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Financial Services

Will convergence drive specialization?

I typically dislike predication posts, since many of them are a rehash of buzzwords without any meaningful insights or strategic extensions of what many of us have been reading on tech crunch for years. The 2012 Predictions I’ve read are pretty cookie cutter for the most part. If you haven’t read them, let me do an overview for you on 99% of them:

  • Cloud
  • Facebook Killer
  • The Year of Google+
  • iPhone 5
  • iPad 3
  • Smart Phones
  • Android
  • New Buzzy Thing
  • blah

Frog Design took a different and refreshing approach to the formulaic January content creation from many with their slides.

The presentation below is probably one of the most thought out set of trends in technology which may or may not happen in 2012, but directionally I think this presentation from Frog Designs is moving right way based on what I’m seeing in organizations.



Social Slow Down: Ambiguity and Process Inhibits the Benefits of Social Media for Over 1/2 of Tech Marketers

Engaging and understanding the market is a critical set of activities that many marketers are presenting the results of their 2011 efforts to their management teams for 2012 plan finalization.   The final end of the year push is always a fun time and finalizing your next year’s budget and plan are just some of the things we all have to do.  For many, social media may be on the list of things to invest in for 2012.  Whether it’s putting together a listening station, putting formal programs in place for funding or just extending the efforts already in place there are some key items for consideration around process.

This post will focus on the returns from a mini-survey we put into the market in November.  There were several interesting insights from this survey and you can see all the returns as Paul Young has released them over at Product Beautiful, but I thought I would start a discussion around social media policies and how they impact the responsiveness and benefits of social media for businesses and individuals alike.

Process for some is seen as a constraint, but based on the 100’s of folks I’ve spoke to over the last 3 or 4 years at conferences, inside businesses I’ve worked at and during seminars I’ve lead, social media is an area of interest and concern for many and the lack of process or over engineered processes represent some of the most common items highlighted as inhibitors to participation for many.

Process Drives Interaction and Willingness to Participate

For many, corporate policies and alike are seen as not so positive, but absence of policy and clarity can be equally negative on employees.  Folks like clarity and context and policies for many provide a path forward and encourages folks to take the next steps which many won’t take without guidance or rules of engagement.

From the November survey of social media usage, 25% responded that no formal policy exists and another 8% being unsure of a policy.  That’s a fairly unclear path for many and this for some may mean that many don’t know what to do online as it relates to their business and their products.  Without a policy which sets forth acceptable use, many folks will just opt out since without a policy any engagement could be seen as positive or also negative.

So here are the policy results from the November survey on social media:

Just as no process can be an inhibitor for some, review processes can  impact/limit the benefits of social media initiatives.  Reviews minimally takes out the “real-time” element and according to the survey results 19% of the respondents have such a step in their process.

While I understand the concept of a review and the comfort it can provide some businesses, it just might be counter productive.

Why is this?  Reviews can impact the effectiveness of a company’s social initiative since time and speed to publication is critical component to whether or not a post is ranked high by a given search engine or gains traction in a given social network.  So time is one key factor which a review potentially could impact.

The other item which for some might be an issue is the very review itself.   For some a review is just not something which they appreciate, desire or have time to work through.  Depending on how the review step is implemented a review could be an iterative process which requires additional effort which some folks just don’t have time or patience for.

If there is one thing we know from the Pragmatic Marketing annual survey, time is a scarce resource for most marketers.  So time and effort could be extended, but you may also miss out on putting an authentic voice into the market on topical issues with a review process.  If a post goes through a review processes there just might be a generic voice which is overlaid on the original content which may not be as impactful to readers or folks in the discussion. The voice of your employees  represents a clear opportunity to put a human face on a brand or company and if you are reviewing content to edit, censure or in general MARCOM the message.

Net-Net – Reviews, depending on how they are implemented, can effectively minimize the voice of your writers and potentially represents a missed opportunity just because of time it takes to review proposed content or responses online.

So while having a formal policy is critical for any corporate social media effort,  having a review policy can introduce a slow down and make you miss an opportunity in the market to learn, engage or assist folks in need of service.  It is also important to note, that much like no policy and policy of a review may discourage some to participate as well if additional effort is required.

No Policy Impacts Willingness to Engage

So reviews can impact participation, quality and timeliness of engagement much like no policy can.   Without a policy it becomes very unclear even in positive situations what an individual should do on behalf of their company.   Without a policy, no action is the preferred action for many and this issue has shown in the results of our November social media survey as well – with 18% of folks just ignoring even positive references for a given brand, company or product:

To reap the benefits of social in full, executives and businesses need to set forth a clearly understood policy which let’s everyone understand what is acceptable and what is not.   If a thoughtful policy is put in place, then a review process shouldn’t be necessary.   I’ve always told folks who worked for me – regardless of what you do online there are 3 things I think you need to remember:

1. The day you joined our company you signed all kinds of stuff – that is still in effect online (IP, Confidentiality, Product Plans, ect…)

2. Do good, be honest and be nice

3. Remember you only have your reputation and integrity

Most policies I’ve read basically cover these three items, but most do it in legalese and it takes 3-5 pages to cover these items which can be a little intimidating, but not as intimidating as ambiguity.  As I’ve noted, for some even a review process can be seen as a deterrent.

