Saturday, December 12, 2009

Throw away your Anchoring Bias

I recently attended a sports coaching course, and the instructor touched on many of the psychological elements of athletes. Sports is a great analogy for business - there are some people who excel at anything they do, while others are happy to just turn up and have an enjoyable time. I don't like to be involved in any business or sport where I can't see a path to winning - I don't want to just turn-up.

As athletes move towards their goals they can often be held back by an Anchoring Bias - a cognitive bias that leads us to rely too heavily on a single piece of information, that may have been useful in the past, but even  may even be irrelevant in the decision at hand.  We have an anchoring bias because we have a strong emotional tie to the data or experience and it makes us feel good compared to using new sets of data that are unfamiliar.

An example of an anchoring bias is a top level athlete who puts out an instructional  DVD that explains a certain technique, but when you watch them, clearly they are doing something completely different.  Sometimes when even faced with visual proof, they continue to perform the way that is comfortable.  Dr Michael J. Keyes, M.D. in a recent article states:

One of the sometimes puzzling aspects of elite level performers is when they make what appear to be drastic changes to a perfectly good technique.  Great golfers are famous for this.  You may see Tiger Woods take time off and completely change his swing for no apparent reason.  To us mere mortals, that seems like gilding the lily, but because of a need to be perfect and succeed all the time, elite-level performers will consciously let go of the anchoring biases  they have and look for better ideas to use.



This is one of the traits of successful performers - they are never afraid to let go of the past and try new techniques - to them they are just tools that can be used, modified, and discarded as necessary. For many of us, it can take a significant failure to discard our anchoring bias and to move forward out of our comfort zone.  I once worked for the CEO of a large public company who had been dismissed as CEO but later won the job back (a very humbling experience) - and has taken the company to over $1bn in revenue.  I don't mind admitting that I have failed a number of times in business, but each time have stepped back, dropped the anchoring bias, and learnt new skills to move forward.  How many entrepreneurs and successful business leaders have been through this cycle?  Instead of being ashamed, an entrepreneur embraces failure as an asset that tells them what to change.

The take-away here is to identify your anchoring bias before it heads to failure, or at least prevents you from achieving goals.  As much as possible try to be cold and analytical, identify what you need to change, and accepting that this likely isn't going to be comfortable - being comfortable means likely slipping back into old patterns of behavior.

And like athletes, using a coach to identify these biases and teach us new skills can be extremely effective.  A coach can step back and see things that we don't see ourselves, plus help us learn, implement and practice news skills.  I've been using the same personal business coach for over five years, and I regret not meeting her earlier. In a similar way I have a sporting coach that focuses on improving my skills on the field.

In each case we're on a journey to the highest performance levels and we'll continue to work on this together - like Tiger Woods I need to be able to throw away my anchoring bias and learn new skills to succeed.

Wednesday, November 18, 2009

How does a Customer Determine Product Value


One of the most difficult aspects of the product role is setting product price, but before that conversation can happen you need to have a good understanding of the value to the customer.

There are many flawed practices when understanding the value to the customer, such as taking into account development/products times or cost, "coolness factor", size of the customer's business, number of customer units etc.

The reality is that the maximum amount a customer is willing to pay (the Economic Value to the Customer or EVC) can be calculated with a simple formula:

EVC = Reference Value + Differentiation Value

The Reference Value is the price of the closest perceived substitute.  This is extremely important - understand what alternatives and substitutes the customer sees in the market.

The Differentiation Value is the value of your product's attributes that exceed the reference value. These attributes includes features and functionality, time to market, size, cost, licensing, support etc.  You also need to ensure that the customer is fully informed of all of the differentiation you provide.

As an example, when I moved to California two years ago I needed to buy a new car for commuting in the bay area.  Initially, I was thinking about a BMW M3 convertible (my requirements list has convertible as mandatory), and went to talk to the BMW dealer, took a test drive etc.  From memory the M3 was about $70K.

After driving the M3 I decided to check out the Mini Cooper S convertible, and found that it met my needs and had a total price of approx $35K.  So the Mini Cooper S became my Reference Value.  Although the BMW M3 was clearly a better car than the Mini, I couldn't determine $35K of differentiation value.   The Mini had the same three year service plan included, had a cabin size roughly the same as the BMW, had an automatic roof, had more than enough power.  So purchased the Mini and I have been very happy with my decision.

Remember in the technology space that any company can copy and build any other product, unless it is protected by patents.  And in the days of open source, there is often a reference value of zero, which has significantly disrupted pricing dynamics.  The take away here is that you must get inside your customer's head and understand what they see as the reference value.


At the Hass Business School Strategic Pricing Course, Professor Teck-Hua Ho listed three "Magic Bullets" for affecting price sensitivity:
  1. Substitutes Awareness Effect - Buyers are more price sensitive the higher the price difference between this product and the percieved substitute.
  2. Difficult comparison effect - Buyers are less price sensitive the more difficult it is to compare competing offers.
  3. Switching Cost Effect - Buyers are less price sensitive the greater the sunk investment they have made in anticipation of it's continued use.
Each of these points can be converted to a takeway:
  1. If your strategy is to price high above the reference value then you must focus intensely on informing your customer of your differentiation, and be prepared for a longer sales cycle as the customer grapples with the difference between Reference Value and EVC.
  2. Get out of crowded markets and into a market where you have a unique solution and the customer finds it difficult to come up with the EVC.
  3. "Sticky" products are best - look at how difficult it is to be displaced after you make a sale.
So the next time you are sitting in a room discussing pricing, try raising your hand, and asking what is the Economic Value to the Customer (EVC) of your solution.  See how many blank looks you get, and then go back to basics and calculate EVC.

Tuesday, November 3, 2009

Business Fables - The Monkeys and the Bananas

I was talking with Ed Ryan the other day, an ex-colleague from Novell (in fact he was my first Product Management boss at Novell, and easily the best I have ever had), and we were discussing company culture and why it can be so difficult to change or evolve, even when it's clear things need to change.

Ed related the parable of the monkeys and the bananas:

Put ten monkeys in a cage, and then dangle a bunch of bananas through a hole in the roof.  As the monkey's charge the yummy bananas, hit them with a fire-hose. Keep doing this until finally, you lower the bananas and the monkeys stay well away because they don't want to be given a good soaking.  


The monkeys are smart and they have learnt their lesson, so know that banana=soaking.


Now take one of the monkey's out of the cage and replace it with a new one who has never been soaked.  As you lower the bananas down the new monkey will make a beeline towards the bananas.  The other monkey's however will shriek in horror and hold the new one back, as they don't want to get soaked.


Keep replacing monkeys one at a time, and the same thing happens.  Pretty soon you have ten monkeys who have never been hosed down, who won't touch the bananas.  None of them really understand why, but the behavior has been reinforced - don't touch the bananas.


