August 14, 2014
Outsource like a Boss
Kevin Henrikson leads engineering for Acompli in San Francisco. Previously, he was Senior Director of Engineering at Zimbra (acquired by Yah...
I paraphrased the name of this talk from the book that was titled Positioning and the subtitle was, Winning the Battle for the Consumer's Mind or something like that. I'll explain what that means and what role positioning plays in that in just a second.
A very brief intro on me. In the past five years, I've worked with a lot of different startups. Many of them are developer-focused companies. Some of them you may know here. I worked in the early days with the Heroku guys. I worked with New Relic in the early days, with Twilio and a bunch of others. You can see some of the names here, some are more known, less known, but some will be known later on. I'm on the board of a few of these companies, advisory board, doing more thorough consulting a lot of which is around determining the positioning. That's a little bit background on me.
Many of these companies are in different stages of their life cycle. I've seen companies from the very early stages. I worked with Twilio when it was three founders. I was just there this afternoon. Now, they're 200+ something. It's quite exciting to see how that happens. I visited earlier this week Oren Teich at Heroku. Another similar dynamic there. So, you get a better sense of where companies are in their life cycle - what they need to do at what point, what are the indicators that they now need to change, they need to do something different. Positioning is a very important piece of knowing when to do that.
Just real quick, in addition to Tweeting and hash-tagging Heavybit, you can follow me on Twitter.
Let me jump right into it. The classic definition of positioning is the place you want your product to occupy in the customer's mind. Now, what does that mean? Think of the mind, the metaphor as different boxes. Which box does the customer put you in? Why do we even want them to put us in a box? It's because that's how humans work. We get a lot of information thrown at us, especially in the tech business and especially developers. There's new frameworks, new technologies, new API's, new this, new that coming out every day and it's just overwhelming to keep up and remember all of these things that are thrown out at you.
Most of the developers, most of your customers that you're trying to appeal to are not in Silicon Valley right in the midst of places like this. They're working at large corporations or even large web companies or some that may not be the biggest enterprises, but are still very large organizations. They have a lot of other things to deal with and keep up with every new tiny startup that comes out.
We need to make ourselves visible and memorable in some particular box that when somebody thinks about us or hears our name mentioned, they say, "Oh, it's the X company." That's what positioning is all about.
It's a fairly simple concept, but really difficult to do and I'll explain why.
To give you a better sense of example from something we are all familiar with. Cars. If you look at the luxury cars category, each of these brands is trying to own one word in your mind. BMW is about enjoying driving. Volvo is about safety. These are long lasting campaigns that they do to try to capture that word in your mind.
A lot of times you'll see when people talk about positioning they do these kinds of things which are called perception maps or perceptual maps. This one is for the auto industry. I think it's a little outdated, but it's just to explain the point. You can do more sophisticated maps than just attach one word. This is where the term positioning comes from, where you take two attributes, and this is a very common practice among marketing professionals, and you say these are two important attributes in the market that define different market niches. What's going on? What does the market look like? Where is our product in all of this? And where should it be?
This is an example, the vertical axis shows Prestige at the top and Budget or Affordable at the bottom. Right is for older consumers, left is for younger consumers. You could see some things here where obviously BMW, Audi, Mercedes, all of these companies are prestige brands or luxury brands, but they're not necessarily positioned on the same place. Audi and BMW appeal to younger consumers and Mercedes and Volvo appeal to older consumers.
You can also see some other things that are going on here, actually, from these maps. And this is one of the exercises you should be doing when you're developing positioning. We'll talk about that a little bit later because one of the most difficult things is choosing those attributes, but it could tell you a lot. For example, if I'm looking at this, and by the way, I don't know if this is an accurate depiction of the auto market today. I took it from some website just to illustrate the point. You can already see, for example, there's an empty spot in young/affordable. That's an opportunity for a product.
Again, this is not a comprehensive chart. There actually are cars that are already positioned there, but it just gives you a sense of how these tools for positioning can help you and what positioning is all about. It's figuring that kind of thing. You can also see that Audi and BMW are much closer competitors than Audi and Volvo, for example. These things tell you a lot and you need to think about them. At the end of this talk, I'm going to try to do a little exercise from a very, very current market segment right now, and do a little exercise of how the positioning works there.
