deal architect

Tom Bogan – The Importance of Being Agile

Tom Bogan is CEO of Adaptive Insights, a Workday company whose business planning cloud automates previously manual planning tasks—for finance, sales, and workforce planning—and supplements those capabilities with enterprise-scale reporting and analytics. Tom joined Adaptive Insights when it was at $40 million in revenue. Under his leadership, in 2017 Adaptive Insights topped $100 million in annual recurring revenue (ARR), a watershed milestone that only 1% of cloud software companies ever reach. Then, in June of 2018, three days before the company was to go public, Bogan and his team struck a deal with Workday, a leader in cloud corporate performance management, to acquire Adaptive Insights for $1.55 billion.

Now a Workday company, Adaptive Insights continues to cook up ways to help businesses see planning as a competitive advantage. Most recently, Adaptive Insights commissioned Plan to Win: Achieving business agility in the age of urgency. The new book seemed like a good reason to sit down with Tom and get his thoughts on the origins of Plan to Win, the state of cloud software tools, and how businesses will plan years from now.

Let’s start with the book. What prompted it?

We’re always talking to customers. In doing so we learned that many felt there simply wasn’t much written about why modern planning was critical to the success of a business. They’d gone through the transformation themselves—from slow, manual, siloed static planning to automated, collaborative, and continuous active planning—so they knew what it had done for their business agility. They wanted something they could share with others, a book they could pass along to colleagues in their organization who may still be stuck doing static planning, or might be considering a change but not sure how to map their journey.

The book isn’t just a reflection of our world view on planning. That’s in there, but it’s also a researched exploration of how businesses have used planning over time, and how the digital age made those old planning processes obsolete. And it’s filled with lessons we’ve learned from our customers, including a few whose experiences are profiled in the book. It’s a helpful tool for both companies new to a cloud planning process and for our customers who continue to expand their vision for business planning in their organizations.

We’ve known for a while that static planning doesn’t work. But for many companies, budgeting remains a painful annual ritual. Why haven’t they been able to break out of it?

A big reason is the tools they’re using.  Most organizations still use spreadsheets. And unless you’re a very small company, spreadsheets quickly hinder your ability to plan across a wide population in your company.

Business and market conditions don’t change just once a year—they change constantly. So if you plan annually, you’re creating a plan that’s obsolete almost as soon as it’s done. So to operate with agility, you need to be able to update plans, budgets, and forecasts continuously, not just once a year.  Many of our customers update their plans quarterly and some do it monthly, or at least as often as conditions change.  

And as businesses grow, they realize that spreadsheet planning is cumbersome because they make it hard to coordinate all resources across the organization. Cloud-based planning enables a more agile process because everybody is using the same cloud system—not dozens of individual spreadsheets traded by email. They all work from the same data. There’s a single source of truth.

Putting planning into the cloud, having a flexible modeling platform, and deploying capabilities that allow you to engage in both financial and operational planning—this is what is helping break people out of static planning.

It seems like we've seen a mass proliferation of data analytics tools, data visualization tools, and so on.  Companies seem to have one of each. Does that help planning or does it actually make it more fragmented?

I think it helps.  When companies have a good understanding of their operations and the operating data, it inspires them to do richer planning. 

For example, when I started doing planning in companies, we'd look at a revenue forecast.  It would be more trend-based: What percentage are we going to increase this year? Today when we do our sales planning, we're looking at the number of reps we have and the number of leads we're generating.  What are those conversion rates from marketing leads to sales opportunities? How many sales opportunities can our reps execute against?  What are the expected win rates?  All that rich operating data is now part of the plan.

Now apply that to agility. If our actuals are either better or worse than the assumptions in the plan, we can change and update that plan. Those regular updates allow you to course-correct when needed. Visualization systems, the tendency to collect metrics and KPIs and the ability to see those through the various analytics tools—all this provides a strong foundation because the operating metrics become the drivers or the assumptions in the plan. We built the plan and the models on top of that analytical data. They fit together beautifully. So the proliferation of analytics tools, together with the planning model, is very synergistic.

Workday's focus is primarily finance and HR.  Does that constrain what you get from customers and does that kind of make it competitively disadvantaged for you because you don't have access to too much operational data?

That’s a great question. In the Adaptive Insights Business Planning Cloud, we certainly integrate with Workday solutions, but we also integrate with all other systems as well: General ledger systems from Oracle, SAP, NetSuite, and others; CRM systems like Salesforce; marketing automation platforms like Marketo, HubSpot or Eloqua—we integrate with all of these systems so that data is feeding our assumptions.

We describe the Business Planning Cloud as “best in class, better in suite.” This means if you’re using Adaptive Insights on its own or with a non-Workday ERP system, you’re still getting the best, most highly-rated planning solution in the industry. But it gets even better if you choose to implement solutions from Workday. We have not only HR and financial data from Workday business systems, but we can add information from other GL systems, from sub-ledgers, and from operating analytical data. We can either bring that natively into Adaptive Insights through our interfaces or we can bring it in through Workday’s Prism Analytics.

SAP has something called Integrated Business Planning, and they go into all kinds of manufacturing and transportation and distribution planning. Does that put you at a disadvantage?

Not at all, because we place no limitations on the amount of information or the number of dimensions you can build into a model. And it’s important to remember that Adaptive Insights is a broad-based modeling platform. You can model any business scenario in Adaptive Insights, just as you could in a spreadsheet.

