How to Make Your Number

 

Today’s article is about how your company’s go-to-market model needs to flow out of the product strategy. We discuss product strategy and the impact on sales and marketing. To help illustrate today’s topic we will think through product strategy using Magento Commerce as a use case. As a guide for the conversation, evaluate your Product Strategy at a deeper level by downloading our 10th annual workbook, How to Make Your Number in 2017. Turn to page 108 of the PDF.

 

Our guest is Peter Sheldon, the Vice President of Strategy at Magento Commerce. Magento is a leading e-commerce platform providing enterprise solutions. Before his position at Magento, Peter was one of the foremost thought leaders at Forrester on the topic of e-commerce.

 

It’s nearly impossible to build a sales and marketing strategy that makes your number every year if you don’t fully understand the product strategy. The go-to-market strategy for sales and marketing changes significantly based on how you answer these product questions. Peter and I discuss how to bring the question of product strategy’s impact on sales and marketing to life with the Magento use case.

 

There are different types of product strategy: Market Expansion, Market Share and Market Exposure. These represent very different product strategies. Spend the time to get these right. Your go-to-market model for sales will be very different depending on which strategy is selected.

 

Product Strategy

 

For the audience’s benefit, one of the reasons why I was exciting to interview Peter is that prior to his role as the head of strategy there at Magento, he spent a few years at Forester and was widely considered to be one of the world’s thought leaders on eCommerce and the topic today of product strategy. We are going to ask some questions that are both practitioner based, as well as analyst based. The goal of the interview was to educate our audience on how to think through product strategy. We’re going to use the use case of Peter in his role at Magento.

 

To give our readers context, what does Magento Commerce do?

 

Magento Commerce is a leading open source enterprise, eCommerce platform. I use the word open source and enterprise in the same sentence because we have both an enterprise proprietary offering that we sell and monetize to larger clients and organizations. We also have an open source freemium offering that we use in the lower end of the market.

 

Peter, is your product strategy focused on participating in overall market expansion where high water might raise all ships? If so, please explain the logic behind this approach?

 

It’s a little bit of a yes and no answer. The space that we’re in, you know, the enterprise eCommerce platform space, is a very mature market. If we think eCommerce, that’s overall a very well-known paradigm. Most merchants now are doing eCommerce. The market overall is growing and is seeing double-digit year over year growth in terms of the revenues that are spent online. Most of that growth is happening inside of existing merchants. Existing merchants are seeing significant year over year growth in terms of their online revenues. In terms of their actual overall market growing, in terms of net new entrance into the market, that is certainly or that growth is slowing. I think that the water is raising but that’s not our key opportunity. We’re in a mature market.

 

That’s good lead into the next question which is: Around product strategy focused on market share performance, so if the market is maturing, that means that you might have to take share from competitors. Is that the product strategy?

 

It’s absolutely one of the product strategies, yes. We have many competitors in a market like this, as you would imagine from that the large well known software companies, through to SAS companies, through to small boutique, smaller competitors and in fact, there are more than a hundred plus players in this space. Even in the leaders, there are 10 to 20 sort of well-known competitors in this space. Now some of those competitors have been in the market for a long time. Some of them have, we would argue, are somewhat long in the tooth. I’d like to see technologies and haven’t kept up and investing and innovating on their solutions. Where we see a lot of the turn in this market is merchants, online retailers who are struggling with their legacy technology and doing or planning what we call a re-platforming project. That’s where a lot of the opportunity comes from us. Simply, yes. We are very much focused on taking market share from some of our competitors.

 

My next question is regarding product strategy here is: One approach that companies may take is to try to accelerate revenue growth by increasing your exposure to growing product markets. You mentioned earlier one of your product strategies is to take share is that you’re also exploring trying to get into new product markets and increase your exposure to those markets?

 

Yes, absolutely. In fact, I’d say this is one of our highest priority now. If we look at the market and we break it down by industry verticals, then there are certain industries that are very mature, that where the either still growth but that growth is starting to flat line. There are other industries where we’re seeing who are further behind the adoption cycle of eCommerce. Let me describe. In this B2C market, what these are merchants who are typically selling goods online to end consumers. That’s a very mature market. All the major online retailers have been selling online for the better part of a decade. If we look in other emerging verticals sale, B2B, manufacturers, distributors, wholesalers, government healthcare, pharmaceuticals, etc., these guys also sell online but not to end consumers. They’re selling to other businesses. They’re increasingly replacing your traditional EDI based procurement processes with more of our sort of intuitive eCommerce like order processes. We see, at the moment, very healthy growth in those verticals, almost hockey stick like growth. Those B2B merchants are anywhere from 3 to 5 years behind on the adoption curve.

