So how do we find the very best? How do we attract them to our companies? There are the obvious choices: advertisements, job boards, networking, referral bonuses, etc. The problem with these methods is that they focus on people who are actively looking for the work. They often don’t find people we would love to hire who are not looking for work. In addition, these methods provide little assurance we are getting the best, forcing us to apply proxies to test capability.

Luckily, we now have an excellent way to find great developers: the hackathon. Why? Here’s what happens when you sponsor a hackathon:

1. You Tap the Hacker Culture: Today’s development culture is the hacker culture. By sponsoring a hackathon you are reaching out to the most dynamic developers in an appealing way: a competition to demonstrate their knowledge and creativity
2. You Attract the Go-Getters: Most developers work very long hours. Even so, the best are always looking for new ways to learn skills and test knowledge. Those with the drive to go and compete in a hackathon are exactly the kind of people you want.
3. You See Teams in Action: At a hackathon you can watch teams in action, under time and competitive pressure. You can see which teams handle this pressure best, and who the leaders are—incredibly valuable insights when seeking the best talent.
4. You See Real Work Product: As a member of the award panel, you see who has the best designs, who built the most in the time permitted and who had the best performing code (you can even do spot code reviews). You even get all this without any violating confidentiality provisions.
5. You See How People Work With Your Product: You get to see who likes your APIs* and who doesn’t. (You will also get great insights to improve them.) You see who can build the most with your product and who can help you improve it.

These are incredibly valuable insights. What is more amazing, is that you see these before you even consider making a job offer—instead of sixty days after hiring a new employee.

So, if you are looking for great people, sponsor a hackathon. You’ll quickly find the talent you want, significantly reducing the length (and risk) of the search process. Just remember to make it fun and appealing—don’t turn it into an obvious career fair or recruiting event.

*If you don’t have APIs that readily apply for a hackathon contest, you are not completely out of luck. You can orchestrate a hackathon around the platform you are based on, open source libraries you use, or many other proxies for your product.

Why Risk Management Matters is So Important in Creation

A Risk is a possible situation that could materially affect (i.e., derail) your plans. Risk Management is a set of techniques to reduce the likelihood and/or effect of risks on whatever you are doing.

While any operation or activity has implicit risk, the act of creating something entirely new—be it a company, platform, product or process—is fraught with some of the biggest risks imaginable:

• What if your underlying assumption regarding the need for what you are creating does not match reality?
• What if your select approach to fulfil this need does not fit the market?
• What if customers cannot readily recognize the value of what you are creating?
• What if your assumptions of customers’ priorities differ from what they really are?
• Are your customers do not use your creation in the way you expected?

Get all of these right and you will have created “The Next Big Thing.” Get any one wrong and you will likely have a big failure on your hands: lost or delayed revenue; failed launch; wasted time, work and money; etc. Managing these risks from the start—without undue overhead and complexity—is vital to success. The #LeanStartup easily lets you do this.

Tactic 1: MVP Testing to Avoid the Biggest Risks to Creation

As outlined above, act of creation faces bigger, more fundamental risks than any other endeavor. A core principal of risk management is to “manage the biggest risks first—when they are easiest and least costly to address.” The #LeanStartup does this using the Minimum Viable Product (MVP).

MVPs test high-risk assumptions (regarding market, platform, product position, product scope, etc.) from the start, using rapid, low cost development efforts. This avoids the biggest risk of all: wasting time and money creating something customers do not need, want or use as expected.

However, what is refreshing about the Ries’ approach is how he challenges current conventional wisdom regarding how to do this:

I was a devotee of the latest in software development methods (known collectively as agile development), which promised to help drive waste our of product development. However, despite that, I committed the biggest waste of all: building a product that our customers refused to use. (The Lean Startup, pp. 46-47).

Instead of focusing on eliminating “product development waste” (i.e., figuring out how to build faster), the #LeanStartup model focuses on eliminating “customer learning waste” (i.e., figuring out how to understand your customers faster) using the principal of Validated Learning. Validating Learning first uses MVPs (and later Innovation Accounting, see below) to let you focus your time and energy on creating the things most useful to customer (and vital to your success).

Tactic 2: Innovation Accounting to Continuously Avoid New Risks

Risks are not static. They do not all start at the beginning but can emerge at any time. If you do not continuously keep your eye out for new risks to manage, you are likely to face unpleasant surprises as you progress with creating your new product, platform or process. The #LeanStartup model addresses though use of a new form of metrics called Innovation Accounting.

Innovation Accounting is based on the use of actionable, accessible, and auditable metrics to detect and avoid risks by measuring what customers are doing with your product. It throws out “Vanity Metrics”—both measurable ones such as website hits and anecdotal ones such as “person X said our product was great”—in favor of metrics that focus on how customers proceed through their entire life cycle:

• Of those who looked at our product, which actually bought it?
• Of those who bought it, which used it (and how much or how often)?
• Of those who used it, what features did they use most and least?
• Of those who bought and used it, how many continued to do so? How many recommended it to their friends and colleagues?

