iSPIRT works to transform India into a hub for new generation software products, by addressing crucial government policy, creating market catalysts and grow the maturity of product entrepreneurs. Welcome to the Official Insights!
It’s here! The India Internet Day(a TiE event) celebration is beginning, and you’re all a part of it. You may be an outelier, an insider, a veteran, an investor, a trend spotter, an experimentor or an industry driver, but this is your go-to event this year.
Why? We’re looking at the long-term horizon and paradigm shifts in the internet industry globally and translating that in the Indian context. We will debate and discuss strategic drivers of the industry and will attract the top players.
Eight Indian startups get their “4 minutes of fame” at the event – an unprecedented happening. No wonder that when we opened the call for applications, we received more than 55 of them.
The competition was tight, and the job of the jury was not easy. The jury – Rajiv Prakash(Next in Advisory Partners , Saumya Meattle (ModuleOne), Srikant Sastri (Vivaki), Vivek Agarwal (Liqvid eLearning) and Vimalendu Verma (Magic Software) – rated the startups on the following parameters: originality, impact, practicability and applicability of the Innovation. After a lot many conversations and debates, 8 companies were shortlisted.
The big question: Will you be there to see the innovations being put forward by these companies? Next year could well be your turn.
Bluegape helps brands in setting up fan merchandising stores. Fan merchandising is ignored by most brands in India and is also a unique way of promotion for brands.
Cite Communitiesis an open online community for management professionals and serves more than 28 lakh people worldwide. The community offers a free-to-use knowledgebase with a discussion forum. This is where professionals can share career-related queries, which are answered by experts and mentors. The trump card? Anonymity.
Dineout is a table reservation website that enables customers to book a table, online and on the phone, at their favourite restaurants in town. It provides fantastic discounts – something not on offer if customers go to a restaurant directly.
Huntshire helps solve the problem of finding the right talent in a given time frame. Right now, companies must post vacancies on job websites and wait for 30 days to get maximum applications. Post this, the candidates are screened. The entire process takes 30-45 days. Huntshire does all this in 3 days, eliminating the need for a two-step process.
PerfectMyEnglish is a Web and Mobile App enabling tangible improvements in English communication skills for students and professionals. They offer personalised mentorship, detailed analytics, spoken English skill remediation through VoIP services and end-to-end solutions, helping businesses and recruiters achieve key English training and assessment objectives.
NowFloats: With 850M mobile phones (over 90 per cent feature phones) and SMS being a pervasive technology, NowFloats enables creation and updating of websites through SMS for small and medium businesses in India. Smartphone owners can use mobile Apps.
MindHelix:Sentinel is the first app designed with women’s security in mind. The app can send instant alerts in case of any problems. A forced power-off of the phone or an improper exit of the application will trigger an alert to be sent. Prolonged signal loss will also cause a ‘fail safe’ alert SMS and email to be sent from the company’s server.
Mobile Harvest is a two-way oral and intuitive literacy neutral community and networking platform, much like an oral Wikipedia for our emerging billion. It attempts to bring the benefits of social media to people who are not comfortable with reading or writing.
Ashok was perturbed. In Jan 2006, an eastern European company had taken his source code, made minor changes and started selling it under an alternate brand name at a reduced price. Ashok’s company Chartengo was a pioneer in Adobe Flash based charting software that helped users create charts for data visualization. Its charts were perceptibly superior to any available on the market. The company had five employees and revenues of $500,000 in 2006. It used to offer source code with its USD 99 developer version of the product. A growing business like Chartengo was sandwiched between free libraries on the Internet and large data visualization vendors (revenues > $100 million) on the other. In between it also had to content with few hundreds of competitors. The possibility of a vendor infringing on Chartengo IP in some distant corner of the globe was high.
Chartengo did not have a legal team so they contacted a firm that specialised in copyright infringements. The firm quoted $250,000 to file a suit but there would be additional fees for court appearances. besides the unaffordable legal fees, Ashok was apprehensive about the stance an eastern European court would take in this matter. He decided to forego the legal route. He talked to development team and few experts outside. A surprise suggestion with overwhelming majority was – make your product code open source. They said open source code will make it difficult for infringers to compete. Why should customers pay for a code that is open source from the original vendor? Ashok’s team of developers was thrilled with the idea of open sourcing their code. It would accelerate innovation and save them time developing everything themselves. They felt perhaps the customers would also be happy. They could also see an opportunity for higher revenues. The open source would probably draw more customers, especially those who were sceptic of dealing with a small company like Chartengo.
Ashok had so far found it the best strategy to protect its intellectual property. He believed innovation would only happen if it could be exploited for exclusive financial benefits of the innovator. How could he even think of handing over his crown jewels to the infringers in the marketplace? The thought of handing over his IP to these hackers and letting them enter their random untested code into it thus contaminating its pure quality was appalling to Ashok. He clearly saw his competitive advantage evaporating with opening his source code. Yet, at that time, open source was rising like a tsunami? Apart from individuals hacking into your code, well-funded companies were also doing so. There was passion about open source. Even customers were enamoured by open source culture. It was turning into a religion.
BSB is a start-up funded by Bharti & SoftBank building mobile products for the Indian market. Hike is a messaging app which allows instant messaging and group chat on your phone with friends who have Hike, as well as those who don’t have Hike. We caught up with BSB’s head of products and strategy, Kavin Bharti Mittal (KBM), to talk about Hike, right before he was getting ready to launch Hike 2.0, a major update to the messaging app.
Introduction
Hike is a pure Made-in-India product. BSB is based out of Gurgaon, and the product was built from scratch by this team. Under the guidance of KBM, who is also the resident UX guru, the team brought out a beautiful and highly functional product in Dec, 2012 when the team size was 15. They are 30+ now, and furiously working on next set of features, supporting users and handling the success!
Product Highlights
The product has been designed from grounds-up by Hike team.
The design is beautiful and minimalist.
They chose a more efficient protocol for communication (MQTT, which is less chatty than the better-known and more-often used XMPP).
In India, Hike allows its users to message to non-Hike users by converting Hike message into an SMS (each user is given 100 free SMS every month). This is a key differentiator for Hike, in addition to a cool and modern design.
Product Development
Following an agile development model, they schedule a release every 4 weeks with a stop gap release for performance and related fixes in the middle if need be. Such a schedule ensures that they are not hitting the users with too many changes too often, and still stay responsive to market feedback.
KBM controls the product UX and works with his designers to create detailed wireframes and mockups before engineering starts working.
They have a very product-focused culture and so engineering-design conflicts are minimal as everyone understands the need for a great design and works hard for it.
They work on multiple platforms in parallel, so lessons learned on one platform are quickly incorporated into other platforms in the same release cycle.
Product Strategy
Beautifully designed product – Made-in-India products are not known for good designs. Hike is a notable exception and this will help it gain ground quickly.
Messaging Hub – In the world of Facebook and Twitter, there is a huge amount of information generated and consumed by people, causing information overload. Hike aims to cut this clutter and allow you to create a closed network of friends with whom you share right amount of information. This is a good differentiation strategy.
Close partnership with carriers – With smartphone penetration going up all over the world and cheap smartphones being available, messaging applications are well-positioned to kill SMS (and jeopardize a large portion of carrier revenue). Hike can offer opportunities to carriers to offer value-added services and retain (and enhance) that revenue.
Adoption
The messaging app space is very crowded (WhatsApp, Facebook Chat, WeChat, Nimbuzz , etc.) and Hike is a late entrant to the party. Still it has created considerable buzz in the market and have some impressive numbers to show.
In 4 months since the launch (they launched on 12/12/12), they have crossed 5M users (adoption is measured by # of active users – sending at least 1 message a day) and growing fast!
Over 50% of their users use hike2SMS feature, which is a key differentiator for them
They have used rewards (Talk-time rewards, ended now) and incentives (50 free SMS for each successful invite) to good effect to create good buzz. However, as KBM says, buzz and going viral work only when you provide a good value to the users. Hike 2.0 is expected to bring in lots of features.
Using digital channels for marketing and support very well: Blog, support site, Facebook page and twitter handles (@hikeapp and @hikesupport) are all well used by users and well-responded by Hike team.
