How Product is Changing BASIS - AUGUST 2017 Brought to you by HOW - - PowerPoint PPT Presentation

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How Product is Changing

BASIS - AUGUST 2017

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We’re building the wrong product, and

• ur direction has dire consequences.

HOW PRODUCT IS CHANGING

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Who in the world are you?

ProfitWell

SaaS pricing software and tech enabled services Free financial metrics for subscription businesses

Price Intelligently

Happy customers big and small

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PRICE INTELLIGENTLY SaaS pricing software and tech enabled services

We’ve seen inside more software companies than anyone else on the planet.

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We’re very confident in what we’re building, but most of what we’re building is wrong.

We’re VERY confident in what we’re building.

ROADMAP CONFIDENCE

We’re very confident in what we’re building

Over 75% of us claim to be confident that we’re building the right features and product to help our companies grow. AVERAGE # OF COMPETITORS TODAY LEVEL OF CONFIDENCE

SOURCE: 2017 PRODUCT STUDY

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Very Not Confident Not Confident Neutral Confident Very Confident 36.71% 38.912% 10.88% 2.298% 11.2%

N = 1282 Director, VP, or C-Level Product Leaders

N

1282

Unfortunately we’re building the wrong product.

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

Calculating the expected impact of product on growth

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

Calculating the expected impact of product on growth

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

High Value/High WTP

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

Calculating the expected impact of product on growth

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

High Value/High WTP

Add-Ons

Low Value/High WTP

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

Calculating the expected impact of product on growth

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

High Value/High WTP

Add-Ons

Low Value/High WTP

Core Features

High Value/Low WTP

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

Calculating the expected impact of product on growth

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

High Value/High WTP

Add-Ons

Low Value/High WTP

Core Features

High Value/Low WTP

Trash Land

Low Value/Low WTP

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY - N = 5K+ INPUTS FROM 1282 DIRECTOR, VP, OR C-LEVEL PRODUCT LEADERS

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WE’RE BUILDING THE WRONG PRODUCT

What we think we're building

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY - N = COMPOSITE DATA FROM 1.2M CUSTOMER INPUTS

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WE’RE BUILDING THE WRONG PRODUCT

What we're actually building

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

What we think we’re building

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

68%

Add-Ons

18%

Core Features

12%

Trash

2%

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50%

• 0.5
• 0.4
• 0.3
• 0.2
• 0.1

0.1 0.2 0.3 0.4 0.5

Revenue Drivers

2017 SOFTWARE MARKET SURVEY

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WE’RE BUILDING THE WRONG PRODUCT

What we’re actually building

DEVIATION FROM MEDIAN WTP RELATIVE PREFERENCE MAGNITUDE

Differentiable Features

13%

Add-Ons

4%

Core Features

44%

Trash

39%

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Most of this is our fault.

The market is saturated, and unit economics just aren’t what they used to be…

Competition is now rampant.

UNIT ECONOMICS AREN’T WHAT THEY USED TO BE

Number of Competitors in First Year in Business

Companies started more than a year ago had far fewer competitors in their space than companies started today. AVERAGE # OF COMPETITORS IN THEIR 1ST YEAR AGE OF COMPANY

2016 SOFTWARE MARKET SURVEY

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5 10

5 YEARS OLD 3 YEARS OLD 1 YEAR OLD 9.7 4.8 2.6

N = 1432 software founders and executives

UNIT ECONOMICS AREN’T WHAT THEY USED TO BE

Number of Competitors Today

Older companies increased competition over time, likely due to attracting new entrants, as well as decreased barrier to entry AVERAGE # OF COMPETITORS TODAY AGE OF COMPANY

SOURCE: 2016 MRR CHURN STUDY

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5 10 15

5 YEARS OLD 3 YEARS OLD 1 YEAR OLD 10.25 11.75 12.15

N = 1432 software founders and executives

N

1432

The relative value of features is declining.

