In the Beginning, There Was the Product
By Peter Buchanan, Managing Director
When the iPhone debuted in 2007, it was immediately hailed as a magical device. The day after it hit the market, every smartphone that came before it seemed downright decrepit. Despite some limitations – like no high-speed data and no third-party apps – everybody wanted one at least to touch one. You could learn it inside and out in an hour, and it felt just right in the hand. The mobile world was transformed. Eight years later, whether you have an iPhone, Android, or Windows device in your pocket or purse, its alpha ancestor was the original iPhone.
Product launches like the iPhone are one in ten million, but successful product launches happen quite frequently (albeit with a lot less fanfare). I’ve worked with hundreds of companies from garage stage to the Fortune 1000 over the last 25 years. My work has spanned corporate strategy, go-to-market approaches, and product positioning, I’ve seen a lot of successful products come to market and a larger number that “coulda beena contendah” but fell flat. Here are my keys to building and launching a successful product:
- Apply superior talent – If you’re building a software product or physical device, you need the right talent to conceive, design, and manage the development and production of the product. If you have an idea for a product and don’t have the talent, go find it and hire it. Optimally, there are two types of early talent that are really important:
- A technical visionary and leader, who can conceive and design a product and then lead a team that builds it.
- A product manager, who matches the market to the product requirements and makes sure that the right thing gets built. For the product manager, it’s not all about the technology. It’s about features, pricing, positioning, channels to market, and a host of other things. In a really young company, the product manager might also be the CTO or CEO or a committee that makes key decisions, but, pretty quickly, successful companies add someone who serves as the flywheel in the middle of product development, sales, marketing, implementation, and support. It’s a job with few direct reports and a lot of influence. Note that, in Silicon Valley, the product manager is often the third or fourth hire – right after the CEO, CTO, and maybe a senior technologist. In the rest of the country, most companies haven’t gotten the hire the product manager early memo.
By the way, using outside resources to build your product – whether its software or a physical product – is absolutely an option. The keys to outsourcing development are:
- Protecting your intellectual property through proper contracts.
- Finding the right development partners.
- Managing the process so that you and your partner collaborate to get the best possible answer. Partners with ideas as opposed to simply contracting development with a spec are much more preferable. It’s all about the right answer.
If you’re nervous about outsourcing development, look around your office and then go home and look at the devices in almost every room:
- Foxconn and other companies make iPhones.
- Almost all Dell Computers are built by huge Original Design Manufacturers in China, Taiwan, and South Korea.
- A high percentage of the software you use was built using contract development shops on behalf of major brands.
- Every gaming device you’ve ever used was built by a third-party – not Nintendo, Microsoft, or Sony.
It’s great if the talent you need is local, but it’s also a luxury. In the early days, it’s your core product team is what needs to be local. As your company reaches a later stage, you should seriously consider bringing more talent in-house to show that you own and maintain your intellectual property. This really helps your exit value.
- Analyze the market – The biggest mistake that companies make is failing to understand their market and potential customers out of the gate. You absolutely need to build a straw man for your product – even if it doesn’t exist – and socialize the concept with people and companies that would be potential customers. You need to be able to explain:
- What your product does.
- Why it’s new and different.
- What value it provides.
- How much you think it will cost.
- When you think you’ll be able to deliver it.
This means taking some chances, because most people won’t sign an NDA to discuss your product over a cup of coffee. Find people you trust, refine your idea, iterate, and then widen your circle. Then apply those ideas to your concept and design.
- Don’t assume that you’ve got infinite time to get your product right. Most industries are global now, and there are more investment dollars available from private sources than ever before. The logical conclusion is that you need to be super secret as a result; however, the main learning is that time is of the essence. I have worked with a number of CEOs who lose track of time. I finish an assignment, and we have a good plan. 18 months later, they call me and say, “Peter, we’ve made so much progress. We’ve done X, Y, and Z.” Frequently, they haven’t met their plan or, even worse, haven’t produced a viable product. Entrepreneurs are optimists, however, and love to tout their successes. My response is usually a more tactful version of “have you looked at the calendar lately? While you’ve been working away, companies in the fast lane have passed you by. What about companies A, B, and C?”
- The minimum viable product is key. Customers actually don’t expect your product to be perfect out of the gate. They do expect your product to provide something different that adds value by being easier, more efficient, or cheaper. Lots of customers simply like to try new things, and they like to provide feedback. Getting v0.9 in the hands of customers, gaining feedback, and making modifications for v1.0 will save you time, make v1.0 of your product better, and make things easier on your budget in the long run, because you won’t mass produce the wrong thing.
- Never lose the passion for your product. As companies get bigger, they tend to view their products as parts of a portfolio, which, for business purposes, might make sense. In reality, their customers are married to individual products. They expect continued greatness. Most of the time, however, products that were best of breed gradually slide down to average, and playing catch up when new products play leapfrog in the market becomes increasingly difficult. Just because a product reaches v3.0 and has a broad customer base doesn’t mean that it shouldn’t continue to improve. Let’s look at a few companies that continually improve their products and some that don’t:
6. Remember the exit strategy. Most companies don’t start with an exit strategy already mapped out, but they do want to monetize their investment in time and capital eventually. There are three things that drive high value M&A transactions:
- Market leading products. Therefore, keeping your eye on the product ball is critical. So is coming up with multiple products that are well received and popular.
- Superior talent at the management level and below. There is a metric that, for a really high performing software company, buyers are willing to pay $1 million per programmer before they value of other parts of a company. Again, the talent is directly connected to the quality and market share of the product.
- Great financial performance. Why do you get great financial performance? Because customers love your products and tell their friends.
As you can tell, I mostly work with tech companies. Fahrenheit has a deep customer base across many different industries. If you run an insurance agency, lawn care service, or chain of nursing homes, you’re probably asking yourself, “What’s this got to do with me and my company?” In response, I’d like to ask you some questions:
- Do you sell high quality products or services to a target market?
- Do you believe that your products are best in class in their market?
- If they aren’t best in class, why not?
- If they were best in class and you wanted to find a buyer, how much more would an acquirer pay for your company?
- Do your employees believe in your products?
- Do your customers value their products as much as they did three or five years ago?
- How does the market view your products versus competing offerings?
Business models vary by industry and target market, but products make the world go round. So love your products. Your love will be paid back a ka-billion times over.
Peter Buchanan has worked both as an executive-level advisor focusing on strategy, business development, and marketing, and in operating roles as a CEO, strategic planner, product manager, and sales manager. As a consultant, he co-founded three, successful professional services companies, where he developed strategies, business models, fundable business plans, and successful market messages that have been implemented by hundreds of start-up, growth, and mid-market companies. As CEO, Peter has led companies through periods of rapid growth and scaling. Peter has worked with companies to create over 200 strategic and business plans for growth and middle market companies seeking a funding, M&A, or spinout transaction. Over 70 percent of these engagements generated a successful transaction. In total, his clients have raised over $600 million in early and mid-stage funding and several achieved successful exits through high-value M&A transactions. Peter also served as a fractional head of strategy and corporate development for multiple high growth companies.
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