Posts Tagged ‘strategy’
Companies often pay very close attention to new products from startups as they launched and ponder their impact on their scale, mainstream work. Almost all of the time the competitive risk was deemed minimal. Then one day the impact is significant.
In fact up until such a point most pundits and observers likely said that the startup will get overrun or crushed by a big company in the adjacent space. By this time it is often too late for the incumbent and what was a product challenge now looks like an opportunity to take on the challenges of venture integration.
Why is this dynamic so often repeated? Why does the advantage tilt to startups when it comes to innovation, particularly innovation that disrupts the traditional category definition or go to market of a product?
Much of the challenge described here is rooted in how we discuss technology disruption. Incumbents are faced with “disruption” on a daily basis and from all constituencies. To a great degree as an incumbent the sky is always falling. For every product that truly disrupts there are likely hundreds of products, technologies, marketing campaigns, pricing strategies and more that some were certain would be last straw for an incumbent.
Because statistically new ideas are not likely to disrupt and new companies are likely to fail, incumbents become experts at defining away the challenges and risks posed by a new entrant into the market. Incumbents view the risk of wild swings in strategy or execution as much higher risk than odds of a 1 in 100 chance a new technology upending the near term business. Factoring in any reasonable timeline and the incumbent has every incentive to side with statistics.
To answer “why startups aren’t features” this post looks at the three elements of a startup that competes with an incumbent: incumbent’s reaction, challenges faced by the incumbent, and the advantages of the startup.
When a startup enters a space thought (by the incumbent or conventional wisdom) to be occupied by an incumbent there are series of reasonably predictable reactions that take place. The more entrenched the incumbent the more reasoned and bullet proof the logic appears to be. Remember, most technologies fail to take hold and most startups don’t grow into significant competitors. I’ve personally reacted to this situation as both a startup and as the incumbent.
Doesn’t solve a problem customers have. The first reaction is to just declare a product as not solving a customer problem. This is sort of the ultimate “in the bubble” reaction because the reality is that the incumbent’s existing customers almost certainly don’t have the specific problem being solved because they too live in the very same context. In a world where enterprises were comfortable sending PPT/PDFs over dedicated lines to replicated file servers, web technologies didn’t solve a problem anyone had (this is a real example I experienced in evangelizing web technology).
Just a feature. The first reaction to most startups is that whatever is being done is a feature of an existing product. Perhaps the most famous of all of these was Steve Jobs declaring Dropbox to be “a feature not a product”. Across the spectrum from enterprise to consumer this reaction is routine. Every major communication service, for example, enabled the exchange of photos (AIM, Messenger, MMS, Facebook, and more). Yet, from Instagram to Snapchat some incredibly innovative and valuable startups have been created that to some do nothing more than slight variations in sharing photos. In collaboration, email, app development, storage and more enterprise startups continue to innovate in ways that solve problems in uniquely valuable ways all while incumbents feel like they “already do that”. So while something might be a feature of an existing product, it is almost certainly not a feature exactly like one in an existing product or likely to become one.
Only a month’s work. One asset incumbents have is an existing engineering infrastructure and user experience. So when a new “feature” becomes interesting in the marketplace and discussions turn to “getting something done” the conclusion is usually that the work is about a month. Often this is based on estimate for how much effort the startup put into the work. However, the incumbent has all sorts of constraints that turn that month into many months: globalization, code reviews, security audits, training customer support, developing marketing plans, enterprise customer roadmaps, not to mention all the coordination and scheduling adjustments. On top of all of that, we all know that it is far easier to add a new feature to a new code base than to add something to a large and complex code base. So rarely is something a month’s work in reality.
One thing worth doing as a startup (or as a customer of an incumbent) is considering why the challenges continue even if the incumbent spins up an effort to compete.
Just one feature. If you take at face value that the startup is doing just a feature then it is almost certainly the case that it will be packaged and communicated as such. The feature will get implemented as an add-on, an extra click or checkbox, and communicated to customers as part of the existing materials. In other words, the feature is an objection handler.
Takes a long time to integrate. At the enterprise level, the most critical part of any new feature or innovation is how it integrates with existing efforts. In that regard, the early feedback about the execution will always push for more integration with existing solutions. This will slow down the release of the efforts and tend to pile on more and more engineering work that is outside the domain of what the competitor is doing.
Doesn’t fit with broad value proposition. The other side of “just one feature” is that the go to market execution sees the new feature as somehow conflicting with the existing value proposition. This means that while people seem to be seeing great value in a solution the very existence of the solution runs counter to the core value proposition of the existing products. If you think about all those photo sharing applications, the whole idea was to collect all your photos, enable you to later share them or order prints or mugs. Along comes disappearing photos and that doesn’t fit at all with what you do. At the enterprise level, consider how the enterprise world was all about compliance and containing information while faced with file sharing that is all about beyond the firewall. Faced with reconciling these positioning elements, the incumbent will choose to sell against the startup’s scenario rather than embrace it.
Startups also have some advantages in this dynamic that are readily exploitable. Most of the time when a new idea is taking hold one can see how the startup is maximizing the value they bring along one of these dimensions.
Depth versus breadth. Because the incumbent often views something new as a feature of an existing product, the startup has an opportunity to innovate much more deeply in the space. In any scenario becomes interesting, the flywheel of innovation that comes from usage creates many opportunities to improve the scenario. So while the early days might look like a feature, a startup is committed to the full depth of a scenario and only that scenario. They don’t have any pressure to maintain something that already exists or spend energy elsewhere. In a world where customers want the app to offer a full stack solution or expect a tool to complete the scenario without integrating something else, this turns out to be a huge advantage.
Single release effort. The startup is focused on one line of development. There’s no coordination, no schedules to align, no longer term marketing plans to reconcile and so on. Incumbents will often try to change plans but more often than not the reactions are in whitepapers (for enterprise) or beta releases (for consumer). While it might seem obvious, this is where the clarity, focus, and scale of the startup can be most advantageous.
Clear and recognizable value proposition/identity. The biggest challenge incumbents face when adding a new capability to their product/product line is where to put it so it will get noticed. There’s already enormous surface area in the product, the marketing, and also in the business/pricing. Even the basics of telling customers that you’ve done something new is difficult and calling attention to a specific feature it often ends up as a supporting point on the third pillar. Ironically, those arguing to compete more directly are often faced with internal pressures that amount to “don’t validate the competitor that much”. This means even if the feature exists in the incumbent’s product, it is probably really difficult to know that and equally difficult to find. The startup perspective is that the company comes to stand for the entire end-to-end scenario and over time when customers’ needs turn to that feature or scenario, there is total clarity in where to get the app or service.
Even with all of these challenges, this dynamic continues: initially dismissing startup products, later attempting to build what they do, and in general difficulty in reacting to inherent advantages of a startup. One needs to look long and hard for a story where an incumbent organically competed and won against a startup in a category or feature area.
More often than not the new categories of products come about because there is a change in the computing landscape at a fundamental level. This change can be the business model, for example the change to software as a service. It could also be the architecture, such as a move to cloud. There could also be a discontinuity in the core computing platform, such as the switch to graphical interface, the web, or mobile.
There’s a more subtle change which is when an underlying technology change is simply too difficult for incumbents to do in an additive fashion. The best way to think about this is if an incumbent has products in many spaces but a new product arises that contains a little bit of two of the incumbent’s products. In order to effectively compete, the incumbent first must go through a process of deciding which team takes the lead in competing. Then they must address innovator’s dilemma challenges and allocate resources in this new area. Then they must execute both the technology plans and go to market plans. While all of this is happening, the startup unburdened by any of these races ahead creating a more robust and full featured solution.
At first this might seem a bit crazy. As you think about it though, modern software is almost always a combination of widely reused elements: messaging, communicating, editing, rendering, photos, identity, storage, API / customization, payments, markets, and so on. Most new products represent bundles or mash-ups of these ingredients. The secret sauce is the precise choice of elements and of course the execution. Few startups choose to compete head-on with existing products. As we know, the next big thing is not a reimplementation of the current big thing.
The secret weapon in startups competing with large scale incumbents is to create a product that spans the engineering organization, takes a counter-intuitive architectural approach, or lands in the middle of the different elements of a go to market strategy. While it might sound like a master plan to do this on purpose, it is amazing how often entrepreneurs simply see the need for new products as a blending of existing solutions, a revisiting of legacy architectural assumptions, and/or emphasis on different parts of the solution.
—Steven Sinofsky (@stevesi)
Much is being said lately about the trend to unbundle capabilities for the web and apps. Is this a new trend, a pendulum, or another stage in the evolution of providing software solutions for work and life? Are we going to learn what some would say are lessons from a past generation of software and avoid bloatware? Perhaps we will relive some of the experiences from that era and our phones and tablets will be littered with app shrapnel as our PCs once were?
My own personal experience in product choices is marked by a near constant tension over not just bundle v. unbundle from a product perspective, but also from a business perspective. Whether on development tools, Office, Windows, or internet services I’ve experienced the unbundle <> bundle dynamic. I’ve bundled, unbundled, and had the “internal” debates about what to do when, what went well or not. If you’re interested in an early debate about bundling Office you can see the Harvard case study on the choice of “best of breed v. suite” in Finding the Suite Spot ($).
This HBR article does a good job of bringing forth some of the history and describing the challenges of positioning unbundle/bundle as both a binary choice and a pendulum or Krebs-like cycle of resource conservation. Marc Andreessen does a great job in these two tweetstorms of detailing the bundle/unbundle cycle on the internet and the computer history we both grew up with (http://tweetstorm.io/user/pmarca/481554165454209027 and http://tweetstorm.io/user/pmarca/481739410895941632).
There’s one maxim in business that drives so much of the back and forth or pendulum behavior we tend to see, which is that most strategies have a complementary approach (vertical v. horizontal, direct v. indirect, integrate v. distinct, first v. third-party, product org v. discipline org, quantitative v. qualitative performance evaluation, hack v. plan, etc.) So in business depending on your roots or your history, and most importantly the context you find yourself, you are going down a path of one of more of these attributes.
