Tuesday, March 05, 2013

The one number (45) that explains Constant Contact's success

The Business of Software Conference sounds like a phenomenal event.  I haven't attended it, but I did recently run across one of the sessions from their 2012 conference, a talk by Gail Goodman, the CEO of Constant Contact:

For those who don't know, Constant Contact is a publicly traded online marketing company with over 500,000 customers who rely on it for things like email marketing.  While many people probably think of it as a recent success, it was actually founded in 1995, and went public in 2007, which means its nearing its 20th anniversary.

Gail's talk is fantastic, and well worth watching/reading in full detail.  But in my limited space, what I'd like to do is to focus on the one number that explains the company's success: 45

The average Constant Contact customer stays with the company for 45 months.  At their $39/month price point, this means that a customer generates about $1,800 in lifetime revenue, allowing Constant Contact to make money at a CPA (cost-per-acquisition) of $450.

This is the key to success in the SMB market.  Small businesses don't pay a lot of money; $39/month is probably on the high end.  And small businesses are hard to market to.  Constant Contact found that even after they dominated the organic search results for email marketing, they didn't get enough signups simply because small businesses weren't bothering to even search for email marketing.

Goodman credits the company's success to--get this--in person seminars through Chambers of Commerce across the country.

This kind of high-touch marketing is expensive, hence the $450 CPA.  So the math could only possible work if Constant Contact could hang on to those customers long enough to make a profit.

If you're a SaaS startup targeting the SMB market, you'd better either have an awesome freemium offering, or you'd better have a average customer lifetime of around 45 months.

Monday, March 04, 2013

Marissa Mayer and Yahoo's telecommuting policy: Right motivation, wrong execution

When Yahoo! hired Marissa Mayer, I supported the move, believing that the board needed to shake things up, and that given the dismal state of the business, Mayer was probably a better candidate than they could ever have expected to attract.  I also supported the move on Mayer's part; she wasn't ever going to become CEO of Google, and if she wanted to make the move to being CEO, Yahoo! certainly represented a potent (if hairy) opportunity.

Since then, Mayer's decisions have had a high profile in the press.  When she announced plans to take only two weeks of maternity leave, I criticized the decision, citing the chilling effect it would have on the rest of the organization.  Now, she's seemingly doubled down by eliminating the option for Yahoo! employees to telecommute.

The issue is complex and ties in with a lot of different themes.  In fact, it's so complex that I'm going to split it up into several parts, so I can deal with the sub-issues separately.  The high-level summary is that I believe that Mayer has the right motivation, but is pursuing the wrong execution.

Part 1: The Yahoo Bans Telecommuting Announcement

Part 2: Why Yahoo Banned Telecommuting

Part 3: Yahoo's Telecommuting Ban Increases Accountability, But Is It The Best Tool For That Purpose?

Part 4: Yahoo's Telecommuting Ban and the war on Marissa Mayer

Part 5: Why Yahoo's Telecommuting Ban Matters


Part 1: The Yahoo Bans Telecommuting Announcement

The news of the new policy first began leaking out on February 22.

In short order, the actual memo was leaked as well.
"To become the absolute best place to work, communication and collaboration will be important, so we need to be working side-by-side. That is why it is critical that we are all present in our offices. Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home. We need to be one Yahoo!, and that starts with physically being together."
Let's unpack the statements:

"To become the absolute best place to work, communication and collaboration will be important..."

Totaly agree.  Collaboration is more important than ever, given the ever-burgeoning amount of expertise required to succeed in the market.

"...so we need to be working side-by-side.  That is why it is critical that we are all present in our offices."
I agree that face-to-face collaboration is often the most effective (you can communicate more via voice than text, and more via presence than voice), but I find the insistence on constant presence antiquated.

Heck, the entire collaboration industry is built on the notion that it's hard to gather people geographically (Web conferencing) or temporally (asynchronous tools like PBworks, Basecamp, etc.).

"Some of the best decisions and insights come from hallway and cafeteria discussions, meeting new people, and impromptu team meetings."
This is absolutely true.  But note the key word, "some."  Physical presence is useful, but it is not so useful as to override all other concerns.

