Category Archives: Entrepreneur

SaaS product management

It’s amazing how often product managers forget a simple, yet fundamental truth:

Our job as product managers is not just to build features users want…

Not just to prioritize the roadmap…

Not just to spend time talking with customers…

Not just to ensure a successful release…

Those activities are important, of course.

But they don’t represent our primary job.

They don’t speak to the thing that enables us as product managers to deliver value to the organization.

So here’s the thing many product managers forget:

Your primary job as a product manager is to help drive the business.

Our job as product managers is to find ways to drive the growth and profitability of the business.

Period.

Now, we’re not sales people. We’re not in marketing. We’re not in customer success or support.So you’re not directly held to meeting a sales quota, or a lead gen goal, or a customer satisfaction score.

So we’re not directly held to meeting a sales quota, or a lead gen goal, or a customer satisfaction score.

So the way we drive business growth is by being strategic in how we decide to add new features and enhance existing ones, build new products and expand existing ones.

This goes beyond just validating feature requests and prioritizing and building them. This is much more fundamental than that.

In order to be strategic about your product, you must understand your product’s business model.

In other words, you need to understand:

  • How your business acquires, retains and expands customers; and
  • The key goals for your product’s business model.

Furthermore, you need to know the right set of metrics to focus on to drive the success of your product — not just metrics for the sake of metrics, but the metrics that are actionable.

Actionable metrics, combined with an understand of your product’s business goals and business model, provide you with the core foundation you can use to make strategic decisions about how to grow your product and measure its performance.

Let’s get specific. Let’s take a SaaS product as an example. Lots of product managers manage SaaS products. And there’s plenty of range here, from SaaS products targeted to individuals and small teams to those targeted to B2B enterprises.

Let’s look the high-level goals of a SaaS product and drill down from there to discuss the kinds of business metrics we all need to be focused on to measure the performance of our SaaS products, and use them to be strategic in how not only we manage and grow our products, but deliver monetizable customer value.

Primary SaaS Business Goals

At the most fundamental level, there are three primary business goals for any SaaS product:

  • Profitability. Duh.
  • Growth. Meaning sustainable revenue growth through the acquisition of new customers, and retention and expansion of existing customers.
  • Cash. This is a top concern for your CEO. Ultimately, cash inflows must be > cash outflows. No cash = no business (regardless of how good other metrics may be). Cash is heavily impacted by months to recover the cost of acquiring a customer.

For the purposes of this post, we’ll focus on the first two: profitability and growth. The good news is that by impacting these two goals, as a product manager you’ll be helping the third one too.

There are three ways to look at profitability and growth:

  • Revenue
  • COGS and Gross Margins
  • Unit economics

Let’s talk about each in turn.

Revenue Growth and Profitability

For a SaaS product, the key revenue metric is Monthly Recurring Revenue (MRR) or Annual Contract Value (ACV).

Monthly Recurring Revenue (MRR)

Many SaaS products are sold requiring no long-term contractual commitment from the customer. The customer signs up for a monthly payment plan and has the convenience of unsubscribing any time.

The recurring amount the customer pays every month is called Monthly Recurring Revenue or MRR is the key revenue metric for this type of SaaS product.

Quite simply, MRR is the revenue you’re earning every month from your customers. It can be calculated by multiplying the total number of paying customers by the average amount they pay you every month, called Average Revenue Per User (or Customer) or ARPU.

  • Total Number of Customers increases with new customers acquired every month and decreases with customers lost during the same month.
  • ARPU increases with customers who upgrade to a higher paying plan and decreases with customers who downgrade to a lower paying plan and customers who churn. It can get a bit complicated when you have customers paying different price points, different customer segments, and your product mix.

The key point to remember when calculating MRR is to focus on net MRR because every month you’re both gaining and losing customers. And hopefully, you’re gaining a lot more customers than you’re losing!

Focus on net MRR! – From SaaS Metrics for Product Managers

Focusing on net MRR will provide a more accurate view of growth. Here’s an example:

If you focus solely on new customers and upgrades, you could be led to believe MRR is growing at 30%. But that would be misleading!

You need to factor in downgrades and churn (i.e., lost customers), resulting in a more accurate 15% growth rate.

Annual Contract Value (ACV) and Bookings

If you manage a B2B enterprise SaaS product, it’s likely your customers are signing long-term contracts for a guaranteed period of time, like 12, 24, 36 or 60 months. (The business, in turn, commits to certain SLAs.)

This means unlike month-to-month SaaS products, the business can usually rely on a certain amount of guaranteed income over two or more years based on the length of the contract.

The annual amount owed by the customer is called the Annual Contract Value or ACV and is the key revenue metric for this type of SaaS product.

A related metric is Total Contract Value or TCV, which is the total value of the customer contract over the life of the contract.

So if a customer signed up for a 3-year contract worth a TCV of $300,000, the ACV would be $100,000.

