First off, Happy New Year to all my friends, colleagues and fellow product managers. Today is likely your first day back in the office and if you are like me (and only now that you are actually in the office), you are super excited about the year ahead. Somehow between turkey legs, Mom's stuffing and New Year's Eve champagne, your product road map magically came together (maybe there really is a Santa (then again, where was he for my last product release!)).
Super charged and ready to go --- I decided to start my day with a list of 10 product management resolutions. Essentially, 10 commitments that I hope will not only make me to be a better product manager but also contribute more value to the company. Here is my list...
In 2010 I will....
- Say "no" more often (twice as many times)
- Take a vacation (a real one)
- Visit more customers (twice as many)
- Apply Win/Loss Analysis (consistently throughout the year --- not just when there's a problem)
- Have lunch more often (and remember to chew my food!)
- Reach out to key managers (no agenda --- just nurture the relationship)
- Thank the sales team (ouch --- that hurts!)
- Read more (at least one book per quarter)
- Get involved (PM Groups, ProductCamps, Associations, etc.)
- Keep my backlog prioritized for at least 2 iterations
Take the stairs rather than the elevator (maybe next year :))
While I'm sure many apply to you as well, I'm also certain you have several of your own. What's on your list? Please respond or comment with your product management resolutions. In return, I will manage a master list and follow-up with you in June --- I promise! Good luck!
In recent years, the software industry has transformed itself. SaaS adoption is wide spread and is now a credible business model. Looking beyond Salesforce.com, other companies like Concur, Vocus and RightNow are successful (reads profitable) as well. The advent of SaaS has left many antiquated companies like SAP and Microsoft struggling to adapt. Interestingly (and a topic for another post), others like Lawson's CEO, Harry Debes, believes SaaS is doomed to collapse. Regardless of where you stand, the reality is that many companies are practicing SaaS and there are thousands of SaaS product managers that are similarly struggling to adjust. Making matters worse, is the product management industry has been equally slow to adapt and provide new guidance or practices.
I'm not sure why, but many product management evangelist and training companies have yet to address the impact of SaaS on product management. At least one leading consulting firm in the field minimizes SaaS to a mere delivery model, suggesting product management is "business as usual". In doing so, they reinforce traditional practices --- ignoring the obvious nuances of SaaS. Perhaps it's been too long since these "gurus" have been product managers themselves. Staying connected has always been a challenge for consultants... (I should know, I am one).
Below are a few points illustrating how the industry is changing and a sampling of how product management responsibilities and skills are evolving under SaaS.
- Market Intelligence: Traditional product managers make client calls, win/loss reports and customer visits. For product managers, this is a primary source of market intelligence. It is these activities that allow them to observe customers and understand business problems. This approach has historically been product management "best practice". But how practical are they for SaaS companies? With 1000's of customers rather than dozens or hundreds, SaaS product managers can't possibly call or visit enough customers to return any statically relevant data.
SaaS Approach - To address this problem, software product managers will turn to on-line communities. Pressure to keep cost down, increased user influence and an attempt to increase customer value (overall experience) are some of the more obvious factors that will drive this initiative. Product based communities will drive product direction and development and force product managers to adapt their techniques and skills for the new paradigm.
- Pricing: Gone are the days of 90% margins and basic P&Ls.
SaaS Approach - SaaS product managers must now become intimately familiar with pro forma statements and product BOMs, more specifically, fixed vs. variable cost. What is the cost of a single new customer? How do I integrate computing consumption into my pricing? What is the total cost to service a customer? How many customers do we need and when can we expect to make a profit? What is my target margin? What is the expected payback period? Two, three or four years? How do I account for the marketing ramp-up, new sales commissions, and support (the old days of X % of license price are over!)?
Perhaps is time to add management accounting (advanced) to the list of product management skills.
- Packaging and Fulfillment: Do I want a single offering and a single price? It worked before --- right? But now that we are targeting volume (i.e., customer acquisition), how do I accommodate the less sophisticated and budget sensitive customers? How do I simplify my offering, provide enough business value to warrant subscription costs and simultaneously preserve value for more sophisticated customers?
Historically, software product management addressed these concerns with "lite, professional" and "enterprise" applications (remember "standard" and "basic" versions... I have yet to meet anyone that wants to buy anything standard or basic). In most instances, each version was a code branch with a set of features turned on or off. Over time, they increasingly became distinct products. Some even eventually needed full-time product managers.
