Thursday, March 19, 2020

The Silver Lining

The Good Things That Might Come Out of the Corona Virus Epidemic

The Corona virus pandemic is one of the most worrisome things any of us have experienced in our lifetime. Not just the virus itself, but the changes it inflicts on our society, such as the lock-down on entire cities are unprecedented events in peacetime. But I don’t want to write another scary article. I want to write about the good things that can come out of this:

Working from Home becomes the new normal
By now, most of us are forced to work from home and we had to figure out how to remain productive…even you Marisa Mayer! Sure, some of you have been working from home for years but for many employees, this is a new experience, even if they had occasionally ‘worked from home’. But then, they still had to ask the boss, and they’d feel a little bit guilty and looked down upon as someone who might just be taking it easy for a day. 

Well, guess what, that’s changed now. We are experiencing that we actually can effectively work from home. The tools such as Zoom, Slack and Box are widely adopted now and, in most roles, you can be as productive working from home as while working in the office. Working from home should become the new default after this crisis is over. There are tremendous benefits that will result from this shift: 
  • Cutting down on my commute saves me 2.5 hours every day, and my commute is the average in the Bay Area. Now, getting just 25% of the people off the roads during rush hour every day would significantly reduce our traffic and make the commute a breeze for those poor souls who still have to commute.
  • I save serious money on fuel and my car’s operating costs. The official IRS mileage rate is $0.575 per mile and, trust me, the IRS is not being generous with that rate. That means that if you drove to work 25 miles each way, you are now saving $575 every month (!) on the cost of your vehicle, service, fuel, etc. You might even not need a car at all. That’s a pretty good raise, folks!
  • The reduced traffic also means much less pollution. Even in the Bay Area, where it feels like half of the cars are Teslas that don’t have any exhaust pipes, the pollution is down just like the traffic. The cities around Europe are already noticing much cleaner air as a result of the lockdown. In the end, if we can get 25% of the cars off the roads because people work from home, it’s 25% less pollution. Wow, here is a way to address Global Climate Change!
  • Work-life balance. Yeah, you know what, working from home means that we get to be more home. It’s something that some of us managed better than others in the past. Being at home gives you all kinds of flexibility, from being home for dinner every night to being able to sign for that pesky package delivery.

Distant learning becomes the new normal
Being stuck at home doesn’t need to mean that learning stops. Distant learning in the modern era means live video streaming and interactive conversations between the teacher and students. At least that’s the theory – after all, the technology is available and just about every kid is online today.

That said, my kids go to different schools that have shown a different level of preparedness for a crisis that forces everyone to learn from home. One school was ready to go with a distance learning protocol whereas the other school asked for a full week to figure it out. And we are in Silicon Valley where just about everyone has access to a computer and a decent Internet connection at home. I can only imagine that other places might not be as fortunate.

But the schools are figuring it out and getting better at it. Sure, not everyone might end up with real-time lessons, but they are doing at least something. This is a great step towards breaking down another boundary which is making the world a little more flat and which makes education accessible to more people, no matter where they are.

Tough times bring people together
I am fortunate to have lived in multiple countries and, in times like these, I like to see what’s happening where I lived before. The entire world is going through this crisis. Everyone struggles and everyone is impacted. But what I love is reading the stories about how this pandemic brings people closer together.

I read stories about the Italians singing like a choir from their balconies and about the kids in Prague volunteering to walk the pets for the elderly who are under a mandatory lockdown. I read about young people in Munich, Toronto, and San Jose helping others get their groceries or medications. There is even a new word they invented for this in Canada: caremongering! To stand up against fearmongering that the media loves to indulge in, people in Toronto are caring for each other. How cool is that?! Tough times can bring people together, and this time is tough for everyone. No matter where you live, where you come from, who you vote for, or which god you worship, together we are stronger!

We all learn a lot about hygiene
I probably don’t have to explain this one much but just think about how well we have learned to wash our hands in the last few days. What’s your favorite hand-washing song? I like the Bohemian Rhapsody but that’s a bit too long…I figured I’m done by “Galileo!”.

