One of the most popular ideas to emerge in the software industry in recent years is the concept of a “Minimum Viable Product (MVP).” By focusing on building an MVP you reduce the chances that you’ll build a product customers don’t want. You can think of it as the basis of a broader methodology that leverages customer ]]> Ian Lamont wrote a great post about minimum delightful products based on an email I sent him. I thought I’d elaborate on the thinking.

One of the most popular ideas to emerge in the software industry in recent years is the concept of a “Minimum Viable Product (MVP).” By focusing on building an MVP you reduce the chances that you’ll build a product customers don’t want. You can think of it as the basis of a broader methodology that leverages customer and user research throughout the development process.

At face value MVP is a great idea because the concept addresses a major anti-pattern in product development: building too many features and the wrong features as a result of spending too much time in development without shipping or getting real feedback from customers and users.

Focusing on “minimum” is generally simple. It helps to correct against the tendency to build features because they are “cool” even if it’s unclear whether or not people want them.

Adding the idea of “viable” counter balances the effort to be minimal by focusing attention on the fact that below a certain threshold the product becomes unusable and/or unpurchasable.  Figuring out what a customer considers viable can be tricky. But, theoretically iteration, research and dialog will get you there.

Using a merely viable product is like visiting someone in an intensive care unit. They’re alive, but not fun to spend time with.

For certain categories this is straightforward. For example, an enterprise business system will usually win on underlying technological innovation, features, and sales/marketing. If you can get just enough features to start selling, then you have something viable. You’re off and running.

But for many circumstances, achieving a MVP simply isn’t enough to succeed.

For consumer products, SMB apps, software tools, hardware, retail, and other categories “viable” isn’t compelling. Using a merely viable product is like visiting someone in an intensive care unit. They’re alive, but not fun to spend time with. As a result, I see more and more companies who focus on MVP produce products that fail to achieve their goals.

The alternative is to focus on creating a Minimum Delightful Product (MDP).

The idea of minimum is just like it is in MVP: build only what you need. The interesting part is making the product delightful instead of merely viable. Delightful products users fall in love with. They immediately become part of a user’s life or work. When a product is delightful it just makes sense. It works the way you’d expect and the experience is highly satisfying. Delightful products are adopted faster, get better word of mouth, and create higher satisfaction.

But it begs the question, what makes a product delightful? This is a question that I’m sure has been pondered by many others wiser than me, but I believe delight is the result of three elements coming together:

1. Product gestalt
2. Design
3. Quality

Product Gestalt

Most products achieve delightfulness first and for most through their core “product gestalt” — for lack of a better phrase. (I think Alan Cooper may have coined this in The Inmates are Running the Asylum, but I couldn’t find the exact reference.)

The product gestalt defines the soul of the user experience. It’s the combination of UX and functionality that makes the product fundamentally wonderful. Usually the gestalt is the part of a product that remains relatively constant over time:

• The simple search box and results page on Google
• The friends list and news feed on Facebook
• The way that Adobe Dreamweaver could round trip between HTML and WYSIWYG
• The SAP API model
• The basic architecture of apps and a multi-touch UI on the iPhone and iPad

You can’t achieve a great gestalt by simply accumulating the right features. It comes from the right elements working together so users stop thinking about the technology and simple achieve their goals.

When the gestalt is great the product feels inherently complete and right even it doesn’t have all the functionality you may want as a user. One of the temptations with the MVP approach is to build a bridge that only goes halfway across a ravine and then to ship it so you can get iterative feedback. The feedback amounts to “this bridge sucks” even if a bridge across a ravine is a brilliant idea. Without the end-to-end experience, the product simply feels broken or nonsensical to the user or, in the case of the bridge, very dangerous.

By completeness, I don’t mean all the features you can imagine. Minimum is still critical. I think of completeness in the terms that Ken Schwaber, who invented Scrum, used when he talked about shooting a tracer bullet through a product in Agile Project Management with Scrum.

A tracer bullet gives you the smallest amount of functionality you can from end-to-end so the whole product works. Instead of shipping Facebook with the news feed but no friends. You do friending and the news feed, so you get the whole experience, but you leave out all kinds of features that might make both of these core components better.

Design

Gestalt is by far the most important component of delightfulness. The next component is graphical design. I believe deeply in the value of design, but I think it’s secondary to gestalt. Graphical design doesn’t mean lots of flourish. It came be very simple such as the layout of the Google search box and SERP or something as rich as OS X. As humans we have always found happiness and joy from beauty. Products that are beautiful are delightful.

Quality

Finally, the last element of delight is quality. A brilliant gestalt and beautiful design lose their value when the quality sucks. Unfortunately, all too often MVP becomes VCP (very crappy product). Ironically this comes from losing sight of a very core agile concept: when something is done it’s done. Put differently, if a feature is built it should work without problems. The feature may not include all the functionality you can imagine, but what it does include has to work well.

Arguably the very core of the iPhone gestalt is the multi-touch screen. When it was first built, the original plastic screen achieved the gestalt and design, so the iPhone went in production. But then at the last minute, after carrying the phone around for few weeks, Jobs decided that the plastic screen was not high-enough quality; it scratched too easily. With only 6 weeks left to actually ship the first phones, he demanded the team change to glass, and through a herculean effort they made the switch and shipped on time.

