Are you selling detergent, lifestyle or clean clothes?

Caldrea-Laundry-Detergent-LifestyleHere is a nice answer to question of environmental impact of our consumptions. The article link is from The Christian Science Monitor (and thanks to Joe Senft)

e360: How do you think about the tension between growing a business and lightening our collective environmental footprint?

Lowry: I think the answer is moving from products of consumption to products of service. Ultimately we need to get to close to zero resources used in order to get the job done, in order to be truly sustainable. But for me that is not a business that depends on selling more and more liquid no matter how concentrated. It’s a business that makes money every time somebody’s clothes get clean. It’s probably a format where a laundry detergent lives in a washing machine. When dirty, soapy water comes out of the back of the machine, the soap and the water get separated from the dirt and the soap and the water go back in the front of the machine and the dirt that comes out is compost. And we would get a little fee for the usage of the detergent.

This is a great thought and it mirrors what Ted Levitt wrote about customers buying holes vs. drill bits. You can also see the parallel to the newer “Customer Job to be done” metaphor. That is customers have a need to fill or a job to be done. It is that need/job marketers should focus on and build offerings that do that job far better than alternatives.

In that context you can see what Adam Lowry means by selling detergent vs. selling clean clothes. Customers are hiring detergents to get cleaner clothes. That is the primary job for detergents. And he suggests getting a fair share of the value created  in the form of service fee vs. price for detergent. This is very concise and cogent description of what customers want, why they hire products and how marketer gets paid.

Then Lowry goes on to suggest a technology that can achieve the end goal. That is not as important. Technology and service innovations can offer any number of ways to fill the primary need of clean clothes.

That said let us not forget that customers do not buy products for just one reason. A product won’t be hired in the first place if it does not do the first order job better than alternatives. But  first order jobs, like cleaner clothes, is table stake. A product is never hired for just one reason.  It is  hired for a basket of  reasons. Here is a quote from 1967 issue of Journal of Industrial Economics,

First, he tries to identify these desires. To do this he now has all the aids of marketing research. If he only researches into which detergent the consumer considers to wash cleanest, he may miss the fact that the consumer now also wants her detergent to be pleasantly perfumed.

Detergents as consumption products are not just about clean clothes. It was perfumes in 1967 but it is lot more than that these days.  Thanks to marketing magic these detergent brands have become lifestyle brands. Clean clothes have become utilitarian job and premium brands are hired for higher order jobs they promise to do.

Thinking of detergent as providing cleaner clothes is great ‘Job to be done” thinking, but it will be successful in the market only if it can address some or all of the higher order needs. Unless of course the marketer changes the reference with positioning,  may be appealing to greener motives is the new higher order job, and that explanation is for another day.

 

 

Not the Product Manager you have in mind

When you think of best in class product managers, what companies come to mind?

All the valley companies? In fact don’t we have a label, “West Coast Product Management”? True or not sounds cool like NFL’s  West Coast Offense. If you were to do unaided recall survey among most in social media it is highly likely we will find these in the top of the list, (in no particular order)

  1. twitter
  2. facebook
  3. Dropbox
  4. Pinterest
  5. Square

When you think about what sets these top notch product managers apart, what traits come to your mind? There is a question in Quora that slices it even further,

What distinguishes the Top 1% of Product Managers from the Top 10%?

If we assume normal distribution of product manager quality levels,  this question asks what distinguishes those who are 2.34 sigma over mean from those who are merely 1.285 over mean.  That is some precision.

And the answer that received 2500 votes lists  a  long list key traits. I do not know how one can measure many of them objectively. And this most popular and long answer not once mentions the word, “customer”.  Other not so popular answers list customers and understanding customer needs.  But none of the answers take it to next step – from understanding and serving customer needs to getting fair share of value created by serving those needs.

Even my own survey (that used forced point allocation ) on product management skills, did not include aspects of customer value creation and value capture. If you think about it, all the traits listed in Quora (Design, Copywriting, …) or in my survey (Strategic thinking, Hustle, …) these are really secondary to the  True North function of a product manager.

  1. Understand customer needs – Analytic skills, Usability analysis, etc.
  2.  Decide on (prioritize) needs to serve based on value created and the share of value you  can get – strategic thinking, forecast and measure, …
  3. Build an offering, Maximally Valued Product,  that does it better than alternatives and in cost effective way – Simplify, Design, Hustle, Influence, make technical trade-offs
  4. Position it in the minds of customers  – Presentation skills, Copywriting and the rest
  5. Make it easy for customers to get it –  Sales enablement, Buying experience etc

After all, what is a product but a value delivery vehicle? And all those great design, frictionless UI and copywriting do not make a product until you define a set of customers whose needs you meet and who want to pay you for fulfilling that need.