Full disclosure, if you are in a highly regulated industry such as Pharma or Financial Services then a review process may be legally necessary to ensure compliance and to mitigate any potential risk associated with online activities.    If this is the case, then I would challenge you to have content or scenario related triggers to minimize the review overhead.

The opportunity businesses have is to put all the resources which could benefit from social media engagement and content creation into the discussion and a policy is needed to get some of those folks off the fence.   Work with your leadership to get a formal social media policy as a priority in 2012 if you don’t have one.

There are plenty of policies online which you can scavenge from to start the discussion or to give legal a starting point.  Here is a pretty exhaustive list which includes all kinds of companies and entities from IBM, governmental agencies to non-profits:


Why I’d Prefer 1,500 Mid-Market Customers over 25 Fortune 1000 Customers

An interesting blog post came up on my Google Reader the other day that really resonated with me.  Adam Smith founded Bessemer Venture Partner’s Herzliya, Israel office.  He blogs at Savants in the Levant.  Last week he did an interesting post entitled Wanted: Small, No Name Customers.  Adam’s central thesis is that tech companies have a higher probability of success if they eschew trying to sell large scale enterprises and instead focus on mid-market or individual consumers.  Adam has invested in and profitably exited from a number of startups so he has a clue about what he’s talking about.  Here are a few interesting quotes:

Large Can Be Longer, High Touch, Expensive, Non-repeatable & Unrewarding.  A lot has changed since then. First of all, post 2000 these large customers have grown wary of working with and relying on start-ups, hundreds of which have disappeared, changed direction or simply never reached scale. The result is that the sales and testing processes of large customers is longer and more arduous for start-ups than ever before. Additionally, the procurement process of these large customers is more stringent, built on the premise that they are always better off buying from a select group of large, established vendors(even with an inferior product). Even where they have no alternative, their reluctance to buy from start-ups persists with attempts to indentify a middle man, place the start-up’s IP in escrow(in the event of shut down), or extract a hard commitment to fulfill the product roadmap(rarely accompanied by any NRE dollars). And once an order is finally placed, the long coveted joint press release is blocked by the legal department”

“Small Can Be Quick, Low Touch, Repeatable & Inexpensive. With large customers no longer worth the effort, start-ups should consider focusing on smaller customers and/or consumers. Luckily, several trends play in favor of such a “no-name” customer strategy. Performance marketing including targeted online advertising and affiliate networks allows start-ups to reach a wide audience cost effectively and with minimum up-front investment ( see “When Marketing and Sales Becomes Scientific”). Similarly, advancements in delivery methods, including downloads, virtual appliances and software-as-as-service lower the cost of sales, deployment and maintenance. Of course, strategies focused on small customers and consumers do not preclude sales to large customers as mentioned in my previous blog post “A Preferable Route to Market.” The challenge for Israeli companies is to build a product that emphasizes usability and simplicity as much as technology and performance. I have little doubt that such skill sets exist in Israel, but the key is to make this a priority.”

I have been in the technology business for almost 27 years.  I spent the first 18 years of my career in the classic enterprise software market.  We targeted the 15% of the Global 2000 that drank the 1980’s Information Engineering Kool-Aid.  While our products targeted a niche, it was a very profitable niche that grew into a $300 million business by 2000.  The bulk of our revenues were concentrated in about 500 global enterprises.  Other companies I have been an executive of worked to ride the coattails of large ERP companies like PeopleSoft and Oracle.

The overarching theory was that big enterprises were always a much better market than mid-market and the SMB space.  The challenge with this strategy is that most enterprise software companies only ever succeed in winning a small share of the Global 2000.  As Marc Andreessen recently noted during the launch of his new venture capital firm, Andreessen-Horowitz “The problem is that there aren’t valuable companies being formed. And there never have been . . .There are on average 15 tech companies launched a year that will ultimately do $100 million a year in revenues, and these companies are responsible for 97 percent of the returns in the venture industry overall.”  I also attended a CIO Roundtable event last week where 40 Atlanta CIOs gathered for a panel discussion.  Most of the CIOs were from multi-billion dollar enterprises like Coca-Cola, GE Energy Services, First Data and even Popeyes Chicken.  The theme of the event dealt with the challenges of buying and selling technology in today’s world.  Several of the CIOs discussed their concerns with working with startups.  They told a few war stories about how they had ‘crushed’ startups through their tough, global requirements.  Most admitted that they focused their procurement on a few, large, well known vendors that they had long track records with.  A key take away from that event was that most startups today had a better chance of winning the lottery than they did trying to crack their way into a Fortune 500 shop.

