B2B Marketing Strategies For The New Year

Marketing in the B2B world is always tough. Let’s face it, the topics can be a bit dry, at least compared to the consumer segment.

So with the year coming to a close, it’s a good idea to think about new approaches. What are customers looking for? What will resonate?

To get some answers to these questions, I reached out to various marketing experts. Here’s what they had to say:

Sense-Based Marketing

Brett Zucker, CMO of Monotype:

“Thanks to the evolution of new technologies like AR/VR, consumer preferences toward short, ephemeral video content, and the explosion of voice-based devices and assistants, sense-based marketing will take center stage in 2019. We can expect brands and marketers alike to invest aggressively in strategies that appeal to varied audiences across sight, sound, touch, etc., as there is a wealth of opportunity in B2B applications. Take voice for example. This could translate directly into an overhaul of content marketing strategies that prioritize long-tail keywords which are more conversational, “featured snippets” that appear higher on search results, and the continued importance of the mobile-friendly interface. Further, prepare for B2B influencers to wield more power than ever in the new year, as they drive brand authenticity and ROI, even—and perhaps especially—in light of the new privacy-sensitive landscape.”

Seamless Channels

What The Cloud Will Look Like In Ten Years

Ten years ago the world economy was mired in a financial crisis. But for Dan Saks, he was optimistic and launched his own startup, called AppDirect. His focus was on helping businesses leverage cloud applications.

Now the early days were not easy. Keep in mind that he spent much of his time in Europe selling his vision to telecom operators!

But of course, the effort paid off in a big way. AppDirect has gone on to raise $246 million and has amassed a large customer base, which includes biggies like Comcast, ADP, and Deutsche Telekom

Yet success can be fleeting – so this is why Dan takes a long-term view of things. Let’s face it, the cloud industry will look much different in the next ten years. There will probably be some well-known companies that will crater along the way.

“I believe there will be a recession in the next several years and in this downturn, the victims will likely be the traditional workers that don’t have skills in the knowledge economy,” said Dan. “Many will be quick to blame technology and automation. In the next 10 years, there’ll be a transition from this predicted recession to an emergence of new trends in the cloud. There’ll be a less of a focus on cloud as a hot, new technology as this technology will become commonplace. Terms like cloud and digital won’t matter because they’ll be so pervasive.”

There are already signs of this. “New applications and services are emerging based on specific verticals and geography, creating proliferation of apps everywhere,” said Dan. “What’s interesting is the intersection of technologies that’ll continue to emerge as service-enabled.”

OK, so what are some of the other trends he is counting on? How might things develop during the next ten years?

Well, here’s a look:

Vertical SaaS That’s Powered By AI

“There’ll be an emergence of smarter computers among AI companies. The way we have viewed software over the last 40 years will no longer be relevant. Meaning, the days when we used to type a query into an IBM system and get output back are far behind us. By leveraging large datasets, vertical SaaS, and workflows, software will be able to work for you. You will no longer need to click in and enter information to get information out. Instead the computer will just push information to you.”

Form Factors

“There’ll be a proliferation of devices and enhanced technologies that interact with computers (e.g. keyboard, mouse, voice controls), making the technology more sophisticated. As it becomes more advanced, you may not even have to open an application, but rather it can tell you what you need proactively.”

Extension Of IoT (Internet-of-Things)

“Connected devices will proliferate everywhere data is aggregated in mass amounts (e.g. sensors). These connected devices need a SIM card for connectivity and an identity in order to drive commerce. There will be digital channels to buy, sell and manage services in your home and work life. Proliferation of devices reinforces the use of AI and creates many more digital channels than before.”

Cybersecurity

“The tech industry needs to ensure that businesses and consumers can keep, delete and manage the data they want. We need policymakers to become focused on how data privacy will be regulated as more data is produced.

“In the future, the entire digital economy will be driven by SaaS, and how we regulate data privacy will be important. We also need to be able to make decisions taking into consideration the chances of being hacked.”

What To Expect For AI (Artificial Intelligence) In 2019

AI (Artificial Intelligence) continues to be red hot. Then again, every top tech company is investing heavily in the technology, such as Amazon.com, Facebook, Microsoft and Google.

