There is no greater impediment to the advancement of knowledge than the ambiguity of words. Thomas Reid
Photo credit: Gerard Stolk (vers Noel)
The trouble with most of us who speak in the English language is that we assume that people actually understand what we are saying. This last semester, as I set out to teach a course on International Marketing, I happened to ask the class casually, “How many of you understand the difference between marketing & sales?” The faces, more than the raised hands, clearly communicated the confusion over the two. So as I set out to clarify the difference, I learned a thing or two and reckoned I’ll share that with you.
Let’s get the basics out of the way. And in the interest of not reinventing the wheel, I’ll share what I reckoned was a good definition from Diffen.com.As they summarize it
Marketing The goal is to generate awareness and interest in the product/service and create leads or prospects, by influencing the perception and behavior of the target customer group.
Selling is focused on converting prospects to actual paying customers. Sales involve directly interacting with the prospects to persuade them to purchase the product.
This means the activities done by marketing and sales can be quite distinct
consumer research to identify the needs of the customers
product development – designing innovative products to meet existing or latent needs
advertisingand digital marketing the products to raise awareness and build the brand.
pricing products and services to maximize long-term revenue.
focused on converting prospects to actual paying customers. Sales involve directly interacting with the prospects to persuade them to purchase the product.
So far so good. Now that we are clear about definitions, does this help us figure out when does your business require marketing (or sales) and how much of it does it require? As we set out to answer this for some examples, I realized that there was some nuance to this, especially when it came to a matter of
target customers – are yours’ consumers or other businesses
sales channels – do you sell direct or through channels
Of course, neither of the above is an either/or answer. You could have both consumer and business sales (think airlines, catering or training classes) and could be both direct or channel (advertising, over-the-counter medications).
While the role of marketing remains building awareness and generating demand – its relative contribution and nature of activities depend on which of these combinations your business falls into. With the rise of internet and e-commerce, certain categories of consumer-targeted businesses can operate without any sales force at all. Similarly, business-focused sales channels, which are businesses themselves such as aggregators or distributors, rely primarily on the marketing of their principals to drive demand. Even these folks have to market themselves to stand out from their competition.
Here’s a useful framework (and some examples) to think about this. What is the product or service you are selling and to whom are you selling it and how will you sell it to them? And what marketing will be directed towards whom? And what sorts of sales activities and personnel will you need to meet your goals?
Here are two different examples of companies that sell primarily to consumers (airlines, cars) or businesses (Facebook ads) and what they do for sales & marketing. Of course, all these businesses serve both consumers and businesses to varying degrees.
I’d love to hear how this looks for your business. Happy hunting.
WHAT: I’d like to quit my job – I’m sick and tired of it and want to do a startup.
BUT, how will I let my family/wife/significant other, know? The thought of having to convince stakeholders, especially if they are family – who we fear will not be receptive or supportive – puts the kibosh on even making the decision.
So step back and recognize the WHAT of a decision is the most important – and neither the WHEN will I implement the decision nor HOW will I implement the decision should come into play, while trying to make a decision. Of course, they are relevant such as
WHAT: I want to fire that guy who’s being a jerk to everyone else
HOW: Talk to him, if necessary with HR present. Ask him questions on how he perceives his own behavior. Provide him feedback on what you’ve observed. Put him on a 90-day improvement plan.
WHEN: By June 30th of this year
As you can see the HOW may require a fair amount of work – may involve others and will definitely influence the WHEN. None of this should put off making your decision – WHAT it is you want to do.
I’ll admit playing Monday morning quarterback is easy. Yet the PR fiasco of how United (and it’s CEO) handled communication with its customers, employees and the world at large, could have been avoided with a touch of personal authenticity and a little faster. And the White House spokesperson Sean Spicer’s own travails could have been averted, with a little more care, and just taking some additional time before hitting the SEND button. (For those who missed it, three separate clarifications – stated, re-stated, re-re-stated, within a matter of minutes before a full-blown apology on cable television)
So what lessons can we draw as leaders and communicators
How would you act if this happened in person? If someone tripped over your leg or you happened to push them at the post office or at a crosswalk? Despite the litigious society we live in, most reasonable folks would inquire after the other party, “Are you alright?” Covering for the company or your own rear with corporate speak such as “I apologize for having for having to re-accommodate these customers,” and then blaming the victim “…he refused and became more and more disruptive and belligerent” are both neither good nor smart.
