You built a new feature. What should it cost?

No pressure, but the success or failure of launching new software capabilities can determine the financial health of your company. After months of investment in development, testing, and marketing, the potential payoff from landing new logos and expanding current client subscriptions is what you need to demonstrate growth to your current (and future) investors. Like everything else in life, packaging and pricing decisions are about making tradeoffs: in this case between the priorities of Product, Sales, Client, and Finance personas.

What do these personas care about? With apologies to Tolstoy, each unhappy team is unhappy in its own way, but it’s safe to believe the following motivations are true:

  • Sales wants to get paid
  • Clients want it for free
  • Product wants adoption
  • Finance wants accretive growth

Of course we could add complexity to these incentives, and you will likely face some of these complexities (and others) in your business. Does top line growth or profitability matter more to your investors in the pursuit of Rule of 40 growth? Does new logo acquisition or current client expansion matter more to your industry analysts? Does your Sales comp plan pay the same commission rate on expansion sales as new sales (i.e., is the cost of sales equivalent)? Is your product team incented on feature adoption, or build quality? Is the new feature a strong positive differentiator vs competitors, or ‘table stakes?’ And more. For now, let’s keep a simplified view and compare a few practical options to launch your new feature.

Bundle it in

In this scenario, include the new feature at no additional charge with an existing product or edition without changing the list price. Current clients already using the edition that contains the new feature will ‘just get it’ when they receive the new release. Sales will get paid when new clients purchase this edition, or when existing clients upgrade from a lower-tier edition. Finance will likely yawn unless the new feature generates significant market share growth.

This option is best suited for situations when the feature is ‘table stakes’ and restores parity to competitors’ equivalent offerings, or when adding the feature to a top-tier edition increases the perceived value and drives upsell among the existing client base. If your competitive intelligence has shown low win rates and poor perceived value of an existing edition, and your test clients showed relatively low willingness to pay for the new feature on a standalone basis, this option might be your best choice.

Raise the price

When the new feature is highly differentiating and sample buyers demonstrate a high willingness to pay, set a higher price for bundles/editions that include it. Current clients will likely be ‘grandfathered in’ to start using the new feature before a higher price kicks in at renewal. Client Success and Product Marketing teams will use this preview period to gather feedback and testimonials to validate the expected value of the new feature. These proof points will help to diffuse any resistance to the increased price from new buyers. Both Sales and Finance teams will be thrilled by the higher transaction value, assuming that win rate and deal cycle length (key variables in the Sales Velocity Equation) don’t drop concurrently.

Give them the option

A middle-ground option makes the new feature a paid add-on to existing products or bundles. This configuration can get Sales teams excited to sell something new to existing customers who are mid-term in their contract (and retire some quota in the process). Be careful that the new feature, with a value prop of its own, doesn’t get “thrown in” at a discount to close deals — undermining the Product Marketing team’s ability to validate the market’s willingness to pay, trashing the Finance team’s margin forecasts, or artificially depressing the Product team’s adoption trends (if the feature is ignored by buyers who were indifferent to it in the first place). A paid add-on will require a new “SKU” in your catalog and add complexity to provisioning/shipment and run-books for your Ops teams. If your organization has immature Product Launch processes, make sure to give these teams 4-8 weeks notice so they can review, modify, and test their procedures to support the new feature as a paid add-on.

But wait, there’s more

Launch planning can feel like a tug-of-war between numerous groups with competing priorities and often misaligned incentives. While it’s impossible to predict how your clients, prospects, and competitors will react to your launch, the concepts above might help you make a more informed decision on how to package and price the new feature.

For more information about packaging, pricing, and product launch, try these resources:

I spend most of my days thinking about packaging, pricing, monetization, and the lead-to-cash cycle for a B2B SaaS business. I’m open to questions, feedback, challenges, and new ideas from people in the same situation – please leave a comment or contact me directly.

This post first appeared at leadertainment.com. Image credit: schoolspecialty.com

Compared to What?

Life is about making choices, and those choices have consequences. In business, leaders are constantly making choices: which projects to prioritize, which candidates to hire, which vendors to select, which targets to acquire, which virtual background to use in the next video conference.

If business is a test, many leaders under pressure often treat these decisions as true-false questions rather than multiple choice. They look at each potential solution as soon as it’s visible, and decide “yes or no:” if yes, stop looking for alternatives; if no, move on to the next yes-no decision.

Another approach is to collect potential solutions and evaluate them as a set. What are the comparative strengths of each? How could the leader construct a hybrid solution by combining the best components into a single solution? Can one long-shot solution become negotiating leverage against the incumbent? And finally, have you evaluated your potential actions against the alternative of “do nothing” ?

