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Learning business by charts


I am someone who learns visually. I absorb charts, screenshots, videos etc. a lot faster than any other medium. Business knowledge is something that often doesn’t come in this format however (perhaps why the first business discipline I learned was marketing). However I have found a Twitter feed (yes, there is useful content on Twitter) that I have really grown to love. http://twitter.com/chartoftheday

This graph was used to illustrate how poorly Microsoft Office 2010 was performing sales-wise, but wow what a difference between Windows Vista (Jan 2007 launch) and Windows 7 ( Oct 2009 launch). It completely masks the decline in Office sales, even though Office sales are obviously an equally big cash cow for Microsoft. It also makes the Server and Tools slice of the pie look tiny, even though it actually represents $1b a year in operating profit.

I also liked this chart of how Apple cannibalised the entire mobile phone industries’ sales with the iPhone. I am reading the Innovators Dilemma at the moment, and the release of a well executed touch screen phone certainly represents a disruptive technology in my eyes. It still amazes me that such a massive market filled with well established players can just be turned on its head in a few short years. More specifically Nokia’s share price copped a beating ever since the release of the iPhone, the subject of yet another chart. What is interesting to me is that Apple’s rapid rise ironically precipitated a huge boom in the adoption of open source mobile software in Android. I guess that the previous market leaders had their hands full competing with Apple’s hardware and didn’t have the time or resources to produce new software from scratch.

There are plenty more charts out there that will make you stop and think, and each one can be read into (rightly or wrongly) 100 different ways.

Crossing the Chasm by Geoffery A. Moore – Book Review

I have just finished reading Crossing the Chasm (Revised Edition) by Geoffery A. Moore. I purchased this book on Amazon after seeing it on a number of Googler’s Amazon wish-lists on LinkedIn, which is a good way to prepare for an interview with a new company! Truthfully however I decided to read the book because I have a deep appreciation of marketing and a strong desire to be an entrepreneur.

The Whole Product concept instantly resonated with me. The only thing worse than an engineer that thinks “I built it, now I just have to wait for them to come” is a sales person who thinks “we need a custom version for every customer who promises millions”. The central theme to the book is that getting a product to be successful is like organising a battle; from amassing a strong force to landing on the beach and finally taking the flag. At each stage there is a huge pit of despair that you can easily fall into. The key to it is where you spend your effort. Don’t focus too much on satisfying every product need, but just enough to appeal to a mass market. Don’t focus too much on a sophisticated marketing message, customers will get confused by and forget anything that is longer than two sentences.

One of the key learnings for me was that you shouldn’t pitch your product as a one of a kind, because nothing freaks a pragmatic buyer out more than having nothing to compare you with. How can you make a decision without a reasonable comparison? First you need to establish a market alternative (a familiar problem you are solving in an innovative new way) and secondly you establish a product alternative (a familiar solution that you have uniquely tailored to this application). By drawing a line between these two points of reference, you have created a new niche that customers will understand and appreciate.

The only aspects of this book I didn’t like were some technology references were a little outdated (even the revised edition is now 11 years old). I understand the historical examples where there was a conclusion, but some predictions are a little off (although probably good “what went wrong?” case studies). I also felt the book was a little repetitive in places, with the author jumping ahead and back again.

Overall however it was a great book and really thought provoking. It is a hard topic from my perspective because how do you teach minimalism, balance and keeping things simple? It is easy to go off on a tangent and over-invest in the area that has your short attention span as an entrepreneur. I guess not seeing the forest for the trees is a simple analogy? Anyway, I will no doubt use this book as a source of re-focusing when I do eventually realise my entrepreneurial dreams.

TEDxSydney Talks on YouTube

Today I was the guest author on the Official Google Australia blog! I helped the guys from TEDxSydney upload and present their valuable content on a non-profit brand channel. It is great to see so many talented Australians contributing to the huge public pool of knowledge that TED and its derivatives are generating. These HD quality videos really are the best way of transferring and retaining this knowledge.

Send Clientexec Invoices using Google Apps or Gmail

As a trial I have recently migrated my email from Microsoft Exchange to Google Apps. Google Apps Standard is free (even for multiple custom domains) and therefore significantly cheaper than my current Microsoft Exchange and Windows VPS setup. The built-in Mail Fetcher tool lets you keep your Google account downloading emails regularly (about every 20 mins?) from your Exchange account, while you take your time to migrate your DNS changes over. Once you are done you can shut down your Exchange account and disable Mail Fetcher.