United’s CEO finally a full day later made this statement, “I deeply apologize to the customer forcibly removed and to all the customers aboard. No one should ever be mistreated this way.” What a difference offering such an apology front would have made! In many ways, Sean Spicer’s apology at the end of a relatively disastrous day in which he made comparisons between the Assad regime and Hitler, was a good example of a timely and unequivocal apology. Unfortunately, in his case, his past flubs and history of misstatements likely undercut what otherwise appeared to be both genuine and textbook case of public contrition.
As earlier attempts at clarification by both United’s CEO and the White House spokesperson demonstrated, little thought or deliberation seemed to have gone into their response. In Spicer’s case within 30 minutes, he sent three clarifications on what he had attempted to communicate with his Hitler comparison, with each further muddying waters. This was a clear case of not stepping back before hitting the SEND key. Deliberation does not mean delay or not timely – it primarily means the application of your mind – invariably it means not doing things as a reaction or in the throes of strong emotion.
In summary, acting in a Timely manner, while staying Authentic and being Deliberate in our actions is important for our communications to be effective. Think TAD!
Culture in organizations has been a favorite topic of mine for many years. The recent discussions of harassment in Uber and Thinkx or the management style of the Trump Organization are all rooted in the underlying culture of these organizations. Most organizations have a vision, mission and even set of values identified – and even displayed in public place. Yet, like many of our own new year resolutions, shall we say, there’s often a gap between what’s stated and intended and the reality employees, customers, and partners experience. So how you build the culture you seek in your organization through a set of values.
Dan Rockwell (aka Leadership Freak) whom I’ve followed religiously for several years now, shows a simple yet effective way to put your values into practice. Such a practice will help you build the culture you seek. Here’s the bulletized version of Dan’s method (I’d call it the 3As) that he discusses in the video below.
Articulate your value
Act on that value – such as in a specific behavior
Applaud the behavior – recognize and highlight when people act on it
This is a question that comes up with surprising frequency. It’s not just prospective entrepreneurs who ask such questions.
“Should I fire him?” is another one I get asked frequently. This is often with a high-performing but a hard-to-get-along employee.
As leaders, managers, and individuals we are constantly having to make decisions. Decisions, that all too often don’t seem easy to make. They may have too high a cost – one that makes it daunting, even if it’s a simple Yes or No decision. Some would argue there are no simple decisions, especially when it comes to matters of people or organizations. And when a decision is hard to make, we invariably postpone it.
Rarely does such procrastination make things easier.
One simple secret to make such decision-making easier, is to separate the what from the when.
Most people, conflate what they intend to do (“the decision”) with when they will implement the decision. In other words, if you decide to quit your job, when do you have to give notice? The thought of giving notice, is itself daunting and keeps you from making a decision about your job. The moment you recognize that these are two distinct things – “Should you quit?” and “When should you quit?” – you will find it easier to make the decision about your job.This works from the simplest “Do we go on a vacation?” to “Do we fire this customer.”
Try it today and let me know how it works for you.
This morning I read Om Malik’s piece on DropBox and how they’ve become the company to achieve a billion dollar run rate in the shortest time – 9 yep, nine years!
The Internet might have hastened the pace of our world. The network has turbocharged growth and expansion. However, it looks that growing into business still indexes at human scale.
In the early naughts, when we’d meet venture capitalists, who’d ask “How will you become a billion-dollar business?” (my answer usually was we wouldn’t) and subsequently, when I heard young entrepreneurs pitch business plans, I’d often point out to them that average software product company takes 7-8 years to get to $50M in revenue. Yep 50M in run rate.
