Competing with BigCo, by Sinofsky
Big Companies typically care about 4 things: expand endpoints, enhance bundles, optimize price, optimize margin
Time: July 26, 2018
Place: Some early morning reading, coffee in hand
Pointer from: A need at work, explored through Google
Note type: Direct
So where do leaders focus efforts? What are the high-order bits for the company or leadership? What are the topics that everyone is thinking about in all those meetings all the time? It turns out, regardless of the type of product (enterprise v consumer for example) or even industry, operating a company in the midst of PMF drives four main focus areas:
Monetizing Endpoints (Quantity). If the only thing that matters is PMF, then the only thing that matters after that is the number of end-points your business has. I use the term endpoint here to broadly encompass the ultimate source of money. In the enterprise space it might be seats/devices or for whole-company priced products logos. In the consumer space it is clearly a metric related to ad units seen by customer. That’s it. Nothing else matters. No matter what a company might be saying or doing around vision, roadmaps, and so on, what matters more than anything is the count of places where money can be collected.
Enhancing Bundles (Bundles). In a startup, there’s one product. By the time a company reaches PMF the product almost certainly has expanded (organically or otherwise) and crosses into several categories. In fact, one of the signs of a maturing PMF is that the product has come to absorb adjacent categories or redefined a category to be the combination of one or more categories — again often talked about as “delivering value". This bundling turns out to be incredibly helpful for scale as the product team is actually making a single suite. Sales has one motion. All the marketing is driving demand for a single product. Collectively the whole motion for growth is then a focus on feeding the bundle — everyone wants more stuff in the bundle and the bundle to be bigger, I mean to have more value. Big companies for the most part talk about their bundles and occasionally dip into constituent or adjacent “modules" usually to claim credit for innovation. To know if something is a bundle or product, one simply needs to look at what the sales people are selling and what customers are buying. The vast majority of enterprise software economics can be allocated to a small number of bundles or suites. The most important aspect of bundles never actually discussed is the steep decline in usage of modules from the anchor product through the long tail. This puts massive pressure on pricing, and is even worse in SaaS where customers have the knowledge of their own usage.
Optimizing Pricing (Price). The next metric is how much money is collected at each of those endpoints, which can be CPC, per-seat, per-VM, and so on. The setting and optimizing of pricing is something that becomes the most important role on the business side of large companies — it is even one of the 4 P’s for MBAs. The reason should be obvious, but a penny here and a penny there multiplied by a quantity like 100M pretty quickly adds up to real money. In particular the most obvious thing about selling at scale is the well-known strategy that the easiest money to earn is to collect an extra dollar from an existing customers versus doing all the work to find a new customer, which plays right into managing, allocating, and compensating sales resources. The dominant motion is to “deliver more value" to customers and either hope to maintain pricing in the face of competition or raise pricing in mature markets.
Operating Efficiency (Margin). Finally, all of these have a cost side of the ledger and it is no surprise but operating at efficiency becomes a massive focus. The internal view is that this is all about allocating resources to new and important things but almost all the time any savings are funneled right back into executing on the mainline product and revenue stream. In fact, even if there are rogue forces somewhere (creative product people that dream up something new, marketing with an idea for customers with a product variant, sales people with a new channel approach) the ability to get all of the other parts of the team aligned to make such an idea a success is rather constrained. If you’ve ever tried to allocate resources away from engineering or sales of a successful product the you know the immediate reaction is dire straights of unmet roadmaps, low product quality, or unfilled quota
July 26th, 2018