Venture Spotlight: Geoff Moore, Mohr-Davidow Ventures
By Angel Mehta, Managing Director, Sterling-Hoffman Executive Search
Angel Mehta: As I understand it, you were once a Professor of English…Now, as far I can tell, English teachers and high tech strategists are ordinarily on opposite ends of the spectrum…some of my friends are English teachers…and nothing I do makes any sense to them at all. So...I was wondering how an English teacher became a technology strategist?
Geoff Moore: I have a doctorate in Medieval English Literature and went off into the world afterwards to teach for four years at a liberal arts college in rural Michigan. It just wasn't a very good fit for our family...Marie is from Palo Alto, and I'm from Portland, Oregon - so we're kind of a west coast family. So we relocated to California but there was no way to stay in the teaching profession so I ended up getting a job in a software company as a training director and kind of migrated from there into marketing and sales. I joined Regis McKenna in 1986, which was, at the time, probably the leading PR firm in technology.
I was there for five years and it was there that I wrote, "Crossing the Chasm" which allowed me to start my own firm.
Angel Mehta: How did the other books come about?
Geoff Moore: What would happen is that with each book I put out, people would get interested in the ideas….create engagements for us, which would then prove that the book was not as good as we thought, which forced us to improve and develop our models to better deal with the real world - so we'd end up creating a whole bunch of new slides and then eventually you think…
Angel Mehta: Time to write another book?
Geoff Moore: Right. We've been through four books - the Chasm Group in the 90's had quite a ride. Then with the downturn. we realized that to compete in this decade we were going to have to be more focused…but the different Chasm Group partners had different ideas about where they wanted to focus - so we ended up spawning three stems, if you will, off of the trunk of the Chasm Group.
Angel Mehta: What are the different businesses that have spun off?
Geoff Moore: One, is the Chasm Group's traditional business which is focused on strategy and development in the tech sector. A second is a training company. We also always thought that we ought to have a teaching division, but it wasn't anything we ever put enough traction behind. So that's how the Chasm Institute was created. And then finally, several of us were interested in building a practice around this last book, "Living on the Fault Line"- addressing the issues large enterprises face trying to extract resources from low value-adding processes to re-invest them into the next generation of new competitive advantage capability. The need to do this is very easy for a consultant to point out but very hard for a company to do. That practice became 'TCG Advisors' - so we now have three practices. And because we are all focused on the practice we are most passionate about, I think this year we're probably going to double the revenue of the group as a whole.
Angel Mehta: I remember sitting around and brainstorming with Mike Tanner back before all this happened, I suppose, and we were talking about how hard it is to scale a consulting firm….Do you think it was primarily a function of varying personalities or different competencies?
Geoff Moore: I'd say this: we all know each other very well, we all like and respect each other a lot…but we just didn't share the same passions. So the net of it was we were holding each other back. If you said that to any of us at the time, we would have said, "No we're not!"….but we were. To make these things work, you really have to commit the organization in a specific direction.
Angel Mehta: Out of personal curiosity, early on before the books became a hit, did the lack of an MBA or formal business training cause a problem for you in terms of credibility? I'm talking about with more academically qualified business managers?
Geoff Moore: No, it didn't. I had the credibility of having worked at Regis for five years…So I had a pretty good fund of industry experience, having worked with different clients, as opposed to a guy who worked at just one company for five years. Then the way I would get consulting engagements is people would either hear a talk or read the book - so I had pre-registered credibility. I'm sure there were people who were thinking, 'this guy has no credibility', but they probably just didn't call to tell me about it so I never knew who they were. [Everyone Laughing]
You know, books in our culture confer far more credibility then they probably ought to.
Angel Mehta: Worked out well for you though!
Geoff Moore: [Laughing]…Once you're an author of a best selling book, people kind of go, "Well, he must know something"…which is probably not accurate but is certainly useful if it happens to work on your behalf.
Angel Mehta: Let's talk about TCG Advisors; I'm interested in how the offering differs from the Chasm Group's original practice….
Geoff Moore: What the two groups have in common is a focus on the technology sector, and both groups engage with executive teams on strategy. Where TCG Advisors tends to separate, however, is when the strategy question is followed by an even bigger problem: "How can I transform my company to execute on the new directive?" The larger the enterprise, the more challenging this question becomes. TCG Advisors is optimizing its practice to deal with very large organizations.