Over time your competition tends to pick you apart the other way or ways. Equally likely, your ecosystem builds up around you innovating in parts where you are weaker, gaining strength, and showing off new approaches to product or market. Certainly, if you’re a new company entering an established market you will not just copy the approach of the incumbent which is why new products seem to be at the other end of one of these spectrums.
Then as you get in trouble you look around and try to figure out what to do. There’s a good chance the organization will double down on the approach that has always worked—after all as Christensen says, that is the natural energy force in an organization. That happens until a big moment of change (a major competitive success, leadership change, etc.) and then you change approaches. More often than not, your choice is to do the thing you weren’t doing before. If you’re around in the workforce long enough, you start to see things as a series of these evolutionary steps.
This is business, context is everything. There’s never a right answer in absolute, only a right answer given the context.
The moments of change, of breaking the cycle or swinging back the other way, are the moments that unleash significant improvements in the work, the product, or the workplace.
History and Customers
As consumers we adopt new technologies without realizing or thinking about whether they are bundled or unbundled, and our choices and selections for one or other are highly dependent on the context at the time. There are times when bundling is essential to the distribution of technology, just as there are times when unbundling brings with it more choice, flexibility, and opportunity. Obviously the same holds for businesses buying products, only businesses have purchasing power that can make bundled things appear unbundled or vice versa.
It is worth considering a few tech examples:
- Autos began with minimal electronics, followed by optional electronics, then increasingly elaborate integrated electronics and many now think that smartphones will be the best device for in-car electronics/apps (for example the BMW i series).
- LinkedIn began as a network for professionals to list their credentials and connect to others professionally. Recently it has bundled more and more content-based functionality.
- Mobile telephony used to have distinct local, long distance, text and then data plans, which have now been bundled into all-you-can-consume multi-device plans.
- Word processing used to have optional spell-checking and mail merge which was then bundled into single products which were then subsequently bundled into suites and also now bundle cloud services. Similarly, financial spreadsheets, data analysis, and charting were previously distinct efforts that are now bundled. Today we are seeing new tools that have different feature sets and approaches, representing some unbundling and some bundling.
- Operating systems were once highly hardware dependent, then abstracted from hardware but with optional graphical interfaces, followed by a period of bundling of OS+Graphics, followed by a bundling of OS, graphical interface, and hardware in a single package. Today with services we’re seeing different combinations of bundling and unbundling innovations.
- Microprocessors have been on a fairly continuous bundling effort relative to peripherals, graphics, and even storage.
- Modern smartphones are a wonder of bundling, first at the hardware level (SoC packaging) followed by hardware+software, then through all the devices that were previously distinct (GPS, still camera, video camera, pedometer, game controller, USB storage, and more).
There are countless examples depending on what level in the full consumer offering is being considered (i.e. product, price, place, promotion). Considering just these examples, one can easily see the positives and potential pitfalls of any of these.
Yet in looking these examples and others, one can make a few observations about how customers and teams approach bundling choices for products and services:
- People like distinct products when exploring new capabilities and product teams like building single purpose tools early in product lifecycle, out of both focus and necessity/resources.
- People like it when their favorite product adds features that previously required a separate product, especially when their favorite product is growing in usage. Product teams love to add more features to existing products when those features map to obvious needs.
- People have some threshold for when an integrated product turns into an overwhelming product, but that “line in the sand” is impossible to define a priori and depends a great deal on how products are evolving around your product. Mobile phone plans today are great, but many are very unhappy with Cable TV bundles.
- Competition can come from a bundle that you were previously not considering **or** competition can come from unbundling the product you make.
- Product managers often reach a point where they can no longer solve the problem of adding new features while seeing them get used and also getting credit for innovating.
- Macro factors can radically alter your own views of what could/should be bundled. If your business does not have a software component and your competitors add one, attempting to bundle that functionality could be quite challenging (technically, organizationally). If the platform you target (autos, spectrum, screens) undergoes a major change in capability then so too does your view of bundling or unbundling.
These examples and observations make one thing perfectly clear: whether to bundle or unbundle features depends a great deal on context and customer scenarios and so the choices require a great deal of product management thought. The path to bundle or unbundle is not linear, predictable, or reactionary but a genuine opportunity and need for solid product thought.
On the one hand, considering whether to bundle or unbundle innovations might just be “do what we can that is differentiated”. In practice there are some key strategy questions that come up time and time again when talking to product folks.
- Discoverability. The most critical strategic question to bundle or unbundle is whether the new work will be discoverable by intended customers. In a new product, the early waves of innovative features often make sense bundled. Over time, just responding to customers means you’ll be bundling in new capabilities (whether organic or competitive).
- Usability. When faced with a new feature or business approach, the usability of this approach is a key factor in your choice. If you’re unable to develop a user experience that permits successful execution of the desired outcome, then it doesn’t really matter whether your bundled or unbundled.
- Depth. When making the choice to bundle or unbundle you have to think through how much you plan on innovating in the spaces. If you’re setting yourself up for a long-term head to head on depth versus believing you are “checking a box” you have different choices. Incumbents often view the best path to fending off a disruptive unbundled feature as adding a checkbox to compete (to avoid the trauma of a major change in approach). Marketing often has an urgency that drives a need for market response and that can be represented as an unbundled “add-on that no one cares about” or “a checkbox that can be communicated” — that might sound cynical until you’ve been through a sales cycle losing out to a “feature as a product”.
- Business economics. If you charge directly for your product or service (or freemium), then there will be a strong incentive to bundle more and more into your existing offering. Sales will generally prefer to add more features at the current price. Marketing will potentially advocate for a new pricing level to increase revenue. If you choose to unbundle and develop a new product, side-by-side or companion, then you’ll need to consider what your attach rate might be. A bundled solution essentially sees a 100% attach rate to your existing product whereas a whole new product brings with it the need to generate demand and subsequent purchase or usage. An advertising-based service will see increased surface area for an unbundled solution but will also dilute usage. A web-based service allows for cross-linking and easy connection between two different properties, but apps will require separate downloads and minimal cross-app connections.
- Usage economics. It might sound strange separating out business from usage, since especially in a SaaS world they are the same thing. In practice, if you’re revenue is tied to usage directly (page views, transactions, etc.) then your design needs to factor in how you measure and drive usage of the features, bundled or unbundled. If you’re economics are not tied directly to usage you will have more strategic latitude to consider how your offering plays out bundled v. unbundled (assuming your boss lets you keep working on something no one uses).
Product management approach
Should you add that new feature or capability to your existing product or should you create a new destination (app, site)? Should you break out a feature because unbundling is the new normal or will that just break everything? Those are the core questions any PM faces as a product grows.
One tip: do not claim that one approach (bundle v. unbundle) is good for users and the other approach is only good for business. In other words, bundle v. unbundle cannot be distilled down to pro-user or anti-user, or more importantly marketing v. product. The best product people know that context is everything and that positioning a choice as A against B is counter productive—everyone is on the same team and has the same broad goals. As difficult as it is, working through these questions with as much dialog as possible and as much “walk in the other’s shoes” is absolutely critical.
There are many natural forces at play that will drive one way or another.
For example, most organic product development will tend to expand the existing product as it builds on the infrastructure and momentum already present.
Most new acquisitions will tend towards acquiring unbundled solutions, aka competition, though in the enterprise space one can expect significant calls to integrate even disparate technologies.
Part of being a good PM is to step back and go through a thoughtful process about whether to bundle or unbundle new capabilities. The following are some design choices.
- Advertising new features in proportion to expected usage. There’s a general view to advertise a new feature in the UX in an excessively prominent manner. You want people to know you fixed or added a feature. At the unbundle extreme this means a whole new app and a trend to shrapnel. In the bundle extreme this means a big UX to drive you to a new thing. The most critical choice is really making sure that you are designing the access to the feature to be in relative proportion to how much you expect your customer base to use something.
- Plan for “n+1” in all experience choices. As you make the choice to bundle or unbundle, know ahead of time that this will not be the first place you make this choice. If you’re adding a new app today then chances are that will become the way you solve things down the road. If you’re adding new UX access to a feature then plan on more depth in that feature or more peer features. Is the choice you are making scalable for the growth in creativity and innovation you expect?
- Integrate or connect in one direction, not both. If you bundle or unbundle there will be a relentless push to promote the connection between elements of the product or service. Demo flows, top-level UX, even deep linking between apps. At some extreme if you bundle n items, it might not be unrealistic to go down a path where every n is connected to every other n-1 and vice versa. This is incredibly common in line of business apps/modules.
- Bundle and innovate, don’t bundle and deprecate. If you make a choice to bundle a capability into your mainline effort, do not bundle it to make it go away. Bundle it and think of it as just as important as other things you do. This dynamic appears when your competition does something you don’t like so you hope to have a checkbox and make the competitor go away. This never happens.
- Designing for good enough leaves you open to disruption. Closely related to deprecating while bundling is the idea that a “tie is a win”. Once you’re established you often think that you can continue to win against a competitor with an integrated implementation that is “good enough”. That might work in short-term marketing but over time, if the area is important you’ll lose.
- Expect hardware to be relentlessly bundled. If you connect to hardware in any way, then you’ll be faced with a relentless march towards bundling. Hardware naturally bundles because of the economics of manufacturing, the surplus of transistors, and the need to reduce power and surface area. Never bet on hardware or peripherals staying unbundled for long.
- Expanding software depth is easy, but breadth often adds more value. Engineers and product managers love to round out features, add more depth, more customization, and more incremental improvements. This is where the customer feedback loop is really clear. In terms of growing the business and attracting new customers, expansion in breadth is almost always a better approach so long as you “bundle” features that seem natural. Over indexing on depth, particularly early in a product life-cycle leaves you open to a competitor that does you plus other valuable things, no matter how much you think you’re unbundling approach is cleaner and simpler.
- Defined categories do not remain defined for long. In enterprise products the “category” or “magic quadrant” is everything. In practice, these very definitions are always in transition. Be in the lookout for being redefined by an action of bundling or unbundling.
