There are basically two kinds of software companies. One provides as complete a solution as possible (a product) and the other is essentially a services company that combines some software that requires services to complete the solution. Sometimes this is referred to as a 70% Solution. The two approaches can be profitable. The big differences between the two approaches are operational business models, the ease of growing, and margin.
With a complete solution, the strategy is to identify a problem or need, and build a complete software solution that requires very little dependency on additional services to make the solution complete for a market of buyers. Ideally no services are needed.
With a 70% solution, the strategy is for the software to be a tool that drives services revenue. The software needs to be complete enough in the buyer’s eyes, but still require services to take it from a 70% solution to a 100% solution.
With a complete solution, needs are identified through market sensing activities. Needs are identified, clarified, validated, and quantified. Then the solution is created. Every capability built into the solution is evaluated on the basis that it satisfies a broader market need.
With a 70% solution, needs are driven by sales opportunities. Each sales opportunity is likely to have unique requirements. Some are handled in the field by the services team. Others require development effort to add features to the software. Every capability built into the software is evaluated on whether it can satisfy one customer’s needs.
With a complete solution, the development team builds software that ensures it can scale to a large customer base and is supportable without the need of a field services team.
With a 70% solution, the development team has license to take shortcuts knowing there is a services team in the field that can take the ball from the 30 yard line and carry it into the end zone (apologies for the American Football reference… please substitute your sports metaphor).
Here’s where complexity and technical debt begin to creep in. With a 70% solution, field customization of the delivered solution is inevitable in order to satisfy the needs of individual customers. Strict standards and guidelines can be instituted to ensure that field-initiated customization is contained. This – hopefully – should make it easier to upgrade customers to future versions of the software. But when under pressure in the field to deliver a solution to a customer where revenue is on the line, sometimes guidelines and standards are ignored.
Over time field customization becomes a significant technical challenge for the development team. In an effort to keep all customers happy, innovation is gradually compromised as every incremental improvement must be scrutinized to have the least amount of negative impact.
Scaling the Business
The challenge with the 70% Solution for software is scaling the business.
The 70% Solution requires adding people (labor) to grow revenue. People are needed to deliver the final 30%. There is a one-to-one relationship with revenue and labor.
With a software product scaling is easier. More people may be needed but the one-to-one relationship between labor and revenue doesn’t exist. There is less constraint to growth while at a much higher margin. It’s one of the key drivers why the software business so appealing.
Making the Transition
If you are in a business that wants to make the transition from a 70% Solution to a complete product, you will face interesting challenges. Some will be easy, and some not so easy. In a future blog post I’ll explore some of the challenges you should expect to experience, resistance you’ll encounter, and what you should do to ease the transition.
Successful products have something in common. They satisfy a need. They do a few things exceedingly well. People like them so much they tell others.
We often think that a successful product starts with an idea. An idea so amazing it will change everything. But the idea is just the spark. The spark begins to smolder after we start having a conversation. A conversation with real people, in a real market, with real needs.
As we interact with the market and learn, the smolder becomes a flame. We learn more. We refine. We get more feedback. We discover which fuel makes the flame grow. The flame grows to become a forest fire. Nothing can put it out now.
Without a conversation, the spark is vulnerable. Just a little rain and it’s snuffed out.
Get out of your office. Have a conversation. Don’t let your idea become vulnerable. Build a fire that’s unstoppable.
It’s a new year. The first quarter is a time for launching new products and expectations are high. Launching a product successfully is hard work. And what I mean by ‘successful’ is that it meets or exceed goals that have been defined for a successful launch. The launch goal could be revenue, it could be market share, it could be changing perception in the market about your company.
A successful product launch could be a game changer for the company and for you. Often (as in 95% of product launches fail) we discover the launch problem after it’s introduced to the market. In our eagerness to get to market quickly, shortcuts are taken. In some cases shortcuts that shouldn’t be taken.
Cosmopolitan magazine regularly has a quiz to help their readers sort out important life issues like “Is he cheating on me?”. I thought we could borrow the quiz approach and apply it to launching products to see how prepared you are for your next product launch.
Each of the questions in the quiz is designed to help you think through a product launch across the entire spectrum of new product introduction. Each question has a score from 1 to 5. 1 is the lowest and 5 the highest. Give some thought to each question before answering. Look at each answer and choose the one that best matches your current situation. At the end of the quiz we’ll add up your score to see how you did. Good luck!
How important is the need the product addresses?
- We’re not really sure but at the Powerpoint level it’s very compelling.
- Our Sales Team said if we built it they could sell tons of it.
- I read an article/industry analyst write-up that described how big the problem is/is going to be.
