Chapter 9: Leading Your Company

The Art of ‘Ware [version 2.0] by Bruce F. Webster

[Copyright (c) 1995, 2008 by Bruce F. Webster. All rights reserved. Last update: 04/30/08]

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Whatever your title — founder, chief executive officer, president, business unit manager — it’s up to you to provide leadership. That means navigating through the treacherous shoals and shifting currents of the marketplace. You have to set an intelligent, directed, yet flexible course: don’t run the ship in a straight course when upon the rocks, but don’t tack back and forth so often that you never get anywhere.

Through all that, you have to deal with competitors who are after the same customers, the same dollars that you need to meet payroll and pay rent. You’ve got to know how to read their actions (or lack thereof), how to sift and interpret the thousand little bits of data that come from them and from the market in a myriad of ways.

Leadership also means setting the standards and the tone for how things are done and how people are treated within your company. The signs you use to detect problems in other companies are just as valid inside your own.

In his ninth chapter, Sun Tzu talks about how a general needs to deal with terrain, read the enemy, and govern troops. As one Chinese commentator said of a 5th century B.C. general, “His civil virtues endeared him to the people; his martial prowess kept his enemies in awe.” (The Art of War, James Clavell, ed., p. 49). Not a bad model to follow.

When entering the marketplace through niche or vertical markets, don’t cut yourself off from more general use of your products. Start out in a defensible niche market, and be prepared to move into horizontal markets.

A horizontal market is a broad one, cutting across a wide variety of organizations and groups. The word processing market is a horizontal one; word processors are used at work, school, and home.

A vertical market is typically one focused on a given industry: legal, financial services, medical, and government. Specialized word processing systems for documents meeting government specifications is an example of a vertical market.

A niche market is a relatively small market oriented around a set of customer needs and interests, usually a subset of a larger horizontal or vertical market. HTML editors are an example of a niche market.

If you are using niche or vertical markets as a doorway into more general horizontal markets, make sure your technology and products are readily adaptable to broader uses. Aim for a market where you know you can get adoption, and use that as the foundation for spreading into more general use.

This concept was first discussed in great detail in Crossing the Chasm by Geoffrey Moore and has become part of the conventional wisdom. Moore talked about the challenges of spreading out to mainstream customers after having established a beachhead among early adopters.

Be wary of going from a horizontal market into a niche or vertical markets occupied by competitors.

Trying to move a general product into a niche market already occupied by competing specialized products may be a waste of resources. Besides dealing with the problems of customer loyalty and legacy requirements, you’ll also find that your general product can’t provide the special features of the niche products, and that you can’t keep up with the speed of product revision of your competitors. Example: general word processors trying to compete with dedicated HTML editors. How many people seriously use, say, Microsoft Word to create and maintain web sites?

In short, you may be able to do it, but the return investment is low at best, and it may be more trouble than it’s worth.

You have a better chance of adapting a general product for a vertical market, especially if the customers there are interested in compatibility with horizontal markets. Again, the key is whether there are competitors already established.

The worst case is if there are established competitors who have a general product that also fits into the vertical market in question. For example, Microsoft Excel is so dominant as a spreadsheet, even in vertical markets, that any attempt to compete against it is unlikely to succeed.

Don’t drag out a product introduction: move into post-release distribution, press contacts, and advertising as quickly as possible.

There are few things worse than introducing a new product and not having it is readily available to customers. This is an error that Apple has made on several occasions, both pre- and post-Steve Jobs, failing to anticipate the product demand and creating both a huge backlog and a lot of frustrated customers. Be prepared to move products quickly into channels and get it into the hands of customers immediately after ship.

As important is an intense, broad, and coordinated effort to get your product in front of the press. It is amazing (not to mention short-sighted and stupid) that companies that will spend tens of millions or even hundreds of thousands of dollars on advertising suddenly turn cheap and uncooperative when it comes to providing review products to press contacts.

Finally, advertising should be coordinated with product release. Many companies forgo advertising, citing oft-quoted (but seldom documented) studies saying that word-of-mouth is the primary reason customers select or consider a given product. That may be true, but it overlooks one little fact: people don’t talk or ask about products they don’t know about. Distributors and re-sellers are the same way. Advertising builds word of mouth, people don’t know about your product, or they doubt your financial underpinnings.

Don’t attack a competing product before it is released; attack instead just as the product is release, but before it becomes established.