- Assume sales and marketing will prefer new capability to be bundled, or maybe not. Finally to highlight how contextual this is, there is no default as to how outbound efforts will prefer you approach the problem. It is not necessarily the opposite of what you are doing or the same as a competitor. For example, if your sales force economics are such that they are strongly connected to a single product and sales motion, it will be clear that bundling will be preferred no matter what a competitor is up to. At an extreme, even an unbundled feature will be used as a closer or a discount, particularly in the enterprise. Conversely, even if your competition is highly bundled, you’re own outbound efforts might be structured such that unbundling is a competitive and sales win. You just never know. Most importantly, the first reaction isn’t the way to base your approach—spend the time to engage and debate.
To bundle or unbundle is a complex question that goes beyond the simplistic view that minimal design makes for good products. Take the time to engage broadly across the team, organization, and to project forward where you want to be as these are some of the most critical design choices you will make.
–Steven Sinofsky @stevesi
Nothing is more critical to a software-as-a-service (SaaS) business than pricing strategy. Pricing is the moment of truth for a new product … and doubly so when it is a company’s first product. But far more often than not, I’ve observed new startups leaving “money on the table” when it comes to pricing enterprise products. I’ve seen founders say their product saves hundreds of thousands of dollars — yet their product is priced as if it’s only saving thousands of dollars.
One reason for this is assuming the need to price and program similarly to competitive products. With a potentially disruptive product, however, falling into the trap of pricing like a legacy competitor not only leaves money on the table — but it could fail to surface your differentiation. Said another way, your product is your price and how you price your product reflects value from the buyer perspective as well as what your company believes is valuable. SaaS products also have the advantage that they are priced not just for the service they offer, but for the potential of saving massive capex/opex spent directly by the customer.
From your business perspective, SaaS products have a level of stickiness that would be the envy of the packaged-and on-premise software generation.
Since the uncertainty and social science aspects of pricing can be uncomfortable, especially for technical founders, here is a framework — from the perspective of a product manager — to consider when pricing new SaaS products. The product manager role is critical in SaaS because the ability to fine-tune the monetization of the product is closely tied to its features and implementation. The product needs to be designed with such flexibility in mind when it comes to making features available, prioritizing features, or even just choosing where to spend engineering time.
Just remember that “business isn’t physics”, as Bill Gurley notes in his excellent post on some of the metrics here. Andreessen Horowitz also has a detailed primer on understanding SaaS valuations as great background for pricing discussions. Because pricing is math, there’s a tendency to create the spreadsheet model and assume it will all work. But there’s also a ton of psychology that comes into play: beyond math, pricing involves judgment, vision, and flexibility.
How do you solve an unsolvable problem? Bound it.
In a new business, it’s easy to spend money, but the combination of a new product and the unknown cost of acquiring customers leads to an “unsolvable” problem. One approach is to take lean/iterative methods and apply them to finding the right pricing fit. This post is about a framework to arrive at such early prices, which will change. (This is very different from what happens in an existing company with existing customers, where you really only get one shot at pricing something right).
The business side of SaaS involves a complex array of variables such as customer lifetime value (LTV), customer/subscriber acquisition cost (CAC), average revenue per user (ARPU), cost of goods sold (COGS), and churn; as well as pricing models such as freemium, tiered, and time based. Then, depending on whether you’re targeting consumers or enterprises, there are very different sales models that influence your pricing approach (for example, business products invite complexity, especially when dealing with purchasing managers). Similarly, the product side of SaaS is a complex set of equations related to usage patterns, scenarios, and variable costs of a large number of resources.
The most critical costs are related to customer acquisition and sales/marketing expense — which can appear to erase any potential for profit by traditional accounting measures — so the key to early-stage SaaS businesses is to focus on understanding customer acquisition costs relative to the estimated long term value of a customer. Since we don’t know how much it will cost to acquire a customer yet, we will just have to move forward assuming some budget (along with some allocation for margin in the ultimate price relative to this long term value). This post focuses on the pricing models relative to product and features and assumes a higher level view of customer acquisition costs and long term value.
One way to approach this is to establish upper and lower bounds on pricing:
A lower bound for your pricing
The lower bound represents your costs to serve a customer your product. One common example is the basic costs of spinning up the IaaS/PaaS elements of what you do — creating accounts, allocating minimal resources, other infrastructure, and then subsequent usage.
It might be convenient to think of this lower bound as what you could offer for “free” to some customers. You might make some assumptions about the use of variable resources such as compute, egress, storage, etc. in order to arrive at this lower bound. (Note, since this is a product-centric view these bounds are absent the allocation for fixed and variable costs outside the product/technology, so do not not include opex, S&M, etc.)
It is important to understand this bound across the full breadth of your product. While you might initially view some features as “premium”, you also want to assume that over time capabilities will migrate from advanced to essential and you will fill in new features at the top. I think it is a good exercise to consider the full product as a base case initially.
An upper bound for your pricing
The upper bound represents your costs to serve a “depth” user: in this case, the customer using the parts of your product that drive ongoing costs to scale (for example, this customer is using increasingly more bandwidth, storage, or compute). Now this is where you can look at what you offer relative to your competition, and want to understand if you have scale attributes that are better/worse/same. By knowing this you can begin to separate out variables for your model.
Presumably in developing your product, you created a unique architectural approach relative to existing competitors. Do you scale better for more tenants, use storage more effectively, or maybe your mobile app is more efficient at bandwidth? The importance of knowing your own strengths and weaknesses will inform what variables to use in your pricing.
You can also think of your upper bound as a competitive foil — the stronger you are on some attribute, the more you should use this attribute to differentiate your offering. This might allow you to charge more for capabilities that are just too expensive for your competition.
These are the core attributes for pricing
When you’re pricing a new offering, it is worth understanding where your product is today relative to a core set of potential pricing attributes.
Whether it is Bronze/Silver/Gold, Free/Select/Premium, Trial/Select/Premium, or Individual/Business/Enterprise, the norm for SaaS is to offer a “3xN” matrix of 3 pricing plans and N attributes — as inthese examples. The more mature a SaaS product, the more rows and columns its matrix has. (One SaaS product I researched had five top-level features organized into an array of 27 price points based on combinations of the three to five of the features and number of users.)
A broad range of SaaS products can be considered across the following core service attributes:
If your product lends itself to dividing the features themselves — such as import/export, visualization, view/edit, or connectivity to other products — into good-better-best then differentiating price points here might work. In a freemium model, dividing must-have features among free v. paid users can be a customer-hostile way to differentiate or optimize pricing, so beware.
The reason to hesitate on this dimension is because customers understand that you’re basically just inhibiting access to code that is already there and hence being draconian. Another reason to be cautious with this model is that as usage of the product deepens over time, paid features will tend to get pulled into lower-priced tiers — which means you need to fill in new features/prices with every release or update. As easy as it is to communicate general-use features in pricing tiers, there’s a level of distaste with this approach for many customers.
One of the most common approaches to differentiating a SaaS product designed for business is to separate out the IT-focused features as a pricing attribute. These could be features for security, audit, identity integration, domain names, sharing, control, management, etc. Businesses understand what it is like to both value and pay for these features.
Commonly this approach is used to rectify a product that has become viral within an enterprise, so be careful about how you approach an enterprise with pricing here. Otherwise you might come across as an arsonist-firefighter who is offering to contain the very situation you knowingly created.
Scale in consumption
Another broadly used SaaS pricing attribute is storage consumption (even for products for which storage is not a primary attribute): It’s easy to measure, easy to articulate, and is relatively expensive. The benefit of using storage is that people “get it” to some degree. It also gets cheaper faster than people can consume it (and in most scenarios customers need to be doing something fairly extreme to consume vast amounts of storage). At the same time, the platform companies have been steadily increasing free storage or ultra-low priced storage as a base, no-frills service so simply using storage as a one-dimensional offering might not work. With a new SaaS product, be sure to consider ways to avoid basing costs on storage given challenges.
One novel approach seen recently is using third-party storage and letting the customer establish a paying relationship such that storage is not part of the pricing of your product, since that way you do not serve as a pure pass-through for a visibly priced third-party element of your product. There are many novel attributes in modern software that can be used as consumption variables; one relatively new one is to use depth consumption of APIs/calls as a price tiering structure. (Box, where I’m an advisor, recently announced pricing for Box APIs as an example.) Developer-oriented products work especially well for consumption pricing because developers understand the product architecture and what can drive costs, even if those costs are variable with usage.
Scale in consumers
SaaS products used by small teams, cross-organizations, or that just scale with more members collaborating/sharing/using are almost always priced by number of unique users (and subsequent integration with organization-based directories). Pricing this variable is straightforward and over time you will see distribution of engagement and resource usage that will further let you refine the discrete price points.
Because most products priced this way also want to encourage more users/usage, carefully consider where you put the first step or two. But large-scale customers like this approach because it allows for predictable pricing on a metric they understand: number of employees/users. In general, you can think of this as per-seat pricing but can also apply to device end-points, servers/CPUs, VMs, etc.
Segmenting your customers
Every product is used by different customer segments — whether measured by size of organization, industry segment, geography, or type of individual within an organization. Common pricing tier labels here include “government”, “non-profit”, “academic”, “healthcare”, “small business”, and so on.
As a product matures, you will almost certainly either label or expand your pricing tiers to account for this. Before you jump into this level of differentiation, however, you want to gain more data on usage — are you seeing customers across some set of segments, and are they using the product differently? More importantly, do you see a path to develop differentiation that allows you to target and sustain these segments (or are you just optimizing revenue along these lines)? Some products are designed only for specific segments like education, which allows you to further refine within them: e.g., public, private, post-secondary, etc.
But one customer segment that is almost always special is the engaged technical user. These folks can push a product through an organization when required, or develop custom solutions on your platform that either deliver or enhance the value of your work.
Developers are key in this regard. For any platform-oriented product, it is worth considering how you offer developers the ability to experiment with and use the full product in a development environment at a very low price. One way to accomplish this is to separate out usage-as-development versus usage-as-production, and price accordingly.
* * *
As a new offering with any established competitors, pricing will be the easiest point of attack. And if you are a disruptive product, you want to have the deepest possible understanding of the value you are bringing to the table so you can maximize the initial pricing model. So the most important suggestion for pricing I have here is to wait until the last possible moment to price and announce.
