I won’t go into every points addressed in the book, although I wanted to call out one of the thing Collins noted: great companies have a very clear metric they were following relentlessly. It’s the denominator of the formula: Profit per x. Each of the great company had a clear profit per x. For example, profit per visit for Walgreen, profit per employee for Abbott, profit per region for Circuit city, etc.. It seems very simplistic but it drove billion dollars businesses’ strategy and became the heart of their culture. The shift of revenue metric from one denominator to another was often time the starting point of fantastic results.

As I was reading this I asked myself what could be the right denominator of a profit per x of a very small business, and how could this drive the strategy of the company. I was fortunate enough to run such a small business, Iniflux, in the past and I was trying to think what it should have been.

The first step is to determine what metrics we have and that is probably the biggest issue most small businesses are facing. When you are small, you often live day by day, each deal is important, be it outside of your realm of skills, focus is not a virtue, and because management is so close to the field there is no time to think too broadly about culture, strategy, hiring and investment. Accounting is outsourced to a CPA which role is mostly to help filling taxes and make sure the company pays the right taxes to the state and the visibility of the cost structure is very weak.

Building those metrics takes time initially but they are crucial to growing the business. You need to ask the right questions:

- What are my costs? How much does every employee cost really? What’s my total overhead cost (attributing overhead correctly is also very important)? What is my cost per profile of employee? per employee? per deal? What is my sale cycle length? by type of deal, by size of deal, by sales person? How much hours of each profile have been put in on each deal? How much do I spend in marketing? where? for what return? what is my support cost? How much is debt costing me? etc..

- What are my revenue? What margin do I make by type of product, by deal size, by sales guy? How much revenue by practice if you have several? by region? compared to last year? and the year before? etc..

The idea is to have a perfect picture of your cost and revenue structure. The goal of this exercise is not to just do it once but also to be able to track those metrics over time and see trends appear. Once this is in place, the company has to compare itself to the market, and comparable companies in particular if this data is available. For example, what’s a good revenue per Sales in the first year? the second year? Hopefully you will realize that you are good in certain areas and weak in others but overall, you will know, from now on, how to plan for the future. By understanding your core metrics, planning becomes much easier. Later you can always compare your plans with your metrics to see if you are on track. Another to know more is to talk! talk to other small business owners, go to networking events, ask questions, talk.. IT is in fact incredible to realize how much first hand conversation can bring, and often times how people are open to talk about their company and experience. Who does not ask gets nothing. Talk.

So, as you are planning, what should be your denominator? The x of profit per x. Force yourself to think about a single one. What should it be?

I will take a few example to illustrate the impact that such an approach could have on your business.

As a service company, the denominator could be: Customer. Profit per customer. If you are set on this what does it mean: The number of customer is not that important, what you want is increase the profit for each of them. That might drive you to go see your current customers more. It might drive you to drop customers with which the type of deals you have are not in line with your strategy (service versus pure software/hardware sales for example). It might drive you to expand partnerships with a single partner. It might drive you to diversify your offer into a more complete or global offering. You will try to find ways to cross-sell or up-sell products with existing customers. At the same time you will try to reduce the cost allocated to each customer which means you might want to have someone dedicated to each customer that knows them in and out and can be efficient, spending less time on each new deal. You may want to incentivize your sales team on this metrics as well.

Now as the same service company, the denominator could be: Practice. profit per practice. Let’s imagine you have a security practice and a database practice and you want to maximize the revenue per practice. To achieve that goal you will have to develop certain expertise that justify higher sales costs, maybe find product in those practices that have bigger revenue and margin, your training costs will be distributed differently to maximize for this denominator. You may even want to drop one of the practices all together. Overall your strategy will be quiet different that is your denominator is “customer”.

If you are a SaaS software vendor, you denominator could be “visitor”, “paying customer”, “server”, “marketing campaign”, etc.. and each of them will call for a different focus, culture and strategy.

