Consumption-Based Pricing For SaaS Products

While consumption-based pricing has been a boon for infrastructure companies like Amazon and Rackspace, most SaaS companies have stuck with standard monthly or yearly subscription models.

Amazon’s cloud-services pricing is revolutionary. Quick primer: users only pay for every hour of server resources consumed. This means operations teams can scale up and down their server consumption in based on customer usage, and only pay for the exact resources consumed.

Most SaaS apps – particularly those oriented towards the enterprise, don’t take advantage of consumption-based pricing. While some businesses prefer predictable monthly pricing, consumption-based pricing lets users that have variable demand each month only pay when they receive value from your product.

For example, take 37Signal’s Basecamp. Its costs are very tightly correlated with the number of projects created by each user.  Yet, there is only standard monthly pricing available for Basecamp customers. Great for business that like predictable pricing, but not ideal for businesses that may be running multiple projects one month and then none the next.

Imagine if Basecamp also offered pay-as-you-go pricing, such as $5/month per project.  For example, marketing agencies that frequently have spikes in demand can pay for only the number of Basecamp projects they need each month.

Which companies are already doing this? Twilio provides simple, pay per message pricing. Twilio doesn’t require any minimum monthly subscription and even provides pricing discounts when its users exceed certain usage thresholds.

What are your thoughts on consumption-based pricing for SaaS products?

 

Tell Me More

We’re in the middle of a big recruiting and interviewing push. When we talk with candidates our goal is to dig really deeply into a person’s experience and interests to understand:

1)      What this person is passionate about

2)      What this person is really good at

Funny enough, when you ask someone about a past job or project, they’ll say something like “It was a good job. I’m glad I took it and I learned a lot.” Not exactly a detailed story that helps you understand how they would fit in with your company’s culture.

Here’s a simple way to get the full story.  “Tell me more.”

“I enjoyed my two years at that company, and I’m glad I moved on when I did.”

“Tell me more.”

“I got a new manager, and we didn’t get along.”

Meet someone at a dinner party?  “I just got back from a trip to New Zealand.”  “Tell me more.”  “I spent 6 months there volunteering for a nonprofit.”

Tell me more. It’s a foolproof way to get the full story.

Why established companies struggle to launch disruptive products

Big companies don’t recognize market disruption. Big companies aren’t good at adopting new technologies. Big companies can’t keep up.

The secret is that established companies are intimately familiar with the Innovator’s Dilemma.  Established companies were once startups, and they don’t suddenly lose their ability to create great products. Yet, established companies are at a distinct disadvantage when it comes to launching disruptive new products and businesses:

Startups can operate in the shadows. Startups can pivot, launch ugly MVPs every week, have downtime and generally get away with infinitely more than established companies. Launching products at established companies is completely different, making it incredibly difficult to rapidly launch and test products. Here are just a few of the challenges established companies face when launching new products:

  • Product UI must be as polished as the rest of the product portfolio (or customers will think your company is suffering from quality control).  This isn’t a bad thing in itself. But, sometimes an ugly product can still have value to early adopters.
  • Established companies typically have uptime, SLAs and quality standards to maintain. A new product can’t have downtime or bugs, leading to more time spent on testing and QA instead of getting the products into the hands of early adopters.
  • Established companies listen to existing customers too often. It’s much easier to take feedback from customers that will gladly share feedback with you, as opposed to prospective customers. Yet, the goal with disruptive products is typically to appeal to a new class of buyers.
  • Your product gets a “sales number.” When sales and marketing see your amazing new product, they generally want to go sell it to every customer (awesome!). This means putting a price point against your product that is comparable to the pricing of your company’s other products.  Again, this isn’t a bad thing, except that your newborn product typically isn’t polished enough to warrant a $1,000/month price point. That will happen in time, but it’s probably after 12-months of iteration and development.

How can established companies avoid these traps?

