Three things a PM needs to succeed in a B2B company

by Jenny Hepworth

The other day we had Ben Foster, VP of Product Management and User Experience at OPOWER come talk to us. It was a useful discussion, and got me thinking about some of the differences between product management in a B2B versus B2C setting. Here I’ll discuss some of those differences, and the implications for product managers.

1. In B2C, your users don’t have to use your product

This is why there’s been so much crappy enterprise software built in the past. In a B2C space, everything you build has to be useful, useable and probably beautiful (though the most popular newspaper online, the Daily Mail proves this isn’t always necessary). If you fail to create a great experience, there’s plenty of other places your users can spend their time, in contrast with the B2B world where your audience is almost certainly captive once the product’s been sold.

2. In B2B, you sell the product, in B2C it has to sell itself (nearly)

In B2B you’ll likely have multiple contact points with potential customers before they convert to a sale, so processes and marketing assets must be developed, tested and refined to pull leads down the funnel. For a B2C product, the focus will be much more heavily focused on SEO, SEM and virality, with the goal being to convert a prospective customer the first time they hit your site. Again, this points to creating a useful, useable and probably beautiful product.

3. You can’t make mistakes in B2B…

With millions of potential users in the B2C space you can end up with a really delicious omelet by breaking a few eggs in the early stages of product development. The cost of mistakes/failure is generally low, either because it only affects a tiny percentage of your total potential user base (so most of the people you care about will never hear about it), or because the task at hand isn’t mission critical, or both. However, in a B2B space your total potential user base is probably many, many times smaller AND you’re much more likely to be performing tasks which have a material impact on your user if mistakes are made.

4. …Which is cruel, because compared with B2C you’re wearing a blindfold

With a consumer product, you can release, test, learn and iterate based on relatively large datasets from very early on in your product development process. For most B2B products there’s no such luxury, given that you’ll have far fewer users, and it’s a much harder sell to bring them on board.

In light of these differences, I see three big take-aways for product managers in a B2B environment versus a B2C environment (and I’m interested to hear others, so please comment).

Create discipline internally

Given that you have a captive audience there’s less incentive to ensure your product is useful, usable and probably beautiful, beyond what is required to make a sale. This lack of external pressure on old school enterprise software giants has opened up fantastic opportunities for B2B companies with a B2C attitude towards user experience. A great B2B PM therefore has to have the discipline to create an environment for great products to be built without the stick of short term user flight in order to prevent new entrants taking customers in the long term.

Manage greater tensions within the organization

Given that you have to sell the product, PMs will not only have to manage tensions with engineering and design, but also with a sales force. Most frequently, this means calls from sales for customized features which deviate from a product roadmap. PMs must not only have a good sense of when to customize (if ever) but also be able to bring the organization with her once the decision has been made.

Work more closely with customers

Given the lack of data available to inform iterations and the lower tolerance for mistakes, PMs need to work even harder for feedback from users. Marty Cagan* recommends setting up a Charter User program, whereby you persuade a collection of 5 or so companies to act as customers as you develop your product. They get the chance to add their input into a product with the potential to solve important problems for them, and you get invaluable insight into their needs and behaviors. They’ll also make great references when it’s time to start selling. Note: make sure they understand from the beginning you’re not building custom software especially for them – you’re building a broadly applicable solution.

* How to Create Products Customers Love, Marty Cagan, 2008

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Crossing Boundaries

by Jake Cusack

Amid the conversation of copycat start-ups and cloning vs. originality in emerging markets, there is a related but perhaps more ethically palatable opportunity to profit: transferring technologies across traditionally disconnected sectors and domains.

Some brief vignettes to frame this discussion:

• A historic example is how Palantir took the fraud-detection techniques developed for complicated datasets at PayPal and founded a separate company that improves counterterrorism and intelligence analytical methodologies.
• A future example, I believe, could be taking social media analytical tools developed for marketing and brand management firms and using them as a tool for making investment decisions at fundamental value-based investment firms.

The long-standing divisions between the public and private sectors, between emerging and developed markets, have limited transfer of relevant niche technologies. These divisions become even more dramatic when examining the divide between particular sub-sections. For instance, the systems used for intelligence analysis in the government have not cross-pollinated with investment due diligence tools, even though they face similar data collection and analysis challenges. Technologies already developed can be leveraged for applications in new domains.

