Product & Tech: The Board Meeting Back Burner
I’ve always found it foreboding in board meetings when sales and fundraising get the lion’s share of the discussion time while product and tech are rarely discussed. In my observation, the more time spent on sales and fundraising, and the more product and tech are relegated, the more sales and fundraising suffer and the more time HAS to be spent on sales and fundraising, thereby creating a vicious cycle of hyper vigilance on sales when the problem actually lies elsewhere…
So as sales and fundraising slow down along with broader economic growth as of the time of this writing in January 2023, I’ve been thinking about the board discussions to come and how product and tech, and the companies that excel in them, may be poised for a comeback.
Continuous product innovation is an undervalued element of high-growth, high-tech companies. A few thoughts:
(1) Without continuous improvement in product, startups will flatten and die.
(2) Product and tech don’t get enough attention in VC/PE-backed companies.
(3) Good products are easier to sell than mediocre or bad products.
(4) Customers need to be wowed, not invited to a game of feature bingo.
(1) Without continuous improvement in product, startups will flatten and die.
The lifeblood of a high-tech, high-growth startup is continuous innovation in product and technology. As obvious as it sounds, it’s worth remembering that a startup can’t grow without having something to sell that’s worth buying, AND buying continuously.
Product and technology are NOT one-time investments made in the early days, and then amortized over the life of the company.
It’s common to see some variation of the chart below (source here) spelling out various stages of a company’s growth beginning with pre-seed funding for product development, then seed funding for building out the go-to-market team, then Series A or a growth round for “fuel on the fire” rapid sales execution.
While charts like this are a useful high-level roadmap for the lifecycle of a high growth technology company, it’s possible to interpret them literally and act as if there is an exclusive period for product development early in the life of the company, followed by an exclusive period for scaling sales.
Instead, product development needs to be a continuous process even in large and successfully scaling companies. Nowadays the cost of product development and delivery is low and falling — and the pace of innovation and competition is fast and rising — leaving even less room for sitting still and getting complacent.
When it comes to product, there is excellence and mediocrity. And in high-growth startups, mediocrity is a direct path to death.
(2) Product and tech don’t get enough attention in VC/PE-backed companies.
A common danger in VC/PE-backed companies is deprecating medium-and long-term investments in product, technology, and overall company health in favor of short-term investments in sales, revenue growth, and next round fundraising. I’ve even heard it said that real product innovation stops at the Series B.
The flow of most startup board meetings, especially with VC/PE backing, is to start with sales and related KPIs (if not fundraising). Then come marketing, customer success, and business development. Investors can get pretty granular in this section and go over the allotted time with tons of questions for the VP Sales and VP Marketing around pipeline progress, quota attainment, upsell potential, partner channel sales, etc.
After the sales and marketing leaders are dismissed, the product and technology leaders, who are often told to be available at a certain time and then called in much later that that, then come in and have to rush through their slides. After animated energetic discussion during the sales portion, there isn’t always a lot of energy in this portion which can be in hour 3 of 4. Whatever topics they don’t get to have to be discussed over dinner or be sent in a follow up deck after the board has dispersed.
The “discussion debt” tends to build up in product and tech and, if not caught by discerning eyes, can lead to problems down the line: low gross margins, excess engineering time spent on bug fixes or CS instead of new feature delivery, or new engineering hires quickly becoming demoralized by the tech debt or documentation debt, and not shipping code from the first weeks on the job.
In my experience, most investors are not technical (I’m not either) and therefore don’t naturally think about product and tech. But even for the technical ones, it’s often easier to perform the board oversight function by looking at quantifiable sales metrics to conclude that things are working or not than by evaluating progress in product and tech with it’s less quantifiable metrics.
I advocate every other board meeting to flip the order of the topics so if sales goes first one time, product goes first the next. It’s a simple change that sends a message to the board and executive team that product is at least as important as sales and financing.
(3) Good products are easier to sell than mediocre or bad products.
Another obvious statement is that good products are easier to sell than bad or undifferentiated products. Not only do customers love good product; sales people do too!
As such, when sales are slow, the pressure is on to press and replace sales and marketing leaders for immediate results (if the sales people don’t churn themselves). However, it pays to look further into product and tech. At least some of the time the sales team’s complaints about the product and tech are true. No one else in the organization is going to know as fast as sales if there’s a problem with the product.
But while sales can be tuned quarter to quarter, product takes much longer to change direction and show clear results, especially if attempting to build extensible products on outdated or monolithic architecture.
One thing to keep in mind is that while growth is valuable to investors, product is valuable to customers. To illustrate, it’s generally not that effective to win discerning, profitable customers by touting the company’s growth and funding on a sales call, especially if there isn’t any “wow” factor in the product. If anything, it invites the customer to ask for deep discounts on the basis that the product is effectively “venture subsidized.”
(4) Customers need to be wowed, not invited to a game of feature bingo.
What is the “wow” moment in a demo? Figure out what that is and get to it ASAP. The customer probably doesn’t care to be taken through an exhaustive tour of the whole platform on a first call. Overly scripted demos that begin with a blunt BANT questionnaire tend to waste precious time to capture a prospect’s imagination of what their day-to-day workflow could look like with productivity gains from truly differentiated products.
One of my pet peeves is playing feature bingo with a prospect. For instance, having lengthy discussions on “Do you have this feature that so-and-so competitors have?” or more directly, “How is your feature better than so-and-so competitor’s?” Feature bingo conversations tend not to convert, or to convert in pricing wars in a market segment without a “wow” product. If there’s isn’t a “wow” moment, it may be the wrong prospect on the demo.
Another pet peeve is raising capital with the express purpose of playing catch up on the feature bingo card vs. better-funded or further-ahead competition, rather than for building or extending the product into new areas that few have excelled in. Companies need to continue delivering the “wows” to stay ahead.
To conclude, product and tech should be paid at least as much attention as sales and marketing, and fundraising. If the latter activities slow down in a slower market cycle, then the former may just get their chance to shine.