The iPhone is one of the single most successful consumer technology products. Imagine if the Apple team built the iPhone using a highly iterative process based on MVP. Surely they would have shipped the plastic screen. What other things would have they have skipped? Forget the app model and just put on fixed functionality? Get multi-touch mostly working but also throw on a fold out keyboard just in case? How many crappy versions would we have had to suffer through to get to the amazing product that was the 1.0? (Perhaps looking at the history of other handset makers will give you a sense.)

No doubt Apple did a lot of testing and prototyping, but at the same time they set themselves a very high bar for what they actually shipped. They didn’t ship until they got the gestalt right (multi-touch screen and app framework), the design was beautiful, and the quality was there.

Yet with all that, the 1.0 left many things out. Batter life was poor, the screen resolution could have been better, the camera functionality was minimal, the traditional smart phone apps (contacts, mail, phone, calendar) were no better, some would argue they were worse, than the market leader at the time – the Blackberry. Also, there was no real marketplace of apps, no front facing camera, etc. Did all these gaps make in “minimum”? I would say yes. But minimum didn’t sacrifice delight.

Conclusion

In software one has more latitude than hardware. You can more easily iterate and change. So software people may dismiss the iPhone example. But many software products as well as other products such as retail stores and consumer services would be well served by focusing on MDP not MVP.

Before you get too excited about hacking stuff out and getting live fast, take a step back and show some respect for your users. Work through the problems associated with creating a delightful product at the same time you keep the functionality to a minimum and come to market as fast as you can within the constraints you face.

Finally, keep in mind that while iteration and feedback are invaluable, creating great products doesn’t simply happen by absorbing customer feedback and A/B test results. It also comes from insight and craftsmanship.

Not every engineer designs great products, just like not every painter paints wonderful pictures. No amount of iterative testing will replace the genius of inventing and designing brilliant products that are delightful to use. So don’t be afraid to honor the craftsmanship that you and your team put into your product and the desire to give users something wonderful or, even better, magical.

The most basic status update includes two sections:

This format is simple. But it misses a key element: if the audience for the update doesn’t know the context the information has no real meaning.

 Present Everything Relative to Objectives

Telling people what happened and what’s going to happen doesn’t hurt anyone, but ]]> Status updates suck. But communication within your business is critical to success. So what to do?

What Happens Now

The most basic status update includes two sections:

• What happened since the last update
• What we plan to do next

This format is simple. But it misses a key element: if the audience for the update doesn’t know the context the information has no real meaning.

A Better Approach

 Present Everything Relative to Objectives

Telling people what happened and what’s going to happen doesn’t hurt anyone, but it fails to answer the most important question: How well are things going?

To answer this question your update has to provide the context around for you are trying to achieve. You have to answer a different set of questions:

• How are you tracking to the objectives you’ve set?
• What will you do next to achieve your objectives?

For example, if you say last week we had 25 new customers, we don’t know if we should celebrate or worry. If you planned to have 50, then 25 sucks. (Note, you can also say if your objectives have changed.)

The same approach goes for what you’re planning to do. For example, you could simply say: “Next week we will be finishing and shipping the carbadingulator feature.” It’s exciting, but it’s not exciting if you meant to finish it two weeks ago. Instead, everyone would be better off if you said: “Next week we plan to finish the next 2 features on our product backlog (x and y), which means we’ll hit our next customer release on schedule with the features we planned.”  With that information we know that you are on track to hit a goal.

There are a lot of ways to express this, such as:

• Write out goal and results.
• List each goal and show it red/yellow/ green/completed.
• List the goals and say how much work you have left to complete them (classic scrum burn down chart).
• Show numeric targets and the achievements (e.g. sales target vs actual sales).
• Present the update verbally in a stand up meeting.

The point is put everything in the context of the objectives you’re pursuing.

Go Visual

Whenever possible it helps to visualize information. This is especially the case for metrics. Simple bar charts can show progress. Add a line that shows the objective and you can quickly visualize results vs. target. Returning to the new customer example above, you could provide a chart that showed customer acquisition each week in bars with a line that showed your objective. Then anyone reading the update could instantly see if you were on target or if there was an issue, and any narrative you provide can help explain why things went better than planned or worse.

Be Consistent

Finally, consistency will help a lot. First, your audience needs to be taught how to read your updates. If the format and structure changes all the time, readers are forced to both try to figure out what the update is saying and then ascertain what matters.

Also, consistency on time frame makes a big difference. Randomly delivered status updates are hard to follow. You may be very close to what you are doing but other people are probably not, so they lose track of what is happening, which means they lose context to interpret your update. Pick a schedule for you audience: every day, week, month, quarter, etc. Then stick to it.

This matters a lot to board members, investors and advisors. These audiences have to sort through updates from many different companies. If your updates are consistently formatted and on a consistent schedule, they are more likely to be read and absorbed.

This Matters

It’s just not compelling if you get up in front of employees and say: “Last week we did a bunch of stuff and this week we’re going to do a bunch more stuff.” No one can tell they really achieved anything, and worse it’s not clear what you’re actually aiming for next.

If you tell your investors that stuff happened, they don’t know if they should be excited or not. If your mentors can’t figure out how well the business is working, then they don’t know where to help.

As you build your business, you will surround yourself with people who like to set smart, ambitious objectives, work hard to achieve them, celebrate when they’re accomplished, and learn when they’re not. Good updates will motivate people, drive better decision making, and improve collaboration.

