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Michael Moesgaard Andersen, Andersen Advisory Group:

Presentation at SlideShare: The hire hack, the startup hack, and the growth hack.

October 1, 2015

MICHAEL: First of all, thank you for the invitation to be here and I would also like to extend my thanks to you and SimpleSite for both organizing and also sponsoring Nordic Growth Hackers. I think it’s a splendid initiative and all of us should be proud that somebody takes such an initiative. Well, on my presentation here today I think that the heading says pretty much. It says “One size doesn’t fit all.” So, you have heard so many simple explanations for complex reasons for success like execution, everything is in execution, or execution is everything. Recruitment is key, or everything. What matters is culture. And stories like that. Where you take one single parameter and then say that, okay, that can explain everything. I’m a strong disbeliever in that kind of simplicity. I think it’s far more complex with many, many more parameters than this, and even also extra parameters in addition to what you have listed in your survey today, Morten, and maybe you will detect during my presentation some of my view on the additional parameters which are put into play here. My presentation is structured a little bit around a macro level and a micro level. Micro level – the micro drivers will count for 90 percent of my presentation, but initially I would like to take you through some macro perspectives because our research at Copenhagen Business School and also other business schools clearly show us that we have kind of different waves of innovation. When we study innovation which is one of the underlying things for growth, naturally, it comes out that there is an epochal element of innovation. So let me just try to give you one example of one of the first epochal innovations in the industrially developed western countries. When the railroad tracks were laid out in Europe and also in the U.S., for instance, in the 1850s, it gave birth to a kind of revival of the society with lots of innovations and lots of business coming up. And even today if you look at some of the real wealth families in particular in the U.S. you will find that like Rockefeller Foundation they based their fortune on being at the right spot at the right time when the railroad system was introduced in the U.S. So, being born in the right epoch is very, very important, and I know you’re now listening to whether you are born in the epoch because that’s extremely important for your own profitability and subsequent wealth. But let me just go to the second wave after the railway thing, that comes here when we have – (if I can click it, okay, okay, that’s smart, yeah and that shows nothing) – but now you have a picture of the horse carriages at Manhattan of New York around the turn of the last century, the 1900 Easter parade, and you only see horse carriages. But only 13 years after at the same Easter Sunday event you will only see cars. So it took 13 years to go from only horses and then to only cars. And then you can say, okay, that gave probably the birth and the acceleration of the automotive industry, but it’s far, far more than that. It’s transportation, it’s logistic, but it is also what we call tailors with the mass production of goods that followed that epochal innovation, also because cars had to be mass produced; whereas horse carriages were more manually produced. So, that gave birth to extreme wealth which we also see today from some of the German families for instance within industrial machinery and also in the U.S. Well, now we have a third epoch coming up, and you are very well aware of the internet development of course, and we have also seen that brilliantly during the last two presentations, but let me just try to focus a little bit just shortly on one element, on digitization, because this is the wave we are in now according to research, and this can give us extreme wealth if we can manage to get our business cases right from the beginning. We have this from the Vatican where you see mobile phones but suddenly eight years after you see a completely different picture with far more advanced smart phones. So, what could that tell you? Why am I telling you this? Well, let me just take an example. Mr. Lars Hoebeck, he’s sitting here, he drove the company called Mobile Think and he discovered or predicted that there would be such a development with mobile phones. So what he invented was the so-called configuration of mobile phones with configuration settings and over the air techniques which in an intelligent way made it possible to use the phones in different contexts. And he exited that company recently. But it’s kind of interesting to see that if you are on a track where you can see the macro transformation in a society, then there are so many business cases which can come to you with a very high probability of success. And I think Mobile Think is one of these stories of that. I call it personally with this macro level that “trend is your friend.” Detect the right trend. That trend can be your friend at the macro level. Well, that’s all I want to say about macro; now I will swiftly proceed to the micro level. The micro level with the heading “How do you create the digital rebel?” Because this is what we can in the third wave of macro things. And what are the key characteristics for a digital rebel? Well, one thing is that a growth driver is the network effects. You are probably very well aware of that already so I’ll not be long about that. No ownership of assets. So the more you can focus your resources on everything else than physical assets, the better you have prospects for extreme growth. A strong IT engine is necessary with the digital rebels. Tactical pricing, whether it be reverse charging, whether it be freemium, whether it will be a third kind of innovative pricing. Maybe cutting prices in the beginning and increasing afterwards, or whatever. But tactical pricing has occurred to be an element of digital rebels. Disruption. Well, you can’t please everybody and just have success. You have to kill the old world if you are digital rebel. And you have to do that with a disruptive mindset in order to create high total cost of ownership. Execute — that’s already addressed, so I’ll quickly move on to rethinking innovatively. You have to think out of the box and have a mindset where you are prepared to do what many others would not do. So for instance when I invest in some startup cases, I am keenly interested when some people, some advisers say to me, this won’t work, don’t do that investment. Then I’m really, really interested because then we are into something which is really, really new, and which can drive exponential