Product Strategy and Management Insights

According 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.

speakers:
Phil Carrai, Managing Director of Ventures, Morino Group
Paul Mauritz, Managing Partner, AppSolve

mary macpherson: welcome

Good 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 of CybeRecord. Thank you all very much for volunteering your time today.

phil carrai: product strategy insights

Thanks, 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 customer,

• you have to understand your offering, and

• you really have to understand yourself.

            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?

understanding your customer

            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.

understanding your solution

The 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 earnings.

            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.

understanding yourself

            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 you like?

            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 to do?

            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.

[continued]

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