Month: August 2009

VP Engineering has a mandate. You need one too.

Tonight I met up for dinner with Paul Melmon, an old friend who has been around the block more than a few times. He initially gained notoriety as CIO at pets.com, and has since cycled successfully through several startups in the SF bay area, mostly as VP Engineering.

Paul shared something with me: The products are interesting, but really for him the job boils down to a few things that need to be done:

  • speed delivery
  • improve testing
  • improve the UI
  • scale the product.

Now of course a VP can’t simply show up and ask people to work harder, design better, and release with fewer bugs. Improving team performance requires a great deal of skill and experience, and a steady hand. But still, you have to like the simplicity of the mandate. Everything on the list can be measured, managed, and improved.

A Mandate for Product Management?

We need a similar mandate for Product Management. What should it be?

The list shouldn’t be long. Here’s an attempt in one sentence:

  • Align company investments with the needs of the market and the business objectives of the product line.

Unfortunately, I’m not sure how to measure, manage, or improve alignment without a LOT of hand-waving.

Go ahead, tell me what your list would look like.

– Alan

Guest Post: To Kill a Product: Why, When and How part 3/3

Note: This is the 3rd of a 3 part series of articles by guest blogger Chris Brown. If you feel inspired to write a guest post of your own, click here to find out how to submit it to us.

Part 3: How to Kill a Product

kambNo one wants to manage a dying product. No one wants to sell, support or, certainly, buy a dying product, either. The role of the product manager includes performing the kill analysis – thoughtful, thorough and completely unbiased – and making a recommendation that is best for the business.

Time to Pull the Plug

The process of discontinuing a product will vary greatly by industry and company, depending on the structural makeup of the organization, the sales channels, the customers and, of course, the product itself. But there are some basic steps.

First, the product manager needs to perform the analysis described in the earlier posts. Once the decision has been made to kill a product, the product manager should provide a timeline with the following action items:

Communication plan. Work with the Marketing and Sales teams to create a plan that includes customer notification, internal communication (including FAQs), collateral updating, branding consideration. Make sure the tone and level of communication are appropriate. If the product is purely ancillary, the communications may not need to be extensive. If the product has a deep connection to the brand, for example, but is no longer performing, or is being killed for strategic reasons that may not be apparent, a more carefully considered story may need to be crafted.

Shut down marketing. Any outbound or customer acquisition efforts should cease on the prescribed date.

Sales and Finance. Work with the Finance and Sales teams to make sure sales goals are properly adjusted to account for the lost revenue. Review final billing procedures, outstanding receivables, etc., with Finance.

Provide support to Customer Support. The Support team will also need to be ready to field concerns and questions from customers, partners etc. Provide the necessary training and documents (FAQs, email response templates, talk-tracks, etc.).

Provide direction to the Technology team. If the product requires any ongoing technology, e.g. it is Web-based, make sure Technology knows when to permanently suspend functionality, and that doing so will not impact any other services. Have a plan for warehousing code and/or data, if necessary.

Make sure it’s all legal. Confirm you are within the bounds of any contracts with customers and suppliers, and that official cancellation notification is vetted or provided by the Legal team.

When working on these steps with internal teams, the product manager needs to make it clear why, at a high-level, this decision has been made. Don’t assume everyone from sales to tech knows the history of the product, or that, if they do, that they don’t have an attachment to it. A summary of the criteria that led to the decision will provide context and buy-in, which is very important since many of these people will have to do much of the dirty work of killing the product.

Product managers must make their kill recommendations by thoroughly and objectively examining the financial, organizational and strategic factors. Recommending the discontinuation of a product one manages can be a difficult prospect. But often the manager, especially a good one, will be the first to admit a product has run its course. This creates an opportunity to focus on more important, rewarding initiatives.

–  Chris Brown

Chris is vice president of product management at Apartments.com, a division of Classified Ventures, LLC. Email him at cbrown@apartments.com or follow him @Brown784

Previously:

Part 1 Why?: If it’s generating some revenue, even a little, why kill an underperforming product? Because ineffective products divert focus and resources from core and growth products, and ultimately dilute the overall value proposition of the business.

