All Things Startup

Tools for the Starving Entrepreneur

2009-06-04T16:23:00.000-07:00

I found a couple of very interesting (and free) tools that I wish I had known about earlier -

SSL Explorer, an SSL based VPN solution. The company behind this product, 3SP, got acquired by Barracuda, but this product is still available from Sourceforge
VirtualBox virtualization products. This is a wonderful product and is available for most platforms, including Macs. Quite likely this will be discontinued after the Oracle acquisition of Sun is complete, so download it ASAP. As an aside, Oracle already has 2 virtualization products - their own xen-based one and one from their Virtual Iron acquisition.

Textbook Rentals

2009-05-05T12:55:00.000-07:00

WSJ is reporting that Case Western will start experimenting with Amazon's Kindle for some of their classes this Fall. I hope this is a success and that we'll eventually see more electronic books going forward. If this happens, traditional book publishers will have to find better ways to remain profitable than resort to printing a new edition every year.

Profit margins of book publishers is a very well kept secret. Publishers invest between $1-2M for the first edition of a new book. If it is a success, they keep printing a new edition every year or two. Interestingly, most of the changes between editions are cosmetic - a few color changes, end of chapter problems rearranged, etc. Ever wondered why? Unless they do this, students will stop buying new books and prefer to buy used books from their seniors in school. Also, the cost of reprinting a successful book is less than $1/copy. Yes, that is right - the books that we typically buy for an average of $80-$120, actually cost about $1 to print. Clearly, it is in the publisher's best interests to suppress the used book market. The real cost, sadly, is borne by the environment.

But, despite the publisher's best efforts, the used book market continues to thrive. I recently heard about Chegg.com, a startup which offers textbook rentals and has a Netflix-style business model. They even allow you to highlight the rented books, so long as you don't make the books completely unusable for the next renter. I'm sure Amazon's Kindle will feature an electronic expiry of the books, using which publishers will be able to offer subscription and perpetual pricing. But, the real question is will the publishing industry survive? What if the authors published to Amazon's Kindle directly instead of using the service of a publisher? How would you stay relevant if you were the CEO of a publisher? I don't know, but would love to hear the thoughts of anyone in this industry

PCI Whitepaper

2009-04-27T10:08:00.000-07:00

I wrote a paper on PCI compliance titled "The 5 claims of PCI DSS snake oil salesmen", which is now being run by ThreatPost. Enjoy!

NYTimes calls Tripwire a fall hazard

2009-03-27T15:03:00.000-07:00

The venerable NY Times is reporting that the Tripwire used at home can be a fall hazard. However, Tripwire at home offers many advantages (health and emotional benefits) unlike the product used in the Enterprise which has often delivered severe emotional shocks to many customers.

Solidcore has ample evidence that Tripwire Enterprise customers have suffered from different types of shocks including, but not limited to, sticker-shock, pci-coverage-shock and bloatware-shock. Sticker shock hits the customers when they are presented the first quote after the initial demo. Tripwire has recently managed to alleviate the pain caused by this shock through deep discounting of prices.

PCI coverage shock is a recent phenomenon and affects customers who are looking for PCI compliance solutions. At the outset, this shock makes everyone think they were stupid to deploy anti-virus and run vulnerability scans and penetration testing as mandated in PCI DSS sections 5, 11.2 and 11.3. After all, they could have achieved the same using Tripwire had they thought about it at first. However, this shock dampens once the QSAs and other vendors point out that Tripwire's PCI coverage whitepaper is not worth the paper it is printed on.

Bloatware shock is experienced only by customers who have used Tripwire in the past. After-effects of this shock include incredulity and deep anger that Tripwire has not introduced any significant changes to their UI or feature set in the last 10+ years in business. The few features that were added, including Configuration Assessment capability, have made the product more complicated and difficult to use than ever before. Tripwire's marketing department claims that only a minority of customers will suffer from this shock as there are more people who have not used Tripwire than those who have.

These reports have been confirmed by analysts from top-tier firms like Gorretner and the 911 group. Tim Ikestotalk from Gorretner says "It is unrealistic for customers to expect that a product named Tripwire will not deliver shocks. The name itself was chosen to signify how administrators will be shocked whenever they perform tasks that are anything but the most standard and mundane ones". The 911 group adds "Tripwire has been extremely successful in pulling the wool over customers eyes when it comes to PCI coverage. We have been receiving many calls from customers who feel cheated by Tripwire, but we can understand Tripwire's behavior. In these hard economic times, it is indeed very difficult to sell a product that offers so little to so few for such a high cost". Clearly, as the NYTimes puts it "no one had looked at this. It was all anecdotal." Until now, that is.

