September 2022 - Winners Dream by Bill McDermott with Joanne Gordon

This month we hear about Bill McDermott’s meteoric rise to the CEO job at SAP and his philosophy around management. I must also acknowledge the incredible and underappreciated role that Julie McDermott and Bill’s family plays in this book. Bill moved his family from NYC to Puerto Rico to Chicago to Rochester to Connecticut to California to Philadelphia over the course of his 25-year career. Sometimes with multiple moves rather quickly. The selflessness they displayed is unfathomable.

Tech Themes

Growing License Revenue at SAP. When Bill McDermott got to SAP North America, he quickly realized they were behind the game. The firm had enjoyed relatively unmatched success in its early years but was now coming into competition with one of Bill’s former employers - Siebel Systems. He saw what he viewed as lackluster standards - people were late to meetings, lacked professionalism, and moved painfully slowly on new action plans. McDermott created a new strategy around a $3B revenue target, and recruited the company’s top managers to share the plan in mini-meetings across every division. After providing the new strategy, he focused on value engineering, a way of demonstrating the ROI from implementing a company’s software. He instituted a weekly Top 20 Call, where the head of sales detailed the top 20 deals in progress, and Bill unleashed his sales intensity in helping people close deals. “What’s the business case? Have we presented it to the CEO? When is the next meeting? What, you just found out the company can’t sign because its purchasing director is on vacation? What’s your plan to backfill the loss? If someone didn’t know his next move, he wasn’t doing his job.” One of McDermott’s super-powers is maintaining a big vision while being able to slip into the micro-managing intensity of Andy Grove’s Only the Paranoid Survive and Ben Horowitz’s War-time CEO. 85% of C-Suite employees left, McDermott recruited 100 new sales employees, and in 2005, SAP America delivered $3.2B of revenue.
Reinvention. McDermott is unafraid to go in new directions and take on new challenges. He had earned his stripes by taking over challenged business units in Xerox, first Puerto Rico, then Chicago, and then Xerox Business Services, their outsourcing division. Xerox at the time was suffering from a classic Innovator’s Dilemma - the XBS division was growing quickly but resulted in lower profit margins, so was not getting the love and admiration it deserved. “Instead of worrying about the value of my retirement account, I was interested in growing the business. Rather than ignoring the changing market, we should have been pouncing on it…Many people thought I was crazy to join the junior varsity team. XBS represented only 5 percent of Xerox’s overall revenues. Others even tried to block my transfer to XBS.” McDermott believed in the power of pageantry and held a massive, blow-out sales conference in San Antonio, complete with fake politicians and news style interview booths. McDermott had set a $4B revenue target for XBS and he missed the target. XBS revenue’s grew from 900m of revenue to $2B in 1997, $2.7B in 1998, $3.4B in 1999, and $3.8B in 2000, just missing the $4B revenue target by 2000. “Was I upset that we fell shy of our $4B bull’s-eye? Not one bit. The point of setting audacious goals was that we could almost hit them and still accomplish something amazing. Had we never strived so high, we never would have hit as high as we did.”
Internet Bubble Comes Calling. Bill is human, like all of us, and so when the internet bubble started to take off, and he found himself on the sidelines managing an outsourcing business at struggling Xerox, he started to get the itch to get into the fray. A young startup called Techies.com had reached out asking if Bill would be their CEO. Bill considered it an interesting proposition - everything was going up and to the right and Techies could IPO as soon as next year. Techies.com was an online website for tech companies to post about job openings. After meeting everyone and interviewing for the job of CEO, Bill decides he can’t do it. “ The only thing about your company that really interests me is the money, and that’s the wrong reason to work for anyone.” Bill did get whisked away though, by another IT firm - Gartner. Bill had left Xerox for a whole 2 weeks in 1995 and joined Gartner at the urging of former Xerox executive, Follett Carter. McDermott joined Gartner in 2000, serving as President while Michael Fleisher served as CEO. He felt it was off from the first couple weeks on the job. “I saw it in the jeans and tieless shirts that even senior executives wore Mondays through Fridays. I felt it in Gartner’s small-company, New Economy culture, which shocked my corporate sensibilities.” Matters were maid worse when Julie McDermott was diagnosed with Breast Cancer. Things were tough for the year Bill was at Gartner, and he decided to move on to Siebel Systems where he worked with tech legend, Tom Siebel, founder of Siebel Systems and C3.AI. Bill would only last a year at Siebel too, burnt out after working tirelessly in the months following 9/11. In hindsight, each of these smaller steps into executive roles broadened Bill’s knowledge of the technology evolution and CRM space specifically. These would be the foundation for his job offer from SAP America in 2004.

