The Critical Role of Product Strategy When Money Is Scarce (Part 2 — Rounds A, B, and Later)
When you start selling your product, you feel great, but that doesn’t last for too long. At some point, the results you expected and even produced in the past aren’t replicating. You add features, you replace salespeople, but it doesn’t help. You blame the market, but often that’s just overlooking the real problem. A product strategy is often the missing link that would convert your efforts into actual revenue.
Nobody likes tough market conditions, but it can also be an opportunity. When people say it they usually mean that new needs arise and you can start building your answers to them (COVID anyone?). The opportunity I’m talking about is a different one. It’s an opportunity for clarity.
Tough market conditions would cause your sales to dramatically drop or even cease. On one hand, that’s expected in a rough market, but is that really the root cause? In many cases, an economic downturn simply reveals your already existing weaknesses since they now have more impact. It’s a rare opportunity to face reality sooner rather than later and act upon it.
When people (and VCs) aren’t spending money easily, you must be super sharp with your value proposition, positioning, product, marketing, and sales. What worked in 2021 can no longer work, not because the needs have changed, but because every dollar spent now needs a good justification, and if you could do without it because of great market conditions in the past, now when the market changed you are in trouble. Even more so if you aren’t willing to admit it.
A value creation lead in one of the VCs that I am working with told me that when they think about product-market fit they only relate it to companies at the seed stage, and in round A they consider them as the go-to-market (GTM) phase, assuming they have already found product-market fit.
While I understand this distinction, I believe that a company cannot reach real product-market fit without nailing down its GTM, and vice versa. Product-market fit is achieved when you have consistent and sustainable sales for a certain product with a certain customer profile. So product-market fit isn’t just about the product, it’s also about the company’s ability to sell it consistently and in a scalable way. That’s why I always say that one of the mistakes companies often make around product-market fit is assuming that they have it when they see initial signals of success. These signals are great, but they do not guarantee product-market fit, and they usually don’t last for too long (I’ll explain why in a minute).
On the other hand, I see many companies assuming that the product has nothing to do with the GTM playbook. They see it as sales and marketing’s responsibility. While the final outcome is truly theirs, to be able to write a decent playbook — one that would be spot on and bring us customers — there is strategic product thinking that needs to be at its core. The unique value proposition, the positioning of the product in the market, understanding exactly who would buy this product and why are all part of this core, without which any GTM playbook would be too generic.
That’s why, even if you are at the “GTM phase” as the VC above called it, product strategy still plays a key role in your ability to achieve the business results you want. And it doesn’t stop there — even after you have found product-market fit with your first product, product strategy is still the main glue that helps keep a (now large) company together and aligned on the same goals and direction.
Here is how it works.
Product Strategy on Round A
Responsibility: Founders with the leadership team
Goal: Build the go-to-market playbook
Toward round A you start seeing success (or it would be very hard to raise a decent A round). Your product makes sense for your first few customers. You do what it takes to keep them happy and learn a ton along the way. It’s time to grow.
You start spending a lot on marketing and bring in salespeople if you are in B2B (even if you go with product-led growth you would need salespeople, but maybe at a later stage). You spend a lot of time training them and giving them what they need to successfully sell your product at scale.
It usually doesn’t work as expected.
Salespeople, as great as they are, can’t sell something when its value to the specific customers they work with is unclear. Don’t get me wrong, they will try, but in most cases, they will fail. What they will also most likely do — gently or bluntly depending on their style — is to say that the product isn’t good enough and they can’t sell it. The entire company will shift into adding more and more features to the product, hoping that this is what it takes to sell the product successfully.
Usually, it doesn’t work either.
To get to round A you were able to sell the product to some extent, with the limited features it had in the past. What had changed? In some cases, you have exhausted your market, which means you go back to finding a product-market fit in a new market or a larger market segment. But in most cases, the market is still there, it’s just that you are no longer selling the way you used to.
Design partners who work closely with the founders and the product team build their trust over time. They work first and foremost with the company and only then with the product itself. When it’s time to start paying for the product, if you have done your job right, they already know what it does for them and if it’s worth the money you are asking for it. They know you, they like you, and they want to continue working with you.
