This post is about psychology. Inspired by one specific facet of motivation and behaviour that is often overlooked. Why does winning drive some people to achieve extraordinary things and leave others cold?
Let me start with a health warning. I am not a professional psychologist. I have never studied psychology or had any training in the discipline. You could say that I am not even a rank amateur in the field.
I do know one thing about psychology. It underpins everything in economics and business.
If you want to understand better. Let me make two recommendations.
For a great business perspective on psychology then listen to a world class amateur in Charlie Munger (on human misjudgement).
Or get the professional view from Thinking Fast and Slow by the Nobel Prize winner Daniel Kahneman.
(Note that Professor Kahneman is a psychologist yet his Nobel is in Economics.)
All I have to offer is observations of real people in all kinds of business situations over the years. Unsystematic and anecdotal evidence if you like. Much of it gathered through business activities that revolved around winning and losing. Or at least were characterised in those terms.
I have enjoyed many great, even elaborate social occasions in celebration of wins. I have listened to ten times as many speeches or presentations bemoaning the fact that we don’t celebrate victory enough. And sat around countless tables analysing and agonising over every detail of a campaign.
In every case, the definition of victory was a business deal. Often a big sale to an important customer. But mergers, acquisitions, new hires, promotions, partnerships, procurement agreements are also seen in the same terms.
Don’t get me wrong, I enjoyed the parties (although I am getting a bit old for these things now).
Yet something always felt a little hollow. I didn’t feel the same rush that bubbled and popped in many of my friends and colleagues. It took me many years to recognise the reasons. For me, winning the deal or making the sale is the beginning not the end.
Selling versus doing
I was drawn into consulting because I like to help businesses become better. Since I found my way into SaaS and startups, I have kept to the same focus. Grow faster, be more efficient, develop new strategies, change culture, improve margins, enter new markets and many more. That’s how I have fun.
Making the sale or closing the funding round are means to an end. They give me the right to start doing what I love.
Sales or deals are a hard and painful process. Fuelled by adrenaline, myth and lots of late nights. The energy generates excitement. But the result is no more than another box ticked. There has been no value for the client. Nothing has been billed.
Closing the deal is the start of something for me. The process of creating value. The pressure to deliver. The sense of achievement. All begin after the win.
I don’t feel stress in a deal. Only when the overture ends and the show begins. Delivering what I have promised is the greatest pressure. Seeing the benefits realised offers the only real job satisfaction.
My world is very much services. Its an environment where the customer only pays after the job is done. The service provider is only as good as the last experience. Perhaps this means securing an engagement can never really be a win.
Yet I think the same principle holds true for product. If I pick your product off the shelf and pay for it, the sale is made. Is it good for your business if I hate it as soon as I open the box. No. Again the process of value and the customer relationship only begins after the sale.
Leopard or Impala - What makes the SaaS ecosystem?
I believe there are two basic types here. But the traditional type A/ type B comparison doesn’t work. So lets call them Leopards and Impalas instead. (I have also heard ducks and eagles but that was from an idiot so lets move on.)
I choose Leopards as the symbol not Lions because Lions are mangy, smelly, lazy scavengers in the wild.
Leopards are the hunters. Silent killers who stalk their prey and live for the hunt. The leopard is a beautiful, natural machine. Sounds pretty cool huh?
Then we have the antelope. I choose Impala to represent this crowd. It is the most common species in the Kruger Park and they are also sleek and stunning. Plus they are about the biggest antelope a leopard would take on as prey.
They gather in herds to defend against predators. When one moves, they all follow. The group takes precedence over the individual every time. The alternative is death.
By now its clear which type you want to be. And this type of image is common and widely accepted as a motivational tool. Hunters and farmers. Predators and Prey, Winners and losers. You can hear that motivational speaker revving up as I write.
But stop a moment and consider this. Impala graze the grasses, bush and trees. They keep the savannah clear and pristine. And they thrive and grow in huge numbers.
There are 2,000 leopards in the Kruger National Park……and 160,000 Impala.
So which species is more successful? Which model of evolution would you rather follow? Maybe that superficial impact is not so convincing.
I loved Yuval Noah Harari’s book Sapiens. One of the ideas that struck me most came early in the story of human evolution. Around 10,000 years ago our ancestors made the move from hunter/ gatherers to farmers. We developed reliable crops and gained control over a handful of animal species.
Its natural to talk about domesticating cattle and grains. But did man domesticate wheat or wheat domesticate man?