In another article I’ve explained how your understanding of customer needs will become the foundation for a business strategy. In this article I dig into the nuances of customer needs. Other posts cover the techniques for researching and discovering needs.

In this context I’m using the word “needs” very broadly. Think of it as a ]]> Customers have needs. Businesses sell products that address those needs. Everyone is happy. That is the basic formula for market capitalism. The fun resides in the details.

In another article I’ve explained how your understanding of customer needs will become the foundation for a business strategy. In this article I dig into the nuances of customer needs. Other posts cover the techniques for researching and discovering needs.

In this context I’m using the word “needs” very broadly. Think of it as a needs map that looks something like this:

When people tell you that you should figure out your “customer’s pain,” what they really mean (or should mean) is that you must understand your customers’ needs broadly and then prioritize them based on how important they are to the customers. If a customer doesn’t perceive a need as important, even after you’ve explained why, then addressing it will never be that valuable. To get to an understanding of customer needs, you need to break down the needs in each category in the diagram.

Pain vs. Aspiration

Problems are pain. They represent challenges or issues that customers want solved. For example, a company may be facing cyber-attacks: they want to stop loosing critical intellectual property to hackers because it hurts a lot. You’ve probably heard pain describe in degrees (e.g. vitamin, aspirin, antibiotics, etc.) and that’s a good way to think about it as your evaluating the importance of different needs.

But, pain isn’t the whole story. It’s convenient to say that products should address pain, but some products don’t address a problem as much as they help the customer achieve an aspiration such as goals or desires. For example, a customer might aspire to make more friends or have fun on a vacation, but they don’t think about these needs as pain, they think about them positively, so I call them aspirations.

Expressed vs. Latent

Expressed needs are needs that a customer can articulate specifically. “We want to secure our servers from advanced persistent threats.” “I want to eat great Mexican food tonight.”

Latent needs are the tricky ones because people don’t realize they have them, so they won’t tell you about them. People carry their latent needs without knowing them or least without being able to express them easily.

The sys admin who knows that she needs to secure her servers may not express the latent need to maintain performance. The guy who wants a great dinner may not be expressing a latent need to impress his girlfriend. The traveler who keeps getting lost may ask for directions not a better phone.

Often the greatest innovations come not from fixing expressed needs: “I want a faster horse.” They come from solving latent needs: “I want faster transportation.” By seeing the latent need you have the basis to innovate — invent cars instead of breed horses.

Business vs. Personal Needs

(To avoid a 3D chart I left this axis off of the diagram, so you can just note these with a little “b” or “p” as you fill in the chart. Personal and business needs both fall into all four boxes.)

In a B2B selling environment it’s typical to focus on business needs and these are usually the most important. But smart marketers dig deeper and try to understand personal needs as well. The sys admin may be gunning for a promotion or interested in build her career by learning something new.

On the consumer side, there are also business-like needs. For example, decisions about whether or not a consumer can afford a product will play into the more emotional influences as they seek to achieve their aspirations.

Different People & Different Needs

As I discuss in the article on customer decision making, usually customers include more than one person who influences the decision making. It’s not unusually for the different people in the decision making unit (DMU) to have different needs.

The easiest way to tackle this is to start with the business needs overall. Those needs that apply to the whole DMU. Usually these are the most salient and the most important. As you start to dial up your marketing communication efforts it can be useful to build personas for each of the people in the DMU, and then you can ferret out the unique needs of each role to hone your messages and target your content.

Ranking Needs

The chart should help you identify needs. However, it has a lot of layers so when you start using it to drive strategy you can simplify the representation by transferring all the needs to a single list and prioritizing them based on how important they are to the customer and how much value would be created for the customer by addressing the needs. That list will help shape a variety of other strategic decisions including market segmentation, pricing, messaging, etc.

Changing Needs

Bear in mind that customers change and so do their needs:

• Your product will transform how people think about what they need
• The business and personal context that shapes the needs will change
• Competitors will influence how customers’ perceive their needs

Given that needs are constantly evolving the process of discovering customer needs never stops.

Discovering Needs

How do you discover customer needs? That question deserves its own article.

When I use the term “needs” I’m using it in a very broad sense. It includes both the need to address a pain as well as the desire to achieve an aspiration. It covers both needs that are understood and clearly expressed as well as latent needs that customers don’t even realize they have. So when I use ]]> Your business strategy will be built on a deep understanding of customer and user needs. Knowing needs creates a foundation for everything else.

When I use the term “needs” I’m using it in a very broad sense. It includes both the need to address a pain as well as the desire to achieve an aspiration. It covers both needs that are understood and clearly expressed as well as latent needs that customers don’t even realize they have. So when I use the term needs, remember that I’m talking about something encompassing. (You can read this post were I dig into what constitutes customer needs in more detail.)

Everything in your business strategy can be tied back to addressing customer needs. Understand your customers’ needs and you can build a great business.

Addressing needs drives the products you build. Needs are how you frame and organize market segments. How the resolution of needs is valued is the basis for your pricing. Your messaging is all about communicating how you uniquely solve customer needs. The partnerships you choose to complete your whole product are driven by customer needs for a complete solution. Your competitive strategy is all about how you create sustainable differentiation from competitors in the way you address customer needs. Your sales and service model also tie directly into your understanding of customer needs.

The landscape changes constantly because needs are never static. They change over time as your customers change, as the market changes, and as your product changes how customers think about their problems and aspirations.

Throughout this site, I’m going to keep returning to this basic concept: Know you customers’ needs and you can build a successful strategy for your business.

As with most ideas that today’s entrepreneurs believe are unique innovations, this one has been around for a while. Terrence Deal and Allan Kennedy pioneered ]]> If you ask most entrepreneurs what’s important to them as they build a company, the top three answers will include “creating a great culture.” This comes as no surprise. Culture deeply influences the people you attract and retain. At the same time it shapes how people work together in your company and what they ultimately achieve.

As with most ideas that today’s entrepreneurs believe are unique innovations, this one has been around for a while. Terrence Deal and Allan Kennedy pioneered the idea that companies had cultures and they mattered in 1982 when they published The Rights and Rituals of Corporate Life. Then Geoffrey James wrote The Business Wisdom of the Electronic Elite in 1996, which called out the profound differences in corporate culture between traditional industries and tech companies, influencing the new generation of internet entrepreneurs.

Usually, when you ask people to talk about a corporate culture, they describe very specific details (e.g. the sushi bar for lunch). But to get this right, you have to take a step back and dig deeper. This makes more sense if we start with a definition of corporate culture.

Deal and Kennedy defined corporate culture as: “… a strong system of informal rules that spells out how people are to behave most of the time.” I prefer a more simple definition that hews more closely to the Mirriam Webster definition:

Culture is a set of values manifest through behavior and ritual.

This definition leads to a simple five step process for building a great corporate culture.

1. Articulate clear values

Your culture project starts by clearly articulating the values you want to build upon. You won’t succeed at building a strong culture if you’re not clear on what you believe.

Having a great corporate culture doesn’t mean you give away nice fleece jackets…

You can take a variety of paths to get to that list of values. Start with what you and the other founders believe. When the company values align with the founders’ values everything works better, and almost all great companies have this alignment.

At the same time, it’s very helpful to draw from best practices and other companies. Don’t just pick a company that looks cool. Focus on the companies that are like yours and winning, and then dig into what they value. As you draw from other companies, pay attention to what is unique to you. Your culture can be a source of competitive differentiation.

When James looked at tech companies he identified six key values:

1. business=ecosystem
2. corporation=community
3. management=service
4. employees=peers
5. work=fun
6. change=pleasure

Reed Hastings posted a great deck on the Netflix culture that shows another example nine values.

At Brightcove we always liked to say three things were important: being smart, getting things done, and being nice. These values very much shaped who we hired and how people worked. (Notice these are very simple and succinct.)

At Onfolio (a much smaller company) we laid out four values:

• Achieving Excellence – We strive to masterfully craft what we create—holding our work to the highest standards of quality and excellence.
• Seeking Truth – With intense candor, integrity, and humility, we seek to understand reality and ground our work and decisions in that understanding.
• Developing Talent – We expect our colleagues to be passionate students and patient teachers—committed to continuous learning and personal growth.
• Working Sustainably – We work to actively balance our corporate, personal, societal, and environmental responsibilities in a way that is sustainable.

Noticeably missing from the list was a focus on customers, which was not so good, but you get the idea of one way to articulate value. The final value reflected our desire for Onfolio to be more lifestyle than high-growth, which is an example of shaping values to the reality of the company.

Surf the web and visit companies you respect and you’ll find many of them publish their values, so you can get some ideas.

It’s my preference to list out the values simply and directly, more than 5 gets unruly, and write them down. But not everyone goes this far. For some firms the values aren’t so clearly written, but if the culture is strong you can bet that the leadership is very clear on what they value.

2. Hire people who share the values

Knowing your values is the beginning. The culture becomes real when you hire people who share the values. Having a great corporate culture doesn’t mean you give away nice fleece jackets or always have micro-brew beers on tap, it means the people in your company have a shared set of values, and they manifest those in behavior.

Fundamentally a company builds its culture when it hires. If you hire people that demonstrate they share your company’s values through their actions, you’ll make the company’s engagement in those values stronger.

At Brightcove we always filtered new hires for smart, nice, and get things done, which turns out to be very hard to find, but when you do they are awesome people to work with. This means you have to hire both for job fit and for cultural fit. The two don’t always come together. Unfortunately, if you fail to hire for cultural fit, no amount of pizza lunches will create a “good culture.” Without people who share your values, the corporate culture you dreamed of creating will fade away; your company will be weaker; and you won’t like going to work.

The power of hiring to drive culture is especially important in the executive leadership. If you hire executives who don’t share the company’s values and demonstrate them in their actions, you can bet that those executives won’t hire people who fit the culture, and pretty soon the values won’t be a part of the company.

3. Create rituals that support the values

If you were to ask someone from Turkey about their culture, you’d expect to hear something about ritual: the cuisine, the language, how holidays are celebrated, how life milestones are marked, how you behave in social situations.

The same goes for corporate cultures. For example, if you value continuous learning, then there should be real rituals that reinforce that such as giving every employee a budget for books and training, having internal training programs, bringing in speakers for to talk during lunch, etc.

If you value people staying in the office long hours and working incredibly hard, then you may decide to provide free dinners. If you want to single out individual excellence, you could give managers the ability to give spot bonuses for people who go above and beyond.

