deal architect

Plex: From shop floor to top floor

I was surrounded by high-tech. I flew into the Delta McNamara terminal in Detroit with its ExpressTram which uses air cushion levitation like a hovercraft. The terminal is connected by a passenger tunnel which celebrates LED art. I stayed at the Renaissance Center where GM shows off its latest auto technology. PowerPlex, the Plex user conference, was at the Cobo Center which also hosts the annual North American International Auto Show, which attracts a million visitors all using its wi-fi and watching exhibits which leverage AR/VR and AI. Barrie Vince, Plex's "Q" showed up on stage as a roving display, as if to wave goodbye to Sheldon at the end of the Big Bang Theory show. Plex customers like Seven Marine had brought props like their luxury boat engine rated at 627 horses. Partner booths were displaying scanners and sensors.

But what stood out for me this week was something analog and likely boring to many - a board with printed sheets of metrics. It was at the plant of a Plex customer, College Park Industries, a maker of prosthetics. Every technology vendor these days has "Digital Boardrooms" and dazzling analytics in their demos. But how many demo you those at their customer's facilities? And even more specifically at their shop floors or warehouses or emergency rooms being used by blue collar employees? And show operational metrics related to quality and logistics?

I have been lamenting that even after two decades of cloud applications, if you look at a grid by industry and country you can mostly find application coverage in financial, HCM and CRM processes and there mostly for N. America and English speaking world. Product design? Scrap management? Kiva robots in the warehouse? Not our problem, these vendors seem to think even as they claim "enterprise-wide" coverage.

Which is why I look forward to visits with Plex. Over the years they have taken us to tours of shop floors of customers like Fisher Dynamics, Trojan Battery and Sanders Chocolate each with unique manufacturing, packaging and other engineering challenges. They invite us to spend time with their Customer Advisory Board which represents an even wider range of industries and operational details. Jargon such as auto-release, LPN barcodes, pull efficiency and traceability is common.

While Plex tends to rely on its customers to take it overseas, it is common to hear about its global reach at its events. An exec from Stant talked to me this week about their plants in Czech Republic, China and S. Korea. On stage was Toyotetsu which supplies parts to a number of Japanese automakers.

While most events have inspirational speakers, Plex tends to bring in keynoters like Mike Rowe who talk about solving the perennial shortage of blue collar workers. At this conference, Dean Kamen, inspirational in his own way with his string of inventions including Segways and insulin pumps, talked about how he has helped transform Manchester, NH, a textile town couple of centuries ago into a modern day high-tech magnet. He talked about FIRST and getting young kids interested in robotics. Not just talk - action about closing the advanced manufacturing skills gap. 

 

Beyond the manufacturing focus, Jerry Foster, CTO presented on a machine learning project which, frankly, systems integrators should have long been working on. Most of them have industry templates with pre-defined configurations of systems parameters. The Plex project has analyzed such templates across its customer base and identified potentially newer ones that could benefit several of its implementations. Going forward, hopefully, such parameter configuration activity can be significantly automated and reduce dependence on consultants.

Of course it is not just manufacturing sectors which are looking for modern operational systems. Markets don't wait for ever and I have been researching startups, SIs, corporate buyers who are targeting various verticals.

Plex has new executives led by CEO Bill Berutti, with significant manufacturing experience at PTC. He did a nice job hosting this year's PowerPlex. While he is disciplined in executing to Plex's current path, I am hopeful he will allow me to periodically distract him. There are just too many operational application white spaces across industries and geographies to ignore.

The Oracle Enigma

Rimini Street recently conducted a survey of Oracle customers. Oracle and Rimini have long been in litigation, so I would read the results with a nuanced viewpoint, but it does not paint the picture of a very happy Oracle Nation.