But AI is more than just about big companies.  Keep in mind that the technology is getting much easier and affordable to use.

“We are seeing the democratization of AI through open source algorithms, affordable computing power and AI specialized hardware,” said Roy Raanani, who is the CEO and founder of Chorus.ai. “Google TensorFlow released open source software to allow anyone to build on Google’s own machine learning algorithms. Also the introduction of AI specialized hardware by Apple, Google, Tesla and NVIDIA is increasing AI performance by tens to hundreds, and enabling that performance in smaller form factors.”

Then what may we see next year? What are some of the emerging trends?

Here’s a look:

Video and AI will Make Voice the Last Frontier in Business Communications

Santi Subotovsky, General Partner, Emergence:

“We’ve already seen a huge rise in revenue generating applications that combine voice and AI to improve human interactions, sales, and customer service. In 2019, we’ll see new applications that, among other capabilities, will allow enterprise users to employ voice, AI and video to capture and analyze content, interpret non-verbal cues, and quickly respond to queries for data needed in discussions. The increased productivity, efficiency and insights provided by these applications will shift the center of business communications from text to face-to-face meetings, bringing voice and video full circle from the first to the last frontier.”

AI Smart Features Will Improve Meetings

Oded Gal, Head of Products, Zoom Video Communications:

“We believe that in 2019, video meetings will surpass other means of business communications to become the de facto standard. Why? Because video communication has more AI-driven ‘smart’ features than ever and those technologies can dramatically improve meeting productivity and the user’s experience. For example, AI-based features such as voice-to-text transcription can take meeting notes, and soon, virtual personal assistants will record tasks and help set up meetings, and voice recognition will identify meeting participants and provide relevant details on their background. Together, we believe that these features will make many video meetings superior to in-person meetings.
“Additionally, we predict that AI-driven facial recognition will be used in video conference rooms for a variety of purposes. For example, insights into who has used the conference room, when, and for what purpose will also help IT and Facilities staff better plan space allocation and usage.”

Chief Analytics Officer (CAO) or Chief Data Officer (CDO) Roles Will Become More Prevalent

Candace Worley, Chief Technical Strategist, McAfee:

“There are myriad decisions that must be made when a company extends their use of AI. Implications exist for privacy regulation but there are also legal, ethical, and cultural implications that warrant the creation of a specialized role in 2019 with executive oversight of AI usage.
“In some cases, AI has demonstrated unfavorable behavior such as racial profiling, unfairly denying individuals loans, and incorrectly identifying basic information about users. CAOs and CDOs will need to supervise AI training to ensure AI decisions avoid harm. Further, AI must be trained to deal with real human dilemmas and prioritize justice, accountability, responsibility, transparency and well-being while also detecting hacking, exploitation and misuse of data.”

Trust AI the Same Way You Trust Your Doctor in 2019

Nick Caldwell, Chief Product Officer, Looker:

“In 2019, interpretability (the ability to understand how an AI system works) will become a nice-to-have. Think about it: when you visit the doctor’s office to get a diagnosis, you never once ask them to provide all their reference materials, case studies, comparative patient records, etc. to prove their point. At some level you accept that the doctor is an expert and you trust them. If that is okay, why do we hold AI to a higher standard of interpretability than we hold other humans? The reality is that over the past few years AI has begun to exceed human capabilities and 2019 is the year we will begin to accept it. As humans we do not need to fully understand why AI’s make decisions and maybe the systems can become better and faster when we decide to get out of the way.”

Amazon.com’s Eventual Bankruptcy: Why Companies Should Define Their Demise

At an employee meeting, Amazon.com’s Jeff Bezos noted: “Amazon is not too big to fail … In fact, I predict one day Amazon will fail. Amazon will go bankrupt. If you look at large companies, their lifespans tend to be 30-plus years, not a hundred-plus years.”

Yes, it’s something many CEOs don’t say. Hey, why be a downer? And besides, in the case of Amazon.com, the company does seem unstoppable – dominating strategic markets like cloud computing and e-commerce.

