This document provides an overview of the Spring 2011 issue of The Pragmatic Marketer journal. It includes summaries of three articles: 1) Pragmatic Marketing's 11th Annual Product Management and Marketing Survey, which shares results from their annual survey of product managers and marketers. 2) Finance as a Stakeholder in Product Management, discussing how the product manager interacts with finance. 3) Mining Content Gold: How to Interview Content Experts, providing tips for interviewing experts to generate useful content.

1. Volume 9 • Issue 1 • 2011
The journal for technology product management and marketing professionals
®
Pragmatic
Marketing’s
11th Annual
Product
Management
and Marketing
Survey
Finance as a
Stakeholder in
Product Management
Mining Content Gold:
How to Interview Content Experts

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
1
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3. Inside this issue: Volume 9 Issue 1 • 2011
Creator of the world’s most popular 4 Pragmatic Marketing’s 1 Annual
1th
product 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
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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.
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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. 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 designers
Reporting structure
Other ratios of interest
The typical product manager reports to a • 1.8 developers per QA manager
Director or Vice President in the product
management department. • 3.0 salespeople per sales engineer
Reporting to Title
• 39% report to a director
• 31% report to a vice president
• 21% report to a manager
• 9% report to a CXO
Reporting 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. 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 objectives
Geographic 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 $14,173
US 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)
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• The Pragmatic Marketer • Volume 9, Issue 1, 2011

7. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey
1th
Compensation 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 $12,896
Compensation 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 $13,546
Compensation 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 $9,845
Compensation 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. Responsibilities and job titles 0% 20% 40% 60% 80% 100%
We looked at responsibilities for Product Roadmap
each of the 37 activities on the Requirements
Pragmatic Marketing Framework™. Market Problems 73%
So, for example, 73% of people with
Positioning
product management and product
marketing titles claim responsibility Competitive Landscape
for understanding Market Problems Use Scenarios
while only 33% claim responsibility Presentations & Demos
for Win/Loss Analysis.
Product Portfolio
Here we see the activities and Sales Tools
percentages sorted from most to Launch Plan
least, showing “Product Roadmap,” User Personas
“Requirements,” and “Market
Market Definition
Problems” are the most common
activities claimed by those with Distinctive Competence
product management and product “Special” Calls
marketing titles while, at 15%, “Lead Business Plan
Generation” 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. 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. Contrasting
titles:
product manager For those with a title of product manager,
and we found these responsibilities
product marketing
manager 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 Problems
calls a product manager,
Use Scenarios
another calls a product
marketing manager. In Competitive Landscape
general, when both titles are Positioning 70%
present in one organization, Product Portfolio
product managers are focused
on technical and business Presentations & Demos
activities while product User Personas
marketing managers are Market Definition
focused on go-to-market Distinctive Competence
activities.
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 Generation
1
0 • The Pragmatic Marketer • Volume 9, Issue 1, 2011

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.
Collateral
Presentations & Demos
Marketing Plan 73%
Thought Leadership
Market Definition
Market Problems
Competitive Landscape
Event Support
Buyer Personas
Distinctive 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 Partner
Technology Assessment
Status Dashboard
The Pragmatic Marketer • Volume 9, Issue 1, 2011 • 11

