Social 2.0!

Startup Mantra I – Solve Real Problem of Your Customers

How often do you hear a technology startup is a cool place to work because one can unleash her innovative brilliance without much questions asked?  Many successful technology companies, including Google have legitimized this work culture by giving employees a free reign to work on their ideas during office hours. However, I think Google manages their process much better than a regular startup on the street as many of their ideas survive to see a day on the internet. Albeit most fails! Why does innovation fail so often in startups?

A good friend and a budding entrepreneur Pete talked about some reason for it in his blog. He says that a startup is an organization working to deliver a service or product under conditions of extreme uncertainties. The uncertainty is not only in terms of the right solution but also the right problem for a startup’s customers. Pete had a point that many a times the problem itself is not very well defined, which makes the discovery process even more challenging. In my experience, most entrepreneurs can speak at length about their company’s solution but very rarely about the real customer problem they are solving. Why is it?

As a product manager, I am trained to uncover problems our clients face so that we build products that our customers will buy happily. Market research, client interviews and fact base creation are regular tasks for a product manager. The first lesson a product manager learns is to never ask a client about their desired solution but the problem they are facing. Mostly clients cannot articulate the solution but can talk at length about their problem. The question is how many startups go through this discovery route to find real problems of their [potential] customers?

Many of you might be aware of now popular Lean Startup methodology that encourages companies to unearth customer problem cheaply and quickly. Eric Reis, the inventor of Lean Startup term has been marketing his methodology aggressively and many entrepreneurs are embracing it. We also adopted it at our startup and decided to launch our first prototype for less than 1/3 the original cost. The idea is to test our hypothesis with a limited product and a controlled set of users to get an early feedback. These are still early days of our lean startup but we are already seeing the benefits of laser focused minimum viable product and longevity of our budget. We will know our fate soon [hopefully] but either way I will keep you all posted. Go lean budding entrepreneurs and solve your customers’ real problem!

Interesting Idea But Failed Startup!

Entrepreneurship is the heart and soul of the great American economy. It is a fact and manifests itself in so many successful and not-so-successful startups, self-made billionaires and success stories. Most of my friends and acquaintances are either running a startup or planning to start one. These folks are highly educated, successful in their fields and very ambitious. I am sure this is not unique to just my limited network but a typical story of an immigrant community in America. While a startup is a great way to unleash one’s potential, I am surprised how much of it hinges on the next great “idea”. Most people consider idea and startup as synonyms especially in the technology industry. I keep hearing – “I have this great idea” or “Do you have a good idea? We can make a business around it”. I wonder how much of a successful startup is about a great idea.

The biggest risk with a startup is to not find a viable business model. Since most start-ups are genesis of an idea, they generally lack a sustainable business model at least in the beginning. Startup failures galore, the rare success stories are full of mid-course correction or stumbling upon something different while working on the original idea. I believe it is not an “idea” but a “market-validated idea” that should be the basis for starting a new business. It is easier said than done as most of the time it is not easy to articulate the concept in early stages, let alone validate it with potential clients or markets. However, this is not a reason to cut the process short. It can save entrepreneur toil, frustration and lost capital on a promising yet non-sellable idea.

I recently learned in a “pragmatic marketing” training that “your opinion is interesting but irrelevant”. I thought it summarized the idea-based startup thinking very well. Everybody has an opinion [read idea] but is it worth launching a business or a product around it? Only a factual research can confirm it. There is a reason that early-stage business cases have sections on market research, sizing and potential customers. A thoroughly researched, market-validated idea is certainly worth taking a dip into the entrepreneurship ocean. Otherwise, it doesn’t hurt staying on the sidelines and enjoying the sun! So next time when you hear a cool idea, ask how many potential clients also found it useful.

