Product Scorecard Stages
Normally I like to keep my newsletters to discussions of organization, process and best practices that I believe apply to nearly all technology companies, and I limit the number of product-specific techniques I discuss because of that. I save the product-specific techniques for my direct work with companies so that I can be sure it’s relevant.
However, I have found one technique to be very common not for all companies but for many companies, especially those that are based on some form of marketplace – job sites, car sites, trading sites, local e-commerce, dating, etc. Even when the company is not building this form of marketplace, the general principle can often be helpful.
The topic is product scorecards (also known as “innovation accounting”) and the general idea is that the most appropriate focus for a team depends on the stage that the product is in.
There are typically three stages that matter in terms of business KPI’s:
1. MVP: Our initial focus must be on achieving the minimum viable product. Until we have this product, it doesn’t make sense to spend money on sales and marketing and incremental hiring. The main way we prove we have achieved the minimum viable product is to deliver to the company several live, referenceable customers (for platform and business products, I advocate at least six; for consumer services I advocate at least 12).
Until you have these reference customers, nothing else really matters. So focus the team exclusively on getting these references. I usually encourage this to be the sole scorecard KPI during this phase because I like the results that come from a single-minded dedication to happy, referenceable customers.
The customer development program (we develop reference customers in parallel with developing the product) is designed specifically to achieve this.
2. Growth: Once you have your reference customers, this is the time to ramp up marketing (and sales if you have a direct sales model) and grow your customer base aggressively. You will be adding product capabilities as necessary to expand market. You typically want to optimize for growth at least until you reach critical mass for your market. You are specifically not trying to optimize for pricing or revenue here, you are trying to optimize for growth.
Critical mass is not a precise term, but it applies to most products and is an especially important concept for marketplaces. For example, let’s say you’re selling cars. You need inventory in Seattle area if you want Seattle area users to have a good experience. And it will be harder to get car sellers to list their cars until you show that there are people actively looking for cars in this geography. So during this stage, we aggressively focus on growth and marketplace dynamics until we have reached the level where the experience is good for both sellers and buyers.
Note that we often have the same concept for many other types of businesses, when we sell internationally. Customers in Germany often want to be convinced there are happy customers in Germany before they’ll buy a US product. And depending on the product, the German market may require some significant differences. So we first focus on identifying MVP for Germany, and then we leverage our new reference customers to grow to the point where we have achieved critical mass (we are a solid player in that market).
3. Value Capture: Now that we have achieved critical mass and have established clear value, this is the time to get compensated for the value we have created, and we often optimize for monetization. This is where we test pricing and revenue strategies to maximize the return on our product. This is where we explore more advanced online advertising approaches that take advantage of the scale we have achieved in our growth stage.
Note that I am not suggesting that you only charge for your product in the third, value capture stage. If you have a subscription product, or a transaction fee product, or a license product, then you would be charging from the beginning to ensure and prove value. However, I am suggesting that you would not try to optimize for revenue in the first two stages. Mainly because you will likely hinder growth. One mistake I see often is that many advertising-based product strategies are predicated on achieving critical mass (critical mass defined as sufficient activity to sustain a business via advertising), yet the company hurts their ability to achieve this by being overly aggressive with advertising too early.
One other note is that often I’ll meet a team that has a product that’s been live for a year or so, but they are struggling. Everything is hard. Sales is hard, marketing is hard, and the product team is continuously chasing features and specials.
Very often what happened is that they started ramping their company before they actually achieved MVP. They might have a live product with lots of features, but it doesn’t mean they have actually achieved the minimum viable product – a product that can sustain a business.
In this case I typically focus them back on getting those 6 reference customers, and then they find some nice benefits: Sales and marketing is much easier – nothing helps more than happy referenceable customer – and sales stops requesting so many specials because they can prove to the prospective customer than others are happy with it as is.
So when you’re thinking of a way to focus the efforts of your product team, consider what stage your product is in, and maybe setting your product scorecard to be stage-relevant.