Names of all characters in this article have been changed to protect them from receiving shocks

Cloud Computing

2009-02-13T15:22:00.000-08:00

Having worked for a Grid computing startup has made me a big skeptic about whatever new marketing umbrella the idea gets resurrected under. As you probably guessed, its latest incarnation is called cloud computing.

Here's a witty video that tries to make the concept of cloud computing less cloudy. Hope you enjoy it.

Product Development Process

2008-11-10T11:12:00.000-08:00

I chanced upon this document by Laurie in which she describes a typical product development process. We follow a very similar process, except that the MRD is seldom a formal document. Based on the analysis of market requirements from various sources as described here, we write the PRD. The UI mockups are done by our UI designer who works closely with the Product Managers to understand the workflows.

When there is a need to change the layout or the UI elements, our designer provides a static mockup. For workflows, we use Axure Pro, a wonderful wire-framing/prototyping product. Axure allows us to place UI elements, create links to other pages and design a prototype that is easy for our developers to play with and understand. There are two main advantages in using such a prototyping tool -

It forces us, the Product Managers, to think through the design a lot more. When only static mockups are provided, the development team has to many assumptions about various corner cases. Given the distance and timezone differences, it is not always possible to validate these assumptions. However, PMs have to address many of the corner cases when designing dynamic mockups and this reduces the gap between what PMs want and what development thinks PMs want. See here for details.
These mockups can be used to demo upcoming features to prospects and customers. Axure prototypes look very similar to the real software and helps us get advance feedback about workflows and features that we are planning for future releases.

I'm told dynamic prototypes can also be created using a Visio plugin. This could save you some $ for sure, but I found it a lot harder to use. Unless I am really cash-strapped, I'd consider the $539 for 5 Axure user licenses a big bargain.

100% protection against viruses and malware?

2008-10-13T09:15:00.001-07:00

My wife's laptop recently got infected with malware, despite running an up to date version of a leading anti-virus and a spyware detector. Coincidentally, both these vendors have offices in the same street in which my wife works. Wish she could take the laptop over and tell them how badly their products suck. However, reality meant that I had to troubleshoot and fix the problem. After trying out a few other free anti-viruses and malware, none of which seemed to detect/fix the issue, I found Spyware doctor. A fantastic tool that found and fixed the problem - I ended up purchasing a 5-pack license for all our computers at home.

While on that topic, Solidcore's product was tested against nearly 16,000 viruses and malware by NSS labs. The results are available from our website here. We prevented 100% of these viruses, worms and malware. Needless to say, we were thrilled when we heard this and had celebrated in a big way. We are seeing a tremendous uptick in the demand for this product and there has never been as much excitement at Solidcore before.

Just in case you were wondering why I did not put our product on my wife's computer - I'd have done so had it not been her company issued laptop :)

Update on 10/14 - Shortly after I posted this entry, Secunia, an independent testing firm had released the results of their security tests. Symantec won, but Secunia claims in their blog entry that "Even the "high" score from Symantec was disappointing. Symantec detected a mere 64 out of 300 exploits, or less than one-fourth, leaving 236 exploits undetected!" and the report concludes alarmingly thus - "These results clearly show that the major security vendors do not focus on vulnerabilities. Instead, they have a much more traditional approach, which leaves their customers exposed to new malware exploiting vulnerabilities."

Product Lifecycle

2008-09-09T12:19:00.000-07:00

I found this hilarious description of Product life-cycle recently - enjoy!

My First Webinar

2008-07-05T09:28:00.000-07:00

Last week, Solidcore held a joint webinar with Trustwave (in which I presented). We had a very good attendance and the recording is available from -

http://w.on24.com/r.htm?e=112634&s=1&k=7F324EFE23D977C21A8DA677D816463D&partnerref=SCWEB

Email Volume?

2008-06-23T18:24:00.000-07:00

So, how many emails do you receive daily? My email search engine reports that I have received approx. 24,000 emails and sent 4,200 mails in the last 6 months. This would work out to approx. 133 inbound emails and 23 outbound emails per day. If I just look at week days, the number is approx. 155 inbound and 27 outbound emails per working day. The first number is inflated because I am on multiple distribution lists.

We use SonicWall's Email Security product for spam filtering and it has a wonderful ROI calculator. You plug in a value for the cost of every spam email and it calculates the RoI of successful spam filtering. Not a spam killer, but a great way to justify your product to the Budget Owner. Here's the RoI we have achieved so far using this product -

Books on Product Management

2008-06-19T11:46:00.000-07:00

I get asked a lot about good books on Product Management. Here's what I have read in the past 2 years or so since I moved into Product Management.

