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Here Today, Gone Tomorrow... the Problem with Storage Marketers

Jamie Matlin; President, - November 25, 2003

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Jamie Matlin is President

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Does it seem to you there is a lot of turnover among marketing executives in the data storage industry?
Are there a lot of sales and marketing people that you seem to talk to one day, only to find out they're gone the next? It turns out your perceptions may, in fact, be correct.

MarketingSage, a marketing agency providing strategic advice and services to information technology businesses, has completed a study on churn among top marketing executives in the data storage industry. The company decided to tackle the study themselves after noticing what seemed to be a high amount of turnover in certain positions in its database.

"The turnover seemed a little extreme," says Dave Lamont, a partner at MarketingSage who spent a lot of time working on the project. "We did not know what it meant, but felt it would be beneficial to look at the actual data and see what exactly was going on."

Lamont went to a report published by Lehman Brothers titled "Taking A Byte Out Of Storage - A Guide To The Data Storage Industry". That report listed 63 storage companies and their executives from a year ago. Lamont then compared that list to a more recent report of the same 63 companies. The results were remarkable. Among the top marketing executives at those companies, Lamont discovered a churn rate of 73%.

"We realize our results are just a snapshot of the industry," says Lamont, "but still felt the findings were rather significant."

Although many large storage companies like EMC, IBM, HP, Quantum, NetApp, and McDATA were not included in the study, there were many familiar names on the list:- 3ware, ATTO Technology, BlueArc, DataCore Software, KOM Networks, Nishan Systems, Raidtec, Seagate, and XIOtech were all included in the study. Of the 63 companies in the report, 15 firms, or 24% of the total, changed ownership or went out of business. Of the remaining 48 companies, 31% had no VP of marketing at the end of January 2003, 33% appointed new VPs of marketing, and only 35% (17 firms) had the same VP of marketing.

Unfortunately, the study did not focus on other positions, concentrating instead on the most senior marketing and sales executives, mainly the VP of marketing or chief marketing officer. It would have been interesting to compare the churn in marketing positions to the overall churn rate in the industry. Other positions are certainly not as visible as sales and marketing, and may not command as much attention. CFOs are typically in the background and not making headlines on a daily basis.

However, Lamont has found that the number of appointment announcements for storage marketing and sales executives has doubled in the first quarter of this year, compared to the first quarter of last year. This is certainly a good sign for marketing professionals.
Is Hiring Now On The Increase?

Why the sudden increase? It can actually be attributed to a couple of things. The first is the economy. Companies that were not filling positions last year because of the downturn in sales may now be filling them, perhaps seeing some economic recovery on the horizon. The other reason is funding. Several companies have received series B and series C venture capital funding over the last few quarters. "There is more attention now being paid to the sales side of the business rather than the product development side," notes Lamont. "Typically round C funding is used to ramp a business, not develop product."

Most storage businesses also tend to be engineering centric. When they start hiring, they bring in engineers to build the product. When it comes time to sell the product, they bring on the sales people and, eventually, a marketing team. When times are tough, the marketing folks are also the first ones to go, followed by sales and engineering. Many in the industry believe we are now on the upswing. Companies that have been working on products and are now putting together sales teams. Churn can be inconvenient for the individuals involved and can also be costly for the businesses.

"Executive turnover has significant implications for a technology company's profitability," says Agnes Lamont, another partner at MarketingSage. "Not only does executive recruitment take time, but once hired new executives invariably create new plans, reorganize staff, and restructure budgets. This process takes time. The net effect is often a delay of six to nine months in initial execution after the marketing function is first funded. When you consider that technology products often become obsolete within 18 months and that profit margins drop over time, a six month delay can eliminate 30% to 70% of a business's profit potential."

What Caused The High Churn Rate?

Although the study did not involve interviewing individuals, Lamont did offer an opinion on the findings and what they mean. One of the factors that affected marketing executives over the last couple of years relates to the bubble bursting in the storage industry, particularly with venture-funded firms.

"Employees on the sales side of the house have to carry quotas," he says. "All of these companies went to their venture capital firms with tremendous growth plans. They were going to go from zero to a billion dollars in a very short period of time. I think they based those estimates on some of the Internet success stories they heard. They also based their funding requests on those plans. Unfortunately for the marketing and sales executives, their jobs are tied to those plans."

Of course, when the bubble burst and the plans became worthless, heads had to roll. Looking back now, the plans were probably unrealistic from the start, with many sales and marketing guys carrying quotas that were simply unattainable. When the lofty projections do not turn into sales, companies cannot go back to their venture capitalists and say they have to cut their plan in half. Instead they find themselves a new executive and set a new quota. Unfortunately, a lot of executives did find themselves caught in that exact position. They signed off on the quota agreements so as not to be the only troublemaker stating the business plan would not fly.

The Marketing Function Has Changed "There is definitely a learning curve for people involved in the technology market," states Lamont. "A couple of years ago, when resources were flowing, it made a lot of sense for sales and marketing and sales executives to hire reasonably large teams to do all of the marketing. There were large marketing communication teams, channel specialists, and product marketers. We saw a lot of smaller companies that were behaving like large companies in the way they put resources into marketing."

That situation has changed as companies have become far more pragmatic. Many are now looking at the structure they have in place and asking hard questions: They certainly have to perform all of the marketing functions, but do they really have to hire someone to do that for them? Is it a full-time job that will last a year or more, or is it something that will last three to six months and then have to be scaled back?

Many marketing activities require skills and resources, but do not have to be full time positions. When launching a product, companies will go through three to six months of intense marketing activity, and will then transition into sustaining mode. If that is the case, then why hire someone and pay them $100,000 per year when they will soon be doing only low value work?

But certainly there is not all gloom and doom for marketing execs. The war is over, an economic rebound seems to be just around the corner, and new start-ups are popping up almost every week. The future may just now be looking good for marketing and sales professionals. We expect to see even more appointment announcements going forward. profile

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