Not-so-Counter Cliche: Forecast Early and Often
Not-so-Counter Cliche: Forecast Early and Often
There’s no "counter" in this week’s counter cliche, although this is a cross-post to two of Fred’s recent postings. In his VC Cliche of the Week, he talks about the need for early-stage companies to forecast often, and he was nice enough to cite Return Path as his case study. I thought I’d give some color on this from our perspective here.
Forecasting is a pain, so we adopted the model of as 12-month rolling forecast with quarterly reforecasts (and correspondingly quarterly incentive comp structures) out of necessity. For early stage companies in emerging industries, there are simply too many moving parts in the business to provide enough visibility to produce an accurate 12-month budget. There are really four factors at work here:
– Investment: you make investment decisions every day in the business, and you can get pretty good over the years at predicting the return on the investment, but predicting the timing of the return can be very difficult. Products "ship" late, customer seasonality can factor in, marketing campaigns can take longer to pay back than you expect.
– Competition: you have by definition even less of an idea what competitors will do, or for that matter, when new competitors will arrive on the scene. Any competitive activity can impact pricing and lengthen sales cycles in ways that are hard to predict.
– M&A: any acquisition you make throws the entire budget into chaos both on the revenue side and the cost side.
– Recurring revenue: for any business that has a recurring revenue model, missing your numbers in a given month or quarter makes it nearly impossible to get back on track for the rest of the year since next quarter’s number depend on making this quarter’s numbers. This is what Fred calls the New York Jets syndrome – once you lose 7 games, you know you’re not getting into the playoffs.
So forecasting early and often is a great solution to this problem, and it’s a particularly effective tool to keep the team motivated. And there’s no shame in doing this. Even large public companies consistently set new guidance to Wall Street at the end of every quarter for the following quarter and remainder of the year. But it is a little bit of a pain, so I’d recommend that CEOs and CFOs who want to adopt this model follow a few practices we’ve learned over the years:
– Make sure you have an incredibly flexible Excel model that supports the process. You can’t reinvent the model four times per year. It has to be able to handle multiple scenarios with easy-to-use toggles, and it has to be able to accept "actuals" as well as forecasts (see note on comparisons below).
– Manage expectations properly with the Board and with the team. As long as everyone knows what the process is, you can avoid a lot of confusion. The critical thing here is that neither constituency should feel like the system is being gamed or that numbers are being sandbagged.
– Compare to originals. Our model produces "waterfall" comparison charts showing how a given quarter’s forecast changed over the quarters leading up to it, and then how the forecasts compared to actuals. This is important mostly to produce learnings about how to forecast better in the future.
– Plan to work your way out of the process over time. Do quarterly budgets for a year or two, then move to semi-annual budgets for a couple of years, then try moving to full-year budgets.
I think it was unintentional on his part, but Fred’s other posting today, about M&A in the Internet space, is also relevant to this topic. It’s worth looking at the graphs in the original posting, but the basic point is that the preponderance of Internet companies either get acquired early on in their life (e.g., for less than $50mm) or once they have achieved escape velocity (e.g., for more than $500mm). He says that the space in between, or "the valley" on his chart, is where a lot of solid VC-backed companies sit and where good solid returns are made. I’d just add to it that "the valley" is exactly where it’s critical to forecast early and often, as that’s where businesses are working their hardest to grow from proof of concept to escape velocity, often with limited visibility 12 months out on their budget.
VC Wisdom du Jour
VC Wisdom du Jour
Two good ones today:
1. Brad on what makes a great Board meeting (hint: it’s not going through the materials you send out ahead of time).
2. Jeff Nolan/Dispatches on 10 questions to ask a VC. Remember, when you’re raising money, you must do active due diligence on your prospective investors, not just the other way around. These questions are a good guide.
Agile Marketing
Agile Marketing
As I wrote about last week, Return Path has been using the Agile Development methodology and Rally Software as our product development framework for about a year now. It’s worked so well for us, that the concepts, and even the tools, have started to spread virally to other parts of our business.
About two months ago, I took over our marketing department as interim CMO. Our marketing efforts have become increasingly complex in the last year or so as we’ve grown and added multiple new product lines, and as a result, the demands on our relatively small department were becoming unmanageable. As I wrote about a couple years ago, Marketing is like French Fries — you can always consume just a little bit more of it — and we were really feeling the strain on our marketing team.
As I thought about the challenges that faced our marketing efforts, they reminded me a lot of the challenges that faced our product development efforts before we implemented Agile/Rally for those teams. Multiple external and internal stakeholders with competing priorities. Poor communication. Needing to be nimble and agile in a process that has some inherent long lead-time items.