We have learned about social distancing, that we should rather call physical distancing, because we should remain social, even if we are physically isolated. We are learning about which material makes a more effective face mask and about the virus surviving on packaging surfaces for 24-72 hours. Learning more will make us smarter and we need to get smarter to prevent the next epidemic from ever happening again.

Casual is the new normal
Working from home, hardly anyone puts on "office clothes". And that’s just fine…and, I hope we can keep it that way even after the pandemic. Why do we live in a world that requires us to have two complete wardrobes? Why do I need to buy clothes to only wear in the office? It’s expensive, not that comfortable, and it’s environmentally irresponsible. The clothes and their cleaning require resources that are only used because we need to wear office attire.

Now, don‘t take me wrong. I am a father of teenagers and I am well aware that there need to be some boundaries in what people can wear. Different jobs, climates, cultures, safety requirements, and other factors may require such boundaries. I also understand that some people like to stand out by the way they dress. It’s a free country and we should be able to wear what we like. For example, every male in Italy will always look way, way, way sharper than anyone of us in Silicon Valley. But I do hope that we can drop the term "smart business casual" once for all…because I still don’t know what it really means.

We all become a little more human
One of the things I enjoy the most during this Giant Working From Home Experiment is that we are all impacted the same way. Even the company’s executive officers have their children screaming, dogs barking, and doorbells ringing at the most inconvenient times while on video calls. And you know what, that’s great! We are all human. We all have to deal with the daily hassle of family life, we need to have our oil changed, our refrigerators fixed, our hair cut, and our teeth cleaned. This crisis makes it a little more visible for all - and to all - of us. Because we are all impacted the same way. We are all human and it’s good to see that firsthand.

Social media might become social again
Let’s face it, social media no longer has the appeal of what it had ten years ago. Remember when we used it to just connect and share pictures of our pets and favorite dishes? Social media once allowed us to stay closer with our remote family members, communicate better with our friends and reconnect with our old classmates. Since then, unwanted advertising, online trolls, and political manipulations have become an integral, annoying, and unfortunate part of our social media experience. We don’t like when we see it but the most troubling part is that very often we don’t realize that we are being manipulated. Social media has become much less “social” and much more “media”.

Well, this crisis could be social media’s second chance. If we manage to start connecting with each other again, if we use it to share about ourselves and to help each other, we might find the social part of social media again. I still see a lot of fearmongering but I’m beginning to see some caremongering too. I still see a lot of fake news and advice but I’m also starting to see useful tips and sharing about how to deal with kids in the house while working from home. There is a lot of good that social media can do for us when we are all socially distant at home.

The Internet can be a powerful lifeline to our families and friends during this crisis. It’s up to the leaders of Facebook and Twitter to weed out all the evil - the trolls, the manipulators, and the fake news. This is their second chance. They have blown it the first time but if they figure it out this time, their platforms might have a real future. Otherwise, we will sign off for good.

The Corona virus pandemic is the greatest challenge that mankind has faced since World War II. It’s testing our resilience and our ability to adapt. But I do not doubt that we will come out of this crisis stronger than ever before. I also hope that this crisis will result in some permanent changes to our way of life – good changes, that make us and our lives better.

Monday, March 2, 2020

Four Types of Software Platforms

Many software companies claim to be a platform. That word alone invokes the impression of significance, scalability, good architecture, and a multiplier effect. Being a platform means that something or someone can stand on it. Companies that have a platform are surely more strategic and their software is ‘stickier’. Platform companies enjoy higher valuation multiples, just like SaaS companies get higher multiples than on-premises software. Being a platform is cool.

But what does it mean to be a platform? The term platform implies that it can be used to power several applications that solve different business problems. The opposite of a platform is an application that is always targeting the same business problem or set of business problems for the same buying center. There have to be multiple applications to make a platform, and sometimes there might even be thousands and thousands of applications powered by a platform (think iOS or Android) but those are extreme and wildly successful examples. A platform does not have to enjoy such broad appeal to be successful.

