Landing whales and inherent tensions

Landing whales takes time, effort and a leap of faith.  The benefit to the business is clear, but the path to get there can cause significant tension in a product shop.

Product people are passionate about meeting the needs of the market by creating solutions that address the pains of the majority.  Acquisition teams are passionate about meeting the needs and addressing the pains of individual prospects and customers.  Neither is right or wrong, they are just different perspectives that create an inherent tension: Do we prioritise the many or the few?  Do we force an ‘off the shelf’ solution or allow heavy customisation?  Do we build features / integrations specifically for that large and important prospect?

Tension can feel uncomfortable, but as long as we understand where the tension is coming from and the implications of our decisions, it can drive us to a place of comprimise that optimises the benefits for both.

Solutions customised specifically for individuals are better known as ‘Services’.  Generic solutions taken ‘as-is’ for the many are better known as ‘Products’.  

Services can generate high revenues (if charged for) but lower gross margins over time.  They are significantly less scalable and far more consumptive of resource as the solution is customised towards 100% of the customer’s need.  The individual customer always takes priority in this scenario.  This makes it’s hard to find the time and resource to work on the product for the many.  Services are about the opportunity today, the immediate value creation.

SaaS products create compound benefits.  This means they generate high gross margins over time lifting the business value and ability to invest in future products.  In a product business, market needs always take priority and can cause challenges in the acquisition cycle where the solution only meets say 80% of an individual customer’s needs.  Products are about the opportunity of the future, the long term value creation.

You can see where the tension arises – if both teams are fully focused on what they’re passionate about, they are being impeded by the other and working to competing priorities.

In a SaaS business, the answer tends to be somewhere in the middle.  There is no long term value creation without a product approach, but no short term benefit without an acquisition focus.

So how do we balance this?  Each team must understand the context of the other, and respect that everyone is acting in the best interests of the goals of the business.

By taking inputs from the acquisiton teams, the product shop can finance specific builds with customer sponsors – there’s a real and immediate return as the whale lands and the whole business celebrates.  The product team just need to be consious of validating the underlying problem and potential solution with a wider group to ensure it will have benefit across the many to create that lovely high margin recurring revenue of a product shop.

Both teams then need to know when to draw the line.  

When the customer has selected an ‘off the shelf’ product, icnreasing levels of customisation creates ongoing resource drain and erosion of margins, as well as putting in place an ever increasing financial burden for that customer to evolve their unique application in line with the changes to the generic product.

The product people are best placed to identify when the customisation becomes too specfic or prevents the allocation of resource to future value creation.  This is where they say no.  Just as the product people need to respect the inputs that lead to opportunities for broader value creation, the acqusition team need to understand and respect this line where the inputs are not creating value in a sustainable way.

In short, there’s a win-win from landing and feeding whales, for both product people and acquisition teams, but it is not easy and definitely requires high empathy for each other’s context.

It needs understanding and a team approach.

Advertisements

Book Review: The Innovator’s Dilemma, When New Technologies Cause Great Firms to Fail

Book review
The Innovator’s Dilemma, When New Technologies Cause Great Firms to Fail
by Clayton M. Christensen (1997)

There is far more than schadenfreude at play when reflecting on our cultural fascination with why the mighty fall. Instead, it is perhaps rooted in our desire to avoid a similar fate. If that big and successful company over there can fail, then what does that mean for the business that I’m in?

The theory and concepts introduced in the Innovator’s Dilemma is an absolute must understand for anyone facing the task of continuing business growth. If you noticed that I have written “must understand” rather than “must read” you’ve already picked up on one of my key reflections on this book. It’s not an easy read. If you’re not an attuned technical reader that flies through academic texts, or don’t have a keen fascination with disc drives and the history thereof, you’re going to struggle with this one. That being said, if you can persist, the reward is worth it. The way you think about growth, success and innovation will be forever changed.

This book is actually pretty old these days, first published in 1997, it was perhaps ahead of it’s time as the explosion of tech startups in the recent years has brought the word ‘disruption’ into the common business vernacular. There are plenty of historical examples of disruption, the examples of disc drives and mini mills being described at length in this book, however, never has there been a time where the pace of change was so rapid, and so present in everyday consumer life. It’s all around us. How we consume media, how we buy books, where we stay when we travel, how we get from place to place, how we connect with friends and family, the list could go on and on! The up shot is that The Innovator’s Dilemma is as timely and relevant now as it ever was, both for established companies looking avoid the mistakes of the former greats, and for the up and coming startups hoping to be the next great disruptor.

The first half of the book reads like an extended history of the disk drive. The same story many times over, 14 inch, 8 inch, 5.25 inch, 3.5 inch, 2.5 inch and 1.8 inch. On and on. Technical, detailed and pretty tough going. To be honest, I got bored a few times, put it away, read something else and then came back to it. I did keep coming back though!

By the end of this section the lesson is clear, new technology is usually simpler, cheaper and lower performing. It often has a lower margin, doesn’t meet the needs of existing customers and those whose needs it does meet are so niche, they’re not worth pursuing. If you are only focused on current markets, current customers and improving profitability, it’s never going to be a priority. More than that, you’re not just going to leave this new technology that you may even have developed in house on the shelf, you’re going to bury it and ignore others playing in this space, writing them off as a non-threat due to your own lens on the competitive landscape.

The problem with this is that by carving out a strong spot in a niche market, a disruptor then has the ability to invest in incremental improvement on this new technology, which quickly sees them surpassing the original in both performance and cost. They move up market, often with disastrous consequences for the incumbent.

This is the dilemma: “the logical, competent decisions of management that are critical to the success of their companies are also the reasons why they lose their positions of leadership.”

With the pattern and framework established, the second half of the book is where it gets really interesting. With the point made, the examples become more varied, and the writing style switches from historical recount to thesis, case studies and advice. The distinction between sustaining innovations that help progress existing technologies, and disruptive innovations that chart new waters becomes clearer, and there are some positively fascinating snippets addressing questions like “When does a product become a commodity?” (Answer: When the features and functionality exceed what the market demands.)

Christensen also uses these case studies and examples to discuss good and bad strategies and posits the beginnings of some solutions to the dilemma – each presented with their potential challenges. In complete contrast to the first half of the book, I barely put my kindle down at this point!

For those that want the cliff notes, the video below gives a nice little 4 minute summary of the basic principal of disruptive vs. sustaining innovation and the dilemma itself. But if you can keep yourself motivated by the promise of the second half, do take the time to read the full book.

 

In short, the Innovator’s Dilemma is definitely on my list of books to revisit and read again in the future as it has a wealth of highly relevant principles and considerations for modern management, but first I’m going to give The Innovator’s Solution a go.