At the time (mid 2000’s) it sounds like a plot from one of those classic animated Christmas movies I remember seeing on TV growing up. In a world often obsessed with focusing more on our differences and diversity where we have appointed times to celebrate sub segments of our population such as (Women’s History Month, or Black History Month), how could anyone then start a war on Christmas? Yet here we stood on the brink of a really good plot for a classic film:

Little Johnnie walks into a Walmart and asks “Where’s Santa”, his dad perplexed has to explain the difference between holidays and Christmas. Little Susie walks into a Sears and sees people bitterly arguing over the fact they wished somebody a “Happy Holidays”. Would they have to cancel Christmas? Would little Johnnie and Susie have to watch as everyone around them spiraled down into an angry debate between political correctness and religious indignation?

Those days have certainly cooled down now, from the high points in the tension in 2005-2007. There was one shining light in the business world who somehow managed to stay above the bickering with their own tradition: Starbucks.

Red Cup Days
Starbucks began this tradition in 1997, by converting from their traditional iconic white cups to red ones for the holidays.  When this PR disaster hit companies Starbucks simply relied on their traditional cups and marketed “Red Cup Days” removing any hint on which way they leaned in the Christmas vs. Holidays war.  At a time when bitterness was fast overtaking a holiday season that is supposed to be bringing people joy, Starbucks offered a reprieve.

Red Cup Days Now
I walked into Starbucks yesterday and say “Christmas Blend” and “Holiday Blend”, to be honest my first thought was I may have to buy both and see which I like better. Curious I wanted to know what the difference was, imagine my surprise at my naivety as a consumer to be told by a worker at Barnes & Noble that was selling the coffee that they’re the same. A look on Starbucks website seems to back it up as all the characteristics and the descriptors are remarkably similar:

Holiday Blend
From Latin America come bright, sparkling beans. Asia/Pacific beans provide their own smooth, full-bodied taste. And Aged Sumatran coffees – carefully held for 3 to 5 years – complete the blend with its signature spicy flavor.

Christmas Blend
Our Christmas Blend is sweet and spicy, with a flavor derived from bright, sparkling Latin American coffees and smooth, full-bodied Asia/Pacific beans. But it’s the Aged Sumatran beans, carefully held for 3 to 5 years before roasting, that give it that delicious signature spicy taste.

My take
It’s funny while I praise Starbucks for sidestepping this huge issue effectively through their marketing, that I would continue to praise them as they venture into this warfront now. The difference now is the mood and sentiment, in 2005 when this war was really going strong the economy seemed to be doing well, and had a looming war between conservative idealogy and liberals. Now in 2009 the focus has shifted to major issues facing the country and the economy. It was a safe time to create a “his” and “her” type lines for the product allowing those who practice or embrace Christmas to have their time, while not excluding those with separate beliefs.

I’ve been seeing huge movement towards cloud based services and I cannot begin to express how much this scares me as a consumer and why its even more concerning for the enterprise as a product offering. This post is my take on a discussion currently going on at the economist between a Microsoft Exec and the CEO of Salesforce.com.

First the Microsoft Definition:
•  Private Cloud: An internal service-oriented environment optimized for performance and cost that is deployed inside a customer’s datacenter. Powered by packaged server products including Windows Server and System Center family of products, private cloud provides compatibility with existing applications.
•  Public Cloud: Provided by service providers, public cloud offers customers the ability to deploy and consume services. In this category, Azure™ is a highly scalable services platform providing pay–as-you-go flexibility delivered from Microsoft’s datacenters.

Second the Salesforce Definition:
Cloud computing is a better way to run your business. Instead of running your apps yourself, they run on a shared data center. When you use any app that runs in the cloud, you just log in, customize it, and start using it. That’s the power of cloud computing.

Where I Stand on the Subject
I am diametrically opposed to what Microsoft calls the Public Cloud (which is just Salesforce’s definition of cloud computing) for the Enterprise except in the most trivial of applications. I’m more lenient of the cloud being used in consumer applications although I’m still opposed to it being main medium of storing my data, and being used to house personal information that I feel is sensitive. Additionally, anything I require substantial uptime for my personal use which I can conceivably get minus the cloud I’m in favor of.

