SuperMac War Story 9: Sales, Not Awards

While this story is about my experience in packaging for computer retail channels, if you substitute the word “web site” for retail, you’ll get the idea why these lessons were timeless for me. 74HGZA3MZ6SV

SuperMac sold our graphic boards for the Macintosh through multiple distribution channels: direct sales to major accounts, national chains, independent rep firms, etc.  But the computer retail channel was a large part of our sales.  That meant that our boards were packaged in boxes sold to retailers and were displayed on shelves in their computer stores. Customers went into the store either looking for the SuperMac product by name (if our demand creation activities had been effective) or went in unsure of which brand of board to buy.  If they were in the store but teetering on the edge of a purchasing decision, there were only two ways to influence them: incent the sales staff (give the salespeople a special bonus to sell your product) and/or have box packaging sell itself by screaming “buy me.”

Maybe It’s Me
When I got to the SuperMac, our Marketing Communications group told me about our “award-winning” retail packaging for our graphics boards.  Yet when I saw our retail package, I was confused.  Confused because while I knew absolutely nothing about retail packaging, as a consumer I knew this box was not something I would pay attention to. It was black with absolutely no compelling reason to buy – no awards, no why-to-buy message, nothing.

black-supermac-box

While I wasn’t an expert in retail packaging, even as a consumer I knew that when I was in a store, I scanned four or five products on a shelf, grabbed the most interesting one, read what was on the box, and picked one.  And the product that “talked to me”, the loudest and most seductively, was the one that went home with me.

“Black Hole of Packaging” Strategy
Since we had no facts, other than my opinion that something wasn’t right, I took our staff on a field trip.  (You can’t do marketing from inside the building.)  We visited a couple of retail stores to look at how other companies were packaging their products and how ours looked next to theirs.  Standing in the aisles we collectively got a sinking feeling.  Our choice of black had made our retail box invisible on the shelf.

But worse, we had been relegated to the bottom shelf (death valley, since very few people look at their feet when shopping.)  We were down on the bottom because no one had done any “shelf merchandizing” – that is we did not employ “rack jobbers” or the retail stores themselves to put our boxes at eye level in the right place on the shelf.  (These are basic practices for companies selling through retail stores.)

We were on the bottom row – with an invisible box.  We labeled this our “Black Hole of Packaging” strategy. The package had won awards all right – for the ad agency.  The design was actually a negative drag on selling anything off a retail shelf.

Getting Smarter
While we all had opinions about what we should do, we realized we needed some facts from someone with retail packaging expertise.  Luckily (or maybe because we were in Silicon Valley where there was a domain expert for everything) there was a very smart consultant in the retail computer space, Seymour Merrin, who preached about the importance of packaging. He had teamed up with a former product manager at P&G to deliver seminars on just this subject. We learned the basics of retail packaging: make the box eye-catching, ensure there was a “why-to-buy” message, include just enough information to close the sale, fight and pay for eye-level shelf space, etc. Her packaging class was so good that we sent every new marketer at SuperMac to take it. From grumbling skeptics, they all became packaging design converts.

We realized that we needed to take all these lessons and redesign our packaging.

You May Hate It, But You Won’t Ignore It
The results of our package redesigns were packages like “SuperMac Thunder II”.  They were bright, they were loud, and they had lots of reasons to buy front and back.  And for sure they were never going to win any design awards.

colorful-supermac-box

To check how effective our new packaging was, we ran tests at our local computer retailer. We would run in and put test versions of dummy boxes on the shelf and just watch what happened – we wanted to see if people picked up the box, and when they did what they looked at and what they read.  (We would interview them after they put the box back on the shelf.  And we had to convince a few of them the box was really empty.)  The most interesting thing we learned was that people felt more comfortable about a product when there were words of encouragement on the package.  So we started putting stickers on the packaging every time we’d win an award. People would go, “Oh, this one won the “best of MacUser Magazine benchmark” award,” and it would confirm that this was a safe purchasing choice.

Owning Marketing for our Entire Channel
 In thinking about the packaging story, it would have been easy to blame the agency who designed the box for poor package design.  Or blame my MarCom department who approved it.  But that wasn’t the root cause of the problem. It was a management problem.  We had been outsourcing an important part of our demand creation strategy – packaging – to an outside agency without having the expertise to judge or manage the results. We hadn’t taken the time to learn the basics of packaging ourselves. And the final lesson was that we were keeping score on our packaging with the wrong metrics – it wasn’t about awards, it was about sales in the retail channel.

So we not only sent everyone through packaging school, we also brought the packaging design in-house. From now on we would design the retail boxes ourselves, not because we could do a better design job, but because this was a critical skill that our company and department needed to learn – using packaging to increase retail sales.  When we had mastered the art, then I was ready to outsource it again, but not before this became a core competency of my department.

Oh yes, and retail sales doubled with the new product packaging.

New Century, New Channels
For many of you reading this, boxes sitting on a retail shelf may seem hopelessly outdated, but the same marketing lessons hold for “award winning” web sites or social media.  Your design or ad agencies can impress you with their awards, but if you’re not moving product or creating demand, you’ve missed the point.

Worry about the sales results.

What did we learn?

  • The only “award” in marketing that matters is sales revenue
  • Marketing needs to own all the marketing in a channel
  • Core competencies cannot be outsourced until they’re learned

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Preparing for Chaos – the Life of a Startup

I just finished reading Donovan Campbell’s eye-opening book, “Joker One“, about his harrowing combat tour in Iraq leading a Marine platoon. This book may be the Iraq war equivalent of “Dispatches” which defined Vietnam for my generation.  (Both reminded me why National Service would be a very good idea.)

Campbell describes how he tried to instill in his troops the proper combat mentality.

I’ve paraphrased his speech into the language of a startup.  It’s eerily similar.

Startups are inherently chaos. As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.

If you can’t manage chaos and uncertainty, if you can’t bias yourself for action and if you wait around for someone else to tell you what to do, then your investors and competitors will make your decisions for you and you will run out of money and your company will die.  74HGZA3MZ6SV

Therefore the best way to keep your company alive is to instill in every employee a decisive mindset that can quickly separate the crucial from the irrelevant, synthesize the output, and use this intelligence to create islands of order in the all-out chaos of a startup.

Every potential startup founder should think about their level of comfort operating in chaos and uncertainty.  It may not be for you.

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The Secret History of Silicon Valley Part VI: Every World War II Movie was Wrong

This is Part VI of how I came to write “The Secret History of Silicon Valley“. This post makes a lot more sense if you look at the earlier posts as well as the video and slides.

—————-

The next piece of the Secret History of Silicon Valley puzzle came together when Tom Byers, Tina Selig and Mark Leslie invited me to teach entrepreneurship in the Stanford Technology Ventures Program (STVP) in Stanford’s School of Engineering.  My office is in the Terman Engineering Building.

Fred Terman – the Cover Story
I’d heard of Terman but I didn’t really know what he did – his biography said that he was one of the preeminent radio engineers in the 1930′s literally writing the textbooks. He was the professor who helped his students Bill Hewlett and David Packard start a company in 1939.  In World War II he headed up something called the Harvard Radio Research Lab. There was plenty in his biography about his post WWII activities: chair of electrical engineering in 1937, dean of engineering in 1946, provost in 1955. He started the Stanford Honors Co-op in 1954 which allowed companies in the valley to send their engineers to Stanford graduate engineering programs.  74HGZA3MZ6SV

Since I was interested in the history of Silicon Valley, Entrepreneurship, and now Terman, I began to understand that Terman had a lot to do with the proliferation of microwave companies in Silicon Valley in the 1950′s and ’60′s. But how? And why? So I started to read all I could find on the development of microwaves. That led me back to the history of radar in World War II – and a story you may not know.

What Does WWII Have to Do with Silicon Valley?
Just a quick history refresher. In December 1941, the Japanese attack Pearl Harbor, and Germany declares war on the United States. And while the Soviets are fighting the Germans in massive land battles in eastern Europe, until the allies invade Western Europe in June 1944, the only way the U.S. and Britian can affect German war-fighting capability is by mounting a Strategic Bombing campaign, from England. Their goal was to destroy the German capability to wage war by aerial bombing the critical infrastructure of the German war machine. 

The allies bombed the German petroleum infrastructure, aircraft manufacturing infrastructure, chemical infrastructure, and transportation infrastructure. The Americans and British split up the air campaign: the British bombed at night, the Americans during the day.

lancaster

b-17The Odds Weren’t Good
These bombers flew for 7+ hours from England and over occupied Europe, through a gauntlet of intense antiaircraft fire and continuous attack by German fighter planes. And they got it coming and going to the target.

But what the bomber crews didn’t know was that the antiaircraft fire and German fighters they encountered were controlled via a sophisticated radar-guided electronic air defense system covering all of occupied Europe and Germany.

The German electronic air defense system was designed to detect the allied bomber raids, target and aim the German radar-guided weapons, and destroy the American and British bombers. The German air defense system had 100′s of early warning radars, and thousands of radar controlled anti-aircraft guns, and Ground Controlled Intercept radars to guide the fighters into the bombers.

wurzburg-reise-radar

And the German night fighters had their own on-board radar. In all the Germans had over 7,500 radars dedicated to tracking and killing the allied bombers.

german-nightfighter

Each allied bombing mission lost 2-20% of their planes. Bomber crews had to fly 25 missions to go home. The German objective was to make strategic bombing too costly for the Allies to continue.  

