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Watson Food for Thought

I am a big fan of Watson and the business model vision that IBM has for allowing other businesses and start-ups to leverage the power of Watson for their own solutions.  While Google, Facebook, and other massive data stores seem intent on leveraging their own data for their own use, IBM appears to be taking a more open approach, leveraging its massive base of computing knowledge to accelerate other companies’ strategies and collect recurring tolls along the way. 

As investors this creates what is likely to be a huge next wave in start-up innovation driven by artificial intelligence, and as early stage tech investors, our team here at Osage Venture Partners will do our best to invest to seize this opportunity.  Corporations see the huge economic benefit of replacing people with technology solutions, especially as we shift from replacing bank tellers, toll collectors, customer service reps, and gas station attendants to replacing much more expensive knowledge workers.   The social implications of this potential disruption deserve much debate and discussion but that is for another time and another post.

Perceptions on the viability of AI to displace white collar jobs are changing fast.  Industries that never saw automation replacing key roles are shifting their views of the future.  Take law as an example.  I found this following data in an interesting blog:




There is a lot to remark on in this data.  First, look at how perceptions have changed in four years.  A 50% increase in percent of people who think first year associates can be replaced in 5 to 10 years by a Watson equivalent– up to 35% of those surveyed.  Almost half believe paralegals will be able to be eliminated in this time frame.  As this was a survey completed by firm leadership, of course the percent who believe partners will be replaced is lower – but is this reality or some form of polling bias, as Daniel Kahneman would point out? 

Of course, this is a poll trying to predict the future, so it could be wrong in both magnitude and timing.  Yet recently with technology penetration, the timelines have been shorter and the impact has been higher than earlier estimates had predicted.  Remember how everyone laughed when Jeff Bezos discussed drone delivery in December of 2013?  Remember how recently we laughed about autonomous vehicles?  Four years ago, 46% of law firm leaders polled said computers would never replace human practitioners.  In 2015, it was down to 20.3%.  Time will tell.

Similar trends are emerging in other knowledge worker functions.  In Japan,   Fukoku Mutual Life Insurance is reportedly replacing 34 human insurance claim workers with “IBM Watson Explorer,” starting this month  Today actuaries – tomorrow lawyers?

The good news is that we should be seeing legal fees coming down steeply in the future, although the computer which replaces me may not need to hire its own lawyer.


Salary, Value, and Poaching

We have seen a number of high quality people getting poached or almost poached from different portfolio companies over the last couple months.  The labor market for skilled technical and analytic people is tightening and the war for talent seems to be only getting more intense.

One area where we have been seeing forward-thinking company executives take action is in the attempt to market-price employees, especially less experienced, fast-rising team members.  A mistake that is often made is to hire a very inexperienced person (often just out of college) at a low, but fair starting salary and then to increase that salary at the same rate as the overall average employee base raises.  As an example, many companies will hire a new marketing analytics team member at $45k and give them two years of 5% raises, but that means they are barely making $50k.  If they go to the market after two years of working at your hot start-up, with the great experience you gave them, what could they make?  $60k?  $75k?  The key is to ask yourself what you would pay to hire someone of a similar profile and make sure you are paying near enough to that level to make the employees’ decision to shift jobs to not really be about money.  Then if your culture is good, the upside is high, and the options have potential, these people are most likely to stick with you.

This is mostly an issue with younger hires, as the value of a person going from no experience to three years of experience rises at a very steep slope.  From three years to six years, the slope flattens.  Beyond six years, it is really a person-by-person and market-by-market decision, as at that point you pay for talent because most potential has been realized.  Average raises across your workforce just don’t work for the rise in value of a person in the early years of a successful growth curve. 

My advice for CEOs and functional leaders – make a print out of the cash compensation of everyone on your team on a quarterly or semi-annual basis and look at it over the last 8-12 quarters.  By the way – always look at total cash compensation in making this decision, as bonuses and commissions certainly do count.  Calculate the growth in compensation over time.  Ask yourself how valuable and how ambitious each person is.  Ask if you would have been happy with this level of salary acceleration at the same stage of your career.  Then make the appropriate adjustments.  Cash is king, salaries need to be held down as much as possible, and frugality of CEOs is a great quality – yet software companies have one real asset and that is people.  Grow, nurture, and protect your team.  Match salary to experience and value, not time, and keep the poachers at bay.


Strategy Is About Winning

We have a number of companies that have recently made the shift from proving out product / market fit to focusing on execution.  This often happens in the $3-6 million revenue range and in a SaaS business, it happens when growth is sustained at levels well above 50%; the sales engine has shown an ability to scale beyond the initial founder; SaaS metrics are strong; and churn is under control, and hopefully negative on a net revenue basis.  Company leaders then shift to the task of attempting to scale the business without breaking the components that are working.  A lot has been written on how to scale a predictable revenue model and how to build out teams.  I won't attempt to replicate that here.

