Product Strategy and
to a study by Booz Allen,
new products introduced into the market have a success rate of
only 65%, and that’s using a very low definition for success --
that they were able to recoup development costs. An
estimated 46% of all the resources allocated to product
development and commercialization by US firms are spent on
products that are cancelled or which fail to yield an adequate
financial return. At this Morino Institute Netpreneur Coffee &
DoughNets event held October 24, 2001, two market veterans helped
entrepreneurs improve their odds by offering tips on product
strategy and product management. You can also read the questions
and answers from Phil
Carrai’s guest appearance in Netpreneur’s email discussion
group for entrepreneurs.
Copyright 2001 Morino Institute. All rights reserved.
Edited for length and clarity.
Statements made at Netpreneur events and
recorded here reflect solely the views of the speakers and have
not been reviewed or researched for accuracy or truthfulness.
These statements in no way reflect the opinions or beliefs of the
Morino Institute, Netpreneur.org or any of their affiliates,
agents, officers or directors. The transcript is provided "as
is" and your use is at your own risk.
Carrai, Managing Director of Ventures, Morino Group
Mauritz, Managing Partner, AppSolve
mary macpherson: welcome
morning. I'm Mary MacPherson, Executive Director of the Morino Institute’s
Netpreneur. At last month's
Coffee & DoughNets we heard from a group of regional
entrepreneurs about Driving
the Top Line and the importance of growing revenue. While
many of you don't have revenue at this point, that's often because
you're still in the beginning stages. Hopefully, some day those
ideas will grow into products that will produce revenue, so today
we're here to talk about what it takes to get from concept through
development to launch and revenue.
We're delighted to bring you two people who have actually
done that. Phil Carrai will open the session and talk about the
strategy that underpins any product, then Paul Mauritz will take
you through the methodology for the product management process.
That will last between 45 minutes and an hour; then we'll have
time for your questions.
First, however, let me
acknowledge our volunteers. Without their help we would not be
able to accomplish these events: George Debakey of Plethora
Technology, Marc Goldschmitt of Medical ONline Management,
Gene Gartner of Waterford Technology Group, Young Nam with SeHe Systems,
David Frankil Virtual
Compliance, and Peter Adler
Thank you all very much for volunteering your time today.
phil carrai: product strategy insights
Mary. We’re here to talk about product management. More
fundamentally, I want to talk about some core business issues that
provide a foundation even before you start talking about what your
product offering is, how you develop it, or how you price it. You
might say that the real title is “Defining Your Business.”
In defining your business, there are three macro rules
which you need to think through as the foundation to your company:
you have to understand your
you have to understand your
you really have to
While these may seem obvious, it's amazing to me how many
businesses I see and how many people I talk to who don't have a
fundamental understanding of who their customer is, what they
offer that customer, and, probably most importantly, what they
really want to do with themselves.
I could pick a group of five or six of you in the audience.
We could create a business plan with a business model for
distributing flowers over the Web, let's say. We're all smart
people, and we could come up with a nice package that could have
gotten funding from someone, well, two or three years ago, anyway.
[Laughter] Today it might be a little more difficult. While
none of us really understands the business or what the customers
are looking for, we could create something that seems
reasonable. The reality is that it wouldn’t be. Unless we have a
detailed understanding of how people buy flowers, the issues in
the floral business, and the industry dynamics, the chances of us
actually creating a viable business in that space are slim to
none. It goes back to these three fundamental and essential
things: Who are the customers, and where? What is it that you're
going to offer them? And, what is it that you want to do?
The first question in understanding your customer is: Are
you selling to consumers or are you selling to businesses? The
whole B2B to B2C to B2B2C, B2XYZ thing. As an aside, I never quite
understood exactly what people were trying to communicate with all
of those letters and numbers. At the end of the day, somebody buys
what you have, somebody uses what you have, and somebody pays
for what you have. Those three people may be completely
separate or they may be the same person, but understanding who and
what they are is very important.
In the consumer space, here’s an example in the wireless
industry. Is anybody here familiar with the wireless industry? [Many
hands are raised.] Anybody invest any money in the lottery? [Laughter]
Yeah, yeah. Anybody invest money in any wireless companies
recently? I see all the frowns in the audience.