12. Looking at the same
data in groups, it’s
clear that product
managers tend
100% 80% 60% 40% 20% 0% 0% 20% 40% 60% 80% 100%
to focus on the Business
technical activities 77% Market Problems 63%
shown in purple 34% Win/Loss Analysis 38%
below; however
58% Distinctive Competence 47%
70% of product
managers 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. Pragmatic Marketing’s 1 Annual Product Management and Marketing Survey
1th
We 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 from
Do 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 to
Agile 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. 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 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
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. Seminars
Living 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 Briefings
Designed specifically for senior management,
Executive Briefings discuss how to organize
Product Management and Marketing
departments for optimal effectiveness
and 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. 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. Finance as a Stakeholder in Product Management
Don’t confuse Finance with What is revenue recognition On the other hand, suppose I don’t
financial 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 (for
size, penetration, unit volumes, Usually when measuring a product’s example, with the customer’s name
market share and sales. But this is performance we’re focused on and logo). On the very last day of
mostly expressed in terms of units sales—i.e. how many units or the quarter I get an order for 10,000
sold, bookings and forecasts, not copies were sold or shipped, what custom pencils. My policy is to get
in accounting or financial earnings was the average price, the length the cash up front, so the customer
terms. One of the challenges of the sales cycle, the win rate, etc. pays me $500, but I still have to
with 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’t
is public. And unfortunately the perspective. If the company incurs actually happen until a day or two
discrepancy 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 accounting
can be significant, especially under the contract value may be recorded rules say I need to consider that
specific 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 customer
of these when the CFO knocks or income. Imagine if every sale something. I can’t really say that
on your door (or cube) and starts of a product caused the company I’ve earned $500 until I fulfill my
talking about software revenue to look like it was taking on end of the bargain, which is to
recognition. 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’t
The rules for software revenue business. Revenue recognition is the able to deliver those pencils (maybe
recognition are varied and set of accounting policies and rules I decide to go out of the pencil
complex (for details, read the under which Finance determines business, or my pencil machine
American Institute for Certified whether your sale will be classified breaks and I can’t deliver them by
Public Accountants’ Statement of as revenue versus deferred the time I’d promised), I’d have to
Position 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’re
it gets treated from an accounting going to earn, but haven’t earned
perspective. 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 quarter
approaches and purchasing models cents. On Thursday a customer buys would show no revenue or income
impact Finance, such as when a 10,000 pencils. I take $500 cash from from pencil sales, but would show
product 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. Finance as a Stakeholder in Product Management
The 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 financial
always immediately get what they cash is coming in the door), while analysts are often unable to review
purchased. It can take a long time externally it appears as though internal sales metrics… all they
for 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 an
and until the customer gets all of costs associated with delivering the incomplete and comparatively
what’s paid for, the company may product—like salaries—are being negative understanding of the
not 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 to
usually just temporary—the money offset those costs). The longer the While there are many circumstances
will eventually be recognized as period of time between a sale and that can lead to a product’s sales
revenue 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 these
and obligations fulfilled—the longer product’s internal performance and three: (1) when making a promise
it takes, the larger the discrepancy its reported financial results. The to deliver new functionality in
between the product’s internal greater the share of your company’s a future release; (2) when the
performance (contracts signed, cash overall performance is attributable product requires significant
received from the customer) and to the product, the greater will post-sale services; and (3) under a
its reported financial performance. be the impact for Finance. If the software-as-a-service (SaaS) delivery
Indeed 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, this
Revenue recognition issues encountered in software sales
Scenario Revenue Recognition Issues Mitigation
Promising future Future functionality is treated 1. Avoid if possible
functionality 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 features
Product includes If the services are necessary 1. Augment the software with features that reduce the services effort
significant and lengthy to use the product, software
post-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 required
Product is sold under a Revenue is deferred until 1. Augment the software with features that reduce the services effort
software-as-a-service customer is live. Services
model and includes revenue is recognized ratably 2. Outsource delivery of professional services to a 3rd party
significant post-sale over the term of the contract.
services
1
8 • The Pragmatic Marketer • Volume 9, Issue 1, 2011

