tech | growth | venture | product
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Nothing is more critical to a growing startup than pricing strategy, and all too often startups leave too much money on the table by not charging enough. This makes it difficult to take full advantage of the new value their product creates.  As Marc Andreessen recently said, if he could put one phrase on a billboard in Silicon Valley it would be “raise prices.”

My hypothesis on why startups currently have an issue with pricing is the recent (but now seemingly over) period of apathy towards negative margin growth. It conditioned startups to capture as much of a market as possible without thinking deeply, or at all, about pricing. While this gets a product into the hands of users, it does leave open the question of what buyers are willing to pay for it.

To answer this question, it’s useful to turn to Econ 101’s first lesson – supply and demand – and more specifically, consumer surplus.  Why is consumer surplus good?  For one, you always want your customers to feel as though they are getting a deal.  More importantly, it becomes possible to leverage that feeling to push out the demand curve for the core product, which is what any business really wants to accomplish.

 

Free or discounted complementary goods increase consumer surplus while shifting the demand curve

While perhaps unintuitive, one of the best ways to do this is by “giving away” complementary products or features.  The result pushes out the demand curve for the core product, selling more at a higher price, while simultaneously increasing the consumer’s perceived value (consumer surplus).

It’s easy to see the effect of this strategy in two of the most popular technology business models: Enterprise SaaS and Marketplaces.

  • Enterprise SaaS – Much like iOS and Android, Salesforce has an app store called the AppExchange. Consumers aren’t charged for access to the apps but instead the large selection combined with easy integration of popular applications pushes out the core product’s demand curve, allowing them to charge more than would otherwise be possible for the core product.
  • Marketplaces – There’s a reason almost every successful customer acquisition platform has a “tools” or “analytics” section on the selling side of the marketplace, the goal is help the
    supply side sell more.  Charging $10 for add-ons such as a pricing tool makes little sense in this case because the value is hard to quantify for a seller.  Yet, introducing it for free then subsequently raising the customer acquisition (i.e. booking or listing) fee by a few percentage points has little effect on diminishing the over supply.

Finally, it’s important to address the 800 lb. gorilla in the room: Amazon Prime.  Amazon has leveraged discounts on services that may seem arbitrary but actually create a large consumer surplus for the core product. Let’s take a look at a few of the discounts offered to Prime members on ancillary services.

Amazon Music Unlimited: $9.99 non-prime / $7.99 Prime

Amazon Digital Storage: (100 GB): $11.99 non-prime / 5GB and all photos free for Prime

Amazon Audible Channels: $60 non-prime / free with Prime

By including discounts on these complementary goods, Amazon has increased the demand (i.e. pushed out the curve) for Prime.  Furthermore, the consumer surplus created by including these complementary goods is less than the increase in unit marginal cost for Prime’s main service, faster shipping.

The next time you are thinking about your product pricing strategy, take it from these tech behemoths: it’s not only what you charge, it’s what you give away too.

Special thanks to Jonathan Crowder for helping me think through this post.

Over the past month, I’ve focused on my growth in product during the span of the last few years. This led me to reflect on my initial days as a product marketing manager and internalize where we succeeded but also what we could have done better. From those thoughts, I’ve tried to put together a basic framework for mitigating risk in those formative days, weeks, and months.

These ideas are certainly not definitive or complete but I do hope it provides a relatively good structure for your initial thoughts about your product or business. The journey of product building only increases in complexity the further you get from day 1, having a process early creates habits that pay dividends in the long run.

Frame the problem

Fall in love with the problem, not the solution. Research it, talk to users, and become immersed in the problem before building the solution. It’s impossible to build a good product if you don’t understand what problem you are trying to solve. However, just like in economics there is a diminishing point of return on data and research. Nothing replaces feedback from the market.

When founders have an empathetic understanding of a market and they are connected to the problems they are solving, it’s a more ‘mature’ approach to a starting a startup. People tend to forget that your company is your first product, and you have to be intentional about building your company before it’s ready to really grow and scale. — Hunter Walk

Whether the problem is lack of energy choice, expensive diagnosis of a chronic illness, or unacceptable access to higher education, your solution to the problem will change over time. Yet, the product will only succeed if it solves a real problem for its users.