Part 2 When?: When is it time to kill a product? Part 2 offers up six areas to keep an eye on for telltale signs. It’s examining these areas that will help product managers build the case to kill or keep a product.

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Tr.im should have figured out their revenue model first!

Not to sound like a broken record, but here’s a great example of what I was talking about in my recent post entitled “5 benefits in thinking about revenue models right from the start“.

A couple of weeks ago, Nambu, the parent company of the URL shortening service tr.im, announced that they will be shutting the service down. You should read their entire post because it is very well written and makes some very good points that should serve as lessons to virtually any aspiring business out there.

trim-ripI’ve also captured a jpeg image of the page in case they take down the original. Click the image on the right to read the entire text.

Here’s a synopsis of that post.

  • tr.im is being shut down.
  • It is good at what it does and is a popular service, but that is not sufficient.
  • tr.im’s costs are real, both in terms of development effort and operational costs.
  • Those costs need to be recouped.
  • But there is no way to monetize URL shortening and the quest to find an acquirer failed. [SK – probably because there is no way to monetize it].
  • Users will not pay for URL shortening. [SK – URL shortening is a commodity; a cheap one at that.]
  • The data that tr.im collects – what URLs people are shortening and clicking on – is of little value to outsiders because “everyone has that data” as it is harvested by bots. [SK – the collected data is also a commodity.]
  • An 800lb gorilla named Twitter has anointed a tr.im competitor (bit.ly) as the URL shortener of choice. [SK – if your success is dependent on a single larger entity, be the clown fish to their anemone!]
  • This effectively blocks growth prospects for tr.im (and by inference, other competitors to bit.ly)

I use tr.im. I like it. It’s simple to use and gives me some good analytic data about click-throughs on shortened URLs I post around the web.

But I always wondered how they made money. For as long as I’ve used the web, tinyurl.com was the only URL shortener that I knew. Then with Twitter, others jumped in, providing extra services, like accounts, click-through stats and simple analytics. Here’s a chart of monthly visitor statistics.tinyurl-bitly-trim

Clearly, it was a losing battle for tr.im in terms of traffic. Even the venerable tinyurl, long the king of URL shortening is falling in traffic, with bit.ly continuing to climb.

So the question is: how will bit.ly cover it’s costs? The server and operational costs  must be significantly more than that of tr.im.

How is (or will) bit.ly generate revenue? Can they sell their data? If so, to whom?

Does anyone have any insight into how bit.ly does or will create a sustainable revenue stream? And what has Tinyurl been doing all these years to pay it’s bills? I’m genuinely curious.

Saeed

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Guest Post: To Kill a Product: Why, When and How, Part 2/3

Note: This is the 2nd of a 3 part series of articles by guest blogger Chris Brown. If you feel inspired to write a guest post of your own, click here to find out how to submit it to us.

Part 2: When to kill a productlicense_to_kill_ver1

No one wants to manage a dying product. No one wants to sell, support or, certainly, buy a dying product, either. The role of the product manager includes performing the kill analysis – thoughtful, thorough and completely unbiased – and making a recommendation that is best for the business.

Knowing When It’s Time

When do you know it’s time to kill a product? To make the case, the product manager should demonstrate the product’s performance over its lifetime and build an impartial view of the situation, and then make a recommendation. With the data points listed below presented and analyzed fairly, the decision to kill or not should be obvious, and the recommendation will carry sufficient weight to sway senior managers. (In some instances, a product may be unfairly on the chopping block, in the doghouse, for one reason or another, of senior management or a CEO. Performing this analysis could just as easily demonstrate why a product should be salvaged and invested in, rather than killed or left to slowly die.)

Here are some telltale signs your product is on life support:

Steady decline or flat sales volume or market share. Downward or flat sales volume over a long period of time indicates apathy on the part of the market, the sales team or both, neither of which are good. Apathy for one product can have a negative halo effect on others, which is discussed in more detail later.