Is that the product manager you have in mind?

 

Poll: When you think about best in class Product Managers, do Airlines come to mind?

I will share with you my thoughts soon.

Books on Chocolate – Strategy, Competition, Family and the Dark Side

English: "Drink Cadbury's Cocoa" adv...

Here are some books on chocolate I read and I like and recommend all of them. Two of the books are about Cadbury, a brand that is now part of Kraft.

  1. Business Strategy  — Cadbury’s Purple Reign: I was very impressed by this book and its dissection of how business decisions on product strategy, segmentation, positioning and sales enablement was done in the early years of Cadbury’s. I could not help but wonder how much of that was revisionist history, how much of that is my own biases in reading more into it than there is and real business history.
    Nevertheless, the book backed up its stories with news clips and quotes from sales meetings that add to its credibility. One notable brave business decision that caught my mind is Cadbury’s decision to give up its old product versions when they switched to pure 100% cocoa.
    Another one was their decision to switch direction again when the competitors were caught up with 100% purity and the customers demanded more than just 100% purity.
  2. Competition — The Emperor’s of Chocolate: This is a history of the battle between the two chocolate giants of America – Mars and Hershey’s. When reading the closed culture of Mars and the business idiosyncrasies of both brands I can see parallel to many present day tech brands.
    One thing that caught my mind was,  going to market  with highest quality and full featured product is not as important as having a good enough product but a superb control over messaging and positioning.
  3. FamilyChocolate Wars : Don’t be thrown off by title or the sub-title. This books is very much about the Cadbury family, their values, morals, struggles, ups- and downs. The author is more effective when she covers these aspects than the business aspects. She is also the author The Lost Prince (and says in that book Marie Antoinette never said, “Let them eat cake”). I enjoyed reading the personal side of the business folks who appear larger than life in The Purple Reign. Read the chapter that talks about Cadbury’s first store design and experience – you will find where Apple Stores got their inspiration.
  4. The Dark Side — Bitter Chocolate: This is the dark side of the romantic story, the backoffice story that never gets told until an author like Carol Off takes the time to travel to the cocoa producing countries and write about the state of the cocoa farmers. I was surprised to hear that the poor families that worked on cocoa farmers did not know the use of cocoa beans or what chocolate was.
    This calls into question my own beliefs about, “Business of business is business and not social responsibility”.  While cost is irrelevant to pricing, ignoring externalities artificially reduces the cost to marketers and enables them to sell the product at much lower prices than they would.

I am a big  fan of 85% and above cocoa, so next time you see me remember that.

Strategy, Business Model, and Product

It has been a week of arguing which sequence is right. Is it

Product > Strategy > Business Model

or

Strategy > Business Model > Product

For most people in the valley – running startups, working for them or mentoring them to become insanely successful – the sequence is clear. There is no argument. Anyone who says otherwise simply doesn’t get it.

Wouldn’t it help if we all understand and speak the same thing when we say  Strategy, Product or Business Model?

Here is a very simple definition for these terms. Not made up, not changed to fit present day mania. These are well established definitions for running any business. And those disrupting status quo to create frictionless something or the other are not exempt from these definitions.

Strategy – Here is a simpler and relatable definition – Strategy is about making choices under constraints (and most times under uncertainty). Choosing the only option available to you (say going for 4th and 24 with 7 points down and 20 seconds on the clock) is not strategy. Choosing all options available because you are not resource constrained is not strategy. Strategy is making hard choice, under limited resources (there are only situations with limited resources) and the outcome is far from known.

For a VC firm their strategy could be the type of ventures they even want to consider, be it the pedigree or market it plans to play in. For accelerators it would appear they could fund anything and everything from enterprise to social media startups but their choice is to limit investment choices based on the stage of the startup.

For a startup (or more generally, a business) the choices start with which customer segment and need they want to target first – a segment with compelling unaddressed need, that is not only big enough but also had big growth opportunity. You can serve all customers and all needs. The old adage about being all things to all people goes well here.

For example, Salesforce.com choosing to serve enterprise customers with significant pain-points  (and IT budget to spend) and reach them through highly effective direct sales team vs. building out Chatter as competition for Facebook is their strategy. Another example is Netflix choosing streaming over DVD by mail as the future.

Strategy does not end with the first choice. If you have to make a hard choice among available options (and most times under uncertainty) then it is strategy. First it is the segment to target, then there are choices on routes to market, product, product features and when to deliver, pricing  and communication.

That is strategy.