1. Crossing the Chasm
2. Inside the tornado
3. Built to last
4. Good to great
5. Innovator's dilemma
6. Innovator's solution
7. Selling the wheel, and
8. Blue Ocean strategy

I read it approximately in the order listed here and have been greatly impressed by items 5 and 7. #8 is a great read for anyone who is evaluating new ideas. Here's a good article describing how to apply the strategy canvas to evaluate new ideas ( http://blog.hubspot.com/blog/tabid/6307/bid/54/Blue-Ocean-Strategy-A-Small-Business-Case-Study.aspx). Rosen tells me that he has ah-ha moments everytime he reads these books.

Startup Capitalization

2008-06-16T07:42:00.000-07:00

One of the greatest advantages of sitting right next to a CFO is that I get to interact with him frequently. Over the last year or so, I have learned quite a bit about Startup Financing, Cap Structure, Stock options, etc during these interactions. There are 3 very important things that an entrepreneur has to watch -

1. Total number of Authorized shares - this is the maximum number of shares that can be issued to investors as registered with the state of incorporation. Of course, companies have the option of increasing, splitting or reverse splitting the number of authorized shares relatively easily and often do so when they raise new rounds of funding.
2. Total number of Outstanding shares - this is the number of shares that are held by stockholders. The more common use, in high tech vernacular, is Fully-diluted outstanding shares which is the outstanding shares plus the shares reserved for issuance under stock option plans (grants + cancellations + remaining to be granted) plus the amount of shares to be converted under warrants and convertible debt. Essentially, the number of shares if every right to a share of stock as converted
3. Liquidity option on Preferred stock - shares held by employees and founders are typically Common stock. VCs get preferred stock which normally as a “liquidation” preference which means in the event of a liquidity event, they have to be repaid before Common stock is. The liquidity option determines the amount to be repaid for each preferred stock if a liquidity event occurs (acquisition, bankruptcy, etc). Common stock holders get paid only after all the preferred stocks have been repaid in full.

Let's take an example and walk through these numbers.

Lets say a friend and you decide to float a company, Acme Industries. You typically incorporate in Delaware (it has the friendliest corporate law) with a total of 100 Million Common (Authorized) Shares at a par value of $0.001.

Between the two of you, you decide to hold on to at least 60% of the Common shares to ensure that you have a controlling interest. This would amount to 30 Million shares each for a total cost of $30,000. Typically, this would create the basis for you to go add sweat equity for future work on the company You'll allocate a further 20% (20 Million shares) for future stock and option grants(key employees and future issuance). The remaining 20% can be used to attract outside investors with preferred shares convertible into common should you be fortunate enough to do an IPO (more on this later).

Once you have the prototype, you start pitching to VCs to raise enough capital. Lets say KPCB decides to advance a term sheet to buy 10 Million of Series A preferred stock at a “pre-money value of $30,000,000 or $0.50 per share. You would float 10 Million Preferred shares at par value of $1 for KPCB to bring the “post money valuation” to $40,000,000. At this point, the VC firm has a 9.1% stake in your company (10M shares/110 M).

Term sheets are normally loaded in favor of the investors, esp. when presented to a first time entrepreneur. Make sure you pay close attention to the liquidity option - this is a hidden cost of the capital that you will have to pay later on. Liquidity options vary between $1 and $2 depending on market conditions. I'm told $1 liquidity options are available these days, but during the difficult 2004-05 period, $1.25 was the most common option with some going as high as $1.75.

If all goes well, you would become cash flow positive with just a Series A funding and work towards your exit plan. Acquisitions are more common than IPOs, so if your company gets acquired for $20 million, you'd repay the investors $10 million (if you've a liquidity option of $1) and share remaining $10 M amongst the shareholders.

More often than not, companies require a Series B, C, D or more funding before they are able to exit. In such cases, companies are forced to increase the number of authorized shares (because total Common outstanding + total Preferred outstanding must never be greater than total authorized). This causes a dilution in the stake of common shareholders. Top executives often negotiate “dilution protection” so that they will receive the same % of options for one round following hire so their relative position stays the same. Thus a new CEO would be incentivized to raise money right away and not wait and try to protect their stake as a % of the total dilutable options, which means that they are given enough options to maintain their stake at a certain percentage. They also ask for the Cap table or cap structure so that they know how much their stake in the company is relative to other shareholders. This is rarely done for regular employees, but something to keep in mind as you grow in your career and look for opportunities.