By 1942 the Allied Air Command recognized they needed to reduce allied losses to fighters and flak. We needed a way to shut down the German Air Defense system. (Bear with me as this history takes you from the skies of Europe to Fred Terman.)

The Electronic Shield
To shut it down we first needed to understand the German “Radar Order of Battle.” What radars did the Germans have and what were their technical characteristics? How effective they were? What weapons were they associated with? We needed to find out all this stuff and then we needed to figure out how to confuse it and make it ineffective. 

So the U.S. set up a top secret, 800-person lab to do just that, first, to gather signals intelligence to understand the “Radar Order of Battle” and then, to wage “electronic warfare” by building mechanical and electronic devices to severely hamper the Germans’ ability to target and aim their weapons.

Ferrets and Crows  Signals Intelligence
The first job of the secret lab was to find and understand the German air defense system. So we invented the U.S. Signals Intelligence industry in about 12 months (with help from their British counterparts at the Telecommunications Research Establishment.) These mission of the planes called Ferrets, manned by crews called Crows, was to find and understand the German electronic air defense system.  We stripped out B-24 bombers, took out all the bomb racks, took out all the bombs and even took out all the guns.  And we filled it with racks of receivers and displays, wire and strip recorders and communications intercept equipment that could search the electromagnetic spectrum from 50 megahertz to 3 gigahertz, and this is 1943. 

We flew these unarmed planes in and out of Germany alongside our bombers and basically built up the “radar order of battle.” We now understood where the German radars were, their technical details and what weapons they controlled.

Tin Foil Rain – Chaff
We first decided to shut down the German radars that were directing the anti-aircraft guns and the fighter planes. And to do that we dropped tin foil on the Germans. No kidding. Radar engineers had observed if you cut a strip of aluminum foil to 1/2 the wavelength of a radar transmitter and throw it in front of the radars antenna, the radar signal would reflect perfectly. All the radar operator would see was noise, rather than airplanes. 

Well, you couldn’t stand in front of the German radars and throw out tin foil, but you could if you had a fleet of airplanes. Each plane threw out packets of aluminum foil (called “chaff”.) The raid on Hamburg in July, 1943 was the first use of chaff in World War II.  It completely shut down the German air defense system in and around Hamburg.  The British and then the Americans firebombed the city with minimal air losses.

Chaff used 3/4′s of all the aluminum foil in the U.S. in World War II, because by the end of the war, every bomber stream was dumping chaff on every mission.

Jam It and Shut it Down - Electronic Warfare
But this secret lab was focused on electronic warfare. So they systematically designed electronic devices called “jammers” to shut down each part of the German air defense system.  Think of a “jammer” as a radio transmitter broadcasting noise on the same frequency of the enemy radar set. The goal is to overwhelm the enemy radar with noise so they couldn’t see the bombers. We built electronic jammers to target each part of the German air defense system: their early warning radars, the short range radars, the antiaircraft gun radars, the Ground Control Intercept Radars, the air to ground radio links and even the radars onboard the German night fighters. By the end of the war we had put multiple jammers on every one of our bombers, and while their power output was ridiculously low, these jammers were flying in formation with 1,000 other planes with their jammers on, and the combined power was enough to confuse the radar operators.

Just to give you a sense of scale of how big this electronic warfare effort was, we built over 30,000 jammers, with entire factories running 24/7 in the U.S. making nothing but jammers to put on our bombers.

By the end of World War II, over Europe, a bomber stream no longer consisted of just planes with bombs.  Now the bombers were accompanied by electronics intelligence planes looking for new radar signals, escort bombers just full of jammers and others full of chaff, as well as P-51 fighter planes patrolling alongside our bomber stream.

radarj1

Every WWII Movie and Book with a Bomber was Wrong
While there were lots of stories about how the British early warning radar system, called “Chain Home” saved England during the Battle of Britain by giving the Spitfire pilots time to scramble to intercept German bombers, there wasn’t a coherent story about American and British bombers encountering the German radar-guided air defense system.

This lack of information meant that every World War II movie or book that had airplanes on bombing missions in it was wrong.  Every one of them. (To someone who had grown up with reruns of WWII war movies on TV, this was a shock.) Every movie I had seen – 12 O’clock High, Memphis Belle, etc. –  assumed that there were no electronics other than radios on these bombers. Wrong. Not only didn’t the movie makers know, but the pilots and crews didn’t know about the German radar guided system trying to kill them. Nor did they know about the electronic shield being assembled to try to protect them.

But while this may be a great story what the does this have to do with the history of Silicon Valley?

The answer lies with who ran this lab and became the father of electronic warfare and Signals Intelligence in the Cold War for the next 20 years.

Who Ran the Most Secret Lab You Never Heard of?
It was Fred Terman of Stanford.  The Harvard Radio Research Lab was his creation. A Stanford professor was at Harvard in World War II because the head of the Office of Scientific Research and Development thought Terman was the best radio engineer in the country. (Why couldn’t he have set up a lab at Stanford?  Apparently, the Office of Scientific Research thought that Stanford’s engineering department was second rate.)

Finally, I had an answer to the question I had asked 35 years earlier when I was in Thailand: “How did electronic warfare get started?” Now I knew that it began in the early days of World War II as a crash program to reduce the losses of bombers to the German air defense network.  Electronic warfare and signals intelligence in the U.S. started with Fred Terman and the Harvard Radio Research Lab.

Spooky Music
Reading about Terman was like finding the missing link in my career.  Here was the guy who invented the field I had spent the first five years of my adult life working on. And 30 years later I was teaching in a building named after him and never knew a thing about him.  Play spooky music here.

I began to realize a few things: First, everything we had done in electronic warfare in the Vietnam War was just a slightly more modern version of what we had done over occupied Europe in World War II.  (And in hindsight, we seemed a bit more agile and innovative in WWII.)

Unbelievably, in less than two years, Terman’s Radio Research lab invented an industry and had turned out a flurry of new electronic devices the likes of which had never been seen.  Yet decades later the military lacked the agility to write a spec in two years, let alone get 10′s of thousands of new systems deployed on aircraft as Terman had done.  How was this possible?  In 21st century terminology we’d say that Terman built the Radio Research lab into a customer-centric organization doing agile development.

Just the Beginning
The public history of Terman’s involvement with the military ends when he returns back to Stanford at the end of the war. Nothing in his biography or any Stanford history mentions anything as exciting as his work in World War II. The public story of his last 20 years at Stanford, in the 1950′s and ’60′s, seems to have him settle into the role of the kindly dean and innovative provost.

Nothing could be further from the truth.

The Secret Life of Fred Terman in a War you never heard of in Part VII of the Secret History of Silicon Valley.

Supermac War Story 8: Cats and Dogs – Admitting a Mistake

At SuperMac, I thought I was good VP of marketing; aggressive, relentless and would take no prisoners – even with my peers inside the company.  But a series of Zen-like moments helped me move to a different level that changed how I operated.  It didn’t make my marketing skills any worse or better, but moved me to play forever on a different field. 74HGZA3MZ6SV

Zen moment #1- Admitting a mistake and asking for help

Up until this point in my career I had one response anytime I screwed something up: blame someone else. The only variable was how big the screw-up was – that made a difference in whom I blamed.  If it was a very big mistake, I blamed the VP of Sales.  “This marketing campaign didn’t work? It was a brilliant strategy but Sales screwed it up.”  (My own lame defense here for this behavior is that sales and marketing are always cats and dogs in startups. Historically, these were two guys with high testosterone. They hit each other with baseball bats until one of them dropped.)

This first Zen moment happened at a SuperMac exec staff meeting. I was asked to explain why a marketing program that cost $150,000 bucks literally generated nothing in revenue for the company.  I still remember that I was gearing up to go into my ‘I’m going to blame the sales guy’ routine. Since our sales guy was a good street fighter, I knew the ensuing melee would create enough of a distraction that no one would talk about my marketing debacle.  My brain had queued up the standard, “It’s all Sales’s fault,” but instead, what came out of my mouth was, “You know, I really screwed this marketing campaign up, making it successful is important for the company, and I need all your help to fix it.”   You could have heard a pin drop.  It was so out of character, people were shocked.  Some stammered out, “can you say that again?”

Our president picked up on the momentum and asked me what I needed from the rest of the exec team to fix this debacle. I replied:  “This is really important for our success as company and I’m really at a loss why customers didn’t respond the way we expected.  Anybody else got some other ideas?”

From there, the conversation took a different trajectory. It was uncomfortable for some people, because it was new ground  – I was asking for help – wanting to do what was right for the company.

It was definitely a “Zen moment” for me in terms of my career.  From then on when I screwed up, not only did I own up to it, I asked for help.  This behavior had an unintended consequence I couldn’t have predicted: when others started volunteering to help me solve a problem, finding a solution became their goal as well.

Soon one or two others execs tested the waters by making a small tentative “ask” as well.  When they discovered that the sky didn’t fall and they still had their jobs, our corporate culture took one more step toward a more effective and cohesive company.

Ownership and Teamwork not turf.

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Killing Innovation with Corner Cases and Consensus

I was visiting a friend whose company teaches executives how to communicate effectively. He had just filmed the second of a series of videos called, Speaking to the Big Dogs: How mid-level managers can communicate effectively with C-level executives  (CEO, VP’s, General Managers, etc.)  As we were plotting marketing strategy, I mentioned that the phrase “Speaking to the Big Dogs” might end up as his corporate brand.  And that he might want to think about aligning all his video and Internet products under that name. 74HGZA3MZ6SV

We were happily brainstorming when one of his managers spoke up and said, “Well, the phrase ‘Big Dogs’ might not work because it might not translate well in our Mexican and Spanish markets.”  Hmm, that’s a fair comment, I thought, surprised they even had international locations. “How big are your Mexican and Spanish markets,” I asked? “Well, we’re not in those markets today… but we might be some day.”  I took a deep breath and asked, “Ok, if you were, what percentage of your sales do you think these markets would be in 5 years?”   “I guess less than 5%,” was the answer.