Then again, there are still many risk factors as well. Amazon.com is stretched across various highly competitive industries. There is also the potential government liability, such as with antitrust actions. Keep in mind that this wound up being the major problem for other dominant companies like AT&T, IBM and Microsoft.

So thinking about worst-case-scenarios is probably a smart thing to do. Maybe other companies like Sears should’ve done the same, right?

I think so.

Interestingly enough, some CEOs do quite a lot of thinking and evaluation on this topic. Just look at Nigel Travis, who is the Executive Chairman of the Board for Dunkin’ Brands. He has an exercise that he calls “define your demise” (he describes this in his book, The Challenge Culture: Why the Most Successful Organizations Run on Pushback).

He has a diverse background as an executive. From 2005 to 2008, he was the CEO of Papa John’s and also served as a senior vice president of HR at Burger King. But perhaps the most interesting post was as the president and chief operating officer of Blockbuster. Of course, he got a good view of how wrenching changes can quickly take down a dominant player in an industry (he left the company in 2004).

In his book, he writes: “The company’s eventual collapse made me realize just how important it is to consider how the future might develop in ways that could disrupt the company, throw the business off-balance, or lead to a serious bump in the road.”

This is why Travis has group exercises to define and explore how his business could face existential challenges. Part of this involves looking at well-known risks, say a hack or a food safety crisis. But he also knows that the most fatal vulnerabilities are those that are unexpected. To this end, there is a focus on looking at those exposures that relate to the “changing needs of customers and likely advances in technology.”

Actually, in his book, he goes through a list of potential risks (related to Dunkin’). Some include:

  • Delivery: The possibilities include drones, robots and autonomous vehicles. After all, it was the delivery mechanism of mail delivery of DVDs from Netflix that led to the downfall of Blockbuster.
  • Coffee Alternatives: Might Americans turn to another new beverage?
  • Amazon.com: Travis notes in the book, “If Amazon.com can move into the grocery business, can coffee shops and bakeries be far behind?”

It’s all about engaging in expansive thinking, with plenty of what-ifs. Much of this will be kind of wild. Yet the process will help guard against disruption.

According to Travis: “At Blockbuster, we clearly saw the rise of DVD delivery, vending, and online streaming, but even when those signals grew strong, they could not drown out the soothing mantra of the status quo: Nothing can ever replace the in-store video buying and renting experience. Until something did.”

Qualtrics’ $8 Billion Mega Deal: What It Takes To Pull Off A Massive Exit

SAP’s $8 billion acquisition of Qualtrics – a market analytics operator – has sent shockwaves across the tech world. It’s yet another sign of aggressive consolidation. Note that the year has also seen major deals from companies like Microsoft, Adobe, Cisco and IBM.

“Most of the innovation is happening at high-growth startups,” said Jyoti Bansal, who is the CEO and co-founder of Harness. “And the trend of legacy companies paying high prices to buy that innovation is going to continue to increase. It is a smart move on SAP’s part to use their cash.  Without innovation, they will become irrelevant slowly.”

Now this consolidation trend is certainly good news for startups. But then again, a target for M&A really does need to have advantages that are tough to replicate (at least on a timely basis), say a sticky application, a talented workforce or a strong brand in the category.

No doubt, such factors apply to Qualtrics. Consider that the company has a unique background, especially when compared to a typical Silicon Valley startup. Two brothers, Ryan and Jared Smith, founded the company in their parent’s basement in Utah in 2002. The initial focus was the niche market of academic research. The belief was: If Qualtrics could solve the complex problems in this category, it could do so in virtually any category.

There was another advantage to this target market – that is, the company’s technology was introduced to many students. They would then go on to use the software as they entered the workforce.  It’s a strategy that has helped spread other applications like Office.

All along, Qualtrics bootstrapped the operation. It was not until ten years later that it would raise capital, from Accel and Sequoia Capital. In fact, this money is still on the balance sheet!

According to the shareholder letter in the Qualtrics’ S-1, Ryan and Jared noted: “We have always known that uncommon results require uncommon sense. That is why we have always done things a little differently. From our earliest days, we knew that if we were going to do something special we had to write our own playbook, not follow someone else’s.”