Finally, the best advice for entrepreneurs is that they get themselves a very good attorney with lots of experience before they start raising funds to negotiate a good term sheet. Top attorneys can get things done effectively and quickly, however, they must also balance their VC connections since they are a great source of referrals and would hate to bite the hand that feeds them :)

AppXchange Application

2008-03-22T09:00:00.001-07:00

Hello Everyone,
We have published our Product Management App in Salesforce.com's AppXchange platform. You can get it from here -
Product Management by Solidcore 1.0

Product Management Software

2008-03-15T18:12:00.000-07:00

I attended the P-Camp today and heard Christina Noren from Splunk talk about Automating product management in an agile context. The gist of the talk was how she had customized Jira to track bugs, feature requests and problem statements and automate their prioritization and PRD creation using various metrics. Solidcore takes a very similar approach to structured Product Management and I am sharing our experience building such a tool. When we realized that we had grown beyond the stage where all feature requests and the roadmap could be tracked in a spreadsheet, we started looking for a solution that -

would streamline our requirements elicitation and capture process
help us prioritize features and cases using various metrics like opportunity cost and customer commitments
improve communication with various other departments like engineering and support
would integrate with our existing systems (Salesforce.com through which we dealt with external case requests and Bugzilla, our internal bug tracking system)

We evaluated various products like featureplan, rally's requirement management, artifact's lighthouse, etc - a good list and comparison is available from the 280 group and found 2 common roadblocks we found across all these products -

they worked best when all the data was captured using that tool
they were expensive

Roadblock #1 meant that we had to start using these products for tracking customer cases and internal bugs also (or duplicate the data). Roadblock #2 is debatable as the benefits of these products can significantly outweigh their cost. We could have justified the cost, but as a startup, we pride ourselves on being tech-savvy and our parsimonious nature. So, we built an App that met all of our requirements at zero non-incremental cost and here's how we did it.

We customized our Salesforce.com accounts (which we use for sales, marketing and customer support) to also track feature requests. We ask our Sales Engineering and Sales team to provide a weekly report of all the ideas that they heard about (during Demos, RFI/RFP questions, customer deployments, negotiations, etc) and capture it in the system. To illustrate this, I am going to take the example of a TelePorter product and show you how we'd manage such a product. All these features are captured in the system and as you can see in the following two screenshots, we can use the system to just capture feature requests without assigning them to a release.

Every feature also has detailed feature requirements (and the requirement number) as shown below.

The system also allows product managers to target Customer cases and bugzilla bugs to specific releases and share the information with the support and engineering teams. No longer do they need to come to Product Management to get the date for the release as it is available from this association (as well as from the cases tab in SFDC).

During our regular roadmap meetings, we use reports to evaluate features based on their popularity, opportunity cost which is derived from the salesforce opportunity field, their impact on TCO for the customer, etc. and target them to specific releases.
The roadmap and the PRD are then auto-generated as reports, as shown below.

Incidentally, we realized that the reporting infrastructure of salesforce has some limitations that makes it unusable. So, we use Crystal to develop these reports and their salesforce.com connector works like a charm. We are seriously considering sharing our App in AppXchange for free and sell the report definitions for a nominal amount. If interested, please send me a note.

Customer Acquisition Costs

2008-02-16T11:28:00.000-08:00

I had been to the barbershop yesterday and it set me thinking about their customer acquisition costs. Here's an example -

If suppose, they get a new customer, who has never been to their saloon before, their tendency is to offer the best service in order to make the customer a regular customer. Now, lets assume that the customer becomes a regular. The Barber's interest is best served when they don't cut enough hair (so that you come back sooner).

There are a lot of other companies that have this conflict of interest. We know how new cable/internet subscribers get very good deals for the first few months, which go away after the first few months in the contract.

Question is - what is the commonality between these businesses that treat new customers better than existing ones ??

I posed this question to my friend Torsten, who is an economics major in Pittsburgh and got this response -

If treating new customers is costly (in the sense that it minimizes the business's utility), then one commonality could be that the businesses value a long-term business relationship, i.e. they accept high startup costs (or less profits) in exchange for making more profits with the customer over the long term.

Another commonality of such businesses could be get a foothold into a new market and getting some customers with which they can earn the trust of more potential customers ("look, we are working for IBM - if they trust us, you can do so, too). From the other extreme, a quasi-monopolist could be interested in deterring new market entrants. Say, the big existing car companies are meanwhile realizing that they have done too little on a global scale to capture the new up and coming lower and middle-income customer groups in developing countries. As a result, companies such as Tata are now introducing $2,000-3,000 cars, capturing a huge market.

