Analyzing past results to drive future successes may be the most important goal for today’s product leaders.
You know the worst thing that can happen with a new product? You get some customers. Not none. Not a lot. Just a few. And now you have a bad idea that must be supported and maintained and explained.
Once I was hired to lead a new product initiative. My first step was analysis of “what is”—so I interviewed developers, marketers, sales people, support staff. I discussed the numbers with finance. And then I interviewed the market—both customers and prospects. And quickly arrived a conclusion: this product was a bad idea.
So I called a meeting with the senior leaders of the company. I asked them, “Is this a strategic initiative?”
Based on my analysis, this new product had cost the company just under a million dollars so far and we were only about halfway there. The sales people didn’t know how they’d sell it; the developers hated working on it; the support staff couldn’t really support it. The product idea was materially different from the rest of the products in the portfolio. We either needed to set it up as its own division with a dedicated staff—or we needed to kill it.
We killed it.
And the good news: although I had been hired to manage only this product, I got promoted to manage the portfolio because I had helped the company make the best decision for the company—not necessarily the best decision for me—based on market reality.
In another case, the president of a startup told me, “We’re the leaders in 12 market segments.” I found that a surprising claim for such a small company so I asked, “Really! How many customers do you have?” He looked at me with a confused look on his face. “I just told you. Twelve.” This company had a dozen customers, all in different market segments.
A profitability analysis revealed that one was ideal, most were good, and one was terrible. The terrible customer was cheap and demanding; they expected premium services but wanted them below cost. And to make it really bad, their contract specified that they could not be used as a reference nor could they be mentioned in any marketing materials. So, the firm was losing money on this client and didn’t even get to tell people! That’s a bad customer.
You already have a few clients. Which are the best and why? Which are the worst and why? Reverse-engineer the best buyer profile. (PS. Forget about market segments. That’s old school.)
With this analysis in hand, you can explain to the leadership team that you’ll start pushing programs for the ideal buyer profile. It’s not “stop doing this; start doing that.” It’s more “we’re going to emphasize this.”
A profitability retrospective
To create the ideal buyer profile, we perform a customer profitability retrospective. From this, we can create a set of ideal customer profiles and align the company’s development, marketing, and sales programs around this ideal profile.
Your most successful deployments are likely to represent your ideal customer profile.
Lean Startup by Eric Reis recommends picking a few key customers and letting them drive your direction. But the key to these early evangelist customers is they must fit your ideal profile. Not just big names or whoever is interested. Instead of listening to hundreds of conflicting voices, pick just a few and listen, really listen to them.
My favorite technique for beginning a customer profitability retrospective is to examine recent deals that were won or lost. Look at your track record. Why did you win? Why did you lose? What did you do right and wrong? How closely did the product meet their requirements? How well did your marketing programs resonate with this buyer? Your own research—customer visits and phone calls, discussions with developers and analysts—will change your point of view and provide new insights.
Sales people often claim losses are due to price and product functionality (although customers rarely say this) but if you drill a little further, you’ll see that many of those price/product complaints come from bad customer profiles. You built a product for financial services companies and yes, the product can be used also by healthcare organizations. But much of the product is irrelevant to the healthcare buyer and the product is missing key capabilities for their use. Is that a loss? Or is that a deal that you should never have pursued?
I got a call from a sales guy who wanted to know more about a brand new competitor. One of the clients on his short list was evaluating someone he’d never heard of and he was panicked. But I’d heard of them. They had a very low-end product and we had a very high-end product. Either the competitor couldn’t handle the customer’s implementation or we were much too big a product. The sales guy and I got on the phone with the client and I explained how our product was designed, with emphasis on size of the implementation. The customer quickly realized that our product was not a fit.
As a result of this customer interaction, I updated our positioning and all our sales materials to emphasize how our product worked in large-scale deployments; I included this phrase: “a typical installation starts at $250,000.” And the sales people freaked! “You’re scaring away the small clients,” they exclaimed. And indeed I did. By positioning the product as expensive, I helped clients disqualify themselves; based on the price point, small shops realized instantly that our product was designed for large environments.
Reminds me of a time when my wife and I were touring model homes for decorating tips. At one house the sales agent approached us and said, “Welcome to our model home. We build custom houses starting at $1,000,000. Come look for me if you have any questions.” As the sales rep wandered away, my wife was incensed. “He doesn’t think we can afford this house!” she said. And I replied, “He’s right!” I applauded this guy for letting us quickly disqualify ourselves. Now granted, I wasn’t dressed very well; I was wearing a t-shirt and jeans. But I could have been a millionaire for all he knew, despite my clothing, so he gave us a simple test for whether he should spend time with us.
Any time spent with a customer who doesn’t qualify for your product is a waste of everyone’s time: yours and the client’s. From a research perspective, you might interview those customers who don’t qualify. Maybe you need a less expensive product to meet a new set of needs. But in general, the product you built is the product you have, so you’ll want to communicate clearly who is the right and wrong profile.