This is a good analogy of company culture, and why it's so hard to change - once a culture is established, new employees don't understand the reasons why, but help to perpetuate and indoctrinate new employees who come in with new ideas and viewpoints.

This is also why a "hero" CEO cannot save a company by themselves - one person, even the CEO, will find the management team acting like the monkeys in cage, and resist the change.

The solution here is for the CEO to bring enough of a replacement management team - imagine if instead of putting one new monkey in the cage we add four or five - these will be able to band together and hold back the monkeys from stopping them getting the bananas.  I have spoken to a number of CEOs of public and private companies who wish they had followed this in the past, and swear that they will bring their own management team next time.

This parable is also why starting innovative new products inside an existing product group is so hard - the monkeys keep focusing on the existing rules and culture, that may not apply to the new thing.

The solution here is start the innovative new product outside of HQ, and let it build its own fast moving culture.  This could also be achieved by acquiring a smaller company as the seed of the new organization, and keeping the management team in place to grow the new business - this is a model that Citrix uses effectively with companies like Net6 (Access Gateway), NetScaler, and XenSource (XenServer).  In monkey terms we are getting a second cage and putting the new monkeys in that.  Perhaps over time we'll move the old monkeys into the new cage, and they will have to adapt to the new culture.

Thanks Ed for relating this parable, and I always keep this in mind when confronting change.


Thursday, October 29, 2009

Lessons from the Australian Army


As many of you know, I spent the first seven years of my working life as an Officer in the Australian Army.  The 25th anniversary of our officer training class is this year, and we've had emails flying around organizing a reunion - it's great to hear from people that I haven't seen in 20+ years.

While many people don't like military analogies, much of our training was around management theories, and how to get the job done efficiently.  We studied much of what your typical MBA student would cover, and were able to put it into practice in our careers.

One of the classmates from Officer Cadet School (OCS) Portsea is Cameron Hetherington, and he now works as a consultant in Brisbane Australia, specializing in business planning I was struck by the simplicity and accuracy of this message from Cameron:

"You probably released very quickly, as I did,  how useful our military training has been when you start working with some of these businesses; basic organisation, leadership and communication are lacking.  It’s amazing the success that can be achieved when a well communicated plan is in place!"

Absolutely correct - I know that success in my own startups has largely been due by paying attention to the basics above.  All the vision in the world, market and product plans, opportunities, contacts etc cannot make up for a lack of effective execution, so focus on:
  1. Basic Organization - have defined processes to get things done.  These don't need to be complex, but encourage repeatability, and everyone knows what needs to happen for success.
  2. Leadership - motivate your employees to do great things.  Leadership is not the same thing as management - leadership is inspiring your people. John Gardner said it well "...leaders can conceive and articulate goals that lift people out of their petty preoccupations and unite them in pursuit of objectives worthy of their best efforts."
  3. Communication - make sure everyone knows what is happening. A 15 minute standup meeting every day, and a one hour team meeting each week is a great way to keep everyone informed and make sure the left hand knows what the right is doing.
Nice one Cameron.

Wednesday, October 28, 2009

Humor has a place

OK, this doesn't really belong on a product blog, but it's simply too precious to not discuss.  Anyone who lives in California knows that the state has huge financial problems, and the governor, Arnold Schwarzenegger, is exasperated with the house not addressing the problems.

Yesterday he rejected a piece of legislation, and buried in the text was a hidden message directed at State Assemblyman Tom Ammiano, author of the bill, according to the San Francisco Bay Guardian. Ammiano had strongly criticized the governor in early October and reportedly told Schwarzenegger at the time to “kiss my gay ass.” Schwarzenegger’s veto letter, issued a couple of days later, reads:





Take a close look at the first letter on each line.  It's pretty funny.



A quick footnote...  This is NOT a joke - it really happened.  Check out the online newspapers.

Saturday, October 17, 2009

SmartGrid Interview

Last month I presented at a SmartGrid Conference in Los Angeles, and as part of the conference did an interview. This gives you a good idea of Mocana and how we relate to the Smartgrid space:

Sunday, October 4, 2009

The Perfect Product 10

I was talking last week with the CEO of a startup who was brought in by the board of directors to turn the business around. The company had taken in $17M of venture capital, and investors were unwilling to contribute more. His mission was to get them to a position of either profitability or where more money could be raised. My friend is a very experienced sales executive, and took a company public very successfully.

He told me that after seven months, when he was able to earn the trust of the board of directors, executed his plan and shut the business down. I asked him why, and he said that right from the start it was obvious that the business would never be profitable - a sizing of the available market and the revenue per customer showed clearly that there just wasn't a viable business. And with so much capital injected, it just didn't make any sense to attempt a restart to a new market. So he now has a management team and $2M that he is looking to seed invest (the investors didn't want the money returned).

This tale reminded me of the "Underpants Gnomes" from a South Park episode. For those that haven't seen this, it's a hilarious views of many start-up businesses - you can watch the segment here.

They had a phase 1 plan, phase 3 was profit, but were missing phase 2 - how many businesses are like this? Of course this applies to any business, but we're going to focus on how it applies to technology products. As you talk to the VC's of Sandhill Road, the most common initial question to entrepreneurs pitching is "How will this make money" i.e. what is Phase 2.

As we were talking about this, I started thinking about a simple checklist to evaluate product opportunities. So here's the list so far:

  1. Meets a customers need or solves a customers problem (don't even continue if you score a zero here). Products dreamed up in offices are often cool and visionary, but don't solve any need can be a company's death wish.
  2. Available market opportunity is big enough. This is an important one - getting in early on a future large market is critical - analyst market predictions help and confirm with potential customers (at Citrix a rule was thumb was that we should see at least a $200M market within a few years). Coming in late into a mature and crowded market is bad unless you can be truly revolutionary. As an example, the WAN Optimization market is now mature and crowded (so avoid it), but we are just on the cusp of the mobile internet device (MID) evolution (nice place to prospect).
  3. High Differentiation and (therefore) low competition. If you are competing on the basis of being smaller & faster then accept that this isn't sustainable over the long term (remember Novell?). Don't enter a market that is choked with competitors or dominated by a few large players.
  4. High Sales leverage (e.g. channel, online) - don't build a business that requires scores of highly trained and paid direct sales guys - this will constrain your growth. Sales guys are absolutely critical to any business, but you need to go out and get leverage to scale quickly.
  5. Low cost of sales and short sales cycle - some products require length sales cycles, with multiple customer department involvement, and even consideration up to the board level. As an example, think of the long length of time for an enterprise to approve a new financial or ERP system. On the converse side, people buy apps from the Apple App store on a whim, and often after a friend's recommendation.
  6. Easy to evaluate - make it super easy for a buyer to try out your product. I'm a big fan of the "freemium model" where you give away something basic free, and then up-sell. Look at what it did for the recently public LogMeIn.
  7. Low Support needs - build the need to call support out of the product, make the product self-supporting, well documented, give end-users forums etc. Do whatever you can to stop them needing to call you (and costing you money).
  8. Demonstrate clear customer ROI - in a downward economy customers are not going to buy anything unless there is a clear return on investment. Help them see that with an ROI calculator. Many companies are moving to a SaaS model as it makes the customer ROI much quicker without an infrastructure to deploy and maintain. If your customer doesn't help a customer save money or generate new money then it's probably a bad idea.
  9. Easy to market, explain, and understand - How easy is it for your customers to grok what the product does. If you can't explain in 2 sentances, then it's not the right thing.
  10. Generate recurring revenue - this last one is a biggie - you must be able to sell more to existing customers, or generate recurring revenue, such as with a service. We all know that it's much easier to sell to existing customers than find new ones - so give your customers way to continue to spend with you.
Of course no product is going to meet all these criteria, and some are more important than others. I am putting together an excel sheet that applies weightings as well as scores, and will post it to the blog when complete. Using this sheet I intend to help one of the companies I am advising what product ideas to focus on further - we'll end up with a top 3 ideas and then build more detailed business plans on each. The other advantage of this approach is that it generally resonates with engineers, as it is an analytical approach.

