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Q109 is over. The numbers are starting to roll in. After all the gloom and doom at the end of 2008, I’m very pleased with the performance of most of the companies in our portfolio. As I mentioned the other day, some struggled, but many met or exceeded their Q109 plans, and several of them destroyed them (sandbaggers, how I love thee.)
There is nothing easy about operating a young company in any environment. It’s especially difficult in a downturn (or a recession, or whatever you want to call this.) If you haven’t managed to turn off TV news, stop reading the newspaper, and are still listening to NPR instead of the XM Chill station in the morning, you are likely continuing to get whipped around emotionally. So are the people in your company that are listening to all this crap every day.
So – do something that is always important to do, but even more so in a downturn. Overcommunicate. Especially your victories. Celebrate them. If you made your Q1 plan, make sure everyone in the company knows it. While it was likely a team effort, there were probably a few people that clearly went above and beyond in the quarter. Highlight them – not to the detriment of everyone else – but as a rallying cry for everyone for Q2. Make sure everyone in your company (and your partners, and your customers, and anyone else that matters) knows what worked and – as importantly – why it worked.
There’s an old adage that contrasts positive and negative news. The premise is that a unit of positive news is worth less than the cost of a unit of negative news. For example, consider the performance of the DJIA every day at the close of the market. Now, assign +1 of “emotion” to every day it is up and –5 of “emotion” to every day that it is down. Over the approximately 250 days per year that the stock market is open, assume the DJIA is up 125 days (+125), down 125 days (-625), and ends the year flat. Even though the DJIA is unchanged for the year, you have 500 units of negative “emotion”. Sucks, doesn’t it. Didn’t I say earlier you should stop watching TV news (that includes looking at the stock market.)
Now, apply this to your company. Everyone is getting hit all over the place with negative sentiment. When you have it, give them some positive. Remember that you need a lot more positive to counteract the negative. This doesn’t mean you shouldn’t be front and center with the negative – your team expects to hear the good and the bad. Just don’t forget to celebrate the victories.
I received the following email earlier this week from an exec at a company that I am on the board of. He sent it out to his entire company. I thought it clearly described the different between panic and urgency and explains why – in a business context – panic is useless, but urgency is critical. I don’t think I could have said this better if I had tried.
In recent weeks, many of my business contacts have discussed the economy and the pressure we are all feeling on a daily basis. They all have a sense of pressure. I am sure many of you can relate. If you are not feeling the pressure these days, then you may want to step outside or turn on the TV, or read a newspaper.
It has brought up a topic to me that has always been a challenge for me. The difference between panic and urgency. Panic is a sudden overwhelming fear, with or without cause, that produces hysterical or irrational behavior, and that often spreads quickly through a group of persons. We have all seen what panic looks like. Panic has no sense of purpose. Panic makes us run away from the problem. Panic gives a sense of hopelessness. Panic says there is no way out. For example, I am claustrophobic. When I feel trapped, I panic.
On the other hand a sense of urgency is different. John Kotter, Harvard professor, stated that true urgency may sometimes involve moving fast. But the most important aspects of true urgency are relentlessness, steadiness and the purposeful pursuit of a goal while “continuously purging irrelevant activities to provide time for the important and to prevent burn-out.” Go back and read that again and let it sink in.
Kotter gives a few suggestions to organizations and leaders:
- Create a sense of urgency: he believes that organizations need a sense of urgency if they are going to change and be successful. I believe we need a culture of urgency. NOT PANIC. But urgency. We need a relentless, steady, purposeful culture that is pursuing our goals, purging irrelevant activities, and spending time on the important things.
- Team Members must behave with urgency every day. Anxiety, panic, or anger are bad responses – team members should transmit their urgency in meetings, emails and in everything else they do each day
- Look for the opportunities that are obscured by emerging crises. Fear can paralyze a business and prevent us from taking necessary action. A sense of urgency can carry us successfully through to success.
- Deal with the NoNos – those “relentless urgency-killers” who would rather that their complacent existence was left undisturbed. Basically, Kotter is saying that complacency is a feeling that a person has about his or her own behavior, about what he or she needs to do or not do. “This point is also extremely important, because it is possible to see problems and yet be astonishingly complacent because you do not feel that the problems require changes in your own actions. So, we become complacent and lose the sense of urgency.”
Panic makes things worse. Urgency should make things better. I hope you can see that our leadership team is communicating a sense of urgency. Let me be clear, we are not in panic mode. I refuse to panic at work or at home. I hope you see us focused on pursuing our goals. I hope you see us purging irrelevant activities which include expenses, etc. I hope you see our relentlessness and steadiness. I hope you see our sense of determination to achieve our goals.
My challenge to each of you is that you wake up each day and have a sense of urgency both at work and in your personal life. I challenge you to evaluate your surroundings and look for opportunities to drive revenue and to make a difference in your clients. Look for ways to be productive for yourself and for our company. One key ingredient I know without a doubt you all have is talent unlike some of the singers in the last few weeks on American Idol. I know each of you have the talent for this business. So…
Don’t panic…but be urgent!
In December, I wrote a post titled Give Your Sales People All The Knives. While I let you draw whatever conclusions you wanted from the post, I thought I’d follow through and give you a little more detail about what I meant by the statement.
