Category Archives: Entrepreneurship

Software vendor: Have you even had the problem of discontinuing a software solution?

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There has been an outcry the last few days due to the decision of Google to drop its Google Reader application. Jim Aley concludes in his article that life will continue even without Google Reader, but it is painful to a lot of people that have relied on the service. Google has announced that Google Reader will not be available after July 1, 2013. Reading this annoucement, I reflected a bit on what I have seen during my career in respect to discontinued software solutions and issues around that decision.

What Google did is something that we all have probably run into in some shape or form. I used to run software product development teams earlier in my career and have had to “kill” products due to different reasons; some of them being based on economics and some of them purely on the change in competition and changes in strategy. I have also been consulting software companies that have killed products along the way because they company has had to change direction of their strategy.

When I see companies grown their operations, I have also seen a tendency to increase the complexity of the solution portfolio which typically leads to complexity in the entire operations. Suddenly your operation has become more complex from support and delivery perspective, your channel partners do not understand what you are trying to accomplish and your sales is scratching its head to figure out how to position the solution as there are so many moving parts.

Looking back at my career, I can say that I am guilty of this as well so I have experienced it first hand and have had to do difficult decisions along the way. Just the fact that the software vendor has to inform the customer that something that they use on a daily basis does not get enhanced anymore can be very difficult to message to a customer. How do you inform this kind of decision to an end user customer without getting a blooded nose?

When I select software solutions, I typically also consider the strength of the software vendor whether I will be investing my resources and future into it. There has been a few times during my career when I have “seen the signs” of weakening of a software vendor and then made a decision to transform my operations to something else. I am sure this will be the case also in the future. This is extremely true specifically in the cloud space as the investment to start a cloud business is almost zero (if not considering the labor) from infrastructure perspective so anybody can now come with an idea but for the business to be sustainable, it is another story altogether.

What do we learn from the Google Reader case? In my opinion, we can easily say that even large companies with loads of money will make decisions that can hurt the client base even if it is a non-paid solution. Secondly, I think we need to learn to understand that nothing exists for ever and if you select a solution for your operation, you better analyze the vendor first to see if they are for real or just a hobbyist organization.

A Case Study – Creating a VAR Development Program

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This blog entry continues on my first blog entry where I concluded that the channel does not work for the ISV, it is the ISV that has to ensure that the channel has the tools to become successful with the solution itself.

In my second blog entry I highlighted a case study of a successful ISV that was able to grow its business by doing the channel development by identifying an impactful approach where the VAR channel felt that it was a win-win situation for both sides.

In this blog entry I am high lightening the VAR development program (Phase 1) that SolidWorks created for its channel and as I stated in my previous blog, this program was almost like a mini-MBA where the ISV wanted to facilitate and help its VAR channel to run its business more effectively. The program that David Skok highlights in his blog entry as phase 1 of the development program is divided into two main areas: Business Management and Sales Management.

VAR Channel Program-001

From the picture above, the channel assessment was reviewed from these two perspectives and each of these perspectives are divided into smaller components that have relevance specifically when running a VAR business.

Cash is king as they say and I have also experienced this as an entrepreneur. What ISVs tend to forget is that somebody has to fund the activity to build the funnel of the solution that the ISV wants to sell. So lets review the typical steps that we expect to happen when an ISV signs up new channel partner:

  • The ISV wants to ramp up the activities immediately once the deal is signed, which means that VAR technical and sales team needs to be trained and educated of the intransiences of the product and learn how to take objections from the target prospect market segment.
  • The ISV expect the VAR channel marketing team to dedicate resources to start building the funnel and sometimes forgetting that there are other products that they might have in their portfolio.
  • The ISV Channel Account Manager puts effort in getting things going as he/she is the one that will have the pressure of getting first deals going and to ensure that he/she meets the budget.

With all of the effort that has been put into the joint effort, the VAR finally signs its first deal and now everybody can be happy. On top of this, the deal is very sizable and this makes the VAR a bit nervous as there are some financial risks that it now has to carry as it carries the paper with the end user organization.

The project starts, everybody is working hard on getting the client happy but sudden and unexpected issues comes up in the implementation. The customer tells the VAR that it is unacceptable and they will not pay until the software has been fixed. The VAR tells the customer that they do not have the means to fix it as it is the ISV that carries that responsibility. The customer tells the VAR that that is not their problem, the responsibility is with the VAR as that is whom they bought the solution from.

As the invoicing relationship of the solution delivery is between the VAR and the end user organization, the VAR runs into issues as an invoice has already been issued from the ISV and they want to get paid.  This puts the VAR management to sweat and now they really understand the consequences of this and need to do something about it.  The ISV wants to get paid, but the channel partner has not got paid yet. Worse than this, the software included bugs that the VAR can’t do anything about and has to wait for a fix. The ISV still wants to get paid, no matter what as its view is that this issue has nothing to do with them. I am sure you get the scoop of the vicious circle.

If the ISV is reasonable, they will work with the VAR and the end user customer to get it right, but unfortunately I have seen cases where the VAR has really run into a wall. I can’t imagine how that feels as I run my own business every day and have to consider risks and rewards when conducting the business. In large organizations with huge cash piles, this might not be a problem, but for the majority of ISVs, SIs and MSPs, this could be a huge issue.

The scenario above describes some of the areas where the VAR has to pay special attention when running its business. The number one in business management side is cash flow and how to manage it when dealing with ISVs and purchase management overall. I have run companies with high growth and one of the most pressing issue seems always be cash flow. People want growth, but with growth you need cash flow. Sales in your books does not mean that you have money in your bank account. Having lots of receivables might feel good, but you can’t feed your family with receivables.

The second area is “Sales Capacity” where typically small VARs become the victims of their own success. Skok concludes that a typical successful VAR is where the business owner is number one in sales, but one person does not scale up to grow the company. There needs to be more than one to scale the business. If the owner becomes the gatekeeper, then that becomes the bottleneck for the growth for both the VAR and the ISV.  What a VAR needs is a strong sales manager that can scale the sales, follow and create processes and the owners should keep away from that (my observation).

Also, what is typically undervalued among VARs and ISVs is market research and what sales people tend to use as an excuse for poor sales is that the “market segment is saturated’. Good research includes information about market size, market share, historic customer growth rates and sales coverage etc..

