The art of saying "no" to enterprise customers

As a product manager for enterprise products with large "make-or-break" customers, you have to learn the fine art of telling customers who are demanding a new feature "nope, there's no way we're doing that" while making them feel so good that they thank you for the privilege of being rejected.

Take a step back and ask yourself the really big, scary questions

Ask yourself what might be fundamentally simplified and disrupted by re-thinking your entire business model from first principles.

For example:

1. Rather than partner with your customers, you might need to be disrupting them with a direct to consumer business. E.g. Netflix didn't help Blockbuster run a rent-by-mail business. They created their own B2C company and killed Blockbuster. Sometimes a B2B business seems obvious, safe, easy - but often a B2C approach can be far, far more valuable, exciting and impactful.

2. Rather than becoming a slightly more efficient company by automating traditional processes with better software, ask yourself if there's a fundamentally better, simpler approach that might now be possible thanks to shifting cultural trends and technology. E.g. Uber was only possible because the smartphone made the $100k Taxi fit-out unnecessary. Payments, tracking, meter - even security - were now possible with a device everyone carries in their pocket. Further, people were increasingly comfortable meeting people from the internet making peer-to-peer ride share possible. The cultural and technological realities had changed. A new, massively disruptive business could emerge.

What does it mean to be a product lead company?

It means that…

1. All feedback, ideas and data (from all functions and sources) flows into the product management team

2. The product management team digest and triangulate the data to develop a product strategy that is socialized with the company to drive alignment

3. The product team then develops a series of incremental tactics that ladder up to the strategic goals

4. The marketing team promotes the product that’s developed to drive interest and intent

5. The product and marketing should either sell itself or go a long way to sell itself

6. The sales team nurtures small bottom up adoption into large enterprise deals

You don't want an exclusivity deal...

You don't want an exclusivity deal

As a startup, there are very often deals that seem great but that you actually don't want.

For example, deals that include "exclusivity".

In many cases, exclusivity is death for high-growth, generally available, customer-facing software companies. Especially so for two or three-sided marketplaces.

Exclusivity can often cripple your ability to build a broad-based distribution strategy, partner with all the companies you need to partner with, and even entirely break your long-term business model.

The first way to begin diverting discussions about exclusivity with your potential "partners" is to remind them that they don't want exclusivity.

How could that be true?

Well because, presumably, they're picking your company as a partner because of the value it offers and its current and future strength in the market.

If an exclusivity deal undermines your business model and market position, then all it does is weaken your business and diminishes the value of the partnership. No one should want that - especially not your new partner.

Be careful about the deals you sign. Particularly the ones that seem great on the surface but will come back and bite you later.

How to build a product team

I’ve posted many times about what it takes to turn technology into product. I’ve written about how product requires standardization, polish, self-serve and 15 other things that make it useful, scalable, and delightful.

However, it’s also important to know what it takes to build a *team* that can build products.

Many inexperienced founders think it just takes a few engineers.

This is generally incorrect.

A complete, fully funded product team typically includes...

• 1 x product manager

• 1 x engineering manager

• N x engineers (ideally no fewer than 2 and no more than 5 or 7)

• 1 x Product designer

• 1 x Data scientist

• 1 x Product Marketing Manager

Each product team should have a durable long-term mission whereby they can develop their own roadmap and momentum.

For example, they might own “Billing and Payments” or “Discovery and Search”. These missions should not be about technical architecture like “Backend” or “Mobile”.

Further, you need 1 team per product. In this case, it’s hard to define the boundaries between individual products.

As your product gets more sophisticated, each team may own more and more granular parts of the product.

For example, at the beginning a team might own the “Admin Dashboard”, but eventually that team might be broken up into many subteams (subteams are still complete teams as described above) that own individual parts of the admin dashboard.

Finally, in the beginning, and as you're building the team and business, some resources can be shared.

For example, you could have 1 PM, 1 Product Designer and/or 1 Data scientist per 2 or 3 teams. This is a way to scale the team iteratively but it is unsustainable in the long term.