However, Qualtrics was not only about organic growth. The company realized that to remain competitive it would need to do its own dealmaking.

“A lesson here is to quickly fill strategic product or market gaps with acquisitions,” said Deepa Subramanian, who is the CEO of Wootric. “Qualtrics recently did this when they bought Delighted, which gave them access to the turnkey SMB market, and a while back StatsIQ, which put them at the forefront of statistical visualization and ML technology. Both acquisitions positioned and elevated their base offering for the future, making the joining of forces with SAP that much more valuable.”

So given the company’s profitability, growth (revenues up 40% to $290 million for the first nine months of this year) and loyal customer base (at over 9,000), it was in an ideal position for its IPO, which was planned for a couple weeks ago. It was also helpful that by going through the due diligence process – which is extensive – Qualtrics made it easier for potential suitors to evaluate the company. This has been the case with other companies, such as AppDynamics and Adaptive Insights, that sold out before launching their public offerings.

Granted, as for Qualtrics, the decision to sell out does seem like a no-brainer. The IPO had an estimated valuation of $5+ billion.

But when it comes to the tech world, there are various factors to consider besides the price tag. “The IPO isn’t the endgame for a lot of startups anymore,” said Yevgeny Dibrov, who is the CEO and co-founder of Armis. “Tech companies going public are facing strong headwinds. Qualtrics saw that after its competitor SurveyMonkey went public.”

Finally, a deal must involve deep synergies. Let’s face it, many tech deals ultimately fail. The founders will also likely become part of the buyer’s organization.

“Team chemistry and similar company values are huge considerations in any merger,” said Craig Walker, who is the CEO and founder at Dialpad. “When Bill McDermott and Ryan Smith shared the story of their first meeting earlier this year and how they immediately bonded over shared interests and business philosophies, it sounded like they had those commonalities. Assuming those feelings are genuine, that chemistry will definitely help them through the next phase of integrating teams and technologies. At the end of the day, it doesn’t matter how good an offer looks on paper. If there’s not a genuine commonality of values and direction, you shouldn’t get married.”

How To Create An AI (Artificial Intelligence) Startup

AI (Artificial Intelligence) is definitely the “in” thing right now in the tech world. It seems like there is a new startup spinning up every day.  And yes, many existing companies are re-branding themselves as AI operators.

The irony is that this technology has been around for decades — but it is only recently that it has gotten traction.  Then again, there has been a convergence of various technologies that has made AI a reality.

“There has been more progress in speech recognition technology in the last 30 months than in the first 30 years,” said Jamie Sutherland, who is the CEO and co-founder of Sonix (which is an AI service for transcription). “It’s not just the massive amounts of data that are being collected, it’s the fact that this data can be mined at amazing speeds. Computing power is increasing at an exponential rate. This opens up a whole new world of opportunity for novel applications to be developed that wouldn’t have been possible only a few years ago.”

Yet the AI market is getting increasingly crowded, with the noise level hitting fever pitch. So then, how can you set yourself apart? What are the strategies to consider?

Well, to get some answers, I reached out to various CEOs and founders of AI companies:

Dan O’Connell, chief strategy officer and GM of VoiceAI at Dialpad (formerly the CEO at TalkIQ):

Founders often forget about three important elements of building an AI company, which we learned first-hand while building TalkIQ and are now applying as we continue our journey at Dialpad (which acquired TalkIQ in May). The first is hiring a team with a diverse combination of academic experience and product development expertise – this mix is important in building models, designing features, and bringing them to market. The second is setting realistic expectations on which problems your product can and can’t solve — otherwise users are highly likely to experience disappointment because AI as a whole is still in the first innings. Finally, it’s crucial for your engineers to interact directly with customers and the features they’re building. If you’re not excited about what you’re building and it doesn’t work in the desired way when you test it, you can’t expect someone else to pay for it.

Roy Raanani, the CEO and founder of Chorus:

Plan a product roadmap that gets a minimum viable product into customer’s hands as quickly as possible, even with no AI implemented. This will dial you in to your customers, how your solution fits into their existing days and workflow, and allows you to start collecting real-world data you can evaluate AI algorithms on.

