Electronics companies today have to talk a lot about software, but actually building it is much more challenging. It requires new product planning flows, new engineering disciplines and personnel, and a careful balance around sales and customer relationships. Do this right and it sets the company up for growth, do it poorly and things can go very, very wrong. We recently had occasion to think about this through the lens of a newly hired CEO at a small, but established chip company.
First and foremost, understand how your company sells its products. Most hardware companies sell through some combination of direct sales and “The Channel”, including value-added resellers (VARs). Spend time with the sales force, go visit customers, talk to your field engineers – anyone who speaks to customers directly. Beyond the standard platitudes of knowing your customer, this is likely to reveal some commonalities that the company can leverage. A big problem that Cal Amp encountered, as we detail in the post linked above, was that they sold a lot of their product through VARs. These were all small companies and were mistaken for low-value distributors. These companies took CalAmp’s products and wrote software to run on top of it. These were tailored to their customers’ requirements. Many of these solutions were short-lived, but a small number of those VARs wrote really useful software. Over time the customers came to associate that functionality with the VARs, and those VARs became very large. Often, the VARs relied heavily on CalAmp for developing the software, but it was the VARs who captured all that value. With time those VARs became very big, much bigger than CalAmp, and could afford the engineering work to move to cheaper hardware providers. Our guess is that if you are the CEO of a company and you speak to enough customers, you will find that many of them have a small number of software applications which they find very useful. Go buy those providers while they are small. More broadly understand if your company is selling a component or a solution. If it is the latter, understand how you can expand the offering, if it is the former, start planning out how to add capabilities to your sales effort, hire a solutions architecture team.
A second step is to take a long hard look at your company’s engineering team. Chances are pretty good that the software side of the team is anemic. This is an incredibly common blind spot among hardware companies, especially semis companies – there are just too few, if any, people who are real experts in software. In the worst cases, there is literally no software team. More common is that the software team is an afterthought buried several layers deep within the engineering organization. This leaves software as an afterthought. Our new CEO needs to bring software to the surface. This usually means hiring a senior software person. Even better, put a software person in charge of the entire engineering organization. This may sound disruptive, but often CEOs of semis companies have sufficient hardware expertise that they can set priorities and lead the software-centric engineering VP. This is effectively how Apple was run for years, with Steve Jobs making sure that everything was running in harmony, with him at the center. Admittedly, Apple is probably not the best model here, the main point is to make sure the importance of software is reflected in the engineering organization.
This likely extends beyond just the engineering team. Too many boards of semis companies are staffed by outsiders with little experience in hardware, let alone software. This needs to change, and probably an easier step is to bring in other executives familiar with software to gradually educate the Board. We think a critical hire is the head of HR. Working at a software company is very different from working at an old-school hardware company. Hardware companies rarely come with all the perks software employees enjoy. You do not need to go out and buy foosball tables and bean bag chairs, nor add weekly massage sessions. But having someone familiar with the process of hiring software engineers can go a long way to bridging that gap in a productive way. There is no need to rip up the whole executive team, but some focused hires are critically important.
Beyond this, there are plenty of longer-term projects – integrating hardware and software roadmaps, a thorough analysis of what software model works best, and the Buy vs. Build decision. Many CEOs will be tempted to head straight for those, M&A can be fun, but we think they should resist that urge. Those involve important decisions, and before making those decisions our CEO needs to have the right people providing advice.
In case it is not clear, we actually have someone specific in mind who we are writing this for, but as we helped that person process their role, we realized that there was some broadly generalized themes we could touch on. This is an important transition which many companies are going to face in coming years, and history shows these are difficult transitions to make.