Does size matter?

It is the age-old question — are you a more important person at your company if you have more people reporting into you?  Most people, unfortunately, say yes.

I’m going to assume the origins of this are political and military. The kingdom with more subjects takes over the smaller kingdom. The general has more stars on his lapel than the colonel. And it may be true for some of those same reasons in more traditional companies. If you have a large team or department, you have control over more of the business and potentially more of the opportunities. The CEO will want to hear from you, maybe even the Board.

In smaller organizations, and in more contemporary organization structures that are flatter (either structurally or culturally) or more dynamic/fluid, I’m not sure this rule holds any more. Yes, sure, a 50-person team is going to get some attention, and the ability to lead that team effectively is incredibly important and not easy to come by. But that doesn’t mean that in order to be important, or get recognized, or be well-compensated, you must lead that large team.

Consider the superstar enterprise sales rep or BD person. This person is likely an individual contributor. But this person might well be the most highly paid person in the company. And becoming a sales manager might be a mistake — the qualities that make for a great rep are quite different from those that make a great sales manager. We have lost a few great sales reps over the years for this very reason. They begged for the promotion to manager, we couldn’t say no (or we would lose them), then they bombed as sales managers and refused as a matter of pride to go back to being a sales rep.

Or consider a superstar engineer, also often an individual contributor. This person may be able to write code at 10x the rate and quality of the rest of the engineering organization and can create a massive amount of value that way. But everything I wrote above about sales reps moving into management holds for engineers as well.  The main difference we’ve seen over the years is that on average, successful engineers don’t want to move into management roles at the same rate as successful sales reps.

It’s certainly true that you can’t build a company consisting of only individual contributors. But that isn’t my point. My point is that you can add as much value to your organization, and have as much financial or psychic reward, by being a rock star individual contributor as you can by being the leader of a large team.

Learning to Embrace Sizzle

One phrase I’ve heard a lot over the years is about “Selling the sizzle, not the steak.”  It suggests that in the world of marketing or product design, there is a divergence between elements of substance and what I call bright shiny objects, and that sometimes it’s the bright shiny objects that really move the needle on customer adoption.

At Return Path, we have always been about the steak and NOT the sizzle.  We’re incredibly fact-based and solution-oriented as a culture.  In fact, I can think of a lot of examples where we have turned our nose up at the sizzle over the years because it doesn’t contribute to core product functionality or might be a little off-point in terms of messaging.  How could we possibly spend money (or worse – our precious development resources) on something that doesn’t solve client problems?

Well, it turns out that if you’re trying to actually sell your product to customers of all shapes and sizes, sizzle counts for a lot in the grand scheme of things.  There are two different kinds of sizzle in my mind, product and marketing — and we are thinking about them differently.

Investing in product sizzle (e.g., functionality that doesn’t actually do much for clients but which sells well, or which they ask for in the sales process) is quite frustrating since (a) it by definition doesn’t create a lot of value for clients, and (b) it comes at the expense of building functionality that DOES create a lot of value.  The way we’re getting our heads around this seemingly irrational construct is to just think of these investments as marketing investments, even though they’re being made in the form of engineering time.  I suppose we could even budget them as such.

Marketing sizzle is in some ways easier to wrap our heads around, and in some ways tougher.  It’s easier because, well, it doesn’t cost much to message sizzle — it’s just using marketing as a way of convincing customers to buy the whole solution, knowing the ROI may come from the steak even as the PO is coming from the sizzle.  But it’s tough for us as well not to position the ROI front and center.  As our Marketing Department gets bigger, better, and more seasoned, we are finding this easier to come by, and more rooted in rational thought or analysis.

In the last year or two, we have done a better job of learning to embrace sizzle, and I expect we’ll continue to do that as we get larger and place a greater emphasis on sales and marketing — part of my larger theme of how we’ve built the business backwards.  Don’t most companies start with ONLY sizzle (vaporware) and then add the steak?