In particular, you want to track ACV bookings. ACV bookings are the total value of all new signed customer contracts. Simply put, a booking exists when a customer agrees to spend money with you. So bookings are the amount of money customers have committed to spend with the business.

For example, a customer signs a 3-year contract worth a total of $36,000. Whether the customer pays you annually, monthly, quarterly or the entire amount up front, the ACV bookings value is $12,000.

Why are ACV bookings important? Because it allows you to accurately track money customers have committed to spending on your product (regardless of how they are actually billed and pay for it).

More to the point, ACV bookings are a demonstrator of the demand for your product. It tells you how the market is responding and committing to your product — its features, its user experience, it’s capabilities — and as such it’s an important metric for measuring the growth and success of your product.

In other words, how do you know the features you’re building and the user experience you’re delivering are actually resonating with customers from a business perspective? That’s what ACV bookings tell you.

Using MRR or ACV to Drive Growth

So how can you as a product manager impact these critical metrics of MRR and ACV, and thus drive growth?

  1. Identify and deliver features new customers want.
  2. Identify and deliver features that encourage existing customers to upgrade to higher price points.
  3. Up-sell and cross-sell add-ons and product extensions that increase recurring revenue or boost ACV — some customers may be willing to pay extra for value-added features and services.
  4. Look at how you segment customers. It may be worthwhile to look at different ways to segment your customers and package your product’s features into pricing plans that are more specifically targeted to these customer segments, and thus deliver more growth and profitability.
  5. Offer scalable or metered pricing. Does it make sense to offer pricing that scales by a unit metric, like number of users, events, transactions, campaigns, etc.? Some customers may be willing to pay more for your product than others to get more of the same feature or capability.
  6. Reduce churn. This is the #1 growth killer. Are you losing customers because you’re missing critical features? Because they abandon after onboarding? Because valuable features are not easily accessible to the user? Because you’re targeting the wrong set of customers?.

By analyzing the above, you can identify what are the things you can do from a product perspective to drive growth, and then craft your product strategy and roadmap to accomplish those goals.

COGS and Gross Margins

When a customer pays for your product, you generate revenue. Gross margin is the revenue left over after the costs associated directly with the delivery of the product or service are paid for.

The costs directly associated with the delivery of the product or service are called COGS or cost of goods sold.

Unlike a manufactured product, where COGS include materials and direct labor, COGS for a SaaS product can be a bit tricky to figure out. Generally, they include items that contribute directly to the delivery of the service. (Remember: SaaS = “software as a service”).

COGS for a SaaS product typically including things like:

  • Infrastructure, hosting, monitoring costs
  • Licenses and fees for 3rd party embedded apps, integrations or other back-end services
  • Payment processing fees
  • Commissions and royalties to affiliates and partners

There could be others. (Check with your Finance department.)

Gross margin is the cost of goods sold subtracted from revenue. It’s typically represented as a percentage of revenue.

Gross margin is critical because it’s used by your executive team and the company’s Board and investors to determine how much the company has left to cover operating expenses and reinvest in the business after delivering the service to the customer.

Gross margin is also an indicator of customer lifetime value, which in turn is a prediction of all the value a business will derive from its entire future relationship with a customer. (More on LTV in a bit…)

Gross margin is why a $10M SaaS company can be more valuable than a $100M brick and mortar company.

As a product manager, you can look at ways to reduce COGS by finding more cost-effective vendors, reducing fees or finding more efficient ways to deliver your product.

Unit Economics

Unit economics look at the most basic elements of a product’s business model and provides insight into whether the business will be profitable.

And profitability is a pretty important measure of success.

Unit economics express revenues and costs on a per unit basis. For a SaaS business, that unit is typically the user or a customer account.

One of the most fundamental unit economics is LTV or customer lifetime value (or CLV or CLTV).

LTV is a great measure of how “sticky” your customers are — whether they’ll keep paying you and for how long. LTV is also a key data point in determining company profitability.

For a product manager, LTV allows you to calculate the profitability of a single customer or segment of customers. You can then use this analysis to identify your most profitable customers and double-down your product related efforts for those customers or perhaps identify upsell/cross-sell opportunities.

Key Takeaways

Remember: Your job as a product manager is to drive business growth through the delivery of monetizable customer value.

To do this, you need to:

  • Learn the business of your product and the key levers of growth.
  • Understand the underlying economics of your product’s growth.
  • Focus on the right set of actionable metrics.
  • Marry these with your VOC insights to build robust business cases for your product ideas.
  • Craft product strategy and your product roadmap such that they show how you will drive growth via these business metrics.

This is how you can actually QUANTIFY the value you as a product manager bring to your company!

To help you, I’ve created this helpful 2-page SaaS Metrics Quick Reference Guide for Product Managers that you can download totally for free. Print it out, post it on the wall of your cube or office so that way you have it conveniently available as a reference at all times.


