A recent trip to Cuba made me think about corporate adaptation to new realities and reinvention

Old Havana Hotel interior converted form private house -slaves lived on middle floor Typical Havana Old US Car 2016 Incomplete overpass Cuba 2016

By Richard Eichen, Managing Principal, Return on Efficiency, LLC


It is hard to imagine how a Communist country can teach much of anything about business, but what we saw mimics elements of some larger, well-established companies stuck looking in the rearview mirror, afraid of seeing too far ahead, assuming life in the future is an extrapolation of the past.

First, a few personal observations about Cuba.

The Cuban leadership, like many companies’ Senior Leadership Teams, ran their strategy for as far and long as they could until they hit the T-Intersection at the end of the road, the bimodal distribution. There is no longer a middle path, they have to turn right or left. We spoke with an economist who is participating in Cuba’s rethink of its future economic structure, and while elements of Socialism will remain (much like Europe), a form of Capitalism will be encouraged. The question is, what form?

It may be China-like in having a social contract of ‘we’ll give you a higher standard of living, but the Party remains in power’. Since our hotel, the Hotel Nacional de Cuba was the venue for a Mafia Senior Leadership conference in 1946, where only the Mafia’s Senior Leadership Team could stay during the meeting dates (that meeting was recreated in the Godfather II, BTW), it’s highly doubtful if allowing outside interests to own and run the Island again will occur. It will most likely be overseas investments and joint ventures.

Until the Revolution, Havana must have been a jewel. Now, after 60+ years of neglect, many buildings are under serious rehabilitation back to past beauty. I have not read Das Kapital since college, but I don’t recall a chapter detailing the evils of paint, spackle, and preventative maintenance. Today, those rehabilitated buildings, some dramatically lit, are beautiful and I’d wager in 10 years Havana will be back to its former beauty.

Probably due to widespread literacy, healthcare, and subsidized or inexpensive food, people in the street seem healthy and friendly. You do not get the feeling of underlying anger or despair you often get in developing countries when walking around cities. We encountered several children asking not for money, but for candy. Unlike those I have seen elsewhere, these kids were clean and looked healthy.

There’s a lot of inconsistency in Cuba. For example, it is a police state where everyone assumes they are under constant surveillance. On the other hand, they are warm and happy to see Americans. We went to a brewpub by the docks in Havana and while admiring a beer tower, received a sincere invitation to pull up a chair, get a glass and share the beer.

Universal literacy is both their issue and solution. Cuba’s current economy can absorb only so many college graduates, and I am sure they must have a many-layered bureaucracy to employ as many as possible. As an example, this Sunday, the NY Times had an article on filming TV and movies in Cuba, specifically mentioning having to deal with a Cuban Gov’t department ‘drowning’ in its own bureaucracy, making it a challenging filming location, just when they need the business. Nevertheless, until you can employ all those people more productively, how can you cut the layers and encourage free markets? Employment equals stability and communist countries are big on both.

They also have what I call the Educated Small Market problem, ie a lot of educated brains but a population too small to consume a lot of output, requiring an export-oriented economy to employ the local workforce in something other than Gov’t or tourism. Cuba will continue small-scale self-sufficiency and limited growth unless they can develop, like Israel, a healthcare or hi-tech oriented employment and foreign currency creation sector. That economist mentioned above said they do not want to become just another Caribbean tourist economy since that role is crowded, and will design a uniquely Cuban solution.

Cuba went through a post-Soviet collapse period called the Special Period, where the Cuban economy imploded, imports and exports declined 85%, GDP dropped by 35%, and massive layoffs from mechanized farming and inefficient factories put people out of work. Albeit driven by artificial and political goals, for decades the Soviet Union was Cuba’s biggest customer. Then they weren’t and Cuba went out of business for 15+ years.

Below are two thoughts on applying some of these observations to our companies:

The main takeaway is Senior Leadership cannot expect their customers, no matter how strong they seem and how much they buy, to always be there. The past does not guarantee the future, even after 60 years of staying the course. Sustained vitality is reinvention over time, and many companies are not good at it. They are great at re-orgs or staff cuts, product enhancements, and line extensions, but not material rethinks. Many organizations are missing the necessary skills for reinvention. Cuba, even though they had centuries of agricultural experience, realized they needed a new approach, and chose to engage senior Australian permaculture experts to hands-on teach the country food self-sufficiency. They had the need, but not the skills, for reinvention and wisely chose real-world experts and not the safest name brand consultancy.

Next, employees in long-lived organizations assume they will always have a job, food, and healthcare if they play the game and do not force change (and wind up playing resume whack-a-mole). Many of these organizations defined or created entire industries, developing strong internal cultures where multi-decade tenure and strong allegiances mattered as much as fearing making a mistake. Often they became closed societies, difficult for new employee integration, resisting non-conforming and status challenging ideas. Then an outside event occurs, the internal culture does not work as it once did and the best and brightest become doubters and frustrated. Recruiters crack the email convention. Which company could survive a combined outflow of top talent, an inability to attract equally skilled replacements and fearful remaining employees waiting to get “the call”?

About those famous 1950’s cars still running in Cuba – they’re a blast from the past and a tribute to Cuban ingenuity. Many I saw have steering wheels from original to trucks, Hyundai’s, and engines reportedly from anything including boats, and the bodies are often shiny. Boy, we used to build good cars in the US.

I’ve also been asked if I would visit Cuba again. Definitely, “yes.” My recommendation is to see it now and think about what happens when the Senior Leadership is unwilling to reinvent a company until they hit their T-Intersection.

