Confessions of a Successful Entrepreneur: Dan Rodrigues

The other night I was asked by a colleague who had a question from a reporter at INC Magazine what are some success tips for entrepreneurs and additionally what are some tips when you run into trouble.   I have written about tips for budding entrepreneurs in my blog on The Business of Business in the past and have written on behalf of the TechCoastAngels as well.

Serendipitously, the day after I wrote my comments to the reporter, I had the opportunity to listen to an interview by Andrew Bermudez of Digsy (www.getdigsy.com, www.meetup.com/OCfounders), of Dan Rodrigues, CEO and founder of Kareo (www.kareo.com).   Dan’s company, Kareo, has raised more than $100 million and is the fastest and largest growing company in Orange County, CA.  His company provides a cloud-based platform for independent medical practices and currently has more than 35000 providers served by more than 500 employees.

I want to share Dan’s perspective on how he grew his company and the road he had to travel.  Let’s lay out the journey in three chapters: Genesis and Euphoria; Reality of Funding and Growth: and the Path to Success.   And in each chapter there are lessons to be learned and tips for the entrepreneur.

Genesis and Euphoria

After Dan sold his first company, Scour, he started a software development consulting business.  During this time, he worked on a project for a client in the healthcare space. Through this project, he learned about healthcare IT.  Yet he also applied his knowledge of the consumer, gained from his stints at Vizeo and Real Networks, to the business.   He took the knowledge and the project and built the beginnings of Kareo and the first customer was the company for whom the original project was designed.

Lessons  learned:

1. An inquisitive mind can yield interesting insights into new ideas. In this case, Dan used an inductive process to define the requirement to serve one customer and used that platform as a base of expansion to other similarly situated companies.  Entrepreneurs can take a custom project and move it to a generalized solution which might give you an immediate customer base.
2. Integrate different perspectives to develop your business. Dan leveraged his prior experience in a different market space and was able to apply that knowledge to make Kareo different than other software companies in the same space. In a later chapter, Dan directed Kareo to be an online provider of SaaS services to this market.
3. Build relationships as they will be valuable for funding as well as support and resources. Dan was able to use past relationships built over time to get to VCs on Sand Hill Road and High Net Worth individuals to help provide the initial funding.

Reality of Funding and Growth

Initially, Dan bootstrapped Kareo and now with some funding and the opportunity to gain more, the business seemed off to a solid start. And while you might read about Dan’s story thinking that it was all wine and roses, the truth is that Dan had some tough days early on with Kareo. In 2008, Dan received a difficult call from an investor who was unable to deliver a promised next round of funding. With no time to find another investor and significant bills to pay, Dan made a very tough decision. He reduced the company from 35 employees to 7, and found a new path for Kareo. During the entire year after, Dan did not take a salary as CEO so that others could be paid.  The goal was now survival and the focus was getting customers, reducing product expenditures, and finding more efficient ways to support existing customers to reduce cash burn.

Lessons Learned:

1. Never take anything for granted. An investor can change his mind and funding may no longer a certainty.  The business environment might change too and entrepreneurs need to be fast, fluid, and flexible.
2. Spend wisely and carefully. Kareo built a company and moved into expensive office space.  How many of the readers can relate to the euphoria of getting funded and spending lavishly with those funds?  I know I have been in companies that did not spend wisely and had to retrench.
3. Learn the way to manage the business in the most efficient manner.
   1. Develop good solid cash management and make that a core competency
   2. Build a support infrastructure in synch with the services your company provides and find ways, at least initially for minimizing spending on infrastructure. Try to build a solid online help solution, provide excellent documentation, a good knowledge base.  But also have an additional second layer of support if needed.  Train people to do double duty.
4. Learn to sell online. Other software in the healthcare market was sold through VARS.  Selling online gave Kareo an edge and reduced the cost of acquisition.

Path to Success

With revenue ramping to $3 million, and cash flow positive, Kareo was on the path to success.  During this phase, the goal was to grow the business through disciplined growth using the lessons learned during the prior chapter.   Over time, Kareo started adding back employees, expanding its product set, and increasing sales.

Lessons Learned:

1. Maintain the discipline of cash management. Remember the lessons from when growth and cash flow were hard to come by.
2. Define metrics for success. Share these metrics with your team and manage them religiously. Metrics used by Kareo included cost/customer, payback on margin, return on cost of customer acquisition, churn rate, and lifetime value of a customer.  Note: these are very similar to other SaaS and technical service companies that use subscription services as their business model.
3. Hire the right talent. It is difficult in some ways for a small company to recruit good technical talent in Orange County vs. in San Jose.  There is frankly more talent there by virtue of the number of companies in the tech space.  Don’t let that be a daunting task.  Dan created a culture in Kareo and a solid reputation of being a progressive company which attracted talented individuals.  On the flip side, retention might be easier in OC and probably is for Kareo given their culture, the fact that the smaller company can provide a solid platform for growth of its employees, and Dan’s vision and leadership style.

