Strategy for IT vendors: a worksheet
Much of what I do for a living* boils down to critiquing IT vendors’ strategy — for sub-10-person startups, for the largest companies in the IT industry, and for companies at all stages in-between. In the hope of making strategy analysis simpler, I’ve compiled a list of questions that every enterprise IT vendor has to answer, if it is to understand its own business. They’re posted below. If you can’t answer these questions, you don’t really have a strategy.
*E.g., consulting via the Monash Advantage and predecessor services. Every question on the list below has arisen recently in the course of my work, most of them many times over.
If you run an IT vendor, help run one, or aspire to do so, then I encourage you to give these questions a whirl. If you don’t think the answers are all knowable — either now or for the foreseeable future — it’s still advisable to make working guesses. Flexibility is a virtue — but even so, having a tentative strategy is far better than having no strategy at all. Strategy is to execution as design is to coding. The best time to fix software bugs is before you start coding; the best time to fix a bad strategy is before you’ve committed yourself to executing it. Yes, both the design and the strategy will need to be changed over time; but a smart, internally-consistent strategy is a lot better than a contradictory one, than an obviously hopeless one, or than no strategy at all.
This is a really long post, so I’ll summarize it up here. Explanations of each point follow below.
Positioning, messaging (and product)
Category: We make a _________________________________________.
Core value proposition: It is especially good at/for ___________________.
Architecture/commitment: It achieves this excellence because (we) ____.
Markets and use cases: If you ____________________, you should buy it.
Buyer universe: We sell to ____________________________________.
Competition: They perceive their alternatives as _____________________.
Competitive strengths: Our stuff is superior with respect to their alternatives in terms of _______________________________________.
Competitive weaknesses: Our stuff is inferior with respect to their alternatives in terms of _______________________________________.
Influencer perception: Influencers perceive us as ___________________.
Investor perception: Investors perceive us as ______________________.
Sales
Difficulty of adoption: To use our stuff, buyers also have to ___________.
Pricing: Buyers willingly pay us ________________________________.
Sales process: Our sales cycles are managed and closed on our behalf by _______________________________________________________.
Deal-breakers: In some accounts, _______________________________ will prevent us from winning, almost no matter what.
Team
Personnel: We hire people with the characteristics ___________________.
Competition for personnel: People join us because __________________.
Location: They are located _____________________________________.
Technical allegiance: Our offerings are dependent upon ______________.
I’ll explain some of what I mean.
Positioning, messaging (and product)
Category: We make a _________________________________________.
As I’ve described via the layered messaging model, a company actually needs and has multiple marketing messages. Still, there are times you also need a one-sentence description of what you do or make, imprecise though it necessarily will be. If you don’t have this, there will be many situations in which you can’t communicate well, or in which influencers of various kinds can’t pass your story onwards.
Core value proposition: It is especially good at/for ___________________.
This corresponds to the middle level of the layered messaging model. You need to envision generic situations or use cases in which your product excels, perhaps due to its superior features or performance metrics. If you don’t have that kind of excellence, how can you compete at all?
Architecture/commitment: It achieves this excellence because (we) ____.
This corresponds to the bottom level of the layered messaging model. You need to have an idea as to why you’ll have a sustained advantage in meeting your core value proposition. If you don’t have a sustainable advantage, why will you succeed?
Markets and use cases: If you ____________________, you should buy it.
This corresponds to the top level of the layered messaging model. You need to identify specific use cases in which your core value proposition has obvious benefits.
The most natural form these can take is by application; hopefully you can identify applications at which you shine and also particular vertical markets in which those applications are important. Specific, sharply-defined technical use cases can work too. (“If you need to do many-way joins scanning large parts of a 50+ terabyte database, our system rocks!”) But without some kind of easily-identifiable target use case, how can you have effective sales, sales qualification, or marketing?
Buyer universe: We sell to ____________________________________.
To sell effectively, you need to know who will buy. That means types of company or other organization, and it also means job descriptions (even if not titles) within those enterprises. Within the customer enterprise, “who will buy” includes at least who will want to buy, who will pay for the purchase, and who else will have to approve or not-veto it.
Competition: They perceive their alternatives as _____________________.
If you don’t know who or what you’re competing against, how can you be sure you’re doing anything right? Competition can include any or all of:
- Reasonable marketplace alternatives.
- In-house solutions.
- No decision/action at all.
Often your top competitor, especially in the early days, is a combination of all three, as your target customers make do by hacking around existing technology as best they can.
Competitive strengths: Our stuff is superior with respect to their alternatives in terms of _______________________________________.
Be realistic here, or you’ll lead yourself astray. Note that the answers you provide may have different force in different use cases, markets, etc.; that may provide a good guide as to where you have the best competitive chances.
Competitive weaknesses: Our stuff is inferior with respect to their alternatives in terms of _______________________________________.
Be realistic here too, or you’ll lead yourself astray even faster. Once again, note that the answers you provide may have different force in different use cases, markets, etc.; that may provide an even better guide as to where you should focus your efforts.
Influencer perception: Influencers perceive us as ___________________.
Hopefully, the way you describe yourself and the way you are perceived are aligned. Even so, what people think of you is likely to be only a subset of what you think of yourself. The part of your messaging that other people accept is the part that actually aids your business success.
Few people get their impressions about you directly, mainly:
- Core influencers with whom you maintain significant personal relationships.
- Existing customers whose impression of you comes almost solely from how you perform in their account.
Almost everybody else gets their impression of you refracted through influencers, where by “everybody else” I mean prospects, the people who originally bring you into customer accounts, other influencers, and more. Even those whom you talk with directly, such as sales prospects and press, can be strongly affected by what other press and analysts (or at an earlier stage angels and venture capitalists) have to say.
