The Black Liszt

Category: Business and Product Strategy

Innovation Stories

I worked at Oak Investment Partners for a long time until retiring from it at the end of 2015. Here is part of my page on the Oak website in 2015:

During that time, I had the opportunity to dive into hundreds of tech companies over many cycles, and the further opportunity to be an insider at dozens in which we invested. I learned that what most people tell you about how to be a successful entrepreneur often doesn't match up well with the winning companies I saw.

So what's a person to do?

One thing you can do is read my book. It won't tell you how to win (that's on you), but it will clearly identify some of the most important success patterns to follow, and some of the popular failure patterns to avoid. It has dozens of examples from real life to illustrate the points.

Here are some of the companies in the book and the points or patterns they illustrate.

CRM co., OpenData, Sybase: Do NOT make your execution match your strategy! If you're going to invade a country, don't attack everywhere, pick a beach.

Captura/Concur: Don't let perfection get in the way of making your product usable.

Web services company: Pick something that you can finish, well and quickly.

Smartdrive: When you think you're really focused, try making the focus even narrower.

Inktomi: Don't move on to the next battle until the current one is totally wrapped up; mostly wrapped up may not be good enough.

Workflow companies, collections: The customer defines the problem, not you.

HNC/FICO: Using a platform to attack a narrow but important problem set.

US Auto Parts: Does the customer have a problem right now?

G-Market/E-Bay: Cross-border issues are more than language.

Bank processors e.g. Fiserv: Customers aren't fond of risk.

Nextpage: Are your benefits tangible?

Fastclick: Can you deliver results quickly?

Rebelmouse: Make each step towards a vision be usable.

Athena Health: Adding a whole new service can be 1+1=3

Radisphere to Candescent Health: Giving your customers to someone else can be a great idea!

Company A: Using end-user products in a product/service can save time and money.

Video Ad Network: Sell it first, then build and deliver it seems backwards, but it beats everything else in the right situation.

Maestro Health: You don't always have to program everything; sometimes having people do some of the work is a big win.

Evident: Methods that are great in one domain maybe be failures in a different one.

The Innovator’s Dilemma book: Listening to your customers can hold you back.

Smartdrive: Picking the right group of customers to listen to is key.

TxVia, Feedzai: Building a tool and delivering an application or service with it can be an overwhelming advantage.

MobiTV: Do you have large customers? The power relationship determines the outcome.

Huffington Post: Pick a direction, go quickly, stop for nothing.

Conclusion

I'm kind of slow. It took me more than ten years to start noticing the patterns I've written about, and another ten years testing the patterns against the companies my partners looked at and/or invested in. But they've held up. I know I haven't discovered all the relevant patterns or explained the success of every company, but I also know that I don't read about the things I wrote in the book, which is why I took the trouble to write it. I hope new generations of innovators will improve their odds of success by following the path of the winners.

July 26, 2016
Innovation: From Startup to Success
I've recently published a book whose subtitle will soon become the title: "From Startup to Success." It's a tiny voice in the hurricane of books, conferences and attention paid to Innovation. Anyone doing something new that somehow involves computers and software would benefit by paying attention to this book. It identifies success patterns that aren't found elsewhere.

Software-fueled Innovation

We currently benefit from more than 150 year's worth of general-purpose innovation. Trains, planes, cars, phones, refrigerators, prepackaged ice cream, etc. The innovations are now a broad array of products and services offered by major organizations. You go to business school to learn how to run and staff such organizations.

A sizable fraction of today's innovation is built on and using computer hardware and software: the internet, smart phones, Amazon, Google, Facebook, Uber, and a host of others. The new generation of innovation is software-fueled innovation. It's still innovation, but it's different because of the software.

Software makes it different

Airplanes were invented by the Wright brothers, who were experts in bicycles. Anyone could see everything important about the device they built, and even basically understand it. The same holds true for all the innovations up to and including early computers: you could see the card readers, the plugs, and the vacuum tubes. But then things got tough.

Once complex circuits could be built on a chip, you could see the chip, but not the millions of electronic devices on it. Even worse, you can't see the software that may process billions of instructions on the way to getting something done. You can view the "source code" of a piece of software, but how many people can read it with understanding? Software has piled up over the years, so that today, new software is built on the foundation of millions of lines of code that is in older software, the foundation without which the new software could not operate. Even most modern software "experts" have never seen that code that's "under the surface" of what they write. They don't understand it and couldn't write it themselves.

