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SFDC

Career Advice

Another marketing organization rip up and retry

How to organize marketing of B2B high tech products is always challenging. The best products rarely come from marketing people and the deeper the technology the more the R&D team is in the inventive role and driving marketing.

As a result, where to have marketing report is an ongoing political battle in many companies – and Cadence Design Systems marketing revolving door is a fresh example of this. According to the online gadfly DeepChip.com, editor John Cooley reports “Cadence CMO Bruggeman rumored ousted in unexpected palace coup”, confirmed also by Gabe Moretti on his EDA blog because of the decision to put “product marketing within the three divisions responsible for product development. According to Pankaj [Mayor, chief of staff to the CEO], who will act as Head of Marketing in addition to his other role in the interim, this is the event that precipitated John’s departure”.

Product marketing belongs close to R&D, but as companies grow they often oscillate between a functional org chart (all R&D in one team, all marketing in another) and a BU org chart (all R&D and marketing for a business line working in one unit). Having been a part of this oscillation more than once in my tenure in marketing I have seen both sides. There are advantages and disadvantages both ways, but the deeper the technology the more important it is that R&D and product marketing work very closely together and so I favor marketing within the business unit.

The reason for this is that in very complex technology products R&D is leading the customer, not the other way around. The classical view that product marketing goes out and talks to customers, figures out what they need and then comes back and specifies a product for R&D to build is the road to a mediocre, losing product.

With breakout products customers don’t know what they need. Sometimes they know the problems they are going to face, sometimes they can describe the performance, time-to-market or cost problems they are facing but they can rarely describe how to solve the problem.

Consider Salesforce. Did CRM users know they needed a cloud based product they could easily configure themselves? No, when Salesforce was emerging customers were asking for more and more features on their Seibel systems. And yet Salesforce dramatically reduced the cost of deployment and support of CRM systems.

Consider Synopsys. Did logic designers know they needed to radically change the way they described chip logic by moving up to the RTL level instead of drawing gates? No, they asked for more and more features to draw gates faster within their Daisy or Mentor systems and yet the move to RTL based design dramatically changed the complexity of designs that were possible.

Centralized marketing makes sense for all the cross functional responsibilities. Communications needs to be one voice with common positioning and messaging. Third party business development – coordinating partnerships and industry initiatives – needs to present the company as one entity to partners. Market research and competitive intelligence is more cost effective and can serve the sales force with one set of tools and content (like FirstRain) if the intranet and intelligence are run centrally.

But product marketing needs to be close to R&D, sitting with R&D and not confused about their role. Design collaboration with R&D, interface specification, customer introduction, field training and support all need to be done working hand in glove with the R&D team that is pushing the envelope of the technology. Org charts should not, in theory, change behavior but they do.

Organizational change is also almost always good and keeps people on their toes – and shows you a lot about the organization. Holden powerbase selling methodology teaches sales people that change illuminates the power structure in an organization. Any time you see a reorg someone wins and someone loses. If you want to really understand where the power lies take note of which executives build a little bit of power every time. Subtle, continuous, increases are a sign of someone strategically building power.

It’s true that product marketing has an important role to play. Much of the time the work to be done is incremental, and then it does not really matter where product marketing reports. But when you are building a product that has to leapfrog your competition and stay on the bleeding edge you are reliant on the R&D and conceptual brains to figure out the leap and product marketing needs to be part of the leaping team.

Boards

Today’s tech bubble: Sell or IPO your company?

If you had the chance to sell your tech company for a great price would you – or would you play the long game?

This is a decision successful entrepreneurs end up facing and is a question for some tech entrepreneurs right now as we go through what is arguably another bubble – and there are some very interesting cases to think about – and think what would you have done?

Consider the Huffington Post: A success story to most people – purchased by AOL for $315M in February at a 6.3X multiple of $50M in revenue and very small profits. The last investor, Oak Investment Partners, tripled their money in just over 2 years which is a great result for a late stage investment decision. And yet, as Jeff Bercovici of Forbes writes in his somewhat damning review of the HuffPo/AOL honeymoon, the difference in interests that can appear between investor and entrepreneur in very visible in this case.

Fred Harman, the Oak partner who made the HuffPo investment, told Forbes “Our goal was an IPO rather than building up the company to be acquired by another media company” and that he and the HuffPo CEO Eric Hippeau “were still inclined to roll forward as an independent company out of the belief that The Huffington Post could continue to rapidly scale and be the dominant social news company on the Web”. But for Arianna, AOL meant personal liquidity and a much larger stage and budget to build her dream with.

(full disclosure: my current company FirstRain is funded by Oak. They like to swing for the fences – as do I)

In contrast look at Zillow, which went public last week and, on 2010 revenue of $30.5M, now commands a valuation of greater than $1B. Is this valuation a surefire sign of a tech bubble? On Seeking Alpha screener.co writes that “The vast difference in valuation between a recent tech IPO and similar publicly traded competitors is not limited to Zillow” – Pandora’s valuation is almost as shocking as Zillow’s and outrageous in comparison to their comp RealNetworks. So long term public valuation (and so the team’s return) is at risk here.

In the enterprise social media space, Radian6 decided to sell to Salesforce instead of taking the long road. At a valuation of $326M and 10X revenue Techcrunch thinks SFDC overpaid but 10X trailing revenue is a terrific valuation for an enterprise software company and being integrated into Salesforce takes all the return risk out for the founders – plus SFDC smartly put additional options on as an earnout over 2 years (not unusual when a public company buys a private company and wants to keep the founders around). But also consider that maybe Salesforce creates a larger platform with deeper pockets for the Radian6 team to execute their vision on.

And waiting in the wings we have Groupon. They did not sell to Google last Fall for $6B and, if they can get over the questions about their business model and profitability, hope to IPO for $20B – and are lining up enough banks to make it happen.

All this leads to questions of timing – are today’s valuations fashion driven because tech IPOs are hot now? – and what would you do if it was you? I’ve been there, it’s a gut-wrenching decision.

If you sell:
+ You get secured liquidity and wealth for you and your team (especially if you are bought for cash)
+ You play on a larger stage, often with a larger budget
+ You may get access to many more customers on a larger platform
+ You create long term job security for your core tech team
– You lose final authority on strategy and budget
– Many members of your team (non tech) may lose their jobs
– You lose the essential joy of building your own venture

If you go public:
+ You get significant capital to grow your business with
+ You stay in charge (for now…)
+ Your investors get a great return in 6 months (after the lockup comes off)
+ You may get a significantly higher return over a longer time period
+ You continue to drive the strategy and M&A to execute you and your team’s vision
– Limited liquidity for you or your team for the foreseeable future
– You are running a public company (no picnic!)
– Your return is not secure, you are subject to volatile markets

… and there are many more pros and cons…

One of the best pieces of advice I got was to, in the end, focus on how my management team is successful and makes money from their hard work. Not my ego or my net worth. Not my investor’s return. My team, the ones who built the company with me. If they make money, everyone else will make enough.