Big ‘P’ process won’t take you to big ‘I’ innovation

By Richard Eichen, Managing Principal, October 2015


‘The living are soft and yielding; the dead are rigid and stiff. The rigid and stiff will be broken. The soft and yielding will overcome.’

  • Lau Tzu, c. 515 BC

Stage Gate Innovation Process introduced and then widely adopted with strict adherence.

  • 1988

In 1988, the business world was very different. Slower. Business was predictable, even for those of us in Tech.  Three-year and 5-year product roadmaps could be readily managed.  Robert Cooper introduced the then revolutionary Innovation Stage Gate process, which was perfect for a document, form and spreadsheet top-down world.  Business moved at the pace of inter-office floppy disk handoffs and paper; email, as we know it, wasn’t released until 1991. Life was predictable; you could safely eat lunch away from your desk and have a relaxing dinner at home at a reasonable hour.

Switch mental gears to today. What happened and why are many successful companies currently having issues with innovative new products, while excelling at incremental enhancements? Established companies are now routinely forced into new markets where newer more nimble competitors can be in their second or third version while the ‘successful company’ is still thinking it through. Calcification around command and control oriented Innovation Stage Gates is a theme we regularly see.

Established companies have become ‘rigid and stiff’, focusing on the small ‘i’ innovation large ‘P’ process as a repeatable and safely controllable logical first cousin to top-down and comfortable product iterating. Heavily defined Stage Gate processes also limit outside creative participation as concepts and user context insights typicaly elongate gathering sufficient clarity for Stage Gate promotion. As Lou Gerstner said when he took over a then failing IBM, and as many companies today exemplify, “You don’t launch products here. They escape.”

Since many employees of larger organizations are more comfortable with strict guidelines and processes, and Management likes stage gate oriented control and predictability, how do you affect this massive cultural change?

Begin by no longer applauding how many stage gates you have in your innovation process. Be reductionist – slash the number of gates to a bare minimum. Replace the internal policing process with design training, product-platform-component thinking, commonly defined terms, and establishing guidelines for expected ROI, timeframe, and market potential thresholds. We’re now at a point where innovations are bottoms up, where various specialists and domain thought leaders surface ideas and command and control processes and cultures will be not much more than a source of slowness.

Heavily regulated industries, under FDA, and other Federal and State regulators, will demand certain attestations and tests, but do not augment these gates with more and more internal stage gates. Actively think, at each step, “what gates can I remove where no one will notice the difference at the end?”  In the good olde days of mainframe IT, we would regularly stop printing scheduled hundred page fanfold reports to see if anyone would question us. We even used to send a certain executive a box of blank paper weekly (we were environmentalists even back then) to see if he would wonder why this essential report was light on details (and ink). Nada on both.

Think internal innovation, as well as external. In a recent survey, more Financial Services executives defined innovation as internal operational improvements than any other avenue, even over Digital and New Products. Why then, would you build a heavy process to manage reducing the number of internal processes under the banner of ‘innovation’?

Since many innovations today are concepts and thoughts needing instantiation, do not spend an inordinate amount of time on, as Cooper recently published, doing “heavy front-end homework before development begins.” Innovative ideas are stories about users and their daily lives evolving from concept to Steve Jobs’ term”insanely great products” through continuous big and small multi-party collaboration. Locking people in a meeting room for a 60-minute brainstorming session rarely works for innovation. Heavily detailed Proofs of Concept focus too much on features and functions that are typically actually enhancements to existing products – breakthrough innovation is based on a new storyline. Use minimally defined test beds and concepts, tested via quick ‘iterate-test-enhance’ cycles to refine the story and then backfill with features/functions. The result will be a product specification and roadmap with a substantially higher chance of market success.

Discontinue treating new products and innovations as ‘projects’ or tracking them as if they are. Most of today’s project management techniques and tools are the linear descendants of 1950’s needs to build nuclear submarines for the Cold War, where each submarine took 7 years to design and launch. RAG reports and team meetings were easily incorporated in that long timeline. Replace a high-friction document-oriented, electronic file cabinet and email-centric process with a near real-time collaborative culture empowered by modern innovation acceleration tools. For those of us using the various Office tools, collaboration is still difficult. Approvals, idea clarity, financial and progress controls remain, but typically, in our experience, the right mix of culture and technology cuts end-to-end cycle time by at least 30% and with broader input and buy-in.

World-class companies have changed their thinking radically (or in the case of many newer companies, never had old-think to begin with). They moved from living in a predictable and calm inwardly focused world where they reacted to market changes expressed in columnar formats to living comfortably, as Complexity Science defines it, ‘on the edge of chaos …where rigid order and random chaos meet and generate [a high need for] adaptation, complexity and creativity’.

Adaptive companies have two distinct advantages over their competitors. First, they create the Edge of Chaos where their less nimble competitors are then forced to struggle. Secondly, they attract, retain and develop the least linear, most creative and adaptable employees who operate at near real-time, not email and meeting speeds. Their employee DNA matches the pace of their evolving markets.

Can established companies make this transition – some yes, and some no. We have seen mighty efforts leading to not much more than sloganeering followed by over-control and have participated in clear transformational success based on innovation acceleration techniques and technology. Replacing your Stage Gates process and controls allows you to use your competitors’ ‘rigid and stiff’ cultures against them. Let them live inside their process while you invent the future.


Is Innovation Potentially Self-Destructive?

Dinosaurs were a successful species for millions of years. Change is inevitable, and those beasts standing on the sidelines saying they were both modern and progressive while watching others learn to fly ended their species in our gas tanks.