To become a platform, your company needs to decide what it is trying to accomplish. A platform can attract highly skilled talent, it can help to enter new markets, it can provide ways to solve new business problems, and it can help saving software development time and cost. But not all platforms are  equal and here are four different business strategies that a software platform might want to pursue: 

1.     Developer Platform
This is a platform strategy with the goal to attract developers who write code using the platform facilities - APIs, libraries, services, widgets, etc. The result of this strategy, when successful, if a large pool of broadly available talent trained to deploy and customize the platform. Microsoft is a good example of a company for which the availability of skilled and inexpensive talent has always been one of its primary strengths, especially for products targeting the SMB market. Another example of a hugely successful developer platform is Linux. Today, some of the hot developer platforms are Twilio and Google with their plethora of platforms from Android to YourTube.

The developers look for platforms as a way to accelerate the development of applications. Nobody would even think to build their own database for their application today, no matter how sophisticated a data model the application needs. The platform - in this case a database - provides that functionality ready to use. In addition, the developers seek platforms as a way to differentiate their skills and increase their market value, hoping to find the one with the right balance of strong demand and scarcity of talent.

When pursuing the developer platform strategy, you will want to have a well defined and documented API and developer tools. You will want to be very visible on developer communities such as GitHub, SlashDot, and StackOverflow. On the marketing front, you will be running developer conferences and hackathons, and you will want authors to write books about how to code on your platform. You will create developer certifications and badges that skilled developers put on their resumes and LinkedIn profiles. This strategy focuses on developers as individuals and your goals are meeting their needs and help their career success.  

2.     Application Platform
The application platform strategy has the goal of fostering an ecosystem of commercially available software solutions built on your platform. The focus is not the individual developers but rather the companies that augment your platform with applications, tools, utilities, or widgets. Rule No 1 of an application platform is that your success depends on the success of your ISVs. What you want is a thriving ecosystem. If your ISVs struggle, you will struggle.

The best recent examples of successful application platforms are Salesforce and ServiceNow. Salesforce, for instance, built an impressive ecosystem of applications that run on the Salesforce Platform. That said, Salesforce is also an example of a vendor that keeps repeatedly violating Rule No 1 as they struggle with the dilemma between making ISVs successful vs taking over that space themselves. There is a growing list of Salesforce ISVs that have found themselves competing with Salesforce: Veeva, Apttus, and ServiceMax to name a few of such examples.

When pursuing the application platform strategy, you will want to do a lot of co-marketing and co-selling with your ISVs. Your Strategic Alliances and Partner Marketing organizations will be continuously looking for ways on how to promote your ISV partners and how to optimize your co-selling tactics. Lead-sharing, sales incentives, and joint marketing campaigns need to become a priority.

The primary benefit of the ISV ecosystem is its ability to take your platform into new markets. That’s why it is important that the ISVs make a big bet, taking on a lot of risk when they build their solution on your platform. Applications that merely integrate with your platform don’t count because they are not taking you into new markets, they expect that you bring them into yours. By placing a big bet, though, your ISVs depend on you for their addressable market and they trust that you won’t violate Rule No 1. If you do, they have no choice but to hedge their bets and eventually abandon your platform.

3.     Customization Platform
A customization platform is a platform that enables customers to tailor their software deployment to fit their specific requirements. This is particularly important in the enterprise market where every company needs a different flavor of your solution, even if the solution has been built to address a specific business problem in their industry. If nothing else, they need to customize the data models, business rules, and business processes. This requirement is what separates the enterprise market from SMB.

In the enterprise, every deployment requires some degree of customization. That’s why so many enterprise software companies call themselves a platform even if they don’t publish any APIs nor do they have any ISVs. And they are right - those are platforms that can be customized to solve any business problem. The best examples of such platforms are the Business Process Automation vendors such as Pegasystems or Appian or the new breed of Robotic Process Automation vendors such as Automation Anywhere or UiPath.