According to Skok, one of the most difficult task that VARs are struggling with is the requitement. I can really believe this. The key for success is to build an interview process to identify the right candidates and even if you become good at this, you will still fail. I have.

What an ISV might see with its channel is that VARs are hiring new employees, but there are more leaving the company that coming in. So what will happen is that the VAR has new people that are learning “the ropes” and then the ones that have learned are leaving for different reasons. The VAR ends up having a situation where the skills don’t meet the demand of the market.

One key thing that is often ignored is to ensure that the employees have a good view of their professional development,  like sales people having strong  product training, presentation training, and  sales management training.

And finally, and probably one of the most difficult tasks: how to manage and review the pipeline that everybody presents to the management. How should the VAR and ISV ensure consistency in the pipeline? One of the key things for both ISV and VAR is to create a standardized view on the pipeline, not based on each and every sales persons personal definition which is typically biased to his/her own preferences.

The question is what kind of deliverables can an ISV and VAR expect from both Business and Sales Management exercise? The way Skok defines them is in following way:

VAR Channel Program-002

It is obvious that each one of these need to be worked on and each ISV will have to estimate how much to put effort into this exercise. Also, what something might work for one organization, could be very different for another.

The next phase of this case study I will discuss about the way that the case study ISV segmented and categorized its VARs and their ability to grow. Stay tuned for more.

The App Economy – How should we view app monetization?

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The blogosphere is all about apps and how different ecosystems compete for the eyeballs of these and the money of course. You might still remember the the news when a far app pulled as much as $10,000/day in revenue but since then there is tens of similar applications on the marketplace. This started a trend where people left their well-paid jobs to chase their dream of creating apps and living a life without pressures. The growth of app economy is one of the most promising trends, but people/organizations that want to make real money of it, need to include some risk management into it as well. The app industry has become similar to film industry where relatively few people make money and the ones that make, are hugely successful like Angry Birds phenomenon from Finland.

One might of course ask oneself is whether this is a shift in our society and how work is performed. according to Erik Brynjolfsson (director of the M.I.T. Center of digital business), “technology is always destroying jobs and always creating jobs, but in recent years the destruction has been happening faster than the creation”. There is no question that technology is creating new jobs and apps can be part of this opportunity as can be seen in many of the reports that have studied this trend towards “app economy”.

What I have not seen many discussions around is how the app economy is linked with the enterprise software business. I have researched around this and identified the “dimensions” that are typically linked to the app business, but not that much is said how established software vendors should view this space and how these vendors can make a entry to the app space in a way that makes sense and where there is also a sustainable economical model.

So, the question that we should ask ourselves is how much of the app business is truly geared towards the consumer business and how much of this will gradually move into enterprise business? Should software vendors keep the app business in their plans when building enterprise solutions specifically using the cloud? If they should keep this in mind, what kind of pricing should the ISV use? Maybe free as the real money comes from the enterprise solution and not the app that accesses it? As you can see, it is not that clear and my own experience when working with both small and large enterprises, the app business hardly ever comes up in discussions. I am convinced that this will change and it will change very quickly. One of the drivers will be Windows 8 and Windows Phone 8 developers that will create solutions that will be based on app technology and not on traditional desktop app architectural model even if these will be able to run in Windows 8 Pro environment.

Another valid question that we need to ask ourselves is whether app economy should be see purely from mobile app development perspective or should we view it from a perspective where the device is just the means to get to what you want and the backend (typically the cloud) is the one that provides the services and brokers the interaction between different services. Shouldn’t we in fact be talking about services economy instead where organizations build apps to consume and combine information from different sources using different SOA interfaces that organizations/developers have exposed to the world. Isn’t this what we have always dreamt about?

NokiaExpressI downloaded today a Windows Phone 8 app (Nokia Xpress) to my shiny Nokia Lumia 920 and this app really demonstrates where things are going. After having installed the app, it asked me whether it can use location information (which most apps want to use), but what really made me to think about the future of apps is that developers really have to think “outside the box” on when developing apps. The thing with this Nokia Xpress app is that it enables users to store and read articles on your phone (locally) so when you travel, you do not have to use expensive data roaming. I know.. there are many of these apps from before, but what this app has specifically thought of is to really monitory and minimize data usage and provide a combination of technology such as Microsoft SkyDrive technology to store videos and images without having to use the data plan. Why is this relevant to me? Just this week, my son’s data plan was going over the limit and I found out that it was all about video streaming and 2 gig data plan does not cope well with this.

The topic of “app economy” is very interesting to me as researcher, but also as practitioner. A recent paper written by Dr. Michael Mandel and Judith Scherer (commission by CTIA (The Wireless Association) and Application Developers Alliance provides an interesting view on the app economy. According to Mandel, the entire “App Economy” was coming to use in early 2009 and was popularized by a cover story run by BusinessWeek in November 2009.

The way that Dr. Michael Mandel describes App Economy in his February 2012 report resonates well with what I have educated my customers in respect to ecosystems:

“ App Economy is a collection of interlocking innovative ecosystems”. Each ecosystem consists of a core company, which creates and maintains a platform and an app marketplace, plus a small and large companies that produce apps and/or mobile devices  for that platform. Businesses can belong to multiple ecosystems and usually do”.

There is no question in my mind that this topic is relevant to anybody that works in the software industry and it is fascinating to see how this evolves with time and what kind of new companies will rise to take advantage of this.

If you work in the Microsoft ecosystem, I highly encourage you to read the article “Microsoft’s cloud vision: Why Azure is the linchpin of the firm’s new devices and services strategy”. Another great article from Information-Management.com that predicts Enterprise Apps to go mobile big time and that money apps will move to the cloud. The article lists quite a few things that are very interesting and I encourage you to read that article as well.

Stay tuned for more, there will be more to come on my research on different topics and this app economy being one of them!

Cloud ISV: What technology will you be using when supporting different mobile and tablet devices?

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I explained in my previous blog post that the cloud era is here to stay and with this new era, there are also quite a few technologies that the ISV has to select to build a solution. One key thing is to select the cloud platform but an increasingly important technology that the ISV has to evaluate is what development environment to use to support hundreds of different mobility devices, both smart phones as well as tablets.