Business Themes

Setting Ambitious Goals. Bill is no stranger to big roles and he absolutely relishes the spotlight. He has a smooth, calming, excited voice that shines through every word in the book. He is a big vision guy, but unafraid to get tactical in areas he knows well like sales. Having worked his way up from a rookie salesman at 22 to a district manager at Xerox, McDermott always took a similar approach to fixing broken organizations. When he got to his district manager role in Puerto Rico, the worst performing district in Xerox, he made it clear that things were going to change. He wanted to take Puerto Rico from the worst performing division to the best performing division in one year. He set out by asking the sales managers a simple question: “What do you need?” He slowly identified the issues holding the division back (a lack of investment, consistent expense cuts, and poor goal setting) and he fixed them. Puerto Rico became the number one sales group in Xerox. This extreme goal setting shows up multiple times in McDermott’s career. When he became head of Xerox’s outsourcing XBS division he set a $4B revenue goal. “Three billion dollars in revenue by 2000 was a more realistic goal yet still a dream target. So why not tell everyone $3B, Bill? Because my hurdle - getting my people ecstatic about selling outsourcing - was so high that I need to get everyone’s mind to a place where the dream soeemed so impossible that it was exciting to pursue. For more than a decade now, I’d watched teams rise to the expectations set for them. The more daring the target, the higher people rose.” When he got to SAP America, he proclaimed they’d be a $3B revenue business by 2005, after years of lackluster growth, “In the next three years, we are going to increase our revenue by one billion dollars. Since 1999, SAP America’s revenue had barely grown $100m, in total.” After a major operational overhaul, they achieved his goal. When he got to ServiceNow, he similarly announced a goal of $10B of annual revenue. Time will tell if he hits the goal.
Big software M&A - Does it work? Bill McDermott was on the way to Hawaii when he got the call from SAP’s board about becoming Co-CEO of SAP. After the shock wore off, he quickly accepted the job, excited to lead the whole organization after he had successfully turned around SAP North America. Bill initially shared the CEO role with Jim Hagamann Snabe, a German engineer that would lead the product and engineering side of the business while Bill focused on commercial efforts. In 2014, Bill was named sole CEO, a new development for the traditional SAP that normally opted for a co-CEO model. Reflecting on it years later, Mcdermott commented in a Duke university visit in 2016, “Well, you know, when we were co-CEOs in 2010, it's what the company needed then. As you know, we were coming off the financial crisis of 2008. 2009 was a relatively slow recovery for the world, and SAP made a CEO change. And it was really important to have one office of the CEO with two friends, that really wanted to make a difference. And a lot of things needed to be done to build the company, build a strategy, do some major M&A moves, and get the company set up for growth again. And once that was done, then it became necessary to build on the vision but make much quicker decisions, move at a pace that was even beyond the pace we were moving at, which was pretty fast. And at that point, SAP needed that person that could make the call and be very, very decisive. And fortunately, things seem to be going pretty well.” McDermott launched an aggressive M&A campaign, spending $35B in acquisitions from 2010-2020. The acquisitions added about $3.4B of revenue to the company. These acquisitions were in all sorts of different areas but focused on SAP’s core areas including ERP, HCM, and Database technologies. I believe these acquisitions did two things simultaneously for SAP. Sirst it helped push a historically mainframe driven technology company into the cloud. Second, it broadened the capabilities of their core ERP offering while extending SAP into global markets, particularly strengthening its US position against ERP competitor Oracle, which had its own ERP and HCM applications. While these acquisitions worked for a time, the company is still fighting its license/maintenance past, and trying to move more aggressively to the cloud. The positive way to view these deals is Bill grew the organization, its capabilities, and its reach while using modest amounts of leverage and growing the company’s revenue and EPS. The negative way to view it is Bill went on a shopping spree of random technologies that were never fully integrated, and today saddle the company with enormous tech debt, little flexibility, and sub-par growth.
The Journey: Ithaca to CEO. Bill is a strong proponent of enjoying one’s career journey over its destination. As a night MBA student at Kellogg, he learned of the C.P Cavafy poem, Ithaca, which reads: “Keep Ithaka always in your mind. Arriving there is what you’re destined for. But don’t hurry the journey at all. Better if it lasts for years, so you’re old by the time you reach the island, wealthy with all you’ve gained on the way, not expecting Ithaka to make you rich. Ithaka gave you the marvelous journey. Without her you wouldn't have set out. She has nothing left to give you now. And if you find her poor, Ithaka won’t have fooled you. Wise as you will have become, so full of experience, you’ll have understood by then what these Ithakas mean.” As he contemplated moving on from Xerox, and pushing away his dream of becoming CEO, he came back to this poem, using it as a base before writing out his core beliefs and goals. “ My personal goals included having quality time with my family; to love Julie with the enthusiasm and compassion of our wedding day; to help my son (and eventually his sibling) grow into a healthy, happy, well-adjusted adult; to love my parents and my brother and sister, always remembering my roots, and to live with passion every day. Next, I listed my career aspirations: 1. To be a winner. 2. To lead others to the doorstep of their dreams. 3. To manage a career and not the other way around. 4. To never confuse that which is most important with that which is not. 5. To earn a living commensurate with my talent, but not be ruled by the shallow shadows of money. 6. To be the ruler of my own destiny, not to slave for what someone else wants my destiny to be - in control.” Ten years later, when he was considering moving on from Siebel Systems, Bill re-wrote his goals again and realized that he wanted to be in control of his own destiny. “ I wanted my freedom back. I was ready to be a CEO.”