The customization platforms are used by customers themselves and by companies that provide deployment services; the system integrators. The customization can be done on any level, from high code development to some of the new, modern approaches that don’t require a single line of code. These modern approaches called low-code and no-code enable quick and easy customizations of commercial applications or even the creation of simple new bespoke applications.

4.     Shared Services Platform
Smart software companies build a platform even when they don’t pursue any of the external-facing strategies described above. Or maybe they don’t pursue them yet. One of the benefits of a platform strategy is a scalable architecture with shared services that can be reused from one product to another. The shared services usually include a data model, data store, user management, security, event management, process orchestration, notifications, administration, monitoring, audit trail, reporting, etc.

By leveraging shared services across multiple products, software companies can greatly reduce the cost of development, speed up the time-to-market, and improve the interoperability between the applications. This strategy also fosters the land-and-expand strategy where a single application might be the initial entry point into an account and, as the customer identifies further needs, the additional applications can be added easily when based on a common platform. 

These benefits are usually compelling enough to make the shared services strategy worth pursuing, even if the company has no interest in attracting developers or ISVs and even when its solutions are deployed in a one-size-fits-all manner without any customization.

It is tempting to say that you want to pursue all four strategies for your platform. Large vendors with a lot of resources might actually have the money to drive all those programs. Microsoft certainly does. But most software companies can usually only do one of those things well and so they have to decide which strategy do they pursue for their platform.

Because, yes, a platform can mean many things.

Tuesday, February 18, 2020

Sick of SIC Codes?

Classifying your customers or prospects based on industry segments should be much easier than it actually is. It’s actually surprisingly hard. So hard, that Gartner stopped any market sizing and forecasting efforts based on verticals back in 2017. Chances are that if you measure your company performance based on verticals, there are only very few people in your company who can provide such data. And chances are that data is highly inaccurate.

Charles Darwin would struggle too...
There have been two main efforts to standardize the taxonomy of industry verticals. The SIC is the older, international standard albeit originally developed by the US government. NAICS is much a more recent taxonomy from the US Census Bureau. SIC, which was last updated in 1987 is so old and outdated that it should no longer be used but it lives on as many of the companies with headquarters outside the US don’t have an NAICS code and only are classified with a SIC. Also, SIC is in particular used in the UK and so if your EMEA headquarters are in Britain, chances are they will be using SIC codes just to keep their US marketing colleagues out of their turf.

The NAICS has been most recently updated in 2017 and is much more up-to-date than SIC but don’t hold your breath, it’s not that much better. In fact, while I called out SIC in my [hopefully] catchy title of this blog post, the challenges are the same with NAICS codes.

Both are using multi-digit code to specify the industry. For example, NAICS is typically used with 2 to 6 digits. The more digits you use, the more precisely you are diving into the taxonomy. You can select to filter companies based on their, say, 3-digit NAICS and you will get a list of companies with a specific level of granularity. If you want to be more or less granular, you add or remove a digit. That is immensely useful.

The problem with the standardized industry code is not so much the quality of the standardized taxonomy, although, try to classify technology companies using SIC - most common technology categories hadn’t been invented yet in 1987! The problem is the classification ambiguity.

At first, it sounds simple. After all, Boeing builds planes, Bayer makes drugs, and the Department of Energy is part of the government. But when you start looking closer, you realize that sometimes, Boeing is classified as a manufacturing company, Bayer as a laboratory equipment manufacturer, and the DoE under power & utilities. And those classifications are correct. In fact, Boeing might be also classified as a transportation company or aerospace & defense company and none of those classifications are wrong.

Part of the challenge comes from the source of the SIC and NAICS codes. There is no central register of SIC and NAICS codes. That means that every organization or agency that uses them is in charge of their own assignment. Companies might also self-select their NAICS code when filing various government reports (i.e. census, taxes, etc) but that often leads to different NAICS code selection for different purposes.

Another source of NAICS codes are the data companies such as Dun & Bradstreet that assign NAICS codes on their own. That is another source of ambiguity, especially when you start combining lists from different providers. 

