by Saeed Khan

I’m going to try something a bit different this time. Here’s your chance to help a startup founder with some common startup challenges.

Max Cameron is a cofounder of Big Bang Technology, the makers of Woople, a hosted eLearning platform for enterprises.

Max’s company has grown from 2 founders to 10 people and while they’ve hired a full-time Product Manager there are several hurdles they still need to overcome.

Max has 3 current challenges that he’s facing and I’d like to enlist all of you to collectively help Max address them, buy watching the video of Max talking about his company, and then leaving comments at the bottom of the blog post.

If you are shy but still want to give some advice, you can use the Contact Us form. I’ll keep your identity secret but share your advice with Max.

While the challenges are listed below, I strongly urge you to watch the YouTube video of Max — it’s only 6 minutes in length — to get all the details before answering. You can click the image below to launch the video. Unfortunately it cannot be embedded directly in this page.

click image to launch video

The 3 challenges Max needs advice on are:

1. Metrics in the software. What metrics should be instrumented into the product to see if implemented features are effective in solving customer/user problems.
2. Optimizing the onboarding process for new clients. What are the right collateral pieces for the sales people? What is/are the right pricing models? How to best get in front of the business people — i.e. the buyers? How to work with technical/IT teams to perform integrations?
3. How to take the collateral that is built and have Marketing work with Product Management to create compelling stories to identify and target new customer segments.

So there it is. What advice do you have for Max and his company?

Saeed

Tweet this: Open Question: Product Management Challenges at a Startup http://wp.me/pXBON-30F #prodmgmt #startup #marketing

Related posts:

1. Open Question: How did you get your first Product Management or Product Marketing position?
2. Open Question: Why doesn’t Engineering report to Product Management?
3. Open Question: Your current biggest challenge in Product Management/Marketing?
4. Open Question: How can Product Managers and Product Marketers work better together?

NOTE: The following is a guest post by Amy Swanson. If you want to submit your own guest post, click here for more information.

Creating Brand Advocates Without a Special Formula

As someone who (at times) falls into the narcissistic Facebook user category, I regularly believe that my friends care about the brand of laundry detergent I use and the kind of coffee brand I love. I can’t help it; when I find a new product that I really love, I tell others about it. I blame part of this on my marketing degree—since I know that every brand impression helps grow a company—and on the fact that I do genuinely want to help others.

Highly-engaged consumers help your brand become adopted and advocated by others, and they will ultimately create more recognition for your brand and product. How you get them on your brand’s side, though, is the question.

What’s the Secret?
Adoption of your product can be tricky, but don’t make it any more complicated than what it is. People will only want to adopt your products if they exceed expectations, so you should aim to please. Your goal is to get to the point where consumers can’t even imagine not using your product every day!

To get there, remember the following:

• You need to properly identify the needs of your target market. What Consumer A wants may not be as important to Consumer B.
• Internal motivations (personal needs, aspirations, and ideal self) as well as external motivations (need for acceptance among peers) are major factors in whether or not a product is used. Be sure to address both motivators accordingly for the highest level of success.
• When your mom said “life won’t always be like high school,” she wasn’t being completely truthful. Popular and trusted endorsements can greatly influence adoption, since all that really matters to consumers is what the ‘cool kids’ think. Figuring out who exactly those cool kids are is different for each market, though.
• When a product improves the user’s life at every stage of interaction, emotional bonds are built and loyalty and a strong brand relationship are strengthened. Once those bonds are established, your brand will be easily adopted into your customers’ everyday routines.

Advocate, Don’t Annoy
When you hear the word ‘advocate,’ there’s probably an outdated image of a protester from 1960 burned into your mind. Brand advocates don’t quite fit that stereotype, however; an advocate of your company wants to share the discovery of a product or brand that improved their life and can help others do the same.

Just like the product adoption process, you need to completely shatter their expectations (not just meet or slightly surpass them) in order to gain an advocate. If it’s necessary, you’ll want to update your image before taking on such a task. To increase your brand advocates, understand that consumers want to feel understood, appreciated, and rewarded for their passion of sharing your brand with others.

Have you ever experienced that feeling of knowing something that nobody else around you seems to understand? That’s exactly what consumers love feeling, too! If you’re ready to get some advocates on your side, here are some tips to remember:

• Make them feel knowledgeable about your product by providing as much information as you can about it on your website. Give them all the facts and stats so that all potential questions can be accurately answered.
• Keep up on your Twitter account and Facebook account. Engage with your followers and fans on a regular—not on an excessive—basis. Try not to exceed two posts a day on your Facebook account, but more frequent posts on your Twitter will keep people checking back to see what you’ve posted.
• Make fans feel heroic for passing on your brand’s attributes and benefits to their friends and family. Sincerely thank them if they post on your Facebook wall or if they send a Tweet telling you they’ve introduced new people to your brand. Also, offering them a coupon or a discount can go further than you think!