For operational planning, we pre-build some functionality. For example, in sales planning, we know that most organizations will want to plan around the number of reps they have, by market segments, and possibly by vertical industry. They'll want to do territory planning and to measure key aspects or dimensions. We provide the framework that allows them to do that. Our customers use that framework to build models and solutions that are specific to their business needs.

One customer, an airline, uses Adaptive Insights to run route profitability analysis for their routes all over the world so they know which are the most profitable. Another is P.F. Chang’s, who is featured in the book. They model the operations at a restaurant level.  Again, customers and users model any aspect of their business on the platform. 

You mentioned how cloud has evolved planning; made it much more collaborative, much more available to a broader audience, etc.  What is machine learning going to do to planning?

Great question.  It's going to change everything. We think that planning is one of the areas that will be more impacted by ML than almost any other space.  In the short term, we'll be able to leverage machine learning to do things like anomaly detection and to determine when information in a plan looks aberrant relative to what we'd expect based on analysis of history and trends.  We'll be able to flag exceptions.  The user will be able to decide whether they're appropriate exceptions or whether it's something that has to be looked at further.

Then we'll learn from that.  We'll be able to better anticipate and predict what the data should look like.  That's the short term. 

Going forward, I think we'll be able to leverage machine learning to create additional planned scenarios automatically. We’ll identify the most critical assumptions or drivers in the plan. We’ll take the heavy lifting out of scenario planning. 

We want to shift where people are spending their time, from creating the plan and crunching numbers to running analyses and really understanding what’s in the plan.   What are the critical assumptions? What kind of scenarios can I run? Then I believe we'll also be able to assess confidence.  A CFO can go to the board that this is a 75% probability plan or maybe it's a 25% probability plan. They can know where they stand before going in. 

Improvement will be gradual, and then it will accelerate once it hits critical mass. I’m sure years from now, we’ll do planning in a completely different way. But I’m hopeful that five years from now, we’ll do planning in a completely different way. 

Five to 10 years sounds realistic. But many people make it sound like it will happen tomorrow.

It depends on what we're talking about.  Anomaly detection will happen sooner but that’s only the tip of the iceberg for machine learning.  I think about the world in which we can automatically create plans and do a first pass.  That’s a little further out. 

Do you think planners are preparing for that?  I talk to some companies where they have literally hundreds of planners, category planners, assortment planners in the CPG industry and so on.  It just seems like there is a lot of labor in planning.  Are you helping planners look forward to the day where machines will be their assistants?

Yes. Whenever you talk about automation, everybody assumes we’re going to eliminate jobs. That’s not the goal. It’s to reduce the number of labor hours on preparing a plan so you have more time for strategic analysis. That’s part of the return companies and organizations will experience.

I think the point you're making applies just about everywhere.  Automation takes over the more mundane, routine tasks, and humans move up to a higher value in the workstream. What else did you learn from preparing this book?

Two things.  One is that there was strong affirmation of the need for active planning—planning that’s continuous, with monthly or at least quarterly updates to the plan, and with the best practice of rolling forecasts, where you’re not bound by this artificial annual time boundary. The book confirms that this is an important trend for companies. 

The other is the importance of machine learning.  The leading thinkers, and some are featured in the book, really believe there's a huge opportunity to leverage machine learning in the planning process, to make it more agile. We agree and believe that the tomorrow’s winners will be the most agile.

Rob Enslin, turnaround artist

SAP briefed me, under NDA, on Friday night about Rob Enslin leaving. At that time, I was also staring at a fairly hostile email from another vendor exec in response to a request they become more open in their analyst relations. The stark contrast made me appreciate even more how Rob and others at SAP have dramatically reshaped vendor -analyst conversations.

While Bill McDermott and others are the public face of SAP, Rob became that to many analysts. That was not his job, but in his doing so I came to appreciate his role as turnaround artist with his stints in Japan, post-recession US and elsewhere in world and then running the cloud properties the last few years. Having done several years of overseas assignments and traveled to over 70 countries myself, I admire even more what Rob did at SAP.

I have personally seen his role in making SAP more "open"

A) My latest book, SAP Nation 3.0 would not have been written without the countless conversations with executives and customers SAP introduced me to. The book is tough on SAP in several places. It took a lot of courage for them to have faith that I would present the good along with the bad. I think I succeeded - early feedback to the book is that of surprise how balanced my coverage is. It also shows a SAP going through a massive turnaround which is catching the competition flat footed. They will need to quickly expand their product and geography reach to keep up.

B) I saw Rob along with Nick Tzitzon play master of ceremonies to two of the most vibrant analyst summits I have ever been part of. Conducted under NDA I saw one SAP after exec come in with only a handful of slides and spend time getting input from analysts. Sure it was painful for some of them but Rob and Nick set the tone for openness.

C) I have conducted hundreds of interviews for my books and blogs. I cannot remember one with as much heart as the one Rob brought. I ran it in a two part post here and here and it will forever for me be a benchmark for other impactful interviews.

Next up - I look forward to seeing Jen Morgan continue the trajectory Rob started. And I will continue to exhort other vendors to try and emulate the openness I have seen at SAP.

In the next phase of what he described in the SAP statement as  his "new journey", I hope to cross paths with Rob again. I admired the reverence with which he described to me the mentors he has had along the way, and I am confident he will be the same himself. 

Making features/functions sexy again

I got excited this week when Workday sent analysts a hour-long video (sorry - don't have permission to share the video) which summarizes 500+ new features and 300+ new brainstorms in release 32.  That release was delivered on March 9. Workday used to do this on a regular basis - indeed I wrote last year "I miss Stan Swete’s updates every time Workday had a new release (they are up to release 31). He would crisply march through new features and also give a quick update on the state of the company." So, glad to see them start doing this again.

