Over the last year or more, the #noprojects movement has been shining a light on the idea that we could (and probably should) change our approach in how we bring our best ideas to market. No longer should we fund large projects that get developed in a vacuum and then handed over to a ‘business-as-usual’ team. Rather we should incrementally develop, fund and launch new products. Each iteration becoming better than the previous version, and better able to meet the customers’ expectations and the company’s business model. This approach has many benefits. You can escape the traditional iron triangle of Time, Cost and Scope (and let’s not forget Quality), dispel the myth that (new) ideas are finite in length. It never really did work the way the plan looked at the start of the project, in any case. Anyone who’s been involved in a ‘too big to fail’, death march project where all of the interesting features get jettisoned in order to launch will recognise the futility of the traditional approach. The real hard work starts when the customers get their hands on the new product or system.
As #noprojects has grown in popularity, we’ve seen companies change their organisational structure. Many are now centered around products and, more importantly, organizations have started to fund products rather than projects in the recognition that the end of project is the point where we need to invest in new products to make them really work. This has delivered benefits in the flow of ideas and features, focus and efficiency. But, as we well know, organisations are complex things. You can’t move too far without being hampered by matrix management – some shared component or service that might impact our ability to get products shipped. The increase in APIs, Service-Orientation, CoEs and cost-effective shared services means that there will be some conflict and coordination costs. Still, the model makes much more sense as products and services become more digital requiring tighter alignment between product and technology departments.
But, is it the end goal? As Drucker famously said, companies exist to create customers. Not products. Indeed, to create a customer you might need many products and services. And, more than ever today, differentiation in experience. It’s the development of customers that matter (and then the ongoing nurturing and relationship of those customers).
Focusing on customers
One organisation design that we’ve seen that took things to the next level was to organise around Customer Experiences – 3 core processes: Lead-to-cash (fulfilment), Trouble-to-resolve (problem resolution) and Concept-to-Market (new products, services and features). This didn’t necessarily resolve all of the conflict and coordination problems, but did help improve the flow of ideas from customer need/want to the point when the customer actually got something that helped them. It also helped with funding and prioritisation decisions. In fact, it was so galvanising as an organisational paradigm it connected the business with technology and operations, and even the funding and financing strategy in a way that kept the customer at the heart of the discussions.
In the world of Lean Startup, and the Customer Development Model championed by Steve Blank, there’s a focus on the idea of getting out of the building and developing customers – in reality it starts with a handful of potential customers. Really figuring out the pain points and jobs-to-be-done, and working with clients to see how their product ideas and services might solve those problems. And, how they might value the solution to their problem. It is a way of developing a business model that works around the customer. Once the model works a small number, the traction to enter a whole market segment is much easier. In light of our desire to create customers, this model seems like a much better approach than using a product-centred model as a proxy to the customer.
Measuring the effectiveness of a business model
A company of any size probably serves many customer types. Hopefully, they will understand the differences between their different personas and market segments. Sometimes, if they’re lucky, the products and services they build and sell support many segments. What isn’t clear for most companies is how much is being invested in a each particular segment or persona – how much is being invested in nurturing the segment. The Customer Development Model uses Customer Acquisition Cost (CAC) and Lifetime Value (LTV) to examine if a business model might work. In the world of SaaS, these metrics are becoming pretty standard.
It is suggested that reaching an LTV three-times that of CAC suggests a viable, sustainable and profitable business model. LTV can be made up of one-off charges, monthly recurring revenue (MRR) and other things that might make up an Average Revenue Per User (ARPU). In early stage companies, these are measures that are useful to start growing and exploring a customer segment. But, why are measures like these not more prevalent in mature organisations? Why should only Software as a Service benefit? Why not any type of Service (or Experience)? And why only use these metrics in the high growth stage?
How about we consider the cost to serve (a particular segment/person) over time? What about looking at how much it might cost to retain that segment or protect revenue? Or, how much it might cost to grow the LTV or, indeed, the market penetration? As the lifespan of products shorten, and new products are brought to market more quickly that solve the same customer problem, customers have more choice with fewer barriers to switching. Instead of worrying about how a new product might cannibalise an existing segment or specific customer, it would be more prudent to look at the future MRR, ARPU or LTV of a customer. Nurturing existing customers is as (if not more) important than winning new customers. There is an old saying that it’s easier – and cheaper – to keep an existing customer than winning a new one. Especially in markets that are mature with high brand loyalty.
Obscure and unclear
These things are far from obvious or transparent in organisations. By the time you get to the people actually developing a product or service, the software underpinning it or the people who are designing the operational support models, the business model becomes obscure – it’s not always clear what a specific investment is designed support. The key metrics are opaque, and the investment objectives can be equally unclear. If this could be changed, the focus on developing the right features and delivering the right service can become easier. Developers and operations people are making creative design and implementation decisions all the time. Every day they come up with ways to either delight or disappoint a customer. What they might not know is if what they’re doing is inline with or counter to the investment strategy of the company because the line-of-sight is blurry.
Invest in relationships
Developing customer (and segment) relationships, and creating services that have people come back time-and-time again who are loyal to the brand, and love the next things you release is something that takes deliberate effort. The organisation design, and the flow of ideas to the right customers needs to be continuous. Being able to measure the time it takes to get ideas to your different customer segments, and how often you communicate with them, show them new things and continue the conversation about what they love could be the difference between surviving and thriving in a fast-paced, digital world where new ways of solving old problems are increasingly delivered. #noprojects, #noproducts? #onlycustomers!