Even for enterprise products, things like round-numbers, 9′s, and discounts all matter. Do keep in mind that discounting will be substantial in enterprise products with direct sales and 50% or more off “list” price is not uncommon (and often required). That’s not an excuse to bloat the price, but it is important for purchasing managers and for empowering your salesforce that you enable a level of customization — and know what variables you are using to do so.
Some say that you can never change or raise your prices once you’re out of the gate. Always keep in mind that once you have customers, price changes or product composition relative to price are never viewed as positive changes, even if you think for some customers you are lowering the price. And when you do change your prices, always offer existing customers time to adapt and grandfather them in (at least). Finally, remember to engineer a product framework that can support pricing flexibility.
Create the model, use the model, but don’t let the model do your thinking. Price carefully!
–Steven Sinofsky (@stevesi)
This post originally appeared on TechCrunch.
I was talking with a founder/CEO of an enterprise startup about what it is like to disrupt a sizable incumbent. In the case we were talking about the disrupting technology was losing traction and the incumbent was regaining control of the situation, back off their heels, and generally felt like they had fended off the “attack” on a core business. This causes a lot of consternation at the disrupting startup as deals aren’t won, reviews and analyst reports swing the wrong way, and folks start to question the direction. If there really is a product/market fit, then hold on and persevere because almost always the disruption is still going to happen. Let’s look at why.
The most important thing to realize about a large successful company reacting to a disruptive market entry is that every element of the company just wants to return to “normal” as quickly as possible. It is that simple.
Every action about being disrupted is dictated by a desire to avoid changing things and to maintain the status quo.
If the disruption is a product feature, the motion is figuring out how to tell customers the feature isn’t that important (best case) or how to quickly add something along the lines of the feature and move on (worst case). If the disruption is a pricing change then every effort is about how to “manage customers” without actually changing the price. If the disruption is a new and seemingly important adjacent product, then the actions focus on how to point out that such a product isn’t really necessary. Across the spectrum of potential activities, it is why the early competitive responses are often dismissive or outwardly ignore the challenger. Aside from the normal desire to avoid validating a new market entry by commenting, it takes a lot of time for a large enterprise to go through the work to formulate a response and gain consensus. Therefore an articulate way of changing very little has a lot of appeal.
Status quo is the ultimate goal of the incumbent.
Once a disruptive product gains enough traction that a more robust response is required, the course of action is almost always one that is designed to reduce changes to plans, minimize effort overall, and to do just enough to “tie”. Why is that? Because in a big company “versus” a small company, enterprise customers tend to see “a tie as a win to the incumbent”. Customers have similar views about having their infrastructure disrupted and wish to minimize change, so goals are aligned. The idea of being able to check off that a given scenario is handled by what you already own makes things much easier.
Keep in mind that in any organization, large or small, everyone is at or beyond capacity. There’s no bench, no free cycles. So any change in immediate work necessarily means something isn’t going to get done. In a large organization these challenges are multiplied by scale. People worry about their performance reviews; managers worry about the commitments to other groups; sales people worry about quarterly quotas. All of these worries are extremely difficult to mitigate because they cross layers of managers and functions.
As much as a large team or leader would like to “focus” or “wave a wand” to get folks to see the importance of a crisis, the reality of doing so is itself a massive change effort that takes a lot of time.
This means that the actions taken often follow a known pattern:
- Campaign. The first thing that takes place is a campaign of words and positioning. The checklist of features, the benefits of the existing product, the breadth of features of the incumbent compared to the new product, and so on. If the new product is cheaper, then the focus turns to value. Almost always the campaign emphasizes the depth, breadth, reliability, and comfort of the incumbent’s offer. A campaign might also be quite negative and focus on a fear, compatibility with existing infrastructure, or conventional wisdom weakness of a disruptor, or the might introduce a pretty big leap of repositioning of the incumbent product. A good example of this is how on-premises server products have competed with SaaS by highlighting the lack of flexibility or potential security issues around the cloud. This approach is quick to wind up and easy to wind down. Once it starts to work you roll it out all over the world and execute. Once the deals are won back then the small tiger team that created the campaign goes back to articulating the product as originally intended, aka normal.
- Partnership. Quite often there can be a competitive response of best practices or a third-party tool/add-on that appears to provide some similar functionality. The basic idea is to use someone else to offer the benefit articulated by a disruptive product. Early in the SaaS competition, the on-premises companies were somewhat quick to partner with “hosting” companies who would simply build out a dedicated rack of servers and run the traditional software “as a service”. This repotting plants approach to SaaS has the benefit that once the immediate crisis is mitigated, either the need to actually offer and support the partnership ends or the company just becomes committed to this new sales channel for existing products. Again, everything else continues as it was.
- Special effort. Every once in a while the pressure is so great internally to compete that the engineering team signs up for a “one off” product change or special feature. Because the engineering team was already booked, a special effort is often something carefully negotiated and minimized in scope and effort. Engineering minimizes it internally to avoid messing up dependencies and other features. Sales will be specific in what they expect the result to do because while the commitment is being made they will likely begin to articulate this to red-hot customer situations. At the extreme, it is not uncommon for the engineering team to suggest to the sales organization that a consultant or third-party can use some form of extensibility in the product to implement something that looks like the missing work. The implications of doing enterprise work in a way that minimizes impact is that, well, the impact is minimized. Without the proper architecture or an implementation at the right level in the stack, the effort ultimately looks incomplete or like a one-off. Almost all the on-premise products attempting to morph into cloud products exhibit this in the form of features that used to be there simply not being available in the “SaaS version”. With enough wins, it is almost likely that the special effort feature doesn’t ever get used. Again, the customer is just as likely to be happy with the status quo.
All of these typical responses have the attribute that they can be ignored by the vast majority of resources on a business. Almost no one has to change what they are doing while the business is responding to a disruptive force. Large incumbents love when they can fend off competitors with minimal change.
Large incumbents love when they can fend off competitors with minimal change.
Once the initial wave of competitive wins settles in and the disruptive products lose, there is much rejoicing. The teams just get back to what they were doing and declare victory. Since most of the team didn’t change anything, folks just assume that this was just another competitor with inferior products, technology, approaches that their superior product fended off. Existing customers are happy. All is good.
Or is it?
This is exactly where the biggest opportunity exists for a disruptive market entry. The level of complacency that settles into an incumbent after the first round of victories is astounding. There’s essentially a reinforcing feedback loop because there was little or no dip in revenue (in fact if revenue was growing before then it still is), product usage is still there, customers go back to asking for features the same as they were before, sales people are making quota, and so on. Things went back to normal for the incumbent.
In fact, just about every disruption happens this way–the first round or first approaches don’t quite take hold.
Why is this?
- Product readiness can improve. Obviously the most common is that the disruptive product simply isn’t ready. The feature set, scale, enterprise controls, or other attributes are deficient. A well-run new product will have done extensive early customer work knowing what is missing and will balance launching with these deficiencies and with the ability to continue to develop the product. In a startup environment, a single company rarely gets a second shot with customers so calibrating readiness is critical. Relative to the broader category of disruption, the harsh reality is that if the disruptor’s idea or approach is the right one but the entry into the market was premature, the learning will apply to the next entry. That’s why the opportunity for disruption is still there. It is why time to market is not always the advantage and being able to apply learning from failures (your own or another entry) can be so valuable.
- Missing ingredient gets added. Often a disruptive product makes a forward-looking bet on some level of enterprise infrastructure or capability as a requirement for the new product to take hold. The incumbent latches on to this missing ingredient and uses it to create an overall state of lack of readiness. If there’s one thing that disruptors know, it is not to bet against Moore’s law. If your product takes more compute, more storage, or more bandwidth, these are most definitely short-term issues. Obviously there’s no room for sloppy work, but by and large time is on your side. So much of the disruption around mobile computing was slowed down by the enterprise issues around managing budgets and allocation of “mobile phones”. Companies did not see it as likely that even better phones would become essential for life outside of work and overwhelm the managed phone process. Similarly, the lack of high-speed mobile networks was seen as a barrier, but all the while the telcos are spending billions to build them out.
- Conventional wisdom will change. One of the most fragile elements of change are the mindsets of those that need to change. This is even more true in enterprise computing. In a world where the average tenure of a CIO is constantly under pressure, where budgets are always viewed with skepticism, and where the immediate needs far exceed resources and time, making the wrong choice can be very costly. Thus the conventional wisdom plays an important part in the timeline for a disruption taking hold. From the PC to the GUI to client/server, to the web, to the cloud, to acceptance of open source each of these went through a period where conventional wisdom was that these were inappropriate for the enterprise. Then one day we all wake up to a world where the approach is required for the enterprise. The new products that are forward-looking and weather the negatives wishing to maintain the status quo get richly rewarded when the conventional wisdom changes.
- Legacy products can’t change. Ultimately the best reason to persevere is because the technology products you’re disrupting simply aren’t going to be suited to the new world (new approach, new scenarios, new technologies). When you re-imagine how something should be, you have an inherent advantage. The very foundation of technology disruption continues to point out that incumbents with the most to lose have the biggest challenges leading through generational changes. Many say the enterprise software world, broadly speaking, is testing these challenges today.
All of these are why disruption has the characteristic of seeming to take a much longer time to take hold than expected, but when it does take hold it happens very rapidly. One day a product is ready for primetime. One day a missing ingredient is ubiquitous. One day conventional wisdom just changes. And legacy products really struggle to change enough (sometimes in business or sometimes in technology) to be “all in” players in the new world.
Of course all this hinges on an idea plus execution of a disruptive idea. All the academic theory and role-playing in the world cannot offer wisdom on knowing if you’re on to something. That’s where the team and entrepreneur’s intuition, perseverance, and adaptability to new data are the most valuable assets.
The opportunity and ability to disrupt the enterprise takes patience and more often than not several attempts, by one or more players learning and adjusting the overall approach. The intrinsic strengths of the incumbent means that new products can usually be defended against for a short time. At the same time the organization and operation of a large and successful company also means that there is near certainty that a subsequent wave of disruption will be stronger, better, and more likely to take hold simply because of the desire for the incumbent to get back to “normal”.