Get the SaaS Metrics Quick Reference Guide for Product Managers >>


P.S. If you’re not managing a SaaS product, so these metrics may not apply, of course. You just need to identify they key business metrics for your product that will help you shape your product strategy and drive its business performance.

The most important thing you need for your product to succeed

Have you ever felt like there is no clear direction for your product?

That you keep getting jerked around building features to satisfy the latest customer opportunity?

That your product can do a lot of things, but it’s hard to articulate exactly what it does in just a few short sentences?

Maybe your product is trying too hard to be all things to all people?

Or maybe folks are constantly asking you why…

Why are we building these features?

Why are we selling to those customers?

Why is the customer wanting our product to do something else?

The reason for this often boils down to a simple truth:

The product lacks a coherent vision.

Having a product vision is quite possibly the most important thing you need for your product to succeed.

Yes, strategy is important.

Yes, execution is important.

But it all starts with having a vision for your product.

Without a product vision, how will you know where you’re going and why?

So every product starts with a vision to make it real. It’s foundational to the success of any product. It’s your north star. Without a coherent product vision, even a seemingly “great” product idea will fail in the market!

I decided to put my thoughts on this into a video.

So here it is. In it, I talk about:

  • What is a product vision.
  • Why it’s important.
  • How you can craft one for your product.

I cover this in depth in this video:

Creating a product vision doesn’t have to be hard. You don’t need to write some fancy vision statement, nor do you need torture yourself by trying to come up with the perfect elevator pitch.

You can actually start simply and immediately by defining four things:

  1. Who is your customer?
  2. What problem are you solving for them?
  3. What is your solution to that problem?
  4. What is your value proposition — i.e. that ultimate benefit you’re trying to deliver to your customer.

This is something you can do today. Right now. It can take less than 20 minutes. Even 5.

It doesn’t have to be perfect. It just needs to be done.

I talk about it in the video.

Over time, as you learn from the marketplace, as you learn from customers, you’ll refine the vision. That’s a good thing.

Watch the video, and when you’re done, please leave me a comment on what challenges you’ve had to face because your product lacked a proper product vision.

Then be sure to grab this quick fill-in-the-blank worksheet below to help you create the product vision for your next great product idea!

Grab Your Copy Of The Fill-In-The-Blank Product Vision Worksheet >>

Why Products Fail [PODCAST]

Why do products fail?

What are the three important milestones for a new product?

Why is it so important to get to market fast?

How do you manage stakeholders when building a new product?

What is an MVP?

What are the key skills of a good product manager?

How do you stay in touch with current trends?

In 2015, I had the privilege of being interviewed on a podcast series called Yours Productly where we discussed not only these topics, but also:

  • The Product Canvas: why I created it, how to use it, and its growing popularity
  • Lean Startup and Customer Development
  • And what I’ve learned from mentoring over 100 product people around the world.

Frankly, I was amazed at how much ground we were able to cover!

 

You won’t be disappointed!

P.S. In the podcast I talk about a book I was planning to write. I’m not doing that anymore.

Yours Productly is a podcast series hosted by Ravi Kumar, founder of ProductCamp Singapore, where he talks about the business of building great software products with product rockstars and marketeers like Rich Mironov, Steve Johnson, Michael Eckhardt from Chasm Institute, Roman Pichler, and John Mansour, among many others.

How A Rusting Giant Can Act More Like A Startup

This is a Q&A with Trevor Owens, Founder of Javelin, by Adam L. Penenberg originally published on PandoDaily, and re-printed here with Trevor’s permission.

Why should big companies emulate startups?

Back in the day, everyone wanted to work at a place like IBM. Today corporations are viewed as stodgy. Many of us don’t know what they do anymore and even if we did, we probably wouldn’t care. These bloated companies with their thousands of workers trapped within walls of bureaucracies aren’t growing anymore. In fact, their markets are shrinking.

The time between the birth, growth, and death of a large enterprise has shrunk dramatically over the years. Of the companies listed on the Fortune 500 in 1955, nearly 87 percent of them have either gone bankrupt, merged, reverted to private ownership, or lost enough gross revenue to be delisted. A study of the S&P 500, which ranks companies by market cap, found the average age of a business on the list was 61 years in 1958 but only 18 years in 2012. In the past, being big was in itself a defensible position. Now it’s not.

Contrast that with the frenetic growth and buzz surrounding successful startups. Instagram employed just 12 people when it sold for $1 billion. Snapchat had about 30 people when Facebook offered to snatch it up $3 billion. Whatsapp employed 50 or 60 people when it sold for $19 billion.

Big companies see this, and feel the cultural pull away from them. They’re starved for growth. If they want to compete, they have to become more like startups. Otherwise they’re in jeopardy of disappearing all together.

Why do big companies have trouble innovating?

When a company gets big, bureaucracy is layered throughout. In some ways it’s a necessary part of growth. The reason it exists is so the company doesn’t fall apart. The more people you have working for you, the more you need to manage them to ensure they get the support they need to do their jobs. Then you have whole divisions that exist simply to produce and sell, and their heads aren’t interested in new ideas, products, or ways to do things that could interfere with their bottom line, because that’s how they’re judged and compensated.