“We went through an industrial revolution and then an information revolution, and now we’re in a talent revolution,” Thomas Friedman recently said on MSNBC’s Morning Joe.

Read More

Innovation Ends With The First Sale, Not The Proof of Concept

The hi-tech furniture, scratched up modern hard shapes, and pale colors, looks like it belongs in a loft, not the back area of a suburban HQ. What was once an Innovation Lab, with its look and feel and budget, was shut down after spending over $20M and achieving a few proofs of concept and nothing else. Some employees left; others retooled themselves back into the areas from which they came. Physically, only the furniture, reused as needed piece-by-piece, remains. Mentally and culturally, what remains is the feeling “we can’t innovate here.”

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Why can’t ‘modern’ companies innovate?

What is a ‘modern’ company? Several large and established companies are starting to define themselves as such – but they seem to be searching for meaning and relevancy. Many stagnating or slow growth companies, struggling for their identity and vitality, use the term ‘modern’ as a way of saying “what we need to do is fast innovation.” ’Modern’ companies change some part of their identity every few years as they search for some path forward. How hard can innovating be over declaring yourself ‘modern’ and ‘progressive’ or even ‘cool’? Ask McDonalds, who, self-definition aside, remains shackled to their old model as evidenced by updating Ronald McDonald in 2014, creating a sort of nondescript clown doing a bad business casual Friday. The public’s reaction was not kind then and the jury is out on how  the recently named new CEO will breathe relevancy back into the corproate body unless he drops sloganering and starts innovating.
Read More

Internally Crowdfunding Innovation – 12 Steps to Create Your Internal ‘Innovation-Starter’ Marketplace

Is your innovation initiative challenge driven or challenged?

Steve Jobs said innovating was not about spending big, it was about leading people to think big. Much like the Good Judgment Project on world politics and events, the best answers and insights are often crowdsourced. Why do we typically have only a select few employees or locations contributing to new ideas? It wasn’t Henry Ford who invented the automotive assembly line – it was a mechanic, extrapolating what he saw at a slaughterhouse.

How do we democratize innovation in our organizations? Crowdsourcing and crowdfunding are fueling the fast growing Maker Movement, creating new products by empowering people atypical to the ‘usual’ new product development process. Why are we not embracing and leveraging this broadly accepted cultural trend inside our walls?

A few leading-edge companies are harnessing the Maker Movement via a concept we’ve seen work well, the internal ideas marketplace.  Modeled conceptually on Kickstarter and TopCoder,  group wisdom dictates winners and losers through gaming theory based ‘investments’. Why is this different from Open Innovation? For one thing, you own the ideas, without issues relating to Arrow’s paradox and previous art. This isn’t theoretical – Xerox became a major Apple shareholder as a result of a well-meaning graphical user interface demo to Steve Jobs.

Based on our observations and experience, here is a list of steps for implementing and running what we call the ‘Innovation-Starter’ market. While we deal with some degree of mechanics in this list, the real underlying principal is creating excitement around blue-sky thinking:


  1. Every employee has access to the ‘Innovation-Starter’ site on your intranet or SharePoint. Invite a select number of external SME’s and big thinkers. New DNA is always good for an organization.
  2. Annually, every employee gets 10,000 ‘Innovation Bucks’ to invest in the Innovation-Starter marketplace, funding ideas other than their submissions. Since the desired output is delivered innovation, and not merely participation, we use three classes:
    1. Inventors
    2. Active Investors who have made suggestions and concept refinements
    3. Passive Investors who have allocated their capital to an idea without refining the concept
  3. Two classes of innovation are requested – those answering specific customer needs or market dynamics, and pure brainstorming ‘what’ if we could’ ideas. Create innovation momentum, passion and engagement among employees by communicating challenges and the ‘leader-board’. Encourage them to visit the site and see the energy happen.

Adding Ideas looking for Investments

  1. Issue a specific challenge – is it best new idea or solving for a specific vertical market/Use Case/Domain Model?
  2. An idea must include a description, an understanding of who would be a customer, fit/purpose, and why it is a real innovation and not a logical refinement of an existing product or service.
  3. Ideas are posted anonymously to prevent politics driving a poor outcome, and are listed as ‘Pre-Investment’, i.e., not open to Innovation Bucks allocations.
  4. The full-time Innovation Team Leader reviews all recent idea postings, filtering for the clearly articulated and germane to business goals and strategy. Try to avoid the infamous Kickstarter Potato Salad campaign unless that is your business. Once approved, similar to being listed on Kickstarter (or the NYSE), the idea is ‘Open for Investment’.
    1. A word of caution – don’t over filter or be too linear. Innovation is a process and, like a sales funnel, the top of the innovation funnel has to be constantly fed to produce the best results at the bottom.

Allocating ‘Innovation Bucks’ to an idea

  1. Like any other source of investing, well articulated, and promising ideas attract more capital than the fuzzy. Investors endorse concepts by allocating Innovation Bucks, and ff they decide to become an Active Investor in an idea, they have to improve the concept with written refinements.
  2. To ensure continuous feedback, previous investors can reduce or claw-back their previous investment if an idea seems headed in a direction they do not like. Thus, like an actual  market, feedback is dynamic and continuous.
  3. Investment ready ideas have a shelf life of 30 days, after which the Innovation Team Leader ranks them by size of investment and the number of comments/refinements, indicating community buy-in and enthusiasm. Said ideas go before a bi-monthly  Innovation Review Committee  for a go-ahead on further exploration, and from this point on, stage-gates are appropriate.


