Thanks to Steve, Jeff and Mike for their insight. You all make great points. I’m going to align with Jeff on the first step is to establish the goals for the product launch. Any tactics and strategy will suffice if there are no defined launch goals. The effort will be all over the map, not aligned with the goals of the business and waste a lot of money - all things where Marketing loses credibility with the management team.
Management Goals
Chen’s next step is to establish the goals for his product launch, but before he does he needs to meet with senior management to understand their primary goals for the year. After meeting with the CEO, VP Marketing and VP Sales, it’s determined that the management goals for the year are to increase revenue by 50%, improve customer retention from 70% to 80%, and to increase the awareness of Widget Software in the market by 10%. Improving revenue is the most important of the three goals.
So armed with the knowledge of management’s goals, Chen starts the educated guesswork (strategy) of establishing a revenue goal. Since there will only be new customers for Widgetizer, he can’t affect the customer retention goal. Since Widgetizer is new, the awareness of it is 0%.
No Sales History
Chen assembles a small team to arrive at a revenue number for Widgetizer. Robin, the product manager, forecasted $20M in revenue over 3 years in the Widgetizer business case. But before putting his reputation on the line, Chen wants to understand what it will take to sell Widgetizer. Since there is no previous sales history he works with a few sales guys he trusts and maps out a sales cycle. They also strategize on who is likely to be involved in the sale.
Prospect Interviews
Realizing there are large gaps in their guesswork, Chen collaborates with Robin and they begin the process of narrowing the gaps by interviewing 10 potential Widgetizer customers. They would like to interview more prospects but they don’t have the luxury of time. The goal of the interviews is to understand:
- The buying criteria
- The path to a buying decision (are there others involved that aren’t obvious?)
- The length and steps in the buying cycle
Knowing this information would be a solid starting point for developing a defendable revenue goal for Widgetizer. While some of this information was postulated by Robin in the product planning process, the type of detail that is needed now is around how to sell, not what should be in the product. It will be fundamental to training the sales team.
The Surprise
After the interviews Chen and Robin discover that the buying process and the people involved in the buying decision are different than the Widget Software team is accustomed to. This could cause a disconnect with the sales team and cause them to avoid selling Widgetizer. There were disconnects on three key dimensions:
- A different buyer is involved in the sale (VP Operations)
- A different price point (Widgetizer is priced higher than other products sold by Widget Software)
- A distinctly different sales cycle
The Revenue Goal
Based on a realization that there will be some significant sales training involved Chen establishes it as a significant risk factor in the success of the Widgetizer product launch. Chen and Robin agree that a first year revenue goal of $1M is reasonable and meets with the management team to make their recommendation, supported by their research and findings.
Your Turn
What will management say? Is the revenue goal far lower than expected? What kind of pushback will Chen receive?
July 30th, 2008 at 9:37 am
Chen may need to go back a step or two in order to better defend his revenue goals. Building buyer personnas is an important and worthwhile step after the interviews are conducted, to get a more general picture of the process, the mindset, buyer behaviors and needs. That step will then help to identify the primary and secondary market segments for which the Widgitizer is most attractive. From there, a complete market opportunity assessment should be conducted: how many of those buyers are available in the market? And what percentage of total market share is a reasonable target in year one, year two and beyond? Assessing reasonable market share means he also needs to conduct a competitive analysis to determine what alternatives are available, if there are any market leaders, and if he needs to develop a penetration strategy (buyers that do not previously have any solution) or a displacement strategy (buyers that already have a solution, but might be open to switching) — or a combination of both for various segments. Without the market and competitive assessments, Chen will likely have a hard time defending his goals.
July 30th, 2008 at 12:59 pm
So you asked for the management view:
Revenue is to grow by 50% and the company wants to launch a new product that requires a different sale, at a higher price point. Which, I am assuming this from the above, requires a longer sales cycle. Substantial investments to be made in customer retention programs (to go from 70 to 80%) and in general market awareness programs (to grow by 10%). Tough time for Chen - provided the company is not ready to invest. If he made that assumption he either provides a realistic view or he is not ready to aim for more.
Given that this is a 30m$ business, I would assume the max they spend on marketing is 3m$. Which would be a clear signal to support Chen´s proposal.
This is fun David!
July 30th, 2008 at 2:52 pm
Time for Chen to have a serious sit-down with Robin before talking with management again….first it was a revenue goal of $20M in the first three years, and now Robin says $1M is “reasonable”? That’s a big disconnect, and ramping from $1M to $20M in three years is just not going to happen. What were the assumptions (and research) that went into the original business case that led to the sales ramping and revenue forecast? The ramping and forecast MUST derive from the market size estimate, which in turn is determined by the competitive analysis as well as the market trends and customer demand. Did Robin do his/her homework on that, and more importantly, when? If it wasn’t done within the last 2 or 3 months, it’s time to revisit all the assumptions and crunch the numbers one more time. Then, and only then, should Chen approach management with a current realistic revenue estimate, along with a budget for what it will take to generate such revenue (which could be sizable since the target customer is new to the company).