- There is clear evidence of an active and vibrant market buying now.
- There is a huge demand and we’ve validated it with market research.
How large is the population of buyers that want to address the need right now?
- We’ve spoken with one customer and they liked it. We assumed everybody needs it too.
- We have a new person we hired with a lot of experience in this area and he says that the population of potential buyers is huge.
- We are using industry analyst projections on the size of the market.
- Preliminary market research has indicated the market is large. We haven’t validated this research but there is enough evidence to believe it’s large enough to make it worthwhile.
- The population is humongous and demand is growing. Too big to get my head around. We’ve validated the market size through market research.
How well defined is the target market segment for this product launch?
- We expect the marketing team to figure this out for us.
- We have a sales team that sells into a target market now. That’s a good start, right?
- An executive who formerly worked in this industry assures us she can provide all the information we need about where to focus.
- We stumbled across a need in what appears to be a good target market and have observed a pattern after visiting a few customers.
- Over the entire population of potential buyers, we’ve identified a target market segment that has the highest need, and we’ve validated it with market research.
Was this product designed for a single customer or for a market of buyers?
- Our development team built it on their own and now the company expects us to launch it.
- We designed it for a big customer with lots of money to spend.
- We spoke with the sales team and they gave us a list of the most important features.
- We met with a few of our best customers. They love the idea and have given us a set of requirements.
- We designed it for a market of buyers to address a specific set of needs. We’re only adding features which we would be the most useful for the most buyers to fill a broad need.
How well do you know the buyers for this product?
- Why should we worry about this? Isn’t this something our sales team will do?
- We spoke to Bob, he’s our best customer. Every buyer is just like Bob.
- We met with an industry analyst and she told us everything we need to know about the buyers.
- We’ve met with some contacts from a few of our customers and from that experience we think we know who the buyers are for this product.
- We’ve conducted market research to understand who will be involved in making a buying decision for our product. No research is perfect but we believe we have a really good understanding of how this product will be bought.
How well do you know how buyers in the target market segment will make a buying decision?
- The product is so awesome it will sell itself. Duh.
- We’ll let the sales team figure that out. Not our job.
- We hired some new salespeople from a competitor that’s already selling into this market. They’ve shared their experience with us.
- We’ve met with 6 of our customers and from that interaction we think we know how a buying decision is made.
- We’ve conducted market research to understand how people making a buying decision. Not only do we know who is involved, but we when they get involved, what information they need, and what they care most about.
How did you do? Add up the score from each question to get your total. The max you can get is 30.
If you scored a 30, congratulations! You’ve identified a need and validated that it is worthwhile from a business standpoint. You’ve built a product that addresses the essential needs of a target market segment. You know the buyers and how they buy. You are focused. You’ve done the work to minimize business risk. Great job.
If you scored less than 30, don’t panic, but take notice. For every point below 30 there is an increase in business risk. The less market evidence available for making a business decision, the higher the likelihood of failure.
Notice the sequencing of the answers. An answer of 5 is always validated with research. An answer of 1 means you have no data, no facts (you are ‘winging it’). In between is a spectrum of insight, gradually increasing. The more you know, the lower the risk.
Let me know what you think about the quiz! What was your score?
- Are salespeople the right resource in the booth?
- Trade shows set the stage for mismatched expectations
- If not salespeople working the booth, then who?
If salespeople should work the trade show booth is one of the questions that comes up frequently when I’m teaching classes for Pragmatic Marketing. The ensuing discussion can get really interesting and sometimes a little heated. It’s a question that begs further discussion given that it’s often the Sales Team that is driving the need for trade show attendance.
For many technology companies the number of trade shows in which they are exhibiting is down compared to previous years, but for the trade shows that they do participate in the need to show a return on investment is every bit as challenging.
In the early days of the technology industry, sales transactions could be conducted in a trade show booth. It was easy to justify the attendance at an event based on revenue.
Over time the ability to conduct sales transactions in the booth has been taken away. Even though this is the case for most trade shows today, there is still a sense from the Sales Team that it’s an opportunity to sell. This creates the perfect storm for a disconnect between what the Marketing Team is doing and what the Sales Team expects.
Today it’s not uncommon to measure the ‘success’ of a trade show investment based on the number of ‘leads’ generated. Most ‘leads’ aren’t really sales ready leads at all. They are swipes of attendees badges, often with little qualification other than a chance at winning the cool thing we were giving away.
The Marketing Team returns with a bucket full of badge swipes and proclaims the trade show a success, only to be chastised by the Sales Team as wasting their time and the company’s money.