As you start scaling, your sales team (or the product itself, which is much harder) would need to go through a larger barrier in order to sell to even one customer. They would need to convince your potential customers to start paying for something that is no longer malleable. It’s a product, not a design partnership project. It’s from a company, not from two founders who took me to lunch and wanted my advice. It’s from a cold reach out and not through an introduction from shared connections.
In order for your customers to even want to hear more about what you are offering them, you need to talk about their world and their problems precisely. The specific customer profile you are after needs to be clear so that when you talk about their pain they strongly agree and feel you fully understand them.
A great salesperson cannot develop that positioning by themselves. They need a clear value proposition coming from the founders and product leaders so that they can now take and do their magic. And of course, give you the feedback so that you can iterate it until it works and you have a good playbook.
Scaling your sales doesn’t start with hiring salespeople. It starts with a solid product strategy that builds the foundation on which sales can really scale. And if your sales are slowing and your conversion rates are dropping, replacing your sales team isn’t necessarily the answer.
Product Strategy on Round B and Later
Responsibility: The product executive with the leadership team
Goal: (1) Keep everyone aligned (2) Develop new products and markets as in previous stages
As the company grows, people already know what they need to do. You have great professionals in most positions, things are much clearer now, and people do their jobs. You now have multiple products probably, selling to different customer profiles with varying levels of success.
The product department is now a small beast, probably with a double-digit amount of people, and the product leader’s focus naturally drifts toward execution. There is a lot to do there: team topology, work plans (which people often mistakenly call roadmaps), agile processes, and so on.
But at some point, especially if you haven’t established a great product culture in earlier stages, you realize that the product team is becoming a feature factory. When the product leader tries to make sense of it, for example with OKRs, they work in a vacuum and the outcome is disconnected from the company’s business goals. And when the company is cutting resources due to tough market conditions, the problem becomes even more significant. When resources are scarce, it’s important to make sure that the people you do have are working on the right things — the ones that would bring you the right results. But how can you do it if the desired results aren’t clear?
Note that this doesn’t happen because the product leader is shy or disconnected. In many cases, it happens because the goals aren’t clear even to the company management. Of course, they have very clear numbers set in terms of revenue or traction, but the reasoning behind why these are the right numbers is often unclear or untold, and the strategic part of understanding how to get to these goals is often missing.
A cross-functional effort is needed in order to break down the company goals into clear initiatives that together make sense. One of the companies I worked with, for example, had one of its goals to expand to the enterprise market. When we started working on the product strategy we quickly realized that there are two separate segments that could be considered enterprise. One is what the company later called small enterprises — companies with 1,000–10,000 employees, and larger enterprises with 10,000 or more employees. Before making that distinction, people in company management talked about going into the enterprise world and meant completely different things. Sales would go after the larger companies since they have more money to spend, but if the product isn’t suitable to serve them (not just because of missing features or scale but also because the entire value proposition might be different for this segment compared to the ones the company had served before) this wouldn’t work.
As your company grows, people don’t wait. Each department has its own life and pace, and people move forward in the direction that they see fit and understand from the above guidance they get. But if this guidance is only generic (revenue goals for example), the odds are that each department will take it in a different direction, and since they all need to be aligned in order to deliver results, it will hinder your ability to do so.
In 2021, you might have survived this despite the misalignment. But when the market isn’t willing to spend money on whatever isn’t a perfect fit, you might find yourself working very hard but not able to see any meaningful results.
Many people mistakenly think that a product strategy is the strategy of the product department. It’s not. For a company that sells products as its main business model (as opposed to a services or projects company), the product strategy is a business strategy that outlines how the company is going to meet its business goals using the product. The product in that sense is a business mechanism, not a set of features. As such, the product strategy needs to be an end-to-end explanation of which people should buy our product and why. It is a strategy that guides sales and marketing no less than it guides the product development process.
Does your company have a solid product strategy? It’s extremely important, so don’t wait until you see the problems arising. It might be too late by then. We’re here to help if you need us.
Our free e-book “ Speed-Up the Journey to Product-Market Fit” — an executive’s guide to strategic product management is waiting for you at www.infinify.com/ebook
Originally published at https://infinify.com on October 5, 2023.