SaaS Approach - Today, these customer segments (and more) are addressed in a single code base. Customers are free to upgrade or down grade almost at will. To manage these requests and to minimize the overhead (fulfillment, billing etc.), SaaS product managers need to consider new fulfillment (on-boarding) tools (e.g., OpSource and Aria) to provide this flexibility but also to enhance customer experience. While you still have to determine the feature set for each version, you can minimize the transition and switching costs.
- Change Agents: Unless you are one of the fortunate product managers that is employed by a company that was conceived with SaaS from day one, you will evidently be challenged to align your organization to the new on-demand model and subsequent culture required to sustain it (see my earlier post, "Shifting from Product to SaaS" for tips on how to get senior management on board). Although it may appear counter intuitive, the application development is actually the easy part. It's getting the rest of the organization in-line that is demanding. Unless the organization adjusts, the promise of on-demand will elude both you and your customers.
No doubt, companies that are introducing SaaS are building solid applications. What escapes most of these organizations are the skills and systems required to support the service model. Many fail because they conduct sales, marketing, support, services, and finance using the same tools and resources used to support traditional grounded software. Takes Sales & Marketing for example, many continue to practice direct marketing, print ads, customer visits, trade shows, etc. While these activities do have a positive influence on sales, the issue lies in their cost. Scaling these activities is simply not congruent with the SaaS business model.
In an effort to call out some nuances, below are a few examples how SaaS touches every department.
SaaS Approach
-
Product Management
- Thought leadership
- Serial releases - requires increased communication (inside and out)
- Smaller iterations - constant prioritization
- Customer (community) feedback - product requests, self-service, and best practices
-
Marketing
-
Continuous marketing with constant up-sell and cross-sell
-
Touch users early, often with business relevant information
-
Marketing targets new and existing customers
-
Provides services throughout the organization
- Sales
- Low cost, higher volume sales model (e.g., on-line)
- Shorter sales cycles with increased focus on business relevance
- Compensation (what happened to my big fat check?)
- Services
- Setup, installation and upgrades are no longer the focus of services
- More business consulting and education versus technical implementation
- Support
- Support provides as a critical touch point that requires and experienced skill set
- Switch to a true 24x7 multi-channel support
- Shift from issue resolution (break-fix) to ensuring ongoing customer success
- Balance need for higher-volume, lower cost to serve
- Customer monitoring and subsequent coaching becomes strategic
- Finance
- Revenue recognition, financial system for tracking deferred revenue
- Billing systems with tiered products, metering service levels, and managing renewals
- Engineering
- Architected for multi-tenancy and high scalability
- Infrastructure to support tier management, customer metering, service levels, retention policies, and self-configuration
- Agile to support faster release cycles
To conclude, fundamentally the role of product management hasn't changed but the nature of the job is absolutely evolving. SaaS product managers face different challenges and must adopt new tools and allocate their time wisely and efficiently. SaaS companies must use technology to drive automation, reduce cost and increase customer self-service. Product managers must deliver applications that scale with volume but maintain fixed cost and overhead. As a SaaS product manager, your service offering permeates the entire organization. Be prepared to lead --- if you don't, it's likely no one else will.
I suspect many software product managers have already experienced introducing a SaaS offering to either replace or complement existing solutions. I also suspect that many more are either considering doing so or are currently engulfed in the complex and difficult transition period.
If you are a product manager making the shift, the transition period is probably the toughest career challenge you will face. Unless your company was founded with a SaaS model from the start, adopting a service model suggests you will have to reengineer, retool and retrain the entire company. I think everyone will agree (PMs - please remove your capes for a moment), this mandate goes beyond a product manager's scope of responsibility. As a thought leader and market expert, product managers can map out a strategic path, a go-to-market strategy and a service that delivers great customer value --- but unless the rest of the company is on board and behaving like a service company --- the likelihood of either you or your company succeeding is almost zero. No, it is zero.
The crux of the problem is getting your company's cost structure in-line with the new business model. Armed with influence and a magic wand that seldom works, product managers are not empowered to drive this vision to fruition. So, how can a product manager help?
- Do your homework. The SaaS buzz continues to grow --- but it's not for every company or solution. Your solution may be too complex, service intensive or your target market may not be homogeneous enough to support the model. If you haven't already, build a business case complete with pro forma financials. Is the grass still greener on the other side?