Software is a new world, invisible to the majority of normal people, and only partly visible to the vast majority of people who call themselves programmers. Software is a new world, and startups that are fueled with software have new rules for success. Well, not entirely new rules. But they're different enough that most startups don't understand them. Why? No one is teaching the rules of success for software-fueled startups — least of all business schools!

That's why I wrote the book. I don't know all the answers. But I have figured out a bunch of them from twenty years of closely examining software-fueled startups, partly as a programmer, but mostly as a technically-oriented investor.

Applied common sense

Many of the things I point out in the book sound like simple common sense. But it's not common at all. For example, "solve a problem a customer knows he has" sounds like the dumbest of not-needed advice. But in practice, it's one of the least-commonly-followed dicta you can imagine! Here's an excerpt from the book on that subject.

Solve a problem the customer knows he has

This one is so obvious it may sound like a joke; why would a company try to sell a solution to a problem a customer doesn’t know he has? It sounds insane! But it happens over and over again.

People who come up with new things are often pretty smart. They tend to be imaginative, and see past the here-and-now. They can create abstractions easily, and find the commonalities among apparently unrelated things. They’ll see an obstacle or limitation in a business, or a way to make it much better. They’ll put together a way to remove the obstacle, overcome the limitation or implement the enhancement. They will typically be pretty excited about what they’ve accomplished. Then they’ll try to sell it, get frustrated, and before long they’ll be venting about stupid customers who can’t see past their noses, who will refuse an offer to pay a dollar to get five in return and who are otherwise mentally damaged. This is the typical result of solving a problem a customer does not know he has.

The problem and the solution may be clear to you, with your skills and ability, and having walked the path of analysis and understanding that you have. But is it clear to the average customer, without either injecting him with brain-enhancing drugs or putting him through a multi-week education course?

Should you be smarter than your customers? Maybe. But if you are so far "ahead" of them that you insist on selling them a scratching service for an itch they don't feel, maybe you're "too smart," and should get over it.

This is one of the dozens of things that are obvious in theory, but hard to get in practice. The book has lots more.

Common sense that doesn't work

On the other hand, there are some widely accepted practices that are sure-fire ways to fail at a startup. Here are a couple that are described in detail in the book:
- Understand the market. Bad idea. The "market" is what is there today. You're building something new.
- Make your tactics match your strategy. One of the worst commonly-accepted notions. It seems to make sense, but it leads to failure.
- Assure that you have a sound strategy. "Strategy" is a time sink that sucks valuable resources away from the effort to win. "Step Theory" (read the book) explains why.
Conclusion

I've had an insider's view of hundreds of software-fueled startups over multiple technology cycles. One of the most striking things I've learned is the winners do things the "wrong" way in the eyes of most experts. That's how they win! Of course, it's got to be the right "wrong" way that wins, not just any old wrong way; there are plenty of wrong ways that are losers…
May 31, 2016
Enterprise selling is the enemy of software speed and innovation

You’re a small software company. Of course, you’re innovative, adaptable and fast-paced! What other kind of small software company is there? You’re beginning to grow. You take the big step of hiring an experienced, professional sales person. And not just any old graduated-from-selling-cars salesperson. You’ve got one with an MBA, and with a solid track record of enterprise success. Why wouldn’t you? It’s time to stop playing sand-lot baseball and graduate to the big leagues!

The salesperson does his job, and has a major enterprise on the hook. They’ve seen your innovative product, and want it. They’ve talked to your existing customers and have decided you’re the real deal. You’ve agreed on a general pricing framework, which looks like a company-making gold mine to you, and a reasonable deal to the buyer. Now you’re getting down to resolving the final issues before sealing the deal.

No big surprise, your software isn’t a perfect match for their needs. How could it be? This will be your first enterprise customer! Everyone knows they have a unique set of needs! This is your chance to find out what they really are, meet them, and step up.

Your product road map gets pulled out. The buyer goes over it with a fine-toothed comb. They complain that it’s not terribly specific, the dates and targets are vague, and there’s little detail backing it up. And there are important things they need that are missing, without which they won’t be able to fully benefit from the wonderfulness of your product.