Two Ears, One Mouth

Brace yourself for a post full of pithy quotes from others.  I’m not sure how we missed this one when drafted our original values statements at Return Path years ago, because it’s always been central to the way we operate.  We aren’t just the world’s biggest data-driven email intelligence company – we are a data-driven organization.  So another one of our newly written Core Values is:

Two Ears, One Mouth:  We ask, listen, learn, and collect data.  We engage in constructive debate to reach conclusions and move forward together.

I’m not sure which of my colleagues first said this to me, but I’m going to give credit to Anita, our long-time head of sales (almost a decade!), for saying “There’s a reason God gave you two ears and one mouth.”  The meaning?  Listen (and look, I suppose) more than you speak.

This value really has two distinct components to it, though they’re closely related.  First, we always look to collect data when we need to understand a situation or make a decision.  To quote our long-time investor, Board member, and friend Brad Feld, “the plural of anecdote is not data.”  That means we are always looking far and wide for facts, numbers, and multiple perspectives.  Some of us are better than others at relying on second-hand data and observations from trusted colleagues, which means often times, many of us are collecting data ourselves to inform a situation.  But regardless, we always start with the data.

Second, we use data as the foundation of our decision-making process.  I heard another great quote about this once, which is something like, “If we are going to make a decision based on data, the data will make the decision for us.  If we’re going to use opinion, let’s use mine.”  And while I’m at it, I’ll throw in another great quote from Winston Churchill who famously said “Facts are stubborn things.”  While we do have constructive debates all across our organization, those debates are driven by facts, not emotion.

Finally, when this value says that “we move forward together,” that is the combination of the points in the two prior paragraphs.  People may have different opinions entering a debate.  Even with a lot of data behind a decision, they may still have different opinions after a decision has been made.  But we work very deliberately to all support a decision, even one we may disagree with, and we are able to do that, move forward together, and explain the decision to the organization, because the decision is data-driven.

Job 1

The first “new” post in my series of posts about Return Path’s 14 Core Values is, fittingly,

Job 1:  We are all responsible for championing and extending our unique culture as a competitive advantage.

The single most frequently asked question I have gotten internally over the last few years since we grew quickly from 100 employees to 350 has been some variant of “Are you worried about our ability to scale our culture as we hire in so many new people?”  This value is the answer to that question, though the short answer is “no.”

I am not solely responsible for our culture at Return Path. I’m not sure I ever was, even when we were small.  Neither is Angela, our SVP of People.  That said, it was certainly true that I was the main architect and driver of our culture in the really early years of the company’s life.  And I’d add that even up to an employee base of about 100 people, I and a small group of senior or tenured people really shouldered most of the burden of defining and driving and enforcing our culture and values.

But as the business has grown, the amount of responsibility that I and those few others have for the culture has shrunk as a percentage of the total.  It had to, by definition.  And that’s the place where cultures either scale or fall apart.  Companies who are completely dependent on their founder or a small group of old-timers to drive their cultures can’t possibly scale their cultures as their businesses grow.  Five people can be hands on with 100.  Five people can’t be hands on with 500.  The way we’ve been able to scale is that everyone at the company has taken up the mantle of protecting, defending, championing, and extending the culture.  Now we all train new employees in “The RP Way.”  We all call each other out when we fail to live up to our values.  And the result is that we have done a great job of scaling our culture with our business.

I’d also note that there are elements of our culture which have changed or evolved over the last few years as we’ve grown.  That isn’t a bad thing, as I tell old-timers all the time.  If our products stayed the same, we’d be dead in the market.  If our messaging stayed the same, we’d never sell to a new cohort of clients.  If our values stayed the same, we’d be out of step with our own reality.

Finally, this value also folds in another important concept, which is Culture as Competitive Advantage.  In an intellectual capital business like ours (or any on the internet), your business is only as good as your people.  We believe that a great culture brings in the best people, fosters an environment where they can work at the top of their games even as they grow and broaden their skills, increases the productivity and creativity of the organization’s output through high levels of collaboration, and therefore drives the best performance on a sustained basis.  This doesn’t have to be Return Path’s culture or mean that you have to live by our values.  This could be your culture and your values.  You just have to believe that those things drive your success.