There are three value-added services in Europe that have
caught on in the wireless industry. First is an obvious one, voice
mail. Everybody has voice mail. The second is short message
service, or SMS. The third is an interesting one. In the grander
scheme it's called “downloadables,” but it's things like ring
tones and icons. Has anybody in this audience ever downloaded a
Batman icon through their software? [No hands go up.] How
about a Madonna ring tone? [Still no hands.] Suffice it to
say that this is not the demographic that you'd want to target for
that sort of an offering, right? However, there are 14- to
25-year-olds who download ring tones and icons to their cell phone
in what are probably millions of transactions a day. Plus,
there’s the fact that those millions of people differ whether
they’re in the UK or Italy or Asia. Actually, understanding the
dynamics of those 14- to 25-year-olds is a miracle in and of
itself, but assuming that you can, understanding who they are and
how you bring the product to them is important before you think
about anything else.
The second interesting thing about the wireless business is
that you can either sell directly by building a website and trying
to create enough transactional volume so that you develop a real
business -- we've all seen businesses try to do that, and it's
very difficult -- or you can sell through a telecommunications
provider. That is interesting because selling to a telecom
provider, in some respects, is selling to a business. The end user
is obviously the 14- to 25-year-olds, but the group that you have
to convince to buy what you have is Verizon or a company like it.
Anybody here work for Verizon? There are probably not a
whole lot of 14-year-olds running IT within Verizon, so how do you
approach Verizon to get them to adopt your infrastructure so that
you can get that completely different 14-year-old to download ring
tones and icons? Is it a consumer who uses the product, or is it a
business that uses the product? The situation is similar if you're
selling a supply chain automation package. Who you're selling to
versus who is actually using it is very important. I have probably
seen 200-300 business plans over the last year, and it's amazing
how few actually go into granular detail about what it is that
they're selling, and who is actually buying it.
The next question is: What is the real value that you're
selling? Are you trying to add revenue to your client or are you
trying to contain costs? In this environment, not many people are
looking to add revenue. It's not that they don't want to
add revenue, it's that they're much more interested in containing
costs. If you think about containing costs, what people are really
interested in is containing direct costs. So, if you have a
product that can save people time . . . I see this a lot, right?
Someone says that it's going to save X number of hours. Years
back, one of the banks that we sold to said, "You know, if I
added up all the soft dollars that were associated with all the
projects that we implemented, I'd have negative 150 people in my
IT shop right now." That was in 1991, and the audience is
just about as skeptical today.
next point is the need for a fundamental framework for and
understanding of your solution.
What is the problem that you're addressing? How big is it?
Is it process-oriented or utility-oriented?
What is a process-oriented problem? If you're trying to
change the supply chain of a Fortune 50 company, that is a
process-oriented issue. It touches a lot of places within the
organization; it has a lot of people who may have to change the
way they do business; and it has a lot of implications over and
above whatever product or service you're bringing to market. If
you're trying to sell a network compression product, on the other
hand, you're most likely not changing process. Instead, you're
dealing with a very specific resource and you're trying to
optimize what that specific resource does. And, as you think
through those issues, are you touching dozens or are you touching
thousands of people? That's a very important difference.
It’s very basic, and everybody has asked you this, but do
you offer a service or a product? "We offer both,"
right? Everybody offers both. "We offer both a service and a
product. It's a product-oriented service and it's a
service-oriented product. We can deliver it in a product package
or in a service manner."
What the heck does that mean?
Are you selling bodies? Are you selling projects? Is there
some expertise that you're bringing from the years of experience
that you've had in the market space? Are you trying to outsource
the function? Are you saying, "I will take all of your IT
department. Just give it to me." Or are you saying, "Let
me put a network administrator in your site, and I'll charge you
on a per hour rate."