This point can be argued, given the long times between announcement and release that have become common in the industry. Even so, the drawbacks to attacking an unreleased product are several. First, you draw attention to that product, giving the product credibility even though it doesn’t yet exist. Thus, if you mention it at all, it should only be to point out that it doesn’t yet exist. Second, you give the product’s company a chance to reposition the product — or even modify it — so that they can discredit or deflect your attack. Third, you may appear to the market and the industry to be desperate — that you are afraid of a product that hasn’t even shipped.

It is better to wait until the competition has committed itself, both in terms of the product and the markets targeted, then go after the product while it’s still unestablished. That is the point at which the product and company are most vulnerable.

The exception of this rule: if the competition is pre-announcing products in order to freeze customer decisions, then you should aggressively attack them for offering nothing at all. This is the classic “We’re shipping; they’re not” approach.

Be careful about attacking a competing product when the competition is desperate and has no fallback position.

Sun Tzu cautions against attacking an army with a river at its back; likewise, you need to be careful about backing the competition into a corner. In such cases, they will have nothing to lose and may take steps that will damage you, such as starting a price war.

Start out your product at a higher price, then lower the price as necessary; do not come out at a lower price, then expect to be able to raise the price.

Once a retail price has been set, it is difficult to raise it without hurting sales significantly. It is much easier to have a higher retail price initially, then lower it (or at least lower the distributor price) as time goes on.

Some markets (such as computer software) allow and, to an extent, demand a low “introductory” price. This is sometimes masked as an “upgrade” price, good for a specific period of time. This is one of the few cases in which you can later raise your price, but even this is becoming increasingly difficult.

One approach is to have no standard retail price (SRP) at all. That way, you can in theory be as flexible as you want to be. The end result, however, will be even greater downward price pressure.

When trying to create a new product category, don’t position yourself as competing with or replacing other products. Instead, focus on building the market as quickly as possible. If other firms attempt to compete with you, have a plan to redefine your product category so that you can put distance between your product and theirs.

Creating a new product category is difficult enough; the last thing you want to do is directly take on existing products, which, by definition, lie in other categories. Don’t try to replace those products; instead, position yourself as complementing them or as performing a significant task that they don’t handle well. There are two key reasons for this. First, you don’t want the customers to think that they are choosing between you and an existing product; if they think that, then you are failing to establish a new product category. Second, you don’t want to attract the attention of the competition; you have enough to worry about.

As noted, if either the customers or other companies see you as competition, be prepared to redefine the product category to diminish that. Eventually, you will want to expand the market for your competition, but you need to get established first.

As you move into a horizontal market, focus on getting the best market position available. Keep some niche or vertical markets as a fallback position, in case your competitors pressure or overwhelm you.

All fairly straightforward: keep a good foundation while expanding your market. This is especially important because your cash flow almost certainly won’t ramp up as fast as you’d like, even if sales do.

When you discover an unoccupied niche market, position yourself to block competitors and gain revenues from it that will help your efforts elsewhere.

With all the companies out there scrambling for profits, it’s hard to believe that there are still untapped markets. There are, though — they come into being as business, society, technology, and the economy change. Who would have believed back in 2001, for example, that Apple could sell 100 million iPods in 5 1/2 years? But they tend to be found and filled quickly, so if you discover one, you need to move fast.

When economic market or other factors threaten to make product release difficult or expensive, wait if possible until conditions are more favorable.

Depending upon the product and its intended market, there may be various reasons to delay release: waiting for a better time of year, synchronizing with supporting software or hardware, letting the competition make the first move, synchronizing with press and trade show exposure, not enough money for advertising, and so on.

If this is your first or only product, your options may be more limited. You may have to launch anyway and hope for the best. You may have to scale down the company size and burn rate until better conditions appear. You may have to do both. Or you may have to find more money, a partner, or someone interested in acquisition — but, as noted in Chapter 1, this is the worst circumstance under which to raise money or sell out.

Beware of niche markets that offer little return, that have little in common with horizontal markets, or that have significant development or support requirements.

Any one of these three factors — low return on investment, low technology leverage, high development or support requirements — is enough to make a given niche market a waste of resources. Value-added re-sellers (VARs) can often handle these markets better than can actual product companies.

Seek to entice the competition into such markets, then position yourself between them and the broader markets.

Let others spend their resources on those markets, while you better establish your position in the general market.