This stage of focused execution needs to be combined with an emphasis on strategic thinking – and the CEO needs to spend sufficient time on each.  Execution is about every day behaviors and process excellence and it should be the daily focus for much of the organization.  Strategy involves fewer people, it happens less frequently, and if done correctly, it should be asking big and uncomfortable questions.  People use the word strategy all the time to describe things that are actually pretty functional and tactical.  Sales strategy, HR strategy, customer retention strategy, outsourcing strategy and so on.  These are all important but at a micro versus macro level.  Corporate strategy is about winning and is played with the knowledge that for you to win, others will lose.  

I had the opportunity to spend some time at Uber’s headquarters in San Francisco recently.   Uber has great offices, tremendous energy, and an intensity to the place that is surprising in an 8,000 person start up.  In a discussion with one of their senior executives, who had come from another great tech success story, I asked what was different at Uber versus so many other successful companies.  The answer was that the team at Uber feels that their future, their success, and their existence are constantly under tangible and measurable threat every day.  The battlefield is multi-faceted – there are well funded existing competitors and new ones emerging all the time, there are local & state & federal & international regulators trying to stop them, and entrenched providers attempting to avoid disruption.  While many of these battles are tactical, the war is strategic, and major “bet the company” decisions are made with high frequency.  While this strategic urgency may be more palpable at Uber than other companies, status quo can’t exist forever for any business.  In the words of Andy Grove – the former CEO of Intel who completely shifted the company’s strategy from DRAM to microprocessors during a period where another CEO would have been complacent with dominant market share – “only the paranoid survive.”

The paranoid CEOs ask themselves and their teams the tough questions:

  • If I worked for competitor x or competitor y or some absolutely new competitor, what would I do to hurt or kill us? 
  • What would happen if we lost our largest customer?  our biggest channel?  What could one of our competitors do to take this away from us?
  • How could one of our competitors shift the economics of our industry?  How would we recover?
  • What if a competitor with a broader footprint offered their answer to our solution – for free?
  • Is there a strategy for killing any of our competitors or mortally wounding them?   This means understanding at a high level where our competitors make their money and where they are most vulnerable
  • What if the market evolves in a certain direction?  What would render us less relevant or not relevant?
  • What are we doing today that is a distraction of time and resources that could be better spent extending our competitive advantage?

While this sounds obvious, most start-up CEOs get so caught up in the day-to-day details of their business, especially when they are scaling and dealing with all of the issues related to growth, that they forget that businesses built on disruption can get what they have been giving and face disruption of their own.

What are some things a CEO and a management team can do?

  • Schedule strategy off-sites at least once a year and force your executive team to do some work ahead of time answering key questions on the market and your company’s position; emerge with a clearly articulated point of view on where to play and how to win in your market
  • Jump on sales team calls once a month and ask the team what changes they are seeing – new competitors, different customer questions, surprising losses, anecdotes.   These can all be leading indicators
  • Build a product management function that is macro as well as micro-focused and feature / function focused.  Your head of product management should be your strategy consigliere
  • Become an industry expert.  Talk to everyone – analysts, bankers, partners, competitors, other tech CEOs in tangential spaces – ask them what they are seeing, feeling, sensing
  • When you hear something or read something that looks new or different – send it to your management team – use slack or something collaborative.  It is always interesting how that gets the interplay going and how thoughtful different team members can be on topics that seem out of their functional area
  • Maintain a thorough competitive analysis document – again, using Slack or something collaborative; empower your entire team to post information about competitors as they come across it, and conduct a thorough update every 3-6 months, which should include signing up for your competitors’ sales demos

Execution is a prerequisite to success but not a guarantee of it.  The right strategy and good execution trumps excellent execution and the wrong strategy any day.  Strategy is ultimately owned by the CEO because key strategy decisions don’t happen unless you agree and make them happen.  If you are not asking questions such as: “How do we win?” and “How will this (competitor, event, market dynamic, customer segment, etc.) impact our ability to win?” then you are not doing a big piece of your job.  Remember – strategy is about winning.


Working the Middle of the Pipeline - PeopleLinx: A "Dialer" for Salespeople

I love high velocity sales models - when they work.  Books like Predictable Revenue capture the essence of the model.  While each company has a different mix of inbound and outbound lead gen efforts and other initiatives, such high velocity models are a highly productive way to sell many SaaS products, and certainly beat classic enterprise sales models for efficiency and measurability.