As an analyst, I am particularly interested in products and competitive positioning.  One of the more intriguing sub-plots in my writing SAP Nation 3.0 was looking at why its competitors did not go for the jugular. 5 years ago, when I wrote the first volume, SAP's image suffered from the massive failures and writeoffs, it appeared distracted by HANA, its next-gen ERP, S/4 was immature. Customers were ring-fencing SAP, moving to third party maintenance and two-tier ERP. In many ways, SAP was on the ropes. 

As I say in the book

"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."

The competition is not just Oracle, but as the largest application competitor to SAP, I wondered why they did not have more momentum in the last five years. It's partly because the Oracle functional scope in the cloud does has not appear to have grown significantly. I wrote recently

"In October 2018, Oracle co-CEO Hurd predicted that 80% of business applications would be in the cloud by 2025....Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%. For Hurd’s prediction to prove accurate, it will take massive new investments in upgrading industry functionality."

Will Hurd's own products grow rapidly and get a lion share of his projected 80%? In January 2006, Oracle had confidently declared they were "Halfway to Fusion". 13 years later, Oracle still mostly talks finance, HCM and CRM. NetSuite, even after 20 years, has limited global coverage as Phil Wainewright points out here or industry coverage as I point out here."   

Beyond applications, I was excited about its autonomous database, but wondered why they had to bundle it with their IaaS. When it was introduced, I wrote this. I have also been puzzled why the Oracle IaaS had not focused on its and other on-premise customer bases. I wrote this 3 years ago.

I write this from SAP's Sapphire show. I spent yesterday at the ASUG (user  group) Executive Exchange. There was vigorous conversation on a wide range of topics, many like Indirect Access which makes SAP cringe. My schedule for the week shows small group settings with key executives. I attended a couple of sessions at the Partner summit. We got a sneak preview of the show floor even as the roadies were still setting up.  Jon Reed has polled several "Mentors" and influential developers in the SAP community. There is a definite openness to all this. The week prior Workday allowed us access to most of their product executives at their analyst summit. Next week Plex is taking us to (another) customer plant, and has several executive sessions for analysts as part of their user conference. More openness.

I have asked for Oracle for a similar, much more open analyst summit and have been told it's not likely to happen any time soon. May be it's just me with all these questions. But I suspect my analyst colleagues have other questions about the vibrancy of its database, its platforms and other products. We all want Oracle to be a strong competitor, but with so many questions, it would be nice to have much more open conversations.  In the meantime, I will have to rely on Oracle partners like OppSource to describe innovations as Mark Galloway does here.

Frankly, they can easily ignore us analysts. It's customers they need to focus on - the Rimini survey is a symptom of what they need to turn around. 

The Paradox of Selling Progress: a guest post by Mark Galloway

Mark Galloway and I go back to our respective Lawson and Gartner days. I caught up with him recently - he is Co-Founder & CEO of OppSource, developers of next-gen sales engagement tools. He told me of an interesting use case of his tools as he describes below.

After watching multiple waves of “transformative” technologies come and go in the enterprise over the past 30 years, none in my opinion have been as transformative as what we are seeing with the “Amazon effect”.  No, I am not talking about AWS or the cloud.  Rather, I am talking about the online consumer shopping experience that many of us interchangeably call “Amazon” regardless of whether we are actually shopping at Amazon or some other online retailer.  You ask, so what does Amazon have to do with transformation in the enterprise?  Let me tell you, a lot.  As consumers, we have taken our desired consumer experience for self-service and moment-of-interest engagement into every corner of the workplace.  The net result, we have created a new normal for a radically different B2B buying journey.  We don’t want to talk with salespeople until we absolutely have to, and in many cases, we don’t ever “have to”. 

On the other side of the commerce equation, sellers are having to quickly and radically change their sales coverage models to adapt to us modern buyers.  The days of press-fleshing sales calls are waning. The cost/per sales engagement for this traditional sales approach used with today’s modern buyer is no longer economically feasible.  As a result, companies everywhere in every industry are now grappling with how to transform their sales coverage models to grow more profitably. 