Of course changing mail servers will have some effects, in my case it broke the email function of my Clientexec invoicing system. Luckily I found a great post by Adrian Jon Kriel that fixed my problem (thanks!), and I have reproduced it below:

Problem:
Default clientexec smtp mailer (PHPMailer) cannot handle the required SSL/TLS SMTP via port 465 for gmail.

Solution:

You will need a valid Gmail or Google Apps account with POP3 enabled (Gmail->Settings->Forwarding and POP/IMAP ->Enable POP for all mail)

Step 1) Modify the file: PHPMailer.php in your clientexec directory: /newedge/classes/

Step 2) Replace the following code around line 534:

// Retry while there is no connection
while($index < count($hosts) && $connection == false)
{
if(strstr($hosts[$index], ":"))
list($host, $port) = explode(":", $hosts[$index]);

with

// Retry while there is no connection
while($index < count($hosts) && $connection == false)
{
// modified for GMAIL
// if(strstr($hosts[$index], ":"))
// list($host, $port) = explode(":", $hosts[$index]);
if(strstr($hosts[$index],"://")) list($protocol,$hostPort) = explode("://",$hosts[$index]) ;
if(strstr($hostPort, ":")) list($host, $port) = explode(":", $hostPort);

Step 3) Change your clientexec Email settings (admin->SYSTEM SETUP-> e-mail settings)

Mail Type: SMTP
SMTP Host: ssl://smtp.gmail.com
SMTP Username: username@gmail.com (this will be your gmail login name)
SMTP Password: gmail_password (this will be your gmail login password)
SMTP Port: 465
Send Multi-Part MIME Messages: Yes or No (your own preference)

OPTIONAL

  • If you get “Connection Timeout” errors when u send an email, contact your host to open the TCP port 465.
  • On Windows servers you may need to add the “extension=php_openssl.dll” line to your php.ini configuration file.

Vision and leadership

Seth GodinSeth Godin is my favourite marketing guru, and he recently published a free e-book that has statements from 70+ great thinkers. For me, reading these statements was the perfect way to reflect on the past year and motivate myself for a big 2010.

There was one slide in particular that resonated for me. The ability to create a vision is a product management skill that I have really tried to build, but I never realised that by creating a vision you are demonstrating leadership. It is so easy to put vision in the “too hard” basket and let your daily grind expand to fill your day. A leader rises above this by setting a vision that resonates with those around you and motivates them to do the same.

In a down economy – particularly one that has taken most of us by surprise – things get very tactical. We are just trying to survive. What worked yesterday does not necessarily work today. What works today may not necessarily work tomorrow. Decisions become pragmatic.

But after a while this wears on people. They don’t know why their efforts matter. They cannot connect their actions to a larger story. Their work becomes a matter of just going through the motions, living from weekend to weekend, paycheck to paycheck.

This is where great leadership makes all the difference. Leadership is more than influence. It is
about reminding people of what it is we are trying to build – and why it matters. It is about painting a picture of a better future.
It comes down to pointing the way and saying, “C’mon. We can do this!”

When times are tough, vision is the first casualty. Before conditions can improve, it is the first thing we must recover.

Is there money in producing content?

yankee-group-online-ad-market-and-internet-access-growth-2006-2011

From MarketingCharts.com

Online media is growing up. All the big media players (News, Fairfax etc.) are currently fighting it out with the new kids on the block, online pure plays (Google, Microsoft, Realestate.com.au etc.). The prize is the rapidly growing pool of online advertising revenue, predicted to pass the US$50 billion mark next year. Historically the provider with the most content has attracted the most consumers, in turn attracting the most customers. Eventually this network effect lead to breakaway market leaders establishing dominance and gradually raising the market barriers of entry. Holding all the content was a licence to print money.

Slowly general search tools like Google and Bing, as well as vertical specific search sites like Zillow, started gaining momentum. They established themselves as “middle men”, generating advertising while helping people more efficiently find the content they were looking for. They were not interested in hosting or contributing content, but rather focused on the delivery of that content. They realised that the front-end distribution is where the money is at, not at the back-end creating content. Google in particular understands this, and the publishers do not. The publishers hate that Google News provides a beautiful user interface to access their content easily and for free, yet despite their threats they do not block Google’s bots because they need a strong online delivery channel and half their traffic comes from search engines.

This style of reluctant symbiotic relationship also appears outside news content, it is extending further into real estate and videos to name just a few. Microsoft are attempting to flip the relationship by making Bing Video index Google’s YouTube content and Google Maps is indexing real estate content.