19. Finance as a Stakeholder in Product Management
Promise of future functionality Once agreed to—whether verbally should always review contracts
or in the contract—you have a or agreements when promises
A common challenge is the prospect revenue recognition issue. The for future functionality are made
who says your product lacks some future functionality commitment and will typically advise on the
critical 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 it
good idea to manage the product likely that no revenue from the sale If you have agreed to certain
roadmap for individual customer can be recognized until all of the features in the future, the challenge
requests, there are circumstances promised features ship. (There are will quickly shift to mitigation, as
in which it may be unavoidable. many accounting rules surrounding not all commitments are created
undelivered elements and multi- equal. Since the value of the sale
When entering the market with a element contract arrangements that will be deferred until all future
new offering it is common to solicit can cause a different accounting functionality has been delivered, it
early adopters with the hope these treatment. However in most cases becomes important to understand
customers will turn into references. the undelivered element of a future what “delivered” means. There are
Generally 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 requirements
immaturity because they see its the deal to be deferred until the that are subject to wide-ranging
potential. The hope is you convert promised features and functionality interpretations, and (2) any sort of
early adopters into successful are delivered.) sign-off or acceptance on the part
users, who then serve as reference of the customer with respect to
accounts to future prospects. If the sale includes other future functionality.
elements—such as services for
It is common—particularly in setup, configuration, customization, Vaguely-worded feature and
markets where references from training, maintenance, data requirements can create a significant
peer 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 identify
amount of time and effort courting revenue be deferred until the when the promised feature has
and working with early adopters. promised functionality is delivered, actually been delivered. If you
Ideally the early adopters are also but all of the revenue from all of agree to deliver “a way to publish
considered bellwether organizations the other elements will be deferred! content to the Web,” it can be hard
by their peers, enabling the If, for whatever reason, you don’t to understand when you’ve actually
sales team to reference them in deliver those new features, the done that, since different people
discussions with prospects. customer could legitimately ask for may have different ideas of what
their money back, even the money this means. The circumstances
Because the product is new and spent on other services, as they around the sale and the best
you may be selling before all of the never would have purchased those understanding of what the customer
key features have been developed, other items had they known they (not you) had in mind will likely be
early adopters often find the product weren’t going to get their requested used to determine if the promised
to be inadequate or incomplete. features. In essence, your company feature has been delivered. When
While they may see the promise the will receive no economic benefit considering a commitment for
product offers, they are uncertain from the sale until all the promised future functionality, it is important
when or if it will be developed functionality has been delivered to know what you are actually
to satisfy their needs. As a way to to the customer. committing to. How will you know
hedge risks, they ask you to commit (or rather, when an objective person
to including certain additional If you’re facing whether to agree would know) the commitment has
features or functionality, often by to a prospect’s request, what should been met? The commitments should
a 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. Finance as a Stakeholder in Product Management
It is not unusual in cases where the If it’s not possible to avoid The accounting literature makes a
customer asks for a commitment of acceptance language in the contract, distinction between services that are
future functionality they also ask include clearly defined acceptance incidental to the software and those
for contract language to provide the criteria as part of the commitment. that are essential. While there is no
right to accept what is delivered. Then the acceptance becomes hard-and-fast rule when services are
Sometimes this acceptance language objective (were the acceptance essential or incidental, the following
is explicitly tied to the future criteria met?) rather than subjective factors would suggest the services
functionality, but often comes as a (does the customer like it?). are essential: (1) the software itself is
generalized 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 for
In some cases the acceptance the scope and cost of what you’re each customer); or (2) the software
language can be vague or subjective, agreeing to deliver. is off-the-shelf but the customer
such as a language that deliverables is getting significant alterations to
are simply subject to the customer’s Precisely defining acceptance criteria the out-of-the-box features and
satisfaction. up front may be impractical. In functionality; or (3) you need to
this case, seek language defining build complex interfaces in order for
Acceptance by the customer of a formal acceptance process that the customer to use the software; or
future product features can create is closed-ended. For example, the (4) the customer pays for software
an 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 is
revenue from the contract becomes acceptance criteria for the features milestone-based or subject to
customer acceptance. 1
not one of, “have we delivered the once the work begins, or the
functionality we promised?” but acceptance process may include only
rather “has the customer accepted a limited number of rework/revision In the case where there are no
what we delivered?”. Acceptance periods in which you agree to services sold with the software or
language will cause the revenue make changes. In general, the more where the services are deemed
deferral to last until the acceptance tightly defined and closed-ended the non-essential, the software license
has occurred, which may be long acceptance process, the better. Just fee would be recognized as revenue
after 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 with
mitigate the acceptance issue. the product are determined to be
Best case, seek to avoid any Products that include services essential, the rules require that
customer acceptance with “revenue should be recognized
A different problem occurs when in accordance with contract
respect to the future product
the product consists of licensed accounting.”2 Under contract
deliverables. Without explicit
software with significant post-sale accounting, the revenue from the
acceptance language, the test
services (such as those for setup, license fees will initially be booked
for revenue recognition reverts
configuration, data conversion or as deferred revenue, with “a portion
to “have we delivered what we
customization). If the services are of the total [license fees]… recorded
said we would deliver.” Provided
essential to the delivery of the [as revenue] in each period based
the features are clearly scoped, a
solution—i.e., the software has on the relative cost or effort applied
simple documentation exercise of
limited or no value from the services during that period.”3 Essentially
describing how “what was delivered”
that go with it—there may be the software license is recognized
met the commitment given can be
revenue recognition issues. as revenue as the services work is
sufficient to declare “done” and
recognize 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.pdf
2 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.html
3 The ‘Lectric Law Library, Legal Lexicon on Accounting Methods, The ‘Lectric Law Library, retrieved 25 June 2009;
http://www.lectlaw.com/def/a099.htm
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21. Finance as a Stakeholder in Product Management
The impact in this For six months, the company would
scenario is less obvious not be able to record subscription
