Cash Cow or Sacred Cow?
Getting down to the nitty gritty about a client's 'best sellers' is one of the first things I jump into when I start a new project. More often than not, those 'best sellers' are the source of more problems than anyone would expect.
How can that be? It's the biggest seller (which is easy to prove with revenues), the cash cow, sacred cow, the product that delivers major corporate differentiation. Right?
Sometimes it is. But more often it's not.
It may generate the most revenue - but you have to look deeper, much deeper, to find out how the product is impacting your business.
- How differentiated is this product - truly? I often learn that it's not, really. It was at one time, but it's not now. In fact, it should be well into its end-of -life. So why is it selling? Sometimes the reps are discounting it to get more revenue. The company is OK with that since well, it's revenue. Sometimes it brings a significantly bigger dollar value per sale than any other product - so even a small number of sales make it look 'big time'. Sometimes it's simply on the brink of starting its decline.
- How much is it costing to continue this product? I had a client who was measuring product success at the contribution margin level. The leading product looked like it was a real winner. The problem? Well, turns out the product required a lot of integration and testing before it was delivered. The reps were selling 'specials' more than ever - so, the costs below the line were eating up the margin - and more. But the company just kept selling more and more of this favored technology. Yes, even in business, love is blind.
- How many and which customers are using it? I'll sometimes find a handful of the best customers using the product in question. Which sounds like a good thing on the surface. But what if those customers really aren't that great for your business? What if they aren't the market of your future? What if they are a market that costs you money? Ask yourself. How much is it costing you to develop and support a product for customers who don't represent your best, or most profitable, market opportunity going forward?
- How much are reps allowed to discount? This is one of my favorites. I ca am always amazed at the number of companies who measure reps on revenue and not margins - and celebrate the $2M deal which secretly cost them money. I'm not going to get into sales incentives and motivation here. But IMHO if you have to heavily discount your 'best selling product' - you might want to think again.
- What are you NOT doing because if the investment in this product? Here's another big rub. A client was investing almost 40% of their R&D budget into a legacy product that was losing margins. The installed base was strong but small (and declining) and its applicability was growing more limited. Why? Because it was really cool technology (5 years ago), differentiated (for those who needed it) and was frankly, the client's adored 'baby'. The problem? The company's future, the set of products that were potentially game changing, were being strangled for resources by this legacy beast.
What I am saying is - test that best seller. If it rises as a key asset for your business going forward - then ride it to the sky. If not, then take a look and find your true definition. Here's how.
What if your Product ISN'T At the Heart of Your Business?
Heresy!! Technology and products make the world go around, right? That's why the best technology or product always wins in the market, right? Hmmm. Well, maybe not. Products come and go. Even great products based on cool technologies.
Before we have a heart attack - yes, technology is important. I recognize that and I would never argue that you can be successful without it. Your technology and/or product innovation is most likely one of the key reason customers find you. It's also a source of revenue.
That doesn't mean that your whizbang whatchamaflopppy is the heart of your business.
It certainly doesn't mean that your product alone will power you through the ups and downs of your entire business life cycle.
Nor does it mean that product in and of itself will keep you in a strong market position
What keeps your business alive and thriving is your customers. We business folk forget that sometimes. But the bottom line is that customers, and the value you bring to them, should be at the heart of your business
Your product represents a facet of your customer value matrix. But your value goes much deeper. Value comes from the energy and attitude you put into solving customer problems. It comes becoming a trusted partner with your customers. That's an intangible thing, made up of so much more than tangible technology. For example:
- Market Expertise. Customers want to work with vendors who understand their world, their daily lives. People who have expertise in their specific field, not just in coding the latest and greatest software. Don't underestimate the value of real-world, hands-on experience and knowledge - your customers value it and you should too. You should fuel it. Being able to apply your technology to your customers' business in their terms will build a stronger partnership than your latest whizawidget, every time.
- Customer Commitment. Great companies are passionate about their customer experience. Sure, all great vendors aren't that way, there's always an exception (and I can think of one large vendor that is noticeably lacking a customer-focused attitude). But most great companies live and breathe 'customer'. Take a look at Steve Jobs if you want the ultimate example. He is beyond passionate about his users. I've seen him miss an important executive session because he wanted to spend time with an employee's mom - exploring her experience with GUIs, with the web, with music downloading. That's one of the many reasons he's a winner - big time.
- Customer Vision. Enduring companies have vision. And not just about technology. They see the world through their customers' eyes. They understand that their own infatuation with the next cool innovation may not match their customers' most- pressing needs. Set your vision from your customer's perspective. Then go use your technical skills to create the best technology or service to help your customers be successful. Starting with technology and then trying to find a customer home is like trying to make that proverbial horse drink water - it rarely works well.
Still, keeping your fingers on the pulse of your customers is the one guaranteed key to success. When you're taking stock of your company, be sure you look beyond your product.