Excited about features and functions? I must lead a really boring life, eh?

No, if you look at what application vendors have talking about last few years - its been mostly about their technology - UX this, ML that. Often it's not even their technology - they are leveraging what Apple. Amazon, Google, Microsoft are pioneering and scaling. Business process and functionality have taken a back seat.

No wonder enterprise applications are evolving at snail's pace - in business process, in industry and geographic coverage. We desperately need a refocus and reinvestment in application functionality.

Here is what I told M.R. Rangaswami of Sand Hill in an interview about SAP Nation 3.0

"While enterprise vendors have superb technology visionaries like Larry Ellison and Satya Nadella, they have not groomed a similar breed of business process visionaries. If you want inspiration for the factory, warehouse, store or hospital of the future customers don’t turn to Oracle or Infor. That has to change. Application software has, in the end, to continually evolve business processes and enterprise data. Instead of inspiring customers to look to them, too many vendors are offering platforms and expecting someone else – their partners, their customers – to build applications. It’s the equivalent of your favorite restaurant saying our renowned chef is gone, however, we will open up our kitchen. Come use our appliances. No, customers continue to want tasty, healthy, affordable cooked meals."

Thanks, Workday -  I want to see starting with release 33 you talking about verticals beyond higher education and about more geographical coverage beyond the 34 countries you are supporting today:)

Bruce Cleveland - Part 2 - thoughts on current enterprise market

In Part 1, Bruce Cleveland talked about the framework in his new book, Traversing the Traction Gap. Here we talk about partnering and white spaces in the market.

Most enterprise vendors now offer their own platforms. Could they use your framework to develop a vibrant network of startups on their platforms?

At Siebel, we used partners to dominate – I know the word is overused— the industry.  We grew from initial product release to $2 billion in revenue in 4.5 years. In 1999, Deloitte named Siebel the “fastest growing company in the US” with a staggering CAGR of more than 750,000%.  We only accomplished this because we (by “we” I mean Tom Siebel) put significant resources (personnel and capital) into building a technical platform and a robust ecosystem to support it. 

Tom knew he had to “remove the constraints on the growth of the business.” We needed systems integrators who were trained and certified on Siebel implementations. We needed to our applications tuned to run optimally on various hardware systems. And, we needed numerous third-party applications that could interface and interoperate with our application suite.

Consequently, Tom charged me with building the Siebel Alliance Program. Tom had created our first systems integration partnership with Andersen (now Accenture).  He also had created our first hardware relationship with Compaq and our first software partnership with Microsoft.

I simply took Tom’s initial ideas and those partnerships and developed a scalable partner program from them.  We began the Siebel Alliance Program with Accenture, Compaq and Microsoft and over the course of three years we accumulated a total of 750 partners. These partners generated about a $B of additional annual license revenue for Siebel and helped us ensure that those licenses were implemented successfully. By partners, I don't mean they were reselling Siebel applications.  I mean we partnered with them to market, sell, and implement our joint solutions. We were compensated on our products/services and they were compensated on their products/services.

So, as you might imagine, I am a huge fan of partnerships. We won the Forbes award for the most innovative partnering program in the technology industry at the time and every technology company knew how powerful it was. It wasn’t a secret.  I find it interesting – with all the success we had with the Siebel Alliance Program - that none of the incumbent technology companies have replicated its form or function.

I believe the current technology platform leaders have a tremendous opportunity to develop a similar program. Sure, they all have partner programs, but those programs don’t really put a lot of skin in the game. By that, I mean, they don’t obligate the leaders to do much or to invest in their partners beyond providing basic access to some technology and lightweight market awareness. 

For our program, we actively recruited and hired hundreds of MBAs from the top universities as well as industry professionals and chartered them to create joint business plans with our partners, advocate for our partners with our product and sales organizations, and held the Siebel Alliance organization accountable for helping our partners achieve their revenue and market share objectives. We built specific marketing programs – brand and demand gen – that partners could sponsor to generate leads for themselves. We put skin in the game.  

The program was so successful that Harvard Business School wrote a business case study about it. So, I'm pretty proud of it.

Today, though, for the most part, the large technology platform companies offer what I call “paper partnerships”.  Those partnership don’t obligate either party to much of anything.  They're not “skin in the game” partnerships so they are anemic, at best. 

Most startup teams have little experience partnering with these large technology providers. And, even if they do, they have found that those companies offer little that their startup can benefit from. There's little provided by the large company that is likely to generate significant market awareness or revenue for the startup. For example, startups need to know who, from the partner’s organization, wakes up every morning worried about helping the startup to succeed; where are the demand gen programs they can co-invest in to generate awareness and interest in the startup’s products?  Which teams inside the large company are held accountable for achieving the market share and revenue objectives of the startups in their partner community? The answer? None. Those partner programs are essentially worthless – at least as far as the startup community is concerned. 

Salesforce built an App Store and prospective customers can certainly search for and find add-on applications and products for the Salesforce ecosystem there. However, that's a pretty lightweight endorsement for startups. Who is held accountable within the four walls of Salesforce to wake up every morning, ensuring that a particular partner has the leads it needs, generating a robust pipeline, and helping the startup to convert that pipeline into revenue?