So we tried an experiment — we tried implementing Agile Marketing. We have learned a lot in the past couple of months and have adapted the processes a little bit to the needs of marketing, but our marketing planning, execution, and feedback cycles now look an awful lot like our engineering ones. After one week struggling with an Excel spreadsheet, macros, and conditional formatting, we even decided to try using Rally to run our process, even though some if its terms and functionality are really designed for software development.
We now plan marketing in six-week “releases,” each of which has 1-2 core themes and a planning session up front with our head of sales and business GMs. Each release has two, three-week “iterations” where we do mid-course corrections and track our marketing team members’ utilization on projects very deliberately in Rally. Stakeholders can always go into Rally at any time and enter a “feature request” for a new marketing project, which we will schedule in at the next iteration. The marketing team has a daily stand-up to review progress and identify roadblocks. And we still have enough slack in the system that we can handle a couple of last-minute opportunistic items (love those French Fries) which invariably come up.
So far, so good. Our marketing team has a much more solid plan of attack for its work, and we have been able to regain control of our marketing agenda, getting input and feedback from stakeholders to help shape it along the way. Cross-group communication and transparency are way up, productivity is up, noise and friction are down.
It’s not perfect, but it’s a pretty good system, and we’ll continue to refine it along the way. But it’s catching on…last time I checked, a third group at Return Path was about to dive in and try it as well — Agile Sales Operations and Business Analytics, here we come!
Book Short: Great Marketing Checklists
Book Short:Â Great Marketing Checklists
Trade Show and Event Marketing: Plan, Promote, and Profit, by our direct marketing colleague Ruth Stevens, is hardly a page-turner, but it is a great read and well worth the money for anyone in your B2B marketing department. That’s true as much for the event marketing specialist as the marketing generalist.
The author brings a very ROI-focused approach to planning and executing events – whether big trade shows or smaller corporate events, which are becoming increasingly popular in recent years for cost, focus, and control reasons. But beyond events, the book has a number of excellent checklists that are more general for marketers that I found quite useful both as a reminder of things we should be doing at Return Path as well as ways we should be thinking about the different elements of our B2B marketing mix.
Some of the best tables and charts include: strengths, weaknesses, and best applications of trade shows vs. corporate events; comparative analysis of marketing tools by channel (this was great – talks about best applications for all major tools from events to newsletters to search to inside sales); 12-month exhibitor timeline for trade shows; a great riff on bad booth signage vs. good booth signage (hint: don’t make the visitor do the work – be obvious!); business event strategic planning grid; pre-show campaign and post-show follow-up checklists; dos, don’ts and options for corporate events; a great section on qualifying and handling leads that extends well beyond trade shows; and several good case studies that are show-focused.
Thanks to Ruth herself for an autographed copy! Team Marketing and sales leaders at Return Path – your copies are on the way.
The Rumors of Email’s Demise Have Been Greatly Exaggerated, Part V
The Rumors of Email’s Demise Have Been Greatly Exaggerated, Part V
Thank goodness I can finally write a positive piece under this headline, and not a rebuttal like I did here, here, here, and here.
It seems like there are signs of an email marketing renaissance left, right, and center these days. First, the industry has enjoyed significant growth this year. Every vendor I speak with in the space except for one or two is posting record numbers — whether they sell data, technology, or services. And lots of vendors have been swallowed up by larger multi-channel CRM or DM companies for nice prices. Every marketer or publisher I speak with is investing more money into their email programs, and they are seeing stellar returns. In fact, their most persistent complaint is that they can’t get enough good names on their lists fast enough.
But beyond those signs, the much-maligned email channel has finally garnered some positive press of late. First, as, Ellen Byron wrote on November 23 in her Wall Street Journal article entitled “Email Ads Grow Up – Department Stores Discover Devoted Fashion Fans Read Messages in Their Inboxes,” consumers are beginning to much more easily separate spam from commercial email they want, one consumer even going so far as to call emails she receives from retailers “like a quick shopping trip…a guilty pleasure.”
Byron also went on to quantify what some mailers are doing to tilt the balance of their marketing spend ever so slightly in the direction of email. For example, The Gap is diverting over $26mm that they spent last holiday season on TV towards online and magazine. And analysts point out that no matter how much marketers spend on their email programs, it’s still a small fraction of what it costs to create and insert a big print or broadcast spot. I couldn’t even find the full article to link to, but it wouldn’t matter, as you have to be a Journal subscriber to read it (annoying).
And today, email industry guru Bill McCloskey wrote an admittedly self/industry-serving piece about how he is seeing the signs of this email renaissance moving into 2006 as well, starting with the fact that trade associations like the ESPC and the DMA are doing more to step up to the plate in terms of defending and promoting the email channel with the press and consumers. He also cites the fact that consumers are getting more used to spam and mentally separating out good email from bad email as a reason for the comeback. Bill even goes so far as to say that “email will surpass search in the battle for marketers’ hearts and minds.” The full article is here, but warning again, you have to be a Mediapost subscriber to read it (free but still annoying).
