Archives For CEO Friday

Crazed ramblings by the CEO.

Expensify is unusual in many ways.  But one of our most well documented oddities is our habit of taking the whole company overseas for a month.  There are a huge range of reasons to do this: to work, to play, to finish off the year before, and to get inspired for the year ahead.  But regardless of your reason, here are some hard-learned tips for making the habit work for you:

  • Choose someplace far away, in every sense.  Aim for someplace on the other side of the planet, with a different culture, different climate, speaking a different language, with a lot of timezones and water between you.  The more “foreign” it feels, the closer it’ll push you together.
  • Try to achieve the triumvirate: power, internet, beach.  It’s easy to find any two, but getting all three can be tricky.
  • Pick someplace cheap.  It’s a great luxury to eat well, stay in nice places, and know you can buy your way out of any serious problem without breaking the bank.  Also, rent out your apartment (or even your office) on AirBNB to defray the costs.
  • Maintain a very light grip.  If you try to plan every last detail, you’ll go crazy.  Instead, just say “Meet at this cafe, in this city, in this country, at 10am on X date.  Figure it out.”  Some people will decide to come early, others at the last minute, but everybody will get there one way or another — and you don’t need to stress over the details.
  • Cover the flights, if you can afford it.  Have everybody book their flights and submit an expense report; it’s the single biggest expense of the trip, but people don’t have very strong airline preferences, so it’s a good candidate to pay for.
  • Leave the rest up to them.  The other major expenses are food and lodging, and though not big, they do add up.  But people have extremely strong preferences for what they eat and where they sleep, so this is best left up to them to pay for.
  • Take a whole month.  Less than that is too short to justify the expensive flight and jet lag.  More than that and people get antsy.  A month is just long enough to get sick of it, which is the perfect time to come home.  A good itinerary is 1 week in the capital city, 2 weeks on the beach, last week back in the capital.
  • Pack light.  Start with whatever you are currently wearing at this moment, but swap out your pants for shorts, your shoes for sandals (no socks).  Add a toothbrush and passport to whatever is currently in your backpack.  Buy a silk “sleep sack” at REI.  (It’s like a sleeping bag, but for hot weather — it keeps mosquitos away when sleeping.  You won’t need it most of the time, but when you do, you’ll be grateful.)  You literally don’t need more than that; anything more than that is just weighing you down.
  • Don’t pack anything in crinkly plastic bags.  They don’t sound so loud when packing them, but they are truly deafening when unpacked in a quiet dorm full of sleeping (or now, rudely awoken) people.
  • When your team is small (4 people) just do everything together.  Stay in the same hotel, eat the same restaurants, work in the same cafes, and go to the same clubs.
  • Accept that you’ll split up as the team grows.  Don’t fight it — just have a morning 10am standup meeting that pulls everyone together every day and sets the tone.  After that, just have everyone stay online and shout out where they are working that day, and they’ll cluster organically.  Create a shared Google Map where everybody marks good spots with outdoor power and wifi, hotels, good restaurants, etc.
  • Prepare to work offline, possibly a lot.  That means get a local copy of your servers running on every developer’s laptops so they can develop on localhost.  Set up Gmail/GDocs offline.  Download documentation for the languages and systems you use – PHP, JS, Underscore, etc.
  • Bring an extra laptop battery if you can.  (This is a major downside of having a MacBook Air.)  The best places to work aren’t always next to an outlet.  Alternatively (or additionally), bring a US extension cord.  Walgreens currently carries a nice white one with thee, three-prong plugs, that is pretty compact and rolls up nice.
  • Unlock your GSM phone ahead of time.  Get an unlimited data plan on arrival (usually surprisingly cheap) and tether.  Lacking that, you can likely get some kind of USB GSM modem, or even just a portable wifi hotspot.
  • Pick some large goal that involves a substantial majority of the team.  Ideally something you’ve wanted to do for a while but haven’t ever made the time.  Set a goal to have it done before you leave.  (Ideally you can release it before you leave, but better to do it when you return as it’s generally bad practice to ship major new features before hopping on a flight for 20 hours.)
  • Plan a group activity every weekend.  Scuba, hiking, rent some scooters.  Something outside.  The week is for working, but the weekend should be for playing.  It’s best if the company can cover this (because it’s a decision made on their behalf), but not critical.
  • Have a big finale dinner.  Find the nicest restaurant in town and get an unnecessary amount of food and alcohol.  You deserve it (but the company should pay).
  • Don’t tell your investors until it’s over.  Better to beg forgiveness than ask permission.
  • And the official term isn’t “workation” or “retreat” — it’s “offshoring yourself”.  At least, that’s what we’ve called it for the past 8 year’s we’ve been doing it (my last company and this).

Good luck to you, and please drop me a line to let me know how it goes!

The Road Not TakenThomas turned me on to a great article from Tim O’Reilly about things he’d do differently had he the chance to do it over.  I sent the response below to Thomas, and forwarded a copy to Tim — who encouraged me to share them with the world.  So, here we are:

Really great article. Obviously a lot of parallels there.

