The Pragmatic Marketer Volume 9 Issue 1

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The journal for technology product management and marketing professionals.

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The Pragmatic Marketer Volume 9 Issue 1

  1. 1. Volume 9 • Issue 1 • 2011The journal for technology product management and marketing professionals ®PragmaticMarketing’s11th AnnualProductManagementand MarketingSurvey Finance as a Stakeholder in Product Management Mining Content Gold: How to Interview Content Experts
  2. 2. Executive Briefing The proven way to create effective product management and marketing teams.• Review key concepts of the Pragmatic Marketing Framework, Business Marketing the worldwide standard for product management and marketing. Plan Positioning Plan Pragmatic Market Market Buying Customer Marketing • Learn techniques leaders can use to accelerate adoption. Problems Definition Pricing Process Acquisition Framework™ Win/Loss Distribution Buy, Build Buyer Customer• Designed specifically for senior management. Analysis Strategy or Partner Personas Retention Distinctive Product Product User Program Competence Portfolio Profitability Personas Effectiveness STRATEGIC TACTICAL MARKET STRATEGY BUSINESS PLANNING PROGRAMS READINESS SUPPORT Competitive Product Launch Sales Presentations Innovation Requirements Landscape Roadmap Plan Process & Demos Technology Use Thought “Special“ Collateral Assessment Scenarios Leadership Calls The of Tuned In Leaders How technology company CEOs create success (and why most fail) Status Lead Sales Event Dashboard Generation Tools Support Referrals & Channel Channel References Training Support by Craig Stull, Phil Myers & David Meerman Scott © 1993-201 Pragmatic Marketing 1Scan or download the e-book at PragmaticMarketing.com/secrets PragmaticMarketing.com/seminars Call (800) 816-7861 to conduct this seminar at your office
  3. 3. Inside this issue: Volume 9 Issue 1 • 2011 Creator of the world’s most popular 4 Pragmatic Marketing’s 1 Annual 1thproduct management and marketing seminars Product Management and Marketing Survey By Steve Johnson About Pragmatic Marketing® Each year Pragmatic Marketing conducts a survey of product managers and marketing professionals. Since 1993, Pragmatic Marketing has Our objective is to provide information about conducted product management and compensation as well as the most common responsibilities for marketing training for 5,000 companies those performing product management and marketing activities. in 23 countries. Our team of industry thought-leaders produce blogs, webinars, podcasts, and publications read by more than 100,000 every year. 16 Finance as a Stakeholder in Product Management The Pragmatic Marketer ™ By Stephen J. Konig When talking about how the 8910 E. Raintree Drive product manager interacts with Scottsdale, AZ 85260 others in the company, we usually Pragmatic Marketing, Inc. talk about sales, marketing, product development and senior Craig Stull / Founder and CEO management, but Finance is a Kristyn Benmoussa / Editor-in-Chief critical role in a company that isn’t ————————————————— talked about much. Interested in contributing an article? PragmaticMarketing.com/submit No part of this publication may be reproduced, stored in any retrieval system, or transmitted, in any form or by any means, electronic, mechanical photocopying, recording or otherwise, without the prior written permission of the publisher. 24 Mining Content Gold: Other product and/or company names mentioned in this How to Interview Content Experts journal may be trademarks or registered trademarks of their respective companies and are the sole property By Cheryl J. Goldberg of their respective owners. The Pragmatic Marketer, a Pragmatic Marketing publication, shall not be liable As technology companies increasingly turn regardless of the cause, for any errors, inaccuracies, to content marketing, their challenge is coming omissions, or other defects in, or untimeliness or unauthenticity of, the information contained within this up with compelling information. Knowing magazine. Pragmatic Marketing makes no representations, how to interview experts will help you warranties, or guarantees as to the results obtained from uncover nuggets that take your content the use of this information and shall not be liable for any third-party claims or losses of any kind, including lost marketing to the next level. profits, and punitive damages. The Pragmatic Marketer is a trademark of Pragmatic Marketing, Inc. Printed in the U.S.A. All rights reserved. ISSN 1938-9752 (Print) ISSN 1938-9760 (Online) Scan to download this issue. Available on select web-enabled camera phones Standard data rates may apply www.pragmaticmarketing.com/scan The Pragmatic Marketer The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 3 Volume 9, Issue 1, 2011 to download a free QR Code reader by ScanLife
  4. 4. P r a g m a t i c M a r k e t i n g ’s 11 t h A n n u a l Product Management and Marketing Survey By Steve Johnson Each year Pragmatic Marketing conducts a survey of product managers and marketing professionals. Our objective is to provide information about compensation as well as the most common responsibilities for those performing product management and marketing activities. Over 1,800 completed the survey between October 29 and November 25, 2010. Note: When making decisions, remember this summary describes typical practices, not best practices. For best practices in product management and marketing, attend a Pragmatic Marketing seminar.4 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  5. 5. Profile of a product manager Product Management ratios • Average age is 39 within the company When looking at staffing, it’s often helpful to• Responsible for 3 products and works see how ratios of product managers at your in a department of 6 people company compare to the industry norm.• 92% claim to be “somewhat” or “very” technical For each product manager, we find:• 33% are female, 67% are male • 0.6 Product marketing managers• 93% have completed college and • 0.5 Marketing Communications 43% have completed a masters program • 2.1 Salespeople • 0.6 Sales engineers (pre-sales support) • 0.4 Development leads • 2.0 Developers • 0.1 Product architects and designersReporting structure Other ratios of interestThe typical product manager reports to a • 1.8 developers per QA managerDirector or Vice President in the productmanagement department. • 3.0 salespeople per sales engineerReporting to Title• 39% report to a director• 31% report to a vice president• 21% report to a manager• 9% report to a CXOReporting to Department• 29% direct to CEO or COO• 31% in Product Management• 20% in Marketing• 14% in Development or Engineering• 6% in Sales The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 5
