What does it mean to say that a company is market-driven? Google it—in quotes, and it gets over 6.8 million results. We’ve centered on a practical definition: “every thought, word, and action within your company is based on the market’s needs.” Hard to argue with this right? But is this definition enough to govern your investment decisions?
At Pragmatic Institute, our business is to study these things, analyze the patterns and develop best practice methodologies for leading a market-driven business. We’ve validated many high-level anecdotal studies that support the value of being market-driven—companies are more profitable, twice as fast in getting new products to market, and have higher customer satisfaction levels.
When it comes to ROI of being market-driven, CEOs often ask four very simple questions:
- How much faster can you bring a new product to market, and how much money can be saved by eliminating development mistakes?
- How can we ramp sales faster and lower overall sales and marketing costs by spending our dollars and resources more wisely?
- What impact will this have on the fundamental measurement that we value the business by—improving customer satisfaction, retention and referrals?
- Will these practices create better margins by improving productivity or retention rates?
This article helps you gain strategic visibility for the ROI of being market-driven. And while we can’t calculate exactly what that figure is for your company, product or unique market scenario, we can document a simple strategy for justification. The four rules of ROI are time-to-market, time-to-revenue, time-to-value, and time-to-profit.
Rule #1: Get products to market faster and eliminate “do-over” development cycles
Time-to-market is the first ROI measurement of being market-driven. When a product manager develops and defends a business case for a new product investment, decision-makers want to quickly understand and rate the risk/reward vs. other alternatives—including not investing in the project.
Development costs and schedules are the first points of inspection. Typically, no matter what is included in the plan, the smart executive doubles it. They know from experience that these projects are almost always impacted by “feature creep,” inaccurate sizing, and changes in requirements.
Yet, each month a product is delayed beyond the planned ship date has a cumulative negative impact on the overall ROI over the product’s life. Schedule slips are rarely recovered, market windows are missed and early customer adoption is impacted. So, the ROI number in the plan is suspect right from the beginning.
Market-driven organizations improve development ROI by delivering more quickly and cheaply and by meeting and often beating their schedules. The formula for success is simple:
- Focus the development organization on a specific problem.
- Reduce the scope through tight requirements definitions that are targeted to specific market segments and specific persona(s)
- Create a launch plan that justifies the release date target with quantifiable, measurable improvements that the company will realize in sales.
When do you realize that you’ve shipped the wrong product to the wrong market? We hear from companies that say they don’t have a process to deal with change during the development cycle effectively—in other words, when market conditions or product content changes, and the agreed-to business case is no longer valid, many companies “ship it anyway,” and wonder why revenue goals aren’t met. We sometimes hear this referred to as shipping an “anyway product,” By doing so, companies typically hurt their market perception and rarely meet their revenue goals. This problem can be addressed by implementing a more agile product management and development process.
SIMPLE MEASURE: The typical technology product requires two to three versions to get it right. Take your product development cost and multiply it by two and add it as an avoided cost if you are market-driven.
Rule #2: Ramp sales faster and eliminate thrashing in marketing
Time-to-revenue is the second ROI measurement of being market-driven. You spend tons of money on marketing programs. And maybe even more in the training, support and staffing of your channel. The front end of the launch of a new product is filled with expensive investments—new web pages and online campaigns, direct mail, advertising, brochures, e-books and press conferences—a seemingly endless list.
These investments and the series of activities introducing your new products to the channel and the resources set aside to support it are real and tangible. But how fast do you typically get product adoption? Is it a six-month ramp? A one-year ramp? Longer?
Market-driven companies get there faster by optimizing the full launch process:
- We found that market-driven collateral and tools that focus on solving market problems for prospective customers generate leads faster and improve the ROI.
- Market-driven organizations take an entirely different approach to channel training. The training focuses on how to sell the product, not making the salespeople experts on the product. Market-driven sales training programs should teach the tools, processes and important information about the buyers and how they buy—not specifics about the products.
To build market-driven sales and marketing programs, your goal should be for every buyer message and every marketing deliverable, the targeted customer exclaims, “Wow, this company understands my problems!”
A related but neglected item is the additional support staff allocated to most new products to assist the launch. If your company does not have clarity about what problems you solve for your market and how the product solves those problems, your prospects will be confused. This contributes to longer sales cycles and potential lost deals which are easily measurable. Developing a repeatable sales process that scales without extra support comes much faster from a market-driven product.
