Aligning Product and GTM with Customer Value Metrics

By Dan Teodosiu and Dave Kellogg

Introduction, or how to lose the search wars

By most accounts, Microsoft should have done better in the Internet search wars.

When Google was founded in September of 1998, Microsoft was generating $4B in revenue and $1.4B in net income per quarter. After initially dismissing Google, shutting down an internal paid search initiative for fear of cannibalisation, and apparently giving up on buying Google in 2003, by 2004 Bill Gates had to publicly admit that, “Google had kicked our butts.”  

As it neared the end of what would be called its lost decade, Microsoft decided to take another – this time serious – run at the problem with MSN Search (later rebranded as Windows Live Search, Live Search, and then Bing). Microsoft had all the resources, all the talent, and all the desire in the world to win the Internet search market.

Yet in 2015, Microsoft took a $6B write-down in its Bing-anchored online services division, and the industry declared Bing a failure.

How did this happen?

The easy answer blames two things: Google’s entrenched leadership and Microsoft’s execution. But entrenched leaders get disrupted all the time in tech, so why did Microsoft’s disruptive efforts fail? And how can we blame execution so quickly when speaking about a company with vast resources and world-class technical talent working on a top-priority project?

One of us worked at Microsoft during part of this era while the other ran an enterprise search company (whose primary competitor was subsequently acquired by Microsoft). We believe “execution” is too sloppy a way to characterise the reason for Microsoft’s failure.

The real cause of the failure was alignment. Not just the internal alignment of product and go-to-market teams, but also the alignment of the entire initiative with customer value.

This happens all the time in technology companies:

• Microsoft almost brought down its Windows consumer franchise by spending thousands of person-years on WinFS, which was designed, for no obvious reason or benefit, to replace the file system with a database.
• Oracle Applications failed multiple times before Oracle began their acquisition spree to acquire their way out of the problem.
• Salesforce Chatter, despite heavy R&D investment, failed as the company’s primary enterprise social media strategy, ultimately resulting in the $28B acquisition of Slack.

Not all technology project failures are due to alignment problems, but we believe many of them are. In this post, we’ll talk about what typically goes wrong, how you can better align both your strategic initiatives with customer value and your internal teams with each other, and the metrics you need to accomplish that.

The way things go wrong

Alignment in a tech company is not the natural state of affairs. Because most tech startups are led by product-oriented founders, they default to a “Sales needs to sell what we build” mentality.  

This works well when the founder has tapped into a real customer need and built a great solution to it. This works poorly when the founder has simply built a “better mousetrap” for which customers can find no obvious use (also known as “a technology in search of a business problem”, e.g., enterprise blockchain).

By default, the Go-to-Market (GTM) organisation will align around achieving sales targets and the Product organisation will align around the founder’s vision. When those two things don’t naturally align with each other and with customer value, sales targets or customer adoption may not be achieved, and the blame game starts:  

• The founder and the Product team blame Sales for not understanding the product, and thus being unable to sell the amazing thing that the company has built.
• The Sales team concludes the Product team is out of touch, and responds by selling anything to anybody in increasingly desperate attempts to achieve their plan, including selling numerous capabilities that don’t exist in the current product.  

The Product team then gets buried in implementing a long roadmap full of features that Sales has effectively pre-sold. This feeds into one of the occupational hazards of being a Product Manager: PMs get asked about features on a constant basis – by everyone, from all directions (e.g., customers, analysts, Sales, Marketing, Support, Services) – and instead of being a strategist, there’s a temptation to become a list-grinder, which allows one to derive a false sense of progress. It turns out that consistently making multiple constituencies incrementally more happy is a poor substitute for product strategy.  

At some point, companies start confusing features with customer value, by making the naive assumption that more features equate to more customer value. In their quest for differentiation, their focus is too often on differentiating features instead of differentiating customer value.  Companies caught in this trap run their Engineering teams ragged building increasingly esoteric differentiators that provide difference, but no actual value. This is the failure pattern.

When this happens, everyone is miserable. The Product team is no longer working towards the vision, the Engineering team is buried under a huge list of supposedly sales-driven requirements, and yet even the Sales team is unhappy because, most of the time, when you unite the lists of pre-sold features, competitive neutralisers, and would-be differentiators you don’t end up with a cohesive strategy and a sellable product that delivers value to the customer.

Collectively, the company has lost the plot.