When I look back not more than five years, the requirements for applications were much different that today when it comes to consuming information. Today, the end user expects to be able to use a smart phone and tablet to view/update information using a solution that typically is built on cloud technology. Flash used to be the main technology to build applications for the Internet browser, but with the decision that Steve Jobs and Apple did on Flash of not supporting Flash on Apple iPad, the success of Flash is doubtful in the future. Consumers do not care about technology, they care about having the ability to consume information and this is something that the technology industry forgets every now and then. If somebody has any doubts about this, just look at what is happening on the US markets and what has happened for example for RIM and BlackBerry market share on smartphones. It is brutal.

Back in 2010, there were quite a few articles of whether HTML5 will kill Flash. There are millions of Flash web sites whereby I do not think Flash will go away anytime soon, but the real question is whether the ISV should believe that Flash is going to survive going forward. My personal opinion is that I would not invest time and money to Flash anymore as we all know it is not going to support all of the relevant mobility interfaces and I do not think that for example RIMs approach by marketing its BlackBerry PlayBook to support Flash makes a difference in the large scheme of things. The question that each ISV needs to evaluate is what technology it expects to support from a long-term application development perspective.

We already know by now, that Flash will not survive in the long run and has already become a major limitation for many ISVs. When you really think about it, users have already won the battle by ignoring the Flash and showing this by buying iPads even if they know it won’t support Flash. Can you afford building sites and ignore the millions information consumers? I do not think so. Many entrepreneurs (me included) have made the decision not to allow any Flash technology  to be used on the web-site as most smart phones and tablets do not support Flash and Flash not optimized either from SEO and SEM perspective. Check your web site analytics/statistics and you will find out that smart phones and tablets are becoming more relevant in information consumption.

I believe that the next wave of innovation will be coming from software vendors that are able to combine the cloud and mobility in a way that helps end user organizations to become more effective and productive in whatever the application area happens to be. I read an interesting article “Building An Enterprise Software Company That Doesn’t Suck” where the author described how large enterprise software packages are losing the appeal from both end user organizations as well as users. People are sick and tired of complicated and hard-to-use software solutions that do not bring any value add to a user’s daily life. Organizations have forced users to use software to fulfill some type of compliance rule but I my bet is that with the new generation of users, this will change whether organizations want it or not. The new generation entering the marketplace is fluent mobility users, they use social networks as we used to use the regular phone and they would not care less about the corporate compliance stuff and based on research, they won’t even apply to organizations that are old-fashioned way of viewing the world.

Technology selections for an ISV business is always tricky and I have had to do this many time during my career and I have also had a few misses such as selecting an application development tool from Synon (acquired by CA) called Obsydian that never really took off in the marketplace and my developers were never really able to use it effectively. The same applies to the selection today in respect to mobility development. Can you afford making a mistake, spend money in development and then suddenly realize that something else should have been used. I do not think so.

I recently read an interesting article “Seven Reasons HTML5 is Killing Flash” with some interesting points of why HTML 5 could potentially kill flash. According to the article, there are more than 109 million mobile users with HTML-5 ready browsers, but by 2016 the estimate according to ABI Research is that there will be more than 2.1 billion mobile users with compatible browsers. According to ABI Research, there will be 25 key features that will make HTML 5 competitive and the seven that was picked in the article are as follows:

1)      Video Play: HTML5 includes a tag for videos that allows it to play with the start, stop, pause etc.

2)      Video Record: This will become even more important going forward as mobile phones have video recording and HTML5 will support this

3)      Audio Play/Record: Today, the user needs, Flash, QuickTime or Java to play or record audio, but with HTML5 it is just another tag.

4)      Apps: HTML5 allows Web pages to access the same routines that make browsers work and enables them to become like any application. I think this is one of the key things when you think about mobile application development using HTML5

5)      Rich 2D Graphics: All types of sophisticated two-dimensional graphics will be built into HTML5

6)      IM: Instant messaging will be built into HTML5 by virtue of Web sockets

7)      Real-time Streams: Web sockets will also allow any Web-page designer to easily add real-time data streams to the application.

HTML5 could become the best friend for the ISVs going forward as it will provide the broadest support from a device/browser perspective and when smart phones will get HTML5 compliant Internet browsers. HTML provides a better way to support multiple devices as is explained in the article “Enterprise App Stores Harness HTML5” by Colin Johnson.

Cloud ISV: Do not focus on building infrastructure, but focus on building value add for the end user

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Software developers love to challenge themselves with things that make them feel good and the trickier the problem, the merrier it is to find the solution. In some cases, this could obviously be the killer innovation that nobody else has ever done, but if it is something that already exists and can be purchased from a third-party organization, it is waste of time and money to rebuild something that is already available. Do you remember the saying “ it can’t be good as it was not invented by us?”. I do remember vividly and have been the witness multiple time during my career.

Ten years ago software developers had to work on basic infrastructure before getting the solution built, but today, the focus should be mostly on innovating and assembling solutions that bring something new to the marketplace. I still see SaaS ISVs to claim that they need to build a billing solution as part of the solution, but there is plenty of other solutions already on the marketplace that do that well an can be integrated to the overall solution scenario.

I happened to view Microsoft Windows Azure homepage today to see if there was something new and was very happy to see the homepage to include the same statement that I am bringing here: “Focus on your application. Not the infrastructure”.  A good place to start looking at other SaaS components/solutions is to visit Windows Azure marketplace that includes listings of different solutions that the ISV can use as part of their solution delivery. If you are a system integrator, you should also spend time understanding what the software ecosystem has to offer so you can become a trusted advisor to your clients.

I do recognize that in some cases there is a need to build “glue” components that can be regarded as infrastructure components, but at the same time, the ISV needs to realize that those components will be replaced by commodity software whereby the original solution needs to be reengineered in some way or the other. In the past, as a leader of a software development team, we had to spend lots of time creating infrastructure for our solution to even work. I used to be the lead for several business intelligence solutions and at that time, there just weren’t enough components or infrastructure that would take care of the basic functionality. I still remember vividly our fight in going from 16-bit Windows to 32-bit technology and we had to support APPC communication between the mini computer and the Windows desktops.  The bad news was that IBM decided to redo most of the router software with a pace that we as an ISV had really hard time to follow and we run into pressure from our clients to upgrade our 16-bit technology.  You typically do not want to be the first one on the planet to test new technology, but in this case we did not have a choice. We spent multiple months “running against the time” when trying to get our solution to work with the latest Windows router technology and it was not fun and it was very expensive.

