Month: January 2011

Product Management lies at the heart of Innovation

By Saeed Khan

Ask 10 people for a definition of the word “innovation”, and you’re likely to get 10 different answers; maybe more depending on who you ask. Don’t believe me? Watch this video :-)

I don’t like the dictionary definition of innovation. It’s shown at the beginning of the video – “the introduction of something new”. Yes, from a pure linguistic perspective, that may be accurate. But when we think of society, of business and bringing change to it, that definition is inadequate.

My definition of innovation focuses not on the technology or the invention itself, but on bringing it to market so people can benefit from it. Creating a better mousetrap is invention. Getting that mousetrap into people’s homes so they can catch mice more effectively is innovation. It comes down to making a distinction between invention and innovation and understanding that distinction.

And just to be clear — the difference is not about simply marketing or selling the invention.   It’s about inventing things that solve people’s problems, and then getting those inventions into the hands of the people who can benefit from them, and ultimately improving their lives or experiences.

Now look around the society we live in. In a competitive, technology-centric culture, like the one we live in, innovation is top of mind for most companies.

Look at the Annual Reports of large companies, and you’ll see that word. Here’s an excerpt from the 2009 10-K of of one large company.

We are dependent on market acceptance of new product introductions and product innovations for continued revenue growth.

The markets in which we operate are subject to technological change. Our long-term operating results depend substantially upon our ability to continually develop, introduce, and market new and innovative products, to modify existing products, to respond to technological change, and to customize certain products to meet customer requirements. There are numerous risks inherent in this process, including the risks that we will be unable to anticipate the direction of technological change or that we will be unable to develop and market new products and applications in a timely fashion to satisfy customer demands.

Read that description and look at the words I highlighted. Do those words sound familiar? :-)

And here’s another video (focused on GE) that talks about the difference between invention and innovation. Listen to the whole thing, but most carefully around the 1:20 mark of the video.

Note yet again,  the contrast between invention - what goes on in the engineering lab — and innovation – creating something people are willing to pay for. Although the two are related, clearly innovation requires an understanding of market and customer needs and how to apply the technology to address them. And what else is that but fundamental product management?

Saeed

Tweet this: @onpm Product Management lies at the heart of Innovation http://wp.me/pXBON-23D #prodmgmt #innovation #leadership

“One step at a time” can fail you

By Alan Armstrong

Jackie, a colleague for over 15 years, recently shared with me her mantra in times of confusion: “One step at a time”. When things get overwhelming, Jackie tunes out the noise and just takes one step at a time.

Most of the time this works brilliantly for her. Few of my colleagues  can execute like Jackie. She really can be a machine under pressure, and it’s impressive to watch. When others get distracted by company drama or interpersonal gossip, Jackie is impervious. If you hit her with strategic questions in the middle of important tasks, she’ll agree to schedule time with you, but she remains focused. Sometimes we “strategists” can have our heads in the clouds, and this kind of execution is essential and inspiring.

Jackie has helped me many times by reminding me of this concept, but recently shared with me that it has become a barrier. “One step at a time” doesn’t help when she’s facing a strategic moment. When she reaches certain forks in the road, she doesn’t know how to just take it. Real decisions need to be made, and her strength becomes a weakness.

Execution is important, but can’t be done without direction. One step at a time can fail you.

Tweet this: @onpm “One step at a time can kill you” Product Leaders take note!  http://wp.me/pXBON-22L #prodmgmt #leadership #prodleadership

Guest Post: Managing Channel Conflict through a Derivative Strategy

NOTE: The following is a guest post from Chris Shanley.

If you want to submit your own guest post, click here for more information.

- -

Back in March 2010, this blog had a great post about the importance of differentiation.  It is impossible to overestimate the importance of being different from your competition.  But what about the times you need to be different from yourself?

This need to compete against one’s self occurs when you’re manufacturing the same product for sale in competing sales channels.  No two channels are exactly the same and their needs can be as different as the customers they serve.  The closest mega grocery store and the specialty wine shop down the street may both sell the same wine, but they would certainly claim to serve very different consumers.

One answer for manufacturers is derivatives.  Creating slightly different versions of the core products specific to each channel can avoid the need for competing channels to use the same product.

There are few roles that require so many of the specialized skills of a product manager as creating derivative products within a current product line.  As in the December 20th post on market authority, developing a derivative strategy requires keen understanding of markets, products, competition, buyers/users, and connections.

