May 2019 Newsletter

Selling to Small Businesses? Here’s What You’ll Need to Succeed.

Small and medium-sized businesses are the lifeblood of the economy. By the latest estimates, they make up 99.9 percent of the businesses operating in the U.S. today and employ almost 48 percent of U.S. employees. So, why then do so many Silicon Valley software companies overlook small businesses?

The truth is, they don’t. Selling to small businesses is just really hard.

Of the 28 million business in the U.S., 23 million are run by solo entrepreneurs. What’s more, the average employee count for businesses that earn less than $1 million annually is only three. In other words, not only are the technology budgets small — they also have few to no employees to source, implement and use software in the first place.

But, what the small business market lacks in depth, it more than makes up for in breadth and scale — not to mention the “green field” nature of the customer base — and cracking it can lead to huge success. Google, for instance, has over 3 million small businesses paying for its productivity tools and HubSpot, a ScaleVP portfolio company, grew to a public company with a $5.9 billion market cap by initially targeting the small business market.

How do you succeed at building a small business-focused software business? Based on my experience helping companies like Hubspot, Box and DocuSign sell to small businesses, there are two critical strategies startups must learn if they want to do it right.

Build products they can’t live without.

The best way to win over small businesses is building products they can’t live without.

Multibillion-dollar enterprises may have budgets for purchasing dozens of software products — some mission-critical, some less so — but small businesses don’t. Operating on lean budgets, these businesses can often only buy a handful of products at a time, which means that each one needs to deliver significant (and immediate) impact.

The easiest way to create this “high need” is by selling products that help customers comply with government regulation. Intuit’s tax preparation software and ADP’s payroll solutions are great examples of this strategy. Both have built remarkably successful businesses targeting the small business market.

Another strategy is developing a product that operates as a core system. Square’s payment platform is a seminal example: As consumers shift away from cash and checks, local merchants and small-business owners need better options for accepting credit card payments. Square makes it easy and affordable, while also providing access to a vast ecosystem of highly valuable add-on products and services — turning their payments platform into a core business system. This approach is also known as a platform strategy.

Core systems (or “platforms”) can also produce powerful network effects, where the product gets better as more people use it. Yelp and OpenTable provide relatively commoditized software, but both businesses successfully cornered their market by building network effects into their products.

Build products for huge addressable markets.

To build a successful small business-focused software business, you also need to build products for markets with large numbers of potential customers.

Instead of building technology that solves the needs of a specific workflow or industry, focus on horizontal use cases or build products where the customer experience can be customized across many different workflows. MindBody, for example, has seen breakout success with fitness and wellness small businesses of every kind in recent years — from salons and spas to personal trainers and yoga studios — because it can easily customize the same underlying code to meet the specific needs of each vertical.

Selling to customers of multiple sizes is also important. You may not think there’s much difference between a business with $250,000 in receipts versus $1 million, but in reality it’s huge. That fourfold increase is the relative difference between $10 million and $40 million in annual recurring revenue (ARR).

Lastly, adjust your product for customer size. McDonald’s attracts even the most price-sensitive customers with its dollar menu, but then upsells more affluent customers with premium items. Small business software businesses need to do the same. Consider pricing your product for small businesses with one employee and then structuring the product to reveal premium features for larger customers, increasing the average price customers pay for the solution.

Small businesses are notorious for under-investing in technology, which can lead entrepreneurs to believe there are scarce few opportunities to build a large small business-focused software business. This is faulty thinking. In reality, there are a large and growing number of exceptionally valuable businesses that generate the majority of their revenue — if not all of it — from small-business customers. To succeed, these companies develop software that solves high-need problems for a vast pool of potential customers. This combined strategy solves all of the sales, marketing, retention and market sizing problems frequently encountered when selling into small businesses.

— Alex Niehenke

3 Ways To Be More Yoda-Like When Leading Millennials

In honor of May the Fourth (be with you) I wanted to share a funny thing I’m learning about millennials.

When the new Star Wars movies started coming out a few years ago, I asked my kids, “Who’s your favorite character?”

What I found was amazing. I expected all of my kids – and all millennials – to say they liked a new character like the new female Jedi in waiting. I also expected a wide variance of answers. But the vote has been nearly unanimous. Everyone loves Yoda. This led me to an interesting idea:

Every millennial wants a Yoda in their life.

This thought was liberating for me. Now that I’m in my mid 40’s, I’m not the young guy anymore, and that’s been a real adjustment. Rather than try to wear skinny jeans, get trendy haircuts, or try to package myself as younger than I am, I’m now leaning the other way.