It’s nice to see the media tide turning here towards a more rational, balanced position on email. It’s not just about spam and scams — it’s about the power, customization, and intimacy of the channel!
links for 2006-06-16
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Brad tipped me off to this article — it’s a good one and draws on a lot of the work and thinking done by Jim Collins in both Good to Great and Built to Last (links to both books on my blog in the books sidebar).
Book Short: Fables and Morals
Book Short:Â Fables and Morals
Courtesy of my colleague Stephanie Miller, I had a quick holiday read of Aesop & The CEO: Powerful Business Lessons from Aesop and America’s Best Leaders, by David Noonan, which I enjoyed. The book was similar in some ways to Squirrel, Inc., which I recently posted about, in that it makes its points by allegory and example (and not that it’s relevant, but that it relies on animals to make its points).
Noonan takes a couple dozen of Aesop’s ancient Greek fables and groups them in to categories like Rewards & Incentives, Management & Leadership, Strategy, HR, Marketing, and Negotiations & Alliances – and for each one, he gives modern-day management examples of the lessons.
For example, in the Wolf in Sheep’s Clothing, the lesson clearly is to strike while the iron is hot, or that a good plan executed today is better than a perfect one that’s too late. Noonan gives the example of Patton’s capture of Messina, Sicily during World War II.
And in The Hare & The Tortoise, where of course the moral is that slow & steady wins the race, Noonan gives the example of how New York Knicks coach Rick Pitino inspired Mark Jackson, who was chosen 18th in the NBA draft, to win the rookie of the year award in 1987 by helping him gain confidence by building on his strengths.
All in, a good read, even with that painful reminder that the Knicks used to have a decent basketball team.
Counter Cliche: Head Lemming
Counter Cliche:Â Head Lemming
Fred’s VC Cliche of the Week last week was that leadership is figuring out where everyone is going and then getting in front of them and saying “follow me.” While it’s certainly true that juming out in front of a well-organized, rapidly moving parade and becoming the grand marshal (or maybe the baton twirly person) is one path to successful leadership, CEOs do have to be careful about selecting the right parade to jump in front of for two reasons.
First, just because lots of people are going in a specific direction doesn’t mean it’s right. There’s nothing good about ending up as the Head Lemming. It just means you go over the cliff before the rest of the troops. Lots of smart people thought home delivery of a stick of gum made sense and was worth investing in, but it certainly put a kink in George Shaheen’s career.
Second, even if the parade is a good one, the organization you run might not be best equipped to take advantage of it. Again, you find yourself in the undesirable position of being the Head Lemming. Gerry Levin and Steve Case fell in love with convergence story (one of the biggest parades of the last 10 years), but in the end, Time Warner and AOL just couldn’t cope with the merger. Neither Gerry nor Steve survived the merger.
So if you’re going to follow the VC cliche and jump out in front of a crowd to lead it, make sure you select your crowd carefully.
Doing its Part
Doing its Part
Fred had a good posting on spam today, riffing on a New York Times article that is very “doom and gloom” on spam and how it’s taking over the world. I’ll buy the Times’ argument that there’s an increasing amount of spam out there these days, but as with Fred, I still maintain, as I did in this earlier posting, that we’re out of crisis mode and are on the path to resolution as improved filtering technology and false-positive identification services trickle down to broader usage.
What I think is interesting, though is the amount of criticism that the CAN-SPAM legislation is getting, including in this article from the Times. It’s not a perfect law — what law, exactly, is perfect? — but it’s starting to do its part. People in the industry joke that CAN-SPAM means “you can spam,” meaning that the law makes it easier for people to spam legally.
But the reality is that you can’t regulate something until you’ve legalized it, and CAN-SPAM is a good first step in the process. In the Times article is yet another example of how the legislation is starting to work — Microsoft’s latest law suit (one of many filed by Microsoft and others in the past 12 months) against a known spammer.
No one ever said solving the spam problem was going to be easy. And no one ever thought there would be any silver bullet — certainly not a legislative one! But I argue that CAN-SPAM is doing its part through the enforcement mechanism if nothing else. And while I certainly hope the next step in the legislation around spam IS NOT a do-not email list, I do hope that there is a successor piece of legislation after another 6-12 months of observing the spam situation and the impact, strengths, and weaknesses of CAN-SPAM.
In the meantime, let’s use the tools at our disposal and keep suing spammers…as well as working on industry-based solutions to spam that bring the problem further under control, from filters to authentication to reputation to accreditation.
