We break this area in to 3 crucial topics to efficiently form a meaningful business case. These are geared towards significant new offerings but the principles should also be used to ensure all discretionary development is commercially focussed. The areas are:
- • Profiling & evidence gathering
- • Pricing & sales forecasting
- • Cost & consequences analysis
1. Profiling & Evidence Gathering
In our last post we discussed how the following 3 questions can go a long way to helping you segment markets:
Who are they (exactly)?
What do they buy?
Why buy from you?
By answering these questions you are able to find and size target markets effectively.
We also believe Porter’s five forces (Porter, M, Competitive Strategy, 1980) are still relevant today, which will help in your work here. Porter said “the key to growth, even survival is to stake out a position where you can defend yourself against head-to-head attack”. We have seen the consequences of new products taking companies in to dangerous spaces already crowded with specialists. Porter’s model is particularly powerful for reminding us that competitors alone are not our competition; substitutes and new entrants should also be swot analysed. Our 3 questions cover this topic in a easy-to-comprehend way.
But what happens when a number of options are available that all seem to have commercial viability?
Well, first, it’s really important that ideas are evaluated alongside alternatives. In isolation most ideas can look good, but I believe most apparently good ideas are loss making. Your development projects have to be the best use of your resources against the alternatives.
Therefore the next step, beyond the 3 profiling questions, is to gain EVIDENCE of the following:
a. Urgent demand to solve the problem.
b. Value attribution to the specific way (features, dependencies etc..) your proposition solves the problem.
This will involve collaborating with existing users and prospects, by interview, user groups, surveys or whatever means you use to capture the voice of customers. You may need to offer perks but it’s vital to formulate and ask the right questions.
Obviously customers find it difficult to say ‘no’ to any given functionality and suppliers find it difficult to ask how much they could charge. You can’t ask in terms of functionality but the problems they face and if solving each one is important. You may need to ascertain whether high functionality is more important than elegance conceptually. Beyond that we have used Kano analysis to help make specific Feature decisions. It taps in to the emotional responses when something is ‘in’ or ‘left out’ of the product.
2. Pricing & Sales Forecasting
The information you now have will identify clear value attribution to the specific way you propose to solve the problem. You can identify the costs of not using your solution and the differentiated value within the competitive landscape. You also now know the size of the segment you are aiming for and can make realistic sales forecasts. Why will they buy from you? Does the product fit comfortably with your overall strategy and does your brand convey expertise in the exact area you are selling to. It’s a shortcut to sales if yes and a longer term uphill battle if no.
You may need to devise pricing models around the financial circumstances of your clients alongside your own cash-flow pressures. This will help you decide between longer term recurring income, with lower barrier to entry, versus higher upfront costs. Pricing must fully realise the value you provide and be commercially appealing versus the alternatives. Total cost of ownership calculators are useful for showing tangible results but it’s only relevant compared to alternatives rather than comparing the worst scenario with your solution.
3. Cost & Consequence Analysis
True analysis of cost & consequences are often neglected in the software business. However they can easily be built into an objective risk assessment which goes a long way to correctly identifying the obstacles you will need to overcome.
Here’s an example output of a generic risk assessment, each category here had 2-4 questions which contribute to the score. Whilst the score is useful when comparing ideas with similar potential revenues, the main benefits are gained from this process being a standard part of your practices. Put simply it sanity checks vanity projects.
The information gained from researching these 3 areas will enable you to create a meaningful business case. The process becomes quicker over time because you establish a fact base and product managers become accustomed to considering these factors at the idea stage.
This is extremely significant as you dilute your specialisms and potentially try to make your teams overnight experts competing with new specialist competitors; i.e. a position they cannot defend. Analyse an incumbent; does it take them 30 FTE’s to do it well, is the pay rate £100k pa or £25k for their specialist expertise? Plan the true costs of replicating their expertise.