UNIT ECONOMICS AREN’T WHAT THEY USED TO BE

Consumer Willingness to Pay has Declined Over Time

Software willingness to pay has declined significantly over the past few years due to increased options and higher demands. WTP AS % OF WTP 4 YEARS AGO

SOURCE: 2017 CONSUMER WILLINGNESS TO PAY STUDY

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0% 30% 60% 90% 120%

4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEAR AGO TODAY

Core Features Single Sign On Integrations Analytics

WHEN MEASUREMENT WAS TAKEN

N = Varies by line, but minimum of 10,000 customer respondents per line

N

521k

CAC is Steadily Increasing Over Time

UNIT ECONOMICS AREN’T WHAT THEY USED TO BE

Customer acquisition cost has increased significantly

Customer acquisition cost has increased significantly over the years due to market saturation of marketing vying for consumer attention. BLENDED CAC RELATIVE TO FOUR YEARS AGO

SOURCE: 2016 CAC STUDY

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• 15%

0% 15% 30% 45% 60%

4 YEARS AGO 3 YEARS AGO 2 YEARS AGO 1 YEARS AGO TODAY

B2B B2C

WHEN MEASUREMENT WAS TAKEN

N

437

N = 437 companies

Most of this is on us.

We focus on the wrong fundamentals.

WE FOCUS ON THE WRONG FUNDAMENTALS

Which Pillar is the Most Important in Our Business

Founders and software executives overwhelmingly put their support behind acquisition based growth instead of caring about monetization or retention. % OF TOTAL RESPONDENTS PILLAR OF THE BUSINESS

2016 SOFTWARE MARKET SURVEY

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0% 50% 100%

MORE LOGOS MORE $ PER CUSTOMER KEEP CUSTOMER LONGER 21.1% 7.58% 71.32%

N = 1432 software founders and executives

N

1432

We don’t know our buyers.

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Quantified buyer personas are data driven profiles of the customers you’re targeting or choosing to ignore.

WHAT ARE QUANTIFIED BUYER PERSONAS?

Table Stakes Tony

VALUED FEATURES

• SFDC Integration
• Chrome extension

LEAST VALUED

• Analytics
• API access

LIFETIME VALUE

$160

WILLINGNESS TO PAY

$10/month

CUSTOMER ACQUISITION COST

$22

TARGET PERSONA

Advanced Arnie

VALUED FEATURES

• Analytics
• API Access

LEAST VALUED

• Chrome Extension
• Premium Support

LIFETIME VALUE

$75

WILLINGNESS TO PAY

$25/month

CUSTOMER ACQUISITION COST

$58

IGNORED PERSONA

WE FOCUS ON THE WRONG FUNDAMENTALS

Customer Development Conversations Per Month

SaaS founders and executives indicated that their companies are primarily only talking to less than 10 customers in a cust dev capacity per month. % OF TOTAL RESPONDENTS # OF CUSTOMER DEVELOPMENT CONVERSATION PER MONTH

2016 SOFTWARE MARKET SURVEY

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0% 50% 100%

10 or less 11 to 25 26 to 50 51+ 3.9% 10.1% 17.7% 68.3%

N = 1647 software founders and executives

N

1647

WE FOCUS ON THE WRONG FUNDAMENTALS

Experiments and Tests Per Month

SaaS founders and executives indicated that their companies are overwhelmingly running less than 10 experiments per month. % OF TOTAL RESPONDENTS # OF EXPERIMENTS OR TESTS PER MONTH

2016 SOFTWARE MARKET SURVEY

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0% 50% 100%

1 to 3 4 to 10 11+ 2.71% 12.1% 37.81% 47.8%

N = 1647 software founders and executives

N

1647

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There are clear winners and losers in this environment.

WE FOCUS ON THE WRONG FUNDAMENTALS

Comparing Growth Strategies of Dead Companies

Of 90 companies that died in the past 3 years, the majority of them were focused on acquisition based growth. % OF COMPANIES

SOURCE: 2016 STUDY ON GROWTH

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0% 25% 50% 75% 100%

LESS THAN $10M ARR $10.01M TO $25M ARR $25.01M+ ARR

31.9% 17.9% 1.9%

68.1% 82.1% 98.1%

Primarily Acquisition Growth Balanced Growth

N

90

N = 90 companies that went out of business or were fire sold in the past 36 months