I don’t mean to call out Salesforce. At least they developed an innovative approach and put a lot of energy behind it. And, they have done some advanced partnering with Vlocity. Vlocity was founded by some of my former Siebel colleagues.  What's Vlocity doing?  They're building vertical applications on top of the force.com platform. 

Salesforce saw a need to have much deeper vertical versions of their platform.  That's what we did at Siebel (create vertical solutions of Siebel) and David Schmaier led that initiative as the executive VP. David is the founder and CEO of Vlocity. David and his team are replicating what we did at Siebel for Salesforce and it's going very well. 

I'm an investor in Vlocity, and, to your point about partnering, it's an example of what can – and I think should - be done between technology platform providers and the startup ecosystem.  As this example shows, it's not just about partnering with systems integrators. 

If you want these partnerships to amount to anything there needs to be alignment and shared objectives. For example, if you want to garner the attention of the partner’s sales organization, there is nothing like making partner revenue a part of the sales rep’s quota.

The truth is that partner programs as conceived and implemented by the current technology platform leaders just don’t do much for startups – in terms of market share and revenue - and therefore it shouldn’t be surprising that those programs aren’t valued by startups.

Apple has done well in its ecosystem – with the App Store - but the consumer world doesn’t require face-to-face interactions. In the B2B world, people's work reputations are on the line when they make a buy decision. And, in almost all cases, there are multiple decision makers who must be convinced.  For B2B, startups need brand credibility from the platform provider. This happens when they implicitly endorse the startup by working closely with them. 

In the consumer world, a startup can “borrow” the brand of Apple because if their application is admitted into the Apple App Store, it tells consumers, "Look, we vetted this product. It adheres to our rules." 

Conversely, I don’t think that Salesforce’s App Store does a lot for startups. It’s essentially a digital catalog with some ratings/rankings. That’s not enough for most businesses to make a buy decision. If you speak with startups about the Salesforce App Store and ask them if it is a significant source of revenue for them, I think you will find that for most, it isn’t.

Startups lack credibility.  They lack access to prospective customers.  And, they lack sufficient marketing dollars.  This is where the enterprise vendors could really help startups.

I had hoped that the technology leaders would have adopted at least some of the best practices we had created with the Siebel Alliance Program. Tom Siebel and his new company, C3, are developing a similar program to what we had at Siebel Systems. So, I believe the principles are as valid today as they were back then.

When you look at the cloud apps market there are so many white spaces - major geographies, industry verticals etc - and they do not seem to be targeted by established vendors or even by startups. How are investors like you guiding them through these white spaces?

Cloud computing with its subscription business model - and delivery and usage model -has democratized business application software. Prior to cloud computing, it was prohibitively expensive for smaller companies to acquire and implement enterprise-class applications.

But, by dramatically dropping the cost of these solutions, I suspect it has constrained the application providers’ ability to support smaller geographies and industry verticals.  Going after smaller markets that require significant translation and support infrastructure at much lower price points isn’t practical. 

Even with traditional (re: higher priced) enterprise software, it was always challenging to create localized versions of products for a specific market.  Most US companies started out with the English speaking markets and then typically moved to countries such as Germany, Spain, and France with relatively large populations.  But, when they were asked to support a Dutch or Finnish version, it was seldom worth the upfront and ongoing cost.

For a large company to continue to grow at a significant rate, it needs to acquire or build new solutions that add significant revenue streams – quickly. In that context, let's talk about SAP and Salesforce.  One is a classic enterprise technology company with primarily a perpetual license business model.  The other is the "modern" cloud computing company with a subscription business model. 

The challenge with both of those organizations is that to grow meaningfully they have to build or acquire something of meaningful size.  Moving into a small geography requires the same resources or at least the same FTE costs that might be invested in something else and could generate a much larger impact.  So, it should be little surprise why we are seeing these large companies look to make large acquisitions and avoid niche industries and geographical markets. 

To your point, one might think, “Hey, if these market leaders are not seeing a lot of companies growing fast enough to make a measurable impact on their top line why aren't they helping smaller companies to grow so that they can eventually acquire them?”

Technology leaders may want to look at making investments in smaller technology companies where they see strategic value. These leaders can protect their interests by exchanging an equity investment and access to their channels with a Right of First Refusal (ROFR) that allows the leader to acquire the smaller company when it reaches a certain revenue threshold, at some predetermined price based upon a number of factors such as the acquirer’s stock multiple at the time. 

With respect to investing in and expanding the number of verticals supported, there may be a dearth of deep domain expertise inside some of the larger technology companies to do that well. I don't know whether these companies have initiatives to try to hire subject matter experts from industry to help them drive their product management.  They may and I'm just not privy to it. 

I do know that Salesforce took a run at creating vertical solutions and it wasn't as effective as they had hoped, at least not at the time. This is one of the reasons that led to their investment in Vlocity.  I think this makes the case that the technology leaders, at least those in the B2B markets and not normally inclined to partnering, could really benefit by embracing partnerships. 

Instead, it looks like the majority of them sit back and wait to see which startups “make it”, without their help, and then acquire the few that do. This seems rather silly because by doing that they have to then compete in the open market – and pay a premium - to keep them out of the hands of competitors.

What do you find interesting in today's enterprise space?

Roughly every ten years, new technology is introduced that dramatically changes our work and personal lives.  In the 60s it was mainframe computing. In the 70s it was minicomputers. In the 80s it was PCs. In the 90s it was client/server computing and in the 2000s, it was largely cloud and mobile computing which spawned “digital transformation”, beginning in the consumer markets with companies such as Amazon, Apple, Facebook, NetFlix, Google, etc. Digital transformation has now moved full speed into the enterprise markets.