 

We’re seeing today in 2016, growth in some of those B2B verticals in B2C sort of 5 years ago, that’s a core area of focus for us as it relates to our product strategy.

 

The movement from a B2C approach into B2B , you know we read a lot about that, that the B2Bworld mimics the B2C world, maybe 3 to 5 years behind. What are your thoughts on that?

 

That’s it exactly. What we have in a B2B world, you have buyers. They’re typically engineers, people who are procuring components typically as part of project, maybe an engineering project, maybe a construction project, etc. The old way of doing it was to have a big paper based parts catalog and you would find the parts you wanted and you would have to use your sort of SAP order entry system or procurement system. You’d have to key in all these part numbers that would go into a black hole with finance and procurement. Eventually, your parts might arrive. The reality is that those individuals, those engineers, etc., who are buying and procuring components. They’re consumers as well. They’re used to shopping on Amazon. There’s been a big push to get that Amazon like B2C experience into the corporate environment, where you now instead of using a paper catalog, have a very intuitive search, browse, navigate, digital experience on an iPad or on a large screen desktop and the ability to self-service and just order those components as if you were shopping from Amazon.

 

Greg Response: We spend a lot of times with sales and marketing leaders in B2B . We often tell them that the expectations of the customer are changing. They are consumers first. In their personal life, they’re doing the things like you just mentioned, making purchases on Amazon. When they come to the workforce and they’re spending their company’s money on projects and capital equipment, software, etc., that’s their experience and that’s their expectation. As a go to market team, you need to understand that so that you can sell the way the customer wants to buy it. That’s a key component of making the number.

 

There’s a great report I was thinking of, going from my past life at Forrester that one of my colleagues, Andy Hoar, who writes. I used to work with him. He writes about the B2B commerce market. He wrote a great report called ‘Death of a (B2B) Salesman’. In that report, we predicted that by the end of the decade, there’ll be almost a million jobs lost in the U.S., as traditional sales jobs, you know the field sales rep, loses their job to eCommerce. It’s a shift from that sort of door to door, field sales mood, to an electronic purchase.

 

Greg Response: I think the low end of the sales job, the transactional job, is going away because there’s no value. A sales person in that environment doesn’t add any value to the customer. It’s more convenient, more easy, more value can be had through an eCommerce engine. What’s that going to do, is that’s going to push the sales professionals upmarket. They’re going to have to sell complex solutions where their involvement in the buying process for the buyer is one of being a consultant and helping a customer think through their problems, select from a set of complex solutions, really be a consultant. That’s exciting.

 

Sometimes people see that report and they hear that stat that a million jobs are going away. They dig their heels in and they say hey, that’s my livelihood. Don’t threaten me. I would reframe that in another way, which is those are low value jobs. That’s not really where you want to be. You want to accelerate yourself into the high value jobs.

 

I asked Peter three questions. These questions were around three different types of product strategies. They were: market expansion, market share, and market exposure. These are three very different product strategies. The questions appear simple. Don’t confuse simple with easy. For those that are listening, spend the time to get these right. Understand that your go to market model in marketing and sales is going to be quite a bit different, depending which of those three strategies you embrace, or which ones you prioritize. In a moment, we’re going to continue this conversation and ask some other questions around other types of product strategies, pulling the theme through this show, which is your go to market model needs to flow out of your company’s product strategy.

 

Is your product strategy to enter fast growing product markets and take revenues from distant companies, rather than from direct competitors?

 

That’s a great question. Our main strategy I would say because we’re in quite a mature market is to take market share from existing competitors. When we look at where our opportunities come from in the funnel, the majority of them are already using some kind of eCommerce platform. There’s very few net new organic opportunities where they no eCommerce business today. I mean, it does happen but they’re few and far between. What we do see though, when we think about distant companies, there’s still a lot of home grown eCommerce technologies out there. These are online retailers that have built their own custom eCommerce platform. A lot of those things now are very sort of hard to maintain. There’s still a very healthy business for us, taking market share from what we would call the homegrown category, the custom-built category. That’s still a very healthy market for us. I’d say we have a focus on that, and then obviously, a focus on taking market share from existing competitors.

 

Greg Response: What we just learned there from Peter is make sure you’re thinking about competition correctly. If you’re in a mature market and you’re trying to take share, don’t just define the competitors as the current leaders. Draw that set of concentric circles that expands out. You’ll find that there’s other segments of the market that you can go after. Peter just shared us an example of the home-grown market.

 

Is the project strategy to develop new products that are so innovative as to create an entirely new product category?