Analyzing sales wins and losses and reviewing customer feedback in the trouble-ticketing system will show you which customers value which aspects of your product.
By the way, what is a product?
A product solves a problem for a customer. I use the term ‘product’ a lot but perhaps you sell services. Services are products too. You create products that solve customer problems by combining software, hardware, and/or services. In fact, some software and hardware aren’t really products until you add services to them.
Services, such as implementation assistance, onsite installation, and training, should be consistent and repeatable. That means, you define the service so that it can be delivered again and again by your services team. You don’t want to be re-inventing the service each time you engage with a client.
I’ve avoided the term “solution” since it has its own baggage. Alas, many marketing people just ran a global search-and-replace on their website to change all occurrences of “product” to “solution” but then sold the same stuff they sold before.
How to perform a profitability retrospective
To create a profitability retrospective, start with a set of attributes—items like revenue, Net Promoter® Score, number of trouble tickets, cost of sale, required customizations—and profile a dozen customers. After building a few profiles, you should start seeing a pattern. Maybe your product does better in large accounts, or with client teams that are less technical. Perhaps they use a direct sales force or sell via the web. Maybe it’s the type of customer they serve. Maybe it’s the customer’s type of product: complex or simple.
Attributes about clients before purchasing
- Knowledge of this type of product
- Already have a solution in place (esp, an in-house solution)
- Already know your company and its reputation
- Are connected with the same communities
Attributes about clients after purchasing
- Lifetime value (revenue and costs)
- Net Promoter Score (or other satisfaction metrics)
- Sales relationship
- Willing to be a reference?
- Delivery requirements (eg, on demand or on premise)
- Support requirements
- Customization requirements
- Compliance requirements
Attributes about clients and their products
- Type of product (complex or simple)
- Price range of product ($0-15k, 15k-50k, 50k-250k, 250+)
- Customization (none → extensive)
- Sales force (web, phone, direct, channel)
- Type of business (service, manufacturing, distribution)
- Industry (pharmaceuticals, automotive, electronics)
- Business function (telemarketing, call center, human resources, sales, manufacturing, network administration)
- Annual revenue/turnover
- # of employees
- # of locations
- Geographic regions
- Size of staff
- Skills of staff
- Where are they on technology adoption curve? (innovators, early adopters, early or late majority, laggards)
- # of computers
- # of computing centers
- Technical infrastructure
Of course, you’ll need to customize this list to better fit your business.
Build a table or spreadsheet and fill the first column with attributes of your company and product as well as attributes of customers and their products.
In the second column put the name of one of your best customers and put your worst customer in the third column. Now go through the list and fill in the attributes for these two customers.
Which aspects in your list are different between the customers? As an example, one vendor found that clients who knew and valued the vendor’s reputation had a shorter sales cycle, required less handholding during the sale, and didn’t complain about the price.
Be careful: don’t create an idealized, fictional profile. Instead, look for customers who represent where you’d like to take the business versus those who are actually preventing your future success. You want more of the former and fewer of the latter.
And also beware that you’ve defined your ideal customer so finitely that few customers meet the profile.
Sharing the ideal profile
Now that you’ve profiled an ideal customer and an “poor fit” customer, it’s time to share these insights with your leadership team.
Identify five attributes that have the most significance between the best and worst customers and focus a presentation around these attributes. Show the cost of sale and cost of maintaining the customer. If you’ve done it correctly, you’d find executives agreeing with your assessment.
You’ll want to tailor all of your sales materials—the web site, demo, presentation, ebooks—around this ideal customer profile.
Now comes the hard part: Discuss the idea of canceling the contract for the bad customer.
If the customer isn’t profitable, why keep them?
You’ve probably seen this happen in your organization: A sales rep who knew he was leaving the company bumped up his commissions by giving a sweet deal to a customer. But when the customer was up for renewal a few years later, the vendor revised the terms to be in line with their standard pricing guidelines. The customer complained for a moment but ultimately accepted the new pricing. But this takes strong nerves; you have to be willing to lose the bad customer. In this case, the only negative about the customer relationship is that they were paying too little for the services they were receiving. Getting them back in sync with the ideal profile was a good move.
So you’re a new product manager. Profile your existing customers to identify the ideal customer profile. Then share that profile with your leadership. With their support, you can now emphasize the attributes of the ideal profile in your sales tools and marketing messaging. You’ll also want to use this profile in your product prioritization, giving high priorities to requests from the ideal and low priority for those items from the “bad fit” customers.
Analyze your successful customer profiles. Refine your product, marketing, and sales efforts to focus on this ideal. If you build the ideal product for this ideal customer, you’ll have fewer problem customers and a shortened sales cycle.