Now I mention this conversation not because the objection was dumb, but because objections like these happen all the time when you’re brainstorming.  And when you are brainstorming you really do want to hear all ideas and all possible pitfalls.  But entrepreneurial leaders sometimes forget that in startups, you can’t allow a “corner case” to derail fearless decision making.

Corner Cases
A corner case is an objection that may be:

  1. technically reasonable
  2. may have a probability of occurring
  3. its probability of occurring is lower than your probability of running out of money.

I’ve noticed that corner case comments are directly proportional to the intelligence of the people in the room.  The smarter the team the more objections you’ll have – and they’ll all be technically and theoretically possible.

Corner Cases and Consensus are For Large Companies
Carefully considering each and every possible outcome before you proceed with a decision is something large companies with large revenues, shareholders and employees need to do.  

Achieving consensus about every corner case from each stakeholder in the room  is something large companies with large revenues, shareholders and employees need to do.  

Unlike large corporations, startup meetings are not about achieving consensus for every objection raised.  They are about forward motion, momentum and feedback loops (i.e. Customer Development.)

Calculate the Odds
The heuristic I suggest is: hear the corner case objections, make the objector calculate the odds, if the potential damage estimate is low (probability of the event occurring multiplied by its ability to put you out of business) keep the meeting focussed and move on.  If you do this consistently your team will catch on.

You’ll be spending your time on what matters, rather what’s theoretically possible. For a startup “No Corner Cases” needs to be an integral part of your corporate DNA.

Any startup that’s striving for consensus on corner cases instead of speed and tempo will be out of business.

Focus on Speed and Tempo

The Secret History of Silicon Valley Part V: Happy 100th Birthday Silicon Valley

When the legend becomes fact, print the legend.
- The Man Who Shot Liberty Valance

I always had been curious about how Silicon Valley, a place I had lived and worked in, came to be.  And throughout my career as an entrepreneur I kept asking questions of my VC investors and friends; Where did entrepreneurship come from?  How did Silicon Valley start? Why here?  Why now? How did this culture of “make it happen” emerge, etc.  And the answer came back much as it did in my past jobs; Who cares, get back to work.

After I retired, Jerry Engel, director of the Lester Center on Entrepreneurship, at U.C. Berkeley Haas Business School was courageous enough to give me a forum teach the Customer Development Methodology. As I was researching my class text, I thought it would be simple enough to read up on a few histories of the valley and finally get my questions about the genesis of entrepreneurship answered.

The Legend: HP, Intel and Apple
I read all the popular books about the valley and they all told a variant of the same story; entrepreneurs as heroes building the Semiconductor and Personal Computer companies: Bill Hewlett and David Packard at HP, Bob Taylor and the team at Xerox PARC, Steve Jobs and Wozniak at Apple, Gordon Moore and Bob Noyce at Intel, etc.  These were inspiring stories, but I realized that, no surprise, the popular press were writing books that had mass appeal.  They were all fun reads about plucky entrepreneurs who start from nothing and against all odds, build a successful company.  74HGZA3MZ6SV

popular-view-of-silicon-valley-history1

But no one was writing about where the entrepreneurial culture had come from.  Where were the books explaining why were all these chip and computer companies started here?  Why not elsewhere in the country or the world?  With the exception of one great book, no one was writing about our regional advantage. Was it because entrepreneurs keep moving forward and rarely look back?  I needed to dig deeper.

The Facts: Vacuum Tube Valley – Our 100th Anniversary
To my surprise, I discovered that yes, Silicon Valley did start in a garage in Palo Alto, but it didn’t start in the Hewlett Packard garage.  The first electronics company in Silicon Valley was Federal Telegraph, a tube company started in 1909 in Palo Alto as Poulsen Wireless.  (This October is the 100th anniversary of Silicon Valley, unnoticed and unmentioned by anyone.)  By 1912, Lee Deforest working at Federal Telegraph would invent the Triode, (a tube amplifier) and would go on to become the Steve Jobs of his day – visionary, charismatic and controversial.

* Federal Telegraph and Lee Deforest in Palo Alto are the first major events in what would become Silicon Valley.  We need to reset our Silicon Valley birthday calendars to here.

By 1937, when Bill Hewlett and David Packard left Stanford to start HP, the agricultural fields outside of Stanford had already become “Vacuum Tube Valley.” HP was a supplier of electronic test equipment and joined a small but  thriving valley electronics industry with companies like Litton and Eitel and McCollough.

* By the late 1930′s when HP started, a small group (measured in hundreds) of engineers who made radio tubes were building the valleys’ ecosystem for electronics manufacturing, product engineering and technology management.

Who would have known?

Microwave Valley – the 1950′s and ’60′s
There isn’t much written about Silicon Valley during and after World War II.  The story of the valley post war, through the 1950′s, is mostly about the growth of the tube companies and the rise of Hewlett Packard.  The popular literature has the valley springing to life in the 1960′s with the semiconductor revolution started by Shockley, Fairchild, Signetics, National and Intel, followed by the emergence of the personal computer in the mid 1970′s.

But the more I read, the more I realized that the public history’s of the valley in the 1950′s and ’60′s were incomplete and just plain wrong. The truth was that huge dollars were spent on a large number of companies that never made the press or into the history books. Companies specializing in components and systems that operated in the microwave portion of the electromagnetic spectrum sprouted faster than fruit trees in the valley orchards. In ten years, from the early 1950′s to the early 1960′s, the valley went through a hiring frenzy as jobs in microwave companies went from 700 to 7,000.

This wave of 1950′s/’60′s startups (Watkins-Johnson, Varian, Huggins Labs, MEC, Stewart Engineering, etc.) were making  dizzying array of new microwave componentspower grid tubesklystrons, magnetrons,  backward wave oscillators, traveling wave tubes (TWT’s), cross-field amplifiers, gyrotrons, and on, on…  And literally across the valley, these microwave devices were being built into complete systems for the U.S. military by other new startups;  Sylvania Electronics Defense Laboratory, Granger Associates, Philco, Dalmo Victor, ESL and Argosystems. In the 1950′s and ’60′s more money was pouring into these companies than on the fledgling chip and computer companies.

* The 10x expansion in the number of engineers in the valley in the 1950′s came from the military and microwaves – before the semiconductor boom. And these microwave engineers were working at startups – not large companies. You never heard of them because their work was secret.

When I read the funny names of these microwaves devices… Backward wave oscillators, TWT’s, Magnetrons…long silent memories came back. These components were the heart of the electronic warfare equipment I have worked on; including fighters in Thailand and on B-52 bombers.  After 20 years, the story started coming home for me.

The Revolution Wasn’t Televised
What the heck happened here to create this burst of innovation?  What created this microwave startup culture in the 1950′s? And since there was no Venture Capital in the 1950′s/’60′s where was the money coming from?  This startup boom seemed to come out of nowhere.  Why was it occurring here?  And why on earth the sudden military interest in microwaves?

the-real-story-of-silicon-valley1

Part of the answer was that these companies and the military had forged some type of relationship.  And it appeared that Stanford University’s engineering department was in middle of all this. The formation of the military/industrial/university relationships during the Cold War and the relationship between Stanford and the intelligence community in particular, went on untold and out of sight.

While nothing I read described the specific products being worked on, or what specifically was Stanford’s contribution, there were some really tantalizing pointers to who the real customers were (hint, it wasn’t just the “military,”) or why was this work was being done at Stanford.

No one knew that it all pointed to just one guy at the center of it all -  Fred Terman of Stanford University.

* Stanford, the military and our intelligence agencies started the wave of entrepreneurial culture that today’s Silicon Valley takes for granted.

The “Secret Life of Fred Terman” and “Stanford Fights the Cold War” on the Part VI of the “Secret History” posts here.

SuperMac War Story 7: Rabbits Out of the Hat – Product Line Extensions

A year after we started repositioning the company, Engineering, which had been working on a family of new products literally for years, came to deliver some good news and bad news.  74HGZA3MZ6SV

First the bad news:  the new family of eight high performance graphics cards we were counting on couldn’t be delivered.  The plug-in co-processor architecture was too complex and couldn’t be made to work reliably.  Instead of the family of eight products we were expecting, only one could be delivered.  Nothing else was in the development pipeline for the next 12 months.

I couldn’t believe what I was hearing.  One of the reasons I had joined the company was seeing these boards as hope for the future.  Now we were faced with the fact that even though we were gaining market share daily, there was nothing coming out of Engineering.

Well not quite nothing: there was the good news. Instead of eight boards, Engineering was going to be able to deliver one new graphics board.  Just one.  But it was going to be the fastest graphics board ever made.  In fact, according to our Potrero benchmark suite this new board ran our customer applications ten times faster than our current products.

I went home to think about this.  Instead of a product family, we had a single point product.  Each of my competitors each had 5-10 graphics boards covering a range of prices with performance to match.  Even our current product line had four graphics boards in it.  Now our new product line would only have one board?!.  What could we do?