These opportunities, which could be considered a form of intellectual arbitrage, have several appealing facets:

• They provide an opportunity for entrepreneurs with unique but well-rounded backgrounds, who might traditionally think themselves poorly equipped to compete with mainstream engineering/product management/business development talent in the most developed markets.
• They often focus on sector verticals that are too small to be worth the full attention of the best technology provider in a particular sector, who therefore may be more open to a licensing or partnership agreement than they would in the case of a emerging-market copycat. (This is a distinction in the attractiveness of a partner who increases scope of verticals served versus a partner who only increases scale of total customers.) An analogy might be made here to the numerous developers who build on a given platform or ecosystem – the difference here is that that the underlying partner is one who has previously not operated in a platform capacity, and indeed may be focused on very tailored enterprise solutions in a different vertical.

Elaborating on the second point, in attempting these kinds of tech transfer, the first major choice that must be made is between partnering or replicating the given technology. This decision depends on the nature of the potential partner: How mature are they – do they realize a need for outsourced business and product development or do they think they can do it all themselves? What is the likelihood of disintermediation – how much unique IP are you bringing to the equation that would be prevent the partner or your potential clients from later going direct? How badly does the partner want to maintain developmental control/branding? Many of these considerations favor seeking out big companies that have settled on a particular identity and do not want to stray into new verticals. However, these same types of companies can be sink holes of time and resources in the potential partnership stage before revealing themselves to be dead-ends.

My own belief, in full disclosure, is that there is an enormous opportunity in such creative bridging between previously unrelated domains, and to that end have co-founded a company which specializes in this line of work. Such tailored solutions can scale well within the new vertical, and the uniqueness of expertise required (because the two now connected domains had minimal previous interaction) creates high barriers to entry.

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Later-Stage Pivoting: Preemptive Turnaround Management?

by Jesse Garcia

The challenges of a later-stage pivot are BIGGER than thoseof an early-stage pivot. Thestakes are bigger, and a company that is achieving scale has already foregone asignificant amount of flexibility and nimbleness. More than ever before in the company’s life, innovation thatis more than incremental becomes very challenging.

Chegg, the online textbook renting platform, is currentlyundergoing a late-stage pivot that builds on its core business into anexpanded market opportunity with a new business model. Since thetextbook renting business is capital-intensive relative to other onlinebusinesses, the company faces unique challenges in the pivot process.

While pivoting at a later stage in the development of a techventure like Chegg is not exactly a turnaround situation, turnaround opportunitiescan lend some important insights into the challenges encountered in such asituation and the expanded skill set that a manager may need to be successful.

Length of the Runway

Like in any change situation, the amount of time availableto execute a late-stage pivot is very important. Usually, the amount of cash available to support theoperations of a business is the first issue that comes to mind when thinkingabout the amount of time left before a company has to shutter its doors. For a tech venture that has decided todo a late-stage pivot, having enough cash to pivot will most likely mean needingto raise more money. For manyreasons, including the capital intensiveness of the business model or howleanly a venture has been run, a company may not have the cash resources toexecute a late-stage pivot. Giventhe heightened risk profile of the company, raising money at this point willlikely involve a down round in terms of valuation. In turn, a down round involves a slew of headaches that the companyfounder / manager will have to grapple with.

Operational andFinancial Leverage

Leverage can severely complicate a late-stage pivot. A company that has crossed the chasmand has begun to scale the business, such as Chegg, has likely startedincurring fixed costs that enable it to benefit from economies of scale. Also, it may have already raised debtfinancing. Whether operational orfinancial in nature, leverage limits a company’s nimbleness and exacerbatesboth the company’s cash needs and the potential decline in valuation during apivot. Hence, undertaking a late-stagepivot requires a management team with both conviction and humility.