  1. Inventor’s earn ‘dividends’ as their idea passes through the  evaluation and implementation gates:
    1. 10% for submitting an idea accepted for listing on Innovation-Starter for potential investment by the employee community
    2. 15% when selected for review by the Innovation Review Committee
    3. 25% when it goes to business case development
    4. 50% when it goes to Development for realization
  2. Active Investors receive 50% of this schedule, and Passive Investors earn 30%
  3. At the end of every year, Inventors and Investors who have achieved a minimum 50% overall ROI on their portfolio are invited to a by-invitation dinner with Senior Leadership. Originators of ideas which truly moved the needle should have a cash/options reward as well.

Don’t sweat the tech; sweat the nuances

Innovation platform vendors are numerous these days, often very similar,  so don’t sweat the platform, either SaaS or behind your firewall.  The key success criteria, in our experience, are using the largest population possible, anonymity so it doesn’t become a friends/like me fest, moderated ideas open to investment so it does not become the Dept of Trivial Thoughts, and swing for the fences, go large or go home, right from the start. Few things are sadder than an innovation initiative nursing really small ideas, none of which will move the revenue needle.

What if I don’t get sufficient standout ideas?

OK, sometimes we set up great processes only to have too few worthwhile ideas brought forward.  Why? There’s no clear answer but a few introspective questions need be asked:

  1. When should we use an open outside community such as gathered by TopCoder (and others) vs. focusing on internal idea sourcing? Should we use both?
  2. Is our culture rewarding or penalizing of ideas which seem great but do not materialize per expectations?
  3. Have we created a reward system for innovations which ‘ring the revenue bell’?  People act in their own best interest, and often that means taking a great idea (especially in the low cost cloud/app age) and doing it on their own.

Innovation is not a process requiring control and pacing to fit your organizational cadence and governance culture. A flexible thought harvesting process upfront will ensure the subsequent stage-gates are fed the very best raw materials. How do you turn ideas into an innovative reality? Here is our viewpoint: http://growroe.wordpress.com/2013/02/25/the-smell-of-the-skunk-is-a-good-thing-when-you-need-a-disruptive-product-to-power-growth-part-2/

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on transformation, innovation, and realization where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue, and New Product Development leaders. As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration, and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe

Big Data Can Cost Big Money – 2 Key Tips to Avoid Overspending and Get Faster Results

Hoover Dam created Lake Mead 80 years ago, capable of storing over 8 Trillion gallons of water. The 5 years it took to build the dam was a safe bet as water hasn’t changed terribly much in the past eons and reservoirs have been around for over 5000 years. The term ‘Big Data’, per a NY Times Bits column, is from the late 1990’s and the underlying Hadoop database was only invented in 2005. It’s a far safer bet to invest heavily to keep water in a central place than it is to make your own Lake Mead of Data.

Still, the insurance industry seems to be going the Lake Mead route. All too often, a Big Data strategy is a multi-year push to shove every piece of data a company can get into an uber data warehouse expecting some Big Data Analytics tool will come along and reveal previously unknown relationships. Will this mass of data take on its own purpose, requiring constant alignment to your business goals, i.e. is too inwardly focused, or someone telling you in a year, “you never asked for it, so we don’t have it and quite frankly, we can’t even store it in our database?” Can you have too much data, and not enough insights? Does the past axiomatically predict the future as the predictive analytics vendors claim? Ironically, Lake Mead’s water level is falling due to unforeseen consumption and climate changes. Pouring tons of concrete does not imply continuing viability.

The NY Times had an OpEd article on 4/7, from 2 NYU professors, Gary Marcus and Ernest Davis, highlighting the potential hazards of relying too much on insights by number crunching. Not the least, and most relevant to the ‘Big Data needs the Big Warehouse’ approach, is

‘If you look 100 times for correlations between 2 variables, you risk finding, purely by chance, about 5 bogus correlations that appear statistically significant – even though there is no actual meaningful connection between the variables’

My 2 favorite examples in the piece are the extremely strong correlation, from 1998 to 2007, between increased Autism diagnoses and increased sales of organic foods. Similarly, from 2006 to 2011, the murder rate and market share of Internet Explorer both went down sharply.

Why are you being pushed into the biggest Big Data implementation? Probably because, as that gangster once said, “That’s where the money is.” It’s a combination of IT responding to Board pressure for business benefits to support budgets, and vendors in a feeding frenzy before this also becomes yesterday’s hype. Tech industry reports show BI revenues growing to over $50B by 2017. Who wouldn’t like a piece of that? Consulting companies will tell you it’s hard, and takes over a year, if not years. If you implement Big Data the usual way, it is hard, there aren’t enough Data Scientists to make sense of all the information in the universe, tools with sex appeal, but without insurance content, appear every day via email announcements, and budgets are exceeded with little to show for it.

Most of today’s Big Data oriented Data Warehouses, and especially the underlying infrastructures, aren’t going to handle the Internet of Everything exceptionally well, or at all, which will become apparent when telematics driven usage based pricing becomes standard in just a few years, rather than today’s 2% market share. Most companies are just starting to think through the Big Data implications of an Internet of Everything based insurance industry, where Google states their autonomous vehicle generates about 1 GB of data for every second of driven time. Many newer cars generate approximately 100 MB of data per driven second. Take away irrelevant elements such as tire pressure, RPM, etc, and even of you cut it by 85%, the volume, when multiplied by just the 250M cars currently registered in the US, is staggering.