Peter Wang, co-founder and CTO of Anaconda:

AI startups face both strategic and tactical challenges. Tactically speaking, getting and maintaining access to high-quality data is typically the lynchpin of any prediction system. Oftentimes, the corporate customers most likely to understand the value of a sophisticated AI product will also probably have massive amounts of internal, messy proprietary data to integrate with before they will purchase. On the flip side, potential buyers with lesser data integration challenges may also have less understanding of the unique value of AI over traditional business analytics and statistics.

Related to this, AI startups must make a fairly strategic decision early on in their lifecycle about whether they primarily want to be a “prediction-as-a-service”, API-style offering, or if they want to build a full-featured polished app that faces the business end user. The former lets them focus on core differentiators, at the risk of commoditization by other larger platform vendors. The latter lets them own the user experience, but at a much larger up-front cost and a risk of unnecessarily boxing their technology into a niche.

Pini Yakuel, the CEO of Optimove:

The ability to perform better math is no longer enough to build a successful AI-driven startup because in the rush to be an AI-focused company, startups have stopped taking into account the business problem they are solving (and not every business problem is best solved by AI). What can increase chances of success, is knowing that a certain industry challenge has a strong likelihood to be solved ‘well enough’ with an AI approach. For that, you need to excel at defining and framing the problem you are out to solve. Your creativity and expertise will be your trump card, not a better algorithm.

Dimitri Sirota, the CEO and co-founder of BigID:

One mistake companies in tech sometimes make is getting their message lost in the jargon they use to describe it. AI and ML are a means to an end. Saying you are an AI company alone is not a durable difference when AI becomes commonplace. The essence of a successful start-up is solving a problem that a large enough universe of customers understand themselves to have. Telling that story effectively is how a company wins. AI is can be the adjective but its not the noun.

Mahesh Ram, the CEO of Solvvy:

AI companies should pick a domain where consumers or businesses are currently willing to adopt AI/automation solutions and there’s social and cultural acceptance. This way you are not fighting against the current early on. For example, people don’t want robots as their doctors (yet); however, they are ok with automation when it comes to customer service.

Andrew Filev, the CEO and founder of Wrike:

Don’t include “AI” in the name of the company. Although AI is far less sci-fi and more commonplace now, it can still scare a few folks off and you don’t want to frighten your potential key buyers by making them think you are offering an AI solution that will one day replace them.

Incoming Intuit CEO: Think AI

At the start of next year, Sasan Goodarzi will take the helm at Intuit. And he will have some big shoes to fill. Brad Smith, the CEO for the past 11 years, has led the company through a wrenching transition from the desktop to the cloud and mobile. During his tenure, the customer base and revenues have more than doubled. The total return for shareholders has also been an impressive 600%+, handily beating the S&P 500.

So what can we now expect from Goodarzi? What are his plans? Well, I had to chance to meet with him this week at the QuickBooks Connect conference.

He certainly has an interesting background. When he was nine years old, he immigrated to the US from Iran and within nine months, his dad died. With little money, the family started a business.

Goodarzi would eventually go on to get a bachelor’s degree in electrical engineering at the University of Central Florida and an MBA at the Kellogg School of Management at Northwestern University. He then would start his own business and from there, go on to become an executive at Honeywell.

But it was in 2004 that he joined Intuit, where he would quickly rise through the ranks. Consider that he would run both the TurboTax franchise and the Small Business and Self Employed unit.

“While at Inuit, I’ve definitely learned a lot,” said Goodarzi. “First of all, it is really important to be insanely focused on the customer and to ensure that the customer guides how decisions are made. No matter what the role is, you need to know the compass. Next, I learned about the power of being clear about the vision. This gets the heartbeat of the employees going. Finally, you need to do whatever it takes to maintain and accelerate the pace of innovation. Seldom have I met a customer that is satisfied and does not want more.”

As for the vision of Intuit going forward, it is certainly clear. It includes three main parts:

  • Smart Money: This is about getting paid instantly as well as having access to capital. For small businesses, being without cash for even a few days can make a big difference.
  • Smart Decisions: Intuit has the benefit of having large amounts of data, which can lead to personalized insights.
  • Smart Connections: With this, Intuit has been building an ecosystem of experts, vendors and service providers.