What’s the Big Deal for Consumers?
Privacy – While there are some protections in place should your personal information be violated that doesn’t protect you from the fallout and the amount of time that needs to be spent cleaning up from a privacy violation.

Uptime – When you have everything on a computer its always available to you unless something is severely wrong with your pc (which usually would also ruin the cloud based service if you only have 1 machine anyways). The problem with the cloud is you’re on someone else’s schedule if they decide to take the site down for maintenance you’re out of luck. Also considering things like denial-of-service attacks or network outages you are almost assured to run into uptime issues at some point.

Speed – You can’t access the cloud at the speeds you can approach on your harddrive, while that may not be an issue for emails or word processing it does become an issue with things like High Definition Movies or large quantities of music and photos.

Data Integrity – If you don’t keep local copies you’re a slave to the retention policies of the service provider. Recent incidents like the SideKick fiasco create a clear concern of what can happen when you trust others to provide data backup and protection on your behalf.

What’s the Big Deal for the Enterprise?
Trade Secrets/Security – This is my favorite villain in this argument. If you’re accessing a service outside of your firewall you’re relying on someone else to implement an effective security policy. The problem with trade secrets is once they leak out you have little to no recourse on anyone who makes use of that information, sure you could sue your provider (unless your license agreement states otherwise) but that’s not going to get the genie back in the bottle.

Uptime – I’ve seen a service outage of a company that pulls in $200 million in revenues a year and it’s not fun. Doing the math their being down for 3 hours cost the company in all likelihood $300,000 in revenues. When you see numbers like that paying for your own servers and redundancy to secure uptime becomes a lot less costly.

Bandwidth Costs – Consider this if you move everything into the cloud just how much bandwidth would a company of 200 be generating? I don’t have the figures off the top of my head but this could be a sizeable cost and if you consider depreciating your in house assets you might find the variable cost of bandwidth usage exceeds the cost of the capital expenditures on equipment.

Conflict of Interest – Does the provider have the same goals as your enterprise? Having a always on service means there is a time when things need to be shutdown and cleaned up. While going to a 24 hour Wal-Mart at 3am you might notice restocking, you may see less checkers etc, and that’s ok because after all who is insane enough to go to Wal-Mart at 3am? Unfortunately, if you’re a successful cloud based service provider you have customers around the world meaning its always prime time somewhere. The worst possible scenario is a planned disruption in service that happens during your uptime as a business, and this is a likely occurrence with cloud services (see gmail and google docs going down during the West Coast prime time for 2 days in September).

Data Integrity – If you’re a business you have a disaster recovery plan/backup system (if not likely you won’t be in business very much longer). Here’s the question though, what is your cloud computing service provider’s backup system? I’m guessing most people can’t answer that question, and if you can its likely you’ve never seen it in action. This is a liability for a business that can’t be ignored and could even have legal implications depending on your business and what is cloud-sourced.

Control/Business Alignment – The great thing about having an in-house tool or hosted service is over time you can customize it to better fit your needs. Before jumping on the cloud bandwagon ask yourself if the hosted service you’re looking at is flexible enough to meet your needs.

The Private Cloud?
This is a product I can get behind it has the benefits people are looking for from cloud based services, but is controlled by the enterprise. I have always appreciated the server-side argument having dumb terminals that consume server based services but don’t store locally (provided the company has a solid IT staff and sufficient redundancy built in). The private cloud just expands upon this strategy by enable greater scalability for the private enterprise.

Not Without Benefits
I come across a little bit as one of those people up in the hills with a shotgun fighting the future I’m sure, but I don’t dispute that there are some attractive benefits to cloud computing. Things like scalability, remote access, cost reductions and simplifying your company’s IT environment. I also won’t dispute that cloud computing isn’t going to have a dramatic impact on the market-place; it has its market niche and can be a valuable service to some businesses.

