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Shifting from a product company to a sales/marketing company

targetAt the risk of overgeneralizing (although to be fair as a VC that’s pretty much my job description) and understanding that there’s plenty of grey area here, I’ve really been noticing recently just how challenging it can be for organizations to move from being product focused to sales and marketing focused. It seems worthy of a post (and hopefully getting some feedback on).

Early on in their lives most companies are built around a focus on product. They tend to be engineering heavy, key deliverables center around feature releases and sticking to a dev schedule and success is measured by the progress a business makes on building and releasing product vs. revenue generated from that product.

Then, at some point in an organization’s life this focus starts to shift. It generally starts slowly. Perhaps a sales person or community manager/user advocate is hired. Sales and usage related goals start to show up more prominently in weekly reports. You start thinking about marketing and outreach. Eventually you realize that you’ve fundamentally shifted the focus of the organization from one that existed to build product and get early usage to one that is focused on scaling that early usage and showing that you have a customer/user acquisition model that actually works. It’s not that product goes away or that the product is somehow “done” (all great companies are intensely focused on product in my experience) but that almost complete emphasis that you had on product from the early days is replaced by a true emphasis on customers.

This can be a challenging time for an organization. For starters many CEOs of tech companies are product people. And frankly it’s easier to map out a product roadmap of success (delivery dates, feature completion, etc.) than it is to live in the more spurious world of early customer adoption and sales. I think companies that make this transition most successfully embrace this shift completely. They acknowledge it within their organization. They set clearly defined goals and report openly whether they are meeting them or not. They develop strong feedback loops between sales and engineering to ensure that the future product roadmap reflects the reality on the ground. They measure everything they do on the sales and marketing side to learn what is working and what is not. And, of course, they treat their early sales process just like they did their early product development – getting as much feedback from the market as possible and quickly shifting course (the equivalent of reprioritizing a feature or shifting a design principal) if something’s not working.

I’d love to hear your thoughts on this transition as we have a number of companies in the Foundry portfolio going through this metamorphosis right now.

January 24th, 2013     Categories: Startups     Tags: , ,
  • http://www.facebook.com/profile.php?id=593790311 facebook-593790311

    The blame game. Good point Seth. I would say the biggest thing to avoid is the blame game. Sales points at engineering saying they are not delivering the feature set the customers are demanding. Then they point at marketing that their is no “strategic message” and these leads suck. Marketing claims they are not getting strategic direction from the exec team. Engineering just wants to build great products and thinks sales people are not very smart, don’t work as hard as they do and make promises to customers that can’t be fulfilled. I think this usually is personified in tension between the VP of sales and VP of engineering. I used to think it would be a good idea for every engineer to have to be on sales for a month so they could understand what sales people go through. I think from a CEO perspective it is very important not to play sides here.

  • http://www.digitalocean.com/ Moisey Uretsky

    I think there is a magic cross section in the middle where marketing and product development overlap and add to each other without much friction.

    From an engineering perspective if you build something amazing but no one uses it, it’s no inherently rewarding, I mean thats one of the things that Facebook always cites when recruiting. Work on a product that has reach to a billion people.

    So inherent in engineering and development is an urge to have people use the product, this is where marketing is key. If marketing is defined simply as getting a relevant message in front of people that want to hear it, your engineering efforts should to an extent be dictated by marketing.

    The way we accomplished that is to let our customers create our roadmap for us. They give us recommendations and vote on the features that are the most important to them, and what may be surprising, but really shouldn’t be, is that all of the features that we wrote out in our internal meetings our customers suggested, except now they have the power to vote up which they want to see rolled out first.

    Now we can’t rely on them for everything and we still need to have a very strong direction and strategy and that’s where we look at our industry and determine where its going to be in 3-4 years and how we can get there next week so we can 3-4 years of growth instead of playing catch up.

