3. Software Concept Analysis and Risk Assessment

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:

  1. • Profiling & evidence gathering
  2. • Pricing & sales forecasting
  3. • 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.

1. Software Product Success – Product Management Fundamentals

We help with the fundamentals of product management because we believe they are crucial to maximising success within a software business.  Assessing which potential new products, developments or diversifications represent the best use of your scarce resources, then effectively managing them through to launch and in-life portfolio management is a major challenge which we fully understand.

A new product should always maintain or enhance your brand reputation as well as your P&L, very often new products damage both, but the risk can be significantly reduced.  We have found that slick yet pragmatic methods can be established which significantly reduce risk without necessarily increasing time to market

We believe it’s crucial for multi-product companies to judge their success on the P&L of each product rather than overall profitability.  Our methods allow this to happen and therefore ensure profitability is as good as it can be rather than just good.

We hope you enjoy our series of blogs; they are all based on successful work carried out by us. The first will cover profiling and segmentation to focus on the right markets and establish a fact base to expedite concept evaluation. We will then go through the fundamental practices which make a real difference at each stage of the product life-cycle.

2. Market Segmentation – Hitting the Sweet Spot!

First here’s a chart illustrating how you can focus sales and marketing efforts on the targets that need your solution urgently!  The end result effects every function in your business, from reducing you’re sales cycles and support effort to increasing customer loyalty,  and you are only making the profit you are capable of when you do this.

Example of segments and differentiation within a vertical market.

During one appraisal of a 6,000 target addressable market we were able to identify a ‘bad’ segment of 1500.  We researched what happened when the software was sold to the segment and found that implementation projects always ran over budget and, rather than declining, support calls increased over the first year. In this case there was a very good reason for the issue and the supplier accepted the evidence and focused resources on more profitable activities. As a result of focusing on the right prospects with the right message they increased sales and reduced cost of sales significantly.  Companies who don’t manage to do this never perform to their potential and face tangible losses in every area of their business.

It also means that sales presentations don’t require constant objection handling because the audience are accurately identified prime targets and a competence to serve customers just like them can be proven. In fact the appointments are easier to win for the same reason. Price is maintained and customer satisfaction is higher because the project is typical of many others successfully completed.

So, how do you get there? How do you clarify exactly what you are good at and the specific identity of the right prospects?

A great place to start is an analysis of your sales ledger or debtors list, but the same routine can be followed for start-ups segmenting prospect databases, just change the tense to future.

Look at the business activities of your clients, what service they purchased, why did you win that business against the competition. Establish the best user cases and the highest paying customers, find discernible characteristics they all have in common and use those to identify other targets who are likely to have the same problems to solve. Your specialisation then becomes a key part of your differentiation.

You will find that there is much more to segmentation than size or volume. Certain businesses will operate differently perhaps based on the return on sales margin they achieve and, importantly, the decision to buy your product may sit with different functions, each with different purchasing behaviours.

In the 6000 site addressable market mentioned above the buying decision was made by different people in each sub-segment, it worked as follows; S1:owner, S2. finance director, S3. board of operations directors.

The positioning with each of these was different and if it isn’t compelling for one of the sub-segments you can save your-self an incredible amount of time and effort.

Here are a few examples of criteria which could be used beyond size and volume to identify your prime target market:

• How profitable is their business?

• How mature is their business?

• Who makes the purchasing decision?

• Is their HQ in your country? Is their business focused on a certain geography or are they trying to achieve cohesion across many regions?

• What percentage of their turnover do they spend on IT? Would your purchase come from that budget or department P&L? What major purchases are you competing with from the same budget?

• What expertise do they need to make a success of your product, i.e. are you selling proprietary ERP to a segment which doesn’t have full time accountants?

You will identify dependencies, key success factors, and whether to differentiate your proposition for a number of segments or only focus on certain ones. It’s then just a case of obtaining data, knowing how to analyse it and doing some research.

As a product management or product marketing professional you can incorporate this assessment to your concept adjudication and have it ready for internal product launch. We found stakeholders digested it well when we framed it as follows: Who are they (exactly)? What do they buy? Why buy from us? The answers to these questions make it easy to identify exactly where they are and that changes everything.

For all of the reasons above any conversation regarding a business, product or any development should start with 1. The specific target market and size, 2. Their problem and need to solve it now. 3. The idea and it’s dependencies. 4. Story of last few product launches. This outside-in approach emphasises the need to define the proposition by the market rather than imagining a market for a proposition.