Through the years trade shows have evolved into education and networking forums. Little selling is actually conducted. Attendees are scouts looking to learn about the next new thing and identify new options to solve business problems. Scouts may be influencers of an eventual sale but lack the authority to make buying decisions. Salespeople respond to this reality by indicating that there were not enough buyers to talk with (and therefore it was not a worthwhile investment).
From the scout’s perspective they want to learn, they are not ready to be sold. Too strong of a sales emphasis turns them off.
From the company’s perspective we need to consider the opportunity cost of dedicating sales resources to the trade show booth. A direct sales force is a big investment. Salespeople are valuable resources and we want them to focus on activities that provide the best return. Working in a trade show booth for two or three days resulting in few (if any) sales ready leads would not qualify as a good return.
We need to reorient our thinking around trade shows. Instead of measuring the success of a trade show on leads alone, it’s time to focus on educating and informing influencers, planting the seeds for future sales transactions. The more they view us as being helpful, the more likely they will turn to us for future consideration.
So if we don’t have salespeople in the trade show booth, then who should we consider as an alternative? You may be in an organization with a dedicated trade show team and the debate about having salespeople in the booth isn’t even an issue for you. If you don’t have a dedicated trade show team, then what? Here are some alternatives to consider.
Sales Engineers can be highly effective working a trade show. They have product knowledge and they are comfortable helping people learn about your products. SEs are often viewed as more approachable, especially to a technical audience.
Product Marketing Managers
For product marketing managers, working a trade show can result in important market insights. It gives them the opportunity to engage in discussions with a broader audience that can help with building buyer personas. It’s not uncommon for product marketing managers to pull booth duty but for some companies it may be overlooked as an underutilized resource for trade shows.
Have you considered having customers work your trade show? From a learning and sharing point of view it can be ideal. Scouts are talking with a real, live user of your product.
Consider that your company is already paying for people to work the trade show. You have customers that may have a desire to attend the trade show, but lack the budget to get approval to attend. Offer to host them, provided they spend time working in the booth. It’s a win-win situation.
Give them a different color shirt so they are easily identified to the team as a customer. Give them guidelines of what’s expected and who to grab if they need help. Then let the magic happen.
Also consider having a contest to award customer evangelists to work your trade show booth. It’s a great way to get a knowledgeable resource and someone who is passionate about your products in front of influencers. At the same time it’s a great way to acknowledge and reward the important contribution customer evangelists have on your company’s success.
Use product launch tiers to allocate launch resources
Prioritize launch resources based on business/market impact
Companies with large product portfolios can face a dizzying pace of product launches. Realistically, not every product update needs the resources of a full-blown product launch so we need a rational way to prioritize resources to more closely match business outcomes.
One method is to allocate launch resources by prioritizing product launches based on a combination of the impact on the market and the impact to the business. Products that are expected to have a larger impact, get more launch resources. Products with a lower impact, get fewer launch resources.
We can do this by establishing launch tiers: Tier 1, Tier 2, and Tier 3 launches.
The x axis represents market impact: how the product launch will impact the market.
The y axis represents business impact: how the product launch will impact the business.
Tier 1 product launches are the highest priority and are reserved for products that are expected to have the most impact. Tier 1 product launches are less frequent and have significant strategic impact. A Tier 1 product launch might include new product categories, introduce an acquisition, or represent a significant change to the business.
Examples would be the introduction of the Apple iPhone or HealthCare.gov.
Tier 2 product launches have mid-level priority and are reserved for products with less market and business impact than a Tier 1 product launch. While still important to the business it can be rationalized that fewer product launch resources are needed. Tier 2 product launches are for products with incremental improvements where we want to make some noise in the market, but not the big promotional effort reserved for a Tier 1 launch.
An example would be Apple iPhone 5S.
Tier 3 product launches have the lowest priority and are reserved for incremental releases where there isn’t sufficient business or market impact. Tier 3 product launches need minimal resources and would typically be incremental in nature, like a maintenance release of a product intended for an established customer base where the changes are minimal.
An example would be Apple IOS 8.1.
Discretion needs to be applied when determining launch priorities. Let’s say we are a SaaS-based company and are planning for future growth. We’ve decided to add instrumentation to our application to provide better customer support. The market impact is low and perhaps the business impact – today – is relatively low as well. We could rationalize a Tier 3 launch.
On the other hand, if our SaaS-based company is having a severe customer retention problem due to issues in the application that are difficult to identify, we may decide to add instrumentation to better identify problems to help reverse the churn. The market impact would be low and the business impact would be high. We could rationalize a Tier 1 launch in that case.
In both scenarios we’re adding instrumentation to the application (the same development effort) but for different business reasons.