Decreasing or flat revenues and/or margins. Lower/flat sales volume shouldn’t be the lone factor in a kill decision. Perhaps your product’s audience, to quote “Spinal Tap,” has become “more selective.” No problem: If a product is specialized and valuable enough to that audience, revenues can continue to climb based on price increases. But if the market is unwilling to accept a price increase and volume is in decline, then you’ve got a kill situation. This is why margins should also be analyzed. Products become more profitable as they reach economies of scale (products typically have lower margins in the launch and growth stages, and higher margins as the product reaches maturity, assuming steady volume growth). Tight margins, especially well after launch, indicate that the product may never reach the scale it needs to be truly profitable in the long term.

Lack of investment. Products that are on their deathbed often get ignored during budget cycles. This is not by accident, and can be a self-fulfilling prophecy, but is often a telltale sign that the organization has lost interest.

Over-investment. The converse of products that consistently get no budgetary love are the money pits, the ones that suck resources but see no return on investment. Again, the decision to kill these products tends to be a little easier, yet expensive-yet-poor-performing products can inexplicably live on. If high direct costs are the problem, you’ll see this in your margin analysis. But other costs, like ongoing technical, marketing and customer support, may take more effort to ferret out.

KPIs are in the dumper. This is important. Every product has a set of key performance indicators (KPIs) or metrics, other than sales or revenue, that measure success. These can be customer satisfaction scores, usage statistics, conversion rates, etc. Sometimes a product can have very strong KPIs, but slow sales. This could mean you have a marketing or sales channel issue. Ambiguous or conflicting KPIs may indicate a positioning – or even tracking – problem. In either case, the product may just need some tweaking or new messaging. But if KPIs are and have been in a steady state of malaise, then consider it a bad sign.

Strategic misalignment. Strategies can shift from year to year, and a product that was aligned with a strategy when it launched may not be in line with current strategy. Or, it becomes clear that the product was never able to deliver against the strategic direction, even if that direction has not changed. Either way, if your product is not delivering key strategic objectives, then it only becomes a distraction. (This will be obvious in your KPIs, which should be aligned with strategic objectives.)

None of these in isolation should serve as a reason to shut down a product. Even together they should be utilized as a basis for discussion of whether or not to go down the path of sun-setting. A product’s KPIs could be in the dumper, for instance, because the product is lacking key functionality, which it can’t have without investment, but no one wants to invest  because sales are down, which perpetuates the above mentioned self-fulfilling prophecy. You’re better off applying these criteria to a grid, like the one below, and using this as the basis for a deeper analysis.

The table will serve as a guide, but each of these areas should be fleshed out with data and analysis by the product manager.

In addition to these data points, present information that (hopefully) already exists, primarily a market analysis (who makes up the market for this product and how has it shifted, and what are competitors doing?) and an updated roadmap (features and enhancements necessary for product growth, and the level of investment needed to build these features). Combined this information and view it through a clear lens, and the right direction should be obvious.

–  Chris Brown

Chris is vice president of product management at Apartments.com, a division of Classified Ventures, LLC. Email him at cbrown@apartments.com or follow him @Brown784

Coming up:

Part 3: How to kill a product.
How do you kill a product? You’ve made the decision to pull the plug, now follow these steps to ensure a smooth sun-setting process.

Previously:

Part 1: Why you should kill a product.
If it’s generating some revenue, even a little, why kill an underperforming product? Because ineffective products divert focus and resources from core and growth products, and ultimately dilute the overall value proposition of the business.

5 benefits in thinking about revenue models right from the start

moneymanThere are a number of Web sites and applications — two of the most well known examples being Twitter and Facebook — that offer very good, free services. And over time, as they grow larger, the quest begins to find a revenue model or models to turn the service into something that actually resembles a sustainable business.

The problem is that after the fact, trying to find and attach a revenue model onto something that people know and expect to be free is difficult. There may or may not be technical difficulties in doing this, but there will almost certainly be business and cultural difficulties in adding revenue models after the fact.