Ask, Don’t Just Assume
Whether you consider yourself a narcissistic Facebook user or not, chances are you’re at least friends with a few of them. Embrace those advocates and find out why they’re adopting your product and how you can further that interaction by having them share with their friends. You may even find that they love your product for some other use you had never considered before, or you could even market to another group you didn’t initially think to target. You’ll find that the formula for success isn’t so secret, just maybe one you hadn’t thought of before!

——

Amy Swanson is a part of the marketing department at Quality Logo Products and regularly contributes to their promotional products blog. She is a self-professed newspaper and business nerd.

Tweet this: Guest Post: Creating Brand Advocates Without a Special Formula http://wp.me/pXBON-2Xz #prodmgmt #socmedia #innovation

Related posts:

1. Guest Post: 9 Ways NOT to Present Your Company or Product Via Social Media
2. Guest Post: 8 Important Points about Marketing Strategy
3. Guest Post: Know thy Customer – How to Segment your Market
4. Guest Post: Your Customer is Only Human – 7 Emotional Pricing Tactics

by Saeed Khan

In my post – Your most important customer is your sales channel – I wrote about the challenges, particularly in multi-product companies, of ensuring your sales channels are really doing the best job they can in selling your product.

Sales team (both direct and indirect) have their sales targets and with the exception of teams dedicated to a single product, usually have few or no restrictions WRT how they must achieve their targets. i.e. they rarely have specific subtargets for individual products.

So the question arises:

How can you ensure your sales teams will focus on and sell your product, when they have choices on the products they sell and how they reach their sales targets?

To answer this question, I go back to what the VP of Sales told me in my very first job as a Product Manager, when I asked him about a problem I was having with the sales team. He looked at me and said:

Saeed, always remember that in the end, Sales people are “coin operated”.

I’ve never forgotten those words. At first though, his advice sounds somewhat denigrating. But how I’ve always interpreted it is that their behaviour is determined by how they are measured and compensated. i.e on meeting (and ideally exceeding) their sales targets. i.e. how your product fits the channel they manage.

Achieving Product/Channel fit

There was a time, when your sales teams sold your product. Yes, they needed sales training. Yes, they called in Product Management when particularly difficult customers needed soothing. Yes, there were the fair share of challenges and lost deals, but overall, the sales teams saw value in selling your product. You had product/channel fit.

But how exactly did you get that fit, back then? It was probably a combination of things such as:

• a new product that addressed a clear customer/market pain point
• clear positioning and messaging
• few directly competitive products
• corporate focus on the market segment the product addressed
• minimal price pressure from customers or competitors
• better overall economic conditions
• and/or it was the only (or main) product in your company

In short, you understood the market, understood the needs of the sales teams, the sales team were trained and not only understood the value proposition of the product, but also saw it as a means to achieve their sales targets.

And that last point is critical, because it means that your sales teams (or more likely a significant portion of them) will focus efforts on selling it.

Losing Product/Channel Fit

Achieving Product/Channel fit takes time and effort. But losing it can happen very quickly and suddenly. Your product may be delivering on it’s numbers for several quarters and everything looks good. But then you have a mediocre quarter, nothing disastrous, but maybe your product came in just below your quarterly target.

But no worry, the sales funnel looks strong, a couple of deals just slipped out a month or two. There are plenty of healthy prospects in the pipe and this quarter will make up for the small shortfall of the last. But as the quarter progresses, deals aren’t closing as fast as you’d expect, more deals are slipping out or not progressing, and before you know it, the quarter that should have made up for previous losses is a disaster.

This is not simply a bad quarter, but in all likelihood, you’ve lost Product/Channel fit!

Why? Something changed within the last few quarters that caused your sales decline. It probably started before your first weak quarter, but given previous history of good results, you didn’t notice it. And then WHAM!, that disaster quarter hit. And now as you look ahead, the next couple of quarters look very much at risk.

And just to be clear, this is not typically caused by product quality or defects. Those would be noticed very quickly based on your customer support cases. And this is not a case of a poor prospect funnel. You would have noticed that very quickly as well. Nope, from those two perspectives (product quality and lead generation), the world looks rosy.

So what are some reasons for loss of Product/Channel fit? In short, Sales teams have something better to sell and aren’t focusing on your product. e.g.

