Put up or shut up: The corporate guarantee

By Gene Tanski, CEO, Demand Foresight

Things were getting heated at the sales meeting. The cause of my anger was an old theme: Industry-wide, client expectations for business software were so low that stories about the failure of big enterprise projects had practically become wallpaper.

Where were the repercussions for the business performance that never materialized? The big systems failed to deliver what they were supposed to over 70 percent of the time and the big checks just kept getting cut with no accountability. The whole dynamic needed to be nuked.

In the heat of our discussion about the institutionalized negligence of our gigantic competitors and how we could exploit it, a 25-year-old, Xbox-playing member of our team, said: “Dude, if we’re that bitchin’, why don’t we guarantee it?”

“What?” I asked him.  “Are you nuts?  Do you have any idea how software works?”

“No, not really. But I hear you guys constantly complaining about how everyone else over-promises and under-delivers. Why not do something about it?”

That simple dare became our biggest differentiator – and, more surprisingly, revolutionized the way we run our company.

During the dot-com boom, new businesses were founded on completely new thinking by young professionals, unencumbered by any notion of what was or wasn’t possible. Most of that potential was never realized, though – at least not in the first wave, since the young visionaries had no grounding in the disciplines that would sustain their visions over time.

However, we wondered, could our team fuse the experience of the old hands with the “anything is possible” optimism of our young teammate?

Once we got our minds around the concept, the experienced guys on the team were able to adjust some long-held assumptions and work through how to handle the risk, build the pricing and generally operationalize the concept.

It was a little bit like learning how to fly, as characterized by Douglas Adams in his “Hitchhiker’s Guide to the Galaxy” books: the key to flying was to throw yourself at the ground really hard, and miss.

It was exhilarating. I felt like we had just missed the ground by a huge margin, and instead were flying straight to a business model that embodied the exact opposite of everything we hated about the IT and consulting world.

The guarantee was an explicit one – with no wiggle room. Clients would measurably improve their business performance — in our instance, a 25 percent minimum reduction in absolute forecast error — or we wouldn’t get paid. Not a dime.

It could have been a disaster, but taking this leap of faith actually did incredible things for our organizational focus – and ultimately helped cement our culture and internally align all divisions of the company.

The developers know that the software has to work and be relevant to specific job responsibilities or they don’t get paid. Implementation and technical support? They better get it right or they don’t get paid. Sales people? They had better understand the client problem and know exactly how to solve it, or … well, you know…

Another benefit of this ‘put up or shut up’ philosophy was the elimination of the need to micromanage. Once everybody understood that the promise would not bend, I found I could trust everyone to solve problems the way they thought best.

Vacation policy? Didn’t need it. Our team was entrusted to take the time off that they knew they could afford to take. Office? Wherever they could open a laptop and do their best work. This culture tells us a lot about the kind of people we should hire — can they stay motivated and productive in our unique environment?

So an energetic, passionate clash of skilled professionals turned out to be lightning in a bottle. It let us fuse the brashness of youth with organizational know-how.

We still argue in meetings, of course. But these days I enjoy it. You never know what sorts of benefits it can produce.

This post first appeared on Venture Beat: Entrepreneur Corner on October 26, 2010

Industry Trends – Beer Distribution and Improving Profit Performance

Beer Distribution is an interesting business: High margin, protected by regulation that has traditionally limited most forms of competition, which leads to an overall lack of incentive to innovate technologically.

Nevertheless, despite the lack of innovation incentives there are some activities occurring that signal the status quo may be changing a little bit; for example, the recent foray of Berkshire tossed into the mix through the purchase of a couple of distributors.

If the current dynamic were to change, for whatever reason, forecasting would be one area that would allow distributors to rapidly improve – even advance – their bottom line performance outcomes.  Currently, on average, there is not a lot of focus on forecasting. Basic practices involve sales people “working” their on- and off-premise customers, while the inventory people make sure they keep enough stock on hand to ensure customer order fulfillment is met. Inventory managers look for opportunities to take advantage of strategically ordering from suppliers that game prices increases, etc.

A heightened focus on improving forecasting and ordering would allow distributors to lower working capital invested in inventory, while maintaining and/or improving customer service.

Customer service could improve in a number of ways; better order fulfillment being the most basic upgrade. On the more advanced side of the equation; distributors could work together with bars and liquor stores to make sure the products stocked, or on offer, respond and adapt to seasonal changes, trends, pricing, promotions, and holidays – making the distributor a value-added supplier.

In turn, the end merchant will become an even more valued customer by providing a more accurate forecast to their suppliers. This helps distributors and their supply chains become more efficient. Ultimately, this virtuous cycle helps set the distributor apart as a better supply partner – making it one that beer manufacturers will want to work with and which has the capacity to make a product successful in a new market.  This allows the distributor to negotiate more favorable terms with suppliers, thereby increasing margin performance. Everyone benefits.

Improving the forecast model will require improvements in technology and process systems – something that owners will have to support. Since distribution sales people are singularly focused on driving volume and taking care of their customers, they do not take kindly to activities such as supply chain forecasting. But their input is critical in order to achieve a “big picture” point of view that will help the entire company. When forecasting is tied directly to how it will help sales people earn more money (working for a higher margin distributor), a critical component of improving forecasting will be realized.