Life Lessons
Over the past few year I've been working on a series of engagements that have provided great insight into ascertaining and helping companies bring products to market in the most efficient and successful way forward. Even those few words are ambiguous enough to cause a problem. What do the key success metrics look like? It's available, it generated revenue, it works, it's got great margin... all of the above, none of the above ?? There's definitely some diversity out there, and I thought I would just highlight some of the strategies I've encountered.
Let's move it to cloud
A couple of experiences where a bank, running a very complex application with high demands for compute, storage, etc, high availability, high business dependency. The bank, decided that they should move the application to the cloud with the mantra "how hard can it be". The lead technologist had dabbled with cloud in the past and convinced the bank that they should move ahead with a project to migrate the instance to cloud, firmly convinced that savings were in the bag.
Unfortunately, nothing about the on-premise instance translated well to cloud. They had lots of bare metal machines that translated into VMs in cloud IaaS. But as they started to build the VMs, the inevitable sizing questions came up; how many cpus, how much memory, how much storage. The only questions they really answered was the how many storage as they could just snapshot that. Cpus and Memory, not so easy as they hadn't been measuring that over a long period to ascertain trends, peaks, etc. They took a guess which meant creating VMs the same size as the bare metal. Then they realised, that for resilience/DR they had compute real-estate that just sat idle until an 'incident' occurred. So, they replicated the bare metal keep-a-spare approach for cloud.
The long and the short of the story was; the cloud bill proved to be more expensive than the bare metal. They had spent a few months trying to wrap Java and Spring Boot into containers but realised how challenging Kubernetes and Helm were, so ultimately rewound back to IaaS. They also realised they did not have IaC (eg, Terraform) skills, FinOps, no CI/CD workflow (even for on-premise). They were essentially on the back-foot from the start. Had they even got it up and running, they couldn't have operationally kept it going. Was it secure, resilient, updateable, observable, tuneable, etc? There were no levers. Six months after they started, they shut the cloud migration down, and today, they are still on bare metal looking forward to the next technology hardware refresh ($$$).
You know when moving to the cloud is a natural step, because it should be an incremental step. You have architecture that lends itself to scale, but more importantly, more so than architecture, is a continuous integration/continuous delivery pipeline. From there onwards, the rest is natural evolution, rather than a cataclysmic leap.
We built it and they will come
Product Management, this seems to be a popular strategy and I'm still trying to ascertain when this is a good approach. Product Owners are investing in three major categories for their backlog;
Keep the Lights On
Strategy
Client driven enhancements.
Keep the Lights On (KTLO) is all about continuing to streamline what you've got, making sure you keep the bugs at bay, and maintain functional and non-functional aspects of the offering. Essentially reducing your technical debt.
Strategic is where you've done your market research, identified a target market (buyers, geography, asset class, etc) and build the proposition and messaging around that. Not only do your sales people know who to pitch the offering to, but your potential customers probably know this is coming, because it's a problem/pain point they've articulated in the past.
Enhancements are those changes where a customer has expressed "if only it did this, it would be great" and the product owner weighs up the benefits of change. Do they build it and factor it in as strategic, do they acknowledge that only this customer is likely interested and for a fee will contemplate, or maybe a hybrid.. offsetting partial cost against strategic benefit. Maybe this is a complete distraction and departure from the roadmap, and would likely impact other work.
That's how it's suppose to work, but what's with the "build it and they will come". Companies build stuff, it vaguely sounds like a good idea, but then, everything downstream has to be reverse engineered. Who are our customers? What problem are we solving? What pain does this eliminate ? What's the value of this solution? what geography wants this? Almost none of this is known. It's essentially.... a solution looking for a problem to solve. Real-life examples ? this will probably cause a stir, but what about blockchain, seems like a clever idea but apart from supporting yet another senseless idea, eg, crypto, it's also looking for problems to solve. Anything outside of crypto ?
I think Go To Market discipline has probably fallen out of the window. What's the Minimum Viable Product (hedge your bets, get feedback), or the Minimum Loveable Product (the MVP on steroids). Know your customer! Know your value!
Let's sell it for .... $X
Some of my previous engagements have been fiscal focused. I work closely with private equity companies and consultants, specifically around Go To Market and Cloud offerings. An analysis on a corporate entity takes many twists and turns, specifically when it comes to pricing up products and services, and, commercial discipline that surrounds that.
There's a variety of corporate maturity out there, stemming anything from the sole trader all the way to the multi-national global corporates. I've never worked with the latter in this capacity so I imagine they have a complex and varied set of demands. However, the basics of selling are; cover your costs. There's a couple of popular options here;
Cost Plus (margin)
Value Based
For an early SaaS business, especially if you're striving for (further) investment, you're likely to start out with "Cost Plus" modelling, trying to achieve 75%. You may supplement this with people-based services, eg professional services, so the standard here is likely more like 50%. 75% margin seems aggressive. It means that you take your costs;
Infrastructure
People
Software/Licensing
Add them up and multiple by four (cost x 4). 80% even better (cost x 5). If you can attain those levels, then you're likely to be in a good position to sell your business. if you want to play with some numbers, and see the how things change, use this margin calculator to understand the split. Value Based pricing is for the more mature organisations, who have cadence. It's a difficult thing to calculate, but you have to consider;
Target Market - How many customers would benefit from this solution
Pain Point - For the target market, how important is it to solve the problem
Strategy - How aligned in the problem/solution to the company strategy
Effort - how difficult, how long, how many resources to build this solution ?
Certainty - the fudge factor applied to the above
Interestingly, where this all falls down, irrespective of the pricing methodology, is the discipline around quote-to-cash. There's a nominal phase during "quote"'ing, to sales ... that is called Configure, Price and Quote (CPQ). Salesforce has such an offering. If you're buying a car, the dealership is using a CPQ system. Major purchases online are also CPQ. I've witnessed CPQ systems that use fudge factors, bear no relationship to real-life, but produce figures "that seem ok". But what was the margin? We have to use the margin to fund the company, pay our shareholders, etc. Sadly, I've seen negative margins. But, I talked about discipline. Even..... if you produce a credible cost/margin/price, and that gets taken forwards through the sales process, only to find out that you've been undermined further along in the cycle at the contract stage.
There's no clear cut answers to all of this; you could be making 90% margins, but if your total annual revenue is $1000 that's not great, there again, if your total annual revenue is $100k but your margin is 10%, that's not ideal either. Hands up though, I've never started a business, unlikely to, and it's seriously complicated. Would love to hear an explanation around companies that don't consider cost/margin and focus on revenue, and why that's strategic and works.
If you want to catch up and discuss other anecdotal stories from the wild, please reach out to myself or the team at Sherpa Consultancy LTD. We often have #asksherpa days, so a great opportunity to learn. Would love to hear your stories, or why corporate life is not as simple as it should be. No one size fits all.