Maybe take a little longer to understand the alternatives?

But don’t dawdle: according to some research on optimal decision making, collecting too much information before making a decision can be worse than making a snap judgement using intuition alone.

Once a decision has been made, is a leader willing to change course if the results don’t come through as expected? A common bias is the sunk cost fallacy – the cause of “throwing good money after bad.” After making a decision, re-assess the path you are on versus the alternatives that are still available. Net of additional switching costs, can what you have learned since the initial decision lead to a better outcome with an alternative solution?

Leaders face a barrage of decisions each day. My intent is that the techniques outlined above help you achieve better outcomes from at least a few of those decisions. Please use the comments to provide your feedback and questions.

TIL: the agenda is a suggestion

Today I Learned

Meetings are a request for scarce resources, made days (or weeks) before the event. In the time between the meeting request and the event, new information appears and relationships evolve.

What this means to me

Any discussion should include the most important topics that the attendees need to address at the time of the meeting, not only those proposed in the agenda when the meeting was scheduled. If we don’t, we are wasting scarce resources, denying ourselves the current truth, and ultimately weakening our relationships.

Putting this knowledge to work

After reviewing the proposed agenda for a scheduled meeting, raise what I believe to be the most important topics to the discuss with the other attendees, and allow the group to decide how to devote the remaining time. Follow up 1:1 afterwards as needed to discuss the most important topics.

Two quick examples

  • Arriving at a standing monthly meeting, we review the pre-defined agenda and standard “status deck.” There are critical resourcing issues that emerged since the last meeting that aren’t on the agenda but are impacting the team’s rate of progress, so I ask the team is we can spend 10 minutes during the current meeting discussing that issue or to find another time before the end of the day that’s more convenient .
  • When I get a vague or empty meeting request from a person I don’t work closely with, I decline the meeting request and politely request clarification on what they want to achieve with the discussion. Sometimes a quick phone call can help soften this reply as it’s somewhat unusual in corporate culture.

References

If you have questions or feedback about this idea, or about my new short-form post type “TIL,” please leave a comment below.

TIL: the stress comes from guessing

Today I Learned

Anxiety and stress in our most important relationships arises from guessing what others want from us, and from guessing how we should “show up” for them.

What this means to me

During intense conversations at home or at work, when I am guessing what the other person needs from me I feel anxious and physically stressed. This causes the conversation (and therefore the relationship) to degrade in a few ways:

  1. I’m no longer listening fully to the other person because I’m distracted by thinking about my own feelings and needs.
  2. In a state of “arousal” (fight-or-flight) my listening and attention will get even worse.
  3. The other person, seeing me in a stress state, could react to that with their own stress response, amplifying the anxiety and stress of the conversation.

Putting this knowledge to work

Just ask the other person what they need, and to tell them what you need, so that we can show up for each other in the most helpful way and avoid the stress of guessing.

Two quick examples

  • When my spouse starts telling me about a difficult part of the day, I can say “that sounds tough…do you need strategy or sympathy from me right now?”
  • When I am talking with someone on my team about a challenge we need to solve, be explicit about my expectations: “I just need to talk through this scenario with someone – can you help poke some holes in my hypothesis? If there are any actions for you afterwards, I’ll be specific.”

References

If you have questions or feedback about this idea, or about my new short-form post type “TIL,” please leave a comment below.

TIL: Hack the half-second

Today I Learned

The human brain takes up to half a second after receiving sensory inputs to apply judgments, cognitive biases, and labels.

What this means to me

A core personal development theme for me is to become less reactive. Instead of classifying an event as bad (or good) and labeling the person who “caused” it as incompetent (or amazing), I’m trying to delay those sub-second reactions.

Putting this knowledge to work

Daily practice to delay my reaction between an observation and a response (meditation helps here). Change my genuine reaction to an event with curiosity: see things as neither good nor bad, just things to explore and understand. Don’t react at all to things that are out of my control (yes, this has echoes of Stoicism).

References

If you have questions or feedback about this idea, or about my new short-form post type “TIL,” please leave a comment below.

How much can we achieve? Leadership isn’t enough

It’s that time of year again: most companies are pushing hard to close the final quarter of the fiscal year while simultaneously planning the budget and strategic objectives for next year. Depending on the type, size, and maturity of your business, this exercise could include anything from a rigorous, zero-based, quantitative analysis of global operations to a white board session over a beer. Or maybe not: Basecamp doesn’t plan more than six weeks ahead. Most likely, your experience involves too many revisions of painfully formatted spreadsheets that will be forgotten in a few months when the reality of daily business sets in.

