Last week I had lunch with a member of the leadership team of an e-commerce company I am advising. I love these lunches for I get to hear about the challenges, provide a point of view, suggest an action plan, but I’m not responsible to drive the implementation. Sigh, it’s a nice change for I’ve spent many years driving and it’s nice not to have to provide a well thought out plan and sell it to all the stakeholders.
The company is struggling with many of the problems common to an early stage start up. Nothing really all that unique. One challenge, however, points to how important it is to address early or it festers like Uncle Fester and can pave the way to a visit with Morticia Addams. The challenge focuses on building a product that customers want.
Back in the mid to late 1990s the concept of “build it and they will come” spread across product innovation. Speaking from the days of the early Internet, I remember talking with companies who received funding based on an online product with the PROMISE that millions of consumers were on their way within a few quarters. WRONG. During my time at eBay, the product team had to take a very pragmatic test and learn approach to innovation for fear of disrupting how consumers buy and sell on the e-commerce platform. New product features would be built and rolled out to a limited amount of select eBay buyers or sellers. The effect of the product rollout on category revenue, GMV, completed listings, etc. was closely measured. Only after the product innovation had proven to achieve a targeted measured increase would the feature be rolled out to the greater eBay community. This test first concept is almost “well, duh” to most of us veterans. However, not every product road map takes this test-and-learn approach.
Apparently the founder of the company I’m advising was insistent that scarce product development resources focus on building a specific feature that would be the key product differentiator. The founder was certain that this feature would meet the needs of the perceived target customer and steal customers from the industry leader. Customers were certain to come and revenue would spike after this feature was implemented. No discussion or testing plan was discussed to determine if the feature really met the needs of the customer, if the needs of the RIGHT customer were being met, or if the feature provided enough lift in revenue to warrant significant finite resources.
My contact shared that the feature was rolled out and had consistently abysmal (sub 1%) adoption from the target customer. The target customer did not find value in the feature and significant product adoption did not happen. There was no spike in revenue. Sigh. It became clear that the innovation efforts were focused on the wrong customer and needs. Opportunity was lost.
Meanwhile, the competitor focused on launching new features to help the RIGHT customers, small businesses, who brought supply to the e-commerce platform. These innovations brought more small businesses to the platform, which attracted more consumers, generating more revenue for the competitor. These innovations resulted in a significant A round of investment.
“Yikes, I feel like we missed the boat here,” my contact shared. Hopefully the team is able to quickly pivot and re-align resources before the competitor gets too far ahead. The lesson is very clear, however. Before young companies launch their product, it is important to identify the customer who has the potential to generate the most revenue. Focus on meeting the needs of this customer first through product innovation. As we all know, it’s sometimes not obvious who this customer is and what needs are to be met. However, that’s where product leadership is needed to hold back the “build it and they will come approach” and fan the flames of the “test and learn” approach. The life of the company is dependent on it. The floor of the Silicon Valley is littered with the bones of companies that did not get this right.
The Addams Family. Snap snap.