Originally Published: July 2, 2010
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This article has gone through several twists: it was initially conceived as an examination of the Makana product line in early 2009. I changed tack upon Makana’s acquisition by Salary.com during the second half of that year. The latest plot turn in the Makana saga is a recent e-mail I received from a Salary.com representative, issuing a no-comment with respect to Makana, as Salary.com intends to exit the sales compensation business.
As for Makana, it has not exactly gone out of business per se, but has recently suspended operations as it seeks new investment.
The point, of course, is not only that the enterprise software industry is as volatile as a sus domestica on ice, but—more prosaically—that great products and a growing customer base are no guarantee of success for software-as-a-service (SaaS) startups.
Makana Solutions, vendor of incentive compensation management (ICM) SaaS software, was founded in 2004 in Lexington, Massachusetts (US). Its mission statement: to offer tools to help “attract and retain key employees, motivate groups to work together to achieve corporate goals, and enable executives to predict costs associated with the plans.
After three years of seed (or angel) investment, in mid-2007, Makana secured $3 million (USD) in “series A” financing (led by venture capitalists) from TD Capital Ventures, which then joined seed investor William J. Warner, founder of Avid Technology, Inc., and Wildfire Communications, Inc., in backing Makana Solutions with equity financing. The money was used for product development and launch, geared to under-served small to midsized businesses (SMBs).
By 2009, Makana had gained 200 customers and enough industry radar screenage to be singled out by Gartner as a “Cool Vendor,” for what that’s worth.
Ex-CEO Liz Cobb (who was also the founder and president of Makana Solutions), had founded two companies in the field already: the ViComp Management compensation consultancy in 1991; and Incentive Systems in 1997. Incentive Systems is now Centive (see On-demand Delivery Compels a Compensation Management Vendor).
Funny old world, isn’t it? It gets better: Makana’s direct competitor Xactly Corporation acquired Centive in January 2009—the open secret being that Xactly bought Centive in order to gradually discontinue it, poach its customers, and lower the overall cost per customer.
But back to Makana now: For her third venture, Cobb and the rest of the Makana team created an avant-garde solution that aimed to dramatically improve smaller companies’ chances of getting a handle on their sales incentives and pushing toward corporate goals, by equipping planners with better tools tailored to their needs.
A Convincing Value Proposition? Check.
Certainly, there was nothing wrong with Makana’s initial value proposition. In the words of Makana: “sales incentive compensation is an important vehicle for attracting and retaining key employees and for motivating groups to work together to achieve corporate goals.” [source]
Makana’s mission was thus to help organizations plan and measure the performance of the direct sales force, channel partners, and other employees with remuneration incentives. Organizational benefits: the achievement of strategic corporate objectives, and the ability to simply, cost-effectively, and efficiently compensate the individuals and teams who helped achieve those objectives. Put simply, Makana’s proposition was “easy-to-build plans that get results, and employees who know exactly what they must do to win.”
As far as market demand was concerned, Makana certainly felt it was on solid ground:
[Companies are] using incentive pay to reward individuals in all customer-facing roles, not just sales. With as many as 40 percent of employees qualifying for some degree of incentive pay, managing outcomes has become increasingly important and failures increasingly [if not prohibitively] expensive. Next to salaries, incentive pay is reportedly the second-largest line item for many companies, on average accounting for 10 percent of total revenue.
Based on data from Dun & Bradstreet, Makana estimated that 28 million people in the US alone “are being paid incentive compensation; that equates to 60,000 companies, or approximately half of all US businesses.” Annually, $500 billion (USD) is reportedly paid in incentives, and yet, it can be quite challenging to create cohesive, predictable, yet motivational plans.
Most companies still have very little visibility into the cost-effectiveness of their compartmentalized incentive programs, or the program’s overall impact on the organization, before they roll out a new plan.
In fact, as Liz Cobb put it back then, “effective sales compensation planning is critical to ensuring that sales activities support corporate strategy. Yet, surprisingly most companies do not have visibility into how their compensation plans work together.” [source]
Nor was Makana alone in its identification of this market need.
Then-competitor Centive noted that “sales compensation is the single most important factor influencing the performance of [every] sales team”—as well as the morale of that team. Since change is constant in almost every business, “the sales compensation plan is any organization's best tool for steering and course-correcting the sales team as market influences drive change in corporate goals.” [quotes sourced from now-defunct Web sites]
Certainly, it is understandable that devising, measuring (monitoring), and making changes to the "comp plan" often cause some level of unease. Centive added that “the key to managing change is to have a consistent and proven process for designing, modeling, deploying, and communicating new sales compensation plans.”
A Solid Product? Check.