So let's go out and create our own perfect 10.



Thursday, September 24, 2009

What does Product Management need from Engineering

Yesterday while at lunch I was asked by a VP of Engineering what Product Management expected from Engineering. An excellent question and one that is valid no matter what the organization size - and not as easy to answer as I thought. The definition of product management (and engineering) is different from organization to organization and from person to person - and every organization has different needs, strengths and weaknesses.

The first goal of a Product leader is to create a common understanding with engineering on roles and responsibilities. Don't assume when you turn up that everyone knows what you should be doing (even the CEO). Start with the job description, and sit down and interview all the stakeholders - you'll always find a broad range of definitions and understanding. There is nothing worse than a Product Manager who waltzes into an organization and suddenly expects everyone to follow their definition of Product Management.

A mandatory pre-read to this article is Marty Cagan's excellent article "Moving from Engineering to Product Management", explaining the key differences in thinking between the two roles. I won't repeat those here, but this is extremely important.

The best products are built by a team of engineers and product people who trust each other and interact closely and regularly - there is absolutely no doubt in my mind or experience that a one sided approach leads to failure (or a failure to capture the full opportunity). Interacting with the market, customers, partners, analysts, press, developing product plans is a full time job. Ditto building software.

Keeping that in mind, here's how I answered the VP of Engineering's question:
  1. The number one goal is for PM and Engineering to form an open and trusted relationship and nothing else matters. The groups must be talking every day and feel that they can rely on each other and trust the other to do their job. Although this sounds simple, it's often neglected. Communication must occur in person and a good model to follow is the agile "15 minute standup". If frequent and open contact does not happen then the relationship is doomed - at one role of mine the CEO was almost continually unavailable, so I was never able to really connect and understand what was needed/wanted.
  2. Conversations must be open and honest - each side are smart and have an ability to detect bullshit. There is nothing wrong with admitting shortcomings, concerns, resourcing issues, etc. I have noticed in the past that it may take a "blow up" i.e. emotional argument to reach a point of openness - I am not advocating this as a path, but it has worked for me when we didn't seem to be making progress in the day to day meetings.
  3. There needs to be a recognition from Engineering that Product and Market issues cannot be solved the same way as engineering problems. Engineering is analytical and technical discussions can be debated in precise terms and solved in an absolute way. Market issues are a complex mix of data, market forces, customer desires, economic conditions, positioning, pricing etc. I have seem a lot of conflict between Engineering and PM when Engineering continually pushes and frustrates PM for "more data" even though decisions are made with a different set of criteria.
  4. In a similar vein to above, Engineering needs to understand that we are living in an extremely fast moving and dynamic world, and in the worse recession for 70 years. Product can do all the right work to decide a future direction, but the ultimate approach that all companies must take is one of Product Discovery (another blog post of its own). You must get to market quickly and validate the path is correct. There is no shame in ackowledging that all the right work was done, but after the first iteration the market has moved or you missed the mark - the main thing is that you can understand what changed, and refocus quickly. So Engineering needs to not show frustration to course changes along the way, and not blame PM.
  5. When the above occurs we can reach the ultimate point - Engineering and PM see themselves as joint stakeholders in the product. No one group owns it or takes credit, and each team is confident that they have part of a successful team, and when PM asks for changes they do it for good reason.
The above has focused on relationships, frames of mind, and reaching a mutual understanding, because once that happens, everything else can be solved. From a nuts and bolts perspective, here are some of the things that PM would expect from engineering:
  1. Requests for clarification or additional information on products, MRDs, uses cases, etc
  2. Status updates on projects - what is on time, what is behind, what needs more resources
  3. Feedback on support issues - how much time are they consuming, trends etc
  4. Feedback on any customer issues or opportunities uncovered directly - engineering is often in customer calls or conferences that can be fed back to PM
  5. Exciting innovations that engineering has produced or could produce
  6. Information on new features and products so that Marketing and sales can be fully briefed on how to take to market
  7. Collaboration on roadmaps
  8. Collaboration on product releases
  9. High level product design and user interaction reviews, so PM can understand if the design will grok with customers.
  10. And finally, don't let issues fester - sit down and discuss concerns early and get them solved before things blow out of all proportion.
The next post will cover what Engineering should expect from Product...

An evening with Larry Ellison

On Monday this week the Churchill Club organized an evening discussion with Larry Ellison, held at the San Jose Fairmont. Larry has been CEO of Oracle Corporation for the past 32 years, since founding it with two other guys and an initial stake of $2000.

Larry came across as an extremely articulate, passionate and driven individual. He seemed quite relaxed, and there was none of the "arrogance" that he is famous for - although I am convinced that many confuse passion and a drive to win with arrogance.

The evening was not as probing or informative as I had hoped, but there were a few pearls of wisdom:

On Competition

I can't remember his exact words, but they were something like "be careful when selecting your enemies, because you'll end up looking like them". To me this was extremely profound - he mentioned that Microsoft is now really focused in the consumer space, likely because they see Apple as their biggest competitor (e.g. Zune to meet iPOD). But Microsoft made their money in the Enterprise, and should they be focusing away from that core strength?

Novell hated Microsoft so much in the 90s that they tried to assemble a company almost identical (remember DR DOS?), and as we know, that almost killed them (although it's been a long lingering death). Novell could have been Cisco, but they focused so much on being Microsoft that they were blind to bigger opportunities.

I got the impression that Larry sees his biggest competition as IBM, especially the IBM of "Thomas Watson Junior". He talked about them in very respectful terms many times, especially how they were able to deliver a complete solution. So another takeaway here is that it's OK to respect the competition.

