Managing Problematic Investor Ideas
At a time when so much of today’s B2B ecosystem is built around software products, I believe it has become incumbent on the people responsible for designing, developing, and building these products to take back leadership of how our companies are run, and lead us all back to a culture of responsible growth. Here I’ll discuss how.
First though, what’s the problem?
In my experience, investors in B2B software products can talk a lot of guff that sounds good to eager product entrepreneurs, but that in reality makes life challenging (and sometimes close to impossible) for product managers. Unfortunately, many of these things – designed to accelerate growth or the appearance of growth at all costs – are taken for truths in the world of software startups, where a focus on fundamentals and sustainable growth is needed more than ever.
Resolving the issue can start with small steps. Simply knowing how to recognize potentially problematic investor ideas can be helpful! For instance, all of the following statements are troublesome:
- “You nailed your product/market fit during your Series A, now let sales drive scale.”
- “Successfully focusing on product design means you won’t need a service department.”
- “Revenue velocity is everything.”
- “You make the product, let the customer implement–they know their business best.”
- “Be prepared to kill anything with an adoption rate below 40%.”
Let’s unpick these statements:
You Nailed Product/Market fit During Your Series A, now let Sales Drive Scale
You may well have nailed product/market fit during the early days, but the idea that fit somehow becomes locked during a business’ scaling phase is nonsense.
Product/market fit is dynamic, especially during times of rapid growth: sales teams enter new markets, the needs of marquee customers influence the development schedule and impact generally available product features, salespeople get the value proposition wrong, competitors refocus prospects on aspects of your product to make you look bad by comparison, intended usability updates get sacrificed as teams find themselves dealing with technical debt sooner than expected, natural product evolution (including tweaks and redesigns designed for newer, less tech-savvy users) erode product/market fit among early adopters.
Regardless of how disciplined a company is, product/market fit is always in flux, and the more market segments a company serves, the harder it is to maintain fit.
Successfully Focusing on Product Design Means you Won’t Need a Service Department
Sorry, but even if the product is perfect, there are still distracted, overworked customers who aren’t paying attention during the purchase cycle. They may have been fed poor information by competitors, have experienced earlier versions of your product, been hired into their organizations after your product had been implemented and the original launch team had been trained. They may have been rushed through onboarding, or misunderstood something about your tool during early training. They may simply have other priorities.
For whatever reason, they have gaps in their domain expertise, and these people – regardless of how beautiful, intuitive, de-risked, or simple your product is – will need service.
Revenue Velocity is Everything
Velocity-loving investors will sometimes suggest that bad decisions, made quickly enough, can be corrected quickly. But a process that leads to fast, bad decisions will always lead to fast, bad decisions, and “haste makes waste” won’t be any less true tomorrow. In other words, when faced with the impact of a bad decision, a business is still moving so fast that a second, equally short-sighted decision becomes necessary to deal with the first one, and there is no opportunity for thoughtfulness.
For a product team trying to keep pace with the demands of growth, a development pipeline that is constantly under siege from short term, ill-considered decisions can be deadly.
You Make the Product, let the Customer Implement – They Know Their Business Best
In business, is it ever true that a customer knows how to implement better than you? Undoubtedly. Is it true as a rule that the customer knows better how to implement? Absolutely not – that would be like assuming that buyers of Ferraris are, as a rule, better suited to teach themselves to drive than the people who designed, built, and tested their cars. Some customers will be on the front end of a learning curve, others will be victims of outdated thinking. Some will be mistaken about what their business needs, some won’t be that intelligent, and others will be too smart for their own good.
There is no shortage of reasons why customers will need help, even with a perfectly designed and built product! Ultimately, ignoring the implementation needs of customers is nothing more than a way for investors to accelerate revenue recognition. That may be good for investors, because this makes the business look more profitable than it really is, but it’s not so good for the product team, which finds itself pressured to create something impossible: a B2B product that works for every B2B customer straight out of the box.
Be Prepared to Kill Anything With an Adoption Rate Below 40%
Maybe this was true while first figuring out product/market fit, but in an operating business, marketing, communication, and training all have an impact on adoption – and are much easier to fix – so the old rules don’t always apply. I was once tasked with lifting adoption of a product feature that management felt should have been higher than the 10% adoption rate it had. After investigation, I came to the conclusion that while the feature was great, our communication about it was poor. My first, small change to our customer communications lifted adoption from 10% to 35%. Management still wasn’t happy, 35% still felt low… until I was able to show that 50% of customers were still ignoring our communications and that we were now driving adoption by fully 70% of those customers we did reach. The feature was a big winner, it was our communications strategy that needed more work.
Had we killed the product, the chances are that customers would have kept asking for it and the product team would have ended up re-developing it sooner rather than later.
Investors and product teams have different interests, and as a result, will push a B2B software company in different, sometimes incompatible, directions. But whereas an investor faces very little real consequence when a company they’ve invested in makes a mistake (their risks are hedged!), the people bringing products to life face much larger consequences from those same mistakes. Given this imbalance, it is important that those with a stake in bringing products to life know how to recognize strategic ideas that work against the goal of building great products.
Of course, being able to identify ideas that threaten to make your life hell is not the same thing as having the platform, insight, and voice to stand up to these ideas, provide alternatives, and advocate appropriately. But it’s a start and a good one. Change doesn’t always require a deck, and a team, a plan, and a budget; sometimes, it requires nothing more than a friendly conversation. You catch someone at the moment they say, “Revenue velocity is everything,” cock your head, and ask, “Can we talk about that for a sec? I sense there’s more to that story.”