In 2009, virtual computing company VMware was in a state of transition. The founder and CEO had left and a new leader was at the helm. While server virtualization had powered a decade of success, the company needed to find its next revenue growth engine. The CEO had made several acquisitions, but employees struggled to understand why. The company decided to take an unconventional route to address a rapidly changing landscape: Do a business simulation. VMware partnered with consultancy BTS to build a simulation that mimicked the challenges facing the company. The two-day “game” forced company leaders to wrestle with funding challenges and make trade offs between short- and long-term investments. Leaders also swapped roles, such as sales switching with product. The all-encompassing exercise did the trick, upleveling empathy, understanding and collaboration at a critical time.
Then-VP Yvonne Wassenaar saw the success of the simulation firsthand and has since become a passionate advocate for the exercises. She’s also a pro at growing companies. At VMware, Wassenaar helped triple company’s revenue from $2 billion to $6 billion and adopted simulations to help pivot the 1,500-plus person sales force to selling a broader product portfolio. Now as New Relic’s CIO, she’s been quick to employ simulations at the software analytics company, which she helped prepare for an IPO and more than double annual recurring revenue to $250 million within two years. Before that, Wassenaar spent nearly two decades at Accenture, where she held a variety of roles, from software engineer to global sales operations lead to partner. She serves on the boards of Bitium, the Athena Alliance and Harvey Mudd College. Wassenaar was listed as one of the Top Influential Women of 2016, theBoardlist Top 20 and a Wall Street Journal Woman of Note.
Simulations are used by pilots, the military and disaster response teams to prepare themselves for highly intense and hard-to-predict situations like catastrophes and attacks. Wassenaar believes that startups can also use them to build more resilient teams and prepare employees for change. Here, Wassenaar outlines why simulations are invaluable, when they’re most effective and how to use them to help startups maneuver through difficult junctures.
A Snapshot of a Successful Simulation
At six years old, many considered New Relic a darling of the startup community. The 550-person company had been on a star run fueled by an engaging CEO and rave reviews from software developers. But as the company prepared for an IPO, executives realized they would need to pivot to continue aggressive growth. Doing so meant shifting from selling to software developers to targeting larger enterprise buyers, meaning they needed to build an enterprise sales team from the ground up.
Making those changes wasn’t easy. First, there were varying levels of buy-in on the decision to move into the enterprise space. Second, there was tension around the trade-offs being asked of the product team. What’s more, budget shifts were making employees tense and frustrated.
To help address these challenges, the company chose to do a business simulation. Wassenaar, then the SVP of Operations, set a goal: Drive understanding and alignment across the top 30 company leaders so they could all more effectively execute and support each other in the move to enterprise. To prepare the simulation, Wassenaar partnered with BTS consultants and asked for input from the finance team, with about 15 people who were interviewed in advance of the exercise. The process took about six weeks.
“From the very start, executive engagement was paramount. Our top executives formed a steering committee and reviewed the preparation of the simulation. Along with some key board members, they took part in a half-day beta during its development,” Wassenaar says. “The actual simulation included those top 30 leaders — representing departments like sales, marketing, product management, engineering, finance and people operations. We ran the simulation over a day-and-a-half offsite and divided people into six-person teams — each composed of a mix of backgrounds and departments, and we assigned every team to a C-suite coach from the New Relic executive team. The simulation exercises were mixed with team dinners and executive talks on key topics like product strategy and building for scale. ”
The setup of a simulation was simple: Teams competed against each other running the company over a three-year period. “Done right, it’s a lively and engaging process. We played three rounds, and each round of the game represented a year. In each round, teams made a set of trade-off decisions and investments that were run and scored against expected trends built into a premade forecast model kept secret from participants until the simulation. To keep it interesting, we threw unexpected events that required teams to react, like a competitor making a hot acquisition or a sudden security breach,” Wassenaar says. “After the simulation, the teams were scored and ranked by highest revenue, profitability and customer satisfaction. Then the teams debriefed and examined their performance. At the end of the ‘three years,’ the team with the highest weighted score won.
Why Simulations Are So Effective
Simulations are great ways for companies to deal with controversy and change because they are a low-risk way to let someone be CEO for a day. “Who would say no to that?” Wassenaar asks. “And it’s incredible because people get to learn through play and practice in real time. The experience of wearing someone else’s hat is hugely empowering for people. With management simulations we are free to see the bigger playing field, test our ideas and learn in a lower-risk environment than real life.”