Hike 2.0 and beyond
On Apr 17, BSB announced Hike 2.0, a significant release which introduces ‘circle of friends’ notion and many other features. With Hike 2.0, you can now create a circle of friends (consisting of your close friends), post status and mood updates to them, and review their recent updates. This is similar to Facebook’s Improved Friend Lists and Google + . Read the announcement for full list of Hike 2.0 new features and enhancements.
‘Status updates’ are asynchronous models of communication (you don’t expect your friends to read and respond immediately, though this Facebook generation usually does!) while messaging is supposed to be synchronous – you engage in conversation in real-time and expect a response. With 2.0 release, Hike is positioning itself as the ‘messaging hub’ for mobile-first crowd, and taking a ‘closed group, more engagement’ approach (as opposed to ‘everyone reads everything about me’ philosophy). While this might pit it against Facebook and G+ in terms of functionality, I think this is good strategy going forward to capture mindshare of an audience who is a public enough to chat with anyone, but private enough to need the solace of ‘circle of friends’. This also attracts users like me who prefer private and deep conversations and shun messaging apps because of its openness.
As Hike grows beyond the feature-functionality debate, it needs to give more focus on back-end: messaging is critical for its audience and disruptions caused by planned maintenance or rush to get new release must be avoided at all costs.
The Road Ahead
My address book contains my US, China and India friends which add up to about 400 contacts. When I installed Hike on my phone (Nokia 710), I found hardly 5 friends who were on Hike (Hike looks for those who are on Hike and adds to your friend list). I did the same for WhatsApp, and I saw 80% of my contacts show up as using WhatsApp, including some of the people I didn’t think were in the target segment of messaging apps!
Hike has a long way to go, but I think they have started with the right product and are travelling in the right direction. May the force be with them!
When nearly two dozen product enthusiasts sit around a table passionately talking for 4-½ hours, expertly addressed by two product veterans – Amit Somani and Amit Ranjan, you can expect an information overload. And, it did seem like drinking from the firehose, trying to capture all the takeaways in the intense back and forth, where even a tea-break seemed imposed. A blast it was – this iSPIRT Playbook Roundtable Delhi edition on “Effective Product Mgmt & Delivery”, focused around learning for startups.
[This was the NCR session on Apr 13th. Initiated, as part of iSPIRT, by Avinash Raghava, and very ably facilitated & supported by Aneesh Reddy. Great facility and great Food by Eko Financials. Thanks guys, Awesome effort!!!]
iSPIRT Playbook Roundtable in Delhi (Click to see all on Flickr)
Thankfully, there was a structure, laid out initially across specific dimensions – Product Planning, Delivering, Hiring, Culture, Metrics, Customer. These themes kept repeating through the session with questions coming from participants across the breadth & depth of product management, and many times touching upon all the aspects of running a product company.
Here’s an attempt to sum up the takeaways from this long & exhaustive (not exhausting, yet!) session.
Planning & Delivering the Product
– Product Planning in many start-ups is not an elaborate exercise. It is typically handled by one of the founders, and “build and adapt as you go” is the norm.
– Delivering a great product is always an intersection of Engineering, Design and Product Management, with Product team in the driver’s seat. This intersection and collaboration is one of the critical factors in getting a great product delivered.
– Getting the Engineers and Designers to collaborate is one of the key challenges. As per Amit R, what helped them at Slideshare was the fact that they always hired Engineers with a flair for Design. A great developer as part of the product team is 70% Engineer & 30% Designer, as per him.
Product Metrics
Amit S emphasized that metrics are very important for product managers. When the team grows (when you can no longer rely on people to just talk to each other and get things done), the metrics-driven product management becomes critical. Touching upon the right hiring in this context, Amit S insists on covering the candidate’s thought process around metrics (with open questions such as – what would be your primary metric if you were designing the Delhi metro).
Metrics & the Rule of 1/1/1: This is one rule around metric that Amit S follows. What will be your metric for 1 Week, 1 Month, & 1 Year. Break it down, with crystal clarity and follow it up religiously. (A great resource for B2C space around metrics is a presentation by Dave McCleor – Startup Metrics for Pirates).
Some learning around Metrics:
– It is important to be clear of the vision, and how it connects to the primary metrics that you define. There’s a direct correspondence between identification of the key metric and the clarity of what the product is trying to achieve.
– Relevance of the metrics to the specific goals through the product journey is important. As one goes along in the product journey, the dimensions on which key metrics are identified may vary. Initially it may be customer acquisition; And then it may be engagement; then conversion; retention; life-time value; and so on.
Customers
One of the key questions around customer aspect of product management is – What is the right spec for the product? One of the biggest mistakes product managers tend to make, as per Amit S, is when they confuse the “Customer Requirements” with the “Product Requirements”! Sorting this out is the core to the responsibility of a Product Manager.
Some of the tips & tricks around Product Specs:
– When faced with a requirement, the first pass criterion (in B2B scenario) should be – if the requirement is relevant to at least 3 customers.
– There are various tools to interact with customers, and get feedback: Surveys, Net Promoter Scoring, Feedback through the product interfaces, and so on.
– Get the Information from Customers, Tone it down, Tune it further, and then arrive at the specs for “Engineering”.
– What should the spec typically look like? Default Rule of Thumb – 1 Page Spec. It should be very focused, very clear, in what the feature is trying to achieve, and at the same time not too long.
– A Good quality spec considers the “Least Granularity of time” with Clarity of thought. That’s from the Project Management perspective. From the functional perspective, Amazon has a good model that can be followed. Every Spec at Amazon is a 6-Pager Document – forcing people to establish clarity of thought and articulation.
– Another good alternative is the 1 Pager “Lean Canvas” by Al Ries.
– It’s also important to be clear on “What” requires a spec and What doesn’t. Both at Slideshare and MakeMyTrip, the team goes through multiple “Lights-on” stuff that they need to perform to keep the business running on routine basis. And these are fast-track enhancements and modifications driven by immediate business needs and marketing requirements. The Lights-on requirements are different from Core Functional Specs for the product roadmap.
– Another criteria that decides how detailed the spec should be is based on the number of users getting impacted.
– How do you handle customer requests with investment requirements that are not justifiable on the ROI? There are multiple considerations to this. The “Life-time Value” of the customer is important, and if such investments allow you to enhance it and calculate ROI in longer term benefits, it may still work well. There are alternative ways to look at this though. In the experience of Aneesh at Capillary, they had divergent requests that led to a very different direction for the Product and transformed it from “Mobile CRM” to “Intelligent CRM”. Another possibility could be to look at partner ecosystem and see if there’s a synergetic way to address these needs.
– How do you manage your customer requirements into “Not to have” features? How do you single out the noise? While it is nice to think of an ideal situation of getting the product requirements at the planning stage, when the customers use the product, they often come back with plenty of views that need to be funneled down. When you have to discard some requirements, it is important to “talk to a lot of people” to ensure weight. Also, some of the requirements die-down on their own, clearly indicating noise factor. It is a balancing exercise between reducing the hassles in customer feedback process and creating enough friction to dampen the noisy “Vocal Minority” (the term that Amit R uses to refer to the few customers that may be so noisy that their voice seems more important than is worthwhile for the product).
Hiring and Product Management Structure
As per Amit R, Product Managers should be (are!) Second-in-command in the sense that they decide the future of the company. Considering this, it is critical that one single product dimension doesn’t overweigh the hiring process. So, intake process for Product Managers needs to follow the 70% rule – The Product Managers need to be aware on all the broader and holistic dimensions of running the product business including sales, marketing, operations, design, and so on, with 30% depth on the critical Product Management areas.
Some of the specific tips on this from Amit S and Amit R, and some from participants:
– Determine if the candidate can think holistically and de-clutter the thought process in the crowded set of inputs. Ability to deal with ambiguity.
– Product management is typically a “common-sensical” thing. Look for common sense and intuitive angle.
– A great product manager would do well on what can be referred bluntly as “dhandha” (Money part of the busines). You cannot afford to have a Great product with “no” money.
