“Launching isn’t hard. Coming up with an idea isn’t hard. Making something isn’t hard. It’s everything that comes after that.” – Jason Fried.
Having written previously about the importance of monetisation to Product Managers it came as a shock recently to hear that my own product, Newsmart (a DowJones venture), is to be shuttered after nearly 3 years. Like many startups, Newsmart now cites ‘business model not viable’ as the reason it failed.
Ironically, this experience has only reinforced my view that monetisation is as important for Product Managers as the customer problem and the Job to be Done. At Newsmart, I believe we got the product right but our monetisation tactics failed; meaning we didn’t make enough money fast enough before we ran out of cash and investors pulled the plug.
As software eats the world, everyone is building digital products and most of them are being offered for free. As a result, the bigger challenge for most Product Teams is finding a business model that works rather than a solution to a customer problem. It’s much harder to establish repeatable revenue streams in digital than is generally acknowledged.
In the spirit of reflection, I thought I’d list the mistakes that (I believe) contributed to our demise. I’ll focus on factors related to the product and business model rather than the bad hires and flawed sales tactics that played their part but fall outside the typical responsibilities of a PM.
Monetisation Fail #1: We didn’t choose the business model fast enough.
From the outset, Newsmart was both B2C and B2B. We constantly debated the merits of each business model and tried to serve both for too long. Eventually we pivoted completely to B2B, but it was far too late.
The low-effort sales cycle of B2C and the immediate feedback from customers is rewarding. Growth hacking doesn’t really happen in the enterprise. B2C is hard to step away from, especially when it feels (as it always does) that you’re just about to turn the corner.
The nature of your business model is so fundamental to how you develop your product that this decision needs to be made upfront. Pivoting to B2B from B2C is time consuming and expensive (and can be fatal.)
Monetisation Fail #2: We overlooked ‘how’ users would pay in favour of ‘if’ they would.
When you are selling to a global consumer, how they pay you can be more problematic than whether they will.
On Newsmart, we supported credit cards (via Stripe) and PayPal for consumer payments worldwide and prepayments in select markets, like Vietnam. We found out the hard way that penetration of credit cards and Paypal is low to non-existent in many regions and in most growth markets (eg. China and India).
We should have explored and implemented local carrier payments, Union Pay and AliPay in our target markets much sooner. The biggest challenge we had (and a common feedback trope) was that many people wanted to pay were unable to do so.
There are also cultural factors to consider regarding the subscriptions which underpin a typical SaaS business. Subscriptions may be commonplace to Westerners used to Netflix and Spotify but can be unappealing to consumers in Asia who prefer to pay for software upfront and decide if they want to repurchase afterwards. Automatic renewals are viewed with understandable suspicion.
Monetisation Fail #3: We got the price wrong.
Marc Andreessen’s recent advice to all founders was succinct and to the point: “Raise prices.”
“The №1 theme our companies have when they get really struggling is they are not charging enough for their product. They don’t charge enough for their product to be able to afford the sales and marketing required to actually get anybody to buy it.”
Newsmart’s initial price ($7/month or $70 annually) wasn’t the result of a complex value-based calculation or cost-plus analysis. It was chosen because it didn’t seem too expensive when compared to the extraordinary range of free products in the education market.
Thanks to the price point our attempts at premium positioning were undermined and our margins were woeful: too cheap to be exclusive but too expensive for users of free products, like DuoLingo, unwilling to cross the ‘penny gap.’
After more than a year’s debate, we doubled our prices to $15/month and $150/year. There was no decline in our conversion rate. In fact, overnight, new customers went from being middle managers and analysts to CEOs. Raising prices usually yields customers with greater propensity to pay and healthier profit margins at the same time.
Monetisation Fail #4: We didn’t fully understand the B2B value proposition and optimise the product for these users.
B2B Product Managers must serve two masters (the buyer and the user), build dual value propositions, even solve 2 problems. And they need to balance the needs of both in a coherent roadmap.
If there are tradeoffs to be made, which there always are, then the best (albeit counterintuitive) option is to favour the needs of the buyer. This can be hard for user-focussed Product Teams to come to terms with. If you’ve ever used SAP or PeopleSoft you’ll see what a buyer-lead business looks like. It’s not pretty but it can be remarkably successful.
When serving the enterprise, you need to be mindful of the different user types you need to support within the system. User and device management are often primary, not edge, cases. Resetting passwords, creating new accounts and mining analytics can also be critical to the value proposition. At Newsmart, we didn’t recognise this early enough, focussing instead on improving UX for the end-user for too long.
Monetisation Fail #5: We were too focussed on the product, not the solution
To be successful, B2B Product Managers need a deep understanding of how buying decisions are made in the enterprise, how product and sales must work together to close deals and how a business evaluates the ROI of what it procures on an ongoing basis. User experience is rarely top of that list.
Companies have problems, much like individuals, but they are broader and less emotional. There is an enterprise-grade version of the Job to be Done., but we were too preoccupied with delighting the end-user to address it. Smart companies sell solutions, not products.
Nick Baum recently unleashed a refreshingly honest tweetstorm in which he admitted responsibility for the failure of Google Reader, for which he was PM, when it was shuttered in 2013.
His conclusion? Product Managers in large companies (and ventures) should act like founders. As Product Manager, it’s your job to anticipate threats and do something rather than delegate ownership to someone else. Funding is not something that is owed or deserved, it must be constantly justified even in a company with deep pockets.
My advice to all Product Managers remains the same: worry about the monetisation before you build the product and don’t delegate ownership for this. You can do everything right with the product, even have a killer team, but the commercials will blow you up very fast if you fail to focus in on them from the beginning.