Before you build your own Lake Mead of Data, short-term, widely deployed, business function specific BI solutions may be more useful right now until the collective technology, automotive, wireless data and insurance industries think through implementation and operational realities. Here is an analogy – I live near a congested and dangerous State highway, concrete poured in the 1930’s, designed, and implemented without extrapolating to today’s volumes. With development on both sides of the highway, it cannot be adapted to current, let alone projected, volumes. We learned to live sluggishly and to hold our breath when we approach an entrance.

Here are 2 tips based on our experiences:

1 – Be audacious, think of Big Data as part of a Product Roadmap – start with today and think stages.

Blow right by “enhancements” or ‘’incremental” improvements. As Ray Kurzweil said, “take 30 linear steps and you end up 30 paces away, but if you think exponentially, you wind up a billion steps away.” Think the uncomfortable:

“If I gave a really smart 20 year old $10K, how would they affect my customer acquisition and retention process? What benefit justifies my Big Data spend if this college sophomore can disrupt me after dinner?”

Many Health insurers, for example, are in the early stages of revolutionizing their business through deeply integrated social apps, tying wearables to doctors to hospitals to patients to pricing.

Big Data will change insurance products from static entities into a more dynamic world where increased data and analytical capabilities will shorten product lifecycles to a year. Just as tech vendors think of their offerings over time via a phased Product Roadmap, insurers need to do likewise where Big Data is simply an ingredient, which in itself, will change over time.

2 – Don’t serve up comfort food.

That 20 year old isn’t thinking “today,” let alone “yesterday”; they’re too busy creating your demise. Big Data can be mental comfort food if not managed properly – it’s always reassuring to revisit the past. Again, think the uncomfortable by shifting from product focused to ethnography:

How will customers use my product in their daily lives? How will new data sources and types define these new products? In 10 years or sooner, will we continue to be an insurance company with a Digital presence, or will we evolve into a tech-focused company, one of whose main revenue sources is insurance? Will pouring all this Big Data concrete today contribute to, or impede, future agility?

Big Data does not axiomatically require Big Money upfront – it needs Big Innovative Thought. “Talk is cheap, show me the code,” Linus Torvalds (the developer of Linux) said. “Data is everywhere, show me the future” is what we should be demanding.


Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on companies, initiatives and products where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue and Process Rescue leaders.  As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe

4 Non-Obvious Concerns When Buying Software From Unknown But Intriguing Vendors

Cloud and licensed software are both flush with vendors. BI, for example, is now in Enterprise-wide roll-out phase, but which BI vendor is your go-forward choice?  There are at least 24 tracked vendors in this space, and who knows how many are still under the radar.  The usual and established vendors have strong offerings, but some of the Most Unexceptional products and Cloud based services come from the new and the ‘up and comers’.  How do you buy from these non-obvious but intriguing vendors? If you’re the vendor, what is going through your prospect’s mind, and how can we reach win-win and close the sale?

Vendors go through maturity levels – some are figuring out how to transit to a win-win business model, others are learning mainstream business culture norms.  Some are technological visionaries but inexperienced at supporting end-user buyers over the contract term.  It boils down to one extremely personal question the shopper should ask – “what would happen if I choose a non-obvious vendor and it doesn’t go well?”  Each organization is different, some embracing fast-fails, while others emulate North Korea, and so the answer depends on both you and your employer’s risk tolerance. Sellers need to put themselves in the customer’s mind, ensuring personal risks are either allayed or avoided. If not, the sales cycle will be intolerably frustrating and elongated.

Here’s what matters, based on our experience, selecting, partnering and implementing:

1 – Is the product built as a product or is it a reuse of an internal tool or application?

Products are parameter driven and need to be more than Minimal Viable’ (especially cloud based offerings) and have a shareable roadmap.  They are architected for broader use, straightforward integration with other products/feeds and adaptable/extendable with backwards compatibility or Most Unexceptional case, backwards-invisibility (you don’t even know it was updated).  Internal applications are not as flexible and usually are built to be frozen for 10 years with little or no updating.   Check if this intended purchase was designed and built as a product, or was declared a product with little more than branding and a long roadmap of critical fixes and changes added.  The vendor’s CEO knows, talk to them, one on one.

2 – Is their business model a win-win? Do they understand the current business culture? Do they know it to a fault?

We increasingly are seeing vendors built for a near-term acquisition, not built to be a company lasting even the 3-5 years of today’s normal B2B technology contract term.  They’ll do whatever short term tactic is needed to get there.  Give Facebook credit, they’re a real company figuring out new business aspects so they can be around for years. Many vendors aren’t that strong or even care. The ‘tell’ is having an impressive New Customer list, but being thin in each account, usually the original purchaser and perhaps an add-on or two. We call these ‘orphan vendors’, and we kill them off during our Vendor Rationalization engagements, so you’re stuck holding the bag for a regretful purchase decision. Dumb Money investors love long new name account lists, so a lot of companies are forced (or decide) to go this short-term route.  Therefore, when you check references, ask for ALL the users in an account, not just their primary contact.

What is their distribution strategy: call-in centers, partners, resellers? Does the underlying supporting business culture mesh well with yours? Are they selling primarily on price? Some vendors rely on referral partners, essentially someone who hands them a warm lead and then steps out of the way.  This is a powerful new lead generation system, but who will be there next to you, shoulder to shoulder making sure you’re successful? Not the referral partner who has already made their 1X cash hit, or an implementation partner who wasn’t part of the original scoping activities. Build service level KPIs into your agreements with all parties.

3 – Post Sales Support – who will hold your hand while you attain mastery?