  • Have a standard set of UI scaffolding, styles and components that can be used to quickly assemble an app while still maintaining a level of UI respectability. (Hint: customize Bootstrap to fit your brand standards.)
  • Develop a basic redundant architecture and a simple set of monitoring tools that can be used with all new products. This will enable you to prevent any major outages and overhead will be limited for each new product.
  • Implement a process where you interview an equal number of existing customers and prospective customers as you research new product opportunities. (Trust me, prospective customers will gladly talk with you.)
  • Avoid committing to a sales number by running an extended, invite-only program until you have ten customers that are consistently using your product and getting value.  Then, sales will have the product – and marketing case studies – to back up their desired price point.

Established companies don’t lack innovative ideas or great engineers to create products, but they often struggle to break free of their own inertia.

Do you want to be a cop, or do you want to appear to be a cop?

Do you want to be a cop, or do you want to appear to be a cop? It’s an honest question. A lot of guys just want to appear to be cops. Gun, badge, pretend they’re on TV.

This is one of my favorite lines from The Departed, and it’s applicable to entrepreneurs. Most first-time entrepreneurs, and I was included in this group, outweigh the probability of real revenues within 6 months, and downplay the reality that it will typically take 12-18 months to see any real traction.

Most people see the “sexy” side of being an entrepreneur, such as attending trade shows and events, being quoted in industry publications, and being celebrated during a funding round or acquisition.  These are the types of things you can tell your mom about and that she can brag about with her friends.

These activities have little, if anything, to do with actually building a business and being an entrepreneur.

Actually, being an entrepreneur means:

  • Working 12 hours a day, six days a week.
  • Missing parties and family vacations.
  • Losing that key sales deal that you’ve worked on for months at the 11th hour.
  • Staying up all night to fix a product bug so your customers don’t see it when they log in at 9am.
Most people realize that they want the success that comes with being an entrepreneur, but don’t prefer the risk and sacrifice that comes with it.
So, do you want to be an entrepreneur, or do you want to pretend to be an entrepreneur?

The Problem with Content Marketing for Startups

In the earliest stages, startups are flush with time and short on customers. Startups need customers to provide real product feedback and most importantly, revenue.

For startups, there are a million ways to acquire customers. Google AdWords, trade shows, cold calling, SEO, paid-lead gen, and the list goes on. All of are expensive.

I’ve noticed a trend of late called “content marketing” (also known as inbound marketing). The idea is this:

  1. Publish industry-specific blogs, videos, articles and other content.
  2. Get the content shared across social networks.
  3. Google indexes your content.
  4. Your website eventually becomes ranked for target keywords and your company becomes known as a though leader. (This usually takes 6+ months.)
  5. You get a steady stream of prospective customers finding your website through Google, social media, etc.
  6. Your CAC drops dramatically and your funnel goes through the roof.

Content marketing is a terrible idea for startups.

Why? Because content marketing relies upon the hypothesis that you have validated who your ideal customer is, you have a product that fits their needs, and your customers want to pay you for it. If this is true, content marketing provides a framework for creating massive marketing leverage, over time.

Yet, practically all early-stage startups lack one of the above.

Startups needs customers. Customers are not users. Customers do use your product, but they also pay you. Which means they provide feedback tied to real business needs and with more on the line than just their time.

Until startups have discovered a scalable product and business, they should focus on marketing activities that immediately provide access to customers. For example, if 100 cold calls will yield 5 sales demos, this low-risk opportunity gives your startup the customer feedback it needs. Only feedback from real customers will let your startup validate that it’s on the right track.

Don’t get me wrong.  Content marketing is an extremely powerful tactic, and it’s one that I’ve used at every company where I’ve worked. And, it’s yielded thousands of leads. But, the value of content marketing isn’t realized until your startup has found product-market fit.

For startups, content-marketing won’t provide enough immediate customers for your product.

 

 

Adopting a Startup Mentality

I recently had the privilege of presenting to the TAG Product Management Society on startup methodologies and how to incorporate these concepts into larger organizations.

Outside of the standard Lean Startup ideas, one of the patterns I’ve seen over and over again is that no amount of customer development can predict how customers will respond during a sales process. If you want the truth from a customer, ask them to pay and put their reputation on the line.  My belief is the most effective product managers of the future will be deeply embedded in the sales process, allowing them to probe with questions during customer objections and to uncover new product opportunities.

