Product Management Insights
Netpreneurs get advice and techniques for strategy and methodology.

(Washington, DC -- October 24, 2001) Ready. Aim. Fire. It should work in that order, but it doesn’t always, unfortunately, which is one reason why so many products fail in the marketplace. According to a study by the Product Development & Management Association (PDMA), new products have had a success rate of only 59% at launch over the past 5 years. Booz Allen cites a slightly better number 65%, but in both cases “success” is defined with a very low threshold--simply making back enough money to repay development costs. That’s not all. The PDMA also reports that for every 11 new product ideas, just three enter the development phase, 1.5 are launched, and only one is a commercial success in the marketplace. Now, combine that with another Booz Allen statistic: An estimated 46% of all the resources allocated to product development and commercialization by US firms are spent on products that are cancelled or fail to yield an adequate financial return.

It may be Halloween, but the point of those statistics isn’t to scare. They point out how important it is for entrepreneurs to spend the requisite time developing both a sound product strategy and a solid product development process. In order to help, Netpreneur’s Coffee & DoughNets meeting this morning featured two accomplished experts offering insights and advice on both subjects.

Phil Carrai, Managing Director of Ventures for Morino Group, opened the session by exploring issues in strategy. He said that it largely comes down to understanding three things.

“While they may seem trivial or obvious,” he said, “It's amazing to me how many businesses I see and how many people I talk to that don't have a fundamental understanding of who their customer is, what they offer that customer, and, probably most importantly, what they really want to do themselves.”

Understanding those things is often a matter of clearly and honestly identifying between alternatives. Even decisions as seemingly straightforward as “Is it a product or a service?” can get fuzzy in the minds entrepreneurs who are eager to tell a story of vast potential profits. Whether your communicating to a potential funder, partner, customer or your own team, however, if you’re not accurate and brutally honest, you’re future may end up as murky as your business model.

There’s much more to the equation. Does the product promise revenue expansion or cost containment? Is it strategic for the customer or a tactical utility? Is it for the enterprise or a single user? And still more. Carrai went through a litany of essential questions that must be answered if you’re to reach your goals.

“I have probably seen 200-300 business plans over the last year,” Carrai said, “And it's amazing how few actually go into granular detail about what it is they're actually selling and who is actually buying it.”

For example, he asked, “Are you selling to consumers or to businesses?” A veteran in one market probably doesn’t understand the other. Not really, and the proof can be found in the mountain of dead dot-coms from the past few years. If you’re going to sell flowers over the Web, for example, you’d better know something about how people buy and distribute flowers, not just about how to sell online advertising to corporations.

“The whole B2B, B2C, B2XYZ,” quipped Carrai, “At the end of the day, somebody buys what you have, somebody uses what you have, and somebody pays for what you have. Those three may be separate people or they may be the same person, but understanding who and what they are is very important.”

Following Carrai, Paul Mauritz, Managing Partner at AppSolve, segued from strategy to methodology, and stressed how important it is for technology-based businesses to implement logical product development processes. Even if your strategy is flawless, you’ve got to execute.

Proper methodologies force you to do your homework, helping to make sure that you understand your market and can explain it to others. In a presentation rich with many practical suggestions, one of Mauritz’s tips was to always write your plans (and do write plans) as if you don’t know who will be doing the development. They should be self explanatory to anyone or you haven’t done your part.

Good product management processes also help support good communication, a critical success factor, yet often the first thing that breaks down on a team. Good processes help unite what are often disparate entities within an organization: product management, engineering, marketing and sales. What’s more, a thorough methodology will build in the essential communication channels that bring customers and the market into your decision-making, closing the loop with product strategy.

For example, Mauritz returned often to an trap that often captures tech companies: Are you building what customers want or what they need?

“Look at me. I really want a Ferrari, but I don't drive a Ferrari. Most of the time I drive a minivan because that is what we need. I don't want to drive one, but it’s really easy to get me talking about that Ferrari that I don't need.”

From a different perspective, Carrai made the same point with an example from the technology sector. Why is it, he wondered, that the established players in the document management sector were never able to make significant inroads in the new Web management market, even though the technology is very much related. Two reasons. First, the people are different, but, also, they had a few highly specific needs, such as the need to interface with certain Web development tools. While the solutions were extremely similar, the difference in needs was just enough to create an entirely new market, regardless of all the added “wants” the one side could supply.

Since people buy what they need, not what they want, you’d better get it right, which takes good salesmanship (at the front end of the development process as well as the back) and a discerning ear. One way to find out the real difference between a need and a want, at least in the business market, is to find out how the customer gets paid. If his bonus is based on a certain factor, such as cost containment or increased revenue, you can be fairly certain that it’s a need for him, not a want.

Mauritz stepped through the elements of the product management lifecycle (See Figure 1), explaining key elements and decision points at each stage. For example, when discussing the market analysis phase, he urged the audience to remember the difference between an available market and an addressable one. The addressable market is the one you can actually reach. It doesn’t matter how big an available market is if you’re prevented from making inroads.

According to Mauritz, there is no single system or template that will work for all organizations all of the time, but there are four keys to any effective product management process: 1) define inputs at each phase of the lifecycle; 2) define outputs which feed the next phase; 3) define the effort needed to produce the required outputs; and 4) have go/no-go decisions points at every phase. Combined with process enablers including project management, competitive intelligence, the right organization, quality assurance, and communication, entrepreneurs will have a considerably better chance of beating the odds on creating a successful product.

According to Carrai, “Especially in technology companies, product management is really business management--understanding what it is you're offering, who you're selling to, and how to construct your organization. It is the harmony between what your organization is and what you're delivering.”

That’s not a point to be lost on entrepreneurs. As he suggests, “If we think about product management from a global standpoint, in the technology-oriented company, the best product manager is often your CEO. That’s because it's not only what you're delivering to the market, it's how you think about your business.”

Copyright 2001, Morino Institute. All rights reserved.