    We’ve had great success so far with this strategy, the last two features we rolled out we did based on customer requests and we’ve had great pickups in signups as a result and also in conversions of old users because these are features which were deal breakers for them at the time.

    At the same time we also looked at our industry and made a couple of bets, one very large one last week which has significantly impacted our growth, and not just in terms of a single spike, but much more sustained.

    And everyone on engineering is happy because ultimately we want to keep our customers engaged and that means listening to them, while also having a strong sense of marketing and asking ourselves, is this a feature that not only pleases our customer base, but can also convert new customers.

    I can certainly say when we built our 1.0 and struggled for traction regardless of how proud we were of our product not having any user engagement left us frustrated so we’ve learned to listen to both sides and find the middle ground.

    And so far we’ve found some good success with that.

    • http://www.sethlevine.com sethlevine

      Great comment Moisey. I agree with your comment about tying engineering/product to users. And I think a big change in engineering organizations over the past 15 years is their discovery/realization that they really do want to make product that people want to use!

    • http://www.sethlevine.com sethlevine

      Great comment Moisey. I agree with your comment about tying engineering/product to users. And I think a big change in engineering organizations over the past 15 years is their discovery/realization that they really do want to make product that people want to use!

  • Andy Blackstone

    Seth, I think the transition to a sales-oriented company has to start with a change from inside-out (product focused) to outside-in (customer focused) thinking. The first steps are built around understanding what critical customer problem(s) you are uniquely solving, defining very tightly the “ideal prospect” you are solving them for, and being able to help that prospect quantify the effect of using your product/solution to that problem. It’s critical that the first person responsible for sales and marketing in these companies understands this, because if they start out just pitching the product to potential customers, there’s essentially no chance of success. Once this change in approach is incorporated, then the company can start dealing with issues like sales process, feedback loops between sales and engineering, and all the other issues that I would contend are secondary.

    • http://www.sethlevine.com sethlevine

      That’s a good way of putting it Andy. Inside-out to Outside-in.

    • http://www.sethlevine.com sethlevine

      That’s a good way of putting it Andy. Inside-out to Outside-in.

  • http://twitter.com/spencerrascoff Spencer Rascoff

    I’ve definitely watched (and shepherded) this transition at my two startups, Hotwire and Zillow. At Zillow, the transition was helped by the fact that we had to do a round of layoffs in 2008. This forced us to quickly become a more sales-oriented company, as we unfortunately had to lay off a portion of the product team. Nothing brings the importance of revenue into focus more quickly than a layoff. Shortly after the staff reduction, we started rehiring people but in sales instead of product development. Within a year we were back to the pre-layoff headcount level, but with a much larger portion of the company in sales.

    Similar story at Hotwire, but the year was 2000 not 2008. It wasn’t fun, but the challenging macro climates in 2000 and 2008 actually helped accelerate Hotwire’s and Zillow’s transition towards a sales culture.

    • http://www.sethlevine.com sethlevine

      Nothing like having to cut back to really force you to focus in on what’s most important. And a good reminder that sometimes you can’t do everything you want, so understanding the emphasis you’re trying to achieve is critical.

    • http://www.sethlevine.com sethlevine

      Nothing like having to cut back to really force you to focus in on what’s most important. And a good reminder that sometimes you can’t do everything you want, so understanding the emphasis you’re trying to achieve is critical.

  • http://www.facebook.com/kentburks Ken Burks

    It sounds like Foundry Group would be wise to hire a Marketing mind to create and develop strategies within and throughout their various companies and explore synergies. kenburks@me.com

    • http://www.sethlevine.com sethlevine

      We actually do quite a bit of this (although not with a 3rd party). I think it’s one of the benefits of being a part of a network like Foundry (or EO or something similar)…

  • http://www.facebook.com/jensilverberg Jennifer M Silverberg

    There are some great tidbits in Frank Lane’s book, _Killer Brands_, about this very shift. If he were still around, I’d recommend talking to him … but in his absence, his book is fantastic.