  6. 6. Compensation For product management and product marketing titles, the average compensation is $96,483 salary plus $12,688 annual bonus. 67% of product managers and marketers get a bonus. Bonuses are based on (multiple responses were permitted): • 69% company profit • 26% product revenue • 59% quarterly objectivesGeographic impact on compensation (in US $) Base salary Bonus Africa $76,000 $22,500 Asia $83,392 $5,058 Australia/New Zealand $104,625 $11,163 Canada $89,934 $10,747 Central/South America $81,000 $12,000 Europe $87,239 $12,257 Middle East $109,334 $15,000 United States $102,960 $14,173US regional impact on compensation (in US $) Base salary Bonus Midwest $91,157 $10,965 Northeast $109,415 $16,179 Pacific $113,880 $15,221 South $100,375 $15,477 Southwest $110,285 $16,973 West $98,926 $12,496 Midwest (IA, IL, IN, KS, MI, MN, MO, ND, NE, OH, SD, WI) Northeast (CT, DE, MA, ME, NH, NJ, NY, PA, RI, VT) Pacific (AK, CA, HI, OR, WA) South (AR, LA, OK, TX) Southeast (AL, FL, GA, KY, MD, MS, NC, SC, TN, VA, WV) West (AZ, CO, ID, MT, NM, NV, UT, WY)6 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  7. 7. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey 1thCompensation by years of experience (in US $) Base salary Bonus Less than 1 year $98,968 $13,593 1-2 $93,383 $13,891 3-5 $98,628 $12,715 6-10 $103,969 $14,059 11-15 $113,374 $16,009 More than 15 $121,734 $12,896Compensation by education (in US $) Base salary Bonus Bachelors degree $94,763 $12,260 Masters in Business $105,031 $15,581 Masters in Engineering $103,144 $11,696 Other Masters degree $101,005 $13,546Compensation by title (in US $) Base salary Bonus Product Manager $100,964 $13,235 Product Marketing Manager $96,470 $14,912 Product Owner $104,702 $17,183 Technical Product Manager $91,841 $9,845Compensation by technical ability (in US $) Base salary Bonus I am non-technical $94,204 $12,962 I am somewhat technical $99,082 $13,584 I am very technical $101,973 $13,448 The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 7
  8. 8. Responsibilities and job titles 0% 20% 40% 60% 80% 100%We looked at responsibilities for Product Roadmapeach of the 37 activities on the RequirementsPragmatic Marketing Framework™. Market Problems 73%So, for example, 73% of people with Positioningproduct management and productmarketing titles claim responsibility Competitive Landscapefor understanding Market Problems Use Scenarioswhile only 33% claim responsibility Presentations & Demosfor Win/Loss Analysis. Product PortfolioHere we see the activities and Sales Toolspercentages sorted from most to Launch Planleast, showing “Product Roadmap,” User Personas“Requirements,” and “Market Market DefinitionProblems” are the most commonactivities claimed by those with Distinctive Competenceproduct management and product “Special” Callsmarketing titles while, at 15%, “Lead Business PlanGeneration” is least cited. Collateral Innovation Pricing Thought Leadership Event Support Buy, Build or Partner Buyer Personas Technology Assessment Product Profitability Channel Training Win/Loss Analysis 33% Marketing Plan Status Dashboard Channel Support Distribution Strategy Customer Retention Program Effectiveness Buying Process Referrals & References Customer Acquisition Sales Process Lead Generation 15%8 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  9. 9. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey 1th Here we see the same information—activities and percentages of people with product management and product marketing titles—grouped by discipline: Business, Technical, Marketing, and Sales support. 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Business Marketing Market Problems 73% Positioning 70% Win/Loss Analysis 33% Buying Process 18%Distinctive Competence 54% Buyer Personas 41% Market Definition 57% Marketing Plan 31% Distribution Strategy 26% Customer Acquisition 18% Product Portfolio 62% Customer Retention 23% Business Plan 53% Program Effectiveness 20% Pricing 51% Launch Plan 58% Buy, Build or Partner 46% Thought Leadership 48% Product Profitability 39% Lead Generation 15% Referrals & References 18% Technical Sales Competitive Landscape 70% Sales Process 17%Technology Assessment 41% Collateral 52% Product Roadmap 82% Sales Tools 60% Innovation 51% Channel Training 35% User Personas 58% Presentations & Demos 63% Requirements 77% “Special” Calls 53% Use Scenarios 68% Event Support 47% Status Dashboard 30% Channel Support 30% The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 9
  10. 10. Contrastingtitles:product manager For those with a title of product manager,and we found these responsibilitiesproduct marketingmanager In the following charts, we’ve highlighted As you can see, Product five representative documents to help contrast Roadmap and Requirements product management and product marketing: are the responsibility for over Product Roadmap, Requirements, Positioning, 80% of those with a title of Sales Tools, and Marketing Plan. product manager. 0% 20% 40% 60% 80% 100% Product Roadmap 91%Titles are a mess in our Requirements 86%industry. What one company Market Problemscalls a product manager, Use Scenariosanother calls a productmarketing manager. In Competitive Landscapegeneral, when both titles are Positioning 70%present in one organization, Product Portfolioproduct managers are focusedon technical and business Presentations & Demosactivities while product User Personasmarketing managers are Market Definitionfocused on go-to-market Distinctive Competenceactivities. Business Plan Sales Tools 57% “Special” Calls Innovation Launch Plan Pricing Buy, Build or Partner Collateral Event Support Thought Leadership Technology Assessment Product Profitability Buyer Personas Channel Training Win/Loss Analysis Status Dashboard Channel Support Distribution Strategy Marketing Plan 24% Customer Retention Buying Process Program Effectiveness Sales Process Customer Acquisition Referrals & References Lead Generation1 0 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  11. 11. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey 1th For those with a title of product marketing manager, we found these responsibilities While product managers tend to focus on technical activities, product marketing managers are more inclined to focus on go-to-market activities. Positioning, Sales Tools, and Marketing Plan all 0% 20% 40% 60% 80% 100% rate greater than 70% while Product Positioning 88% Roadmap and Requirements (which Launch Plan were rated very high for product Sales Tools 81% managers) are less than 50% for product marketing managers. CollateralPresentations & Demos Marketing Plan 73% Thought Leadership Market Definition Market Problems Competitive Landscape Event Support Buyer PersonasDistinctive Competence Business Plan Lead Generation Pricing Channel Training “Special” Calls Program Effectiveness Channel Support User Personas Product Roadmap 40% Product Portfolio Win/Loss Analysis Referrals & References Customer Retention Customer Acquisition Use Scenarios Requirements 31% Innovation Sales Process Buying Process Product Profitability Distribution Strategy Buy, Build or PartnerTechnology Assessment Status Dashboard The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 11