 

Yes, this one is, I think, difficult to do, not impossible but difficult to do in a mature category space. What we tend to see … Listen, it happens, but we tend to see well-funded small startups doing this. I think it’s more around a strategic partnership and acquisition strategy as it relates to those startups. I think it’s very hard for an established leader like Magento to really have the focus to go after these potential areas. You’re effectively placing bets. You would have to create dozens and dozens of new product lines with all their own potential product innovations. You might get a win or hit with one or two of them. I think the way that most the larger enterprise players like ourselves tend to look at this, it’s not that we’re not individuals. We are driving innovation in the core product, but we spend a lot of time looking at potential acquisition strategies for small companies that we can potentially take on board during the early phase of their growth.

 

Is the product strategy to grow by persuading existing companies to buy more of a product or related products?

 

The answer to this is yes. There’s the Trojan horse strategy here. We are, as many of our competitors are, a multi-product portfolio company. We have many products. They can be sold bundled as a suite. Our strategy is very much to be able to sell those individual products as stand alone. In the market that we’re in, we’re selling complex enterprise software. You know, our customers who are major billion dollar retailers, do not do sort of complete end to end re-platforming of their technologies. It’s far too risky. It’s too expensive. It takes too long. They tend to replace individual systems and components. They typically have a multi-year or five-year technology transformation program in place. You’re never going to get your whole suite in the door. Even if you’re an oracle IBM, that strategy generally doesn’t work. What you’re going to do is get a product in the door.

 

By having a diversified product portfolio, it is about the Trojan horse. Even if you get one of your, perhaps less strategic products in the door, you can then start building relationship with the company. You can find other opportunities within the company. A lot of our clients are multi-divisional, international firms. You sell the product into one division, one market. You can then use that Trojan horse strategy to get adoption of that product in other divisions and other international markets and to then do land grab and then position other products in your portfolio in that account over time.

 

As I heard you, the Trojan horse scenario is land and expand model. You’ve got a product portfolio, so you have many products. Your buyers are unlikely to do forklift upgrades. They’re likely to have a multi-year strategy where they replace technologies as they go, given the you’re at risk profile and the sensitivity and mission critical for that revenue stream. I totally get that. This means that the task at hand for the sales team is cross sell and up sell. I have seen companies really struggle with this. When you come out with these new products and you add them to the portfolio, do you ask the existing sales force to sell these new products or do you take these new products to market through an entirely new sales channel?

 

Typically, we only have one sales force. As we’re launching products, which we do on a regular cadence, it’s our existing sales force, existing account managers, who own the relationships with the existing base, who will then do the up sale. To support them, however, we have a couple of strategies. One, we typically do have dedicated solution engineers that have particular expertise in each of the products. An account manager could bring in a solution engineer that will have particular expertise in the new product. That’s the first part.

 

We’re also a very partner channel lead organization. A lot of our opportunities and leads come through the partner channel. A bit part of our strategy is making sure not that our direct sales force is aware of these new products, are trained in them, know how to position them, know how to cross-sale them. It’s potentially far more important for us to make sure that our partners are aware of these new products, that they’re enabled, that they have training in the new products, that they have demos of the new products, sort of sandbox environment so that our partners can go and evangelize those new products into their accounts.

 

Peter, is the product strategy based on new product pricing and promotion in a mature market and, therefore, likely to be temporary due to retaliation?

 

Yes, we’re in a mature market but we generally don’t get into heavy discounting or creative promotions. We’re very much a value based proposition in sales. We do see situations where competitors will significantly drop their price. In some cases, for strategic reasons, give away licensing for free. It’s a very slippery slope to just sort of compete there. What we generally see in the market is that the product that we’re selling is a very strategic sale. If we think about the growth in digital, the companies that are buying enterprise eCommerce platforms are making a long-term investment in best in class technology to grow their digital revenues. We’ll see situations where we may hold the line on price and a competitor may significantly discount to the point when they’re significantly cheaper than us, but we will still win the deal and vice versa. I think the merchants really are buying, at least in the market we’re in, are buying the solution that’s right for them, that’s going to give them the growth that they need over the long term, and are less focused on short-term discounts.

 

Greg Response: I asked that question. It was somewhat of a trick question. Peter gave us a great answer. You know, product packaging and pricing is not a product strategy. I see so many organizations try to take the same old products and just package them up differently in a mature market and say, you know we’ve got this new thing. That word ‘new’ is used way too often. The challenge with that is it’s just not sustainable. Those are things that can be retaliated against easily. Do what Peter has done and avoid that trap.

 

Is the product strategy to force smaller companies out of the market and pick up their share? It sounds like you got a 100 plus companies with pretty much ten leaders. Let’s just say there’s ninety smaller companies out there. Can you squeeze those guys out of the market?