  • http://simplifilm.com/ Chris Johnson

    I’m going about things the opposite way: Simplifilm started as a Service Business™. Now we’re starting to come out with products,. The sales focus is there, but now we are forgoing current revenue (via focusing less time on sales) to come out with future products. So, we’ll see if we can go backwards…without going under.

    • http://www.sethlevine.com sethlevine

      Good luck Chris. It definitely can be done. Rand over at SEOMoz has done some great writing about their shift from a services business to a product one. The Moz blog is definitely worth checking out.

  • http://kristian.tumblr.com/ KristianHansen

    My company ( Laughing Chickens – we make chicken coops) is going through the growing pains of leaving products behind that we (the team love), but that the consumer is not enjoying. By listening to our clients through their questions and ordering patterns; it has helped us to seek clarity in our product offering.
    This continual feedback loop helps us to look towards the future and realize sales in the present. Good topic.

    • http://www.sethlevine.com sethlevine

      Listening to your customer, while not always easy, is rule #1 I think in creating a successful business. Seems intuitive but not always easy to follow (and not always easy to discern what they’re really looking for – especially when they don’t know it until they see it…).

  • Sean

    How sad that in the 21st century this issue still exists, especially for technology
    companies. Products exist to serve the needs of customers. And how do they do
    this? By involving the customer (or the potential customer) in the product/company
    through marketing.

    Marketing is the management of the customer’s expectation of the value, or
    benefits, derived from product. If a product promises X but does not deliver,
    who get’s blamed – the marketing department, the product team? No, it is the
    COMPANY that get’s blamed.

    The issue that you cite is predicated on the fact that most product development
    relies on 18th century style thinking – build the product and buy an
    audience for it through sales and advertising. This pattern was true when most
    forms of commercial communication were limited.

    Today, the ability to build an audience is cheap and open with blogs, social media and
    search being the primary channels.

    So given the low cost nature of online communications, why doesn’t a company build
    an audience FIRST before they release a product? What is the difficulty in
    finding people who share the same passions and interest and focusing their
    input (or at the least their concerns/objections) on the ideas for the product?

    Smart companies do this today, taking the time to nurture and communicate with users
    that share a common interest and communicating with them as they work toward a
    product release.

    Seth, in your scenario, companies that face this transition have huge obstacles to
    overcome – obstacles that are self inflicted.

    Maybe instead of seeing sales and marketing as separate functions of the business,
    the wise choice would be to align the thinking of the entire company to the
    needs of the customer and the promises that the company makes.

    In this realignment, marketing and sales types are actually part of and contribute
    to product development. Product developers sit in and (heaven forbid) contribute
    on marketing communications. And of course, product support has a seat at every
    table since they are the ones that actually deal with customers!

    Some companies will/are successful by brute forcing their marketing/sales as separate functions of the company, usually with plenty of VC money.

    A savvy company will build an audience first and then release a product to a
    nurtured audience – usually with a lot less time, money and hassle than those
    seeking to “shift”.

  • http://one.valeski.org Jud Valeski

    I know disclosed that you’re “at risk of overgeneralizing.”

    I don’t view it as a shift from A (product) to B (sales/marketing). I view it as starting with A, and being able to master the addition of B, when/if the timing is right (e.g. the product starts getting market traction), and winding up with A + B equaling something amazing. Customer focus and orientation are separate from whether or not you can incorporate sales and marketing into a company/organization.

    Intense focus on customer needs should pervade the lifespan of a company. As far as primary focus is concerned, it starts and ends there. Early on you may be focusing on the wrong customer (e.g. one that doesn’t have enough money, or isn’t in a big enough market, or one that doesn’t even exist for that matter), in which case you need to adjust course, but you should still be customer focused. Obviously you have to start somewhere though, and early on, there is likely more time/energy allocated to the vision you have than customer demands, but the goal should be to get the customer feedback loop going ASAP; that’s goal #1. Once you have it going, don’t lose it.

