I was at a Rally Software board meeting where we spent a chunk of time finalizing and approving the 2005 operating plan. A big part of the discussion – not surprisingly – was on the sales ramp and the corresponding expense base (and timing of opex growth throughout the year based on a prediction of sales growth and performance.)
Rally started shipping their product in mid-2004. So – 2005 is their first full year of product ship. They have a nice, active customer base that is growing as expected. The growth curve is ambitious (but achievable) for 2005 – f they make plan, they’ll have a great year. However, their operating expense ramp (pre-board meeting discussion) assumed they made the sales plan. The guys running Rally are responsible and know how to sandbag a plan, so we’re confident that they won’t pull the trigger on hiring if they don’t see the sales ramp happening. The going in proposal (and plan) assumed they hit their numbers relied on management backing off hiring if they missed their numbers.
I’ve been involved in over 100 companies. None of them ever have made their operating plan on their first year of product ship. Occassionally they outperform, but they almost always underperform for some reason. The reasons are often logical and non-fatal, but the dynamic that gets created is one where the business is always “behind plan.” This sucks.
I made the strong point that I actually care LESS about “making our 2005 revenue plan” then I do about learning why people are interested in what we do, why they turn into real prospects, why they become customers, and why they buy more stuff from us. I know – with certainty – that our 2005 revenue forecast is wrong – we just don’t have enough data to have any precision on it. So – I want to learn the “why” in 2005 – not that “what.”
We do have a sales force to comp, a team to motivate, and a plan to achieve. So – the “what” is important. However, in my experience, the way to calibrate things is to set up the operating plan so you are in a position to increase opex as you are successful vs. having to back off spending (or hiring) if you fall short of plan. I’d rather go to a board meeting mid-year where the management team says “we’ve hit our revenue ramp so far this year so we want to pull some head count adds forward” vs. the meeting that says “we missed our revenue ramp so we’re holding off hiring folks in the plan.” The nuance is subtle but the dynamic is important – as you succeed, you get to apply more resources; if you don’t reach your goal, you haven’t assumed more resources (e.g. we can’t hit the goal because we need the resources.)
It also reinforces the focus on the “why.” If we fall short of plan, we’ll focus on “why.” If we exceed plan, we’ll rejoice, talk about “why”, and add more resources. However, we won’t spend a lot of time agonizing over “what we should do because we missed plan.”
The first full year of product ship for a software company is a very defining year. I’ve seen way too many of my VC cohorts believe that the operating plan and forecast is gospel and spend all their time in year one of product ship (and usually year two of the business) focusing on the quantitative financial metrics rather than understanding how things actually work in the business. Financial planning is imprecise early in a business – a smart executive team understands this and sets the right expectations and parameters around it.
Feedburner continues to impress – they just announced some new features, including FeedCount. Dick, Eric, and crew have taken “Keep It Simple and Sloppy” to heart – they release early, often, and incrementally – trying lots of stuff to see what works, how it works, and why it works.
If you have a blog and don’t use Feedburner to manage your feed, you should take a look immediately. It’s by far the best feed analytic engine and – with all the new functionality they are adding – quickly become a core part of the blog management infrastructure. FeedCount is an example of how they can quickly leverage what they’ve built – with a single HREF, I can add a chicklet to my blog listing the current number of subscribers.
I got the following question via email today:
All things being equal and all things being perfect, is it better to have more or less ‘angels’ in the mix? I can come up with reasons for both more and less. Also, it seems to me that more and less are very relative – but, in this case, Ohio has a limit of 25 investors before exemptions no longer apply (we’re still investigating that one), so that is the absolute upper limit. I’m thinking “more” is in the range of 4 – 10 and “less” is in the range of 3 or fewer — allowing more growth later, if needed.
My quick answer is three or nine, since three is my favorite number (and multiples of three are good, especially 3 * 3.) Before I started doing venture capital, I participated in about 21 angel financings (and led about 9 of them.) As a VC, I’ve had angel investors either prior to our investment or as part of our investment (when we invest in the Series A or first round) in about 51% of the investments I’ve done. It turns out that either a small number (three) or a moderate number (nine) is best (or – to be simple, 3 <= angels <= 9.) Angel rounds need a lead investor, just like venture rounds. Most lead angels drag along a couple of their friends. I like to look for this lead group to take between 40% and 100% of the deal. So - if you can get a small angel group to take the entire deal, you can probably get away with three-ish angels. If you are at the 40% level, you are probably at nine-ish angels. Remember that angels can (and should) bring a lot more than money to a deal, so the actual number is less important than the value you are getting. You won't get 100% participation (at best - you'll get 50% - more likely less than 33%) - most angels talk a good game but few deliver because they've got other priorities and interests. This is another argument for a larger number (nine-ish.) So - while there is no right answer, a multiple of three feels pretty good to me.
