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Individualized Behaviors, Social Dynamics and Collaboration

Sunday, October 19th, 2008

I was reading an article on Gartner’s “four disruptions that will transform the software industry“. While I was reading it occured to me that three of the four disruptors have the same core - there is a new type of user out there, and they are becoming more vocal about having more control over the tools and applications they use. As John and Claire-Marie Karat wrote in our article ”Affordances, Motivation and the Design of User Interfaces” - “There is a paradox in human behavior that is valuable for designers of applications to keep in mind: Everyone wants to be in control, but nobody wants to be controlled.” This basic truth is driving the “Rise in New Technologies and Convergence of Existing Technologies” disruptor especially around SOA, device portability and mashups. It is also driving the other two disruptors “Change in Software User and Support Demographics” and “Revolutionary Changes in Software and How it is Consumed”.

I think that everyting Gartner says is true - but it isn’t that futuristic - just extrapolating from the trends we are seeing now in early adopters. As William Gibson wrote “The future is already here, it’s just not evenly distributed”.  What I think they are missing is that software is going to have to evolve to support a new type of work, not just a new type of worker. Most of todays packaged apps are around to support the highly strutured processes of the “old enterprise”- and I put BPM tools in that bucket. The next generation of enterprise software is going to have to provide much better support for knowledge work processes. Lotus Notes, MS SharePoint and Wikis are a start in providing support for collaboration - but not for the tacit interaction (or human processes) - which include individualized behaviour and social dynamics. Enterprises are going to need tools for the 80% of human centric business processes that are currently handled through ad-hoc use of email and documents - a Human Process Management System. As you know from my previous posts HPMS’ will be extensions of the way people use email and documents today as their basic framework for tacit interactions (or human processes) with a focus on traceability and flexibility rather than control.
 

Dynamic Business Applications and HPM

Saturday, September 20th, 2008

I was reading a Forrester report “The Emerging Technology Trends that CIOs Should Care About“  and was struck by what they call “Dynamic Business Applications”  where they claim that “Most business applications are too inflexible to keep pace with the businesses they support, as they force people to figure out how to map isolated pools of information and functions to their tasks and processes, and they force IT pros to spend too much budget to keep up with evolving markets, policies, regulations, and business models.” I couldn’t agree more, especially since they break this out separately from BPM.

This is especially relevant for the fluid environment needed for the kind of work done by knowledge workers, especially for ad-hoc processes or exception handling. This type of work needs a new paradigm where the ad-hoc, human way people actually handle most process needs to be the guiding mechanism. Knowledge workers use an implicit process framework that they use for their tasks, but almost every instance is some sort of exception. I think this one reason the use of email is so pervasively used by knowledge workers for their processes. This very different from the structured processes that are handled by BPM - and we’ll need a new paradigm for it. I have started to use the term Human Process Management - but I am not sure that is the best name for those ”process frameworks (usually handled via email and meetings) for ad-hoc “unstructured” human centric processes.

Linking Documents and Process

Thursday, August 7th, 2008

I have been thinking about documents and their usage context in organizations. Knowing how a document is used is just as important as knowing the content, though today’s document repositories don’t really know the usage context for the documents they store. At best they and let user try make up the gap with tagging and descriptions. Most human centric organizational processes entail the use of various documents as a natural part of the process - either as input to the process (e.g. research or background) or output (e.g. a findings report).  So the link between documents and their process context is a natural one, and critical if you really want to understand the document.

So it is surprising to me that this hasn’t come up more as an issue in document management systems - the need to really connect documents and the flow of the human centric process that uses them - even if the process is an ad-hoc one executed (as most are) over email.

You could decide to implement all processes as a workflow in a document mangement system - but for many processes that would be overkill (especially the ad-hoc kind), would just take too long and require to many IT resources - not to mention that it would require the users learning a new way to do things. If you decide to keep the documents in a standard repository - then you lose the connection between the process that used or generated the documents - which means that you really can’t understand how the document is actually used in an organizational context…

Back to Blogging

Monday, July 14th, 2008

It has been a long time since my last post -I guess I just couldn’t keep up the pace. Writing the blog is hard work, and I just couldn’t find the extra time to keep posting.