What a View, Part II
What a View, Part II
In Part I, I talked about how Return Path’s 360 reviews have become a central part of our company’s human capital strategy over the past five years. While most staff members’ reviews have been done for weeks or months now, I just finished up the final portion of my own review, which I think is worth sharing.
I always include my Board in my own 360. My process is as follows:
1. I send the Board all the raw (and summarized) data from the staff reviews of me, both quantitative and qualitative.
2. I send the Board a list of questions to think about in terms of their view of my performance (see below).
3. I have a third party moderator, in my case a great OD consultant/executive coach that I work with, Marc Maltz from Triad Consulting, meet with the Board (without me present) for 1-2 hours to moderate a discussion of these questions.
4. The moderator summarizes the conversation and helps me marry the feedback from the Board with the feedback from my team.
The questions I ask them to consider are different from the question my staff answers about me, because the relationship and perspective are different. For each question, I also summarize what their collective response was the prior year to refresh their memory.
1. Staff management/leadership: How effective am I at building and maintaining a strong, focused, cohesive team? Do I have the right people in the right roles at the senior staff level?
2. Resource allocation: Do I do a good enough job balancing among competing priorities internally? Are costs adequately managed?
3. Strategy: Did you feel like last year’s strategy session was thorough enough? Do you think we’re on target with what we’re doing? Am I doing a good enough job managing to it while being nimble enough to respond to the market?
4. Execution: How do I and the team execute vs. plan? What do you think I could be doing to make sure the organization executes better?
5. Board management/investor relations: Do you think our board is effective and engaged? Have I played enough of a role in leading the group? Do you as a director feel like you’re contributing all you can contribute? Do I strike the right balance between asking and telling? Are communications clear enough and regular enough?
6. Please comment on how I have handled some of the major issues in the past 12 months (with a listing of critical incidents).
The feedback I got is incredibly valuable, and once I marry it with the feedback I got from my staff, I will have my own killer development plan for the next 12-24 months.
Why Publishing Will Never Be the Same, Part II
Why Publishing Will Never Be the Same, Part II
In Part I of this series, I talked about our experience at Return Path publishing a book back in January through a new type of print-on-demand, or self-publishing house called iUniverse and why I thought the publishing industry was in for a long, slow decline unless it changes its ways.
We had another interesting experience with iUniverse more recently that reinforces this point. It turns out, although iUniverse is mainly a “self publisher,” they also have a traditional publishing model called their Star Program, which includes an editorial review process. The good news for us is that they contacted us and said they liked our book so much, and sales are strong enough, that they’ve given it an Editors’ Choice and Readers’ Choice notation and they want to put it in the Star Program. That was very exciting! I mean, who doesn’t want to be a star? The bad news is that the traditional model isn’t particularly compelling. This is the deal they’ve offered:
– A 3-year exclusive for them (our current contract is non-exclusive)
– Diminished control over the IP
– Diminished royalties
– iUniverse would re-publish the book, which means (a) it would become unavailable for 6 months before the re-launch, (b) they would give it a new cover and re-edit the book, (c) we could revise the content if we want, and (d) they’d have control over all final decisions around the editorial and cover
– iUniverse would do more active marketing of the book
Ok, so this could be a compelling deal, if the “more active marketing” was really going to move the needle for us. So we asked more about what that gets us. The answer:
– Sending the book out for reviews (we did this within our industry but certainly not by broader business press, although we probably could do so on our own)
– Setting up book signing events (hard to imagine this is interesting for a business how-to book like this)
– Setting up interview or radio appearances (again, we did this in-industry but not broader)
– Introducing us to the buyer from Barnes & Noble retail stores (success rate unknown – too early to tell in the program’s life)
The folks at iUniverse had no idea what we could even project in terms of increased sales from these activities. When we pushed on this a little bit more on the tangible benefits of marketing, their end comment was “the most successful books are the ones where the authors are out actively promoting them.”
We haven’t made a decision on this one yet. Their support is probably valuable on balance, the change in royalty structure isn’t material, and assuming we could carve out the IP issues to our satisfaction, it could be a good way to issue a second edition with less cost. The in-store presence is really the wild card that could really tip the scales.
But the lure of legitimacy (e.g., someone else published it with an editorial review process, we didn’t just pay to play) is the biggest thing in iUniverse’s favor on this one, and that’s what I have to imagine will decrease over time for the publishing industry as it becomes easier and easier for individuals to publish content, market it, and establish credibility by having other individuals rate and review it.
Thanks to my colleague Tami Forman for her assistance on these postings (and for managing the book project!). Tami is too modest to tell anyone, but she is a wonderful writer and has a blog that she updates not nearly often enough on food — she used to be the food editor for iVillage.