If you’re interested in the full presentation, I’ve made it available for download.  (It includes a brief history of PlacePunch and our various pivots.)

What are your thoughts on the ideal product manager of the future?

How to Stand Out in a Job Interview

Ever since I interviewed for my first job vacuuming out cars in high school, my dad used always tell me to do one thing during the job interview: be enthusiastic.

Over the past few years, I’ve gone through the hiring process several times – both at PlacePunch and now at Silverpop.  After reviewing hundreds of resumes and interviewing dozens of candidates, I can confirm this is great advice.

Enthusaism is infectious.  Enthusiasm tells me you want the job.  Enthusiasm says “This isn’t just a 9 to 5 for me.”

Most candidates don’t smile, project excitement for working with your team or show you they’ll work hard to be successful.  There’s nothing worse than interviewing someone that appears to only be interested in your team for a paycheck.

Next time you’re interviewing for a job – or even trying to convince an investor to cut you a check – act enthusiastic.  You’ll be surprised how rarely this happens.

 

 

 

 

Getting the Right Feedback During Customer Development Interviews

Customer development interviews can be tricky. It can be tough to get customers (or prospects) to open up to you, and when they do, it can be even more difficult to keep the conversation on track.  It’s especially difficult to get customers to have an honest discussion around things like pricing.

Here are a few  tips for ensuring you get the right information from each customer-development interview.

1)      Get the customer talking. I like to spend the first five minutes asking the customers about their company, how they got into their role, and what their day-to-day duties are.  This also helps you put context around their potential problems.

2)      Make sure to specifically ask the customer about the problem you’re trying to solve. There is a school of thought that says a customer must name your problem themselves before it can be validated. In my experience, customers are dealing with so many problems that this is difficult to do within a 30-minute phone call. Customers will provide honest answers about their challenges when asked directly.

3)      Validate the problem by asking about price. I typically ask customers, “How much would it be worth to you to have this problem solved?” Often times, customers will of course say they want a solution to be “free” – free is in their best interest. Lately, I’ve found a better way to ask this question. “Would you be willing to pay $3,000/month” – where $3,000 is well above the price you expect the customer to be willing to pay. Usually, the customer will respond with “No – I wouldn’t pay more than $1,000/month.” (Hat tip to Steve Blank – http://venturehacks.com/articles/pricing)

Finally, during the conversation, I like to provide any tips or suggestions I can that will help the client. The goal is the client walks away with value from the conversation as well.

What are your tips for successful customer development interviews?

Failure is Not Feedback

Fail fast. It’s a saying every entrepreneur hears.

There’s a lot of good behind the “fail fast” idea.  If you’re going to fail – it’s of course better to fail sooner, rather than later. Failing fast also means you may still have enough runway to pivot and find success.  I’ve even heard many people refer to failure as “feedback.”

Let’s stop kidding ourselves. Feedback may be a subset of all things contained in failure, but failure is not equal to feedback.

I’ve been part of multiple failed startups. Each time I failed, I was losing sleep over trying to save relationships or keeping my bank account out of the red. Ever had to tell your family, co-founders and friends that their support and belief in you led to nothing?  The last thing on my mind was the “feedback” I gained during the process.

Failure sucks.  Let’s focus on being successful – every time out.

The Most Important Part of Your Sales Call

You’ve sent ten emails, made half-a-dozen cold calls and finally you’ve been able to land a meeting with your big prospect.

You nail the meeting, your prospect loves the product and is excited to work with your company. They want a proposal!  Hello February sales quota!

After your call, you jump on a another sales call, then go to lunch, more calls and a team meeting. The next day you’re out at a training event, and then it’s the weekend.

On Monday, 5 days later, you’re finally able to send off the proposal to your prospect. Then, you wait, and you wait, and you wait … What happened?

Your prospect was hot and momentum was high. But, they didn’t hear from you for 5 days are now caught up in a dozen different projects. You’re no longer top of mind.

The most important part of your sales call is the followup. When a prospect is ready to take the next step, get them there as soon as possible.  Consistent, timely followup keeps your prospect excited and builds confidence in your relationship with them.  The best demos go awry because of lack of followup.

How do you handle followups from meetings?