Regardless of the mechanics of your planning process, the fundamental question is: how much can we achieve?

In many organizations, the answer to this question starts and ends with leadership. But when growth requires broad adoption of new systems, behavior change by the end users of these systems matters as much as, or more than, leadership capacity. Let’s look at why this matters, and what you can do differently in this year’s planning cycle to incorporate the concept.

Leaders think leadership is important. Whether it’s self-preservation or cognitive bias, many leadership teams will over-weight their role in driving change. I’m not endorsing the leaderless organization fad, and I believe it’s essential to sanity-check the number of strategic objectives and special projects assigned to each leader (in addition to his or her “business as usual” responsibilities) when building an annual plan. Even an Agile approach to program and project management, with more frequent interrogation of outcomes, risks, and blockers, can leave leaders overwhelmed. When a single leader is overloaded, delays and dependencies can put an entire program at risk. When the organization is capable of a high rate of change without enough effective leadership capacity, employees feel disengaged and top talent starts to look elsewhere. So if we’ve established that leadership capacity matters, why isn’t that enough?

Sustained improvement happens when a new, better thing happens more often than the previous, worse thing. Even in highly technical, capital-intensive industries, measurable changes in performance only occur with adoption of new solutions. Software teams can ship new features, and if users don’t adopt those features, the users don’t realize the benefits, no matter how many times in a row you say the word “done.” Managers can train teams on new procedures, and if those employees don’t perform their work differently, the same defects, inefficiencies–even accidents–will persist. Marketing teams can crank out more content, and if sellers don’t change the way they engage with buyers…you get it.

Therefore, in addition to a “top down” assessment of leadership capacity across projects, take a “bottom up” view of behavior changes during your annual planning cycle. Look across your portfolio of projects: which roles, or individuals, in the organization will have to sustain behavior change for the projects to succeed? Are we asking too much of the same people?

Here’s a hypothetical example from a fictional software company:

  • HR leadership plans to change the performance management process, using a new online tool
  • Marketing leadership plans to change the content management system, including how inbound leads are routed to Sales
  • Operations leadership plans to change the quote to cash process, including a new set of contract templates
  • Sales leadership plans to change the compensation structure, with different payouts for new logos vs account expansion
  • Product leadership plans to introduce a new self-service subscription feature as part of the next major release

From a top down view this set of projects will require cross-functional coordination, however, no single leader will be overloaded with responsibilities. Great, all set, let’s get started–right? A bottom up view of the behavior changes required for these projects to generate results, however, reveals that Sales Managers will be overwhelmed by requests from different project leaders to work differently. It is much better to identify this risk during the planning cycle than in the mid-year review, when each project leader is scrambling to understand–or worse, to blame the Sales Managers–why they are not hitting their numbers.

Leadership matters. But without behavior change that fuels adoption, results don’t stick. Try this approach in your annual planning cycle to see if it generates a greater rate of improvement–and leave a comment below with any questions or feedback.

This phrase shows you’re a disengaged manager

It’s another busy week for you and your team, and you are feeling very productive while working through your action list. You write a concise email to a few team members with the intent of delegating work for the coming week, and cheerily close with this line:

Let me know how I can help.

— what you said to your team

Those six words have just sent a powerful, yet subtle message to your team:

I want to maintain the appearance of supporting you, but I’m not actually engaged in your success.

— how your team perceives you

Genuine support arises from setting clear direction, being accessible to engage, and providing effective coaching. “Let me know how I can help” creates a veil of accessibility, while placing the burden entirely on the team to understand the direction and seek out the manager’s support. The irony of the disengaged manager is that the team members who could benefit most from support — those with the greatest need for direction and coaching — have the largest barrier to receiving support.

After clearly establishing the mission and purpose for the team (“the why”), setting clear direction means that you’ve defined both what to do and how to do it. To use a trivial example: when my family works together to prepare dinner, the why is an expression of our values (satisfy our nutritional needs, self-sufficiency, appreciation of diverse cuisines, etc.). The what is a set of tasks and recipes that comprise the meal, and the how is a standard of quality and steps to follow so that no one gets hurt and the meal is tasty.

In a work environment, the manager needs to discern whether the team member needs help with what to do or how to do it (or both). Asking questions (“Tell me how…”) and reviewing draft work product (“Show me what…”) are effective techniques to assess any gaps. The manager should be doing much more listening than talking in this interaction. The table below suggests some practical steps for the manager depending on each team member’s situation.