Many organizations have favored hiring young, smart, and high-energy “inside sellers” who come with almost no business, industry or product acumen.  Why hire on this profile?  Because they can force high velocity and high-volume outreach and engagement efforts on these young go-getters at a fraction of what they were paying their expensive, highly compensated field-based predecessors.  Yes, these new reps are sharp and yes, they are quick learners, but without any contextual understanding or experience, smart learning can only take them so far.  The paradox of progress for the modern buyer is that while they don’t want to talk with salespeople until they absolutely have to, when they do, they want to speak with someone who brings value and relevance to their unique buying situation.  The current hiring model for insides sales teams that many companies are using is out of alignment with the modern buyer’s sales experience expectations.

This is where artificial intelligence and machine learning can lend these young sales guns a hand.  Imagine as a young rep, being prompted with questions to ask, similar customer stories to tell, and appropriate product/solutions to position all while you are engaged real time with one of these modern buyers.  This is all being made possible by leveraging machine learning and AI to listen to conversations.  Using modern AI and machine learning models, sales reps can be provided these real-time prompts that will augment the missing business, industry, and product acumen that next generation sales reps will need. Working together, salesperson and machine will be able to satisfy the buyer’s expectations for a modern sales experience, one that comes as the highly personalized and relevant engagement they desire.

As an example, Lifetouch, the nation’s largest K-12 school photography studio used to rely on field sales people to drive around and call on schools in their local territory.  This model worked well in days gone by. However, the modern security measures employed by most schools today discourages unsolicited sales calls and in many cases are not even allowed.  Coupled with these security changes, today’s modern school administrator have enormous time constraints just keeping up with running their schools.  They simply don’t have time to meet spontaneously with sales people of any variety. These market changes required Lifetouch to rethink their sales coverage model. 

They chose to hire recent college grads as inside sellers who work collaboratively with strategically located field sales specialists.  Their job is to line up scheduled and qualified appointments with school principals and other picture day decision makers at schools.  But getting engaged with enough of these contacts to keep a field team of sales people busy with qualified meetings required a much higher volume and velocity of market outreach than what these inside sellers could do with just a phone and their CRM.  They needed a specialized system that provides touchplan automation, AI and machine learning to capture conversation data, and automatically setup callbacks, and appointments.  Working with our company and our OppSource Sales Engagement Platform, they saw the average revenue per rep driven by their inside sellers grow 4X over 24 months.  An incredible ROI by anyone’s standards.

This type of progress driven by AI and machine learning is coming quickly.  A recent McKinsey Institute study found that by 2020, as much as 80% of transactional sales related functions will be possible with Ai and machine learning. 

If your sales organization isn’t experimenting with AI and Machine learning to augment your evolving sales force, you may soon experience the paradox of progress.

You can reach Mark at mark DOT galloway AT oppsource DOT com

 

Workday: The Power of Focus

I kept thinking of Southwest Airlines while I was at the Workday Innovation Summit in CA this week. I had read this tribute to the legendary founder, Herb Kelleher on the flight over and it reminded me how revered he was - like Dave Duffield of Workday is in HCM circles.

Then, a walk down memory lane took me back a few decades. At business school, as part of the Corporate Strategy class, we had been assigned in groups of 3 to analyze a local company. We interviewed executives and then presented to top management about growth opportunities. I had drawn Southwest Airlines, then just a regional airline with under 5% of today's fleet and revenues.

I remember I got an A for the course, but I am pretty sure I flunked the presentation to the airline executives. They were brutal. One of our recommendations was that they set up a separate sub to service smaller cities and acquire commuter planes for those routes. Nope - we will not diversify from Boeing 737s, was the response. We also recommended they diversify to airports in Chicago and couple of other major cities. The response was along the lines of "No, too many union and weather issues".

They have stubbornly continued with the first principle. Since then, Southwest has become the largest and most experienced customer for successive generations of the 737 - gaining significant maintenance and training efficiencies from a homogeneous fleet. They have been more flexible about the second recommendation. Indeed, I felt vindicated when they started flying out of Chicago Midway in 1985 and have since blanketed most of the country. Southwest has become my preferred domestic airline especially since they offer me nonstop flights from my home airport to over 30 cities.