A lot of people like to cite Google as the model for a company that started out without any revenue models and then figured out an incredibly successful one later on. There’s nothing wrong with wanting to be the next Google, but the story of Google’s revenue model success is not one that can be recreated simply by positive thinking and hard work. Ask the folks at Cuil about that one.

The conditions and circumstances, market opportunities and market needs may be totally different. There’s so much we don’t know about the market that leaving revenue generation to an afterthought is hardly good business strategy.

It’s great to tout 1,000,000 or 5,000,000 or even 100,000,000 “users” or “visitors”, but when they cost you money everyday instead of helping generate positive cash flow, more is not better. And this, after the fact thought process of figuring out revenue models, is problematic to say the least.

Instead, why don’t these companies consider revenue models right from the outset or very early into their startup process? Whether the revenue comes from users themselves, advertising, premium services, data collection and licensing or some other means, it’s very important to think this through upfront and act accordingly to understand and implement those models that make the most sense.

There are a number of benefits in thinking and working this way:

  1. It requires you to actually segment your buyers and your users
  2. It helps you understand who you are truly competing against
  3. It reinforces the value proposition to your existing and potential users or buyers
  4. It sets up a revenue-centric culture within your company
  5. It’s the right thing to do

Let’s look at each one of these in more detail.

1. It requires you to segment your buyers and users

Who is the target customer? Now that’s a common question that gets asked all the time for virtually every product or service. Unfortunately, too many times the answer comes back as “everyone”, or “consumers”, or “anyone who needs our product”, or something equally vague and not very helpful.

It’s not always easy to know everyone who will find value in an offering, but it really helps to start with at least one or two target groups. Understanding who they are, what they need, and the value your offering delivers are key to defining a sustainable revenue model.

A lot of times people don’t do this for fear of missing or eliminating key groups of people, but if you can’t identify the kinds of people who might pay for your product or service, how can you decide how much value it is to them and how much to charge?

Keep in mind that users and buyers are not always one in the same. Taking Google’s search engine as an example, the users are the people conducting searches through the site. That service is free to them. The buyers are those organizations that buy pay-per-click (typically Adwords) advertising that is displayed in the search results.

The system of connecting searchers with ad buyers (i.e. targeted ad placement when people are searching for information), creates an incredibly efficient and scalable engine for revenue, and it must be noted, one that few companies have been able to emulate with as much success.

2. It helps you understand who you are truly competing against

There is competition for virtually every product or service. For some it’s very obvious, and direct competitors can be listed without thinking. For others it’s not so obvious, but incredibly important to identify. Why? Because the word “competitor” must be thought of as “other options for your target buyer to achieve the same or similar result”.

If you are going to charge for something, you need to know how your target buyer spends their money today (if they do at all) for similar results. Too often focus is simply put on very similar offerings in the market, and using those offerings as a basis for thinking about revenue models.

But if you truly put yourself in the context of your buyer, understand their options, and what final results or outcomes they want, your perspective can change significantly.

Southwest Airlines sees their competitors not only as other airlines, but also cars and intercity buses. Why? Because these are the most likely alternatives that their target customers (budget minded travelers) would look to in order to travel between cities. Keep in mind that a lot of SouthWest flights are short-haul routes.

Similarly, when Intuit introduced Quicken, they viewed their competition as not only other home accounting software packages (of which there were many), but also the pencil and paper, because that was also a common option for people who wanted to perform home finance calculations.  The outcome — balancing a checkbook or simple budgeting — can be achieved by computer as well as by hand.

In both cases, clearly understanding their target users’ desired outcomes and their likely options helped the companies understand the value they could deliver and in Intuit’s case, a benchmark for the price they could charge.

3. It sets up a revenue-centric culture within your company

What do you call a business that doesn’t care about revenue? Answer: A hobby.

Employees in a business need to think and act for the benefit of the business. People are hired, culture is developed, processes are defined, decisions are made and systems are built that align with the objectives of the business. If the goals of the business (at least initially) do not involve revenue (in some form), the culture, decisions, processes, systems and people within the company will adapt to that.