It’s not your team members’ responsibility to let you know how you can help them. As an engaged manager, genuine support arises from:

  • Setting clear direction by expressing the mission and purpose of the team’s work in clear and compelling terms (“the why”)
  • Being accessible to engage by scheduling regular 1:1 checkpoints and leaving blocks in your schedule when your team can find you for informal, ad hoc collaboration
  • Providing effective coaching by assessing whether each team member understands what to do and how to do it, and then following through with the right type of support for the scenario

How does this approach fit with your team culture? What’s stopping you as a manager from engaging more with your team? What’s an even better way to provide genuine support? Leave a comment below…

Delegate everything

All of the time management books, blogs, lectures, and videos you’ve already seen boil down to two concepts:

  1. Prioritization: Is the right work getting the right amount of resource overall?
  2. Delegation: Is the active work being done with the right leverage in the organization?

Since “the right work” is always a mix of urgent, strategic, cash-generating, compliance-driven, and internally-focused tasks, the list can seem nearly endless. For that reason it can be more useful to flip the question: rather than asking “what work should be done today?” instead think about prioritization as deciding what work should not be done by anyone in the organization.

By extending the same logic to a manager’s own work list, think about delegation as deciding what work should not be done by the most senior person on the team.

Recently I’ve attempted to take this principle to the extreme by challenging myself to delegate everything. Does this mean that each day I do…nothing? Of course not (although I still aspire to). It does mean that for each new task that passes the prioritization filter above, I ask the following questions:

  • Who on my team has already demonstrated the capability to complete this work successfully?
  • Who on my team could take this work as a development opportunity?

Then I will spend a few minutes with these folks and review the “what by when” to ensure that the deliverable, the ready date, the standard of quality, and the approach are clear.

Now in many cases the team member(s) are not yet ready to take on the new work, either because the capability gap is a bit too large, or other work must get done within the available time. Whenever possible, it’s best for the team member to attempt the work even if the manager completes it, both for the experience and to capture some specific feedback that supports his or her professional development.

Regardless of whether the team member completes the delegate-able work, both the manager and the team member benefit:

  • More frequent calibration on the team members’ capabilities and gaps to the next level
  • More frequent and more specific feedback
  • More visibility into the “day in the life” of the manager, which helps to increase transparency about the present (“what does she do all day?”) and the future (“do I really want that job one day?”)
  • More effort applied at the highest point of leverage in the organization – meaning that work is done by the most junior person who can complete it successfully. This creates capacity for both senior and junior resources to tackle more challenging work

Delegation is difficult because when done properly, there is a genuine risk of failure for both parties. By attempting to delegate everything, you are flipping the question from “what can I delegate?” to “what can’t I delegate, and why?”

For more information on delegation, time management, and organizational design, try these books by Eliot Jaques, Andy Grove, and Peter Drucker.

What do investors want, and how can you satisfy them?

In this context, by “investors” I mean professional managers of (mostly) other people’s money, that move millions at a time — not retail savers like most of us with thousands in a retirement account.

Investors want predictable returns that match the risk-weighted expectations for the portfolios they manage.

Every type of investor has a certain risk profile and horizon over which want to achieve returns. And that rate of return will always be compared against some benchmark, hurdle rate, or previous high water mark.

Risk-weighted expected returns are negative here.

Here are some investor type examples, listed in order of decreasing tolerance for volatility:

  • Angel investors want to “give back” to early entrepreneurs by providing their money, advice, and time with minimal expectations of financial return
  • Venture Capitalists will tolerate writing off 9 investments to get one with a 10x exit
  • Private equity partners want 8% IRR in a 6 year horizon
  • Retirement plan administrators want “5 real:” that is, 5% annualized growth after adjusting for inflation and foreign currency exchange

In equity investments, return on capital comes from share price appreciation and dividends. Recently share buybacks have become a hot topic, as an alternative means of returning excess earnings to investors (instead of dividends), but let’s leave that aside for now (instead, read what Matt Levine has written about it). The new theory views public markets as a way to return capital to early stage private investors — again, out of scope for this post.

From this point, let’s narrow the scenario: you are a leader at a publicly traded company. With stock that trades on the public markets, you need to know what kind of returns your investors want. Index funds, representing a large share but not the  majority of equity investors, want the index, which is an aggregate of the prices of the individual stocks in the index, to rise at some multiple of inflation. Some investors speculate on companies being acquired at a premium. Any “long” investor wants prices to grow over time. For a given P/E ratio, earnings growth gets you price growth. Higher earnings growth, sustained over enough reporting periods to establish a new expectation, can command a higher P/E ratio and therefore a greater rate of return on the same annual earnings growth rate.