  12. 12. Looking at the samedata in groups, it’sclear that productmanagers tend 100% 80% 60% 40% 20% 0% 0% 20% 40% 60% 80% 100%to focus on the Businesstechnical activities 77% Market Problems 63%shown in purple 34% Win/Loss Analysis 38%below; however 58% Distinctive Competence 47%70% of productmanagers also claim 59% Market Definition 65%responsibility for 27% Distribution Strategy 25%Positioning. 69% Product Portfolio 40% 58% Business Plan 46% 55% Pricing 44% 52% Buy, Build or Partner 24% 44% Product Profitability 25% Technical 73% Competitive Landscape 62% 44% Technology Assessment 20% 91% Product Roadmap 40% 56% Innovation 27% 61% User Personas 41% 86% Requirements 31% 74% Use Scenarios 34% 33% Status Dashboard 12% Marketing 70% Positioning 88% 17% Buying Process 25% 40% Buyer Personas 50% 24% Marketing Plan 73% 15% Customer Acquisition 34% 20% Customer Retention 35% 16% Program Effectiveness 43% 55% Launch Plan 83% 46% Thought Leadership 67% 9% Lead Generation 45% 14% Referrals & References 37% Sales 16% Sales Process 26% 47% Collateral 80% 57% Sales Tools 81% 34% Channel Training 44% 62% Presentations & Demos 78% 56% “Special” Calls 43% 46% Event Support 59% 29% Channel Support 41% 1 2 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  13. 13. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey 1thWe asked, “How has your If you could say one thing to your company president without job changed over the last fear of reprisal, what would you say?two years?” • Focus the business on a few key • Allow more control fromDo more with less strategic initiatives. employees below upper• I am doing three jobs management in doing their • Focus on the customer’s problems own jobs. at the same time. (the “Tuned In” philosophy).• A million more tasks. • I could do my job better if I • Our short-term orientation means was allowed to talk to customers.• Fewer people to support my less focus on long-term strategies. products, in all parts of the • I could help us be more effective • We’re focused more on detail and in marketing and product company: Marketing, Engineering less on big picture. and Operations. development if you would • We’re constantly whipsawed by only let me.• Fewer and fewer opportunities to the urgent needs of the next get out of the office as additional sales presentation or inside-out layers of management were product idea. brought in. • Company strategy needs toAgile be created, communicated We had 236 responses from • Agile has rolled out further and measured throughout “You’re doing a great job!” to “Quit!” through the company. implementation. – Kudos (30%)• Agile development teams, much • A strategic vision is only more reporting to executive team. helpful if you stick to it. – Need for better communication (9%) (Or at least make a very – Need for more resources (19%)• Development process has moved good case why the vision to Agile model necessitating a has changed.) – Need for coherent strategy (26%) change in how requirements are communicated. In general • Product expertise and – Concerns about micromanagement (16%) I believe that this is actually industry awareness must more in line with the Pragmatic be expected within all approach so I’m ready! departments of the company.Good news• Greater C-level focus on product management including additional budget and staff (a good thing).• A lot more responsibility and new Steve Johnson is a recognized thought-leader focus on growing the business. on the strategic role of product management and• More market oriented with marketing. Broadly published and a popular keynote increased customer interaction. speaker, Steve has been a Pragmatic Marketing instructor since 1996 and has personally trained• Far more involvement in business thousands of product managers and hundreds development. of senior executive teams on strategies for creating products people want to buy. Steve is author of the Product Marketing blog. Contact Steve at sjohnson@pragmaticmarketing.com The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 13
  14. 14. Are your product management and marketing teams overloaded with tactical activities, spending too much time supporting Development and Sales rather than focusing on strategic issues? The Pragmatic Marketing Framework ™ Business Marketing Positioning Plan Plan Market Market Buying Customer Pricing Problems Definition Process Acquisition Win/Loss Distribution Buy, Build Buyer Customer Analysis Strategy or Partner Personas Retention Distinctive Product Product User Program Competence Portfolio Profitability Personas EffectivenessSTRATEGIC TACTICAL MARKET STRATEGY BUSINESS PLANNING PROGRAMS READINESS SUPPORT Competitive Product Launch Sales Presentations Innovation Requirements Landscape Roadmap Plan Process & Demos Technology Use Thought “Special“ Collateral Assessment Scenarios Leadership Calls Status Lead Sales Event Dashboard Generation Tools Support Referrals & Channel Channel References Training Support © 1993-201 Pragmatic M arketing 1 Visit PragmaticMarketing.com or call (800) 816-7861
  15. 15. SeminarsLiving in an Agile World™ Requirements That Work™ Strategies for product management Methods for creating straightforward product when Development goes agile. plans that product managers can write and developers embrace.Practical Product Management® Principles of the Pragmatic Marketing Framework, Effective Product Marketing™ the industry standard for managing and marketing Repeatable, go-to-market process to design, technology products. execute, and measure high-impact marketing programs.Pragmatic Roadmapping™ Techniques to plan, consolidate and communicate Product Launch Essentials™ product strategy to multiple audiences. Assess organizational readiness and define team responsibilities for a successful product launch.Executive BriefingsDesigned specifically for senior management,Executive Briefings discuss how to organizeProduct Management and Marketingdepartments for optimal effectivenessand accountability. In addition to the extensive published schedule, training can be conducted onsite at your office, saving travel time and costs for attendees, and allowing a much more focused discussion on internal, critical issues. Pragmatic Marketing’s seminars have been attended by more than 60,000 product management and marketing professionals.