I mentioned that SaaS ISVs should look at other SaaS solution to bring functionality as billing and organizations such as Zuora, Inc is an example of an organization that brings subscription billing and commerce platform that can be used by other SaaS vendors.

My message to cloud ISVs is simple: learn your cloud ecosystem, learn what there is that you can consume as part of your solution and focus on innovation on the solution and not on the infrastructure.

“Stop thinking the world is a just place” says Jeffrey Pfeffer in his brand new book Power: Why Some People Have It and Other’s Don’t

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I admit. I am a “bookaholic”. I write books and I love to read and buy books. I get inner strength from them and my mind gets nurtured with new ideas that I can dwell during the days when time permits as well as during my numerous world travels like the long flights across the Atlantic or in the continental USA.

Sometimes I am lucky to find a book that I know will make a difference in my thinking or will impact the course of my life. It is not always that much about the content; it could be a sentence, a chapter or a thing that I have completely ignored. I gave an example of this in my latest book Boldly into the World (in Finnish: Rohkeasti maailmalle – Onnistu liike-elämässä ja ihmisenä) how my life was chanced 15 years ago by reading a book while living in my native Finland. I think I have now run into a book that will make a difference in my thinking.

A few days ago I downloaded a sample version of Jeffrey Pfeffer’s book Power: Why Some People Have It and Others Don’t and my initial thought was that “yet another book about leadership for power-hungry people”.   It turned out to be a misconception of great proportions and after reading a few pages, I could not put down the book. Mr. Pfeffer has written other bestselling books in the past like What Were They Thinking?: Unconventional Wisdom About Management and he is a professor at Stanford University Graduate School of Business.  

The headline/subject in this blog-entry is “Stop thinking the world is a just place” is directly from Pfeffer’s book and I selected it as it brings well together the themes that I have dwelled in my first two books published by Talentum. The world is not fair and we need to be the ones in charge of our destiny. Think back of all of the events throughout your career when everybody else knew much better what you should be doing and you kept fulfilling the expectations of your ecosystem, not what you really wanted to do. Breaking from you’re the expectations from your surrounding network and doing what is the right thing for you to do is what you should strive towards. There are always plenty of naysayers around you that will break down your dreams and give reasons why not to do something.

These people are usually also the ones that can’t see outside their own framework that is typically built not to take risks and play safe when it comes to careers and life. How many people have you seen around you that don’t have the guts to say the way it is, but instead agrees on anything, even if it is stupid? Have you ever played with the thought that you might not live longer than a few months? Are you living the way that fulfills your own expectations and makes you happy?

People tend to push their dreams and hopes to the future by having an autosuggestion engine humming. This engine will generate all of the reasons why one should not enjoy things until retirement. Once retired, we can start living our lives and enjoy it. But what if you do not reach retirement and die earlier? Wouldn’t that be wasting your life? Isn’t it smarter to enjoy every day of your life and try to live a life that gives you purpose and that your job gives you some type of fulfillment?

I have tried to live my life by taking steps, breaking barriers in my own thinking but it has not always been easy. We struggle with ourselves to break from the known towards the unknown and that is only human. However, without doing these steps, I would not be writing this blog entry far away from my own native country and living the life of an entrepreneur. There were people that told me that I should not leave my native country and that it would be too dangerous and that I risked my own career. In retrospect, I think it was the other way around.  My staying stagnant in a safe environment without real challenges might have led to undesired results in many ways, including having a job that I would not enjoy.

We tend to think that if we work as good soldiers, the reward will eventually bring us fame and fortune, but unfortunately the research does not back this up at least when reading Pfeffer’s book. Each one of us has to take care of ourselves and during my 20+ years in software industry, I have seen many cases where good work and performance has not led to expected results from a career perspective. The idea and assumption of people to think that the world is a just and fair place and that everyone gets what he or she deserves and that the good will come as long as we work tirelessly. Pfeffer concludes about the fairness of this world as follows:

As soon as you recognize the just-world effect and its influence on your perceptions and try to combat the tendency to see the world as inherently fair, you will be able to learn more in every situation and be more vigilant and proactive to ensure your own success.

Based on Pfeffer’s book, people usually rank themselves much higher in skills than is the reality. We tend to think more about ourselves and we also like to push negative things aside to protect our self-esteem. We are also tempted to be surrounded by yes Sayers as they are not threatening our egos and we do not want to listen to the reality. For us to learn we need to get into different situations and even if these situations are not desired, we will learn from them and we might become stronger in future. If we collect likeminded people around us, we will never grow as human beings.  It is the same if you are the best in your ice hockey team. How are you supposed to grow as player if you are the top player and have nobody to look up to?

I run to similar thoughts in the excellent book Superconnect: Harnessing the Power of Networks and the Strength of Weak Links that explained clearly why strong links are not necessarily always good for our career building and life. If we all try to socialize with our strong links (family, close friends), we will never get outside our own comfort zone as we pretty much know what the world and world view is when collaborating with strong links. However, when we run into weak links (friends of friends etc.), there is a greater opportunity to run into an opportunity or idea that is outside your own sphere of influence and knowledge. I have tested this in my numerous workshops around the world by asking participants whether strong or weak links have had the most impact in their lives. The answer has been almost always that weak links have had the biggest impact. How about you? Is this also your experience?

 Frans Johansson explains extremely well what it means when two different domains/skill sets meet in his excellent book Medici Effect: What Elephants and Epidemics Can Teach US About Innovation. Johansson argues that real innovation breakthrough will come when two diciplins are combined like physics with biology where two research areas innovate things that would not be possible with only one research area. I am a proponent of this and have had this as a founding idea throughout my career.

People are often their own worst enemy. We like to feel good about ourselves and we want to maintain a positive self-image. We will do everything to keep our self-esteem preserved by either surrendering or putting obstacles in our way. According to Pfeffer, this is called for “self-handicapping” in the research literature. According to research, self-handicapping will impact negatively on people’s career and future.

