Productize

1. Productization is crucial for services businesses to scale and compete

"Scalable products help to grow revenue at the same rate without having to add costs at the same rate."

Benefits of productization: Services businesses can achieve significant advantages through productization, including improved scalability, better profit margins, and higher valuations. Productization allows companies to grow revenue without proportionally increasing costs, as scalable products can serve more customers with less human intervention. This shift often leads to gross profit margins of 60-90%, compared to the industry standard of 40% for customized professional services.

Types of productization:

• Productized Services: Standardized, packaged services with fixed pricing
• Products: Off-the-shelf offerings with standardized features
• Products as a Service: Ongoing, subscription-based solutions

Market drivers: The need for productization is driven by several factors, including:

• Accelerating digitization and use of technology
• Increased competition from digital-first startups
• Changes in B2B buying behavior favoring self-service options
• Desire for improved revenue visibility and higher company valuations

2. Create a product-friendly culture by focusing on people, not just processes

"Change is always ten times harder than you expect. Without a clear vision for the strategy change, people won't change their behavior."

Vision and behavior change: Successful productization requires a clear, compelling vision from leadership and a commitment to changing organizational behaviors. Leaders must articulate why the shift to products is necessary and model new behaviors that support innovation and product development.

Key cultural elements:

• Strong, well-articulated vision
• Behavior change from the top down
• Hiring or developing the right skills
• Diversity of experience and thought
• Company-wide technical acumen
• Test-and-learn mindset

Example: Jennifer McCollum, CEO of Linkage, developed "The Linkage Way" to cultivate behaviors supporting the transition from customized services to scalable solutions. This framework focused on 20 desirable behaviors, such as "I ask questions and I bring ideas" and "I adopt new technology," which were reinforced through regular discussions and integrated into performance management.

3. Align leadership and resources to support product innovation

"To be successful, we must fully commit and invest."

Investment strategy: Organizations need to allocate sufficient resources to fund both product development and product launch. This typically requires changing shareholder expectations and setting aside 1-2% of revenue for initial exploration, with full concept development and launch costing 5-20% of revenue.

Alignment elements:

• Shareholder and executive team alignment
• Determining investment amounts
• Allocating investments across product portfolio
• Freeing up resources from existing operations
• Aligning incentives for sales and development teams

Decision-making framework: Develop a clear framework for evaluating and prioritizing new product ideas. Consider factors such as revenue potential, confidence in success, and effort required. Use tools like the RICE method (Reach, Impact, Confidence, Effort) to score and compare opportunities.

4. Define and solve urgent, expensive customer problems

"If I had an hour to solve a problem, I'd spend 55 minutes thinking about the problem and 5 minutes thinking about solutions."

Problem identification: The most successful products address urgent and expensive customer problems. Avoid developing solutions in search of a problem or focusing on minor annoyances rather than significant pain points.

Research methods:

• Customer and prospect interviews
• Surveys
• Customer advisory boards
• Online data analysis
• Existing product usage data analysis

Five Whys technique: Use the "Five Whys" root cause analysis method to dig deeper into customer problems and uncover the underlying issues. This involves asking "why" multiple times to get past symptoms and identify the root cause of a problem.

5. Co-design and develop products with customers and partners

"Co-creation is about helping the customer imagine a different future."

Co-creation approaches:

• Charter advisory boards: Involve select customers in product development
• Sell-then-build: Test market demand before full development
• Wizard of Oz testing: Simulate product functionality manually
• Concierge testing: Provide high-touch service to beta users

Development partnerships: Consider options to build, buy, or partner when developing new products. Partnerships can reduce up-front investment and risk while providing access to complementary capabilities.

Iterative development: Embrace a Minimum Viable Product (MVP) approach, focusing on building the smallest experiment that can prove or disprove assumptions about a business idea. Continuously solicit user feedback and iterate based on learnings.

6. Launch boldly, overcoming fears of cannibalization

"If you don't cannibalize yourself, someone else will."

Addressing cannibalization fears: Use the 3 C's framework to mitigate concerns about new products cannibalizing existing services:

• Customers: Clearly define target segments for new and existing offerings
• Complementary: Develop products that enhance existing services
• Christensen: Consider the risk of disruption from new competitors

Pricing strategies:

• Multi-tiered pricing (e.g., Good, Better, Best)
• Freemium models
• User-based or enterprise pricing

Effective messaging: Focus on the "product of the product's product" – the ultimate benefit or outcome customers seek. Develop a lead message, secondary messages for each persona, urgency drivers, and clear differentiators.

7. Continuously iterate and improve based on user feedback

"MVP 'learning loops' are only helpful if we commit to continuing to develop and evolve our product after we've launched it."

Ongoing testing: Implement both user testing (evaluating if users will use the product) and usability testing (determining if users can use the product effectively). Continuously gather feedback to identify opportunities for improvement.

Iteration process:

1. Collect user feedback through various channels
2. Analyze data to identify patterns and pain points
3. Prioritize improvements based on impact and effort
4. Implement changes in regular product updates
5. Measure the impact of changes on key metrics

Building a learning organization: Foster a culture that values continuous improvement and learning from both successes and failures. Encourage open communication about product performance and user feedback across all levels of the organization.

Last updated: September 28, 2024