"Speed and quality are often sacrificed when we work from home."
This depends wholly on the work.  There are plenty of studies that show that working from home is more effective for many types of work.  Some of Yahoo's work no doubt is more effective in person, but other aspects of their work is more effective remotely.

For example, when I really need to crank out content, working from home is far more effective, simply because people can't interrupt my work for hallway and cafeteria discussions!

"We need to be one Yahoo!, and that starts with physically being together."
I humbly submit that where someone sits is less important for building a strong corporate culture and community than actually building that culture and community.

If I take the memo at face value, I find it naive and reductive at best, and positively retrograde at worst.  As one commenter noted, "The year is 2013, not 1980."

Part 2: Why Yahoo Banned Telecommuting

Both the publicly available sources as well as the scuttlebutt I heard from my contacts point to a clear motivation for the telecommuting ban.  According to both sources, many Yahoo employees were abusing the telecommuting policy, essentially treating work-from-home days as personal time.

Here's what AllThingsD reported:
"Top sources told me that Mayer has been particularly irked about Yahoo parking lots that are slow to fill in the morning and quick to empty by 5 pm — which is atypical at other tech companies such as Google. (Mayer was a longtime exec at the search giant.)

At first, she tried to change culture in ways that rained down tasty perks on employees — such as free food and smartphones. Mayer has also been practical, instituting please-be-here Friday afternoon FYI weekly meetings and stricter performance reviews.

But she is now inevitably doling out more unpleasant medicine to the troops, starting with the banning of work from home, which has caused a big ruckus both internally and externally."
I can understand Mayer's frustration.  As a founder, I can remember being irked by employees who didn't always work hard, and didn't take a stewardship attitude toward my company's resources.

But it's not surprising that founders and CEOs are more dedicated to their companies than the average employee--they have a lot of shares to keep them motivated.

Forcing people to come into the office may generate more productivity out of certain lazy employees, but I'm skeptical that it will have a major impact on those employees.  The bigger impact is probably cultural, both for better and for worse.

Part 3: Yahoo's Telecommuting Ban Increases Accountability, But Is It The Best Tool For That Purpose?

My friend Penelope Trunk might seem like an unlikely candidate to applaud Mayer's actions (Penelope lives on a farm in Wisconsin and homeschools her children), but she did just that in her post, "Yahoo kills telecommuting. Three cheers for Marissa Mayer!"

What Penelope likes about the ban is that it's honest.
"If you want to have a slower career, you deserve to be able to make that choice. But you shouldn’t get to work with people who are giving up everything for their job. It’s not fair.

Who do you know who has given up more of their life for work than Marissa Mayer? She was renowned as one of the hardest workers at Google, where hundred-hour weeks are de rigeur. And she is renowned for being the only CEO in US history to deliver a baby while running a Fortune 500 company. Marissa Mayer can tell anyone that they are not putting in enough hours. She’s giving up everything for work, she has a right to demand that her co-workers do the same."
This gets to the heart of why Mayer has the right motivations.  Not holding people accountable has a corrosive effect on a company's culture and morale.  No one wants to be working their tail off while someone who goofs off all day long gets the same compensation and benefits.

Where I think the telecommuting ban goes wrong is that in the interests of "fairness," it treats all employees the same.  I don't believe that treating employees fairly requires treating them identically.

Silicon Valley types love to brag about hiring rockstars, but a team of rockstars usually fails, broken apart interpersonal conflict.  It's good to have steady employees.  Steady doesn't mean dumb or incompetent; it just means different.

At PBworks, one of our support team members works remotely from North Carolina.  Her job gives her the flexibility she needs to better care for her family.  And if the customers like her service, why should we require her to move to Silicon Valley?

This isn't true of all employees; we once tried having one of our developers work remotely from another time zone, and it was a miserable failure.

If you want to hold people accountable, hold them accountable.  Call out the people who are lazy and unproductive.  Don't use a telecommuting ban simply because it's easier to enforce or spares some people their feelings.