According to Dan, when the company had fewer than 50 people it was easy to attract a great talent pool because of the excitement.  When the company had between 50-200 people, Kareo started to compete for talent as employees looked for other exciting opportunities or felt they had the ability to move out on their own.  After growth to 200 employees, Kareo had established its reputation and talented individuals wanted to work there.

Lessons learned:

1. Recruit a top level executive team. Building the team is critical to any company and is especially true for start-ups and growing companies.  Some of the executives were recruited from outside of Orange County and complemented those from the OC.
2. Find leaders who know others and can attract talent and capital. This makes it easier to sustain growth.
3. Change the culture with changes in the business. Dan indicated that culture changes at different stages of growth.  When you have between 1-10 people you are in survival mode.  As his company grew, it felt more like a family.  At a certain point as additional employees were on-boarded and new geographic locations were opened, the culture changed because not everyone knew each other nor worked with each other on continual basis.
4. The company is a platform for growth for its employees. Reinforce and support educating employees, building their skills, and adding to an employee’s competencies.  I know many executives who don’t want to invest in employees because they are fearful of losing them to competitors.   I personally believe Dan’s approach is the better one and creates a culture and brand that ensures talent will stay with Kareo.

Dan was asked what he would do differently if he could do it over again.   After reflecting Dan accepted that there were mistakes and missed opportunities.  So let’s frame them.

Additional tips and lessons:

1. Build a business first and a product second. This means don’t normally chase individual customer requests and spend money on unique features and services for different customers.
2. You need to keep the lights on even if the product stands still for a while.
   1. Under invest in the product and invest in the business side. From my viewpoint, this is a difficult lesson for many engineer-founders.  Therefore make sure you have a good solid business partner as the ying to your yang.
3. Companies need to be agile and reorganize at transition points and at changing stages of growth.
4. Companies need the right advisors and investors. While the CEO is focused on growth and getting the product into the market, advisors and investors have the opportunity to look forward and may see minefields ahead.  The CEO needs to heed them.

On behalf of TechCoastAngels, Andrew Bermudez, and Dan Rodrigues, I trust you find this blog and its contents useful for entrepreneurs in their own quest for success.  Please share and forward to others.

Let’s work together to build a strong entrepreneurial eco-system in Orange County.   And if you want to talk further feel free to contact me at dfriedman@clevelpartners.net.  Hope to see you at our March 10 event on celebrating entrepreneurship at the Segerstrom (www.techcoastangelscelebration.com.)

Lessons from THE INTERN

The INTERN

I don’t normally do movie reviews; in fact, I have never done them and this won’t be the traditional movie review.   However, I wanted to write something about a movie I saw Saturday nite called The Intern, with Robert Di Niro cast as a 70 year old retired executive who took up the role of an intern to a young female CEO of an e-commerce start-up.

I enjoyed this movie for several reasons.  First, it takes place in the Park Slope area of Brooklyn, NY, not too far from where I grew up.  I resonate with things New York City.  Second, the context of the movie is an e-commerce start-up run by a young 30s woman who founded the company and is the CEO.  I can relate to that because I am an angel investor with TechCoastAngels and I have heard pitches from similarly situated women (and men) and have been a coach and mentor to these types of companies and even worked for a few of these companies.  Third, The Intern is a senior citizen and is recruited to the firm when they thought that hiring senior interns was the right thing to do.  I can relate to that character as a former executive and on the “wrong” side of 50.  Di Niro feels he can have fun in the job and has the passion and energy to help out.   I can relate to that as well.

Other than relating to the movie, the location, and the characters, I found a few take-aways from a business perspective.

1. Everyone should find their passion. Age is not an issue for sharing passion, having energy, or smarts.  Witness Warren Buffet and Charlie Munger, or Sam Walton when he was driving around in his F-150 visiting stores in person across the country, or Arthur Blank, or countless others who have a vision and desire to make a difference.
2. It is hard to manage two families- a business family and a home family. Startups are like children and need to be nourished. It is tiring and taxing to manage the business and the people at work, and then go home to switch gears and be a husband or wife or parent.
3. Leaders have to learn to delegate and not take on everything themselves. In the movie, Anne Hathaway, the founder/CEO tried to do everything herself and that caused part of the stress and almost caused her to lose her company and her family. A few months ago, I wrote a blog on two words that can help an entrepreneur (or other businessperson) achieve success.  Those two words are FOCUS and PODFU.  The CEO needs to focus on what is important and then plan, organize, delegate, and follow-up (that’s the PODFU) to ensure things are on target.
4. Age is a state of mind to a large degree. I have seen young executives who have no vision nor energy nor the passion and drive to succeed. I have seen young executives who don’t fit the culture of a company whereas some of the “middle-people” felt right at home.  And interestingly, I have seen a senior generation fit in to a younger culture because each group was willing to learn and listen.  Why?  It’s what you bring to the table.
5. Context and experience cannot be taught but can be applied. In The Intern, years of management experience by Di Niro’s character proved helpful.  And so did his affable, approachable and helpful nature.   He even taught the younger generation what it meant to be a gentleman. Remember your handkerchief.  As Di Niro said in the movie, he is everyone’s “uncle” yet his expertise from his prior career coupled with his character helped the young CEO cope with the stresses of her business and family.