For the past 9 years of my career I have worked with firms that targeted both the enterprise space as well as the mid-market space.  By mid-market I mean organizations with revenues between $50 million and $1 billion a year.  Conservatively, there are about 25,000 organizations in that size range in the United States.  There are probably another 75,000 outside of the USA for a global market of 100,000+ organizations.  In comparison to the Global 2000, the mid-market offers fifty times more opportunity to sell a solution to a specific customer.  Without a doubt, the deal sizes are radically different.  For a typical enterprise-scale customer, a technology company can reasonably expect to extract $2.5 million of revenue over the life time of that customer.  For a tech company that focuses on the mid-market, the number is more like $50,000 over the customer life time.  When you do the math, 25 enterprise customers generate $62.5 million in life time revenues.  It takes about 1,500 mid-market customers to generate the same amount of life time revenue.

Selling to mid-market customers is fundamentally different than selling to enterprise customers.  First off, the classic enterprise software big elephant hunter sales team strategy does not translate into the mid-market space.  Enterprise sales people typically have annual quotas of $1 million to $3 million.  They use a direct sales model and focus on closing a few very large deals to make their annual nut.  They spend countless hours courting, wining, dining, and developing relationships.  They rack up massive travel expenses since there are typically only a few elephants in their home towns.  Some sales people may go 18 months between closing big deals.  When they land a deal, however, the massive commission checks more than makes up for the dry spell between deals.  Startups that hire enterprise sales people often find, however, that while they may be able to close one deal, most often they are unable to repeat that achievement before the company’s venture funding evaporates.

Mid-market selling is typically done without the rep ever having to travel or meet their customers face-to-face.  The telephone and webinars replace on-site visits.  Web-based demand generation and lead nurturing replace the enterprise sales person’s personal rolodex.  A typical mid-market rep will close between 100 and 300 transactions a year in comparison to the enterprise sales person’s 5 to 10 deals.  Mid-market teams are highly dependent on their company’s ability to establish a well known brand in the marketplace and highly credible/effective web-based marketing.  Mid-market reps become expert at long distance conversations.  They are rarely in the same room as their prospects so they must learn to hear the signals their prospects are sending instead of being able to read their body language.  Successful mid-market technology firms are masters of execution when it comes to selling and supporting their customers.  In fact, superior company execution often makes up for technical deficiencies in their products and services.

Another strategic benefit for startups focusing on the mid-market versus the enterprise space is revenue risk.  Startups that focus on the enterprise space tend to have ‘lumpy’ revenue.  The revenue tends to be concentrated in a few very large customers and comes in fits and spurts based on when the big deals close.  Given the challenges of today’s economy, predicting when a new deal will close is always tough.  Also, recurring revenue (like software maintenance fees or monthly usage fees) are concentrated in a few customers.  The loss of any single customer, or groups of customers, can be catastrophic.  Historically, the finance, banking, & insurance vertical has been one of the richest for enterprise software companies.  Dozens, if not hundreds, of enterprise software startups has shutdown in the past two years because they focused on the finance vertical and their target market simply stopped spending money on new purchases and significantly curtailed the spend on maintenance contracts.

Technology firms that focus on the mid-market don’t share the same risk.  Typically their revenues are spread out across hundreds, if not thousands of customers in dozens of verticals.  The loss on any single customer is not catastrophic since a single customer contributes such a small percentage to the company’s overall revenues.  This benefit, however, is tempered by the fact that for such firms, revenue tends to grow slower than enterprise-focused firms because it takes time to acquire hundreds of customers.  While the revenue may come on slowly, it also tends to decrease slowly in tough economic times since it requires the defection of hundreds of customers before revenues are materially impacted.

In the middle of 2009 if I were given the choice of joining a technology firm that either targeted enterprise customers or mid-market customers I would choose the mid-market player.  As discussed in this post there are simply too many barriers to entry in the classic Global 2000 market place today.  I’d rather take my chances that superior execution against a market with 100,000 participants could lead to the pot of gold at the end of the startup rainbow.

AARP is raising it’s brand equity via YouTube

Never let it be said that AARP isn’t relevant and the brand’s awareness is limited and only known to those 42 and over or people who have the same name as their father and accidentally gets the cool magazine every now and again.  Welcome to the social media, where age is largely unknown and rarely given.  So not only can you get really good term life insurance or a recommendations for how to deal with Medicare part B or whatever – they are putting some pretty darn inspirational messages into the marketplace via YouTube with the video below.

I’ve never looked to AARP for messages about hope, the future and contribution, will now though!  Glad I found this on FriendFeed.