That said, I’m always leery of putting too much trust in people saying what road they should have taken — I’m more fond of understanding what roads were actually followed and worked in practice. It’s too easy to look back and say “I totally should have gone left at that fork in the road; I went right and it was horrible” not knowing that the other direction might have been even worse for reasons you can’t possibly know since you didn’t take it.

So most of it I feel is spot on — especially the parts on cultural management (as evidenced by us being here in Croatia). And that part about becoming cashflow positive strikes close to home: choosing to go profitable has definitely tested our mettle, and it’s easy to say how crazy it is that we didn’t do it before. But we forget that we are only able to do this now because we didn’t do it then. Had we tried to jumpstart this car any earlier, it’s very probable that we’d have just come to a screeching halt.

Similarly, while I really love how he compares the whole company to a handyman versus an engineer, I think he’s not adequately emphasizing that there is a role (or a time) for both. Engineering is fantastic when you are engineering — applying reusable techniques to solve defined problems with dedicated resources and adequate time. But so much of what a startup does is not engineering: the requirements are unclear, the techniques are evolving, and resources and time are reliably unreliable.

Similarly, engineering presumes a certain scale of the team working on it. As one simple example: engineers don’t build things. They design, they manage, but someone else actually swings the hammer. Handymen swing their own hammers. So if you can only have one person, pick the person who can design it and do it, all in a single package. Handymen have far worse best cases, but far better worse cases.

Finally, engineering presumes access to, obviously, engineers. But engineers (for the reasons given above) don’t join startups. That means startups are built by handymen — and handymen can’t suddenly transmute into engineers when it becomes convenient. It’s a gradual process that needs to be handled correctly at every stage, as asking handymen to engineer is as bad as the reverse.

So yes, engineering is great. And every company should strive to get to a point where they can support it. But premature engineering would be the death to most startups, and I think O’Reilly has the luxury of engineering precisely because they didn’t do it for so long.

"You have no reason to trust me except that I said you should."

“You have no reason to trust me except that I said you should.”

Nearly everybody in Silicon Valley agrees on how a company is supposed to be run. These are codified into a nebulous set of “best practices” — the pre-packaged advice that is handed out to nearly every startup, in nearly every market, under nearly every set of conditions. But if there’s one thing I’ve come to believe is that “best practices” generally aren’t.

I do a lot of thinking, but I rarely have the chance to share it. Granted, most of that thinking is probably not worth sharing, so you’re not missing much. But I was suggested to share the below advice sent to an entrepreneur friend, who had remarking on how advice received from another entrepreneur made him feel stupid (is that confusing enough)? Here goes:

Also, I’d suggest avoiding hanging out with people who make you feel stupid. It’s possible that you are stupid and they’re brilliant; I’ll grant. But in my experience, I’ve dealt with countless people over the course of my career who made me feel stupid, and history has shown most of them to be idiots. On the other hand, some of the smartest people I’ve come to trust make me feel smart too — they find a way to build upon and improve my ideas, rather than convincing me my ideas are bad and jamming their own ideas down my throat.

As for enterprise versus individual pricing, I think that is a secondary to a far more important question: what is your strategy to acquire customers? If your plan is to advertise your way to growth, then I’d agree: you’re an enterprise company.

That means you should stop trying to sell to individuals or small businesses, and immediately reorient around a strategy of selling to companies with 1000+ employees. (You’ll have a lot smaller than that, but you’ll lose money on them.) Turn off self serve and instead require everybody to just fill out a marketing form. You’ll likely charge what feels like an absurd amount of money per seat, and you’ll need a heavy top-down sales organization to do it. Customers will pay even though most seats will go unused, and you’ll laugh at their folly. You’ll likely have a classic top-down sales structure: a marketing team that generates “marketing qualified leads (MQL)”, handed to a sales team that has a front-line group of people who just qualify the MQL’s into “sales qualified leads (SQL)” by confirming they have the “BANT” (Budget, Authority, Need, and Timing). You’ll probably sell custom-negotiated annual contracts, sold by a salesperson making a 15% commission on first year’s revenue. Then it’ll be handed over to an account manager who is bonused by reducing churn. You’ll need to get your metrics dialed in pretty early, demonstrate that your CCA>LTV, then raise a ton of money and spend it immediately, then go raise more. It’ll have a pretty heavy management structure — VPs for everything as early as possible, each running a large, aggressive organization underneath it — something like 30% marketing, 50% sales, 20% engineering. The sales team will be super aggressive with huge quotas with minimal base and large commission, but it’ll be hard to hit so you’ll have maybe 30% annual churn, in a boilerroom setup.

Some variation on this is basically how every top-down enterprise company sells. They don’t always start out this way, but they usually end up this way. This is the best practice for a silicon valley startup: it’s what everyone tries to do. It’s what everyone will tell you to do.

It works about 5% of the time.