If you don’t have enough people for all the products you want to build, you must cut things and focus until the team grows. Otherwise, you’ll just tread water and/or ship crappy things.

Communities vs Business

I’ve noticed It’s difficult for community minded people to understand tech startups and to raise money for them.

They tend to be very good at nurturing a group of people around a common cause, but not building a software based business with intent to transact.

Here’s a few tips…

1. Communities are cute, but they are non-transactional, amorphous and don’t scale as a business. They are, however, useful as a marketing, retention and support tactic.

Marketplaces, on the other hand, are communities built around intent and transactions. Much more commercial, purposeful and scalable

2. Tech investors invest in tech. Not Services. What is your tech to facilitate the peer-to-peer marketplace?

3. What are your unit economics?

4. How will you scale this to touch all the relevant people?

5. Who and what are you disrupting? How big is that market?

You can’t change the world unless you start with a problem

One of the hardest things to remember when building a startup is to start with the problem.

It’s so easy to be seduced by a vision you have in your head about some way the world SHOULD work.

You fall in love with the exciting opportunities that are possible if only investors and users saw the world that same way you did.

In reality investors, and users, tend to respond with more urgency and energy when you are solving an immediate and painful problem in their everyday lives.

Find a real, urgent and (economically) painful problem. Then find a pragmatic and tactical solution.

Then, and only then, do you get permission to create new value, build network effects and change the world in creative ways.

Managing leave for your team

When thinking about leave for your team as a manager, it's ideal that each person is treated as an Adult.

They should be encouraged to make their own decisions about what they need to do to balance a) their needs, b) the needs of their family and c) the needs of their team.

A very high-level guide to raising capital

If you're raising money it should not be a series of random meetings.

You need to be running a process. This includes...

• Warm up the process with a pre-process I call "The Roadshow". Meet with your target investors ahead of time and ask them "What would you need to see to get conviction on this business when we start raising capital". Allow at least 2-3 months for this step.

• Give yourself (and investors) a fixed period of time for the fundraising process (e.g. 3 months). 1 month for first meetings. 1 month for 2nd/3rd meetings and 2nd-degree meetings. 1 month to close and bring in the capital.

• Share your timeline with investors as you meet them. Explain where you and they are in the process

• Have your terms and materials at your fingertips

• Make sure you've noted and done the things the investors suggested during your roadshow. Show them your notes and your progress on their suggestions during the pitch meeting.

• Have a spreadsheet where you track everything.

Can a marketplace be sustainable in 5 years?

I just got an email from a founder. I thought I might share it here along with my answers in case it might help others:

Her email:

1. Can a services marketplace be (financially) sustainable in under 5 years?

2. Should a services marketplace be (financially) sustainable in under 5 years? Or would this stifle the whole aim of a thriving marketplace with network effects?

3. Recently a services marketplace IPO-ed and they showed a loss of millions of dollars on their books and their rationale was basically 'its a land grab.'

I've heard it said 'winner takes all' ie someone gaining the most market share the fastest, but how does that work in a pandemic? We still aim for an acquisition cost that is low, but it is not the fastest way to grow.

My reply:

Hi [Redacted]

Have you seen my “startup scale” material? It should address most of your questions at a high level: https://www.chrissaad.com/startupscale

In short: The goal of an early-stage, high-growth tech startup is scale. Not sustainability.

There are many reasons for this articulated in the deck, including:

1. Software scales in ways that traditional business operations do not. This creating massive profit potential at later stages at larger volumes when revenue becomes exponential while costs remain linear.

2. Tech startups operate on aggregation theory (https://www.google.com/search?q=aggregation+theory)

3. As you mentioned, marketplaces are often “winner takes most” and network effects make them hard to beat once they achieve scale

So the answers to your question are:

1. Maybe they can be sustainable under 5 years but that’s not the goal

2. Not if your goal is either a) build a high growth tech startup or b) not be disrupted by a high growth tech startup

3. They’re correct.

4. How does it work in a Pandemic? Better than without a pandemic because people are more hungry for opportunities and work.