I believe digital transformation - digital disruption - is such a big transition it will require multiple decades.  I think it has a chance to undo a lot of the current market leaders in every industry.  To your point, maybe vertical providers will emerge and dominate the markets due to digital transformation issues.

The emerging opportunity in the enterprise is in systems of intelligence. This is where I think vertical solutions can dominate.  Systems of intelligence use the data generated and captured by systems of record and systems of engagement to enable companies to derive better business insights, faster and far more accurately than ever before.  I mean real-time insights and real-time responses, without humans involved, that can be triggered via key business events and moments of value. 

Here is an example in the retail space. Let’s say I'm walking through PetSmart and I'm a repeat PetSmart customer. I’m a member of the PetSmart loyalty program. If PetSmart has implemented a system of intelligence and placed beacons throughout the store, I have PetSmart’s loyalty application on my phone, and I provide my permission to send me offers, PetSmart can enable brands to generate contextually-relevant real-time offers to me as I walk through the store.  An offer could be from a brand I don’t normally buy for my dog. The system of intelligence has access to POS data from my prior store purchases. PetSmart makes $ by serving up the competitive offer and if/when I decide to redeem the offer in a coupon that could be set to expire if I walk out of the store without making the purchase. Powering this type of application requires a different type of computer and systems architecture. 

The biggest opportunity may come from vertical systems of intelligence built on top of the older systems of record and systems of engagement.  In my PetSmart example, it means that you've got to be able to interface with an existing point of sale system, not replace it. This is where I would advise B2B application startups to focus. Trying to replace the existing systems of record and engagement is tough to do. 

Trying to rip and replace technology is hard to do.  Building next-generation systems of intelligence that utilize the existing systems of record and engagement is far easier. That's what a lot of the startups we work with are doing.

Unfair to NetSuite?

For a fleeting moment I felt guilty I am not at SuiteWorld. Mark Hurd was talking about shipments from Shanghai and inventory allocations while in transit. I perked up at the webstream. But just as quickly he was talking about recruiting. And his comments were from a decade ago when he was at HP. I went "here we go again - like at Oracle MBX/MCX couple of weeks ago, finance and HCM seem to be Oracle's comfort zone. They are allergic to talking operational applications in the cloud".

The next session I was told to watch was about NetSuite products but the stream did not work. I can see from Albert Pang's tweet they are talking operations  "Allison Auclair, VP Product Mgmt of Oracle NetSuite, outlines what it takes to do next-gen manufacturing & retailing, covering everything from sourcing to online selling and from ordering to warehousing in its stepped-up effort to improve commerce & CRM experiences." Just my luck. I will try and watch a replay.

This is the first SuiteWorld I have missed in years. I much prefer analyst summits but NetSuite has never held one - I have asked multiple times. Oracle has moved away from them. I feel I am intruding on customer time when I go to user conferences. When I do go, I like a schedule which has plenty of customer and executive time. Oracle has not been able to deliver that so I have been watching their events from afar. Sorry, NetSuite.

I hope Oracle and NetSuite convene an analyst summit like I requested here. Every one of their competitors does one and they keep getting better each year.

I WILL show up for such a summit. If I am invited, and if the agenda does have operational and vertical functionality.  

Bruce Cleveland: Part 1- Traversing the Traction Gap

Bruce Cleveland, who many readers may remember from his Siebel days is now an investor and has a new book out, Traversing the Traction Gap. I had a long ranging conversation with him about the book and also about trends he sees in today's enterprise software industry. In this part we focus on the book, in Part 2 tomorrow he will discuss partnering and how to go after white spaces in the market.

How did the book come about?

Many people have asked, "How long did it take you to write the book?"  It took about a year of nights and weekends and a bunch of rewrites with others helping along the way. Not writing the book – I did that - but performing the interviews, creating graphics, getting legal sign off to use the quotes we collected, and that type of thing.  I learned it really does take a village to get a book out - at least something that's meaningful. More importantly, it took me 35 years of experience to accumulate the knowledge to write it. It required 10 or 12 years on the venture side and 25 years on the operating side.  

I was fortunate to work for and with some of the most amazing technology CEOs and leaders in the Valley.  Luminaries such as Larry Ellison and Tom Siebel were - and still are - the visionaries who created massive markets and incredibly successful technology companies.  Tom's new company, C3, is doing exceptionally well.  I had the advantage of a ringside seat observing the decisions they made and helping to execute them. Over the course of ten years as a venture investor, I met with and listened to presentations from at least 1,000 teams. I learned from those experiences as well. Finally, for the book, we interviewed dozens of successful founders and CEOs to better understand what led to their success.  So, the Traction Gap Framework is something that I developed but the ideas came from the cumulative knowledge and experience of many smart and talented people. 

Over time, patterns began to emerge as I began to see what tended to cause startup failure: 80% for enterprise or B2B oriented startups. B2C -- 90% to 95% failure rates.  CPG -- 98% failure rates. I realized that there are a lot of great ideas and very talented teams, yet many make mistakes that are avoidable. 

So, I started to unpack all of this.  When I joined two other people to create a new venture firm, Wildcat Venture Partners, I brought those ideas with me based upon the patterns I had observed. The most common cause of failure? Many phenomenal product teams stumble when it comes time to take their products to market. While they may have great product engineering skills, most teams lack “market engineering” skills – a term I came up with to represent category creation/redefinition, thought leadership content, market validation processes, pricing models, etc. I decided to double-click on this. 