If you agree that commercial success is the ultimate goal of product management I believe this topic represents the most significant work product management can do. It feeds into everything else and still pays dividends through to in-life win/loss analysis.

If you need to sell this to others….

Every business person should understand the difference between being 50% right for 100% of the people compared to 100% right for 50% of the people. Consequences can lead to scenarios such as 10 sales activities for a decision and a closing ratio of 1:20 versus 5 sales activities and a closing ratio of 1:4.

5. In-Life Product Management

This stage is where you see the true return on investment from following methodical evaluation and launch processes. You now get to see the product perform as you expected or are able to articulate any differences in a meaningful way.  The resulting analysis is a key product management performance indicator.

My view on this area of collaboration is similar to my view on customer satisfaction in general. Assuming you ask customers for feedback, the question is whether you gather any feedback from your teams regarding customer performance with specific products. For instance, has the resource to install and support the product been as expected? What has arisen after multiple deployments? What could be revised to improve customer performance etc… They are actually more likely to answer on the finer detail at this stage than customers, who are normally either happy, or not.

Win/loss Analysis

Product management and sales should be working closely together ensuring every sales cycle outcome is analysed for its key factors.  These can then be broken into themes to guide next steps.  Here are some examples of levers at the early stages of win/loss analysis when underlying information may be sparce:

  • Poor sales ratio levers: review internal training, accuracy of demand, competition and segmentation research, marketing plan
  • High sales/low discount: review price and marketing strategy
  • Poor deployment performance levers: review internal training & documentation, adoption curve and staff turnover
  • Poor price performance levers: review sales training in full value of proposition, review accuracy of demand, competition and segmentation research
  • Poor software performance levers: review sales training to set the correct expectancy, level of field testing, technology stability versus qa standards, 3rd party integration issues.

Development Request Management

The staggered marketing and adoption approach discussed in Blog 4 also helps you make wise enhancement choices rather than responding to early, unhappy customer threats if you don’t develop what they are demanding.

If the enhancement is not commercially viable you are in a much stronger position to decline, as long as you explain the process and how you evaluate requests.  Strong brands can do this because of the diligence that has led up to this point and the fact that an intelligent product management methodology exists.

There are also some great guiding principles here which could be considered as product management best practice.  They are really checkpoints before you invest time fully defining and delivering developments:

  1. Is the request in a universal format with relevant questions answered including value of the change?
  2. Have support staff agreed that there is no suitable alternative within the product?
  3. Has a commercial person agreed the change offers incremental wide-scale value?

If the answer is yes to all 3 of these questions now is the time to find evidence of similar requests and gain a high level development indication, then  the concept evaluation process (blog post 1) can begin.

Later in life

The importance of win/loss analysis does not diminish over time as new competitors and new technology will appear and trained staff will leave. You need to know as soon as the former effects your performance, if not before, and you or your technical teams should be constantly analysing the latest technical possibilities.

Depending on the specific factors within your market, such as degree of bespoke systems, you may wish to adopt later life-cycle phases as follows:

  • Twilight – New developments are not added, compatibility with new operating systems not guaranteed
  • Legacy – All above plus support resolution is not guaranteed

When the time comes for you to take action because of any of the factors above, there are some simple golden rules which help:

  • If you are ending a product always outline an alternative and why
  • If you are exiting from the category or market segment, but want to maintain your brand reputation, why not devise an ITT for your customers and potentially even do some supplier validation work for them in advance and see if you can gain some preferred terms for them.
  • If you are moving all customers from numerous old versions to a single platform, be honest, share how your organisation will be more efficient and robust and the benefits for them.

In-life management is part of the fundamentals of product management.  If your portfolio was launched through processes similar to those in our blogs, the win/loss analysis is just the next stage of the process. If that’s not the case you can start by inviting feedback from internal teams on the existing portfolio in a defined way. Essentially you need to know the following things:

When we sell product X, this happens (i.e. nobody can install & support it like experts anymore) and the consequences are this (i.e. consultancy overspend, customer pain, cancellations, brand damaged, compensation given etc…), possible resolutions include (training investment versus remove product and focus on those aligned with core competences).

Once you combine the feedback with sales history you will quickly be able to evaluate pain versus revenue enabling you to remove, refine, re-train or replace.