Not a believer yet?  Last year, we had voluntary turnover of less than 1%.  We promoted or gave new assignments to 15% of our employees.  And almost 50% of our new hires were referred by existing employees.  Those are some very, very healthy employee metrics that lead directly to competitive advantage.  As does our really exciting announcement last week of being #11 in the mid-sized company on Fortune Magazine’s list of the best companies to work for.

OnlyOnce is 8 years old this week, which is hard to believe. So it is fitting that I got halfway through a new post this morning, then a little alarm bell went off in my head that I had written something similar before.  The topic is around moderation versus extremes.  I first wrote about this topic in 2005 in a post called Shifting Gears but I have thought about it more recently in a different way. 

Instead of phrasing this as a struggle between “Meden Agan,” which is Greek for “everything in moderation,” and “Gor oder gornischt,” which is Yiddish for “all or nothing,” I’d like to focus here on the value of occasionally going to an extreme. And that value is around learning. Let me give three examples:

-We were having a buy vs. build conversation at work a few months back as we were considering an acquisition. Some people in the room had an emotional bias towards buy; others toward build. So we framed the debate this way:  “Would you acquire the company for $1 instead of building the technology?” (Yes!) “Would you buy it for $10mm?” (No!) Taking the conversation to the extremes allowed us to focus on a rational answer as opposed to an emotional one — where is the price where buy and build are in equilibrium?

– With my colleague Andrea, I completed a 5-day juice fast a few weeks back. It was good and interesting on a bunch of levels. But I came away with two really interesting learnings that I only got from being extreme for a few days:  I like fruits and veggies (and veggie juices) a lot and don’t consume enough of them; and I sleep MUCH better at night on a relatively empty stomach

– Last year, I overhauled my “operating system” at work to stop interviewing all candidates for all jobs and stop doing 90-day 1:1 meetings with all new employees as well. I wrote about this in Retail, No Longer. What finally convinced me to do it was something one of my colleagues said to me, which was “Will you be able to keep these activities up when we have 500 employees?” (No) “So what is the difference if you stop now and save time vs. stopping in 6 months?” Thinking about the extreme got me to realize the full spectrum

It may not be great to live at the extremes, but I find extremes to be great places to learn and develop a good sense of what normal or moderate or real is.

Selecting Your Investors

Fred Wilson has been a venture investor and director in Return Path since 2000, first with Flatiron Partners and then with Union Square Ventures.  We’ve been through a lot of wars together.  In a couple of weeks, he and I are team-teaching a class in Entrepreneurship at Princeton, and the professor gave us the assignment of writing two pairs of blog posts to tee up discussion with the class.  This is the first one…and Fred’s post on the other side of the topic is here.  Next week, we’ll address the topic of building a successful CEO-VC partnership once it’s established.

If you’re fortunate enough to have built a really strong early stage company, you will find yourself in the position of being able to pick from a number of potential venture investors.  The better your business and the more exciting the space you’re trying to tackle…the more investors you’ll find circling around you.  Here are a few tips for ending up with the best long-term partner as an investor.