Finding your denominator is going to be very hard and will certainly be the source of many debate internally. Be honest with yourself, face the hard reality of your situation. Don’t just come with a denominator, try to figure out what is going to be the strategy to increase it (using the great tracking you have put in place earlier). You might realize that this focus will be what takes your company to the rank of great company.

Let’s look at the evolution of those two companies over the last 19 months

Back then I thought that SaaS was not necesseraly the way to go for a startup, although fundamentally, I was seeing a lot of benefits to this model. Now about 19 months later the same table (looking at the last Balance sheet)

Do you see what I see?? Salesforce doubled its market cap, increased its revenue by almost 30% and is dwarfing BMC.. That said it still has a small EBITDA. In comparison BMC basically stayed the same, with a slight growth and still a nice Earning number.

Salesforce numbers are impressive in terms of growth but scary in terms of earnings so the question remains: Is SaaS such a great business model?

Hell YES! I made one big mistake in my previous analysis and this post is here to correct it. I did not really look at the stage at which the companies were in their growth. Salesforce is a fast growing startup which has one thing in mind: Growth of the top line. On the other hand, BMC has been a stagnant company and is focused on its bottom line. I should not have compared those two companies in the first place because investment decisions are completely different in those two cases.

So why with only 6% of revenue in EBITDA is SaaS a great business model? The answer is simple: It’s the subscription model of SaaS, and it’s the growth.

If your business is using the SaaS model, you will get no big check when you sell your product, in fact it’s the opposite, you get a big cost. If the customer is big enough or if your reached a certain amount of customers on the same infrastructure, you may have to upgrade it, you will have larger server load, memory usage, bandwidth usage and all this will cost you from day one. Of course you will amortize those costs, and if you priced you offer well, you will collect the benefits of this model in the long run. So for Salesforce, a lot of those costs are applied today (R&D, Sales, Marketing, Infrastructure) which eat the margin (reducing the EBITDA).

The growth is the second factor. Growth is costly, you have to hire, you have to invest, you have to discount to win customers, etc. Marc Benioff said today in a keynote that we are trying to hire as many people as he can and the problem he has is that he cannot find enough people! Especially in sales. For a business, if the strategy is growth, where should you put your dollars? As earnings that will be taxed? distributed to shareholder (who will be taxed as well)? Or into your business to make it grow even bigger? Think about $1 of earning. Take out 30% tax. Distribute it, and take another 25%, this dollars is wasted. Now put this dollars in a business that has doubled its market cap in 19 months.. What makes sense now?

The low EBITDA of Salesforce is nowhere near the sign that the SaaS business model is weak, or that the company is not doing well, it’s the opposite. This business is doing very well, demonstrating how powerful the SaaS model can be. Companies using the SaaS as a business model cannot be evaluated as standard software vendor with on-premise solution. If you are considering SaaS for your own business, it should be very clear in your mind. It should also be very clear that transitioning from an on-premise model to a SaaS model is extremely difficult without significant hits on your revenue which is why SAP, Oracle and other big vendors have so much trouble.

Regarding Salesforce, the fun fact is that as soon as the growth starts slowing down, the earnings will explode through the rough relative to revenue. Funny how things work with SaaS.

I’m starting with the one about unlearning your MBA where David Heinemeier, one of the creator of Ruby on Rails is speaking. Interestingly enough, Steve Blank is the moderator (a guy I love). If you follow my blog you know that I was pretty harsh about Jason Fried who founded 37 signals (linked to Ruby on Rails), and I was really looking forward to hear David talk to see if I just was stupid in my analysis of what Jason said about a flat organization.. I will split up that post in 4 sections:

• Unlearn MBA – the main theme of the podcast
• Shouldn’t Take Venture Capital and spend your own money
• Working like crazy to build a startup
• Salesforce.com

I was optimistic about that podcast. I wanted it to prove me wrong and unfortunately started pretty poorly… Unlearn your MBA. David started criticizing how bad the MBA he did was and didn’t help him in what he did to build a business.. All his professors were so theoretical in nature, judging on the length of the papers he was handing in, and thinking 1980′s industries value chain and business models. Well, what I think is that the problem is not that people should unlearn their MBA: people should not attend the MBA he went to!! If that is the experience he got from his MBA in Copenhagen, they should really revisit the professors they hired and their curriculum because, excuse me, but David is right: He should unlearn all this.. I’m barely out of the Berkeley Haas MBA, and I have to say that a ton of what I have learned there can be apply to everything business I think about today. My professors were experience entrepreneurs (Steve Blank included), they were lawyers from the field (Mario Rosati), successful people from many startups and their knowledge was immense and relevant at every inch. They taught me to think much broadly than I was able to before the MBA, they taught me to question assumptions, they tough me to test my idea, pitch better, be more confident, challenge the status quo, everything. My view of how to tackle a business today has completely shifted thanks to the MBA and I thank them for putting together such a great program. That actually raises a valid concern if you are considering an MBA: how do you select an MBA that will allow you to NOT have to unlearn it afterward? Vesting your MBA is important, not all of them are equal.. but generalizing like David did is pretty closed minded.

So the podcast went on and David started talking about VC money. He is of the school that VC money is a time bomb on your business. I have to admit, that made me like him better. I agree that taking any kind of VC money could simply kill your business and make you focus on the wrong things. Taking VC money is not the only way to build a business. Spending your own money makes you think differently about what you need to focus on, and I agree with David on a lot of points he made. I would simply extend into the fact that some businesses are doomed to failed without VC money: Capital intensive businesses (clean tech or health care), or  industries where being the first to market is super important and extremely fast growth is needed (where market barriers are very low => think Groupon!). Some businesses, even software businesses (David restricted his comments to software/web) just have bigger chances of success if they are VC backed than if they are not. When do you take VC money, or what stage of the company is a true question that needs to be thought through carefully. Getting VC money is not an end goal, it has to support a growth strategy and make sense for your business and your industry. I think that fundamentally David is right, but again, a bit short sighted. VC money is not all evil, but he is right that many entrepreneurs fall into the bad trap of just looking at the money, not the underlying purpose of getting that money.

At this stage, I was neutral, and then David started talking about the fact that to build a business you didn’t have to work 100 hours a week or you get burned out and you might be much more productive working less and sleeping more. At that point I realized that I could relate to David’s experience. In my two former businesses I worked hard, but not like hell. of course I would spend much more hours on them than I would do for another business where I would be employed but not to the point where I would get burned out. I agree with David, efficiency is more important than quantity. Many people get overwhelmed very quickly and brag about how many hours they spend at work. When I hear that I always feel that those people have two problems: They don’t know how to prioritize correctly, and they are not efficient. Although I already hear some of you screaming that they don’t have enough resources, their deadline as so tight, etc and it is very true for many of you so I shouldn’t generalize. Let’s just say that “often times” those people bragging have those two problems. Prioritization and efficiency are extremely powerful skills that allow you to work on the right stuff, at the right time and get the job done without waste. Thriving for those two skills should be everyone’s goals. I am sure that David has both skills very developed. Good for him!

I started to like him at that point and thought that despite his take on the MBA, which is understandable if he did actually go to a bad MBA, made me think that I had been too harsh about 37 Signals. So I started writing this blog post thinking that I would praise the guy.. (not that anybody cares about who I praise or not by the way..). As I was writing I was hearing the Q&A section of the podcast in the background led by Steve Blank (which I love. Did I already say that?) and Steve asked him about the scalability of a business like 37 signals versus a $1B business. And he killed it.. David thinks he could run a $1B company with 15 people, the way they do today. No correlation. What the Hell?? Is he stupid or what?? 37 Signals is ten years old. I realized it’s like Salesforce.com. I thought to myself: well you are not a billion dollars company because you are short sighted, and salesforce.com is over a billion dollars company because they have done all thing you have been criticizing during the podcast. But what nailed it is when he started talking about Salesforce.com (I didn’t plan this! it just happened!). David said: did you look at their margin, did you look at their P/E ratio, it’s bad and all that stuff, it’s so low (P/E so high), how can a software business make 5% margin. This to me is just the final proof that David doesn’t understand what a growth business is about. Salesforce.com reinvests every possible dollars they have into their growth. Salesforce.com has had the goal of leading the revolution of enterprise software all along, they made the Cloud and SaaS a reality, they have a long term vision (something that 37 signals doesn’t have as – David’s words: they think 2 weeks ahead), they are buying their growth in a model where if they were to make no sales next year, and I means zero dollars, firing every possible employee, they would probably make over a billion dollars in margin (no cost). That is what the whole SaaS model is about, and that is what Salesforce.com is about: Growth! reinvest every penny into the business. If next year Salesforce.com announces 40% margin I’ll be pissed! Why didn’t they spend more in hiring, marketing, expending? When Salesforce.com is a $5B business I’m guessing the growth potential might slow down a bit and then the margins are going to explode, the P/E will go down from the really high level it is at today. When salesforce.com decide to stop fueling the growth, they will make huge amount of money: that’s the SaaS model, it’s not just software. David doesn’t get it apparently.

I’m coming out of this podcast wondering how 37 Signals is still alive. Basecamp is pretty good, I’ll give you that, but man, with such a management team, I’m surprise they are still here, and I’m starting to really think they have other sources of revenue to keep them alive. Anyway. Interesting podcast to listen to.

Cheers

I believe that we are in the middle of a grand scale transformation where large corporation are going to fall faster than ever because of social networks. New product come to market at lightning speed (Facebook, Groupon, iPad) taking over the worldwide market share in a matter of a few years, leaving established businesses in the dust. One of the most stiking example is Nokia.. After reading Stephens Elop’s burning platform memo (here) on how Nokia has found itself waking up with no better option than attempting to avoid drowning in about 2 years only, and Eric Schmidt admitting he “screwed up” with facebook (here), you can see how bad the situation is getting for those big companies. Granted Google is still pumping money in the machine like crazy and they are not necessarily in bad shape right now, but even then, as search is turning social local and mobile, Facebook is an very serious and dangerous competitor for Google already and in the years to come. Failing to recognize that social media changes everything is the guarantied failure of a company, big or small.

In my work, I now meet more and more of those big corporation and I can see how worried they are that they will not be equipped for this paradigm shift. There is no time to wait anymore, they have to adapt and we can see two attitudes:

The first (and very common one) is trying to work around social with minimal investment just as a way to say your are doing it.. For example, the enterprise sets up a facebook fan page, has a tweeter account, blogs a bit. It names a person or two to take care of this but doesn’t give much budget for it. This feels to me like the early days of the internet. Every company had a web site, but where was the presence? Where is the engagement toward a true change in the nature of business and of how your customers are interacting with you. The companies that did embrace the web at full speed are the one that benefited the most and have been successful. The raise of SaaS companies in the last 10 years versus on-premise offering is a demonstration of the shift. As the Internet grew, as people became more and more confident with putting data in the cloud, as technology enabled and supported this change, companies had to adapt to it. I wouldn’t go all the way to say that on-premise software is dead, but the next 10 years are going to be about the cloud and SaaS applications. Companies that do not understand this will fail.

The second is to recognize that social is where the world is going and make it a strategy for success. This has to come from the highest level of the organization and has to be nurtured internally as a cultural change. The change will come through more openness and transparency, more internal collaboration, and put processes and tools in place to manage the social channel presence. Having social agents dedicated to social conversation, having tools to monitor, sort, prioritize and drive business intelligence around social conversations. Collaboration is one of the major pillar of becoming a social enterprise. Collaboration is not just having meetings and sharing some files, it’s about open communication internally, open access to anyone, it’s about breaking silos in the enterprise, between teams, groups and the hierarchy. Being scared of social channel is a route for failure, isn’t offense the best defense??

