|
|
| Home - Venture Profile - Aug 03 Issue |
Venture Spotlight: Geoff Moore, Mohr-Davidow Ventures
continued... page 2 |
Angel Mehta: You mean deployments in those areas no longer give companies a competitive advantage?
Geoff Moore: Yes. There was a time when people thought getting an ERP system would give them a competitive advantage – but that’s long gone. Then it was all about getting a CRM system to gain competitive advantage – but that’s pretty much gone. Next it was supply chain, and that kind of fell in the Chasm with the bubble. So these new categories of software all come along and offer the customer a competitive advantage. For a while, it’s true but as more people buy the product, it stops being a competitive advantage because now every company has the same thing.
Angel Mehta: Sort of like the advantage of a big tennis racket disappearing after every player gets one…
Geoff Moore: Yes. So the first issue with core vs. context is, as your category gets more and more mature, you find that the ability to differentiate based on your product is increasingly marginal as competitors copy what you’ve done. So then to differentiate going forward, in order to get premium margins, you have to find other strategies for differentiating yourself. One classic one is the shift from product emphasis to service emphasis. Another way to play it, if you’re like an SAP or an Oracle and have a huge gorilla position, is to just say that all ‘future innovations are really just modules in my architecture.’ So it’s an integration play. You have this HUGE ecosystem of partners and software and customers …so SAP would say, well, i2 is another module, Agile’s PLM (product lifecycle management) is another module, etc. Whatever the hottest thing in town is, position it as just another module. So that’s another way to try and create differentiation.
Angel Mehta: What about verticalization as a way to differentiate?
Geoff Moore: Absolutely. That’s what Agile is doing, for example. I just recently left the Board of Lawson Software, but I was on their board for the 90’s, and they have been very successful carving out vertical market leadership positions against their bigger competitors. What you have to do is say, “Differentiate by going into a vertical market and REALLY driving the software and the services to a level of specialization the other guys won’t match. So that particular vertical will be loyal to us and respond to us because we’re really intersecting their business processes at a level of granularity and specificity that makes it VERY different, producing a big difference in the outcome.”
Angel Mehta: By now, the philosophies and principles of “Fault Line”, “Crossing the Chasm”, and “Inside the Tornado” are all staples in the industry. They’ve become buzzwords that every CEO, at least that Sterling-Hoffman deals with, is familiar with. What I’m curious about is, where do you see executive teams falling down the most when it comes to the application of the core concepts within each of these books?
Geoff Moore: Well let me say at the outset, the fact that the concepts have become so widely adopted is hugely gratifying and flattering…but in another sense ,it has sometimes felt a bit like putting razor blades in the hands of children (Everyone laughing).
I think what happens is this: If you look at the basic notion of the four inflection points that these books talk about….with an early market, trying to cross the Chasm, followed by bowling alley niche market and then there’s the tornado hyper-growth thing and then on to main street. If you look at those four things, the early market and the tornado both are organized around products or vendors. “Do you have CMOS? Do you have a .Net implementation or a Net Services or Java or whatever?” In the tornado it’s all around an emerging product category, so people are counting how many disc drives have you shipped or cell phones or laser printers or whatever it is. They’re both very product-centric and they’re both very vendor-centric phases of the market.
Angel Mehta: But in between?
Geoff Moore: IN BETWEEN those two phases is the bowling alley, and after the tornado is Main Street - BOTH very customer-centric phases of the market. The bowling alley is very segment-specific. The way you play the bowling alley is to use the customer’s industry as your marketing communications tool. You align more and more tightly with that industry, the industry’s business processes, in order to create more value. On main street you’re aligning more with your customer as an install-base.
So what happens to most companies is, the people inside the organization tend to be – in SPIRIT, - either more product-centric or more customer-centric.
Angel Mehta: And eventually, as a company matures, they end up in a market that requires an opposite competency? We see that a lot when doing executive searches…
Geoff Moore: Right. They THINK they’re being customer-centric but, in fact, their DNA is so product-centric they can’t really get there. Or they think they’re being product-centric, but they just aren’t competitive enough to win a product-centric game. So that’s one place I think executive teams fall down.
Another area is the level of risk a team is willing to take when it comes to restricting the number of options that it’s going to keep alive. The hardest thing for management teams is to go from 5 possibilities to picking the one that they’re going to absolutely NAIL. What they end up doing is they hedge their bets, partially because they’re scared to put all their eggs in one basket… partially because the management team may not be in alignment. If the top 3 or 4 people each have a basket of their own, and they’re willing to let everybody else have their own separate baskets…. that creates a very confused situation where you never quite give enough to any one strategy. So you might make interesting movement in several areas …but in order to really dominate ONE area (or move the needle at all), you need to put more of the company behind that effort.