    Once there’s traction however, indeed, energy needs to be applied to sales/marketing in a big way. There’s a small fire and it needs to be fanned. It’s a tricky junction however. Too much fan, and the fire goes out. Too little and the fire goes out. The quality of the fan, the timing of its application, the use of it, etc, are crucial to a company succeeding at adding powerful sales/marketing functions to the mission. Stating the obvious there I suppose.

    There’s another subtlety here though that I see frequently being missed. Often “Customer Focus” gets interpreted, and executed, as “do whatever the customer says.” That’s wrong. If that’s where you are, or are drifting, you are a consulting agency in effect. Customer builds requirements, and you execute on them. There’s nothing wrong with that, but if that’s where you are, you’re not a product company, you’re a services organization; engineering for hire. Be clear about that. If that’s what you want, congratulations. If it’s not, adjust your approach.

    A product company who’s products are being effectively marketing and sold, is a powerful thing. The product creativity inherent in the company leads to vision that aids the customer in their quest for better product. A successful product company starts with customer needs, and blends in vision and creativity. I’ll never forget the following interaction we had with a customer early on in Gnip’s life.

    One of our bigger (by revenue to us) customers was unaware of an underlying API behavior shift with one of the Publishers Gnip was integrated with. Early in the sales cycle, we clearly stated that these kinds of shifts, a particular subtlety in how the API worked, were the responsibility of the customer to be aware of, and adjust certain product settings to accommodate should they arise. We “disclosed” the situation to the customer, they accepted/acknowledged, and life merrily went on. After several months, the Publisher made a change, and the customer had significant adverse impact. We received a livid phone call from the customer telling us that they had been counting on us to anticipate the event, and adjust the software accordingly. “This is what we were paying you for! You’re the experts, not us!” It was that latter statement that hit me like a ton of bricks. The customer, despite our clear conveyance of how the product worked, was clearly relying on us to have the vision and to “be the expert.” This customer had no idea what the underlying issue was. All they knew was that we were supposed to have had it covered. This was a clear, hard, scenario in which we realized that we, as a product company, have to anticipate and have vision around what is best for our customers. All the while, intently listening to what their needs are. We take those conversations, blend in how we see the product evolving, and out comes something that hopefully makes the customer happy.

    What’s paramount, again throughout a company’s life, is that the conversation, the feedback loop, between the company and the customer is happening, and happening early and often.

    When a company matures to having real sales/marketing, ensuring the right connective tissue between sales/marketing and product is strong, is important. Sales people hearing what customers need, and product/engineering NOT having access to that is a broken feedback loop. I’d also argue a lot can be lost in translation between sales/marketing and product/engineering. To combat this at Gnip, our Product team is tightly coupled with sales/marketing; _often_ sitting in on calls and even going on-site with customers during, and after sales process. Clear/constant visibility into what the customer needs provides a grounding mechanism for product/engineering vision and strategy. It keeps things from getting too far off in the weeds (as a product team can do). It’s a balance though. Blindly following customer asks, again, yields a consultancy, and for a product company, neither the company itself, nor the customer, actually want that at the end of the day.

    When traction kicks in, do reports and energy start to focus more on sales/marketing metrics? Of course; as they should. At that point you finally have the ultimate measure of success; money. The measure of it becomes tangible, and a lot of guns need to be aimed directly at it. I don’t view it as a shift however, I view it as embracing the *addition* of this new, powerful, metric. I agree that that generally means true prominence of those measures in reporting, discussion and focus. Maybe you’re describing the shift not from product to sales/marketing, but from product alone, to the product/sales/marketing combo. That’s a shift, for sure.