The big media content creators have recognised one thing at least, for the partnership to work each participant has to have a stake in it’s success (or failure). Licencing deals, share stakes and other structures are occurring left, right and centre as the various players align themselves. This “sorting out” period has amusing side effects, like media companies being on both sides of the legal fence. Eventually the flurry of deals will subside and the media companies will realise that YouTube is no different to their old printing press and delivery operation, it is a necessary distribution channel that takes a commission. If your printing press operator decided to make your boring black and white rag and turn it into a glossy high end publication that successfully retailed at twice the price (despite having the same content) then good luck to them, in the end you benefit from a more valuable distribution channel.

For now we are faced with more sabre rattling by the media companies, constant partnership renegotiation’s and declining print revenues. As with any market forces, the digital media market will eventually reach an unsteady equilibrium. Some sort of duopoly with Google/Microsoft as the distribution channels, and the old media companies aligned behind them as the content creators. It is unlikely that the print rivers of gold will be seen in one place again, but sharing these rivers over a wider and more competitive landscape will benefit consumers. Sooner or later content producers will realise that revenue is a balance between consumption price and volume, withholding content only encourages piracy and other forces that undermine their progress to a fair and efficient new distribution channel.

Seth Godin – Marketing is too important

Seth begins his speech by saying he is going to go fast. I was initially sceptical, but now I have watched this video three times and I am still finding resonating ideas within it.

A good product should sell itself. Good products will get recommended. A personal recommendation is more valuable than a website lead. And so the circle continues. Now back to watching the video again…

Company Culture at Netflix

How many companies clearly define their culture and HR policy in a public way? Jack Welch of GE famously held the view that the bottom 10% of the company should be fired every year, but in the days of labor shortages that would be frowned upon. That’s why it was refreshing for me to see this slideshow from Netflix. Have a read for yourself, although be warned it is quite long and detailed:

So what do I think? Firstly it is awesome that a company publishes this kind of presentation, everyone should be proud of who they work for and have no problems articulating that to the public. I don’t think there are many companies who are so upfront, open and honest about who they are (in many cases even being aware would be a great start).

In particular I liked:

  • “adequate performance gets a generous severence package” – provocative but also highly motivating to myself at least. There is nothing better than being in a team where you know everyone cares as much as you do, and nothing worse than putting your heart into something that sits in someone’s “to do” list.
  • Brilliant Jerks –  the cost to teamwork is too high. I have had managers who make excuses for a brilliant jerk because they hate the thought of rehiring for a person that is currently letting them put their feet up.
  • Rare Responsible Person – Doesn’t wait to be told what to do, Never feels “that’s not my job”. Everyone should pitch in, no-one should feel territorial. If I am struggling I will put my hand up and ask for advice, and I expect others to do the same and welcome my input.
  • Value simplicity – No-one can manage lots of small products successfully. Focus on what works, and keep making it work even better.
  • High Performance People make few errors – Hire well, trust your people to do their job. Don’t cotton wool bad people and have checks and balances to make sure they don’t do damage. That adds huge amounts of waste and overhead.
  • Control through context– Managers should communicate a clear strategy and whatever happens within that strategy is up to the employee.

What did you get out of it? Does your company even have a policy or statement on culture?

Review: Getting Real by 37Signals

Getting Real CoverI was looking for good Product Management reading material, and was referred by a friend to the book “Getting Real” by 37Signals.

What did I like?

This book gets straight to the point, there is no bullshit whatsoever and it makes no apologies for that. Equally there is no room for bullshit in the product; decide a goal, keep the budgets tight, keep the team tighter, listen to the customer (at least when they bang down the door) and just execute the hell out of what you are doing.

This book is a reminder that building a product is not just about technically executing. Many usability, sales, HR and marketing issues must be addressed to deliver a successful, well-rounded product. You need to reflect this well-rounded nature too, everyone should take support calls, think of usability, write blog posts etc.

What didn’t I like?

There are however some minor things I don’t agree with. I think exit surveys are valuable, there should be a formal suggestion gathering and prioritisation process and there is a limit to how much information you should place online. If you have a mass appeal, generic app then I think these rules are a little different to someone developing a niche app for a specific market. Apart from these few items, I was nodding the whole way through the book.

Conclusion

This book embodies the entrepreneurial spirit of today’s web app developers. Put your heart into the app, and then put your app out for everyone to see. If you are a motivated person who wants to focus your vision and energy, then this book is for you.