So if DropBox was able to get to 1 Billion in the same time, does that mean the clock has gotten faster? The two operative words here are unicorn and average – an even more important word might be run rate!
One way I’ve always thought about it, is despite all the advances in medicine, having a baby still takes – give or take – 9 months. A business in many ways, especially one that lasts, takes time nearer a decade to get to a significant size, on average!
Well, my email subject line actually read “Looking for advice/help.”
I’d just found out that I’ll be teaching a course on International Marketing (yay!) this coming semester. Once my initial euphoria died, I realized teaching a semester-long (14 weeks) course to a class of 21-year-olds was not something to be taken lightly. Hence the call for help to buddies of mine, who’s been molding young minds for more than two decades. The advice I got ranged from, “Oh, you’ll do great!” (fat lot of good that did) to a 90-minute primer on what teaching a course meant. As always I took profuse notes as my friends waxed.
When I went through my notes, one thing struck me – how much teaching a class well, required some of the same skills that any good leader (or startup founder) would need. So if I replaced the words “teaching” with “leadership” the advice was just as useful.
Here’s a quick summary of them.
Discover your leadership philosophy It’s important to understand and more importantly articulate both to yourself and your teams, what your leadership philosophy is. This isn’t as much what is right – Servant leadership or Leadership secrets of Attila the Hun – as much as knowing what works for you best and sharing it. If nothing else, answer for yourself, why are you a leader and how you plan to go about accomplishing this?
Understand your personal style Even leaders who share a common philosophy of leadership can have widely varying personal styles. My own personal style, regardless of the role I play in a team, is one of action – despite my oft-stated intent otherwise. I have seen folks who have a directive even aggressive style be just as successful as those who tend to ask questions and nudge. Recognizing your personal style and how it fits in with your leadership philosophy is important to help your team and yourself succeed.
State your expectations It’s important to articulate what you as a leader expect from your team. Whether what needs to get done, or how it needs to get done, stating this will save everyone a lot of grief. The more explicit and specific you are in articulating your expectations, the more likely they will be met. This is especially important when you take over as the leader of a new project, team or company.
Build on your strengths & share your experience As Peter Drucker put it “Make strength productive.” Building on your own strengths and sharing your past experience would help you be more successful and will give your team a sense of where you’ve been and lend credibility to your inputs. You need to balance sharing your experience against a tiresome telling of war stories.
Recognize people are different A team, whether it’s one you inherit or build, will likely consist of people who are widely different, in aspirations, attitudes, capabilities and working styles. If you have a large enough team, you’ll see something that approaches a Gaussian distribution – even in small teams, especially ones that you inherit, you will see a spectrum of personalities. Recognize this and keep the old adage Different Strokes for Different Folks in mind. You are less likely stumble and get frustrated.
I’d love to hear what your own experience has been both as a teacher and a leader.
Haven’t you found yourself wondering this in more than one situation? In my experience, the single most critical skill that leaders in general and startup founders in particular need is that of being a good communicator. While most of us find it easy to talk and some of us may actually listen, it doesn’t make us a good communicator.
How many of the meetings you attend seem not only interminable but often indecipherable? If this were a problem with just meetings, you could excuse yourself and read the meeting minutes. But alas meeting minutes, like many emails or other forms of written communication seem to only add to the confusion.
“What is this person trying to tell me?”
All of us are just as guilty as we dash off memos, texts, and presentations, sowing confusion at best and mayhem at worst. Here are three steps to help us communicate better. Try them and let me know how they work for you.
Single central message Whether a 3-line email or a 6-page white paper, your communication should have a SINGLE central message – what our English composition teachers tried to tell us – the theme sentence! This answers the question “What is this person trying to tell me?” So whether it’s the personal — “You need to spend less money on eating out” (that’s to my daughter), “We need to re-do the In-app Purchase (IAP) in this game (the professional)” or “We need to ensure ________ is not elected this year” (the national) or “We need a new nuclear disarmament treaty (the global) we need to communicate a single central message and no more in each of our communications.