However, this market deterrence does not necessarily work everywhere. Our former laundry guy in Palakkad was not known for the quality of his work, but no one could change to another laundry since these guys had contracts among themselves preventing them from doing business in each other's area. Can you think of any other examples?

Fast Typists help Solidcore!

2007-12-16T17:50:00.000-08:00

I received some interesting comments about my previous post, one of which enquired about Solidcore's innovation. Its time I responded to that. Much like our biggest competitor, our roots are in security and despite a shift in strategy to focus on the compliance and control market space, our original product continues do extremely well. In fact, a good 40% of all ATMs in Germany will be using the Solidcore Embedded product by end of 2008 for Change Control. The same product has hockey-sticked in Japan where all new Printers, Point of Sale machines and ATMs are shipping with Solidcore. But, the icing on our cake was Bsquare's recent announcement that the they'll OEM our product to provide security for "embedded devices in the marketplace that are vulnerable to several types of change control risks, ranging from traditional threats like viruses and malware, to internal threats such as employee sabotage"

So, why is this product taking off in these markets? I talked to one of our customers from Japan and they gave a very interesting factor that led them to us. Apparently, in the fast paced Japanese markets, retail branches are made (or broken) based on how quickly they can service their customers during checkout. This has forced all the checkout clerks to learn to type extremely fast. Turns out, some branches/stores were performing much better than others and a detailed analysis by our friends helped them realize that the anti-virus software on the checkout systems would often slow down the programs. This slowdown, often imperceptible, was however, just enough to ignore some keystrokes of fast typists. This led to billing errors, which led to a longer service time, lost business and ultimately a thriving business for Solidcore. Clearly, we did not lose out any momentum in our first product, even though we chose to focus primarily on Enterprise Change Control.

Marketshare and Product Innovation

2007-11-17T10:13:00.002-08:00

One of my biggest challenge as a Product Manager is to prioritize the features, enhancements and bugs to be fixed in our product. Around the same time last year, my goal was to get a polished and well-designed product to market. During various releases, there were times when I felt we could have done better - fixed more bugs, enhanced the usability of the product, introduced new features, etc. Oftentimes, Sales and Marketing dictate time to market and Product Managers have to make the best use of limited time and resources. Looking back, I feel that we did a good job because we have been able to sell and deploy at a very rapid pace in the last 12 months.

Having been involved in various decisions that brought us here, I feel very proud when I hear stories from the field about how quickly our customers learned to use the product and how valuable it is for them. I also know that the base product, without any further modifications, will continue to sell because of the value it delivers. However, as a startup with deep roots in technology (our CEO has a PhD in Computer Science), we continue to invest significantly in product innovation and also make enhancements requested by our customers.

Interestingly, our biggest competitor, Tripwire, has adopted a completely different approach. I have seen various demos of their product, but have always come back with the impression that Tripwire's strategy is more focused on product positioning than real product innovation. Any IT admin who has used their product will tell you that their latest product is not significantly different from what they were selling 2-3 years ago. What has changed is their Marketing message - In Nov 2004, they pitched Availability, Nov 2005 was all about Change Auditing, they followed us in talking about Change Control in Nov 2006 and their current theme is around Continuous Compliance. I am sure they are doing extremely well, selling more and more licenses every year with minor tweaks to their branding. Guess we just have very different operating philosophies.

There is one other product that I have used for the last 5 years which has hardly changed - Microsoft's Outlook. Outlook is a great product for collaboration, but has some significant limitations - primarily around search. Ever tried searching your 2GB Outlook mailbox for an email and compared its speed to a similar operation in the free Gmail? Have you ever lost messages when your Exchange server's files got corrupted because no one likes to delete their older messages? Its not as if Microsoft does not know about these issues, but they probably don't see any value in fixing these problems. Now, Microsoft is hardly a company that you can accuse of sloth, but I'd hate to be the Product Manager for Outlook now. Microsoft seemingly prefers to encourage the development of a productivity eco-system around Outlook than incorporating basic features in their own product :(

I have tried some of the productivity tools over these years. Lookout, the one that Microsoft bought, had its power in its simplicity. They used Lucene to index the mails. Keyword search was very fast, but advanced search features were not really well supported. Google's Desktop Search uses some really fancy technology to index emails and all files on your desktop unobtrusively, but their approach is too generic and not oriented towards email search. As an example, there is no easy way to locate an email and drag n' drop it into a new email draft. This is such a common operation and the lack of support for this feature made me look at other products. X1's search and interface are really powerful, but you've to pay $50 for a single-user license. Not a steep price for its functionality, but still a greater barrier than the free products. Some of my colleagues use Copernic and NEO. Copernic, like Google Desktop Search is a full computer search tool and NEO is primarily an email organizer, but with better search capabilities than Outlook. I'm sure there are a few more such utilities, but these are probably the major ones.