• Your company released a new version of a big product and all the corporate (and sales) mindshare is focusing on that
• There’s a mega-trend happening in the market (e.g. Cloud, Mobile, Social etc.) and your product doesn’t fit well in one of those, so it’s not considered “sexy”
• Your company acquired a hot company a few quarters back, and now that the sales teams are all ramped up on its products, their focus is there and not on your product
• While customer demand for your product is still strong, the market segment it’s in is commoditizing. The increased price pressure is a big disincentive for your sales teams
• While there is demand for your product from potential users, the value proposition is no longer considered strong enough by management or the buyers and your sales teams are focusing on other “higher value” products
• Your startup was bought by a larger company (hooray!), but now, your product is just one of a portfolio of products and once the honeymoon ended, the large sales force of your new employer left you for the next “big thing”
• Your channel partners are now getting much better margins from an upstart competitor who suddenly seems to be getting traction

There are lots of reasons for losing product/channel fit, but in most cases, you can, very quickly do the research to understand where the problems lie and propose remedies.

Regaining Product/Channel fit

Once you realize you’ve lot the fit, the step is to find out exactly what happened. And the best people to talk to are people in your sales teams. But do some analysis first. Look to see who is having success with your product. Talk to them first, and understand why. Are they just better informed about your product? Do they position it better? Are they selling it in conjunction with other products? Are there specific verticals or geographies or usage scenarios that help them succeed?

Learn their secrets first, so that you are well armed with success stories, and then talk to those who are struggling with or are not selling your product at all. Talk to them and find out why. For those struggling, is it an education issue, or is it something related to territory? Or are the simply not very good sales people?

And for those who are not selling your product, find out why? Is it not worth their time, or do they not understand it? Maybe they are newer to the company and were not part of the sales training you did for your product.

Next do the same with some channel partners if you sell with an indirect model. Their reasons for success or lack of it may be different than those of your direct sales teams.

Finally, if you don’t do it already, (and many of us don’t), conduct some Win/Loss analysis on customers from the last few quarters. It’s important to do both Win and Loss (and not just Loss) because reasons for winning are not always as cut and dried as you might expect. i.e. it’s not always because the product is fabulous and it delivers tremendous value and will help the customer be successful.

I guarantee that you’ll learn as much from the Win discussions as you will from the Loss discussions.

As you speak to these people, make sure you probe into specific areas such as pricing, positioning, value proposition, economic and budget realities etc. Look for patterns across the discussions. Pull out the little nuggets of insight that can help re-position or re-price or re-define the value proposition.

Once you’ve collected the data and identified the root cause(s), devise a plan to remedy the situation.

If, for example, a reason for decline in your product sales is due to the sales teams focusing on a new (released or acquired) major product, see if there an attach strategy you can use to ride the train of that major product and be pulled along as part of the deal. i.e. show them how they can “upsize” their deals by adding your product in.

Maintaining Product/Channel fit

Once you’ve regained Product/Channel fit, put some on going activities into place to ensure it doesn’t happen again.

Look at the activities you performed to regain the fit — the conversations you had, the analysis you did etc. Maintaining Product/Channel fit is simply taking those activities and performing them continuously, good quarter or bad.

Here are some suggestions to follow. Every quarter:

• Regularly validate and revalidate that the sales teams understand the high-value usage scenarios of your product, are positioning it properly, and are speaking to the right people within the prospects’ organizations.
• Around mid-quarter, contact a few sales reps with opportunities that will likely close that quarter and have a short conversation about the opportunities. Listen to them describe the prospects, the use cases, how they positioned the product etc. and ask them about any challenges they see in closing the business that quarter.
• If your company holds QBRs (Quarter Business Reviews), make sure you attend them. Try to get on the agenda (even 15-30 minutes is a helpful) to discuss your product, opportunities, challenges etc. That face-time with the sales teams is invaluable
• Monitor the “No Opp” ratio of opportunities of your product in your SFA system. This is the ratio of valid opportunities that eventually are  changed to No Opportunity (or equivalent) by the sales team. If the ratio is growing or is significantly larger than other products, you may have a problem
• Monitor the overall time to close for opportunities. i.e. the time from when the opportunity was verified/qualified until it closed (Win/Loss/No Opp). If you see anomalies compared to other products, investigate and find the root cause
• Keep in regular contact with Sales Consultants and listen to their input about your product. SCs will give very honest and valuable feedback about why your product is not succeeding.

There are many other activities you could do to maintain Product/Channel fit. The objective though is to have an ongoing communication process with your sales channels, identify potential problems early and enact remedies when the problems are small.

To paraphrase a famous quote — continuous vigilance is the price of product success.