Conclusion
In the end though I’m just not behind the transition to public cloud computing, put simply passing all my needs over to someone else is a bad experience. While I’m a firm believer on focusing on your strengths and bringing people in who can address your weaknesses in a corporation I do believe having people accountable within the organization is important to maintaining a solid foundation for the business.

Outsourcing is a reality and in some instances it does make sense, but whenever something ties directly into your core strategic strengths and product offering be very wary about how much you do outsource. The problem with cloud based services is they have a tendency to directly impact those strengths and offering and as such require heavy consideration before implementation.

Background

I started my career working in a value added reseller; while it wasn’t a job I cherished at the time the experience is just invaluable now in my role as a Product Manager

The Problem

In product development the goal is always to build a product “so good it practically sells itself”. We want to create a product that is completely interpretable by the user, requires little or no interaction to get it to fly off shelves, and is completely identifiable with the target market. There are a lot of tricks that are used to get to this point with a product including: focus groups, targeted advertising, branding, slogans, and Public Relations.

A funny thing happens on the way to the check-out stand though. Product Managers begin to ignore the traditional and some would argue most important part of the sales process: the advocate. It stands to reason as PMs begin to work more and more on the areas they control, and try to get to a more direct interaction with consumers that they would begin to miss areas that are beyond their sphere of influence.

Marketing Tries to Solve the Problem

The types of product positioning I’ve detailed are all centralized around Advertising that is creating a message around explaining the value at a customer. While good advertising creates the appearance of insight into customers’ demands/needs it’s also one sided approach with no adjustment to the individual’s needs. Another major failing of this approach is its impact is extremely difficult to measure.

Understanding these limitations marketers turn to “direct-response marketing” a method heavily relied upon by infomercials, catalogue sales, and search advertising. The idea here is that a customer will self select the product and prompted by an offer will reach out to the company directly to purchase the product. Direct-response is much more cost effective than other forms of Advertising they also tend to breed skepticism in a large audience base, which can limit effectiveness.

Just no Substitute to Sales

Marketing and Advertising by their nature have to scale out as broadly as possible while still maintaining the appearance of being directed at the intended audience. This creates a huge gap in effectiveness as your campaign either needs to be broad enough to hit secondary groups, or you have to ignore them to ensure the primary audience message is delivered (both have drawbacks).

So say we’re targeting a computer at 20 year-olds who are going off to college and need a machine for word processing, internet, and video/VOIP telecommunications. Does that product not also work for the mother of 2 who sells Avon and has routine conferences she must go to? In fact the product might be the perfect offering for her, but because she doesn’t fit the primary audience profiles any commercials and advertising would miss her.

Nothing Like the Human Touch

Going back to our mother of 2 seeking a computer, at first glance this seems like a missed opportunity for our computer maker, but when we introduce a sales channel and arm them with the appropriate messaging to hit a secondary market a chance for success is created.

The importance of a sales force comes across in a dialog with the customer, in this engagement the salesperson is able to understand individual needs and provide a consultative approach to positioning the value. I can’t stress enough how valuable the sales interaction can be, given it allows for a re-messaging to meet the individual customer’s needs as well as a good feedback mechanism to Product Managers in the planning of new products or campaigns.

Where Sales Matters Most

· Start-ups or new products with little to no market penetration

· Companies who lack substantial budgets to run aggressive PR and Advertising campaigns

· With products that are complex or have hard to convey value propositions

· Products with a balkanized customer base

Take-away: The more successful a product is the greater the danger of ignoring the sales aspect of your business. With a strong brand and product category leadership is the disadvantage of falling into “it’s good enough” mentality.

Smart Product Managers will quickly realize that a closer integration with sales will provide a multiplier on the revenues they can expect from a Product Offering.

Saw this on Gizmodo

I was floored by how accurate this Venn Diagram was. It just goes to show that products can’t be everything to everybody. By each of these competitors focusing on a couple benefits they have a differentiated value.

As humorous as this graph is, it’s telling.