The on-demand solution Makana Motivator was offered on a subscription basis for $1,795 (USD) per year, $495 (USD) per quarter, or $199 (USD) per month. The solution started at the plan design phase (rather than later in the compensation cycle), and aimed to help companies devise, model, build, and communicate sales compensation plans. As noted on the company’s Web site, “Makana” means “reward” in Hawaiian—a witty reference to Hawaii, which represents “the ultimate reward” or destination (in other words, a paid trip) in many sales incentive programs.
In mid-2007, Makana announced in a press release the general availability of Makana Motivator:
[Makana Motivator is] a subscription-based on-demand software that helps the people responsible for designing sales incentive programs design, model, and produce the final documents for plan participants. Targeted to small and mid-sized companies, it is the first solution with compensation plan modeling capabilities available for use [using historical and projected attainment figures] without a full implementation of a production sales compensation calculation and administration system.
One might add that the solution enabled all this, without the user getting bogged down by the details of individual orders and transactions.
In another press release, Makana described the way in which Motivator walked users through the following plan design processes:
* designing compensation plans, with expert advice available throughout
* incentive cost modeling, using quotas, rates, attainment, and staffing assumptions
* verifying teamwork and alignment with strategy
* getting management approval
* producing documents in PDF format
* getting digital employee sign-off on contracts
Makana assured its clients that all data was maintained at a secure off-site facility. The on-demand SaaS model (which also leveraged technologies like Adobe Flex and MySQL) enabled Makana Solutions to offer its product “at a reasonable cost,” and allowed customers “to implement sales planning and design without intensive vendor support or IT involvement.” [source]
In late 2007, the vendor announced the availability of Makana Motivator for salesforce.com’s AppExchange catalog. Built on the Force.com platform, Makana Motivator is still available for demonstration and deployment.
In March 2008, Makana announced via press release the availability of “new capabilities that enable subscribers to even more easily model incentive costs without the time-consuming and cost-prohibitive implementation of a compensation administration system.”
Product Challenges
In addition to the challenge of low brand recognition and the fledgling install base that comes with a start-up operation, Makana’s major challenge may have come from the much broader offerings of its competitors (i.e., Varicent, Xactly, and Callidus). They could have been forgiven for adopting the line that Makana was trying to make a virtue out of necessity, in the sense that it provided only a plan-design-modeling tool, with no compensation management and visibility functionality. On the other hand, these competitors all had/have the ability, to one degree or another, to enable customers to model and design plans.
Makana's strategy of focusing on modeling was valid, but only up to a point. Compare sales compensation modeling to car brands (and automotive capabilities): a Suzuki works for some, a Ford Taurus for others, and a BMW for yet others. Likewise, there are companies who prefer the guidance of pre-built compensation plans and models, and there are companies who need flexible systems that can be customized to their plans. The free-trial approach is perfect for this same type of company: those that need to take the first step to improving sales compensation.
Makana took the approach it did because its solution calculated results at the plan level rather than at the transaction level. You could refer to this as “macro plan modeling”—enabling users to forecast plan costs at the plan level (many enterprise incentive management [EIM] vendors do that too, but driven by transaction detail).
What Makana could not do was “micro plan modeling,” which examines the effect of plan design at the payee level. Arguably, with the macro-only approach, users can design plans that fit their budgets, but this may end up penalizing the top performers or over-rewarding the pack. The first best-practice step in sales performance management (SPM) begins with modeling sales compensation plans to ensure they reward the representatives and the company in equal measure.
To that end, Centive’s modeling approach enabled users to use existing or modeled transactions to run through the plans, because these clearly provide a better indicator of actual performance and therefore actual costs. Needless to say, plans should be adjusted mid-year if needed, with any changes communicated to the sales team.
The philosophy at Varicent, on the other hand, is to help companies tackle complex incentive compensation issues as well as modeling issues. Rather than taking the line that “one size fits most,” Varicent focuses on a solution that adapts to customers' problems. The vendor offers proofs of concept with companies’ actual data, as it finds this is the best way for companies to see the possibilities of ICM/SPM.
Without native sales transactional integration capability, it is difficult (though not impossible) to evaluate current plans and derive conclusions that will help design new plans. For example, it is difficult to discern whether the territories are balanced, whether quota attainment plot is along a standard bell curve, if there is a positive correlation between performance and commission earnings, if sales turnover is higher or lower than expected, and so on.