In defining and creating successful derivatives a product manager must address all three of the following:

  1. Drivers of product costs
  2. Needs of the specific sales channels
  3. Needs of the end consumer

Failure to address all three will at best result in a product that does not eliminate the conflict and at worst result in losing sales channels and growth potential.

A Hypothetical Example: Coffee Makers

These ideas are best illustrated through an example. Let’s use a coffee maker as the product.  Let’s also assume that one channel is a “big box” retailer (Maxmart here just for the sake of argument) and the other is a smaller retailer with only 5 locations in Southern California.  We’ll call them Kelly’s for our example.

The situation: Kelly’s is one of a group of retailers that is complaining that they just can’t compete with the prices of the exact same coffee maker at Maxmart.  You can’t afford to lose all the business that you do at similar retailers.

First, let’s start by understanding the differences between Maxmart and Kelly’s.  Each has a different strategy in the goal to sell more coffee makers.  So what are the differences here?

Maxmart

Kelly’s

Target Volume

1 Million

1,500

Store Environment
  • Large warehouse style
  • Everything you need from milk, to firearms, to tables and chairs
  • Small but elegant store space
  • Dedicated to bring you the best in home appliances and home furnishings
Sales Staff
  • Lower education, low product knowledge
  • High staff turnover
  • Paid on an hourly wage
  • Educated, high level of product knowledge
  • Paid based on commission and manufacturer SPIFFs
Price Strategy
  • Buy in the largest volume inthe world and sell at the lowest price in the world
  • Sell at the most competitive price possible, but try to maintain higher average ticket and move customers up to higher prices/features
Margin Requirement

40%

30%

The problems in managing such diverse channels with the exact same product are immediately clear.  With an annual purchase of 1 million units, of course Maxmart can demand 40% margin!  Even if a consumer shops at Kelly’s, they will immediately realize, “Hey, I can get the exact same one at Maxmart for $30 less!  Yes, the store was really nice and the sales staff was great, but in the end it made me really want a product I could get down the street for far less.”

So, now let’s look at the specifics of the product.   As this coffee maker is already in production, it won’t be possible to change certain things.  For example, you can’t sell it with a larger pot because that would mean finding a supplier for a new pot, finding a more powerful heating element to keep a larger pot warm, etc.  Not to mention that to affect these changes would take so much time, that by the time you made them and shipped it, Kelly’s would be out of business.  Here is an overview of possible changes to the product and time and cost associated with each:

Feature Cost Time
Larger Pot $15/unit 2 years
Faster Brew Times $25/unit 1 year
Improved water Filter $3/unit 8 months
Housing color $0/unit 6 months
Printing color/font $0/unit 6 months
Color of display $0.50/unit 6 months
Auto-off $0/unit 6 months
Self-clean $0.50/unit 8 months

Finally, let’s not forget the needs of the customer. Just because you can add a larger pot, should you?  Will it be the feature that keeps them in the store and purchasing there instead of from Maxmart?  Let’s assume the appropriate research has been done and we know the key factors in the purchase process for the end consumer:

Needs of the Consumer Importance
Brew each pot faster 5
Brew larger pots of coffee 5
Better tasting coffee 3
Additional options 3
Design (Color/Materials) 2
Safety 1

Using a 5-pt scale where 5=Most important and 1=Not important at all

Based on this information, let’s imagine three different scenarios:

  1. A derivative with a larger pot and faster brew times
  2. A derivative with new printing/display color and Auto-off feature (Addresses design and safety)
  3. A derivative with an improved water filter and a self-clean function (Addresses better tasting coffee and offers additional options)

Derivative 1 – At first glance, derivative #1 looks like a pretty good idea. But this amount of additional cost and the time it will take to execute make this less of an option.  In fact, it’s not really a derivative strategy at all. The derivative should allow the channel to compete in the same price point.  This product is really more of a step-up strategy.  It means that the retailer has to go after an even smaller percentage of the market at higher prices.

Derivative 2 – If you were to work only with the engineers and developers you will end up with derivative #2.  In just six months you have a product that looks different, and it can be sold at the same price and margin level as today.  That’s great, but the features added are not enough to keep the customer in the store.  Design and safety (the Auto-off feature) are the least interesting to the customer.  They are not going to stay at Kelly’s and pay 10% more just for these features.

