|"We built a great software product but no one wanted it."|
-Anonymous CEO of a start-up software company
|By Mark D Gagné|
What is the value proposition of your software product?
I asked this question of the management team of my prospective client: a start-up software company. The CTO described the features and functionality of the software. The CEO raved about the size of the market and how much the customer needed the product. The Vice President of Development spoke glowingly about the multiple operating systems that the software would run on. I called a prospective customer. He thought the product was "kind of nice". Then I really got worried.
There are hundreds of software companies that have built lots of nice products, which have never been a market success for exactly that reason: they were niceties and not necessities. The customer was feeling NO PAIN and seeing NO GAIN in having the product; as such, they weren't demanding it. My prospective client had built their product based on their belief of what the market needed, without enough investigation into what the customer was demanding and an understanding of the benefits the customer would derive. I refer to this as the "need to demand chasm". Unfortunately, many companies wrongfully assume their view of market need is coincident market demand and build the chasm as they build their software.
So, how do you build software products that customers will demand and pay for?
It starts with market knowledge and a process I call FRED. FRED builds a software product based on the customer's expected use, why the customer will demand and pay for it and the customer ROI.
FRED focuses on the customer value proposition and how it is maintained throughout the software product's life cycle. The goal is to build software that delivers bottom line value to a customer with every release sold.
FRED is an acronym:
- Features and functionality
- Return on investment
- Customer Expectations
To effectively build and sell software to a customer you need all four elements plus the right price (which impacts the ROI), product roadmap and plan.
Integral to the plan is knowing your customer's desired results (their demands). The desired results must be evaluated in terms of the expected return on investment (ROI), as this will impact the speed of a buy decision. ROI must be calculated including the cost of software delivery, training, support and maintenance, i.e., based on total cost of ownership.
Let's begin by taking a high level view of FRED.
Features and functionality- what does the software do? This should be a list of the software's planned features and functions matched with the benefits (quantitative or qualitative) they produce for the customer. The list should be derived from customer expectations and prioritized for delivery over a period of time (the product road map).
Return on investment- where is the gain? What does the customer get for buying the software? What is the payback period? Are there measurable and reportable performance metrics?
Expectations- where is the customer pain? What does the customer want and need? What is the value proposition?
Delivery- do you have service capabilities for software installation, training, support & maintenance? How are you going to sell the product (channels, direct, OEM)? Can you help the customer achieve the promised results?
FRED starts with identifying expectations of the market and the customers. Finding the customer pain and the opportunity for gain. From these facts you should be able to craft a solid vision statement for your product strategy- a plan of where you are going.
Understanding expectations starts by investing in product marketing. Effective product marketing at an early stage is the critical ingredient for a successful software product. The information you gather will enable you to create your product strategy and road map. Unfortunately, I have found this is the area most often overlooked. Too often the founder or CTO believes he "understands the market and what the customer needs", however it's what the customer will demand and pay for that matters. Investing in product marketing is the best way to achieve an understanding of demand and the real bottom line value your product will provide to the customer.
Product marketing entails gathering significant data--the data you need to plan your software product's future. The end result should be a comprehensive marketing requirements document ("MRD") that incorporates an analysis of market trends, market segmentation, customer profiles, product features and functionality and the competition, all necessary to create the customer value proposition.
A well written MRD includes the following items: analyst research, market size and opportunity, who are the competitors, what are customer requirements, white paper creation, market assessment, technical options, hardware/software requirements, detailed product specifications, descriptions of functional components, standard rules for implementation, security, management, migration, documentation, performance metrics, go-to-market strategy, etc.
So, now you know the customer's expectations for the software product and have a list of the features and functions, with their respective ROIs. Next, you need to define the product strategy and create the product road map.
Your product strategy should be based upon market demand and tied to customer value over the expected life of the product. What is the pain and what is the gain?
The road map should be a timeline that depicts expected version release dates of the product, the specific features and functions and the ROI they produce. The road map should highlight customer prioritized expectations and your delivery capabilities. With regard to each planned version release, the aggregate customer ROI expected to be achieved is a crucial element in planning the road map. Not all features and functions produce the same level of value, however in the aggregate a new version release should produce an ROI for the customer.
The road map should prioritize the features and functionality of the software product based on the customer benefits/value to be derived from each feature and function and how those benefits/value will affect demand for the product. At the same time your focus should be on which features and functions help support a buy decision that provides a quantifiable ROI to the customer, an ROI that can be measured and reported on a timely basis. This is a critical element as too often great products are built with no measurement or reporting mechanism to support their ROI, which may significantly delay the customer buy decision.
In summary, building the right software product entails making informed product strategy and road map decisions based upon market facts, not company beliefs. Planning the product strategy and road map is a collaborative process involving significant team effort. It requires input from many areas of the organization: product marketing, product management, product development, accounting and finance, marketing and sales to name a few. Understanding customer expectations and delivering the product features and functionality that produce (i) customer demand (ii) an ROI for the customer and (iii) what the customer will pay for, should drive the product strategy and road map decisions enabling you to build the right software over time.