While admittedly a bit biased, this is where the best product managers are able to leverage extensive industry / business knowledge. It is important to have a grasp on which markets will be best for the initial launch, the partnerships that could allow for rapid expansion after traction, and the message that will resonate with customers.

Speaking of messaging, never underestimate the power of storytelling. Whether you are looking for users or investors, the product should be easy to understand and resonate with your audience. Empathize with the needs of the customer and show them you solve their problem.

Sometimes the product canvas is messy

Execute the go-to-market

If real estate is all about location, the go-to-market is all about execution.
Once you’ve researched the problem, it’s crucial to put a timeline in place for getting the product to market quickly.

Simply put, great execution is entering to market in the shortest amount of time possible with a minimal product that solves the problem. As my teammate Jonathan Crowder likes to say, “viable” is part of MVP. Bad execution is a lack of speed to market and inability to apply learnings from market once it has launched.

To achieve the necessary speed in our go-to-market, we broke up the B2B product launch into small sprints. Our goal was to get into the market as soon as possible. As a marketplace in a highly regulated space we looked for a market where the regulation was lowest and where we could generate the supply-side quickly.

Another criteria which we held in high regard for prospective partners (the supply) was the ability to service other markets quickly when we expanded. This strategy paid off almost immediately as the demand for the marketplace exceeded our early expectations and we were able to quickly answer the demand in additional markets where the completion was low.

On that note, if you are fortunate enough to gain traction it is important to understand why. Don’t over celebrate the early returns. This lack of understanding led me to champion a few features that eventually were built and not needed. Which leads me to….

Measure and evolve

The power of incentives and unintended consequences have always influenced my strategic business decision making. I firmly believe that what you measure determines the actions you’ll take and those actions will effect something you don’t anticipate.

It’s important to define these metrics before hand, otherwise you’ll shape them to your narrative or change them to ones that shed your product in a more favorable light.

A little over a year ago, the team at Andreessen Horowitz published two blog posts on startup metrics (32 metrics total; part 1 and part 2) that everyone looking to start or run a company should read. Here are the ones specific to product:
Active Users
Churn
M-O-M Growth (if you have a seasonal business, Y-o-Y is just as important)
REVENUE (per user, repeat customers, margins are all critical)

It’s likely that one, or all of these metrics will shed light on issues with your product / business along the way. The important part is working feverishly to improve them as quickly as possible, don’t prolong the problem by refusing to accept the results.

When beginning to improve the product, don’t fall into the trap of making too many changes to the baseline user path at once. Early on it’s likely you have too few resources to measure and then act upon several changes immediately. Focus on the changes you believe will impact your metrics.

As you scale, your capacity for complexity grows but be aware, the increase in infrastructure will tease you to attempt to make more changes than can be accurately assessed resulting in assumptions that might not be true. Adding complexity too quickly often keeps products from success.

There’s no 100% right way to build or launch a product. However, having a repeatable problem solving structure is important for achieving the desired results at scale. Pick a strategy that will allow you to remove emotion from the process and make decisions that are objective and rooted in data. Stay grounded in this approach and the results will follow.

A few days ago, I posted a few of the resources I used as I grew into the product marketing manager / product manager role. With this post, I’m focusing on the things that you won’t read in those books but will likely learn on the job. Being a product marketing manager or product manager is always glorified on podcasts, blogs and in books. However, the path to success is often an exercise in your tolerance for being wrong and your willingness to listen.

Stop, Collaborate, and Listen

Are functions dependent on engineering asking you about the roadmap frequently? If so, it’s possible you’ve made the product roadmap a blackhole. Good product managers clearly and frequently communicate about the product roadmap. Great product managers go one step further and build shared understanding about the trade-offs that have to be made on an ongoing basis.

It’s important to remember that you are the gatekeeper to a finite resource within the company, one that several of your teammates need to achieve their goals or execute on their strategies. Approaching this responsibility with the humility it deserves will go a long way to ensure everyone is on the same page. Ask yourself, if someone has a better thought, would you know?

Product managers will often comment that they “own the product vision”, I couldn’t disagree more. The PM is responsible for executing it and building the vision with everyone in mind. The entire team should be proud of the product the company releases to the market. I’ve always been a fan of healthy internal debate. But while debate is good, buy-in is better.