Are You Ready to Think “BIG” Again in Technology

One man’s dream is another man’s reality. Yesterday, I saw it in real at the Salesforce conference held in NYC. It was amazing to see so many cool applications and technologies that I could only dream about a few years ago. Have you ever imagined creating a web application without programming in less than 10 minutes, publishing it on the web by click of a button, and scaling it up or down based on the number of users through your iPhone? I witnessed it done in less than 15 minutes! Five years ago, there was no iPhone, web applications were created by expert programmers, and specialist administrators used to spend hours hosting and managing such applications. Now one person can do it all in matter of minutes, maybe hours, but still 100x better than before. Maybe I was oblivious to innovation taking place in the software world but I can’t be so much out of touch. After all, my wife complains that I read, blog and surf technical stuff all the time. What did I miss?

 Sometimes I wonder if we are driving technology or technology is driving us? The Internet changed the scene in late 90s, but with dot-com burst we thought it had reached its pinnacle. However, not only was the Internet alive but also it came back with a vengeance with web 2.0 that unleashed the second wave of innovation in terms of collaboration and social networking. In a few years, almost 700 million people started facebooking, another 100 million started tweeting, and not to mention many millions who are talking through other social networks. While Facebook and Twitter are considered consumer networks, Salesforce and the likes are bringing social networking to the corporate world. I was stunned by how far human imagination can stretch, when Salesforce chatter service announced that now your employees, clients, partners, data, reports, and dashboard- all will start chattering.  It means when you “follow” a report like you “follow” a person on Twitter, the report will start tweeting information to you. Similarly you can follow data, documents, presentations and anything you can think of in your daily work for it to chatter back to you. Wait a second, weren’t we struggling to implement that large, monolithic ERP application a few weeks ago? 

I am convinced that human will and intellect can move mountains and make impossible possible. Add crowdsourcing to it and things start to move much faster. I believe the innovation I saw at the conference is not just one company’s achievement but a culmination of many discoveries by different companies across industries. The Internet is obviously the backbone of this ecosystem offering great improvements in speed, reliability and pervasiveness. Device manufacturers like Apple, Samsung, RIM and others pushed the ball forward to make the “always connected” dream possible. Finally, the software companies completed the picture by continuously innovating technologies such as visualization, search and social networks, and streamlining the development and management of web applications.  Suddenly the world is moving much faster due to interconnected innovations and economies of scale. I can’t think of the next big thing but I can sense that we are building an “Internet” kind of revolution again. I am excited about the future and ready to dream big. Are you?

How to Make Your Product “iPhone” of Your Market

I had an insightful conversation with a fellow product manager about how to increase a product’s value. While there were many good ideas from improving usability to building features for a broader client base, I was surprised to see resistance against opening the product for other application providers to build add-on modules. I wonder if in today’s software world, where freemium and open source are considered viable business models, there is a place for close-ended software?

The argument against open platform is simple – the competition will get a foothold in our install base by building products on our platform. It will reduce opportunities for upsell and services dollars. Agreed, on the face of it these concerns sound valid. How about the long-term sustainability of your platform? I am using product and platform interchangeably here but a product that is widely adopted in an industry behaves like a platform. Think of SAP ERP, which is a core product and almost essential software to run a business in many verticals. SAP can choose not to expose any integration capabilities for third-party providers to control that market. Is it the right strategy?

In one of my MBA classes, I learned about network externalities. The more companies build around your product the more valuable your product becomes. It is not rocket science; just think of iPhone. No doubt it is a wonderful device but majority of its value is derived from many entertainment and productivity applications built on it. Now think of switching cost of this device. Even though Android phones have similar or maybe more features and cost much less than iPhone, customers think about applications before switching!

At first the business model is not obvious, but any product that becomes a standard can offer huge value to clients, manufacturers and industry at large by becoming an open platform. Salesforce makes tons of money by selling its CRM solution, but it found a much bigger growth engine in app-exchange and force.com platform that enables small but innovative companies to build productivity applications on its CRM solution. Salesforce couldn’t have thought of and built all those applications on its own. With other companies building these apps not only they are increasing the value of Salesforce solution but they also are providing Salesforce a new revenue stream by giving it a cut on every sale. A win-win for everyone – clients get better products, partners get a platform to sell on, and providers make more money while keeping attrition rate down.

It happens rarely, but in this case I could convince my group members of the value proposition of network externalities. The next challenge is to build a business case and sell to the technology team. Who said life was easy for a product manager?