Business Model –  You can do a Google search on all kinds of theoretical works on business model. In practical terms, business model is answering two questions

  1. How are you creating value to your customers? (see value equation)
  2. How are you capturing your fair share of that value created? (see Value Step function)

Together these two constitute your business model. You could be like some of the group buying sites and take a share of value you did not help create. Or you could be miss out getting your fair share. In either case your business will sooner or later will fail because it runs out of value to take or in latter case run out of cash.

You could introduce a third party (or fourth, or fifth) in the value flow – say advertisers, content producers – and decide to capture value indirectly. If your product adds compelling net new value to customers you chose to serve, charging for it remains the simplest of all business models.

And as an astute reader you noticed there are choices to make in defining the business model. It could be in how best to deliver value or how to capture value, whether to capture value upfront or align with value deliver (subscription). That is strategy does not go away when you move to business model.

Product – What is a product? Are your customers buying products? Ted Levitt said,

“Customers are not buying quarter inch drills but quarter inch holes”

Clayton Christensen said,

“customers have jobs to be done and they hire products for those jobs”

So we could say product is the value delivery medium. This is not to trivialize it. Product offers the greatest opportunity to innovate – to deliver something that does the ‘job’ better than any other alternatives available to customers, to deliver most natural way to use it, to do so in the most cost effective way for the venture that is building the product, to make it sticky, etc.

Again there are choices to make – what to build, when, how etc. More strategy in building the right product.

Given these, you decide whether one is greater than the other.  For startups, Fred Wilson argues finding the product-market fit first, deciding on strategy then business model.

For startups that begin as a personal problem the founder is trying to solve with the assumption that there are many others with the same problem it would appear

  1. start with the initial iteration
  2. keep refining it through user discovery
  3. build a large enough user base, getting early adopters to spread the word
  4. worry about monetization later

… is not only the only recipe but one that is guaranteed to deliver success (can you say Facebook, Twitter, Instagram, Pinterest?)

The argument for product first approach should not be because of what we know to be successful startups or because of one’s inability to start with strategy first.

Did you consider the possibility that when you do thousands of experiments – thousands of founders with the same personal problem, trying to address it in thousands of different ways – some experiments are going to succeed?

Because multiple options are better than just one – Product Management Series

In my last article on defining and evaluating Influence Skills of product managers  (reminder – Influence Skills was rated as the most important quality in a survey) I mentioned the book Influence by Robert Cialdini. The book, in my opinion, is about influence tactics and not about building a longer lasting working relation based on trust and mutual value in a multi-encounter environment.

The book does present many tactics you can put to use when you are trying to break in or get what you want in some zero-sum games. In my opinion it does not help build an end to end process for win-win in outcomes in situations where you meet the same people over and over.

For instance using asking for a small act and then relying on escalation of commitment to get more and more of what you want does not sound to me like a mutual value-creation and fair value-share arrangement. As I wrote before, Influence is based on trust, mutual value-add and effective communication.

But that is just that, my opinion.

There are two invaluable tactics from the book that I recommend you use without compromising on mutual value and trust.

Because, Because, Because

The Influence book tells us about the effect of using the word ‘because’ in asking for an action from anyone. When asking for a favor/task  from others, a Harvard study found, you will have greater success if you explain the reason for your ask,

People simply like to have reasons for what they do.

For example,

“would you help me get the SKUs created in two weeks because of product launch”

In fact the study went a step further and tested just the use of the word ‘because’ even with illogical reasons and found that it had better effect than giving reason without using ‘because’.

Like saying

“would you help me get the SKUs created in two weeks because I am in a hurry”

I am not going to make a recommendation that you use ‘because’ with illogical reasons but stop with their primary finding about people like to have reasons for what they do and give a valid reason after ‘because’.  In fact this fits perfectly with my recommendation about showing mutual value and effective communication. Using ‘because’  helps us get the value message across effectively.

Options over Ultimatum

The second tactic that helps is giving your peers/customers/bosses multiple options and asking them to pick one over presenting them a single option and making it a ultimatum. Presenting multiple options changes the decision from saying yes or not to a single option to picking the best among the multiple options you present.

Here is a real life case study from the world of politics,

The WSJ article on  President Obama won the Health Care vote describes how he changed the conversation:

Mr. Obama’s most effective move may have been calling for a bipartisan summit on health care, shifting the conversation away from Democratic paralysis. Aides knew there was little chance they would reach a bipartisan agreement, but it forced Republicans to put ideas on the table, framing the choice as between two sets of ideas, rather than simply a referendum on one.

 It is easier for the people you work with to compare the merits of different options vs. deciding merits of picking or not picking the only available path you present.

I recommend you go one step further and present three options and invariably you will get the middle option.

Present multiple options because it turns a yes or no decision into informed choice among multiple options based on relative value.