You Can’t Be a Perfectionist

Scope creep is real. If everything you do must always be 100% complete and perfect before you release it, product management isn’t right for you. Customers will always provide the biggest insight into improving your product. The longer you wait to release it, the longer you have to wait for feedback. In businesses where cash flow and runway are key, this can prove disastrous.

Instead, put a process in place early. Keeping to a two week sprint cycle might seem rudimentary but the habit will ensure that you are keeping accountability and progressing toward a better product on an ongoing basis.

Even when we are working on longer term projects with revenue impacts we’re committed to releasing something that will give us a positive outcome in the near-term. Not only is this important for business reasons, it allows us to always collect customer feedback to improve our product. Additionally, the engineering team gets a chance to impact the business regularly with new features. Never underestimate the importance of this, engineers LOVE knowing they are building products that have an impact on the top line.

Shiny Objects Almost Always Fade

There’s a time in every company where the path to explosive growth seems hidden or the initial push has slowed. At LAUNCH this year, Jason M. Lemkin warned SaaS companies that it is tempting to enter a new segment with your product when you hit the wall.

We aren’t SaaS at Choose, but I do believe every company eventually faces the decision to improve the core business or enter a new segment. It’s likely you have plenty of room to continue to improve the core even if it isn’t exciting. Focus on your mission and take a deep dive into what your customers want. Scott Belsky of Benchmark uses a phrase I love, “mission centric, medium agnostic.”

As much as we wanted to be a “purely digital” platform for energy choice, some consumers needed the comfort of a voice on the telephone. Our mission is energy choice for all because we believe it saves customers money and allows them to pick the source of their energy, should we care if they do this online or on the phone?

As it turns out, a great shopping platform combined with industry leading selection is an avenue to success once we gave customers a choice in the way they transacted. Focus on your customers, not what other companies in different industries are doing with the “latest tech”.

Execution is a Sprint, Vision is a Marathon

We have a strict rule at Choose, once a sprint starts, it doesn’t get changed. However, that doesn’t apply to the day before the sprint or the quarterly roadmap.

Your goal as a PM should always be to execute on the highest value features, this changes frequently, especially in startups. However, being adaptive doesn’t come without its traps. It is easy to be coerced into creating throw-away work.

Recently, we had to make the decision on which core piece of our product we wanted to improve first. We subscribe to the Bill Gurley theory that conversion is the most important metric, and with this in mind decided to improve the checkout process for our customers. This was a massive undertaking, so we broke it into actionable pieces.

First, we focused on changing the validation scripts and content. The sprint, easy fixes that would have immediate impacts. Due to the nature of our business, each checkout has idiosyncrasies that dictate they all have slightly differing code leading us to the marathon. We improved the code base to allow us to be more performant and flexible with improvements. The result: we’ve reduced the time to add new features in checkout by about 66%, and improved conversion by ~20% after customers enter checkout.

You’re Going to Be Wrong

Know this, building the right product is hard. If you’re doing it right, and moving fast you will be wrong a lot. It’s what you learn and how fast you adapt that determines how successful you’ll ultimately be.

After we had launched our B2B product at Choose Energy, I was damn sure we needed to build two things: 1) an input for our customers to enter their monthly electricity spend to get a better price and 2) a way for our partners who weren’t on API’s to upload prices more quickly. I pushed for these almost every chance I got. Neither worked and I’d wasted our engineers’ time. I was certain that customers valued price above all else and this was our way to give them the most savings. As it turned out, they valued their time more.

Instead, our customers enjoyed the simplicity of just selecting home, small business, or large business and seeing prices immediately after. Our partners didn’t put out more tailored rates because the new upload features weren’t a vast improvement on our old process nor did they increase acquisition.

Don’t be afraid to admit mistakes, the sooner you admit them, the faster you can correct them and build something your customers love. Even more, don’t be afraid to make mistakes. 80% certainty is almost always good enough, driving out all uncertainty tends to waste a lot of time and speed matters.

There you have it, a few skills I’ve learned on the job in product and the experiences that go along with them. You might have noticed there are two skills noticeably absent from the list. HUSTLE & CURIOSITY. Simply because I believe you need those skills to excel no matter the job, and they’re hard to teach. I hope this list leaves you with a few skills you can apply to your day-to-day basis and as always, if you have more to add, I’d love to hear it.

