The road to scalable products and a repeatable business via smart Product Management trade-offs.
Over the last couple of weeks in Jeff Bussgang and Jeffrey Rayport’s classes at HBS on Launching Technology Ventures (LTV), the challenges of product development from inception to scale have been discussed.
Using Open English as a case study, the discussion focused around the challenges of starting with a Minimum Viable Product (MVP) and scaling to meet customer demand, while managing technical debt. With Opower, we discuss the make or break decision of whether to take on a new $15M customer, ABC power. Since Opower was at the time a $35M per year bookings company, ABC represented a nearly 50% bump in sales and an 20x bigger deal than was the average for prior customers. But they came with various special requirements, a tax on the existing architecture, and they looked like a “one off” that required unique customization, making it a non trivial decision whether to take them on. Should OPower take the deal? Sales would of course say yes. What would you do as the Product Manager and what is at stake?
Below is a framework for you to consider some of the key trade-offs.
The idea of his framework is simple. Look at a stepwise progression from product customer fit, to product market fit, and check what tradeoffs you’re making along the way. Double click on the tradeoffs as follows:
How do you standardize vs customize your product? Is there an architecture you can invest in that will enable both? For example an open and extensible base product with modular components, open APIs and high configurability can help with this challenge, as suggested in Figure 2 below.
In my experience, a well architected product can enable several key things to help enable a rapidly growing startup, including:
- Making an internal customer of the engineers who build on the core / kernel or APIs
- Enabling external extensibility or even open sourcing
- Therefore enabling co-creation of additional functionality or modules
- Easier integration with whole products, other stacks or cloud services
- Much greater flexibility for non engineers such as professional services and external consultants to assemble and deliver customized solutions and personalized designs
- Customer delight through configuration and self service
Ben Foster, the head of Products at Opower, was well aware of this thinking from his experience, and knew to approach the ABC Power company as an opportunity to get this kind of architecture into practice. He even called out how it would enable him to make a “partner” out of ABC power. And he was very clear he wanted a scalable SaaS product at the end of it and not just a heap of technical debt.
However, by definition and often by design for speed of iteration, very little of this architecture is usually built into an MVP – (witness the challenges at Open English). So while MVP is a great way to get started, expect to build technical debt until you architect a flexible solution.
This means with an MVP, you’ll need to be very careful to initially select those customers that can help you get repeatability without too much customization or increasing your product footprint. Define a Minimum Viable Segment (MVS) where needs are consistent. Then before simply adding functionality as you address further customer needs, consider what technical debt you may be building up and whether the foundations of your architecture either support it or justify it. While this is mostly applicable to B2B / enterprise, the same principles are also relevant to B2C, with more granular focus on demographics and personas, not just overall segments.
Try to balance functionality with architecture to support a growing product footprint and reduce tech debt buildup, either within each sprint or with specific foundational architecture sprints.
And if you want to growth hack and accelerate your business, consider how to create internal customers, and external customization, and ultimately an ecosystem of co-creation with a modular, open and extensible product as illustrated in Figure 2. As discussed with Ben Foster, the VP of Product:
“This kind of open, extensible product framework lays the groundwork to transition from a feature to a product to a company.”
How do you and your salespeople qualify customers between Typical and Outlier?
The product manager’s challenge is to figure out whether customers represent Outliers or are more Typical of the market you want to address. This is where Segmentation according to customer needs with an MVS is so helpful. But sometimes a big new customer like ABC Power can represent a great means to pay for and accelerate your roadmap. The key skill here is prospective customer qualification.
Some questions you might ask here as a product manager include:
- Is this functionality really necessary in the core product, or could it be built as a customization?
- Can we afford to build up the technical debt with a one off solution, or does this customer point to a required change to our architecture?
- Is that architecture something we need to change anyway to meet a new segment of customer needs or open up new markets, and expand our Total Addressable Market (TAM)?
- Have we “mined” enough of our current segment before moving to a new one?
- Do we need to move to a new segment for our other reasons such as to keep a competitive advantage?
- Is this customer a “lighthouse” customer to lead you into that new segment, and that could come be a great marquee reference for you too?
- Could this lead to an expanding TAM?
- Or is this just an Outlier that we should ignore in order to keep focused on our target segment?
As you analyze your customers and prospects and their evolving needs, consider whether they are representative of a Trend or a Fad. (In the case of Opower, the move from paper-based reporting of energy usage to multi-meter and then to a two-way communication with intelligent devices was clearly a trend. Ben and the team recognized and saw their big potential new power utility customer as helping them to go after this, hence going after the deal.)
Bigger customers, bigger market
By building this new functionality into the product, Opower expanded their Total Addressable Market (TAM) to reach other large Utilities who would need these same capabilities. This was timely and appropriate given the recent $50M fund raise that had set high expectations and valuations on their road to an IPO.
Vision as a guidepost
Be aware that customers are often good at explaining their current pain, but rarely good at getting beneath that to the root cause of it. And it’s even more rare that they’re visionary enough to predict how it will evolve. Faced with this challenge as a CEO, one of my favorite mantras was, “listen, lead and validate”. That is to say few customers are visionaries, but if you seek out and listen to enough of them and to market needs you can gain the critical insights to take a visionary, but informed stance. This will enable you to develop long range radar around customer thinking and lead a market. To be sure it’s not hallucinatory, remember the difference between hallucination and vision is just two letters. P.O. (Purchase Order) – the ability to ultimately get sales from products derived from your vision is often the only validation that really counts. For more reading on the importance of vision, see this post: 3 Examples Why Twitter’s Struggles with Vision are a Learning Moment.
Questions at this stage include:
- How aligned are you and your customers and prospects with your vision and mission for the business.
- Is your product and business model enabling you to lead the market or is it hindering you?
- If your solution is disruptive to incumbents in the market, how can it be non-disruptive in adoption for your customers. (VMware’s virtualization was highly disruptive in the marketplace but relatively non disruptive to customer to adopt). For more information on this see Building a Compelling Value Proposition.
Use the product/customer/market fit strategic framework to consider what customers to take and how to product manage your trade-offs. Never fork the code if you want to be a product company. Instead create a flexible architecture that will enable customization and adaptation, and use it to enable your Vision. Validate through your customers’ success, and don’t be afraid to go after the big lighthouse accounts segment by segment to win maximum market leadership. And thinking about this in the fuller picture of building a large successful company. Design and instrument everything for scale from your team to your business model.
If you’re going to pick a fight, pick a big fight! Go after a really big market need with the potential to be a large company. Develop strong product management to win increasingly large customers and manage smart tradeoffs to stay on the roadmap to a repeatable scalable business.
For those attending the class, here are the takeaways:
For more information on turning products into companies you can find our growing list of Harvard iLab resources on it here.