The Trap of The Sales-Led Product

francis-macdonald-6otbby2PCbg-unsplash.jpg

When a customer requests a custom one-off feature, it can be hard to say no. It can be even harder when a new customer prospect promises to buy your product… but only if you’ll make a change for them. In the best case, the sales team has identified an opportunity and asks Product to evaluate it. In the worst case, Sales signed a contract with a promise to deliver a vague, poorly scoped feature.

This will come up from time to time in every company. When it happens too often, your product becomes sales-led, at the mercy of the whims of potential customers. In a healthy company, these requests are expansions to the product’s current capabilities. For example, the prospect requests an integration with a popular business intelligence tool you don’t yet support. When it happens this way it can be good. You’ve known for a while that you needed that other BI integration. Now you have a reason to prioritize your integration and your customer is a built-in beta tester.

In an unhealthy company, these requests from sales prospects aren’t something you’d planned on doing soon, if ever. They represent large shifts from how your product works today, they’ll take large amounts of investment to pull off, and they might even make the product worse for your other customers. Still, there’s pressure to “just get it done” because you need this sale to hit your financial targets.

As this pressure mounts, Sales expands its focus and starts talking to prospects that aren’t a great product fit, but could be if only one key capability were added. They start bringing potential customer opportunities to the product team for evaluation. The product team is expected to decide if the deal price is worth the cost of building the capability and the opportunity cost of chasing this sale. No one acknowledges that the deal price might be wrong or that the deal isn’t guaranteed even with the added feature.

Sales shouldn’t be bringing opportunities to Product. They should be selling the value that’s already there. A sales leader I once worked with would say, “sell what’s on the truck, not what the truck might be able to hold.” You are wasting time selling to people who don’t value what your product does today. And not just the sales team’s time. The whole company can get caught up in chasing deals that don’t fit the product.

This isn’t to say that Sales can’t be instrumental in finding new customer ideas and markets. They absolutely should be uncovering extra value that your products can create. They should be looking for opportunities to expand your product into new places. But this doesn’t mean finding a customer that will sign if only their pet features existed. Uncovering opportunities means finding a consistent pattern of capabilities that would unlock a new market.

There are a few reasons why a sales-led process disrupts a product. One is the investment risk. There’s a large chance that a customer that says they’d like your product except for this one thing still won’t buy your product even when you add that thing.

They may be using the missing feature as an escape. To avoid conflict, a customer will tell you they love your product, but a critical feature is driving them to a competitor. In reality, they prefer the competitor and the feature isn’t all that important to them. Or they don’t have purchase authority to buy your product at all. The missing feature is just a plausible excuse.

They may need the feature but need a solution today, not weeks or months away. They’ll buy the competitive product long before you’re finished building the feature.

You might be a stalking horse for a vendor the customer has already chosen. They’re using you to drive down the price or convince the competition to build something custom for them.

Some customers, usually larger enterprise companies, are trying to drive down your price or gain other concessions. They’ll promise to buy large numbers of licenses or introduce you to other divisions or subsidiaries. They’re only going to buy a small amount of your product but are trying to use the promise of a larger sale to bring the unit price down. Or they’re using the promise of the large sale to convince you to do custom work for their small deal. “We’ll take five seats now, but when you have this new feature, we’ll buy three hundred.”

This last issue is especially insidious. You’ll over-invest in a new feature expecting a sale that never comes. And at the same time, you’ve given a steep discount to the customer. You’ll never recover your costs. I met a CEO that spent half the company’s funding expanding to a new continent, chasing a worldwide deal that promised to double revenues. The customer ended up buying only a handful of licenses in the new market and none elsewhere. Meanwhile, the company has expanded to a new market they are ill-equipped to support. It will take the company fifteen years to recoup its investment.

Chasing sales-led features further disrupts in the form of opportunity cost. Most product companies already know what direction the product is headed. They have a product roadmap steered by the overall needs of current customers and prospects. A sales opportunity that relies on a specific feature is disruptive. You will need to decide if this opportunity is more valuable than what you’re already planning. But there’s no way to know the value of either upfront. You can guess, but then you’re comparing one made-up value against another.

If you try to work by validating the business value of individual sales opportunities, you’ll lose. There’s too much outside your control. You can’t control whether the customer will decide to buy from you. You build for markets instead of customers because you have more control by doing that. You have more attempts, and having a market of lots of customers means you only need a subset of them to buy. You’re diversifying your risk by building for a market of many. When you build something to sell to a single customer, your market size is one. If that one doesn’t buy, you’ve failed.

Sales will try and tell you that you just need to do a better job of vetting the opportunity. But validating the business opportunity is impossible. Don’t believe me? Look at venture investors. Venture capitalists are professional opportunity evaluators. And yet most venture-funded startups fail.

The best thing you can do to evaluate an opportunity is to develop a hypothesis and test fast. Build things and see if you can sell them. But assuming that you’re stuck in this sales-led situation, then the best advice I can give is to ignore the customer opportunity and evaluate it as a market opportunity instead.