I enjoyed The Intern as a good way to spend a couple of hours and highly recommend it. It probably had more meaning to me given the premise of the movie, where it took place, and the start-up environment.  Rotten Tomatoes gave it a 59.   I gave it nine pizza slices out of a possible 10.

Let me know what you think and feel free to write to me at dfriedman@prodigy.net or at dfriedman@clevelpartners.net.

The 7 Attributes of a Highly Successful Start-up CEO.

I met Kirsten Mangers several years ago after she successfully sold her startup, Webvisible.   And over the years I have gained a strong appreciation for her abilities and most important, her style.   Kirsten is the founder of ChickLabs, an incubator that focuses on helping primarily women entrepreneurs.  She is also the CEO of Immunogum, a start-up in Newport, CA and one in which TechCoastAngels invested.

I was invited to a meeting at an entrepreneurial office called the VINE which is off the UC Irvine campus because I am an angel investor with TCA and one who works with startup CEOS in my consulting practice.   The key- and only- speaker, though, was Kirsten and she shared her thoughts on what makes a successful start-up CEO with a large cadre of young aspiring entrepreneurs.

I thought I would share some of those thoughts with my readers.  Clearly, the CEO is THE most important role in a company.  She is the quarterback of the business.  I want to point out, as well, that angel investors are looking at the CEO, his/her characteristics, trustworthiness, and credibility as a critical and sometimes the most important decision factor in making an investment.

Here are Kirsten’s Magnificent Seven attributes and roles for an entrepreneurial CEO.

1. Chief sales person. Selling is required whether it is for sales of the company’s products or selling the business idea to investors. Pure and simple, it is the number one attribute.  If a CEO cannot get comfortable selling then he/she needs to find a strong complement or a replacement CEO.
2. Culture Maven. The culture of a company attracts and retains great people.   Think about the culture of Google or Apple and you get somewhat different impressions.   But culture will help you succeed and be one of the differentiators to also-rans.
3. Chief Strategist. As Louis Carroll said in Alice and Wonderland:  “if you don’t know where you are going, any road will take you there.”  CEOs need to set the direction and if necessary make the decisions to pivot the company.  Early startups will go through false starts and pivoting will be essential.
4. Teacher, tutor, and mentor. Kirsten claimed to be a whiteboard fanatic.  Where there is a whiteboard, she could share ideas and interact with the staff on a regular basis and even get others to critique, comment, and debate those ideas.   This goes along with the concept that the CEO needs to be a visible leader and wander about with the team.
5. You have to challenge yourself and others even with ideas that seem outrageous.   Why?  You stay fresh and there may be a kernel of insight into the new idea or someone else may see another path to success buried in that idea. Someone may say: that’s crazy but what if we did this?  Challenging prevailing wisdom and valuing the diversity of though among people is critical to engage your team.
6. Chief Reporter and Scribe. This is the issue of transparency.   The CEO of a start-up needs to create an environment where everyone on the team feels that they understand and can contribute to the business’s success.   With normally smallish teams and fewer people, such discussions keep the team engaged and motivated.  I have personally witnessed employees banding together to find solutions to seemingly unsolvable problems.
7. Chief Recruiter. To be successful, a strong team needs to be assembled and nurtured.  As Kirsten said, it all starts with people and finding the best people is the biggest challenge.  When she interviews someone, she has asked some interesting questions to probe the character, drive, and attitudes of the recruit.   One question I like is: if you were on a three hour flight and could sit next to one person, who would that person be and why?   From this answer you can determine motivation and quest for learning, both of which are critical in a start-up

These sage words of wisdom from Kirsten will help the aspiring entrepreneur be successful and potentially be as successful as Kirsten.

Let me know your thoughts.

david

Successful Management in Two Words.

Rudyard Kipling in his poem, “IF,” (see http://www.poetryfoundation.org/poem/1757720) said:  “If you can keep you head about you while all about you are losing theirs…… then you will be a Man, my son!”

I was talking with one of my mentees today regarding his question of how to stay on top of projects and tasks and making sure he doesn’t get overwhelmed, i.e. keeping his head about himself.  Clearly there is a relationship and an opportunity to quote Kipling.  My mentee is a student who is working with a team to develop a new product/service and is doing this through the Center for Entrepreneurship at Chapman University where I am a lead mentor.    Since I have many more years of experience, I shared some of my learnings and some of the tools I have used and developed.

I was taught in my early career about good management by a disciple of the late Harold Geneen who was the architect of the rise of ITT Corporation as a successful conglomerate. Over time, I developed my own spin and teach this and consult with others who want a simple powerful system to implement.  The basic principle is simply stated in two words:  FOCUS and PODFU.

Focus is pretty simple.  Make sure you know the two or three most important things to do.  Simple to say yet sometimes hard to do.   In fact, as an executive you should be even more myopic and focus on the ONE key thing that needs to get done.  When that is complete move on to the next item.   The reality is that you cannot get overwhelmed by trying to tackle too many tasks at one time.  This also entails discipline and priority setting.

