January 2011 Archives

I wanted to take some time to discuss something I get asked a lot about - is the Intimacy Engine viable for software businesses, regardless of the Software-as-a-Service journey everyone is on and the Cloud impact?

The real issue they're worrying about is that a large consulting business will negatively impact the great margin that software has, thereby negatively impacting valuation.  It does not work that way when done properly.  Further, software-based businesses also have the problem of "where do I go from here", once the current product has been somewhat commoditized- i.e. other firms have moved above and below offering more or less price.
 
Traditionally software firms' options are to do a shift and become a suite of things, an infrastructure play, or find a new fresh home unrelated to the current space.  All these require additional product, and more importantly, selling to new buyers higher up in the organization - this is where a strong Intimacy Engine comes into play. 

It's much easier to go up the organization with your products if you have the ability to work with the executives on issues they care about.

Let's take the diluted factor of services to licenses sales.  It's just not true that you should be selling more licenses. Let me provide a picture to assist.  The buying cycle is as follows:

buycycle.jpg

The challenge for a traditional sales only approach is that if you meet a customer in steps 1 or 2, you have little control and a long sales cycle, and the drivers often become features and price.  However, if you lead with True Solutions™ during these steps, you can get paid for effort, control the process, and shorten time to product sales.  Most importantly, you get more product sales! 

Therefore the argument is null and void; you get more license-sales faster, and the magical break-down of 1/3 license sales, 1/3 service, and 1/3 maintenance is maintained.

Next, let's take the ability to move to expand the product offerings to maintain or re-gain momentum for a software business. The beauty of the software model is the margin it achieves on product sales.  By the way, this is true of SaaS also, it just elongates the revenue and eventually increases the product value (people end up paying more over time, but it is accomplished a period at a time- think salesforce.com).  

Every product market gets saturated eventually.  Everybody has made their decision on who to play with, or the market is crowded and price pressures force looking at new virgin territory.  Further, over half of all new product launches do not succeed in the time to market to get the revenue needed. This is almost always because companies must sell into a new environment and all their current abilities - marketing, messaging, sales - are used to the old environment.

The Customer Intimacy Engine™ business model does not have this problem.  The Intimacy Engine sells by examining ideas, and ideas can easily (by adding new True Solutions™ to the solutions portfolio) move up the organization.  

Let's say your current software works at the department level and you are going to increase your value by adding products that make your offering a suite of offerings that follow a life cycle - could be the supply chain, the product launch or other life cycles within your target customers.  The ability to quickly move to and above above a new safety line is enabled by the Intimacy Engine, thereby eliminating the risk of being unable to change the entire business model to reach these new buying environments. 

Let's say you are moving to a whole new space. Even more difficult! The same truth applies. You can add True Solutions for the new space and pull through your new products and minimize your risk of failure. 

The real challenge is one faced by every business - how do I build an Intimacy Engine for my specific business? 

In summary, the Intimacy Engine can enhance the current financials (within the model you wish to have) and can positively impact the largest issue facing a software business today (whether it is a standalone business or embedded in a larger company), which is how to move and grow into new marketspace.

MORE INFO >> Download: Customer Intimacy as a Business Model by Dean McMann
A recent post on the Economist blog suggests that despite high labor costs and a strong euro, Germany is the world's largest goods exporter after China. This engine is being driven by durable, focused businesses defined as Mittelstand.

Business Week tells us these are "family-owned companies with fewer than 500 employees and annual sales of less than 50 million euros"-- and, get this -- they employ over 70 percent of German workers and contribute nearly half of the country's GDP. And in the field of clean technology - in which Germany is a leader - more than 75 percent of German cleantech companies fall under this category.

The Germans themselves have been studying these Hidden Champions for years. Academicians Bernd Venohr and Klaus Meyer point out that while the same approach has been observed in a handful of other firms around the world, including the US, it is most pronounced in Germany.

How do they do it? Again, the Economist:

Mittelstandler have not only focused on sophisticated niches that are hard to enter. They have thrown their energies into building up ever more powerful defences. They constantly innovate to stay ahead of potential rivals. They are relentless about customer service. Their salespeople are passionate about their products, however prosaic, and dogged in their determination to open up new markets ... [They] typically have subsidiaries in 24 foreign countries, offering service and advice. Many get the bulk of their revenues from service rather than products. Hako, which makes cleaning equipment, generates only 20% of its revenue from sales of its machines.

In short, many of these companies are focused, service driven, customer intimacy businesses.

My belief is that future growth for the U.S. lies in pursuing true customer intimacy led by services or solutions. Yes, I do agree that we do need to build back a level of manufacturing here at home, but it is customer intimacy which will drive performance.

If you look at the remarkable successes of IBM Global Services or GE Health Care, you'll see they follow a customer intimacy model for service.  I'd like to see our mid-sized companies follow this proven path to growth and profitability. It's a sustainable edge.

MORE INFO >> Download: Customer Intimacy as a Business Model by Dean McMann

The following guest post is by Mark Slotnik of McMann & Ransford.

Talent is always important and is one of the key drivers of the Customer Intimacy Engine™. In an intimacy-based business, it is even more important - particularly when many of the skills are new. The skills required to sell ideas, deliver projects, and develop account intimacy are different from traditional product and service company skills.

When it comes to building a team that understands and can deliver the customer-intimacy model, people always ask, “What percent can I bring along and get up to speed?”

Part of the answer is captured in the following quote from Baltasar Gracian: “Great ability develops and reveals itself increasingly with every new assignment.”

But if you’re like most of us, that is not going to be good enough.

The rest of answer depends on the existing skills and capabilities of the talent base, the types of offers in the True Solutions™ portfolio, development and training programs, etc. Let’s focus on the initial staffing of the effort for the journey.

Staffing the effort will come from two primary sources: Internal resources and new hires. Note that the endeavor for both groups is different. Your current employees understand your existing business and some naturally rise to the occasion and the majority are likely great people, but this doesn’t mean they will succeed in making the leap to the new model. After all, you will be asking them to do new things in new ways and without the support mechanisms in place, they typically revert back to the “old way”. Therefore, deciding talent selection criteria first will provide you the guiding principles for making important staffing decisions.

We like to use the following criteria for building high-performing, well rounded customer-intimacy teams:

staffskillsets.gif


For new hires, you will likely need to re-think where and how you source the top candidates as well as the interviewing process in order to attract and hire them.  The most likely qualified individuals will come from leading consulting and Professional Services firms with experiences in the specific industries your solutions will focus on.

By their very nature, these consultants are analytical and skeptical and the interview process will have to be carefully orchestrated to not only evaluate the candidate from your point of view, but also to enable the candidate to evaluate you, your strategy and your level of commitment as well. Qualified candidates will not only have to be motivated by the opportunity your new strategy represents, they will also have to buy into the fact that your strategy is sound and you are committed to making work. Note that even these folks may not be able to make the journey without guidance, support, development, etc.

In summary, here are the two takeaways:

1.    A clear map of the required skills required must be properly defined, and
2.    these skills must be acquired from outside the company or be developed within

Most companies going to the Intimacy model make developing talent one of the key initiatives. Therefore, in my next post, I will share a few thoughts on talent development programs. After that, I’ll examine how to create an outward-focused interview process for customer intimacy leaders, which will help you attract and engage the right level of talent for your customer intimacy business model transformation.

About this Archive

This page is an archive of entries from January 2011 listed from newest to oldest.

December 2010 is the previous archive.

February 2011 is the next archive.

Find recent content on the main index or look in the archives to find all content.