Salesforce Invests in Europe
Last week Salesforce Ventures said it would invest $100 million in emerging salesforce partners in Europe. The company previously announced a similar program for the Americas and the hope is it will discover valuable new companies and business solutions.
Paul Greenberg and the team at CRM Idol (of which I have been a part) have been doing the same thing trying to discover interesting emerging companies in the CRM space for several years now, minus the money. But even without millions of bucks at stake, the casting call always brings in some cool ideas from around the world so I have no doubt there are plenty of companies in Europe that will vie for a chance at an investment.
This is just one more example of how Salesforce is growing beyond the original CRM space. The company is looking for emerging vendors that will do amazing things with its Salesforce1 platform bringing cloud computing into new markets. That’s the way Salesforce will continue to grow—by selling generic seats of its service configured for specific markets by partners. Of course, this won’t slow the company’s own efforts at penetrating vertical markets but it adds a new dimension.
Salesforce needs to stay close to emerging companies right now to best understand where innovations are coming from. As a multi-billion dollar enterprise it might be becoming a captive its own success necessitating finding another way to stay close to the grass roots. With a 7 billion dollar run rate it needs big new deals to keep the growth engine humming and that means developing new partners and whole markets.
This happens to every successful business but often the company in question either doesn’t see itself becoming hemmed in by its own success or it chooses to ignore it. Microsoft was a case in point; it was tremendously innovative until it couldn’t embrace cloud computing for fear of upsetting the Windows franchise. Consequently it went on to miss big new markets like the smartphone and today has a small share of that market. As that company is becoming aware, it’s hard to get back on the curve once you fall off. I wouldn’t rule out Microsoft because they have a lot of cash and a determined CEO who is trying to turn things around. But still.
So Salesforce is telling Europe that its innovations in tech are just as important and potentially valuable as those from America. The big question now is will the Europeans take up the challenge. I am sure there will be contenders for all that money but my question is whether there will be any blockbuster apps. The history of the tech paradigm hasn’t favored Europe, after all. Europe didn’t compete in CPUs, storage or really anything preferring to take what the U.S. innovators offered up. Back in the day I remember that the Russians directly copied the Digital PDP-11 CPU set including some errors that made things go sideways once in a while.
I know some really smart people in Europe who understand cloud computing, social networking and all the rest but they tend to work for big companies or governments. The idea of starting a company has many challenges and the European nanny state political structure doesn’t make entrepreneurship easy.
At the same time, some of the most interesting innovations in our space leverage data, especially personal data in ways that some Europeans find objectionable. Some studies I’ve seen from Pew Research and McKinsey indicate that conservatism about personal data handling loosens up in younger demographics so I guess we’ll need to wait and see.
Ten years ago, Charles Murray published Human Accomplishment: The Pursuit of Excellence in the Arts and Sciences 800 BC to 1950, it was a good read and not nearly as nerdy as it sounds. The book revealed a huge number of innovations and innovators in all subjects that came out of mostly northern Europe over a more than thousand year span but the continent hasn’t had a lot to crow about in tech.
Maybe Salesforce is playing a hunch; maybe they know that the onus is on European entrepreneurs to pitch some good ideas. Will it play out as “A Tale Of Two Cities” or maybe “Waiting for Godot”?
Lighting up Process
I’ve been saying for a while that we’re heading toward an era when process dominates and traditional transactions become just one part of those processes. Now, you might say that’s the way it’s always been and I won’t disagree. But historically, processes were more or less managed by employees who used information systems to inform their decision-making and the result was recorded as a transaction.
Today we are increasingly asking our machines to run the show and that’s fine but too often we expect the old systems that supported employee mediated processes to support customers. It’s a bad idea too because in my research, one of the greatest sources of customer unhappiness is a process that crashed because the customer didn’t know enough to use the transaction support system properly. Truth be told, Einstein might not be able to fathom some of these older systems and I know he’d be one of the first to complain. He once said repeating the same action expecting a different result is the definition of madness. So I wouldn’t expect old Mr. Relativity to take more than one crack at some of the transaction support systems out there today.
But there’s all kind of good news for process devotes like me these days. Two major customer facing processes have gotten the support they need and are writing CRM history—CPQ and Incentive Compensation. Another, the loyalty process is on the horizon.
