who needs a faster mousetrap?
your value proposition
page three of three | previous
the audience: q&a
Mr. Backus: With that, I'd like to open it up for questions. You can pass them up
on cards at your seats or go to the microphones. While you are
getting your questions ready, someone on the panel had brought up
a question about convergence and cool products. To demonstrate, we
have a very sophisticated technology group up here. The hot topic
in the phone/PDA space is convergence, and I'm going to challenge
all the people on the panel to pull out their converged devices. I
have two. They haven't converged yet. Anyone else?
Mr. Haley: Three.
Mr. Backus: Three.
Mr. Gopalan: Just one. I win.
Mr. Backus: You win. Why one?
Mr. Gopalan: I've got this NEXTEL device which provides me the online capability to do
my email, my calendar, my contacts, so on and so forth. From that
perspective, it works fine. The only thing is, I think I need
prescription glasses to use it. The panels are very small.
Mr. Backus: I go through a new device about every six months, so I just traded in
my Nokia Palm Phone, which I thought was going to be great when I
bought it. It turned out it was a good Palm and a good phone, but
it couldn't do email, so I kept my Blackberry. I got rid of that
and went for the smallest phone possible. In six months I'm sure
I'll have something else.
Mr. Savage: This is a good example of value proposition. The phone -- voice -- is a
killer app. Email is a killer app. I left my Palm Pilot in my car.
It’s a killer app for contacts. They’re killer enough that I'm
walking around with three sets of batteries. A briefcase full of
batteries. I would love to converge all these devices, but it's
not important enough to me. I will continue putting out $400 every
six months for a new device because it's a little bit better, and
I can't wait until we get the “converged device.” They're out
there, but not quite good enough because they give up a little bit
on one application or another. At the end of the day, better,
faster cheaper, right? It's better because it's converged; it's
faster because you can do it all at once; it's cheaper because you
don't have to buy all three; but you know what? It doesn't solve
Mr. Backus: It's not better for voice. The phone is better for voice and the PDA is
better for data. The phone is a bad data device today, the PDA is
a bad voice device today. They're not 100% there yet.
Let's get a
question from the audience.
My name is Cy Weinstock, and I'm in the encryption area and
virtual private networks. As investors, what are your interest
areas and how do I go about finding the right investors?
Mr. Backus: Any venture capitalist that you want to take money from should have a
website that tells you what they're looking to invest in. It
should express the spaces they’re interested in, the type of
business -- early stage, later stage, growth stage, pre-revenue,
seed -- it should talk about how much money they're looking to
invest, and it should give success stories of what they've done.
If someone doesn't have that on their website, you shouldn't waste
their time, because they're not doing a good job telling you what
they're looking for.
Mr. Savage: We invest in early stage companies ahead of operating deals, A and B
rounds, typically between $2 million and $3 million in areas where
the IP-centered world of AOL overlays with the media assets of
Time Warner and the delivery mechanisms of Time Warner Cable. That
leads to home networking, improvements in delivery mechanisms,
converged devices, delivery to multiple platforms, etc.
Next-generation digital media is our focus.
morning, my name is Walter Ludwig with a company called Difference
Engines. Before I ask my question I have to say with all due
respect to Tige that the worst value proposition I've ever heard
is merging a big Internet company with a big media company.
I say that as both a former shareholder in each company and
Actually, this has been very valuable to me. We're in the
stage where we're making pitches. We have a moderately complex
value proposition in that it reaches across several different
constituencies, even in the customer group. We hear from potential
investors that we should focus, focus, focus, focus. Yet, I'm
hearing here that you need to tune the value proposition for
different audiences. That seems to me either disingenuous or
unfocused, and I'm not quite sure how I can reconcile them.
Mr. Haley: They are not disingenuous. You cannot be focused on one individual if
you have a complex solution because just one individual is not
going to make the purchase.
I can say, very
simply, that at On-Link we cut the cost of sales by leveraging the
Internet and tying multiple channels together. That was the value
proposition that we took to the investors about why our buyers
were going to buy from us. No single person in the company cares
about that value proposition, however. The IT person needs to know
that he can get it installed, that there is low risk to him, that
it's not going to change his system, that there is not going to be
the midnight call when it goes down, and that he doesn't have to
go out and hire 45 LISP programmers. The value proposition that we
took to him was that we will guarantee that the system is up on a
certain day, you don't pay unless it is, and we will make it work
on whatever systems you have. We removed the risk for that person.
To the marketing person, we said, “You have multiple channels.
