I’m testing a theory here, the driving question of which is What are the cardinal traits of exceptional software and technology businesses?
The term “exceptional” is as qualitative as it gets. Perhaps we’ll give it more definition as we proceed, but for the time let’s be comfortable with former U.S. Supreme Court Justice Potter Stewart’s threshold test for obscenity: I know it when I see it.
I’m suggesting four criteria and using them as a framework for evaluating various businesses in different stages of development, as early as start-ups and as late as technology that has been retired from companies that have long since moved on. The application for what we learn will resonate most, I think, with young businesses either in their fledgling stages or otherwise still able to mold their cultures and their values.
My early thesis is that the exceptional software and technology companies share some combination of the following traits summarized below in very rough form:
The Exceptional Business Framework
1. Catapulting Innovation.
The exceptional company does not manage its innovation by dribs and drabs. It does not engage its competitors in incremental feature leapfrog whereby one beats the other to market with slight improvements in a software release only to see its foe follow with an equivalent feature in its next release.
The exceptional company defines the field of play with catapulting innovation. These are insights, enhancements, capabilities, or brand new technologies that are so bold as to launch the exceptional business well ahead of the capabilities of its competitors.
The improvements are measured by orders of magnitude over existing solutions rather than incremental advantages in a feature here or a function there. And, once established, the exceptional business has an unflagging dedication to maintaining its wide innovation lead.
2. Finding Blind Spots; Securing Niches; Driving Wedges.
The exceptional company is realistic about how best to compete with the entrenched players in its market. These “legacies” are always better funded, possess better distribution, and have deeper relationships with a broader spectrum of customers. They are strong at their bulwarks and skilled at turning back assaults (that’s why they survived long enough to become legacies).
But they have blind spots – they ALWAYS have blind spots – which often come in the form of neglected products in their portfolios and subsets of customers being ignored.
The exceptional company does not waste its precious early capital attacking well-defended bulwarks.
The exceptional company recognizes opportunity in these blind spots. It exploits them to secure a niche in which it can introduce its products, perfect them, and establish a base of fanatic customer support. And it uses that support as a wedge to drive its products into other parts of the business or other markets.
3. Earning Their Keep.
The exceptional company does not go for premium pricing before the value they provide justifies that premium. And when they err in the value-to-price ratio, they do so on the side of lower price.
This trait acts as a proxy for the culture of the exceptional company. It is defined by humility and openness that spurs a bias towards continual improvement and constant innovation. It earns its keep by demonstrating value that overwhelms expectations before it attempts to charge premium prices.
(This as opposed to the company steeped in arrogance and entitlement; that attempts to get top dollar before it has proved it can deliver enduring benefits.)
The approach to earning its keep also signals that the company is adequately financed; that it possesses sufficient capital to invest in early-adopter customers; that it can afford to offer low prices while introducing its products and ironing out the kinks.
This is a difficult concept to master for young companies managed by entrepreneurs who fancy themselves hard-charging business people. They have a profitability bias, a heuristic that says a company not earning profits immediately has less value than one which does. This bias is often a good thing (profits are not bad!). But when applied too early in the lifecycle of an innovative technology, it can sacrifice the long-term potential of the business for a very short-sighted (and short-lived) profit benefit.
4. Authentic Selling; Salespeople as Ambassadors of the Brand
The exceptional company does not divorce the process of selling its products from the process of designing, developing and otherwise enhancing its products. The two are inextricably wed.
It resists the advice to “grow up.” To hire proven salespeople-cum-mercenaries. To create a siloed professional and highly commissioned sales force motivated by aggressive quarterly targets. To believe that salespeople and engineers must always be at loggerheads with each other; always have opposing missions.
No, the exceptional company understands that those people responsible for sales should be extensions of the mission of the technology. They should understand the end-user’s needs on a deep level. They should empathize with him and champion his cause. They should be eager to participate in the development process and be a persistent voice for the customer.
They should be encouraged (indeed, it should be in their nature) to engage prospects and customers with an air of absolute authenticity that fosters trust, eschewing the stereotypical (but too often realistic) tricks of salesman contrivance and manipulation.
They should be, in short, ambassadors of the brand.
The theory is that exceptional software and technology businesses possess some combination of the traits listed above. In the coming weeks we will test the idea through discussions with entrepreneurs and company leaders, looking both for evidence that demonstrates the theory as well as that which might disprove it or otherwise alter the thesis.
I’m very open to input and feedback, be it approving or critical. Please feel free to contact me directly at firstname.lastname@example.org. Also, if you have suggestions for a person or business that might have an interesting point of view to share, share that lead with me.
We’ll turn next to an interview with Tom Pirelli, an entrepreneur and software innovator who started Enterprise Systems, Inc. in 1981. While he sold his company many years ago, his story is as relevant now as ever.
Enterprise Systems was the first business to bring a viable supply chain software package to hospitals. It was called ESI. I can provide a personal testament to the enduring value of his innovation. As a former sales executive peddling a hospital supply chain system, I went up many a time against Tom’s 25-year-old technology and had frighteningly limited success prying it from the clutches of many a loyal customer.
That feature of an exceptional business is next…