This one starts with a Steve Jobs quote. Love him or hate him, nobody disputes that he lived for his product vision and cared deeply about the experience of his customers.
“If you were a product person at IBM or Xerox, so you make a better copier or computer. So what? When you have monopoly market share, the company’s not any more successful. So the people that can make the company more successful are sales and marketing people, and they end up running the companies. And the product people get driven out of the decision making forums, and the companies forget what it means to make great products. The product sensibility and the product genius that brought them to that monopolistic position gets rotted out by people running these companies that have no conception of a good product versus a bad product. They have no conception of the craftsmanship that’s required to take a good idea and turn it into a good product. And they really have no feeling in their hearts, usually, about wanting to really help the customers.”
If you’re a startup, it can be difficult to understand where this might apply, what lessons could be learned from it. Of course you want to help your customers. And you’re getting some traction and growth with a focus on making your product better. But let’s take this a few years into the future. Your TAM turns out to be a bit smaller than expected. There is a fresh upstart competitor who managed to snag a chunk of your customers, leading to slightly higher churn than you forecasted. But some of your customers are using your product to make a ludicrous amount of money, so you know there’s a market for your product. You hired a big team, the revenue numbers are a bit below targets, and you need to make up some of the difference. What do you do?
You could just admit defeat. Fire all those extra people. Go looking for someone to acquire the company, or tell your investors that you’ll start paying dividends. Not super attractive, but maybe you’ve had enough of the situation and don’t see a way out. And as you’re looking around for inspiration, someone with a bunch of experience, some very impressive big-company names on their CV, reaches out through some channel and makes a suggestion: those customers making all that money have a lot of juice left in them that you can still squeeze out.
So, the focus shifts. New features get moved into the ‘upsell’ tier. Even little improvements get blocked until you can figure out how to monetize them. And look at the numbers: you get some big lead customers upsold onto the new tiers, your revenues take a nice bump upwards. You start to see that familiar exponential growth in your new revenue streams. Phew, crisis averted.
There are some indicators that don’t look so good though:
- Your market penetration velocity starts to slack off. Something seems wrong with the sales funnel maybe?
- Features are taking longer to deliver. In fact, the more valuable the feature, and also the more trivial, the longer it seems to take, which makes no sense at all. Sometimes features are blocked on being monetized, but even when that isn’t the case it seems things slowed down. That upstart competitor is definitely delivering their features faster than you.
- Somehow your product offering just doesn’t seem as compelling to customers as it did in the past.
- Sales are saying they need new features to increase the sales (but they always say that, right?)
And then, it all comes crashing down. Sales plateau, or even drop dramatically. Leads are drying up. Feature delivery somehow seems completely stuck. And those lead customers, well, they aren’t paying off, because nobody else was interested in paying more for those upsold features.
So, what happened? The focus on growing the customer base stopped, is what happened. Not only did you stop trying to bring new customers in, but your existing customers noticed that you don’t really care about them - you just want them around so that you can nickle-and-dime them dry. All the little engineering papercut fixes that they normally got before, you now bog down in a monetization discussion. You forgot about the inherent value of just having a great product. And most importantly, before any feature even gets prioritized, you don’t actually really want to help your customers. You just want to make money off of them.
It’s important for long-term growth to see the relationship between you and your customers as symbiotic. If at any point this relationship breaks down, it can easily turn into a parasitic relationship. A lot of big companies in monopolistic positions have already made that switch. But maybe take a look at both the growth statistics and the mechanics of the moats of those companies before emulating their customer-hostile behaviors. Usually, the juice isn’t worth the squeeze.