Couple all that with the main goal of a company, which is to serve existing customers. That’s where the resources go. Corporations offer an environment of execution and maintenance but not innovation, and rely on good management to target their best customers and deliver better products. That’s fine when they’ve identified and mastered their markets, but they get disrupted when a new entrant comes along that can deliver a good enough product at much lower cost of higher convenience. New entrants target low-value customers then quickly climb the value chain with a better cost structure. Think Netflix versus Blockbuster or Napster invading the recording industry.

Part of issue is there’s no management philosophy built around how to innovate within a large enterprise. With new companies we have the Lean Startup Method, which offers a framework for constantly improving a product to find the best product-market fit before you actually go into production or invest gobs of money in creating any infrastructure. This is the first time we’ve had a repeatable process. But there is no analog for large companies. They have to develop some basic structures just to deploy lean startup methods.

How are some big companies innovating like startups?

There are two parts to innovating like a startup. One is generating a flow of high-quality (i.e. validated) ideas. We call this “innovation flow” — similar to the idea of deal flow for venture capitalists. If a VC doesn’t have good deal flow he won’t get returns.  The other is the need to create a structure to incubate these ideas called an “innovation colony.”

Intuit does the first part well. It kind of copied our lean startup workshop and scaled it throughout the company. After employees have been trained in lean startup methods and know how to validate ideas, they can take advantage of unstructured time (also known as 10 percent time) to work on any project they want to validate that can potentially become a successful new product. If they find they have something they can go to their boss for funding, and this has led to some viable products, including Sparkrent.

Facebook is famous for hackathons. That’s where the Timeline was first imagined. Employees can work on anything that relates to the company’s products and deliver a down-and-dirty prototype during a 24-hour hackathon. Companies like Nordstrom are becoming sophisticated at lean startup methods. It runs weeklong experiments. One from 2011 involved an iPad app that helps users choose eyeglass frames and another addressed the physical design of its retail stores.

Companies also acquire startups to “buy growth,” although few buy at the right time. One that did was Twitter, which acquired Vine before it launched, left it alone to carry on its mission without interference, and it ended up a great acquisition. Vine clearly had product/market fit right out of the gate.

What about skunkworks, innovation labs, and intrapreneur programs?

For large companies there are three traditional innovation structures:

First, there’s skunkworks, when you hire a bunch of smart people to work on pie-in-the-sky technologies. Motorola, for example, hired away a former head of DARPA to run its skunkworks. It only works on highly technical products with low market risk — like a faster jet plane or Amazon Web Services. It’s not good for developing, say, an app like The Daily and it won’t help you find a market or determine product-market fit.

Then there are innovation labs. Perhaps the best known was Xerox Parc, which was the original Innovation Lab. It came up with brilliant ideas but failed to commercialize them — until Steve Jobs came along and borrowed (some say stole) them. Innovation labs that focus on innovative technologies are known to struggle with commercialization.

Finally, you have intrapreneur programs, which are the latest fad: a four- or eight-week program where employees take time off, explore some ideas and a product, and have to sell it to a business unit within the company.  The issue comes back to the incentives inherent in successful business units. They resist ideas they didn’t come up with, no matter how big their potential. They favor incremental innovation that won’t cannibalize their own sales over something that could change their industry for the better.

As a corollary you can have something we recommend: innovation colonies. This is a way for companies to create a fund to invest in ideas their employees have. To participate, though, the employee has to give up the security of their jobs in exchange for equity in the venture. Microsoft, Kaplan, Nike, Barclays, and Disney are just some of the companies utilizing innovation colonies.

Here’s how they work: Employees pitch their ideas, which have been validated, get funding, and own a majority of the equity in these products in the seed stage. They work with other entrepreneurs and the company offers advisement, mentoring and other resources. They seek to develop products, take them to market, and if they gain any traction they can raise a series A with outside investors. They run the company without interference from the Mother ship. In the end, the big company can offer to buy their startups back. The magic is that the entrepreneurs are incentivized to build a real business.

Is it a good idea to offer equity stakes within corporate environments?

Oh, yes. In fact, we advocate for employees to get equity on their projects. Let me emphasize that I mean equity in the product, not the company. Equity attracts the best people because entrepreneurs are motivated by achievement and autonomy and are willing to take less in salary in exchange for more upside in their ideas. Of course, they want to see millions from their products, if they’re successful, but it’s not just about money; it’s what it represents. It’s about being recognized for your achievements. Face it: you have to be a little crazy to be an entrepreneur. This is the whole point of the innovation colony structure.

If you don’t give employees who are entrepreneurially minded equity in their projects they’ll leave to start their own companies. This happens even at innovation-friendly environments like Google: Ev Wiliams (Twitter), Kevin Systrom (Instagram), Dennis Crowley (Foursquare) all left to launch their own ventures. It’s unfortunate that Google doesn’t share in any of the billions they’ve created.