Saeed

P.S. As much as things like product features, requirements, working with Engineering etc. are the center of a lot of discussion on what Product Managers do, it’s this kind of work — ensuring product alignment with sales channels  via pricing and win/loss analysis, repositioning  etc. — that  is where PMs can deliver the significant value and impact product success the most.

Tweet this: How to achieve, lose, regain and maintain Product/Channel fit. http://wp.me/pXBON-2PG #prodmgmt #sales #leadership – click here

Related posts:

1. Your most important customer is your sales channel
2. Guest Post: Managing Channel Conflict through a Derivative Strategy
3. How to LOSE customers!
4. The Origins of Product Management (part 1)

by Saeed Khan

Last week, I discussed Go-to-Market and Organizational Metrics. This week I’m going to discuss Product metrics. And while the title of this post sounds somewhat repetitive, as seen in previous articles Product metrics are simply one category that need to be tracked as part of a holistic view of “the product”.

BTW, if you haven’t read the first article in this series, you can read it here: A Model and Metrics for Tracking Product Success.

As mentioned in that article, when thinking about metrics, most people think about the Product first, and for obvious reasons. It’s the focus of the business, and is the most visible and tangible outcome of everyone’s efforts.

And when thinking about Product metrics, the mind most likely turns to the common metrics related to bugs, escalations, etc.  All of these are useful, but not as primary measures for product success. Product success needs to be viewed from a higher perspective.

I look at the following list as key areas when tracking product success:

• Strategy
• Roadmap
• Capabilities
• Gaps
• Quality

Keeping abreast of these categories will provide a clear picture of the state of the product over time.

Strategy

Strategy can be a nebulous topic. And while defining product strategy is beyond the scope of this post, there are questions that can be asked to help identify whether the strategy is a good one.

Here are a few of them.

• Is the overall strategy to be market leader or fast follower or something else?
• Is there even a clear product strategy at all?
• Is it to sell into an existing customer base, or to acquire new customers?
• Is the product targeting a specific niche or problem space?
• Have changing market conditions (e.g. new entrants in the market, price pressures, regulatory changes, market awareness etc.) impacted the effectiveness of the strategy?
• What threats (if any) are known that may impact the strategy?

There are likely many other questions that should be asked, but the overall assessment of them will give an measure of how relevant and potentially effective the strategy is.

Roadmap

Ah yes, everyone’s favourite topic.  The roadmap ties directly into the product strategy. In short the roadmap is an articulation of that strategy.  A well defined strategy enables a clear roadmap.  And with a poorly defined strategy, the rule “garbage in, garbage out” takes effect. Regardless, it’s important to think through the roadmap, using the overall strategy as a guide, and assess how well that plan fit in with overall business goals and directions.

Capabilities

This is an honest assessment of what the product can do. Where are the strengths and weaknesses, and where the risks lie in those capabilities. Are there functional areas where competitors consistently win over your product or that customers/prospects say are missing?

Gaps

Gaps are called out explicitly because these are areas  that need specific additional investment. And the question really is how much investment, in what time frame, and what is the resultant business impact of making those changes? One word of caution when thinking about product gaps. It’s very easy to fixate on these above other product aspects, such as product strengths. How often have we all heard someone say, “I must have this feature.” or “Without this new feature, we won’t be able to compete.” In how many cases are those statements 100% true?

Monitor and manage product gaps, but view them as one area of focus that doesn’t disproportionately outweigh all others.

Quality

This is something that most product managers are familiar with, having sat in on bug triage sessions, been involved in customer case escalations, or simply hearing about quality issues first hand in customer conversation. Nothing irritates customers more than poor quality products, particularly ones they’ve paid for. And they won’t be shy about telling you about those problems.

This is one category where a deep analytic assessment is possible, and that should factor into how quality is measured. i.e. consider measures such as new customer reported bugs,  bugs addressed, severity of bugs reported, # of customers reporting bugs etc. All of these can be looked at over time to see if the problems are increasing or decreasing. Based on this assessment, additional investigation into specific problem areas can be conducted.

Putting it all together

As I did for other posts in this series, the following is an example of how these categories can be rendered for easy interpretation.

Other categories

Depending on the product, market and strategy, there may be other product categories to consider, so look at your product and objectives and decide what is important to measure and track.

Overall, the goal of these metrics should be to provide a holistic, yet easy to understand view of important product and business areas, with potential problems or shortcomings clearly visible for discussion and further analysis.

Saeed

Tweet this: @saeedwkhan Product related metrics for Product success http://wp.me/pXBON-2uj #prodmgmt #innovation

Related posts:

1. A Model and Metrics for Tracking Product Success
2. Defining Business-Oriented Metrics for Tracking Product Success
3. Go-to-Market and Organizational Metrics for Product Success
4. Product Management Metrics (part 2a)

by Saeed Khan

This article was originally posted back in 2009, but is a good reminder of the business aspect of product management.