WE FOCUS ON THE WRONG FUNDAMENTALS

Comparing Growth Strategies of Companies

Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth). % OF COMPANIES

SOURCE: 2016 STUDY ON GROWTH

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0% 25% 50% 75% 100%

2012 2013 2014 2015

50.81% 49.81% 47.91% 48.91%

25.71% 27.1% 31.09% 34.67%

Primarily Acquisition Growth Balanced Growth

N

512

N = Minimum of 512 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

Microeconomic Impact

WE FOCUS ON THE WRONG FUNDAMENTALS

Impact of Improving Each Pillar of Your Business

Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE

SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS

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0% 5% 10% 15% 20%

ACQUISITION MONETIZATION RETENTION 3.32%

2008 - 2012

N

734

N = Data from 734 software companies

PILLAR OF THE BUSINESS

WE FOCUS ON THE WRONG FUNDAMENTALS

Impact of Improving Each Pillar of Your Business

Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE

SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS

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0% 5% 10% 15% 20%

ACQUISITION MONETIZATION RETENTION 6.71% 3.32%

2008 - 2012

N

734

N = Data from 734 software companies

PILLAR OF THE BUSINESS

WE FOCUS ON THE WRONG FUNDAMENTALS

Impact of Improving Each Pillar of Your Business

Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE

SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS

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0% 5% 10% 15% 20%

ACQUISITION MONETIZATION RETENTION 6.71% 12.7% 3.32%

2008 - 2012

N

734

N = Data from 734 software companies

PILLAR OF THE BUSINESS

WE FOCUS ON THE WRONG FUNDAMENTALS

Impact of Improving Each Pillar of Your Business

Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE

SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS

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0% 5% 10% 15% 20%

ACQUISITION MONETIZATION RETENTION

9.32% 15.89% 2.35%

6.71% 12.7% 3.32%

2008 - 2012 2013 - 2016

N

734

N = Data from 734 software companies

PILLAR OF THE BUSINESS

WE FOCUS ON THE WRONG FUNDAMENTALS

Which Pillar is the Most Important in Your Business?

Founders and software executives overwhelmingly put their support behind acquisition based growth instead of caring about monetization or retention. % OF TOTAL RESPONDENTS PILLAR OF THE BUSINESS

2016 SOFTWARE MARKET SURVEY

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0% 50% 100%

MORE LOGOS MORE $ PER CUSTOMER KEEP CUSTOMER LONGER 21.1% 7.58% 71.32%

N = 1432 software founders and executives

WE FOCUS ON THE WRONG FUNDAMENTALS

Impact of Improving Each Pillar of Your Business

Monetization and retention based growth far outpaces acquisition based growth. This impact is getting greater over time. % IMPACT ON REVENUE

SOURCE: 2016 STUDY ON COMPANY UNIT ECONOMICS

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0% 5% 10% 15% 20%

ACQUISITION MONETIZATION RETENTION

9.32% 15.89% 2.35%

6.71% 12.7% 3.32%

2008 - 2012 2013 - 2016

N

734

N = Data from 734 software companies

PILLAR OF THE BUSINESS

This should be scary.

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Buyers are the central tenet of your business

POINT OF CONVERSION

DRIVE CUSTOMERS

OFFER PRODUCT A JUSTIFY PRICE A OFFER PRODUCT B JUSTIFY PRICE B OFFER PRODUCT C JUSTIFY PRICE C

$ $ $

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Too many of us build first, and find our true customer later. That doesn’t work anymore.

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How do we fix this?

• Stop being a maverick

HOW TO TURN THINGS AROUND IN THE NEW MARKET

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— GROWING IN THE NEW ECONOMY

• Stop being a maverick
• Get back to the customer development fundamentals

HOW TO TURN THINGS AROUND IN THE NEW MARKET

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— GROWING IN THE NEW ECONOMY

• Stop being a maverick
• Get back to the customer development fundamentals
• Quantify your target customer personas

HOW TO TURN THINGS AROUND IN THE NEW MARKET

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— GROWING IN THE NEW ECONOMY

• Stop being a maverick
• Get back to the customer development fundamentals
• Quantify your target customer personas
• Re-evauluate the amount of time being spent on

monetization and retention

HOW TO TURN THINGS AROUND IN THE NEW MARKET

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— GROWING IN THE NEW ECONOMY

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We’re building the wrong product, and

• ur direction has dire consequences.

HOW PRODUCT IS CHANGING

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Q&A. patrick@priceintelligently.com