SKU to Scale
Accelerating Growth Past $100M
Once you’ve found your core product market fit, many of your go to market investments will center on incremental verticals, geographies, and customer segments to attack.
The best platforms don’t stop here. They focus on creating new capabilities existing customers can easily adopt, and just as important, purchase.
The process of building new capabilities customers will (a) use and (b) pay for is process I like to call SKU to Scale.
Doing this well can result in a business maintaining (or accelerating) growth rates into and beyond $100M arr.
Product + Sales Balance
There needs to be tight alignment in planning and execution between sales and product. This will ensure product is building what sales believes (and ideally private beta customers prove) can be monetized.
Obviously not everything in your road map should be SKU’d. It is, as with many early investments in a business, more art than science. There is a framework that I’ve used that can drive focus to the process: Vertical and Horizontal SKU’s.
Vertical SKUs: Premium Features
This is the notion of adding a deeper set of features on top of a core product. If you have a healthy feedback loop from customers, the list of possibilities here is typically long. Further, in a world where your core product competes on price — these premium features can be a critical driver of higher margin revenue. Of course, not all new capabilities should be charged for. Customer retention and competitive differentiation are a couple reasons you may not want to sku a feature. The decision will ultimately be determined by customer feedback, competitive context, and cost considerations.
Horizontal SKU’s: Adjacent Products
By virtue of solving a core problem with your primary product, you’ve established a level of expertise, technical know how, and market insights that should make it easier to expand into adjacent categories. Salesforce has done this well. Over the last decade have expanded from what was originally Sales Cloud to now Marketing Cloud, Service Cloud, and Communities Cloud (to name a few).
Buyers and end users in adjacent categories will likely vary, but you have many advantages from your core product traction. On the technical side — you have core product capabilities and data insights that can be leveraged to accelerate such a move. On the business side, you are a trusted brand and have commercial relationships already in place to further ease horizontal expansion.
Execution: Incent Customer Success\Sales Teams
Getting to the point of launching new SKU’s is half of the equation. To fully execute this strategy — you’ll need to ensure your sales and customer success org is appropriately motivated and held accountable to drive the adoption of these new capabilities within their accounts.
One way to do this is by overweighting incentives and goals towards these new capabilities. You may be paying higher commission rate for these new SKU’s — but the benefits of an accelerated growth rate, increased competitive differentiation, and ‘stickier’ customers can often be well worth the price.