SOURCE:
http://www.technologyevaluation.com/research/articles/a-saas-start-up-cautionary-tale-the-makana-experience-or-how-you-can-create-a-great-product-and-still-hit-the-wall-21132/ax
Printer Friendly
* E-mail Article
o
To: (e-mail address)
**
From: (e-mail address)
**
Subject:
Message:
*
Contact Us
Newsletter RSS
Rate this article
Average Reader Rating 5.00
Featured Author
This article has gone through several twists: it was initially conceived as an examination of the Makana product line in early 2009. I changed tack upon Makana’s acquisition by Salary.com during the second half of that year. The latest plot turn in the Makana saga is a recent e-mail I received from a Salary.com representative, issuing a no-comment with respect to Makana, as Salary.com intends to exit the sales compensation business.
As for Makana, it has not exactly gone out of business per se, but has recently suspended operations as it seeks new investment.
The point, of course, is not only that the enterprise software industry is as volatile as a sus domestica on ice, but—more prosaically—that great products and a growing customer base are no guarantee of success for software-as-a-service (SaaS) startups.
Makana Solutions, vendor of incentive compensation management (ICM) SaaS software, was founded in 2004 in Lexington, Massachusetts (US). Its mission statement: to offer tools to help “attract and retain key employees, motivate groups to work together to achieve corporate goals, and enable executives to predict costs associated with the plans.
After three years of seed (or angel) investment, in mid-2007, Makana secured $3 million (USD) in “series A” financing (led by venture capitalists) from TD Capital Ventures, which then joined seed investor William J. Warner, founder of Avid Technology, Inc., and Wildfire Communications, Inc., in backing Makana Solutions with equity financing. The money was used for product development and launch, geared to under-served small to midsized businesses (SMBs).
By 2009, Makana had gained 200 customers and enough industry radar screenage to be singled out by Gartner as a “Cool Vendor,” for what that’s worth.
Ex-CEO Liz Cobb (who was also the founder and president of Makana Solutions), had founded two companies in the field already: the ViComp Management compensation consultancy in 1991; and Incentive Systems in 1997. Incentive Systems is now Centive (see On-demand Delivery Compels a Compensation Management Vendor).
Funny old world, isn’t it? It gets better: Makana’s direct competitor Xactly Corporation acquired Centive in January 2009—the open secret being that Xactly bought Centive in order to gradually discontinue it, poach its customers, and lower the overall cost per customer.
But back to Makana now: For her third venture, Cobb and the rest of the Makana team created an avant-garde solution that aimed to dramatically improve smaller companies’ chances of getting a handle on their sales incentives and pushing toward corporate goals, by equipping planners with better tools tailored to their needs.
A Convincing Value Proposition? Check.
Certainly, there was nothing wrong with Makana’s initial value proposition. In the words of Makana: “sales incentive compensation is an important vehicle for attracting and retaining key employees and for motivating groups to work together to achieve corporate goals.” [source]
Makana’s mission was thus to help organizations plan and measure the performance of the direct sales force, channel partners, and other employees with remuneration incentives. Organizational benefits: the achievement of strategic corporate objectives, and the ability to simply, cost-effectively, and efficiently compensate the individuals and teams who helped achieve those objectives. Put simply, Makana’s proposition was “easy-to-build plans that get results, and employees who know exactly what they must do to win.”
As far as market demand was concerned, Makana certainly felt it was on solid ground:
[Companies are] using incentive pay to reward individuals in all customer-facing roles, not just sales. With as many as 40 percent of employees qualifying for some degree of incentive pay, managing outcomes has become increasingly important and failures increasingly [if not prohibitively] expensive. Next to salaries, incentive pay is reportedly the second-largest line item for many companies, on average accounting for 10 percent of total revenue.
Based on data from Dun & Bradstreet, Makana estimated that 28 million people in the US alone “are being paid incentive compensation; that equates to 60,000 companies, or approximately half of all US businesses.” Annually, $500 billion (USD) is reportedly paid in incentives, and yet, it can be quite challenging to create cohesive, predictable, yet motivational plans.
Most companies still have very little visibility into the cost-effectiveness of their compartmentalized incentive programs, or the program’s overall impact on the organization, before they roll out a new plan.
In fact, as Liz Cobb put it back then, “effective sales compensation planning is critical to ensuring that sales activities support corporate strategy. Yet, surprisingly most companies do not have visibility into how their compensation plans work together.” [source]
Nor was Makana alone in its identification of this market need.
Then-competitor Centive noted that “sales compensation is the single most important factor influencing the performance of [every] sales team”—as well as the morale of that team. Since change is constant in almost every business, “the sales compensation plan is any organization's best tool for steering and course-correcting the sales team as market influences drive change in corporate goals.” [quotes sourced from now-defunct Web sites]
Certainly, it is understandable that devising, measuring (monitoring), and making changes to the "comp plan" often cause some level of unease. Centive added that “the key to managing change is to have a consistent and proven process for designing, modeling, deploying, and communicating new sales compensation plans.”