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May 2021 - Crossing the Chasm by Geoffrey Moore

This month we take a look at a classic high-tech growth marketing book. Originally published in 1991, Crossing the Chasm became a beloved book within the tech industry although its glory seems to have faded over the years. While the book is often overly prescriptive in its suggestions, it provides several useful frameworks to address growth challenges primarily early on in a company’s history.

Tech Themes

Technology Adoption Life Cycle. The core framework of the book discusses the evolution of new technology adoption. It was an interesting micro-view of the broader phenomena described in Carlota Perez’s Technological Revolutions. In Moore’s Chasm-crossing world, there are five personas that dominate adoption: innovators, early adopters, early majority, late majority, and laggards. Innovators are technologists, happy to accept more challenging user experiences to push the boundaries of their capabilities and knowledge. Early adopters are intuitive buyers that enjoy trying new technologies but want a slightly better experience. The early majority are “wait and see” folks that want others to battle test the technology before trying it out, but don’t typically wait too long before buying. The late majority want significant reference material and usage before buying a product. Laggards simply don’t want anything to do with new technology. It is interesting to think of this adoption pattern in concert with big technology migrations of the past twenty years including: mainframes to on-premise servers to cloud computing, home phones to cell phones to iphone/android, radio to CDs to downloadable music to Spotify, and cash to check to credit/debit to mobile payments. Each of these massive migration patterns feels very aligned with this adoption model. Everyone knows someone ready to apply the latest tech, and someone who doesn’t want anything to do with it (Warren Buffett!).
Crossing the Chasm. If we accept the above as a general way products are adopted by society (obviously its much more of a mish/mash in reality), we can posit that the most important step is from the early adopters to the early majority - the spot where the bell curve (shown below) really opens up. This is what Geoffrey Moore calls Crossing the Chasm. This idea is highly reminiscent of Clay Christensen’s “not good enough” disruption pattern and Gartner’s technology hype cycle. The examples Moore uses (in 1991) are also striking: Neural networking software and desktop video conferencing. Moore lamented: “With each of these exciting, functional technologies it has been possible to establish a working system and to get innovators to adopt it. But it has not as yet been possible to carry that success over to the early adopters.” Both of these technologies have clearly crossed into the mainstream with Google’s TensorFlow machine learning library and video conferencing tools like Zoom that make it super easy to speak with anyone over video instantly. So what was the great unlock for these technologies, that made these commercially viable and successfully adopted products? Well since 1990 there have been major changes in several important underlying technologies - computer storage and data processing capabilities are almost limitless with cloud computing, network bandwidth has grown exponentially and costs have dropped, and software has greatly improved the ability to make great user experiences for customers. This is a version of not-good-enough technologies that have benefited substantially from changes in underlying inputs. The systems you could deploy in 1990 just could not have been comparable to what you can deploy today. The real question is - are there different types of adoption curves for differently technologies and do they really follow a normal distribution as Moore shows here?
Making Markets & Product Alternatives. Moore positions the book as if you were a marketing executive at a high-tech company and offers several exercises to help you identify a target market, customer, and use case. Chapter six, “Define the Battle” covers the best way to position a product within a target market. For early markets, competition comes from non-consumption, and the company has to offer a “Whole Product” that enables the user to actually derive benefit from the product. Thus, Moore recommends targeting innovators and early adopters who are technologist visionaries able to see the benefit of the product. This also mirrors Clayton Christensen’s commoditization de-commoditization framework, where new market products must offer all of the core components to a system combined into one solution; over time the axis of commoditization shifts toward the underlying components as companies differentiate by using faster and better sub-components. Positioning in these market scenarios should be focused on the contrast between your product and legacy ways of performing the task (use our software instead of pen and paper as an example). In mainstream markets, companies should position their products within the established buying criteria developed by pragmatist buyers. A market alternative serves as the incumbent, well-known provider and a product alternative is a near upstart competitor that you are clearly beating. What’s odd here is that you are constantly referring to your competitors as alternatives to your product, which seems counter-intuitive but obviously, enterprise buyers have alternatives they are considering and you need to make the case that your solution is the best. Choosing a market alternative lets you procure a budget previously used for a similar solution, and the product alternative can help differentiate your technology relative to other upstarts. Moore’s simple positioning formula has helped hundreds of companies establish their go-to-market message: “For (target customers—beachhead segment only) • Who are dissatisfied with (the current market alternative) • Our product is a (new product category) • That provides (key problem-solving capability). • Unlike (the product alternative), • We have assembled (key whole product features for your specific application).”

Business Themes

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What happened to these examples? Moore offers a number of examples of Crossing the Chasm, but what actually happened to these companies after this book was written? Clarify Software was bought in October 1999 by Nortel for $2.1B (a 16x revenue multiple) and then divested by Nortel to Amdocs in October 2001 for $200M - an epic disaster of capital allocation. Documentum was acquired by EMC in 2003 for $1.7B in stock and was later sold to OpenText in 2017 for $1.6B. 3Com Palm Pilot was a mess of acquisitions/divestitures. Palm was acquired by U.S Robotics which was acquired by 3COM in 1997 and then subsequently spun out in a 2000 IPO which saw a 94% drop. Palm stopped making PDA devices in 2008 and in 2010, HP acquired Palm for $1.2B in cash. Smartcard maker Gemplus merged with competitor Axalto in an 1.8Bn euro deal in 2005, creating Gemalto, which was later acquired by Thales in 2019 for $8.4Bn. So my three questions are: Did these companies really cross the chasm or were they just readily available success stories of their time? Do you need to be the company that leads the chasm crossing or can someone else do it to your benefit? What is the next step in the chasm journey after its crossed and why did so many of these companies fail after a time?
Whole Products. Moore leans into an idea called the Whole Product Concept which was popularized by Theodore Levitt’s 1983 book The Marketing Imagination and Bill Davidow’s (of early VC Mohr Davidow) 1986 book Marketing High Technology. Moore explains the idea: “The concept is very straightforward: There is a gap between the marketing promise made to the customer—the compelling value proposition—and the ability of the shipped product to fulfill that promise. For that gap to be overcome, the product must be augmented by a variety of services and ancillary products to become the whole product.” There are four different perceptions of the product: “1. Generic product: This is what is shipped in the box and what is covered by the purchasing contract. 2.Expected product: This is the product that the consumer thought she was buying when she bought the generic product. It is the minimum configuration of products and services necessary to have any chance of achieving the buying objective. For example, people who are buying personal computers for the first time expect to get a monitor with their purchase-how else could you use the computer?—but in fact, in most cases, it is not part of the generic product. 3.Augmented product: This is the product fleshed out to provide the maximum chance of achieving the buying objective. In the case of a personal computer, this would include a variety of products, such as software, a hard disk drive, and a printer, as well as a variety of services, such as a customer hotline, advanced training, and readily accessible service centers. 4. Potential product: This represents the product’s room for growth as more and more ancillary products come on the market and as customer-specific enhancements to the system are made. These are the product features that have maybe expected or additional to drive adoption.” Moore makes a subtle point that after a while, investments in the generic/out-of-the-box product functionality drive less and less purchase behavior, in tandem with broader market adoption. Customers want to be wooed by the latest technology and as products become similar, customers care less about what’s in the product today, and more about what’s coming. Moore emphasizes Whole Product Planning where you can see how you get to those additional features into the product over time - but Moore was also operating in an era when product decisions and development processes were on two-year+ timelines and not in the DevOps era of today, where product updates are pushed daily in some cases. In the bottoms-up/DevOps era, its become clear that finding your niche users, driving strong adoption from them, and integrating feature ideas from them as soon as possible can yield a big success.