Not a lot of companies can enable that change, the Microsoft of this world are entrenched in an old mindset, not necessarily because they don’t see the opportunity, but really because it’s in their DNA. Their business model, their technologies, their processes are not tailored to support the speed of change. How can a company adapt to change when they release major updates every 1 or 2 years? the iPad is just a bit over 1 year old!! ONE year!! have you seen the impact it had on the enterprise, on mobile workers? By the time people adopt a new product like the iPad, software vendors, and other company need to adapt their entire offering and almost business model. It is not with release cycles of a year or two that it is possible.

This situation also explains partly why startups are rising so fast. To be efficient in a world that’s moving so fast, companies have to be extremely agile, which is usually the strength of start-ups. This open tremendous opportunities for startups actually. One way to go at it is to try to find what what feature set of technology established companies need to adapt to the new social world. That would open for a good exit strategy.

The point here is really that I’m expecting some really established company to fail badly in the comping years, either taken by ultra-fast growing startups, or by companies that are agile enough to adapt fast to those changes. It is going to be interesting to live this change and see if the current frenzy of investment by the VC community will pay off. Who’s the next google? who’s the next facebook? who’s coming out with the next iPhone/iPad? I for one, love this uncertainty which is a bastion for innovation.

I got a bit worried about the situation honestly.. There is no alternative today to Google as an online store.. yes, yes.. there are Bing and Yahoo.. whatever.. There are no alternative I said! those last two do the same.. Put yourself in the shoes of a small online shop, you have very limited resources to maintain your SEO at the top of the curve. Google is changing it’s black box algo all the time, your big competitors have dozens of guys signing-up deals with other site to have links to them (they can, they have the money for it), how can you win as a small business in this environment? Wasn’t the web suppose to give a chance to everyone and not only big corporations? Google is also playing with algo that now basically only show 3 or 4 organic results on the page.. Small businesses don’t stand a chance unless they are very different, which is not a bad thing in itself but that makes it really much harder to start a business.

The point here is not to say Google is evil, because I do not believe that is the case. Google is a business and they need to make sure their users uses them. So what is the logic behind the change is that there was a increasing number of site that just bring inventory from other sites and resell. Those sites have no added value what so ever, those sites hurt legitimate businesses, those site require little or not effort to set up and real plague for legitimate businesses. If you are a user searching on Google, and land on those sites, which typically are pretty poorly designed and full of ads/pop-up and other annoying stuff, you will, as a user have a bad experience, and Google wants to avoid that. So, Google took the decision of forcing good design, which require investment and work to build, as well as unique content, which also require time and investment in order to automatically filter out those link farms automatically and boost legitimate businesses in the ranking. Of course some site are impacted, like our furniture store guy, but I believe that the overall result is better and Google probably made the right choice. So, yes, I think Google is too powerful, but I think they played a business game that is fair (not evil) and tried to just be better at what they do: providing useful and relevant search results for users.

The conclusion I would draw from this little story are the following:

• Try to diversify your sources of traffic: Google of course, but Facebook, forums, blogs, SEM, etc.. the more diverse, the less sensitive you will be from Google’s changes. I know it’s easy to say.
• Invest in your business: if you are serious, have a differentiated position and show it in your content. Why should people shop at your site rather than another that sells the same stuff. the message has to be clear and repeated through your site to SEO crawlers can understand why you are different.
• Don’t be a link farm.

I think Google is really trying hard to bring results, trust your judgment, focus on your business and don’t try to fool the engines, that is not the business you are in, I don’t think that is really worth it.

For the history, 37Signals with Basecamphq was in my line of sight when I was creating effecteev (www.effecteev.com). We are trying to solve the same problem of team collaboration. When I found basecamphq I really felt that they had solved it.. The product had plenty of really good features and was claiming over a million customers (although many free). I thought they were not making that much money and not growing very fast because their pricing model was stupid (way to cheap for the value it provides), and their software is a bit clunky with a security scheme that I would call “poor”. Now I see more clearly. Jason Fried seems to be very short sighted and is not the leader that company needs and that really doesn’t help growing a business with a long term vision.

Let’s consider the flat organization he is describing:

- At 37Signals it’s all collaborative, no managers. That is a structure that can never ever scale! Who makes decisions? Who handles conflicts? Who takes risks? Having this structures builds a world of compromise where the outcome of a decision is simply the average of all opinions. That makes the outcome average, and average is not enough to beat the competition. Also, underlying this structure, mister Jason Fried then becomes the King of the castle. In the end, he decides, he solves conflicts, he takes the risk. That’s fine, but please, don’t come saying how great it is for your employees to leave in this world when you are just at the opposite of the spectrum!

-  At 37Signals they don’t promote people, they take people who love what they do and want to get better at what they are doing.. Man.. I’m sure employees at 37Signals are really really good at what they do after 11 years of service doing the same stuff.. Can you really get that good?? Is there an unlimited growth potential in what you love to do? I’m sure you can always get better, but the growth curve must become pretty flat pretty rapidly!They are lucky in the sense that the Web is constantly evolving and new technologies appear all the time so they can certainly evolve their skills that way but I don’t really buy it.. it’s a bit of the same over and over. The biggest problem I see is the fact that Jason Fried doesn’t think about his employees. What about their career? Do you think they will spend 40 years working at 37Signals (where titles don’t matter) and enjoy what they are doing for 40 years? Do you believe, really, that it’s making them a favor to not promote them? to not teach them managerial skills? to not force them to think strategically more?  What happens when they decide it’s time for them to move on somewhere else? Do you have a notion of how recruiting is done in most companies? If you are an Software Engineer, have never managed anyone, even for 10 years, and you are really good, you will end up as maybe a senior Software engineer with a bunch of 23 year old all around you and a salary that fits that profile. 37Sginals needs to help people grow their skills so they can have a successful career after 37Signals. Nobody likes turnover, but that’s a fact of life for a business. Embracing the fact that some turnover happens, and making sure your former employees like you is key to succeed in business. Those former employee will pass the good word around, about how good it is to work in your company, they will want to work with you in the future as partner, or customers, they will help your business!

If your employee don’t want to evolve and develop new skills, fine, let them, but make them think “long term”, and they will quickly realize that this is not sustainable. They will pay this Flat Organization the day they leave.

Now Jason, I’m sure your employees all own some equities in your business, or at least I hope they do, and I hope they have enough of them so when you make it in a few years, they will sit on a pile of cash big enough so they don’t have to worry about their career anymore. If you think that is not the case.. then I say, you are screwing them and their future.

- 37Signals has 26 employees. This is after 11 years and over a million subscribers! Honestly, with that big of a user base you should already be Public! 11 years, 26 employees, I’m not calling that success, I’m calling that stale. and I now understand that you are that way, not because the pricing is too low, not because your product is a bit clunky to use, not because your security layer is full of holes, but because you build a Flat Organization that can go nowhere.

My advise: Structure your company for growth, put layers in place, promote people, hire people that can manage for excellence (not average), and help your employees build their career at 37Signals, but also after 37Signals. You will do everyone a favor by offering a better product, a better equity value to your employees (that might eventually be able to retire and do what they love all their life if they want), and will open future doors for the employees that want to be good at what they do but like everyone on this planet, can get bored doing the same thing over and over..

“Let the hacking begin: If facebook needs money, instead of going to the banks, why doesn’t Facebook let its users invest in Facebook in a social way? Why not transform Facebook into a ‘social business’ the way Nobel Prize winner Muhammad Yunus described it? [LINK] What do you think?”

Interesting idea if you think about it.. With such a huge user base, you would think that Facebook could definitely raise a LOT of money that way.. Who wouldn’t pitch a few dollars in the hope of a nice return? I’m no expert but there are certainly lots of legal issues and risks in doing so:

• How many shares do you put on that social market place?
• At what price per share?
• Do you let users sell their shares to some other user (therefore recreating a market place with potential speculation?)
• How do you distribute dividends? What are the users’ right on that front?
• Let’s not forget taxes… How do users pay taxes? would this market place become a competitor to the Nasdaq (for example)?
• Who controls for insiders fraud?
• Who controls for hostile take over of all the shares available on this market? would there be a limit to the number of shares an individual can get?
• Would this be limited to individuals only? (could be interesting)

I’m going to stop here because I’m just reacting on the spot and didn’t think that thing very deeply, but it seems to me that there is a pretty large legal issue around the idea. That said, I think it could be worth investigating how a company could raise money from it’s users, very much like you would get funding from friends and family in the early days of its start..

I like the reference to Muhammad Yunnus by the way.. if you haven’t read his book (banker to the poor), it’s really impressive.. This guy totally deserved the Nobel price. He changed the world by tackling a gigantic issue with poverty in the developing world. He has fostered Entrepreneurship and aimed at woman as the backbone of their community. Fantastic and inspiring example.

Among the big announcements: Database.com, the database in the Cloud. Salesforce already had that available and it’s been basically rebranded/repackaged to be able to market it better. The idea is simple, instead of having to manage your own database in the cloud with the issues of Scalability, redundancy, maintenance, etc.. now you just put your data in database.com and you don’t have to worry about all this. I can definitely see the value in here.. upgrading and maintaining a database is not trivial, and a slow database that isn’t ready to scale can really kill your product. I’m not going to dive in the details of pricing but it seems small startup can start using based on a  Freemium model (based on usage).

The more interesting announcement was the acquisition of Heroku, a hoster for Ruby on Rails applications.. That one is pretty amazing. Salesforce now has one of the biggest, most efficient Ruby platform that will will be seamlessly integrated with database.com and obviously the rest of the Salesforce clouds. It’s not there yet, but should be pretty shortly. What does it mean from a startup stand point? Well, when I wanted to start effecteev, I really thought about salesforce as a potential development environment but chose not to because of the proprietary language that I had to build it on. Also finding Salesforce developers wasn’t as easy as PHP/Ruby developers so we made the choice of using an open source PHP framework instead. Well if I had the choice again today, I guess I could use Ruby on Rail, with database.com and be perfectly happy with it. My collaboration startup would have been perfectly integrated into any Salesforce customers, and the efficiency that it is providing could have competed with Salesforce Chatter (remember, effecteev was over 2 years ago!!). By acquiring Heroku, Salesforce hopes to drive more developers on the force.com platform and bring to light the value of the ecosystem for SaaS businesses. The success will depend on how the Ruby community reacts though. This is why Salesforce kept the name Heroku, will support existing applications, and will leave the site on its own I guess.

To talk more broadly about the Cloud, what is the major issue for the adoption of the Cloud? Security! Businesses are afraid to have their data in a place they don’t really control and that is a very natural feeling. Having sold security product for many years, and some SaaS Security product as well, this issue comes up every time over and over. It makes sense, and I understand that a cost benefit analysis should be put in play to make the decision to move to the cloud. But who said people are rational? A simple cost benefit is not the only solution: decision makers think about their job, their career, how they are perceived with their hierarchy: What if they decide to go for this new system, in the cloud, and it doesn’t work as well, are they going to be blamed for it? People are risk averse so what is needed is a culture change which is much harder to achieve.

A culture change means that people, all the way up to the top of the company, feel comfortable with the idea of the Cloud for personal things. My belief is that this comfort is something pretty profound that needs to build as a personal experience. This is why I believe that the success of the Cloud will come thanks to consumer products going to the cloud and in particular things like the apple iTunes Cloud for music.

The iTunes Music Cloud seems pretty far off the data of your enterprise but this is how I view things: People already have most of their emails on demand (web based), that has been the case for a while. Now, people are starting to stream video through Netflix or amazon on demand. they feel good about it, and even stop buying DVDs, or even storing movies on their computer.. What is that good for? it’s all available in the Cloud. Music is another level: you access your music much more frequently than movies and people’s interaction with the readily available important data (their music) will make them more and more confident about putting very personal stuff out there. As they realize that the quality of service if actually really good, that they never loose something, that they can access from any device, they will start asking themselves: Why can’t I access my customer data, my presentations, my invoices, my ERP the same way I access my music and my photos all the time? People are going to feel that the level of comfort they have for personal things should be the same for their work stuff.. People have Blackberries, Androids, iPhone, iPads, Laptops, Netbooks, all those stuff are connected devices that they can use to access there Music online, their photos, their videos, theirs documents, etc.. why not corporate stuff?

This is when the real shift is going to happen, when people, not corporation, start feeling uncomfortable not being able to access all their corporate data, anytime, anywhere, in the Cloud. This shift is coming, and apple will play a huge role in it. When an IT manager will decide to not move to the Cloud, his/her boss will start seeing it as a mistake, and by the way, the little cost benefit analysis now is looked at much more carefully because the psychological hurdle is not there anymore.

SaaS: Software as a Service = You pay for the usage of an application (or a set of application) as you go (it’s like a service). You do not update or maintain the product, you access it and use it (it’s as a Service). It’s a Software (like Software as a Service). An example is Salesforce CRM solution. it’s a CRM software, that you can use as a Service. SaaS.

Cloud: “Something” from which you draw resources without really knowing what’s in there. Basically it’s a bunch of Server, routers, switches and load balancers with a OS layer that removes all those terms from you vocabulary and make it look like a Cloud. You want more power, you get it, you want more space, you get it. Who or what provides it, it’s the Cloud. you don’t need to know in fact.A Cloud is not a SaaS, it’s an infrastructure on top of which resides “your needs”. SalesFroce has something called Force.com which is a Cloud, on which third parties build SaaS offerings.

As I said, SaaS companies often times use Clouds to put their product. Simply because the SaaS model will grow as you get more users and you don’t want to have to buy too big right away. So starting on Cloud allows you, as a SaaS provider to grow as you go.

There is a lot more to the Cloud and to SaaS than what I just exposed here, but please, stop saying Cloud company when it’s a SaaS company and vice versa. It just demonstrate right from the start that you have no clue what you are talking about.

Well today, we have hard data: http://www.kauffman.org/uploadedFiles/the-coming-entrepreneurial-boom.pdf

The biggest group of entrepreneurs start between 55 and 64!!! while the lowest is the 20-34.. The average in Tech company is 39 (Kevin was right). But what about Google, Facebook and all those good stuff? Well, as I said before, this is a very distorted view of entpreneurship and startup success. The vast majority of sucesses are not that known. How many actors become Bruce Willis? well, how many startups become Facebook? One or two!! in the whole world!! They should be a model because they are not. They are the exception that nobody can anticipate (even Zuckerberg didn’t..). But there is a lot of good startups and good companies that work because they answer a true need for their customers in a market where the founder really knows his/her industry.

My point is: Patience. Let’s build some good skills, let’s know an industry, in which you will like to spend thousands of hours, day and night, and let’s make a successful business.

The only thing missing is the success rate by age group, but the hard part is how do you define success? Do you feel that you have to have sold your company for many multiples to be successful, or is it that you can have a good life, balancing good income, and family life.. Both are possible and both are successes in the the eye of the person who chose the path.