I framed the problem with the struggle many software companies have been going through over the past few years (or decades – depending on who’s version of history you believe) around selling perpetual licenses vs. subscriptions. I inadvertently included the construct of the deployment model (desktop, server, or SaaS / hosted) which, while a key part of the evolution of the software business, was not the part of the problem I was referring to when I suggested you should give your sales people all the knives.
A few people wrote me concerned that I was suggesting that the sales organization should determine the deployment model and that I was suggesting a company shouldn’t differentiate between desktop, server, or SaaS. Don’t be concerned about this – it isn’t my argument or suggestion.
Instead, I’m focused entirely on the licensing and pricing model (which I’ll simply refer to as the “licensing” model – which includes price.) I’ve been in more conversations that I care to count about how to price software, regardless of the deployment model. The licensing model and the deployment model inevitably get tangled up when they shouldn’t.
In 2009 (and going forward) customers will buy software using both perpetual licensing and subscription licensing, regardless of how the software is deployed. In addition, customers will buy perpetual licenses but pay periodically (monthly, quarterly, annually) and customers will buy subscription licenses but pay in single payments up front. If you can parse all of that, this is the exact opposite of the theory of how the software licensing and deployment were intended to line up. Of course, this is nothing new as software leasing has been around since the beginning of the software business, as have prepaid services.
While I know all of this gives the auditors great pleasure because it means they get to spend more time lecturing companies about revenue recognition and enforcing accounting policies that distort the true financial picture of the company under the guise of complying with GAAP, it’s irrelevant. Your goal as a company is to create great products that your customers will pay you for. The goal of your sales organization is to sell these products; they shouldn’t care how the customer wants to license the products.
That’s the essence of what I mean by Give Your Sales People All The Knives. While it makes good business sense to have a religious point of view about the deployment model (there are fundamental differences between a SaaS deployment model and a software license / behind the firewall / on premise / whatever you want to call it deployment model), customers buy each deployment model a variety of different ways and your licensing model should accommodate.
I regularly hear the argument that the economics aren’t the same. Baloney – they are approximately the same. A typical perpetual model is $x in year 1 with 0.2x in year 2 and year 3. A typical subscription model is 0.4x in year 1, year 2, and year 3. Tweak this however you’d like; you get a roughly equal cumulative payment stream over four years. I understand the cost of capital argument – you’d rather get the money up front, but remember that some customers want to pay for the subscription model up front (three year pre-pay for the subscription – or a single check of 1.2x) while others want to pay for the perpetual model in equal payments over three years (0.467x / year).
Cash flow follows this logic. The customer wants to pay in different ways to manage their cash flow. Some want to pay monthly; some quarterly; some annually. The deployment model doesn’t matter; the license model doesn’t matter – how the customer wants to pay is what drives this.
Fundamentally, the customer is managing two things. First is cash flow. If the customer has a use it or lose it budget, they want to pay now. If they have no (or minimal) budget but really need the software, they want to pay monthly and try to bury the expense in a cumulative budget, or get a budget exception for a small monthly payment. Second – and more subtle – is how the customer accounts for the purchase. Many companies (whether they should be or shouldn’t be) want to capitalize the software purchase and put it on the balance sheet to manage short term earnings, especially in down markets. Others are perfectly happy to have the purchase be an income statement item. The two issues drive customer purchase behavior much more than your licensing model does. As a result, I’m suggesting you should set up your licensing model to be flexible to accommodate your customer’s needs, rather than the other way around.
Bottom line – if you make software for a living, regardless of your deployment model, you should be able to provide either a subscription or perpetual licensing model, with any type of payment approach.
Many companies have only been giving their sales guys the brown handled knives (e.g. they are limited to using one type of licensing model.) Selling software into a downturn is always harder. Now is the time to give your sales people all the knives. If they don’t carve up enough business, they’ll at least have enough knives to put themselves out of their misery.
As everyone gets fully back to work after the Christmas / New Year holiday season, there was something that you just did with friends and family that will have a huge positive impact on your work (and life) if you apply it going forward.
While it might sound trite, make sure you spend social time with the people you work with. Or – in English – “play.”
It’s 2009 and we can (and should) be optimistic about the future, but we are still in the midst of an economic down cycle. I have no idea when the cycle turns positive, but the notion of enjoying social time together with the people you work with applies in both good times and bad.
Most of the people I’ve talked to this morning seems rested, positive, and ready to get going again. Some of this is a natural dynamic that seems to happen when the clock in Times Square counts down to 0 and the calendar clicks over to a new year. Some it is because of all the sugar we just ate. Some of this is because many of us got to spend a lot of time with friends and family that we don’t see as often as we’d like (or – additionally – that we are now finished spending this time with family for a while.)
It’s easy to lose sight of the fact that we spend at least 33% of our lives at work (and often > 50% of our waking time working). Don’t forget to hang out and have fun with the people you work with. Lunch anyone?
Close your door. Turn off your computer monitor. Sit quietly and look out the window. Now – ask yourself the following question: "How much time do I spend on the wrong things each day?"
Don’t bullshit yourself. Answer it as honestly as you can. 5 minutes? 15 minutes? 30 minutes? 60 minutes? 2 hours? 4 hours? More?
Now, turn on your computer monitor. Scan your inbox, even if it’s 4,137 messages (aha – I see you aren’t a zero inbox person of a GTD guy.) Bring up the weekly view on your calendar and look at it. Look at your todo list (if you have one).
Turn off your computer. Answer the question again.
Are you spending your time on the wrong things?