On top of that, companies evolve. As they add new product lines or services to complement their products, the original NAICS code might no longer fit. Sometimes, they keep the old code but often, they end up with a highly ambiguous code such as “Business Services” which might be technically accurate but doesn’t really tell anyone what they do.

So, how do you solve the NAICS and SIC code puzzle? How can we get accurate and useful classification for your particular organization? The short answer is that there is no magical shortcut. If the NAICS codes that come with your data list don’t work, you’ll have to assign them yourself. Yes, this is a manual process and it’s impossible to do for your database of 100,000 suspects. But it might be possible for your database of 500 or even 5,000 customers and that’s where you should start.

To do that, you want to first build your own taxonomy. Because you’ll have to manually classify your customers, you can’t have a taxonomy with hundreds or even dozens of possible entries. There are over 1,000 6-digit NAICS codes, 709 5-digit NAICS codes, and 311 4-digit NAICS codes, Even if you limit yourself to just 3 digits, there are still 99 NAICS codes to assign. That’s too many! There are only 20 sectors using just 2 digits which is a good, humanly consumable number but you’ll find out that that won’t give you nearly enough granularity.

What you need is your own taxonomy - a taxonomy that is based on NAICS but stays very high level in some of the branches and perhaps ignores some completely. Maybe you don’t do any business in the agricultural sector at all? Or perhaps the public administration sector is not relevant? Leave them out.

At the same time, you need to go deeper than 3 digits in some of the more relevant areas. Manufacturing is a good example. If Medical Equipment Manufacturing is a relevant sector for you, you have to go to 4-digit NAICS code (3391). Obviously, you can’t add every 4-digit code, but you can pick the ones relevant to your business.

That means that you end up with a taxonomy that uses the correct NAICS codes but goes deeper in some areas while it remains shallow in others. It all depends on what’s relevant to your business. Now, that taxonomy should have no more than 20-25 entries. Anything more becomes humanly impossible to keep track of unless you have dedicated people who do nothing but this. If you are tracking more than 25 verticals, you need to rethink your vertical strategy - so why work with a taxonomy that contains hundreds of them?

Next, you need to establish some rules on how you will classify some of the ambiguous cases like the ones I mentioned above (Boeing, Bayer, etc). You have to decide how you will classify those companies based on what serves your business. Here are a few more examples:
  • LSG Sky Chefs is a company that provides food catering services to airlines. You decide whether they are a Food Services (722) company or an Air Transportation company (481). Think about the impact on your business. Would you find them at a gastronomical conference or at an aviation expo? Would they be handled better by the sales rep who’s focused on aviation or by a rep specialized on the food industry?
  • Kiwa is a company providing inspection services across verticals and you need to decide whether you classify them as Pharmaceutical and Medicine Manufacturing (3254), Oil and Gas Extraction (2111), or perhaps you create a category called Testing and Inspection Services that doesn’t have a NAICS code. What you probably don’t want is to assign them the code for All Other Professional, Scientific, and Technical Services (541990) which is where they usually are classified by default. 

 As you can see, the ambiguity can be pretty high and overwhelming, but the good news is that you can get started and create (and document) your rules as you come across the ambiguous cases.

Now, it’s time to think about the business process. Obviously, it is unreasonable to go through thousands of accounts and classify them all at once. That’s a lot of work. Instead, you should think long term. What’s the process that touches all customers in the course of a year? Perhaps it’s the contract renewal process. If that’s your best bet, then the team handling the renewals will be the team that assigns them their vertical the next time their contract is up.  

Another possibility might be to let customers select their vertical from your custom taxonomy - perhaps as part of a customer survey or when they register for a webinar on your website. Or, you can make the field mandatory for inside sales to fill out when they accept the opportunity. You will find ways to systemically apply your classification to make it feasible and consistent.

A vertical strategy is extremely important for most software companies. As you mature from selling features to selling solutions, you will want to start infusing more and more vertical language into your messaging. But none of that is very useful if you can’t target your prospects and customers based on their vertical. And that’s where the NAICS and SIC codes are very useful, but only if you make them work for you.

Happy marketing!