Implementation services are much less profitable and harder to scale than software, and so many vendors shy away from implementations, using local partners. This is actually a positive for the buyer as a poorly designed product might require the vendor’s deeper understanding of the unique architecture and resulting idiosyncrasies than most resellers/partners are willing to invest in learning given the potential market opportunity.  This could be an indicator of a product issue needing further pre-sale investigation.  Make sure you have full knowledge and application IP transfer for strong long-term self- sufficiency.

4 – What happens to the vendor’s employees if your implementation doesn’t go so well? Is it only my job at stake?

Having lived in Silicon Valley, and having been involved in growing or turning around vendors, I’ve seen what I call the ‘3 time zone phenomenon’ in action. HQ staff can move on to another HQ, monetizing their experience at a failed vendor, as long as their own hands are relatively clean of the main issue which sank the vendor they’re leaving. Or, if they were early-in and the vendor can be sold, they focus on slathering ‘lipstick on the pig’ to increase valuations, and then cash in big time.  You, the product end-user purchaser, are left explaining a regretful decision.

As a buyer, adjust your payments accordingly. As a vendor senior manager, you have to convince end-user buyers through tangible assets you’re a low risk option, such as through well thought through training, implementation plans and wrap-around services provided either directly or through resellers and partners with long-term financial incentives.

Non-obvious vendors can provide new and outstanding solutions, at cost effective pricing, and should be seriously considered. Often, they have the breakthrough solutions allowing you to innovate, providing more than a ‘me-too’ catch-up capability.  Just appreciate their point of view – despite what they may say, are they transactional or relationship oriented, and how does this square up to your personal comfort zone?

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on companies, initiatives and products where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue and Process Rescue leaders.  As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe

Here’s a Timeline to Tell if Your Sales Force is Major League

[polldaddy poll=7867363]Is your sales salary expense exceeding $189M this year? If you’re the Yankees, the corresponding response is [yawn], “yes”.  They will be paying the MLB luxury tax this year, as they do every year, for exceeding the League’s Salary Cap.  To the Yankees fan in the stands, if you buy one of the forecasted 2 million hotdogs expected to be sold in 2014 at the stadium near the parking lot covering the House that Ruth Built, recovering that $25+M luxury tax bill could make those dirty water dogs a bit expensive.  Even with free sauerkraut.

Maybe you are more like the Houston Astros, whose payroll is about 10% of NY’s?  They play the same game, have the same need to compete and win, but with less cash and therefore a different kind of player. Software, B2B Cloud, and consulting companies all have the same dynamics with their player rosters, the sales teams.

I tried Googling various combinations of Tech sales rep failure, sales rep success, sales rep optimal shoe size, etc., and while you would think the information in this blog post is sort of common knowledge, Google has yet to find and index it.

Sales Talent – Who goes where?

If you’re a Tier 1 with growing sales, you get the all-star, well connected, home run hitters who then stays for years building deep relationships at key accounts and making all-star money. Once key account sales revenues start dropping due to saturation, the economy, or a technology pivot, even Tier 1 reps have to sell harder to keep their earnings steady.  Those reps not making their numbers find their territories sliced and diced, making it even harder to keep their jobs. Ever been negotiating with an embattled Tier 1 Enterprise Software rep?  You want an Observer from the International Red Cross in the room to ensure no war crime is committed. Ever been in a late-stage meeting with a Sales VP or CRO who’s under pressure? I’d rather swim in a rip-current. When they leave, some will stay in Tier 1, and others will temporarily go to Tier 2 and 3 until they can come back to Tier 1.

For Tier 2 and 3 tech companies, either those happily up and coming or those not so happily plateaued, hiring and managing a sales team is not easy.  Top talent won’t automatically come to you, except during a Great Recession when one of those former Tier 1 reps needs a quick place to land and decides you’re going to fund their ongoing job search while burning through your 6 months of non-recoverable draw.

I recently spoke about the state of sales rep hiring and management with several industry friends, including Jeff Hoffman, a seasoned Sales VP at both Tier 1 and Tier 2 vendors and another contact, a highly successful Tier 2 sales rep.  Filtered through our firm’s lens, here’s a consensus reality.

Who do you hire if you’re not yet a Tier 1?

There’s a type of rep who likes the challenge of Tiers 2 and 3, and dislikes the politics and complications often found in Tier 1’s.  Self-reliant and resilient, they are the equivalent of the Houston Astros’ starting player who will play well in the Majors, but not at the $230M superstar level (then again, the Yankees spent a boat-load of cash in 2013 and ….).

What’s the successful Tier 2 and 3 hiring profile?

Tip-offs sales rep and Sales Leadership candidates are serious about selling your products (and not just looking for a paycheck)

  • After the 1st interview, they turn the tables and interview you, demanding a demo of the product they will be selling. Only a desperate sales rep candidate determines if a product is saleable after they’re hired
  • Sales VP’s, and Sales Team leaders will ask to interview their direct reports and will ensure they have the authority to replace incumbents they feel are not ‘winners’. They won’t take the fall for their predecessor’s hiring mistakes and won’t spend a nanosecond prodding an incumbent sales rep to get out there and do sales calls

Hunter (Territory Sales Rep)

  • 7 to 10 years proven sales performance in a Tier 2 or Tier 3 vendor
  • Communicates to Marketing exactly what is needed to fill or unblock their Sales Funnel
  • Has sales skills, not necessarily vertical industry knowledge; listens, seeks each prospect’s needs and motives
  • The products they sold were often  me-too, but they still sold them day after day, and this is a plus

Harvester (Account Manager)

  • 10 to 15 years’ experience with deep and leverageable relationships in a large customer you’d like to have. Quiz them on how that customer buys, how to become a certified vendor, how procurement operates and how they personally grew the user base and revenues
  • Did they carry the revenue number or was it shared by a larger team?
    • Be careful – many Tier 1 Account Managers are amazed, when after leaving their Tier 1 vendor jobs, their former customers forget their names. It wasn’t them; it was the logo on their business card imparting credibility and access
  • Probably has some vertical industry experience (ex: Insurance, Healthcare/Hospitals, Pharma, Specific Manufacturing, Online Banking and Digital Payments) and can have a conversation at the customer’s Director and Senior Team levels.