We should have the courage to confess that none of us are perfect and that there are many areas that we need to develop to succeed in our objectives. I discussed about courage as part of organizational courage in my previous blog entry and I would be tempted to say that this reflects back to courage like courage to make a chance, courage to do what feels right and courage to change your life even if it feels incredibly frightening.  Pfeffer encourages us to get over yourself and get beyond your concerns and self-image and what others think about you. He concludes that others are far too busy to worry or think about you anyway as they are mostly concerned about themselves. Isn’t that so true when you think about it? We are mostly worried what others think about us which then makes us less decisive and afraid of making a change.

Pfeffer also concludes that you should not assume that your boss knows or notices what you are doing or have perfect picture of what you are about to do. Have you made sure that you manage up? Perfect execution of your tasks without your boss knowing about it might be the worst thing you can do specifically from promotion perspective. Do you understand what drives your boss and how you can get aligned with his/her objectives? What is it that you can do to make his/her career to move in the right direction? The topic “remember what matters to your boss” in Pfeffer’s book is very relevant and should be taken seriously. We are just humans and it seems that we think otherwise in many of the cases that I have seen and been part of myself. You should worry at least as much about your boss as you worry about your performance is the lesson that Pfeffer gives as a lesson based on the his research.

It was interesting to read in this book was the findings between job performance and career outcome. People with the belief that extremely good job performance automatically leads to great career outcome might be a fallacy of great measures. In fact, it has been documented that great job performance can in some cases even hurt the promotion of an individual. Why would this be the case? The way it is explained in some of the cases is that the superiors do not want to elevate a top performer as this individual would then suddenly stop promoting the superiors career. Think about your own career and the experiences that you have had. Have you had a boss that has become the obstacle in our career? Have your boss been afraid that your performance would impact adversely on his/her career. Do you know how to be politically savvy when dealing with power structures and career building? Have you made mistakes where you have blocked your own career at a company because you did not think through your actions?

Pfeffer’s book is well researched with relevant references to original studies/research and this is the way I have been taught to write my texts. A book with references gives an immediate larger sphere of knowledge for people that want to learn more of any specific topic in more detail. The book includes lots of practical examples of real-life events that help the reader to grasp the overall concept behind the well-researched topics.

In my upcoming blog entries, I will address the seven important personal qualities to build power that Pfeffer’s book offers as advice to its readers.  I highly recommend that you do yourself a favor and buy this book as soon as you can. It can give you advice that will pay off nicely in form of your career development and your life.

Law #9 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –Mind the GAAP! Cloud accounting is all about matching revenue and costs to consumption…

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The ninth law in Bessemer’s Top 10 Computing Laws is all about accounting and how to recognize revenue. In the traditional software business, the software license revenue is recognized at the time of delivery, while in the SaaS world the scenario is very different. I mentioned in my prior posts that I have been/I still am in enterprise software sales (besides SaaS), and have to deal with both of these models. Let’s review this law in greater detail what it means for a SaaS company. In my prior blog entries about Bessemer Top 10 Cloud Computing Laws and the Business Model Canvas, I have opened the financial side of a SaaS vendor, but in this case we will be looking at how the overall revenue recognition is seen in the SaaS world.

Law #9: Mind the GAAP! Cloud accounting is all about matching revenue and costs to consumption…well, except for professional services!

With enterprise software, revenue is recognized at the time of the delivery (like for example with a CD/DVD) and the software vendor can immediately have that sales in the income statement. This is both good and bad for software vendors. The good side of the thing is that large deals can fund further development and some of the money can be funneled back into marketing. The bad thing is that large deals can also put the software sales organization to sleep, almost paralyzing the entire organization. I have been part of this so many times so this statement is based on my own experience. The other negative side of these large deals is that enterprise software sales is very cyclical with long sales cycles: A software company might be going without deals for months and then gets a large deal that kind of saves the entire year. Yet again, I have personal experiences of this as well. In the enterprise software deal, the support/maintenance revenue is typically recognized on monthly basis based on the length of the maintenance contract. So if you have an annual contract, the support/maintenance will be recognized each month for the entire year. In similar manner, services revenue is recognized after delivery of the service and the common billing cycle is either biweekly or on a monthly basis.

Let’s look at the revenue recognition of cloud computing revenue. There are typically two types of revenue streams in a cloud computing: subscription revenue and professional service revenue. The subscription revenue is recognized based on consumption, whereby the SaaS vendor can start recognizing the revenue when the end user organization starts using the software. What is very different in the SaaS world when compared with the enterprise software world is the revenue recognition of professional services. Based on best practices and audits by the top for auditing companies, revenue recognition of professional services should be recognized with the length of the contract, and some recommendations say that even over the lifetime of the customer. The practical amortization time for these types of contracts is 5-6 years if the customer churn is reasonable. Within the GAAP (Generally Accepted Accounting Principles) world, the SaaS vendor should match revenue with the corresponding costs and this might not be the case in this kind of 5-6 year amortization scenario.

Also, there is an exception to any rule in life. In cases where the software company trains the end user client either 3 months before the delivery of the solution or after the renewal date of the contract, this revenue can be considered as it can be said not be tied  or associated with the delivery of the solution. This rule of 3 months seems to have been approved by the top 4 auditing companies as best practices based on the Bessemer blog entry.

The final mention from Bessemer is to exclude deferred revenue from Quick Ratio calculations as this is booked as liability in the balance sheet. Quick Ratio is calculated by dividing total assets with total liabilities. This ratio shows how quickly the company can cover the liabilities with cash or quick assets that can be quickly liquidated.  Another term “Acid test” is when you add up cash or cash equivalent, marketable securities and accounts receivable and divide these with current liabilities you get a number that shows you whether you can cover you current liabilities… when the ratio is 1 or better it is considered to be a feasible ratio. Less than 1, you have more debt that you can currently cover.

This makes sense to me as it is revenue that the company (excluding customer churn) will recognize throughout the lifetime of the contract whereby the liability /deferred revenue gets smaller by being moved to income statement whenever the revenue is recognized. Obviously in high growth cases, the SaaS company deferred revenue should only grow as new contracts are signed. This suggestion is specifically important for companies looking for venture funding to avoid financial covenants. Getting paid from customer in advance is a good thing and should not be seen as liability. Let’s review how this law impacts the Business Model Canvas.