CPQ
Like many of today’s star processes, CPQ was a totally manual thing for a long time and it involved many spreadsheets. There were sheets for products and price lists, sheets for discount structures, and of course, proposals were generated on spreadsheets too. CPQ was a manual task that many sales reps found ways around that ultimately cost their companies money. For instance rather than generating new quotes for each customer, sometimes a rep in a hurry would change a few particulars on another quote and have something. This often took no notice of delicacies like one customer’s discount level against another’s. Sometimes prices changed and the changes weren’t reflected in the cloned proposals. Ooops!
It goes on and on but it’s nice to know that those days are in the past for any company that uses a modern CPQ system. Better yet, CPQ systems make it easy to include the boss in a workflow to check the discounts and configurations. So with all this CPQ became a process rather than just a bunch of loosely tied spreadsheets.
Incentive Compensation
The biggest change in processes, I believe, comes in the incentive compensation space. Here’s a process that started in the back office and completely morphed before becoming a sales tool. Compensation was largely a financial department thing handled by the CFO’s team at the end of a quarter. They tallied up sales and cut checks and sometimes there was broad agreement between the back office and the sales reps. Other times, the reps found errors and were upset.
When automation took over it became very easy to come up with numbers at the end of quarters that everyone accepted. Incentive compensation systems replaced the overlapping spreadsheets that sales managers used to record attainment and incentivize reps, as well as the spreadsheets that the reps kept, often called shadow accounting.
Then something really interesting happened. Sales managers realized they could proactively plan the quarter or even the year using what had only been a retrospective financial and accounting tool. Not only that but they were also able to more finely tune incentives. Early comp plans stressed a dollar value for making quota but with a real system, managers found they could assign goals by product, profitability, or just plain revenue if they wanted to. The point is they suddenly had the ability to customize the ways they managed people.
We’re a long way from being done with this conversion too. Process centric systems like CPQ and Incentive compensation are becoming the places where back office meets front. CPQ is most effective when it can easily access back office data about what products a customer already has, the master product and price list, and the customer’s payment history. Incentive compensation can do a better job when it can integrate employee data from HCM systems, for instance.
In all of this we can see a discussion starting about the incentive process or the quoting process and not simply getting the goals and objectives or a quote out the door. That’s progress because it gets us closer to being in some very important moments of truth with our customers and our employees. What’s next? I am thinking a lot about a customer loyalty process these days. Loyalty is too often associated with a transaction—you buy, I give something, a “reward” in return—which I think is wrong because it doesn’t really promote loyalty. If what you want is some way of assuring yourself that a customer will behave loyally even when you aren’t giving something away, then you need to seriously rethink it. Hint: Apple doesn’t give rewards or discounts but its customers are among the most loyal. Why? That’s a story for another time.
The loyalty process
I’ve had to do a lot of thinking about customer loyalty lately both for my book and more recently for client engagements. What’s interesting to me is how chaotic this market is and how many people are writing about it with very little data. There isn’t even strong agreement on the similarities and differences between rewards programs and loyalty. Are they the same? Different? How?
We’re all familiar with rewards programs like frequent flier miles offers that most airlines have. You collect miles for your trips and eventually cash in the miles for free travel and upgrades. The vendor derives loyalty from this because the programs are high walled gardens and the miles are typically only good on that vendor’s network. This fulfills the basic requirements of a loyalty program by keeping customers coming back.
Even better than a conventional rewards program is addiction. Whoa! Addiction? Really? Well consider it this way. We know that the Surgeon General warns about the health risks of smoking but despite this people still smoke even if they’d like to quit. They’re addicted to the chemicals in the smoke, such as nicotine. So cigarettes are a kind of product and loyalty program all in one. It doesn’t stop there of course. For some fascinating reading check out the Opium Wars of the mid 19th century and the Boxer Rebellion.
Ok, so if you can’t addict customers to keep them coming back then high walls are a good substitute. But is this loyalty? If it is we can stop this discussion but I think loyalty is more these days.
Conventional rewards programs are transactions enacted for past good behavior but they don’t do much to promote future loyalty if you take just a slightly larger perspective. Loyal customers are those who are loyal even if they aren’t in purchase mode; they are the ones likely to recommend a vendor to a friend. Look at all the unhappy frequent fliers slavishly committed to a vendor just for the points and you will understand.