As you dive into the details, a gulf emerges between the way you are used to doing things and their expectations. You don’t have formal “market requirements documents” to assure that what you’re going to build takes into account the needs of the market and where it’s going. You don’t have formal “product requirements documents” of the kind they're used to seeing, with everything spelled out in advance and validated, so you’ll be sure that you build the right thing the right way the first time. This is too important to screw up! And if the enterprise customer is going to have to wait for what they really need, and commit to it before seeing it, they want to be absolutely sure they know what they’re going to get, when they’re going to get it, and how much it will cost. It could be a career-destroyer for the executives on the buyer’s side to set expectations, pay money, wait for months, and then have a belly-flop. If that’s what they wanted, they could just as well go to their own IT department, which has a proven track record of producing really big and painful belly-flops nearly every time. If we’re going to commit to some little, unproven company (they say), we want it locked down. We need to avoid failure here, don’t you see?

The proven salesperson who works for the little company assures his young compatriots that this is just how things are done. If you want to sell to these guys, there’s one answer. “Yes.” Time to grow up!

Many little software companies say “yes” at this point. Then they take the road to purgatory and march straight to hell, working as hard as humanly possible to meet the needs of their “gold-mine” customer not only as to substance, but just as importantly as to process.

When small, innovative software companies start to enjoy big success, many of them encounter this kind of opportunity, which is actually a serious obstacle. Who would think that the road to success goes through the valley of death for innovation?

My recently published book on Software Business and Product Strategy, deals with issues of this kind and many more. My books on Project Management and Wartime Software also address this issue.

April 12, 2016
Software Business and Product Strategy Book
My book on Software Business and Product Strategy is now available, in Kindle and paperback formats.

It went through dozens of drafts as two separate private circulation papers on the way to its current form. Here's the front cover:

Here's the back cover:

It's the fifth book in the on-going Building Better Software Better series of books. Here is a description of the origins of the series, and here is a description of each of the earlier books, with links to blog posts with highlights.

Most of my experience is with computer-based businesses, but there's a rumor, to which I give credence, that the principles described apply to all kinds of small business.

I recognize that there are piles and piles of books on building businesses and creating product strategies. You can get degrees in it from eminent tenured professors at fancy schools who have publications and honors trailing after them. You can participate in all sorts of programs that teach "innovation" and provide fledgling innovators with access to all sorts of seasoned help. So why another book?

Pretty much for the same reason that I wrote the earlier books in the Building Better Software Better series: the vast majority of the books and articles I read tell you to do one thing, and the people I see who start and build software-based businesses to success do something different!

I spent a couple decades creating or working for young, innovative software-based businesses. I have spent a couple more decades investigating, following and investing in software-based businesses — hundreds of them! In multiple technical and business domains. I've worked closely with the leaders of these companies, and with many of the techies in them. I knew and they knew what you're supposed to do, and what's supposed to work. As time went on, I began to notice how the usual "success" rhetoric played out in reality. Patterns began to emerge.

One of the patterns I describe as "Step Theory." It's a core pattern that is highly correlated with success. There are vertical steps and steps to the side that are often cornerstones of success. Among the dozens of examples I use are Athena Health and Huffington Post.

Another important pattern is the relationship between strategic positioning and tactical execution, which I illustrate with a CRM company, a beach umbrella service and the invasion of Europe.

A few other points, each illustrated in the book with examples, are:
- everyone knows they have to "focus," but knowing how to actually do it is rare
- everyone knows how important strategy is, but trying to make tactics match strategy screws things up
- everyone wants to foster creativity and be creative themselves, but it's often too much creativity that sends young ventures off the tracks
- paying attention to what "the market" tells you frequently dilutes your efforts and prevents success
- starting a great new business requires looking into the future; but unless you then concentrate on what's in front of your nose and ignore the future, you're doomed.
- simple things like minimizing customer risk and delivering fast, hard-dollar benefits are crucial
- shifting company strategy while following success patterns is often crucial to success
- feedback loops and continuous improvement beat "perfect" plans every time
- listening to the "wrong" customers can be as bad as listening to none of them
- …and lots more!
Each major point in the book is a general pattern I've noticed. Most of the points are not generally talked about in places that are supposed to teach these things. Each has been reinforced in my mind by some of the amazing entrepreneurs I've had the pleasure of working with over the years. Each of the patterns is illustrated by examples I've encountered in real life, sometimes by people who just did the right thing, or by groups that encountered issues and responded by doing the right thing.