- Have a discussion with your top executive. Explain the nuances and challenges the new model presents. No need for a deep dive --- focus on ensuring that your total cost of service (TCS) is less than the lifetime value of a customer. Consider a healthy margin and you have the dynamics to drive home your point. Just make sure they don't misunderstand aligning cost with a chainsaw and a deep round of layoffs. This is less about headcount and more about fostering a service orientated culture and providing the systems and skills to support it.
- Point out the risks and opportunity cost of not taking decisive action. Increased time to market, a narrowing market opportunity, and a rapidly decreasing run-way are good examples. Without an acceptable cost structure, a value added service engine and a sales and marketing strategy to match --- you may find that each new customer is actually costing more money than they contribute.
- Provide thought provoking articles, blogs, etc. that address the topic head on. Here is one example:
SaaS Competitive Advantage - SaaS Economics 101 e-Book http://chaotic-flow.com/2009/05/04/saas-competitive-advantage-saas-economics-101-e-book/
- Repeat steps 1-5.
Given the scope of change required and the potentially deep and disruptive impact on the business, it's imperative that your SaaS initiative have absolute support from the corner office. The vision, leadership and message must come from the top down. It's not enough to control cost alone. You will need the infrastructure and behavior to perpetuate the model. Evidently, tough decisions will have to be made and not everything or everyone will survive.
Finally, if after several attempts to outline the intricacies of the business SaaS model, your actions are being politely dismissed or commitment is wavering --- you have two options. Update your resume and take your game to a company that "gets-it" or stick around and wait to be fired. When the product (service) fails miserably ---- you'll be the scapegoat.
In our earlier post we suggested that many traditional product management responsibilities have either been de-emphasized, dropped or have evolved with the ongoing software industry trend or shift to SaaS. I recently attended a seminar where the question was asked, "Do SaaS companies still need a Product Manager". Dumb founded by what I thought was a rhetorical question, I was surprised by the ensuing discussion and debate.
Behind this question is the notion that under SaaS, product management is somehow less important and potentially even disposable. While I agree many of the traditional product management responsibilities (e.g., developing and managing a product lifecycle policy or NRE requests) are threatened with SaaS, to infer that product management in no longer necessary --- is absolutely absurd. With the advent of SaaS the product management role remains largely untouched; it does however impact the activities and scope of responsibility. While some traditional product management responsibilities may disappear, others are introduced or more emphasized. The most significant of which is the expanded responsibility of managing the entire "service" or user experience. In many ways this is akin to a familiar concept for product managers ---managing the "whole" solution. Examples include:
- Providing enough self-serve information on-line to support a low-touch (cost) sales cycle
- Managing a X-day free trial (and all of its intricacies)
- Product configuration or packaging to support a "land and expand" sales strategy
- Capitalizing on usage data to drive development, innovation and profitability
- Squeezing costs (product/service BOM) to support low subscription pricing
Regardless of whether solutions are delivered on-premise or hosted, the role of product management remains the same. The responsibility of product managers is to identify market problems and understand or quantify customer "pain" and its pervasiveness. Armed with this information product managers, designers and engineering can conceive, develop, price and deliver solutions that customers' value and are willing to buy. Why? Because it addresses a market problem customers are willing to pay "money" to solve. Bottom line, as long as there are problems to solve and people or companies willing to pay for solutions to those problems --- there will always be a need for product managers.
Software-as-a-Service is having a profound impact on the software industry. The entire ecosystem ---ISVs, system integrators and resellers are forced to adapt. While the popularity of SaaS in the board room continues, many companies are struggling to adapt. Although everyone is familiar with the business model and its impact on revenue and cash flow, considerably less information is available addressing how SaaS impacts the entire company, and specifically the roles that make-up a typical software company. For starters, let's consider how the role of Product Managers has evolved. Consider the following:
- What's the value of a lifecycle policy under SaaS?
- Statements of Direction --- are they still necessary?
- MRDs and PRDs - old school?
- Distribution or resellers - do they still exist and can anyone make money?
- NRE or custom development - no longer necessary :)
- What about fulfillment? No more CDs to ship!
- Proposals and contracts --- aren't they all built in to the product or on-line?
- Are ROIs equally important? Less risk and out-of-pocket --- what's to worry about?
- Demos - still important or are they being replaced by FREE trials?
- Collateral or on line webinars and ebooks?
I'm sure there are many more. What's your experience? In our next post we'll focus on the new responsibilities that SaaS introduces to Product Managers.