In the mid-90’s I had the pleasure of working for a genuine serial entrepreneur (defined as someone capable of having 10 number 1 priorities). He was charming, he was brilliant, and as the company got larger he was a disaster. Eventually the lack of focus caught up with us and the company cratered. It was only saved by a new infusion of capital, paring our development back to a single product line, and several years of patient turnaround work.
Setting priorities and focus for product development is one of the core questions all companies have to wrestle with. The answer determines how resources are focused. It also drives explicit and implicit organizational structure and power. It quite literally defines who you are as a business.
I’ve found that a simple framework with three options is the cleanest way to start this conversation. The three options are all valid, but they have very different strengths and weaknesses. Picking the right one for your company is critical.
The three approaches are:
- Sales Driven. These companies build what the last customer asked for.
- Product Driven. These companies build the coolest things they can think of, then search for markets.
- Market Driven. These companies focus on solving urgent problems for a target market.
In practice great companies have be good at all three. You need great products that solve real problems for the market that are then sold effectively. Miss any one of these elements and you will fail.
The real question is which discipline drives the thinking of the leadership team as they set priorities for the organization. Who dominates the conversation?
Lets take a more detailed look at each of them.
Sales driven companies focus on the needs of the latest and largest customer. They are well suited to professional services like contract development and consulting where each contract is bespoke. Often, early stage companies that are discovering product market fit are also sales driven, just finding anyone who will buy is the first challenge. This was the case in the example I started with.
The weaknesses of this model are threefold.
First, great salespeople are focused on solving THIS customers needs RIGHT NOW. That is why their customers love them. But it makes them less than optimal team players. If you have more than one great sales rep there are going to be a lot of ugly politics in who gets served.
Second, you will get whipsawed as they talk to newer customers with different needs. Organizational ADD is a very real danger.
But the biggest problem is when there are problems. If your market has a long sales cycle you can’t sell your way out of a hole – there is too much hand to hand combat involved to make a difference in the near term. You may get a kick save from something in the works, but time is generally not your friend in these cases.
If you have a services business providing custom solutions this is a good model. If you have a products business it can hamper your growth.
Product Driven companies have a Field of Dreams Strategy : “if you build it they will come.” If Sales rules the roost in the first example these companies are typically ruled by engineers or authors. They are maker cultures.
These companies build the coolest things their production teams can think of and then go in search of a market. HP used this model for decades very successfully. It worked for them because they had enough capital to support tons of projects, knowing that most of them would only find niche markets. Valve and Google are two more recent examples. In all of these cases the companies had access to large pools of capital – either from investors (HP, Google) or from huge hits (Valve). At scale it needs that kind of capital to support the portfolio approach.
The problems with this model are really concentrated at the smaller end of the market. Like the Sales Driven companies you can’t develop your way out of a hole, it takes too much time. If you find yourself at a dead after two years of development it can be impossible to start again. Any one project can sink the whole company.
But the bigger problem is that the makers who love this model ignore the overall economics of what it takes to build a business. I recently talked with the lead at a very successful mobile gaming company. In their model they spend a year and $1 million building a new game. They then spend $1 million A MONTH marketing it. By the end of year 2 the go-to-market spend vs. development is 12:1.
The world is littered with companies that built a really cool thing thinking the world will beat a path to their doorstep only to discover that they don’t have the resources to cut through the massive amounts of clutter and information overload we all live with.
Market Driven. These companies start by focusing on solving the urgent needs of a target market. They do not shift focus because of any one customer (sales driven companies) and they don’t build first and seek markets second (product companies). These are pragmatic problem solving cultures, sexy doesn’t trump useful.
This is the model used by most large products companies (P&G, Pearson, etc.). When done right it allows non-linear scaling as the center of the market adopts the product. Unlike sales or product driven models it is possible to market your way out of a hole, if you have built a solution to a real problem in the first place.
This model is also essential for more complex products that require large teams and big up front investments. Grinding away for a year or two of investment to build something, only to discover that it doesn’t solve a problem in a way that people will pay for is a recipe for disaster. An inelegant solution to a real problem is better than an elegant non-solution to a non-problem.
One of the criticisms of these models is that they are not creative, that they lack imagination. But creative people can innovate just as long as they solve a broad based problem slightly ahead of the market (Apple, Uber, Amazon).
Attempts to Blend Approaches
In a future post I’ll address how Agile attempts to bridge product and market driven approaches. It can work, but it isn’t for everyone as the cultural adaptations needed execute it well are radical.
I’m a long-time advocate for the market driven approach. The other approaches can work in specific situations, but for me the market approach does the best job of balancing the need to sustain focus over the long haul with solving real problems. Knowing who your target market is allows you to scale investments appropriately and to plan for the whole go-to-market program of building the product, launching it, and sustaining it.
The next time your leadership team sits down you might consider putting this topic on the table. Discuss what model would be most appropriate for your business, and then compare that to the actual model you are using. If those two are not in alignment you are going to have real challenges scaling your business.