I saw the discipline again when in 2006 after a bad experience with Ryanair in Europe I sent Southwest executives a letter requesting them to expand internationally. Nope came the response - there is huge amount of growth left right here in the U.S. They have since started to fly to the Caribbean, Mexico and Central America, but the bulk of the revenues is still U.S.- centric.

What's been fascinating to watch is how Southwest's discipline has attracted relentless competitive attacks. There was the infamous Wright Amendment which hobbled Southwest for three decades from flying nonstop on longer routes from its home state.

In response to the success of Southwest and others like Jetblue, United tried a sub called  Ted, Delta tried Song and most airlines have since moved to offering "basic economy", highly restricted fares. In doing so, these major U.S. airlines have neglected vast chunks of global markets to the advantage of premium competitors like Emirates and Singapore Air.

Workday has shown similar discipline. Its "Power of One" strategy is like that of Southwest's commitment to the 737. No on-premise distractions. A slow diversification in the form of AWS support. Functionally, Workday has stayed focused on finance, planning and HCM.

And along with Salesforce it has similarly drawn inordinate attention from bigger competitors like SAP, Oracle and Infor. They have been chasing after accounting, HCM and CRM markets with their own acquisitions and organic products when they would have had much more traction in verticals or world geographies. As I write in my new book, we are seeing new competitors in the form of startups and even major (buyer) corporations developing products for "white spaces" in fintech and asset intensive industries that these vendors should have been focused on. Google, now with Kurian and Enslin, will likely emerge as another threat in some verticals and regions.

Can you be too focused? With Southwest you are seeing the potential risk of being dependent on the 737. The issues with the new MAX generation of the 737 are causing short term scheduling issues, but longer term if customer perceptions about safety persist they could hurt Southwest significantly. Its slow international expansion has allowed regional, cut- rate players like AirAsia and Easyjet to grow nicely across Asia and Europe.

Workday could have similar challenges. IDC is talking about "cloud repatriation" - a bit of backlash against the economics of public clouds. Let's face it, after 20 years of cloud apps, over a million SAP, Oracle, Microsoft, Unit4 and other on-premise customers have not migrated major chunks of their enterprise to the cloud.

During the summit this week I saw a somewhat superficial Workday focus on operational functionality and data. It talks about enterprise wide planning when it does not get invited to complex network planning, finite capacity or CPG assortment planning opportunities. I saw a narrow focus on automation when enterprises are trying out a wide array of telematics, wearables, robotics across the enterprise. Internationally, Workday has been slow to expand functionally or in local presence.  It has been lucky the competition has mostly tried to engage it in areas where it is strong, rather than "surround" it with operational and regional depth. That will not last for ever.  

The great news is like Southwest which has a distinctive, even quirky culture, Workday is building its own unique persona. It topped Fortune's Future 50 list this year while also cracking the Top 5 in the magazine's top places to work. It has been blazing a trail with a decade of analyst summits, when some competitors shrink away from them. CEO Aneel Bhusri promised even more openness and communication.

There is so much to like at Workday. I do want to see them continue to evolve and expand. Correction - their customers want to see them evolve and expand. And those million on-prem customers continue to wait for a compelling reason to migrate.

 

 

 

ERP: Moving Fast and Yet So Slow

A guest post from Ton Dobbe, Chief Inspiration Officer, Value Inspiration

"Every week I interview entrepreneurs and experts from around the world to share their big idea about new forms of value creation and the potential we can unlock when technology augments the unique strengths of people to deliver remarkable impact.

I got inspired by the release of the book SAP Nation 3.0, hence I invited its author, Vinnie Mirchandani to my podcast. We explored the changes in the ERP landscape over the last 5 years, in particular amongst the big 3 – SAP, Oracle and Workday. We also explored why after 20 years of ERP in the cloud today there’s still not enough traction.