The Chairman's View
Its obvious that leopard and impala are both essential to the eco system. I think the same is true in business. Those who see a sale as victory are needed to drive through the obstacles and pain of the sales process. This is especially true for Enterprise SaaS.
Those who are only happy when their customer sees value are also essential. That’s how great products get built and excellent service is delivered.
A great business has a good mix of these two types. Its worth taking the time to recognise them and make sure you are developing that type of diversity in your team.
Both types are equally vital to creating value in your business. Too often I see rewards skewed towards the leopards. Sales are seen as some kind of rainmakers. A special breed who deserve super rewards.
This is a mistake which is embedded deep in business culture. The myth lasts long and spreads far. But sales do not generate value. They may close the deal. Success is a product of every element of the team.
Remember this when thinking about incentives and rewards. And think about it when you are building a business. Building a sustainable business requires the whole team.
Any B2B SaaS needs to demonstrate a clear source of sustainable competitive advantage. Sometimes you will see this called barriers to entry. Warren Buffet likes to talk about “defensive moats”.
Whatever the jargon, its essential.
Both to your strategy and to any business plan or investment pitch. Yet its an area surrounded in myth and misconception.
A changing world
My attention was drawn to this subject by a handful of well argued and fascinating articles.
Christoph Janz takes a different view of the shift by arguing that there is a dissonance between SaaS and the VC model.
I won’t try to draw out all the arguments. You can read the detail for yourself or take it from me these are all smart people with good points to make.
The general theme is clear. The source of competitive advantage in B2B SaaS is changing. Moving from network effects and economies of scale to a new paradigm based on artificial intelligence. Or at least smarter, more algorithm driven automation.
Practical options for your SaaS
At an abstract level, these arguments make sense. The technology will pull the market in the direction of more intelligent applications.
Yet we are still only scratching the surface of the opportunities SaaS offers to drive business change. And in any case, one trend will not be the only source of competitive advantage for a whole industry. So where will the edge be for B2B SaaS?
Great customer value is always first.
Keep demonstrating that your customers love your product and your service. And track the value they derive from your SaaS.
Customer lifetime is not just a bit of maths based on churn. Its the whole of your business.
Build great team is the best foundation.
There is no route to business success that does not require a team of great people. No amount of AI will change that. And its a prime source of competitive advantage.
Just think about Accountants or Lawyers. There are thousands of firms. All offering the same services and using the same business model. All the big 4 and the magic circle offer is great teams. People transform them from one man bands into multi billion dollar giants.
Helping your customers change is the key to growth.
This is the biggest barrier to the adoption of B2B SaaS. A business only realises the value of new technology through change. No amount of clever hardware or software is sufficient in isolation.
There is a huge amount of business value out in the SaaS marketplaces today. But too many businesses can’t see it or don’t know how to get it. Make this happen and you will win.
Mining and using data taps an unexploited resource.
Look back at Sarah Guo’s slide. Its deceptively simple. Get access to data no-one else has or find better insights from data.
Its not as easy as it sounds but the potential is huge. Businesses of all shapes and sizes are drowning in information. The prevailing mood is that its all too much. More of a threat than an opportunity. This is the wrong way to look at it.
Find a smart way to use data and build from there.
The IP elephant in the room
This by no stretch of the imagination a complete list. Every business needs to find its own unique competitive advantage. These are just some suggestions about where to look. There is one deliberate omission - intellectual property.
I spend a disturbing part of my life listening to debates about IP.
Who owns it? What rights is the University seeking? How far does the patent extend? How much can be shared in an investment pitch?
Its one of the biggest areas of friction in the company growth here in Scotland.
Patentable IP is not a source of competitive advantage in software.
Like very rule there will be exceptions to this but they will be once in a generation rare. In reality a focus on IP and patents is a disadvantage in starting or growing a SaaS business. There are three reasons for this:
Trademarks, copyright and the unregistered skill and talent of your people (or know how as the lawyers describe it) are all worth having. Chasing patents or arguing over ownership of formal IP are not. They have the effect of strangling your business at birth.
Software is not the place for this kind of IP.
The Chairman's View
Customers and a great founding team are essential to create any business. Building on and protecting these requires a clear and sustainable competitive advantage.
This will be unique to each company. And B2B SaaS offers a world of opportunity to identify that edge. Make sure it is clear and realistic. Focus but remember its a fast changing landscape.
Nothing lasts forever and a bunch of smarter people than me have described the future. Be aware of this but don’t be afraid. And don’t fall into the trap of fixed and defined IP.
I leave you with a different way of thinking. Jason Cohen asks a great question. How would you gain competitive advantage if you build everything in public?
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.