5. Cost of acquisition should not be “low”, it should be understood relative to “lifetime value”. During early growth phases, It’s ok for acquisition costs to be higher than lifetime value. That’s what capital raising is for. It’s not “unsustainable”, it’s called “investing in growth”. As long as you have a line of sight for how to drive down costs and increase revenue once you hit scale.

6. Driving costs down should include operational efficiencies, improved conversion through product improvements, and organic growth through killer network effects (supercharged by deliberate product features that create them and take advantage of them)

Hope this helps

Chris

The business alignment stack

It's hard to drive alignment and reduce thrash in any business. One of the tricks is to nail down each layer in the business stack - in order. How?

1. Zero in on a clearly and narrowly defined problem

You need to fall in love with a problem, not the solution. Unless you clearly figure out the problem you’re solving you won’t properly understand the pain you’re alleviating and the value you’re creating

2. Develop a business strategy

Who are your target customers? Who is feeling the deepest pain, inefficiency, and waste from the problem you're solving? Are you attacking this problem via B2B SaaS or via B2C tools? Is there a more direct and efficient path to market? Who are you disrupting? What is your business model?

3. Craft a product strategy

How does your high-level business strategy map to an actionable product roadmap? What does the ideal version of your product look like? What do you NOT do? How do you solve for single-player before requiring network effects?

4. Map out a tactical product roadmap

Work backward from your ideal product. What is the tactical, pragmatic MVP? How will you make it easy and delightful for users to understand your tool and derive value quickly? What is your plan to iterate from a simple MVP to your ideal product without getting distracted and derailed?

5. Develop product marketing resources

Where do your target customers hang out? What are the key ways you communicate your value? What materials do sales, marketing, and partners need to succeed and sell what you’re building?

6. Execute marketing motions

How do you broadly and directly distribute your message to the right people at the right time? How do you establish brand credibility, lead nurturing and convert users through your funnel?

7. Enable and activate the sales team

How will you get your products directly into the hands of your largest customers without a) compromising your product strategy and b) relying on distribution partners and gatekeepers? How will you enable your sales team to sell what you're product team is building vs. building what the sales team sold?

8. Nurture distribution partnerships

How will you scale by teaching distribution partners how to leverage everything you’ve built and learned with your own customers? How will you ensure they are supercharging your efforts rather than acting as gatekeepers and stumbling blocks in the market?

Should you be worried about the big players in your space?

PM I'm working with "They are big enough to steal what we show them and beat us to market"

My response: "They're big enough to be paralyzed by the innovator's dilemma - so if we are executing well they will be unable to pivot and execute fast enough to keep up with us."

The key part there was "if we are executing well"

It's more likely that you will kill yourself through poor execution than the big players in your space will come and copy+crush you.

How much should you pay for staff or vendors?

As a leader of a high-impact individual or team, be careful about paying too much attention to "hours worked" vs. "hours saved" and "impact made".

Imagine you have a problem with a highly specialized type of car engine. Something that multiple mechanics have spent hours trying to diagnose without success.

Now imagine you bump into a mechanic who has spent 20 years learning how to fix every possible problem with your particular engine.

They show up, flip a switch and your engine is fixed in 5 seconds.

Did they spend 5 seconds fixing your problem? Or did they spend 20 years and 5 seconds? Should they be paid for 5 seconds of work or for the value they created by fixing a previously unfixable problem?

Obviously, the answer is that their value far outweighs the amount of time they spent.

This is how a great leader values staff, teams, and vendors.

They factor in the saved time and the overall business impact of the contribution.

In fact, they are happy to pay a premium for speed and quality execution because they also understand the money saved from

a) All other operational costs that would have been incurred due to delay (e.g. imagine how many employee salaries, rent, etc are being spent when taking the slow path to an outcome)

b) Execution risk

c) Opportunity cost

d) Thrash

e) Other "soft" costs

APIs are both the easiest and hardest things in the world

The easiest thing in the engineering/tech world is to make an API Endpoint. The hardest thing in the engineering/tech world is to make an API Product

Inline Config UX

Configuration UX should, to the extent possible, be in-line with UX for day-to-day usage.