So now I’ll take another tack - I’ll try to keep things up to date with shorter, less elaborate posts more often. Lets see how long I can keep that up.

BTW - I finally received the eBook, the screen is gorgeous - very readable. I think it was a worthwhile purchase, even though it ended up costing me a lot more than I expected. If I was living in the US a Kindle would probably have been a better choice. The nicest thing about it is that you can take lots of different books with you anywhere, and if you live outside the US - gives you exponentially more book selection, and much lower price per book than you can find in physical bookstore. The main issue is with formats - there are many ebook formats out there, and different devices are compatible with different formats.

The “prosumer” experiment was interesting too. In today’s user generated content world, one irate customer can cause a lot of damage (by negative posts on blogs). I don’t know for sure, but I am guessing that all-in-all, trying to “contain” my complaints cost BooksOnBoard a lot more than if they would have just fixed or replaced my device.  That kind of irrational response fits very well with an excellent book I am reading (on my eBook of course) - Predictably Irrational by Dan Ariely.

Bad Customer Experience

Tuesday, May 13th, 2008

This is the first time I am doing something like this, but I just had the absolutely worst customer experience I have ever had, and it was from two startups. The culprits are Bookeen and BooksonBoard. I decided to try an eBook to see how things work. i settled on a Bookeen Cybook (the Kindle wasn’t available, and I wanted to use it to read mostly PDF’s so I decided on the Cybook.)  Well, it was broken out of the box (though it took me over a month to try it out, I just didn’t have the time to get around to it). The first time I turned it on I was impressed with the resolution and was dying to try one of my books - but I couldn’t navigate - all the buttons seemed to be dead.

At first BooksonBoard were pleasant enough we spent about a week trying to diagnose the problem - recharge it, reinstall firmware. Finally I just asked for a refund. That is when they got nasty and told me that since it was over a week - they just don’t give refunds. period, even though the device was dead on arrival. After some nasty emails back and forth it seemed like the only way they were going to do anything was if I sent it back to Bookeen in France at my own expense.

So I sent it back, packed as they suggested. Today I finally get an email from Bookeen telling me that the screen was broken “either by a drop or pressure” and therefor wasn’t covered by warranty. yeah right. It seemed to me that the only thing that was working was the screen. Now I could pay another $130 and maybe it would work or just write it off. Those were the choices they gave me for a few hundred dollar device that never worked.

So what have they accomplished? They have one irate customer that will NEVER recommend them to anyone, and of course this negative blog post. I am not sure how they (Bookeen and BooksonBoard) think they will succeed with this level of customer service. They broke cardinal rule number 1 - the customer is always right.

This got me think how difficult it is to create a hardware based consumer electronics startup. The level of service they are expected to give just doesn’t jive with the level a startup can provide, unless you team with an experienced retail team. 

Loaded for Bear?

Saturday, March 15th, 2008

I follow quite a few blogs, especially in the startup and VC space, and what surprises more than anything is that not many are discussing the pending US (WW?) recession. I first posted on this in October 2007 (Subprime Mortgage Crisis and Startups)  but since then things have become a lot clearer, and a lot worse. In my opinion it is time to batten down the hatches and get ready to weather the storm.

What does that mean if you are a startup? Well, first off - if you are already funded and going to need to engage in a new round any time soon (say in the next 9, maybe even 12 months) - I would recommended moving your schedule up and doing it now.  It isn’t that the VC’s money will evaporate anytime soon, it is just that they will start being more cautious with investments, things will take longer and valuations will go down (as far as I can tell they already are). Right now most VCs don’t seem to be worrying too much about the upcoming recession - but sometime soon (I’ll guess sometime in the summer) they will - so use this time to your advantage.

If you are pre-seed, and haven’t already been funded, be prepared for a longer gestation period before you can reach the appropriate milestones to get to your next round of funding (especially if they have anything to do with customers, or market validation). In my opinion, you can just assume that anything you start now won’t have a market for about a year. That means that if you have any chance at all to get funding soon - do it now (perhaps at even a lower valuation), and use the rest of this year to build up your product and get ready for 2009.