Remember, 95% of all startups utterly fail. No return to any investors. That’s why VCs have a portfolio theory: they invest in 20 companies with the expectation that 1 will pan out. They really don’t care which one — they have no particular reason to hope that you succeed over the other 19 companies. They just push them all as hard as they can, knowing that 19 will fail, and 1 won’t.

The thing is, as an entrepreneur, you don’t have a portfolio. You have 1 company (a houston auto glass shop in my case). And are you sure you want to bet your whole company on a strategy that has a 95% failure rate?

To be clear, I don’t know that any other plan has a higher success rate. But I don’t know that other strategies necessarily have a *worse* failure rate either. I’ll also say that other strategies are a lot more fun and satisfying, and provide a better balance of risk/reward. (Though “better” is a judgement call: if you have it in you to pump and dump and endless array of startups, each 1-2 years in the making, than the former strategy is perhaps better. But if you want to build a company that users rave about, with people you like and hope to work with for a long time, while enjoying life outside work — you might consider alternatives.)

Furthermore, I will say that most of the truly great companies didn’t follow the above plan. Salesforce didn’t. They do now, of course, but when they started, they were all activity-based pricing and self signup in the SMB — up to something like $14M in revenue — retreating upmarket because churn was high and they couldn’t raise money after 9/11 to weather the storm and thus focused on moving upmarket as fast as possible to address cashflow concerns, essentially abandoning their SMB roots in the process. Concur — our ostensible competitor — was the same, layering on enterprise sales *after* succeeding in the SMB (and eventually leaving it behind entirely). Intuit — our *real* competitor — never did this. DropBox didn’t do it this way, and Box.net didn’t start this way (they were forced to go enterprise after DropBox dominated the individual and SMB — Box’s current business model is Plan B). Yammer does it this way now, but didn’t at the start: they got their start with viral in the SMB, but found their product only really provided value in a large company.

A good story you might investigate is BetterWorks. They bet the whole company on the above model. They had marquis investors, founders with near celebrity status. They were the darlings of “Silicon Beach” in San Diego — a pillar of that entrepreneurial community. They had amazing design, hired fantastic people, executed with extreme aggression. They raised $10M. Read this upbeat coverage: http://techcrunch.com/2011/09/13/betterworks/ Wouldn’t you want your startup to be regarded as highly? But then read this, just *eight months later* http://techcrunch.com/2012/05/24/betterworks-shuts-down/

My only point is: nobody knows what is going to work, and anybody who claims otherwise is an idiot — especially if they make you feel stupid for believing them. At the end of the day, you’re in this because you feel you’re smarter than the next guy. But that’s only true if you stop listening to the next guy, and start listening to yourself.

At some point, a startup outgrows its lack of structure, but isn’t yet ready for the real deal. What do you do? There are some lessons to be drawn from how P2P networks grappled with the same problem.

1. Fully Connected (2-4 people)
When a P2P network is very small, every node sits next to every other node. If there’s something you need, you just directly ask the nodes around you, and they can give it to you in one step. This is akin to the early days of a startup: just turn to the left or right and every problem is solved.

2. Gossip Protocol (5-10 people)
As the network grows, not every node sits next to every other. But this is fine, because the network is still small: even if your peers don’t have the answer, odds are they just need to ask one of their peers, and the answer is found. So every question can be answered in 2 steps, which is still pretty good.

3. Supernodes (10-20 people)
However, as the network continues to grow, sometimes gossip isn’t effective: it’s possible that there are nodes sitting more than 2 steps away. In startup terms, this means peers who are off in their own direction, and nobody knows what they’re doing. But because everybody has already accepted there are things both they and their peers don’t know, it’s easy to assume that somebody else knows what they’re up to — when in fact nobody does.  Accordingly, people can be overlooked: they don’t get the support and oversight they need to be effective.

To solve this problem, a small group of well-intentioned employees — generally without any formal acknowledgement — steps up to take on greater responsibility. They don’t have any formal titles; nobody technically reports to them. But everybody knows they are doing far more than being individual contributors: they are “supernodes” who just take it upon themselves to pay attention to more than most. They are the people who walk around and ask questions.  They notice when people are unhappy, overwhelmed, unsupported, or unsupervised. They are the people everyone turns to when nobody knows the answer.  They are the unsung heroes who keep a startup from imploding under the weight of success.

But inevitably, the supernodes themselves burn out. After all, they’re consciously doing more than anybody else — but without any real extra incentives, resources, or authority. And when a supernode burns out, the whole network they support burns out, too.

Up until very recently, that’s where we were. So we’re moving on to the next stage: DHT.

4. Distributed Hash Table (21-?? people)
Because supernodes are volunteers, they don’t necessarily have any formal accountabilities — being a supernode isn’t a job, it’s a calling. And though over time supernodes tend to focus on certain areas, and though all nodes tend to learn what those areas are and act accordingly, those focuses aren’t documented or even formalized. This means new employees don’t know who knows what; people don’t know who is more qualified to make a decision than the next person. A supernode can only do so much as a volunteer: at some point your organization needs to upgrade to a DHT.

