Back in the Wombat days our mission was to grow the business organically while (i) remaining quarterly cash positive and (ii) doubling revenues every year. There was no particular logic behind this approach. At some point I’d read a Warren Buffet stat that only 10% of companies in the history of the US markets had ever managed to grow revenues at 10% or more per year for 10 consecutive years. Hence it seemed like a very good idea to try to grow at 50% to 100% per year instead and see how far we got – why aim low!?
We also figured that the overall pie would grow very quickly if we were to use this approach and organic growth would allow us to concentrate equity in the hands of the founders, friends, family and staff rather than VCs. Depending on the measure, we did manage to hit the 50% to 100% growth target for five or six years up to our acquisition by NYSE, so we delivered the dream!
The company’s go-to-market strategy was based on the concept of ‘penetrate and up-sell’ where:
Innovation was central to the approach as it relied heavily on (a) selling and then delivering new software products into our customer base, and (b) developing new business units from within. In particular we developed a well-defined operating philosophy distilled from the TIBCO model plus literature on the Google approach to innovation at the time.
The underlying thinking;
Step 1: Keep hiring innovative people, but specifically with a slant towards delivery and execution, rather than ‘blue sky thinking’ and ‘chasing butterflies’. Innovation needs to be part of the culture. Most successful ventures get off the ground due to a world class kernel of three to five people who are passionate about it.
Step 2: Create a culture that says “you are free to experiment, provided it doesn’t cost much”. Most successful start-ups on the technology side of the Fintech sector began organically, quite literally in someone’s garage – successful firms like Wombat, Kx Systems and Portware, as were Microsoft, IBM, CISCO & HP. In software, IP is ultimately the product of someone’s brain (or a collective)… which is more about focus and motivation (or realistically obsession) than incremental cost.
Step 3: Make sure people know it is worth their while to be innovative and in particular allow talent to quickly rise through the company. This is easy enough to achieve by tying career progression, etc, to successfully bringing through new ventures. One of the best innovators in Wombat started as a graduate through Belfast in 2004, got promoted to VP in 2008 and commanded a full Wall Street package.
Spinning up new products and business lines is a powerful growth engine. We found that the biggest impediments to growth were some of the senior managers who were more invested in ‘turf’ and ‘hierarchy’. The key to success was providing the emerging talent with the support and latitude they needed to deliver in the field by shielding them from internal politics.
Step 4: Give the ideas a light review to make sure that there is ‘money in it’; if it fits with the strategic direction, etc. The review needs to be lightweight as nothing puts an ‘air bag’ on momentum like red tape or politics.
Step 5: Build in a number of measures to force people to make the hard reality checks early. The simple truth is that 95% to 99% of great ideas don’t actually move the needle in practice, and most new ventures are a waste of time, money and effort.
I. Keep costs very (very) low through the start-up phase. It forces people to think and be innovative.
II. Mandate that two peers will stick their neck out and back the idea / bet their careers on it. This filters half the hair brained schemes in one go and two committed people will generally get a lot further than one.
III. Where possible get a first customer locked in up front; with a PO. Obviously this reduces net cost/capital allocation, but more importantly it gives external validation that someone is prepared to pay for the product. And its nigh on impossible to get a product to market without a lot of hard and honest feedback from a customer who is prepared to partner.
IV. Hard quarterly reviews, and a predisposition to shutting things down rather than letting them drag on. The truth is that most successful ventures I’ve seen had traction in a couple of quarters, or more specifically, were crystalized around existing momentum. Also, deadlines focus the mind.
V. Spin out a dedicated team once there is traction and validation that the plan holds. Launching new ventures is hard and required dedicated effort/commitment.
I’m a huge fan of contained software business units over matrix organizations. In fact, my personal view is that the matrix approach is extremely corrosive to innovation. The spin out should leverage share resources (sales, presales, environments, code base, coding standards, etc.) so they don’t have carte blanche to reinvent all the wheels. Still, they need enough latitude to be the master of their own destiny and have no-one to blame if they don’t deliver (i.e. engineering!).
On net, my perspective is that the model worked really well for us; with the caveat that in business it is always difficult to differentiate between luck and design!!.. (How well it thrived once we were merged with a Goliath is another question!)
Best,
Danny