While they’re serious business with important outcomes for a company, simulations can also have a lighthearted component that can result in team bonding. “To start, everyone had fun with the naming the company and their teams. The main company was called Nu-Icon as a pun on New Relic. A competing team gave homage to the head of engineering by naming the their company after him: Bjorn To Be Wild,” Wassenaar says. “Parts of the game went down in history, such as the Fort Knox play, a deeply divisive cloud security investment option. Those who opted for other investments instead of Fort Knox paid dearly when there was a security breach abroad and security became a top concern for customers. After the game, Fort Knox was a convenient reference point in many real debates around security investments.”
There are lots of reasons to do simulations, key among them their powerful effect on team bonding and putting people on the same page. Wassenaar spells out additional benefits to the exercises here:
They create empathy among teams. This is particularly true when tensions arise between factions of the company. Wassenaar saw this at New Relic. “We were transitioning from being a marketing-driven to a sales-driven company and building an enterprise sales organization. This new sales team was predominately being funded out of the marketing budget. People were struggling with the constrained spending and questioning whether the pivot to enterprise was really necessary. After a mock simulation of the next several years of the company’s trajectory, it became clear to everyone that the move into enterprise was needed to drive the three- to five-year growth projections that would later support the IPO. People started to get it. They could now better connect the dots across the organization and over time,” Wassenaar says. “And the thing about simulations is that you also get to actually meet people. Once you get beyond 100 people at a company, you don’t know everyone and you become more siloed. It’s easier to work through challenges and changes when you know your team.”
They identify and develop talent. Keep an eye out for those who rise to the occasion during simulations. They just might be your next set of company leaders. “In our two-day simulation we assigned a C-suite executive to be a coach for each team. This gave us great insight into people who viewed and understood the business with clarity and creativity, regardless of role. Those cross-functional and cross-hierarchical bonds still serve us to this day, especially among executives,” Wassenaar says. “We found leadership candidates as a result of this exercise who have since stepped up and taken broader company roles. So in many ways, the simulations led to a new reality for participants who just needed a chance to try on more responsibility.”
They sharpen and weather-test strategy. At New Relic, doing a business simulation had a very real impact on the company’s ability to communicate its strategy. “A very exciting, unexpected benefit coming out of the preparation for the simulation was the strategy CliffsNotes we created. These were developed as part of identifying the key tension points to focus on for the construction of the simulation. When I was reviewing our results with the company president, what we had on paper was a succinct two-page articulation of how we saw the market, our position in it and what we were best positioned to do and not do. It was so powerful that we shared and validated it with our board of directors and ultimately distributed it to the entire company.”
They foster longer-term thinking. This is especially true at small companies. “Most startups think three to six months out, but your time horizon is three to four years in a simulation. It makes people think hard about what the business and their jobs will look like down the line — and what they individually need to do to get their team there. We found our employees asked bigger questions and were more motivated by the broader vision for the company,” Wassenaar says. “It’s easy to get bogged down in the day-to-day, but simulations can open people’s minds and gets them thinking more actively about the future of the business as a whole.”
Watch kids at play. They cover a lot of ground, because they’re having fun. Business simulations recreate that feeling and energy.
When You Need Simulations
Simulations aren’t only effective when companies are pivoting or extending into a new space. They come in handy whenever your organization is undergoing some kind of structural or strategic change — through all growth stages. Here are three times to consider doing a business simulation:
Expansion into new customer segments or selling styles. This is a situation that can be challenging to effectively execute. It often takes the shape of moving from one style of selling to another, or perhaps moving to a higher-level or different buyer in an organization. “It’s a challenge to reframe your employees’ thinking and turn them on to working in a new way and with new buyers in mind,” says Wassenaar. “The benefits from a simulation effort in this area include doing a role reversal that helps people better appreciate and deeply internalize the world from the vantage point of their new buyers. It allows people to practice how to position their product more effectively given the makeup of the buyer and how they think."