Google and 3M, who both deeply value technical innovation, famously give every employee dedicated time to work on their own creations and products. Thanks to that value and ritual we get cool products like Gmail and Post-It Notes.

At Allaire, the employee rewards we gave out each quarter were based on the four company values and everyone in the company voted for who would get them.

The net of this is simple. Don’t get a ping pong table because you think that’s what start-ups do. Make investments in rituals that reinforce your values. If it’s having fun at work, then buy the games. If it’s collaboration than organize big group social events for the company and give awards to the most successful ad hoc teams. If it’s technical brilliance, than have ways for people to show off innovations.

Design your rituals to reinforce your culture.

4. Get the leadership team to model the values

Ideally you’ve chosen to focus on values that you believe in. Then you’ve hired other leaders who share your values. Next you need to pay attention to consistently modeling your values. For example, if you say you value excellence and then you force the product team to cut corners and ship a low quality product to hit a release date, you’ll seriously cast doubt on whether or not your values are real.

5. Pay attention to fundamentals of leadership and management

The number one reason people leave a job is because they don’t get along with their direct manager, not because they got frustrated with the lack of good snacks in the kitchen. Bad managers create bad cultures. I’m not going go through everything that goes into good management and leadership (there are a 1,000+ books on the topic), but simply put, all the other values won’t make a difference if the company is not being well led and managed.

How do you know if you have a strong culture?

Here are three tests of whether or not you have a strong culture:

1. Can random employees articulate your values (not simply recite a list from a laminated card hung in their cube, but actually reflect and describe them when ask what the company values)?
2. In companies with a strong culture, people who don’t fit leave. In a strong culture, when a people don’t share the values of the company, they feel uncomfortable, and they leave. Move out people who don’t demonstrate a cultural fit, even if they have other strengths. Some people call this the “no jerks” rule. (Of course, if being obnoxious and aggressive is something you value, then keep the jerks. If not, let them go.)
3. Employees complain to each other that the company doesn’t live up to its values. I once heard employees describe the list of company values HR passed around as “the fastest way to get fired.” That’s a problem.

Why bother with culture?

Companies with strong corporate cultures outperform companies with weak cultures. There are a variety of reasons:

•  People who share values work together better and achieve more
• When people love working at a company they work harder
• Companies with a great reputation attract great talent

Creating a great corporate culture starts on the day you found your company. It’s strengthened or weakened with every hire, the actions the leaders take, rituals the company follows, the behaviors that are rewarded, and the way everyone is managed. Lose sight of it at your own peril.

Most startups pick a price out of a hat without a strategy or process. It’s not surprising since pricing is a relatively esoteric area even in the mainstream of marketing. The pricing literature tends to be dense ]]> Repeat after me: I love pricing! Yes it’s true. If you don’t already, you should fall in love with pricing because pricing is one of the great art+science of business. Get pricing right and you can work all kinds of magic in your business.

Most startups pick a price out of a hat without a strategy or process. It’s not surprising since pricing is a relatively esoteric area even in the mainstream of marketing. The pricing literature tends to be dense and academic. Worse the advance techniques call of the expertise of PhD statisticians.

But don’t lose hope. As an entrepreneur you can become good at pricing — at least a whole lot better than throwing darts at the wall.

My goal here is to break it down into some more simple terms, and more importantly a framework with some tools you can apply to figure out your pricing. Other posts will go into depth.

There are several different pricing strategies, but they can be broadly grouped into two:

• Value- Based – You price based on how the customer values your product or service.
• Cost-Plus – You price based on a markup on your costs.

Not surprisingly value-based pricing will generate more profits and if done correctly, drive more market share. But, it’s more difficult to do well. Even when we you are doing value-based pricing, you of course have to take costs into consideration, since selling products for less than it costs to produce them is not ideal. (Don’t start getting confused with freemiums, etc. We’ll tackle those soon enough.)

The Steps to Pricing

There are 7 core steps to pricing a product:

1. Segmentation – To maximize market share, revenue and profitability you have to segment your market into sub-segments based on how much they value your product.

2. Value Analysis – In order to price properly, you need to have a deep understanding of how customers will value your product including reference prices and either a low-price or premium strategy.

3. Defining Price Fences & Editions – Most products benefit from having different prices based on segments, but in order to that you have to create “fences” that move each segment into the right product at the right price. With technical products this is usually done through features, but there are other mechanisms.

4. Defining Price Metrics – Price metrics answer the price per x question. In technology products you could price per user, CPU, GB, etc.

5. Defining Price Levels – When you put your analysis of value together with your price metrics and your editions you get your price points.

6. Checking On Costs – This approach is about pricing based on how your customer values the product, but as you go through the exercise, it’s important to also go back and double check against costs. Even if you’re selling software as a service which has low marginal costs for additional usage, you need to account for the cost of customer acquisition and support.

7. Everything Else – On top of the five core steps, there is generally a bunch of other detailed work such as discount curves for volume, regional pricing differences, pricing policies (e.g. how much room a sales rep has to negotiate), sales and market tools, etc.

So that’s a quick outline. I know it’s not a lot to work with (I’m rushing this post out, because I have a goal to have one post in every category), but I plan to write more diving into these different topics and giving a bunch of real world examples.

For more books on the topic, I’d suggest starting with: The Strategy and Tactics of Pricing: A Guide to Growing More Profitably by Thomas Nagle and John Hogan. Most of the credit for the framework above goes to them.

Michael Porter has done most of the seminal thinking on competition, and everyone still riffs off his work. With out restating the whole treatise (which would make for an absurdly long blog post and a case ]]> In the simplest terms, competitive strategy is business strategy. All companies face competition. If your company doesn’t have competitors, then you’re not in an interesting market. (Investors get particularly annoyed when entrepreneurs claim they don’t have competitors. It shows a failure to understand business fundamentals.)

Michael Porter has done most of the seminal thinking on competition, and everyone still riffs off his work. With out restating the whole treatise (which would make for an absurdly long blog post and a case of blatant plagiarism), let me hit a few highlights to get us started on this topic.

(I try to write most of my posts so they could apply broadly to a wide range of early stage businesses in a variety of industries. For purposes of this post, I’m going to focus particularly on software companies, but the principles still apply in other categories.)

Startups usually see competition from three sources:

• Direct Competitors
• Substitute Goods
• New Entrants (e.g. someone who is not in the market but moves into it)

Let’s look at each briefly…

Direct Competitors

This is what everyone first thinks of when you say competitors, and many entrepreneurs translate this into something very literal such as: “Is there a company that is perfectly identical to you?” Then they can answer: “No… well there is one other company but they use a lot of blue on their website and we use green.”

The point is there is a pretty good chance there are some direct competitors, even if you have something that is different or original. Moreover, in the world of tech startups, where seed funding is wild and loose, it’s no surprise if you don’t find several copy-cat start-ups hot on your trail as soon as you see a little success.

So the starting place for your competitive strategy is with your direct competitors. We’ll go more into this kind of a strategy in other posts, but it’s good to note there are lots of examples of startups facing very real direct competition and winning.

For example, Google entered a market with lots of search competitors and annihilated them. Salesforce.com came into what most people thought was a totally oversaturated CRM market and crushed it. Many people thought it would be crazy to launch a new airline given all the consolidation and the huge costs, but Southwest and JetBlue did it successfully, and they sustained it when United launched TED and Delta launched Song to compete.

Substitute Goods

The second source of competition is the one that most entrepreneurs overlook entirely. Before you’re amazing product changed their lives, your customers were probably already addressing the same needs your product meets, but not as well.

Before we had Facebook friends, people just had friends. We shared photos when we dropped by each other’s house (or we emailed them), and we chatted or emailed. You can go back hundreds of thousands of years and you’ll find a Facebook news feed. It will just look more like a group of people sitting around a cooking fire or a meal swapping stories and updates about their lives: “Did you see the size of that elephant?”

Facebook took these fundamental human activities, and they changed the way we do them. For a class of our friends who we didn’t do much with before, Facebook has become radically easier, faster, and more scalable than the substitute goods. But not everything works out that well.

Substitute goods can be distantly related or products that solve the same problem in a different way (e.g. sharing photos with Flickr rather than Facebook). Pay attention to the substitute goods, for many startups they are the not obvious at first, but they matter.

New Entrants

The final major source of competitors for startups is new entrants. Generally, this will be a big company adjacent to your space or a copy-cat startup.

The giant notices what you’re doing when it starts to get poked a little. For example, they realize they are losing some big customers. Then they try to crush you by releasing your product as a feature (ouch), building a direct competing product, or buying one of your competitors. The best case is they buy one of your competitors, since this almost always goes badly.

The copy-cats come running after you, and you end up in a foot race for market share and product differentiation. Sometimes the new entrants come in with something disruptive that takes you out at the knees. Ignoring entrants is a mistake, but getting to wrapped up in their threat is also a problem. As Andy Grove would say, “Only the paranoid survive.” So be worried, but win by out executing.

In other posts I’ll write more about how you compete against direct competitors, substitute goods, and new entrants. In the end competing is about creating sustainable differentiation, which is the heart of creating great businesses.

Practically, creating distinction between users and customers will help you understand your business better and build a better product. The distinction is simple, but the implications are significant:

 Users use your product. Customers buy it.

Let me embellish, at the risk of detracting from an already elegant summary.

Users use your product. They register, login, push ]]> There is a difference between users and customers. Miss it at great peril. Understand it and wisdom is yours. Or something profound like that.

Practically, creating distinction between users and customers will help you understand your business better and build a better product. The distinction is simple, but the implications are significant:

 Users use your product. Customers buy it.

Let me embellish, at the risk of detracting from an already elegant summary.

More about users…

Users use your product. They register, login, push the buttons and move the pixels. They are the people who day in day out decide if they love it, hate it, or lie somewhere in between.

Different users use different aspects of your product, so they fall into different classes. For example, you might find sales reps, sales mangers, marketing managers, and administrators all as users in a CRM system.

Users have needs (both challenges they want to overcome and aspirations). And for many products the users can be divided into segments based on their needs. For example, new users aspire to start quickly and not hit roadblocks. Power users want those complex features that give them control front and center. Get in the way of either need and you have at least one group of unhappy users. A lawyer, who needs powerful reviewing tools to manage revisions, and a high school student, who would find those same tools an absurd waste of menu space, might both use a word processor.

More about customers

Customers buy your product. They find it. Evaluate it. Decide to purchase it, and ultimately pay for it. No customers means no business so they matter a lot.

Your users may be the customers. For example, if you have an online backup system for personal files, the person using it is likely the only one who makes the decision to pay for it. At the other extreme, you might a have a CRM system where the key purchase decisions are made by people who will never actually use the system themselves.

