March 24, 2024 Ā | Ā Read Online
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Welcome to your Sunday morning edition of the Growth Curve newsletter. We're here to help SaaS leaders break through ceilings. Like that great glass elevator in Charlie and the Chocolate Factory (Iām talking about the original, Gene Wilder version).Jay Nathan, GrowthCurve.io
The most interesting conversation I had this week was about gross retention and product market fit.
(My kids would definitely not agree that this was āinteresting,ā but Iām hoping you will. Hang with me.)
The person I was talking with made a point I have never considered.
Iāll call him Frank for now.
Frankās background is account management, and when he first found out about customer success, he fell in love with the idea.
But over time he realized that the focus on gross retention was causing problems.
Arenāt customer success teams supposed to care about gross retention?
Well yes, of course.
But in their pursuit of gross retention, Frank realized his teamās primary instinct was to push for customer-requested product features as a means to drive it.
Weāve all heard it before, āif we donāt build XYZ feature for Acme Corp, weāre in danger of losing them.ā
The product team scrambles to prioritize and deliver the feature. The CSM, proud of their successful advocacy, marches back to the customer and proudly shares the good news that their request has been granted.
But what's really happening here?
The product team agreed to shift priorities and take on an unplanned project.
The requirement is somewhat bespoke, but other customers might also benefit. Maybe itāll even help on some of those big new opportunities in the sales pipeline.
One quarter later the team delivers. The feature works just well enough for the customer who requested it. But other customers have not found it useful. Their needs are just different enough that it doesn't work for them.
Because it was a special project, nobody in product development owns maintaining it. It's buggy. And sometimes it breaks with new releases.
If youāve been in customer-facing roles for any amount of time, youāve seen this story play out over and over.
In a software company, the most scarce and precious resource is product engineering.
Full stop.
The leverage you get from an engineer is massive. Software isnāt cheap to build. But once shipped it generates average Gross Margins of 65-85%.
The ability to sustain these high margins depends on your companyās ability to align ongoing development efforts with the needs of existing customers and the market segments you are pursuing.
This is relatively easy to understand. But the part I hadnāt considered, which Frank illuminated for me, is product market fit drift.
This is when special requests begin to make our product look more like something Dr. Frankenstein assembled in his lab than a cohesive, purpose-built product for a discrete, target customer.
Now donāt get me wrong. Thereās nothing wrong with an evolving product vision.
Most companies push upmarket as they gain traction. Once there, they enjoy higher annual contract values (ACVs), long term contracts, and more competent customers.
But in my experience, customer-driven development is haphazard way to go about it.
Nine times out of ten, the better approach to avoiding product-market fit drift is to maintain focus on the widest possible addressable market.
I learned this lesson again, and in a very personal way, over the past month [1].
A notable software company asked me to speak at their annual customer success kickoff meeting. They had a specific topic they wanted me to cover. I agreed to build a talk and a workshop based on their request.
I spent the next four weeks scrambling to develop new content that met their needs. It was stressful. A little "buggy," and I incurred real opportunity costs, professionally and personally, for taking it on.
The good news is that I have a new workshop [2] I can offer for future requests.
But it wasn't in my plan.
Just like the SaaS example, Iāll market this new offering. And if I'm lucky, I might get the opportunity to deliver it again.
(For the record, the team and the event were lovely. I was grateful for the opportunity.)
The line between customer-centricity and a strategic vision is razor thin.
If you donāt have an opinionated product perspective and strategy, working closely with customers like this can be a great way to figure it out.
But once you have product market fit, strong product leaders strive to maintain it. They consume and assimilate a high volume of inputs to create market vision.
They hold the line on anything that threatens to pull the product and the company off course.
They spend a significant portion of their time educating the company on the vision and direction.
They make sure every executive, middle manager, and individual contributor can communicate and defend the vision to prospects and customers.
Think about your last product conversation. Was it about winning or saving a single customer? Or was it in pursuit of a broad strategy designed to win your target market?
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[1] They say there are no mistakes in life, only lessons. But there are some lessons I keep learning over and over.
[2] The workshop teaches customer success, account management, and sales teams how to become a Trusted Advisor. Itās based on David Maisterās book, The Trusted Advisor. If youāre interested in learning more, let me know.
[3] For the record, the team and the event were both lovely, and I think they got a lot out of what we did together. As did I. This isnāt about them at all. Itās about my decision to take on bespoke work versus building the very best product that targets the widest possible addressable market.Whenever you're ready, there are 2 ways we can help you:
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