At a high level, a “distributed hash table” is a data structure where given any particular question, you can determine who knows the answer — in one step.  No searching, no gossip: just ask the right person and they will know.  In organizational terms, it’s kind of like an org chart: it documents which people are in charge of which areas. Ideally anybody can look at this chart and immediately determine the correct person to ask any question.

But it’s only a partial org chart: only the supernodes are put into the chart, and all the other nodes are left ambiguous. It’s not about strictly defined teams operating under a chain of command — it’s about a mob of people, where some people carry megaphones. Anybody can switch who they follow at will, depending on what they’re trying to accomplish. But those carrying the megaphones coordinate to ensure that the mob overall continues heading in the right direction.

That’s where we are today. Expensify is a mob, with megaphones. Naturally, I reserve the loudest megaphone for myself (as would any benevolent dictator), but more and more it’s the jobs of the supernodes to keep the mob moving forward — with me just helping coordinate behind the scenes.

How long will this last? I’m not sure. Like so many things, our lack of overt structure has worked much longer than I think anybody realistically thought was possible. Indeed, I attribute how well things have worked so far entirely to the fact that we only hire a very particular sort of person who can thrive in this environment. But I’m confident that it’ll keep us moving forward at our already astonishing rate, to whatever level comes up next.

Q: Why not a strict hierarchy; isn’t that more efficient?

A: In content delivery terms, that would be a “broadcast tree” — you have a single source, which broadcasts to the first set of nodes, each of who broadcast to the second set, out until all nodes get the content.  It’s a top-down control network, and yes, it is optimally efficient.  In an established company where all the kinks of the business have been ironed out, everyone’s job is well defined, and the success of the organization rests upon minor tweaks applied top down — yes, it’s ideal.  Most large companies are structured this way for a reason.

But a startup is nothing like that.  At least, our startup isn’t anything like that, and we all quit places like that to come here.

Rather, it’s more like I throw a flaming torch way out ahead of us, and we all try to figure out how to get there.  Sometimes it involves building bridges, blowing up mountains, and occasionally burning our boats behind us.  But my job is only to figure out (roughly) where we need to be: how we get there is up to the mob.  So our structure is optimized to put maximum control into the hands of the most people.  It can be chaotic, confusing, and sometimes a bit scary.  But it’s a lot more productive, and infinitely more fun.

-david
Founder and CEO of Expensify
Follow us at @expensify

My hat’s off to the Yammer team for their $1.2B acquisition by Microsoft!  I think everyone else has already said about everything, but I wanted to add my own spin: the incredible valuation of Yammer isn’t that it’s social — that’s so 2012.  Rather, Yammer’s value is that it is pioneering a revolutionary sales model that is going to wholly transform the enterprise space.  I wager Microsoft bought Yammer not because it needed to plug a social hole, but because they saw it as fundamentally lower-cost-of-sale model that threatens Sharepoint’s long-term success.  This wasn’t about adding Yammer’s revenue, but about preventing an even greater loss of Sharepoint revenue.  This was a defensive move on Microsoft’s part to avoid being disrupted by a competitor they can’t possibly beat.

Said another way, I suspect Microsoft didn’t buy Yammer because they wanted a piece of their $22M revenue stream.  Especially as, so far as anybody has reported, Yammer didn’t get that revenue in a profitable manner.  Rather, Microsoft bought Yammer because they were afraid if they didn’t, people would gradually leave Sharepoint for it.  Even if Yammer can’t profit from those users, Microsoft can, and they want to ensure that they do.

Like anything, I’m sure there are a hundred angles, all of which bear some grain of truth.  But the one I hadn’t heard was about Microsoft’s deep seated fear that whether or not they wanted Yammer, they needed it.

That might sound obvious. I was employee number one, and I’ve been personally involved in hiring everybody else in the company. So I less than anyone should be surprised by what this team can do. But when Tom builds a remote-controlled, webcam/microphone/speaker equipped, four-wheeled robot just so Tony can attend a Thanksgiving party — I mean, who can’t be surprised by that level of awesome? And then for Tony to casually drive this silly robot into a roadmap meeting to discuss some fundamentally radical mobile ideas, not the least of which is how to maximize the value of our totally custom cross-platform mobile layer — my mind is blown.

I’m not saying every day feels like living in some parallel universe where Sneakers meets Ocean’s Eleven. But some do, and I can’t help but think “Damn! I love working here.”

PS: Did I mention we’re hiring? Programmers, salespeople, and desperately looking for a designer. Know any? Send them our way, please!

When giving the same pitch over and over, you quickly settle into a specific way of delivering a line, and then say it so often it becomes second nature. Most conversations I have with investors or the press really just involve stringing together a series of well-rehearsed snippets that address pretty much any question I could ever be asked. One of those snippets starts with:

“Now, I don’t read many ‘pop business books’ (air quotes), but there’s one I really swear by called the Innovator’s Dilemma.”

That’s been part of my pitch for a long while now. It’s even on tape. So guess how pleased I was to learn who else swears by it? None other than the late great Steve Jobs.