growth. I’ll just repeat that trend is your friend with these digital rebels. Now, Morten has asked me to do a little bit of a different presentation than previous presentations, so now I will move onto some of my personal experiences with the companies I have fared with. In one case which is a business-to-consumer case, we got 200,000 customers or even more than that in less than 12 months’ time in the mobile telephony business, and this was the CBB Mobil case which I’ll expand a little bit upon later. But what we did there was a deliberate kind of strategy which is described as what we call a black swan because what we did there was something completely new, hadn’t been seen in the market before, we did it at the same time as Telmore, but doing things in a black swan manner gave us a lot of background for our extreme growth. And we have described this black swan technology or these black swan components in a separate book written by myself and Professor Flemming Poulfelt of Copenhagen Business School. So the subtitle is the Impact of Next Generation Companies. And this is this black swan philosophy where you can make an extreme impact on the environment and also have a disruptive nature to deal with it. Now this is the business-to-consumer segment. Something is completely different when we go to the business-to-business concept, because here I have another example, namely the company called Configit which is doing configuration software. When you have matters which are sufficiently complex like producing a car, for instance, you can gain much benefit out of utilizing software. Advanced, very advanced software. And I came into the picture here around 2008 and 2009 and luckily in this case — it isn’t the same with all my cases — but in this case we made the hockey stick development and I’ll try to expand a little bit on how we realized that growth. Well, let’s move back to CBB Mobil and what I call business-to-consumer growth hacking. And be aware that I’m making a severe distinction between business-to-consumer growth hacking and business-to-business growth hacking because I have learned in the hard way that there’s extreme difference between running such different business cases. In the case of CBB Mobil many things were important, but in the first case imagine that we in the industry were the first to require prepaid. And as we didn’t own any assets but got the money from our customers upfront, we could actually run this business case without any external funding, basically speaking, and it was a very, very low risk business case. It was successful in the end, but it was very, very low risk in the beginning because of this prepaid structure. We figured out that best in class customer care was extremely important and it actually went such a way that the consumer board Forbrugerstyrelsen, they said that not only did we have the lowest prices but we also had the best customer care service. And it was such that people from other customer care functions at competitors, they would like to come over to us because we invented some new technologies around customer care practice. Lean product. When you go to the mass market we found that it was a nice thing to have no frills, so just a very, very good core product with a good core service. You had what I call average technology. There was nothing brand new, nothing specifically innovative about the technology; it was average and it was good enough. Then I already said during the customer care thing that culture was important. We had a disruptive culture with young staff, and therefore I really liked your answer, Steffen, earlier on during the questionnaire that you cannot do that with, you know 50 or 60-years-old people. It was a very innovative culture at the customer care. Then I have a last thing that is specific sales effort through business-to-consumer branding, and I will expand on that a little bit, but still say that these six things here are specifically described more, in more depth in another book Return on Strategy. It’s described a little bit different. And there are many sub-indicators to each thing we have here, but it is a model for exercises. How you can get return on strategy. And by the way this book has been translated into Danish alright, but it’s hugely successful in China. We have the largest sales in China where founders are also viewing this as a kind of first book to read when you want to establish some kind of new company. Let me just expand a little bit just to give you an example about sales, because sales are important, an important ingredient in this. Of course we had direct sales, we have sales effort through our web shop and our website. And please recall that we are back to 2002, 2003, the 200 plus customers we made them in the year 2003; so it’s not today; it’s actually 13 years ago. And then we of course also had dealers and stuff like that. And we used a number of different methods in order to get to the customers already at that time. We used social media already then, but we also used the ordinary press, you know, the newspapers. So we were in the newspapers practically speaking every day, creating a kind of David against Goliath metaphor, so we were fighting against the incumbents being TDC, Sonofon, Telia, Orange, or France Telecom, and the likes. And that was actually a very, very nice thing because journalists, at least in this country, they are very keen on promoting David-like things, and would also probably like to hear much, much more about your stories; you have very good stories than you think. But however, one day the sales director came to us at the board level. We had a discussion on whether we would reach our budget of creating 200,000 plus customers in 2003. And he said to us, “Well, I can’t create it if we are not able to go to the television with advertisement directly in prime time.” And we all said to him, “Well you must be crazy because that would cost 20, 30, 40 million kroner and we don’t have that, we have no funding, I mean we are going to be self-contained.” And he went on and on and on. He said he could not reach his sales target if he wasn’t allowed to go on television. “Okay,” I said, “You have persuaded us, you have persuaded us, so you are allowed to go but it’s necessary that you go without any cost for us on television.” Zero cost. And he said, “I can’t do that.” We left the boardroom and he came back the next day, and he said, “I have untied the Gordian knot.” What he did during the evening was he went through all the companies who were listed for block advertisement on televisions and he found out that two companies had actually went bankrupt within the last couple of weeks. So he contacted these bankrupt companies and said, “Ah, I would like to take over your advertisement