– One of the participant companies built their structure around Customer Success. Majority of the Product roadmap is driven by the Customer Operations, Tickets, and resolutions – and driven by how customers used and viewed the product in B2B scenario. In such cases, they typically found it useful to move folks from Customer Success team into the Product Management areas.
– In case of another successful participant company, the CTO is playing the role of Product Manager and it is working very well for them.
On the relationship between the CEO/Founder and Product Managers. As per Amit S, Product Manager is the CEO of the Product, while the CEO is (of course) the CEO of the Business. One of the challenges for the Founders is how quickly they are able to let go he Product Management and start focusing on the business and Product metrics. Amit R also emphasized that it can work cleanly with the CEO focusing on the business aspects while Product Manager focused on the Product aspects while maintaining the alignment.
Where should the Product Manager Report? At high level one case say that it depends on where you are in the evolution of the product/company, and what the Product really means to the vision of the company. However, over time, Product Management needs to be separated from Marketing and Engineering. In essence, Product Manager shouldn’t report to the Engineering or Sales or Marketing. In corollary, there should not be a reporting into Product Manager as well. Product Manager is a “Glue” job, and is key to a healthy tension for the product direction.
Product Manager is WHAT of the Product – Defines what (functionally) should be built. Engineering is HOW and WHEN of the Product – Details out & manages “How” (technically) and “When” (schedule-wise) should the stuff be built.
One needs to also establish clarity on Product Management being different from typical Project Management. Also, there are strategic aspects of product that are owned by the executive management, however, you always need a “Champion” of the product that is independent of the other forces that drive the organization.
Importance of Data Guy! Another structural aspect that Amit R emphasized on (multiple times!) was the importance of a “Data” person in the Product Team. This role is almost as important as a Product Manager in the sense that Data & Analytics can play a key role in the product Roadmap definition. There are various flavors of the Data – Dashboards and reporting, Product Management level Metrics, Decision Science, for instance. Interesting to note is the fact that at LinkedIn, next set of products are heavily influenced by “Decision Scientists”. (Cue References: Hal R Varian, Chief Economist at Google and DJ Patil)
While there was a whole lot of structure to these discussions, we had some extremely valuable side discussions that link back to the Product Management, and very important to address. Here are some! 🙂
Positioning. For a clear direction for Product Management, the positioning of the product in the market is a key factor. How do you refer to the product? The answer to this question, in case of start-ups, seemed unanimous that the start-ups are too limited in resources/focus/energy to be able to create a new category. Aligning to an existing category with a differentiator is the key to early success. For instance, Slideshare referred to itself as “Youtube of presentations”, Vatika positioned itself as Parachute with Additional ingredients, “Busy” positioned itself as Tally with better inventory management and statutory reporting.
(Positioning is an important theme and comes with lot of related broader areas for considerations for Product Companies. We will have a round-table specifically around Positioning in near term)
What’s a Product? (A rudimentary question, I know! But worthwhile to hear the perspectives! J) How do you differentiate functional Product Management from the technical side of it? As per Amit R, “Product is the core experience or core touch-point for your end-consumers with your business.” It is worthwhile to note that the various types of customers may have different ways to access the product and there may be different ways to define the touch-points for every segment. For instance, Slideshare follows a Freemium model where 5% of the Paying customers may have a different set of touch-point experience from the rest of 95% free users. So various segments, such as Free B2C, Paying B2C, Paying B2B, and Partner B2B may all have different touch points with the same Product.
How do you get the Product Managers to champion the cause of usability and aesthetics? As per Amit R, in case of Slideshare, CEO happens to be from the usability background and that helped a great deal, since the thought process permeates across. It is important to engrain the usability in the way of the product management, since you cannot bolt it later, as per Amit S. There are various ways MakeMyTrip tries to do that. One of the eureka moments, for instance, for Engineers and developers was when they were shown a “live session” of a user through the Screen capture tool. It also helps to have the live user sessions in front of the product team. Some of these approaches can build that appreciation for the user actions in the minds of product team, over time with sustained effort.
Retention and Customer Lock-in: Slideshare has learned the harder way that ignoring Emails as a mechanism for customer engagement and retention is costly. LinkedIn relies on Email based “Customer retention” and “Returning Users”. Jeevansathi.com uses a strategy to map the customers in various life-stages and uses various Email and SMS templates to engage them even through the very short life-time of 3-4 months.
The Mobile Storm: As per Amit S, having a Mobile Strategy through this year and next year is critical for the product companies. Web is no more the only option, and for some products, it is becoming a mere secondary. Mobile First makes sense. The transactional figures for Mobile are increasing at such a rapid pace, that an afterthought based Mobile based functionality may not work so well.
If this is any indication of the things to come, the product ecosystem will benefit immensely from the initiative. Looking forward to the furutre editions, and share more!
A year back I was involved with a leading mobile apps company on an issue related to product pricing. The company developed customized mobile apps for business. At the time it had a staff of 20 programmers and reasonably successful – having on its customer list several top global corporations like cola companies, few leading banks, advertising giants and others. It had revenues close to USD 1 million. The company had identified 20+ software functions (routines) that were commonly used in most mobile apps. They had put these together into a single library that programmers could access from a central repository when working on a mobile app project. Examples of such routines included memory management, real-time authentication, camera control, text messaging within the app and so on. Use of this central repository of frequently used routines had resulted in 30% saving in programmer time, standardization and uniform quality across projects, shorter time to market and finally the monetary benefit.
The company saw a window of opportunity externally. They knew the mobile app business was growing at a fast clip with app vendors mushrooming all over. They were also aware of the trend of end customers developing mission critical apps internally. Both these customer segments would see a value proposition in the library if the company offered it. The company was at a critical point – thinking how to breach the psychological revenue barrier of USD 1 million. It faced fierce competition that had brought down margins from 80% to 25% in just two years. They thought the library was a ticket to new profit stream and improved competitive position. They were debating how to price and market the product.
However this meant a sea-change in the way the company thought and worked. So far, they delivered single project as per known customer requirements to a single known customer at fixed price. They did their best to deliver within time and budget. They priced their services at cost plus margin. Any delay ate into their margin. Selling the tool externally would involve selling a generic product to external customers whose size and number was unknown and uncertain. They had a hunch but did not know for sure the external customers would really see value in the offering. For example a tribe of software programmers take pride in and get thrill from solving tough problems. They would not care for such a product. A few team members even felt that their competitors would also acquire the library thus diluting company’s competitive advantage in the market.
The company sought answers to several questions:
1. Should they sell the library externally at all?
2. Should they price it on cost plus basis or some other method e.g., value based pricing?
3. What should be the list price of the product?
4. What should be the license structure i.e., kind of licenses they should offer?
The company made a set of decisions. I will share those in the next post. Meanwhile, I invite you to share your suggestions on the questions facing the company.
Enterprise as well as Consumer Software is moving fast towards a Software As A Service (SaaS) model. Who would not like paying a per user, per month charge as opposed to doling out huge amounts of money for licenses upfront and paying 16 to 20% Annual Maintenance Charges year after year! But the short history of SaaS companies is already full of companies that grew too quickly, or chose the wrong pricing or customer acquisition strategies, ran out of money and had to go out of business! The same revenue model for a SaaS product business can also become its Achilles Heel if it is not understood and managed properly!
Understanding SaaS Revenue Models in all their glory is key to building a sane, reliable and successful way to build a product company. There are a few venture capital companies that have had lots of practical experience building successful SaaS companies and can share with you a lot more detail. Like Matrix Partners’ David Skok who has written almost a thesis on SaaS economics – here is a sample – The Saas Business Model – Drivers and Metrics. David has partnered with HubSpot and NetSuite for all of this exploration and they must know what they are talking about! Other good references are Doubling SaaS Revenue by Changing the Pricing Model and SaaS Revenue Modeling: Details of the 7 Revenue Streams.
But for a start, here are 5 essentials of SaaS revenue and pricing models a product startup needs to remember for success:
1. Monthly Recurring Revenues Vs. Getting them to pay Annually: Get your customers to pay annually if you could (depending on the nature of your product – enterprise or consumer facing). It’s a hassle for them and you to process these invoices every month and follow up on late payments, etc. It has a clear effect on the cash flow. Plus you may not have to worry about churn that much since they are not making that decision to pay you month after month where they could pause and decide to churn! If Annual billling does not work, try at least a quarter at a time. It may not be worth all the processing time doing it month after month.