Through use of Innovation Accounting (frequently in tandem with A/B Testing, Cohort Analysis and other pilot strategies), you can detect aspects of your product, platform or process that are resulting in undesired outcomes (e.g., abandoned sales, customer turn-over) earlier, addressing them before they become large problems. Furthermore, by tying metric results into your product development lifecycle (another unique change to Agile and Lean methodologies), you can avoid the risks of build whole sets of product features and capabilities that are not useful to your customers (and hence, a waste of time, effort and money to you).

Tactic 3: Pivoting to Mitigate Realized Risks

No matter how skillful you are, some risks will simply “just happen.” Even if your execution is flawless, external events (e.g., new market trend, new competitor, new invention) will change your competitive landscape. When this happen, you may need to change what you are doing if you want to continue to grow your new creation.

The #LeanStartup model introduces the concept of the Pivoting to adapt to change. Pivorting formalizes a fact-based process for change (using Validated Learning from MVP Testing and Accountability Metrics) adding calmness and control when reacting to new information and external events. Ries highlights ten categories of pivots to help you more effectively adapt to a broad range of scenarios, such as:

• Your product is compelling but its delivery model is not
• Your product is compelling but its sales model or channel is not providing the results you need
• Your product is compelling but your valuation for pricing does not match your customers’
• Your strategy is compelling but underlying market and technology changes require a different approach

Inclusion of Pivoting in your overall business model provides a tool to mitigate the effects of late occurring (or late discovered) risks that could not be avoided earlier in the creation lifecycle.

***

Creating anything new is an exciting—but risky—endeavor. Eric Ries’ #LeanStartup model provides three tactics that not only help you guide your venture to success, but also seamlessly harness the most powerful risk management techniques from the start of your idea through realization of your goals.

Article first published as Ten Tech Trends for Your 2012 New Year’s Resolutions List on Technorati

One of the most exciting things about working in tech is using it to create new ways to work, play—and even live. We have seen many great technology innovations develop over the past few years. Over 2012, ten of them will complete the jump from “new concept” to “mainstream trend.” How many of them are your ready for?

1. Everything Will Be Portable. The move to portable computing (smartphones, tablets and ultrabooks) will accelerate. Thick laptops and—even worse—desktops will be a relic of the past (except for those with high-power computing needs). If you are not yet mobile- and portable-ready, you better get there very soon.

2. Augmented Reality Will Go Mainstream. Augmented Reality (AR) is no longer a science fiction concept. Smartphones and (especially) tablets are mass-market platforms for everyday augmented reality. We are already seeing the first applications at Tech Meetups, CES and more. At least three innovators will exploit this, gaining mainstream adoption, by the end of 2012.

3. Touch Will Be Ubiquitous. Over the past five years, capacitive touch interfaces have re-programmed how millions of us interact with technology. As more devices are now sold today with touch than without, it is time to begin optimizing your user interface and user experience for touch (instead of a two-button mouse and keyboard).

4. Voice Will Be Next. While the intuitiveness of touch is a leapfrog improvement over mouse-and-keyboard, it still ties up our hands. Voice-based interaction is where we need to go. Apple’s Siri began the move of voice-driven interaction into the mainstream. This year, we’ll see SDKs for iOS and Android that harness the creativity of thousands to explode use of voice.

5. Fat Will Be the New Thin. Over a decade ago, broadband Internet enabled browsers to replace thick client applications. Now, portable computing usage across low power, lossy networks (e.g., mobile, WiFi, Bluetooth) coupled with AppStore Model has brought locally installed apps back in vogue. Building web apps is not enough; you need AppStore apps too.

6. Location-based Privacy Will Be Solved. Over the last two years location-based services became really hot. Unfortunately location-related privacy issues became hot too. The move of these services into mainstream populations of tens of millions will expand anecdotal security scares into weekly news stories, forcing adoption of safer location-based privacy policies.

7. Cloud Will Be the New Norm. Cloud computing is no longer an “edge market.” It is now adopted by big enterprises, public sector agencies—and even consumer tech providers. The cost, convenience and flexibility advantages of cloud computing will make it too hard for everyone not to use—everyday—by the end of this year.

8. …So Will Twitter. While people still love to debate the reasons to use Twitter, everything from the Arab Spring to the Charlie Sheen Meltdown showed that Twitter is now a well-recognized media channel. #Election2012 will accelerate mainstream use of Twitter—with the same overwhelming intensity we have seen for years in “traditional” campaign advertising.