Not only do you want to hire the best and brightest, you want them to stick around and create the kinds of innovative products and services that will also ensure your company sticks around for the long term. Some large companies make the mistake of addressing a problem by simply throwing 15 developers at a problem thinking it will lead to something. Instead, great ideas come from all over an organization and may even seem like bad ideas at first until you validate them.

Once a company realizes this, anything is possible.

Trevor Owens is a thought leader on Lean Startup. He is the Founder of Javelin, a provider of tools and services to learn, launch and track new business ideas, and Lean Startup Machine, a three-day workshop that teaches entrepreneurs and innovators how to build startup products. He has a new book called The Lean Enterprise that talks about how to bring the startup mindset to larger organizations.

Yes, Startup Products Can Take A Village

Thomas Pichon is the Founder of The Collaborative Startup. He advocates building a community to gain traction for a startup, and I thought the advice could equally apply to an “internal” startup. The article below is re-posted with his permission from his free e-course.

By Thomas Pichon

I am helping an entrepreneur build a yoga retreat, and I asked her how she was going to build her project. She said:

“I guess I’m going to concretely build the service, which means finding where we’re going to host the retreat, build the program, etc… Then, I’ll try to advertise it.”

I used to build products with this kind of strategy for years. Results have never been extraordinary. However, I have discovered one which brought me much more success:

  1. Build your community. Share helpful content related to the service you want to provide in order to attract people.
  2. Ask them what is their biggest frustration. Build a service around this problem.
  3. Get pre-orders. Start collecting credit card numbers before you have built the service. If you have created trust with your community by providing helpful content from day 1, you will see that this step is much easier than it looks now.

Hope these lines help you understand how to start your business. Do not build your product, then try to sell it. Sell it, then build it. And the better way to sell it before having the product ready is by building trust within a community.

So start now! Write helpful content about your topic in order to start building trust! Share it where your target audience hangs out online.

If you need any advice on this topic, or more generally about startups, you can schedule a call with me anytime, or ask your questions on my forum.

Thomas Pichon is the Founder of The Collaborative Startup, an innovative initiative designed to help entrepreneurs by leveraging the power of community development, Lean Startup and crowdsourcing.

4 Key Tips For Attracting A Non-Technical Co-Founder

Recently Michael Hughes of CoFoundersLab wrote a nice piece on how a non-technical founder can attract a technical co-founder. I’ve read many similarly written blogs and presentations. Most all say the same type of thing: build a prototype, learn to write code, talk to customers. So I thought it would be interesting to look at the opposite situation: how can a technical founder attract a non-technical co-founder?

It strikes me that you could take many of Michael’s points and apply them equally to attracting a non-technical co-founder. Especially the ones about focusing on attracting a co-founder as opposed to finding one, getting into the right mind set, and a co-founder wanting to work with you instead of for you.

In fact, you could take many of his sentences and simply turn them back around to a technical founder. For example: “Repeat this to yourself until you believe it in your bones”: your idea isn’t the best idea, and a non-technical co-founder doesn’t want to work for you on simply selling your idea.

I’ve come across too many technical founders who see the problem as simply a question of sales. In their minds, they of course have the most brilliant product idea, and they may even have spent weeks or months building a product with slick features. Now, all they need is a “sales guy”, “marketing guy” or “business guy”, and of course the money will come rolling in.

If the product doesn’t sell, it’s easy for the technical founder to simply blame the sales guy or marketing guy. After all, clearly the product is great, so if it’s not selling it’s obviously sales or marketing’s fault!

Michael rightly says: “You may very well have the next game changing idea, but that’s missing the point.” The missing point in this case for the technical founder is market validation.

With all of the education out there about customer development, talking to customers, “get out of the building”, etc., I still meet many technical founders who are so completely convinced of their product idea, and they’ve spent months and even lots of money to build a product, yet have no proof whatsoever that a single customer would actually be interested in, let alone buy, their product. That’s because they’ve spent zero time in the marketplace actually trying to identify who their target customer may be and whether these customers actually care. Often times their market research has been limited to a few conversations with trusted friends and family, or they rely on broad industry research or market trends. But unless friends and family are your target customers, their opinions, while interesting and ego-flattering, are utterly irrelevant.

Technical founders are sometimes surprised when non-technical co-founders start providing input into the product features. Reality check: if they’re out there talking to prospective customers, they’re absolutely going to come back with input on features and capabilities that they feel need to be developed to satisfy your customers.

So how do you attract a potential co-founder? You can start with these four tips:

1. Make sure you’ve identified a real problem.

An idea is worthless unless you can clearly articulate who is your potential customer and what problem it solves for them. And you need to be able to state the problem from the customer’s point of view.