2. Churn and Negative Churn: Churn is the periodic turnover of your customers. Companies mentioned above have found that about 2.5% to 3% churn is OK. You need to be concerned if it goes beyond that. However with Up-selling and Cross-selling, you can actually make it positive churn too! This is when the marketing funnel that becomes narrow from the top becomes broader again with upselling and cross-selling. Which brings us to discussing more of the shape of the Marketing Funnel when it comes to SaaS Vs. non-SaaS product companies!
3. Marketing Funnel Economics:
The marketing funnel on the left shows a typical one for non-SaaS product companies. The one on the right shows the one for SaaS product companies. The main difference is the top of the funnel is much wider and uses organic traffic, in-bound marketing, search engine marketing and optimization and prospects from other paid sources.
The relative sizes of the tops of the funnels also show the difference between how wide the top of the funnel needs to be for SaaS product companies!
3. Balancing Customer Acquisition Cost (CAC) vs. Customer Long Term Value (LTV): There are only 8 hours in a day for selling. Traditional licensing models offer an initial large amount in a sale and annual maintenance fees of about 16 to 20% every year after that. SaaS models may offer a smaller initial set up fee and uniform cash flow month after month, year after year after that if you keep the customer. So you need to line up more clients in a SaaS model for reaching the same level of sales as when closing traditional licensing sales deals. So you need to necessarily reduce Customer Acquisition Costs (see the widened top of the marketing funnel in the figure above – that’s what that represents). Some rules of thumb regarding CAC and LTV are that the Long Term Value of the customer needs to be greater than 3 times the Customer Acquisition Cost and the months to recover the Customer Acquisition Cost should be less than 12 months! This also makes a compelling case for designing and developing related products and do some effective cross-selling and up-selling enabling you to realize that Long Term Value even if your CAC is high! Also making sure that you get the Customer Acquisition Cost in less than a year takes care of the problem of churn and if they continue after a year, you have already made your money!
4. Repeatable Sales Model: SaaS product companies rarely can afford the same direct sales model that non-SaaS models do. This is just given the smaller initial sales numbers even though the revenues are recurring rather than an initial large amount and 20% every year after that in maintenance fees in the non-SaaS traditional model. This makes it imperative that the SaaS sales model is easier, quicker and repeatable.
5. Scaling Pricing with Customer Value: Many SaaS product companies shortchange themselves by improving their product so much that they provide much more customer value than they are charging them for. Scaling pricing by clustering value adding features together and packaging them and offering them as upgrade packages is key in ensuring that your pricing keeps up with the value your are providing.
These are only some basics. I highly recommend checking out the references I have earlier in this article. There is a treasure trove of experience and knowledge about how to make it work, all online and free!
In sales, a referral is the key to the door of resistance – Bo Bennett.
If you’ve been around the internet startup world for long enough, you’ve probably engaged in the user-customer debate at least once. Who’s the user? Who’s the customer? Who should we be focusing on?
I’m going to start off a series of posts talking about the basic elements of Platform Thinking and this being the first, I’d like to talk about the User-Customer debate since that lies at the very heart of how we think about the design of internet businesses.
If we put on the Platform Thinking lens, we essentially do away with the user-customer debate and replace it with a more fundamental view of how your business functions. Here’s how:
Most internet businesses can be viewed as a platform on which value is created and consumed. E.g. YouTube.com is a platform on which video up loaders create value and viewers consumer value. With that in mind, let’s move on…
Who’s the user?
Quite simply, the user is anyone who uses the product. Now that doesn’t help us too much, so let’s break that down a little.
A user may perform one of two roles:
Producer: Someone who creates supply or responds to demand. If you think of YouTube, whenever a user adds a video, he’s acting in a Producer role, creating supply. A person answering a question on Quora is a producer, responding to demand.
Consumer: Someone who creates demand or consumes supply. A video viewer is a consumer on Youtube. A question asked on Quora (as well as others viewing the question and answers) is playing a consumer role.
Note that these are roles, not user segments. If you think of eBay, the sellers are the producers and the buyers are the consumers so we have two distinct segments. But on Twitter, every time you tweet, you are in a producer role, and if you start reading your tweet stream the next second, you’ve moved to consumer mode.
Splitting the term ‘user’ into these two roles helps us understand the exact motivations and actions for the user while using the product.Understanding the motivations and actions helps us design tools that enable the users to perform these actions instead of loading the product with features.
Most products have more than one producer or consumer role. E.g. On LinkedIn, professionals using LinkedIn are producers and consumers of interactions and status updates, thought leaders are privileged producers and recruiters are producers of job listings and consumers of relevant user profiles.
This brings us to the third party in the debate…
Who’s the customer?
As in the offline world, the customer is someone who pays. The customer may not be part of the central demand-supply equation. The sole defining criterion for a customer is that the customer pays money to the business.
The customer may be:
The producer: e.g. Vimeo. Video up loaders can pay for premium features.
The consumer: e.g. New York Times. Readers pay to access news
Someone else: e.g. Facebook. The advertiser is the customer
Again, multiple parties may be customers. On LinkedIn, we have users (who play both consumer and producer roles) as customers as well as advertisers and recruiters.
To summarize:
Every internet business has three distinct types of roles: Producer, Consumer and Customer
There may be multiple roles of each type on every business
Producers create supply or respond to demand
Consumers create demand or consume supply
Customers pay
A few quick examples:
Zappos.com
Producer: Zappos.com itself is the producer; sourcing shoes and creating supply.
Consumer: Users browsing and buying on the storefront.
Customer: The segment of consumers actually buying shoes.
AirBnB
Producer: Hosts, Review Writers
Consumer: Travelers, Review Readers
Customer: Technically, the hosts are the customers since they forgo a cut of the transaction and share it with AirBnB
Yelp
Producer: Yelp (creates listings), Review Writers
Consumer: Consumers in the city, Review Readers
Customer: Merchants that advertise
The New York Times
Producer: The New York Times
Consumer: Readers
Customer: Readers, Advertisers
I’d love to hear your thoughts. This is the first in a series of posts where I intend to share the essential tenets of Platform Thinking and how to use it to design internet businesses. Feel free to leave your thoughts below.
Note: This article was first featured on Sangeet’s blog, Platform Thinking (http://platformed.info). Platform Thinking has been ranked among the top blogs for startups, globally, by the Harvard Business School Centre for Entrepreneurship.
In addition to vendors of traditional on-premise products that are shipped or downloaded via web, a different generation of providers is fast emerging. They are leveraging new technologies and business models, often interchangeably referred to as cloud services, Web 2.0 or SaaS (Software as a Service). (Not all SaaS products are truly cloud based but the differences are not relevant for this discussion.)
SaaS considerably simplifies application deployment and upgrade challenges. Software is hosted at one site (vendor’s own or through a provider). This reduces development cost since the deployment environment is controlled. There is no distribution expense, though deployment charges can become considerable to support a large base of users.
The SaaS model is important for India. Making geography irrelevant, it enables anywhere, anytime apps and services for a fl at world. Indian Web 2.0ventures can now reach out to the world market without the huge cost of sales that enterprise software companies have to bear. They can compete directly against global players.
Cloud services adoption will depend on resolution of a few major concerns. One is security of personal and corporate data in the cloud. Secondly, guaranteed near 100% uptime will be critical for mainstream enterprise apps to move to the cloud. Reliable access will be a big factor in India for a few years, despite the phenomenal growth in broadband connectivity. Uptime has been an issue even in US, with large players like Google and eBay facing major outages in their online services.
The most widely used cloud service is web-based e-mail such as Google’s Gmail. The standard bearer for commercial SaaS apps is Salesforce.com, which crossed $1 billion in revenue in 2009 in just ten years. It provides web-based Customer Relationship Management (CRM) solution for sales, service, marketing and call center operations.
With over 1.5 billion people going online, SaaS offerings will only proliferate. Amazon.com, which started with selling books over the web to consumers, is now a full-service online merchandise store. Examples in India include IndianRailways.com (train bookings), MakeMyTrip.com (travel services), naukri.com (job related portal) and shaadi.com (matrimonial related).
