tech ramblings

yeh, don't bet on your own money. get funded. screw someone else #TEDxEdges #OutSystems

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One of the strengths of the US lies in the self organizing nature of its citizens. Football (soccer) clubs that host thousands of kids in suburban towns are run in a self organized hive of activity, where parents act as investors, managers, coaches and referees. Voluntary work is highly recognized by US employers who rightly believe that people that have run workshops, helped maintain a highway or run civic groups have accumulated useful skills and experience that make them better employees. 

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I remember Cisco doing a pre-M&A due diligence on a former company I worked for. One of their must-have checklist items was the "size of the CEO office". They had validated over, I am sure, a lot of trial and error that there was a negative correlation between the size of the CEO office and the culture of the company. Our CEO at the time had a fairly large office so that might be the reason why the process did not move forward.

This checklist item makes way more sense than what you think. A big office shields you from the team and conveys the notion that you are very important without you having had to win that importance with actions and leadership. A big office removes you from where the action is in a fast moving, tech company and makes you a little bit less in control. It shields you from your customers, your R&D, your field teams. When you are managing knowledge workers, people that are full of innovative ideas and energy you want to be smack in the middle of them. You want them to be your collaborators, not your employees. You want to be privileged enough so that they include you in their impromptu brainstorms.

And I have taken this principle to the absolute extreme. I have no office. I have a desk in an open space like everyone else. There are no offices at OutSystems which sometimes is a major drag for people to concentrate working, but which does wonders in terms of team building. In team building events like the now traditional OutSystems Summer Event, I try to not be involved in the organization and act as any other collaborator. The inclusion of management within the rest of the collaborators breaks boundaries of communication and enables trusted networks to be built among the multiple country teams.

In the video below you can see a bunch of OutSystems executives and managers drinking Caipirinhas, singing, playing volleyball, and shaking their helmets to the well intentioned, sometimes slightly misguided, sound of the band. See if you can find them.

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When you are planning on selling something to a lot of people I have found that a great exercise is to pretend that you have to explain it on national radio.

On radio you only have between 1 to 3 minutes to get the message through. This is great to train your elevator pitch and drop out of the conversation a lot of the accessory things you know you can do and zero on one or two aspects _ the most relevant ones. On national radio you have to talk to people who are not familiar with the slang and details of your area. On radio you have to imagine your whole family is listening. Your granny is listening. And you want the whole of them to kind of get what you do. And remember it later so that they can talk about it to someone else. A lot of people you need to sell to (investors, included) don't really understand the details of why you are different and they appreciate you making it easy for them to get it immediately.

The best way I have found of doing this is by using metaphors. A metaphor brings a familiar context to the conversation and lets you position your value proposition in a way that lay people can then follow. My company, OutSystems, sells a platform where IT departments can build web-based enterprise applications iteratively so that you can adjust the software cheaply and fast as the business demands it. This is hard to understand for lay people. They don't understand that other technologies make it very hard for applications to change. That applications once built are brittle and stiff and that the cost of change gets higher and higher until the application has to be thrown away and replaced. That agile methodologies that focus on improving things iteratively are hard to implement using these inflexible technologies.

So I compare the OutSystems value proposition with the one of "making a suit". You can buy prêt-a-porter suits (packaged applications) or have a tailor make the suit (a custom application in IT lingo). Enterprises business processes and operation are like the body of a person. If you want your suit to fit perfectly you have it custom tailored, like an application built to serve a business. But if your body keeps changing like an enterprise business does then after a while the suit stops fitting more than perfectly. Or it doesn't fit at all.  What OutSystems has done is create a new "permanently adjustable material" and a "special scissor" that lets you constantly change the suit. If your arms grow or you suddenly become slimmer you don't need to throw the suit away or take ages to rebuilt large parts of it. You adjust fast to fit perfectly.

People now remember us as the guys who are in software enabling "everyone to have tailored suits that never age". Not perfect, but better than be remembered as the guys who are in "software, doing something that sounds like everyone else and... sorry, I slept through the rest".