On the economy

Larry sees the recover as being "L" shaped i.e. he sees a very long recovery, and predicted things won't be getting better for five years. The past boom as based on unsustainable debt driven spending, and we need to return to higher house hold savings. There was also a discussion that the US may need to implement tariffs to combat goods produced where energy is much cheaper (and dirtier).

On Product vs Solutions

The discussion I enjoyed the most was where Larry described the IT industry as reaching a point of maturity (like aerospace), where it will be dominated by 5 or so companies that provide complete solutions. He believes strongly that the past approach of a horizontal environment where the customer integrated the solution was wrong, and we need to return to the IBM model of old where a company delivers a complete working solution.

I personally believe very strongly in the need to vertically integrate, even at the portfolio level, rather than stretching out horizontally. And at the company level, Apple and RIM have shown that a complete vertical solution can function without significant integration issues or costs. If you think about the core message of the Apple versus PC advertisements, it's really all about vertical integration versus a horizontal solution that must be integrated by the buyer.

A final word

On the prophetic words was his advice to startup entrepreneurs to look outside the maturing IT industry if they want to have a shot at building another Oracle. He felt that Biotechnology in particular offered much more opportunities, given the early stage of that market. Sobering words for entrepreneurs.

Friday, September 18, 2009

Incredible, Amazing, Awesome

This video is a funny take on the enthusiasm from Apple executive presenters. It's certainly important to have enthusiasm for your products, but it can sometimes come across as over the top - but remember these words are delivered to an audience of Apple devotees.

I admire Apple and they're got some great products, but what they have created is a religion where they are the deity and can do no wrong. Apple disciples embrace everything Apple, and diss anything not-apple (especially the Satanic company in Redmond). Apple is a phenomenal MARKETING company as well as technology company.

And let's not forget that their primary goal in life is to make (gasp) money for their shareholders. To see people lining up at the company store to pay money for expensive merchandise that advertises your company is truly marketing genius.

I found this funny comment on Youtube by TaxMachina, responding to criticisms of the video:

Will you Mac fanboys shut the hell up? Your rabid attacks and pathetic apologistic reasoning is so much like zealots defending their religion that it is truly sickening. For pity's sake just stop hating for five seconds and look at yourselves.

The video is funny. It is pointing out bad speaking skills not bad products. If you think that EVEN THIS is an attack against your precious precious consumer electronics than you are seriously sick in the head.

Sunday, September 6, 2009

Optimize your Lead Flow Process

Almost all businesses today rely on their public web site to generate solid sales leads, and much of their marketing is focused on driving prospects to the web site. I work with many companies who are pushing their Marketing teams hard for more incoming leads, but haven't taken the steps to optimize the efficiency of how these leads are processed.

An analogy - your lead funnel has a certain efficiency of "raw leads in" to "qualified leads out". This can be compared to the efficiency of a motor vehicle in miles per gallon (MPG). If you need to drive a certain distance (qualified leads), you'll need more gas (raw leads) with a gas guzzler than with a fuel efficient vehicle. Traveling 100miles in a Hummer takes 7 gallons of gas, but a Prius takes 2 gallons. Which one would you rather drive? So instead of telling marketing you need another "1000" new raw leads every day", why not optimize the process and get more qualified leads out.

All companies have an event that they work towards on the web site (and track through systems like Google Analytics) - for IT companies it is generally an evaluation, but it may be a sales contact, reseller request, online purchase, etc. Whether you sell software or hardware products you must focus on a complete understanding of what a customer does to reach the "request point". For the rest of this article I am going assume that we're working towards a product evaluation.

The place to start is a series of customer interviews to understand what problem they are solving, how they found your web site, and what they needed to evaluate. Everyone has customer advocates who want to help - interview these people and if possible video tape them to show to engineering and other stakeholders.

Design your product to have a mode to make for an easy evaluation, and specifically turn off or hide advanced functionality that complicates the process. Riverbed is recognized as a the leader in WAN Optimization appliances, and are well known for winning evaluations - their box is designed to drop into a customer network and "just work".

If a product is extremely complex to evaluate or takes a lot of time, your sales force may not want the customer to evaluate, in order to prevent deals slowing down. Sales are trying to meet their quarterly quotas, and will do what is needed, including avoiding a lengthy evaluation of a very complex or difficult product. This is what I would do in their shoes - Sales has an extremely difficult job, and the last thing they need is to bog deals down, especially near the end of the quarter.

What we really need is a deliverable that is specifically targeted at the evaluator, is easy to install and evaluate, and does not slow deals down. A package that can be evaluated quickly changes opinions. As previously discussed, Riverbed has designed their product to be very evaluation friendly (unlike other WANOpt products), so the Riverbed sales team can push for an onsite evaluation, knowing that they will perform well (and likely win the deal). The Riverbed eval simplicity has actually become one of their key differentiators.

Here are some things to consider whaen designing products for evaluations:

1. Make an install mode for your product aimed at evaluators. Hide all advanced, risky, and/or complex functionality. Turn off features that may be easily misunderstood, or could cause problems in the customer network (you can leave these capabilities under the advanced menu if needed). For an excellent example of how BMW simplified the process configuring their m5 sports check out this segment from Top Gear - it takes some time, but notice the complaints from Jeremy until he finds the "M Button" - (does your product have an "M Button"?).

2. Provide a document to step a customer through a typical evaluation. This is also invaluable for channel partners, press and analysts to review your offering.

3. If your product is hardware based and/or expensive and difficult to evaluate, take a prospect through other steps on the web site before the evaluation request is fulfilled. YouTube videos of the product being installed and used are very valuable, but don't forget product documentation, white papers and customer success stories. All of this can be extremely useful.

4. Don't necessarily ignore leads with "non-corporate" email addresses like GMail. Many corporate staff setup personal email accounts to request evaluations as they specifically don't want to be contacted by a sales person (I do this myself, and I brief survey of my technical friends uncovered quite a few others.

5. If you are concerned about piracy, and don't have the licensing mechanisms to prevent, don't deliver full functionality. Hold something back from the evaluation so that the potential customer must purchase to put into production.

Finally, we live in a world where people want instant gratification. When they ask for an evaluation send them the link to the software, documentation, YouTube videos etc immediately. Show them that you have received their request, and then follow up during the process to offer support, direct to resellers or sales people. There is nothing that turns potentially customers off more than not replying to their requests.

So next time Marketing is pounded to increase the number of raw leads, check whether you have an efficient lead flow process, or do you need to retire the current "gas guzzler" and drive a Prius?

Monday, July 20, 2009

No pain no change

We're all aware of the saying "no pain no gain" especially when heading out to the gym - basically there won't be any benefits unless we push ourselves and prepare our body to hurt as we train our muscles to a higher load or rate.