So what is loyalty and how do you promote it? Are rewards programs passé? These are tough questions. Rewards programs still work and the airline and credit card miles programs are examples. Nonetheless, in our society, where subscriptions are increasingly common, conventional rewards programs have tougher challenges. Subscribers know they can leave at the end of a subscription and take their business elsewhere and at the same time, subscription vendors know that there isn’t enough margin in their products and services to offer elaborate reward-style loyalty programs. Ironically though, loyalty is more vital to the subscription vendor than to the conventional vendor.
These realities are causing a shakeup in the loyalty world. Whereas rewards programs can be transactional, in subscriptions they need to be fluid processes. For a subscription vendor, winning renewal is a 24/7 job. So we’re seeing the evolution of new loyalty models focused on bonding customers to brands so that they will advocate for the brand even if they aren’t in position to make an additional purchase.
For these vendors and their customers, loyalty is far more involved than providing points. It typically involves gathering and analyzing customer data and providing specific responses when customers surface a need. I’d call this understanding your customers’ moments of truth and being there.
Often being in customers’ moments of truth is not flashy and might not bring them all the way to delight. But more importantly, you might not need to delight them. According to Patrick Spenner and Karen Freeman in a Harvard Business Review blog post, keeping the customer’s journey simple and efficient might be all you need to ensure their loyalty. Perhaps it’s a little scary, thinking that all you need to do to develop customer loyalty is to provide a competent product and service. But customers (all of us) have lots of balls in the air and keeping the drama to a minimum these days is valued. Besides, competency has worked before and it’s not exactly out of style.
Will it always work? Does anything always work? No. But the recent experience of what makes a subscription company successful i.e. retaining loyal customers, suggests that we might be turning a corner away from simple rewards programs and towards a more nuanced approach to loyalty and customer engagement.
Dell Buys EMC, Does Hell Freeze?
Boston papers are atwitter this morning over Dell’s acquisition of local favorite EMC, the data storage company. With that the once proud Boston area, which birthed the mini-computer and software booms with companies like Digital, Data General, Wang, and quite a few others, is without a serious leading computer hardware maker today. Not to worry, there is still a robust tech sector in robotics, biomed, and software (there are more but let’s not quibble). In light of the rise and fall of Boston as a tech hub let’s see if there are lessons to carry away.
Non-compete agreements
First, and for many years, the non-compete agreements that many companies make people sign as conditions of employment are very much enforceable in Massachusetts, though other states, notably California, take a much more relaxed approach in employment law. It makes no sense to keep people on the payroll when they’d rather be inventing something for themselves. In Silicon Valley you can quit your job on Friday and start up something on Monday as long as you’re not taking a lot of valuable IP with you. The Massachusetts model assumes the most valuable thing you can take is customers. I might disagree.
I once had to deal with a similar situation regarding a non-solicitation agreement in which I could not approach former customers for a year, though in my reading they were free and unencumbered (this is America after all) to seek me out. Issued a few press releases, started my company and blog and went on with life. The former employer didn’t like it but there was little they could do. I knew I’d won when they sent me a FedEx letter containing nothing but a dog biscuit (for Beagle Research, get it?).
As a very practical matter people who leave jobs don’t have a lot of discretionary cash to pursue lawsuits and the state legislature displayed a stunning lack of intestinal fortitude last year when it failed to deal with proposed changes to the non-compete laws. People vote with their feet and they’ve discovered in droves that the climate is much nicer in California.
Commoditization
Of course all the changes to statutes won’t change an iron law of economics: Companies and products trend toward commoditization. The mini-computer that I started my career on now comfortably fits into a pocket and costs thousands of times less. Massachusetts, which is home to Harvard and MIT has forgotten the lessons packed into Clay Christenson’s books (The Innovator’s Dilemma series) and they stop innovating at some point. It must be very nice for a while when you stop investing in the new, new thing and your employees are more or less stable because they can’t as a practical matter go elsewhere without significant economic displacement. But that only lasts a little while.
Massachusetts and Boston are not unique in all this. As we move further into the era of apps and the GUI and operating system take more of a back seat, we can observe the same troubles besetting Microsoft. So it goes.
Perhaps biotech, the IoT, and robotics will be more forgiving to Massachusetts but don’t bet on it. Massachusetts is an expensive place to live and while it can thrive on innovation thanks to the brainpower lodged here, commoditization forces products out the back door to places where they can me made cheaper, so the ace up our sleeves has to be our willingness to invent the future every day and not rest on our laurels.