Distribution Channels. Moore focuses on each of the potential ways a company can distribute its solutions: Direct Sales, two-tier retail, one-tier retail, internet retail, two-tier value-added reselling, national roll-ups, original equipment manufacturers (OEMs), and system integrators. As Moore puts it, “The number-one corporate objective, when crossing the chasm, is to secure a channel into the mainstream market with which the pragmatist customer will be comfortable.” These distribution types are clearly relics of technology distribution in the early 1990s. Great direct sales have produced some of the best and biggest technology companies of yesterday including IBM, Oracle, CA Technologies, SAP, and HP. What’s so fascinating about this framework is that you just need one channel to reach the pragmatist customer and in the last 10 years, that channel has become the internet for many technology products. Moore even recognizes that direct sales had produced poor customer alignment: “First, wherever vendors have been able to achieve lock-in with customers through proprietary technology, there has been the temptation to exploit the relationship through unfairly expensive maintenance agreements [Oracle did this big time] topped by charging for some new releases as if they were new products. This was one of the main forces behind the open systems rebellion that undermined so many vendors’ account control—which, in turn, decrease predictability of revenues, putting the system further in jeopardy.” So what is the strategy used by popular open-source bottoms up go-to-market motions at companies like Github, Hashicorp, Redis, Confluent and others? Its straightforward - the internet and simple APIs (normally on Github) provide the fastest channel to reach the developer end market while they are coding. When you look at Open Source scaling, it can take years and years to Cross the Chasm because most of these early open source adopters are technology innovators, however, eventually, solutions permeate into massive enterprises and make the jump. With these new go-to-market motions coming on board, driven by the internet, we’ve seen large companies grow from primarily inbound marketing tactics and less direct outbound sales. The companies named above as well as Shopify, Twilio, Monday.com and others have done a great job growing to a massive scale on the backs of their products (product-led growth) instead of a salesforce. What’s important to realize is that distribution is an abstract term and no single motion or strategy is right for every company. The next distribution channel will surprise everyone!

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November 2020 - Tape Sucks: Inside Data Domain, A Silicon Valley Growth Story by Frank Slootman

This month we read a short, under-discussed book by current Snowflake and former ServiceNow and Data Domain CEO, Frank Slootman. The book is just like Frank - direct and unafraid. Frank has had success several times in the startup world and the story of Data Domain provides a great case study of entrepreneurship. Data Domain was a data deduplication company, offering a 20:1 reduction of data backed up to tape casettes by using new disk drive technology.