How do we measure and translate that value into an ROI? First, clearly define your target audience for each deliverable—what is the market segment(s), who is the buyer persona(s) and what are their problems? What do they care about? How are they measured? What are the alternatives to buying your product?
Second, audit your primary marketing deliverables and eliminate any extraneous information that is not 100% focused on the market and persona and their problems. If you can’t eliminate information about you or your technology, put it in the backup or the lower-level details. Companies can improve the ROI by eliminating entire campaigns and significantly increasing sales productivity.
SIMPLE MEASURE: Multiply the cost of running a marketing campaign for one of your products by two and add it as an avoided cost. Take your revenue assumption for full productivity in the channel and multiply by the number of months beyond three that it takes you to achieve it. The difference between this number and the actual results is lost revenue. Add these two figures together.
Rule #3: Raise your customer satisfaction levels to best-in-class
Time-to-value is the third ROI measurement of being market-driven. Best-in-class companies garner customer satisfaction rates and renewal rates and achieve higher Net Promoter Scores. What are the impacts of creating these levels of customer satisfaction? What CEOs have come to realize is that this is their number one measurement for success. For some very virtuous and pragmatic reasons—costs decrease and revenues increase in direct proportion.
How can being market-driven impact customer satisfaction, thereby creating very satisfied customers? A formal customer relations program is the first step. The best programs include electronic and personal contact management, early access to products, “loyalty” programs such as preferred licensing terms, “named” support staff, escalation paths for resolving conflicts and customer advisory councils/conferences.
The second step is a professional and responsive support organization, with an incentive to sell to and retain current customers and acquire new ones.
But, no program is as valuable as this one—providing solutions to real market problems. At the end of the day, satisfaction isn’t about how nice you are, how well you provide support, or how much the customer believes in your mission—it’s about whether the solution you provide impacts your customer’s ability to solve their problem.
SIMPLE MEASURE: Take the difference between your current customer satisfaction rating and 90% and divide it by two. Multiply the actual number by 10% of your cost structure. Add it as an avoided cost.
Rule #4: Improve retention and productivity of the workforce
Time-to-profit is the fourth ROI measurement of being marketing-driven, which is the time it takes for a company to earn back the costs associated with developing and launching a new product.
Ask any technology industry CFO and they will tell you that the number one contributing variable to the bottom line is people costs. Making your workforce more productive and retaining key employees is an often overlooked part of the ROI equation for product managers.
A Human Resource methodology called “TopGrading” estimates the cost of non-performance (as defined by a new hire that didn’t work out or an employee in place not doing their job) is estimated at 24 times an employee’s annual compensation
Being market-driven brings clarity to roles and tasks, and makes work more efficient. One of the benefits we see is the companies who adopt a market-driven approach seem to achieve more with less people.
SIMPLE MEASURE: Identify the key development, sales and marketing personnel in (or closely attached to) your product line that left the company in the last year. Multiply that number by their average salary and multiply that result by 24. Add this to your avoided cost line.
If you kept a running total for your company as you read through these four rules, you probably have a large number staring you in the face on your ROI calculator. Now the really bad news. The ROI calculator only shows you a small percentage of the bigger story. The bigger part is this. Market-driven companies win.
There really is no ROI on success vs. failure. And that’s what we’re talking about here. Market-driven companies naturally become leaders through winning in the marketplace. The impact of doing this right is not only in the millions to billions of dollars, it is about the very essence of leading, surviving and thriving in your market.
There are some real measurements you can use to assess how market-driven your organization is:
- Do you meet your product delivery schedules?
- Are your product requirements defined by the needs of the market?
- Is your research and innovation focusing on addressing an understood and well-defined market need?
- Do you look outside for new technologies before building them yourself?
- Is your product positioning and associated messages based on the needs of a well-defined market and buyer?
- Can a customer or prospect understand the “value to them” of a product or feature by reading the first few lines of your marketing deliverables (data sheets, brochures, fact sheets, etc.)
- Does your web page focus more on market problems, market segments, buyer personas, and solutions than on your products, technology, and your company?
- Do you have a marketing programs strategy?
- When you meet with a customer, do you spend the largest percentage of the time listening versus talking?
- Can an average salesperson quickly locate the right tools to present the product strategy or to close a deal?
- Are your channels selling all of your products?
- Is part of your marketing programs budget and sales goals allocated to customer satisfaction and customer retention?
Foundations on Demand
Foundations is the first step to understanding the market and its problems. With that knowledge, you can build and sell products that people actually want to buy. You’ll also learn to master the Pragmatic Framework and the activities needed to bring a successful product to market.