Product (>) Project
Updated: Jul 8, 2022
TRUE (A Marketing Perspective)
For many startup companies, the journey towards scale requires transitioning from project sales to product marketing. This post discusses some of the cultural and operational changes that must occur when seeking higher growth through productization of your technology.
But first, considering technology companies, what differentiates Products from Projects?
Consider some of the patterns that emerge in project driven environment:
A project is always a market-pull phenomenon, initiating as a customer initiative, in the form of RFI, RFQ, or less formal call to action. It is the customer’s vision of the business need that dictates everything else.
In a project, the vendor employs talent (labor, knowhow), and potentially additional capabilities, to solve for the customer requirements.
The result of such a project may well be a product, but the "product owner" will be someone on the customer's payroll.
Mostly, the IP generated during R&D efforts in a project environment is regarded as "Work-for-hire", and therefore belongs to the customer, who may or may not choose to protect it, without much say left for the vendor's R&D team.
The resulting solution is oftentimes tailored to the specific needs of the customer, and is not easily replicable in other contexts: Use cases, User personas, Features, and infrastructures will typically match closely the customer's criteria.
Finally, the economic value added of a successful project accrues on the customer’s books, rather than the vendor, who must settle for a limited revenue stream, and at the same time forgo scaling up aspirations.
The prevalent business model is based on “time and material”, oftentimes limited by competing vendors.
Conversely, when a company decides to build a product, different traits emerge:
The initiative originates from within the company, with a larger scope in mind. Market, target users, decision makers, scale, features, are all decided internally. Dominant design partners are to be held at bay.
A product management team will form, exercising "ownership" voicing the user, to the development and business teams.
A general "prêt-à-porter" case will be sought, rather than a tailor-made set of features and KPIs.
Scale will be key - both in terms of technical infrastructures and of marketability.
Business models will be researched, tried and fail, since the project centric model of time and material is no longer relevant. The company will now have to think differently about pricing and delivery models, support scenarios.
The end-game for a successful productization effort will be Product-Market-Fit
Marketing ≠ Sales
Now, let us put a few distinctions between marketing and sales:
While sales' focus is on lead qualification, nurturing, and eventually closing, the focus of marketing is demand generation - Raising the awareness and interest in the company's product.
Why is such distinction important? It is a question of both scale and resources.
Consider a company with the target of closing just twenty deals per month. Nothing out of the ordinary.
Let's examine the maths, and work it from the end goal backwards, ignoring a necessary build up period.
Our assumptions are as following:
Only one of ten quotes get accepted (this is arbitrary, adjust to your industry and price range)
A quote is the result of several touch-points with a prospective customer (lead): Calls, emails. Cold leads warm up to our offering, becoming marketing qualified leads at a ratio of one in twenty.
Combine these two expectations and the probability of conversion would be 1:200.
Now let's examine the cost of this conversion. The above assumptions hint at 200 touch-points for each sale. At just 10 minutes per touch point, we see that for each deal, four (4) full working days are required, on average, to complete a sale.
This means that a single sales representative is expected to close 5 deals per month, and in order to accomplish the 20 deals per month, the sales team would be at least 4 people strong, not including management overhead.
It also implies that, at $4,000 monthly salary (bonuses excluded for simplicity), the average cost of each closed deal is $800, without taking into account pre-sale, engineering, and management support.
Now let's scale this up just five times to 100 sales per month... Is this tenable? the upfront cost of the sales operation alone would reach $192,000 per year, sales people direct cost, without even taking into account overhead on location, training, hiring, management...
We must do better than this. The easiest way would be to let prospective buyers warm up to our offering, to dramatically reduce the attrition rate between the number of leads entering the funnel, and actual buyers exiting on its other end.
This can be achieved by automating the first touch points with prospective buyers, lowering significantly their cost, while freeing resources to manage higher potential qualified leads.
It's All about Scale - and Pricing
We discussed the differences between one-off projects and mass market products. The whole point in making a product is to successfully market it to as many customers as possible.