–Steven Sinofsky (@stevesi)
Innovation and disruption are the hallmarks of the technology world, and hardly a moment passes when we are not thinking, doing, or talking about these topics. While I was speaking with some entrepreneurs recently on the topic, the question kept coming up: “If we’re so aware of disruption, then why do successful products (or companies) keep getting disrupted?”
Good question, and here’s how I think about answering it.
As far back as 1962, Everett Rogers began his groundbreaking work defining the process and diffusion of innovation. Rogers defined the spread of innovation in the stages of knowledge, persuasion, decision, implementation and confirmation.
Those powerful concepts, however, do not fully describe disruptive technologies and products, and the impact on the existing technology base or companies that built it. Disruption is a critical element of the evolution of technology — from the positive and negative aspects of disruption a typical pattern emerges, as new technologies come to market and subsequently take hold.
A central question to disruption is whether it is inevitable or preventable. History would tend toward inevitable, but an engineer’s optimism might describe the disruption that a new technology can bring more as a problem to be solved.
Four Stages of Disruption
For incumbents, the stages of innovation for a technology product that ultimately disrupt follow a pattern that is fairly well known. While that doesn’t grant us the predictive powers to know whether an innovation will ultimately disrupt, we can use a model to understand what design choices to prioritize, and when. In other words, the pattern is likely necessary, but not sufficient to fend off disruption. Value exists in identifying the response and emotions surrounding each stage of the innovation pattern, because, as with disruption itself, the actions/reactions of incumbents and innovators play important roles in how parties progress through innovation. In some ways, the response and emotions to undergoing disruption are analogous to the classic stages of grieving.
Rather than the five stages of grief, we can describe four stages that comprise theinnovation pattern for technology products: Disruption of incumbent; rapid and linear evolution; appealing convergence; and complete reimagination. Any product line or technology can be placed in this sequence at a given time.
The pattern of disruption can be thought of as follows, keeping in mind that at any given time for any given category, different products and companies are likely at different stages relative to some local “end point” of innovation.
Stage One: Disruption of Incumbent
A moment of disruption is where the conversation about disruption often begins, even though determining that moment is entirely hindsight. (For example, when did BlackBerry get disrupted by the iPhone, film by digital imaging or bookstores by Amazon?) A new technology, product or service is available, and it seems to some to be a limited, but different, replacement for some existing, widely used and satisfactory solution. Most everyone is familiar with this stage of innovation. In fact, it could be argued that most are so familiar with this aspect that collectively our industry cries “disruption” far more often than is actually the case.
From a product development perspective, choosing whether a technology is disruptive at a potential moment is key. If you are making a new product, then you’re “betting the business” on a new technology — and doing so will be counterintuitive to many around you. If you have already built a business around a successful existing product, then your “bet the business” choice is whether or not to redirect efforts to a new technology. While difficult to prove, most would generally assert that new technologies that are subsequently disruptive are bet on by new companies first. The very nature of disruption is such that existing enterprises see more downside risk in betting the company than they see upside return in a new technology. This is the innovator’s dilemma.
The incumbent’s reactions to potential technology disruptions are practically cliche. New technologies are inferior. New products do not do all the things existing products do, or are inefficient. New services fail to address existing needs as well as what is already in place. Disruption can seem more expensive because the technologies have not yet scaled, or can seem cheaper because they simply do less. Of course, the new products are usually viewed as minimalist or as toys, and often unrelated to the core business. Additionally, business-model disruption has similar analogues relative to margins, channels, partners, revenue approaches and more.
The primary incumbent reaction during this stage is to essentially ignore the product or technology — not every individual in an organization, but the organization as a whole often enters this state of denial. One of the historical realities of disruption is uncovering the “told you so” evidence, which is always there, because no matter what happens, someone always said it would. The larger the organization, the more individuals probably sent mail or had potential early-stage work that could have avoided disruption, at least in their views (see “Disruption and Woulda, Coulda, Shoulda” and the case of BlackBerry). One of the key roles of a company is to make choices, and choosing change to a more risky course versus defense of the current approaches are the very choices that hamstring an organization.
There are dozens of examples of disruptive technologies and products. And the reactions (or inactions) of incumbents are legendary. One example that illustrates this point would be the introduction of the “PC as a server.” This has all of the hallmarks of disruption. The first customers to begin to use PCs as servers — for application workloads such as file sharing, or early client/server development — ran into incredible challenges relative to the mini/mainframe computing model. While new PCs were far more flexible and less expensive, they lacked the reliability, horsepower and tooling to supplant existing models. Those in the mini/mainframe world could remain comfortable observing the lack of those traits, almost dismissing PC servers as not “real servers,” while they continued on their path further distancing themselves from the capabilities of PC servers, refining their products and businesses for a growing base of customers. PCs as servers were simply toys.
At the same time, PC servers began to evolve and demonstrate richer models for application development (rich client front-ends), lower cost and scalable databases, and better economics for new application development. With the rapidly increasing demand for computing solutions to business problems, this wave of PC servers fit the bill. Soon the number of new applications written in this new way began to dwarf development on “real servers,” and the once-important servers became legacy relative to PC-based servers for those making the bet or shift. PC servers would soon begin to transition from disruption to broad adoption, but first the value proposition needed to be completed.
Stage Two: Rapid Linear Evolution
Once an innovative product or technology begins rapid adoption, the focus becomes “filling out” the product. In this stage, the product creators are still disruptors, innovating along the trajectory they set for themselves, with a strong focus on early-adopter customers, themselves disruptors. The disruptors are following their vision. The incumbents continue along their existing and successful trajectory, unknowingly sealing their fate.
This stage is critically important to understand from a product-development perspective. As a disruptive force, new products bring to the table a new way of looking at things — a counterculture, a revolution, an insurgency. The heroic efforts to bring a product or service to market (and the associated business models) leave a lot of room left to improve, often referred to as “low-hanging fruit.” The path from where one is today to the next six, 12, 18 months is well understood. You draw from the cutting-room floor of ideas that got you to where you are. Moving forward might even mean fixing or redoing some of the earlier decisions made with less information, or out of urgency.
Generally, your business approach follows the initial plan, as well, and has analogous elements of insurgency. Innovation proceeds rapidly in this point. Your focus is on the adopters of your product — your fellow disruptors (disrupting within their context). You are adding features critical to completing the scenario you set out to develop.
To the incumbent leaders, you look like you are digging in your heels for a losing battle. In their view, your vector points in the wrong direction, and you’re throwing good money after bad. This only further reinforces the view of disruptors that they are heading in the right direction. The previous generals are fighting the last war, and the disruptors have opened up a new front. And yet, the traction in the disruptor camp becomes undeniable. The incumbent begins to mount a response. That response is somewhere between dismissive and negative, and focuses on comparing the products by using the existing criteria established by the incumbent. The net effect of this effort is to validate the insurgency.
Stage Three: Appealing Convergence
As the market redefinition proceeds, the category of a new product starts to undergo a subtle redefinition. No longer is it enough to do new things well; the market begins to call for the replacement of the incumbent technology with the new technology. In this stage, the entire market begins to “wake up” to the capabilities of the new product.
As the disruptive product rapidly evolves, the initial vision becomes relatively complete (realizing that nothing is ever finished, but the scenarios overall start to fill in). The treadmill of rapidly evolving features begins to feel somewhat incremental, and relatively known to the team. The business starts to feel saturated. Overall, the early adopters are now a maturing group, and a sense of stability develops.
Looking broadly at the landscape, it is clear that the next battleground is to go after the incumbent customers who have not made the move. In other words, once you’ve conquered the greenfield you created, you check your rearview mirror and look to pick up the broad base of customers who did not see your product as market-ready or scenario-complete. To accomplish this, you look differently at your own product and see what is missing relative to the competition you just left in the dust. You begin to realize that all those things your competitor had that you don’t may not be such bad ideas after all. Maybe those folks you disrupted knew something, and had some insights that your market category could benefit from putting to work.
In looking at many disruptive technologies and disruptors, the pattern of looking back to move forward is typical. One can almost think of this as a natural maturing; you promise never to do some of the things your parents did, until one day you find yourself thinking, “Oh my, I’ve become my parents.” The reason that products are destined to converge along these lines is simply practical engineering. Even when technologies are disrupted, the older technologies evolved for a reason, and those reasons are often still valid. The disruptors have the advantage of looking at those problems and solving them in their newly defined context, which can often lead to improved solutions (easier to deploy, cheaper, etc.) At the same time, there is also a risk of second-system syndrome that must be carefully monitored. It is not uncommon for the renegade disruptors, fresh off the success they have been seeing, to come to believe in broader theories of unification or architecture and simply try to get too much done, or to lose the elegance of the newly defined solution.
Stage Four: Complete Reimagination
The last stage of technology disruption is when a category or technology is reimagined from the ground up. While one can consider this just another disruption, it is a unique stage in this taxonomy because of the responses from both the legacy incumbent and the disruptor.
Reimagining a technology or product is a return to first principles. It is about looking at the underlying assumptions and essentially rethinking all of them at once. What does it mean to capture an image,provide transportation, share computation, search the Web, and more? The reimagined technology often has little resemblance to the legacy, and often has the appearance of even making the previous disruptive technology appear to be legacy. The melding of old and new into a completely different solution often creates whole new categories of products and services, built upon a base of technology that appears completely different.
To those who have been through the first disruption, their knowledge or reference frame seems dated. There is also a feeling of being unable to keep up. The words are known, but the specifics seem like rocket science. Where there was comfort in the convergence of ideas, the newly reimagined world seems like a whole new generation, and so much more than a competitor.
In software, one way to think of this is generational. The disruptors studied the incumbents in university, and then went on to use that knowledge to build a better mousetrap. Those in university while the new mousetrap was being built benefited from learning from both a legacy and new perspective, thus seeing again how to disrupt. It is often this fortuitous timing that defines generations in technologies.
Reimagining is important because the breakthroughs so clearly subsume all that came before. What characterizes a reimagination most is that it renders the criteria used to evaluate the previous products irrelevant. Often there are orders of magnitude difference in cost, performance, reliability, service and features. Things are just wildly better. That’s why some have referred to this as the innovator’s curse. There’s no time to bask in the glory of the previous success, as there’s a disruptor following right up on your heels.