Similar to cloud services, software apps on mobile phones are becoming more common, driven by the explosive growth in usage. In 2009, cell phone ownership had reached 3.5 billion worldwide and over 400 million in India. Cell phone growth is highest in India, with 10+ million being added each month, cutting across income barriers. The Indian mobile market is unusual in its extensive usage of texting (SMS) and multiplicity of languages. With its ubiquity, mobility and low cost, it is the ideal delivery platform for simple apps (and supporting middleware).
Though SaaS and mobile app vendors often look like a services rather than software firm, they are included in the book because software is the foundation and key differentiator for their business.
There is another reason. With its late liberalization, India largely skipped making huge investments in an entire generation of technology (land lines, minicomputers and even standalone software apps). This proved to be a boon in disguise, and led to rapid adoption of latest advances like broadband and mobile by a booming market. In similar fashion, consumers and businesses may take to this new breed of software products. Small and Medium Enterprises (SMEs) especially benefi t from SaaS by not having to invest upfront in IT infrastructure (servers, software licenses) and buying subscriptions only as required. Similarly, the hand-held is rapidly morphing into a highly integrated device, and is poised to become the key accessory for humans to interface with their environment. The vast majority of Indians will skip the PC and directly use an integrated
device at work and home.
Since the Indian psyche is different, entrepreneurs can build unconventional solutions that refl ect local reality for domestic users. The intersection of new technologies and India’s growth economy has opened a window of opportunity for new firms to leapfrog past existing players with exciting new products.
Dr Raghuram Rajan, Chief Economic Adviser to the MoF, GoI, was the chief guest at the IIMB convocation this year. I had the privilege of meeting him briefly before the convocation started. We talked about jugaad, Indian industry’s innovation capabilities, and which companies stand out on the innovation dimension.
One question that Dr. Rajan asked was something that I have thought about often: why do we struggle in our large projects that involve the development of complex products like tanks or fighter aircraft? And why are we able to do relatively better in areas like space and missiles?While I gave an immediate response to his questions, these are important enough questions to merit a more elaborate response.
1. Overly-exacting Specifications
The starting challenge for creating defence products from India is the product specifications. One common criticism of our armed forces is that their specs are usually a combination of the best performance on each parameter offered by different vendors. Often, a product with such a combination of characteristics is either unavailable anywhere, or if it exists, is exorbitantly expensive.
There seems to be some truth in this criticism. Consider this example: according to press reports, in the now “under the scanner” Westland deal, there was only one helicopter globally available that met the specs set by the Indian Air Force. Much of the current debate is about who “diluted” the specs to “allow” the Westland chopper to be considered!
2. Lack of Clarity regarding what Local Development means Designing a product locally does not mean that all components and sub-assemblies have to be made locally. In fact, one of the key decisions to be made is what will be done locally and what will be sourced from elsewhere.
Take the example of Embraer, the Brazilian aircraft company. Embraer retains ownership of design and system integration, but collaborates with other companies as diverse as Hitachi and GE for important sub-systems. Yet, Embraer aircraft are still regarded as Brazilian planes! Their big supplier partners share some of the investment and development risk with Embraer.
Contrast this with the development of the LCA. Much is made of the fact that India has not been able to develop its own engine for the LCA. But most aircraft companies don’t design or make engines themselves!
Most defence products require higher grade components with “MIL” certification. For many components, it’s cheaper to import from existing suppliers than design and manufacture them in India to MIL standards.
A related issue is the definition of the objective of the development project itself. Whenever I have spoken to people involved with the LCA project, they have proudly drawn attention to the number of new technological capabilities ranging from composite materials to advanced avionics that were developed in India as a result of the project. So, even though the LCA itself may not have been inducted into the Air Force so far, India has undoubtedly gained from the LCA project. Of course, this is limited consolation as the country has not got the aircraft we needed for the defence of the country!
3. Lack of Technological competence in Advanced Technologies
Complex products require advanced competence in diverse areas. Often, India does not have companies or institutions that have the required level of competence in each of these areas. Even when available, such skills may be relatively shallow and limited in scope. When the skills exist in the academic or research institutions, they may not be application-oriented.
LCA project head Dr Kota Harinarayana gave some interesting insights into this challenge when I spoke to him some years ago. When the LCA project started in the mid-1980s, we faced serious handicaps in composite materials, avionics and a host of other technologies. Dr. Kota Harinarayana who headed the Aeronautical Development Agency (ADA) that was created for the LCA project realized that it would not be possible to create all the needed expertise within ADA or HAL. He therefore visited all the leading engineering schools in the country, made an assessment of the expertise available, and created a large collaborative platform to rope in this expertise. Very soon he realized that these individual faculty members lacked either the managerial expertise or the interest to manage complex research projects. So, ADA had to work with the professors to break down the problems into more manageable pieces, each of which could be tackled as a Ph.D. or M. Tech. project. ADA funded the creation of physical infrastructure wherever necessary and did the overall programme management and coordination. So, there is a great deal of managerial effort that has to go into working with academic research partners who might have the required technical expertise.
4. Inadequate Number & Frequency of Experimentation and Testing cycles
While complex products are today largely designed on the computer (the Boeing 777, for example, was designed predominantly based on simulation through CAD/CAE), some amount of physical prototyping and testing is always required. Rapid testing, using low cost mock-ups and prototypes, wherever possible, is critical to completing the project quickly. But, design of complex systems in India is undermined by inadequate resources for experimentation and testing. This results in overly long development cycles.
I don’t have hard evidence, but I am sure the CAG’s notion of wasted and infructuous expenditure also hampers adequate experimentation. In 8 Steps to Innovation, we wrote about “failure fallacy” – the purpose of experimentation is testing assumptions and learning, not success and failure! Given our administrative rules and audit procedures (the infamous “Infructuous expenditure” that is the subject of criticism of successive CAG reports!), it appears that our system can easily fall prey to this failure fallacy.
5. Design/Development & Production Gap After independence, India adopted the Soviet model of separation of design and development from production. As a result, we have a huge network of government owned and operated research and development laboratories and facilities, and a separate network of production units/factories (like the ordnance factories in the case of defence).
The separation between R&D and manufacturing has worked to our disadvantage in multiple sectors. Take the case of telecom, where the Centre for Development of Telematics (CDOT) set up in the 1980s created contemporary digital exchanges that were well suited to the hot and dusty conditions of India and the then prevalent high number of “Busy Hour Calling Attempts.” But as I documented in From Jugaad to Systematic Innovation: The Challenge for India, the separation of the technology provider from the manufacturers (a set of licensees who themselves had limited technological capabilities) meant that CDOT was one step removed from the marketplace and that the licensees never invested in creating their own technological capabilities. As a result, over time, the CDOT technology failed to keep pace with the needs of the market and lost out to products imported from global telecom giants.
The separation of R&D from production is particularly detrimental to the commercialization of new technologically-intensive products. The designers tend to be relatively insensitive to concerns of manufacturability or support, and hence the product can prove difficult to manufacture in large volumes, or at a reasonable cost. The manufacturers have inadequate understanding of the know-how and know-why, and in the process of trying to make manufacturing easier or more streamlined make changes in the product or process that make it deviate from the required specifications.
Commercialization of complex technologies needs close working between R&D, engineering and production, and this becomes more difficult if this involves crossing organizational boundaries. There are major challenges even within the same organization – the success of Samsung in the memory chip industry, for example, is often attributed to the co-location of these three functions as this makes communication and problem-solving much easier.
6. Lack of Tacit Knowledge
Besides, successful productionization or commercialization of products involves the generation and retention of a large amount of tacit knowledge. I am reminded of an experience that was narrated to me by the Chairman of Samtel Color, Mr. Satish Kaura, many years ago. Samtel entered the Colour Picture Tube market in the early 1980s when colour TV was first introduced to India. Samtel sourced its technology from a leading Japanese company. However, they struggled to achieve the same level of productivity of CPTs as the company from whom they sourced the technology. However, a leading Korean company was able to master the technology from the same source. Ironically, Samtel had to hire consultants who were ex-employees of the same Korean company in order to get the tacit knowledge of how to improve the yield of the production line!