To understand your customers, you have to understand who is making the decision to buy your product, and it’s often a group, which in common parlance is called a decision making unit (DMU). Fo example, you may think that you are selling your toy truck to the kid. The kid is definitely the user, but the DMU includes the child, mom and dad. The kid won’t want the toy if it isn’t cool and fun. But dad passionate about the environment, won’t buy it if it is made with plastic that uses BPA (one of the many toxic chemicals in every day products that mimic hormones in the endocrine system, but I digress). Finally, mom has the check book, and she is out of the picture if the truck is poor quality or costs more than 23.99. One user, a bit more complex customer (the DMU).

Just like users, customers will fall into segments based on needs. (You will see that I right a fair amount, or at least I plan to, about needs-based segmentation.) But the customer needs may look very different than user needs. Customers are often concerned with purchasing factors like price, company viability, product leadership, etc. — issues that are not about the usability or the user experience.

Ok I buy the difference, so now what?

I’m glad that you are still reading, and you seem to be taking well to the idea that users and customers are different, important, and overlapping in interesting ways. There are some interesting implications, and I’ll dig into these in other posts.

The biggest implication is how this impacts your market discovery work. You need to be thinking about how you do both customer discovery and user discovery. Often you will have different people doing these activities, different objectives, and different research tactics.

The goal of customer discovery is to find a market for you product and to build a product that prospective customers will buy. The goal of user discovery is to create a product that delights users. Products that users love get far more traction than ones they don’t like.

Customer discovery will use tactics such as:

• Needs exploration with the DMU
• Product validation with the DMU
• Pricing analysis and testing
• Marketing sizing
• Etc.

User discovery will use tactics such as:

• Contextual interviews
• Walking through a prototype
• A/B testing on a site
• Scrappy usability tests
• User diaries
• Analyzing usage data
• Etc.

Start thinking about the both users and customers and you’ll start building a better product and a better business.

But it doesn’t take long, often after the first minimally viable product is shipped, that it becomes necessary for a slightly more formal process to ]]> In the early days at most startups (unless a VC accidentally dumped $5m on you before you were ready), a handful of people are sitting together in a small cramped space. The barriers to communication are VERY low, and hopefully everyone is engaging with prospects and customers. Information is flowing in a freewheeling and fun way.

But it doesn’t take long, often after the first minimally viable product is shipped, that it becomes necessary for a slightly more formal process to develop and it’s time to think about product management. As the customer base grows, the product becomes more complex, and the company gets bigger, it’s harder and harder to make good decisions about what to build.

The Product Management Discipline

At some point I’ll write more about trying to unravel the terminology between product marketing and product management and project management and program managers, etc. Everyone uses these terms differently, which accounts for a ton of confusion.

For now, let’s just assume the product management is the discipline associated with systematically getting market information into the product development process.

It’s important to start out with the thought that product management is a discipline, not necessarily a person. Fundamentally, it’s a set of activities, techniques, and processes that result in companies building products customers actually want. Product marketing is the bridge between market research, sales, customer service and support, internal stake holders and the engineering team.

The test of a good product management effort is pretty simple. You get product management right when you have a consistent way to prioritize features/requirements/user stories that results in a product which is delightful to use, bought by customers, and competitive. Ahh but the details of making this work are irksome.

Where to start?

Start with engineering. This will be a bit sacrilegious to the ardent “market driven” believers. But all my experience is that if the product management team does not mesh into the engineering team, it doesn’t work. And engineering teams tend to be less flexible.

Yes it starts with leadership. (A recurring theme in this blog.) The leadership in engineering both formal (VP, etc.) and informal (whoever people actually respect) have to believe that the product management work is great. They have to believe that building products based on insight from customers matters. Most importantly they have to respect the people (person) doing product management.

So the first step to building a product management discipline is to start thinking about how that effort will work with engineering. When it’s not the genius founder in every meeting, what will the product manager bring to the table that will garner respect and how will everyone agree that it matters?

In addition to the people in engineering, good development teams have a methodology. There are a variety of different methodologies (Scrum, agile variations, waterfall variations, random chaos, etc.) and the specific process is not important. What is important is that the process will dictate to a significant degree how and when market insights will flow into the product development effort.

In other posts I’ll go into detail about different ways that product management activities can synch with different engineering processes, but that is for another time.

The Product Manager

The product manager (and that might not be her title) is the person responsible for making sure the company is doing the right activities to drive market insight into their products.

Your best product managers are going to be the ones that first and foremost fit well with the engineering team. If you’ve got engineering leadership that is very process driven, then PM will need to be process oriented. If they only respect other developers/engineers, then your PM should have been an engineer.

The next piece is to have a PM that fits into your business In companies with tons of actionable data about customer behavior (e.g. e-commerce) you’ll want a PM who has the skills to work with that data and with analysts or statisticians. If your business depends on deep domain expertise, then look for that in your product manager.

I’ll say more about writing product manager job descriptions, hiring, etc. in some future posts.

Time to open up the marketing communications box and see what we have to work with. Other posts will go into how you pick tactics and deploy them, but it’s good to start with a basic list. Think of these as the tools in your toolbox or the weapons in your arsenal (if you prefer violent war metaphors).