To everyone in the book and everyone else I've worked with, please know that you have my gratitude. It is in part to thank you for teaching me that I have tried to put your lessons into this book, lessons I hope will help others on their path to making the world a better and more productive place.
April 8, 2016
Software Product Strategy

I've written a book on Software Business and Product Strategy. With emphasis on the "Software."

Software business and product: MBA's

People go to business school. They learn about product strategy, markets and the rest. Now a certified expert professional, they join some scrappy little software startup. What a mess! These people have NO idea what they're doing! Let's clean things up and create a proper product strategy, the kind that would earn an "A" grade in B-school.

The business tanks. There are recriminations. The funding was inadequate! We were too late! Too early! The software was no good! And on and on. Anything but … our product strategy was completely inappropriate for a SOFTWARE business. Unthinkable! Business is business. Products are products. BZZZZZZTTT! Sorry, that's just plain wrong.

The MBA needs to read the forthcoming book.

Software business: ideas

You're naturally innovative. You come up with good ideas. Finally you've settled on one. This is the one to back — it's really going to work!

You dive in. You learn stuff. You start interacting with people. You realize there's more stuff out there than you thought. We've got to add this! And that! After living with the idea day and night, you realize that the business you're beginning to build is just the tip of the iceberg. It has so many implications in so many adjacent areas. We really don't want to just ignore all this other stuff; it would be leaving a huge part of the potential business on the table!

This is the path to disaster. The entrepreneur needs to read the forthcoming book.

When will the "Software Business and Product Strategy" book be available? Soon. I'll let you know.

Update: It's available. See here.

April 6, 2016
Fintech Business Strategies
The business strategies employed in fintech aren't much different from general tech strategies, and they all leverage the fundamental drivers of innovation that drive all the tech in fintech.

Behind every fintech business strategy are a few simple principles:
- Eliminate places
- Eliminate people
- Eliminate things
- Reduce time
- Reduce cost
Every fintech business strategy is a specific implementation of technology that employs some combination of the principles above.

The leading strategies include:

Expand the pool of consumers/users

Who would have thought that people who operate web sites are good candidates for loans? But like many other businesses, they have to pay suppliers (like data centers) promptly to avoid getting cut off, while their customers (like advertisers) aren't as prompt as they might be in paying their bills. Rapidly growing Fastpay meets this need in a sophisticated, integrated way that includes lending money, but goes way beyond just lending money. For example, here's one of their latest services:

Expand the pool of producers/providers/sellers

What if you sell stuff at the local farmer's market? People keep coming up to you wanting to buy your produce. They don't have enough cash, but they have a credit card. What if you could accept their money without going through the nightmare of expense, hassle and non-portable devices regular stores put up with? Enter Square, whose little device and app turn the smartphone you probably already have into a POS terminal and card acceptance device:

Apply technology to make an existing service: better, faster, cheaper

Lots of fintech is direct to consumer, but important fintech companies operate completely behind the scenes, largely invisible to normal consumers. An exciting company that has a new, machine-learning-based approach to credit card fraud prevention is a good example. By doing a far better job of preventing fraud, Feedzai reduces the cost of providing credit card services dramatically. Here's one way they express the issue:

Replace and enhance existing technology

Sometimes, the innovating fintech company is able to completely replace a legacy product. This is ambitious and difficult to pull off, but the rewards are great if you can do it. Everyone is familiar with point-of-sale (POS) terminals and credit card charge terminals that are normally separate devices. For example, here's a card terminal at my local pharmacy:

Poynt has invented a single device that replaces the card terminal the consumer uses to swipe or insert their card as pictured above, but also POS terminal used by the retail clerk. Here it is:

Cut out a middle-man (disintermediation)

This has been a favorite business strategy since long before 1-800 Flowers started cutting out local florists. It's alive and well in fintech-land. A good example is Insureon, which uses the web to attract very specific groups of small business people and sell them insurance that is completely directed to and appropriate for their needs. For example, how many local insurance offices do you suppose cater specifically to the needs and perspectives of dog walkers?

There are hundreds of fintech companies working to extend and disrupt the financial services industry. The business strategies described above are typical, but not exhaustive; and some companies pursue combinations of them. (Note: all the companies used as examples except Square are ones in which Oak HC/FT has an investment.)
March 15, 2016