Communication breaks down. Arguments happen. People are fired. But nobody fixes the problem. Often, the “elephant in the room” isn’t even discussed. People are too busy talking about pipelines, win rates, and competition to step up and ask the fundamental question, “why would a customer want to buy this again?”  

Ultimately, what’s gone wrong is that the company has lost track of customer value. What should be its North Star – answering the question:  “how does what we’re building deliver value to our customers?” – simply got lost in the conversation.  

What are some of the common causes of that?

• Inside-out thinking, i.e., focusing not on what people want to buy, but on what is coolest or easiest to build. Salesforce’s initial mobile strategy favoured HTML5 browser-based applications over native mobile ones, despite selling to the most mobile team in any company: sales.
• Technology-driven thinking. WinFS was based on the idea that file systems were invariably going to be replaced by databases, something nobody asked for.
• Business pressure. E.g., to decrease our company’s CAC ratio, we need to sell a second product, so let’s build or buy something (i.e., anything) that we can sell, regardless of whether we understand what customers need or not.  
• Trend-driven board pressure. For better and for worse, boards may push companies towards hot trends, but not always with proper regard for their relevance. For example, in the past decade, many B2B software companies were pushed towards product-led growth (PLG) regardless of whether it made sense for their business. The reader may have guessed the hot trend for this decade. 
• Competitive pressure. Faced with declining market share, there is a common tendency to blindly copy competitive offerings, without sufficient regard for customer value. Companies can become purely competitor-driven, forgetting to answer the question: if yours and theirs are similar, then why should a customer buy from you?

Adding fuel to the fire, these situations are often seen as existential crises where founders are encouraged to go into founder mode to unilaterally drive a strategy in the name of speed, bypassing the checks and balances that could prevent disaster. In larger organisations, it’s sometimes not the CEO, but the HiPPO (highest-paid person’s opinion) that wins the day, regardless of the merits of their argument.

But the common thread in all these cases is that something other than customer value is driving the initiative. Compounding that, the situation is framed such that these strategies are high-level dictums that must be obeyed. Product should go build it, Sales should go sell it, and leave the thinking to us. Off you go, then!

Getting it right by starting from customer value

Starting from customer value avoids the above pitfalls and provides a principled way to understand which features are needed to add that value, or if any new features are needed at all, as oftentimes the bulk of additional customer value may stem from non-functional requirements, e.g., improvements in the key performance metrics the customer cares about. Without a proper framework for identifying and measuring customer value, trying to assign business value to particular features is a fool’s errand. More on this below.

One of us learned this lesson at his first job in technology, watching a co-founder drive technology strategy – generating innovation after innovation – in increasingly vain attempts to differentiate the product. All while overlooking basic requirements that, while viewed as pedestrian by the Engineering team, were important to customers and their perception of value. Even worse, the innovations were easily blunted with Potemkin products, a strategy described in The Market Leader Play.

Focusing on the core customer value is what makes or breaks a company. What aspects do you need to get right to achieve this focus?

• A strong mission and vision based on a deep understanding of the customer and their problem, i.e. making sure your company solves a big, meaty problem for your customers.
• A hypothesis of where and how your company adds value to its customers. This hypothesis needs to be validated by customer feedback and interest in your product, and should, in practice, be challenged on an ongoing basis.
• Leading metrics (also called the fundamentals) that allow you to measure the value delivered and focus your efforts on how best to increase that value. The hypothesis and the metrics are the key enablers that help you create a data-driven company and focus on what your customers care about. Google’s focus on relevance, response time, and coverage, elaborated below, is an example of how getting the metrics right can make a huge difference in the outcome.
• A product roadmap that is defined and tracked using the metrics. If you believe you’ve chosen the right fundamentals, then that’s what you should be optimising! “Differentiating features” thus become differentiating only when they move the needle on the fundamentals.
• A shared understanding of and focus on the metrics that includes Product, Engineering, Product Marketing Management, Sales, and Support. A company can only be data-driven if all of its functions are aligned; similarly, a company only achieves good focus only if all of its functions work on improving the fundamentals.

Another look at the search wars, through the lens of the fundamentals

To circle back to our earlier discussion about the search wars: Google’s initial mission was “to organise the world’s information and make it universally accessible and useful.” This reflected a very real user problem when trying to access information on the Internet, as there already existed 2.5M websites with a total of 26M pages when Google launched in 1998 and directory-based approaches like Yahoo! were clearly reaching their limits.