Angel Mehta: So it's dealing with the problem of inertia?
Geoff Moore: Correct. Large companies have been successful…. so they have lots of processes, lots of people, and lots of relationships - all kind of fused together as a result of historical success. You don't get invited in to do a new strategy until the existing strategy is depleted. The active change agents have probably left the company, and the people that have stayed on are loyal to the company - but that makes them even more closely aligned with the old strategy. So we lead them through an exercise that says, "Look, can you see that the market is going to be less and less responsive to this strategy going forward?" People aren't stupid. So they go, "Yes, I can see that".
Angel Mehta: Then what?
Geoff Moore: We take them through some key questions:
1) "What's new?"… Fundamentally, we're asking, "Why are we here?".
2) If you've lost power, is it because of the category? What happened to the category? Maybe it's the category's problem - not yours as a company, necessarily.
3) What's happened to your company's power in relation to the other companies in the category? That is, whether the category is going up or down, inside of it, is your company going up or down?
4) If you don't have a winning strategy already, what would a winning strategy look like? (This is what we really share in common with the Chasm Group's original practice: we all look at that problem through a similar set of filters.)
5) Given your ideas about the next strategy, are your resources allocated properly?
6) Are you organized properly to execute the new strategy?
7) And finally, are you leading and motivating people through the changes in a way that is consistent with your culture?
Angel Mehta: Didn't those questions come up with the Chasm Group's old practice?
Geoff Moore: Absolutely. I think the difference between us is more about the size of client company we are optimizing ourselves to take on.
Angel Mehta: So how long do you expect it will be before the next book comes out based on this cycle of findings & feedback from engagements?
Geoff Moore: We're probably still 18 months away from the next book - and I apologize in advance if I impose another book on people. As I said, each book has a very bold thesis but no thesis is ever completely accurate. So you make modifications as you go until you finally build up a body of intellectual property that requires you to restate it in a different frame of reference.
Angel Mehta: Let's talk about core versus context as it would apply to an enterprise software company. How does a software CEO apply it?
Geoff Moore: First, how relevant it is depends on the age and size of the company. The interesting thing about start-ups, speaking as a venture partner at Mohr Davidow, is that 'core vs. context' is not a particularly important model for the INTERNAL workings of a start-up because they don't have very much legacy inertia. 'Context' is the amount of resources you have devoted to things which no longer differentiate your company…
Angel Mehta: But they still have to get done regardless….
Geoff Moore: Yes, exactly….In fact, you might be doing those activities better but to no competitive avail. That's a big problem for a company like Xerox, but it's probably not a very big problem at a Mohr-Davidow startup.
Angel Mehta: So for larger enterprise software companies?
Geoff Moore: As an enterprise software company gets bigger and bigger, what happens is you get this HUGE list of enhancement requests from your installed base. I mean, you end up having three to four hundred things on the list. The truth is, if you did them all you wouldn't move the shareholder value of your company very much - because by and large, these are things the customers may want but largely feel they're entitled to. Customers certainly don't want to pay more for them and if you're in the ERP category or even the CRM category…or say the HR category or whatever…by and large, customers are on their 3rd generation of the application so the entire category may become context.
Angel Mehta: You mean deployments in those areas no longer give companies a competitive advantage?
Geoff Moore: Yes. There was a time when people thought getting an ERP system would give them a competitive advantage - but that's long gone. Then it was all about getting a CRM system to gain competitive advantage - but that's pretty much gone. Next it was supply chain, and that kind of fell in the Chasm with the bubble. So these new categories of software all come along and offer the customer a competitive advantage. For a while, it's true but as more people buy the product, it stops being a competitive advantage because now every company has the same thing.