All early stage startups – and new products inside an existing company – must go through 3 phases: go-to-product, go-to-market, and go-to-scale. There is a lot of help from angel investors, incubators and accelerators for the go-to-product phase. There is also a lot of help in the go-to-scale phase from groups such as Bain, McKinsey, etc. However, there is very little help for that murky go-to-market period. And, the evidence – 80% failure rates and higher – shows us that this is the most challenging phase for startups.  One of my partners is Geoffrey Moore, author of “Crossing the Chasm”. That book has taught millions of entrepreneurs how to think about markets. 

Most of the groups we invest in come out of great colleges or great companies, be it Salesforce, Google, Facebook, or wherever. There, they have learned how to develop a product. However, many of those groups have never experienced bringing a product to market. And, there has been virtually nothing written with respect to how to do it successfully.  There are no prescriptive guides.  There aren't’ guardrails or guideposts for startup teams to follow. I decided that, based upon my personal operating experience taking an early stage startup from an idea to a billion-dollar outcome and investing in multiple early stage startups that went on to become billion dollar outcomes, that I would share my experience and the experience of others who had succeeded.

The Traction Gap Framework

We don’t need more acronyms introduced into the technology landscape. I decided to adopt Minimum Viable Product – MVP -  a term that Steve Blank, Eric Ries, and Marc Andreessen propagated, and derived the names of the value inflection points for the framework from that term. It may be debatable about what constitutes an MVP, but it's something that people are familiar with.  In my experience, if you can explain new ideas in terms people already understand, then they can quickly pick up on those ideas. 

I adopted the “minimum viable” format and applied it to the value inflection points associated with the framework.  The reason that I call them value inflection points is that as you reach each successive point, your company increases in value because you have diminished risk in the eyes of the investor community. In fact, it’s a step function change in value, not a smooth curve.

The first value inflection point of the Traction Gap Framework is called minimum viable category or MVC.  Creating a category, or redefining an existing category, is critical market engineering work.  You must to this early, while you are in the process of deciding whether the product has a viable market. You need to define/redefine your category because the current “category king” defines the “rules” – the attributes - of the existing category and you will be compared against them. This is not a battle you can win – well, at least not very easily.

The next value inflection point is called initial product release or IPR.  This is the first time that you make your product available publicly.  It can be an alpha or beta version, but it's basically the time at which you first place it in front of people, and they tell you whether it's great or it sucks.  Based upon the feedback during this period, you polish it up and, eventually, you reach what you declare to be a minimum viable product or MVP; something that you can begin to actively market. 

The next value inflection point is minimum viable repeatability or MVR. This is the point where you have successfully built and released multiple versions of the product, hired multiple people, experimented with and hardened pricing models, and are now beginning to build the systems such as sales, marketing and governance processes that you need to scale your company.

Then, finally, if you can scale for 12 to 18 successive months - growing quarter over quarter - you will reach this theoretical point called minimum viable traction or MVT. There are actual metrics associated with each value inflection point, including MVT.  But, to provide you with a visual image; you know you’re at MVT when you travel to “Sand Hill Road in Menlo Park” (Venture Capital Row – although SF has become far more popular for VCs over the past few years), meet with the venture capitalists located there, and they begin to sell you why you should take their $ vs. you selling them.

In addition to the value inflection points, the Traction Gap Framework consists of four architectural pillars: product, revenue, team, and systems.  These pillars are present from the moment of ideation and last in perpetuity, as long as there is a company. 

At the various value inflection points, the Traction Gap Framework architectural pillars take different points of prominence.  In the go-to product phase, product and team take center stage. From MVP to MVR or minimum viable repeatability, revenue architecture comes to the fore. Then, finally, as you reach MVR on your way to minimum viable traction, systems finally become important as you prepare to scale. 

The Traction Gap Framework breaks down this very murky time where there is very little data. It provides startup teams and investors with some guard rails and milestones they can target.

During this time, most startups are what I call “PowerPoint companies” -- they don't have a lot of market or customer data to prove that their products will succeed or feedback regarding what it will take to generate success. The challenge for startups at this stage is to get to a point where they become a “Spreadsheet company”; a company with performance data —metrics - that the team and investors can react against. Most venture firms are not comfortable investing in early stage startups that are still in “PowerPoint” mode.  Some will – like the Pre-Seed/Seed firms. And, even the best-known firms will invest early if they know the CEO and/or have strong conviction about the market opportunity. But, most teams will find that the venture community is hesitant to invest until they see tangible traction. 

Understanding what constitutes traction has been elusive for entrepreneurs because there's typically not a lot of feedback given to them by the venture community. And, most venture investors haven’t personally built a company from startup to scale, so there is little expert counsel they can provide based upon personal experience.  I wanted to expose some of the metrics venture investors associate with traction (e.g., capital raised, net burn rate, revenue growth, and usage rates) and how to achieve them. 

That's the background on the framework, the reason I developed it, the terminology I created, and the overall rationale for it.

How portable is the Traction Gap Framework?

I sat down with Geoffrey Moore and asked him, "When you were thinking about publishing ‘Crossing the Chasm’, were you worried that you didn’t have enough proof of concept?  At the time, your ideas were quite nascent, right?”  Geoff said that he wasn’t really worried about that. Geoff said he published it and subsequently augmented and supplemented his original thoughts as needed. So, that gave me the confidence to put my framework out there.