There 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

Why 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

Tweet this: @onpm Why it’s important to think about revenue models right from the start http://wp.me/pXBON-2u6 #prodmgmt #innovation

Related posts:

1. 5 benefits in thinking about revenue models right from the start
2. Worth Repeating: The Benefits of Focus
3. Worth Repeating: How to be a GREAT Product Manager
4. Worth Repeating: Do Product Managers need Domain Knowledge?

by Saeed Khan

Last week, I wrote about a Model and Metrics for Track Product Success.

Just to recap, there are 4 major areas I defined for tracking product metrics. These categories are:

1. Business
2. Go-to-Market
3. Organizational Readiness
4. Product

This week, I’m going to discuss how to define business-oriented metrics, and provide a simple way to track and report them.

What exactly is a “metric”?

The word “metric” is a bit of an ambiguous term. The dictionary definition doesn’t really help. The best general definition is:

n. a standard of measurement. A system of related measures that facilitates the quantification of some particular characteristic.

What we really want is a definition of a business metric.

n. A business metric is any type of measurement used to gauge some quantifiable component of a company’s performance.

Note, that even this definition covers a lot of ground. i.e. “any type of measurement”, and “some quantifiable component”.

3 rules for defining metrics

Metrics are only valuable if they either provide insight into an important aspect of your product, or are a leading indicator of potential problems ahead. Here are a few rules to help define useful metrics.

1. Define metrics to align with key goals and objectives for your product. e.g. obvious business goals relate to sales or customer acquisition.
2. Ensure that you can put programs in place to change those metrics if needed. i.e. there’s no point in tracking something if you can’t impact it in a meaningful way
3. The actual metrics will be a combination of numeric values, as well as empirical evaluations of important situations.

And now for an example

The following is an example of some key business metrics for an early stage product. For this example, it is an enterprise software product that has been on the market for about 1 year and is starting to build traction in it’s target customer base.

The status (traffic light model) and comments are all that is needed for someone to get a clear understanding of the business state of that product.

The next obvious question for the yellow and red metrics is “Why?”

For example, why is the Deal Pipeline low? Is it lack of lead generation activities, or has there been proper follow up on generated leads to convert them into opportunities? Is it a lead quality issue? Or something else?

Other common questions are “How” or “When”?

For example, for the Channels/Resellers metric, although they are currently waiting for more traction, how much more traction is needed or when will there be enough traction to get the resellers interested? And then what is the plan to enable them?

The objective is to provide some clarity for tracking, evaluation, analysis and action for the product on a regular basis. This is a core aspect of product MANAGEMENT.

Next time, I’ll look at Go-to-Market and Organizational Readiness metrics.

Let me know what you think.

Saeed

Tweet this: @saeedwkhan Defining Business-Oriented metrics for Tracking Product Success http://wp.me/pXBON-2qb #prodmgmt

Related posts:

1. A Model and Metrics for Tracking Product Success
2. Product Metrics for Product Success
3. Go-to-Market and Organizational Metrics for Product Success
4. Product Management Metrics (part 2a)

Tweet this: New post @OnPM: “The discounter and the price leader” by @AWArmstrong http://wp.me/pXBON-2mq #prodmgmt #sales #negotiation #strategy #price

By Alan Armstrong

On Monday I met with two companies with very different approaches to price and margin. One company’s sales team said:

“one of our strengths is that we are so flexible on price.”

They view it as a differentiator that they are willing to get the business at almost any price.

The other company has a list price that is clearly higher than their competitors, and they will not discount. Period. In fact they agree to “most favored nation” clauses with some customers and partners that prevent them from discounting with other customers and partners.

Now, lest we prematurely dump all over Company #1, there really CAN be an argument for both strategies. Company #1, the discounter, is using price to capture market share, and if they are the low cost provider, that is a legitimate strategy. However I know a little about their business, and I suspect that increasing margin would actually be very good for them. (As a SaaS company, they have significant COGS, and sacrificing on price can destroy the gross margin. Which is usually very bad. But not always!)

Further, I believe they could significantly increase their margin. To do that they will need to identify differentiators that their buyers care about. (So many tech companies describe differentiators that fly right past their buyers. The only differentiators that matter are the ones that help your buyers in significant ways.)

But more interesting was the meeting with the price leader. This company trains its reps from the day they sign on that they simply may not discount. Every rep from their company knows it, and they just do not have that discussion with their clients.

Sound unrealistic? Let me tell you a story from one of the deals we just discussed.