However, never one to pass up an opportunity to disagree with Mr. Jobs, I should mention that I took away a different lesson. Granted, I haven’t read his biography so I’m going off of other reports. But I’ve heard his opinion summarized as:

“Over-focus on profit is the problem, and the solution is to focus on the product.”

Granted, that’s watered down to a nice-sounding but highly ambiguous statement, so I don’t really know what he meant by that in practice (or if he’d have even agreed with that summary). But despite what he may or may not of have thought, I’d say the pursuit of profit isn’t itself the problem. Profit isn’t some happy accident that can only be pursued out of the corner of your eye. Rather, it’s how you pursue that profit that causes the dilemma.

Specifically, if your profit depends on continuously abandoning your core to move up market, you’ll eventually hit the top and be incapable of going back down. This is the inevitable fate of any (successful) organization with a direct salesforce that:

  • Is compensated through commissions, and
  • Sells to leads gathered from outside the core userbase.

Indeed, if your salespeople are encouraged to always go out and get the “next biggest deal” — and are given free reign to get it from anywhere — how else could they possibly accomplish that goal without abandoning the core market? If there aren’t an equal number of people pushing the product down into smaller markets, naturally you’re going to find yourself drawn into inexorably bigger markets. An organization like this can’t help but use their current market position as a stepping stone to move somewhere else, which as the book explains, is a fantastic rocket ride up to the top followed by disruption from below — typically by another rocket using the same strategy, and then another after that. It seems the cycle of life.

Mr. Jobs broke the cycle by (apparently) decoupling product focus from sales. And luckily he’s a genius with the intuitive vision to predict where the money was, so it paid off.

But I think that’s a risky gamble that could have gone the other way. Apple bet it all on black (or brushed aluminum, in this case), and it paid off handsomely. But don’t forget that it didn’t pay off so well a couple decades back when he tried the exact same strategy: Apple was only able to have this stunning rebound because of its previous tragic decline.

So I feel there’s got to be some other way to break the cycle — some way that doesn’t require going “all in” on the gut instincts of a genius at the helm. Some way to build an organization based on repeatable, customer-focused development that can be accomplished by mere mortals instead of an endless game of “double or nothing” played by the gods.

If product isn’t the answer, and sales isn’t the problem, then where else to look?  And that’s where I lay the blame at something surprisingly benign: the lead source.

Nobody talks much about lead sources. “Leads” — the people at which you point your salesforce — are just assumed to come from the same places other companies get them. SEM and SEO to landing pages, going to conferences and gathering business cards, channel partners, affiliate programs, buying contact lists from the many, many people who sell them, etc. And you might argue that all these leads come from such a diverse array of sources that you’re naturally inoculated against myopia. But all those sources have one thing in common: none of those people actually use your product.

So if your salespeople are always talking with people who don’t use your product, and are always incentivized to start with the biggest first, then they can’t help but pull you away from the needs of all the smaller people who already do use your product.

(This is aggravated further by outside sales typically talking with the “decision maker” — a person whose likelihood of actually using the product they’re buying decreases as the company size increases.)

All of this inexorably shifts your customerbase’s center of gravity up market, day after day, such that even if you’re in the most customer-focused organization, you can’t help but realize “our customers are getting bigger, that’s where our resources should go”.  This inevitably de-prioritizes the initial customers who got you where you are, in favor of the bigger customers that you’re always trying to get. It’s a vicious cycle; it’s a dilemma.

But what if you could somehow keep your center of gravity stable? What if instead of building new features, you just kept your organization focused on improving the features you already have, for the same people who already use them?  It means you have a lot fewer features.  And require fewer engineers.  And have less to support, all of which is higher quality.  Wouldn’t it be great if you could do this, and still achieve your growth and profit goals?

There are some obvious ways to try. One way is to just not take on larger customers — maintain a laser focus in a particular customer segment, always resisting the urge to move upmarket. That’s one way. But I wouldn’t recommend it — in any market, upmarket is where the money’s at. The margins are thicker, the opportunities bigger, the names sexier, etc. Any company that has no interest in going up market is one that intends to be overrun (or at best, acquired) by someone who does.

Another obvious way to do it is to have two teams: one focused on moving up, and another on moving down, such that you always balance out your growth. And that might work, if they’re very carefully balanced.  But that seems impractical to manage, so again, I wouldn’t recommend it.

A third option, and the one I would recommend, is to focus your sales effort on people who already use the product.  This way you avoid shifting the center of balance and create an organization focused on increasing engagement amongst existing users. This approach addresses the core deficiency of the lead source itself: the fact that new leads don’t use the product.

Now you could argue “Of course they don’t use the product; if they did then sales wouldn’t need to talk with them.” If the only way to use your product is to buy it, then that’s quite right! But as we know, that needn’t be the case. The internet is full of services that offer huge value at absolutely no cost. Services that have millions of “users” who aren’t yet “customers”. People who already use the product, even if they haven’t yet bought it.

What I’m describing of course is the classic “freemium” model: give away basic functionality for free such that some users will decide to upgrade. This isn’t terribly new.