Marketing Gets into the Engineering Business
The next day I walked in uninvited to the VP of Engineering’s office and asked if he had a minute. I said, “I realize you’re trying to get the one board out to market, but I have a question – can you slow our new board down?”   It doesn’t take much imagination to see the look he gave me when I asked that question.  “Steve, this hasn’t been a good week. What do you really want?”  I felt sorry for him, he was working really hard to dig out of this mess.  I replied, “No joke.  Can you make it slower?  I think he wanted to strangle me as he barely got out, “We worked for years to deliver a product that’s ten times faster than anything that exists and you want to make it slower?”  Well, not exactly, “What I want to know is if the board would work if you slowed it down by 10%?”  Yes, was the answer.  “How about if you slowed it down 20%?” Yes, was still the answer.  “By 30%?”  The change in his demeanor – from trying to kill me – to laughing, as it dawned on him where I was going, could only be described as hysterical relief. “40%?”  Yes, yes and yes.

We were about to be partners in building a new product family.

Rabbits Out of the Hat – Branding and Line Extensions
First, what we proposed is that we take our world class, ten-times-faster-than-anyone board and build an entire product family around it, by slowing it down.  We wanted nine boards, each differing in performance by 10%.  The only real difference between them would be the addition of “wait states” or “slow down” instructions on a chip.  Our entire new product family would be an identical board. 

Next, we were going to create three separate product families, each its own unique brand.  And within each brand we would have a “good”, “better”, and “best” graphic board.  All tailored to our color publishing market. 

Finally, these product families would be priced to bracket (box in) everyone of our competitors’ products with better price and performance. We were going to price the products from $699 to $3,999.  Our calculations had us losing money on the two lowest cost boards, breaking even on the third and making great margins on the other six.  We calculated our blended gross margin for the company by estimating the number of units we would sell of each board times the gross margin of each individual board (then I crossed my fingers and prayed we were right.)

In essence we were proposing that we ship the same board in 9 different colored boxes and charge from $699 to $3,999 depending on the color of the box and the speed of the board. (This turned out to give our customers immense value.  We would have charged $3,999 for the high-end board.  Now we could give customers lower price boards without Engineering spending 12 months to design new ones.)

You’re Going to Do What?!
The reaction inside our company could not be described as polite.  At first most people thought we were joking.  No one believed it would work.  Some engineers were insulted that we were going to slow down their board and sales was convinced that within days of the board hitting the street we would have a black market in chips to speed up the $699 boards and turn them into $3,999 ones.  My own marketing department was convinced that the same industry magazines, which we had managed so well, would turn on us when they saw that the boards were physically identical. 

Yet I believed that this was the only alternative to slowly going out of business. (While our engineering department was close to the customer, seven of those eight products they were going to ship to those customers weren’t going to see the light of day.)  Now it was up to Marketing is to take the technology as delivered by Engineering and shape it to the needs of the customers and market.  By creating these new families of products we could provide real value to our color desktop publishing customers by giving them performance at a price they couldn’t get anywhere else.

A Big Idea - Marketing Adds Value. This notion of Marketing taking what Engineering builds as a starting point, not an end point, is the difference between just being a marcom department and a value-added Marketing department.  If all you’re doing is shipping and launching the product as spec’d by Engineering, you’re not adding value. The job of Marketing is to help Engineering figure out how to deliver product(s) that customers need and want.  It starts with a deep understanding of what customers need (and making sure Engineering is getting continuous customer feedback and interaction.)  We did that when we surveyed our customers. Next, we had a good understanding of the capabilities of the product that Engineering was building.  And in this very unique case, we figured out how to maximize revenue and profit by branding and product line extensions.

We would use this same idea 10 years later at E.piphany.

SuperMac product line - built on a single graphics card
SuperMac product line – built on a single graphics card

Relentless Execution
If we were right, this line extension and branding strategy would allow us to catch up to our competitors and overtake them. 

Luckily marketing had built a reservoir of credibility with our peers and CEO.  After the VP of Engineering described the alternatives (no new products for a year), desperation became the mother of innovation and we launched our new family of nine new graphics boards.  As far as manufacturing was concerned, they were the identical graphics board.  As customers saw them, they were a new family of products aimed directly at the color desktop publishing market with astonishing performance and a low-cost entry price.

The results spoke for themselves: Not one black-market board ever appeared, and the press was satisfied with our “customer value and product family” explanation. Our new graphics boards became the market leader of the industry. In three and a half years SuperMac’s market share went from 11% to 68%, as we went from bankruptcy to $150 million in sales.

Years later, I was having coffee with the VP of Sales and Marketing from one our competitors and he said, “We would have beat you guys, but we just couldn’t keep up with the tidal wave of products coming from your engineering department. They came up with exactly the right products at the right price.”  I took a long sip of coffee as I thought of all the things I could say. Instead I smiled, nodded and said, “Yep, it was amazing, they just kept pulling rabbits out of the hat.”

What did I learn so far?

  • At times, what Engineering delivers is the raw material.
  • Marketings job is to take engineering products and use them to maximize revenue and profit.
  • In an existing or resegmented market, this may include branding and product line extensions.
  • This requires deep customer and competitive knowledge.
  • In most markets, “first mover advantage” is illusorily; fast followers often win.

Change We Can Believe In – Reinventing the US Auto Industry: Open Source the Chevy Volt

This article in the NY Times about China’s thinking strategically about electric cars was a poignant contrast to our struggles in the U.S. with the auto bailout.  It  reminded me about the adage, “when you’re up to your neck in alligators, the last thing you remember is that you were supposed to drain the swamp.”  Memo to Washington – weren’t we were to be the country innovating here?

nytimes-article-on-hybrid-cars-china

Normally I’ll keep my posts to subjects on which I have domain expertise. However:

  1. The clock is ticking on General Motors
  2. The auto industry is desperate for some new thinking and reinvention as a 21st century enterprise
  3. The administration has the opportunity to think like entrepreneurs not just bankers – by creating something new, innovative and valuable
  4. An industry gasping for its last breath is least likely to continue to invest in new products that won’t pay the bills for another decade (regardless of whether its in the national interest.)
  5. I’ve shared this with Obama’s Energy and EPA team

The auto industry bailout ought to have four goals (you can put them in your own order.)

  1. Jobs
  2. Keeping an Auto Industry as a strategic national resource
  3. Energy Independence
  4. Clean Energy

I proposed that in exchange for the GM bailout we spin out the Chevy Volt into an open source electric car platform.

Any automaker who builds the car in the U.S. will be able to build on the Volt Platform, but all drivetrain improvements are open source.

The first 10,000 units would be royalty free.  After that, other automakers would pay GM some per/car royalty.

Since it’s in the government’s interest to facilitate goals 1-4, they will subsidize the cost of the initial units so that they are affordable. Economies of scale will drop component costs (read batteries) over time.

(I will admit that taking a concept such as “open source” from the software business and applying it to the auto industry and Washington D.C. was somewhat incomprehensible at first to the Energy and EPA team. But they’re smart, let’s see what happens.)

The reality is that independent electric vehicle startups will win over time (closer to the customer, more agile, etc.) over a national platform.  As part of this spin out I’d make sure the Government also supports the nascent U.S. electric car industry and ensures it gets its share of the bailout largesse.  But the two together will kick start a new industry and save a dying one.

As I said, I am far from an expert in the auto industry, government bailouts or other related big “businesses”. But I think it’s time we take the out-of-the-box thinking that created new businesses in high tech – the concept of open source, for instance − and apply it in creative and powerful ways to reinvent floundering, older industries.

If anyone has a better idea, I would love to see it here.

Story Behind “The Secret History” Part IV: Library Hours at an Undisclosed Location

This is Part IV of how I came to write “The Secret History of Silicon Valley“.
Read Part III first and it will make a bit more sense.

All You Can Read Without a Library Card

It was 1978. Here I was, a very junior employee of ESL, a company with its hands in the heart of our Cold War strategy. Clueless about the chess game being played in Washington, I was just a minion in a corporate halfway house in between my military career and entrepreneurship. 74HGZ

ESL sent me overseas to a secret site run by one of the company’s “customers.”  It was so secret the entire site was could have qualified as one of Dick Cheney’s “undisclosed locations.” As a going away gift my roommates got me a joke disguise kit with a fake nose, glasses and mustache.

The ESL equipment were racks of the latest semiconductors designed into a system so complicated that the mean-time-between-failure was measured in days. Before leaving California, the engineers gave me a course in this specialized receiver design. Since I had spent the last four years working on advanced Air Force electronic intelligence receivers, I thought there wouldn’t be anything new.  The reality was pretty humbling. Here was a real-world example of the Cold War “offset strategy.” Taking concepts that had been only abstract Ph.D theses, ESL had built receivers so sensitive they seemed like science fiction.  For the first time we were able to process analog signals (think radio waves) and manipulate them in the digital domain. We were combining Stanford Engineering theory with ESL design engineers and implementing it with chips so new we were debugging the silicon as we were debugging the entire system.  And we were using thousands of chips in a configuration no rational commercial customer could imagine or afford.  The concepts were so radically different that I spent weeks dreaming about the system theory and waking up with headaches. Nothing I would work on in the next 30 years was as bleeding edge.