If a technical co-founder looks to a prototype or code as a form of commitment from a non-technical founder, a non-technical co-founder is looking for work done to obtain actual market validation as a form of commitment from a technical founder. Currency here is in the form of actual customer interviews.

2. Learn to do customer development.

If you want to gain respect from a non-technical co-founder, learn to how to find and interview customers, identify early adopters, understand your market, and get buyers. This will show that you haven’t formed your idea or developed your product simply in your head, but you’ve done so in response to the demands of your market. Nothing is more impressive than being able to clearly articulate who is your early adopter customer, and better yet, show that you have a paying early adopter customer.

3. Start talking about your product in terms of benefits, not features.

When describing their product ideas, many technical founders describe a laundry list of features. While some of your features may actually be pretty cool, the reality is no one actually cares. What customers really care about is how your product solves their problems, and that means being able to communicate in benefits, not features.

If you’ve done #1 and #2, #3 becomes easier to do. If you’re able to speak in terms of benefits, you will demonstrate to a non-technical co-founder a grounded, realistic understanding of your market.

4. Stop saying “There is nothing like this out there” or (worse) “There is no competition.”

Sorry to burst your bubble, but odds are very high your idea is not that unique. Repeat this to yourself: There is always competition for my product.

Keep in mind the competition may not always be another company or product. Your competition may very well be how customers are solving their problem today. A great example is Quicken. One of the biggest competitors Quicken was competing with when it first launched was the paper checkbook and pen. Your biggest competition is often current customer behavior.

Just like Michael says in his article, remember to treat your non-technical partner like a true partner, not just the person who will “get sales”. The key to attracting world talent here is to show commitment to obtaining real, tangible progress in your target market. Best of luck!

Why Product Managers Need To Get Out Of The Office

By Kevin Dewalt

For the past few months I’ve been doing Customer Development on product managers to explore their viability as a customer segment for my new startup, sohelpful.me. I’ve been asking them about their challenges in getting insight to customer problems. I haven’t had a job as a product manager in over 15 years, but if you’ll forgive my naivety, I would like to offer a few observations on how the role of product managers has to change, at least if their employers want to survive the coming onslaught of worldwide competition from startups.

The Best Product Managers are Learning from Entrepreneurs

The management science of entrepreneurship has changed more in the past 5 years than in the previous 500. Through Eric Ries’ Lean Startup movement and best practices like Steve Blank’s Customer Development, we are finally seeing the emergence of repeatable patterns and best practices for mitigating the risks of product failure. Prescient product managers — often former entrepreneurs themselves — are seeing these best practices emerge and looking for ways to bring them into their own organization. Unfortunately, many are describing practical challenges with getting their employers to embrace this change.

No Established Processes for Connecting Product Managers & Customers

Unlike entrepreneurs, product managers are beholden to an organization’s behavior, rules, and roles. These structures often create practical barriers between product managers and the very tedious process of developing problem-solution assumptions and testing them with customers.

Customer Input Filtered by Other Stakeholders

Many are frustrated with what they describe as filtered customer input — often by sales or marketing teams who are focused on the most recent customer conversation. They recognize the importance of this feedback,  but feel that it needs to be considered in a larger strategic context.

Overwhelmed with “Inside the Office”

Product managers tend to be multi-skilled, dynamic people — those who are already overwhelmed trying to get an organization to execute. Many describe themselves as spending way too much time focused on day-to-day fires or “project management”.

Your Employers Need to Wake Up: The World Wants Your Customers!

Forget Silicon Valley. Through my free startup help sessions, I’m giving advice to entrepreneurs worldwide – Beijing, Bangalore, Singapore and Manila. They’re often 3-5 person teams trying to build highly customized solutions to micro-segments of your customer base — for a lot less. At least 50% of my discussions are about doing Customer Development on the American market. Their biggest challenge is “getting out of the office” — talking to customers to get insights. They’ve read Ash Maury’s Running LeanEric Ries’ The Lean StartupJeff Gothelf’s Lean UX, and watched Steve Blank’s (free) Udacity CourseI try to help them find your customers to get better insight using lower-cost techniques like recruiting them over Craigslist for problem-solution interviews. For the moment, your employer has some practical advantages over these new competitors – language, time zone, trust, experience, and relationships. In the long run it won’t be enough if your employers don’t wake up to the reality that your job has to change. But, alas, they probably won’t change. Most likely you’ll realize it before they do, but by that time you’ll already be gone — you”ll be “getting out of the office” building your products in your startup. Perhaps after they acquire your startup — for 1,000x your salary — they’ll listen.

Kevin

Kevin Dewalt is an American entrepreneur & investor currently living in Beijing, China. He writes about his experiences building products at his blog and on Twitter.

Before Product/Market Fit comes Opportunity/Company Fit

In his book, Running Lean, Ash Maurya presents a workflow for taking a product from idea to launch to Product/Market fit.