The thing that triggered me most from my interview with Vinnie : "Cloud ERP has been around for 20 years now. But after 20 years, both the customers and the vendors are just not moving quick enough. Something's not right."

Vinnie’s conclusion is so true. If you compare the transformation in the ERP industry with other enterprise software categories, it’s transforming fast, but too slow. He outlined a range of reasons for that:

1)         Lack of functional coverage: ‘If you plot functional coverage by global world region, by industry, by business process only about 20% is filled. So after +20 years, the vendor community hasn’t delivered enough.’

2)         Not enough shift in value: ‘Data is one of the biggest selling points of cloud, you know, we are gathering a lot of data. That should allow us to do some really unique things that we couldn't do before. That’s simply not happening yet’

3)        The partner community is holding things up: ‘Partners are selling mostly private cloud or on-premise solutions. Partners want to continue to do what they always did: implementations, upgrades, application management.’

4)         Buyer fear. ‘The memory of the last implementation is still holding back a large number of buyers. Many of them just customized the heck out of their old ERP system and they're worried that they will lose the customizations if the functionality in the new product isn’t rich enough.’

So, it’s a chicken and egg dilemma that’s needs a breakthrough. And the breakthrough won’t come from continuing to move traditional solutions to the cloud to continue to do their traditional thing. From my perspective, there’s a large-scale opportunity in the market for any of the vendors – established or new – to shake things up but taking a fresh perspective on ERP.

We discussed a number of opportunities to unlock the status quo, here’s a summary:

1)         ‘Don't just modernize the technology, modernize the business processes.’

2)         Verticalize – what is wrong with offering claims processing or retail merchandising, or insurance billing, or utility asset management and so on. Those industries are screaming for cloud and in memory solutions for that.

3)         Get systems integrators to apply machine learning and automation to their own business. It's amazing how many systems integrators still sell bodies, when over the last 30 years they've done millions of ERP projects and millions of CRM projects. Why aren't we training machines to do configuration. Why aren't we doing automated data conversion.

In all three examples it’s data that’s the magic ingredient to unlock a large-scale and untapped opportunity to create a shift in value. As Vinnie quoted: ‘Up to now a lot of the machine learning that is showing up in the ERP space has come from the work vendors like Amazon and Google have done with image recognition, and voice recognition and so on. To me, the big, big, big payback will come when we can take enterprise data. Our own productivity, our process productivity needs to dramatically improve. It's not about it's not about replacing humans; it's making them into super workers. ‘

Listen to our interview about the evolution of the ERP space, and the large scale opportunity this leaves to creates shifts in value in a world that’s progressing, but not quite fast enough."

Drama in enterprise computing

Ray Lane, a top-notch tech executive and investor over decades, said this about my new book

"Don't be fooled by the title—the book is not just about SAP. It's about drama in enterprise computing."

I then used "drama" in the title of my recent ZDNet guest column.

Drama? That's what you get in Augusta in April. Isn't enterprise tech boring and glacially slow?

You be the judge.

My book catalogs the product launch machine SAP has become and the fact that its customer base has grown 50% in the last five years. It was on the ropes, the competition could have delivered a knockout punch but it has bounced back impressively. 

Of course,  SAP is also generating a lot of interest and emotion with its recent layoffs and executive moves. From an investor point of view, CEO Bill McDermott has created excitement by promising to double its market cap in four years

Marc Benioff of Salesforce told Jim Cramer of CNBC a few weeks ago " I see $30 billion right around the corner. In fact, we initiated a 4-year guidance today, Jim, of $26 [billion] to $28 billion."

How can that not make your heart beat faster?

Last week, in his coming-out party since he joined Google several months ago, Thomas Kurian made quite an impression.

Also last week, at a SAP Analytics event, mostly under NDA, I expected to hear plenty about coopetition with Google, Oracle and IBM. Instead I kept hearing about Microsoft with its Power BI, Surface, Azure ML, Office 365 and other products.