  16. 16. By Stephen J. Konig When was the last time you talked with Finance? We often talk about the cross-functional nature of the product management role; indeed, the product manager is sometimes described as the “CEO” of the product. But when talking about how the product manager interacts with others in the company, we usually talk about sales, marketing, product development and senior management. One critical role in a company that isn’t much talked about is Finance.1 6 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  17. 17. Finance as a Stakeholder in Product ManagementDon’t confuse Finance with What is revenue recognition On the other hand, suppose I don’tfinancial data; product managers and why should I care? actually have the pencils I’m selling;are used to dealing with market maybe I sell custom pencils (forsize, penetration, unit volumes, Usually when measuring a product’s example, with the customer’s namemarket share and sales. But this is performance we’re focused on and logo). On the very last day ofmostly expressed in terms of units sales—i.e. how many units or the quarter I get an order for 10,000sold, bookings and forecasts, not copies were sold or shipped, what custom pencils. My policy is to getin accounting or financial earnings was the average price, the length the cash up front, so the customerterms. One of the challenges of the sales cycle, the win rate, etc. pays me $500, but I still have towith Finance is reported financial Often ignored is how those sales make and deliver those pencils.earnings, especially if your company got treated from an accounting This takes a few days, and won’tis public. And unfortunately the perspective. If the company incurs actually happen until a day or twodiscrepancy between sales bookings a future obligation under the terms after the start of the next quarter.and reported financial earnings of the sales contract, some or all of In this scenario, the accountingcan be significant, especially under the contract value may be recorded rules say I need to consider thatspecific circumstances. As a product as deferred revenue (a kind of $500 cash a liability, not revenue,manager you should really be aware liability like debt) instead of revenue because I still owe the customerof these when the CFO knocks or income. Imagine if every sale something. I can’t really say thaton your door (or cube) and starts of a product caused the company I’ve earned $500 until I fulfill mytalking about software revenue to look like it was taking on end of the bargain, which is torecognition. more and more debt… if it stayed make and deliver those custom that way you’d quickly go out of pencils. If for some reason I weren’tThe rules for software revenue business. Revenue recognition is the able to deliver those pencils (mayberecognition are varied and set of accounting policies and rules I decide to go out of the pencilcomplex (for details, read the under which Finance determines business, or my pencil machineAmerican Institute for Certified whether your sale will be classified breaks and I can’t deliver them byPublic Accountants’ Statement of as revenue versus deferred the time I’d promised), I’d have toPosition 97-2). There are times revenue, and when that deferred return that $500 to the customer.when decisions about the product revenue can be re-classified as real This liability is deferred revenue —can have a direct effect on how revenue or income. it represents money we think we’reit gets treated from an accounting going to earn, but haven’t earnedperspective. And there are times Let’s say my business is selling yet. Continuing with this example,when product features, sales pencils, and each pencil sells for 5 my financial results for the quarterapproaches and purchasing models cents. On Thursday a customer buys would show no revenue or incomeimpact Finance, such as when a 10,000 pencils. I take $500 cash from from pencil sales, but would showproduct the customer, hand him the pencils, that my deferred revenue increased and $500 of revenue goes onto my by $500. Let’s say I do deliver those• is new and trying to satisfy “early books. Simple and easy. In this pencils a few days later: I can now adopters” world my total sales of pencils in say I’ve legitimately earned the the quarter will always be the same $500. On my financial statement• requires a lot of post-sale as my reported revenue or income for the next quarter I could fairly professional services from pencil sales. claim $500 of revenue or income, and reduce deferred revenue by the• is sold under a software-as-a- same $500. If I were just reporting service model (SaaS) on sales in the quarter, none of this matters—in both cases I could say I made $500 in pencil sales. But from an accounting perspective, these two scenarios are quite different. The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 17
  18. 18. Finance as a Stakeholder in Product ManagementThe problem in many software can be performing well (sales takes on increased significance,sales is a customer doesn’t volumes and bookings are high and since shareholders and financialalways immediately get what they cash is coming in the door), while analysts are often unable to reviewpurchased. It can take a long time externally it appears as though internal sales metrics… all theyfor a product to be implemented the product is not earning any see is reported financial earnings.or customized or configured… or even losing money (since the Consequently they may have anand until the customer gets all of costs associated with delivering the incomplete and comparativelywhat’s paid for, the company may product—like salaries—are being negative understanding of thenot be able to report the full value paid now, even though you aren’t product’s performance.of the sale as revenue. While this is earning any revenue with which tousually just temporary—the money offset those costs). The longer the While there are many circumstanceswill eventually be recognized as period of time between a sale and that can lead to