Consulting is a bit different, where the need to be conversant about an industry or technology is crucial and so 20+ years’ experience in a vertical or technology is often a requirement. Here, I would also review their writing skills.

At all levels, make sure they are very social media prospecting proficient, such as advanced LinkedIn skills. It’s a numbers game, and your Customer Acquisition Costs have to be controlled.


Managing the new Sales Rep – The Timeline

How do you know you hired a winner?  We use the following 9 month timeline with our clients and when they have a new sales team:

First 30 Days – Are they still looking for a job? Is there potential here?

  • Understands your comp plan the way you understand your calculations and earning targets, and have computed the number of closed deals required to make quota.
  • Espouses a C-Level version of your value proposition (a 1-2 minute version of your Elevator Pitch)
  • Verbalizes a high-level map between your Value Proposition and your specific offerings, stated in Day-In-The-Life terms
  • Reaches out and tells their contacts and former customers where they landed. Be cautious of reps who claim “their contacts are busy, or they’ll get back in touch” as they’re most likely buying time while still looking. This is especially true of reps formerly out of work for a year or more.
  • Demonstrates a predilection for action vs planning and advising
    • Involuntarily retooled Sales VP’s are prone to staying in their comfort zone, staying busy helping on special projects, rather than focusing on sales activities.
    • Asking a lot of questions is not the same as high activity levels
    • Avoids being a 1-person Sales and Marketing machine.  Flexible, but does not spend days putting together intricate presentations unless they are specific deal related
    • Shows resiliency; can they get knocked down or hit a speed bump and rapidly recover?

Next 60 Days – Are their skills as good as represented and are they trying to make traction happen?

  • Conducts 2 demos or deep-dive conversations conducted in cooperation with your sales support teams (might be a BA, or an Engineer who is adept on their feet and customer empathetic) to the right person based on sales cycle stage
  • Conducts a next set of 4 demos or deep-dive conversations, both follow-on and new prospect, proving they are in the marketplace and can control a sales cycle.
  • Works to attain a deeper understanding of how the customer uses your offering, actively refining their own version of the Value Proposition, now down to the Manager Level (from the C-Level we talked about above)
  • Participates in your Objection Clinic using their current prospecting and early-stage sales campaigns as input

Next 90 Days – Are they on the path to success? Are they settling in for the long haul?

  • Recites a refined customer-specific version of your Value Proposition and product map in their sleep.
  • Delivers 8-10, 30 minute Level 1 demos or equivalent conversations
  • Orchestrates 3-4 Level 2 demos with a well-defined customer need you can potentially solve, budget, timing, buying cycle and Procurement processes.
    • These can be forecasted as 30 percenters for tracking purposes.
    • Has at least 2-3 qualified opportunities where the deal terms and any deeper technical issues are being discussed, and you have personally talked to each buyer/decision maker.  Be careful of sales campaigns that drag on without your complete first hand understanding of why.
      • Reps, at this point, can forecast Phantom Deals (more wishing than having) to show activity. It’s hard to attend a sales forecasting meeting and not put something on the list at 6 months, so the pressure is on to say something, anything.
      • These 30% forecasted deals should have discovery, fit, pricing and evaluation completed within the next 30 days. Once completed, they can be forecasted at 50%.
      • Many sales reps get 6 months of recoverable draw to cover start-up cash flow needs, so near the 6-month mark, look for a sudden drop in new prospecting or deals being postponed or slowing. It usually means they’re close to leaving.

Next 90 Days – Thumbs up or thumbs down?

  • Creates at least 1 deal, closeable within your  fiscal year, and where you and their Legal are actively involved in direct customer conversations
    • This deal should be forecasted at 70%
    • This is the point where a panicky rep will start forecasting Zombie Deals, i.e. keeping deals on your forecast even though the rep knows the deal is either dead or postponed to the next fiscal year. I always ask the most senior buying executive what would happen to them if they did not buy within my fiscal year
  • If there isn’t a near-in deal, question why a rep would hang around if they seemingly cannot make a lot of money. Good reps are like cats – you rent their loyalty by feeding them

The Final 90 Days – Are they Hall of Famers?

  • Has a deeper understanding of your optimal Deal Size based on the bottom line financials and ensures all forecasted deals are within that optimal band
  • Understands and communicates to Sales Management and Marketing where their lost deals fell apart and helps devise fixes.

As Moneyball proved, you don’t need a whopping payroll to be a contending team. Hire a solid team, be realistic about production, and lead them effectively in your vision of how Most Unexceptional to play your game.

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on companies, initiatives and products where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue and Process Rescue leaders.  As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe

Will my strategic software vendor become the next pets.com? 6 Real-World Tips to consider

Billion dollar valuations for apps without a revenue stream or a defined model for being in the black and self-sustaining are now common.  Sales reps are being pressured to bring in their numbers, with quotas ramped up and renewals becoming increasing critical as a source of revenue and commissions. A young CEO thinks a security breach is OK while other vendors are launching products with ‘minimum viable’ stamped all over them.  Older sales reps with established networks are being brought in to capture fast initial sales at crazy commission rates, but these reps often can’t fulfill their missions (and heavy draws) and leave. Choosing a vendor is difficult if the product or service is strategic and the relationship (and use) is long-lived or your company is a more sophisticated operating entity than this new key partner. Culture matters and a disjoin between organizations can lead to daily negotiations for what you consider obvious.