 Summary of our findings in respect to Business Model Canvas

This law has a direct impact on both Cost Structure (CS) and Revenue Streams (RS) as the law has to do with money and how it is recognized. When you review the Business Model Canvas, the two building blocks are side by side to remind us that the costs of running and serving the client needs to be aligned with the revenues that are generated from the end user client. The only big thing in my mind, and slightly surprising, is the need to recognize the revenue from professional services for the entire lifetime (or 5-6 years) of the contract. In the old software licensing world, this type of thinking would be out of question and the invoice for the entire install is expected to be paid and recognized at the very latest when the work has been performed. Not so in the SaaS model.  Some SaaS vendors have made their contracts shorter to be able to get around this issue, but if the entire lifetime of the client is taken as foundation, it really does not matter if the contract is split in my mind.

I wonder how many starting ISVs recognize this and know this rule. Phil Wainewright discusses of this issue in his blog entry  “Auditors backtrack on SaaS revenue recognition” by giving the example of Taleo’s restatement of financials that made auditors nervous in the SaaS field. The Taleo case was widely reported by Reuter as well as other news sources such as Barron.

There is a set of blog entries by Jeffrey Werner of questions that were posted after a web-cast concerning revenue recognition. These five blog entries and topics were as follows:

Blog 1 – Upfront Fees

Blog 2 – Estimated Selling Price

Blog 3 – Monthly User Fees

Blog 4 – Stand-Alone Value for Delivered and Undelivered Items – Part 1

Blog 5 – Stand-Alone Value – Delivered and Undelivered Items  -Part 2

These five blog entries demonstrate extremely well that the area of revenue recognition is not easy and there are lots of possibilities to different interpretation on this issue. Also, based on the information in the blogs, one of the key things that seem to be important is whether the item that has a price tag is needed as part of the SaaS solution delivery. If so, it is considered as part of the revenue recognition rules set for SaaS delivery. If not, then one can always argue that it is a separate item that can be recognized at delivery.  This has also been the case in traditional software delivery. Auditors have always wanted to know if something that was delivered was needed for the software to function properly and in these cases it was about tax laws (could be even state specific in the US) that kicked in some scenarios. What I have learned from the past is to talk to auditors to make sure that you do everything according to the book.

The purpose of this blog entry is to demonstrate that there is still lots of room for best practices and only time will tell how auditors and practitioners will interpret the accounting rules/revenue recognition of different types of revenue in a SaaS delivery.

Law #8 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –Leverage and monetize the data asset

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I am now in the eight law in Bessemer’s Top 10 Computing Laws with an emphasis how to be able to monetize and utilize the data asset that the SaaS vendor is accumulating by users that are generating a wealth of information and all of this information is accessible for the SaaS vendor if the contractual agreement allows the use of this data. 

When reading about this law my memories from my youth crept to my mind when studying in the Swedish School of Economics in Helsinki (Hanken) where each student in the accounting/management accounting class had to analyze public financial statements from Finnish companies as part of the advanced classes. This analysis was then used to compare different companies in the same vertical and to create some base-line standards for analyzing and comparing companies. This analysis gave me a perspective on accounting and how it really works. This learning has helped me throughout my life and especially now as an entrepreneur. The power of cash-flow statements can’t be underestimated which has been a reality for many software vendors the last couple of years.

However, during that time (1984-1989), the data was stored in Lotus Symphony spreadsheets, so most of the analysis and data entry was manual and very labor intensive. Companies at that time were still using green screen terminals and only a few companies started deploying personal desktops, but laptops were still not on the market as far as I remember. The first real PC with MS-DOS that I used was Italian Olivetti with two floppy stations. I can’t believe how far we have come since then.

This law (#8) is a reminder to me of the changes in business models and how cloud can provide new business model opportunities for organizations. Ten years ago, the notion of “data asset use” was very rare and if you had the possibility to accrue information from companies in the same vertical, you had a tremendous asset in your hands. I know a company owner in the US that sold his company for a few millions by having collected financial data for financial institutions over time and then sold the assets to a larger company as part of an exit. Let’s view how this law impacts software businesses and business model canvas overall.

Law #8: Leverage and monetize the data asset

Imagine having access to a massive amount of data that your clients are generating in your cloud application. Image to have access to performance metrics for a given vertical market segment such as banks at large and their performance. Wouldn’t it be valuable for somebody to be able to compare banks with each other from different perspectives and maybe even sell this data to external parties? Imagine being able to service this through Microsoft Dallas service that enables developers and information workers to easily discover, purchase, and manage premium data subscriptions in the Windows Azure platform.  Maybe this collective information serves as benchmark information for other companies in the same vertical and enables these companies to compare how well the perform in their respective business?  The Bessemer blog entry gives examples of this kind of benchmarking by referencing the leading expense management software company Concur where companies in the same peer group can compare for example expense costs such as travel with other companies.

Another successful example is the company Mint.com that used to compete with Intuit Quicken by providing a free SaaS solution for consumers to track expenses automatically. The Mint story is very interesting; it was started by Aaron Patzer, Matt Snider and Poornima Vijayashanker in Mr. Patzer’s apartment. Two years later the company was acquired by Intuit for $170 million. The story is simple and amazing at the same time. The founders felt that it was too difficult to track personal finances online and that people had to spend far too much time in setups and entering data. The founders felt that once the Mint.com is linked to the credit card statements and bank accounts, most of the daily stuff should happen automatically. I found out about this service as part of my own research and decided to test it out. It is as easy as Mint.com claims and today I get updates from the system on regular basis. The business model that Mint had initially was to use the consumer data to propose better credit card deals etc. to generate leads for credit card companies etc. It is obvious that Mint.com became a threat to Intuit so they decided to acquire them. Mint.com success has led Intuit to replace Quicken Online product in favor of Mint.com. Let’s analyze how this law can be viewed from Business Model Canvas perspective.

Summary of our findings in respect to Business Model Canvas

This law (#8 of Bessemer’s Top 10 Computing Laws) can be linked to any of the nine Business Model Canvas building blocks. The success of any SaaS company utilizing data assets effectively will be based on:

  1. How well the company can define its Value Proposition (VP),
  2.  How well the information assets can be linked to a specific Customer Segment (CS)
  3. How the company can generate revenue (Revenue Streams-RS) from these information assets.