 

No, no. Absolutely not. I mean even if you try, new guys come in. We’re in a situation where we literally hear about and see new start up competitors almost monthly. Some of them are well-funded. There’s a lot of VC capital going into this space. Even existing vendors creating new offerings in the market, etc. It would be an impossible strategy and not one that we take. The 10 leaders typically have the lion share of the market share. There’s a lot of risk I think for merchants taking on board a sort of small startup. We don’t spend a whole like of focus trying to win market share from the smaller start up end of the market.

 

Two more questions here for you. The next is: Product strategy for you, is it, for a concentrated market to cycle through kind of market share give and take with no permanent share for any one competitor? I ask this question and now that I have the context of some of your previous answers, it’s an interesting one because you’ve got lots of players in the space. It’s a mature market and taking share is what you’re trying to do. Share gain is tough to maintain. How do you do that?

 

Well, so you’re absolutely right. We’re in a market where everyone is jostling against everyone else. Everyone has competitive strategies, take down strategies against your competitors. You win some, you lose some. You’re focused on taking deals away from your competitors. If you’re not focused on retention and making sure your existing base are happy, you can simultaneously be losing accounts at the same rate that you’re gaining. That’s not good for anyone.

 

I think, luckily, we’re in a market that’s still growing. A growth market, and so, there are net new opportunities. There are also competitors that I would sort of classify as in that sort of the dying phase, where they’re really seeing a significant loss of market share with little or no hope of regaining that market share because of legacy product issues or reputation in the market or financial concerns. We are in that situation where I think you must be laser focused on retention. It’s great having a growth strategy and plucking deals away from your competitors. If you’re not laser focused on maintaining your base and then the retention of the merchants that you have, then you’re going to get yourselves in a very nasty situation.

 

You know this focus on retention, which is as the economy moves to a subscription based economy increasingly, there’s a heavy focus on this topic called customer success, which is making sure that your customers are successful with your product, so that when it comes time to renew, they do renew. Has your company experimented with customer success?

 

Yes, we have an entire customer success group. In fact, our business model is interesting. Although we are an on premise single tenant software application, since our inception, we operate on a SAS business model. We have our business model is an annual recurring subscription. Our typical merchants are on a three-year term. We put a huge amount of focus on making sure that we renew those accounts every three years. We have a whole dedicated team that we call our customer success team. They’re separate from our direct sale force.

My last question: Is the product strategy to execution bolt-on acquisitions to complete or extend the product offering and leveraging the current routes to market?

 

Yes, absolutely. That is the strategy. We look at product landscape and adjacent product categories. It would be a huge R & D investment for us to try and build new product categories from scratch, or our site to enter new product categories where we’re not today sort of adjacent categories but we’re bringing new product to market. It’s almost impossible. Absolutely the strategy is to make acquisitions that are a good fit, so there’s a culture fit. They’re sort of the right size solution hopefully. We tend to focus more on up and coming innovative solutions that are a technology fit, technology match for us. Absolutely, the way that we see the product diversification strategy is by making acquisitions, but the right acquisitions. I think a lot of it is you have to, in this market, make acquisitions that are a good technology fit for the technology stack that you already have. If you make acquisitions that are going to be difficult to sell alongside your existing products, that can get very nasty in terms of your integration costs and your return on investment.

 

Summary

 

It’s nearly impossible to build a sales and marketing strategy that makes your number every year if you don’t fully understand the product strategy. The go-to-market strategy for sales and marketing changes significantly based on how you answer these product questions. Peters responses to product strategy questions provided a solid use case to understand how to apply this to your business.

 

If you need more help, download our 10th annual workbook, How to Make Your Number in 2017. To request a workshop with a go-to-market strategy subject matter expert simply sign up for a MySBI account and check the box in your preferences to request a workshop.

 

ABOUT THE AUTHOR

Greg Alexander

Leads the firm's focus on the CEO’s role in accelerating revenue growth by getting the product team, the marketing department, and the sales organization into strategic alignment.

Greg is the host of The SBI Podcast, the most listened to sales and marketing podcast on the internet.

 

He is the host of SBI TV, a monthly television program broadcast on the internet featuring top B2B sales and marketing leader sharing their strategies to grow revenues.

 

Greg is the Editor-in-Chief of The SBI Magazine, the leading B2B publication focused on sales and marketing effectiveness.

 

He is the author of two critically acclaimed books Topgrading for Sales and Making the Number.

 

Greg has authored over 100 articles on SBI’s award winning blog, The SBI Blog.

 

He graduated from The University of Massachusetts Amherst with a BA in English and received his MBA from Georgia Tech.

 

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