Ryan McIntyre – who works with me at Mobius – has started blogging. Ryan’s a great friend and collegue and – even though he went to Stanford – I still put up with him.
Ryan co-founded Excite and saw the Internet first hand through inception to boom and then to bust. In addition to having a real clue about search and other Internet infrastructure (as evidenced by his investments in Postini and Technorati), he spends a lot of time digging into advanced semiconductor applications – which are things I’m mostly clueless about (such as Akustica, Glimmerglass, and Microdisplay) – but I am always entertained by the pictures of really tiny things Ryan shows me.
The words of my partner Greg Galanos – who someday will have a blog even though he claims he doesn’t want one – “Hey Ryan, welcome to the Blogosphere.”
I was with my uncle Charlie at EDS yesterday catching up on a variety of things. I always pick up a handful of pithy thoughts from him – it’s one of his “special magic leadership” traits – boil the thought down to a simple, clear idea.
We spent a lot of time talking about cost leverage, as it’s one of the ways that EDS gets healthy over the long term. Charlie’s pithy thought of the day is that there are healty cost reductions and unhealthy cost reductions. You can always cut of an arm and a leg and lose 50 pounds. Or – you can start jogging and doing pushups.
Too many companies and executives – big and small – only know how to cut off body parts.
After posting Sales Tools – Keep Them Simple (e.g. A Heat Map) I got a couple of comments saying “show an example.” (Now that’s a great example of NOT keeping it simple – I’ll verbally describe things instead of graphically showing you the example – duh… sorry about that. I bet you wouldn’t believe me if I told you that I’ve read Tufte’s The Visual Display of Quantitative Information.)
The heat map above shows you that we have Company_1 and Company_3 as customers, we’ve pentrated Company_1 really well but have some work to do on Company_3, we should be making good progress on Company_2, and we’ve got a long way to go on Company_4 and Company_5. I also think MikeL should spend some time with JimR figuring out how to pentrate a Division_2 type customer and MaryB should probably spend some time with JimR also talking about Division_3 type customers, especially in Europe.
Now – envision this as 20 companies instead of 5 and 10 sales people instead of 3 and you can see how you could quickly see patterns that would be hard to otherwise see in a traditional sales pipeline report.
I was sitting in a meeting yesterday with one of our companies and saw a very compelling sales presentation. The company has developed good sales momentum in a specific vertical market (life sciences) and the CEO has focused the sales organization (6 direct sales people) on this market.
Rather than show leads by sales person with contrived forecast numbers and ratios, the CEO showed a heat map of the top 40 target customers (in two separate charts – top 20, second 20). For each company, he sorted by number of potential seats, listed the sales person that owns the account, and the geographic location of the company.
The interesting data was the heat map. All existing customers were colored blue. There were three columns for each company for each division that we sell into (there are three distinct ways that we can get to a customer.) Each cell was then colored either green for active, yellow for not active, and red for “the company told us to go away.” Fortunately, there we no reds yet.
In 30 seconds, I got a better view of the current sales activity for this company than I do for most of my companies. I saw which of the top 20 prospects were actually customers and how much we had penetrated the additional prospects. In addition, this heat map provided a clear framework for a detailed pipeline review. It also gave me real confidence that the CEO was following through on his assertion that they wanted to own this vertical market.
It was a simple tool – reminding me that all the Salesforce.com reports in the world aren’t a good substitute for a CEO who knows his target market and thinks about it constantly.
NewsGator just released a production version of their Movable Type posting plug-in. It joins a bunch of other posting plug-ins including TypePad and Blogger. With this, you can post directly to your blog from within Outlook using all the normal Outlook editing features such as bold, italics, and colors.
Lists are easy also:
Using the plug-in, posting is as simple as sending an email, which is especially convenient if you live in Outlook like I do.
I’ve been enjoying watching my Feedburner stats increase steadily. However, recently I put a web stats package on my web server to see what was going on. I was completely surprised to see my “old” RSS feeds (the defaults from my Movable Type installation – index.xml, atom.xml, and index.rdf) showing up as frequently visited pages.
Dick Costolo at Feedburner called me a knucklehead (in a kind and generous way) and pointed me to the solution on their site. Since I’m a Linux-lameo it never occurred to me that I needed to either delete or redirect my old files since (a) I didn’t realize they were there and (b) it didn’t occur to me that all the random feed readers in the world would pick up different RSS feeds (rather than the one that I wanted folks to get – my Feedburner one.)
So – now whenever subscribes to my blog – 100% of the feeds should run through Feedburner. I’ve already seen a nice jump in the last hour so it looks like this is working.
If you have are having trouble with my feed, simply subscribe here.