1. Look for VC portfolios that have a lot of “like” companies (B2B, B2C, media, tech, etc.).  One of the strongest points of value that venture investors bring to the table is pattern matching, and you can maximize that by making sure the investor you end up with has seen a multitude of companies like yours
2. Check references carefully.  Don’t be shy – prospective VCs are checking up on you, and you have every right to do the same with them.  When Fred first invested in Return Path, he gave me a list of every CEO he had ever worked with and said “Call anyone you want on the list.  Some of these guys I worked well with, a couple I fired.  But they’ll all tell you what I’m like to work with.”  First prize is the VC who volunteers this information.  Second prize is the VC who gives it to you when you ask.  A distant third price is the VC who gives you two names and ask for time to prep them ahead of time
3. Focus on the person first, the firm second.  Having a good venture firm is important.  But at the end of the day, you’re dealing with a person first and foremost.  That’s who will be on your board giving you advice and measuring your performance.  Better to have an A person at a B firm than a B person at an A firm (of course, even better to have an A person at an A firm).  This means two things – selecting a great person to be on your Board, and also making sure you end up with a person who has enough juice within his or her firm to get things done on your behalf with the partnership
4. Always have a BATNA (Best Alternative to a Negotiated Agreement – a fancy way of saying Plan B).  This is probably the most important piece of advice I can offer.  And this is true of any negotiation, not just a term sheet.  It’s often said that good choices come from good options. Sometimes, you have to walk away from a deal where you’ve invested a lot of time, energy, and emotion.  But as an entrepreneur, you can mitigate the number of times you have to walk away by developing good alternative options to a particular deal. That way, if one option doesn’t pan out as you’d hoped, another very good option is waiting in the wings.  If you negotiate with two or three VCs, you’ll have a great backstop and won’t let the emotional investment in the deal get the best of you.  Yes, you will spend twice to three times the amount of time on the process, but it’s well worth it
5. Don’t be swayed by promises of help.  I’ve heard VCs say it all.  They’ll help you fill out your management team.  They’ll get you customers.  They’ll help with your back office.  They’re loaded up with value-add.  If venture investor has staffed his or her firm with support personnel who are available free of charge to portfolio companies (this does happen once in a while), then assume your VC will be as helpful as possible, but no more or less helpful than another investor
6. Handle the negotiation yourself, in person as much as possible.  The best way to get to know someone’s character is to negotiate a deal with him.  This gives you lots of opportunities to look for reasonableness, and to see if he or she is able to focus on the big picture.  The biggest warning sign to look for is someone who says things like “you have to agree on this term, because this is how we always do deals.”  By the way, how you handle yourself in this negotiation is equally important.  The financing is the line of demarcation between you and the VC courting each other, and the VC joining your board and effectively becoming your boss
7. “Pay up” for quality and for a clean security.  There is a world of difference between good VCs and bad VCs (both the individual partners and the firms) that will ultimately have a lot to do with how successful your company can become.  The quality of your VC isn’t more important than the quality of your product or your team, but it’s right up there.  But – and this is an important but – you should expect to “pay” for quality in the form of slightly weaker terms (whether valuation or type of security).  Similarly, I’d always sacrifice valuation for a clean security.  Everyone always thinks that price/valuation is the most important thing to maximize in a deal. However, the structure of the security can be much more important in the long run.  Whether the VCs buy 33 percent of your company or 30 percent of your company is much less important than having a capital structure that’s easy for an outsider to understand and want to join

As with all things, there are probably another dozen items that could be added to this list, but it’s a good starting point.  However, your more important role as CEO is to put your company in a position where you can select from a number of high quality investors, so start there!

As I mentioned in a previous post, I write a column for The Magill Report, the new venture by Ken Magill, previously of Direct magazine and even more previously DMNews. I share the column with my colleagues Jack Sinclair and George Bilbrey and we cover how to approach the business of email marketing, thoughts on the future of email and other digital technologies, and more general articles on company-building in the online industry – all from the perspective of an entrepreneur. I recently posted George’s column on Staying Innovative as Your Business Grows (Part One). Below is a re-post of George’s second part of that column from this week, which I think my OnlyOnce readers will enjoy.

Guest Post: Staying Innovative as Your Business Grows (Part Two)

By George Bilbrey
Last month, as part of the Online Entrepreneur column, I shared some of Return Path’s organizational techniques we use to stay innovative as we grow. In this article, I’ll talk about the process we’re using in our product management-and-development teams to stay innovative.