Now half a world away on the customer site, my very small role was to keep our equipment running and train the “customer.” As complex as it was, our subsystem was only maybe one-twentieth of what was contained in that entire site. Since this was a location that worked 24/7, I was on the night shift (my favorite time of the day.) Because I could get through what I needed to do quickly, there wasn’t much else to do except to read.  As the sun came up, I’d step out of the chilled buildings and go for an early morning run outside the perimeter fence to beat the desert heat.  As I ran, if I looked at the base behind the fence I was staring at the most advanced technology of the 20th century.  Yet if turned my head the other way, I’d stare out at a landscape that was untouched by humans.  I was in between the two thinking of this movie scene.  (At the end of a run I used to lay out and relax on the rocks to rest – at least I did, until the guards asked if I knew that there were more poisonous things per square foot here than anywhere in the world.)

Before long I realized that down the hall sat all the manuals for all the equipment at the entire site. Twenty times more technical reading than just my equipment. Although all the manuals were in safes, the whole site was so secure that anybody who had access to that site had access to everything – including other compartmentalized systems that had nothing to do with me – and that I wasn’t cleared for.  Back home at ESL control of compartmentalized documents were incredibly strict. As a contractor handling the “customer’s” information, ESL went by the book with librarians inside the vaults and had strict document access and control procedures.  In contrast, this site belonged to the “customer.”  They set their own rules about how documents were handled, and the safes were open to everyone.

I was now inside the firewall with access to everything.  It never dawned on me that this might not be a good idea.

Starting on the safe on the left side, moving to the safe on the right side, I planned to read my way through every technical manual of every customer system.  We’re talking about a row of 20 or so safes each with five drawers, and each drawer full of manuals. Because I kept finding interesting connections and new facts, I kept notes, and since the whole place was classified, I thought, “Oh, I’ll keep the notes in one of these safes.” So I started a notebook, dutifully putting the classification on the top and bottom of each page.  As I ran into more systems I added the additional code words that on the classification headers.  Soon each page of my notes had a header and footer that read something like this:  Top Secret / codeword/ codeword / codeword / codeword / codeword / codeword / codeword.

I was in one of the most isolated places on earth yet here I was wired into everywhere on earth.  Coming to work I would walk down the very long, silent, empty corridors, open a non-descript door and enter the operations floor (which looked like a miniature NASA Mission Control), plug a headset into the networked audio that connected all the console operators — and hear the Rolling Stones “Sympathy for the Devil.”  (With no apparent irony.) But when the targets lit up, the music and chatter would stop, and the communications would get very professional.

Nine months into my year tour, and seven months into my reading program, I was learning something interesting every day. (We could do what!?  From where??)  Then one day I got a call from the head of security to say, “Hey, Steve can you stop into my office when you get a chance?”

Are These Yours?

Now this was a small site, about 100-200 people, and here was the head of security was asking me over for coffee.  Why how nice, I thought, he just wants to get to know me better. (Duh.)  When I got to his office, we made some small talk and then he opened up a small envelope, tapped it on a white sheet of paper, and low and behold, three or four long black curly hairs fall out.  “Are these yours?” he asked me.

This the one of the very few times I’ve been, really, really impressed.  I said, “Why yes they are, where did you get them?”  He replied, ‘They were found in the ‘name of system I should have absolutely no knowledge or access to’ manuals. Were you reading those?”  I said, “Absolutely.”  When he asked me, “Were you reading anything else?”  I explained, “Well I started on the safe on the left, and have been reading my way through and I’m about three quarters of the way done.”

Now it was his turn to be surprised. He just stared at me for awhile.  “Why on earth are you doing that?” he said in a real quiet voice. I blurted out, “Oh, it’s really interesting, I never knew all this stuff and I’ve been making all these notes, and …”  I never quite understood the word “startled” before this moment.  He did a double-take out of the movies and interrupted me, “You’ve been making notes?”  I said, “Yeah, it’s like a puzzle,” I explained.  “I found out all this great stuff and kept notes and stored in the safe on the bottom right under all the…”  And he literally ran out of the office to the safes and got my notebook and started reading it in front of me.

And the joke (now) was that even though this was the secret, secret, secret, secret site, the document I had created was more secret than the site.

While the manuals described technical equipment, I was reading about all the equipment and making connections and seeing patterns across 20 systems. And when I wasn’t reading, I was also teaching operations which gave me a pretty good understanding of what we were looking for on the other side.  At times we got the end product reports from the “customer” back at the site, and these allowed me to understand how our system was cued by other sensors collecting other parts of the electromagnetic spectrum, and to start looking for them, then figuring out what their capabilities were.

Pattern Recognition

As I acquired a new piece of data, it would light up a new set of my neurons, and I would correlate it, write it down and go back through reams of manuals remembering that there was a mention elsewhere of something connected.  By the time the security chief and I were having our ‘curly hairs in the envelope’ conversation, not only did I know what every single part of our site did, but what scared the security guy is that I had also put together a pretty good guesstimate of what other systems we had in place worldwide.

For one small moment in time, I may have assembled a picture of the sum of the state of U.S. signals intelligence in 1978 − the breadth and depth of the integrated system of technical assets we had in space, air, land, and other places all focused on collection. (If you’re a techie, you’d be blown away even 30 years later.) And the document that the head of security had in his hand and was reading, as he told me later, he wasn’t cleared to read – and I wasn’t cleared to write or see.  I’m sure I knew just a very small fraction of what was going on, but still it was much more than I was cleared for.

At the time this seemed quite funny to me probably because I was completely clueless about what I had done, and thought that no one could believe there was another intent.  But in hindsight, rather than the career I did have, I could now just be getting out of federal prison. It still sends shivers up my back.  After what I assume were a few phone calls back to Washington, the rules said they couldn’t destroy my notebook, but they couldn’t keep it at the site either.  Instead my notebook was couriered to Washington – back to the “customer.”  (I picture it still sitting in some secure warehouse.)  The head of security and I agreed my library hours were over and I would take up another hobby until I went home.

Thank you to the security people who could tell the difference between an idiot and a spy.

When I got back to Sunnyvale, my biggest surprise was that I didn’t get into trouble. Instead someone realized that the knowledge I had accumulated could provide the big picture to brief new guys “read in” to this compartmentalized program.  Of course I had to work with the customer to scrub the information to get its classification back down to our compartmental clearance. (My officemate who would replace me on the site, Richard Farley, would go on to a more tragic career.)  I continued to give these briefings as a consultant to ESL even after I had joined my first chip startup; Zilog.

esl-badge

Two Roads Diverged in a Wood and I took the Road Less Traveled By,  And That Has Made All the Difference

Extraordinary times bring extraordinary people to the front. Bill Perry the founder of ESL, is now acknowledged as one of the founders of the entire field of National Reconnaissance, working the NSA, CIA and the NRO in programs to intercept and evaluate Soviet missile telemetry and communications intelligence.

ESL had no marketing people.  It had no PR agency.  It shunned publicity.  It was the model for almost every military startup that followed, and its alumni who lived through its engineering and customer-centric culture had a profound effect on the rest of the valley, the intelligence community and the country. And during the Cold War it sat side by side with commercial firms in Silicon Valley, with its nondescript sign on the front lawn. It had Hidden in Plain Sight.

As for me, after a few years I decided that into was time to turn swords into plowshares. I left ESL and the black world for a career in startups; semiconductors, supercomputers, consumer electronics, video games and enterprise software.

I never looked back.

It would be decades before I understood what an extraordinary company I had worked for.

Thank you Bill Perry for one hell of a start in Silicon Valley.

I was 24.

My first class of students at ESL:  Guardrail V Training Class (note the long black curly hairs)

My first class of students at ESL: Guardrail V Training Class (note the long black curly hairs)

Part V of the Secret History of Silicon Valley continues here.

“Speed and Tempo” – Fearless Decision Making for Startups

”If things seem under control, you are just not going fast enough.”

- Mario Andretti

I was catching up over breakfast with a friend who’s now CEO of his own startup. One of the things he mentioned was that when it came to decision-making he still tended to think and act like an engineer. Each and every decision he made was carefully thought through and weighed. And he recognized it was making his startup feel and act like a big ponderous company. 74HGZA3MZ6SV

Speed = Execution Now

General George Patton said, “A good plan violently executed now is better than a perfect plan next week.” The same is true in your company. Most decisions in a startup must be made in the face of uncertainty. Since every situation is unique, there is no perfect solution to any engineering, customer or competitor problem, and you shouldn’t agonize over trying to find one. This doesn’t mean gambling the company’s fortunes on a whim. It means adopting plans with an acceptable degree of risk, and doing it quickly. (Make sure these are fact-based, not faith-based decisions.) In general, the company that consistently makes and implements decisions rapidly gains a tremendous, often decisive, competitive advantage.

Decision Making Heuristics for the Startup CEO

The heuristic I gave my friend was to think of decisions of having two states: those that are reversible and those that are irreversible. An example of a reversible decision could be adding a product feature, a new algorithm in the code, targeting a specific set of customers, etc. If the decision was a bad call you can unwind it in a reasonable period of time. An irreversible decision is firing an employee, launching your product, a five-year lease for an expensive new building, etc. These are usually difficult or impossible to reverse.

My advice was to start a policy of making reversible decisions before anyone left his office or before a meeting ended. In a startup it doesn’t matter if you’re 100% right 100% of the time. What matters is having forward momentum and a tight fact-based feedback loop (i.e. Customer Development) to help you quickly recognize and reverse any incorrect decisions. That’s why startups are agile. By the time a big company gets the committee to organize the subcommittee to pick a meeting date, your startup could have made 20 decisions, reversed five of them and implemented the fifteen that worked.

Tempo = Speed Consistently Over Time

Once you learn how to make decisions quickly you’re not done.  Startups that are agile have mastered one other trick – and that’s Tempo – the ability to make quick decisions consistently over extended periods of time.  Not just for the CEO or the exec staff, but for the entire company.  For a startup Speed and Tempo need to be an integral part of your corporate DNA.

Great startups have a tempo of 10x a large company.

Try it.

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SuperMac War Story 6: Building The Killer Team – Mission, Intent and Values

If you don’t know where you’re going, how will you know when you get there?

At the same time we were educating the press, we began to educate our own marketing department about what exactly we were supposed to be doing inside the company. During the first few weeks I asked each of my department heads what they did for marketing and the company. When I asked our trade show manager she looked at me like I was the house idiot and said, “Steve, don’t you know that my job is to set up our trade show booth?” The other departments in marketing gave the same answers; the product-marketing department said their job was to write data sheets. But my favorite was when the public relations manager said, “we’re here to write press releases and answer the phone in case the press calls.” 74HGZA3MZ6SV

If these sound like reasonable answers to you, and you are in a startup/small company, update your resume.

Titles are not your job
When I pressed my staff to explain why marketing did trade shows, or wrote press releases or penned data sheets, the best I could get was “why that’s our job.” It dawned on me that we had a department full of people who were confusing their titles with what contribution they were supposed to be making to the company. While their titles might be what their business cards said, titles were not their job – at least in any marketing department I was running.

Titles are not the same as what your job is. This is a big idea.

Department Mission Statements – What am I Supposed to Do Today
It wasn’t that we somehow had inherited dumb employees. What I was actually hearing was a failure of management. No one had sat the marketing department down and defined what our department Mission (with a capital “M”) was.

Most startups put together a corporate mission statement because the CEO remembered seeing one at their last job, or the investors said they needed one. Most companies spend an inordinate amount of time crafting a finely honed corporate mission statement for external consumption and then do nothing internally to actually make it happen. (And to this day I can’t remember if we even had a corporate mission statement.) What I’m about to describe here is quite different.

What was missing in SuperMac marketing was anything in writing that gave the marketing staff daily guidance on what they should be doing. The first reaction from my CEO was, “that’s why you’re running the department.” And yes, we could have built a top-down, command-and-control hierarchy. But what I wanted was an agile marketing team capable of operating independently without day-to-day direction.

So what we needed to do was to craft a Departmental Mission statement that told everyone why they come to work, what they need to do, and how they will know they have succeeded. And it was going to mention the two words that SuperMac marketing needed to live and breathe: revenue and profit.

Five Easy Pieces – The Marketing Mission
After a few months of talking to customers, talking to our channel and working with sales we defined the marketing Mission (our job) was to:
Help Sales deliver $25 million in sales with a 45% gross margin. To do that we will create end-user demand and drive it into the sales channel, educate the channel and customers about why our products are superior, and help Engineering understand customer needs and desires. We will accomplish this through demand-creation activities (advertising, PR, tradeshows, seminars, web sites, etc.), competitive analyses, channel and customer collateral (white papers, data sheets, product reviews), customer surveys, and market requirements documents.

This year, marketing need to provide sales with 40,000 active and accepted leads, company and product name recognition over 65% in our target market, and five positive product reviews per quarter. We will reach 35% market share in year one of sales with a headcount of twenty people, spending less than $4,000,000.

  • Generate end user demand (to match our revenue goals)
  • Drive that demand into our sales channels
  • Value price our products to achieve our revenue and margin goals (create high-value)
  • Educate our sales channel(s)
  • Help engineering understand customer needs

That was it. Two paragraphs, Five bullets. It didn’t take more.

Working to the Mission
Having the mission in place meant that our marketing team could see that what mattered was not what their business card said, but how much closer did their work move our department to completing the mission. Period.

It wasn’t an easy concept for everyone to understand.

Building the Team
My new Director of Marketing Communications turned the Marcom departments into a mission-focused organization. Her new tradeshow manager quickly came to understand that their job was not to set up booths. We hired union laborers to do that. A trade show was where our company went to create awareness and/or leads. And if you ran the tradeshow department you owned the responsibility of awareness and leads. The booth was incidental. I couldn’t care less if we had a booth or not if we could generate the same amount of leads and awareness by skydiving naked into a coffee cup.

The same was true for PR. My new head of Public Relations quickly learned that my admin could answer calls from the press. The job of Public Relations at SuperMac wasn’t a passive “write a press release and wait for something to happen activity.” It wasn’t measured by how busy you were, it was measured by results. And the results weren’t the traditional PR metrics of number of articles or inches of ink. I couldn’t care less about those. I wanted our PR department to get close and personal with the press and use it to generate end user demand and then drive that demand into our sales channel. (The Potrero benchmark strategy was one component of this creating end user demand through PR.) We were constantly creating metrics to see the effects of different PR messages, channels and audiences on end-user purchases.

The same was true for the Product Marketing group. I hired a Director of Product Marketing who in his last company had ran its marketing and then went out into the field and became its national sales director. He got the job when I asked him how much of his own marketing material his sales team actually used in the field. When he said, “about ten percent,” I knew by the embarrassed look on his face I had found the right guy. And our Director of Technical Marketing was superb at understanding customer needs and communicating them to engineering.

Teaching Mission Intent – What’s Really Important
With a great team in place, the next step was recognizing that our Mission statement might change on the fly. “Hey, we just all bought into this Mission idea and now you’re telling us it can change?!”

We introduced the notion of Mission intent. What is the company goal behind the mission. In our case it was to sell $25 million in graphics boards with 45% gross margin. The idea of intention is that if employees understand the thinking behind the mission, they can work collaboratively to achieve it.

But we recognized that there would be time marketing would screw up, making the mission obsolete (i.e. we might fail to deliver 40,000 leads.) Think of intention as the answer to the adage, “When you are up to your neck in alligators it’s hard to remember you were supposed to drain the swamp.” For example; our mission said that the reason why marketing needed to deliver 40,000 leads and 35% market share, etc, was so that the company could sell $25 million in graphics boards at 45% gross margin.

What we taught everyone is that the intention is more enduring then the mission. (“Let’s see, the company is trying to sell $25 million in graphics boards with 45% gross margin. If marketing can’t deliver the 40,000 leads what else can we do for sales to still achieve our revenue and profitability?”) The mission was our goal, but based on circumstances it may change, but the Intent was immovable.

When faced with the time pressures of a startup, too many demands and too few people, we began to teach our staff to refer back to the five Mission goals and the Intent of the department. When stuff started piling up on their desks, they learned to ask themselves, “Is what I’m working on furthering these goals? If so, which one? If not, why am I doing it?”

They understood the mission intent was our corporate revenue and profit goals.

Core Values
Even after we had Mission and Intent down pat, one of the things that still drove me crazy was when we failed to deliver a project for sales on time or we missed a media deadline, everyone in my department had an excuse. (Since a large part of marketing was as a service organization to sales, our inability to deliver on time meant we weren’t holding up our end of the mission.) I realized that this was a broken part of our culture, but couldn’t figure out why. And one day it hit me that when deadlines slipped there were no consequences.

And with no consequences we acted as if schedules and commitments really didn’t matter. I heard a constant refrain of, “The channel sales brochure was late because the vendor got busy and they couldn’t meet the original deadline.” Or, “the January ad had to be moved into February because my graphic artist was sick but I didn’t tell you assuming it was OK.” Or, “we’re going to slip our product launch because the team thought they couldn’t get ready in time.” We had  a culture that had no accountability, and no consequences -  instead there were simply shrugged shoulders and a litany of excuses.

This had to change. I wanted a department that could be counted on delivering. One day I simply put up a sign on my door that said, “No excuses accepted.” And I let the department know what I meant was we were all going to be “accountable.”

What I didn’t mean was “deliver or else.” By accountable I meant, “we agreed on a delivery date, and between now and the delivery date it’s OK if you ask for help because you’re stuck, or something happened outside of your control. But do not walk into my office the day something was due and give me an excuse. It will cost you your job.” That kind of accountable.

And, “since I won’t accept those kind of excuses, you are no longer authorized to accept them from your staff or vendors either.” The goal wasn’t inflexible dates and deadlines, it was no surprises and collective problem solving.  After that, we  spent a lot more time working together to solve problems and remove obstacles in getting things done on-time.

Over time, accountability, execution, honesty and integrity became the cornerstones of our communication with each other, other departments and vendors.

  • We wouldn’t give excuses for failures, just facts and requests for help
  • We wouldn’t accept excuses for failures, just facts, and offer help
  • Relentless execution
  • Individual honesty and integrity

That was it. Four bullets. It defined our culture.

Why Do It
By the end of the first year our team had jelled. It was a department willing to exercise initiative, had the judgment to act wisely, and an eagerness to accept responsibility.

I remember at the end of a hard week my direct reports came into my office just to talk about the weeks little victories. And there was a moment as they shared their stories, that they all began to realize that our company (one that had just come off of life support) was beginning to kick the rear of our better-funded and bigger competitors.

We all marveled in the moment.

What did I learn so far?

  • Push independent execution of tasks down to the lowest possible level
  • Give everyone a shared Mission Statement: why they come to work, what they need to do, and how they will know they have succeeded.
  • Share Mission Intent for the big picture for the Mission Statement
  • Build a team comfortable with independent Mission execution
  • Agree on Core Values to define your culture

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The “Good” Student

I saw an article in the New York Times about Google’s hiring practices that reminded me of the differences between great big successful technology companies and small scrappy startups.