but still potentially revenue.
significant. Finance will
likely look at how to The significance of this is in an
shorten the revenue effort to recognize more revenue
recognition period and the sooner, Finance may ask if anything
obvious way to do this is can be done to shorten the
to shorten the duration of implementation period. This might
the services engagement. include adding features to your
But there are limits to product to make setup, configuration
how much time can be and implementation more efficient.
compressed in a project
with a fixed amount If the goal is to reduce the
of work. implementation time without
Software as a Service (SaaS) reducing the total revenue, you may
If the product is new, some need to evaluate the feasibility of
effort 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 services
these can result in decreased buy the software up front; they that generate the same revenue but
effort and time. You could look pay for how much they use on a can be delivered more quickly, or
at ways to reduce deployment periodic basis, usually monthly. to better define what represents a
and setup time (e.g., tools that true go-live milestone (e.g., deferring
assist in implementation, or Two different kinds of revenue tasks that could be performed
moving 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 more
Regardless, you will need to identify is “live,” or using the software interesting challenge and suggests
ways to replace the lost revenue. with actual data. Additionally, any other potential remedies to
Good approaches here include associated professional services investigate. Under the traditional
selling prepackaged configurations sold must be recognized evenly licensed software model, revenue
or interfaces separately, increasing (the accounting term is ratably) from professional services is
the software price, or selling over the term of the subscription recognized as the work is done. For
services as a fixed price package contract, instead of as they are example if the customer purchased
at a higher price, rather than on delivered. Both of these can impact $100,000 worth of software and
a time-and-materials basis. the way revenue recognition $120,000 worth of professional
impacts the product. ser vices, and the ser vices
Customers 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 recognize
functionality or features are who agrees to pay $10,000 per $10,000 of services revenue per
delivered, merely that they get month. The customer signs the month (assuming the work was
delivered. Provided the overall price contract and begins paying done in even increments over this
and timeline are acceptable, whether the subscription fee. However period). This approach works well
a feature is delivered directly out of your offering involves some because the costs are typically
the box or as a result of services it significant setup, configuration and incurred in a similar pattern: your
may not be a significant distinction customization work, so it takes company probably pays employees
to a customer. However, the six months before the customer working on that project monthly
dividing line between software and is able to use the software in a as well. Assuming the deal is
services can be significant from the production capacity. The typical profitable overall, your company will
perspective 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. Finance as a Stakeholder in Product Management
Unfortunately, the accounting Since the impact to the accounting Conclusion
treatment for this arrangement treatment is directly correlated with
under a subscription arrangement the amount of professional services It may be surprising to learn that
is less favorable. Under subscription needed, lessening the amount of you need to understand accounting
rules, the revenue from associated services will lessen the financial revenue recognition rules or that
professional services must be impact. Another alternative is to you need to involve Finance in
recognized 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 company
Consider a similar example to the them. In either case your company and how product offering decisions
one above, except that in this case would be foregoing the services influence them can result in very
the 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 manager
the software. They still agree to the fee in order to offset the lost services is in a position to avoid, if aware
same $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 from
Accounting rules for subscription not worth the incremental services your offerings is recognized today
arrangements will require your revenue. But in modeling these and what policies Finance has
company to recognize the $120,000 scenarios—especially one that adopted. When considering a
ratably over the term of the contract. involves partnering with third parties new offering, review the expected
In this example, that means the —make sure you take customer elements of the offering, the nature
company can only recognize satisfaction into account. of the sales arrangement and
$3,333 per month of revenue from deliverables, and the expected cash
the professional services engagement. A final alternative would be flow and timing of payments. Review
But 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 downstream
report a loss of $4,667 per month timeline consistent with the expected pain and ensure the offering is
on the services. duration of the services engagement. structured for the best possible
The drawback here is it increases revenue recognition treatment. Just
It 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 become
by which some of the $8,000 can the subscription sooner); in more expensive as the
be spread over the contract term, addition, your company development process
as well. However it is generally not may incur increased progresses—changes
possible to spread all of the costs retention costs as due to finance
over the contract term. The effect well (e.g., sales costs concerns become
of this is also muted over time as to re-engage with the much more expensive
more and more subscriptions are customer and ensure they once your product
sold, since revenue from previously are satisfied before their has launched.
completed engagements continue contract expires). You
to be recognized even though there will need to model the
may no longer be any continuing effects of increased
direct costs. However margins will churn and retention
generally appear far less favorable costs to determine
under a subscription arrangement if shortening the
than under a perpetual license contract duration
arrangement. is a viable option.
Stephen Konig is a product manager with more than 15 years of experience in bringing B2B and enterprise software
solutions to market. His work has spanned vertical solutions for the energy industry, HR and talent management
software for businesses and governments, and solutions to assist non-profit organizations raise money and deliver
on their missions. Stephen is currently a Director of Product Management at Blackbaud, Inc. Contact Stephen at
stephen@konig-us.net, or via Twitter at StephenKonig.
2
2 • The Pragmatic Marketer • Volume 9, Issue 1, 2011

23. Product Launch Essentials ™
Plan and execute a successful product launch
Are 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 the
culmination of many, carefully planned steps by a focused, coordinated team. Even good products can
fail because of organizational issues, misunderstanding of roles and responsibilities, and a lack of a
strategic 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. MINING CONTENT GOLD By Cheryl J. Goldberg
How to Interview Content Experts
2
4 • The Pragmatic Marketer • Volume 9, Issue 1, 2011

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 come
content 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 key
challenge is coming up with customer challenges, or fill in • Early-stage education. If you
technical details that will bring want to educate prospects who’ve
compelling 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 customer
Knowing 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 in
nuggets that take your requires you to find the right that target market, and industry
experts and to know how to solutions managers at your
content 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 professional
next 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