Does this mean that a company, once it has established itself as the market leader, finds no incentive to innovate? Both Microsoft and Tripwire went into sustenance mode because they maneuvered themselves into a position of strength. However, they are now facing a lot of heat from highly innovative and nimble competitors and I expect to see some major enhancements in both Outlook and Tripwire very soon. This maybe either through organic product enhancements or through integration with other tools.

AJAX and Bandwidth Savings

2007-10-06T11:56:00.000-07:00

One of Solidcore's components is developed using Google Web Toolkit (GWT). GWT was introduced about 2 years ago and allows developers to develop web applications using Java. Though Java was used for server-side development even before its introduction, GWT pioneered the concept of a java-to-javascript compiler that allows developers to develop and debug in Java using their favorite IDE and tools. The compiler is used to convert the code into javascript which can then be deployed on an application server. Click here to know more about GWT and if you've already played with GWT and want to meet the team behind this innovation, you may want to register for this event

Our GWT application is extremely user-friendly and uses AJAX to provide a great experience to the user. I had never imagined that such functionality could be delivered through the web browser! Not only is the user experience better, there are some ancillary benefits like bandwidth savings. By obviating the need for full page refreshes, AJAX helps reduce the amount of traffic. This article uses simple examples and does the math to explain how large-scale web applications can derive significant cost savings. However, the best is yet to come. Our application results in a single javascript file, which together with gwt.js, is nearly 150KB in size. If we could optimize this to fetch the javascript functions on-demand, we could make the startup times faster and further reduce the bandwidth. Here's an excellent article describing this in case you are curious about how this can be done.

Disruptive Innovation

2007-09-22T15:53:00.000-07:00

I have been following Apple's introduction of the iPhone with great interest. The story actually begins with the success of the iPod - a great story of stupendous growth being driven by organic innovation, something we rarely see large companies do. Though the technology and marketing was innovative, the most critical thing that Apple got right was targetting a highly fragmented and underserved market for digital music players.

The success of the iPod helped bolster Apple increase its marketshare in computers, bolster its bottomline and made it an investor favorite. Apple, more than anyone else, probably knew that the gains could not be sustained just by introducing smaller and sometimes crippled versions of the iPod. The introduction of the iPhone gives us a great insight into where Apple is headed over the next decade or so.

Those who have read Clayton Christensen and Michael Raynor's "The Innovator's Solution" will notice many patterns that make the iPhone a disruptive innovation in the classic mould, including the targetting of non-consumption of legal digital music, the innovative approach to licensing music through iTunes, the use of proprietory (interdependent) architecture to get better performance and integration with iTunes. In fact, the last point about how Apple's proprietory and integrated architecture, which was its bane in the PC market, turns into a key strength, is also predicted in the chapter on commoditization.

The authors argue that a proprietory architecture is critical to the success of new products as customers will demand the best performance for their investment in the product. A proprietory or integrated approach will be better optimized to provide better performance than a modular one with components and software from different vendors. However, as the market matures and more entrants join the fray, the marginal improvements in performance or form factor (a la, the iPod mini, nano, micro, pico, etc) will not always lead to better price or margins. The product will eventually become a commodity, with the focus shifting to volume away from high margins.

This phenomenon will slowly shift the balance away from proprietory architectures to modular ones which are better suited for higher volumes. Fortunately for companies like Apple, this is phonomenon is cyclic in nature. As the product becomes a commodity, companies will focus on new markets which play to their strengths. Apple may have found a new market and the right product (iPhone) to do just this. For now, Apple seems to have the Midas touch and if you were thinking of investing in technology, Apple is a stock that I'd highly recommend ...

Referral based and Skillset based Hiring

2007-09-08T13:27:00.000-07:00

Solidcore has been growing rapidly and in the last few months we have more than doubled in size. I have averaged about 2 interviews per week for the last 3 months or so and would like to share my thoughts about how the size of an organization affects its hiring choices.

Until very recently, we could track the lineage of every employee and without exception every one of the earlier hires came to us with stellar references from ex-colleagues, friends or investors. Our hiring process would often start with a resume arriving from one of these sources and following a few rounds of interviews, we'd typically extend offers to the candidate. The quality of the referrals were very high and we managed to recruit top talent this way.