But what is new is applying the freemium model in a space where the “deal size” is big enough to enable a sales team to make postive-ROI sales (where the cost of the sale is exceeded by its revenue). This isn’t Farmville — no salesperson is going to earn a commission by convincing you to buy a purple cow. And this isn’t a consumer product that encourages you to upgrade to a $10/mo plan. This is an enterprise product, with customers having hundreds or thousands or more employees. And using the existing users within an organization to serve as leads into converting the organization overall.

Ultimately, the primary purpose of sales is to drive up market. And it’s a slow, steady march taking on new customer segments as you firm up support in existing segments.  But this process is only destabilizing if doing so distracts from the core userbase. If the sales leads are instead drawn from the core userbase, however, then the only way to increase leads (and thus increase sales) is to also grow the core userbase from which the leads are drawn.  So long as your leads some from your active userbase, then you simply can’t lose touch with it.  This makes the entire organization — from the most senior salesperson selling the largest deal, to the most junior support person talking with individual freemium users — play for the same team, aligned toward the same goals.

In a sense, the whole company is spinning up the same flywheel.  It doesn’t matter who pushes, where, or how hard: the bottom-up adoption curve allows everyone to contribute to top-line sales success, no matter where they are in the organization.

This is how you solve the innovators dilemma, without sacrificing the move up market, and without losing touch with the core.

At the very least, this is the strategy that Expensify is using, and it seems to be working pretty well for us.

Note: If you’re interested, consider joining our “Salesforce of the Future!

After a quick halftime break, let’s resume the second half of the series. As mentioned in the past, this is the fourth in a six-part series elaborating on a presentation I gave at the AlwaysOn OnMobile 2011 conference titled “Disrupting the Enterprise”. I suggest reading from the start (or watching the video) and then continuing on below.

Recap: The Three Conditions Underpinning Sales (N+1).0

So there are three interesting conditions at work:

  1. The “Consumerization of IT” empowers employees to promote products up the chain in an enterprise
  2. “Word of Mouth” has become a “Winner Takes All” phenomoneon where early dominance of the global conversation becomes self-reinforcing
  3. There was a one-time “Cascade of App Stores” that gave a substantial and lasting advantage to first movers

The upshot of all of this is I feel there is an enormous opportunity to reach into previously inaccessible parts of the market using a sales strategy that I call Sales… 3.0? 4.0? Let’s just say 10.0 to get ahead of the curve. The very modestly named “Sales 10.0″ strategy conists of three principles:

Principle #1: The Bottom Up Adoption Curve

Many industries share a common chart: a very wide base of customers at the “bottom” of the market, narrowing down to a very pointy tip of customers at the “top”. What “bottom vs top” actually means and how it’s quantified depends on the market. But if you’re reading this blog, odds are you’re targeting the “bottom” of the market while some other big company has a stranglehold on the “top”.

At some point, the big company at the top will decide it wants to capture some of the action down at the bottom. It’ll do this by instructing its massive salesforce to start going after smaller deals — probably by adjusting their commission incentives to make smaller deals more attractive than they’d normally be (or by hiring a new sales force devoted to just this). If they’re really serious, they’ll come out with some new product targeted squarely at the small business space.

But don’t worry, because odds are no matter what they try, it’s not going to work. The product and skills needed to operate in and maximize the value of the top of the market just don’t translate down market. Small businesses aren’t small versions of big businesses, they’re an entirely different beast. Any company optimized to hunt whales just isn’t suited to trap squirrels.

This is where the “bottom up adoption curve” comes into play.

In the top-down sale, you typically start talking with senior management — nobody really experiences the product until they’ve already signed off on it. But the bottom-up sale reverses the process, giving a trial of the product straight to the rank-and-file employees, before senior management even hears of it. So while a top-down salesperson would fight tooth and nail to get a limited trial authorized by senior management, the bottom-up product just walks in and starts a trial on day one. Top-down requires some high-level introduction to start a conversation with a new customer, while bottom-up can start with anybody, anywhere in the company — the lower the better. While the top-down company builds a wide range of complex features that appeal to management, the bottom-up company builds the few core features that the actual users of the product love.

The end result is the bottom up adoption curve reaches out directly to the innovators in every company, empowers them to initiate a limited trial without the need for anybody’s permission, and then champion the results internally — essentially giving you an “inside man” pulling for you in every sales lead.

So it’s “bottom up” because you start with the users first, and percolate up to senior management only after the trial has already successfully completed (and thus, there’s no reason to say no). And its an “adoption curve” because it takes a graduated “innovators first” strategy where those who come before learn and train the people who come after (as opposed to a top-down sale where all users are signed up at the same time). It allows your product to be pulled into organizations by the people who need it most, and then sold to all internal stakeholders by someone intimately familiar with the local conditions — all without you ever picking up the phone.

So it’s a system that definitely works in the small business space. It’s very hard to design a product to accomodate it, and it’s very hard to get all the incentives to line up. But when you do, it takes off under its own steam, with each new user expanding your salesforce — and thanking you for it. Everybody wins.