This law extends the use of information that the SaaS vendor can utilize and gives a business opportunity for the SaaS vendor. This model has not been possible in the past as the data has typically been secured by the end user client organizations and their data centers.  Companies such as Concur, Mint.com and many others have identified the opportunity to sell information/service instead of selling software and I think this will be the key differentiator in many of the future SaaS innovations.  The time of having lots of features and functions in a software package might be over and people appreciate solutions that are easy to use and do not require lots of training to maneuver.

The SaaS vendor needs to have an understanding of the analytics behind the data in selected Customer Segment (CS) and this relates back to the need to have the right Key Resources (KR) and Key Activities (KA) that are well aligned with the SaaS vendor objectives.

Law #7 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –The most important part of Software-as-a-Service isn’t “Software” it’s “Service”! Support, Support, Support!

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I am now in the seventh law in Bessemer’s Top 10 Computing Laws and law is about the change of how SaaS companies needs to view software. In the past, it was all about delivering a package using CD/DVD and the software was installed and the software vendor typically had no idea how it would be eventually deployed and used. Today, in the SaaS world, the SaaS vendor can potentially have access to everything that the user is doing and this type of intelligence is something that we could only dream of in the past.  Let’s view this seventh law and how it relates to the Business Model Canvas.

Law #7: The most important part of Software-as-a-Service isn’t “Software” it’s “Service”! Support, Support, Support!

The biggest mindset change that software vendors have to make is not to think about software, but to treat the SaaS solution as service to clients. In my blog entry of Bessemer’s Law #5 of building employee software, I concluded that the biggest mistake that software developers can do is to ignore the client and fall in love with the solution from either technology perspective of some other perspective that has nothing to do with the client needs or wants. SaaS solutions are built for end users and the success of the solution will be based on the adoption of the solution. The question that each SaaS vendor needs to pose is how to minimize the customer churn and how to really understand how the software is used?   A good sales person can sell anything for a year, but it is another question whether the customer will continue the use of the solution if it does not find the value for that. A good comparison to this is from my own business intelligence domain.

Throughout the years, business intelligence vendors have sold user seats that have never been used and these software vendors have kept billing for the annual maintenance fees even though these seats are never used. In the new SaaS world, nobody can escape this scenario anymore. If a seat is not being used, the company will not renew the seat for following years. This is where the customer churn kicks in.

In the SaaS world, the software vendor can build in usage statistics of the solution and this information will then be used as foundation for really understanding how the solution is used. In the old enterprise software world, software vendors tried to build similar functions, but as most of these solutions are installed and run from client’s own data center, the software vendor do not have access to the usage data. With a SaaS solution, the vendor is able to see all of the usage patterns such as how many times each user logs into the system and even automate report generation of cases where a user has very low usage pattern. This could be a result of having usage issues with the solution, or even worse, not having any use of the solution. This type of user will then turn into churn statistics when it is time to renew the contract.

In my past, I have built business intelligence software solutions and we used to build different types of tracking mechanisms of software use, but as these solutions were run at client sites, we as software vendor did not benefit from this. The client/customer got intelligence of what report/cube was used and what could be demolish due to non-use. In today’s SaaS world, software vendors can use this information also internally to see how each client/consumer uses the solution and whether some part of the solution stack is getting less usage.

Bessemer’s Cloud Computing Law #7 gives advice for SaaS vendors to be very open and transparent when there is a system outage of the system. My company is running everything from the cloud and sometimes there are outages whether you want it or not. Recently, Quickbooks Online has been down multiple times with an outrage from users in forums and it was also widely reported in the news. The emails that we got from Intuit were apologetic, but did not really give options to the ones that use their Quickbooks Online Payroll service. This is what I received in my email:

“If you normally pay your employees via direct deposit, we have extended the direct deposit deadline for today only, Wednesday, 7/14/2010, until 7 p.m. Pacific time. If you are unable to process your direct deposit payroll by 7 p.m. Pacific time on 7/14/2010, you will need to pay your employees with paper checks in order to pay them on or before Friday. Otherwise, you can process a direct deposit payroll when the system becomes available and your employees will be paid two banking days later.”

When you really think about it, many organizations had to scramble to go back to the regular check payment routine, which is both antiquated and cumbersome. According to one user, 17 hours of not having access to QuickBooks Online was just not acceptable and I do understand that if QuickBooks Online is used to service clients. Even in our case, we had to postpone some invoicing the day when QuickBooks Online was down.

Any software vendor working in the SaaS world has to manage the client relationships in a different manner when compared with the traditional world. In the past, a client that was not satisfied did not have that many options to do anything about it as they had already paid for the solution. In the new SaaS subscription-based world, the software vendor could lose a client easily when compared to on-premise solutions. However, if the client is happy with the solution, moving to something else is not that simple as everything lives in the cloud and moving the data from cloud to either on-premise or another cloud is as easy or difficult as with any changes of solution.

Based on a recent Information Management article, SaaS adoption is increasing and end user organizations are less concerned about security, response time, and service availability according to Gartner. Business and computing models have matured and adoption has become more widespread. A recent press release from IDC state that SaaS Revenue is growing five times faster than traditional packaged software through 2014. What is interesting in the press release is that by 2012, nearly 85% of net-new software firms coming to market will be built around SaaS service composition and delivery. Furthermore, according to IDC, SaaS-derived revenue will account for nearly 26% of net new growth in the software market in 2014.

Metrics in the SaaS world are still evolving as we discussed in my blog entry about Cloud Financials. Besides the more traditional cloud metrics, cloud vendors are constructing efficiency metrics for account management where the Bessemer cloud computing law #7 states that the most favorable metric is the margin renewed in the quarter divided by the costs of those renewals. The overall equation of this is as follows: MRR dollars renewed/grown in the quarter x GM x 12 (to annualize the revenue), divided by all account management costs incurred in the quarter for these renewals.

I am pretty sure that the metrics will evolve for the next few years as more SaaS vendors get exposure to the best practices and it becomes “business as usual”. The next question for me to pose is how this law can be seen in the light of Business Model Canvas from Dr. Osterwalder.

