Updated: 3 days ago
(A SCALE Perspective)
The journey of many bootstrapped companies towards scale requires transitioning from project to product driven marketing. This post discusses some of the cultural and operational changes that must occur in when seeking higher growth through technology and capabilities productization.
But first, what differentiates Products from Projects, when considering technology companies?
Consider some of the patterns that emerge in project driven environment:
In a project, the vendor employs talent (labor, knowhow), and potentially manufacturing capabilities, to solve for customer requirements.
A project usually comes as a customer initiative, in form of RFI, RFQ, or less formal call to action. These documents detail the customer's vision about the business need, the market, the solution.
The result of such project may well be a product, but the "product owner" will be the customer.
Generally speaking, 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 R&D team.
The resulting solution is oftentimes tailored to the specific needs of the customer, and is not easily replicable to other contexts: Use cases, User personas, Features, and infrastructures match closely the customer's needs, while other potential users of the technology require totally different attributes, which may be incompatible with the solution developed.
Conversely, when the company decides to build a product, different traits show themselves:
The initiative comes from within the company, with a larger scope in mind. Market, target users, decision makers, scale, features, are all decided internally - even with a design partner involved.
A product management team will emerge, exercising "ownership" and mediating between hypothetical (and real) users, and the development team.
A general "prêt-à-porter" case will be sought, rather than the fit-to-order project.
Scale will be key - both in terms of technical infrastructures and of marketability.
Business models will be researched, tried, succeed and fail, since the project model of time and material (where "time" reads as "labor") is no longer relevant. The company will now have to think differently about pricing and delivery models, support scenarios.
Marketing ≠ Sales
First, 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.
Consider a company with the target of closing just twenty sales per month. Nothing out of 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 a several touch-points with a prospective customer (lead): Calls, emails. Cold leads convert to hot (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 sale, four 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 months, and 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 costs, no 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 reduct the attrition rate between leads entering the funnel, and actual buyers at its conclusion.
It's All about Scale - and Pricing
We discussed above the differences between one-off projects and mass market products. The whole point in making a product is to successfully marketing 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 convert a technology previously used in delivering projects into such.
Another - almost obvious - point is the different pricing considerations, when looking at project and products:
Projects command higher prices than products. Oftentimes, that price is independent of the effort the project requires, but relies on the nature of the customer, the benefits they would reap, or other internal factors.
Going to market with a product requires a different mind set in pricing, as your product will be comparable to others on the shelf, to other alternatives. Even if customization is required, shoppers expect a ball park, a measurement to compare.
Another, yet important, issue is the negative correlation between price and quantity: You will not find a Rolls Royce Phantom for a price of a Toyota Yaris. On the other hand, RR produces about 3800 units per year, while Toyota makes 6.2M vehicles per year.
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).
Given competition and amount of sales sought, the price of a product, or its product of mothy cost and the user's expected life time (it's CLTV - Customer Life Time Value) is limited.
How low can you price a product with the direct sales expenditure (cost of customer acquisition) of $800?
And how high price will the market support, given alternatives?
The conclusion here is that CAC (Cost of Acquisition) must be held at bay, for a product to scale.
This leads us to the rationale for Marketing Operation.
The role of this operation is to expose your brand and product to as many of relevant prospective customers.
A successful Marketing Operation is not a hit and run business, either. Unless traumatic, a single exposure is likely to leave 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" leads.
It is designed to bring them from being oblivious, and therefore ignorant, and subsequently: 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 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 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 ad