Tech Themes

Data Domain’s 2008 10-K prior to being acquired

First time CEO at a Company with No Revenue. Frank is an immigrant to the US, coming from the Netherlands shortly after graduating from the University of Rotterdam. After being rejected by IBM 10+ times, he joined Burroughs corporation, an early mainframe provider which subsequently merged with its direct competitor Sperry for $4.8B in 1986. Frank then spent some time at Compuware and moved back to the Netherlands to help it integrate the acquisition of Uniface, an early customizable report building software. After spending time there, he went to Borland software in 1997, working his way up the product management ranks but all the while being angered by time spent lobbying internally, rather than building. Frank joined Data Domain in the Spring of 2003 - when it had no customers, no revenue, and was burning cash. The initial team and VC’s were impressive - Kai Li, a computer science professor on sabbatical from Princeton, Ben Zhu, an EIR at USVP, and Brian Biles, a product leader with experience at VA Linux and Sun Microsystems. The company was financed by top-tier VC’s New Enterprise Associates and Greylock Partners, with Aneel Bhusri (Founder and current CEO of Workday) serving as initial CEO and then board chairman. This was a stacked team and Slootman knew it: “I’d bring down the average IQ of the company by joining, which felt right to me.” The Company had been around for 18 months and already burned through a significant amount of money when Frank joined. He knew he needed to raise money relatively soon after joining and put the Company’s chances bluntly: “Would this idea really come together and captivate customers? Nobody knew. We, the people on the ground floor, were perhaps, the most surprised by the extraordinary success we enjoyed.”
Playing to his Strengths: Capital Efficiency. One of the big takeaways from the Innovators by Walter Issacson was that individuals or teams at the nexus of disciplines - primarily where the sciences meet the humanities, often achieved breakthrough success. The classic case study for this is Apple - Steve Jobs had an intense love of art, music, and design and Steve Wozniak was an amazing technologist. Frank has cultivated a cross-discipline strength at the intersection of Sales and Technology. This might be driven by Slootman’s background is in economics. The book has several references to economic terms, which clearly have had an impact on Frank’s thinking. Data Domain espoused capital efficiency: “We traveled alone, made few many-legged sales calls, and booked cheap flights and hotels: everybody tried to save a dime for the company.” The results showed - the business went from $800K of revenue in 2004 to $275 million by 2008, generating $75M in cash flow from operations. Frank’s capital efficiency was interesting and broke from traditional thinking - most people think to raise a round and build something. Frank took a different approach: “When you are not yet generating revenue, conservation of resource is the dominant theme.” Over time, “when your sales activity is solidly paying for itself,” the spending should shift from conservative to aggressive (like Snowflake is doing this now). The concept of sales efficiency is somewhat talked about, but given the recent fundraising environment, is often dismissed. Sales efficiency can be thought of as: “How much revenue do I generate for every $1 spent in sales and marketing?” Looking at the P&L below, we see Data Domain was highly efficient in its sales and marketing activity - the company increased revenue $150M in 2008, despite spending $115M in sales and marketing (a ratio of 1.3x). Contrast this with a company like Slack which spent $403M to acquire $230M of new revenue (a ratio of 0.6x). It gets harder to acquire customers at scale, so this efficiency is supposed to come down over time but best in class is hopefully above 1x. Frank clearly understands when to step on the gas with investing, as both ServiceNow and Snowflake have remained fairly efficient (from a sales perspective at least) while growing to a significant scale.
Technology for Technology’s Sake. “Many technologies are conceived without a clear, precise notion of the intended use.” Slootman hits on a key point and one that the tech industry has struggled to grasp throughout its history. So many products and companies are established around budding technology with no use case. We’ve discussed Magic Leap’s fundraising money-pit (still might find its way), and Iridium Communications, the massive satellite telephone that required people to carry a suitcase around to use it. Gartner, the leading IT research publication (which is heavily influenced by marketing spend from companies) established the Technology Hype Cycle, complete with the “Peak of inflated expectations,” and the “Trough of Disillusionment” for categorizing technologies that fail to live up to their promise. There have been several waves that have come and gone: AR/VR, Blockchain, and most recently, Serverless. Its not so much that these technologies were wrong or not useful, its rather that they were initially described as a panacea to several or all known technology hindrances and few technologies ever live up to that hype. Its common that new innovations spur tons of development but also lots of failure, and this is Slootman’s caution to entrepreneurs. Data Domain was attacking a problem that existed already (tape storage) and the company provided what Clayton Christensen would call a sustaining innovation (something that Slootman points out). Whenever things go into “winter state”, like the internet after the dot-com bubble, or the recent Crpyto Winter which is unthawing as I write; it is time to pay attention and understand the relevance of the innovation.