Oracle and IBM were similarly snubbed by the DoD as it shortlisted vendors for its $ 10 billion JEDI cloud contract. One contract should not mean that much but the twists and protests in that one certainly count as drama.

When a case ends up at the Supreme Court of the US, it usually makes for some some oohs and aahs. When all 9 justices vote unanimously on something, it certainly perks you up. That's what recently happened to Oracle in its long running litigation with Rimini Street.

One of the nice things about the Amazon Kindle is a feature called "Popular Highlights". Amazon combines the highlights marked by all Kindle customers and identifies the passages with the most highlights. For my book, this statement by Mark Hurd has already qualified for that honor. "In October 2018, Oracle co-CEO Hurd predicted that 80% of business applications would be in the cloud by 2025."

That para goes on to say "Today, even after two decades of cloud computing, industry and geographic coverage is spotty — by my estimate, less than 20%. For Hurd’s prediction to prove accurate, it will take massive new investments in upgrading industry functionality." Will Hurd's own products grow rapidly and get a lion share of his projected 80%? In January 2006, Oracle had confidently declared they were "Halfway to Fusion". 13 years later, Oracle still mostly talks finance, HCM and CRM. NetSuite, even after 20 years, has limited global coverage as Phil Wainewright points out here or industry coverage as I point out here.   

In the meantime, in China, Kai-Fu Lee, who has been called the “Oracle of AI” has funded nearly 150 AI start-ups. At Davos earlier this year, the theme was Globalization 4.0 which shows that Industrie 4.0/IoT concepts are spreading worldwide. Holger Mueller of Constellation opines about platforms "Why Open Source has won and will keep … winning.”

Augusta generates drama for 4 days. Enterprise tech takes a bit longer. But it has its share of comebacks and black horses. I will have a front row seat as I start planning for SAP Nation 4.0.

Or may be it will be titled Oracle Nation 1.0 or Workday Nation 1.0. That right there is plenty of drama.

SuiteWorld Redux

Oracle sent me the video of the product session at SuiteWorld which could not be webcast live when I wrote the post Unfair to NetSuite?

Of the 7 webcast keynotes I watched at Oracle MBX/MCX and at SuiteWorld this was the most relevant to me as an analyst. Gary Wiessinger,  EVP Products did a nice job covering a wide range of product topics.

Here are some thoughts after watching this session

- Oracle has a nice early testbed for its OCI and autonomous database. 3 years from now NetSuite will look unique in a market where most other application vendors are being platformed on Amazon, Microsoft, Google, Alibaba and other clouds. Time will tell whether that flavor of "unique" is something to celebrate.

- Oracle is also helping NetSuite become more global. However, I found the global metrics NetSuite shared a bit confusing. At last year's SuiteWorld they said they had users in 199 countries, this year is was up to 212 countries. Their web site still says 110 countries. Much more important is how many countries they support with functionality, languages and local presence. They said they added 21 new countries with local functionality. Their web site says they support 20 languages. All good progress but would be nice to see how many two-tier implementations they have sold with Oracle apps at HQ. How deep is the local functionality - most countries have provinces,  unique nuances.

- Where Oracle does not appear to be helping NetSuite is in verticalization. I saw a slide from SuiteWorld which showed NetSuite supporting 7 verticals - Retail, Wholesale Distribution, Manufacturing, Software, Services, Agencies and Nonpofits. At the last SuiteWorld, Paul Farrell shared with me they were moving into micro-verticals. What Gary showed this year went the other way. They would qualify as two "macro-verticals" - Products and Services. At that level of abstraction, the functionality is largely horizontal. To me, commitment to verticals means showing 2-3 unique operational systems of record in an industry - claims processing in insurance, clinical systems in healthcare etc. -  not just a couple of features.

One thing I definitely appreciated - even though it was a bit corny, the beginning of the session had a nice tribute to founder Evan Goldberg, one of the original cloud pioneers who continues to be a nice, approachable executive.

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:)

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.