Investor perception: Investors perceive us as ______________________.
At a minimum, investors (including VCs) and stock analysts are influencers. If you like to have money, they may be more important than that. Different kinds of investor and investor-influencer are most important at different stages of your company’s life.
I’ve seen companies get literally destroyed because the strategy they felt they had to pitch to VCs was different from the strategy they actually believed in executing. Don’t go there. Find the investors that match your strategy, not the other way around.
But the need to get investment can add a degree of difficulty to your messaging and your influencer outreach. And if you can’t figure out what kind of investor would believe in your strategy — well, maybe the whole investing world is correct, and your strategy isn’t really that good after all.
Sales
Difficulty of adoption: To use our stuff, buyers also have to ___________.
If you sell a $10 product that costs $1 million to use, your selling costs are likely to reflect the $1,000,010 total cost of adoption. No doubt they will be a lot more than $10/deal. This is not good.
Cash cost of adoption isn’t the only issue, of course; there’s also time, risk of failure, need for buy-in from other departments, and occasionally even regulatory approval. But in any case, you should:
- Think about what is truly being bought when your customer decides to buy from you.
- Make sure your sales and marketing resources are in line with the magnitude of the true sale.
- Make sure your revenue expectations from a sale are in line with its cost and difficulty.
That you may need to get some of your initial customers and references by selling at a pittance doesn’t undermine this general point; eventually, you do want to make a profit.
Pricing: Buyers willingly pay us ________________________________.
So what can you charge? The answer depends on, among other factors:
- The value your buyers believe they will get from using something like your product.
- Your product’s differentiation versus alternatives.
- The total costs of adopting and owning your product.
- Your customers’ general attitudes toward paying for stuff.
Also, it’s important to consider how customers are used to paying for products they’ll regard as analogous: Purchase? Subscription? Priced per user? Priced per terabyte? You want pricing to appear to them as sufficiently simple, fair, and free of risk or surprise.
Sales process: Our sales cycles are managed and closed on our behalf by _______________________________________________________.
If you can’t describe a workable and repeatable sales model, you don’t have a strategy. Please note that “we’ll sell through the channel” is very rarely a complete answer, at least in enterprise IT. Almost always, you’ll need something that resembles a direct sales force, field or inside as the case may be. Even if you have partners who are collecting leads, managing sales cycles, and signing contracts, nobody else cares as much about selling your product as you do. Nobody else knows as much about how to sell it either.
And the partners who are exceptions to that general rule? They’re typically market specialists — such as vertical market application providers — to whom you have to sell much as you might to traditional enterprises.
Deal-breakers: In some accounts, _______________________________ will prevent us from winning, almost no matter what.
Enterprise IT buyers typically go into a product selection process with certain rules or strong inclinations, in areas such as:
- How proven a product or vendor must be in the market (references, financial strength, etc.).
- Which platforms or architectures they want to support.
- What kinds of vendor lock-in they will or won’t tolerate.
- Which specific features they absolutely insist on having.
If there’s something — company size, product features, architectural philosophy, whatever — that dooms you in certain accounts, then you’re not in the business of selling to those accounts until you get the objection addressed. (At some accounts, you never will.)
Team
Personnel: We hire people with the characteristics ___________________.
If you don’t know who you’re trying to hire, and why, you’re unlikely to build a winning team. The answer to “Who?” should always come in at least three parts:
- Character, personality, and approach to work.
- Skills and knowledge.
- Resume demonstrating tests of the skills and knowledge in situations like your own.
All three areas are important, but they’re listed in declining order. If you’re very sure of a match in the first two, the third is unnecessary; if the third area is critical (and it often is), it’s mainly to validate what you think or hope in the first two respects.
Competition for personnel: People join us because __________________.
You don’t just need to know who to hire; you have to be able to hire them. Part of that is telling an inspiring story, and one they think will lead to project and corporate success. Part is corporate culture. Part is terms and conditions of employment. Part, of course, is just finding them in the first place.
Hiring people is every bit as important and difficult a sales job as selling product is.
Location: They are located _____________________________________.
Yes, this really is a core strategic issue. Building your company in the wrong place can doom it.
Some kinds of people are extremely hard to find outside certain geographical areas. For example, a large fraction of the people in the world who’ve done DBMS marketing over the past 20 years did it in the San Francisco area. To a lesser extent, that’s true of DBMS development as well, especially if you add Boston to SF.
Of course, you can operate in a distributed manner — but that puts its own kinds of constraints on the people you can hire and expect to be productive and effective.
Technical allegiance: Our offerings are dependent upon ______________.
Your team doesn’t just consist of your employees and outsider advisers. Even more important may be the outside vendors and projects upon whom you choose to become dependent. If your stuff doesn’t work unless your customers buy a specific other vendor’s stuff too, then that vendor’s strategy — in terms of technology, pricing, positioning, and everything else — pretty much becomes your strategy as well.
Follow-on posts
- Notes on pricing (May, 2013)
- Notes on positioning (April, 2013)
- Marketing in support of recruiting and retention (June, 2012)
- Execution worksheet (January, 2012)
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I’d have asked where the founders and executives come from. Previous experience and success are often good predictors of future success.
That’s a fact as much as it’s an element of strategy. đ
And while to a first approximation I’m a huge believer in relevant experience, it needs to be evaluated somewhat carefully. I like a close industry match, so that people understand coming in what some of the key issues are. But I also like the proven ability to succeed in a similar kind of company.
Above all, I like the ability to quickly learn what you don’t know, because no startup founder will come in with more than a small fraction of the knowledge or skills she will turn out to need.
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