Saturday, May 19, 2007

Challenges in Building Products

I just completed 7 years in the software industry in various roles - Implementation Engineer, Technology Evangelist, Software Engineer, Architect and Product Manager. In these roles, I have worked on software projects of varying complexity, maturity and in teams as small as 3 Engineers and in bigger ones (40 Engineers). It is interesting to look at some of the major challenges faced by these products at different stages in their life-cycle. To set the correct context, I must add that I have worked in the Enterprise Software space for most of my career.

Mature Products
: I started off as a Research Assistant in the Condor team and my first big project was to understand the requirements of the UW Hi-Energy Particle Physics (HEP) computer simulations and modify our Grid Computing software - Condor - to support the HEP simulations. Condor is one of the longest running university research projects and even in 2000 it was very mature with excellent documentation, user groups and large user base. During my stint with the Condor team, I learned that even mature products may require customizations and also about the importance of having a strong Implementation Engineer or Professional Services Team supporting the implementations and funneling back requirements to the core development team. If you are considering developing Enterprise Software, make sure you factor in travel and support costs of such an Architect or Team. Depending on the maturity of your product, these costs may be as much or even higher than the budget for your core development team.

A disappointing fact about Condor (at least to me), is the fact that it missed many opportunities to move into a mainstream market. Based on my interactions with Prof.Livny, I am nearly certain that he never intended to build a business out of his research project, but the entrepreneur in me rues the missed opportunities :( I must add that I tried mightily to evangelize this product when I worked for Prof.Livny and also when I worked at Optena.

Mainstream and Extremely Successful Products: Tom Siebel built his company and an entire market on his idea of Customer Relationship Management. Granted, he may not have been the first one who thought of this, but he brought an extremely feature-rich and useful product to this market and through aggressive sales and acquisitions built Siebel Systems into a well-known ISV in the space. Though I joined Siebel Systems only in 2002, I was friends with many of the original architects who started with Tom and my observations are based on my conversations with them and also my own experience working at Siebel Systems from 2002-04. Siebel's biggest challenges (in the post-2000 era) were -
  • Managing Growth and Product Quality- After a spectacular IPO, Siebel lost the wind in its sails following the 2000 bubble burst. The HR team definitely did not do Siebel any good by hiring (and firing) in what seemed to me to be a very random pattern of behavior. Maybe it was the fear of a wardrobe malfunction, but when Siebel made the switch from a Client-Server model to an Internet based architecture by introducing version 7 of its product, Ms.Quality Under-appreciated never attended the launch party (or any other parties - maybe I should say funerals - thereafter). I have heard horror stories of how Siebel 7 would not even install off of the CD that was shipped.
  • Implementation Costs and ROI - Bad Product Quality meant that customers had to hire pricey consultants to install and configure the software. It was not uncommon to hear about a customer spending $5 million in software acquisition and a further $15 million in deployment. This is just plain wrong - no matter, how good a product you have, if your implementation costs are not less than 20% of the sticker price of the product, you are going to lose the market - Period.
  • Lack of Faith - It is not uncommon for even the largest and most innovative companies (or individuals) to go through a bad patch, but the differentiator of winners and losers is often their perseverance and ability to work through a bad patch. It is in this aspect that Siebel Systems failed misearbly. When Siebel realized that hosted CRM vendors like Netsuite and Salesforce were drumming up a vigorous business, it decided to reintroduce its hosted offering (it may interest you to know that Siebel was one of the first players in the hosted CRM space with its offering, which it withdrew because of lack of business!). It also brought in a senior IBM executive - Mike Lawry - as the CEO to correct course and build new businesses. However, it never had complete faith in these (as well as many other) initiatives and ended up being swallowed by Oracle. In the same period, has seen a steady increase in its market-cap and has hired many of the ex-Siebel architects and engineers.
New Products/Company: This is one of the most painful chapters in my career. I quit Siebel and joined Optena as the first member of its engineer team. Optena's vision was to commercialize Condor based technology. Based on this experience, I now know about the following pitfalls while starting a company -
  • Beachhead Customer - The importance of the beachhead customer, who is willing to experiment with a very new and potentially immature technology is extremely important to a product's success. In the absence of such a customer, the product gets built in a vacuum and there is no way of prioritizing or even verifying whether the features are useful or not. Insisting beachhead customers to pay you may not be the best option if you realize the risk they are taking by using an immature product in production. If they are willing to pay, only charge them the fair-market price for the value and not what you expect your product to sell for 2-3 years down the line when it has established itself.
  • Innovation - Small companies must keep innovating, even if the beachhead customer wants only a few minor feature enhancements to the first version of the product. If you focus yourself on the enhancements required by the first few customers and stop your innovations, you'll end being a one-trick pony and will never be able to take the product to the next level in its lifecycle.
  • Hiring Successful Entrepreneurs - Optena lost its funding just when it was about to get a couple of major deals. The VCs realized that even with the new deals, Optena would never be a billion dollar company (this was shortly after Google's IPO). I daresay the VCs would have continued their funding if we had even one person on our rolls who had a successful trackrecord in building companies.
The interesting aspect here is that only one of the issues here was a real product problem with the others being strategic mistakes made by us.