Dealing with Venture Capitalists

When going into a deal with Venture Capitalists you need to understand regardless of how great they think your idea is, they will talk it into the ground in order to secure a better price for their investment. Jonathan the proveyer of Element Bars was prettty good about reiterating his value position. However, he missed a lot of opportunities by focusing back on the fundamentals, the sales results, the growth rate, the potential to expand the offering with seed money.

What is the value of Element Bars?

Lets look at their business and the various intellectual properties which they may own.

Business model: Deliver high quality customizable energy bars that meet your nutritional needs and taste.

Slogan: We’ve raised the bar! <—– really thought this was a terrible slogan.

Messaging: Our made-to-order energy bars are chockfull of tasty, whole ingredients and nothing you can’t pronounce. Guarranteed to put fuel in your tank and keep you smiling. <—- Think they bit off a bit more than they needed to and missed having a concise easy to get behind message.

Recipes: Curious whether they even own the recipes for these bars as they’re crowd-sourced. What happens if they wanted to expand into retailers, if they select a user created bar does the user or the company maintain the rights to the recipe?

The Website: Great URL name, very professional, well put together portal. Not much room to move beyond the current product though, no ability to scale out into complementary goods unless you use Element Bars branding in them.

The Process: Having built a process to deliver thousands of customizable orders on demand is a useful skill. That know-how or “trade secret” could be very valuable to bigger players who are looking to move down into customizable product niches.

The ordering Process: This to me is probably the most amazing piece of intellectual property I saw in the product. The idea that i could customize across 5 variables, and then have the nutritional information and bar power key change is very cool. I could see this technology being applicable for anything from recipe sites, to corporate restaurants detailing their menu.

We’ve talked Value now lets talk Challenges

Scaling ~ The most concerning thing about this business for me (and one which the sharks seemed to neglect) is how are you going to scale the product line given the reliance on customization. Its great you build 1 bar specific to 1 person but if you have 10,000 people waiting on their unique bars can you deliver? This really is the difference between small restaurants and fast food chains, there’s  a certain adjustment that the product ofering must undergo to scale out to large audiences.

Is the product offering too narrow? ~ Next we’re talking about a niche product, or rather 3 niches coming together to create an even smaller niche.

Pretty narrow niche to fill

 Competition ~ If you walk into a grocery store you’ll already see a glut of these bars, most of which claim many of the same benefits of Element Bars. How does Jonathan plan to compete with the Power Bars, Cliff Bars, and Luna Bars of the world? How is he going to fight them when he’s not even on the shelves next to them in stores, where the majority of people still do their shopping?

Marketing and growing customer base ~ I’m very concerned about this one, your product is online meaning there isn’t a ton of product placement opportunities for you. You’re relying on people who are dissatisfied with the offerings they see on a daily basis to seek out this product. I see this as a major blocker to expansion.

Suggestions

Hit the Gym ~ If I was Jonathan I would focus on a primary audience to act as my distribution channel: Sports Clubs, Gyms, and nutritionists. His problem is scaling with a customizable product, these businesses are centered around creating health plans for their members. They could order his product customized but paired down to just a few options and keep them onhand as a recommendation to go into their excercise and diet plans.

Force feed them ~ This is probably going to be about as well recieved as Howard Schultz telling Starbucks they should move into preperation of coffee drinks instead of sticking with just whole bean sales (and we saw how well that worked out). I love you customized story, but you need an offering into stores to get the visibility. You could even use it as a trojan horse to drive people to the website for the customized product.

White label ~ Go after companies that want to use your product as a complement to their offering. His process already supports this but make it a priority.

Take Away: Ok this was an incredibly long post. I was pretty dissapointed on both sides of the negotiating table. In the end Jonathan did make a deal (it was unclear whether he got to keep the 4% royalty or whether it went off the table when he negotiated to 30% stake). In the end its a reality TV show so anything you see, you have to be sceptical of. For me I’d probably have invested on the condition I be granted the IP for the customization on the website for use outside of the energy bar marketplace.

Most people don’t understand intellectual Property or how to value it, use this to your advantage.