Assume that the customer isn’t actually going to buy the product. Or not buy as much as Sales thinks they’re going to. Evaluate the product and market opportunity as it would exist without that customer. If this customer were not promising a large check, would we still build what they’re asking for?

Don’t delude yourself. The team will want to convince themselves that this is a great market because then you’ll build it and the customer can buy it. Your evaluation has to be honest and independent of the proposed deal.

If you’re stuck in a sales-led organization it can be difficult to move toward being product-led. The first step is getting people past the idea that Sales brings in a customer and then the company builds what the customer wants. This will be a hard mindset to change. People that think that way can’t imagine a better way and it’s scary sounding to try something else. Today you’re building for a known customer with the promise of a certain deal size. You’re asking the company to build for unknown customers with no direct revenue tied to a new feature.

It can help to examine how you ended up as a sales-led company. Usually, the reason a product becomes sales-led is that the product is not generating enough sales. The pressure to close deals causes a slide into doing deals contingent on building other features. You need $250,000 to hit your yearly goal and raise the next round of funding. Here’s a customer ready to spend half that, and all you need to do is spend a few weeks building what they’re asking for.

So you toss your product plans aside and build what the prospect is asking for. It takes longer than you thought. Then the customer buys less than you thought. Or worse, the deal doesn’t close at all. You stopped building for the market in favor of a single customer and now your product is behind. The market isn’t buying your stagnant product. This increases the pressure to close deals and pushes you to build more deal-contingent features.

It can become a death spiral for the company.

The way out of this spiral is to return to what worked in the early days of the product. Be opinionated about what key problem you’re solving. Experiment with the product to find a market that wants your solution to that problem. Execute small bets. Lots of them. As fast as you can. Dozens a day if you can figure out how.

If you’re playing darts and you need fifty points, would you rather have one dart and need a fifty point bullseye or have a dozen darts and only need a handful to land anywhere on the board?

When you only have one throw, you can’t afford to miss. It has to be perfect. You have to hit the bullseye. You probably won’t. But if you can take lots of throws, you don’t need as many to hit their mark. It’s the same way with a product. Take as many shots as you can. Iterate on the ones that worked.

In the book Thinking in Bets, pro poker player turned business consultant Annie Dukes talks about how setting limits on your bets helps you make smarter, more effective decisions in the long run.

You don’t go into a poker game thinking that the pot is a certain size so you’re all in no matter what your hand. You decide the most you’re willing to invest on a bet. You set performance metrics that tell you if you’re likely to win any given hand. If you find you can meet those metrics and stay under that spending, you keep going. Otherwise, you cut your losses and abandon that bet. You can do this because you know there will be another hand soon. You’re not trying to win every hand. You’re only trying to win more often than you lose.

You probably won’t be able to avoid Sales bringing in contingent opportunities and wanting your evaluation. When they do, think of it as a bet. Get executive buy-in for how much you’ll invest in the bet. How much are you willing to spend to see if this is a winning bet? Determine how you will measure to know if it’s winning. Decide upfront what will cause you to keep betting and what will cause you to walk away.

It’s reverse thinking from what your sales-led organization is likely doing now. Today, you’re thinking, “this opportunity is worth $X, let’s go for it.” Instead, you need to evaluate ideas by formulating a theory that you can capture an amount of value by a date. You then decide how much to spend to validate that theory. Determine what will get you to keep investing and what will cause you to move on to something else. You must work to keep all those numbers and timelines as small as possible so you don’t burn too much chasing losing bets.

I hear you saying, “but someone needs to vet business opportunities that Sales brings in.” I can pre-vet all those for you. They are not good. Reject the idea entirely. It’s not a winning way to build a product company. Don’t go that direction.

Recently Written

The Trap of The Sales-Led Product (Dec 10)
It’s not a winning way to build a product company.
The Hidden Cost of Custom Customer Features (Dec 7)
One-off features will cost you more than you think and make your customers unhappy.
Domain expertise in Product Management (Nov 16)
When you're hiring software product managers, hire for product management skills. Looking for domain experts will reduce the pool of people you can hire and might just be worse for your product.
Strategy Means Saying No (Oct 27)
An oft-overlooked aspect of strategy is to define what you are not doing. There are lots of adjacent problems you can attack. Strategy means defining which ones you will ignore.
Understanding vision, strategy, and execution (Oct 24)
Vision is what you're trying to do. Strategy is broad strokes on how you'll get there. Execution is the tasks you complete to complete the strategy.
How to advance your Product Market Fit KPI (Oct 21)
Finding the gaps in your product that will unlock the next round of growth.
Developer Relations as Developer Success (Oct 19)
Outreach, marketing, and developer evangelism are a part of Developer Relations. But the companies that are most successful with developers spend most of their time on something else.
Developer Experience Principle 6: Easy to Maintain (Oct 17)
Keeping your product Easy to Maintain will improve the lives of your team and your customers. It will help keep your docs up to date. Your SDKs and APIs will be released in sync. Your tooling and overall experience will shine.

Older...

What I'm Reading

Contact

Adam Kalsey

+1 916 600 2497

Resume

Public Key

© 1999-2021 Adam Kalsey.