Angel Mehta: Sort of like the advantage of a big tennis racket disappearing after every player gets one…
Geoff Moore: Yes. So the first issue with core vs. context is, as your category gets more and more mature, you find that the ability to differentiate based on your product is increasingly marginal as competitors copy what you've done. So then to differentiate going forward, in order to get premium margins, you have to find other strategies for differentiating yourself. One classic one is the shift from product emphasis to service emphasis. Another way to play it, if you're like an SAP or an Oracle and have a huge gorilla position, is to just say that all 'future innovations are really just modules in my architecture.' So it's an integration play. You have this HUGE ecosystem of partners and software and customers …so SAP would say, well, i2 is another module, Agile's PLM (product lifecycle management) is another module, etc. Whatever the hottest thing in town is, position it as just another module. So that's another way to try and create differentiation.
Angel Mehta: What about verticalization as a way to differentiate?
Geoff Moore: Absolutely. That's what Agile is doing, for example. I just recently left the Board of Lawson Software, but I was on their board for the 90's, and they have been very successful carving out vertical market leadership positions against their bigger competitors. What you have to do is say, "Differentiate by going into a vertical market and REALLY driving the software and the services to a level of specialization the other guys won't match. So that particular vertical will be loyal to us and respond to us because we're really intersecting their business processes at a level of granularity and specificity that makes it VERY different, producing a big difference in the outcome."
Angel Mehta: By now, the philosophies and principles of "Fault Line", "Crossing the Chasm", and "Inside the Tornado" are all staples in the industry. They've become buzzwords that every CEO, at least that Sterling-Hoffman deals with, is familiar with. What I'm curious about is, where do you see executive teams falling down the most when it comes to the application of the core concepts within each of these books?
Geoff Moore: Well let me say at the outset, the fact that the concepts have become so widely adopted is hugely gratifying and flattering…but in another sense ,it has sometimes felt a bit like putting razor blades in the hands of children (Everyone laughing).
I think what happens is this: If you look at the basic notion of the four inflection points that these books talk about….with an early market, trying to cross the Chasm, followed by bowling alley niche market and then there's the tornado hyper-growth thing and then on to main street. If you look at those four things, the early market and the tornado both are organized around products or vendors. "Do you have CMOS? Do you have a .Net implementation or a Net Services or Java or whatever?" In the tornado it's all around an emerging product category, so people are counting how many disc drives have you shipped or cell phones or laser printers or whatever it is. They're both very product-centric and they're both very vendor-centric phases of the market.
Angel Mehta: But in between?
Geoff Moore: IN BETWEEN those two phases is the bowling alley, and after the tornado is Main Street - BOTH very customer-centric phases of the market. The bowling alley is very segment-specific. The way you play the bowling alley is to use the customer's industry as your marketing communications tool. You align more and more tightly with that industry, the industry's business processes, in order to create more value. On main street you're aligning more with your customer as an install-base.
So what happens to most companies is, the people inside the organization tend to be - in SPIRIT, - either more product-centric or more customer-centric.
Angel Mehta: And eventually, as a company matures, they end up in a market that requires an opposite competency? We see that a lot when doing executive searches…
Geoff Moore: Right. They THINK they're being customer-centric but, in fact, their DNA is so product-centric they can't really get there. Or they think they're being product-centric, but they just aren't competitive enough to win a product-centric game. So that's one place I think executive teams fall down.
Another area is the level of risk a team is willing to take when it comes to restricting the number of options that it's going to keep alive. The hardest thing for management teams is to go from 5 possibilities to picking the one that they're going to absolutely NAIL. What they end up doing is they hedge their bets, partially because they're scared to put all their eggs in one basket… partially because the management team may not be in alignment. If the top 3 or 4 people each have a basket of their own, and they're willing to let everybody else have their own separate baskets…. that creates a very confused situation where you never quite give enough to any one strategy. So you might make interesting movement in several areas …but in order to really dominate ONE area (or move the needle at all), you need to put more of the company behind that effort.
Angel Mehta: But it doesn't happen without focus…
Geoff Moore: Right. Part of what a consultant can frequently do is point this issue out and get the executive team to re-align itself around a single dominant initiative.
Angel Mehta: But is it really possible? I mean, let's take the 'improv' analogy used in one of the books, where you describe how executive teams need to completely change their behaviours and attitudes as you progress through different stages of the company's life cycle….Is that realistic to expect from an executive team?
Geoff Moore: It's interesting….the analogy came out of working with venture backed firms. If you've watched venture backed firms over the last 5 YEARS, they have radically changed their business model in mid course.