Ash Maurya workflow
In the Problem/Solution Fit stage, you are trying to answer the question, “Do you have a problem worth solving?” Ash breaks this down further into three questions:

  • Is the problem something customers want solved? (must-have)
  • Can it be solved? (feasibility)
  • Will they pay for it? If not, who will? (viability)

Problem/Solution Fit is pursued by capturing your business model hypothesis and then doing Customer Discovery via problem interviews and solutions interviews with customers. Once you’ve validated from customers that you have a viable problem worth solving, you move into Product/Launch Fit.

In the Product/Launch Fit stage, you are trying to answer the question, “Are you ready to learn from customers?” Key activities pursued here are reducing down your MVP, getting to Release 1.0, defining your key metrics, and continuous deployment. The purpose here is to lay the critical groundwork to maximize speed and learning for future iterations, and to establish “just enough” traction among customers to support learning.

Finally, in pursuing Product/Market Fit you are trying to answer the ultimate question: “Have you built something customers want?” This is where the rubber hits the road, and you’re validating your complete product. Identifying the “right” metric or set of metrics, prioritizing your feature backlog, and ensuring retention and getting paid are critical to the success of achieving product/market fit.

This Lean Startup workflow is one that could be used by a product manager pursuing a new product idea or looking to introduce an existing product into a new market. After all, the product manager in such a situation must be able to answer the same set of questions about who is the customer, what customer problem is the product trying to solve, and will enough customers care enough to pay for the solution. The product manager typically starts with some sort of informed hypotheses to answer these questions, which form the basis of the product vision. And the product manager must stay in close touch with customers to validate whether the product is truly something they want.

I feel there is one critical step missing in this workflow, though. It has to do with the unique situation product managers find themselves in versus entrepreneurs. Whereas an entrepreneur is trying to discover a business model that works, a product manager is typically an employee in an existing company already executing a repeatable and scalable business model. As such, the new product idea being pursued by the product manager could represent a change to the company’s existing business model. As such, because of the potential impact on the company’s existing business model, a critical consideration for the product manager pursuing a new product is whether the new product is aligned with the company’s corporate strategy.

In his book, Product Leadership: Creating and Launching Superior New Products, author Robert G. Cooper talks about the need for new product development efforts to be closely linked to the overall business strategy. In Beyond the Core, Chris Zook makes the case that the further a new product or business idea is from the core business — what he calls an “adjacency move” — the riskier it is and more prone to failure. What this means is that the more closely aligned the new product idea is to the company’s existing business strategy, the more favorably it will be looked upon by the company’s executives. This does not mean something completely outside of a company’s existing core will never be approved. But it does mean the bar to get that buy-in is much higher.

So in order for the new product idea to garner the necessary stakeholder support, its business case must be able to articulate the business opportunity it presents to the company, how it fits (or departs) from the company’s current business model and strategy, and the risks associated with pursuing it.

As such, Ash’s workflow can be modified as follows:

opportunity-company-fit

I call this stage Opportunity/Company Fit.

Critical questions for the product manager to figure out are:

  • Does the idea align with the company’s strategic goals?
  • Who do I have to convince to get buy-in?
  • Can I get a sponsor? Who?

Just like with using customer validation to achieve Problem/Solution Fit, I’m sure it’s possible to use lean principles to achieve Opportunity/Company Fit.

What Lean Startup Machine Can Teach Product Managers

Update and disclaimer: I had originally attended Lean Startup Machine in October 2012, was a mentor in September 2013, and will be mentoring again this year.

If you’re a product manager or marketer, you need to attend Lean Startup Machine. Why? So you can learn to be wrong. A lot. And faster.

Lean Startup Machine is an intensive educational workshop that lasts 49 hours (yes, you read that right) where attendees learn how to use Lean Startup principles, particularly Customer Development techniques, to validate an idea for a new product or service with actual customers. So if you have an idea that’s been rolling around your head for some time, come to LSM and in 49 hours you will leave either with the real knowledge that your idea stinks (because there are no customers) or quite possibly with a commitment from an early adopter customer in the form of a purchase order, contract or credit card number, or non-cash currency in the form of time, a registration, and email submission or letter of intent. (No, I’m not making this up.)

If you’re unfamiliar with Lean Startup or Customer Development, read this, this, and this.

This past weekend I attended the Lean Startup Machine (LSM) workshop held at The Fort.vc in downtown Washington DC. It started Friday at 6pm and ended on Sunday at 7pm. About 50 people participated representing a spectrum of backgrounds and industries. The youngest attendee was still in high school while some of us, like yours truly, could be considered more “seasoned” professionals.

The basic format is this: anyone with an idea has 50 seconds to pitch it, everyone votes, and the ones with the most votes become team leaders. Everyone else then joins a team. The teams then spend the rest of the weekend validating the assumptions behind their ideas with real customers and iterating based on their feedback with the goal of getting to a point where you can claim customer validation for your product idea. Assumptions and iterations (also called pivots) are tracked via the Validation Board. Proof of validation is in the cash or non-cash currencies mentioned earlier. If you think this sounds unrealistic to accomplish over a weekend, read this.