Post-acquisition spree. Wassenaar’s first simulation focused on helping the sales teams understand and sell the broader company product portfolio post-acquisition. “The sales teams got to practice in a role-playing structure how to pitch the new and broader value proposition to a new set of buyers, played by other team members. They also learned to whiteboard and sell the value of the different offerings rather than deliver dry, canned slides from marketing,” Wassenaar says. “They did all of this while learning in an engaged and active way, which research shows is one of the best ways for people to retain information.”
Pre-IPO. “The very first thing I did as SVP of Operations at New Relic was a business simulation. When we were getting ready to go public, we had just expanded from selling to developers to selling to enterprises and that required a lot of changes in the company. Many people were unsure what was wrong with the current model. People nodded their heads when we announced it, but large portions of the company didn’t really buy into it,” Wassenaar said. “After a simulation that dove deep into the market realities and what growth would require over the long term, the shift made more sense to everyone. It was instrumental in helping the company understand more deeply what it would take to pivot into the enterprise and support the growth rates required for our IPO.”
Five Ways to Mismanage Simulations
If the preparation and execution of simulations sound involved and complicated, it’s true – they can be. Great simulations are realistic replicas of real-life scenarios without being overly complex. They’re engaging, regardless of whether they’re role reversals (like having people ops and engineering swap roles), scenario trainings (such as testing crisis preparation or a new product launch) or company simulations (in which a few people run a simulated company). In all formats, you need to have involvement from top executives and the resulting buy-in from other managers and participants. Here, Wassenaar lays out the five mistakes to avoid to increase your chances of running a seamless simulation.
Making things too complicated. It doesn’t have to be a perfect incarnation of today’s reality. “The simulation is best if it’s realistic enough that participants can relate to it in their day-to-day job without getting bogged down in the details. Simulating three to five years of the future over two days is not easy, so focusing on what matters is key. Isolate and choose a handful of a few really important variables and measure results by a few factors that matter most,” Wassenaar says. “At New Relic, we focused on the key investment areas like product and engineering but eliminated a lot of the details around legal and finance, which were important but not contentious. We honed in on the three most important company business outcomes: Revenue growth, profitability and customer satisfaction. Doing so made it easy for people to stay focused on a manageable number of investment areas, and made the goals for the simulation crystal clear.”
Creating teams that are too homogeneous. Make sure your participants represent a diverse group of perspectives, particularly in the area you’re trying to create big shifts. “A great company simulation is cross-functional. You don’t want to load it up with just marketers, or go too heavy on engineers. The key is to find the right mix of leaders from different key groups who are executives, managers, sales, engineering, marketing – they’ve got to be representative of your company as a whole,” Wassenaar says. “So, for example, a great sales transformation simulation should include solution engineers and marketers, not just salespeople. Think broadly about whom you invite to the exercises and how you set up the specific competing teams. People who represent different viewpoints create resistance and tension, and that’s a key element for impactful dialogue. And given simulations are an opportunity to spot rising stars, inviting a range of functions to participate will help you identify talent across the company.”
Building from only one perspective. Include and interview people from across the company for business simulations because you need cross-functional views for a clear picture of the business as a whole. “Sometimes that can be hard to surface from a single department’s viewpoint. For example, when you decide to open a new geographic market, the sales team may only be thinking about the cost of a new salesperson. What they might not realize is that there may be significant finance and legal considerations and investments associated with entering a new market, particularly if it’s about international expansion,” Wassenaar says. “At New Relic, we factored these incremental costs into the simulation model. By doing so, all leaders gained a more comprehensive understanding of how decisions impacted the business, not just their department. We did one simulation like this, and the takeaways helped our leaders think more holistically and thoughtfully as to which countries to deploy salespeople as the company scaled.”
Assembling teams that are too big or too small. Simulations can go south when companies choose the wrong group size. “I have seen successful simulations done with 25 people and up to 200 people. The overall size is less important than the team size — the ideal team size is four to eight people. That’s large enough to have different viewpoints and small enough that everyone can have a role and is forced to engaged in the discussion. For a big simulation, the greatest challenge is having enough experienced coaches. To work around this, you can rely more heavily on the people who built the simulation, or roll it out in phases where people who’ve already been participants in the simulation become coaches for future groups going through it,” Wassenaar says.