The set up: Products look the same to the decision maker

Sue, the Chief Medical Officer, has two one-hour meetings to review offerings from two competing companies. In the room are 20-25 of her colleagues from hospitals across the medical system. She concludes that the products are roughly the same. However, Company B (our competitor) has a product that the doctors like and is less expensive over 5 years. The decision is easy for her: We’ll go with Company B.

Company A doesn’t give up that easily. Working with champions internally, they suggest that to really understand the differences, the hospital needs to spend more time with each vendor. It’s not the products that matter so much, it’s the engagement model. The hospital agrees. However, when they agree to spend this time, they tell Company A that they can only do so if Company A will discount. Company A’s price is $190, and the buyer is asking for $150.

And so the stage is set for negotiations.

Company A has a policy to never discount. They are so committed to this policy that they have entered into legal agreements preventing them from giving new customers a better price than some of their existing customers. There may be other more colorful words for such behavior, but we will call it “confidence”. We like this behavior very much.

Company A goes into their corner to discuss. They decide that this customer has two things that they really want.

First, they are moving to a new platform that Company A wants to test out, so they would be an ideal beta site. Having this client as a beta site is worth something to Company A and requires resources from the customer, so there is a real flow of value to Company A.

Second, this customer has just been acquired by a large medical system. The medical system represents about 15 other hospitals, all who will need Company A’s product or one like it. The medical system is evaluating but moving very slowly. A foothold in this hospital represents a “beach head” that could set up an incumbent status across the other hospitals. This has value.

Furthermore, Company A knows that if it sells to the whole hospital system, the price to this one hospital would be more like $120, so $150 would be a good price anyway.

With this positioning in mind, Company A enters the negotiation (seller):

Seller: We have discussed your situation, and are prepared to consider your request for a lower price. However, before we can do so, we will need something from you in return.

Buyer: What did you have in mind?

Seller: You are on the new platform, and we would like you to be a beta tester for our integration with that platform. There are certain requirements about being involved in feedback sessions, reporting bugs that you find, and sometimes you will run into bugs and have to work around them. We will of course support you very closely as you do this.

Buyer: I think we would consider that.

Seller: Also we would like to showcase your implementation to the wider hospital system that just acquired you. This would mean writing up your experience into a sort of case study, and having you speak on our behalf to the CMOs in other hospitals.

Buyer: (After checking internally) Yes, we could consider that.

Seller: In that case, we would be willing to give you the product for $140. (Which was below the request of $150, but above the bulk price of $120 and above the competitors price which we think is about $125-135.)

This allowed them to get to the next step, which was the day-long proof of concept.

Second try: Differentiate or die!

In that meeting, Company A brought in experts who guided the evaluation team through a set of fairly complex decisions and actions. This was expertise not offered by the competitor, and not understood by the CMO in the 1-hour product demos. Company A had suddenly differentiated its offering, not based on its product, but by giving its customer confidence in achieving the customer’s goal based on the hand-holding from Company A.

Post-game analysis

Company A won the deal. The negotiation and selling work in this example is text book. The only thing I would improve is to somehow communicate this value in the initial 1-hour presentation to avoid all the later expensive negotiation. While this is textbook sales and negotiation strategy, I don’t see this behavior very often in a sales rep much less a whole sales team. I’ve interviewed about 250 B2B buyers in the past 2.5 years, and it is much more common to just discount our way to the deal. Such practice is cultural and can be very hard to change.

To change this behavior requires two things:

1. Most important, it requires a culture like the one demonstrated by Company A.
2. Negotiation skills and courage on the part of the sales reps. The second part is fairly straightforward and can be learned. But the first part (culture) comes from the top. Your company’s approach to price and discounting becomes like a fingerprint that everyone recognizes and expects.

As I said at the outset here, it is perfectly legitimate to be the “low cost provider” if that is in fact your strategy. Michael Porter describes this as one of the three distinct strategic positions in a market. But beware. If this is not really your strategy, discounting is a costly path, and hard to reverse.

Here’s how you can help the sales team

Product Managers and Marketers can help avoid discounts in one specific way: Study differentiation from the perspective of your buyers. Interview your wins, not just your losses. You wins will tell you what set you apart, and once you hear it enough times you can replicate it and improve your messaging across all engagements.

Good luck and send me your comments! (Email me)

Tweet this: New post @OnPM: “The discounter and the price leader” by @AWArmstrong http://wp.me/pXBON-2mq #prodmgmt #sales #negotiation #strategy #price

Related posts:

1. Who's in charge of price? (Hint: It's the person who speaks with the buyer.)
2. Your price is (probably) not the problem
3. The price is never right
4. Becoming a Triple Threat Product Leader

NOTE: The following is a guest post from Laurie Peterson. If you want to submit your own guest post, click here for more information.