Be careful when expanding into markets that you don’t understand or with which you have little experience, lest you give away your plans or sales to more experienced competitors without gaining much.

You may have products, technology, or services well suited to the market, but if you don’t understand the market itself, you could lose whatever advantage you have while giving great ideas to the competition.

When the competition tries to pick a fight without directly competing, it’s because they want you to make the first move.

Don’t let the competition taunt you into showing your plans too soon. This can be a hard choice: if the competition raises questions about you in the minds of your potential customers or in the industry press, you may have to respond somehow. In that case, you have to balance customer and press relations with the need not lay out your plans too far ahead of time.

When the market seems too easy to get into, it may be a trap.

There ain’t no such thing as a free lunch. If things are going too well, start asking yourself why no one else has done this up until now. You may have found a pot of gold, but there aren’t many of those; what you may have instead is a tar pit, easy to get into, but hard to get out of.

When customers start delaying or reconsidering evaluations, it’s because the competition is advancing.

It’s a danger signal when your customers’ sales cycles keep dragging out; it means that they are seriously considering alternative solutions. If it’s because you’ve made serious errors, then it’s simply your fault. But if your product is still strong, then the competition must be making inroads somehow, either publicly or privately.

When the competition increases security, it’s because they want to misdirect you.

When sources within the company become quiet, then treat with suspicion the information that does come out.

Press leaks and articles mean the competition is getting ready to release products. A sudden flurry of press releases means product ship is imminent.

There are dozens of publications and scores of journalists who need articles to write. They will publish the information they can get, much of which comes straight from the companies in question; the frequency and prominence of the articles usually corresponds to the imminence of product release. Once the PR agencies start cranking out the press releases, you know that the product is about to ship.

When rumors are detailed, then you know that the competition’s product development is proceeding quickly; when they are vague, then you know that the competition is focusing on general technology.

Technology may be exciting, but details only come as the technology is implemented in products that work. The more detailed the rumors, the more concrete the product.

When developers within the competition change assignments, you know that a new project is starting; when explicit recruiting ads appear in the paper, you know that the project has gained acceptance.

Internal transfers to new projects almost always come first; indeed, many new products start as part-time “skunk works” projects by current employees, usually the best developers. Many such projects die without ever seeing the light of day, so as long as there is no external notice about it, don’t be too concerned.

The key is when help-wanted ads start appearing, asking for engineers and other development types to work on the new technology. At that point, you know the project is serious: both because the competition is willing to spend money to hire new people (no light decision) and because they are willing to publicize the effort. Of course, it may be a misdirection play.

When your competition speaks modestly while continuing full-scale development, they may be getting ready to enter the market aggressively.

Pay attention when the competition downplays their plans in a given area while continuing to spend resources heavily. They wish to lull everyone else while preparing to make a major move.

Blustering words and the appearance of a strong marketing effort may mask an effort to withdraw from a given market segment or to cover up significant problems.

Many companies get the most vocal when they have the most to hide. That’s because they don’t want to jeopardize what sales efforts they have going on, and they don’t want to start a domino effect.

Those who praise your products are seeking a rest from competition.

They may want the customers to see your products and their as being complementary; they may be signaling that they want to talk with you; they may be trying to reposition their products into new markets and/or out of current ones.

Those who talk about strategic alliances without showing good faith are up to no good.

Quick, name three “strategic alliances” in the technology industry that have worked out well for all parties involved. For that matter, name one.

When the competition starts comparing their products against various aspects of yours, they are preparing for direct competition.

The real clue is when the competition mentions you or your products in their ads, on their packaging, or in comments to the press.

When they quickly move a major product into a new market, they expect supporting products to follow shortly.

Few major products or services can stand alone in a new market. They need various supporting products and services, often from other firms. A company making a fast push into a new market either has supporting products and services lined up, or it is in for a rude awakening.

When they release tentative information on products and positioning, they are attempting to lure you into revealing your own plans.

When the competition starts speculating on their future developments, they may be trying to get you to respond, hoping you’ll expose some of your own plans.

When the competition’s employees cut back on personal spending, they are concerned about future paychecks.

When the employees start putting off purchases and delaying repairs, then they have questions about the company’s viability. This applies to your own company as well as to the competition.

When those sent out on field research ask quietly about jobs elsewhere, they are concerned about their current positions.

If employees are sounding out the job market, they have reasons to leave the company: pay, opportunity, stability, future.