Emerging Products: Our biggest challenge at Solidcore is ....

Sorry, I cannot talk about my role or the product at Solidcore as we are in an intensely competitive market that is growing rapidly. I promise to keep you posted on our progress.

Thursday, May 3, 2007

How Fedex became 'The Verb'

Article contributed by Anjana Rajamani.

I was hoping that a quick look at their respective websites to check out their product offerings, compare service levels and a few random checks for customer experiences, would provide me with clear, obvious reasons as to how FedEx ‘out marketed’ its centuries old competitors - UPS and USPS. Has FedEx out marketed its rivals? Clearly, becoming a $34 billion company in a short span of 35 years, FedEx has grown much faster than its rivals UPS (revenue $43 billion) and USPS (revenue $69 billion) and made their revenues look smallish relative to their century (ies) old existence.

Beyond figures, FedEx has done much more than capturing a sizable portion of the market from its rivals – it has captured a significant portion of ‘mind share’. FedEx has become eponymous for ‘anything that you can’t deliver in person’ as Xerox did for photocopying. FedEx is recognized (or very close to being so) for what it has sought to identify itself as – in its own words – “absolutely, positively” dedication to providing specialized solutions for every shipping, information and global trade. Clearly, this is not any different from what any other logistics company would try to do and in most cases, already do so to a fair extent. Why then has FedEx enjoyed such an unprecedented level of success? How has it beaten its more established rivals to become ‘the verb’?

Looking for answers, I realized that there are few things more difficult than explaining success stories. While in the cases of failure, it is often possible to identify and attribute a cause, or at best a few causes which paved way for the ultimate fate, so is not case with success. Even the staunchest of non believers in ‘destiny’ would agree that success is a phenomenon, which is too big to be attributed solely to our actions and rather rare to result from circumstances alone. Success requires a rare collusion of actions with propitious external factors, which provide the right trajectory. The reasons for success are hence not as linear and easy to identify as those for failure. With this disclaimer I set about in my attempt to explain the FedEx success story.

To start with, there are 3 broad parameters on which a business such as this can be evaluated – Product offering, Service level & Customer Experience. These parameters should explain a significant part of the FedEx success story, though the reasons for success may not limited to these. Given this, here is my take on how these 3 - should I call ‘brands’ stand on each of these –

Service level in the business of logistics and delivery, quite obviously includes pricing, compliance to strict timelines, accuracy of delivery, ability to limit damages to the consignment, movement tracking – has become fairly basic hygiene factor and hardly remains a differentiator in this line of business. After all, all of them have user friendly interfaces that provide you with options to open a customer account and manage and track all your interactions with them, promise delivery with in a fixed number of working days depending on the location, allow you to track their movement and even allow you to choose your kind of packaging, without much differences in their pricing! With a service level below these, one would hardly be in the race and these being major players one need not expect a significant deviation in their service levels (of course, providing for the one of cases).

Customer Experience, which includes everything right from the way the personnel at the office speaks to you to how the delivery man handles your package to how soon your phone gets picked up while you are trying to log a complaint, is the most diffused of the three parameters. There can be no one set of people whose experiences will be representative of the performance of a given brand. In my limited research, I have come across almost an equal number of positive and not – so – positive for each of these service providers. Given that customer experience is hard to measure, it is best to allow for a normal distribution of customer experience, assuming that few providers are more positively skewed than others.

Product offering – finally, here is the one where I see some significant difference between FedEx and its rivals. Well, what is the product offering in this case? – After all, we are talking about taking a package (at the minimum) from one and delivering it to another! By product offering, I mean the number of options a customer, be it an individual, a small business or corporation has in sending his or her consignment.

Product offering depends on the way one defines different group of customers. Most logistics providers tend to group their customers into the usual categories – Individuals, Small Businesses and Corporations. How significant is this classification? Well, it decides everything from how your consignment gets sent to when it gets delivered. While it is true that the needs of these broad groups of customers are similar, they need not always be so. Companies like FedEx seem to cater to the existence of sub-classes of customers within each of these groups.

FedEx allows the customer to decide how he needs his consignment to be sent depending upon his need for expediency and how much he is willing to pay. For example, all consignment to Canada from the US need not be sent over ground, a customer can air freight it if he wants it so. Ultimately, the customer pays for having the package delivered the way he wants it to be.

However, in the case of UPS and USPS business proceeds as per standard definitions. Their operational convenience seems to come at the cost of customer options. As long as you fall into one of the 3 silos (Individual / Small Business / Corporation), they know what is best for you. All packages in a given customer category receive the same treatment irrespective of the need for expediency or any other such demands a customer might have and is willing to pay for!

Rather than providing very few options and getting the customer to pay for what the logistics provider chooses, by not taking over all the decisions from the customer, FedEx makes the customer pay for services he / she chooses. Provision of such options, may seem too insignificant to contribute to the growth in popularity of FedEx, but in the long run it does contribute to the view that FedEx is more customer friendly than its rivals.

This is a great example of how a startup, through good product differentiation, was able to win significant mindshare and grow faster than older and bigger competitors. Now, does that sound like Google vs Microsoft?