Re-sizing andRe-alignment

A company that has begun scaling has likely achieved bothproduct-market fit and, to some extent, alignment between its strategy andorganizational structure. A late-stagepivot, if large enough, implies taking a few steps back and unraveling some ofthe progress made along these lines. This may involve layoffs and new hires, even at the management level,asset sales, and significant resource re-allocation. Managing the re-sizing and re-alignment of a company whileensuring that it is moving ahead fast enough on the new opportunity can be verychallenging, requiring a talented management team.

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The Late-Stage Pivot: Some Considerations

by Jocelyn Whittenburg

“If and only if we can’t find any market for our current vision is it appropriate to change it.”
—Eric Ries

Pivoting is a natural part of running a start-up. The lean startup theory and hypothesis-driven entrepreneurship practically demand that the entrepreneur pivot at some point in the early stages of the business. Usually, pivoting is referred to as something that a founder does in order to achieve product-market fit. Once the founder finds product-market fit, it’s time to scale. Or so the theory goes.

However, are there situations where it makes sense to pivot after product-market fit has seemingly been achieved? The textbook rental service Chegg is currently in the process of such late-stage pivoting. Chegg began as a rental service for physical textbooks and is just now beginning to feature e-textbooks, homework help, and flashcard apps on their website, looking more like a portal for college students than a textbook rental site. Arguably, Chegg achieved product-market fit with their rental service (see Steven Carpenter’s TC Teardown: http://techcrunch.com/2010/06/05/teardown-chegg/). If we believe Mr. Ries’ quote above, it is inappropriate for Chegg to change their business model as they’ve already found a market for their current model. What considerations should be taken into account when pivoting post product-market fit? Here are some questions a founder should ask him / herself:

1. How will your investors react? They invested in your original business and may not be willing to risk a change since the original business model has proven itself out. Investor reaction will also impact your ability to raise the funding necessary to pivot.
2. How will your customers respond? In Chegg’s case, they are pivoting from a proven current customer behavior (renting physical textbooks) to a hypothesized future customer behavior (using e-textbooks and participating in an online student education center). What if the hypothesized behavior never materializes? Will you lose current customers by pursuing this new pivot?
3. How will the pivot affect you and your employees? At a time when a start-up is supposed to be focused on scaling (post product-market fit), a pivot introduces an added layer of complexity. Suddenly management and employee attention is divided between how to scale the old business while also trying to achieve product-market fit with the new business. Can the organization realistically achieve both goals? Can it achieve both goals and still function as a lean organization?

Clearly, there are many stakeholders to take into consideration when attempting a late-stage pivot. Pivots that occur before product-market fit has been achieved create less friction: investors want the firm to pivot so they can make money, customer opinion is less relevant because there are likely few customers, and the employees want the firm to pivot so their equity is worth something. However, successful late stage pivots can offer multiple benefits to the firm:

1. Late stage pivots can pre-empt competition or imminent changes in consumer behavior. In the case where a start-up knows with some certainty that their market is changing, the firm may need to pivot in order to remain relevant. In the case of Chegg, it is a very reasonable assumption that their market (students) will transition to using e-textbooks in the near future, so a pivot to e-textbooks, although late-stage, may be necessary.
2. Late stage pivots may help a company cross the adoption chasm (from early-stage adopters to mainstream). A company may achieve product-market fit with their target consumers, but, in doing so, may realize that their target market is but a small niche within a much bigger market. A pivot at this stage can allow the company to move past the chasm and into a larger market.
3. Late stage pivots can improve the monetization model for a start-up. In particular, if a start-up has a particularly lumpy revenue model (e.g. due to seasonality) or if the business model has high fixed costs (e.g. inventory), then a pivot to a model with smoother revenue or lower fixed costs may be hugely beneficial to the business in the long run and help pre-empt competition.

Late stage pivots can offer large benefits to start-ups who handle them correctly and pivot for the right reasons. In reality, the line between scaling and pivoting is blurry. Is Chegg’s move to e-textbooks and a student platform really a pivot or is it simply scaling the business? When Rent-the-Runway began renting accessories and selling cosmetics, were they pivoting or scaling? Sometimes start-ups need to start with a simple business proposition like renting textbooks in order to achieve the scale and data needed to realize a larger vision. As Eric Ries puts it:

“Successful startups change directions but stay grounded in what they've learned. They keep one foot in the past and place one foot in a new possible future.”

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