Successful product companies build huge internal repositories (both informal and formal) of such tacit knowledge. It is this knowledge that helps them avoid repeating the same mistakes or being able to move ahead rapidly when a project gets stuck. Building this knowledge requires going through multiple product development cycles and finding ways of capturing and building on such knowledge from one project to another. But, if one project takes 30 years, you have a problem! In complex product development like aircraft design, we have not gone through a complete project cycle even once. That is a major disadvantage we face.
Why have we done better in the Space Programme? My hunch is that we have done better in the space programme because that is a vertically integrated programme, has much clearer strategic objectives, is managed more effectively, and because its not a volume-oriented programme – you don’t have to move to serial production, so many of the productionization and commercialization problems don’t exist.
What needs to be done to improve our ability to build complex engineered products?
This is a big question in itself and I will leave it to a future post!
From being the protagonist of an Adoor Gopalakrishnan national award winning movie to a graphics trainer, from a book publisher to a printer, from services to products, our guest today has been there, done that. Meet Vish, the MD of Logical Steps.
ProductNation: Hi Vish. Welcome to Product Nation. Let us begin with your story.
Vish: I was born in an entrepreneurial family. My family ran a printing press in Kerala. So I grew up living entrepreneurship and also picking up skills to run a printing press. Childhood was exciting, as we were always creating something. As far as my education is concerned, I enrolled for an undergraduate Physics program at the Moscow State University. University had some of the finest minds in Physics teaching the subject. But, the 1991 coup cut short all this excitement. This brief stint while I was in Moscow, made me realize that college education does not prepare you for life. Though, I was not keen to go back to college, it was family pressure that saw me write three years physics papers in one shot. All this for a degree from the University of Kerala, Trivandrum. Isn’t degree everything?
It was around the same time that I got introduced to computers. My father had made investments into offset printing and desktop publishing. I soon found an entire computer science department to myself, right from laser printers to 486 machines. I learnt everything from scratch. It was time for my first fling with entrepreneurship. It was an MS-DOS pocket reference manual. Using a microsoft reference manual as the guide, I printed out some MS-DOS reference manual copies and handed it over to a local bookshop for sale. Surprisingly, the book shop came back for more. Simultaneously, I also ventured into Desktop publishing training, as the printing industry was moving in that direction. These experiments gave me the confidence that I could do something on my own
ProductNation: When did you get the time to do the Adoor Gopalakrishnan movie? And why do you consider it your first product experience?
Vish: Adoor Gopalakrishnan is a family friend and I had done a small role in one of his earlier films. He talked me into playing the lead role in a film called Kathapurushan. It went on to win the National Award in 1996. He knew about my background in printing. So, during the film, I got involved into many aspects of the movie production – recording audio, printing of collateral and special books. And working with Adoor Gopalakrishnan, who cared about every little detail and to experience his passion and leadership. I consider that experience extremely precious and a sort of first in making a product.
ProductNation: Which were the other movies you did?
Vish: No, I went back into computer training with a company called Tandem. Tandem, which was based in Trivandrum, sent me to CDAC Pune for a course called DACA – Diploma in Advanced Computer Arts. As a trainer, I was to learn this course and come back to Trivandrum to teach. At this course, I was the only one from a non-arts background, as the others were all from JJ and similar schools. But, I topped the class and got a break into advertising with a Kirloskar group company – Pratibha Advertising. One of the noteworthy projects that I did while at Pratibha was a digital kiosk that was showcased at the first Auto Expo in New Delhi. I quickly realised that digital advertising in India at that time was still very early. So I packed up my bags and went to Singapore for a teaching assignment with a University. But, I ended up joining a digital marketing company there. It was here that I spent close to five years till the dot com bust in 2000 consumed it. During my stint here, I got in depth experience into e-learning.
ProductNation: Is that when you started your current company, logical steps ?
Vish: Yes. I came back to India, after the dotcom bust. And that is when we started Logical Steps. We began by supplying learning content for television. We were paid 10% of the contracted amount. That is when I understood the trouble of doing business in India. So, I went back to Singapore to source business and keep the business running. It was challenging. I was using my salary to finance the business. I was not keen to close down and let go of my staff who had picked up extremely useful skills. So, we kept going. It was during this that we got a chance to service AIG for one of their projects. So that is how our services business started.
ProductNation: What happened to e-learning, then? And the platform? How did you start silver bullet?
Vish: An opportunity came up to create an e-learning engine for the US Market in the area of Medical Entrance exam called MCAT. A doctor who was considered the guru of MCAT had already created a large amount of content plus created analytics metrics to appraise students. We were given the project to create a platform that could provide all of this. This project gave us tremendous exposure to learning frameworks and gave us the idea to create a product on our own. That is how the idea of SilverBullet came up.By that time, I had also realised the limitations of a services business. So, we were all set for a product pitch in late 2010. While we built the platform quickly, content became a challenge. So we had to invest resources in training teachers to address this issue of content. This consumed our resources and it was our services business that was feeding silverbullet. It took us some time to adjust to this new reality, as we were dealing with an individual customer, unlike a corporate entity as in our services business.
ProductNation: Let us talk about silver bullet? Any learnings that you would like to share.
Vish: Silver Bullet is an online learning system for engineering and medical entrance examinations in India. There have been tremendous learnings. Unlike servicing a business, in this case, it was a B2C online product. It took us some time to figure out our Go-To-Market approach. We felt schools were the touch point, but it wasn’t so. Then we tried facebook, and it wasn’t the touch point. The most profound insight came from my 10 year old daughter, who frankly said that students are not interested in adding more studies to their daily work. She went ahead and said that no one would like to put themselves into trouble by opting for a Free Trial. How true? Students are already overworked. In all this, we figured out that it is the parent who is the touch point. And the parent was in a totally different world and a world that wasn’t online. The only way to reach them was through traditional media. It was then, that we checked out the media budgets of other online learning companies and found that they spend 19% to 20% of their revenue on ad budgets that run into crores, it is a totally different league. And that is how these companies are reaching out to parents. Parents are more than happy to add to the kid’s collection of material to consume.
ProductNation: Interesting, allow us to end this interview, with a difficult question. Looking back on your career, it is easy to see that you have been all over the place. How has it helped you in approaching your product business?
Vish: [Laughs] The product business is much like the movie business. If you see, my experience in diverse areas has given me ideas and the aptitude to create a wonderful product. Whether it is design or delivery, content or its packaging, all my earlier experience have served me well in developing Silver Bullet.
ProductNation:Wearing two hats at the same time i.e. services and products. What would you prefer? And what challenges do you face, while doing so?
Vish: Product without a doubt. It is something that you can own. But, when working on a product, especially when you are just starting off, managing the internal aspirations of the team becomes difficult.
ProductNation: Thank you, Vish for talking to ProductNation. We wish you all the very best in living up to these challenges.
If today a survey in done in schools across India and students are asked some questions like,
What are your favorite hobbies or pastime?
What do you do after going back home from school?
What do you do during holidays?
You’ll get all sorts of answers but ‘Entrepreneurship’. Even worse, if the following question is also included,
Have you heard about the word “Entrepreneurship”?
I am guessing a depressingly low percentage would answer ‘yes’. That’s because the concept of ‘entrepreneurship being taught as a subject or an extra-curricular’ is non-existent in Indian schools.
Schools play critical role in defining and determining a child’s way of thinking, perception about the world, mental and physical development and so forth. Schools shape children’s goals and aspirations. Children have an amazing ability to pick things up very quickly. The adoption of a concept is much easier in case of a child than an adult. We cannot expect India to produce a huge army of young home grown entrepreneurs when we don’t introduce this concept to them early on. It’s like expecting a country to have successful scientists or doctors without introducing science in schools. We benchmark Indian startup ecosystem against that of US based total annual VC funding, number of technology startups emanating, number of successful exits, etc., but forget that beneath all those facts and figures, there lays a very fundamental difference in the philosophy these two societies and, thus, their education systems have been built. Success of America has a lot to do with their education system which promotes entrepreneurial and excogitative attitude. Indian education system, on the contrary, is more conservative and inclined towards rote learning.
