So I talked about Start-up failures in a previous post, but I was specifically talking about STORAGE VIRTUALIZATION Start-ups, and how they have let down the public both in performance and features. I still stand by those sentiments.

However, I do have some experience in failed IT Start-ups in general, and this is what this post will be about.

The Idea needs a Business Plan!

I’ve found that many companies have very good ideas. These ideas are the beginning to the road to “greatness” or to “failure”. Just having a good idea does not mean success. Carl Marx had great ideas, not that he was a start-up! (You have to be so careful when you speak publicly, since folks are ready to jump at you!) Marx even put great his great ideas down on paper, which brings me to the first failure for a Start-up, the Business Plan. I have seen it a few times, and have made this mistake with my own software company. I formal business plan is critical. I’ve found that companies that are backed by the founders, or by an angel investor tend to skip this part of the business development process. How is this overlooked? Mainly because when you have your money already, you don’t worry about justifying your ideas and business goals.

I treat a new business idea with tight checks and balances. Looking at the market opportunity is one facet of a business plan. Just because there are 6 billion people in the world, it does not mean they are willing, or can afford, to buy a $100,000.00 screwdriver that will never strip a screw head. Now the idea of a screwdriver that will never strip a screw head is a “great” idea. Would millions of them be sold if the end-user prices was $5.99, I’m willing to believe that. If it costs $0.99 to make, that might just be a sustainable business. Any takers?

It is really the most basic mathematics that can make or break a solid business plan. However, if you are fooling yourself, and aren’t being honest with market size, and product costs, then even a fully developed business plan is doomed to fail. I’ll give you an example. I worked for a company that was informed that the Storage Software Market was a $14 Billion dollar market. This left a huge addressable marketplace for Storage Management Software (SMS). The fatal flow is this idea was that the Storage Management Software market was a significant portion of the Storage Software market. The reality is Backup & Recovery software and licensing make up the largest portion of the Storage Software market. Well maybe SMS was next in line? No, SMS fell into the “other” category of market share, and thus, regardless of how strong the Storage Software market was, the Storage Management Software market could not be a sustainable business…unless…a product could change that market share. The realization? No SMS software, no matter how strong in features and functionality, could drive enough revenue to and profit to build a Fortune 1000 company on.

Proper Funding

There are a few types of funding, some I’ve mentioned already.

• Founding Partners Funding
  
• Angel Investors
  
• Venture Capital Investment
  
• Friends and Family Plans
  
• Old Fashioned Bank Lending

       So how a company is funded becomes critical to survivability. While most companies begin with Founder based or “Angel” based funding, this typically isn’t a sustainable model. The issues become with growth and continued forward direction. Typical impacts to this are product types. Software only IT solutions can typically last longer with internal funding and “Angel” investing. The reason for this is the nature of software development lends itself to a lower overhead run rate since most basic development can be done on traditional desktops, and test environments can be built out as needed, especially with today’s ability to do rapid development and testing via virtual environments. ***Note: This does depend on the type of software being developed, and assuming it does not rely on specialized hardware for deployment and testing.***

       Customer Hardware development can be much more tricky with this type of initial funding. While prototyping and initial development might be able to be accomplished with little overhead, alpha and beta product testing will require a larger cash infusion. This leads me to the next level of funding. Venture Capitol Investing requires several keys factors. A solid business plan is one of those regardless of the type of VC you are looking to raise. If all you have is an idea, no revenue, and are looking to raise money to start a company expect to give away a significant portion of the ownership of your company. Expect to have both VC members as well as other outside technologists to be placed on a board of directors. However, you can also expect to get a serious amount of help with building a Sales organization, planning growth, managing capitol and operational spending. VC companies are a double edged sword. They can open doors to partners and channels that a small start-up would not be able to access, however, with those doors being opened comes a level of financial scrutiny that can be difficult to accept and understand.