a product’s salesrevenue as future commitments are the reported revenue, the greater being booked as deferred revenue,honored, deliverables are delivered will be the disparity between the in this context understand theseand obligations fulfilled—the longer product’s internal performance and three: (1) when making a promiseit takes, the larger the discrepancy its reported financial results. The to deliver new functionality inbetween the product’s internal greater the share of your company’s a future release; (2) when theperformance (contracts signed, cash overall performance is attributable product requires significantreceived from the customer) and to the product, the greater will post-sale services; and (3) under aits reported financial performance. be the impact for Finance. If the software-as-a-service (SaaS) deliveryIndeed it is possible for a dichotomy company is publicly traded or model (see the table below).to emerge: internally the product preparing a public offering, thisRevenue recognition issues encountered in software salesScenario Revenue Recognition Issues MitigationPromising future Future functionality is treated 1. Avoid if possiblefunctionality as an “undelivered element” of the contract that results in all 2. Ensure future functionality commitments are tightly contract revenue being deferred and carefully worded until all future functionality has been delivered or until 3. Seek favorable acceptance criteria from the customer the customer has accepted the new featuresProduct includes If the services are necessary 1. Augment the software with features that reduce the services effortsignificant and lengthy to use the product, softwarepost-sale services revenue is recognized over the 2. Enhance the offering to include pre-packaged configurations term of the services engagement 3. Enhance the offering to include standard integration to 3rd party systems 4. Enhance the offering to reduce the level of customizations requiredProduct is sold under a Revenue is deferred until 1. Augment the software with features that reduce the services effortsoftware-as-a-service customer is live. Servicesmodel and includes revenue is recognized ratably 2. Outsource delivery of professional services to a 3rd partysignificant post-sale over the term of the contract.services1 8 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  19. 19. Finance as a Stakeholder in Product ManagementPromise of future functionality Once agreed to—whether verbally should always review contracts or in the contract—you have a or agreements when promisesA common challenge is the prospect revenue recognition issue. The for future functionality are madewho says your product lacks some future functionality commitment and will typically advise on thecritical functionality without which will be treated as an “undelivered implications of the various terms.they won’t buy. While it is not a element” in the contract, making itgood idea to manage the product likely that no revenue from the sale If you have agreed to certainroadmap for individual customer can be recognized until all of the features in the future, the challengerequests, there are circumstances promised features ship. (There are will quickly shift to mitigation, asin which it may be unavoidable. many accounting rules surrounding not all commitments are created undelivered elements and multi- equal. Since the value of the saleWhen entering the market with a element contract arrangements that will be deferred until all futurenew offering it is common to solicit can cause a different accounting functionality has been delivered, itearly adopters with the hope these treatment. However in most cases becomes important to understandcustomers will turn into references. the undelivered element of a future what “delivered” means. There areGenerally these customers are product deliverable will cause all a few traps to avoid: (1) vaguely-willing to accept a product’s of the revenue associated with defined features or requirementsimmaturity because they see its the deal to be deferred until the that are subject to wide-rangingpotential. The hope is you convert promised features and functionality interpretations, and (2) any sort ofearly adopters into successful are delivered.) sign-off or acceptance on the partusers, who then serve as reference of the customer with respect toaccounts to future prospects. If the sale includes other future functionality. elements—such as services forIt is common—particularly in setup, configuration, customization, Vaguely-worded feature andmarkets where references from training, maintenance, data requirements can create a significantpeer organizations are critical to conversion, subscriptions or problem for revenue recognition,sales success—to spend a significant hosting—not only will product since it becomes difficult to identifyamount of time and effort courting revenue be deferred until the when the promised feature hasand working with early adopters. promised functionality is delivered, actually been delivered. If youIdeally the early adopters are also but all of the revenue from all of agree to deliver “a way to publishconsidered bellwether organizations the other elements will be deferred! content to the Web,” it can be hardby their peers, enabling the If, for whatever reason, you don’t to understand when you’ve actuallysales team to reference them in deliver those new features, the done that, since different peoplediscussions with prospects. customer could legitimately ask for may have different ideas of what their money back, even the money this means. The circumstancesBecause the product is new and spent on other services, as they around the sale and the bestyou may be selling before all of the never would have purchased those understanding of what the customerkey features have been developed, other items had they known they (not you) had in mind will likely beearly adopters often find the product weren’t going to get their requested used to determine if the promisedto be inadequate or incomplete. features. In essence, your company feature has been delivered. WhenWhile they may see the promise the will receive no economic benefit considering a commitment forproduct offers, they are uncertain from the sale until all the promised future functionality, it is importantwhen or if it will be developed functionality has been delivered to know what you are actuallyto satisfy their needs. As a way to to the customer. committing to. How will you knowhedge risks, they ask you to commit (or rather, when an objective personto including certain additional If you’re facing whether to agree would know) the commitment hasfeatures or functionality, often by to a prospect’s request, what should been met? The commitments shoulda particular date. you do? In one way, the financial be in writing, should be narrow and significance of the commitment clearly scoped and should include helps in judging whether you should a definition of “done.” agree to it. There are scenarios such as market entry where the value obtained may be worth the short-term economic costs. Finance The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 19