9. ‘Consumerization of IT’ Planned and Budgeted. Consumer tech has become so sophisticated (without sacrificing ease-of-use and intuitiveness) that we began last year to demand its use in the enterprise. 2012—the first year in which most enterprise budgets include planned projects to support the consumerization of IT—will both accelerate and “lock in” this new tech trend.

10. 2012 Will Be Declared the Begin of “The ‘Big Data’ Era.” This year we will see another 40% increase in data we need to manage. This growth, coupled with recent releases of enterprise-ready high-scale NoSQL products will begin adoption of this tech by the entire industry. Looking back, 2012 will represent the start of the global, cross-industry Big Data era.

If you haven’t started embracing these already, now is a great time to add them to your “2012 Technology New Year’s Resolution List.”  Sponsor a few pilot projects in your enterprise. Buy one or two Post-CES products to help you work more efficiently at the office. Or—if you want to include the whole family—buy one to use while you shop online, watch TV or manage your household.

Yes, it has been a really bad year for BlackBerry. Their security architecture was almost blocked by several national governments. They have lost significant market share. Their PlayBook has not sold well. Their earnings have dropped precipitously. And now, their new line of BlackBerry 10 (f/k/a “BBX”) smartphones have been delayed until the end of 2012 and their stock hit an eight-year low today.

Right now it would be really easy to pile Pelion on Ossa and bash BlackBerry. However, that would not be terribly productive. Instead, I’d rather offer some unsolicited—but potentially very useful—advice as to how to turn around their brand and market position: get rid of the BlackBerry OS move to Android—at least on a few new smartphones

This may sound like surrender. It is not. It would be one of those rare situations when a company applies creative destruction to itself to regain leadership. Here is how it could work:

• BlackBerry’s OS and Enterprise Server Architecture—the very thing that let them create the smartphone market—is now exactly what is holding it back. It is more vulnerable to outage than newer mobile architectures. It has a smaller developer community and much fewer apps. It does not have the features Android and iOS have. It is no longer a competitive advantage for BlackBerry. It is time to move away from it. Luckily for BlackBerry, Android is open available for their use—without license fees
• However something far less technical—the BlackBerry keyboard—remains a key unique selling proposition for them. Many people stay on their BlackBerry’s (or at least keep one for work) for one simple reason: BlackBerry’s (patented) keyboard remains the easiest, fastest keyboard to use for “power” email and text users. Imagine how compelling a smartphone would be with Android OS, Android Market and BlackBerry’s Keyboard.
• Finally, BlackBerry has something else of enormous market value: established enterprise relationships with near every Fortune 500 company (and many, many SMEs). BlackBerry sales reps and re-seller partners could bring a new Android-powered BlackBerry to the enterprise, introducing this new product to a “captive” audience of enterprise-issued smartphone users faster than anyone else. Pleasing these users would later lead to a return to growth of BlackBerry’s consumer market share.

The interesting thing is that BlackBerry does not have to do this for 100% of their product line. They can try it on a few smartphones, in partnership with Google (I am sure Google would be happy to oblige). I am also betting this innovation would create a lot of buzz around their product lime and give $RIMM a much-needed price bump.

Three of the most thought-provoking articles I have read this year on enterprise technology have shined a light on a new, emerging phenomenon: how the rapid advancement of Web 2.0, cloud computing, tablet and smart phone technologies has opened the door to allow consumer-oriented products to displace traditional enterprise technology:

• R “Ray” Wang, CEO of Constellation Research, explored this from the perspectives of speed, innovation and freedom of choice, writing about the emergence of consumer technologies that meet robust enterprise needs – fast, cheaper and more flexibility.
• Matt Rossof, in an interview with Andreessen-Horowitz partner Peter Levin, discussed this from the end user experience, asking why people should not get the same ease of use from enterprise tech that they do from the products they use outside of work.
• Thomas Wailgum, writer on enterprise for CIO.com, highlighted the poor customer experiences that can arise after “vendor lock-in”, questioning the business rationale to accept this in light of influx consumer-style, on-demand options now available.

It does not take much research to see the increased use of consumer tech for business. Many of us now can use personal smartphones and tablets to read our corporate email or Skype to conduct free, easy videoconferences. App Stores have thousands of business productivity apps we can install instantly. Media giants like CNN use WordPress. Even the US government now uses Drupal, a GSA-managed App Store and Google Office via the cloud.

Why This Is Happening Now

Technology innovation is not new; it happens all the time. What has changed is the emergence of a whole new set of innovations that focus on making it much, much easier to deploy and integrate robust, advanced technology. Three particular developments stand out:

1. Cloud Computing. The Cloud has turned computing into a utility. Fortune 500 firms, SMEs, startups and even individuals can setup business-class environments with equal ease – without the need for large investment in capital or specialized teams.

2. Web 2.0. The Web 2.0 (and Mobile 2.0) movement has made integration open and market-driven. You can go to an App Store and find thousands of applications that work together rather than managing—and maintaining—integration projects yourself.