There are many marketing communication tactics, and this is hardly a comprehensive list. In fact, almost any item on this list could be ]]>

Time to open up the marketing communications box and see what we have to work with. Other posts will go into how you pick tactics and deploy them, but it’s good to start with a basic list. Think of these as the tools in your toolbox or the weapons in your arsenal (if you prefer violent war metaphors).

There are many marketing communication tactics, and this is hardly a comprehensive list. In fact, almost any item on this list could be broken down into more detail, but it’s a start.

Also, I didn’t judge. It goes without saying that many of these tactics don’t apply to start-ups and some of them are legacy marketing tools that don’t apply to most businesses.

That said, it’s a list. Please jump in and add more in comments, and I’ll periodically revise the list.

Here goes…

Account Management – People assigned to farm existing customers provided some value-added service like strategic advice at the same time that the work to develop a relationship to drive more sales into the customer or to drive renewals.

Analyst Relations – Working with industry analyst groups like Gartner and Forrester to build an understanding of the category and product in order to drive inclusion in reports and consulting.

CRM – A tool like salesforce.com that keeps track of prospects, leads, customers and opportunities as they move through the customer acquisition process.

Custom Development/Services –Using professional services to pull a product into an account.

Direct Marketing (Print) – Sending print pieces, gifts, and other items to prospective customers using lists you rent or get through partnerships or build yourself.

Direct Marketing (Email) – Generating emails to prospective customers using lists that are rented or through partnerships with other companies or through lists you’ve built yourself.

Educational Content – Any content on your website that is designed to educate prospective customers about the value of your product. This includes product information, feature lists, product tours, customer case studies, testimonials, etc.

Executive Events – These could include breakfasts, golf trips, etc. that are designed to reach senior executives.

Field Sales – A sales team that is in the field and goes onsite directly with customers to work them through the sales process and close new business. They may hunt customers with their rolodex or handle leads.

Free Product – A free version of the product that customers can use, putting them in a good position to be sold upgrades to premium paid products.

Inbound Marketing/Content Marketing/SEO – Creating content and tools (like ROI calculators) on your website that is high value, key word rich, and indexed by search engines making it easily discoverable. Generally newsletters are also included in this category.

Inside Sales – A sales team that does not travel, but processes leads that are coming through other marketing mechanisms to help close them. Sales people move customers through the buying process including managing trials, generating quotes, and pushing deals to close.

Landing Pages – Creating pages on your website that are specifically designed to convert prospects in trials, registrations, etc. Landing pages are usually tied to other tactics.

Lead Nurturing – (Really should be called prospect nurturing) the process of remaining in touch with prospective customers through automated emails, information, etc. as they move closer to the point at which they are ready to buy.

Lead Scoring – A process of formally scoring prospects based on their profile (e.g. purchase time frame) and their behavior (e.g. time spent on website) in order to identify the best leads for sales.

Loyalty Programs – Rewards in a variety of forms for customers that show loyalty and repeat purchasing of a product.

Online Display Advertising – Banner ads, interactive ads, badges on blog sites like TechCrunch, etc.

Out of Home – Ads that are placed on bill boards the sides of buildings, bath room stalls, etc.

Print Advertising – Advertisements in publications, newspapers, and magazines as well as paid placement in catalogs like skymall etc.

Product Pilots – Working with customers to deploy pilot projects that are fully functional before they expand into larger deployments.

Product Trials – The ability for customers to trial products for a period of time before they need to buy the product. The goal is to get them hooked on the product.

Promotions – Contents, sweepstakes, discount coupons, sales, etc. that engage prospective customers in the brand and encourage them to buy.

Public Relations – Garnering press coverage including articles, mentions in blogs like TechCrunch, feature stories, customer case studies, mentions in trend articles, interviews, product reviews, etc.

Sales Collateral – Datasheets, demos, decks, etc. that the sales team can use to answer questions and give prospects to pass along internally to help through the sales process.

Sales Engineering – A person that is able to work with the sales team to put together custom product demos and prototypes as well as answer technical questions freeing the engineering team to code.

Search Engine Ads – Called Search Engine Marketing (SEM) ads that run along the search results I search engines and optionally distributed through networks to other websites. The most popular is Google AdWords (or AdSense the network approach).

Self-Service Sign-Up – The ability for customers to sign-up, put in a credit card and use the product without having to talk to sales.

Seminars – In person presentations of the product and information that would be useful to draw new customers.

Social Media – Creating and participating in online communities including building twitter followers, FaceBook fans, Linked-In followers, YouTube subscribers, podcast subscribers, participating in discussion groups and forums, and leveraging other peoples communities.

Sponsorships – Sponsoring sports events, exhibits, awards programs, and other programs that reach your target audience.

Telemarketing – Having an outbound calling team that is trying to identify prospects and leads building a database of prospects to target.

Telequalifers /Business Development Reps (BDRs) – A team that is responsible for qualifying prospective customers before they are passed on to a sales team.

Tradeshows – Exhibits sponsorships and pay to play workshops and presentations.

TV Advertising – This can include both 30 second spots as wells as infomercials that present the product in more depth.

Webinars – Online seminars often done with a media partner that has a list, which can be targeted to build an audience for the webinar. After the live webinar usually a recorded version is used for Inbound Marketing.

Website – For most companies the website is the most important marketing tool. A lot of other tactics leverage the website, but there are also specific tactics within website like internal adds, calls to action, promotions, etc.