A Solid Product? Check.
The on-demand solution Makana Motivator was offered on a subscription basis for $1,795 (USD) per year, $495 (USD) per quarter, or $199 (USD) per month. The solution started at the plan design phase (rather than later in the compensation cycle), and aimed to help companies devise, model, build, and communicate sales compensation plans. As noted on the company’s Web site, “Makana” means “reward” in Hawaiian—a witty reference to Hawaii, which represents “the ultimate reward” or destination (in other words, a paid trip) in many sales incentive programs.
In mid-2007, Makana announced in a press release the general availability of Makana Motivator:
[Makana Motivator is] a subscription-based on-demand software that helps the people responsible for designing sales incentive programs design, model, and produce the final documents for plan participants. Targeted to small and mid-sized companies, it is the first solution with compensation plan modeling capabilities available for use [using historical and projected attainment figures] without a full implementation of a production sales compensation calculation and administration system.
One might add that the solution enabled all this, without the user getting bogged down by the details of individual orders and transactions.
In another press release, Makana described the way in which Motivator walked users through the following plan design processes:
* designing compensation plans, with expert advice available throughout
* incentive cost modeling, using quotas, rates, attainment, and staffing assumptions
* verifying teamwork and alignment with strategy
* getting management approval
* producing documents in PDF format
* getting digital employee sign-off on contracts
Makana assured its clients that all data was maintained at a secure off-site facility. The on-demand SaaS model (which also leveraged technologies like Adobe Flex and MySQL) enabled Makana Solutions to offer its product “at a reasonable cost,” and allowed customers “to implement sales planning and design without intensive vendor support or IT involvement.” [source]
In late 2007, the vendor announced the availability of Makana Motivator for salesforce.com’s AppExchange catalog. Built on the Force.com platform, Makana Motivator is still available for demonstration and deployment.
In March 2008, Makana announced via press release the availability of “new capabilities that enable subscribers to even more easily model incentive costs without the time-consuming and cost-prohibitive implementation of a compensation administration system.”
Product Challenges
In addition to the challenge of low brand recognition and the fledgling install base that comes with a start-up operation, Makana’s major challenge may have come from the much broader offerings of its competitors (i.e., Varicent, Xactly, and Callidus). They could have been forgiven for adopting the line that Makana was trying to make a virtue out of necessity, in the sense that it provided only a plan-design-modeling tool, with no compensation management and visibility functionality. On the other hand, these competitors all had/have the ability, to one degree or another, to enable customers to model and design plans.
Makana's strategy of focusing on modeling was valid, but only up to a point. Compare sales compensation modeling to car brands (and automotive capabilities): a Suzuki works for some, a Ford Taurus for others, and a BMW for yet others. Likewise, there are companies who prefer the guidance of pre-built compensation plans and models, and there are companies who need flexible systems that can be customized to their plans. The free-trial approach is perfect for this same type of company: those that need to take the first step to improving sales compensation.
Makana took the approach it did because its solution calculated results at the plan level rather than at the transaction level. You could refer to this as “macro plan modeling”—enabling users to forecast plan costs at the plan level (many enterprise incentive management [EIM] vendors do that too, but driven by transaction detail).
What Makana could not do was “micro plan modeling,” which examines the effect of plan design at the payee level. Arguably, with the macro-only approach, users can design plans that fit their budgets, but this may end up penalizing the top performers or over-rewarding the pack. The first best-practice step in sales performance management (SPM) begins with modeling sales compensation plans to ensure they reward the representatives and the company in equal measure.
To that end, Centive’s modeling approach enabled users to use existing or modeled transactions to run through the plans, because these clearly provide a better indicator of actual performance and therefore actual costs. Needless to say, plans should be adjusted mid-year if needed, with any changes communicated to the sales team.
The philosophy at Varicent, on the other hand, is to help companies tackle complex incentive compensation issues as well as modeling issues. Rather than taking the line that “one size fits most,” Varicent focuses on a solution that adapts to customers' problems. The vendor offers proofs of concept with companies’ actual data, as it finds this is the best way for companies to see the possibilities of ICM/SPM.
Without native sales transactional integration capability, it is difficult (though not impossible) to evaluate current plans and derive conclusions that will help design new plans. For example, it is difficult to discern whether the territories are balanced, whether quota attainment plot is along a standard bell curve, if there is a positive correlation between performance and commission earnings, if sales turnover is higher or lower than expected, and so on.
SOURCE:
http://www.technologyevaluation.com/research/articles/a-saas-start-up-cautionary-tale-the-makana-experience-or-how-you-can-create-a-great-product-and-still-hit-the-wall-21132/ax
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