Marissa Mayer, Google on hiring

I love Google.I think its one of the smartest companies out there. And it hires very smart people from the best schools. And if you meet their criteria of a “good student”, you ought to go to work there.Or Microsoft or IBM. 74HGZA3MZ6SV

Nothing makes me happier then to see my students getting great grades (and as they can tell you I make them very work hard for them.)

But what I remind them is that great grades and successful founders/technology entrepreneurs have at best a zero correlation (and anecdotal evidence suggests that the correlation may actually be negative.)

BTW, by the standards mentioned in the Times article, the following people would never have been interviewed or hired at Google.

College Dropouts-Bill Gates, Steve Jobs, Larry Ellison

College Dropouts – Bill Gates, Steve Jobs, Larry Ellison

These guys realized that customers don’t ask for your transcript.

There’s a big difference between being an employee at a great technology company and having the guts to start one.  You don’t get grades for having resiliency, curiosity, agility, resourcefulness, pattern recognition and tenacity.

You just get successful.

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Story Behind “The Secret History” Part III: The Most Important Company You Never Heard Of

This is Part III of how I came to write “The Secret History of Silicon Valley“.

1978. Two years out of the Air Force, serendipity (which would be my lifelong form of career planning) found me in Silicon Valley working for my first company: ESL. If you’re an entrepreneur, ESL is the most important company you’ve never heard of. If you are a practitioner of Customer Development, ESL was doing it before most us were born. If you think the Cold War turned out the right side up (i.e. Communism being a bad science experiment) ESL’s founder Bill Perry was moving the chess pieces. And no one who really knew could tell you. 74HGZA3MZ6SV

Bill Perry’s public life as Secretary of Defense and his subsequent work in preventing nuclear proliferation and nuclear terrorism is public knowledge. But part of his life that that doesn’t even merit a Wikipedia entry is that Bill Perry used Silicon Valley to help end the cold war.

Fred Terman Sent Us

In 1953 the U.S. Army needed to build missile and proximity fuse jammers and Quick Reaction Capability (QRC) systems (translation: the other side just came up with something that’s killing us in a shooting war, get us a fix quick.) The Army offered Fred Terman, the Dean of Engineering at Stanford, a $5M contract to build an electronics countermeasures lab. When Terman said no, Sylvania, a tube company which built proximity fuse tubes in WWII, won the contract and set up its Electronic Defense Lab (EDL) in Mountain View California in the middle of an orchard. Terman became a consultant to the company.

In ten years Sylvania EDL grew to be one the largest companies in the valley − 1300 people were working on electronic countermeasures and electronic intelligence. By 1961 its customers now included our intelligence agencies. (BTW, when the customers were “three-letter” intelligence agencies, contractors used an oblique way of talking about who they were working for: they were all referred to as simply the “customer.”)

In 1964, Bill Perry, the head of the lab, frustrated with GTE’s management, quit (GTE, a phone company had bought Sylvania in 1959.) And in the tradition of great startups, on the way out Perry took 6 of his best managers with him.

At ESL Military Intelligence Was No Longer an Oxymoron

Perry not only took his best managers, but he also took his customers, and his desire to build a company culture that was the antithesis of working for a phone company. In building ESL Perry made a conscious choice to emulate Hewlett Packard (then considered the “gold standard” of a great technology company.) HP had an ethical culture, entrepreneurial spirit, and deep Stanford engineering department connections. One key difference: unlike HP, which had restricted stock ownership to the founders and top management, Perry made sure everyone at ESL had stock. There were no venture investors. The “customers’” contracts funded the company. Seven years later in 1971 ESL went public.

Not surprising with a CEO with a PhD in Math, at ESL the engineers ran the company, pursuing bleeding-edge designs in antennas, receivers and microwaves – at times hand in hand with Stanford’s engineering department. (Some of this stuff was so advanced that the rumors were that we got it from the alien spacecraft hidden at Wright-Patterson Air Force base.)

ESL was unique among the “we do microwaves” that the Valley specialized in before it was Silicon Valley. ESL was a systems company that used computers, and in the mid-1960’s using computers for electronic intelligence was considered revolutionary. ESL specialized in embedding minicomputers in electronic intelligence systems, turning a tedious manual process into one that looked like magic. The “customers” in Washington had never seen anything like it.

While those computer-based systems paid the bills, Perry’s even more profound insight would change the outcome of the Cold War.  Up until ESL, radio and radar signals had always been received by analog receivers.  ESL realized that by turning these radio waves into computer bits, ones and zeros, they could be processed in ways that had been considered theoretically impossible.  ESL’s systems allowed signal extraction and correlation against targets the Soviet Union thought were undetectable and impenetrable. But this digital world required new theories, and new devices – two items provided by Silicon Valley in the form of Stanford’s engineering department and the emerging/booming semiconductor business.

ESL and “the Customer” – No Such Agency

ESL kept getting business and growing mostly through unsolicited bids. Because they were extremely good at what they did, most of the contracts they won were “sole source.” However, it didn’t hurt that Perry several allies at the “customer.” One of them, Bud Wheelon, had been a classmate of Perry’s at Stanford and they both had worked on the electronic intelligence collection problem, Perry at Sylvania EDL and Wheelon at the Space Technology Lab at Ramo Woolridge. In 1962 Wheelon left for a new job as the first director of the CIA’s Directorate of Science and Technology where he was responsible for development of OXCART, the A-12 Spyplane, and three major satellite reconnaissance systems.  These would be the heart of ESL’s business.

A-12 OXCART CIA Spyplane

A-12 OXCART CIA Spyplane

ESL found other ways to stay very close to its customers. Forty years before Agile Development methodologies became popular, ESL had analysts from its “customer” sitting side-by-side with ESL engineers designing new equipment together. And in the 1960s ESL’s customers asked the company to analyze and interpret telemetry data even though this was a traditional function of the “customer.” In five years, ESL went from a plucky startup to the market leader in Sigint and telemetry intercepts. While it was a for-profit company, Perry believed ESL’s goal was to serve the national interest instead of just the stockholders. He identified with their customers, not shareholders. If there was a conflict between profits and doing the right thing, at ESL the goal was to “think of the country first.” Yet ESL was just act one for Bill Perry.

Yes We Can – Dumping Detente – Bill Perry and “the Revolution in Military Affairs

After 20 years of an escalating arms race, the Nixon administration decided to take a new approach to dealing with the Soviet Union: Détente. Kissenger’s thinking was: history may be tilting to the Communists and we may not be able to win the struggle with the Soviet Union so let’s settle for parity. Yet while the U.S. had been engaged in the Vietnam War, and had agreed to parity in nuclear weapons, Soviet forces in Europe had built a 3 to 1 advantage in tanks, artillery, armored personnel carriers, and soldiers, all under Détente.

In response the U.S. dumped Détente and embraced a new strategy to counter the Warsaw Pact by not matching them tank for tank or solider to solider. The new insight was that we could change the game completely and take advantage of a lead we had that was getting longer every day – by using our computer and chip technology to aggressively build a new generation of weapons that the Soviet Union could not.

At the heart of this idea was something called “precision strike,” what we would today call smart bombs or precision guided munitions. But this new strategy was more than making the bombs smarter. It involved building stealth aircraft to deliver these precision weapons unseen by any enemy radar, and designing intelligence and reconnaissance systems that would target for them. Smart weapons, smart sensors, and stealth.  And the heart of all of this were microwaves, silicon chips, electronics and computers that only the U.S. could design and produce, and a good part of it was coming from Silicon Valley.

The Arms Factories that Won the Cold War Were Semiconductor Factories

Who was the government official pushing all of this? It was none other than Bill Perry, who had become the head of Research and Engineering for the Defense Department. From 1977 to 1981 Perry cranked up spending for research and development on a massive scale. The budget for the Defense Advanced Research Projects Agency (DARPA) doubled, and huge “smart weapons” defense programs like the F-117 stealth ground attack plane and the B-2 stealth bomber; precision guided munitions; JSTARS, a surveillance system; and the satellite Global Positioning System (GPS); MX missile; Trident submarine; and Tomahawk cruise missiles.

F-117 Nighthawk - 1st Stealth Ground Attack Plane

F-117 Nighthawk – 1st Stealth Ground Attack Plane

These changes in American defense policy spooked the Soviets. The Chief of Staff of the Red Army said that this “Offset Strategy” was revolutionizing contemporary warfare and posed a military threat that the Red Army could not match. “We cannot equal the quality of US arms for a generation or two. . . . We will never be able to catch up with you in modern arms until we have an economic revolution. And the question is whether we can have an economic revolution without a political revolution.”

The U.S. Cold War strategy had gone from a “let’s be friends” to a “yes we can win” strategy. By the mid 1980s Ronald Reagan was cranking U.S. defense spending even higher. Gorbachev, now the Soviet Premier, had to grapple with the spiraling cost of military systems that weren’t amortized by consumer purchases. Arms control with the U.S. and massive cuts in weapons and the military seemed like the only way out. And the rest is history.

Bill Perry put us on the path to use Silicon Valley as a weapon in the cold war.

My small part as a foot solider in this adventure is in the next post.

Part IV of the Secret History of Silicon Valley continues here.

Startup Ethics: Albatross or Essential?

A comment left on the previous post made me realize that it was time to discuss a subject I was going to save for latter – ethics.

While the story about the Potereo benchmarks was about relentless execution, its glib description of designing the benchmarks could be read as we cheated.  Given we consciously worked hard not to, here’s what we were thinking.