Such an approach meant that all the employees were no farther than 2 degress apart from most of the others, all being part of a small, well-knit silicon valley community. Most of us had startup experience and knew fully well the risks and thrills associated with building companies. Some had already been part of successful startups and others had tried following their dream. Though individual reasons for joining a startup varies, a common and inviolable goal for everyone was to help build a great company through hard-work and perseverance.

This burning ambition and an all stars team have helped us time and again overcome tough situations. Now, we have reached a stage where our growth demands us to fill openings quickly. A booming job market and an immediate need to fill the openings means that we are now open to considering resumes from recruiters and not just the ones that come from internal references. Making this change is part of our transition from being a startup to a larger and more mature company. This does not, however, mean that the hiring process is any less rigorous. We still continue to attract and hire great people.

This phenomenon which forced us to change our processes from a referral based hiring to skillset based hiring is very interesting. Employees are mostly replacable in large organizations. Their hiring processes also reflect this with most open reqs emphasizing specific skillsets and experience. The ideal candidate is one who is seen as good fit for the team and company culture. Leadership qualities are never considered for entry level and sub-senior management positions. Under such circustances, even exceptional employees find it difficult to progress up the corporate ladder. The impatient leave for smaller companies and many others get on the MBA bandwagon.

On the other hand, smaller companies place a premium on leadership skills. I know of a few instances where offers were extended even when there was no open req in the particular business unit. One may think that such behavior borders on fiduciary irresponsibility, but if you consider that one of the biggest assets of startups is its people and the IP they help develop, this approach does not seem illogical. Counterintuitive maybe, but definitely not illogical :)

Does this mean that larger organizations cannot or should not hire leaders? The answer is a categorical no. Leadership at all levels is key to the long term success of any organization. Larger organizations use different mechanisms to find and cultivate leadership in their organizations. Hiring is mostly focused on immediate needs and market needs. The best hires are eventually promoted and groomed for leadership. However, the pace at which this happens in a large organization makes one feel that leadership is not an immediate concern. Does this make you think of moving to a smaller organization? Do check out our open positions at http://solidcore.com/company/careers.html

Ski Rental and Value Propositions

2007-06-30T06:52:00.001-07:00

Most of us (esp. in the US) would have rented items like Skis, Camping Gear, etc. from time to time. For the occasional skier or camper, this is an obvious choice. However, the more serious enthusiasts have an interesting problem - to rent or to buy? This is a well-researched topic and the math proves conclusively that the optimal strategy involves renting until the aggregate rental cost equals the cost of the ski equipment.

Now consider the following -

1. I bought a pair of roller-blades after taking my first lesson while attending Grad school. Over the course of a couple of years, I became a very proficient skater. Much like the researchers predict in their paper, I had a major accident that required 18 stitches over my left eye. Purchasing the rollerblades outright gave me the option to practice at short notice in my free time (an extremely valuable commodity in grad school) and is a decision that paid off well. Once you master rollerblading, many other sports like Skiing and Ice-skating are easy to learn and enjoy.

2. Taking a similar approach, I bought a cable modem for $200 in 2000 when I moved to the Bay Area. Comcast was renting these modems for approximately $10 a month and I reckoned that I'd my investment would pay for itself in less than two years. However, within a few months of my buying the modem, Comcast reduced the rental price to a ridiculous $2 a month, making me kick myself. A good 6 years after buying the modem, I still haven't broken even!

These examples illustrate why the ski rental algorithm is great for the average case. Given the amount of skating that I did, I'd not have spent much more had I followed this approach while buying my rollerblades. With the Cable modem, I'd definitely have freed up precious resources for investment elsewhere.

Now, step back a bit and consider a startup (with scarce resources). Following the ski rental algorithm gives the startup great leverage in conserving its resources and investing in the most critical areas. At an early stage, leasing desktops from Dell/HP helps the startup free up capital to invest more on the product. Capital Expenditure can be done later after the product has stabilized and the revenue stream starts picking up.

This idea is also the cornerstone of many SaaS offerings. What do you think is the primary value proposition of Salesforce.com? I'd argue that the primary value proposition of Salesforce.com is not CRM and its software, but the lower cost of ownership of such a solution. As I've noted in my earlier posts, comparable solutions from Siebel, SAP and Peoplesoft were very expensive to procure and had a very high TCO. Salesforce.com's innovation lie not in providing a hosted service, but in identifying that the Ski Rental algorithm is such a no-brainer.