Business is the same. All organizations want to be able to respond to changing marketing conditions and grow, which means being receptive to change. Some organizations want a higher degree of change than others, especially in situations like rapidly declining revenue or market share.

It amazes me the number of organizations who want to change, but are not prepared to apply efforts to overcome resistance. Although they intellectualize the need for change, as soon as someone resistant to change flexes their muscles, the organization shrinks back.

I've been on the receiving end of angry sales people, SEs, support, engineers who have actively sought to stop change within the organization, even though they understand that the current path was leading to failure. At Novell the organization was committed to continuing the way they had done things for years, even though NetWare market share and revenue was rapidly declining.

There are many reasons for this, but in the workplace we seek to reduce conflict and emphasise harmony. As individuals we like certainly and routine. But these human needs are diametrically opposed to implementing change. The champion athlete is generally identified as someone who is able to push through the pain barrier - they see the outcome as worth the pain.

Sure there are things we can do to "sell" the need for change to the organization, and good Product people really focus on a smooth roll-out. We gain support, sell, and build an overall consensus. But we must also train our executive team on the need to push through the pain barrier. Prepare them for people to be upset, to push back, but ensure that this is seen as a normal part of the process.

As a product person it's important to know that the executive team has "got your back". If the exec team wants change without pain, then they are living in a fools paradise, and it's time to revaluate if you'll be successful at change.

Thursday, June 4, 2009

Start small and be agile

I recently came across this great quote from Linus Torvalds, the creator of Linux, from a 2004 Linux Times interview

Interviewer: Do you have any advice for people starting to undertake large open source projects? What have you learned by managing the Linux kernel? 

Linus Torvalds: "Nobody should start to undertake a large project. You start with a small _trivial_ project, and you should never expect it to get large. If you do, you'll just overdesign and generally think it is more important than it likely is at that stage. Or worse, you might be scared away by the sheer size of the work you envision. 

So start small, and think about the details. Don't think about some big picture and fancy design. If it doesn't solve some fairly immediate need, it's almost certainly over-designed. And don't expect people to jump in and help you. That's not how these things work. You need to get something half-way _useful_ first, and then others will say "hey, that _almost_ works for me", and they'll get involved in the project. 

And if there is anything I've learnt from Linux, it's that projects have a life of their own, and you should _not_ try to enforce your "vision" too strongly on them. Most often you're wrong anyway, and if you're not flexible and willing to take input from others (and willing to change direction when it turned out your vision was flawed), you'll never get anything good done. 

In other words, be willing to admit your mistakes, and don't expect to get anywhere big in any kind of short timeframe. I've been doing Linux for thirteen years, and I expect to do it for quite some time still. If I had _expected_ to do something that big, I'd never have started. It started out small and insignificant, and that's how I thought about it." 

Linus has really nailed the essence of Agile - get something out into the market quickly and let it develop from there.  The era of mutli-year waterfall projects are dead.  Let your project grow from a small acorn...

Wednesday, June 3, 2009

Mass Customization

We've all heard about the web being the enabler to true mass customization. Yesterday TechCrunch reported a new endeavourhttp://www.shirtsmyway.com/ShirtsMyWay.com lets shoppers design their own dress shirts in detail using a realistic and interactive shirt model. Shirts are made according to customers measurements ensuring that shirts both fit shoppers’ tastes and body.

See the TC post at http://www.techcrunch.com/2009/06/01/your-fathers-day-gift-idea-shirtsmywaycom/. Right now, the site is running a buy-two-get-one-free Father’s Day special, but TechCrunch readers are getting an additional 10% off their entire orders placed before June 7.

This looks very impressive, and I'll likely be ordering a few this Christmas.

Tuesday, June 2, 2009

Win/Loss Analysis

Whenever we look at product strategy it's extremely important to separate opinions from facts. Everyone will have an opinion, often held quite firmly and passionately.  Our job is to discriminate between opinions and what's really happening out there in the market.

The first place to turn is the financial system.  Ask for a dump of all transactions, with as many fields as possible.  Don't worry about sorting - import the file into Excel and use pivot charts and tables to create an effective analysis.  I won't go into all the possible ways to slice and dice data, but try to create the sheet so it can be easily reused and extended. 

Note that the Customer Relationship Management (CRM) system is never as accurate as the finance system (which must be audited). The CRM system may have some useful information, and can be used to find lost and won accounts, but salespeople are very busy, and they often don't have time to complete all the data for a customer record (and some companies ask too much)  Don't rely on CRM data - use the finance system as a baseline and get out and talk to customers.

The next data source is win/loss analysis. There is always no shortage of sales people and SEs who can tell you when deals are won and lost, but the data often paints a different picture.  Pick 5-10 customer wins and losses, and interview them with the same script.  Make it clear to the customer that you are not a salesperson, and offer a small incentive, such as an Amazon gift card, for their time.

Firstly, make sure you capture all the customer details:
  • Customer Name
  • Contact Name & follow up details
  • Industry
  • Size
  • (any other segmentation that makes sense)
  • Project name
Next, move into the win/loss questions.  Make this as brief as possible and don't waste the customer's time (no more than 10 questions)  Here's an example of a script:

  1. What problem/pain points you were trying to solve with this project?
  2. How did you find our company?
  3. What were the reasons you selected/rejected our product?
  4. Did you evaluate more vendors? Which one(s). What criteria did you apply in short listing vendors for comparison?
  5. Any comments on why you did/didn’t offer us opportunity to work with you? What are three things that would have helped us win your business?
  6. How did you find our products compared with other vendors you evaluated? (internal note – find strengths and weaknesses)
  7. Any different pricing model you would like to see for your next purchase?
  8. Did we live to your expectations after you finalized purchase of our product?
  9. Have you integrated our product? Any more suggestions on our products, sales and support process?
  10. Would you recommend our products to others?
As you work with the customers ensure that sales is advised, but don't let them try to "recover" lost accounts during the call.  If sales wants to be involved then allow them to be a silent listener.

After each call input the results into an Excel worksheet, and create charts to look for trends. After doing this a few times I have seen gasps around the organization as we demolish generally held beliefs, and really demonstrate why customers buy, and why we lose.

Of course the next step is the action plan...

Wednesday, May 27, 2009

Customer Satisfaction

Recently I purchased some minicards from moo.com, for use at Mocana and personal ones for my wife and I.  If you haven't checked these out, minicards are a great way to stand out - and cheap and easy to make.

The purpose of this post is to comment on the excellent job that Moo does on customer satisfaction - these guys get it.  They were polite, to the point, and didn't take a lot of my time.

A week after my order I received the following email:

Hello Phil Montgomery.