Trust me when I say that planting the idea of entrepreneurship in a child’s brain can do wonders!!
That’s because, it will ensure,
Smarter kids (child’s development wont be restricted by bulky books)
Better leadership qualities (entrepreneurship is all about leadership)
Better problem solving and analytical thinking (child would explore innovative solutions as no book would have written answers)
Better sales/marketing skills (something which Indians are always criticized of!)
Better programmers (I guess in many cases the next logical step after ideating something is learn programming)
Increased employability of Indian engineers (Isn’t above mentioned skillset what every employer wants!)
Better understanding and acceptance of entrepreneurship by parents and society at large, since schools would push the concept (again a major problem area, especially for young entrepreneurs)
More experienced and more successful entrepreneurs (Serial entrepreneurs tend to succeed more than first timers)
In short, a win-win situation for entrepreneurs, employers and employees.
Entrepreneurship may not be popular in Indian schools, but it is increasingly focused on by under graduate and graduate schools. Almost every good B-school has incubation cells and courses focused on entrepreneurship. Also the companies hiring from B-Schools love to hire ex-entrepreneurs (not necessarily successful ones but also failed ones). That’s because in the fast changing times, it has become imperative for companies to innovate and evolve in order to stay relevant and flourish. In this context, entrepreneurs bring in a refreshing thinking and ‘challenging the status quo’ culture to the table.
Today both schools and children are becoming more and more technology savvy. While Internet is within the reach of many, others are joining in. In that context, there is not much schools need to do, to ignite the spirit of entrepreneurship among students. All they need to do is realize its importance and try to build some very basic subject matter expertise of entrepreneurship in the form of a subject, extra-curricular, summer holiday project, workshops, etc. Tying this to overall grade of the child would ensure parents’ buy in. The government and other stakeholders of startup ecosystem (investors, entrepreneurs, enablers, incubators, etc.) can also pitch in and organize competitions and events to promote the concept. Just as we have Science or Maths Olympiad, we can have similar Olympiad for business ideas as well. NEN is doing an amazing job in replicating this model in undergraduate schools across India. It is time that we move a step prior in the value chain and introduce entrepreneurship in secondary schools in some form.
Think about this, the secondary education dropout ratio in schools in rural India is almost 50%. The major cause – as child reaches the employability age of 12-14 years, he is expected to add an extra shoulder to support household income. Mid-day meal, the driving factor behind sending child to school, becomes irrelevant. But if students are encouraged and supported (finance, mentorship, subject matter knowledge, etc.) to become entrepreneurs and thus, support his family by generating some monthly income, the school dropout rate can be brought down significantly. Needless to talk about the employment opportunities created! Here the definition of enterprise can be totally different – it may not be a technology focused one. A person procuring purified water from somewhere and selling it in villages is also an entrepreneur in one way.
P.S. : When thought about earnestly, this can be a billion $ idea !! J
I sincerely hope in coming years we hear success stories like Yahoo acquiring Summly (a teen startup out of London) from India, in addition to a 12 years old cracking JEE or an Indian kid winning Spelling Bee.
Let me start with a simple question. What is common among these, as of 2006 (and, for that matter, even as of today)?
– Visa – Sony Playstation – Orbitz – NASDAQ – Microsoft Windows
All of these are known examples of facilitation based multi-sided business models. These are not just products or businesses; these are platforms, in the true sense of the word. These platforms have, some even in industrial and so called traditional businesses, created value by “facilitating interactions & transactions” among various groups involved. They depend on network effect to kick in, and then thrive big time.
The concept of the two-sided markets is not new. In fact, the newspapers might have been among the first to exploit it, through low-priced subscription subsidized by the sponsors paying for advertisements.
Networking Events and conferences have been a great example of a non-tech two-sided platform, and they are sold on the same direct benefit as well. The sponsors subsidize the participants’ fees, and hence get presumably higher visibility. Participants get to network; sometimes get direct information or sales leads; and pay for it unless in some cases, fully subsidized by the sponsors.
However, these business models, as represented by the examples above, were still very few & far in between until few years back.
The business world, since, has changed. And, drastically so!
Google and Apple have become the most valuable brands in the world. Amazon, that revolutionized the Books & Publishing market through the e-Commerce strategy, has since transformed itself into a Platform company. Facebook, Twitter, Instagram, and recently Pinterest have become the household names, beyond the tech world. Travel, Hospitality & Commute have become well-integrated platforms driven businesses – driven through online technologies and ground-level operational integration.
HOW SONY FALTERED, AND HOW APPLE & GOOGLE PROPELLED
Let’s take an example of two companies that seem to be very similar on products stack otherwise. Apple and Sony. Sony actually brought upon the concept of music that you could carry, with its revolutionary Walkman. Apple came in very late, with iPod. Sony has had a premium quality tag in computing machines (with Vaio) for a long time, while Apple’s Mac slugged it out in its own creative/designer/geek space. Sony even had the earliest starts with its Reader as long back as in 2006! They even had a great idea of Reader being the platform, and got the leading publications in Japan to take note that time. Sony, a very relevant company even today in tech world with the quality and huge brand image to boot, (interestingly, it has had at least one product in platforms category in Playstation) has fallen to 31-Year lows. They continued selling products in silos on their own standalone benefits. They are a product company, still a great one, but that doesn’t seem to be enough!
On the other hand, Apple had an iPod – as a standalone “take your music with you device”, around 2001-02. With iTunes, it took the first steps into a platform around 2003. However, it has since transformed into a true platform company, with its formidable all-integrated business strategy that brings together computing, entertainment, and business. iTunes is a comprehensive AppStore, and not just a music store. Apple is a multi-dimensional company at its best – it brings multiple beneficiaries together in this multi-facets products business. iOS developers and Applications users. Musicians, music companies and Music lovers. Local or global businesses and their customers and fans. We’ve even started seeing the serious Enterprises making Apple devices the central to their CoIT (Consumerization of IT) and collaboration strategy. iPod, iPhone, iPad, Mac, iCloud – they sell products but they’re a platform! And, in Feb 2012 Apple became the most valuable company in the world!
Google is an obvious name in the multi-sided platforms strategy. They took forward the newspaper ads model and applied it to search beautifully. And now, with the Enterprise businesses as well as their ever-growing list of vehicles – in GMail, Google Apps, Android, Chrome, Maps, Drive, and so on – have established themselves as an formidable Multi-sided platform. At this time, there doesn’t seem to be a limit on what vehicles Google can choose to drive their platform strategy. Microsoft is now fighting it out on its own turf while Google and Apple make inroads into its huge Enterprise foothold. (This also points to another trend that I’m planning to write about – the blurring of lines between Business & Personal Technologies).
SO WHAT?!
This era clearly belongs to the multi-sided Platforms based business. It’s important, however, to not confuse this with the traditional definition of platforms in technology space. The true business platform is the one that is driven by facilitation and network effect, and which actually has multi-sided business model in the sense of heterogeneous set of beneficiaries that are not directly connected to each other. It is also important to note that this disruption has been caused not only by technological evolution, but also the interlinked effect of the other disruptive patterns such as “Long Tail” and “Free”, both terms made popular by the very respectable Chris Anderson. I will touch upon these in the next couple of posts as noted in my cover post on Game-Changer trends.
If you’re in a business – whether technology or not, whether e-commerce or not, whether products or services – don’t ignore this trend. Think about how you can leverage on this model, or be part of this ever-growing multi-cog machine that benefits all its gears. But, if you really think details, it’s not just a marketing gimmick, and it’s not just a tweak in the product. It should become the foundation of how business of your product is conceived, strategized and operationalized.
PS: This post originally appeared on my blog, but I thought it’s worthwhile to post it here. Very relevant, hope you find it too!
Advisory boards are rarely meant for fixing fundamental flaws with business plans. Having big names on the advisory boards, purely for their name value, rarely works. It might help a little in raising venture money, if at all. However, when composed and used wisely, advisory boards can help your product company choose the right corporate, product, market and sales strategies. Simply put, your advisors should be people whose expertise or experience you respect highly, and feel sincerely that their advice will benefit your business. And if giving advice is an art, asking for, receiving and using advice is also an art!