On the other side of the table, more than ever, these days being a vendor is a Darwinian experience, where today’s leader is tomorrow’s “wow, haven’t heard that name in a while”.  Even mature and successful vendors who are now larger organizations themselves are being challenged in specific areas by more agile start-ups.  We’re hearing more frequently where a large tech vendor is “being run by Finance” without the Yin/Yang of a resident leader with a vision of the future embraceable by both the market and employees.  Or worse, they’re being driven by people who think slick and glitzy features and not customer value, such as LG’s recent announcement at the Consumer Electronics Show of their washer/dryer with texting capability. Toasters with Twitter followers next?

For newer vendors, pressures have never been greater to push stuff out the door, relying on future updates to complete the product, which does not benefit the purchaser. Early stage investors are fearful of lowered valuations, not just hurting their current interests, but setting the stage for them to be hurt even more if additional funding is required, and so having something out in the market is essential for buzz (and buzz ups valuations in the short term).  For the customer organization, buying an unfinished product creates pressure to help the vendor fix it in real-time, again, making daily intra-company interactions strained when the immature vendor’s culture is more focused on growth than functionality. It’s like being in a foreign country, and while both of you speak decent English, your culture based logic trees are so different, and so each of you reach very different conclusions based on the same inputs, requiring additional negotiation.

What are the considerations in choosing a key software vendor besides straightforward pricing and functionality? Here’s our top 7 based on hard-won experience:

  1. Is their offering ‘minimum viable’ or a business mature product with a full set of functionality to address your business needs? Many Cloud based offerings are shoved out the door to gain market share fast, which is OK for non-mission-critical flashy apps, but death for complex business applications where availability, functionality and throughput are critical. We’ve spoken with a number of highly talented, high credentialed and highly paid developers averaging a decade of experience who are not yet schooled in differentiating between the Phase 1 best functionality vs. overly relying on iterations to get it fully functional a year out.
  2. Steadily growing new customer client base, including add-on products to existing customers. Have they owned the product you are buying for at least 18 months (to provide time for post-acquisition managerial and product alignment shakeouts to settle down)?
  3. How often do they introduce significant new and well-tested functionality? Have they ever taken away functionality during an incremental/iterative release or business model refinement? Is their business-model more focused on shareholder-value than customer-value?
  4. Ability to use only parts of an end to end suite, should you decide the entire suite is not uniformly best-fit. Plays well with others – ease of integrating other/outside modules via well documented (and existing) APIs and XML formats.  Do they have an ‘us vs. them’ culture?
  5. Vendor’s HR culture is nurturing for energetic talent; is the customer facing talent committed to you and willing to do ‘whatever it takes’ for your success? Are they empowered or hesitant to go out on a limb? Do customer facing employees seem happy to be around each other? Do they give straight answers with dates met? Is their average customer facing employee better than your own average employee?
  6. CEO/President’s tenure in the job and Glassdoor rating of at least 70% with an overall company rating of at least 3.0. TechCrunch recently had a blog entry from Cowboy Ventures, describing their research showing a strong current where the most successful Enterprise software (or SaaS) CEO’s are in their mid-late 30’s or older, and over 40% of these companies changed their CEO from a founder to a ‘pro’ pre-IPO. Alternatively, they may not have a Glassdoor score if they are too small or very young. Check via LinkedIn and other sources to see if they have high turnover at the executive and senior executive levels.  Nothing disheartens developers more than working for a company where they feel unappreciated, boxed in, or off on a tangent, so tech companies are only as strong as their developers’ opinions of their leaders. We also recommend reviewing their locations – is Development and R&D located in the midst of a deep talent pool?
  7. Issues can occur based on a poverty of poverty or a poverty of riches.  Some smaller vendors are not built to survive a large financial shock, such as a key customer not paying their bill, causing a cash flow issue.  This could force a company sale or some quick change in their business model or layoffs.  The poverty of riches side is equally vexing.  Since it’s all about growth these days, we’ve seen increasingly where some vendors sell new customers beyond their ability to implement their software per the client’s needs.  Their consulting units are running out of resources, projects are being delayed, and customer service for existing users suffers as resources are pulled to high margin consulting services.

Choosing the right vendor is far more than doing a product fit analysis and negotiating a price. If the product continuum spans immature to stale, the key decision factor is balancing product newness/fit with a vendor who understands how to sell, contract, add functionality, and support a company your size. Most Fit/Gap vendor eval processes do not sufficiently emphasize the relationship, relying more on simple scoring into boxes as less soft-skills/experienced based judgment is required.  The best buying decisions are weighted towards intra-company fit and the multi-year relationship.

Richard Eichen is the Founder and Managing Principal of Return on Efficiency, LLC,  http://www.growroe.com , focusing on companies, initiatives and products where technology is the primary means of delivery and revenue. He is one of their senior Turnaround, Transformation, Program Rescue and Process Rescue leaders.  As a Change Agent, Trusted Advisor, Program Leader and Interim Executive, Rich has over 25 years hands-on experience reshaping companies, Operations, IT/Systems Integration and strategic initiatives.  He can be reached at richard.eichen@growroe.com, and followed on Twitter, @RDEgrowroe