The Customer

“Spending time with customers is intertwined in my day,” Goodarzi said. “My calendar is color coded for this.”

He also reviews Intuit’s Slack channel every day. This provides real-time access to ratings/comments on the app store and product feedback. “If you ever think things are doing great, then you will be quickly humbled when you start going through the feeds,” he said. “I’ll ping the team if I see issues. The focus on the customer is part of my DNA.”

The customer obsession has definitely paid off in a big way. Not only has Intuit grown its tax and accounting businesses, but the company has also launched successful offerings in areas like small business lending and payments. All these have helped keep up the growth rate, despite the company’s large scale.

The Future

Goodarzi believes that – during the past century – there have been two main platforms of innovation: electricity and the Internet. But now he thinks we are seeing the emergence of a new one — that is, AI (Artificial Intelligence). “This will ignite things we cannot think are possible,” he said.

Unlike the move to the cloud and mobile, Intuit is not playing catchup with the AI megatrend. Keep in mind that the company has been building a strong patent portfolio and has also rolled out innovative apps, such as QB Assistant. For the past year, it has processed over 1.5 million questions. “QB Assistant has not answered everything correctly,” said Goodarzi, “but it is learning quickly. This is really powerful.”

He believes that AI is still in the early days and that Intuit must not rest on its laurels. Let’s face it, there are many well-funded fintech companies that are gunning for the opportunity.

“Success is not just about the technology,” said Goodarzi. “We still need to be focused on the customer. How can AI be used to revolutionize how we engage with the customer? How can we make much better recommendations? How can we eliminate more and more clicks and data inputs from the user? All these are just some of the questions we ask – and AI will be a big help.”

IBM + Red Hat: What Does It Mean For Open Source Startups?

But it was really the best thing that could happen to him. You see, Young would start a business — called Red Hat — in the emerging category of open source software, with a focus on the Linux operating system. The early years were a struggle but he persisted.

Of course, as of now, Red Hat is a massive company and has recently sold out to IBM for a hefty $33 billion. It’s actually Big Blue’s biggest deal in its 107 years. What’s more, the move is not necessarily surprising either. “It is important to note that IBM has embraced open source for quite some time, at over 20 years,” said Mark Brewer, who is the CEO of Lightbend.

So what does this all mean for the open source community? How might the deal impact startups?

Well, first of all, there are considerable risks. Let’s face it, tech deals do not have particularly good track records.

“If IBM uses a heavy-handed approach to try to change Red Hat to fit into their corporate mold, I don’t see anything good coming from that,” said Peter Zaitsev, who is the co-founder and CEO of Percona, a provider of open source database software and services. “I’m sure a lot of Red Hat customers and partners are concerned about which direction this will go. This will be a great time for alternative Linux distributions like Ubuntu on SUSE to gain market share.”

Karthik Ramasamy, who is the co-creator of Apache Heron and the co-founder of Streamlio, also has some concerns: “One risk is that large, established companies may make more direct efforts to gain control over key open source technologies, attempting to crowd out startups and other smaller players. Although large companies have for a very long time aimed to influence and leverage open source projects, this acquisition represents the boldest step yet by a large vendor to gain control over the commercialization of open source technology. Another risk is that innovating in core platform technologies becomes difficult because of the consolidation of core platform technologies into the hands of a few large vendors. In both cases, startups built around open source need to focus on differentiation that delivers clear benefits and addresses important pain points.”

Interestingly enough, if the IBM deal falters, this could open up some interesting opportunities for startups. It could mean that there will be new avenues for innovation. “This acquisition could give rise to other Linux distributions, container platforms and cloud solutions as customers seek to maintain agility and vendor independence,” said Gary Tyreman, who is the CEO of Univa (a developer of intelligent cluster management software).

But the core business model for a startup is likely to be essential. “Many open source companies try to sell ‘consulting and support’ but there just isn’t enough margin in that to become the next Red Hat,” said Mathew Lodge, who is the SVP of Products & Marketing at Anaconda. “Instead, a new breed of start-ups is following the RedHat model of building strong subscription software businesses around open source.”