In business school they teach us to set prices by plotting the demand curve and then choosing an output level and price where your marginal costs are equal to your marginal revenue in order to achieve profit maximization. HUH?

I should have lost you at “demand curve” because in real life nobody has detailed enough data to create this sort of graph (Amazon is an exception).

So if micro-economics is letting us down, what can we turn to instead to guide our price setting?

Answer: our customers’ EMOTIONS!

Below I’ve highlighted a handful of consumer behaviors and related price setting tactics. I was lucky to learn from the best: world renown Pricing Professor Teck Ho. I am happy to pass along a few tidbits of his wisdom.

1. Your customer uses reference pricing to determine if they are getting a good deal

How your customer values your product is relative to the products they consider to be similar.

For example, tonight I was trying to book a couple of airline flights, departing from San Francisco. One flight was going to Las Vegas, and the other to Los Angeles. The trip to Vegas was going to cost me $200 more, so I didn’t book it. Why? Because it didn’t seem fair that the price was so much higher than the one to L.A.

Even though I value the trip to Vegas more, (who wouldn’t? Vegas, baby!) I can’t stomach paying more because the service provided seems about the same. My reference price is similar products currently available (other flights, like the one to L.A.) and my past experience with this product’s pricing (I’ve had lower fares on past trips).

Even though it’s perfectly rational for the airline to charge more for Vegas based on the demand, my emotions tell me, “Don’t book. You are not getting a fair deal!”

What this means for product managers is that you should identify what products/services your customers consider to be references. You can try to influence this (like generics do by placing themselves right next to the branded version in the grocery store isles), but ultimately you need to listen to your customer to determine who your references are.

Next, calculate the additional (or negative) economic value you provide to your customer compared to those references. For example, if the flight to Vegas was twice as long as the flight to L.A. I could justify paying a higher price because it’s taking me twice as far.

2. If you do too many price promotions customers will only buy when you have a sale

If you are a frequent shopper at Macy’s like I am, than you know this to be true. Macy’s has so many great sales you would have to be a moron or independently wealthy not to wait to shop during one.

This relates back to reference prices. It’s not just your competitor who is setting them. By discounting your product you may be setting a new reference price that is lower than your full list price.

If you are having a sale, be sure to present higher alternative prices alongside the actual selling price. Or, display your regular item alongside a more expensive item to create a higher frame of reference.

3. For some goods, price = quality

There are some goods that you have to experience in order to place a value on them. For example, you can’t read the ingredients on a perfume bottle and know if it is going to smell good, attract a date for Saturday night, and not result in hives.

For these “experiential” products, consumers use price as an indication of quality. The higher the price, the better the quality. If your product falls into this category you may actually hurt your sales, and reputation, by pricing too low.

4. Sometimes, $100 doesn’t equal $100

The mind is tricky. A $100 discount on an iPod touch seems like an AMAZING deal! But give me that same $100 discount on a Toyota Corolla and I will be less than impressed. When a customer evaluates markdowns it’s in relative percentage terms based on the overall ticket price, rather than absolute dollars.

This works the other way around as well, for price increases. For example, upgrades on cars are more likely when ticket price is high: “sure, throw it in!”

Similarly, if you are in the B2B world, consider how much your product or service costs relative to your customer’s overall buy. If it’s a small percentage of the overall buy the customer will be less price sensitive.

5. It’s hard to raise prices, but if you do, make sure your costs have increased as well

Customers can be influenced to believe a price increase is “fair” if it is known that your cost of goods have increased (publicize your cost increases). As an example, just recently the chocolate maker Hershey’s stated it was raising prices by about 10% across the board, due to price increases in raw materials, fuel, transportation costs etc.

6. Odd is best, unless your product is the best

$24.99 is perceived as MUCH more affordable than $25. But don’t use this tactic for high quality image products where price is an indication of quality. It will make your product look cheap. You’ll never find Louis Vuitton selling their own handbags for $749.99.

7. The middle of the road is the safest

If given a choice of 3 service options, customers will often choose the one priced in the middle. For example, if a car wash offers three service levels, most people will choose the mid priced one. The least expensive one seems like you are missing out on key washing services, and the highest one seems like you might overpay. The one in the middle feels just right…

Consider if you can increase upsells by adding something expensive to your product line, even if you never sell it.