About 70% of my staff is made up of millennials, and I’m realizing that they value me not just as an older, “I-know-things” guy, but more as a guide. As I talk with them, I’m learning to mimic Yoda in the following three ways

For leaders out there who are trying to engage this new and exceedingly competent part of our workforce, I hope these three insights help.

1. Actively start a two-way mentoring program.

This generation may be the most inquisitive one on record. Having spent most of their life with “google” as a verb, they are prone to question themselves and explore the unknown. They particularly look to learn from those who have “been around the block.”

If you’re older, set up consistent times to sit down with the millennials on your team or in your life and pass along what you’ve learned.  One great question you can ask yourself and pass along the answer to is: “If I could visit with the 22-year old version of myself, what would I tell them?”

This mentoring shouldn’t be one-sided. I’ve found incredible energy when I approach younger people in our office and ask them to teach me about something. I had my teenage daughters teach me and my staff members how to use SnapChat for our business. Whether it’s social media or what is trending in life, the rate of change is faster than ever.

As I get a little older, I’m finding I need to learn more than ever. I’m also discovering that when I ask for advice from a younger generation, they are conversely far more willing to listen to my advice when it’s my turn to give it.

When you employ two-way mentoring, millennials will lean into your Yoda. You won’t have to try to be younger than you are, and you will learn things you never would on your own. If you’re a millennial reading this, how can I improve this mentoring idea? I’d love your thoughts.

2. Increase your bias for action.

The line everyone remembers from Yoda? “Do or do not. There is no try.”

Despite the claims some people make that millennials are lazy, my experience has been quite the opposite. The people I get to work alongside every day are the fastest, most productive people I’ve ever seen. They are the first generation to grow up with “on demand” everything (so no wonder some people think they are a demanding generation).

What I’m discovering is that this generation is exceedingly ready to do something but less tolerant of needless meetings, long processes, or slow decision-making. Rather than talk about an idea, they want to take action. So I’m learning to speed up my bias for action.

There will always be processes that must go slowly, but where in your work could you take action more quickly? Even better, where in your work can you delegate authority to someone younger than you? And I say “authority” intentionally – don’t merely delegate tasks. As my friend Craig Groeschel says, “If you delegate tasks, you will raise up doers. If you delegate authority, you will raise up leaders.”  Retaining millennials hinges on giving away authority twice as fast as I’m ready. It’s not easy, but it has paid huge dividends for our company.

3. Inject surprise.

I remember the first time I saw the Star Wars episode where Yoda fights. The whole theater went nuts. Nobody thought he could run, much less throw down!

This generation that is often mislabeled as “restless” is one that thrives on variety. I’ve come to believe that it’s my job to carefully and judiciously inject not only surprise but intentional chaos into our office at Vanderbloemen from time to time.

For example, a few years ago, we took on a client who wanted our work for them done in one week. We have a tried-and-true process that generally takes eight or more weeks, but we really wanted this client. We all stopped what we were doing and pitched in to do the search. It ended up being the best thing that had happened to our staff culture in a long time.

So, last year, when another large client asked for a ridiculously difficult search and wanted it done in a week, I said yes not because we needed the business as much as we needed the chaos. It did wonders for our team culture and grabbed the energy and enthusiasm of our millennials.

Where in your work could you inject a little chaos or surprise? It’s risky, but the reward for our company has been awesome.

I suppose these lessons could be taught without the metaphor of Yoda, but who doesn’t like a little Yoda in their world? I know my millennials do.

May the fourth be with you.

— Forbes – William Vanderbloemen

Creating The Most Innovative Company In The World

How can you make your company the most innovative in the world? Is it even possible? Can your company become more innovative than the ones you admire most? No matter who you are, what industry you are in, whatever potential disruptors may be out there, with the right actions you can transform your company to become the most innovative company on the planet.

But it won’t be easy, and it won’t happen overnight. This is why you should immediately stop using the “quick fix” innovation offerings you read about or are being sold. They never work.

Creating the most innovative company in the world is not about implementing innovation programs. It is about large-scale cultural changes that transform your entire workforce into an innovation engine. It is about an entire organization learning to innovate, not just a handful of folks sequestered in an innovation department or external agency.

Whether you are a large or a small company. Whether you are part of the “new” or the “old” economy. Whether you are a disruptor or getting disrupted, there are some things you need to do–and many things you need to stop doing–to create the most innovative company in the world.

Here are the first few steps to get started. (and while all of these steps are necessary, they are not a complete innovation solution.)