The Innovation Process at Return Path
As we grew bigger, we decided to formalize our process for bringing new products to market. In our early days we brought a lot of new products to market with less formal process but also with more limited resources. We did well innovating one product at a time without that kind of process largely because we had a group of experienced team members. As the team grew, we knew we had to be more systematic about how we innovated to get less experienced product managers and developers up to speed and having an impact quickly.

We had a few key objectives when designing the process:

• We wanted to fail fast – We had a lot of new product ideas that seemed like good ones. We wanted a process that allowed us to quickly determine which ideas were actually good.

• We wanted to get substantial customer feedback into the process early – We’d always involved clients in new product decisions, but generally only at the “concept” phase. So we’d ask something like “Would you like it if we could do this thing for you?” which often elicited a “Sure, sounds cool.” And then we’d go off and build it. We wanted a process that instead would let us get feedback on features, function, service levels and pricing as we were going so we could modify and adjust what we were building based on that iterative feedback.

• We wanted to make sure we could sell what we could build before we spent a lot of time building it – We’d had a few “build it and they will come” projects in the past where the customers didn’t come. This is where the ongoing feedback was crucial.

The Process
We stole a lot of our process from some of the leading thinkers in the “Lean Startup” space – particularly Gary Blanks’ Four Steps to the Epiphany and Randy Komisar’s Getting to Plan B. The still-evolving process we developed has four stages:

Stage 1: Confirm Need

Key Elements

• Understand economic value and size of problem through intense client Interaction
• Briefly define the size of opportunity and rough feasibility estimate – maybe with basic mockups
• Key Question: Is the need valid? If yes, go on. If no, abandon project or re-work the value proposition.

Stage 2: Develop Concept

Key Elements

• Create a high fidelity prototype of product and have clients review both concept and pricing model
• Where applicable, use data analysis to test feasibility of product concept
• Draft a more detailed estimate of effort and attractiveness, basically a business model
• Key Question: Is the concept Valid? If yes, go on. If no, abandon project.

Stage 3: Pilot

Key Elements

• Build “minimum viable product” and sell (or free beta test with agreed to post beta price) with intense client interaction and feedback
• Develop a marketing and sales approach
• Develop a support approach
• Update the business model with incremental investment requirements
• Preparation of data for case studies
• Key Question: Is project feasible? If yes, go on. If no, abandon project or go back to an earlier stage and re-work the concept.

Stage 4: Full Development and Launch

Key Elements

• Take client feedback from Pilot and apply to General Availability product
• Create support tools required
• Create sales collateral, white papers, lead generation programs, case studies and PR plan.
• Train internal teams to sell and service.
• Update business model with incremental investment required
• Go forth and prosper

There are a several things to note about this process that we’ve found to be particularly useful:

• A high fidelity prototype is the key to getting great customer feedback – You get more quality feedback when you show them something that looks like the envisioned end product than talking to them about the concept. Our prototypes are not functional (they don’t pull from the databases that sit behind them) but are very realistic HTML mockups of most products.

• Selling the minimum viable product (MVP) is where the rubber meets the road – We have learned the most about salability and support requirements of new products by building an MVP product and trying to sell it.

• Test “What must be true?” during the “Develop Concept” and “Pilot Phases” – When you start developing a new product, you need to know the high risk things that must be true (e.g., if you’re planning to sell through a channel, the channel must be willing and able to sell). We make a list of those things that must be true and track those in weekly team meetings.

• This is a very cross functional process and should have a dedicated team – This kind of work cannot be done off the side of your desk. The team needs to be focused just on the new product.

While not without bumps, our team has found this process very successful in allowing us to stay nimble even as we become a much larger organization. As I mentioned in Part 1, our goal is really to leverage the strengths of a big company while not losing the many advantages of smaller, more flexible organizations.

Stuck in the Middle

I was trying to explain the current state of Return Path’ Postmaster Network online advertising business (email lists, lead gen, RSS) to someone from outside the industry the other day, when it occurred to me that many online marketing vehicles are still split between running on the offline paradigm and running on the online paradigm.  I don’t have a lot of detailed stats on all of this at my fingertips, but bear with my observations.