Tweet this: @onpm Your customer is only human – 7 Emotional Pricing Tactics #prodmgmt #prodmktg #pricing #sales

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Laurie Peterson is an award winning product manager for interactive consumer products and websites. She is graduating from Haas School of Business in May of 2011. Check out Laurie’s product management tips and tricks at sfgirl.us/blog

Related posts:

1. Guest Post: Know thy Customer – How to Segment your Market
2. Guest Post: Voice of the Market vs. Voice of the Customer
3. Subscription Pricing vs. Enterprise Pricing
4. Guest Post: How to Productize a Service for Enterprise Customers

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

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

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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 20^th 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?

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:

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:

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

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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.

Related posts:

1. Guest Post: Your Customer is Only Human – 7 Emotional Pricing Tactics
2. Guest Post: 8 Important Points about Marketing Strategy
3. Guest Post: How to Productize a Service for Enterprise Customers
4. How to achieve, lose, regain and maintain Product/Channel fit

By Saeed Khan

In December, I asked you to provide some input and help influence our content this year.

There were several reasons for this, which I’ll get to shortly.

But as a bit of an aside, one thing that did surprise me (and I  know it’s just coincidence but…), shortly after posting my request, I saw a blog post by Steve Johnson, entitled Most Annoying Blog Posts: 2011.

In it, Steve lists several bullets with descriptions of what he considers annoying blog posts.

It’s almost 2011 and many bloggers will start the year with their resolutions including:

• I haven’t been blogging lately but will post more often in 2011
• What I plan to blog about in 2011
• What do you want me to blog about in 2011?
• I’ll have a new look in 2011

Who cares?

Ouch! Bullets 2 and 3  (which I italicised) look almost exactly like what I did and planned to do.

But I do half-agree with Steve. If you tell people what you’re going to do, without asking them, then what’s the point? Similarly, if you ask them for input, but never share it, that’s quite annoying. But I asked, and now I’m sharing. And you know, sharing is caring, so how could that be annoying?

As I mentioned there were a few reasons for asking for your input.

1. Blog readership has grown a lot over the past year. I’ve been posting what I thought were relevant and interesting posts (most of the time I hope), but I have no idea how relevant and interesting it is to you — the readers.
2. Recently, Jim Holland and Prabhakar Gopalan have joined the blog as regular contributors. They bring their knowledge and experience and equally important, their bandwidth to blog on relevant topics.
3. It was the end of the year and what better time to ask for input about what to do in the coming year.

OK…enough with the preamble, here’s what you told us and some feedback about your comments.

1. Who are you?

Not surprisingly, a large majority of respondents were product managers, but, some of you were also in product marketing, Sr. Management, Project Management and Product Evangelism.

There was a good mix of experience with almost an even split around the 5 years of experience mark.

2. What do you want us to write about?

I took the responses — the answers were open text and not predetermined choices — and categorized them into a number of buckets. Here are the categories (in priority order) along with some of the actual responses.

Best Practices

• Prioritization vs Portfolio Management
• Feature prioritization
• Analyzing the market
• How to engage with customers
• Business models

Organizational issues

• Improving the acceptance of the discipline of Product Management
• Working in large orgs: how to lead by influence
• Need for HR skills in leaders of PM groups
• Advocating (show hard value) for PM within the organization
• Managing Product Management teams

Career information

• Managing Product Management burnout
• How to move into Product Management
• How to have a successful career path in Product Management
• Tips for new Product Managers

Strategy

• Product strategy and portfolio management
• Separating product strategy from technical product management
• Linking strategy to action

Pricing

• Pricing and Licensing models
• Pricing strategy
• Managing pricing changes

Product Management in other industries

• Retail
• Consumer goods
• Finance

3. Some of your comments

There were some very good comments that were shared. Here are a few, summarized for brevity.

• More practical advice. Everybody loves practical advice
• Real-life  product management cases studies highlighting challenges from both strategic and tactical perspective
• Advice column for Product Managers
• War stories..lessons learned along the way

There were other comments but they fell along similar lines. And finally one comment that deserves a response:

• As I work in a Scrum environment, I was surprised to see you announcing the last chance to influence what you will write for the whole next year. I would envision that as an ongoing effort

Good point. My response is that there’s nothing like a compelling event (or a sense of urgency) to get people to do something you need them to do. But, your ideas and input are welcome anytime of year.  Just use the Contact Us page and tell us what’s on your mind.

Also, we’re always looking for people who want to submit a guest post on a topic of interest? Do you have something you want to share? Please lets us know.

So there it is. Thanks for your input. Keep providing it whenever you see fit, and we’ll put some more content focus on these topics.

Saeed

Related posts:

1. Canada’s Innovation Gap (part 1)
2. Canada’s Innovation Gap (part 2)
3. Innovation Lessons from Scott Cook
4. Product Management Metrics (part 2)