When consultants and VARs start making money in a given market segment, it is because your competition is withdrawing from that segment.

Consultants and VARs usually step in to help customers convert legacy files and shrinkwrap applications over to support new replacement applications, which may be custom or commercial. For example, an entire industry arose for a while to help convert Wang word processor files to WordStar, WordPerfect, or whatever other format was needed; then software arose to convert files from those formats to Microsoft Word.

When there are negative leaks about the competition in the press, it means that employees there are unhappy with company direction.

Happy employees seldom leak unfavorable information to the press, but beware of unhappy ones, particularly developers and engineers. As Robert X. Cringely has noted, they are the ones most likely to be unhappy with management policy and direction, and the ones most likely to let columnists like Cringely know. The advent of anonymous mail routers on the Internet makes this a safe form of expression.

When internal disputes become public, it means the CEO’s authority is weakening.

The more visible the power plays and arguments within a company, the less control and authority the CEO has or is able to exercise effectively.

When there is constant reorganization, the company is in disarray.

Reorganization means that the company structure does not function properly for the problems facing it. Constant reorganization means that no one knows how to solve the problems facing the company. For many years it was Apple that seem to reorganize itself annually; now it’s Microsoft.

When company officials show anger or frustration in public, they are becoming exhausted.

Public composure is a good test of emotional strength and security. When internal and external challenges become overwhelming, that composure starts to slip during public appearances, especially press conferences and question-and-answer (Q&A) sessions.

When they splurge on advertising and promotions, hand out bonuses, cut margins, and stop supporting older products, they are desperate.

The company recognizes that it’s in trouble, and it’s taking various extreme measures to hold onto employees, to win (or keep) customers, and to turn things around.

When there are internal rumors, hallway whisperings, and lackluster efforts, it means the employees have lost confidence in the CEO.

When the employees have confidence in the CEO, they can bear up under stress and adversity, and they focus on what advances the company. When they lack confidence in the CEO’s ability to lead and manage the company, then everything seems difficult, and they focus on their own needs and wants.

Large bonuses and perks among the rank and file indicate that the company leaders are having a hard time keeping employees and getting projects completed.

As managers and developers start to leave, those left behind get offered large sums and nice benefits to entice them to stay. This is especially true when a project is in serious trouble and those working on it have become discouraged.

Firing and demotions mean that discipline has been lax and employees no longer follow the leaders.

These moves indicate either a failure to achieve or an unwillingness to follow.

If company leaders are harsh at first, then later try to appease or win the favor of the employees, they’ve taken the worst possible approach.

By such a course, you will get neither discipline nor enthusiasm; employees will distrust and disrespect you.

When the competition’s morale is high, yet they neither move against nor withdraw from the market, find out what’s going on.

They know something significant is about to happen, but they don’t want you to know about it — therefore, you must find out.

The key is to focus your resources, watch your competitors carefully, and hire the right people.

Given, of course, that you have a product that can succeed.

Your developers prefer product quality over shoddiness and product recognition to obscurity. Seek for product excellence and you will keep your developers happy and productive, helping you to achieve success.

Developers want to have pride in what they produce, and that is best satisfied by a visible, successful product of high quality. When developers are asked to deliberately cut corners on quality, they start to look for work elsewhere.

If you push employees hard without first gaining their support, they won’t deliver what you ask.

They will find ways — consciously and unconsciously — to undermine your efforts, and they will try to either drive you out or leave when they have a better opportunity. In any case, they will tend to follow their own goals, instead of working with you on shared goals.

If you fail to make your employees accountable after gaining their support, they won’t deliver what you need.

Support is not enough; they must realize that they will be held responsible for achieving what is necessary. That which gets measured, gets accomplished.

Thus, you must first gain loyalty, then you must hold your employees accountable for what the company requires; this way you can succeed.

This is the proper order, because if they are loyal and supportive, they will want to be accountable and therefore will put forth the effort to achieve.

If wise policies and directives are consistently enforced, employees will be satisfied.

Two key words here: “wise” and “consistent”. For some unfathomable reason, CEOs and senior managers often lose sight of the fact that they are dealing with grown-ups who will immediately recognize foolish or arbitrary policies. At best, you will lose their respect and confidence; at worst, you will lose them to the competition.

Leadership must be both internal and external. You must place equal value on internal direction and external strategy. Neglecting one will open the door for failure, no matter how well you perform on the other.