You’re distracted. I’m distracted. Just about everyone on the Zoom call is distracted, and in the back of our minds, we are all wondering: When things will go back to “normal?”
You may be tempted to wait things out and go through the motions.
If you are in this category, rethink your strategy. The bull market conditions of the past decade rewarded scale-up stage companies to focus on growth; operational excellence was nice to have, not required. That changed overnight as worldwide shutdowns resulted in a global recession.
The direct effects of COVID-19 will dissipate at some point, yes, but riding out the recession and making decisions with market “uncertainty” will go on for the foreseeable future.
Bear markets and recessions reward those that embrace operational excellence. Operational excellence simply means having a complete understanding of your business and learning to make decisions quickly based on unpredictable market conditions combined with strong communications and execution. Companies that are able to rapidly respond with informed choices and the ability to track the changes will outperform those that continue to rely on “good enough” data and communication plans. It doesn’t mean you should not take risks; it means you know you are taking them and manage the risk more effectively.
Learning from past recessions, those companies that embrace operational excellence will be stronger and the most formidable players when the market starts to rebound. They balance growth with profit and make difficult trade-offs with an eye toward taking advantage of riding the wave when the market becomes more predictable. Operational excellence is your best defense against the unknown as it gives you the ability to react quickly to changing market conditions, by nature unpredictable, with speed and reduced risk.
The newest discipline (and least understood) that will take operational excellence to the next level is product operations. A strong product operations discipline has the ability to unlock value that results in higher customer retention, customer satisfaction, new sales in a down market, and increased profit while still creating future value.
Today, there are many resources available to help better understand the discipline, as well as tools that will make it even easier to get it up and running. Prior to the recession, product ops was a nice to have for scale-up stage SaaS (Software as a Service) companies. Now, it is the secret weapon that will enable the companies that embrace a strong product ops discipline to outperform all others in the same category.
Why is product operations important to a SaaS scale-up stage company? Product operations at its core is the ability to measure “product” from every aspect of performance: past, present, and future. While this concept may seem straightforward, in SaaS, the term “product” is not as easy to define.
The traditional definition of the term “product” helps frame the concept; however, unlocking the value of the dynamic and flexible nature of SaaS is what makes product operations so valuable and is a core tenant of today’s operational excellence.
Let’s break this down.
In hardware, a product takes a physical form. We are able to measure the performance of that product easily: it’s a “thing.” We can easily track production and support costs and point to what the product is.
When we package and ship on-premise software, we can point to the act of shipping a version or, dare I say, in the old days a compact disc, and that feels closer to a physical product. This model aligns with a physical product more than it does to SaaS. We can associate the production costs of creating a version, and we can separate out the hosting cost from the code development and packaging.
The problem is that we carried forward practices from hardware to on-premise software to SaaS. Product operations is the discipline that goes hand in hand with unlocking and driving as much value out of your “product” investment in SaaS as possible.
The biggest difference is that the SaaS business model enables flexibility, financial capital efficiency, partners, ecosystems, and human capital. The elements of a “product” are far more complex than physical products or even on-premise software. A product might be multiple packages, a suite of products, or an integration. The name of the game is to get as much reuse and leverage (aka, scale) from the investment. We use the term “product” in SaaS and most imagine it as a physical product — it’s easy, it reduces complexity. It is what we know.
Once you learn to exploit the flexibility with the balance of making it simple for the masses, another level of excellence is achieved.
The traditional ways of tracking ROI from a product investment work in SaaS, as they will help you determine if you are forging in the right direction. What you will miss out on is the gold that lies just under the surface, in the data being ignored.
Product ops is the discipline that collects and correlates data to calculate scenarios beyond what is on the price list or development groupings. Product ops correlates various data sources, including cost, usage, packages, cohorts, search results, and price list vs. paid data to slice and dice the art of the possible, allowing you to consider options otherwise unknown.
If we continue to use the old ways of measurement that applied to physical products and on-premise software to measure product performance in SaaS, we will get a “good enough” representation of the performance. Not to mention what we miss out on is even better performance across the business as a whole.
To better illustrate this concept, below are two examples of value unlocked by those teams that have incorporated product ops into an already strong operational excellence discipline during the scale-up stage:
- Increasing customer satisfaction and retention by offering a smaller package for 80% of the price with 60% of ongoing cost simply by removing features from the package the cohort was not using. This scenario correlated the usage by cohort analysis with data derived from Pendo against the cost analysis derived from multiple sources during run time of the features used versus what’s included in the product. Without the use of product ops, the probable action would have reduced the price to the customers and missed the run time cost savings associated with the suite of features, as traditional analysis only includes new build costs — not run-time costs — and does not correlate feature usage costs to run-time costs.
- Analysis of organic search results matched to code produced in an adjacent segment revealed an increase of interest in an area that had been developed to 80% in a prior year, which was abandoned due to loss of the customer that had requested it. The cost to complete the adjacency offering would produce 50% more revenue in the year as an upsell; this was more than any other single area of development and would result in lower average customer acquisition costs (CAC) due to the upsell to current customer motion versus new logos. Without the product operations discipline that correlated the organic search results to code comments, the “gold” would not have been discovered and the choice might not have been on the table, a complete ground-up build would cost 2x the annual R&D budget and would have not made the prioritization discussion.
As the scale-up stage of a company is a transitional time, the history of past decisions and actions is often lost with the employee and founder turnover. A strong product operations discipline is a value add to this stage as you can uncover the story hidden in the data that product ops reveals.
What are you waiting for? Get your product ops discipline started today.