Product Strategist: Economics and the Bowling Alley

In this article, I will expand on the previous discussion on assumptions that I discussed in this post, http://www.noozit.com/article/.ee84b91.

In Geoffrey Moore's technology adoption lifecycle (TALC) books, we are encouraged to commit strategically to the TALC approach. Realize that Moore uses the TALC critically, as very few companies actually follow the approach. I was interviewed at one, so I know that some founders do follow the approach. Further, his books evolved the approach. When everything went mass market in the post-dot-bust, Moore moved on, to more blue chip, large corporate clients, rather than startups. His two latest books will still help you if you are a startup.

One of the transitions, the one between early adopter and the verticals is something he called the bowling alley. It's actually the early adopter process repeated. The early adopter here is a risk-taking, division-level, economic buyer with budget and an idea. They need a competitive advantage. Computing as the provider of that competitve advantage is out of vogue, so you might have an uphill struggle to sell the technology, so sell their vision, not yours. It's their vision. They had it before you showed up. Build their vision on top of your technology platform. Build their vision as an instance of your technology platform. Keep your technology under the hood, in a different layer, and seen by the early adopter only as a means to economic outcomes.

You find these early adopters through rainmakers, real rainmakers, the guys with the industry insider track who know who to call, and who don't have trouble with gatekeepers, because they know the people they call. They know the budgets and the ideas. The early adopter pays for development of your application. This is no ordinary custom application development gig.

You have to negotiate for the retention of your IP. You give them a period of exclusion, which will for a short time prevent you from selling the application to other companies, their competitors, in the same vertical. You will also need to develop a business case around their successful economic outcomes, so don't buy them off. You need them as a reference for future purchasers. Don't give them profit participation or equity either. Of course as a product manger, all of these things may or may not have happened long before you came on board.

You have to stage gate on the vertical. Find out how many seats exist in the vertical, and only the vertical. Don't try to see into the horizontal market. Find out how many dollars are involved. If you can live on the dollars and sell product for a few years, take the gig. If it is too small pass unless you have to do the gig for Christmas money.

You don't need a lot of market research. You just need a short-range vision of your next market, the vertical market.

The early adopter money means that you don't have to think about getting VC funding or taking on an angel.

The early adopter also has an idea. You implement that idea, not your own. You have to listen carefully while ensuring that you are not bringing a theory into the requirements elicitation process. Build the client's visualization, not yours. And, on the requirement elicitation process, I'd say build their meaning and fit their culture. Don't let mathematics, averages, and a focus on the carrier technology which typically drive requirements elicitation mess up the cultural specificity.

You also need to realize that a vertical market, say automobiles, is organizes a variety of constituent markets, like in-car electronics. There is a hierachy involved. Further vertical markets are constituent markets for other markets. The hierachy is huge and it is deep. You engagement is located on only one level in the hierachy . Your engagement constitutes one pin in Moore's bowling alley.

Taking this back to assumptions, when you start out you will be doing business in one and only one market, so your exposure to assumptions is pretty high. You will fall victim to the economics of that vertical.

Each position in the hierachy has its own lag as it contacts the business cycle. Home construction went first, banks, then auto, then .... The economy is a big collection of clocks, and like any system that has more than one clock, you never know what time it is. You do inspect the difference between your clock and one other clock. You know your relative position. You can see the business cycle as it washes up the shore and over your shoes, and again as it goes out to sea.

Moore tells us to do eight different verticals. Eight different ones is key, because it thickens your capability to accept risk. You won't make the same assumptions in each of the eight verticals. You better not. Consider each vertical its own company or division. Let it have its own cost structure and policy basis. Don't provide common services either. Let each company consume its vertical at its own speed.  One of two of them might turn out to be big winners in the vertical, the market leader there.

Christensen was pretty clear about the need for separation. Even so, he couldn't get that idea accepted by those blue-chip corporates that he and Moore now serve. Stick with separation.

Those eight verticals will also have different positions in the business cycle. Some will go downhill before others, and those will improve before others as well. Each should have its own economist as well. Don't average. Don't generalize. Run each company for specific fit in the vertical they are in.

Those eight should not all be in say automobiles. They really need to be distributed across the industrial hierarchy broadly. You need that resilience. The breadth will also help you as you move out of the vertical. You ultimately consolidate all those verticals into a single horizontal. You can use your techniture to support this consolidation. Using the technology and application's technical architecture in this manner is called marketure. Yes, the same word that Pragmatic Marketing uses for marketing communications architecture. Do both. Live with the vocabulary conflict.

Your marketure can also help you in as you move from custom to vertical. The early adopter client gets his logo and stuff like that in the interface. You will have to remove it, other content, and even the proprietary parts of the model. Your period of exclusion won't be enough to protect their way of doing business, which no client wants exposed to the world, particularly their competitors. Cultural and meaning preservation is hierarchical as well. So you have to understand where the vertical subject domain ends and the client begins. The vertical application will contain the vertical subject domain, not the client domain.

This hierarchical structure will also help you when you move into the late market, because it provides you with the ability to move up and down and across the industrial hierarchy without a ton of rework. I know, not Agile, but not a plan either. And, fast when you need it, when you are no longer growing and the financial markets are about to pull the plug on you.

This marketure helps you get thick quick. It presents you with a collection of strategic options that you can commit to when the time comes. The bowling alley spreads your risks when you are pushing discontinuous or radical innovation through the commercialization or technology adoption process.

There is more to the early adopter engagements that will create even more strategic options. Do we develop managerial expertise for upgrades in later markets, or for a product automating that management? Do we catalog our value propositions for later use as we enter the late market or a recession in need of value-based marketing? Do we enable mass customization now?

In the software startups where I've worked, the mantra was "Always Use Other People's Money." Sometimes that meant being inefficient, because the cost among all the partners were higher than they could have been, but it didn't cost us anything, so why not. It may have come out of the revenue split. But, it didn't consume managerial focus. There is never enough managerial focus.

There are always more assumptions, so you need that managerial focus. You need your managerial focus. You need strategic thickness.

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