  20. 20. Finance as a Stakeholder in Product ManagementIt is not unusual in cases where the If it’s not possible to avoid The accounting literature makes acustomer asks for a commitment of acceptance language in the contract, distinction between services that arefuture functionality they also ask include clearly defined acceptance incidental to the software and thosefor contract language to provide the criteria as part of the commitment. that are essential. While there is noright to accept what is delivered. Then the acceptance becomes hard-and-fast rule when services areSometimes this acceptance language objective (were the acceptance essential or incidental, the followingis explicitly tied to the future criteria met?) rather than subjective factors would suggest the servicesfunctionality, but often comes as a (does the customer like it?). are essential: (1) the software itself isgeneralized right with respect to all Documenting the acceptance criteria not off-the-shelf (i.e., it is not shrink-of the activities within the contract. in advance also helps determine wrapped but is highly tailored forIn some cases the acceptance the scope and cost of what you’re each customer); or (2) the softwarelanguage can be vague or subjective, agreeing to deliver. is off-the-shelf but the customersuch as a language that deliverables is getting significant alterations toare simply subject to the customer’s Precisely defining acceptance criteria the out-of-the-box features andsatisfaction. up front may be impractical. In functionality; or (3) you need to this case, seek language defining build complex interfaces in order forAcceptance by the customer of a formal acceptance process that the customer to use the software; orfuture product features can create is closed-ended. For example, the (4) the customer pays for softwarean issue, as the test for whether language may specify the parties as the service work is performed;the company can recognize the will work to jointly define the or (5) payment for software isrevenue from the contract becomes acceptance criteria for the features milestone-based or subject to customer acceptance. 1not one of, “have we delivered the once the work begins, or thefunctionality we promised?” but acceptance process may include onlyrather “has the customer accepted a limited number of rework/revision In the case where there are nowhat we delivered?”. Acceptance periods in which you agree to services sold with the software orlanguage will cause the revenue make changes. In general, the more where the services are deemeddeferral to last until the acceptance tightly defined and closed-ended the non-essential, the software licensehas occurred, which may be long acceptance process, the better. Just fee would be recognized as revenueafter the delivery! make sure the contract language is as soon as it is delivered. reviewed by Finance.There are a few approaches to However if the services sold withmitigate the acceptance issue. the product are determined to beBest case, seek to avoid any Products that include services essential, the rules require thatcustomer acceptance with “revenue should be recognized A different problem occurs when in accordance with contractrespect to the future product the product consists of licensed accounting.”2 Under contractdeliverables. Without explicit software with significant post-sale accounting, the revenue from theacceptance language, the test services (such as those for setup, license fees will initially be bookedfor revenue recognition reverts configuration, data conversion or as deferred revenue, with “a portionto “have we delivered what we customization). If the services are of the total [license fees]… recordedsaid we would deliver.” Provided essential to the delivery of the [as revenue] in each period basedthe features are clearly scoped, a solution—i.e., the software has on the relative cost or effort appliedsimple documentation exercise of limited or no value from the services during that period.”3 Essentiallydescribing how “what was delivered” that go with it—there may be the software license is recognizedmet the commitment given can be revenue recognition issues. as revenue as the services work issufficient to declare “done” andrecognize all the deferred revenue. performed. If the related services stretch over twelve months, one-twelfth of the software license fee would be recognized as actual revenue each month.1 KPMG, Software Revenue Recognition: An Analysis of SOP 97-2 and Related Guidance, Second Edition, August 2005, pp. 207-210; http://us.kpmg.com/microsite/attachments/2005/SoftwareRevRecognitionBook2005.pdf2 Steven T Petra, Revenue Recognition for Software Products with Multiple Deliverables, AllBusiness, April 1, 2005; http://www.allbusiness.com/accounting-reporting/record-keeping-gross-receipts/1096815-1.html3 The ‘Lectric Law Library, Legal Lexicon on Accounting Methods, The ‘Lectric Law Library, retrieved 25 June 2009; http://www.lectlaw.com/def/a099.htm2 0 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  21. 21. Finance as a Stakeholder in Product ManagementThe impact in this For six months, the company wouldscenario is less obvious not be able to record subscriptionbut still potentially revenue.significant. Finance willlikely look at how to The significance of this is in anshorten the revenue effort to recognize more revenuerecognition period and the sooner, Finance may ask if anythingobvious way to do this is can be done to shorten theto shorten the duration of implementation period. This mightthe services engagement. include adding features to yourBut there are limits to product to make setup, configurationhow much time can be and implementation more efficient.compressed in a projectwith a fixed amount If the goal is to reduce theof work. implementation time without Software as a Service (SaaS) reducing the total revenue, you mayIf the product is new, some need to evaluate the feasibility ofeffort may be needed to work In software-as-a-service increasing the services billing rate,around functional