Enterprise Software Startup Valuation

Sunday, February 10th, 2008

Not a blockbuster headline, but I just noticed that Workplace, Inc. bought Cape Clear. I had never heard of Workplace before, they sell various Enterprise applications using a SaaS model. I had heard of Cape Clear, they are (were?) a pretty welll known Irish startup in the Enterprise Integration\SOA space - providing Enterprise Services Bus middleware.

Most the articles I have seen about the acquisition focus on the aspect of how integration into existing systems is a key capability for SaaS players, and that the Enterprise middleware space is rapidly consolidating. Makes sense, but for me what is more interesting is what this says about enterprise software startups and their valuation. The details of the deal are confidential - but I am guessing that the deal isn’t a blockbuster (given the size of the acquirer), and I’d be surprised if the deal was for more than $50M (maybe much, much less), all stock. Now according to Joe Drumgoole’s blog about $48M has been invested in Cape Clear over the years - so a $50M exit doesn’t leave much for anyone. Here is his list of Cape Clear investments:

  • 2 Million in seed funding from ACT in 2000
  • 16 million in Series A funding from Accel and Greylock in 2001
  • 10 million in Series B funding from Accel and Greylock 2003
  • 5-10 million: A phantom series C round raised as a set of warrants amongst existing investors. It was never press released and their is no mention of it on the net.
  • 15 million in a series D round in the last few weeks (April 2006 - Jacob) with InterWest

Cape Clear seems to have been a “technology” acquisition for Workday - which brings me to my point about Enterprise Software startup valuations. It is very difficult to become a stand alone player in Enterprise software (especially with all of the consolidation going on), and if you aren’t a viable stand alone enterprise software company - well that means you need to plan for the fact you will be acquired - probably for technology. To make sure that a technology acquisition is a viable exit path you need to make sure your valuation isn’t too high in the early stages. Enterprise technology companies seem to sell for $15M-$100M, depending how strategic they are to the acquirer - but require a lot of money in the later sales and marketing phases.

So make sure you don’t over value your company early on, it will come back and bite you later.

Microhoo - My Thoughts on a Microsoft-Yahoo Merger

Sunday, February 3rd, 2008

Well, it is in the news everywhere, the possibility of a $44B Microsoft/Yahoo merger.  Given that I have spent a lot of ink discussing how to manage mergers after they happen - I find it hard to believe that this merger will actually end-up as a net positive for either company over time. The companies are just too different. Yahoo has been spending the last few years making itself into a media company (though lately they have been talking about getting back to their technical roots), and Microsoft is, in the end, a software and engineering company. My guess is that it will be hard for the merged “Microhoo” to be both a media and software company at the same time, which will cause enormous tension w.r.t to management attention and resource allocation. I wouldn’t want to be the one who has to make that merger work…

Another point that has been discussed ad-naseum is whether this will help or hurt the start-up eco-system. I attached a table taken from the Israeli government website about recent acquisitions of Israeli comapnies. Taken in a purely Israeli context it will probably be a net plus. First of all Yahoo has been a complete non-player in Israel, while Microsoft has both a large presence and made three acquisitions lately (see the table below). People are right that Microsoft will be busy for a while digesting the acquisition, which will slow its pace. The good news is that it will probably cause other players to pick up the pace of their acquisitions - AOL (which bought Quigo and Yedda which even aren’t on the list), Ebay which has bought Shopping.com and FraudScience (also not on the list). Maybe even some of the other advertising\internet players - e.g. Google, Amazon, IAC, News Corp. will start acquiring differentiating technology in Israel which would more than make up for any slowdown by Microsoft.

Recent Israeli m&a activity chart

Incubating Innovation – part 2

Sunday, December 30th, 2007

I am at heart a technologist. I still get excited hearing about new, cool software technology and solutions. All of my past experience, and now at eXeed, my time goes into figuring how to mold new technology so that it solves a real problem for a large set of potential customers. At IBM Research our group used to use the term “Research in the Marketplace”. Continuing that tradition at eXeed, we work pretty much only with startups that have unique technology, so my comments are very much focused on technology based startups.