Short as possible but long as needed This is one I’m yet to master and often undermines my own communication effectiveness. Even when I have a single central message if I wrap it with too many words, my message is lost. This could be emotional content (especially with my daughters), or excess justification (social or business context) or plain verbosity. Yet, in a corporate context, major changes require context setting, such as environmental factors at play, why this course of action and options considered – alternates considered and discarded and potential outcomes of actions taken or not. So the 3-sentence email one of my friends insists on writing may not always do the job, but ask yourself, does your presentation require 48 pages or can you say it any shorter?
Choose your medium carefully Sure writing email is easy – heck texting someone is even easier. But just as most folks agree, breaking up with your girlfriend (or significant other) over text is not cool, there is such a thing as an appropriate medium for any given communication. I’d say easier a missive is to send, the more likely it’s to sow confusion. Sure there are exceptions, but in general, it’s a good idea, to take a moment, before you send that text or email, to ask yourself, is this the best medium to communicate this message. I find often after having written a draft email, that picking up the phone or walking down the corridor to talk to the person a much more effective way to communicate. Similarly, even when presenting to a group of folks, few words on a slide or a graph to accompany your verbal communication or a handout might be more effective.
In summary, these 3 steps will help us take the first steps to being better communicators
What is my single central message?
Am I saying it as concisely as possible with adequate context?
What is the best medium to communicate this in?
An earlier draft of this article appeared in LinkedIn
“Why don’t you tell me what you know about placement in EDA?”
The questions started easily enough. My interviewer, Brent Gregory was this lanky gentleman with a very easy air about him. His soft voice and pleasant manner belied the incisiveness with which the questions came. Within five minutes, maybe sooner, he’d established the limits of my knowledge on the subject of electronic design automation. More importantly, he’d made me truly aware of what things I had clarity on and what I merely knew of.
The next fifty-five minutes were spent in educating me, on what it is his team was attempting to build and answering questions that I had. Here I was, having worked for over twelve years at that time in two countries – in a billion-dollar tech firm and in two startups– selling to other tech businesses across Europe, Israel, Japan and the US. Yet Brent Gregory in under five minutes had established the limits of what I knew – certainly as it pertained to his company’s business and focused on getting me to understand the problem they were trying to solve and why their approach was likely the better one.
Measure first before you cut This old tailor’s maxim can’t be stated too often. Brent Gregory taught me this lesson that first day I met him. He seemed to come into the interview with few assumptions – took the time to get to know what I did know (about EDA that day) rather than spending a lot of time asking me either needless form questions or trying to show me how much smarter he was than me (he still is!) As entrepreneurs we like to think we are action-oriented but how often do we plan (measure) before we act (cut)? By no means have I mastered this lesson, but I’m getting better at it.
Value your team Brent was unique as a leader – while he led a research group – practically every member of the group or so it seemed, was in a different country. He did have a couple of other folks in the same building, but he had an engineer in Goa, India – one in Spain (or maybe the south of France). While distributed teams were not unheard of, a single team with its members scattered around the globe had its share of challenges. However, Brent always made sure that the appropriate member of his team got the credit and recognition they deserved and held himself accountable even while protecting his team’s freedom to work from wherever they were. This in a company that would have preferred everyone being in the same building. Unlike many other scientists and researchers, Brent was also immensely appreciative of the marketing team and the value they brought and always prepared to listen and learn why we proposed some of what we did – even while his boss, our CTO, many times voiced his opinion that “our innovative products would sell themselves.”
Simplify The sign of good engineer for me is one who can explain what he does in simple words that mere mortals can understand. Brent in that regard has few peers to take a complex matter – such as our placement algorithm – and explain not just what it did, but why it did it that way and how it was not just different but better than other methods. This allowed not only the applications engineering team but the marketing team to better communicate, position and support customers with conviction. Simplifying without trivializing – is not an easy thing to do – as folks trying to explain the reasons to stay within the EU (against the Brexit) have recently discovered.
Seventeen years after I first met Brent Gregory, I continue to admire him for his understated and measured manner of working. Thank you, Brent, for teaching me a whole lot and being such a good listener.
A variety of people — colleagues, friends, managers and mentors have taught me many lessons that have helped me grow. This article is one in a series sharing what I’ve learned and my gratitude for the lessons they’ve taught me. You can jump to any of the specific posts in my gratitude series below.
My friend was in the process of hiring a private banker to help find a buyer for his business.
“I thought it went really well. He liked what we’ve done so far and felt that there’s some interest in the market. However, he feels it’s really important to improve our EBITDA before we can get a good deal.”
I almost fell out of my chair hearing this. No, not because buyers would like a good EBITDA but that my friend actually said this. The previous two years – we’ve known each other for 20 years now and he’s been in business longer – I’d struggled to get him to clearly state what his gross margins were and what was preventing him from having consistent profitability.My friend by no means is alone. Of course, younger entrepreneurs – many of whom come from technology backgrounds don’t have much exposure to matters of finance (or accounting). Yet having rudimentary financial literacy is critical for I’d argue all of us, entrepreneurs or not. But particularly for entrepreneurs, especially those NOT bootstrapping their businesses should understand the basic concepts and some key terms. As I’ve argued elsewhere, you should then be able to write out each of these, at any time, on a blank piece of paper – so that you have your important numbers at your fingertips. So here goes – with the warning, that these definitions are intended not for compliance to accounting as much to have a realistic image of where your business ACTUALLY is.
Of course, younger entrepreneurs – many of whom come from technology backgrounds don’t have much exposure to matters of finance (or accounting). Yet having rudimentary financial literacy is critical, I’d argue, for all of us, entrepreneurs or not. Entrepreneurs, especially those NOT bootstrapping their businesses should understand the basic concepts and key terms. As I’ve argued elsewhere, you should then be able to write out each of these, at any time, on a blank piece of paper – so that you have your important numbers at your fingertips. So here goes – with the caveat, that these definitions are intended to provide you with a realistic image of where your business ACTUALLY is, rather than for compliance with accounting standards.
Revenue – this is the money customers pay you. The simplest case is when you sell a product (an app, a book or a sandwich) for $0.99, $1.99 or $4.99 that’s your revenue. If you sold 1000 apps a month, your revenue that month would be $990 (1000*0.99) and for 1000 sandwiches it would be $4990. (Let us not in case worry that when you sell sandwiches you seem to make more money. Conceivably you could send millions or even billions of copies of your app – a little harder to do with sandwiches (or not if you are in India :). This is commonly referred to Gross Revenues for clarity.
Net Revenue In the case of selling sandwiches (directly), the entire $4.99 comes into your pocket. However in the case of the app, only 70% of the $0.99 makes it to you (after the app store aka your distributor, takes its 30% off the top). So the reality is that those 1000 apps you sell make you $693 (70%*$0.99*1000). This is a significant difference to keep in mind – for when we plan with revenue in mind, and not gross revenue, that 30% difference (or $300 in this example) is likely to come and bite us in the ass. This is even more important, in the case of marketplaces or services, where your business is essentially acting as a distributor – in which case you get to keep the 30% (or 15% or worse yet 7%) of the revenue and pay your principal the 70% (or 85% or 93%) of the revenues. Given the recent “hot” status of food-delivery companies (can anyone explain what’s tech about these) or any of the e-commerce companies, it’s important to not confuse gross revenues (or GMV – gross merchandise value as they call it) with net revenues. Before we all switch to selling sandwiches, it is important to keep in mind, that software or e-books have practically no incremental costs whether you sell 100, 1000 or millions of units. However, for each sandwich, we incur the costs of those slices of bread (or wraps) and all that you put in between them. This is termed as the cost of goods. So in conventional businesses Gross Revenues – Cost of Goods (- Channel Costs too if they are non-zero) is termed Net Revenue.
Gross Margins (or profit) Gross Margins are essentially the difference between (Gross) Revenues and Net Revenue – often expressed as a percentage. This is a particularly critical measure as the profits of your business are constrained by this value. And yes Dorothy, profits are why you are in business. The higher your gross margins, the higher profit potential your business has. Often gross margins tend to operate in bands for specific industries or businesses and this is a good thing, for you to be able to measure where you are relative to others. In the above examples, for the app business, your grossmargins are 70% and in the case of the sandwich business, assuming the cost of goods for your fancy sandwich are $2.00, then your gross margin is 60%($4.999-$2.00)/($4.99). In these examples, if you sell your apps directly to users – on your website – your margins can increase to say 90% or use cheaper ingredients in your sandwiches (or leave out the cheese) you can increase margins. Such gross margin increases often translate directly to your bottom line. Again keep in mind, we make money in dollars and not in % dollars – so knowing both gross marginsin % terms and absolute dollars is important. Do you know what your gross margins are and how you can increase them? Can you increase your gross margins to be so high that it can hurt your business? Yes, you can but that’s for another day.
Operating Expenses Simply put, all the expenses you incur, regardless of whether you make a dollar of revenue or not, are your operating expenses. And should you be lucky enough to make revenues, these are only likely to grow. So the cost of paying your engineers or employees, your rent and utilities, the cost of maintaining a website (and that fancy domain name you bought), advertising and trade show expenses are all operating expenses. In an ideal world, you’d try to keep your operating expenses low – but not so low that you are not able to ship product or deliver services that generate the revenue. And depending on the nature of your business, for instance, if you do drug discovery or build semiconductors, your operating expenses are likely to be high – even without R&D costs. Operating expenses too, like gross margins tend to operate in bands for specific industries, so you can benchmark yourself – allowing for where you are in the life cycle of your business (early, steady-state etc.). By nature operating expenses have some non-negotiables such as salary, rent, and utilities – you can decrease them only so much or not at all and others such as market or R&D expenses that are more amenable to adjusting.
Operating Margins This is your Net Revenue minus the Operating Expenses. This like the gross margin is a critical metric of the health of your business.When businesses talk about reaching operating profit, they are essentially saying that their operating margins are higher than zero. In your app business, if you are spending $4000 a month and bringing in $4500 in net revenues (70%*$6500 in gross revenues) then you have achieved operating profit. Operating profit does not imply that your business is profitable (yet) but is capable of being so. For instance, in the example cited, this doesn’t take into account the 1 year and $50,000 you spent already to get to develop your product and this run rate.
This operating margin is what the some bean counters love EBITDA – Earnings (profits) before Interest (on your loans), Taxes (yep those exists and you may have to pay them if you actually make a profit) and Depreciation and Amortization (lets not even go there). It’s a somewhat independent measure the ability to your business to make profits.
Net Margins In plain English this determines whether your business actually makes a profit – money you can put in the bank, or pay dividends with or better yet flow back into your business. So even though you may make real operating profits, if the interest on capital you’ve borrowed for instance is high, you may not have any net margins. This is why the cost of money or borrowing costs can make or break businesses that have high amounts of debt. Similarly, if you have to pay taxes (and you do if you make profits) this can drive your net margins down. At the end of the day, this is the ONE metric that will keep you alive and fund your growth. However, maximizing this requires you to manage every one of the above – increasing gross revenues and gross margins allows more money to flow into the company. Decreasing or managing operating costs and financial costs ensures you maximize profit and can fund growth.
The table below summarizes the terms discussed for a variety of different businesses
Can businesses run without making operating profit or positive EBIDTA? Did not Amazon do this for years and Flipkart and others doing this even as we read this? Sure – all that means is someone (investors, founders, in rare instance public markets) is pouring capital and investment into the business – usually with the reasoning that you are capturing market share or leadership and therefore spending more than you are making. They are also operating under the assumption, that one of these days you will make a profit and enough of it to justify the investment.
Meanwhile, for the rest of us 99%, knowing and keeping a good eye on these numbers would go a long way to ensuring you stay alive and thrive.
Over the last several years, I have written about startups, entrepreneurship and business in general in the Hindu BizLine and Wall St. Journal. I have compiled these for easy access in the column below.