Google’s hypothesis was that it could solve the information retrieval problem for the Web by providing, based on a search query, an accurate and fast way for its users to find any site or page they were interested in. This hypothesis was reflected in Google’s fundamentals (even though at the time they didn’t call them that):

• Relevance: how relevant the top results are to the user’s search query.
• Speed: how fast the search results page loads.
• Coverage: what fraction of the existing sites and pages on the Web are indexed.

During its first few years, before it even had a business model, Google was maniacally focused on improving its fundamentals. Most of the product decisions they made at the time were informed by this – for instance, they deliberately kept their user experience very simple, as bells and whistles would have only detracted from the value they provided.

The three metrics above were all leading ones, meaning they could be measured before or shortly after any improvements to their engine were released. (Note that “leading” doesn’t necessarily entail that a metric can be measured automatically: in the case of relevance, a combination of automated and manual measurements are used.) Had they used trailing metrics (such as user retention), the feedback loop for improving their engine would have been significantly more difficult and slower to crank on.

Where did this leave Microsoft on the fundamentals? Pretty much nowhere, as the Windows Live Search relevance was poor, and its search results page load time was on the order of 3-4 seconds, compared to Google’s sub-second response time. Meanwhile, Microsoft’s PMs were busy trying to find the “differentiating features” that would set them apart from Google, instead of focusing their attention on the fundamentals.

The rest, as they say, is history.

Aligning your company around the fundamentals

If your company doesn’t have a strong vision and an understanding of customer value delivered, it needs to invest in developing these as soon as possible.

Once you’ve put a stake in the ground by formulating your hypothesis and fundamentals – not an easy process and one that often requires numerous iterations – you can start organising most of your product development activities around them:

• Your product roadmap should reflect how you plan to improve the fundamentals.
• When setting objectives (annual or quarterly OKRs), the key results should be structured around quantifiable improvements in the fundamentals. For instance, it is much more impactful to aim for a 20% improvement in one of your fundamentals than to set key results based on the delivery of specific features.
• Achievement of your objectives should be measured by how much you’ve been able to move the needle in terms of the fundamentals.  Incidentally, this often means that you need to leave room for iteration during the quarter, as some experimentation may be needed to reach the targeted improvements.
• Beyond your core product development activities, all customer-focused ones (including Product Marketing Management, Sales, Support, and Customer Success) should be centred around the fundamentals.

The last point is key for your company to not only develop a product or service that matters to customers, but also to consistently tell a story that will strongly resonate with them. Sometimes, that story may include some key features, but primarily it will convey how your product or service, as a whole, addresses an important pain point that customers are willing to pay you for solving.

Aligning the various functions around the fundamentals requires a shared understanding that they’re all in it together, and that it’s hard for them to succeed or fail independently.

Achieving this alignment starts with the C-level and requires that teams be involved beyond a classical waterfall hand-off model, such as Product → PMM and Product → Sales. PMs and even engineers need to be involved downstream to make sure PMM and Sales are properly articulating the fundamentals to potential customers, or that Customer Success is aligned around improving these metrics. Similarly, PMM, Sales and Success need to reach out to Product to provide feedback on how the message resonates in the market, and to challenge the hypothesis if necessary.

To end on a lighter note, we’ve seen several companies where one person, typically the head of the Business Intelligence team (as they “deal with data”), was tasked (often by the CEO) with “making the company more data driven”. In light of the above discussion, this can only be seen as a quixotic undertaking, since the understanding of the customer value and the rallying around the metrics need to be built into the various functions and inform how they play in concert, something that can only be promoted from the C-level.

Conclusion

We’ve discussed why one of the most important problems a startup needs to solve is developing a keen understanding of how it adds value to its customers, measuring that value using leading metrics, and aligning all of its product development and customer-facing operations around that understanding.

We’ve described some of the typical root causes that prevent companies from developing that understanding, and the symptoms that reflect this.

To recap, here are the main things you need to get right to avoid these issues:

• Develop a strong mission and vision, as well as a hypothesis of how your company adds value to its customers.
• Put in place leading metrics (fundamentals) that allow you to measure the value delivered.
• Define and track the product roadmap by using these metrics.
• Make sure that your executive leadership, as well as your Product, Engineering, Product Marketing Management, Sales, and Support teams, are all aligned around and work in concert towards optimising the fundamentals.