Product Discovery: Sales Driven vs. Market Driven
Product discovery is a core process to any successful software company. While your engineers need to focus on building the product right (making it highly scalable and available), your product owners need to ensure they’re building the right product.
All too often, we find product owners serving essentially as “ticket takers” that run requests from sales to engineering. While the product owners may add a little design and elaboration, the ideas originate solely from the “asks” of the sales department. This “sales-driven” approach is limiting. It tends to stifle innovation and frequently allocates engineering effort to one-off features requested by a single customer. Overall, it is indicative of an immature product management process.
In contrast, mature product organizations take a “market-driven” approach, receive input from a variety of sources, and focus engineering efforts on penetrating new market segments. These differences translate into measurable business outcomes. Market-driven companies (e.g. Salesforce, Apple, Amazon, WorkDay) are routinely valued at 10-15 times revenue, while sales-driven companies (e.g. Dell, Samsung, Oracle, SAP, Rackspace, WalMart.com) typically trade for only 1.5-6 times revenue.
Highlighting the differences of these two approaches will demonstrate how organizations focused on innovation and faster time to market are better served by a market-driven approach.
Sales Led Product Discovery
In a sales-driven product organization, the product ideation process begins with sales obtaining feedback from customers (or potential customers) on desired features and functionality. These requests are then translated into requirements and added to the product backlog. Prioritization — if it occurs at all — is based on the size of the contract and/or relative importance of the customer. The process itself is simple and straightforward, but unfortunately it often leads to poor outcomes.
Frequently, features not yet implemented are promised and assigned deadlines as part of the sales contract. These binding commitments tie the hands of product and engineering anywhere from several weeks to months, forcing them on a treadmill that never quite allows enough breathing room to experiment with innovative features or new products. It becomes impossible for the product organization to pivot without months of lead time or executive intervention.
Additionally, the particular needs of each customer lead them to request features and functionality that only they will use. Product evolution therefore becomes haphazard, with the engineering team jumping from one custom feature to the next.
Furthermore, these feature commitments are often granted in an all or nothing approach with highly articulated use cases. A consequence is that releases to production are infrequent, perhaps quarterly or less, making it difficult to acquire feedback from the larger customer base. Few releases result in less feedback from customers overall and fewer opportunities to pivot away from a poorly chosen feature set.
Consequently, the product itself becomes bloated with a large number of features that one or maybe two customers use and these one-off features add complexity both to the interface (making it difficult to use) and to the code (making it difficult to maintain). This over development makes the product unsatisfying to use and a drain on engineering resources to maintain.
The bottom-line is sales-driven products simply lack vision. Your sales department (quite rightly) is too focused on selling and your customers (quite naturally) are too focused on solving the business problems of today to steer the future vision of your product. The limitations of sales driven approaches are best summarized by the old Henry Ford quote “If I asked my customers what they wanted, it would have been a faster horse.”
Market Led Product Discovery
If a sales-driven approach is a dead end, what is the alternative?
In a market-driven approach, product ideas aren’t limited to sales and customer asks but come from a variety of sources (e.g. charter customer feedback, actual usage metrics, customer service, engineering, sales, executive team). This generates a surplus of ideas — the majority of which, the product owners will have to say “no” to. In fact, the most important function of product owners is to say “no” to ideas that will divert engineering effort away from creating maximum value.
When a new product is launched, an MVP concept is prototyped and tested among a small set of charter customers. Prototypes (interactive mockups) are created with tools like Balsamiq, Axure, etc. and iterated over multiple times, allowing a huge number of ideas to be tested and refined with almost no coding. This process also identifies the minimum feature set required to solve a problem in a particular market segment, thereby minimizing the engineering effort required to implement it.
Once in production, these MVPs are enhanced by further feature development. However, features aren’t selected to satisfy the needs of individual customers but to meet the collective needs of the market segment (i.e. Keep the aggregate customer mostly happy). Features themselves are initially released in minimum viable fashion and further articulated in later releases, allowing for a frequent release schedule and ready feedback from the customer base. Overall, this strategy avoids over-development while capturing as much of the market segment as possible. Specific customer one-off product needs can be pushed to a professional services group (internally or externally) and built as add-ons through a mechanism like an API framework, but not incorporated into the core product.
Once the current market segment has been saturated, focus shifts to conquering another market segment. This is the expansion strategy advocated by Geoffery Moore in Crossing the Chasm: “[target] a very specific niche market where you can dominate from the outset, drive your competitors out of that market niche, and then use it as a base for broader operations.”
In contrast to the sales-driven approach above, this expansion is a deliberate process. Market research is conducted to identify the needs of these new customers. In some cases this means adding a collection of features to the existing product, but often it requires the launch of an entirely new product. Again, the use of extensive prototyping and feedback from charter customers play a key role.
This quick advance – prenetrating and saturating market segments in rapid succession – explains the stark differences in investor valuations between market-driven (10-15x Rev) and sales-driven (1.5-6x Rev) companies.
While more complex, the market-driven product discovery process helps your business focus on long-term growth vs. near-term individual customer wins. It draws upon a variety of sources for ideas, allows for early testing and feedback (for both MVP products and features), minimizes wasted engineering effort, and opens new market segments quicker than sales-driven approaches.
Many of our product management ideas are influenced by Marty Cagan at the SVPG. Click here to visit his website and learn more.
 Moore, Geoffrey A. (2014-01-28). Crossing the Chasm, 3rd Edition (Collins Business Essentials) (p. 79). HarperCollins. Kindle Edition.
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