In other words, a higher development effort does not automatically imply a higher launch priority. Market and business impact are they drivers that determine the launch priority, coupled with a dose of reality.
You’re working hard toward launching your next product. Your project plan is glorious. The deliverables are well defined. The activities are noted. The interdependencies are evident in the Gantt chart. You have the best people on your cross-functional product launch team. You are set. Or are you?
Do you and your team know what a successful product launch looks like? How will the success of the product launch be measured by the executive team?
If you can’t answers those questions you’re not alone. Many companies get so fixated on getting “stuff” done in support of a product launch, they lose sight of what’s really important: achieving business goals.
To start to nail your product launch goals you have to backtrack to what the business is trying to accomplish. Then you can identify metrics that are in support of those goals.
Maybe you’re introducing a new product. It’s a product that – naturally – the executive team expects to add to the top/bottom line of the business. Chances are they have a specific set of numbers in mind… add $3.2 million in incremental revenue… increase margin by 17%… increase the customer renewal rate from 78% to 85%… establish a beachhead in a new market segment by landing three bluechip customers.
What we have to do is get a clear understanding of the expectation of the product launch and then translate that into metrics that can be used to track product launch progress.
Let’s say you are introducing a new product to gain entry into a new market segment. The executive team is expecting $3.2 million in incremental revenue plus establish credibility in the market segment. What metrics could we use to track product launch progress? The obvious is revenue, but what if there is a long sales cycle? What if this is a risk-averse market segment that needs customer references?
In support of the revenue goal you could focus on growth in the pipeline. That is, are we driving interest in our new product to a level that gets participants in the market segment to engage and consider it as an answer to their problems. But you would also try to focus your energy on finding buyers that are representative of the new market segment that could also be good candidates for becoming customer references, which drive additional revenue in a risk-averse market segment AND provides evidence of a beachhead.
To avoid wasting product launch budget, you might consider keeping the initial product launch activities relatively low key until the early adopters become references. At a later time you could make a bigger marketing splash and tout your initial success with “launch customers”, providing an element of safety for the majority of buyers in the new market segment.
What are your launch goals?
“Art of War” is my favorite business book. It has everything we need to know to compete in the cut-throat world of technology. When it comes to competitive intelligence, “Art of War” is highly informative.
“Know the enemy and know yourself; in a hundred battles you will never be in peril.”
It is only one sentence but it contains so much knowledge. How does it apply to us, in a technology battlefield?
What weapons do we need to bring to the battle and how should we conduct ourselves for success?
Know the Enemy
Before entering into battle it is wise to have a thorough understanding of our enemy. What are his strengths? What are his weaknesses?
From a business perspective our enemy (competitor) has goals and has certain views about the market. He has plans for achieving those business goals, and those plans are set in motion. Our job is to figure all this out in advance, because the time to learn about our competition is not in heat of battle but beforehand when we can strategize and plan.
We want to be able to forecast how the competition will react in different circumstances, so we can find the shortest route to victory.
What are our strengths? What are our weaknesses? How do they stack up against our competition?
Our strengths should not be used to attack our competitor’s strengths, unless we have an overwhelming force. Our strengths should be used to attack our competitor’s weaknesses. Find the soft underbelly of our competition and attack that. Is there a market segment they are ignoring? Is there a gap in their product line? Is there something they are unwilling to do – regardless of the reasons why – that you can exploit.
“Now an army may be likened to water, for just as flowing water avoids the heights and hastens to the lowlands, so an army avoids strength and strikes weakness.”
Conduct War Games
Now that we’ve identified our competitor’s strengths and weaknesses, it’s time to play war games. Develop a set of attack plans targeting our competitor’s weaknesses. In each scenario, how will our competition react? What will they likely do? What won’t they do?
Evaluate each scenario based on the likelihood of winning the battle. We will find that some scenarios are more favorable than others. The goal is to identify the scenarios with the highest degree of success and focus there.
Some Battles are not Worth Fighting
How many times have you seen your salesforce get into competitive situations that they could never win, yet burn untold company resources trying?
Knowing our competition, knowing ourself, and simulating what might happen in a battle gives us the insight that some battles are worth fighting (and winning) and some are not. In some cases we should rally all our resources for victory and in others we should retreat.
Too often the request for help with a competitor comes after the battle has already started. The biggest lesson from Sun Tzu about knowing our competition is that we shouldn’t wait until the heat of battle to start to figure this out.
You have access to invisible leverage that could improve product launch success, but few tap into this valuable resource. They’re ‘invisible’ because we often overlook them yet they can have an important positive impact.