In my previous post I tried to show why the numbers make it hard for corporations to create “startups” internally. Beyond the numbers, there are two basic truths about technology based startups that make it very difficult to cultivate them in a large corporate environment:
1. Over a short period of time technology-based startup products need to morph (sometimes repeatedly) to meet customer\market needs –experimenting in the marketplace  while leveraging the same basic core technology. Very few technology startups start with the same set of product (ideas) and business model as they exit with – but in most cases the new direction still leverages the same core technology. 

2. Startups start out small, with very little (if any) revenue. One thing to remember is that even an exponential curve starts out slow – and only speeds up as time goes on.

These two “facts” make it hard for a startup to be incubated in a large company – there are just too many barriers to being nimble enough to make point 1 work, and point 2 usually means that the corporation looses interest before success can be shown (especially given the ambiguity associated with point 1, and since there is usually an existing set of products that can generate more short term revenue with the same investment).

I guess the basic point is that the impedance between running an existing business and starting a new one is so great that unless the corporation is willing to experiment with new, unorthodox models, and can commit long-term high-level executive support, it just won’t work. Even then there is still the issue of getting the right people (and giving them a loose enough rein)  – but I will discuss that in another post.

Incubating Innovation

Sunday, December 23rd, 2007

I read an Forbes article this weekend on incubating innovation which is something I have had the opportunity to do as part of an extra large organization, a medium size company, a small startup, and now as an investor.

The thought process of setting up an incubator in a large company is pretty simple – management sees the outsize returns that VCs produce, know they have wealth of worthwhile internal projects that will never make it to market – put one and one together – and come up with some sort of incubation process. They also hope that it will help them break into new markets. According to the Forbes article  “Arthur D. Little found that only 47% of companies believe their new ventures satisfy strategic objectives. Worse, only 24% meet financial objectives.” I am guessing that these numbers were mentioned since they show that incubation doesn’t work well – on the other hand, IMHO, a 24% across the board success ratio for new ventures isn’t too bad (not great, but not bad).

So I thought I try to do a back of the envelope comparison of the success requirements of internal incubation versus VCs. This is of course comparing apples to oranges since VCs look at the market value of the new venture upon exit, while existing companies look at the revenue and profit generated by a new venture. In any case, I thought it would be fun to try and somehow generate a comparison.

Let’s start by looking at early stage VC returns. Fred Wilson’s success ratio is that 35% of his companies do really well – over 5x investment , 45% do OK – 1x to 5x investment, and 20% tank.

A simple way to try and compare the two is to look at much revenue $1 investment would achieve if invested in existing products at the company– that of course depends on lots of things (including the industry), but I think a ROI of 2 would be considered a success. So to beat out a comparable investment in an existing product – a new venture needs to return at least $2 in recurring revenue for every dollar invested. Using another simplified (and conservative) measure, that $1 in revenue generates $5 in company value in the new venture which is equal to a VC obtaining (1×2x5) 10x on their investment. Now I know this is over simplifying things but a 24% success rate under these assumptions would be really, really good.

Another possible model is to assume that a company needs to return its investment in the new venture (via new revenue) within 3 years (so the new venture needs to return 1/3 of its investment each year). So let’s say the new venture generates $5M of revenue a year on average and with a really high growth rate (what the market and companies reward). The market value of a new venture like that would around $50M-$80M – which means that to get a good return – a VC can invest $10M-$14M and get a pretty good return (3x-8x). In this case the company and VCs are equivalent – the company can invest up to $15M in the new venture and also get a pretty good return by their standards (a 3 year ROI through revenue). Even here a 24% success rate isn’t bad…

Now these are just playing with numbers, there are a lot of qualitative differences between incubating new ventures in a company versus starting new ventures using VCs, but I’ll get to those in another post. These are also the kinds of considerations that companies ake into account when trying to decide between organic, and non-organic growth.