Last week, I introduced a series which I hope will be of use to new product managers in markets outside of Silicon Valley. For the first installment I am focusing on a few resources that really shaped my view of product management over the last three years.

Udemy (Coursera, EdX, Khan Academy)

Silicon Valley is full of classes for aspiring PM’s or PM’s who are looking to reach new heights in their careers. I work in Dallas where the cupboard of resources for true product management courses is bare and courses are focused mostly on young developers learning to code.

A few years ago, I made the decision that having a few PM / coding skills would come in handy down the road and enrolled in a few classes on popular online learning marketplace Udemy. Coursera, EdX (I took CS 101 from Harvard here), Codecademy and Khan Academy all provide free or low cost classes for anyone looking to learn a new skill.

I wanted to focus on a few coding languages and a high level overview of web development.  Below is my Udemy curriculum with a synopsis of each course.

The Complete Web Developer Course — Build 14 Websites: This was the first class I tackled upon enrolling in online courses and was a great entry point for someone with limited knowledge of website tech stacks. This 10 section class spans 245 lessons and covers intros to HTML5, CSS, JS, jQuery, WordPress, PHP, SQL, and API’s (including Google Maps’ and Twitter’s APIs). Additionally, you’ll learn how to setup an FTP to send files to and from a sample website you build early on in the course. This class won’t dig deep on any topic, but after it I felt a rudimentary understanding of how web development works at a high level.

The Ultimate Excel Programer Course: I know, I know, no one programs in Excel anymore but hear me out. For anyone who has never coded before, and three years ago this was me, programming macros in Excel is a great starting point for two reasons. The first, VB in Excel corrects your syntax and makes it obvious where your code is broken. There’s even in a function that allows you to run through your code step by step which not only allows you to correct it easily but shows you exactly which lines of code correspond to action. The second, learning a language with assistance was invaluable when I moved to languages like R, Python, and SQL. Suddenly, coding didn’t seem so unfamiliar anymore.

The Ultimate Python Programming Tutorial— This course was my first into to common programming terms like strings, boolean, and lists. However, I had learned some terms like loops and else in the Excel programming class above. This course focuses on the basics of Python, a great language especially for data applications. The most useful skill in this class is learning to define and call functions through out your code. Something that proves useful if you are running the models consistently with the same variables.

Applied Data Science with R — Full disclosure, I am a stats junkie. It was my favorite class in grad school and I continue to love it. Just knowing how to run and interpret regressions the right way is an immeasurable skill. This course will walk you through some basics in the R language and a few key concepts in statistics (though I’d recommend a full course on stats if you’ve never taken one). R is a powerful tool for statistics and having even a minimal grasp on it will allow you to run models and explain them with ease given the vast amount of packages available in the R library. Think of R as a multitool in your pocket.

Note: while I did not take a class on it, I highly recommend anyone looking to be a PM learn SQL. I was lucky enough to have a colleague teach me the basics and then I expanded on my knowledge through YouTube, Stack Overflow, and other online resources.

Books

One great thing about product management is that due to its immense popularity as a career path, there are a plethora of books from which to choose. Here are a few of my favorites:

Hooked, Contagious, Inspired: I placed these books in the same category because they all have different approaches on how to create and implement products people love and how those products gain traction. Hooked focuses on how to build products that consumers will use repeatedly while Contagious turns its attention to methods that are used to get ideas and products to catch on. The combo is powerful: how to build habit-forming products and how to spread the word. Inspired takes a slightly different approach focusing on how to decide which product opportunities fit best with your mission, how to implement Agile once you’ve decided how to move forward and how to manage expectations / goals of management.

Agile Product Management with Scrum (short form of Essential Scrum): This book is the resource for learning Agile at a high level and provides best practices for implementation. There are two versions here, the first which while shorter still provides valuable techniques for organizing your product team and the second which is the long-form for more granular learning. This book is most similar to a text book and should be required reading for anyone getting into the field. It’s likely you won’t stick to the techniques word for word but they do provide a framework for product strategy.

The Lean Startup: This is the quintessential product read for PM’s in startups and for good reason. As you develop a product and companies grow, the natural inclination is to make the product and process that goes along with building it more complex. Eliminating a focus on simplicity and clarity of vision is common. This book will keep you focused on moving quickly based on data insights.