Second, as a young entrepreneur, my mentee is working with other young entrepreneurs and has to learn leadership and management.  Leadership means that he needs to convey his vision and excite the team so they can be engaged and successful. Management means the ability to ensure what needs to get done, gets done and gets done on time.  And this is where PODFU comes in. The acronym is Plan, Organize, Delegate, and Follow-up. It sounds so simple yet is also surprising how many fail at this.

I suggested a few tools that he can use in his regularly scheduled project meetings.  This tool can be repurposed for operational and dashboard reviews as well. The tool is shown in the following Excel spreadsheet with the listed columns.

In the example there are four main objectives and supporting tasks to be completed by a variety of people.  In this case my mentee is trying to get a new product/service into the market and this template displays the format and the kinds of activities he and his team might undertake.  (Note:  this is notational only and not representative of his project.)  There is clarity in the metrics to determine if the milestone/task was complete, a time period, a person accountable (if you use the RACI system, the is the “A” in RACI), and a color chart indicating if the task is on target (GREEN), potentially may miss date (YELLOW), or will miss or has missed the due date (RED.)

In each meeting, those tasks due at the meeting date and ones that are due at the next meeting date are discussed. If the task is “green” then there is little reason to discuss it unless there is something that must be brought to the attention of the team.  If the task is yellow, the comments should summarize what will be done to get back on target.  If the task is red, the discussion might go deeper- we call this a deep dive- to see how we can complete the task and if the completion affects other tasks, how might the team get back on schedule.

Of course, there is more to managing and leadership than just a chart.  Yet this template presents a very powerful way to manage using only these two words:   FOCUS and PODFU.  This system can help managers be successful.

If you or your company wants to explore how this tool can be adapted to your unique needs, please contact me at dfriedman@prodigy.net, visit my LinkedIn profile at www.linkedin.com/in/davidfriedman, or call me at 949 439-4503.

What Can You Do to Make a Difference in 90 Days?

As an advisor to executives that recently were promoted, I have been asked how to get off to a good start in the new job.  This new job can be within the existing or for an entirely new company.  I am sure many of you faced the same questions as you progressed in your careers and many of you who are currently in job search mode have been asked during interviews by company executives about your short term plan to achieve success.  The plan can also be used as a “restart” plan where either the strategy of the organization has changed, the competitors have changed, or the management and vision has changed.   It gives an executive an opportunity to pause and rethink of the best path forward.  One of my favorite pictorials is the following and this blog will address how not to be confused.

I want to share with you some thoughts and a high level template that can be used to develop your plan.   Additionally, I would like to suggest a book by Thomas Neff and James Citrin called “You’re in Charge- Now What?” as a nice complement to this blog.  Neff and Citrin are recruiters with Spencer Stuart and their book focuses on an 8 point plan for the most senior executives.  But their plan can be adapted to executives at any level.

Why a 90 day plan?  In 90 days, the new executive should have enough time to understand the new environment in which he or she operates and begin the process of executing a plan to makes changes.  Most companies have a relatively short term view and public companies report on a quarterly basis.  This plan can dovetail with the reporting systems and be used to tell the market (or customers or partners) that there is change coming.   And within this 90 day period, I believe that an executive can always find one or several different areas that can be improved and that can affect the top or bottom line of a company… or at least move in that right direction.

Let’s focus on a newly appointed executive in a new or expanded role.     While the specifics may change based on the individual executive, the type of company, and where on the growth curve that company lies, the following principles and templates can be used and modified.  The executive needs to detail the major proposed activities to be accomplished in the first 90 days, the major tasks and accompanying rationale;   Information required , tied to each task, and the rough timing and budget to perform the task.

The objectives of a 90 day plan are to:

• Learn about the strategic initiatives, culture, customers, and suppliers to the company.
• Build strong relationships with peer group within the company and with customers
• Build trust among the team (executives, peers, and employees)
• Set a strategic and tactical plan in motion.
• Design a plan for future growth and profitability, cost efficiencies, manufacturing excellence, better customer support, better margin growth or other functional attributes.
  • Determine ways to drive the organization to realize its full potential through existing programs– benchmarking and process management, execution
  • Develop ways to grow the future business significantly through new products or expansion of our eco-system of suppliers and partners
• Communicate the plan and the expectations to the constituents and  execute to the plan

The template to do this is as follows and specific activities, some of which are outlined below- are shown.

Discovery:

Discovery is the most critical in my opinion as it sets the stage for the agenda and the tactical plan.   Included in discovery are the following elements:

• Review general company, industry, competitor, customer, supplier material
• Establish productive relationship with my boss
• Face to face meetings with your team, top customers, sales/field VPs, other stakeholders to build trust and “seek to understand”

> Determine biggest challenges and opportunities

> Hot button issues (things that I call landmines which if not immediately acted upon                   can derail your success.)

• Establish relationship with peer group: lunch, attend their staff meetings
• Set expectations and convey those expectations to your team and other constituents.

I have always found that a written “discovery” document works wonders to get people on the same page and to ferret out where differences might lie.