We decided to work with our engineering department to create the Potreo benchmarks because we really wanted to see how our boards performed with the four applications customers told us that they used; Photoshop, Quark, Illustrator and PageMaker. These were applications we had never seen or ran before when the boards were designed. As we ran our tests, our engineering team found ways to improve our graphic boards performance for these applications and they made revisions to the boards firmware (its operating instructions.) The goal was to make our boards run really fast on customer applications – the benchmarks just reflected that.

It would have been easy for marketing to skip all of this and just write a set of benchmarks that made us look good. It would have been possible to have our graphics boards recognize a benchmark and just speed that test up, but not really be faster in the real world. All these shortcuts were available to us. And we decided not to. And here’s why.

Even in the smallest of companies ethics matter. Culture matters. As a private company you can decide that winning at all costs is your culture. You can decide that coming in first at all costs is your culture. Unless your board of directors is looking over shoulder they may never know that’s what you’re doing and no one will tell you to stop.

Don’t confuse or rationalize “relentless and focused” with cheating.

Shortcuts are easy. But besides being morally wrong, in the end they come back to bite you big time. (Think about the baseball Steroid scandal, Tour de France doping scandal, housing bubble, etc.) When your employees see that it’s “an anything goes” culture you’ll find unethical behavior occurring that you will regret. And in a big company most of it is illegal and can have enormous consequences.

If you are a founder of a startup ethics begin with you. Think through if you want to win at any cost.  (I avoid these entrepreneurs like the plague.)

A final note. I’m sure at Enron and Madoff there were plaques and posters about ethics. Just remember ethics and values are about what you practice when the going gets tough. It’s the decisions that you make that might cost you an order, a sale or a higher stock price. Do the right thing. It pays off in the end.

SuperMac War Story 5: Strategy versus Relentless Tactical Execution — the Potrero Benchmarks

A few months into my tenure as the VP of Marketing, we now understood who our customers were.  We had thought really hard about “market type” and decided to reposition the company from a technology provider to a solutions provider. Now we needed to put the tactical programs in place to make this repositioning strategy happen. 74HGZA3MZ6SV

Just as an aside, over my career I must have interviewed scores of business school graduates (some from the very fine universities where I now teach) who would say, “I want to do strategy.”  Well yes, I understand that, but this is a startup, what else do you want to do?  “I just want to do strategy.”  Those were very short interviews.  The “strategy” of learning who SuperMac’s customers were, what solutions they needed and what our repositioning would be was a three month effort.

The tactical execution took three years.

Note, if you want to do “strategy” (which is a fine endeavor) and nothing else, you have just defined your career as one in large corporation or in a consulting firm.  Stay out of startups.  Tactics mean tenacious and relentless execution measured in years.

Metrics – Mine is Bigger Than Yours

The first thing SuperMac needed to do was to change how our potential color desktop publishing customers viewed our products versus our competitors’ products.  Over the years marketers have found that using numbers to compare yourself to other products works well.  We’ve all seen ads that say, “Now 30% more” or “Marked down 50%” or “5 times faster.”  As hokey as it is, when confronted with uncertainty or unknowns, human beings like to be reassured by comparative metrics.  But hardware metrics typically focused on raw speed and performance.  The key insight we had was that it wasn’t about raw speed − it was the speed of the applications that customers were using to get their work done.

Believe it or not, until that moment, there were no commonly agreed upon ways to measure the performance of graphics boards on real world applications.

So I was going to give our customers metrics neither they or anyone else had ever seen before.

First, by talking about solutions rather than hardware, we changed the way customers thought about graphics boards.  Now we were going to change the metrics that customers and the press used to evaluate product performance.

Objects in Our Mirror are Larger than they Appear

Our first goal was to set up benchmarks to measure the performance of our own graphics boards on the real applications our customers used (Photoshop, Quark, Illustrator and PageMaker.)  Then we were going to buy our competitors’ boards (think “secret shopper”) and compare them to ours.

Since no benchmarks existed, we enlisted our engineering department in a serious software development effort and wrote our own.  And we made sure that instead of some artificial numbers, the benchmarks truly measured performance on these four key applications our customers told us were important.  Then we ran the same benchmarks against our competitors’ boards.  When we found a subset of the tests on which we did worse than our competition, we … hmm, somehow that never happened.  The numbers were in.  We won.  Overwhelmingly. (What a surprise.) Any customer who used the four critical color publishing applications was going to be blown away by how much better the SuperMac boards were.

Finally, since no one would believe a set of benchmarks named after our company, we needed a façade of independence, so we named them after the street the company was headquartered on in Sunnyvale California – they became known as the Potrero Benchmarks.

Tell Me How to Find You

But having benchmarks in hand that showed us as the winner did us no good unless all our potential customers could see them.  Our first thought was to spread the news ourselves, perhaps in a press release or a “white paper,” (remember this was pre-Internet.)  But upon reflection I remembered that in our interviews with our existing customers they had told us how to get the news to them.  That told us which publications they relied on for news about graphics boards: the three publications that mattered, MacWorld, MacUser and MacWeek became marketing’s highest priority.  Inside the covers of these publications our customers had said that it was the product reviews that most influenced their buying decisions.  That by itself was a sobering challenge since our company had never come in first in any of the previous 14 reviews of graphics products that had been written to date.

supermac-3-publications

Now this is worth stopping and thinking about for a second. We figured out how to reach our customers (through these three publications) because they told us how to do so. We figured out what was the most important criteria they used to evaluate which board to buy – product reviews – again because they told us how to do so.  These were two of the questions I had asked on purpose when we first did the initial customer surveys. Some of my staff had believed we were gathering extraneous customer data.  “Hey, we can make these surveys shorter.  We don’t need to know all this stuff.”  Yes you do.  You need to know the day-in-the-life of the customer.  From top to bottom. If you’re constantly correlating data and searching for patterns, all intelligence if properly integrated will give you insight.

The Chase

Then we began an educational blitz of these three critical publications.  We set up a series of meetings with the editor-in chiefs and the key writers who reviewed graphics products.  We had one story to tell and surprisingly it wasn’t about our company or our product.  It was an educational mission to tell the story of who our customers were (and by inference who all the graphics board customers were) and why the current reviews of these graphics boards weren’t adequately measuring what was important to this large market.

(Now as VP of Marketing, I could have sat back and let my PR agency handle the press.  Theoretically, that’s why I hired them.  But these meetings were life and death in our struggle for market share.  You don’t delegate life and death. The head of the PR agency agreed that we would work together as a team.  We both met often and went to all of the press meetings together.)

Why did we believe that these magazines would care?  At the time desktop publishing was one of the mainstays of the Macintosh market, and therefore the readership of these magazines reflected the demographics of the Mac.  For these magazines to find out that they didn’t truly understand what their customers cared about got their full attention.

I knew with a high probability before the meeting started what the end of the meeting would be like since there was no other way to go.  My staff didn’t believe it when I told them it would happen this way, but in meetings with all three magazines they said, “Ok, you convinced us these four applications are critical for the color publishing market, but how can we measure the performance of these applications?”

The Trojan Horse

“Well…” I said hesitantly, “I’m not sure we should share this with you but we have a set of benchmarks that we use to measure performance….” You can imagine the rest of the conversation; my sounding reluctant to let our own tests outside our building, the magazines begging us to let them have them, and finally a deal gets struck where we let the benchmarks out to the test labs of these magazines under their own name “The Potrero Benchmark Suite” without attribution to us.

Our benchmark had just become the standard test suite for all magazine reviews that our potential customers would read.  Our benchmarks, which were tuned for our boards, had just become the standard test suite for all our competitors’ graphics boards.

Relentless Execution

Once the education and benchmarks were in place, we then worked with each magazine writer as their product review deadline approached.  We provided customer references and testimonials supporting the key features we were promoting.  Focused on winning these reviews, I left nothing to chance.  My rule was no magazine could review our boards without us present.  The magazines’ rules were that no company could be in their labs when they reviewed the boards.  So we would always wait to the last minute to provide our boards for testing and then “forget” to ship the cables to connect the board to a computer monitor.  When the panicked manager of the magazine test lab would call under a last minute deadline, we would apologize profusely as we sent the cables over – with beer, pizza, and our product manager to help them through any testing “issues”.

My PR agency, my head of marketing communications and I set up a wall-sized chart (in my office where I had to close my eyes not to see it) of the editorial calendars of these publications. We listed the editors, writers, what they had previously had written, deadlines, what the competitive products were, how our benchmarks stacked up, what “upgrades” our boards needed from engineering to win, etc.  This was upfront and center for anyone who walked into my office could see what I thought was important.

In parallel, we educated the rest of our own company how essential winning these product reviews were to our customer and our financial success. What used to be an exercise in teeth-pulling frustration to get help from our own manufacturing or engineering departments turned into a well-oiled process as everyone stopped what they were doing to help us win.

None of this was an accident.  It was all part of a strategy.  But its successful execution would take a focused set of tactics and a great group of marketers working with me.  And I now had both.

From a company that never won a benchmark review with its graphics boards, we want on to win twenty-one of them in a row.  It was two and a half years before our competitors even realized that the Potrero benchmarks and SuperMac having its building on Potrero Street had any connection.

By then it was too late.

Our market share was starting to climb.

And we were just getting started.

What did I learn so far?
• Strategy points you to the goal
• Relentless tactical execution gets you to the goal
• Keep the tactics simple and focused
• Tactical execution needs to be managed at the highest level – you can’t delegate success in a startup

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