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.
Projects, Products
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.
The notion of scale is, therefore, a critical part in the decision to make a product, or to productize technologies previously used in delivering projects.
There are different pricing considerations, when looking at project and products:
Although projects do command higher prices than products, the "Time and Material" approach to pricing, sets a virtual cap on price ranges, and a race to the bottom between competing vendors. This is especially common in tender-type procurement popular for sourcing projects. The end result, time frame, and quality are given, to a certain limit, and vendors are left to compete on efficiencies, and hence, on price.
Going to market with a product requires a different mind set in pricing, as your product's features are set by you, to be considered by prospective customers in comparison to other products available.
Even when customization is required, shoppers' expectations can be set to a certain degree by your differentiation. As the product developer, you can introduce a uniqueness which is incomparable to competition, hence difficult to measure in dollar terms: Which should be more valuable: pineapples or carambolas?... If your consumer is after star shaped slices, the answer is clear. There will be a premium on Carambola in this example, which immediately translates into profit.
Another, yet important, issue is the negative correlation between price and quantity: You will not find a Rolls Royce Phantom for the price of a Toyota Yaris.
On the other hand, RR produces about 3800 units per year, while Toyota makes 6.2M vehicles per year. Guess which of the two firms makes more money.
The point here is that economies of scale matter, and even more so with software products, where variable production costs trend to zero (per unit of additional sale).
Interestingly, low marginal production costs do not imply no customer acquisition costs - which are paid upfront, at risk.
How low can you price a product with the direct sales expenditure of, $800, as in the example above?
On the other hand, which price will the market support, given the alternatives?
The conclusion here is that CAC (Cost of Acquisition) must be held at bay, for a product to scale - and this is one of the roles of marketing - especially when scaling up.
Marketing Operation
This leads us to the rationale for Marketing Operation.
The role of this operation is first to expose your brand and product to as many relevant prospective customers, but a successful Marketing Operation is not a hit and run business, either. Unless traumatic, a single exposure is unlikely to leave a lasting impression (nor do we want this one to happen...). Repeat exposure is required, therefore, for several reasons:
Remain in the customer's mind
Gradually build trust
Increase awareness to the various aspects of the offering (product and ancillary services)
Eventually, emerge as a relevant and probable alternative, when a concrete need emerges
The result of the (largely hands-off) repeating exposure, through drip campaigns, newsletters, talks, webinars, and white papers, is to "warm up" or nurture those cold leads, so that they understand the value you offer, and are willing to consider your product.
It is designed to bring them from being oblivious, and therefore indifferent to your product - to a status of awareness, knowledge, and eventually trust in your product's viability as a solution to the need that may - at customer's discretion - arise.
Lead qualification metrics should be put in place to measure the progress of leads towards their decision point, and either
Greatly improve conversion ratio when they come to us, or
Expedite our decision to proactively approach, again, improving conversion
The Product Marketing Perspective
The differences I previously listed between products and projects have a major impact on the marketing aspects of the operation. Project companies may tout their competence: Talent, experience, availability. Word of mouth, customer stories, and display of these capabilities is all that needs to be done to bring the next RFI / RFQ.
Product companies, on the other hand, compete on features embedded in an existing product. Whereas the need is clear in the project initiator's mind, a prospective user is oftentimes less aware of the problem. They count on the market's collective wisdom to define the general framework, and judge your product by the newly perceived standards.
Compare a customer seeking means of transport for their family and belongings, to a customer looking for a sedan. One word - the product category - goes a long way in defining most of the comparing points and features.
To Product companies, this calls for additional marketing activities - Product marketing.
Yes, you still need to assert your credibility as a company, tout your technological and innovative prowess, and give reassurances about your capability to maintain your product, support your customers.
But additionally, Product marketing is about playing to the tune of the need identified within a group of prospective customers. It is about showing how your product solves for these needs. It is about showing customers happy not only about your company, but more concretely, happy about how your product works for them.
Conclusion
In this post I tried to cover the matrix of considerations companies need to take when they move from project to product-based offering.
I have touched on the scale aspect of the marketing effort - necessitated by the mass market appeal of any successful product; and I discussed the shift in content that is required when marketing products to an anonymous audience, in a competitive context.
I hope you find this helpful in your journey towards growth and scale.
Are you interested in developing your own product marketing and marketing operation strategies?