Here are 10 rules that can help you make effective use of advisory boards:
1. Friends and Family may not be good candidates: A natural instinct with some entrepreneurs is to appoint some of their friends and family members to the advisory board. They usually may not turn out to be good advisors unless they are otherwise qualified to be there.
2. Get advisors with fully complementary skills: Have three or four advisors, maximum. Find people with strong engineering and product development skills,sales experience or marketing experience in products related to yours or subject matter expertise.
3. Find the right people for your advisory board: With LinkedIn and search engines like Google and Bing available, you can always find the right people for your advisory board and reach out to them. Their experiences need to be related to your product company. You may need to do the research to make sure that your company and products may be of interest to them currently. With internet connectivity linking people all over the globe easily, a company need not limit itself to any particular city or even the same country. You can even reach out to people in the US or Europe if you think they may be interested.
4. Clearly outline the time commitments to advisors: Typical time commitments for advisors are one face to face meeting for a few hours every quarter(if everybody is in the same city or online, if not) and one full-day meeting and discussion once a year. This may work out to be about 40 to 50 hours per year including their time for reading your materials and preparing answers and discussing them in your meeting.
5. Prepare a list of questions or topics you want advice on and send it ahead of time as an agenda: Prepare an agenda of topics or list of questions in different areas like technology or science involved, product strategy, product management, engineering, marketing or sales. Sending it ahead of time to advisors will help them prepare properly for the meeting, quarterly or the annual one.
6. Arrange for convenient ways to participate: With web conferencing services and tools like Skype and Google Hangouts, it has never been easier to arrange online advisory board meetings when advisors are geographically dispersed.
7. Compensate them for their time, expertise and advice: Product companies rarely can compensate advisors with cash but the customary way to compensate them is with stock options. Usually it is around 1% or less of the company vested over 4 years or so. You can vest the first year’s options (1/4th) at the time an advisory board agreement is signed and 1/4th the total number of shares every year after that.
8. Hold the right to fire them: Advisors may sign on with the best of intentions in the beginning and for many reasons, it may not work out well for you subsequently. They may not find the time or may not be interested any more. The agreement should have a clause that lets you remove them from the advisory board if it is not working out for any reason.
9. Don’t confuse the advisory board with your board of directors: Keep a clear separation and distinction between your advisory board and your board of directors. Your board of directors can introduce you to potential clients or customers, and they can help you with thorny issues with your management team, stock options or compensation issues. Advisory board members are there for a different reason and may not be compensated enough on the same scale for such activities.
10. Don’t confuse your advisory board with an extended sales team: Some companies sign up advisors for the board and also provide them with a small commission percentage for prospect introductions and such. This rarely works out in practice and confuses issues and may cause problems down the road. It is better to keep advisory services separate from sales activities.
All of us, at certain moments of our lives, need to take advice and to receive help from other people graciously- Alexis Carrel.
Product companies (especially those focused on the Enterprise) always face pressures, primarily that of cash flow in the earlier years, forcing them to take on more services components. This is especially true in countries like India where angel and venture investments are not as plentiful as in Silicon Valley. This is a trap that product companies will find it difficult to emerge from once they get into it.
Just to be clear – there is nothing wrong in being a services company!In many ways, it has better cash flow profiles in the earlier years enabling companies to ramp up with additional people and “projects”. But, you may not be able to make progress on your product vision, unfortunately!
How do you avoid this situation? Here are 7 ways you can avoid this trap:
1. Stick to your Vision, Test and Pivot:As we learn more about Lean Startups, one of the best ways to avoid becoming a services company is to make sure that your product is needed, clients will pay for it and you can build a company on it! You talk to potential clients before you build the product. Even then, you build only aMinimum Viable Product (MVP), roll it out and test your hypotheses by getting to revenues. If revenues are minimal or non-existent, you pivot and build something that someone will pay money for, and soon!
2. Build Features Based on How many Users Ask For Them: In one of our enterprise product companies, we had a simple rule – If one client asks for it, it goes into the backlog list. If two clients ask for it, it goes into the next major release. If three clients ask for it, it goes into the next sprint!
3. Turn Custom Components into Product Features if you can:Try not to build components for any one client. Parameterize the client’s requirement into a more general idea and make what they are asking for, a specific case of that! For example, if they require your product to work with a certain brand of a reporting tool, think of how you can generalize it so that it can work with most reporting tools. You may need to build additional components but it will be worth it when the next client needs your product to work with another brand of a reporting tool!
4. Line up Services Partners Early: Large product companies deliberately price their professional services much higher than their service partner ecosystem does. For example, if you were to source Oracle product expertise from Oracle, it will be an order of magnitude more expensive than obtaining it from a service partner of theirs. That’s how they prevent themselves from being sucked into spending too much time on services and away from their products. For small product companies this may be difficult to do, but if you find service partners who are also service partners for related products, they may be interested. It will involve sharing your revenues but that’s the tradeoff!
5. Line up Product Partners Early:Products have natural boundaries and it’s good to recognize them early on and bring in product partners that do those things better. For example, if your product addresses a specific vertical with a core solution, line up product partners for related needs like reporting, social media integration, telephony integration, etc. You cannot be everything to your clients and identifying related product partners early on will help you avoid the trap of reinventing all related wheels all over again! Of course, you need to architect your product in such a way that it can easily integrate with other solutions!
6. Refuse Non-Core Competency Opportunities:This is easy to say but tough to follow in real-life if you are a product startup. If a clientoffers you money to do a related thing but not quite what you were hoping to sell, you may need to refuse it! But that’s exactly what a product startup needs to do to stay true to its vision. If three clients ask for this other thing, that’s a Pivot! Take it and go forward!
7. Plan ahead for Cash FlowPressures: Product companies are not for the faint hearted! Do not embark on even writing one line of code before you talk to potential prospects about your ideas, show them sketches of what you were thinking about, and finding out what they are willing to spend for such a solution. If you are already well into having two or three clients and it is a case of scaling, you may need to pivot to products that could scale up better, faster.
It pays well to remember that with product companies the goal is to write code once, get paid many times. With services companies, you write code once, you get paid once! Very rarely do you get to write code and retain the Intellectual Property that is general, and can quickly be sold to other clients, unless you subsidize the initial development substantially!
Again, there is nothing wrong with being a services company. It has its plusses and minuses, but without paying attention to strategy, proper architecture and partners, you could end up becoming a services company when you want to go the other way!
The last three business books I read were seemingly all different. “Wired to Care” by Dev Patnaik, “Nanovation” by Kevin and Jackie Freiberg and “Customer Centric Selling” by Michael Bosworth. The first was how humans are genetically designed to care for others, the second was the story behind how the Tata Nano was launched and the third was a book on more effective selling. But there was a common underlying theme to it all.
The theme was empathy. The Merriam Webster dictionary defines empathy as
“the action of understanding, being aware of, being sensitive to, andvicariouslyexperiencing the feelings, thoughts, and experience of another of either the past or present without having the feelings, thoughts, and experience fully communicated in an objectivelyexplicitmanner; also :the capacity for this”
All the books in various ways said this and I am paraphrasing here – in order to to create a compelling offering you need to understand your customer’s pain and create a solution for it.
This should be self-evident but unfortunately that is not what we find in reality. What we find too often is a situation where a company creates a product without fully understanding how it will solve a customer’s problem. Even if they have a legitimate product solving legitimate problems, they are so caught up in the gee-whizziness of their product that they stop listening to their customers.
This is a big problem. A company that has a valid solution for a defined problem can last for a while. It might even get some early adopters but it will have a hard time sustaining its momentum and will run out of steam unless it starts a dialog with its customers and is empathetic to their needs. This is because your mainstream customers, the ones that will sustain you, are not early adopters and need to develop trust before they do business with you. One of the surest ways of building trust is to make sure the customer feels that you feel their pain and understand their unique situation.
This is not rocket science. It can be easily instituted in an organization. Designing a consultative sales process around understanding a customer’s needs first is a great start. But the culture of making sure that every touch point with the customer listens more than talks starts at the top.