“With large groups, you’ve also got to think about how to keep debrief exercises interactive. At VMware we broke the team of 200 into five core groups of 40, and then into eight groups of five. Debriefs were done by core group until the final all-hands recap. So no matter how large of a group participates in the simulation, break it down into smaller cohorts so those involved can participate and don’t get lost in the crowd," says Wassenaar. "If it’s too big, the logistics of the simulation will be overwhelming to run. If it’s too small, the workload will be too much per person. You need to be big enough that not everyone is making every decision every day. If five to ten people are wrestling with each issue that arises during the simulation, you’ve hit your sweet spot.”
Failing to get people on board. “You need executives and employees to be fully engaged in the exercise. If the CEO and the board are behind it, everyone else falls into line. It shows when employees haven’t bought into the exercise — then it’s all for naught. In particular, managers must believe in the simulation, because you need them to provide the right information to assemble a realistic exercise. The easiest way to get the team to take it seriously is to signal through word and participation that there’s buy-in from upper-level management. People need to be doing the readings and not just checking their email,” Wassenaar says. “The easiest way to get your CEO and other top executives behind a business simulation is to have them speak to peers who have been through the transformational exercise themselves. At New Relic, we got our CEO on board because both our Chief Revenue Officer and I had a great experience at Salesforce and VMware, respectively, working on simulations with BTS. Our CEO trusted that if business simulations could help two growing companies transform in major ways, they’d help New Relic, too.”
One of the first hurdles is converting the faction of people who don’t think there’s time for a business simulation.
How to Integrate Takeaways
When the simulation is done, you want to make sure that your company integrates learnings from the exercise. “It’s important to keep the spirit of the simulation alive after it’s over,” Wassenaar says. “Otherwise you’re just kicking the can down the road.” Try the following approaches to make sure the exercise doesn’t go to waste:
Tie lessons into day-to-day tools: Use the tools you use to run the business coming out of the simulation. “Continue to use the same management dashboards, sales processes and familiar company vocabulary. For some startups these areas may not be codified yet, and I would encourage people to think though getting more bang for the buck in creating them as part of the simulation. You can then carry those tools forward,” Wassenaar says. “In our New Relic simulation, we created our quarterly business review (QBR) scorecard as part of our company simulation. It highlighted the metrics that mattered to us in the simulation and which we used to determine the winners. We continued to use that scorecard for our real QBRs. That reminded us of the lessons learned in the simulation and was a great reference point and operating tool for our leaders.”
Make simulation materials part of new hire and manager training. “Regardless of their specific role, new hires and managers must understand how the business works. The simulation gives people a shot at seeing the bigger picture — especially from a different vantage point. These perspectives help accelerate and quickly onboard new hires and managers. It can be as simple as including the simulation case as a required reading to help new employees quickly grasp the company’s business. Or it might involve doing mini-versions or full versions of the simulation,” Wassenaar says. “Something is better than nothing. It’ll go a long way to acclimating new people to a company-wide context and experience that shapes how the company operates.”
Set objectives and use success scorecards and checkpoints: “What I recommend is before you start the simulation that you identify what needles you’re trying to move for people and business metrics. Then create a scorecard and milestone markers to track progress. In New Relic’s case, we use things like employee survey results and quarterly business reviews to keep us on track,” Wassenaar says. “We wanted to test new evaluation tools to monitor employee engagement and whether or not we’re meeting revenue and productivity targets as a business. Integrating those tools into a simulation made people more comfortable with using them, and acclimated the team to being measured against new goalposts in their day-to-day jobs after the simulation.”
Simulations are fun, but not cheap. It’s a big investment of time and you pay to play. So make them count.
Simulate Your Way to Success
Simulations can be your secret weapon when you hit a roadblock as a company or a tough turning point. They’re an investment of time and energy, but can yield significant returns. The best simulations are realistic, not overly complicated and have high executive engagement. Leaders need to be on board with the plan and support it from both a content and a morale standpoint. Companies can benefit from simulations when they’re trying out a new strategy, pivoting the business or any milestone that might throw employees into disarray.
“Simulations can be highly focusing for a company. I’ve found it work wonders when it comes to building better teams. And there’s so much more empathy in and between teams. It’s about walking a mile in someone else’s shoes, and it’s such an effective way to build cross-functional teams that have stronger relationships and more understanding for each other,” Wassenaar says. “At the end of the day, we all want a stronger company. The way to get there is to practice over and over again at being a strong company.”
Photographs courtesy of New Relic.