       Lastly are the two more difficult fund raising activities. Bank lending, while giving you lots of freedom in spending also typically requires personal exposure. I’ve seen banks look for founders to place their homes up as security for loans, and this can be very risky. Family and Friends can actually be one of the easiest ways to raise money for a start-up company; however, I live by a simple rule, “Don’t eat and shit in the same pot.” Family and Friends tend to get very involved and nervous when their personal money is at risk, and if that money gets lost, those relationships can be ruined FOREVER!

Stay Focused

       One of the most upsetting thing to a new product developer is the customer! Each end-user typically has a unique set of requirements. Some of these requirements can become features and functionality that can make a lackluster product something amazing, but others can take years of development cycles and only fulfill the needs on a single paying user. Staying focused and on target is important. Monitoring requests, weighing those requests, and prioritizing requests become more and more important as revenue and gross profit become accelerated. A simple bug fix might drive more revenue than the highest new widget on the priority list. A quick cycle of development might be able to bring several lower priority features to a product line, thus driving more opportunity and entry into more markets. These are clearly going to be per product specific, so my only advise, find a solid product marking manager with a great track record. Pair this person with solid engineering manager who knows how to scope out projects. There are many ways to fail on this front, and this is, in my opinion, the biggest reason companies fail. The CEO of the company may think that a User Interface should be the highest priority, but in reality, product stability and reliability should almost ALWAYS come first.

Exit Strategy

       The last component that I am gong to touch on is the idea of an Exit Strategy. Where, when, and how are investors, founders, and employees going to get money out of the company. Investors are the most eager to hear when there will be a return on the initial investment. There are basically 4 types of exits.

• Staying a private and profitable business
• Going Public
• Getting Acquired
• Closing the doors

Each of these is unique in the amount of money that investors will make. Clearly, a private and profitable business could buy out investors and take back ownership of the company. This is fairly rare. Going public might have the best return for investors at the time of IPO (Initial Public Offering). This is also something that employees can benefit from as well. This is also a very high risk exit strategy. Often companies go public and end up with stock prices below the IPO rate within weeks. Perfect recent examples of this are Compellent and Isilon. Being acquired can be very lucrative for VC investors and executives, as well as the employees. The most recent personal example of this is the intended acquisition of EqualLogic, Inc. by Dell for $1.4B. Finally, ideas, business plans, and investors aren’t always spot on with a start-up company. Sometimes the market isn’t ready, sometimes the product isn’t ready. Sometimes everything looks like it is the right, and the economy isn’t ready or sustaining. In the best situations, a well run company that sees impending doom will close early and refund some of the initial investment. The best example of this in the .com age was www.kibu.com who saw the end of the bubble and returned most of the original VC funds raised. The opposite of Kibu, was Cereva, which burned around $120 million dollars and left a fairly bad taste in the mouths of the east coast VC community.

As always, Comments Welcome!

So being involved with iSCSI since almost its inception, I’ve seen it go through several stages. When I was introduced to iSCSI back at the end of 2001, StorageTek was working on a product that they had no idea would be on the edge of greatness.

The Echoview400 was a Linux based storage appliance. The purpose of this appliance was CDP (continuous data protection). This was really an industry first both for CDP and for iSCSI. This platform only supported connectivity to Solaris and WindowsNT. This ran mostly in a direct connected mode, and on the host side it required 2 things. An iSCSI hardware HBA, and a software driver created by STK. The HBA was no big deal, other than expensive. The software was slick, it performed a split-write on internal hard-drives/volumes.

That was almost 6 years ago. These days, iSCSI HBAs are almost non-existent, most OS vendors have created iSCSI software initiators that are both easy to install, and low overhead. Back in 2002, the Windows iSCSI software initiator would typically overrun the CPUs on servers. Now they are barely noticed.