Set the Agenda.

To set the agenda, there are two parts: drive to full potential and planning for the future.   The agenda is based on your specific objectives, the company strategy and the ability to start getting some meaningful results.   For a marketing person who is trying to bring their team to realize its full potential the agenda might include quick wins on revenue generation, or the execution of a product introduction plan or even defining a more cogent business or marketing strategy.  For a COO, the plan might include quick wins on operational efficiency, curing issues that customers deem important and where the company has failings.  In either case, part of driving to full potential is an analysis of the team and a plan for improving skills and changing or adding appropriate team members

In some companies, and for some positions, the focus is on growth.  Planning for the future might include things such as redefining growth objectives or planning for new customers or new applications or new eco-system partners or forming new strategic, operating, marketing and sales plans.

Execute the Plan.

The final –part of the plan is to communicate and execute the plan to perfection.   Focus on three or four major objectives at the most.   The key issue for success for the executive is FOCUS- focus on those areas most important and that will have the greatest effect. Once you gain credibility you will have the chance to do more.  Regardless of the specific tasks and the plan to execute, make sure you have a clear battle rhythm i.e. how you will manage your function or the business unit and memorialize that in a clear operational dashboard which can be shared.

Flexibility is key during the transition period and will change based on “discovery,” input from the board, executive bosses, peers, team, customers, and suppliers.  However, it is a roadmap that will put you on a path to success.

Glad to get your take on the plan.

Customer Jujitsu: Leveraging Customer Needs for Strategic Imperatives

I am a New York Yankees fan and grew up with Mickey Mantle, Whitey Ford, and the incomparable Yogi Berra.  Now, many people think that Yogi is known for his Aflac commercials, yet many don’t recognize that he is the holder of the record for a player who won the most World Series (10) and who has the most hits (71).  Yogi is also famous for his statements of the obvious.  The one that strikes a business cord is depicted in the following diagram.  Yogi said, “if you see a fork in the road, take it!!”

Another business person very conscious of the competitive environment sees what the competitor offers and chases after solutions to outdo the competition.   After all, if a company can outdo the competition on items such as features, benefits, and technology, wouldn’t that company achieve share gains?   Maybe, although features and benefits and even pricing by themselves will not necessarily win customers or their loyalty.Normally, a business executive sets strategies in one of three directions, or combinations of the three.  These degrees of freedom include: competitor, competencies of the company, and customers.    Unfortunately, many business people, especially those who are driven by sales, “pivot” or change direction so rapidly as if they are taking Yogi’s advice literally.    It is not always advantageous to do so.  A new technology based on what R&D has discovered may be immediately thought of as the way to certain riches.  Remember that the greatest inventions have created some of the largest companies with rewards reaped by the business and executives.

A third, however, thinks about the customer and satisfying his/her needs.  This is a customer intimate or customer focused philosophy and if done right is the essence  of customer Jujitsu.   It may not work all the time for various reasons, yet I believe that there is a higher probability of success in sustaining profitable revenue growth by leveraging the knowledge and preference of the customers.   You engender trust and build relationships and isn’t that the fundamental platform of good business?

Over time, in these newsletters and blogs we will cover various aspects of technology and competition and how we can grow profitable revenue through each of these elements separately or in combination.   It all starts with the customer, however, and we want to share some tools to understand the customers’ needs and drivers which can be leveraged for developing strategic initiatives as well as tactical plans.   We call this attribute, Customer Jujitsu, because you, the business person, can leverage the understanding of the customers to refine and augment your business strategy.  It seems simple but the tools and discipline needed are keys to success.

Here are some of the tools ranging from simple to more complex.

1. Pulse surveys. Normally for the B2B market, these are simple questions asked of the customer on a regular basis to find out how things are going?   This is different from a sales call and the agenda is strictly to understand how well your company is doing in various areas to help the customer succeed.  It results in building better communications and trust.  If you ask enough customers, you can get a good perspective on how well your company is doing.
2. Bounce back cards/online surveys/follow-up calls. These are effective in understanding a specific transaction.   Through the data you gather, you can discern trends and issues that might arise.   You might be able to notice a trend but generally this information is not used to set the strategic agenda for the company.  As we say, it is necessary information but not sufficient.
3. Customer surveys via tools such as Survey Monkey. This is a great, simple on-line tool and very inexpensive (or free) to ask questions to customers on a sampled and regular basis.  There is a wide variety of questions that can be posed and the output can be graphically displayed.  If the surveys are performed, say quarterly, companies can see trends in certain areas.  Those negative trends can be corrected via functional or business strategies and those positive trends can be highlighted in marketing and business material.
4. Mystery shopping. This can be performed for both business companies but normally performed for consumer oriented companies.   Either a third party or the marketing department performs mystery shopping, acting as a real customer in buying your products.  These mystery shoppers can “shop” your stores (online or brick and mortar), your customer service, and operations departments to find out problem areas vs. your own standards or vs. the competition.
5. Customer Satisfaction Studies. This is probably the most complicated way to get information from customers and it takes time to set up the right questions as part of a continual program.  Yet the information obtained is very valuable.  If done correctly, the business person can get a feel for items that are IMPORTANT to a customer as well as how well the company has PERFORMED.  Those areas in which the company has performed well and are important to the customer can be leveraged as part of the company’s brand.  Those areas which are important to the customer yet performance has been lacking, form the basis of a strategic initiative for the company.

Having gathered the information is part of the equation as they say.  The information must be shared and discussed – particularly at the executive ranks – to see if there is something missing in your strategy, your development work, your distribution, customer service, training, price plans, logistics and similar items.   The ultimate goals are twofold:  First, and most importantly, to find out the temperature of the customer (i.e. customer satisfaction), and whether the customer will buy your products or services again and whether the customer will refer you to a colleague or business acquaintance (the ultimate question).  Second, if customer satisfaction isn’t where management believes it should be and the company is underperforming in areas important to the customer,  then management’s responsibility is to determine what is required to improve satisfaction – and the most cost-effective means of getting there.  This could include the development of new products, or process improvements and even the potential for partnerships, mergers or acquisitions.

Good CMO. Bad CMO.

In CMO.com in August there was an interview with Wharton’s Dr. David Reibstein.  The question addressed was:

Why are some CMOs losing ground when it comes to playing a significant role in setting firm strategy? At a more basic level, why are CMOs even excluded from the strategic discussions to begin with?

The ARTICLE HIGHLIGHTS the following three points.

• “Marketers may be able to talk about awareness, trial, or loyalty, but they are generally unable to connect these metrics to financial statements.”
• “Conceptually, marketers should be included in the firm’s strategic discussions.”
• “Marketing…can step forward and lead the effort to create measures for key firm assets, such as brand value and customer value.”

After reading the interview and thinking about it, I took the liberty to post a comment which I want to share with my readership. I know many of my marketing friends will agree with me yet other colleagues will probably disagree as well. I welcome that debate.  Here are my comments.

I agree, in part, with the interview.   Many CMOs – especially from the CPG industries or those heavily dependent on advertising, don’t think as strategically as they could.   I have seen many of these purported CMOs focus on advertising and awareness vs. the real drivers of the business.  And, as the article points out, CMOs have the ability to understand the customer and make that translation to the internal departments.  I don’t know why that doesn’t happen although I believe it could be fear or complacency or perhaps even more simplistically, these CMOs are not quant or metric driven. 

On the other hand, I have seen many of the tech CMOs think about customers and become good strategic advisers to the CEO. I have been that way as a tech CMO in my career.   From my vantage point, I see the CMOs being involved in setting the strategic agenda by leveraging customer information by determining what is important and how well the company performs on these attributes.   I have seen CMOs in the tech world talk about average revenue per customer, cost of acquisition, lifetime value, margin, % revenue from new products, incremental increase in order size by customer, and other similarly situated metrics.  

I have seen CMOs manage the new product, commercialization, and innovation processes.  Unfortunately, I have seen other CMOs manage and be accountable for strictly tactical areas such as managing social media or PR or communications or other “softer” elements of the marketing process. 

 

It is unfortunate as well, that when companies today recruit for CMOs they don’t understand what they really want. I have seen job specs for a CMO that, to me, meant that they wanted a tactician to implement Google Adwords, or Facebook pages.  It is a shame that this puts the incumbent in a no win situation as they are not “full blooded” CMOs but just have a title as the “senior” marketing person in the company.  The article describes this predicament too.

What is needed from the CMOS?  They have to actively determine how their efforts affect sales, margins, cash flow and explain and show it to the other execs.  They need to be more proactive in sharing information on customers and being the linking pin between the outside world of the customer and the inside world of manufacturing, production and technology.   They need to think more technical and work hand in hand with the CIO and CTO because good marketing and business success today will depend on technology. Frankly, they need to think and act as a CEO or at least his or her alter-ego.  

What can a company do?  Companies need to be realistic in hiring CMOs vs. marketing executives who are much narrower in their focus.   They need to hold the CMOs accountable to produce results in line with the business plan. 

A good CMO adds tremendous value to a company.  A poor one gives the CMO category a bad name and reputation.

Eclectic CMO- Myth or New Reality

I read an article in Forbes online, http://www.forbes.com/sites/deancrutchfield/2013/07/02/the-rise-of-the-eclectic-cmo/, by Dean Crutchfield in which he spelled out the new type of CMO we are seeing in the business world.  He called these CMOs eclectic because they come from a variety of disciplines not traditionally marketing functions. It’s an interesting article and worthwhile reading not only for CMOs but also for others on management teams. I took the liberty to comment on that article and wanted to shared that with you.

I enjoyed reading Dean’s perspective because recently I have felt that CMOs are under appreciated and undervalued. Now part of that is the fault of the CMO themselves because many fall trap to being uni-dimensional ie. a focus on traditional advertising, a focus on promotions, a focus on product marketing. And sometimes it is the fault of the CEO who tries to pigeon hole the CMO into a very narrow scope.