A recent example is cloud computing. Cloud computing is a reimagination ofboth the mini/mainframe and PC-server models. By some accounts, it is a hybrid of those two, taking the commodity hardware of the PC world and the thin client/data center view of the mainframe world. One would really have to squint in order to claim it is just that, however, as the fundamental innovation in cloud computing delivers entirely new scale, reliability and flexibility, at a cost that upends both of those models. Literally every assumption of the mainframe and client/server computing was revisited, intentionally or not, in building modern cloud systems.
For the previous incumbent, it is too late. There’s no way to sprinkle some reimagination on your product. The logical path, and the one most frequently taken, is to “mine the installed base,” and work hard to keep those customers happy and minimize the mass defections from your product. The question then becomes one of building an entirely new product that meets these new criteria, but from within the existing enterprise. The number of times this has been successfully accomplished is diminishingly small, but there will always be exceptions to the rule.
For the previous disruptor and new leader, there is a decision point that is almost unexpected. One might consider the drastic — simply learn from what you previously did, and essentially abandon your work and start over using what you learned. Or you could be more incremental, and get straight to the convergence stage with the latest technologies. It feels like the ground is moving beneath you. Can you converge rapidly, perhaps revisiting more assumptions, and show more flexibility to abandon some things while doing new things? Will your product architecture and technologies sustain this type of rethinking? Your customer base is relatively new, and was just feeling pretty good about winning, so the pressure to keep winning will be high. Will you do more than try to recast your work in this new light?
The relentless march of technology change comes faster than you think.
So What Can You Do?
Some sincerely believe that products, and thus companies, disrupt and then are doomed to be disrupted. Like a Starship captain when the shields are down, you simply tell all hands to brace themselves, and then see what’s left after the attack. Business and product development, however, are social sciences. There are no laws of nature, and nothing is certain to happen. There are patterns, which can be helpful signposts, or can blind you to potential actions. This is what makes the technology industry, and the changes technology bring to other industries, so exciting and interesting.
The following table summarizes the stages of disruption and the typical actions and reactions at each stage:
|Disruption of Incumbent||Introduces new product with a distinct point of view, knowing it does not solve all the needs of the entire existing market, but advances the state of the art in technology and/or business.||New product or service is not relevant to existing customers or market, a.k.a. “deny.”|
|Rapid linear evolution||Proceeds to rapidly add features/capabilities, filling out the value proposition after initial traction with select early adopters.||Begins to compare full-featured product to new product and show deficiencies, a.k.a. “validate.”|
|Appealing Convergence||Sees opportunity to acquire broader customer base by appealing to slow movers. Sees limitations of own new product and learns from what was done in the past, reflected in a new way. Potential risk is being leapfrogged by even newer technologies and business models as focus turns to “installed base” of incumbent.||Considers cramming some element of disruptive features to existing product line to sufficiently demonstrate attention to future trends while minimizing interruption of existing customers, a.k.a. “compete.” Potential risk is failing to see the true value or capabilities of disruptive products relative to the limitations of existing products.|
|Complete Reimagining||Approaches a decision point because new entrants to the market can benefit from all your product has demonstrated, without embracing the legacy customers as done previously. Embrace legacy market more, or keep pushing forward?||Arguably too late to respond, and begins to define the new product as part of a new market, and existing product part of a larger, existing market, a.k.a. “retreat.”|
Considering these stages and reactions, there are really two key decision points to be tuned-in to:
When you’re the incumbent, your key decision is to choose carefully what you view as disruptive or not. It is to the benefit of every competitor to claim they are disrupting your products and business. Creating this sort of chaos is something that causes untold consternation in a large organization. Unfortunately, there are no magic answers for the incumbent.
The business team needs to develop a keen understanding of the dynamics of competitive offerings, and know when a new model can offer more to customers and partners in a different way. More importantly, it must avoid an excess attachment to today’s measures of success.
The technology and product team needs to maintain a clinical detachment from the existing body of work to evaluate if something new is better, while also avoiding the more common technology trap of being attracted to the next shiny object.
When you’re the disruptor, your key decision point is really when and if to embrace convergence. Once you make the choices — in terms of business model or product offering — to embrace the point of view of the incumbent, you stand to gain from the bridge to the existing base of customers.
Alternatively, you create the potential to lose big to the next disruptor who takes the best of what you offer and leapfrogs the convergence stage with a truly reimagined product. By bridging to the legacy, you also run the risk of focusing your business and product plans on the customers least likely to keep pushing you forward, or those least likely to be aggressive and growing organizations. You run the risk of looking backward more than forward.
For everyone, timing is everything. We often look at disruption in hindsight, and choose disruptive moments based on product availability (or lack thereof). In practice, products require time to conceive, iterate and execute, and different companies will work on these at different paces. Apple famously talked about the 10-year project that was the iPhone, with many gaps, and while the iPad appears a quick successor, it, too, was part of that odyssey. Sometimes a new product appears to be a response to a new entry, but in reality it was under development for perhaps the same amount of time as another entry.
There are many examples of this path to disruption in technology businesses. While many seem “classic” today, the players at the time more often than not exhibited the actions and reactions described here.
As a social science, business does not lend itself to provable operational rules. As appealing as disruption theory might be, the context and actions of many parties create unique circumstances each and every time. There is no guarantee that new technologies and products will disrupt incumbents, just as there is no certainty that existing companies must be disrupted. Instead, product leaders look to patterns, and model their choices in an effort to create a new path.
Stages of Disruption In Practice
Digital imaging. Mobile imaging reimagined a category that disrupted film (always available, low-quality versus film), while converging on the historic form factors and usage of film cameras. In parallel, there is a wave of reimagination of digital imaging taking place that fundamentally changes imaging using light field technology, setting the stage for a potential leapfrog scenario.
- Retail purchasing. Web retailers disrupted physical retailers with selection, convenience, community, etc., ultimatelyconverging on many elements of traditional retailers (physical retail presence, logistics, house brands).
- Travel booking. Online travel booking is disrupting travel agents, then converging on historic models of aggregation and package deals.
- Portable music. From the Sony Walkman as a disruptor to the iPod and MP3 players, to mobile phones subsuming this functionality, and now to streaming playback, portable music has seen the disruptors get disrupted and incumbents seemingly stopped in their tracks over several generations. The change in scenarios enabled by changing technology infrastructure (increased storage, increased bandwidth, mobile bandwidth and more) have made this a very dynamic space.
- Urban transport. Ride sharing, car sharing, and more disruptive traditional ownership of vehicles or taxi services are in the process of converging models (such as Uber adding UberX.
- Productivity. Tools such as Quip, Box, Haiku Deck, Lucidchart, and more are being pulled by customers beyond early adopters to be compatible with existing tools and usage patterns. In practice, these tools are currently iterating very rapidly along their self-defined disruptive path. Some might suggest that previous disruptors in the space (OpenOffice, Zoho, perhaps even Google Docs) chose to converge with the existing market too soon, as a strategic misstep.
- Movie viewing. Netflix and others, as part of cord-cutting, with disruptive, low-priced, all-you-can-consume on-demand plans and producing their own content. Previous disruptors such as HBO are working to provide streaming and similar services, while constrained by existing business models and relationships.
- Messaging/communications apps. SMS, which many consider disruptive to 2000-era IM, is being challenged by much richer interactions that disrupt the business models of carrier SMS and feature sets afforded by SMS.
- Network infrastructure. Software-defined networking and cloud computing are reimagining the category of networking infrastructure, with incumbent players attempting to benefit from these shifts in the needs of customers. Incumbents at different levels are looking to adopt the model, while some providers see it as fundamentally questioning their assumptions.
With the latest pivot for Blackberry much has been said about disruption and what it can do to companies. The story, Inside the fall of BlackBerry: How the smartphone inventor failed to adapt, by Sean Silcoff, Jacquie Mcnish and Steve Ladurantaye in The Globe and Mail is a wonderful account.
Disruption has a couple of characteristics that make it fun to talk about. While it is happening even with a chorus of people claiming it is happening, it is actually very difficult to see. After it has happened the chorus of “told you so” grows even louder and more matter of fact. After the fact, everyone has a view of what could have been done to “prevent” disruption. Finally, the description of disruption tends to lose all of the details leading up to the failure as things get characterized at the broad company level or a simple characteristic (keyboard v. touch) when the situation is far more complex. Those nuances are what product folks deal with day to day and where all the learning can be found.
Like many challenges in business, there’s no easy solution and no pattern to follow. The decision moments, technology changes, and business realities are all happening to people that have the same skills and backgrounds as the chorus, but the real-world constraints of actually doing something about them.
The case of Blackberry is interesting because the breadth of disruptive forces is so great. It is not likely that a case like this will be seen again for a while—a case where a company has such an incredible position of strength in technology and business gained over a relatively short time and then essentially erased in a short time.
I loved my Blackberry. The first time I used one was before they were released (because there was integration with Outlook I was lucky enough to be using one some time in 1998—I even read the entire DOJ filing against Microsoft on one while stopped on the tarmac at JFK). Using the original 850 was a moment when you immediately felt propelled into the future. Using one felt like the first time I saw a graphical interface (Alto) or a GPS. Upon using one you just knew our technology lives would be different.
What went wrong is almost exactly the opposite of what went right and that’s what makes this such an interesting story and unbelievably difficult challenge for those involved. Even today I look at what went on and think of how galactic the challenges were for that amazing group of people that transported us all to the future with one product.
When you build a product you make a lot of assumptions about the state of the art of technology, the best business practices, and potential customer usage/behavior. Any new product that is even little bit revolutionary makes these choices at an instinctual level—no matter what news stories you read about research or surveys or whatever, I think we all know that there’s a certain gut feeling that comes into play.
This is especially the case for products that change our collective world view.
Whether made deliberately or not these assumptions play a crucial role in how a product evolves over time. I’ve never seen a new product developed where the folks wrote down a long list of assumptions. I wouldn’t even know where to start—so many of them are not even thought through and represent just an engineer or product manager “state of the art”, “best practice”, or “this is what I know”.