Back in 2002, 2GB Fibre Channel was the hot technology. Optical GigE was still popular, but expensive, and most enterprises had by this time deployed GigE core swtich technologies, however, the SMB market was not quite there yet. In 2002, if a company wanted to implement a site-to-site replication at the SAN level, they would have dropped something along the lines of Millions of dollars for storage, servers, and network. In 2007, many newer storage vendors have included the feature of replication into the base product.

Although, few have followed the model that EqualLogic, Inc. has in place where there are NO optional storage service features. Anything that has been released is included, and available to customer under support contracts.

So what does my typical customer look like? It ranges from a 5 server environment running on about 800GB of addressable storage, all the way to a multi-thousand server environment on it’s way to purchasing storage on the order of Petabytes. I have deployments in the largest law firms of our fair country, and the smallest radio stations.

So who uses iSCSI in production? Many many SMB and SME, Fortune 1000, and Fortune 50. What kind of applications are running on iSCSI? I’d have to say that of my customer base, 80% or more are running some level of OS virtualization. The market leader being VMWare, but a rising number are looking to Zen, and Windows Virtual Server. The guest OSs running are everything from Active Directory, Web servers, DNS, to clusters of SQL. It isn’t the virtual OS world that I find interesting. It is the dedicated server environment that has excited me. We have a growing number of customers that are running Oracle Financial, Oracle RAC, clustered file services, etc.

I sent a quick email out to an SE list I use to ask the occasional question. This time I needed Oracle Financial Applications references, within minutes I had dozens. Back in the day, only as far back as 1999 and 2000 I was working on Oracle Financial architectures running on dedicated SUN E10K with direct attached silo storage. Boy have we come a long way.

As always, comments welcome!

Dell has taken the wrapping off of the Indirect Channel Program. The good thing about this, from my view, is that my partners have greater visibility into what EqualLogic will be like after the acquisition closes. It also gives me great hope that Dell might be on the right track this time with a channel sales model. Take a look and see what you think:

After nearly seven months in development, the program premieres with two tiers, a deal registration minimum of $75K and neutral compensation for internal sales staff to reduce channel conflict.

Dell’s new channel partner program will operate through a Salesforce.com portal, will launch with a deal registration minimum of $75,000 and will offer neutral compensation to internal sales staff to reduce channel conflict.

The PC maker took the wraps off the program Dec. 5—nearly seven months after announcing that it would create such a scheme—during a formal launch and “town meeting” in New York and simulcast to partners online. The move marks a sea change for Dell, which built its business on a direct-only model that cut out the reseller channel.

The longtime “religion” of direct-only led to much ill-will by VARs towards Dell, and now the Round Rock, Texas-based company is faced with winning over at least some of those VARs to its new program. Greg Davis, Dell’s channel chief, said that the company’s goal is to double its number of channel partners, now at 15,000, over the next three years. With that in mind, the company has neutralized compensation for its direct sales teams.

Neutral Compensation for Direct Sales

“Direct sales will get paid the same amount whether a partner closes the deal or not,” Davis said. “I’m not saying we won’t have issues, but we’ve been working to get these off the table.”

However, there is no specific remedy VARs can seek if a Dell sales rep takes a deal direct. Dell will discipline the sales rep, but the VAR is not entitled to any compensation.

“Our short-term goal is to address channel conflict,” said Davis. “Our long-term goal is to enhance closing deals for channel partners.”

Deal Registration

Dell’s primary tool to manage channel conflict is its new deal registration program that is offered through its Salesforce.com portal. Dell has developed the portal over the last 60 days and chose Salesforce.com to complement its existing Salesforce.com CRM installation used by its own internal sales force. Partners can register their deals on the partner portal and Dell will turn around an answer about whether the deal is protected in 24 to 48 hours. Davis said that the initial $75,000 deal registration minimum was set so high to ensure that the company could handle the initial volume. He hopes to eventually bring the minimum down to $0.

Information about deals that partners enter into the portal will not be visible to the internal sales force at Dell, Davis said. The system is designed to help teams work together but to also protect partner leads. Dell is training its sales force on the new processes.