E.g. If I can edit the name of something, I should be able to click it and change it. I shouldn't have to go to some other form somewhere else unless absolutely necessary (e.g. if a change requires a complicated workflow)

My most important lesson

In all my years in startups, the most important lesson I’ve learned is this...

Those that build the right product and broadly market it most effectively, win.

The rest - those who philosophize, hesitate, pontificate, get bogged down chasing one off “deals” and “partnerships” etc. they all lose.

Good defaults

Good defaults are one of the most important features of your product

How to answer the question of platform and gatekeeper risk?

If an investor is asking why “Platform X can’t just do this” the answer is…

Direct to customer - We’re not waiting for them

Innovator's Dilemma - They won’t even try

Focus, focus, focus - If they try, they won’t follow through.

Network Effects - If they follow through, it will be too late.

Build vs. Partner - Eventually they will need to partner with us

Historical Precedent - This has all happened before and it will happen again.

It shouldn't be hard to pitch your product

If you find yourself trying to convince a prospective customer of something in your sales pitch, then you might have 1 or more of the following things going on...

1. Wrong product

2. Wrong prospect

3. Wrong pitch

In relation to the pitch: Try to find a way to frame what you do in the context of a tactical and urgent problem. Make points that are irrefutable.

Don't listen to your sales team

First a reminder: The goal of a product-lead, high-growth startup is not to fully serve the needs of an individual customer. It is to build a product that can scale quickly by serving the needs of a broader market. Products like this are focused, polished, easy to understand, easy to use, and require minimal support from customer service. Read more here.

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I see a lot of inexperienced b2b product managers who actually perform the function of project managers or account managers.

They spend most of their time triaging high-priority contractual obligations from customers (as negotiated by the sales team) into a jam-packed roadmap.

The sales team are amazing collaborators who should be deeply involved in the product ideation & road-mapping process.

They should not, however, be in a position to dictate features or product direction based on the needs of one or two customers.

Why?

Because sales teams represent an inherent dichotomy for product managers.

On one hand, they have an intimate understanding of what customers are asking for. On the other hand, they are often ill-equipped to understand the full product and prioritization implications of those asks.

This means that they are a strong source of customer feedback and market insights. But they are also a common cause of roadmap thrash and strategic drift.

Creating a strong, healthy, and productive relationship with sales demands a disciplined and effective product management process.

This requires experienced product managers to...

1. Help the company get very, very focused on what problems it's solving and how. This might mean narrowing everything from the buyer persona, the target verticals, the geography, and even the specific use-cases.

2. Have a healthy level of disregard for the needs of a single customer, and, instead, focus on what the business and the broader market really needs. For example, the business model may call for a b2c product strategy while specific customers might push for more b2b SaaS style features like white-label. A specific customer might want the product to solve their adjacent business problems, but the product strategy might require that the roadmap remain focused on a specific category of features and problems.

3. Craft a clear and reasoned roadmap that allows their sales partners to understand the near-term, mid-term, and long-term evolution of the product. The roadmap should be described in user-experience and/or business value terms. Once a good roadmap is created, a lower-fidelity, near-term version might also be used as an alignment and communication tool with customers.

4. Heavily invest in sales enablement: Help develop the decks, docs, and narratives that the sales team uses in the field to sell the product that they're actually building.

5. Inspire the sales team with all the use-cases and business benefits that the current product and product roadmap can unlock for their customers. Encourage them to build a pipeline of customers for the product, vs a pipeline of product asks for their customers.

6. Carefully manage "can't we just..." and "isn't it easy to..." style conversations. Remain disciplined and help the company understand the true complexity of building and maintaining each new feature. Every addition to the product takes time and sustained investment.