Business Themes

Importance of Owning Sales. Slootman spends a considerable amount of this small book discussing sales tactics and decision making, particularly with respect to direct sales and OEM relationships. OEM deals are partnerships with other companies whereby one company will re-sell the software, hardware, or service of another company. Crowdstrike is a popular product with many OEM relationships. The Company drives a significant amount of its sales through its partner model, who re-sell on behalf of Crowdstrike. OEM partnerships with big companies present many challenges: “First of all, you get divorced from your customer because the OEM is now between you and them, making customer intimacy challenging. Plus, as the OEM becomes a large part of your business, for all intents and purposes they basically own you without paying for the privilege…Never forget that nobody wants to sell your product more than you do.” The challenges don’t end there. Slootman points out that EMC discarded their previous OEM vendor in the data deduplication space, right after acquiring Data Domain. On top of that, the typical reseller relationship happens at a 10-20% margin, degrading gross margins and hurting ability to invest. It is somewhat similar to the challenges open-source companies like MongoDB and Elastic have run into with their core software being…free. Amazon can just OEM their offering and cut them out as a partner, something they do frequently. Partner models can be sustainable, but the give and take from the big company is a tough balance to strike. Investors like organic adoption, especially recently with the rise of freemium SaaS models percolating in startups. Slootman’s point is that at some point in enterprise focused businesses, the Company must own direct sales (and relationships) with its customers to drive real efficiency. After the low cost to acquire freemium adopters buy the product, the executive team must pivot to traditional top down enterprise sales to drive a successful and enduring relationship with the customer.
In the Thick of Things. Slootman has some very concise advice for CEOs: be a fighter, show some humanity, and check your ego at the door. “Running a startup reduces you to your most elementary instincts, and survival is on your mind most of the time…The CEO is the ‘Chief Combatant,’ warrior number one.” Slootman views the role of CEO as a fighter, ready to be the first to jump into the action, at all times. And this can be incredibly productive for business as well. Tony Xu, the founder and CEO of Doordash, takes time out every month to do delivery for his own company, in order to remain close to the customer and the problems of the company. Jeff Bezos famously still responds and views emails from customers at jeff@amazon.com. Being CEO also requires a willingness to put yourself out there and show your true personality. As Slootman puts it: “People can instantly finger a phony. Let them know who you really are, warts and all.” As CEO you are tasked with managing so many people and being involved in all aspects of the business, it is easy to become rigid and unemotional in everyday interactions. Harvard Business School professor and former leader at Uber distills it down to a simple phrase: “Begin With Trust.” All CEO’s have some amount of ego, driving them to want to be at the top of their organization. Slootman encourages CEO’s to be introspective, and try to recognize blind spots, so ego doesn’t drive day-to-day interactions with employees. One way to do that is simple: use the pronoun “we” when discussing the company you are leading. Though Slootman doesn’t explicitly call it out - all of these suggestions (fighting, showing empathy, getting rid of ego) are meant to build trust with employees.
R-E-C-I-P-E for a Great Culture. The last fifth of the book is all focused on building culture at companies. It is the only topic Slootman stays on for more than a few chapters, so you know its important! RECIPE was an acronym created by the employees at Data Domain to describe the company’s values: Respect, Excellence, Customer, Integrity, Performance, Execution. Its interesting how simple and focused these values are. Technology has pushed its cultural delusion’s of grandeur to an extreme in recent years. The WeWork S-1 hilariously started with: “We are a community company committed to maximum global impact. Our mission is to elevate the world’s consciousness.” But none of Data Domain’s values were about changing the world to be a better place - they were about doing excellent, honest work for customers. Slootman is lasered focused on culture, and specifically views culture as an asset - calling it: “The only enduring, sustainable form of differentiation. These days, we don’t have a monopoly for very long on talent, technology, capital, or any other asset; the one thing that is unique to us is how we choose to come together as a group of people, day in and day out. How many organizations are there that make more than a halfhearted attempt at this?” Technology companies have taken different routes in establishing culture: Google and Facebook have tried to create culture by showering employees with unbelievable benefits, Netflix has focused on pure execution and transparency, and Microsoft has re-vamped its culture by adopting a Growth Mindset (has it really though?). Google originally promoted “Don’t be evil,” as part of its Code of Conduct but dropped the motto in 2018. Employees want to work for mission-driven organizations, but not all companies are really changing the world with their products, and Frank did not try to sugarcoat Data Domain’s data-duplication technology as a way to “elevate the world’s consciousness.” He created a culture driven by performance and execution - providing a useful product to businesses that needed it. The culture was so revered that post-acquisition, EMC instituted Data Domain’s performance management system. Data Domain employees were looked at strangely by longtime EMC executives, who had spent years in a big and stale company. Culture is a hard thing to replicate and a hard thing to change as we saw with the Innovator’s Dilemma. Might as well use it to help the company succeed!