Step One: Develop your innovation approach

Becoming the most innovative company in the world has to start with your leadership’s willingness to make the right moves (that often involve broad changes) as innovation is the cumulative effect of many decisions. The first step is developing your own unique approach for innovation that is best for you and no one else. Apple, Amazon, Google, Microsoft, Toyota–considered by many to be the most innovative company in the world at a certain point in time—each did it their way. Each organization developed a unique approach that worked for them and fit their culture.

Amazon’s approach centers around customer obsession, working backwards, and a few other well documented tenets. Apple is famous for their innovation through design approach. Toyota’s approach historically had been around continual process improvement and kaizen. These approaches work for them, they may not work for you.

Many companies try and copy what Apple or Amazon or Google do. That’s not likely to work. You need to develop the approach that works for your company. If you are unable to do that, innovation will always be a shot in the dark: it may happen, but it’s not likely.

Step Two: Build societal value

You need to be clear what innovation means to you because it means something different to everyone. The definition that I recommend (adapted from the United States Patent and Trademark Office) is: “Innovation is a series of steps that begins with human imagination and creativity and results in the creation of something of value for society to enjoy.”

If you are creating something new that enhances societal value, you are innovating. So naturally the first step towards creating the most innovative company in the world is a singular focus on creating offerings that create value and improve your customers’ experiences.

For innovation to thrive, you need to forget about the buzzwords we live by such as monetization, addressable market size, creating moats, synergies with core offerings, or other similar terms.

Instead, ask yourself these fundamental questions: are you truly enhancing value for a user? Are you creating something that would make your life or the lives of your loved ones better?

If yes, proceed. If no, return to the drawing board.

While making money from ideas is important, for real innovation to happen the focus has to be on the creation of customer value. You have to believe that if you create value for society, society will find a way to reward you. The business landscape is filled with companies being very richly rewarded, sometimes in ways they least except, for the creation of societal value.

Step Three: Make innovation everyone’s job

You can’t create the most innovative company in the world by making innovation the job of a few people. Unfortunately, that is what happens in most companies. The average Fortune 500 company has about 50,000 employees. In most companies no more than one to three percent of employees believe innovation is part of their job.

Every employee has the ability to innovate but very often they squander the opportunity, or are afraid to do it, or believe it’s someone else’s job.

Innovation has to be everybody’s job. It does not belong a single person or department. It does not belong to the R&D group or the product development group, nor is it the domain of internal innovation units created to drive innovation. It comes from everywhere. It comes from people who deal with customers every day and know how things can be improved. It comes from people who build and sell products, or folks who simply think of an unusual way to do things.

The most innovative companies in the world extract and pursue the best ideas from the entire organization. If you are not doing that, you are doing yourself a disservice.

There are so many activities involved in getting a great new product to customers that everyone has an opportunity to do something innovative in the process. If you are not working on a product, you can still be innovative in sales, partnerships, marketing, distribution, packaging, or anything else.

The packaging of the iPhone (the box it comes in) is an innovation that is patented. The box is not treated simply as something that will be opened and discarded; it is the first interaction a customer has with the product. For Apple, the box is an important part of the experience that sets the tone for how the customer perceives the product.

When is the last time you’ve thought of the packaging group of a company as an innovation driver? This only happens within a culture where innovation is part of what everyone does.

Step Four: Understand that you can’t outsource innovation

Just about every innovation consultant will sell you their solution to innovation. It could be engaging in innovation sprints, bringing in design thinking or Lean techniques. It could be building an internal or external innovation center, or deploying a software platform, or simply acquiring promising startups. The simple truth is that if there was a single solution that worked, we would all be using it by now. Think of the most innovative companies in the world: which of these techniques do you associate with their successes? None.

Every company that you admire has created an environment where innovation thrives and happens all the time. It is never driven by software or consultants or the deployment of popular methods. It is always driven by a culture that makes innovation part of a company’s everyday fabric.

To make your company the most innovative in the world, forget one-off techniques. Focus on building an approach where every employee is empowered to contribute ideas and improve things wherever they can. Innovation happens when thousands of people make small (or large) improvements and bring new thinking. It never happens when you try to implement a program to harness it.

Conclusion: This is simply the start

The few things I have highlighted in this article are initial steps. In order to create the most innovative company in the world, there are many more things you need to do that I will cover in subsequent articles.

The key thing to remember is that innovation has to be something that you do internally, and learn to do well. Only a few companies have consistently released world-changing innovation consistently. Every one of them has built the right environment that lets innovation thrive. That should be your sole focus if you want to become the most innovative company in the world.

— Kumah Mehta – Forbes