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We all know that Europe is not one country. Therefore we should all know that Europe is not one market territory. But as technology leaders, selling to the enterprise, we sometimes forget this fact. We look at Europe with its unified currency and outwards seemingly cultural habits and we tend to believe that selling in Europe is different than selling in multiple unrelated countries. That Europe is like the United States. That Europe is one market.

The fundamental premise of successful market expansion is reference selling. You sell because an existing customer has acted as a reference and can vouch for you. The more customers you have the easier it is to sell. Mainstream customers only buy if you can show evidence that the product works and is providing major benefits and therefore you need those first early adopter sales.

When you jump to a new market you have to start the reference building process from scratch. You have to go again through that most painful process of selling to the first customer and then the next three, and then the next seven.

This is what happens when you decide to expand from Holland to England or from Portugal to Spain. You have to restart all over again. Customers in Holland do not have a trust network in England they can independently validate your claims. They are unfamiliar with the companies that are your early adopters. They don't even speak the same native language.

I believe this is one of the fundamental reasons that we don't see very large tech companies outside large local markets. Those early days when you grow fast without having to restart your sales for a new territory save you a lot of time and money. The cost of acquiring those early adopters in a new market is so high that most of the times either the company bankrupts or is forced to withdraw. So US, UK, German startups have a substantial competitive advantage in not having to go abroad too soon while they are low on cash and global awareness.

The exception is Israel. A small local market with very large tech companies. How do they do it? Simple. They overlook the local market and invest their sales in a large market like the US from day one.

So the advice is simple. If you need to go abroad, pick one large market and stick with it. Don't disperse geographically just for the benefit of collecting flags in your web site.

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The most difficult hurdle in getting a tech startup going is getting that first reference customer. First customers are very important because they are the ones who tell the others how good you are. The technology market is today, more than ever, run by conservative individuals who only buy what you have to offer when they see evidence of the benefit you have provided to others. 

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The Peter Principle depicts a common situation all senior managers have to deal with sooner or later. It states that "In a Hierarchy Every Employee Tends to Rise to His Level of Incompetence." This problem is especially hard to tackle at young, fast-growing companies. As a company grows from start-up status to established organization, initial employees are forced to grow their managerial and organizational skills. A lot can't make it.

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In a recent post, Seth Godin advices on taking that first small risky leap that will give a fair amount of reward. I liked the model and the graph. In fact, I think the graph is a great way to understand why companies that use agile methodologies have been able to reap higher rewards with much less risk.

Risk is in direct proportion on the invested amount plus lack of insight. An agile approach to strategy breaks a strategic initiative into small incremental initiatives. Each initiative requires a smaller investment and results in extra insight that decreases the risk of the next increment.

You can apply this model to almost anything you do inside an organization. Some examples:

1. Do you want to hire a top executive to lead a core area of your company? In the latest hire I have done, I flew the top candidate for one full week to headquarters. I changed the schedule of all other executives to spend quality time with this guy. Short of having him manage the team, I simulated almost any situation he could face. Was it expensive? Yes, but much less expensive than making a blind hiring mistake and having to restart the process in 9 months. The risk of actually hiring became smaller.

2. Do you want to move into a new geographical market? If you would have done it in the bubble years you would raise 20 million, staff yourself with top sales executives and start selling. Very high risk, high reward (if you're lucky). The Agile model however demands that you first send a couple of top executives to feel the new market, start initial sales and understand what to do next. Then you staff with 2/3 sales execs, have them reach quota and get to the next level.

The only tradeoff here is time. If you do it incrementally, it will probably take longer than taking the high risk, Big Bang plunge. The tradeoff however works for me. I don't want to burst. And it is probably working for you too.

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Every seasoned partner that has decided to invest in a partnership with OutSystems has asked for a one-on-one conversation with me. OutSystems has very good, top people who drive these partnerships in a very professional way. But when it is time to take the plunge they want to "feel" the CEO. Why?