Regardless, the IBM deal is still a big-time validation, showing that there is strategic value to open source. And the transaction is not a one-off. There have been other large deals for open source companies this year, such as Microsoft’s $7.5 billion purchase of Github and Salesforce.com’s $6.5 billion acquisition of MuleSoft. More importantly, the consolidation is likely to continue. “I think the next wave of consolidation and acquisition is going to be around developer productivity,” said Fred Stevens Smith, who is the co-founder and CEO of Rainforest QA (the company operates an on-demand QA platform).  “You have a ton of super interesting companies in the space right now, especially the continuous integration, continuous delivery players – like Travis, CircleCI and Jenkins.”

But for the most part, success for a startup is more than just picking a certain technology roadmap. It’s also about finding real solutions for customers.

This is how Jyoti Bansal looks at things (last year he sold his company, AppDynamics, for $3.7 billion to Cisco). “Whether open-source or closed source, what really matters are great products, and for the business’s ability to monetize those products at scale to generate sustainable revenue and profits. Red Hat has solutions that consumers love, and it has done a great job at commercializing its products at scale.”

Leadership Lessons From Cisco’s John Chambers

When John Chambers came on board Cisco in 1991, the company was a small network operator, with a focus on routers. But of course, the company would rapidly turn into an industry giant. During the 1990s, Cisco’s revenues grew by an average 65% per year and as of the year 2000, the market cap was a staggering $550 billion – which was larger than Microsoft’s. During this period, more than 10,000 employees would become millionaires.

But when the dot-com boom burst, Cisco came close to imploding. In a matter of 45 days, the sales went from 70% growth to a 30% drop. Inventories piled up and about a quarter of the customer base was wiped out.

Despite all this, Cisco was able to adapt and eventually get back on track.  Although, many of its rivals failed, like Nortel.

As of now, Cisco generates revenues of over $49 billion and has dominant positions in 18 different product lines.

OK then, so how did Chambers do all this? Well, he recently published a book on this topic, called Connecting the Dots. In it, he covers his core philosophy on leadership – with many great stories.

Chambers boils down his approach to four key areas: anticipate and get ahead of market transitions, find ways to innovate at scale, build a culture that is focused on the needs of the customer and develop a flexible network infrastructure.

The Chambers’ Way

Chambers had the advantage of working at IBM and Wang before coming on board Cisco. This meant he learned some tough lessons before he became a CEO.

For example, while at Wang, he saw the importance of anticipating market transitions. The company, which was a leader in minicomputers for word processing, failed to evolve its product to the PC market. As for IBM, Chambers learned that a company should never think it has all the answers.

Now when Chambers joined Cisco, he wasted little time testing his approach. He pushed to make a transformative acquisition of Crescendo and was willing to leave the company if it did not happen. At the time, Cisco had only $70 million in revenues and 400 employees. So the deal was a considerable risk.

But Ford Motor, which was a customer of Crescendo, talked to Chambers about the merits of the company’s switches. The more he thought about it – analyzing the market and the trends — the more he realized that this technology would be critical for networking. And it was. It was the kind of deal that would allow Cisco to differentiate itself from its rivals, many of which no longer exist today.

Dealmaking

Acquisitions would be a major driver of growth for Cisco. During a period of over two decades, the company would strike 180 deals, of which 12 were over $1 billion. The goal was clear: to acquire next-generation products that would make Cisco the leader in a category.

Yet about a third of the transactions turned out to be losers. Although, this would still be a much better track record than a typical tech company.

According to Chambers: “We couldn’t just build our way into being a market leader in every business that we wanted to be in. Nobody can. There’s simply not enough time. If you’re not one of the first three to five companies to enter a new market, you rarely get a shot at becoming a top player by doing it yourself. It’s far more efficient to buy a leading player and adapt that technology than to try to create it yourself after a market is already populated with strong players.”

Keep in mind that this strategy is likely to be even more critical in the future. Chambers notes that 40%+ of businesses today will not exist ten years from now because of the wrenching technology changes. This means companies need to seriously rethink their strategies — and Chambers’ book is a good place to start with this process.