Cars, Planes and the Airline Industry

2007-06-20T14:55:00.000-07:00

One of the most popular keywords in the software industry today is to Software as a Service (SaaS), popularized by Salesforce.com’s Marc Benioff. Marc has done a tremendous job positioning his company and its eponymous website as an inexpensive and indispensable tool for many small and medium businesses. However, will this trend catch on? Is there sufficient play in the market for more SaaS vendors and is Salesforce.com that got lucky?

There is a close parallel between the various software segments – consumer software, enterprise software and SaaS with the transportation industry – car manufacturers, plane manufacturers and airlines. Drawing out the analogy on some aspects brings out the challenges faced by each of these segments and clearly shows that the SaaS vendors have a tough challenge ahead.

Customer Expectation - customers expect good quality, but also understand that there will be the occasional failure. Failure of parts in a car is relatively inexpensive to fix, even if the manufacturers have to do a mass recall. However, airlines expect a very high quality product when they buy a plane and will not buy even if a few parts have quality issues. An airline must ensure high reliability of their planes and also offer great in-flight service in order to stay in business. Even though the quality of software from enterprise vendors is often not as high as their customers would like, the expectation of quality in a SaaS tool is the highest – the software must provide Quality of Service guarantees and also be highly available.

Lifespan - The average maximum lifespan of cars is around 10 years, of planes 30+ years. Typically, we expect airlines to outlive various airplane models by adapting newer technologies. It is not that consumer or enterprise software companies have failed to build a sustainable business, but a SaaS vendor will be required to adapt more quickly to the massive technological shifts that occur so frequently in our industry.

Maintenance - car dealers and even unauthorized mechanics can do an oil-change for cars, whereas only well trained engineers with appropriate tools can do so for airplanes. Airline carriers have trained engineers who perform routine maintenance on the planes very frequently (a few thousand miles or so) in order to make sure that the planes are flight-worthy. A SaaS vendor should not only have the best architects and engineers building the product, but also an extremely capable bunch of administrators. Neither consumer nor enterprise software companies have to worry about training or recruiting administrators for their software.

Sales - In the plane market, most deals are big and a win/loss can alter the landscape of the market and profitability of the company. However, a few lost deals do not make a big difference to the pecking order of the car manufacturers provided they do not let it aggravate. The airline industry is the one with the highest volume of business and the lowest margins. The current rate for even sophisticated tools like Salesforce.com is less than $100/month per seat and this is a huge stumbling block for SaaS vendors. Why would they build great software and settle for lower margins, if they could instead sell the software for a much better price?

Market – the car market is flooded by many manufacturers with models for every segment, whereas the airplane market is dominated by fewer players - Boeing, Airbus, Llockheed. Airline carriers are slowly specializing in the international, budget domestic and hi-end domestic markets. Not sure how the SaaS market will shake out and grow, but it is possible that we may have vendors offering custom services to larger organizations with strict SLAs and smaller players that target the mass market. This may already be happening with large IT vendors like EDS, IBM Global Services, Infosys, etc. developing and maintaining custom applications for large clients like GM, GE and others. I’m sure they are already thinking of the next big thing after services and this is an area with a lot of possibilities. The biggest challenge before smaller players like Salesforce.com is to sell to the larger enterprises, as they cannot risk selling to only small and medium businesses.

The bottom-line is that very high customer expectation for quality and the general dynamics of the market make it very difficult for small startups to offer Software as a Service and build a sustainable business. Its probably for the best, because the few that do so, will have a clear and distinguished value proposition. As a corollary, I would not dream of starting a SaaS startup unless I have a clear and distinguished value proposition.

Challenges in Building Products

2007-05-19T09:46:00.000-07:00

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 www.sales.com 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, Salesforce.com 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.

How Fedex became 'The Verb'

2007-05-03T07:04:00.002-07:00

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?

Of Verbs and Strategy

2007-04-22T15:25:00.000-07:00

"Timothy, Can you please FedEx the latest documentation to Plano to reach them by tomorrow morning?", set me thinking about why I "FedEx-ed" documents instead of "USPS-ed" or "UPS-ed" them. Solidcore uses all three services from time to time. Though much smaller than UPS or USPS, FedEx is THE VERB in their category. Is it because, "FedEx-ed" sounds much better than "UPS-ed" or "USPS-ed"?

I'd never have known that they were smaller than UPS or USPS, had I not seen the following bookmark (a piece of great marketing collateral) from USPS -

How is it that smaller companies like FedEx outmarket bigger players? Watch this space.