    I would actually argue that a 100% shift from A to B actually crushes the soul of the firm itself, and creativity and innovation leave the building. That can be prudent when in fact the product is actually “done” as you put it. When that’s true, call it what it is, move over lock stock and barrel, and milk it. Disguising things as something else, to your point (I think) is a waste of everyone’s time. But, when that’s not true, a full swing is detrimental. It can overwhelm the system with an unbalanced view of what’s trying to be accomplished, on behalf of the customer.

    Trying to get my head around how you framed things (as opposed to the potential bastardization of your point/post in my comment)… if a product company with traction doesn’t, or cannot, effectively incorporate sales/marketing energy into the system, trouble will likely ensue (flattening of growth I suspect). Back to the customer embracing point however, I’d argue that needs to pervade everything, all the time, whether you’re a product company, or a sales/marketing company. In terms of aggregate company energy expended, early on 100% may be on “product”, and when sales/marketing come into the picture, maybe it shifts to 50/50 or something (all the while BTW, customer focusing being a thread across everything), but going from 100% product to 100% sales/marketing means the product is indeed “done.”

    • Larry McKeogh

      I agree with most of what you’ve said Jud. The fledgling company needs just the right care and nourishment. The one exception that I’d take is your comment about “sales people hearing what customers need”.

      I’ve seen numerous products and companies follow the sales team out of business. Why? Sales is focused on the short term. Their objective is to secure the sale. This leads to feature requests that serve a limited audience. When the audience is limited this is okay. When the audience has grown beyond beta then you need someone out talking to the customers who has the longer view in mind. This is where marketing and product come into play.

      The good companies are the ones to realize the true value that marketing can bring to an organization beyond tchotchkes and press releases. They are vetting the feature requests, determining the future roadmap, and distilling the data the market is sending so that the many may benefit.

      Thanks for sharing the long post, I found it useful.

      • http://one.valeski.org Jud Valeski

        love the “products and companies follow the sales team out of business” comment. no question. that’s why coupling Product tightly with Sales helps prevent that from happening. a nice clean feedback loop with sales/product/engineering all tightly involved. a loop with just sales/engineering in the mix is insufficient.

  • http://twitter.com/arakatz arakatz

    I think the marketing and story should be baked into the product and the two should start, at least in part, together from the very beginning.

  • dcooper

    Great post, Seth. Definitely a challenge worthy of considerable discussion. I came across a great tweet some time ago that echoes the need for an effective transition, “Entrepreneurs – don’t step on the gas until the product AND the business model are ready. Not capital efficient.” One of the biggest errors I have seen is to commit to grand marketing and sales plans as soon as the product is ready to go without a direct feedback loop that encourages course adjustments (i.e. point – shoot – aim). Without patience and a laser-focus, this can result in spending large chunks of capital inefficiently. Therefore, in an effort to make every dollar count, pilot testing to ensure sustainable conversion rates that support sales and marketing investment is without question the way to go before ramping up the volume and intensity.

  • http://www.facebook.com/nielrobertson Niel Robertson

    One thing that can be very useful in this shift is to create a unit economics model of your customer. Acquisition cost versus LTV. This encompasses to much about what sales organization and support organization can scale or not in a company. Just like engineering architecture, unit economics architecture matters. Sometimes the early sales and marketing model you adopt simply can’t scale given your price points, LTV, retention rates, contract lengths, etc.. like a good product, the outcome is a collection of carefully interrelated parts. Its very hard to get this right and then on top of it have a UEA that you can double down on let alone triple or 10x.

  • http://dorkitude.com/ Kyle Wild

    5 weeks into this process myself, and I couldn’t agree more. We are embracing this company-wide and the results have already been astounding.

  • http://twitter.com/hawkinspham Hawkins Pham

    A lot of great discourse in the comments already. My only add on is that in this “lean” era, there are some really savvy startups that begin their life customer-centric and gain some modicum of market traction before even building.

    The dichotomy between developers and marketers though is the classic exploiters vs explorers standoff. While not purely technology related, the best case study on how to merge the culture of inventive explorers and optimizing exploiters is 3M.