The Internet is a way to support all of them. You are going to
have a little bit of channel conflict, but you already have
channel conflict which your sales people are good at managing,
between the telesales, direct sales, indirect sales, etc. Here is
one more channel that is going to help you with all of those, and
the value proposition for you is to manage your channels less
expensively.” To the salesperson, we said, “Any good company
with good salespeople has people leaving. You probably have on the
order of 8%-12% of your territory uncovered. This gives you
coverage in those territories, and it cuts your cost of sales to
your direct channel.”
very, very different value propositions for those three
individuals. If they couldn't come together around something that
applied for each of them, we had a $7,000 product instead of a $3
million product. We only sold to people who had complex goods, who
had a direct sales force and some other channel. We targeted very
closely, and the segmentation was not the trivial segmentation
people like to do. Now, one of the tests I do when I speak to
schools is to say "Come to me with a segmentation theory that
ties Amdahl, which makes mainframe computers, with Snap-On tools.
When you can define that, then you understand what your product
does. The segmentation theory for those two companies is very,
very straightforward; however, a cursory look at “we're going to
help cut the cost of sales” doesn't help you make the sale to
those two companies. That is what I think requires additional
focus, laser-like focus, on what you do for everybody who has to
sign off on the product.
My name is Marc Hausman of Strategic
Communications Group. Could you talk about differentiation
from competitors in terms of value proposition? Matthew, I would
offer that the folks at PricewaterhouseCoopers and Ernst &
Young could give a very similar value proposition to the one you
shared for Accenture, and, Venkat, there are probably a variety of
different “Beltway Bandits” up and down Interstate 66 who
would share something very similar to your positioning of DynCorp.
Mr. Gopalan: We handle this on a daily basis because we're in the midst of
competition. As you say, there are several competitors who could
specify the same space as us. A couple of things come to mind. One
of the things that we tend to focus on is customer intimacy, such
as how well we know the customer and how we have done our
research. Before we make a pitch, we try to fully understand what
it is that the customer is looking for and their strategic plan.
Where are they going, and can we partner? A lot of times we have
found ourselves unable to differentiate, and therefore have stayed
away from the opportunity.
can be on the basis of a particular product, on the basis of a
particular service, or on the basis of people. We take a lot of
pride in our people, therefore we tend to hire the folks who can
make the difference for us. We use that as a differentiation, as
well. Another area is your longevity, your ability to perform over
a period of time, and your ability to maintain credibility. There
are a number of different ways to differentiate, and you've got to
figure out for yourself what your particular differentiation
scheme is. By the way, differentiation changes with time as well.
Our differentiation prior to 9/11 and after 9/11 are two vastly
different things. In several of the agencies we're at, for example
the State Department, National Security Agency, Air Force, Army,
and so on, the government agencies have come to us looking for
certain things, primarily because we've been in that space and
we've had the skills, capabilities, and competencies.
I'm Jeff Alexander with Washington
CORE. In Clayton Christensen’s book, The Innovator’s
Dilemma, he talks about disruptive technologies. One of the
arguments is that emerging competitors often aren't recognized
because their value proposition looks bad to begin with, but it
eventually exceeds the incumbents' value proposition and overtakes
them. If I'm an incumbent looking at the competitive landscape,
how can I spot the companies that seem to have bad value
propositions, but could become very good value propositions and
eat my lunch before I realize it?
Mr. Backus: One of the biggest mistakes that big companies make is to define their
business the wrong way so they define out innovative competitors.
For example, automobiles were not deemed to be a competitor to
trains early on, but they were transportation. A lot more goods
move today via truck then ever before. The buggy whip people
didn't see automobiles as competitors. You have to define your
business the right way at the starting point.
Mr. Savage: I think it depends on the company. The reason that AOL Time Warner has
a venture group is specifically that. We're not attached to any
division. We are a relatively small, relatively nimble group. We
spend a lot of time talking to new companies focused on disruptive
technologies, and part of our rationale is to make this big
company act less like a big company. We're just one little piece
of it, but that is what we do. Speaking from a big company
standpoint, we're not in the venture business just as an asset
class, it's so that we can see disruptive technologies before they
disrupt our business, and we can either partner or help those
companies grow, and we can learn from the experience.
Good day. My name is Julius Johnson, CEO of a company based in
Greenwich, Connecticut. Venkat, when someone is making a pitch,
aside from having a favorable value proposition, what do you look
for in terms of giving the green light? Is it strictly based on a
quantitative analysis or do you put any subjective factors into
Mr. Gopalan: We're a little different from the Draper Atlantics of the world. We're
not open for venture business like they are; we tend to choose the
opportunities that we really want to go after. Essentially, we
tend to make our own value proposition plays before we decide who
we want to go with. In terms of a presentation, other than the
quantitative aspects and the objective evidence, absolutely, there
is a gut-feel factor that goes into the decision process as well.