To me, the offline paradigm has always been characterized by big agency buys, driven by thematic/brand oriented creative campaigns that cost a fortune to develop.  This is even true to a large extent for direct marketing, although the mechanics are different.  It’s relied on lots of third party intermediaries to connect the audience (or more specifically, estimates of the audience) to the marketer.  It has paid all of these people on a percentage of the media spend, which is so massive that a 10% override on it can keep you in business and be dissociated from effort expended or value created.  Many of the original forms of online media — banners, lists — still operate partially in this world.  This part of the online ad market is growing, but more slowly than others.

Contrast this with the online paradigm that has been characterized by automated buying, rapid testing cycles, small up-front dollar outlays, and an “always on” marketing that’s not necessarily tied to a big campaign.  It’s been much more marketplace, aggregator, and bid-driven and frequently has marketers connecting straight to their audience, or at least to the media vehicle that their audience is on.  Fees are success-based or labor-based.  This is the part of the market that’s exploding in popularity.

So why are some parts of online marketing stuck in the middle today?  It seems to me that the things that are related to the offline paradigm in some way are still living in that paradigm, while things that are truly new in the last 5+ years are freed from those shackles.  So some things, like email list rental and banner buys, go through an agency or a broker (or sometimes both), because, well, that’s how clients have always rented mailing lists or bought column inches in magazines.  But anyone with a credit card can start bidding for keywords on Google or Yahoo, or post offers to an affiliate network, trying out their own creative and optimizing it within minutes or hours.

The thing I find so interesting about this is that all of these different online marketing tactics, whether old school or new school, are trying to do the same things — generate more sales/leads/customers, and build brand.  But the legacy machinery of old world marketing and advertising still lingers in the background while the new machinery of search and automated marketing/bidding engines are gaining steam.

It will be interesting to see how this all shakes out over time, but I’d be surprised if there’s a lot of the purchasing of high value online real estate that continues to be in the control of old-style agencies and brokers for too much longer.  It’s just getting too easy for marketers to control their own destiny.  What I think is even more fascinating is the possibility that these new technologies and techniques might move upstream to influence how “old media” is bought as well over time, as seen in both Yahoo’s and Google’s recent deals with offline media brokers (and even, one could argue, the YouTube acquisition).  There’s no logical reason why marketers shouldn’t be able to bid on 30-second TV commercials across the major networks and cable stations and not be held to big up-front commitments and markups.  Oh, right, and come back to the network afterwards and ask for a make good if the ad doesn’t drive enough sales on the back-end.

Maybe agencies and brokers will change…maybe some courageous traditional media vehicles will change…or maybe a little of both, but old school online customer acquisition marketing won’t be stuck in the middle forever.  The scale and ROI will guarantee it.

Keeping It All In Sync?

I just read a great quote in a non-business book, Richard Dawkins’ River out of Eden, Dawkins himself quoting Darwinian psychologist Nicholas Humphrey’s revolting of a likely apocryphal story about Henry Ford.  The full “double” quote is:

It is said that Ford, the patron saint of manufacturing efficiency, once

commissioned a survey of the car scrapyards in America to find out if there were parts of the Model T Fird which never failed. His inspectors came back with reports of almost every kind of breakdown:  axles, brakes, pistons — all were liable to go wrong. But they drew attention to one notable exception, the kingpins of the scrapped cars invariably had years of life left in them. With ruthless logic, Ford concluded that the kingpins on the Model T were too good for their job and ordered that in the future they should be made to an inferior specification.

You may, like me, be a little vague about what kingpins are, but it doesn’t matter. They are something that a motor far needs, and Ford’s alleged ruthlessness was, indeed, entirely logical. The alternative would have been to improve all the other bits of the car to bring them up to the standard of the kingpins. But then it wouldn’t have been a Model T he was manufacturing but a Rolls Royce, and that wasn’t the object of the exercise. A Rolls Royce is a respectable car to manufacture and so is a Model T, but for a different price. The trick is to make sure that either the whole car is built to Rolls Royce specifications or the whole car is built to Model T specifications.