3. The Post-PC Era. Consumer “off the shelf” smartphones have changed how many people view computing—at work or at home. As a result, they are now creating demand for a new class of business application, one that deliverable over the cloud and Web 2.0.

The Result: Consumer and Enterprise Worlds in Collision

In the past, the enterprise and consumer technology worlds rarely touched. Consumer tech was in the household (or consumer-facing websites). Enterprise tech was on-premise. The resource-intensive requirements to deploy and integrate business technology served as a barrier between the consumer and enterprise technology words.

Now that barrier is gone. Clouds, Web 2.0, smartphones, tablets and other dual-use innovations have created a “land bridge” between these two worlds. Non-technologists can now implement many projects without specialized technology teams and large budgets. They are regularly doing this based on their personal (i.e., consumer-based) experiences with technology. In more and more businesses, enterprise and consumer technologies are competing head-to-head.

Why Consumer-oriented Tech Will Win Out

Companies who build consumer-style products evolved in a fundamentally different environment than those companies that have evolved in the world of the “locked-in” enterprise agreement. As a result, they have three critical “genetic” differences:

1. Another Choice Is Always Available. Consumer-facing product companies cannot rely on multi-year enterprise agreements to retain their customers. If customers are not happy, they will leave now – not in four years. Companies fighting in this intense environment are used to working daily to keep customers happy enough not to not only keep using their products, but also to recommend them to their friends.

2. Support Is a Cost Center Not a Revenue Center. In the consumer world, it is very hard to charge for support. It is equally hard to sell products that require lots of setup and training time to use. As a result, consumer-oriented companies design products to minimize the need for customer service. This is vastly different than many enterprise companies, who view extended service and support agreements as a key revenue stream.

3. Integration Is Free, Open and Instant. Products that easily share contacts, photos, updates and other useful information are used more and more often; products that don’t fall by the wayside. Integration is inherently open, instant, free and simple. It does not require complex partner agreements, extensive training and long integration timelines typical of legacy enterprise systems.

These differences are not superficial; they are embedded in the very “DNA” of the missions, products and teams of successful consumer-oriented companies. They provide enormous competitive advantages in comparison to those with “enterprise lock-in ‘dinosaur’ mindsets.” Freedom of choice will beat lack of choice. Pleasing user experiences will trump frustrating ones. Companies like Salesforce, 37 Signals, DropBox, Box.Net, Atlassian, Google and Apple are displacing “traditional” enterprise vendors in many corporations – even at Fortune 50 ones like Proctor & Gamble. However, this is just the beginning: in ten years the lines between consumer and enterprise tech will be blurred beyond recognition.

Software is one of those “magical” goods in micro-economic terms: it has virtually no Marginal Cost. So how do you get a customer to pay you thousands—or even millions—of dollars to buy something you can reproduce for free?

If you’re looking for a “magic formula” to calculate the price of your software, you can hit the ‘back’ button. You won’t find that here. Instead, if you are looking for a strategy to establish a tangible, defensible price for an intangible innovation, read on…

STEP 1: Price by the value you create

There are many, many software pricing models. However, at the end of the day, you’re going to have to defend your quoted price. This is easiest to do, if you price based on what your customers value. Figure out what units your customers use to measure value, and then pick a price model based on those units. Now you have Value-based Unit Pricing.

STEP 2: Use ROI to establish your “list price”

Enterprise software purchases are investments in “promised value.” However, it will take a lot of work for your customer to “unlock” that value: they have to get budget approval, initiate a program, execute it without over-runs, integrate it into their business operations, etc. To make it worthwhile, your software will have to provide a large return on this upfront cost—at least 40-50%. If your software cannot do this, it will never clear the triple wicket of business sponsor, IT manager and procurement manager.

Look at the market—and more importantly—what it costs your customers to do the very thing you are trying to automate or improve. Calculate the cost per year and subtract enough for a 40% ROI. Now you have your List Price. (Note: if there is already software you want to displace, price your product to make replacement of it something that yields a 40% ROI. Why should anyone take the risk to buy your product if it is not good enough to do this?)

STEP 3: Use co-development to establish your “maximum discount”

When you go to a new customer with a new product and quote a price, they will immediately ask for a discount (especially if you are new to the market). How do you insulate yourself against this? Establish a fixed lower bound for your software that you can legitimately never price below (at least until 1-2 generations pass and everything changes).

The best way to do this is by using co-development partnerships. Co-development partners not only buy and use your product; they provide added time, people, teamwork and insight to make it better. (This is not only good for them, it is also a path you can use to establish market leadership). Co-development should be rewarded with your Maximum Discount.

Once you have done this, whenever a follow-on customer pushes for a larger discount, you can point out that your co-development partner only received your maximum discount because of the work and time they contributed.