gaps. Closing arrangements, the customer doesn’t of offering pre-packaged servicesthese can result in decreased buy the software up front; they that generate the same revenue buteffort and time. You could look pay for how much they use on a can be delivered more quickly, orat ways to reduce deployment periodic basis, usually monthly. to better define what represents aand setup time (e.g., tools that true go-live milestone (e.g., deferringassist in implementation, or Two different kinds of revenue tasks that could be performedmoving configurations from a test recognition issues can arise under after go-live).environment into production). a SaaS arrangement. Revenue cannot be recognized until the customer The second case presents a moreRegardless, you will need to identify is “live,” or using the software interesting challenge and suggestsways to replace the lost revenue. with actual data. Additionally, any other potential remedies toGood approaches here include associated professional services investigate. Under the traditionalselling prepackaged configurations sold must be recognized evenly licensed software model, revenueor interfaces separately, increasing (the accounting term is ratably) from professional services isthe software price, or selling over the term of the subscription recognized as the work is done. Forservices as a fixed price package contract, instead of as they are example if the customer purchasedat a higher price, rather than on delivered. Both of these can impact $100,000 worth of software anda time-and-materials basis. the way revenue recognition $120,000 worth of professional impacts the product. ser vices, and the ser vicesCustomers often don’t distinguish engagement lasts for twelve months,or care about the ways in which In the first case, consider a customer your company would recognizefunctionality or features are who agrees to pay $10,000 per $10,000 of services revenue perdelivered, merely that they get month. The customer signs the month (assuming the work wasdelivered. Provided the overall price contract and begins paying done in even increments over thisand timeline are acceptable, whether the subscription fee. However period). This approach works wella feature is delivered directly out of your offering involves some because the costs are typicallythe box or as a result of services it significant setup, configuration and incurred in a similar pattern: yourmay not be a significant distinction customization work, so it takes company probably pays employeesto a customer. However, the six months before the customer working on that project monthlydividing line between software and is able to use the software in a as well. Assuming the deal isservices can be significant from the production capacity. The typical profitable overall, your company willperspective of Finance. accounting treatment would be to be able to report profits from this defer the subscription revenue until engagement right from the start. the customer is live, meaning that none of the subscription fees can be recognized as revenue until then. The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 21
  22. 22. Finance as a Stakeholder in Product ManagementUnfortunately, the accounting Since the impact to the accounting Conclusiontreatment for this arrangement treatment is directly correlated withunder a subscription arrangement the amount of professional services It may be surprising to learn thatis less favorable. Under subscription needed, lessening the amount of you need to understand accountingrules, the revenue from associated services will lessen the financial revenue recognition rules or thatprofessional services must be impact. Another alternative is to you need to involve Finance inrecognized over the term of the recommend the company not provide decisions around your offering.subscription contract, not over the services at all, but instead partner Ignorance of revenue recognition,duration of the services engagement. with a third-party firm to provide how they impact your companyConsider a similar example to the them. In either case your company and how product offering decisionsone above, except that in this case would be foregoing the services influence them can result in verythe customer purchases a $10,000 revenue. Perhaps there is room to bad outcomes for the company.per month, three-year subscription to increase the monthly subscription Outcomes that a product managerthe software. They still agree to the fee in order to offset the lost services is in a position to avoid, if awaresame $120,000 worth of professional revenue, perhaps you can generate of the issues.services which are still performed referral revenue from the partners,within the first twelve months. or you may simply conclude that As a first step, consult with Finance the revenue recognition issues are to understand how revenue fromAccounting rules for subscription not worth the incremental services your offerings is recognized todayarrangements will require your revenue. But in modeling these and what policies Finance hascompany to recognize the $120,000 scenarios—especially one that adopted. When considering aratably over the term of the contract. involves partnering with third parties new offering, review the expectedIn this example, that means the —make sure you take customer elements of the offering, the naturecompany can only recognize satisfaction into account. of the sales arrangement and$3,333 per month of revenue from deliverables, and the expected cashthe professional services engagement. A final alternative would be flow and timing of payments. ReviewBut if we are paying our employee to shorten the duration of the this before the first sale and you$8,000 per month, the company will subscription contract, ideally to a can avoid significant downstreamreport a loss of $4,667 per month timeline consistent with the expected pain and ensure the offering ison the services. duration of the services engagement. structured for the best possible The drawback here is it increases revenue recognition treatment. JustIt is possible for the treatment to the potential for customer churn as with product development—be less severe, as there are means (as customers are able to discontinue where changes becomeby which some of the $8,000 can the subscription sooner); in more expensive as thebe spread over the contract term, addition, your company development processas well. However it is generally not may incur increased progresses—changespossible to spread all of the costs retention costs as due to financeover the contract term. The effect well (e.g., sales costs concerns becomeof this is also muted over time as to re-engage with the much more expensivemore and more subscriptions are customer and ensure they once your productsold, since revenue from previously are satisfied before their has launched.completed engagements continue contract expires). Youto be recognized even though there will need to model themay no longer be any continuing effects of increaseddirect costs. However margins will churn and retentiongenerally appear far less favorable costs to determineunder a subscription arrangement if shortening thethan under a perpetual license contract durationarrangement. is a viable option.Stephen Konig is a product manager with more than 15 years of experience in bringing B2B and enterprise softwaresolutions to market. His work has spanned vertical solutions for the energy industry, HR and talent managementsoftware for businesses and governments, and solutions to assist non-profit organizations raise money and deliveron their missions. Stephen is currently a Director of Product Management at Blackbaud, Inc. Contact Stephen atstephen@konig-us.net, or via Twitter at StephenKonig.2 2 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  23. 23. Product Launch Essentials ™ Plan and execute a successful product launchAre your product launch efforts focused on deliverables rather than results?Launching a product is more than following a simple checklist. A successful product launch is theculmination of many, carefully planned steps by a focused, coordinated team. Even good products canfail because of organizational issues, misunderstanding of roles and responsibilities, and a lack of astrategic approach to guide efforts.• Learn a repeatable product launch process to shorten the launch planning cycle, get the resources needed, and know what to expect at every step.• Understand the seven product launch strategies your team can use to maximize sales velocity.• Measure product launch progress with indicators that identify unforeseen issues before they become big problems. By David Daniels Scan or download the e-book at PragmaticMarketing.com/launch Download a complete agenda and register at PragmaticMarketing.com/launch Call (800) 816-7861 to conduct this seminar at your office
  24. 24. MINING CONTENT GOLD By Cheryl J. GoldbergHow to Interview Content Experts 2 4 • The Pragmatic Marketer • Volume 9, Issue 1, 2011
  25. 25. A s technology companies One of the best ways to find The type of content you will be riveting content is to pick the producing will point you toward brains of experts. Whether the types of experts you need to increasingly turn to you need to come up with a interview. Examples of content compelling angle for a white paper experts that might help you comecontent marketing, their or thought-leadership article to pique the interest of your target up with content for various stages of the buying cycle are as follows: audience, or determine keychallenge is coming up with customer challenges, or fill in • Early-stage education. If you technical details that will bring want to educate prospects who’vecompelling information. your piece to life, experts can help you uncover better content more never heard of you, you’ll want to start with thought-leadership quickly. Experts are likely to have content that defines the customerKnowing how to interview access to information that would problem and what’s necessary be difficult, or even impossible for a solution. Helpful experts to find otherwise.experts will help you uncover include industry analysts, customers, prospects, sales Mining these golden nuggets representatives that specialize innuggets that take your requires you to find the right that target market, and industry experts and to know how to solutions managers at yourcontent marketing to the interview them so you can best extract the knowledge they have company who specialize in a particular industry. to offer—while being respectful Your company’s professionalnext level. of their often busy schedules. services consultants will also be familiar with the challenges customers face. Hunting the elusive expert Content marketing has become • Research phase. As customers a critical part of the marketing Clearly, the first step in finding realize they need a particular mix for technology companies. the right nugget of content is type of solution, they’ll start Content marketing employs content identifying the right expert. To researching their options. To help to engage current and potential do that, you must determine customers at this stage, you’ll consumers based on the notion what type of content you need want to provide more in-depth that delivering high-quality, relevant to produce. Often your content technical information about your and valuable information drives requirements are obvious. If your product and its benefits. Experts profitable consumer action. sales force comes to you all the that can help you with this According to a recent study by time asking how your solution type of content include recent MarketingProfs and Junta 42 1, addresses the Dodd-Frank Wall evaluators of your product, 9 out of 10 organizations market Street Reform and Consumer engineers at your company, with content while 51% of Protection Act, you know product managers, and your marketers plan to increase their what you need to produce and chief technology officer. spending on content marketing probably whom to ask. • Validation. Here you’ll want to over the next year. The computing/ provide proof of your product’s software industry is the biggest But what if you simply need more ease of implementation and adopter of content-marketing content for lead-generation and success in solving customer strategies, with 94% of technology lead-nurturing activities? Start problems. Interview existing companies using this strategy. by performing an audit of your customers, your professional Yet, creating the right content isn’t existing content. Compare the services consultants, and your easy. The same study found that content you already have with customer support/help-desk developing engaging content and what you need for different stages representatives. producing enough content were of your customers’ buying process. two of the biggest challenges If you need input, go to customers, facing marketers. prospects and your sales force. You can then determine what’s missing. 1 B2B Content Marketing: 2010 Benchmarks, Budgets and Trends, by MarketingProfs and Junta 42 The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 25

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