Angel Mehta: But it doesn’t happen without focus…
Geoff Moore: Right. Part of what a consultant can frequently do is point this issue out and get the executive team to re-align itself around a single dominant initiative.
Angel Mehta: But is it really possible? I mean, let’s take the ‘improv’ analogy used in one of the books, where you describe how executive teams need to completely change their behaviours and attitudes as you progress through different stages of the company’s life cycle….Is that realistic to expect from an executive team?
Geoff Moore: It’s interesting….the analogy came out of working with venture backed firms. If you’ve watched venture backed firms over the last 5 YEARS, they have radically changed their business model in mid course.
Angel Mehta: What do you mean?
Geoff Moore: Well, for example, the dotcom phase…there were a whole bunch of dotcoms who had to redefine themselves from being services companies to being product companies.
Angel Mehta: So you’re talking about the venture portfolios?
Geoff Moore: Sure. Where we said, ‘We were going to an ASP model…but, oh no, wait, we’re going to be a licensed model…no, no, we’re going to be a service company.” It’s like moving from jazz to doing samba to doing reggae. Venture-backed companies – because of the people and because of the board members – can get away with that. I think that’s where the analogy came from. But the whole point about living on the fault line is there’s not a chance in the world that a large company can do that. There is just way too much inertia…to much momentum behind each vision and each action. It’s one of the challenges of being successful…companies have to realize that they have lost degrees of nimbleness forever and have to find other resources to make up for them.
Angel Mehta: How does that get done…primarily through spin-outs?
Geoff Moore: First of all, one of the ways it gets done is the companies flat out die. [Everyone laughing]. Of course, they may take a long time doing it…like maybe even a decade. Eventually, a company ends up getting acquired by some aggregator of last resort.
In fact, I would submit to you that that is the normal method of cleaning up an ecosystem of companies that have run out of the energy to innovate further. The normal method is not to solve the problem. In other words, you rise to success, you create great asset value, you start to decay, you continue to decay, and then at some point you get acquired.
Angel Mehta: Not exactly a ‘Built to Last’ journey…
Geoff Moore: Okay, but I’m not so sure that’s a terrible outcome. I mean, it doesn’t ring mythologically with great story telling…but people had jobs and the company did what it could do. But it doesn’t have to be that way. At different stages in the history of a category, you have to play the game differently…but for a long time in the middle of a category there’s lots of opportunity for rejuvenation. You can rejuvenate through acquisitions of different kinds. Think about a company like BEA, whose first act, if you think about it, was built around a product line called Tuxedo. BEA was helping to create data center ready UNIX software that could compete with DEC Software. Then in about 1996, I think it was, they acquired WebLogic and they were on to Act 2 - all of a sudden they had the leading application server software in the market. They completely redefined their company. The culture got redefined, the leadership got redefined, the processes got redefined….It was kind of a reverse acquisition in the sense that the culture of Weblogic kind of took over BEA, even though BEA bought WebLogic. Now, they’re in a tough position again, between Microsoft and IBM and SUN…so they’ve got to do it again.
Think about how IBM redefines itself in the 90’s, from essentially a product company which carried services along with it to a SERVICES company which carries products. There are wonderful opportunities under great leadership and I would argue that Gerstner was a great leader to help IBM re-invent itself. Cisco is another example, though they did it via acquisition. IBM is impressive because they didn’t do it via acquisition per se…they had all the resources internally - they just re-invented themselves around it. Eventually,they acquired PWC….but I would argue that the exciting stuff happened within their own confines.
Angel Mehta: I don’t want to beat a dead horse but I want to come back to the issue of whether Executives are actually capable of making the shift. Let’s take BEA as an example…when they made the jump from being focused on the Tuxedo product to the WebLogic product….didn’t they have to change a good number of the senior managers?
Geoff Moore: Yeah it’s interesting, because it tends to be a trailing phenomenon rather than a leading phenomenon. People get excited about the new thing…. so the management team goes into the new thing with lots of energy but also carrying with it a bunch of bad habits…the legacy habits. Then at some point, if the new thing really starts to take off…the contradiction between the new market requirement and the old legacy habit becomes more and more pronounced.
Managers get spun out…typically one at a time, and the tendency of human beings is always to personalize it. If it happens to you, its pretty likely you’re going to personalize it right?
Geoff Moore is a Venture Partner at Mohr Davidow, a founder of the Chasm Group, and co-founder of TCG Advisors. He is also the author of bestselling books, ‘Crossing the Chasm’, ‘Inside the Tornado’, ‘The Gorilla Game’, and ‘Living on the Fault Line’. Send feedback to Geoff at: gmoore@tcg-advisors.com
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: amehta@sterlinghoffman.net
 
|
|
|