Drilling down another level, the best way to achieve earnings growth is through revenue growth at constant margins. I say “the best” because revenue has no practical upper limit for a single company, while cutting costs to grow earnings will eventually run out of costs to cut. Revenue growth at constant margins isn’t easy — it’s the stuff careers are made of, or broken by.

I’m fortunate that my entire career has been devoted helping companies achieve more profitable growth, either as a consultant or manager, in both “old tech” and “new tech” industries. I am constantly learning from my direct experiences and case studies of other businesses. Some industries, like energy, healthcare, and FMCG, require significant capital investment across complex global supply chains. Timing these investments within business cycles, maximizing returns of a capital projects portfolio, and pursuing operational excellence are essential in saturated markets with low levels of consumer loyalty and commoditized offerings.

The tech industry contains a different set of growth challenges with different economics: achieving product/market fit then scaling up investment in sales, marketing, support, and infrastructure. Growing markets, loyal (or fickle) consumers, fierce competition for talent and regulatory uncertainty provide endless alternative scenarios for management teams to evaluate when making decisions.

So, when determining what strategy to execute, what projects and initiatives to fund, and generally where to focus your scarce leadership attention, first understand what your investors want based on their expectations for risk-adjusted returns.

Here are some additional resources that you might find useful:

Image credit: Tristan Surtel [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)%5D, from Wikimedia Commons

What’s the difference between an intern and an apprentice?

All careers start on a steep learning curve: doing new work in unfamiliar surroundings, often with entirely different vocabulary and social norms than we’ve experienced before. “Fake it ’til you make it” is a common survival mode for new hires — and for many professionals, this persists for years as impostor syndrome. Ideally, learning and challenges remain as positive aspects throughout our careers, while confidence and competence replace the new hire’s feelings of doubt and confusion.

“Actually, it IS rocket science…” — NASA/JPL intern

Many professionals start gaining experience as either an intern or an apprentice. What is the difference between an internship and an apprenticeship? Both are temporary positions or limited duration contracts. Both are entry-level roles with no prior experience required, beyond education in a relevant subject.

The key differences between interns and apprentices are the levels of support and expectations applied by the employer’s organization.

Interns and apprentices: different expectations of ability, different levels of support.

As the two-by-two matrix above illustrates, apprentices have both high expectations and high support. Apprenticeship is typically the first phase in on-the-job development of a skilled trade; popularized by the German manufacturing industry and often debated about its adaptation to the US labor market. The apprentice model, however, has expanded beyond skilled trades to tech job categories like software development. Regardless of the industry, employers invest in apprentices because the apprentices represent a valuable future labor pool. Competing firms are willing to invest in apprentices’ development to strengthen the industry without the fear of poaching: employers expect that individual workers are just as likely to join a company from its competitors as to leave. In a 2016 US Department of Commerce study, individual employers reported attrition rates in the single digits, while a broader study by NCEV in Australia showed contract completion rates in the 45%-55% range (slightly higher for non-trades). Performance expectations for apprentices are similarly high, including competency checks, either formal or informal, for apprentices to demonstrate the new skills they develop as they acquire increased responsibility and tackle assignments of greater complexity.

The typical corporate intern sits in the opposite quadrant: low expectations for performance with low levels of support. Employers generally give summer interns low volumes of low-risk, low-priority work, capping off the internship with predictably low-quality presentations. Individual companies, especially those who take pride in seeing their names at the top of ranking tables, might disagree with my categorization. A notable exception is Year Up: despite the title “intern,” the program follows a model much closer to apprenticeship. As a manager, I make the personal investment to coach and mentor interns that I host, and surely other individual managers are willing to do the same. Broadly, however, corporate internships are seen both by employers and interns as networking opportunities, resume padding, and the chance to earn some summer money (and generally to spend it just as quickly while drinking with other interns). 

Two other alternative scenarios complete the matrix. The low-expectations, high-support quadrant is “nepotism:” imagine the young, barely competent relative of an executive or high-ranking bureaucrat coddled and gently steered away from career ending blunders by infinitely patient staff. The high-expectations and low-support quadrant I’m calling “rookie draft pick:” imagine the high-pressure, fend-for-yourself environment described in countless athlete memoirs. Financial services interns might argue this quadrant characterizes their world more accurately.

So whether you are a young professional seeking career-developing experience, or a leader seeking to create a pipeline of high-quality talent, understand what levels of support and expectations are in place. The balance between these two factors will determine the outcomes for your interns, apprentices, princelings, or rookie draft picks.

Image credit: NASA/JPL-Caltech/Alexis Drake