We've met before, I'm Little MOO, the piece of software that manages your order with 
moo.com. I hope you've now received - and are happy with - your most recent purchase with us. If it hasn't arrived yet please don't worry, you can check-up on your order here: http://www.moo.com/account

As you know, we like to think our customers are happy with the things they've made at MOO, and the best way to find out is to ask. If you have time, we'd love it if you could answer just 3 short questions about your most recent experience with us, it'll help us make things better for everyone:

Thank you for your help, Little MOO

PS You've received this email as a standard part of the MOO order process. If you'd rather I didn't ask for your feedback on future orders, you can take yourself off the list at the following url

Thanks, and sorry to bother you

What a great email - concise and humorous.  I was cautious about clicking to the survey, as most of them ask too much information and take too much time.  The last Marriott survey I did took screen after screen of information, so I abandoned it after about 4 screens.  This happens a lot - likely because every department adds a few questions, and before you know it, there are 40 questions and the survey takes 20 minutes to complete.

So here's the moo 3 questions, on the survey hosted by surveymonkey:


Absolutely perfect - very quickly they have an indication of customer satisfaction, and can follow up if there are issues.

Very nice, and something to copy

Tuesday, May 19, 2009

Dogs, Cows, and Kids

Everyone responsible for a product portfolio should read this blog entry from the Silicon Valley Product Group. I can't really add much advice to this excellent post - great solid advice.

One company that has really got this right is Citrix Systems - they have focused on four main products ("the four platinums"), reduced their investment on secondary products, and end-of-life non-performing products. They publish the best product lifecycle matrix I have seen at http://www.citrix.com/site/SS/supportThird.asp?slID=5107&tlID=5110 - very easy to understand.

This is especially important post acquisition - at Blue Coat we moved quicly to end-of-life Packeteer products that were not moving forward. Although there was revenue attached to these products, customers and partners generally reacted well to the plan that was presented to move forward (there will always be a few difficult customers). Everyone appreciated that Blue Coat was quick to create certainty and presented a transition plan for Packeteer customers using EOL products.

Sunday, May 17, 2009

Creating Leverage

For any business to be really successful (and achieve "hockey stick" growth that is every business dream)  we need to create leverage. Leverage is the ability to put a small amount of input resulting in a much larger outcome.

Early in my career I founded a consulting firm, specialising in Novell NetWare and Lotus Notes consulting.  The business was very successful, and soon we were employing ten consultants - but I learned that even if they were all in contracts, there was only a finite amount of money the business could earn.  And if any of them were not busy earning money the profit was walking out the door.

I learnt a valuable lesson - you can't leverage people.  One person = revenue from one person.  You can attempt to maximize this by training, repeatable process etc, but fundamentally there is no leverage. So building a large consulting company takes a lot of people, and the accompanying overhead (and headaches).  The only way to create some leverage is how accountants are lawyers structure - create a "sweat shop" of low paid graduates, all beavering away in the hope of one day being a partner.

In the technology business we achieve leverage by selling the same product multiple times.  Yet this leverage can be destroyed through a focus on custom work or extensive customization. There is nothing wrong with doing these deals for short term revenue (at Netoria we did some great work for the Union Bank of Switzerland and McAfee that funded our expansion) but at some point you need to focus on repeatable products.

What does a product need to achieve rapid (hockey stick) growth?
  • Solve a problem for a segment of customers - it's better to make 20% of the market really happy, than 80% feel ambivalent. You can expand later into adjacent segments and markets. Don't make the problem too large in scope - focus on a small known problem can be extremely effective ("don't try to boil the ocean").
  • Focus on a small number of products and services.  Novell, VMWare, Citrix and others got to $1bn on the strength of a single product. I've also seen startups that have between 10 and 20 products - this is far too many (how can a business communicate 20 products?).  Collapse multiple products into larger bundles, or discard products that are not creating revenue. Sales analysis will tell you quickly what products customers care about.
  • Create clear communication about what your product/solution/service does - if you can't explain in a few minutes what your product does, how will customers or channel partners understand? Can a customer go to your web site, and understand your product(s) in a few minutes?  Use Google Analytics and understand your bounce rate to get some measurement on whether customers drill deeper into the site - If I cannot comprehend what the company/product/solution does I immediately leave the site.  For an example of a very good web site, with clarity around products and the problems they solve, take a look at http://www.37signals.com/ - for something on the opposite side, check out the list at http://www.webpagesthatsuck.com/.
  • Have a leverageable distribution model - this may be selling directly via the web or a traditional 2-tier channel model. Creating leverage is extremely difficult if you need to add direct salespeople to increase sales. A direct sales force is an important part of the overall mix, but have them focused on the top customers, and create another channel for the transactional business.
  • Share revenue with your channel partners.  Give them a reason to sell your products, and make them feel like an extension of your company.
  • Create a recurring revenue stream.  Before you try to get new customers, ensure that existing customers are paying their maintenance renewals - this is easy money that accumulates as your customer base grows.  If your renewal rate is not around 80%, then you have a customer retention problem.
Of course there are many other ideas to help create or increase leverage, but a focus on the basics above will ensure a solid foundation for growth.

Saturday, May 16, 2009

The Internet of Things

I recently joined Mocana Corporation  as VP of Products, and the biggest drivers for my decision was their vision around the "Internet of Things".  I spent many weeks interviewing with the CEO (Adrian Turner) and key executives - after doing a lot of research and thinking became quite excited.

The Internet of things (IOT) is based on the trend of all devices becoming smart and communicating freely.  Think about the possibilities in all aspects of life - the home, workplace, manufacturing, medical, military, etc.  Right now I have over 14 wi fi enabled devices at home, but no way to coordinate them or set policy - and if you include non-IP devices there are about another 30 more at home (phones, cars, water sprinkler system, appliances etc).  

Imagine if I could network these devices, and connect them to other information sources.  I could configure an Internet based weather service to communicate with my sprinkler system, and turn off if rain is expected.  My airconditioning could turn on automatically based upon a GPS read of my distance from home (check out my GPS location with the gadget on the right side of the blog).  

Think about every device or article having an electronic id, so it can be tracked anywhere on the face of the earth - theft could become a thing of the past.

Think about a medical provider being able to securely monitor a patients health across the Internet - and give them advice about diet, exercise etc. Or call an ambulance if their implanted pacemarker detects a heart attack.

The opportunities are endless.

Open Standard are critical to the IOT - we live in a world where proprietary standards are no longer accepted, and companies cannot expect to make money by long term customer lock-in. One of the most important standards for the IOT is the broad use of Internet Protocol (IP) communications. IP is the backbone that enables universal device communication.

To enable these open standards, 27 companies founded the IP for Smart Objects (IPSO) organization.  The IPSO Alliance is an open, informal and thought-leading association of like-minded organizations and individuals that promote the value of using the Internet Protocol for the networking of Smart Objects.  Mocana is a key member of this organization.

The IPSO Alliance will perform interoperability tests, document the use of new IP-based technologies, conduct marketing activities and serve as an information repository for users seeking to understand the role of IP in networks of physical objects. Its role will complement the work of entities such as the Internet Engineering Task Force (IETF), Institute of Electrical and Electronics Engineers (IEEE) or the ISA which develop and ratify technical standards in the Internet community. 

