It is easier to keep a product on track, balancing Function and *Ability appropriately for each stage, than to rescue the product after it has fallen off track.
| O |
rganizations that succeed in bringing products to market in the early stages of the evolution of a Product Category are often weak at maintaining traction in the later stages. As a culture, they may place a higher value on Function, believing the entire race to be one of “beating the competition with features.” To a large degree, it is like that at the beginning, but it is not so as the Product Category approaches maturity. In reality, you don’t have to replace the “early guys” with “people who really know how to build a product,” but rather, as the Product Category shows signs of entering the Mature Stage, gradually shift product release emphasis away from Function and towards *Ability with each subsequent product release or model. As you shift to a greater emphasis on *Ability, the job of Product Manager becomes easier in many ways: engineering folks usually know how to improve quality, and customers and competitors will show you what is missing from your product.
ë If a product is on track in the Mature Stage, the vast majority of the engineering effort should be in *Ability.| Stage | Value investment[1] | *Ability investment |
| Embryonic | 60% | 40% |
| Immature | 40% | 60% |
| Mature | 20% | 80% |
Figure 26 – How much to invest
Revenue is the best kind of money
Hence a wise general makes a point of foraging on the enemy. One cartload of the enemy's provisions is equivalent to twenty of one's own, and likewise a single picul of his provender is equivalent to twenty from one's own store.
- Sun Tzu
Chop your own wood, and it will warm you twice.
- Henry Ford
Henry Ford
I |
magine for a moment that the supply of energy required by a product along its journey to becoming a complete and competitive product in its Product Category is represented by refueling opportunities along the way, illustrated in Figure 27. A big source of such energy is cash in its various forms; revenue and perhaps direct investment from inside or outside the company. The cash energy I like the most is the one that cannot be bought directly: the energy from a profitable customer transaction, and not just any customer, but a customer who paid money because he wanted your product and not because he knows you or is related to you.
Figure 27 – Refueling opportunities
| I |
t’s January. My seven-year-old son is standing out in the front yard, peering up into a cloudy sky, praying for snow. “Daddy,” he asks wistfully, “Will we be able to make a snowman today?” (He is at that sweet age where he believes his father has some influence over whether or not it snows.) “Probably not,” I answer him. “Sorry, son”.
I gave him that answer despite the fact that it was cold and there were big gray clouds in the sky. You see, many more factors go into whether there will be enough snow to make a snowman other than just cold and clouds. I’d say we had, at best, a one-in-twenty chance of making a snowman that day.
A little later, my son shrieks with joy when a single snowflake lands on his outstretched palm. “It’s snowing, Daddy, it’s snowing!” With the arrival of that first snowflake, the chance of being able to make a snowman the same day increased from one-out-of-twenty to perhaps fifty-fifty.
Even though it was a single snowflake, it proved one thing: all of the conditions required for snow were present. True, we were going to need a lot more snowflakes to make a snowman, but with the arrival of a single snowflake, we were suddenly far closer than we were a few moments earlier. It is also a mathematical impossibility that only one snowflake can fall from the sky.
A meteorologist in my front yard would be able to give you a much more reliable weather forecast.
Another way to make a snowman is to make snow by artificial means. I’ve seen fancy snow making machines at ski resorts, so I guess I could buy one and run it on my front lawn for hours until I have enough snow. It’d look pretty spectacular to have a snowman on my front lawn when it hadn’t snowed yet this winter.
Eleven years ago, one year into my first start-up, I sold the very first unit of the very first product of my tiny start-up. It was only $300 of revenue (“It was only $300,” I hear myself saying incredulously). The sale was to a total stranger on the other side of the country who found my product, looked at it and decided to buy it. I did not appreciate it fully at the time, but it was a momentous event, as the arrival of the first real customer is for any start-up. The chances that I had found the one and only customer for my product on earth were to all intents and purposes, as my good friend Aidan Rowsome put it at the time, a mathematical impossibility.
That first customer was the first snowflake.
When an investor puts a wad of cash into your company, be he your Uncle Frank or a
That does not take into consideration the morale boost that comes with customer acquisition, nor the fact that it’s one more customer your competitor does not have. Neither must you give away a chunk of the company to receive the customer revenue.
Non-customer cash injection is like snow from a snow-making machine. It works well as a stopgap, a shot in the arm while you figure out how to give enough value to your customer so that they give you cash. At some point, and the sooner the better, you will need cash from customers. Keep in mind this rule-of-thumb: $100,000 of customer revenue is worth about $300,000 of investment. Yes, it’s a very rough rule-of-thumb; it could be just 2x, or even 7x, but it is not 1x.
ë Cash is not the lifeblood of your business. Cash from profitable customer transactions is the lifeblood of your business.
You cannot build a company with cash if you have no product, any more than you can build a ski resort with a snow machine if it never snows.
Only take money when you have given real value.
| A |
few days ago I set aside a bit of time to get my start-up checking account up-to-date. One of the bank correspondences was $27 debit from my tiny bank account for a check that had caused my account to be overdrawn. The overdraft was for about three dollars, but my account went into the red, because of the overdraft charge, to the tune of $30. My bank was able to take an extra $27 from me because I took my eye off the ball, not because they added value with the customer transaction. They had a lot of money in my savings account, so it wasn’t as if I was going to run off to
Let me give you another example. Never in my memory have I been undercharged in a supermarket. I like to follow the guy at the register as he slides each item across the scanner to see how the register charges, especially when I’m buying something “on special.” On dozens of occasions, a supposedly discounted item scans at the full price, not at the discounted price. The supermarket runs a system where, when a mistake is made, the money tends to slide towards them, not towards you.