I use variable names for the value inflection points of the framework so that it can support a variety of different business models.  In fact, I treated very lightly - in this book - the B2C business model.  The reason is that most of the investments I make use a B2B or B2B2C business model. 

But, I gave considerable thought to the framework’s applicability and adaptability to other business models and other industries.  We've now accumulated metrics for B2C and we can swap in those metrics at their appropriate value inflection points.  Over time, I can see us doing something similar by industry verticals.  So far, it seems to hunt well.  I suspect it will readily work with other business models.

And, for the most part, I believe the framework is flexible and adaptable enough to scale to other geographies and cultures.

In Part 2 tomorrow we will cover Bruce's thoughts about the current enterprise market. 

Workfront - a system of record for "Work"

I have been pushing software vendors to deliver vertical operational books of record in the cloud - for utilities, retail etc. There are plenty of horizontal books of record -Workday for employee data, Salesforce for customer data, ServiceNow for service ticket data etc. But as I learned from a recent briefing by Workfront, there is space for at least one more horizontal book of record - that for "work". I had previously reviewed CEO Alex Shootman's book "Done Right" and knew they were focused on making work more enjoyable and productive.

Steve ZoBell, Chief Product & Technology Officer, described to me the problem they are helping solve:

"Work happens in a very ad hoc way today.  Strategy is not aligning with execution in companies.  Many times, company leaders don't realize that the most important work isn't being prioritized.  They have no visibility into  what is happening, who is working on what, what the deadlines are and if the work is being completed. 

Much of this happens because every single enterprise is reinventing process. But it is worse than that.  It's every department, every team reinventing the process over and over, resulting in them working harder than they have before, but they don't feel like they're being effective.

There is a study that says the average worker only spends 39% of their day working on the job they were hired to do.  That's just a travesty.  We need a system which can measure anything and see everything, providing complete visibility.  This is the value that we are bringing to  customers who are utilizing Workfront as an operational system of record for work."

The graph below shows the breadth of Workfront’s enterprise coverage.

An example of enterprise wide visibility to work comes from one of their customers, a global real estate company.  150+ teams composed of over 6,000 associates are doing tasks like building inspections and refurbishment projects,  which are all managed within Workfront. It's well beyond that traditional notion of projects and portfolio management.

Under NDA they shared examples of big brand companies where they "landed and expanded" - start off with a specific work area, and increasingly expand to other areas, particularly those involving knowledge workers.

They actually do better with creative work at digital agencies or marketing departments where by definition, work can be spontaneous, even chaotic. Below is a graph on some of the activities they help organize in a Marketing function.

I am going to meet some of their customers in the next few weeks and look forward to learning more use cases and how Workfront "lands and expands".

Image Credit - Workfront

 

SAP Nation 3.0 excerpts: Chapter 2 The Enterprise Computing "Continent" in the 2000s

My new book is now available to buy here in print version, and for pre-order in the Kindle version (will be released on Friday). As with my earlier books, I am excerpting roughly 10% of the 400 page book in a series of posts on my two blogs.

Chapter 2 focuses on missed opportunities for SAP competitors over the last 5 years to deliver a knockout punch while SAP was distracted and vulnerable. It also covers 8 very large markets that SAP and its cohorts missed out in the last two decades.

"SAP looked vulnerable when I wrote the first volume of this book series, five years ago. Besides the runaway costs and massive project failures at some customers, even more concerning was the fact that the competition was circling around.

Oracle had a decade’s lead with its Fusion cloud applications over what SAP was working on — S/4. Microsoft had already invested billions in its Azure cloud data centers, and could have used them to significant advantage in business applications. Infor had a new management team that was focused on vertical applications for many industries.

Customers were using Workday, Ultimate Software and Salesforce to “ring-fence” SAP, and were deploying lighter cloud applications, like NetSuite, in global, two-tier ERP settings. Those SaaS vendors had introduced the efficiencies of multitenancy to the overpriced enterprise applications market. They bundled software, application management, hosting and upgrades into one contract, which was priced as a per-user service.

TPM vendors like Rimini Street, Spinnaker Support and Support Revolution, with their cut-rate pricing and, especially, their support for customizations, threatened to hollow out SAP’s highly profitable ECC maintenance revenue stream.

S/4 has not been a runaway success, but SAP’s competition has not exactly gone for the kill either."

"But from a customer perspective, you cannot run your enterprise without order entry, billing, manufacturing, logistics and industry-specific functionality. There is only so much you can do with Salesforce, Workday or ServiceNow. You can do even less if you are outside the U.S.

It is a bit like the aviation sector. Southwest is one of my favorite airlines. I love it because it flies nonstop to over 30 cities from my home airport in Tampa, FL. But flights on its 737s average only two hours, and that cannot take me on global treks . If I lived in Germany, Singapore or Rio, it would be even less interesting because Southwest has chosen to stay focused on the North American market.

Partly because SAP’s competitors did not target it aggressively enough, and partly because its own cloud acquisitions and developed products afforded it a shield, the company has come through the threat of the last five years relatively unscathed. In fact, when you look at the mob of strong competitors that it had to fend off, it has done remarkably well. In those five years, SAP’s customer count has actually increased by 50%. Wall Street has not been as generous to SAP as it has to cloud vendors, but the existential threat that SAP faced has passed."