It turns out these assumptions, implicit or explicit, become your competitive advantage and allow you to take the market by storm.
But then along come technology advances, business model changes, or new customer behaviors and seemingly overnight your assumptions are invalidated.
In a relatively simple product (note, no product is simple to the folks making it) these assumptions might all be within the domain. Christensen famously studied the early days of the disk drive industry. To many of us these assumptions are all contained within one system or component and it is hard to see how disruption could take hold. Fast forward and we just assume solid-state storage, yet even this transition as obvious as it is to us, requires a whole new world view for people who engineer spinning disks.
In a complex product like the entirety of the Blackberry experience there are assumptions that cross hardware, software, communications networks, channel relationships, business models and more. When you bring all these together into a single picture one realizes the enormity of what was accomplished.
It is instructive to consider the many assumptions or ingredients of Blackberry success that go beyond the popular “keyboard v. touch”. In thinking about my own experience with the product, the following list just a few things that were essentially revisited by the iPhone from the perspective of the Blackberry device/team:
- Keyboard to touch. The most visible difference and most easily debated is this change. From crackberry thumbs to contests over who could type faster, your keyboard was clearly a major innovation. The move to touch would challenge you in technology, behavior, and more.
- Small (b&w) screens to large color. Closely connected with the shift to touch was a change in perspective that consuming information on a bigger screen would trump the use of the real estate for (arguably) more efficient input. Your whole notion of industrial design, supply chain, OS, and more would be challenged. As an aside, the power consumption of large screens immediately seemed like a non-starter to a team insanely focused on battery life.
- GPRS to 3G then LTE. Your heritage in radios, starting with the pager network, placed a premium on using the lowest power/bandwidth radio and focusing on efficiency therein. The iPhone, while 2G early, quickly turned around a game changing 3G device. You had been almost dragged into using the newer higher powered radios because your focus had been to treat radio usage as a premium resource.
- Minimize bandwidth to assume bandwidth is free. Your focus on reducing bytes over the wire was met with a device that just assumed bytes would be “free” or at least easily purchased. Many of the early comments on the iPhone focused on this but few assumed the way the communications companies would respond to an appetite for bandwidth. Imagine thinking how sloppy the iPhone was with bandwidth usage and how fast the battery would drain. Assuming a specific resource is high cost is often a path to disruption when someone makes a different assumption.
- No general web support v. general web support. Despite demand, the Blackberry avoided offered generalized web browsing support. The partnership with carriers also precluded this given their concern about network responsiveness and capacity. Again, few would have assumed a network buildout that would support mobile browsing the way it does today. The disruptor had the advantage of growing slowly (relatively) compared to flipping a switch on a giant installed base.
- WiFi as “present” to nearly ubiquitous. The physics of WiFi coverage (along with power consumption, chip surface area and more) assumed WiFi would be expensive and hard to find. Even with whole city WiFi projects in early 2000’s people didn’t see WiFi as a big part of the solution. Few thought about the presence of WiFi at home and new usage scenarios or that every urban setting, hotel, airport, and more would have WiFi. Even the carriers built out WiFi to offload traffic and include it for free in their plans. The elegant and seamless integration of WiFi on the iPhone became a quick advantage.
- Device update/mgmt by tethering to off air. Blackberry required tethering for some routine operations and for many the only way to integrate corporate mail was to keep a PC running all the time. The PC was an integral part of the Blackberry experience for many. While the iPhone was tethered for music and videos, the presence of WiFi and march towards PC-free experiences was an early assumption in the architecture that just took time to play out.
- Business to consumer. Your Blackberry was clearly a business device. Through much of the period of high success consumers flocked to devices like the SideKick. While there was some consumer success, you anchored in business scenarios from Exchange and Notes integration to network security. The iPhone comes along and out of the gate is aimed at consumers with a camera, MMS, and more. This disruption hits at the hardware, the software, the service integration, and even how the device is sold at carriers.
- Data center based service to broad set of cloud based services. Your connection to the enterprise was anchored in a server that business operated. This was a significant business upside as well as a key part of the value proposition for business. This server became a source for valuable business information propagated to the Blackberry (rather than use the web). The absence of an iPhone server seemed like a huge opportunity yet in fact it turned into an asset in terms of spreading the device. Instead the iPhone relied on the web (and subsequently apps) to deliver services rather than programmed and curated services.
- Deep channel partnership/revenue sharing to somewhat tense relationship. By most accounts, your Blackberry business was an incredible win-win with telcos around the world. Story after story talked of the amazing partnerships between carriers and Blackberry. At the same time, stories (and blame game) between Apple and AT&T in the US became somewhat legendary. Yet even with this tension, the iPhone was bringing very valuable customers to AT&T and unseating Blackberry customers.
- Ubiquitous channel presence to exclusives. Your global partnership strength was unmatched and yet disrupted. The iPhone launched with single carriers in limited markets, on purpose. Many viewed that as a liability, including Blackberry. Yet in hindsight this only increased the value to the selected partners and created demand from other potential partners (even with the tension).
- Revenue sharing to data plan. One of the main assets that was mostly invisible to consumers was the revenue to Blackberry for each device on the network. This was because Blackberry was running a secure email service as a major anchor of the offering. Most thought no one was going to give up this revenue, including the carrier ability to up-charge for your Blackberry. Few saw a transition to a heavily subsidized business model with high priced data plans purchased by consumers.
These are just a few and any one of these is probably debatable. The point is really the breadth of changes the iPhone introduced to the Blackberry offering and roadmap. Some of these are assumptions about the technology, some about the business model, some about the ecosystem, some about physics even!
Imagine you’ve just changed the world and everything you did to change the world—your entire world view—has been changed by a new product. Now imagine that the new product is not universally applauded and many folks not only say your product is better and more useful, but that the new product is simply inferior.
Put yourself in those shoes…
Disruption happens when a new product comes along and changes the underlying assumptions of the incumbent, as we all know.
Incumbent products and businesses respond by often downplaying the impact of a particular feature or offering. And more often than folks might notice, disruption doesn’t happen so easily. In practice, established businesses and products can withstand a few perturbations to their offering. Products can be rearchitected. Prices can be changed. Features can be added.
What happens though when nearly every assumption is challenged? What you see is a complete redefinition of your entire company. And seeing this happen in real time is both hard to see and even harder to acknowledge. Even in the case of Blackberry there was a time window of perhaps 2 years to respond—is that really enough time to re-engineer everything about your product, company, and business?
One way to look at this case is that disruption rarely happens from a single vector or attribute, even though the chorus might claim X disrupts Y because of price or a single feature, for example. We can see this in the case of something like desktop Linux—being lower priced/open source are interesting attributes but it is fair to say that disruption never really happened to the degree that might have been claimed early on.
However, if you look at Linux in the data center the combination of using Linux for proprietary data center architectures and services combined with the benefit of open source/low price brought with it a much more powerful disruptive capability.
One might take away from this case and other examples, that the disruption to watch out for the most would be the one that combined multiple elements of the traditional marketing mix of product, price, place, promotion. When considering these dimensions it is also worth understanding the full breadth of assumptions, both implicit and explicit, in your product and business when defending against disruption. Likewise, if you’re intending to disrupt you want to consider the multiple dimensions of your approach in order to bypass the intrinsic defenses of incumbents.
It is not difficult to talk about disruption in our industry. As product and business leaders it is instructive to dive into a case of disruption and consider not just all the factors that contributed but how would you respond personally. Could you really lead a team through the process of creating a product that literally inverted almost every business and technology assumption that created $80B or so in market cap over a 10 year period?
In The Sun Also Rises, Hemingway wrote:
How did you go bankrupt? Two ways. Gradually, then suddenly.
That is how disruption happens.
Anyone worth their salt in product development knows that listening to customers through any and all means possible is the means to innovation. Wait a minute, anyone worth their salt in product development knows that listening to customers leads to a faster horse.
Deciding your own product choices within these varying perspectives is perhaps the seminal challenge in product development, tech products or otherwise. This truly is a tyranny of or, but one in which changing the rules of the game is the very objective.
In this discussion, which is such a common dialog in the halls of HBS as well tech companies everywhere it should probably be a numbered conversation (for this blog let’s call this Conversation #38 for shorthand—disrupt or die).
For a recent discussion about why it is so difficult for large companies to face changes in the marketplace, see this post Why Corporate Giants Fail to Change.
“Disrupt or die” or “disrupt and die”?
Failure to evolve a product as technologies change or as customer scenarios change is sure to lead to obsolescence or elimination from the marketplace. It is difficult to go a day in tech product development without hearing about technology disruption or “innovator’s dilemma”. The biggest fear we all have in tech is failing to keep up with the changing landscape of technologies and customers, and how those intersect.
At the same time, hopefully we all get to that lucky moment when our product is being used actively by customers who are paying. We’re in that feedback loop. We are improving the product, more is being sold, and we’re on a roll.
That’s when innovation over time looks like this:
In this case as time progresses the product improves in a fairly linear way. Listening to customers becomes a critical skill of the product team. Product improvements are touted as “listening to customers” and things seem to go well. This predictability is comforting for the business and for customers.
That is, until one day when needs change or perhaps in addition a new product from a competitor is released. Seemingly out of nowhere the great feedback loop we had looks like it won’t help. If we’re fortunate enough to be in tune to changing dynamics outside our core (and growing) customer base we have time to react and change our own product’s trajectory.
That’s when innovation looks like this:
This is a time when the market is receptive to a different point of view, and a different product — one that redefines, or reimagines, the category. Sometimes customers don’t even realize they are making a category choice, but all of a sudden they are working differently. People just have stuff to get done and find tools that help.
We’re faced with what seems like an obvious choice—adjust the product feature set and focus to keep up with the new needs of customers. Failing to do so risks losing out on new sales, depth usage, or even marginalization. Of course features/capabilities is a long list that can include price, performance, battery life, reliability, simplicity, APIs, different integration points or service connections, and any other attributes that might be used by a new entrant to deliver a unique point of view around a similar scenario.