Yet another example. By now, most people have bought some kind of online service. Recently, I bought a $7 personality service online. It was actually quite accurate. It described a lot of my problems surprisingly well. I did not notice, however, that I had inadvertently signed up for a $20/month service. Four months later I noticed. Somewhere in the small print I had signed up for the monthly service. I never used it; I had never even logged on.
What all these companies did is perfectly legal, of course. What I find detestable is how they build their business: by preying on their customers’ vulnerabilities. You are paying them extra money to solve a problem that occurs while using their product, not because they delivered real value to you.
Some years ago, I promised myself I would never take money from customers if I did not deliver real value to them. I hope I can live up to that aspiration.
When you are off track
Figure 28 – May collapse under its own weight
Figure 29 – At risk of going into a coma
The charts in Figure 28 and Figure 29 illustrate the two most common ways Function and *Ability fall off balance during a product lifecycle. Let us look at each individually, as each requires a completely different approach to recovery.
In the first example, illustrated in Figure 28, the product has been packed with features since the beginning. It is the ultimate game of Jenga®; everyone knows it will topple but nobody knows exactly when.
In the second example, illustrated in Figure 29, the product is as bland as boiled cabbage. It might be the healthiest thing on the menu, but no one ever orders it.
When a product is like that illustrated in Figure 28, there is danger of collapse. If it is allowed to collapse, as they say in
- Employees pick up the pace of scrubbing their resumes and the valuable ones (that is, those who can easily find jobs) leave.
- Dissatisfied customers become a real problem.
- PR hurts your company.
- Productivity drops as a siege mentality sets in.
In many respects, once a collapse begins, it slips into a vicious cycle; employees across the company leave or become seriously distracted, which reduces their capacity to effect improvements even if they do stay, which in turn makes the problem worse. More employees leave, and so on until you reach “rock bottom”: you are left with a smaller team of people who are unwilling or unable to leave. Honey, I’ve shrunk the company.
Often, those who managed the product into this situation are still in charge, which adds an extra challenge. It is time to get beyond the business-as-usual mentality, which is how you got into this situation in the first place. It may not have collapsed yet, but it will collapse if you continue on your present path. Unfortunately, companies always seem to wait until a collapse before taking action. You need a restructuring plan:
- Modularize the product in stages. In all likelihood, there is little or no modularization in the product. Even if only on paper, write down a list of “parts” to the product; imagine you are a customer–how might you describe this product in terms of such parts? Start with that list and make a note of whether each is critical, important or unimportant.
- Get real about functionality you may be able to strip from the product. Which of the features can you drop from the next release?
- Aggressively connect with your angry, but still (hopefully) valuable customer base; you have sinned and must earnestly request forgiveness and another chance to serve them better. Specifically, share enough details of your product restructuring plans so they remain supportive while you execute against the plan, including details about what is going to be stripped from the product and what delays will result from the restructuring. Remaining in touch during execution will be key to keeping them as customers.
| W |
hen you find yourself at the other extreme—your product high in *Ability but low in Function-- you may have few options left. You may have shipped a premium first product originally, but have not been able to update your product with new life since then. Your product quality is unmatched, but it has lacked the injection of new Value for so long, it seems jaded.
Your job now is to wrest control of the product from the forces of security. Serious Value needs to be added that exploits the long and costly investment your organization has made in *Ability. Likely, the Product Category has advanced well ahead of you, along with your competitors. Having lost the lead, you will need to study how and where competitors have been succeeding. What is their pricing model? What is their feature set? How do customers regard competitors’ features?
Exceptions
| P |
ile on the Function: “I should like an outfit of Spitfires!”
During World War II, Reichmarschall Hermann Goering turned to Luftwaffe pilot Adolf Galland at one point to ask what he needed to achieve his objectives. Galland replied that he needed an “outfit of Spitfires”: the competitor’s product, of sorts.
Sometimes, you really do have only one shot at it. During the World War II Battle of
Like so many companies that drain their coffers in the hope of the One Big Product Victory down the road, the Germans delivered their product, paradoxically, both too late and too early. Too late, because the Allies had already won the war, to all intents and purposes, by the time they shipped their product; too early, because they delivered the first true jet powered aircraft years before they came into mainstream use.
Very generally speaking, the British business environment appears to favor those people and organizations good at building out the Function element of a product: in other words, entrepreneurialism, creativity and flexibility, often at the expense of quality. The German business environment, on the other hand, appears to favor those who build out *Ability: in other words, process, exactness and predictability, sometimes at the expense of value-for-money to the customer.
Competition in the early stages of an evolving Product Category is more of a “war” situation; competition within an established Product Category is more of a “peace” situation.
| L |
ife-critical devices such as pacemakers, seatbelts, prescription drugs and aircraft, need significant *Ability with each and every product release. If they do not have increased *Ability, people may die, destroying the opportunity for the product entirely with a single product release. Some products can be in development for more than a decade before the very first unit hits the shelves: big organizations, big investments and a lot of patience.
| S |
ingle-version products such as some toys and gadgets, come and go from the market in a single version.
[1] Although the relative investment in Value drops off, it may actually climb in absolute terms. Products get more expensive to improve as the Product Category matures.
[2] RADAR played perhaps an even greater role during the Battle of Britain, giving the Allies a means to focus their fewer resources on only that part of the country that was being attacked, but from the German point of view at the time, the Spitfire looked like it was killer product.
No comments:
Post a Comment