Derivative 3 – The last scenario offers the best of all worlds.  In derivative #3, you have features that are interesting to the customer, features that have fairly low costs, and features that make this coffee maker truly different from the Maxmart version.  This is the only solution that addresses the needs of all three parties.

(click to enlarge)

Derivative Selling Strategy

There is a twist that could make this even more successful– a move that a product manager can work with sales to implement.  Since the features are so high on the “important to the customer,” scale, the value in the market place for these is even higher than the cost to implement them.

The additional cost of $3.50 in the market would actually mean a price of $4.55 higher.  However, customers would expect to pay $10 more because they like the features so much.  So the solution is this: on this derivative, increase Kelly’s margin by setting the retail price to the customer expectation but only increase Kelly’s cost by the actual cost.  Now Kelly’s has a piece with something closer to Maxmart margin, is only slightly more costly, but includes features that are highly valued, and is clearly different from the “standard.”

If the customer now claims they can get the same one at Maxmart, the sales associate has two key features to point out that are not available there.  If he feels he might still lose the sale, the associate offers to knock an additional $5 off the price “just for our special customers.”  The key is that even when reducing the price by $5 for the customer, he will still make 33% on the coffee maker as opposed to the standard 30% on standard products!

In the meantime, Maxmart is just as satisfied with their product without the features because they can maintain their cost leadership.  Even if the product had more features, they do not have the trained and qualified sales staff to explain and sell the value.

(click to enlarge)

For makers of consumer durables or packaged goods, channel conflict is a good sign that the product is so popular that multiple sales channels want to sell it, but it will always be a threat to future growth when one channel does enough volume to demand higher margins.  However, by understanding the product cost drivers, the needs of specific channels, and the needs of the end consumer product managers can create clever product derivative strategies that manage the conflict and drive growth.

Chris Shanley

Chris Shanley is a senior product manager with 7 years of experience in managing and marketing consumer goods and consumer durables for various product categories including home appliances and power tools. You can reach Chris via his email – shanley1515@hotmail.com.

Leading Product Vision

In my post, Essential Pieces for Strategic Product Leadership, I outlined four areas that are paramount for product leaders. First on my list was Product Vision and I’ll focus on that topic for this post. Before I dive in, I want to clarify that when I discuss product leadership, I’m not talking about a title, but contributive role, a mindset and actions that influence the business. This traverses all roles in the discipline of product management.

Joining a new company some years ago, I had the opportunity of sitting with the CEO. As the new senior product leader, I wanted to better understand the company’s vision and what was most important to him.

One of the first questions I asked was, “What’s your personal vision for the company?” His response was straightforward and to the point. “I want to be a billion dollar company by 2010.”

I sat there for a few seconds thinking about his question. At the time, the company was about one-fifth the size. Before I could ask any clarifying questions, he asked, “What would the product vision look like to support this?” It took me a few seconds to gather my thoughts and I said, “A lot more than I envisioned this morning.” 

Over time, I realized that the vision of the company was more than a magical revenue number and a date in the future. It was a living entity owned by several of the senior management team and I was fully engaged in the process.

This example isn’t unlike many organizations. The words mission, vision, strategy and goals are thrown around, confused and co-mingled. While this post won’t delve into this, I will follow on with another post to discuss and demystify the terminology and process.

In a recent post entitled, “Why Should Anyone Trust Your Vision” by Harvard’s John Kotter, he shares; “Almost all managers have been brought up in a world where small-numbers decide, large-numbers execute (after the large-numbers are “sold,” which is almost impossible if the small-numbers are not trusted). People continue to think and act this way, often unconsciously.”

How can product leaders influence product vision in conventional decide – execute organizations?

John explains, “The conventional decide-execute model handles large changes very poorly. Let’s just say that success comes from a lot more people getting involved in the decision-making process.”

I believe a key part of the decision-making process comes from the bottom up, and every product leader has an opportunity to influence in some capacity.

Influence from the Bottom Up – product leaders who consistently build, communicate and collaborate with market data, current trends, competitive knowledge, customer feedback and data points developed from daily activities have a higher probability of impacting their organizations product vision. 

Why? When you have a strong understanding of market problems, know buyers and users, and can articulate stories in common terms everyone including users, sales and executives understand, you create a valued relationship. 

CEOs and executives seek trusted advisors and reliable sources. If those don’t exist, others will be found and used. Don’t ever under-estimate the power of bottom up influence and the value your  information and knowledge provides.  