The academic-commercial partnership
Massachusetts is expensive because of all the well-paid jobs that are here and the competition for limited resources like schools and real estate. But one of the greatest inventions of the last hundred years that has come out of the area is the tight relationship between academic R&D and venture capital. It’s common to see this kind of thing in California today and certainly the VC community there is big and brash and it attracts a lot of investment capital. But it got started in Boston just after WW2.
The relationship continues today in other fields and is one reason the area’s future is so bright. I remember being in a conversation with a couple of VC’s a few years ago in which we were discussing “small” and “large” molecule R&D. The fact that they get down to that level tells me things overall are okay.
The Red Sox, Patriots, Bruins etc.
The Boston teams in general provide an indirect definition of our culture and why we live and work in this land with too little summer, rocky soil, funny accents, and a penchant for celebrating weird holidays like Evacuation Day (look it up). The Puritan work ethic got going here and it still informs much of our lives. We’re a competitive race, we like to win, and we don’t suffer fools, truth be told. EMC has been bought, fine. Commoditization continues on all fronts as it must but in Boston you can bet there are more than a few people hard at work inventing stuff that we’ll all need in the not too distant future, and so the cycle renews.
A Dreamforce takeaway
I’m always looking for emerging trends at Dreamforce, the kinds of things that are hiding in plain sight. They might never amount to much but it’s more likely, given Dreamforce, that many of them will bloom. A case in point is the emergence of vertical market CRM. I think its time is here because application development tools have become so good and because customers need ways to limit their exposure to expensive and interminably long deployments.
But also, the business processes of say, banking and healthcare, are different enough to require customization by either the institution or a system integrator. Interestingly, high integration costs was one of the things that cratered on-premise CRM. Back when Siebel was the biggest dog in the hunt, it wasn’t unusual for integration and implementation costs to reach 2 or 3 times the software costs.
This requires a little unpacking.
There are many high quality front office applications available today on the AppExchange but for the most part they amount to horizontal products aimed at a generic market. That’s not a bad thing either because there are lots of areas where Salesforce either doesn’t field products or where there’s so much opportunity multiple vendors can succeed. Also, some application areas are easily served by broad products. So, for instance, there’s plenty of running room for CPQ, compensation management, field service, and a variety of analytics and marketing products and they are all or significantly horizontal.
But vertical market application suites are another story. Veeva pioneered the idea with its pharmaceutical industry application a few years ago and significantly no one followed their lead in part because it’s hard to make apps that focus on a single vertical. But Veeva built a profitable public company with an investment in the single digit millions of dollars. Try doing that again.
Part of Veeva’s success, in my book, is that pharmaceutical sales are highly regulated and vendors have to keep good records of meetings, content provided and representations made as well as any samples provided. This is all highly dependent on process. A pharmaceutical company’s customer facing business processes are tightly circumscribed and require software to track process flows much more than a more generic SFA approach. Pharmaceuticals is only one example and I think Vlocity is taking a similar approach in its chosen markets for similar reasons.
Vlocity is close to the Veeva model and for good reasons. Many of the founders of Veeva started at Siebel where they worked on vertical market solutions. They migrated to Vlocity whose business model is Veeva+1. Actually it’s already Veeva+4 (verticals) and the model is set to expand. If founder and CEO David Schmaier has his way, the number will be about 24 which is the number of verticals whose development he supervised at Siebel.
Between Siebel days and the present a lot has changed though. For one thing, the original Siebel product was a transaction system and today’s market is all about social, mobile, analytics—and most of all process. So redoing the Siebel success won’t be an exercise in taking the rusty paperclip off the playbook. Still, the vertical market need is all too present. Businesses need process support and their choice until now has been self-development or hiring an integrator to customize the more generic salesforce applications.
Vlocity appears to offer a third approach of providing best practices from the beginning. Unlike Siebel, Vlocity has a bigger toolbox to work with in Salesforce1. They’ve built their own vertical market CRM objects on top of Salesforce1 and because the platform provides the all important application stack, Salesforce partners can focus on making applications rather than dealing with revisions of databases, operating systems, installation and maintenance schedules and more.
Vlocity is going on 2 years old and in that time they’ve spun up 4 verticals—communications and media, health insurance, insurance, and public sector. They also just raised $43 million, most of it from Salesforce Ventures. Will this idea of vertical market CRM succeed? It’s never a good idea to tempt the fates by guaranteeing something like this. But if the combined experience of the Vlocity team and their ability to raise money is any clue, then there are many, many worse bets a body could make.