In general, BDRs (business development reps) drive MQLs (marketing qualified leads) which become SQLs (sales qualified leads) which move down the funnel to contract and an initial sale which then through land and expand efforts driven by CSMs (customer success managers) become larger and more loyal relationships.  Some products just fly through the funnel and get sold on the spot, but many others get assigned to a sales person and become the classic "pig in the python.”  Having had sales roles in my career, I know the challenge of working the funnel.  There are a number of things I could possibly do for each prospect.  I could send them content.  I could schedule a demo.  I could spend time researching them.  I could do an influence map.  For many years, that set of activities has been pretty well known – and pretty finite, with sales people only having so many arrows in the quiver.  With the advent of social, however, that list has expanded significantly, and I can now do so much more.  I could connect with the buyers and influencers on LinkedIn or Twitter.  I could react to things they write.  I could follow the companies.  I could send targeted content curated by my marketing organization.  

Truth is that for every company in the funnel, there are probably twenty to fifty things I could be doing to move any particular opportunity along the funnel depending on stage in the process.  If I had thirty companies in my funnel, that means that I could be doing one of six hundred to fifteen hundred activities to move things along.  How do I determine which to do?  How do I remember them all?   How many activities do I do if I am working to get a deal or two closed this week?  With that stress, who has the time to change gears and THINK ABOUT which activities to do?  What if someone could give me a list of the top activities to do today based on where companies sit in my funnel, what I did last with each opportunity, and what they might have done in terms of social postings or other activities.  What if this list was integrated with Salesforce and also made each of these activities - email, content share, social linking - quicker and easier.  Wouldn’t my productivity go up?  Wouldn't opportunities move faster in my funnel?  Wouldn't I stay engaged with opportunities even as I closed other deals?  Wouldn't I make more money for me and for my company?

What I described is PeopleLinx.   This company does for sales reps what the automated dialer or InsideSales does for the BDR.  The Dialer tees up the next call as soon as the last one is made.  It can also leave pre-recorded voicemails as the BDR moves to the next call.  Call efficiency goes up.  BDRs are no longer spending time thinking about what's next.  PeopleLinx does the same for sales reps by providing daily prioritized "optimizations" or recommendations of actions with efficiency steps for achieving each activity quickly.  And it's working.

PeopleLinx customers are seeing accelerated sales cycles, higher win rates, and engaged sales people.    As an ancillary benefit it also drives higher usage and adoption of because it shifts the CRM product from a management reporting tool to a sales productivity tool.   

Osage is an investor in PeopleLinx and I am chairman of the board so maybe I'm biased, but I think the product is worth a try.  By the way, if you reach out to PeopleLinx and end up in their funnel, you will experience the product from the side of a prospect.  They eat their own dog food and it serves them well.


Thoughtful Listening Leads to Wise Decisionmaking

I took a course in law school on medical ethics, mostly because it was taught by Dr. Jay Katz, a Harvard trained physician, medical ethicist (he had participated in the Federal inquiry into the Tuskegee Syphilis Study), Freudian analyst (in his spare time, I suppose) and campus wise man.

One day in class he told a brief, self-revealing anecdote.  When he first started seeing patients in analysis – and this was the four day a week, on the couch, Woody Allen variety of treatment – he was terrified of making a mistake, so he listened very closely but said almost nothing.  After a few years, he gained a great deal of confidence in the power of his insights, so he shared them with his patients, often and at length.  Then, in what we might call the third phase of his career as an analyst, he recognized how his strong views were not as helpful as he had thought and settled back into thoughtful listening, occasional guidance and trust in the power of the analytic process.  His patients, he came to realize, largely improved through self-discovery.

This memory came back to me (I suppose I free-associated to it) in thinking about a recent CEO retreat we held at Osage Venture Partners.  Fifteen of our CEO’s attended a two day session of intensive and structured conversation.  Although OVP is an early stage fund, our CEOs range broadly in experience, from the very new to some who have led multiple companies.  They are a talented group, and gathering them together is one of the highlights of our year. 

This year our retreat featured a panel of four regional CEOs who had led their companies to hugely successful outcomes.  They were, given their success, surprisingly modest in affect and advice.  Rather than say, “You should do this or that,” they said “This or that worked for us, and it may work for you.”  Rather than trumpet their success, they talked about luck, timing and perseverance.  And rather than ascribe their success to their own talent, they emphasized the importance of having a great partner in their enterprises and, of course, in hiring A Players.  All four of these highly successful CEO’s had great confidence, although they spoke of fear and paranoia as an important motivator.  Their confidence did not come from a belief that they were a walking encyclopedia of best practices that guaranteed the next Unicorn.  Their confidence was rooted in their belief that they had learned a process, that through careful listening to highly- talented people they and their teams would self-discover what was best for the company at that moment in time.  Their confidence was not so much knowledge based as process based, that they had learned how to combine humility with decisiveness. 

When we gather our CEOs, all focused on B2B software but each with a unique strategy and organization, and augment them with four seasoned and successful CEOs, it becomes obvious that there is no single path to success.  Since most of our CEOs are in the portfolio for several years, we have the benefit of hearing their voices change over time.  The trend is fairly consistent; no matter your starting point, running a start-up is a lesson in humility, and the faster and deeper you learn the lesson, the more likely you are to make winning decisions.