Podcasts / Blogs

One of the traits that I believe helped me quickly evolve as a PM is being highly curious. This took a few different forms; 1) don’t be afraid to take inspiration from your competition or products that do things really well. There are sites that collect product inspiration, use them! 2) Listen to really smart people who’ve already accomplished the goals you wish to achieve. Much like product being a popular topic for books, it is also the foundation for many popular sites and podcasts since most founders are indeed product focused.

Product Hunt (site and podcasts): The reason for using PH is simple, great people posting great products on the site, and great people discussing great product on the podcast. Want to see what’s coming next? Visit the website. Want to hear from successful product owners and founders. Listen to the podcast. (Note: they haven’t posted a podcast in a few months, but the previous ones are still amazing)

Little Big Details: A fun website that posts unique, and sometimes hidden details that make a big difference in UI / UX. Most of these insights come from companies you might have heard of like Apple, Amazon, and Google.

This Week in Startups: It’s no secret that jason has one of the best podcasts in Silicon Valley and for PM’s it is a must listen. The great founders that visit this podcast often, share how they solved their biggest product issues from all aspects including ideation, implementation, and the strategy behind it all. Even if you don’t hear a product insight on an episode, there’s no doubt you’ll learn something about startups that you can relate to or use in your day-to-day.

This Is Product Management: This is Product Management is a podcast about a variety of topics and where they intersect with product management ideas. Past topics have included, IoT, APIs, Venture Capital, and storytelling. The diversity of topics will broaden the way you think about product strategy and what outside forces shape it.

Silicon Valley Product Group: Marty Cagen (author of Inspired mentioned above) and Chris Jones post once or twice a month on all aspects of product management. This is a must read for a variety of reasons but among my favorite is the breadth of topics on the blog. Marty and Chris write on product, product leadership, diversity in product, strategy, vision, and much much more. This isn’t just a good read for product mangers but for those who manage or work extensively with them as well.

The availability of resources for aspiring and evolving product mangers is immense. I’ve selected a few that really guided me during those first few years where I felt a bit underwater at times. I would love to hear from you and any resources you’ve found valuable on your journey as a product manager.

The next part of this series will focus on a few skills these resources don’t teach. Next, we’ll move on to leveraging both industry knowledge and business acumen to guide product strategy. Finally, I’ll put it all together with a timeline of how I approached product management from being a complete novice to only slightly green after learning from these resources and mistakes I made along the way.

With most of my usual newsletters and bloggers taking the final week of 2016 off, I spent the last week of the year reviewing the blogs, podcasts, and books that had the most influence on my thinking.  One of those posts was Fred Wilson’s Second and Third Tier Markets And Beyond in which Fred discussed the challenges founders and investors face in markets outside of Silicon Valley.

This post and the conversation around it, led me to start thinking about the other roles in startup ecosystems differ drastically depending on their environment. Naturally, I settled on examining what it is like to become a PM outside of the Valley.  Hint: it’s tough, luck plays a large role, you need a supportive team and you have to love to hustle.

As I began digging into the differences between product management in locations where the mentorship and resources run deep and emerging startup ecosystems, I became reflective on my evolution from the very first days to how I think about managing a product today.

Given that the Product Manager and Product Marketing Manager roles are so prevalent in the Valley, I figured more decorated PM’s than I had written on what they had learned. My assumption was correct.  In this search I came across 50 Things I’ve Learned About Product Management by John Cutler on Medium. While I highly recommend you read the entire list, point number 6 stuck with me:

The best way to get people off your back is to deliver value continuously (with data to back it up). Real results (and a proud team) eat everything for breakfast.

I was, and in some ways still am, green as a product manager, but by far the easiest way to get buy-in from your team is to produce results using the skill-set you have at your disposal. However, what is even more crucial that you never stop growing the skill-set you have at your disposal so you are able to continuously deliver value and insight.

Product management is one of the most desired startup jobs in the Bay Area, and as the entrepreneurial culture begins to spread to other metros, the competition for these jobs will be fierce. There will always be someone more experienced and better qualified but if you enjoy the grind of learning, success will find you.

With that point in mind, over the next few weeks I hope to deliver some insight into how I evolved as a PM outside of Silicon Valley.  In this series, I’ll work through some of the lessons I’ve learned as a PMM, why I believe strategy and business knowledge are just as important as the technical skill, and the resources I leveraged to become a more effective PMM.