But it’s also “bottom up” in another sense: with this technique, you start with the bottom of the market, and gradually work your way “up” to the top.

Granted, this is the only thing that will work at the very bottom of the market. The deals are so small, and there’s just so damn many of them, you absolutely need to have something like this to survive. The most important feature you ever build is the one that finds the next customer, automatically, while you’re asleep.

And to be fair, if you were only going to sell to the top of the market, you wouldn’t bother with this. It’s really tricky stuff, and it’s so much easier and more effective to just go out and get a sales force (assuming the cost of sale is substantially less than the revneue it brings).

But if you *do* start out at the bottom, and if you *have* already gone through the trouble to make this work… why not use it upmarket as well? After all, there’s nothing about this process that doesn’t work in large companies as well as small. Sure, big companies have bigger requirements. And you might need to get more clever about how exactly you support your internal champions — giving them the tools they need to start a trial without anybody noticing, and promote your product up the food chain in a non-disruptive fashion. But maybe it’ll work there too?

The bottom up adoption curve is a strategy for not merely taking over companies, but taking over markets. And as we’ll see next week, holding onto them forever when you get them.

Thanks for reading, keep an eye out here to read more next Friday!

Previous: A Cascade of App Stores (3/6)

This is the third in a six-part series elaborating on a presentation I gave at the AlwaysOn OnMobile 2011 conference titled “Disrupting the Enterprise”. I suggest reading the first (or watching the video) and then continuing on below.

Condition #3: A Cascade of App Stores

This third condition is done; it was a one-time wave that will likely never be repeated. I’m referring to the overnight rise of a series of web and app stores, and the cascading effect of new stores inhereting the rank of the old, creating a sort of “meta rank” where apps on top of one tend to dominate the rest.

It all started with the iPhone. (You might argue it started with the BlackBerry or even Sidekick, but those stores never really caught on like it did for iPhone.) It seemed like overnight a million apps appeared, vying to appear at the very top of a seemingly infinite list of applications in each category. Furthermore, because your rank was largely a function of your install rate (and your install rate was largely a function of your rank), this created a feedback loop where the people at the top tended to stay at the top and increase their lead over time: it created a strategic high ground with incredible staying power.

Quick on the heels of iPhone was Android. To a degree, the apps at the top of the iPhone App Store were the first ported to Android, and re-established their dominance in the Android Marketplace. (The difficulty of porting to a new platform allowed a bit of discrepancy to appear, but the iPhone ports came in with an advantage over original Android apps.) And then after Android came the Amazon, Verizon, and Windows Mobile app stores — each reinforcing this hierarchy to a greater or lesser degree, and each opening a brief window of opportunity that has since irreparably closed.

(As an aside, the conventional wisdom — so far as I can tell — is to just buy your way up to the top of the app store using TapJoy and its brethren, each time hoping that some of your rank sticks. This does seem to work a bit. But it also tends to flood your data with low-quality leads, such that the more you employ this strategy, the less actual awareness you have about whether any of the signups are worth having. Furthermore, it seems the quality of the installs “at the top” aren’t as good as the quality somewhere in the middle: people who scroll down a couple pages to find you seem more loyal and genuine than those that simply install whatever app appears at the top of the list. But that’s a different topic.)

The upshot is in rapid succession, the mobile app stores established a murky order that tends to slosh around a bit, but generally settle back where it started. I speak here from experience: we missed this wave, and thus our app has a very low rank on each store — and there’s very little we can do about it except fight hard each and every step. But as luck would have it, we were given a second chance.

Right after we launched, Salesforce held a fortuitous contest to create the best expense reporting app, listing the result in the Salesforce AppExchange. We did really well, and earned our place amongst the illustrious “Force 40″ — the top 40 Salesforce apps. Right around then, Intuit saw the meteoric rise of the iPhone and Android app stores and thought “I wonder if we can do the same with QuickBooks?” So they came out with the Intuit App Center. And naturally, they approached us to be early adopters, primarily due to our high rank in the AppExchange. This good fortunue repeated with the launch of the Google Apps Marketplace, which obviously couldn’t launch without the top Salesforce AppExchange and Intuit App Center apps (including us). This process repeated a couple times more, and now Expensify appears at the top of all the major web app stores, much to our delight.

But all that is done. Sure, new app stores open up every day — for both mobile and web. But all the major players have already made their moves, and their not going to make them again. That wave has washed ashore, and though we can scramble along the beach for a new position, those that were washed far in have a large, enduring lead over those who weren’t.

Why you should care: If you have an app with high rank, celebrate. If you don’t, prepare for a very long, hard slog to the top. It’s not impossible — and there are snakeoil salesmen touting every dirty trick to accelerate it — but ultimately the deck is stacked against you for the forseeable future.

Tune in next week to continue the series and read about how these three conditions have created a new opportunity for selling into the enterprise in a faster, lower-cost, and higher-quality way than ever before. See you then!