Influence in the Middle happens when product management teams unite to collaborate for the common good of products or services. This type of collaboration fosters thought leadership and alignment. While reading Get Your Ducks in a RowJennifer Doctor shared, “While having independent thought and avoiding group think, all personnel in the organization need to be following the same vision and product road map.” 

In his post 5 Steps to Building a Great Product Management Team, Saeed Khan  shares, “Too often technology product management is viewed as the requirements collector, or keeper of the product roadmap, or an adjunct to Engineering. But all of these sell short the value and impact Product Management can have on a business.”

“Thought leaders embrace and extend the information found in their daily lives that reveal directions, trends and future states” said Steve Johnson of Pragmatic Marketing

Executives often are looking for the direction, trends and future states that create or refine vision. As a team do you create, communicate and provide measurable value to the executive team? If not, get the team together and discuss what’s missing and then create an action plan of how you’ll begin to correct this in the next 30 days. Use each others talent, skills and experiences to reconnect with the executive team.

Guiding from the Top - is easiest when you’re sitting at a vantage point that’s across the table from the executives. While a seat at the executive table is desirable for product management, it may not be feasible in your organization. While you may not have a permanent seat, having an open invitation to join them is a great start.

How can product leaders gain access to the executive table? It all starts with TRUST.

Trust, the Foundation - A CEO friend of mine recently shared, “The single largest excise tax in organizations is TRUST. However, there’s a vacuum of trust in many organizations. At the end of the day, those willing to fill that vacuum make my decisions more tolerable.”

Michael Hopkin shares in his post Three Winning Words, “The word trust has bi-direction meaning and only works when flowing both ways: you have to depend on other people to do what they say they will do; and you have to work, act and believe so that others will confide in and depend on you. People who live and behave in such a way that others can confide in them understand the importance of trust.”

If trust is established between product leaders and executive management, a Vision of Influence will emerge. From the bottom up, product leaders can infuse direction, trends and insight that influence vision. 

I’ve seen this vision of influence firsthand and its great to hear executives say, “We don’t do anything without product management’s endorsement. They own product vision.”

Leading product vision and creating influence takes time, patience and focus. It requires an organization where each person is a product leader. In a future post, I’ll discuss structure, alignment and how to build product leaders into your organization.   

Feel free to post any comments and retweet the post on Twitter. If you’d like to connect via email, I can be reached at jholland(at)missioncreekpartners(dot)com.  

Jim

Product Management is spreading…technologists take note!

By Saeed Khan

Back in 2000, before the tech bubble burst, I saw an interview with Steve Jurvetson – now a Managing Director at venture firm Draper Fischer Jurvetson. Steve was talking about some of the successes he had had investing in technology companies – Hotmail, Kana, and a host of others.

He stated that because the wins (i.e. successful exits for portfolio companies) were so large, they outweighed all the losses (i.e. unsuccessful investments) and he would have loved to have invested in twice as many companies to increase his returns. i.e. from his perspective, it was simply a numbers game. Double the number of investments and you get double the number of wins.

Now I’m not criticizing his abilities and I certainly can’t criticize his success. But,  there is another way to increase the number of wins, without increasing the number of investments.

If we look at the failed companies and there were some spectacular failures —  it’s pretty clear that more than a few of them knew little, if anything about a little something called Product Management.

A Note to VCs
Bringing in experienced Product Management early in a startup’s lifecycle helps brings focus, reduces risk, accelerates time to revenue and increases odds for success.

Don’t believe me?  Look through your failed investments and identify the real reasons why they failed? Was it lack of technical strength and ability to build products, or was it lack of market focus and ability to build the right products for those markets?

Still don’t believe me? Then believe Intuit Chairman Bill Campbell.

The landscape is changing
Move forward 10 short years and it’s clear that the Product Management message is starting to be heard. Yes, there are still lots of great examples of failure – Microsoft Kin, Google Wavethe Segway – but there are also a LOT of differences we can witness compared to 10 years ago.

People are writing about Product Management

First, people are writing about Product Management everywhere, and in ways and volumes that didn’t exist 10 years ago.

Blogs - Product Managers cannot be described as introverts. And from the volume of blogs (well over 100 and still growing) that cover Product Management, we’re definitely spreading the word.