for a bottle of wine. Don’t you think that’s a good proposition?” And that it was. He actually managed to get on television without paying anything, and with a lot of worth to the company. So, it just tells you also the story about, you know, thinking innovatively, thinking disruptively, thinking out of the box because everything is possible, almost everything is possible in this world. So this was the story about how we managed through all the inroads we could possibly use to get 200,000 plus customers within less than 12 months. And just for comparison, we expended in total less than four million in acquisition costs in the year 2003 for getting that number of customers. Now the average acquisition costs for the incumbent was at least 2,500 krona, so they would have expended 500 million kroner to attract 200,000 customers; where we spent less than four million. And by the way, you know, this was based on our discount, our aggressive discount. I call it business model – now I’m introducing a new term because I think that what ties these things together is the business model you use. Business model comprising of a variety of variables of factors or parameters or driving forces, if you like. And my conclusion later on within the limited time frame allocated will be that the most important message is to be clear on the business model you are using because the business model comprises 30, 40, 50 parameters and you need to be aware whether it’s a sustainable business model you have. Is it sustainable today? Is it sustainable tomorrow? Or will it crash or whatever? Or should it be adjusted? So, that will be part of my conclusion today. Now switching to Configit, we again have extreme growth hacking but it’s on the business-to-business segment. So let me just try to go quickly through it because you saw that funding was not needed with CBB Mobil, but here it is needed because business-to-business, that’s very often postpaid and was in the case of Configit. Instead of customer care as the first best thing to deal about, key account management was very important. Instead of no frills, what you have when you are on the business-to-business market is that it’s from time to time very attractive to have frills in order to make you lock in your customers. But it’s too expensive to do that in the consumer market. Best in class technology. You need to make it as advanced as you possibly can, and you can imagine that this company for instance delivers the software to companies like Jaguar, Land Rover, Audi, Volvo, and the likes, in the automotive industry, but similarly ABB and a number of other companies in other sectors of industrial machinery. So it needs to be extremely complex. This also means that the culture is not, you know, the youth culture we saw at CBB Mobil. It’s an experienced culture, research-like in nature. And last but not least it’s a completely different sales story we are dealing with. The sales story here is that articles, professional articles in journals is important. Being at special conferences and be keynote speakers there is important. Having a thorough take on how to deal with not two to three hundred customers like CBB Mobil, but only a hundred, or less than a hundred customers like Configit has. So you will see there’s a huge difference between the two. And this means that I would like to question you. Are you b-to-c or are you b-to-b? Because you will see in the paired comparison here that there are differences regarding funding, cash flows, differences about how you structure your relationship with the customers, differences in how you develop your product line or service line, the technology focus will be different, the culture will be widely different, and also your sales effort will differ hugely. So this is the message I take here, but these are let’s say the common lessons learned from these two business cases. I would like to just finish by giving you some actionable points to consider in addition to what I’ve already listed. One is to have founders to go work all-in, and we try to describe that in the book on the Configit case. And the main story here is — it’s in English and we also have a Danish copy of it — is that so much happened when the founders eventually went all-in. They thought that they could manage on the side but that doesn’t exist. Founders need to go all-in. Founders need to retain a motivator, and the motivator is most commonly the ownership share. So if you are from your investors knocked down under the carpet with a too-low ownership share it will not transpire, neither for yourself nor for the company, and for the investors. Gamble at the right time. I mean, you need to take chances in this life. And on product development, I mean, somebody tends to see – or many have tended to see – product development as a terminal point at some point in time, but the fact is that you should continue and continue and continue with development of your products. Then I have a common lesson learned from both CBB Mobil but also Configit. That is that it was good that the founders/CEO go into the sales process because it has a very, very nice effect in the marketplace towards customers if the CEO is not sitting silently between the desk but is actually meeting customers. And I mean in the post after this you can also discuss it with the founder of Mobile Think because he was also very active in his sales process throughout the world in his business case. Then recruitment is something which we often overlook because many recruitments are actually made in a less successful way than we think. We are quick to take our friends onboard and stuff, but do we do it sufficiently, professional over time? So, my lesson here is when I look back on these maybe five or six hundred recruitments I have made, I can say the lesson is that I’ve spent too little time, every time. So don’t underestimate this effort. And then last but not least, this is my last point actually because I know there’s no more allocation of time for my presentation although I could continue, but I think this is yet another extremely important lesson because you can have good founders and you can have good investors, but if they don’t match together and they’re not aligned, it’s like you can have good food in one of the best restaurants here in Copenhagen, and you can have excellent wine, but what if the wine doesn’t match the food? You’ll not have success with anything. And it is a little bit the same here. And it’s often, very often overlooked because founders, they often rush to get the money, but my advice would be try to reflect a little bit, see if you have alternative possibilities, and look into whether, you know, the alignment and the chemistry is working optimally for you. Thank you for your attention.