Enterprise Software Needs a New Business Model

Long sales cycles, even longer implementation cycles and questionable solution value define the enterprise software business. Having worked in this space for almost a decade, I saw it up, close and personal. It was not easy for an engineer to transition to sales – presentations, demos and sales anxiety were big challenges.  However, a non-commercial, yet analytical and curious engineering mind questioned the ways of business. An enterprise software company spends hundreds of thousands dollars on a sales cycle with no guarantee of winning the business. Software vendors fly around teams frequently, build expensive proof of concepts and entertain clients, all on their dime. However, the moment a client signs on the dotted line and writes a fat check, the tables turn. Now the client is spending millions of dollars in the hope of realizing value presented in jazzy slides and achieving the streamlined workflow shown in the Proof of Concept.  More than half of these implementations either completely fail or run many years and multi-million dollars late achieving a fraction of the value promised.  Can such a business survive?

When I bought my Audi, I did my research, paid my tributes to the dealer by spending eight hours haggling, and finally wrote a big check. However, I received the product as specified, albeit four weeks late [the dealer provided a rental car for that duration], and now I am enjoying the great driving pleasure [read value] as promised. A simple transaction where both parties are happy. Yes, car buying can be further simplified by reducing negotiation time and optimizing the delivery process but it still is an efficient process with minimum surprises on both sides. Why doesn’t enterprise software work the same way?

Today, when mankind is obsessed about productivity, innovation and simplification of all things possible, why enterprise software–a $220B a year industry–is not on the list? Software companies should investing more in R&D than lost sales. Clients shouldn’t struggle to find the right solution and labor to get the promised results. It should be a simple and efficient transaction like buying office supplies or utilities. There is some hope in software as a service [SaaS] business model, where clients pay as they use the software and can theoretically turn it off if missing value or a drop in utilization. It is a great step toward simplification but still far from perfect. Any decent size organization ends up customizing hosted software and finds itself in the same rut of enterprise software.

Salesforce.com started only a decade ago. It now has a market cap of $18B and sells at 260 times earnings because it successfully commercialized the SaaS model in an otherwise mature enterprise software space already taken by biggies like Oracle and SAP. However, Salesforce.com can soon become the “Google” of this space if an innovator simplifies the business model to become the “Facebook” of enterprise software.

Startup vs Growth Business Model

I have always been a start-up guy at heart. At 23, when I didn’t know anything about business model, revenue stream, cost management and clients, I started a company, which of course failed miserably. Well that was certainly not my last tryst with entrepreneurship; a streak of three more failures followed. As if it was not enough, I spent seven of last ten years working for a startup, which only recently found its ground – courtesy a seasoned management team with deep pockets and resilience. You got the picture – a stubborn, passionate technology startup guy trying hard to make his place in the legendary world of entrepreneurship.

However, things changed a few months ago when I accepted an opportunity to do product management for a small software company recently acquired by a private equity firm. The company has a robust business model with 70% market share, healthy profits and thousands of clients.  The previous owner never invested in the business, so products lagged the technology curve, resulting in an unhappy client base and the threat to lose market dominance. The private equity owner, unlike its siblings, is a long-term investor that brings operational efficiency to a software business, instills growth and sells when the valuation is ripe. On an average, this firm holds a company for 7 years. The strategy is clear: Infuse growth by bringing innovation in products, fixing the business model [ license versus subscription], and getting the right organization structure. We are already seeing returns of this strategy in first five quarters.

The debate is which business model is superior – Start up or Growth? One can argue that we are not comparing apples to apples. Sure, but for a technology person who is not an innovator [hence little chance of coming up with next big idea] is it better to venture into an unchartered start-up space with a very high failure rate or turn around a proven but laggard technology business? The latter sounds simple but it has its own challenges –  finding the right opportunity and raising the capital are the obvious ones. However, it eliminates the risk of not finding the right business model – the genesis of many start-up failures.

I will learn more about the growth environment as this story unfolds in next few years. It is good to know that there are more ways to achieve glory!

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