 Summary of our findings in respect to Business Model Canvas

In the SaaS world, software vendors should view the software as service with excellent support. The main criterion for success is about usability of the solution that reflects in the customer churn (Customer Relationship-CR). It will also impact of how appealing the solution is for a possible Channel (C) that would like to market the solution.  With this, we obviously take it for granted that the solution has the right kind of Value Proposition (VP) for the given or selected Customer Segment (CS)

The Channel (C) needs to know why it should be interested, how much it will make money and how the solution will benefit anything else that the channel prospect is doing. The churn impacts the Revenue Streams (RS) of the company, as bad SaaS solution leads to high customer churn and this will eventually be a downward spiral for the SaaS vendor as online forums and other viral social media mechanism will destroy the reputation of the vendor.

The reliability of the solution reflects also how the customer sees the vendor ability to provide service, not only short term, but also long-term. During the past 5 years, I have used a few SaaS-based services to only realize later on that all of the data and work put into the cloud has disappeared, either by the vendor going belly up or other reasons such as the company being sold to somebody else.

A good example of a service that I am no longer that much interested is Jigsaw as they are now part of Salesforce.com and I can forget the dream that I had to have an integrated solution for our Microsoft Dynamics CRM that we use internally. I am sure Salesforce.com won’t be supporting any competitive solutions even if Jigsaw is a subsidiary of Salesforce.com.  The list of CRM partners does not do any good for Microsoft Dynamics partners.

One could also argue that this law #7 (Bessemer’s Top 10 Cloud Laws #7) has an impact on Key Resources (KR) and Key Activities (KA). The reason for this argument is that any SaaS company has to have the right kind of DNA to be able to build software in the SaaS world with the attitude that is different from the more traditional enterprise software sales world. Building software into cloud environment is not the same as traditional on-premise as there are factors that has to be taken into consideration such as latency etc. Whatever your ambitions, do not treat SaaS as business as usual if you currently work for an established software vendor. It is not business as usual, there are many factors that have changed and you have to change with it.

Law #5 of Bessemer’s Top 10 Cloud Computing Laws and the Business Model Canvas –Build Employee Software

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I am now in the fifth law in Bessemer’s Top 10 Computing Laws and this has to with  how the SaaS company DNA needs to look at its employees as users of the solution and not just as “developers” developing for somebody else. I have so far addressed in my blog entry that a SaaS vendor needs to really live the life of a SaaS company, be part of the SaaS DNA, I have looked into the financials of a SaaS company, and sales operations/sales curve for a SaaS vendor and how SaaS and software channels work in SaaS ecosystems.

Law #5: Build Employee Software.

Many of us have been in the software world for a long time, and many of us still remember vividly the times when we built solutions to end users that we felt that “just did not get it”. If you have been around a while, there is no reason for you to not admit that. Some of our clients have been the victims of complexity, horrendous user interfaces and clunky functionality but we still thought the solution was technically the best in the world; it was the users that did not get it.  Let’s think about this for a while. Would you accept clunky software today? Would you spend your valuable time trying to figure out what the SaaS solution that you are trying to utilize was all about? No, I don’t think so. Consumers and businesses have so many options today that it is not worth while spending time on solutions that are obviously not going to cut it.

Let me give you an example of a solution that has really made my life a joy when it comes to my research and book-keeping of my books, both eBooks for my Kindle and physical books that I own. I used to have a desktops solution Collectorz for Books where I cataloged by books whenever I bought them. I loved the solution, but every time I had to change laptop/desktop, it was a pain to move files and keep things updated. Also, I was not able to access my book catalog from other places than this one specific laptop and this would not cut for me in the long run.

Then, by chance, I run to a new SaaS solution recommended by my friend in Chicago and she said she had started using it and loved it. It was Librarything.com and I decided to jump onboard by first trying the Freemium version for 200 books, but as I have thousands, after a trial period, I jumped into lifetime version which is $25. Today, you can find my profile DrSalonen and all of the books that I have bought/listed in the SaaS application. It is not just the application; it is also about social networking with the Librarything.com application. I can see how many other people own the book, I can join different interest groups and I can become friends with likeminded people that read and enjoy similar books. This is an example of an application that is really nice to use and you get passionate of it.

How does this relate back to the Bessemer Cloud Law #5? It is about emphasizing that SaaS employees have to really eat their own dog food, and to make sure that they would be using the solution every day with passion and dedication as otherwise the solution will never be deployed in large scale. Also, SaaS vendors need to create the buying process as easy as possible, by using a credit card as this is the only way to get masses of users testing out your solution. If you wait for the IT department to push for your solution, you might have to wait for a long time. It is the users that rule the world in today’s SaaS world, we have seen it, been part of it, and this trend will become stronger and stronger each day. According to Bessemer, some SaaS companies have had success in selling administrative dashboards for CIOs in companies as many of them have not been able to control the use of SaaS solutions due to low monthly costs and the ability to use a credit card to pay.

Summary of our findings in respect to Business Model Canvas

Like in my previous blog entries, the objective of this series of Bessemer Laws was to relate the Laws to the Business Model Canvas from Dr. Alexander Osterwalder et al. This Bessemer #5 Law has to do with many Business Model Canvas building blocks. The reason I am saying this is that it starts from the Value Proposition (VA) and the usability of the solution to Revenue Streams (RS) as if the solution is not acceptable, customer will not renew the contract after a year of use and it will impact the Customer Relationship (CR) as the bad experiences of the solution will sour the relationship with the SaaS vendor itself.

Based on my personal experiences running a software company, the key to success is hardly ever technology, but the people that you work with. The developers that are talented will create solutions that are compelling and usable. The very famous statement that one good developer can replace 10 bad ones is according to my experiences pretty much what I have experienced. You do not need to have a huge team to create something that is compelling. If this is the case, the most important in the Business Model Canvas is the Key Resources building block that includes your best people and talent that will not only create your solution, but will also sell and market it to customers.

As you can see, it is very difficult to pinpoint any specific building block in the Business Model Canvas as they all relate to each other and this is also the point in business modeling/planning. You iterate continuously until you find a good balance between the building blocks and eventually you might find a balance. What is also important to realize that each change might cause a new “instance” of the business model, as a change in Customer Segment (CS) could create a new Revenue Stream (RS), new Channel (C) etc. I am sure you get the point and just envision multiple layers of business models on top of each other.

I have now concluded five of Bessemer’s Top 10 Cloud Laws and 5 more to go. Stay tuned for more!