And when at some point revenue becomes a priority, then changes, possibly significant ones, will have to be made to accommodate for that. Decisions, which were likely technology or user driven will need to start incorporating revenue and business considerations. Does your service or product have a licensing mechanism? Is it flexible enough to accommodate the business? What changes in the Engineering, Marketing or Finance teams are needed? Do you need to create a Sales team?

It sounds trivial, but it isn’t. Consider what happens when something as simple as a pricing change is required in an existing business. There are many existing internal AND external parties and processes that need to adapt to that change.

Now imagine the impact if that pricing change goes from “no pricing at all” to some form of pricing. New people would have to be hired, for example, in finance. New systems would have to be created to collect revenue and process it. New processes are needed to handle refunds, discounts, create financial reports etc. Decision making criteria need to change to focus on what can generate and sustain revenue. These are just some of the changes that would need to occur to create a culture in the company that is revenue centric.

Why not set up the company early on to manage and deal with these kinds of issues and possibly accelerate the process of generating revenue.

4. It reinforces the value proposition to your potential users or buyers

There is absolutely nothing wrong with providing a free service. If  the objective is to only have a free service and it can be funded then go ahead.

But most services are not created to be completely free forever. Even open source software, which originally was viewed as “free” has developed business and revenue models that leverage the value their customers derive from it. Redhat, Suse, MySQL and JBoss are all examples of very successful businesses founded on this so called “free” software model.

For any aspiring profitable business, there is a very clear need to identify upfront what is truly free (e.g downloading and using open source software) and what requires payment (e.g technical support for open source software). Not only does this delineate the difference between free and paid offerings but it also defines the relationship and expectations a customer or buyer will have with the company.

Flickr provides a good example of this in action. You can upload a fixed number of photos for free and share them with anyone, but for a large collection of pictures, there is a small  fee ($25 per year for a Pro account). Flickr commits to never deleting your photos, even if you fail to keep your paid account current. They’ll simply restrict your access to them.

So why is this important for customers/buyers? It positions the company very clearly as one that is in business to generate revenue, that will deliver a set of services or offerings that have some intrinsic value that costs actual money, and one that, if successful, will be around in a few years time to continue delivering the service that is being paid for.

I like free stuff as much as the next guy, but if I’m going to commit my time and effort to using someone’s services, I’d like to know that they’ll be around so I can continue to use them. Now, there are plenty of companies that charge for their services that go belly up, but that is not new to the Internet. That’s a simple fact of life for any business. But I’m sure you’d agree that it’s more likely that a company that DOES charge money for their service or has a very clear and scalable revenue model will be likely be around longer than one that doesn’t.

5. It’s the right thing to do

rightthingWhy are most businesses started? To make money? Well more bluntly, to make money for the founders and investors in the company. If that is the case, then it’s Business Basics 101 that understanding the market, potential customers, their buying needs, budgets, willingness to pay etc. are all critical to any form of business planning. So, why not start right and do some homework upfront?

It used to be the case that the investment to build a product was significant, typically involving manufacturing processes, sourcing from suppliers, warehouse and delivery expenses and logistics etc. But the combination of mature software development tools and the Web as the distribution medium has created an environment where creating and distributing the “product” is simple and rather inexpensive. In fact, identifying buyers, buyer needs, budgets etc. is likely harder than creating the product. So what do many people do? They build something and see “what sticks”.

While there is benefit to this approach, it should not be done without forethought to the business aspects that will underlie the offering. Both product definition and business planning need to be done together and up front. Just as iterations are needed to get the product right, iterations will likely be needed to get the business working well. Both product and business strategy need to evolve together, and as knowledge is gained and changes needed, then those changes can be made in tandem.

And while people will hold up the few successful companies, like Google, as their models for achieving success, it’s telling that they willfully ignore the myriad of companies that tried the same “we’ll figure out the revenue model later” approach and utterly failed.

Saeed

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