Work such as the IPSO will help device manufacturers understand the need to IP enable their devices, and even or silicon vendors to add IP capabilities to products.  For hobbyists, take a look at the ardiuno microcontroller - itself open source (yes, open source HARDWARE) - a very cheap and easy way to IP enable almost any device.

However, as with the first generation of connecting IP devices, there are massive concerns around management and security. Look at the security problems in the IT industry, and magnify the issues by the exponential size of the IOT.  Most vendors are not too concerned about security and management at the moment, but all that will change as the size of networks increases, and exploits start to occur.

Think of the device manufacturers, they know how to build devices, but have no experience in connecting them to the Internet.  There is a massive opportunity to help these companies create the secure "glue" to enable the IOT.  

This is what I'll be focusing on moving forward.

Tuesday, May 12, 2009

The Art of Product Management

I recently completed reading "The Art of Product Management" by Rich Mironov, and can highly recommend picking up a copy 

Unlike other books that take a more academically theoretical approach, Rich's book is based on solid experience and proven success. As someone who has managed many products and Product Management teams, I wish I had found this book earlier, and it will now be mandatory for my teams. And as well as product managers this book is ideal for executives in all areas - sales, engineering and marketing to get their heads around what makes a product successful. 

I like the way this book is organized as a collection of thoughts, rather than a lengthy tome that needs to be read carefully in order to gain any benefit. You can open this book to almost any chapter and get great advice and thoughts - on topics from pricing, to sales, packaging, and politics. The use of multiple analogies makes the concepts and lessons easier to understand. 

Successful Product Management is not well understood, and Rich has made a great contribution to really defining what is important.

Friday, May 8, 2009

Meeting Hell

How many of us need to endure an almost endless procession of pointless meetings? Tools like email and calendaring were meant to make us more productive, but now seem like a ball and chain, holding back innovation and deep thinking

One of the biggest issues is unproductive meetings, and the biggest culprit being email.  We've all sat in the conference room, bored by the speaker, and started doing email. Pretty soon everyone in the room is doing email or using their PC/Blackberry for surfing the web.

Have you been on the other side?  Presenting important material, only to look at the audience typing away on their notebooks or Blackberry? Frustrating eh? All of a sudden you say something interesting to one of the attendees and they stop, look up, and rewind the conversation.  Or after the meeting you get a call from someone mad that they weren't aware of a decision (or course they were in the meeting but not focusing).

The facts here are most people think that they can multi-task, listen to the meeting and do email - but they can't. In a study by Eric Horvitz and the University of Illinois, a group of Microsoft workers took, on average, 15 minutes to return to serious mental tasks, like writing reports or computer code, after responding to incoming e-mail or instant messages. They often strayed off to reply to other messages or browse news, sports or entertainment web sites.

These findings are similar to those of David E. Meyer, a cognitive scientist and director of the Brain, Cognition and Action Laboratory at the University of Michigan. “Multitasking is going to slow you down, increasing the chances of mistakes,” said Meyer. “Disruptions and interruptions are a bad deal from the standpoint of our ability to process information.”

Meyer identifies three types of multitaskers. Some people do it out of desperation, for example talking on the phone while reviewing papers. They view it as the only way to be competitive. Others multitask impulsively without even realizing they do it. They will stop mid-sentence to do a quick check of their e-mail or listen to voice mail. Hop scotching from one task to another; they don’t realize how their behavior leads to their lack of accomplishment.

The third group multitasks with pride. “Many people delusionally believe they’re good at this...” he says. “The problem is that we only have one brain and it doesn’t work that way. In reality, nobody can effectively do more than one remotely complicated thing at a time.

By allowing email distraction in meetings we're contributing to the massive email overload - how many less emails would there be if people didn't email in meetings? And by allowing attendees to work on something else in the meeting, we are increasing the number of meetings required to get a message across or make a decision - a vicious cycle.

There is an answer - ban email/Blackberrys/IM/notebooks.  When the meeting starts ask everyone to close their notebooks or leave the meeting.  At one offsite we had a second room just for people who needed to go and work on something else.  The message was - if you are in the room then participate in the meeting, and if you want to go and do email then leave. This wasn't nasty - everyone knew that there was no problem if they ducked out, but the meeting would continue without them.

This often is not a popular move (you'll get many dirty looks), but over time everyone will start to see some productive effects:
  • less email
  • less meetings
  • shorter meetings
  • smaller groups in meetings
  • better decisions 
  • better communication
Remember that the aim of meetings is to communicate as a group, and doing email is completely an individual activity. Take control, ban notebooks, and make your meetings instantly more productive.

Monday, April 27, 2009

How to find a new Tech job

With the downturn in the economy, many people in the tech industry are finding themselves laid-off. Don't despair, as there are always opportunities for the right people, and I've notice a recent upswing in hiring activity.

Now is a great time to take stock, and work out exactly what you are looking for in the next role.  Don't just jump into the first opportunity, but take time to consider what you really want to do with your life.  Big company? Small company? Career change? Startup? Sit down with a piece of paper and work out where you want to be in five years - then create a roadmap of how to get there.

Once you know what you are looking for, here are some suggestions, based on my own recent experience:
  1. Don't let your ego dictate that you need the job with the biggest salary or biggest title. Choose the role based on your career roadmap and best fit - the happier you are, with the best fit, will produce the best long term opportunities.
  2. Linkedin is easily the best job and contact finding service. Change your profile to show that you are now looking - insert a dummy company that says "looking for the next opportunity". Search the jobs available regularly, and apply for anything that looks promising. Recruiters regularly scan linked in looking for candidates.
  3. Make sure you have linkedin recommendations, and ask for them before you need them.
  4. Always reply to recruiters, and build a relationship - even if you are happily employed. Recruiters remember people who helped them fill positions by recommendations.
  5. Update your resume to two pages maximum.  Remember that the aim of the resume is to get an interview, not the job.  Be as results focused as possible, and have friends and colleagues critique the document.
  6. Reach out to your network via phone, email etc.  Now is a great time to catch up with friends for coffee etc.
  7. Research the company and products before any interview.  This includes reading 3rd party material like analysts etc. I've always been amazed when interviewing for PM roles, that some candidates don't even understand what the company does.
  8. Practice before an interview - have friends and colleagues interview you, and prepare to answer possible tricky questions.  
  9. Have 5 or so questions of your own ready - show that you've thought about the role - my first questions  are always:  "what do you expect me to have produced in 90 days and 180 days?" and "How would you judge success for this role".
  10. During interviews, try to demonstrate results by showing actual work (if possible).  I have a (non-confidential) reseller kit that we produced at Citrix, and was able to use that as an example of channel marketing.  Bring in press releases that you authored, public presentations etc.  Never show (or keep) confidential material as that brings your integrity into question.
  11. During the interview, don't talk past the close - once the interviewer indicates that they want you to meet some more people, the selling is over.
  12. Once into the interview process, assemble your thoughts into a presentation for the interviewers - this is what I did recently - put together a business plan based on my notes from the CEO, execs & board.  While this is a somewhat risky move this will show them how you think, and likely will allow you to better evaluate your fit with the organization.
  13. Don't forget during an interview that you are also interviewing the company to ensure the right fit.
One thing I learned from recent events was the need to build a network before you need one i.e. take the time to meet as many people as you can in your industry and area - you can do this at seminars, conferences, startup events etc. Reach out to the type of people you'd like to be working with in the future.