In addition, “we are talking about a partner ombudsman for when there are complaints,” Davis said. “I’ve led parts of our direct business, so I know where the roadblocks are.”

That said, Dell is not averse to sharing some leads with partners and is looking for help in selling through to about 1,000 accounts, according to Davis.

Tiers and Competencies

Dell’s new channel program will offer two tiers of partners, Registered and Certified. There is no minimum invoice for Registered partners, but Certified partners will have a minimum depending upon their certified competency. Dell plans to offer six to eight competencies for certification but will launch with two: Managed Services and Enterprise Architecture. The company did not have specifics about invoice size for either of these at launch time.

Former Silverback CEO Dan Phillips is leading Dell’s Managed Services through the channel organization. For more on how that first Dell Certified Competency will work, click here to read an interview with Phillips.

In terms of benefits, Certified partners can use a special Dell Certified logo in their marketing material. They also can have more deals registered at any one time. In addition, they will be eligible for 45-day financing versus 30-day financing for Registered partners. Certified partners will also get enhanced technical support and account-based deal teams to provide lead-generation with Dell’s direct sales team, Davis said.

Dell currently works with 15,000 channel partners, and Davis said he expects to be spending the bulk of December registering current partners for the program “so they can begin taking advantage of the things we put in place, and then working with us to pursue certification.”

Davis said that in the next two to three years, Dell wants between 6,000 and 8,000 partners to pursue certification.

Is It Available Here?

Dell’s channel partner program and deal registration will initially be available in the United States only. Davis said the program should be available in Canada within 30 to 45 days and in Europe in the first quarter of 2008.

“We are still working on a timeline for Japan and Australia, but I would expect something by the end of next year in those countries,” Davis said.

I think one of the biggest changes in my life was the announcement of Dell’s acquisition of EqualLogic, Inc. I’m not going to get into the details of company acquisition, instead I’m going to look at Vendor relationships with VAD/VAR companies.

Basics of a Reseller partnership. A Vendor agrees to allow a Reseller to “resell” the vendor’s products at a discounted price. The benefits for the Vendor is increased reach into accounts that they might not be serving. The ability for resellers to build solutions to meet the customer requirements. Of course, the main value to the reseller is revenue and margin on the surface. However, this value goes much deeper then just GP. These are things that I’ve seen VARs get very excited about: (in no certain order)

• Ability to offer best of breed solutions to customers, regardless of vendor
• Ability to capture additional revenue based on consultative services (assessment, design, implementation, and management)
• Ability to capture additional revenue by becoming a trusted advisor for future products
• Protected account penetration, this is typically referenced as a “registration” program
• Marketing Funds for customer events and lead generation events
• Rebate programs for higher levels of sales
• Spiff programs to help drive VAR sales organizations to specific product sets
• Vendor passed leads to the VAR, giving them additional sources of qualified revenue opportunities
• etc.

I think in general that a good VAR has many upside possibilities when partnering with a Vendor with a proper partner program. Incentives provided by the Vendor can drive exponential revenue growth.

So how does this model breakdown? It is really damaged when a Vendor refuses to sell via a 100% indirect model. When a Vendor starts selling directly, the channel can get damaged with direct vendor sales competition. When there is competition in a customer account, regardless of products being sold, margin is typically sacrificed. It is bad enough to lower product price when competing against other vendors. It is even worse when you are competing against other companies selling the sale product. So why does this happen? At the end of the day, who gets paid? At StorageTek we used to joke about the 8 legged sales call. It got even funnier at close of month or quarter. The question at STK was who isn’t being paid on a sale?

I was talking with the Storage Practice Manager of a regional VAR located here in Colorado. I was telling him that if I wasn’t getting paid on closed deals, that I wouldn’t be working as an SE anymore. I told him, if this was a volunteer position, I would be helping kids with disabilities all day long, or working towards solving world hunger. I surely wouldn’t be selling the value proposition of SAN Storage Solutions.

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