STEP 4: Build your price rate cards

You now have all the tools you need: value-based unit pricing, list price and maximum discount for co-development. You are now ready to give your sales and contracts team all those wonderful spreadsheets to calculate the price of your new enterprise software—at least until the next generation of innovation arrives…

A Few Closing Remarks: Two things to NEVER do when pricing your software

Give it away for free to get the deal. You will inevitably get enticed to give your software away for free to get a major customer. Don’t fall into this trap. Once you have done this you have established your software truly has zero Marginal Value (not just zero Marginal Cost). It is really hard to negotiate UP from zero. Give away add-ons, charge implementation at cost—do anything—but don’t give away enterprise software for free (unless you are using a Freemium model, of course).

Demand premium pricing. You may be so proud of your latest and greatest software that you will want charge more than “legacy providers” for your innovation. Unfortunately, unless you can demonstrate—at a visceral level—that your software provides value that no one else can, you have destroyed the ROI value proposition of your product.

This is the first in a series of posts that will discuss key steps to integrating risk and strategy.

The past three years have made organizations of all types respond to some pretty big risks and rethink strategy. If you lead an organization, are part of a strategy or risk function, or are a consultant like me you know a lot rides on the strategic bets organizations are now making.

But not all risk is bad; organizations need to take risks to build value, whether through diversification, key acquisitions or strategic divestiture, to name a few options. The trick is to know which risks will have the biggest effect on strategy—and which environmental shifts may provide hidden opportunities with the right strategic adjustment.

If we already do both, why integrate?

Integrating risk into the strategic planning process may help to make strategic planning more robust.  For example, in some US firms, “strategic” objectives only look a year ahead. This may be the most that a startup can and should do. However, most of the factors that drive strategic risk, such as political and regulatory change—or the current global economic shift—do not play out on yearly cycles. Good strategic risk assessments for larger and more stable organizations look further forward, often employing tools like scenario planning. These can be lighter and more iterative for dynamic organizations.

On the other hand, linkage to strategy can also help to focus risk activities. Understanding where the organization wants to be at an agreed horizon and how leaders plan to get there drives risk assessment and monitoring priorities. In addition, integration with strategy discussions can help to ensure that judgment tempers the results of quantitative risk analyses. Over-reliance on these analyses has been called out as an issue with some of the risk approaches used in the financial services sector prior to the 2008 meltdown.

When strategy and risk are integrated, there is a better basis for setting both strategic objectives and concrete operational goals—and risk-based triggers to identify when a course correction is needed.  What’s the tangible value? Here are just a few benefits:

• Better allocation of resources in a cost-constrained environment
• Less “churn” with fewer major decisions revisited
• Fewer change management challenges
• Faster and better results, with less pain!

Why don’t organizations already do this?

Well, some do. But there are several historical and cultural reasons that inhibit many others from either trying or succeeding.

On the risk side…

Fragmented risk analyses

This often occurs in siloed fashion—each unit or function catalogues and ranks its own risks, reporting the top risks to leadership. This bottom-up approach can impede strategic risk assessment due to:

• A tendency to get stuck at the operational level due to the analysis techniques that are used—often quite appropriately for the level and type of risk of concern to the specific risk owner
• Inability to see across risks and identify how one risk might either create or exacerbate another—so-called risk contagion
• Inability to calibrate across risks in different parts of the organization
• Risk simply being seen as separate from strategy—and not at the same level

Lack of a shared vision of the organization’s willingness to take different types of risk

This is often the critical but missed grounding conversation. Leadership may see the organization as “aggressive” or “conservative” without having explicitly discussed what that means, whether the culture is aligned with the organization’s strategy or where the risk propensity is higher or lower (in R&D vs. Supply Chain, for example).  They may not agree on what high or low means, or, more fundamentally, how much risk the organization can take on overall. This is the organization’s Risk Appetite, and it will be the subject of a future post.

On the strategy side…

Fragmented strategic planning

Some organizations do strategic planning by unit or function; this is more common when the company has discrete business areas or geographies—but in the face of the global changes many organizations face today, it can be worth considering how to conduct a risk-based review of the full set of strategies.

“Secret” strategic planning

Since strategy is a competitive asset, many organizations restrict participation in its development, an understandable choice that will affect how risk can be integrated into the planning process and who can participate.

How do organizations overcome these challenges?

• Take a top-down approach to understanding top risks
• Facilitate a leadership dialogue to establish Risk Appetite
• Establish clear risk ownership by the same executives who help set strategy
• Map risk assessment activities into the strategic planning cycle
• Have a change management plan to integrate risk into the culture

I used to play soccer (or—as everyone outside the US calls it—football), often playing the position called a Sweeper. Basically, the Sweeper is a bit of a Special Ops defender whose job is to thwart any attack, seize the ball, and clear it up-field to the his Strikers so they can score. As a Sweeper, I “played the ball” over-powering attacks by smaller Strikers. This approach worked nearly all the time, except for when I encountered the following scenario…

Four attackers advance in a loose arrangement. The Sweeper charges forward to attack and one yells out, “Form a square!”

Two attackers jog right; two left; two advance forward; two stay back. In seconds, they have formed a square around the Sweeper.

As the Sweeper charges one attacker he passes the ball to another. The Sweeper runs to the next attacker; but he passes again (never diagonally across the square). At the same time, the whole square advances forward.

The poor Sweeper is now chasing the ball where is was–vs. is. The only way he can counter this is to call back the fullbacks and mid-fielders. This takes time—and occupies half the team.

The only time I was able to defeat the Square without calling back half my team was scaring one of the attackers enough to fumble, stop, and engage (instead of passing the ball to the next corner)…

Using this strategy to “Square” an entrenched competitor

Small, agile companies can apply this strategy to outflank and outmaneuver an entrenched market leader: “Squaring the Market” instead of the Sweeper. Instead of physically forming a square around the market leader, you dominate under-serviced niches that define the boundaries of all ends of the market. Once you have done this, you have “surrounded” the leader and can attack “head-on”—from a position of strength. Here is how it works:

Step 1: Find the under-serviced niches that “corner” the market

Market leaders tend to focus on “mainstream” customers. These customers do not test the extremes of their product, letting them easily scale a one-size-fits-all solution. However, it under-serves more challenging “edge case” customers, leaving niches open for you and exposing weaknesses in the market leader’s product for you to exploit.

Look for underserved market niches that form the “corners” that “surround” your market, then assertively seize these for your own.

Step 2: Assertively seize undefended corner niches

Assertively seizing a market corner niche takes more than simply providing your product at an advantageous price. It requires active partnership.

Approach a respected customer in the target corner niche and offer to partner with them to ensure their use of your product will be a success:

• The customer will teach you how to make them a success; in return you add—and support—changes to your product to do this
• However, you will own this intellectual property of moving forward
• Once you achieve predefined success measures, they will join you in speaking publicly about the success of your partnership

Your size provides the flexibility required for co-development partnership; the leader’s need to support many mainstream customers makes this impossible.

Step 3:  Keep moving, seizing the next corner until you surround the leader

Continue this approach, seizing one corner after another. Each co-development partnership will strengthen your ability to match different customers’ needs and provide strong case stories to encourage new sales. This is important because…

You will start to attract attention. The leader will go after one of your niches. However, because you formed strong partnerships in each niche, you will be hard to displace. In addition, because you are continually moving from one niche to the next, you will always be one step ahead. (The market leader is now a clumsy Sweeper, charging places where the ball no longer is.)

It is important to keep moving. If you stop, you will get caught a head-on fight with someone with fare more resources than you have. It is equally important to resist the urge to run across the square to mainstream customers. Until you have “Formed the Square,” you will not be strong enough to displace the leader.

Step 4 – After you have “Formed the Square”, attack inward

Eventually, after seizing all corners, you will have “surrounded the market,” You can demonstrate—with many customer case stories—that you can handle every extreme (i.e., corner) the market has to offer.

It is now time to attack the leader, winning over mainstream customers on the strength of your customer case stories and new partner-based innovation. This will take money (to scale marketing, sales and operations). However, as you now have many strong customer case stories, you should have far less problem getting funding to do this.

With lots of hard work, market leadership will follow.

Just keep your eyes out for someone trying to form a square around you.

This is Real

This is not just a soccer (or football) story. Apparel designers do this every decade to establish their brands. Whole Foods built an empire on this. Salesforce.com displaced Siebel with the same approach.

“Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.”[1]

The central tenet to this philosophy was that being greedy would drive you to create growth and profit—creating value for you, your team and your investors. This can definitely be true—but only to a point. While focusing on creating value in all that you do is a good thing, OVER-focusing on your own value can prevent you from building viable business partnerships.

Four Common “Greedy” Partnership Mistakes

Many businesses create partner models that are simply “too greedy.”

1. They do not share enough of the pie: Many partner agreements do not share enough revenue to make it worthwhile for partners to take the time and effort to sell their products. Not sharing enough of your pie ensures it will never grow.
2. They do not help partners: It is hard enough to sell your product to a new customer when you know it “inside and out.” Many partner models do not provide the information and sales tools needed to make it as easy for your partners to sell your products as their own.
3. They are too jealous: Many partner agreements require both parties to be in the same room when speaking to a new customer. This creates inherent competition (the opposite of partnership) over who “owns” the customer relationship.
4. They are too secretive. Many companies are afraid that sharing information will enable partners to reverse engineer their business model or technology. This “protectionism” blocks any creativity and innovation you would gain from your partners.

As a result of these greedy mistakes, many businesses are simply not able to cross the hurdle of using partnerships to speed expansion and value creation.

Winning Partnerships Are “Anti-Greedy”

When planned and executed well, partnerships can create enormous value. However they only work when each side creates incentives to its partner to “win” by leveraging the partnership.

• In the B2B world, look at the value added reseller chain. Oracle and Microsoft are kings here. They both provide the incentives, collateral, certification programs and co-marketing to empower their partners to succeed. As a result, Microsoft sells more to businesses from partners than their own teams (reducing their cost of sales)[2] and IBM is the biggest implementer of Oracle (enabling Oracle to tap IBM to build market share)[3].
• In the B2C world, both Facebook and Twitter built their networks from the start to make it EASY for external developers to build applications that leverage their networks. They gave partners instant and simplified access to millions of potential customers. In turn, Facebook and Twitter IDs have become the new de factor standard for consumers, providing both companies enormous “buying power” for advertising.
• The new “App Stores” (not just Apple but also Android, Force.com and even the US GSA) have all but eliminated the line between B2B and B2C. Partners can build applications at home and get essentially free hosting, distribution and payment processing. Meanwhile the store owners get access to the innovation of thousands using infrastructure that scales more much cost effectively than adding thousands of people to payroll.

These partner models win by using the phenomenon of social production (an inherently non-greedy thing). As a result, they—and their partners—can leverage the comparative advantages of EACH OTHER to expand their R&D, product and sales fast and at less cost than would be possible on their own.

Sorry Gordon, this is another case where, “Greed is NOT good.”

Notes
[1] “Memorable Quotes for Wall Street (1987)”. Internet Movie Database.
[2] Microsoft Gold Partnership Certification Process
[3] Bob Evans, Editorial Director, Information Week at Softserve Innovations Conference (2009)

This is a VERY BIG deal. We are seeing a shift in how people use computing devices (what Clayton Christiansen would call a “disruptive innovation.”) However, what is now different is whereas smartphones added a new way of computing, tablets are displacing an existing one: the keyboard-based personal computer.

Taking advantage of this displacement requires a new way of thinking. Tablets are not just “flat PCs with touch keyboards” or “big smartphones without the phone.” They represent a new way people interact with technology: moving, turning, tilting, swiping, tapping, pinching, and more—all on something that is about the size of, the most widely used form of information storage in history, a piece of paper. Going from near-zero to growing annually by 50+ million units every year for four years will drive many more new ways to interact with tablets: better cameras, IR and barcode sensors, directional microphones, voice recognition, projectors and more.

What tablets are doing—in a big way—is providing the first low-cost, compelling and easy-to-use (i.e., mass-market) platform for augmented reality. Those who want to take advantage of this new growing market need to realize this (those who don’t will miss multiple generations of product development). Oh, if you don’t think augmented reality will soon be mainstream, check out The Black Fin.

How do we make the jump to take advantage of this change? First we need to drop the old concepts of the mouse and keyboard–or the PC—and ask more elemental questions:

• How do I interact with world today without tech—be it work, life or play
• How would I improve the experience by capturing or adding information in multiple forms: touch, motion, sound?
• How do I combine this old and new in a way that is natural and intuitive?

We are starting to see just the very beginning of this with some very cool applications (interactive maps, iBooks, virtual pianos, and lots of cool games). These are only Generation One ideas. It will be exciting to see what comes next—especially for things we spend hours doing each way. Once we get this in place, we will have a Star Trek-like like. Although it will look whole lot better than the futuristic 24^th century tricorders we saw on TV 20 years ago.

Back then it was easy to figure out what our budgets would be for the next year. Our starting budgets were based on existing payroll (for IT and software staff) and capital resources. We could easily decide (usually once per year) if we wanted to increase or decrease this by X%. Once we did this, it limited how much we could possible spend. The big challenge was prioritizing this budget across what turned out to always be too many projects. (Usually, the time required to build and ramp up systems kept this in check.)

Now things are different. Because we can buy SaaS-based services quickly and easy we can do more in less time and with far less work. However, this can lead to traps where we become “victims of our own success.” The SaaS-based online program we launch could get so much traffic that our costs quickly beyond grow beyond our budget. The easy access to storage could lead our teams to store too much, burning through money.

This problem is bad enough with commodity items (usually serviced with IaaS, Infrastructure-as-a-Service and PaaS, Platforms-as-a-Service). It can become “unmanageable” with complex portfolios of activity that do not easy fall into easy-to-size units (marketing and advertising campaigns, clinical trials, public sector programs, etc.) In these cases, SaaS creates a predictability problem for “both sides of the table”: customers cannot easily predict and control what their budgets will be while vendors cannot easily predict revenue recognition (affecting their ability to control business expansion).

SaaS vendors need to find viable solutions to this conundrum balancing SaaS’ flexibility with the basic need to budget and control costs. Here are four options:

The Fixed Price Model

Under this model, the price of the SaaS product is fixed, regardless of usage volume. A first blush, this can easy to budget (great for customers). However, it can kill TCO for vendors (the first time a customer wildly exceeds planned volume). Guarding against this leaves vendors two choices: raise prices (to guard against – leading to reduced demand) or KYFC “keeping your fingers crossed” (potentially risky).

This model is good in places where variability is low (e.g., sales force automation – one sales person can only generate so many contacts in a given month).

The On Retainer Model

This model draws from the ‘Old World’ of having lawyers and accountants – people who can perform a wide range of services – on retainer. It is somewhat tailored on a case-by-case basis, looking at expected volume across a wide portfolio of work and flattening this out into constant quarterly or monthly payments, adjusted by periodic reconciliation (based on actual vs. planned usage). This balances customer and vendor risk – and predictability with flexibility. However, it is complicated.

This model is good in places where usage is subject to “external factors” (e.g., portfolio-based business models like architecture, legal, research, campaign management, etc.)

The Credit Model

This model draws ultimately from the postal service (e.g., stamps). Customers budget for and buy X usage credits per quarter. Each use of SaaS consumes these until their budget runs to zero. They can distribute these credits for use internally however they desire. This “caps” costs but can leave businesses “in a lurch” if credits run out faster than expected.

This model is good for discretionary business applications (e.g., recreation/reward allowances and advertising click-thru’s)

The Tax Model

This model adds a standard overhead “tax” to a recurring operation. It is most well known in the credit card payments industry but has applications in many other “commodity” transactions. It is predictable. However, it requires high volume to avoid high taxation rates per transaction.

This model works best in places where the cost of the transaction is low vs. the value of the item transacted (e.g., eCommerce, HR payroll software).

None of these are ideal for all circumstance. However, each balances the benefits of SaaS’ flexibility with the “old fashioned” business need of predictability and control for specific business scenarios.

Disclaimer: I have been both a SaaS buyer and seller, using all of the models above – and many more that I would avoid like the plague. See my background for more information.

Note: If you liked this, you may be interested in Nine (Ten) Software Pricing Models Evaluated

‘Innovation = life’ when you court early adopters

In newly emerging markets—be they as high-tech as augmented reality or as low-tech as fashion—the answer is obvious. Innovation is occurring all around you; those who so not innovate enough will be left behind. The challenge here is to stay ahead of everyone else (instead of copying the innovation of others).

Examples:

• Facebook out-innovated MySpace, Friendster, and everyone else
• Can you name three competitors of Amazon.com from the late 90s?
• FourSquare crushed Gowalla (and is standing up to Facebook)

Innovation allows you to ‘cross the chasm’

When you are entering the tornado, (i.e., when demand takes off and the top leaders are established), the speed of change requires innovation to shift from creation to speeding and scaling execution. You need to be able to out-market, out-deliver and out-support the competition. If not you will find yourself as Chimp (or worse).

Examples:

• AOL out-ran all other ISPs—including a buy-or-break challenge by Microsoft
• McDonalds’ innovations in franchising has enable it to serve billions
• Ford’s Model T made cars affordable for the masses

Innovation keeps leaders on top

When you are the leader, everyone is aiming to displace you. Innovation in marketing and promotion will keep demand for your product fresh. Innovation in partnerships and distribution will create barriers to block you competition. The challenge is ensuring your teams know they have to keep innovating once they have reached the top.

Examples:

• Intel is still the worlds largest chip maker (in a world with Moore’s Law)
• GE is the only original Dow Jones stock still independently trading
• Nike has been the top provider of sporting equipment for decades

Innovation is the only way to disrupt the leader

The familiarity and market share of leaders gives them enormous advantages in terms of cost of sales, speed of sale, distribution, etc. If you are smaller, you cannot disrupt a market leader by being playing “me-too” (unless the leader makes a big mistake). You need to “change the market” by meeting needs your customers did not realise they had or delivering in ways established “leaders” cannot match.

Examples:

• Salesforce is worth nearly 3x what Siebel was when it sold to Oracle
• RedBull has wings
• President Obama’s campaign managers used social media, mobile, and CRM software to raise more money than more-established opponents

Innovation is the only way to ensure life in the future

Clayton Christensen has written volumes on need the foster disruptive innovation to ensure your remain a leader in the future (see my notes below).  If you do not invent the future, someone else will—moving your market to a place where they lead (and you do not). If you want to avoid this, you have two option (ones that need not be mutually exclusive): 1) create incubation teams to innovate the future or 2) acquire proven innovators (this can be expensive).

Examples:

• Apple continuously invents the “next big thing”
• Amazon is selling more books on Kindle than in print
• IBM went from typewriters to computers to services (and acquisition of many business information infrastructure innovators)

So “What is the risk of not innovating?” Your entire future