I am not sure I would call it the rise of the eclectic CMO because the CMO just doesn’t derive  or bring in ideas from a variety of sources.  I believe that is the ante to play in the marketing game regardless what it is called.  I believe it goes further than that and is to the point raised in Dean’s article.

The CMO today is a business person first. Regardless of the business or the the market, the CMO has to understand the nature of the customer and apply the strengths of the company and its partners to satisfying the customers’ needs. The CMO has to be the “linking pin” between the customer (having a passion for understanding the customer) and the internal resources of the company to deliver the right products and services to the customer. Additionally the CMO must be the integrative factor on the executive team to get all the diverse functions to play well together. These two aspects are not easy to achieve but the successful CMO will have the standing in the company because he/she will be able to succeed in these areas.

Coincident with this philosophy, the new CMO must have the following characteristics:
>> Data driven with his/her best friend being the CIO or being a techie in his/her own right.
>> Fast, fluid and agile in developing ideas and executing them.
>> Pragmatic in determining what needs to get done and in what sequence given the resources given., This leads to an incessant focus on the right priorities to drive both top line revenue growth and margin.
>> A good psychologist not only to understand the drivers of the customers the company is serving, but also to understand the motivations and needs of the rest of the executive team. (Remember the CMO is the grand integrator internally).

I trust that others may have differing views. Yet one thing is evident. The old generation CMO doesn’t exist and the new generation CMO can become the driver for success of the company.

David Friedman

Marketers need to prepare themselves for change- embrace it!

I read about a survey from Pat LaPointe that indicated that 27% of marketers suck!!! Yep.  That is what was said when the question was posed: “how many of you believe marketers suck?”   When you read deeper, the survey was really anecdotal and asked of a few people.  Notwithstanding this pseudo-study, I was at a MENG meeting the other day and we asked similar questions.  What do the marketers have to do to prepare themselves for change today?  What training is needed to prepare them? What do the marketers need to do to make sure that the CEO values them?  And to me that is the overarching problem. 

As an engineer converted to marketing executive, I can appreciate the problem as I have faced it before.  In my previous posts, I tried to indicate what is wrong with marketing and a few prescriptions to change the attitude.  But even these prescriptions are no magic pills and will have to be accomplished over time and these prescriptions will be different for different companies and different CEOs.

I will address these three questions over a series of three consecutive blogs to make it easier to digest and not sound like a tutorial.  The first question:  What do the marketers have to do to prepare themselves for change?

There are two aspects the marketer must address.  One is to understand how customers are changing.    The other is to understand the new tools and techniques that are available that must be considered and integrated into the overall marketing plan.

The marketer has to be the linking pin from the outside world looking in and from the company view looking out.   The marketer must be facile in the “traditional” marketing and the new digital marketing world and apply them correctly.   To be prepared to understand the environment and the changes that take place – after all the tools have to be applied in context- the marketer must visit and be visible to the unique customer groups they deal with.  How do you do that with the reduction in marketing budgets?

Mystery shopping, customer advisory boards, distributor boards, customer satisfaction surveys are a few tools that can be used.  In this day of shrinking budgets, large scale market research studies which cost hundreds of thousands of dollars must be foregone and the marketing person has to be creative in determine how to get information on the behaviors and needs of his/her customer group.   When I was with US Cellular as its head marketing officer, I personally visited stores and distribution and acted as a shopper to understand the experience any buyer would have.   I talked with sales people and talked with customers.   It did not take long to get a feel for what we did right, what affected the brand, and what we needed to do to improve.  More so, I really ENJOYED being in the field and talking with customers.  Imagine this NY guy in Iowa talking to farmers wearing Cartharts and driving tractors!!! Maybe they liked my NY accent or maybe they just liked the fact that I was interested in hearing what they said, because I always was invited to ride in their combines and tractors and always invited back.  Those were fond experiences.

Additionally, most customers think linearly, i.e. when asked what they want, the customer normally answers with adjectives such as better, cheaper, faster.    Therefore, the marketer must reach out to “lead users” as Eric Von Hippel from MIT would call them.  These customers invented solutions to their problems.  Getting in front of them and talking with them and watching what they do were critical to understand them- and learn what we need to do to be innovative.   Just consider one panel of lead users and one panel of traditional users and you can get lots of interesting data.  And if they don’t want to talk in front of others, call them and engage them one on one.

Marketing can be very tactical i.e. implement and advertising campaign or direct mail campaign, or strategic, i.e. how to maintain competitive advantage, how to use new innovations and which ones in the marketing programs.   Part of the strategic thinking a marketing executive has to bring to the company revolves around using new tools and techniques.  Does the company want to be on the leading edge of internet marketing for example or be a fast follower?  Should the company twitter or develop a group on facebook or LinkedIn?    Yet even before those decisions are made, the marketer needs to take a view of how he/she will go to market in the future.   To gain perspective on that, I suggest the marketer consider the following ways to glean that knowledge:

• Read Faith Popcorn’s books and articles concerning the future
• Sit down with you sons and daughters and watch some of their shows as they will adopt new technology and display behaviors prior to the general population.   (I have to confess, I used my 9 year old daughter and her friends to critique a new line of cellular accessories we were considering rolling out in our stores…. and I let them keep the accessories as a gift.  )
• Scour the internet for new ideas, innovations, and technologies.  Have discussions among internal groups and involve engineers to discuss how some of these new technologies can be applied to business (and the engineers will bond with the marketing folks as a by-product).
• Read Investor Business Daily, The Wall Street Journal, and other papers and see what is hot in new technology.
• Attend local tech seminars and conferences and learn about new ideas.
• Attend the myriads of free webinars usually put on by early stage firms wanting to get a toe hold and their new technology in the market.  I do this all the time to learn about new techniques in internet marketing, SEO, and the use of tools such as twitter.
• Look offshore in China, Singapore, Japan, and Europe to determine how leading companies there are using new marketing methods.   Determine the leading companies and study their marketing practices.
• Subscribe to a best practice program such as the Marketing Leadership Council or Marketing Leadership Roundtable.
• Join an angel investor group – like the one I joined: TechCoastAngels of Orange County- or affiliate with one so you can learn about new ideas.  It’s not only the ideas or deals that are brought to the table but the discussions with the entrepreneurs around the table that are valuable.

I would be interested in feedback and other ideas which I will aggregate and post in a future blog.

CMO= Chief Metrics Officer

I was an invited speaker at a Dallas AMA panel discussion about how a CMO can be an ally to the CFO.  There were 6 of us on the panel and the first thing we did was to introduce ourselves.   The first panelist said he started his career in advertising and developed some commercials for a well known ad agency and many people in the audience remembered and resonated with those commercials.  The second person said he had an ad agency background also and developed some unique trade shows.  The third person said he was a CPG maven and was able to improve the brand of several products for a well known telecom company.  Then it was my turn.  

I said I was a strategic marketing executive, an engineer by my roots and my big concern was bottom line profitability and while the fluff and stuff that my colleagues talked about was great to see, it was a minor part of being a CMO and valued partner to the CFO.    The audience became somewhat silent and then laughed- somewhat uneasily.  During the rest of the panel discussion, my co-panelists defended their position.   And I became known as the anti fluff and stuffer.

My purpose is not to dengrate the skills that they bring to the table.  They are clearly important and can drive demand and provide sales support.  And, let’s not forget, that a good commercial or a trade show energizes all the people who work for the company.    What I wanted to point 0ut- and I will cover aspects of this in other blogs- is that to be a great CMO and an ally of the CFO, requires the CMO to be the Chief Metrics Officer- at least from the perspective of measuring things related to revenue growth and the costs related to generating those revenues.  One of the main principles of StreetSavvyMarketing is that the CMO MUST develop and meticulously manage the metrics that drive profitable growth.

Let’s take a look at a simple equation:    P=R-C.   The role of the CMO is to drive all things related to making the “R” increase and managing the “C” such thatthe return on investment for those expenditures is greater than the internal rate of return of the company.    As a CMO you have to ask:  What are the routes to revenue that I control?  What are the costs that are under my control to develop programs and tactics and how can those programs and tactics drive revenue growth?  In future blogs, I will take a look at ways the CMO can affect “R” and what can be done to affect the effectiveness of managing “C.”   

For now,  let’s just focus on metrics.  Here’s my list of goals and metrics, some of which may be useful in a service business, some in a retail business, some in a manufacturing business, some for B2B and some for B2C.   As you can tell,  this list is far from and has to be specific to each company.    However, maybe by collective wisdom we can develop a more comprehensive list.  If you have others, please suggest them and I will compile them. 

Some of these metrics have a primary effect on revenue, i.e. a tactic or program results in a specific sale.  Others have a secondary effect i.e. an ad drives people into the store and then the sales staff has to convert the prospect to a sale.  As you go through the following list, think of which are primary (directly measurable) and which are secondary.

Average revenue per customer

Occupancy rate

Average revenue per room night

Revenue growth per year (total, per segment, per customer)

Revenue per square foot (in retail)

Margin per product (in setting price and supporting sales)

Revenue per channel member (in support of expanded distribuiton)

Number of channel members (breadth of channel members)

Percent of revenue by channel

Percent of revenue by product line

Visits to the e-commerce portion of the website

Time visitors stay on a page or site

Leads generated

Cost per lead generated (at trade show for example)

Response rate

Aided and unaided awareness

Percent of revenue from new products

Percent of new to the world revenue vs. total revenue (if you have an innovative culture)

Customer satisfaction

Customer retention/churn

Customer willingness to recommend ( Fred Reichheld’s “ultimate question”)

Customer willingness to repeat use

Secure customer index

 

I know there are probably many more metrics that may be specific to different businesses.  Finance companies are very different than manufacturing companies.  Telecom companies are different than Internet companies.   B2B companies are different than B2C companies.  The CMO must know which metrics are important to his/her business and then ensure that his company, his CEO and CFO agree that these are important measures to be tracked.  Then, these metrics must be carried down to each person on the marketing team and their goals and objectives must reflect these metrics.  By doing this the CMO becomes Chief Metrics Officer and will become a better partner to the CEO and CFO.

David