Kind of makes sense, right?  This is interesting to think about in the context of running a SaaS business or any internet or service business.  I’d argue that Ford’s system does not apply or applies less.  It’s very easy to have different pieces of a business like ours be at completely different levels of depth or quality.  This makes intuitive sense for a service business, but even within a software application (SaaS or installed), some features may work a lot better than others.  And I’m not sure it matters.

What matters is having the most important pieces — the ones that drive the lion’s share of customer value — at a level of quality that supports your value proposition and price point.  For example, in a B2B internet/service business, you can have a weak user interface to your application but have excellent 24×7 alerting and on-call support — maybe that imbalance works well for your customers.  Or let’s say you’re running a consumer webmail business.  You have good foldering and filtering, but your contacts and calendaring are weak.

I’m not sure either example indicates that the more premium of the business elements should be downgraded.  Maybe those are the ones that drive usage.  In the manufacturing analogy, think about it this way and turn the quote on its head.  Does the Rolls Royce need to have every single part fail at the same time, but a longer horizon than the Model T?  Of course not.  The Rolls Royce just needs to be a “better enough” car than the Model T to be differentiated in terms of brand perception and ultimately pricing in the market.

The real conclusion here is that all the pieces of your business need to be in sync — but not with each other as much as with customers’ needs and levels of pain.

Investment in the Email Ecosystem

Last week, my colleague George Bilbrey posted about how (turns out – shocking!) email still isn’t dead yet.

Not only is he right, but the whole premise of defending email from the attackers who call it “legacy” or “uninteresting” is backwards.  The inbox is getting more and more interesting these days, not less.  At Return Path, we’ve seen a tremendous amount of startup activitiy and investment (these two things can go together but don’t have to) in in front end of email in the past couple years.  I’d point to three sub-trends of this theme of “the inbox getting more interesting.”

First, major ISPs and mailbox operators are starting to experiment with more interesting applications inside their inboxes.  As the postmaster of one of the major ISPs said to me recently, “we’ve spent years stripping functionality out of email in the name of security – now that we have security more under control, we would like to start adding functionality back in.”  Google’s recent announcement about allowing third-party developers to access your email with your permission is one example, as is their well-documented experiment with NetFlix’s branded favicon showing up in the inbox starting a few months back.  And Hotmail’s most recent release, which has been well covered online (including this article which George wrote in Mediapost a couple months ago) also includes some trials of web-like functionality in the inbox, as well as other easy ways for users to view and experience their inboxes other than the age-old “last message in on top” method.  Yahoo has done a couple things along these lines as well of late, and one can assume they have other things in the works as well.

I wouldn’t be surprised if many ISPs roll out a variety of enhanced functionality over the next couple of years, although these systems can take a lot of time to change.  Although some of these changes present challenges for marketers and publishers, these are generally major plusses for end users as well as the companies who send them email – email is probably the only Internet application people spend tons of time in that’s missing most state of the art web functionality.

Second, although Google Wave got a lot of publicity about reinventing the inbox experience before Google shut it down a couple weeks ago, there are probably a dozen startups that are working on richer inboxes as well, either through plug-ins or what I’d call a “web email client overlay” – you can still use your Yahoo!, Hotmail, Gmail, or other address (your own domain, or a POP or IMAP account), but read the mail through one of these new clients.  Regardless of the technology, these companies are all trying, with different angles here or there, to make the inbox experience more interesting, relevant, productive, and in many cases, tied into your “social graph” and/or third-party web content.

The two big ones here in terms of active user base are Xobni, an Outlook plugin that matches social graph to inbox and produces a lot of interesting stats for its users; and Xoopit, which recently got acquired by Yahoo and wraps content indexing and discovery into its mail client.