Previous: Word Of Mouth is Winner Takes All (2/6)
Next: The Bottom Up Adoption Curve (4/6)

As I mentioned last week, I recently gave a brief talk at the AlwaysOn OnMobile 2011 conference titled “Disrupting the Enterprise” (video). I was asked to give a bit more detail, so I’m doing that now, in six parts. This is the second one; read last week’s and then continue on below.

Condition #2: Word of Mouth is now Winner Takes All

A second, no less important condition is how blogs and social networks now cause conversations to converge swiftly and globally. This means that word of mouth — something that might have previously shown strong regional or vertical tendencies — has instead become a universal phenomenon with “winner takes all” properties.

Now I’m no social scientist, and I think this trend has been growing for a long time. But there are more options than ever to directly broadcast your ideas to world in a completely unfiltered fashion. Prior to the Internet, what were your options to broadcast to the world without the permission of some large publisher? Ham radio? BBS’s helped, but were mostly regional (due to long-distance fees, and Fidonet was a pain). Usenet was limited to very techy spheres. IM was instant and global, but not broadcast. Email mailing lists and web forums are starting to get truly global reach amongst average folk. Comments on blog posts are even better — it combines quality editorial content with feedback from the unwashed masses. (Oddly, Facebook is a step back as you only talk to your friends.)

But Twitter takes the cake. Now anybody can broadcast from essentially any device, using essentially any form of media, to essentially any number of people — at essentially no cost. The “follower” model allows it to take advantage of quality (*ahem*) editorial content, while realtime searching, hashtags, trending topics, and retweets allow even the unpopular to get heard. It’s as close to an unfiltered meritocracy of ideas as we’ve ever seen. All this creates any number of interesting consequences. But of particular relevance to this discussion is that it helps the whole world converge on a consistent story with exceptional speed.

I say this based on the theory that the “distance” an idea travels is some function of the “strength” of the idea and the “resistance” of the medium, and that given two equally strong but conflicting ideas you’re more likely to believe with whichever one you’ve heard longest and most frequently. This means the more resistant the medium, the more it allows competing ideas to survive simultaneously in different regions or “verticals”. Then, by the time the ideas “collide”, each has built up a following that has heard it so often for so long that they’re not nearly as receptive to the idea as had they heard them both first.

But all these advances in broadcast communication have reduced the “resistance” of the medium to such a degree that every new idea is heard by almost everyone, all at once, everywhere in the world. When TechCrunch covers a new product, it’s a matter of hours, minutes, or seconds (but certainly not days or weeks) before everyone who might conceivably care knows. This triggers an immediate global discussion to evaluate the impact of that idea, with the winning option being broadcast further and faster than the loser. The result is on any given topic, there’s one major idea that dominates (the winner), maybe one alternative (the runner up), and that’s about it. Because as information flow goes up, attention span goes down (Twitter’s 140-character limit illustrating this nicely), meaning it’s simply not possible to sustain more than a couple competing ideas on a given topic for long.

When the conversation dies down and everybody moves to a different topic, the winning idea gets the lion’s share of the attention. And because everybody is biased in favor of what they’ve heard the most in the past, the winning idea of the last conversation has an advantage in the next conversation, causing it to strengthen its position over time. So in a field of largely equivalent ideas, once one gets a slight edge, that edge just keeps increasing forever, until all the other ideas are forgotten — even if they might have been nearly as good in the first place.

Why you should care: If you find yourself in a field of equals, with none of you getting any attention, beware: once somebody gets a little attention, they’ll get all the attention. Make sure it’s you.

Expensify example: Even though Expensify is without question the leading small-business expense reporting system out there today, we didn’t start out that way. In fact, a few other very similar options came onto the scene right before or around us (and new ones are springing up all the time). And though I wouldn’t say we were all equivalent (because we actually all had very different approaches), I would say that none had a clear advantage over the other. But somehow we got an edge. I’m not sure exactly what happened: we had good early coverage, knew some good people, were emphatically interactive with and supportive of our early adopters, and just had a really good product. Maybe even the best product. But once we had a slight edge, it wasn’t so much that people suddenly started talking about us a whole lot, but they simply stopped talking about the alternatives. The discussion shifted from “There are several options including X, Y, and Z” (where we might not be listed) to “Concur is for big companies, Expensify is for small companies.” And once you hear that a few times — especially when you try us and realize that we’re actually quite good — it’s just not worth your time to investigate alternatives. After all, if nobody discusses them, how good can they really be? Granted, I’m hesitant to say any of this without knocking on wood — I’m extremely conscious of how fast the tides can turn.  But I’m willing to take a chance as I think we now have a very comfortable lead in terms of functionality and usability over any competitor. But back then we didn’t, though you wouldn’t have known it by listening to the global consensus.

 

Tune in next week to continue the series and read about “A Cascade of App Stores”.  (Follow us on Twitter at @expensify to be notified when it comes out.)  See you then!

Previous: How To Disrupt Your Industry (1/6)
Next: A Cascade of App Stores (3/6)