Angel Mehta: What do you mean?
Geoff Moore: Well, for example, the dotcom phase…there were a whole bunch of dotcoms who had to redefine themselves from being services companies to being product companies.
Angel Mehta: So you're talking about the venture portfolios?
Geoff Moore: Sure. Where we said, 'We were going to an ASP model…but, oh no, wait, we're going to be a licensed model…no, no, we're going to be a service company." It's like moving from jazz to doing samba to doing reggae. Venture-backed companies - because of the people and because of the board members - can get away with that. I think that's where the analogy came from. But the whole point about living on the fault line is there's not a chance in the world that a large company can do that. There is just way too much inertia…to much momentum behind each vision and each action. It's one of the challenges of being successful…companies have to realize that they have lost degrees of nimbleness forever and have to find other resources to make up for them.
Angel Mehta: How does that get done…primarily through spin-outs?
Geoff Moore: First of all, one of the ways it gets done is the companies flat out die. [Everyone laughing]. Of course, they may take a long time doing it…like maybe even a decade. Eventually, a company ends up getting acquired by some aggregator of last resort.
In fact, I would submit to you that that is the normal method of cleaning up an ecosystem of companies that have run out of the energy to innovate further. The normal method is not to solve the problem. In other words, you rise to success, you create great asset value, you start to decay, you continue to decay, and then at some point you get acquired.
Angel Mehta: Not exactly a 'Built to Last' journey…
Geoff Moore: Okay, but I'm not so sure that's a terrible outcome. I mean, it doesn't ring mythologically with great story telling…but people had jobs and the company did what it could do. But it doesn't have to be that way. At different stages in the history of a category, you have to play the game differently…but for a long time in the middle of a category there's lots of opportunity for rejuvenation. You can rejuvenate through acquisitions of different kinds. Think about a company like BEA, whose first act, if you think about it, was built around a product line called Tuxedo. BEA was helping to create data center ready UNIX software that could compete with DEC Software. Then in about 1996, I think it was, they acquired WebLogic and they were on to Act 2 - all of a sudden they had the leading application server software in the market. They completely redefined their company. The culture got redefined, the leadership got redefined, the processes got redefined….It was kind of a reverse acquisition in the sense that the culture of Weblogic kind of took over BEA, even though BEA bought WebLogic. Now, they're in a tough position again, between Microsoft and IBM and SUN…so they've got to do it again.
Think about how IBM redefines itself in the 90's, from essentially a product company which carried services along with it to a SERVICES company which carries products. There are wonderful opportunities under great leadership and I would argue that Gerstner was a great leader to help IBM re-invent itself. Cisco is another example, though they did it via acquisition. IBM is impressive because they didn't do it via acquisition per se…they had all the resources internally - they just re-invented themselves around it. Eventually,they acquired PWC….but I would argue that the exciting stuff happened within their own confines.
Angel Mehta: I don't want to beat a dead horse but I want to come back to the issue of whether Executives are actually capable of making the shift. Let's take BEA as an example…when they made the jump from being focused on the Tuxedo product to the WebLogic product….didn't they have to change a good number of the senior managers?
Geoff Moore: Yeah it's interesting, because it tends to be a trailing phenomenon rather than a leading phenomenon. People get excited about the new thing…. so the management team goes into the new thing with lots of energy but also carrying with it a bunch of bad habits…the legacy habits. Then at some point, if the new thing really starts to take off…the contradiction between the new market requirement and the old legacy habit becomes more and more pronounced.
Managers get spun out…typically one at a time, and the tendency of human beings is always to personalize it. If it happens to you, its pretty likely you're going to personalize it right?
Geoff Moore is a Venture Partner at Mohr Davidow, a founder of the Chasm Group, and co-founder of TCG Advisors. He is also the author of bestselling books, 'Crossing the Chasm', 'Inside the Tornado', 'The Gorilla Game', and 'Living on the Fault Line'. Send feedback to Geoff at: firstname.lastname@example.org
Angel Mehta is Managing Director at Sterling-Hoffman, a retained executive search firm focused on VP Sales, VP Marketing, and CEO searches for enterprise software companies. He can be reached for feedback at: email@example.com