Gist matches social graph data and third-party content like feeds and blogs into something that’s a hybrid of plugin and stand-alone web application.  That sounds a little like Threadsy, although that’s still in closed beta, so it’s hard to tell exactly what’s going to surface out of it.  There’s also Zenbe and Kwaga, and Xiant, which focus on creating a more productive inbox experience for power users.

Furthermore, services like OtherInbox and Boxbe aim to help users cut through the clutter of their inboxes and simultaneously create a more effective means for marketers to reach customers (say what you will about that concept, but at least it has a clear revenue model, which some of the other services listed above don’t have).

Finally, a number of services are popping up which give marketers and publishers easy-to-use advanced tools to improve their conversion or add other enhanced functionality to email.  For example, RPost, a company we announced a partnership with a couple months back, provides legal proof of delivery for email with some cool underlying technology.  LiveClicker (also a Return Path partner) provides hosted analytics-enabled email video in lightweight and easy-to-use ways that work in the majority of inboxes.

Sympact (another Return Path partner) dynamically renders content in an email based on factors like time of day and geolocation – so the same email, in the same inbox, will render, for example, Friday’s showtimes for New York when I open it in my office on Friday afternoon but Saturday’s showtimes for San Francisco after I fly out west for the weekend.  And a Belgian company called 8Seconds (you guessed it, another Return Path partner) does on-the-fly multivariate testing of email content in a way that blows away traditional A/B methods.  While these tools require some basic things to be in place to work optimally, like having images on by default or links working, they don’t by and large require special deals with ISPs to make the services function.

While these tools are aimed at marketers, they will also make end users’ email experiences much better by improving relevance or by adding value in other ways.

Some of this makes me wonder whether there’s a trend that will lead to disaggregation of the value chain in consumer email – splitting the front end (what consumers see) from the back end (who runs the mail server).  But that’s probably another topic for another day.  In the meantime, I’ll say three cheers for innovation in the email space.  It’s long overdue and will greatly enrich the environment in the coming years as these services gain adoption.

Playing Offense vs. Playing Defense

I hate playing defense in business.  It doesn’t happen all the time.  But being behind a competitor in terms of feature development, scrambling to do custom work for a large client, or doing an acquisition because you’re getting blocked out of an emerging space – whatever it is, it just feels rotten when it comes up.  It’s someone else dictating your strategy, tactics, and resource allocation; their agenda, not yours.  It’s a scramble.  And when the work is done, it’s hard to feel great about it, even if it’s required and well done.  That said, sometimes you don’t have a choice and have to play defense.

Playing offense, of course, is what it’s all about.  Your terms, your timetable, your innovation or opportunity creation, your smile knowing you’re leading the industry and making others course correct or play catch-up.

This topic of playing defense has come up a few times lately, both at Return Path and at other companies I advise, and my conclusion (other than that “sometimes you just have to bite the bullet”) is that the best thing you can do when you’re behind is to turn a situation from defense into a combination of defense and offense and change the game a little bit.  Here are a few examples:

• You’re about to lose a big customer unless you develop a bunch of custom features ASAP –> use that work as prototype to a broader deployment of the new features across your product set.  Example:  Rumor has it that Groupware was started as a series of custom projects Lotus was doing for one of its big installations of Notes
• Your competitor introduces new sub-features that are of the “arms race” nature (more, more, more!) –> instead of working to get to parity, add new functionality that changes the value proposition of the whole feature set.  Example:  Google Docs doesn’t need to match Microsoft Office feature for feature, as its value proposition is about the cloud
• Your accounting software blows up.  Ugh.  What a pain to have to redo internal system like that – a total time sink.  Use the opportunity to shift from a new version of the same old school installed package you used to run, with dedicated hardware, database, and support costs to a new, sleek, lightweight on-demand package that saves you time and money in the long run

I guess the old adage is true:  The best defense IS, in fact, a good offense.