Analysts – I’m sure there are others, but I only know of one analyst focused on the topic of Product Management. He is in fact, the self-proclaimed BFF of Product Managers, and a very smart guy. I’m sure you know him, but if not, get to know Forrester Analyst Tom Grant.

Books -There are now some great books on the topic. There are many out there, but a few notable ones include:

People are teaching others about Product Management
5 years ago, if was almost impossible to find any events focused on Product Management or Product Marketing. But there were lots of conferences for developers, marketers, sales people etc. The PDMA was probably the biggest (and only?) association focusing on product leaders and product success.

Today we have ProductCamps on 4 continents, in dozens of cities. They are a community run activity, free to all attendees, and supported financially by a diverse group of enlightened sponsors who see the value of educating people on the subject.

Our own Prabhakar Gopalan attended ProductCamp Austin last weekend and posted his thoughts as well as videos of a couple of the presenters. Prabhakar sees ProductCamps as a type of “open source” alternative to expensive commercial conferences.

Paul Young, one of the founders of ProductCamp Austin, posted his perspective as well.  Paul’s advice is:

If you want to be a thought leader in product management today, you need to present in front of your peers at a ProductCamp.  It will be one of the most intense, but rewarding experiences of your career.

People are putting structure around Product Management
Pragmatic Marketing’s grid of Product Management tasks/responsibilities has been around a long time. They’ve modified it slightly over time, but virtually everyone in Product Management that I’ve met has seen that grid, if not taken one of their classes. For a long time, that was pretty much the only structure you could find on the topic.

But today, there are many examples of structure if you look around.

Many Product Management consulting and training companies – you can see a list of many of them here — have analogous grids showing how to decompose the PM role.

And what else is the Lean Startup model along with concepts like  Minimum Viable Product, Customer Development and Product-Market fit, if not attempts to embody Product Management concepts into a structure that people can follow? They’re not perfect, but they’re not bad either.

I even created my own grid (of sorts) to help define the Product Management process.

A few money men are seeing the light
Although many funders are still rather out of touch with the value of Product Management – many Web 2.0 investments attest to that – a few do seem to get it.

OpenView Venture Partners is one such firm. I worked for a startup funded by them so I know firsthand. But beyond that, they regularly espouse the value of Product Management to their portfolio companies. They write a lot about it on their blog, and I’m flattered as they even reference some articles that I’ve written. :-)

Paul Graham’s YCombinator funds at the seed stage and takes a different approach to funding startups than many seed or angel investors,  but their goals are the same: enable founders to build successful products and companies.

But not everyone is hearing the message (yet)
There are still the naysayers out there. Some claim that Product Management is not needed in SaaS/Cloud software companies.

And there seems to be evidence to dispute the value of Product Managers. Facebook is  very successful by letting the developers call the shots.

And others, like Malhalo’s Jason Calcanis,  think that firing all their Product Managers, and following the Facebook model is their road to success.

Thankfully, voices from the Product Management community spoke clearly to refute this. You must read these posts from Tom Grant and Scott Sehlhorst.

Scott sums it up very eloquently:

Eliminating product managers does not eliminate product management.

So what’s next?
I honestly think we’ve hit an inflection point. It has never been easier to create a high-tech product. Unfortunately, as Jim Holland observed at the recent Consumer Electronics Show this just makes it easier to build bad products quickly.

There were some new and innovative products and technology categories worth mentioning and some of the same stuff we’ve heard about for several years… [and] there was a lot of crap. It’s a shame really. You know the products. Ones that were designed and developed because they COULD, not because they SHOULD.

Another example of how easy it is to create a technology product: a self-taught 14 year old can write an iPhone application that was downloaded 2,000,000 times in just 2 weeks.

Technology used to be a differentiator in a competitive market place. Not any more.  Winning companies will be those who can embed product leadership principles throughout their organization. It’s not just about being “innovative”, but about ensuring there is a repeatable, scalable and adaptable discipline of product management inside the organization.

Success is not a game of chance, or a numbers game like Steve Jurvetson described it in 2000. It’s about connecting the dots, seeing the patterns and identifying opportunities. It’s about having the focus to take the right risks and quickly react to new obstacles to deliver winning products to market. And it’s about ensuring you can do it again and again and again. That’s what good Product Management delivers, and that’s the future we should work towards.

Saeed

Tweet this: @onpm Product Management is spreading…technologists take note!  http://wp.me/pXBON-20t #prodmgmt #innovation #leadership