TechCrunch fell into this trap with their post, "This is Why You Can't Have Nice Things, Yahoos":
"It’s that the bunch of slackers that claimed to be working from home without actually doing any work ruined it for everyone."
Mayer could have simply fired all the slackers; instead, she's hurting both existing employees who actually do work hard from home, and any future employees.  How many parents will want to work for Yahoo now?

Part 4: Yahoo's Telecommuting Ban and the war on Marissa Mayer

One of the most interesting aspects of the Yahoo telecommuting brouhaha is the way so many people criticized Mayer as a person, rather than unpacking the flaws of the policy itself (as I did in the earlier parts of this series).  New York Magazine (one of my favorite reads, despite its flaws as objective journalism) published a story in this vein, "Yahoo! Work-at-Home Ban Won’t Affect New Mom Marissa Mayer."

The piece highlights the seeming hypocrisy of Mayer, who installed a nursery and several nannies right next to her office, so that she can run the company and care for her family:
"Not that it’s a problem for Mayer, who personally paid to have a nursery installed next to her office. “I wonder what would happen if my wife brought our kids and nanny to work and set em up in the cube next door?,” a husband of an employee losing work-from-home privileges told Swisher. Another scolded, “When a working mother is standing behind this, you know we are a long way from a culture that will honor the thankless sacrifices that women too often make.”
I'm sympathetic to the feelings of the critics; Mayer is getting special treatment (though she is paying for the nursery herself, not charging it to the company).  But I don't have a problem with that special treatment.  Yahoo needs its CEO to be able to work hard and not worry about family care; if I were a Yahoo board member, I'd sign off on this action in a second.

The problem lies in the fact that the telecommuting ban tries to treat every employee the same, while Mayer's nursery makes it patently obvious that they aren't.  The rule should be, "Do what is best for overall productivity," not "No working from home."

Yet that's not what the mainstream coverage of the issue seems to focus on.  Indeed, the telecommuting contretemps reflects the tendency to single out women leaders, much like recent criticism of Facebook's Sheryl Sandberg.  The New Yorker does a good job of cataloging the backlash to her new book (which most of her critics hadn't read).

Mayer has long been an even greater lightning rod than Sandberg, given her backstory (she used to date Google CEO Larry Page nearly a decade ago) and hair color (people love to hate on blondes).  There seems to be an entire industry devoted to discussing her--just check out all the stories that Gawker alone wrote, mostly negative:

Part 5: Why Yahoo's Telecommuting Ban Matters

In the grand scheme, one has-been internet company's ban on telecommuting doesn't mean much.  Other tech companies have already jumped into the fray.  Automattic, for example, the makers of WordPress, quickly rolled out the welcome mat, pointing out that remote work is the norm at that company.  No one actually goes to its physical offices except for meetings.

But like many stories that catch the public attention, the furor over the telecommuting ban indicates that it touches a nerve.

In a world that keeps moving more things online, an internet pioneer takes steps to move things offline.

In a world in which we try to encourage the individual's inherent desire to be productive (Theory Y), a female Gen-X CEO makes a move that appears to be aimed at a slacking off workforce (Theory X).

Stories have power, and if Mayer does turn Yahoo around, you can bet that some will argue that her crackdown on remote slackers played an important role in "reinvigorating the culture."  It may even become one of her calling cards as a CEO, much like Al Dunlap reveled in the ostensibly insulting nickname, "Chainsaw Al."

I think the telecommuting ban is a bad idea.  Even if Yahoo's slacker problems are real, the ban is a blunt instrument that may help destroy that which it is intended to save.  But an even greater worry for me is that Mayer succeeds despite the negative impact of the ban, and that this turnaround becomes an excuse for other companies to do the same.

Welcoming Misty to our family

On Friday, we picked up our new puppy, Misty.  She's about 6 months old, and weighs 20 pounds.  The kids are happy to have a dog again.  While she can never replace Kobe, Misty helps show us that life goes on.

Update: Misty fell asleep on Jason's bed, allowing me to capture this adorable photo: