When building an insights or analytics product portfolio, is it better to focus on the portfolio’s offensive or defensive characteristics?
This is a false dichotomy. A good portfolio strategy will strike a balance by using your products to acquire clients, undermine competition, and boost your brand (offense), while simultaneously protecting/growing margins, increasing client retention, and resisting downward pricing pressure (defense).
Buy Our Way to Growth?
Some time back, I worked with a media analytics client who faced a common challenge: While they’d started off as a scrappy young startup, over the years they’d grown into a medium-scale, mature, and stable business. And as their early hockey-stick growth curve slowed, their revenues gradually plateaued into a comfortable, stable rate.
With decent margins, you would think their shareholders would be happy. But alas, they weren’t.
Because investors – particularly in today’s frenetic VC-driven marketplace – are hungry for growth, and more growth, and still yet more growth at almost any cost (I exaggerate for the sake of hyperbole…but not by much). With the company’s revenue curve flattening, the management was tasked with finding some way of revitalizing their sales curve.
But how, the management wondered, were they do to that? When they looked at their business, they saw satisfied clients: They had year-on-year retention rates of over 95%. Their market share was more-or-less stable: Together with their four biggest competitors, they had effectively divided the market between them and their shares had been stable for at least two years. Their product teams only had incremental improvements on the drawing board – no game changers that would kickstart their sales teams.
Perhaps, the management had begun to think, they should buy some hot new startup to transfuse fresh blood into the aging organization.
Well, that would have been a perfectly viable strategy. But there were other alternatives. Working with the client’s sales teams, we identified a segment of their client base who – while ostensibly satisfied – was spending about 30% less than their average revenue per client. Which naturally raised a question: Why?
Serving the Under-served
And the reason was that my client’s data only fit into a narrow portion of this segment’s workflow. They needed it at the planning stage in their business cycle, and once they’d used it for planning, they didn’t get any further use out of it.
This came as a surprise to my client, who had been operating under the assumption that all of their sophisticated customers were using their services and data throughout their processes. Needless to say, this let us identify some white space where there was room for a brand new product that could be cross-sold to this under-performing segment. It didn’t involve new data, it just required a redesign of how the data was structured and delivered, which ultimately led aggregate revenue per client to grow beyond 120% of the average.
Plainly, this was an aggressive move. It introduced a new product into the market place, contributed to significant revenue growth, and gave a shot of adrenaline to a maturing business. But at the same time, it was also a defensive move.
Business Abhors a Vacuum
Data is the lifeblood of any business. It moves through our emails, our presentations, and our spreadsheets. Used properly, data lets us make informed decisions at both strategic and tactical levels. But what do we do when we don’t have any data?
We do the best we can.
That’s the situation my client’s underserved customers found themselves in. My client’s traditional deliverables satisfied maybe 35% of their needs, but they had no way to fulfill the remaining 65%. So their customers were filling that gap as best they could, using a combination of gut instinct and bargain-basement, low-quality data from the next generation of scrappy startups.
These competitors hadn’t even figured on my client’s radar screen: They were no-name outfits, with little funding, and my client’s sales teams had never had to go up against them in a pitch. And it made sense that they hadn’t heard of the startup. They weren’t competing for the same business, because until we showed our client their blind spot, they had left that white space wide open.
We all know what happens when the big, mature giant ignores the hungry, young startup for too long. But when my client repackaged their data to better align with the underserved segment’s workflows, they not only grew their revenue, but also erected a significant defensive barrier: Increased switching costs.
Data is a drug: The more people in an organization who use it, the more they will come to rely on it. When employed pervasively through a customer’s workflow, the client becomes addicted to it. It becomes their lingua franca, and a natural touchstone that shapes their business decisions. For someone in the analytics industry, who lives or dies by selling data to clients, this is the ideal position.
But if data is being under-utilized, as my client’s data initially was, then that leaves territory vulnerable to some other competitor. And that undefended territory can become the thin end of a wedge: Logistically, it is far easier to replace data that satisfies 35% of a customer’s needs than 65%.
So by taking an aggressive posture and building out a new package for their data, my client was able to embed their data more deeply into their customers’ organizations. Which erected further competitive barriers – a classic defensive move.
A Good Offense is the Best Defense, and the Converse
The moral of this story is that thinking about the offensive or defensive posture of a product strategy can be a useful tool. Of course, it is only one way to look at a product portfolio and there are many more equally valid ways of doing so. But by evaluating the offensive and defensive dimensions of any opportunity, it lets us better understand the consequences of our actions.
We do business in a dynamic environment, and we do so with incomplete information at best. Our responsibility is to make the best decisions we can, with the information we have. And a key to effective product management is understanding how our product decisions will affect those dynamics.
Offense and defense aren’t mutually opposed – they are merely two sides of the same coin, and they both need to be understood to compete effectively.