Hatred is a bad business driver

We're all aware of how hatred being a powerful force in the world - leading to so much misery, suffering and unhappiness. Hate is a destructive emotion that can control us completely.

In psychology, Sigmund Freud defined hate as an ego state that wishes to destroy the source of its unhappiness. In philosophy, Aristotle viewed hate as a desire for the annihilation of an object that is incurable by time.

If we all recognize hate as such a powerful and negative force in the world, why are so many business leaders driven by hate for the competition, and feel it can be a rallying cry for the organization.

I remember being at Novell in the late 90's and feeling absolute hate emanating towards Microsoft.  This was despite us all using many of their products internally - including Windows - Microsoft has some extremely good products (Excel is a case in point). Novell's hatred of Microsoft caused them to go on an irrational buying binge to assemble products (Wordperfect, DR DOS et al) and compete head-on with Microsoft. As we know, this didn't work - nobody can beat a bigger adversary by attacking them head on.  Hatred created a flawed strategy that led to failure.

Instead of trying to take out Microsoft directly, Novell had multiple chances to create and dominate industries where Microsoft was not strong.  Novell could have been NetScape, EMC, Cisco (Novell had a multiprotocol router before anyone else), RSA etc. Novell had one of the largest installed bases in the world, and could leverage these assets in so many positive ways to create and grow. Novell could have channeled their energy from hating Microsoft into making them irrelevant.  We all know that Google doesn't have a close relationship with Microsoft, but they are attacking not by destroying what Microsoft has created, but by being creative and moving the industry to new ways of doing business.

Another company I worked at had a CEO very focused on hating a key competitor, and had previously built the company on hatred of another competitor.  The company had been successful, however, both competitors were still in business, and had a higher market cap - the company still competed directly.  I wasn't at all motivated by a strategy of hate (the competitors actually had pretty good products), and felt that we had much better opportunities to make them irrelevant by moving into a Blue Ocean and taking our business upmarket.

The takeaways here are:
  1. Don't be driven solely by hate, or assume it's motivating to your organization.
  2. There is nothing wrong with respecting a strong competitor and their products.
  3. It's OK to have a strategy of taking business from your competitors (hey that's capitalism), but do it by creating and not destroying.
Martin Luther King said "We must develop and maintain the capacity to forgive. He who is devoid of the power to forgive is devoid of the power to love. There is some good in the worst of us and some evil in the best of us. When we discover this, we are less prone to hate our enemies."

Wednesday, April 22, 2009

Pricing thoughts

One of the most complex areas of the product mix is pricing.  Get it right and revenue is maximized, while poor pricing has the opposite effect.  

There are a huge number of factors to consider when pricing products, such as product elasticity, competition, product costs, regional pricing, target markets, and competition.  I'm not going to delve into the mechanics of pricing, and recommend that readers pick up a copy of the pricing bible - "The Strategy and Tactics of Pricing" by Nagle & Hogan.  Instead, here are some lessons I've picked up along the way:

1. Customers compare prices to competition and alternatives to get a measure of the value.  When setting the price for Netoria products, we were targeting Novell Netware administrators who typically paid $60-$70 per Netware user.  As our products were utilities (like Norton's) we adopted a pricing strategy of 25% of the Netware license - $15 per user.  This had a number of benefits:
  • Our strategy was to gain seats within the NetWare installed base - from memory there was over 50 million Netware seats in use, giving us a huge potential market.
  • Our customers could purchase the products without a complex ROI calculation.  We were aspirin, solving a pain point, and could be quickly purchased and deployed.
  • Administrators could purchase within their expenditure level, leading to a faster sales cycle.
  • Deals could be quite large as we moved into the enterprise, but there was never any push back on price.
2. Non-profits and education always expect a discount.  Don't fight it, and give them 20% off list.

3. Higher overall prices typically mean longer sales cycle, with much more sales support.  There is nothing wrong with high prices, but you often need to help the customer justify the purchase up to their management.  One of the best ROI tools I have ever seen is provided by VMware, and is a service hosted by Alinean.

4. Be very careful of regular discounting, especially at end of quarter.  You can inadvertently train your customer and channel to wait for the discounts. Dennis Rose (VP of Asia Pacific at Citrix) was the first person who showed me the pitfalls here - too much discounting, and customers would just wait until the next promotion.  Instead of price discounts, try adding in extra value, like support or consulting.

5. Don't be afraid to experiment. During my seven years at Citrix we regularly raised prices, and each time the business tracked upwards.  One of the most impressive pricing experiments I have seen is Valve with their excellent Steam game distribution service. Steam is huge in the gaming community, as valve has opened it to their competitors and distributes hundreds of games.  Games have a very predictable sales decay (like most entertainment products), but by providing a combination of updates and discount sales, they are able to keep sales high - take a look at the chart below:

For another example of innovative pricing, check out the upcoming Battlefield Heroes game from Electronic Arts, where the game is completely free, but real money is used to purchase upgrades. the message here is clear - track pricing innovations in other industries, and consider lessons applicable to your products.

6. It's always better to start with a higher price and move downwards.  If you work out a price range that your customers accept, start at the higher end of the range.  Sales can always discount by creating a price exception.  Tracking the number of pricing exceptions gives an indication of whether the price is too high (but not too low).  One company I worked for had pricing exceptions at 70% of deals in a particular region - clear indication that the price was too high, and sales had to work extra hard to negotiate a lower price. Typically you want pricing exceptions to be 5% or less.

7.  Create higher value bundles as the primary lead - sales can always drop back with a la carte pricing.  We did this at Netoria by bundling all our 4 products into a suite, Citrix does it (starting with the MetaFrame bundles, progressing to the Access Suite, the Platinum products and now Citrix Delivery Center), and Microsoft is the master with the Office suite amongst others.

8 Finally, create an annuity stream - if enterprise customers are using your solution they typically expect to pay annual fees for maintenance, support, and updates.  Make sure you maximize this revenue by having sales (inside sales) ensure that customers are up to date. Of courses services are the ultimate here, creating recurring revenue every month (Salesforce.com anyone?).