Many folks will be quick to point out that such is only the case if a new product is a “substitute” for the product people are newly excited about. There is truth to this. But there is also a reality shown time and time again which gets to the heart of tech bets. It is almost always the case that a new product that is “adjacent” to your product has some elements of more expensive, more complex in some dimensions, less functional, or less than ideal. Then what seems like an obvious choice, which is to adjust your own product, quickly looks like a fool’s bet. Why would you chase an inferior product? Why go after something that can’t really replace you?
The examples of this are too numerous to count. The iPhone famously sucked at making phone calls (a case where the category of “mobile phone” was under reinvention and making calls turned out to be less important). Solid State storage is famously more expensive and lower capacity than spindle drives (a case where the low power, light weight, small size are more valued in mobile devices). Of course tablets are famously unable to provide apps to replace some common professional PC experiences (a case where the value of mobility, all day battery life, always connected seem more valued than a set of platform capabilities). Even within a large organization we can see how limited feature set cloud storage products are being used actively by employees as “substitutes” for enterprise portals and file shares (a case where cross-organization sharing, available on the internet, and mobile access are more valued than the full enterprise feature set). The list goes on and on.
As product managers we all wish it was such a simple choice when we face these situations. Simply leapfrog the limited feature set product with some features on our profitable product. Unfortunately, not every new product that might compete with us is going to disrupt us. So in addition to facing the challenges of evolving the product, we also have to decide which competitors to go after. Often it takes several different attempts by competitive products to offer just enough in the way of new / different approaches to begin to impact an established product.
Consider for example of how much effort the Linux community put into desktop Linux. And while this was going on, Android and iOS were developed and offered a completely different approach that brings new scenarios to life. A good lesson is that usually a head-on alternative will quite often struggle and might even result in missing other disruptive technologies. Having a unique point of view is pretty important.
The reality of this situation is that it is only apparent in hindsight. While it is going on the changes are so small, the product features so minimal, and the base of the customers choosing a new path so narrow that you don’t realize what is going on. In fact, the new product is also on an incremental innovation path, having attained a small amount of traction, and that incremental innovation rapidly accumulates. There is a tipping point.
That is what makes acting during such a “crisis” so urgent. Since no one is first all the time (almost by definition when you’re the leader), deciding when and how to enter a space is the critical decision point. The irony is that the urgency to act comes at a time when it appears from the inside to be the least urgent.
Choosing to innovate means accepting the challenges
We’ve looked at the landscape and we’ve decided as a team that our own product needs to change course. There is a real risk that our product (business) will be marginalized by a new entry adjacent to us.
We get together and we come up with the features and design to go after these new scenarios and capabilities.
The challenge is that some of what we need to do involves changing course—this is by definition what is going on. You’re Apple and you decide that making phone calls is not the number 1 feature of your new mobile phone or your new tablet won’t run OS X apps. Those are product challenges. You also might face all sorts of challenges in pricing, positioning, and all the things that come from having a stable business model. For example, your competitor offers a free substitute for what you are selling.
The problem is your existing customers have become conditioned to expect improvements along the path we were traveling together. Worse, they are by definition not expecting an “different” product in lieu of a new version of their favorite product. These customers have built up not just expectations, but workflows, extensions, and whole jobs around your product.
But this is not about your existing and best customers, no matter how many, it is about the foundation of your product shifting and you’re seeing new customers use a new product or existing customers use your product less and less.
Moving forward the product gets built and it is time to get it into market for some testing or maybe you just release it.
All that work your marketing team has done over the years to establish what it means to “win” in the space that you were winning is now used against you. All the “criteria” you established against every competitor that came along are used to show that the new product is not a winning product. Except it is not winning in the old way. What you’ve done is become your own worst enemy.
But even then, the new way appears to be the less than optimal way—more expensive, less features, more clicks, or simply not the same at doing things the product used to do.
The early adopters or influential users (that was an old term in the literature, “IEU” or sometimes “lead user”) are immediately taken aback by the change in direction. The workflows, keystroke memory, add-ins, and more are just not the same or no longer optimal–there’s no regard for the new scenarios or capabilities when the old ones are different. Worse, they project their views across all customer segments. “I can’t figure this out, so imagine how hard it will be for my parents” or “this will never be acceptable in the enterprise” are common refrains in tech.
This happens no matter who a product is geared towards or how complex the product was in the first place. It is not how it does anything but the change in how it did things people were familiar with. This could be in user experience, pricing, performance, platform requirements or more.
You’re clearly faced with a set of choices that just don’t look good. In Lean Startup, Eric Ries talks in detail about the transition from early users of a new product to a wider audience. In this context, what happens is that the early users expect (or tolerate) a very different set of features and have very different expectations about what is difficult or easy. His conclusion is that it is painful to make the transition, but at some point your learning is complete and it is time to restart the process of learning by focusing on the broader set of customers.
In evolving an existing product, the usage of a pre-release is going to look a lot like the usage of the current release. The telemetry proves this for you, just to make this an even more brutal challenge. In addition, because of the years of effort the enthusiasts put into doing things a certain way and all that work establishing criteria for how a product should work, the obvious thing to do when testing a new release is to try everything out the old release did and compare to the old product (the one you are changing course of) and then maybe some new stuff. This looks a lot like what Eric describes for startups. For products in market, the moment is pretty much like the startup moment since your new product is sort of a startup, but for a new trajectory.
Remember what brought us here, two things:
- The environment of usage or business around the product was changing and a bet was made that changes were material to the team. With enough activity in the market, someone will always argue that this change is different and the old and new will coexist and not cannibalize each other (tell that to PalmPilot owners who swore phones would be separate from calendar and contacts, or GPS makers who believe in stand-alone units, or…).
- A reminder that if Henry Ford had asked customers what they wanted from a car they would have said a faster horse. The market was conditioned to ask for and/or expect improvements along a certain trajectory and no matter what you are changing that trajectory.
All the data is flowing in that shows the new product is not the old product on the old path. Not every customer is interested in doing new things, especially the influential testers who generally focus on the existing ways of doing things, have domain expertise, and are often the most connected to the existing product and all that it encompasses. There is an irony in that for tech these customers are also the most tech-savvy.
Pretty quickly, listening to customers is looking exceedingly difficult.
If you listen to customers (and vector back to the previous path in some way: undo, product modes, multiple products/SKUs, etc.) you will probably cede the market to the new entrants or at least give them more precious time. If technology product history is any guide, pundits will declare you will be roadkill in fairly short order as you lack a strategic response. There’s a good chance your influential customers will rejoice as they can go back and do what they always did. You will then be left without an answer for what comes next for your declining usage patterns.
If you don’t listen to customers (and stick to your guns) you are going to “alienate” folks and cede the market to someone who listens. If technology product history is any guide, pundits will declare that your new product is not resonating with the core audience. Pundits will also declare that you are stubborn and not listening to customers.
All of this is monumentally difficult simply because you had a successful product. Such is the price of success. Disrupting is never easy, but it is easier if you have nothing to lose.
Many folks will be quick to say that new products are fine but they should just have the old product’s way of doing things. This can seem like asking for a Prius with a switch to turn off the battery (my 2002 Prius came with a training DVD, parking attendant reference card, and more!). There are many challenges with the “side by side” approach. The most apparent is that it only delays the change (meaning delays your entry into the new market or meeting of new scenarios). Perhaps in a world of cloud-services this is more routine where you have less of a “choice” in the change, but the operational costs are real. In client code/apps the challenge becomes very quickly doing things twice. The more complex the changes are the more costly this becomes. In software nothing is free.
Product development is a social science.
People and time
In this numbered conversation, “disrupt or die” there are a few factors that are not often discussed in detail when all the debates happen.
First, people adapt. The assumption, especially about complex tech products, is that people have difficulty or lack of desire to change. While you can always overshoot the learning people can or are willing to do, people are the most adaptable part of a system. One way to think about this is that every successful product in use today, those that we all take for granted, were introduced to a customer base that had to change behavior. We would not be where we are today without changing and adapting. If one reflects, the suboptimal change (whether for the people that are customers or the people running a business) is apparent with every transition we have made. Even today’s tablets are evidence of this. Some say they are still for “media consumption” and others say they are “productivity tools”. But behind the scenes, people (and developers) are rapidly and actively changing and adapting to the capabilities of tablets because the value proposition is so significantly improved in some dimensions.
Second, time matters. Change is only relative to knowledge people have at a moment in time and the customers you have at the moment. New people are entering the customer base all the time and there is a renewal in skills, scenarios, and usage patterns. Five years ago almost no one used a touch screen for very much. Today, touch is a universally accepted (and expected) input method. The customer base has adapted and also renewed around touch. Universities are the world’s experts at understanding this notion of renewal. They know that any change to policy at a university is met with student resistance (especially in the spring). They also know that next year, 25% of the “customer base” will be replaced. And in 3 summers all the students on campus will only know the new way. One could call that cynical. One could also call that practical.
Finally time means that major product change, disruption, is always a multi-step process. Whether you make a bet to build a new product that disrupts the market dynamics or change an existing product that disrupts your own product, it rarely happens in one step. Phones added copy/paste and APIs and even got better at the basics. The pivot is the tool of the new endeavor until there is some traction. Feedback, refinement, and balancing the need to move to a new space with the need to satisfy the installed base are the tools of the established product “pivoting” in response to a changed world. It takes time and iteration–just the same way it took time and iteration to get to the first summit. Never lose sight of the fact that disrupting is also product development and all the challenges that come from that remain–just because you’re disrupting does not mean what you do will be perfect–but that’s a given we all work with all the time. We always operate knowing there is more change to come, improvements and fixes, as we all to learn by shipping.
Part of these factors almost always demonstrate, at least in the medium term, that disruption is not synonymous with elimination. Those championing disruption often over-estimate progress towards elimination in the short term. Though history has shown the long term to be fairly predictable. Black cars are still popular. They just aren’t the only cars.
Product development choices are based on social science. There is never a right answer. Context is everything. You cannot A/B test your way to big bets or decisions about technology disruption. That’s what makes all of this so fun!!
Go change the rules of the game!
Note. I believe “disrupt or die” is the name of a highly-regarded management class at General Electric’s management school.