Pricing a New Product

The initial temptation when pricing a product is to use cost plus pricing, where you add a mysterious comfort buffer to your costs to work out your rate card. Articles like this one where the author advocates that “I generally start at 10x and drop the x-factor down from there until I arrive at something that feels right” scare the crap out of me. Yes, I agree that costs are extremely important and that complexity is to be avoided at all costs, but seriously put some genuine thought and research into it.

 The key point to realise is that pricing is all based on the classic supply and demand curve. This has two huge impacts:

1. Pricing needs to take into account both supply (competitors) and demand (consumers)

Supply & Demand Meet at Your Price

Supply & Demand Meet at Your Price

Spend some time doing research on your competitors. Get their rate cards, not just word of mouth evidence. Your sales people will often be given rate cards by prospective customers, there is no vendor loyalty when a customer is negotiating hard and you should benefit from that where you can.  If it is a new product and you don’t think you have competitors, think again. You actually need a competitor. Humans decision making is an extremely relative process, so it is important to establish in the consumers mind who your competitors are and why they should change their mind. Take this TIVO example. There were no competitors when TIVO came on the market. The closest two existing products were a $100 VCR and a $1000+ computer. No prizes for guessing which device they compared themselves to.

Sometimes it takes a bit of trickery to associate your new product with the desired pricing benchmark. The most infamous case is cited in the book Predictably Irrational. James Assael was the “Product Manager” for Black Pearls, a product were not only completely unknown, but also proved unwanted. So what to do? 

 James Assael could have dropped the black pearls altogether or sold them at a low price to a discount store. He could have tried to push them to consumers by bundling them together with a few white pearls. But instead Assael waited a year … and then brought them to an old friend, Harry Winston, the legendary gemstone dealer. Winston agreed to put them in the window of his store on Fifth Avenue, with an outrageously high price tag attached. Assael, meanwhile, commissioned a full-page advertisement that ran in the glossiest of magazines. There, a string of Tahitian black pearls glowed, set among a spray of diamonds, rubies, and emeralds.

“The pearls, which had shortly before been the private business of a cluster of black-lipped oysters, hanging on a rope in the Polynesian sea, were soon parading through Manhattan on the arched necks of the city’s most prosperous divas. Assael had taken something of dubious worth and made it fabulously fine.”

Today this happens all the time. Apple introduced the iPhone at $599, then only 2 months after launch they cut the price by a massive $200 to $399. They set their price benchmark, and then slash the price to rapidly accelerate sales volumes with a heavily “discounted” offering. This brings me to my second point.

2. Pricing is not a straight line, linear pricing models do not work with scale

iPhone Price Cut! (?)

iPhone Price Cut! (?)

Apple also slashed  the iPhone price after only 2 months to drive those critical initial sales volumes as early as possible. As your production scales your costs are exponentially falling, especially when a product is being brought to market for the first time. This also reinforces why cost plus pricing is an impossible task, to be accurate your price would need to be different for each individual unit you sell. 

This scaling effect will also cause problems on the demand side. Put simply, cost plus pricing will cause you to over-price your product when there is a weak market and will cause you to under-price your product when there is a strong market. Again this is due to the curved nature of the demand curve, a straight line simply doesn’t fit.

Prices represent single points on a graph, so how do you create points that form a curve? You need an end-to-end product portfolio.

Conclusion: Plan an end-to-end Product Portfolio

The first key is to segment your target markets. You then need to set a goal for what you would like to achieve in that market (low end market share, diversify customer profile, leverage brand etc.) and scope a product to suit both. If you understand your target market you are understanding the demand curve, by figuring out what you have to offer you can determine the supply side of the curve. Add-ons are a great example of being able to target different markets without straying too far from your core focus.

How many add-ons should you have? The paradox of choice suggests that 3 to 6 choices is about the right number, otherwise the customer starts to get overwhelmed with the sheer number of comparison decisions being made.

37Signals Basecamp Account Choices

37Signals Basecamp Account Choices

You can make things even easier for the customer. 37Signals recently blogged how a simple (and not so subtle) change of their account selection screen to promote a particular product from their range greatly helped people make a quick no-fuss decision.  Even the order of the pricing can have a big effect, so don’t start thinking that once you have a price that you are finished!

In the end your rate card need to be treated just like your product itself, you need to keep testing it against the market and making sure you are still fitting the curve. Simple delivery and accounting practices help here, so don’t overcomplicate things. 🙂

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