In the flurry of getting the deliverables ready and activities completed for launch, I’d like for you to stop for a moment. Think about all the points of leverage that you could tap into that are beyond the obvious: your customer support team, sales engineers/product specialists, finance, partners, training, customer evangelists; anyone or any group that has regular contact with your target market. How could you take advantage of this to make the next product launch better? By assembling your armada for the big invasion.
Your customer support team has daily contact with customers. You could leverage this daily contact to plant seeds of interest for new offerings. So if your launch goal includes getting your customer base to upgrade to a new version or to consider a new offering, the customer support team could be a great avenue to generate some excitement. How might we do that?
When the timing is appropriate we could brief the customer support team on the new offering. You don’t want to do this too early but at the same time if you wait too long you lose the leverage. You will be amazed at the creativity the customer support team will offer. You may have a specialized newsletter that is managed by customer support, there may be a special list for high-priority communication, or they may offer regular educational webinars.
Sales engineers have contact with customers and prospects. They regularly see, from the field, rough spots and pushback the new version may address. As the time approaches to launch we could cultivate a handful of evangelists within the sales engineering team to be internal resources. We could also leverage this group of evangelists to organize and deliver technically-oriented education about the new offering to the customer base.
Finance is often overlooked as an ally in launching products, but there are times when leveraging the Finance team makes a lot of sense. What if your new offering includes important changes to the way your product is licensed, which may impact what customers pay? We certainly want to educate the sales team/channel partners on this change but we also don’t want to overlook the people who are responsible for billing and collections. It may be beneficial to equip Finance with frequently asked questions (with responses) and ways to have a conversation with customers so they will better understand the implication of the change from a financial point of view.
What points of ‘invisible’ leverage do you have available to you today? Build a list of internal and external resources that have routine interaction with your target markets. Don’t hold back; think outside the box. After building the list go back through it and consider how each of these resources could be leveraged to improve launch effectiveness. If you run into a block and can’t figure out how they could possible help, reach out to them and get their insights. You will be pleasantly surprised.
A number of recent studies indicate that budgets for content marketing have increased significantly year over year. While this is certainly a good thing, I wonder if marketing teams will just spend a lot of money and have nothing to show for it at the end of the year. Or worse, take a perfectly good method and give it a bad name. This is particularly true of technology companies.
Technology companies are fond of talking about their products. They often lack the core skills needed for effective content creation. So they will continue to produce the same product-centric “let me tell you about me” content they’ve always delivered. Including all the hollow-calorie filler words they are fond of using (robust, state-of-the-art, extensible, best-in-class, world-class, flexible, scalable, [fill in the blank with your favorite]). They’ll just stuff it into a new set of ‘channels’.
It sets the stage for a flood of useless dribble that won’t excite buyers or drive interest.
Content needs to educate and inform. To shape opinions. To make buyers think differently about solving their problems. And to associate those things with your products and services. We need a different approach.
Hire journalists into your marketing team. People who have the skills needed to communicate effectively with an audience. Few technology companies have these skills in-house. It’s time to change that. If we are to become content creation and marketing machines we need to stop thinking about ‘speeds and feeds’ and start thinking like publishers. And we also need to stop talking about us and start talking about them.
Image: FreeDigitalPhotos.net by Stuart Miles
The most insightful information about what’s working and what’s not working, from a product marketing perspective, is found through Win/Loss Analysis. We learn about what needs to be fixed, we learn what to avoid, and we learn what to focus on to win more business. And if we win more, everyone is happier.
You can conclude that since Win/Loss Analysis is about selling, then our salespeople should be conducting this activity. Wrong. Bad idea. You won’t gain any new insights when salespeople conduct Win/Loss Analysis because the information will be filtered. Not maliciously, but nonetheless filtered. And a gentle reminder: the activity of Win/Loss Analysis is a market research activity not a selling activity.
So if insights gained from Win/Loss Analysis ultimately results in selling more stuff, why aren’t we doing more of it?
Fear that someone other than a salesperson will screw up a future deal.
Fear that information about a new product or new version will be disclosed and the buyer will question their decision.
Fear that some undesirable behavior by a salesperson will be uncovered.
Fear that a salesperson is incompetent.
And while your intentions of conducting Win/Loss Analysis are noble, fear is a powerful motivator to stop you from your pursuit. You are an outsider and your actions are treated with contempt. You have an agenda that must be stopped.
So how do we overcome fear?
Trust that the benefit to the sales team is they will sell more stuff.
Trust that you won’t screw up a future deal.
Trust that you are looking for patterns of success and failure across a range of transactions not focusing on any given transaction.
Trust that you won’t evaluate their personal performance.