Mr. Gopalan: It really depends on the situation and different people’s expertise
in terms of how they think the chemistry will work. I don't think
I can characterize a specific percentage, but, after all is said
and done, we've got to feel good about the deal, and so do you.
That clearly is a non-quantitative, subjective element that is
present. I won't deny that it is there, but it's towards the end
of the deal. We go through all the objective evidence first. If it
doesn't make financial sense, I don't go after it, even though one
of the board might feel it is appropriate.
Mr. Backus: Let me try to give a broad picture. People who are looking to invest in
businesses put everything through a generic screen. Is it a good
idea? Is it a big idea? Is it a unique idea? Can the management
team assembled pull it off? Is it a good idea for us? What
may be good for us may not be good for Venkat, for Accenture, or
for AOL. Is it a good for us now? It's a mix. You can't
apply a formula to it. It's all very subjective. At the end of the
day, if someone decides they want to invest in a business, they'll
put an offer on the table. There is an arm's length negotiation.
If there is an acceptance of an offer, a negotiated offer, then
that determines who owns what, and the way investors make money
ultimately is if the company is either sold or goes public.
Mr. Backus: Let me ask some of the questions passed up on
the cards. What is the value proposition for Wi-Fi
Mr. Savage: We talk about it a lot, actually. From a consumer standpoint, broadly,
wireless has been a very overused space. I think wireless is good
for two things. It's good for people who need to be portable, and
it's good for people who have a hard time running a wire.
Certainly if you can run a Cat-5 wire around your house, it's a
better, higher quality, faster connection than 802.11 in whatever
form, a, b, or h, but it doesn't give you portability. Most of us
don't have that cable running through our house. The value
proposition is that it's commodity hardware, very inexpensive. It
allows you to network your house easily. Most people still think
networking is either sharing broadband or a dial-up connection
and/or sharing a printer among four computers. You can do it for a
couple hundred bucks.
Mr. Haley: Technology by itself never has a value proposition. It's the
productization of the technology. One of the things we see a lot
of when people come to Accenture is that they have some cool
technology -- I've seen this a lot in the Valley, and I'm sure you
see a lot here. Technology by itself has no value. Technology
productized so that someone can get the value out of it is the
value proposition. All the things that Tige just said was the
productization on 802.11b, c, etc. We see a lot of people
confusing the difference between a technology product and product
family, between a product family and a company. They confuse it a
Mr. Savage: We've spent a lot of time looking at it and at all the companies out
there, and we haven't made an investment because we don't see
something yet that is compelling enough from an investor
standpoint. We would love to, because it's an interesting
additional pipe in the house. I've got it at my house. From a
consumer standpoint, it's got a clear value proposition. From an
investor standpoint, I think people are still working on it.
Mr. Backus: I've got an 802.11b network in my house. Why do I have it? Because I
have a Roadrunner connection coming in that terminates on one
desktop. I then have a small router that is broadcasting out
wireless across the house. I've got three other computers in the
house; my wife and kids each have their own computers. They put it
wherever they want. I don't have to do any wiring, I’ve got
great bandwidth, great throughput. It's easy, it gives me a fast
connection at every desktop, and I don't have to go to Roadrunner
and pay an extra $6.95 a month for each one that I wire up because
I have it all done wirelessly.
Mr. Backus: Another
audience question. Do you differentiate between value propositions
and elevator pitches? If so, how?
Mr. Haley: Having done elevator pitches, to me the test of an elevator pitch is
whether it only takes two floors to get it right. The elevator
pitch is much more a simplification of the value proposition to
the investor, plus the other things John talked about earlier,
such as: “We have assembled the team, it's a large market with a
segment we can own that has adjacent markets that we can then grow
into and own, and it has a value proposition that we know how to
deliver and sell.”
Mr. Backus: Another audience question. What do you look
for in a value proposition for a services company, as opposed to a
Mr. Gopalan: From a services perspective, you've got to be able to differentiate on
the people you bring and for what service. The value proposition
and services can change over time, depending on the skill level
that is required and so on. Clearly, we're looking for quality.
Clearly, we're looking for something that is not available with
somebody else. Longevity helps. If you have done it for awhile, we
can rely on you to do it better the next time. It's all about
expertise on the service side.
Mr. Backus: I see my friend Mary coming, so I'm going to turn the mike over to her.
I want to thank the panel for being with us this morning, they
deserve a hand. This notion that there is a value proposition for
different constituents is very important, and you heard some good
examples. Thank you all for coming. Have a great day.