The first thing the team does is identify who they believe is their target customer for their product idea – called the Customer Hypothesis – and what problem they believe their solution solves for these customers – called the Problem Hypothesis. The team then identifies all the assumptions underlying their Problem Hypothesis and then picks the Riskiest Assumption among all these. This is the most important assumption of all your underlying assumptions – the one that if it turns out to be false tells you the problem you thought exists actually doesn’t.

With the Riskiest Assumption identified, the team creates an experiment to invalidate that assumption. What this means is you go find real customers to talk to who can tell you you’re wrong. That’s right: the purpose is not to be proven right; it’s to be proven wrong.

What this also means is that you’re getting out onto the street and interviewing actual strangers to find out (a) if they meet your Customer Hypothesis, and (b) if they do, do they have the problem you think they do?

If you get enough potential customers confirming your assumption, you may be on to something and may have the opportunity to actually pitch them your idea in the form of a minimum viable product. It’s more than likely, though, either you won’t find any suitable customers or they’ll tell you they don’t have the problem you thought they did. And that’s when the real fun begins, because you’re then forced to pivot, which means either re-visit your Problem Hypothesis or perhaps test your hypothesis with another type of customer.

This happens over and over at an extremely rapid pace. You are in a constant flow of documenting your hypothesis, creating your experiment, listing your questions for the customer interviews, getting out of the building to go find people to talk to, capturing your findings, and then repeating the cycle. You use the Validation Board, sticky notes and markers to keep track of all this stuff. Along the way, you’re guided by extremely helpful mentors – former and current Lean Startup entrepreneurs and practitioners. There are also presentations by other lean practitioners to share their experiences and insights, and to keep you motivated.

The workshop ends with team presentations on Sunday evening and a winner is announced.

LSM was a unique and unforgettable experience that I’d recommend to anyone with a product or business idea. But I was particularly struck by how much product managers and marketers can benefit from participating in LSM and learning the Lean Startup approach. Why?

1. To get better at customer research. Product managers and marketers need to be spending their time understanding customer problems. While data and metrics can tell you a lot, nothing will tell you more than actual customer interviews. But there’s a right and wrong way to do this. LSM will give you a crash course in the right way so you can get to the true nature of the customer’s problem as quickly as possible.

2. To learn how to validate your ideas quickly. Product managers are natural problem solvers. But running with the first idea that strikes as a solution will cause you to run into problems of your own. So testing ideas is important. “Build and launch” is not the way. “Test and learn” is. LSM will force you to think critically about the most important components of your idea – who is the customer and what problem do you think you’re solving for them – and give you the tools to rigorously and systematically test these. The structure of the workshop will force you to go through this hypothesize-test-learn loop as quickly as possible so you can start discarding bad ideas quickly so as to get to the potentially good ones faster.

3. To get their teams past debating opinions and intuition, and focused on validated learning. Product managers typically work in teams whose members don’t report to them. So the ability to influence defines success or failure for a product manager. Everyone thinks their idea is the most credible and, particularly in agile teams, everyone has an equal voice. Even when data is available, it is still subject to interpretation. LSM gives product managers the tools that enable them to get past the opinions and subjectivity by capturing everyone’s point of view as a hypothesis that can be rigorously and systematically tested with actual customers. Product teams can cycle through the opinions and get to what customers really want faster while maintaining team harmony.

4. To practice your influencing skills. Related to the above. A product manager with poor influencing skills will fail. Period. LSM is a team-based workshop. You’re working with total strangers to validate an actual product idea. And you’ve got precious little time to do it. Everyone’s opinion counts. The cauldron of LSM is perfect to test and refine your ability to influence.

5. To learn the value of doing and being decisive. LSM will teach you to quickly get over your fear of having the perfect answer, being wrong or looking stupid, which often becomes a roadblock to actually doing anything. Instead, you’ll be forced to be decisive and do stuff so you can learn from mistakes quickly.

6. To learn that you’re often wrong. Some product managers fall into the trap of thinking they’re always right by nature of being a product manager. “Product management represents the customer, so of course I know best!” is how the thinking goes. This is dangerous. A product manager’s value is not in being the know-all about what’s best for his or her customers. Rather, it’s in the product manager’s ability to truly understand the customer’s problems and lead the organization to visualize and deliver a viable and innovative solution that the product manager’s value lies. LSM will teach you how to do this in a sustainably repeatable process.

7. To learn to distinguish between vision and details. Every product starts with a vision of a potential solution to a problem. Being natural problem solvers, product managers often have a vision for how to solve their customers’ problems. It’s a fine line between knowing when to keep to the vision and when to admit it just won’t work. LSM is a great way to learn how to stay true to a vision, but be flexible on details.

Check out when and where is the next Lean Startup Machine workshop here.

Have you attended LSM? What was your experience like? What were the key lessons you took away?