Here’s a quick example. Everybody thinks that services
organizations are in a downturn. I actually think service
businesses are still very attractive in the long-term. Let me give
you one example. One segment of the services business that has
maintained its value, not necessarily in the US, but outside, is
the offshore porting lab. Ten years ago, when people were taking
their mainframe-oriented COBOL development and putting it in
Bangalore and Bombay, they were thinking that it was a tactical
decision. “We're taking what we can't do here in the US, and
we're moving it offshore at far more attractive rates.” Well,
over the last 10 years, people woke up and said, "Boy,
applications never go away. They don't even fade away like old
soldiers. They stay forever.” The IT world woke up and said,
"My gosh, they really do own the crown jewels of what we
have." Those service organizations perform an outsource
function for a lot of back-end applications. Of all the services
businesses, that is the one segment that still maintains a
relatively high value relative to revenue and relative to
On the products side of the fence, do you have something
that is “point?” By that I mean is it something that is
delivered to a specific person in a specific area, or is it
strategic? Is it a framework for a set of applications? Are you
selling a utility, like network compression or storage or backup
or document recovery? Are you selling something that is very
specific and has one particular buyer or one particular user?
Let's talk about the salesperson automation product again
for a second. Did anybody sell in their previous careers? [Several
hands are raised.] Did anybody like using
administrative tools as a salesperson? [Laughing] I was in
marketing for quite awhile. I hated that stuff. I loved the
information, but hated doing the administrative work. Who really
buys products like that, those process-oriented products? Sales management,
marketing management, executive management.
The way you think about who is using your product versus
who is buying it is very important. If you're selling sales force
automation, the salespeople tend to be the gatekeepers and the
users. You have to sell them, but they really don't want an
imposed process. They want something quick and simple and easy. A
manager wants something that is more pervasive, that they can use
as part of their overall business planning process and their
overall management process. If you're changing the way people
think about selling, it's going to be strategic. If you're
changing the way people think about how they go to market with a
product, it's going to be strategic. How you plan, how you price,
and how you market that will be very different from something
tactical that does backup and recovery.
The last thing I want to talk to you about is probably the
most important of all -- understanding who you are. You’ve
probably heard that at a lot at events, but it's fundamental.
What is it that you do and have done? I've spent about 20
years selling to large IT enterprises. I know IT incredibly well.
I know very little about consumer marketing. If I was going to go
out and start a consumer business, my core competency in that area
is probably zero or close to it, so my chances of succeeding
aren't all that great. If you’ve spent 15 years doing a
particular function and you develop the core expertise around
either knowing a customer base, or having a set of relationships,
or understanding a particular area of technology, that is
something that you can leverage. It is a confidence area that you
can leverage and add value to.
On the other hand, if you're trying to do something that
you've spent very little time with, regardless of how smart you
are and regardless of what your SAT scores were . . . . I've heard
people say, "I've got a really smart team." Well, that
is just great. I'm really happy for you. I'm very glad you tested
well, but the reality is that the competency that you bring to
bear on this particular problem may not be relevant.
What kind of organization do you like to work for? A lot of
people come from large companies and say, "I really want to
work in a small company. I want to get the juice in a small
company." They pop into a small company and realize, that
they're not only doing the faxing and their own travel
reservations, but nobody cleans up the coffee spills. Popcorn
falls on the floor and it sits there unless you pick it up. Silly
things, right? But the reality is: What kind of organizations do
The final point is: What kind of things do you like to sell
and build? Do you like highly complex, integrated solutions where
you have to touch multiple people in an organization, half of whom
don't even want to see you? Maybe you get a charge out of trying
to piece together or change the orientation of a company through
your offering, whether it’s a service or a product. Do you like
to go in highly specifically and spend no more than 15-20 days
trying to get somebody to understand the value proposition?
Strategic or tactical? Consumer? Business? What do you really like
Perhaps the overarching thing is: What are you willing to
commit from a personal standpoint? If what you want to build is a
boutique business that provides a steady income for you and your
family, there is nothing wrong with that. In fact, most of you,
the vast majority of people who are creating small businesses,
will fall into that category. Where the problem occurs is when you
think that what you have can grow far more than what it's really
capable of, or what you're capable of -- either from your
own competency standpoint, to be very blunt, or from the
standpoint of what you like or don't like. Are you really prepared
to commit to 120-hour weeks? Are you prepared to have no salary
for 18 months? Those are the sorts of things that are fundamental
to consider before we start talking about your product offering.
With that, let me turn it over to Paul.