"My Deal Architect blog focuses on enterprise tech — so I could see what SAP, Oracle, Salesforce, Workday, etc. were doing. My New Florence blog, on the other hand, had a broader STEM focus and covered innovations in health tech, clean tech, consumer tech and other emerging markets. In 15 years, it has catalogued over 6,000 posts. It also gave me the ammunition to write a number of books that profiled hundreds of case studies. This contrast between the two blogs allowed me to see several trillion-dollar markets emerge — markets that SAP and its cohorts have mostly ignored. The following eight subsections will describe those missed opportunities:"

" The new rock stars were product designers like Jony Ive at Apple and Yves Behar at fuseproject. Contract manufacturers like Foxconn, Jabil and Flex and design firms like IDEO benefited from this massive new market. But SAP, Oracle or even Indian outsourcers? Not so much. In fact, based on the attractive design increasingly prevalent in consumer markets, enterprise vendors started to be scrutinized for their own poor UX. I have heard Mark Hurd, co-CEO of Oracle, quantify these trends in his presentations. He says consumer spend on technology has caught up to enterprise spend — annually about $1 trillion each — and is growing faster. Even more dramatically, over 80% of enterprise tech is spent on keeping the lights on, not innovation. In contrast, the consumer is getting almost pure innovation for her dollar. What Hurd does not point out is that because of Oracle or at his previous company, HP, or peers like IBM, software maintenance, EDS outsourcing and other charges have been large contributors to the enterprise tech stagnation. They have delivered nowhere near the price/ performance improvements or innovation that consumer tech has seen. It should be no wonder then that the tech the consumer gets at home on Sunday night or in her car is so much better than what she finds at work on Monday morning."

"CRM vendors are increasingly focused on the entire customer experience and CX is the new byword for this sector. And yet, most of these vendors (with exceptions like the Adobe Advertising Cloud and Salesforce’s Datorama acquisition) have missed out on some of the biggest budgets in the CX segment — digital advertising. In the last two decades, digital advertising has grown from near zero to over US$200 billion a year. Eons ago, digital advertising had already outrun print advertising. Now it has overtaken TV advertising. Marketers have moved to programmatic advertising, where machines, more than humans buy advertising. Google, Facebook and increasingly Amazon are the big beneficiaries of this shift in marketing dollars. With the massive growth in digital advertising, Accenture Interactive has aggressively acquired digital agencies, making it now the biggest agency in the world. It would be fair to say it is influencing CX trends as much, if not more, than the early- generation CRM software vendors did. Accenture Interactive has little in common with its traditional IT outsourcing brethren. Accenture’s IT outsourcing group does plenty with ERP and CRM software vendors. Interactive does fine on its own and includes as clients the chief marketing officers (CMOs) of over three-quarters of the Fortune 100. It does not need to chase after Salesforce or SAP."

"GE had talked about the “power of 1%”: 1% in fuel savings for aviation and utilities, 1% of productivity improvement in healthcare, 1% reduction in oil and gas cap-ex, etc. The payback they described was in the hundreds of billions. You hear similar claims from IT vendors, but somehow the tiny 1% factor made it much more believable.

GE has since had a meltdown over issues related to its capital and power business units. But the presentation I saw back in 2012 woke up executives in every industry to the power of listening to machines. And it has led to a batch of smaller vendors like C3 and Uptake as well as other industrial asset companies like Siemens and Schneider Electric that are helping companies realize that 1% payback."

" I hear similar comments from CIOs around the world: Facebook, Amazon and Microsoft — who expected them to be so innovative with data centers and networks? This was a technology infrastructure market where IBM, HP with EDS, Oracle with Sun and large telcos around the globe had dominated. They should have been leading this market in investment and innovation, but for years chose not to do so. Now they are play- ing catch-up, and others should give up as Blumberg suggests."

" Other enterprise vendors have similarly struggled to keep up with these industry changes. This has led to opportunities for new players. For example, the fintech sector is fragmented with many promising start-ups and offerings from large institu- tions like Goldman Sachs, but little from the major application vendors. In China, mobile apps like Ant Financial’s Alipay and Tencent’s WeChat now enable half-a-billion Chinese people to access a dizzying array of financial services to make payments, get loans, monitor investments and credit ratings, pay for taxis and book travel."

"Most enterprise vendors are now talking about AI and ML, but not automation on the shop floor, in logistics or in the oil patch. Also, if you peel their ML onion, you realize many are merely leveraging voice or image recognition technology from Amazon, Google or Microsoft. When you look at the massive amount of image and vocal-accent data their machines had to be trained on, you wonder where enterprise vendors will get their own training data, given that most of it is squirreled away in on-premise customer data centers. They have been creative with branding — Salesforce with Einstein, IBM with Watson and Infor with Coleman (as in Katherine Coleman Goble Johnson, the NASA mathematician profiled in the movie Hidden Figures) — but with limited enterprise impact. Indeed, when Salesforce and IBM announced Einstein and Watson would work together, IBM CEO Ginni Rometty chuckled in an interview with Fortune that “It’s good comedy.”"

" Most of these vendors have brilliant technology visionaries: SAP has Dr. Plattner; Oracle has Larry Ellison and Thomas Kurian (till he moved to Google); Salesforce has Parker Harris; Workday has Stan Swete. The list is long. However, they don’t have enough process visionaries who can dream up next-gen shop floors, emergency rooms or warehouses. So you see the industry continue to invest in infrastructure, platforms and tools."

" By 1820, Americans were well ahead in the race against other global powers like the British and Spanish in the effort to dominate the North American continent. Five years ago, it seemed improbable, but by 2020 SAP will have a similar opportunity to lead the enterprise technology “continent.” It is build- ing momentum, and has been going through massive changes."