In order to determine your positioning, there's a fairly simple tool, but it's very difficult to implement correctly or to work with correctly, which is the positioning statement. The positioning statement is very, very simple. It really just says, what's our product category, what our target customer is and what's our key differentiator from our competitor.
Notice that I put there in the topic it's an internal document. This is not the messaging. This is not an attempt to wordsmith how we explain it to the outside world. This is for us to understand what's our position in this world. These are fancy words for saying it in a much simpler way: what is our product and more importantly, sometimes, what is not. This is going to be a recurring theme in my talk which is positioning.
Especially for an early stage startup or startups in general, it's a lot about sacrifice, understanding what we're sacrificing, what we're not doing. It's about focus. Who it's for and who it's not for and why it's better different than the alternative.
A positioning statement helps us develop our marketing material, our messaging and our go-to-market plan once we've decided it, but it's not those things. It's certainly a guideline for them and for the messaging as to what we're going to do in the outside world. That's where we're going to wordcraft. That's where we're going to consider all sorts of connotations of the words, things like that and what are the most important two things, all sorts of exercises. I'll mention them briefly at the end. Although, this is not a talk about messaging.
The other thing that positioning is not, it's not your company vision and it's certainly not a VC pitch. I'll touch on that a little more in just a few minutes but just keep in mind that it's not those thing. Positioning is a very, very practical thing we're doing or we're using. There's a whole debate if positioning should be referenced mostly as a noun or a verb. So, positioning is a noun. But in the process of developing positioning, we are positioning, it's a verb. It's not these things and I'll explain in a few minutes why exactly.
This is one of my favorite quotes in the world by the English writer Somerset Maugham. "Three rules to writing a great novel. Unfortunately, nobody knows what they are." I kind of paraphrased it about positioning, but it's a little different.
"There are six rules to writing a great positioning statement. Unfortunately, they contradict each other."
I'm going to tell you the rules right now. Here's what people expect for you when you're about to embark on developing a positioning statement. It has to be highly differentiated from everything else in the market, but serve a strong existing need. It has to be very, very focused, but serve a very large market. And it has to be a very simple statement but very, very compelling and persuading.
Obviously, these three things match to those three elements of the positioning statement: the category that we're in, what's our product, what does it do. Not exactly what does it do. Rather, what is our product? What's our target market or target audience? And what's our differentiator? Of course, these six aspects of the positioning are pulling each other in literally opposite directions. They are contradictions. I'm going to look at each one of these and talk about it a little bit more.
The category. We want it to serve a strong existing need.
It is very, very difficult and challenging particularly for a startup that doesn't have massive resources to try and persuade people that they need to do something they haven't been doing.
Even very large companies find it extremely challenging to do. In fact, in the history of products it's been done very few times.
Does anybody know what was the positioning or the product category of the automobile when it first came out?
Horseless carriage, yeah. People know what carriages are. They have a need for carriages. This is just like carriages just without a horse. It took many, many years until it started being called a motor car, automobile or whatever. That shows that developing a new category of product is a very, very challenging thing that companies generally avoid. But on the other hand, you do have to make it different than the existing solution, otherwise, why would people switch?
Second, in terms of target, be very effective in your messaging, in your go-to-market plan, especially when you're a startup with a low budget. Which conferences do you go to? Which messages do you put on the website? What do you spend money on? Your Google AdWords. All these things. It is, of course, much easier if you're going after a very, very focused target, but you have a lot of pressure to go after a large market. The pressure is from investors primarily. I'll talk about that specifically. The pressure is from your sales guys once you have them.
The pressure is from many different directions and a lot of times, it's also the founder's egos that pressures you to go to a large market.
Finally, for a position segment to be very effective, it has to be very concise, very simple. Talk about one thing. Just like Volvo is safety. BMW is driving. Just that one word. On the other hand, compelling, persuasive, etcetera. It's very difficult to do. It would be much easier to do if you get a chance to have ten bullets to say why your product is better than the other product.
I want to talk about this category issue a little more. Essentially, if any of you are familiar with Steve Blank's model, there's this mention of going and working in a completely new market, a resegmentation of an existing market or going after a completely existing market. This very much corresponds to defining or deciding on your product category when you're going through a positioning exercise. I put some examples here of the three situations, and let me explain.
We're looking at companies that develop new categories. As you will see, by the way, in real life it's not black and white. In real life it's many shades of gray. That's what makes this exercise so difficult. If you look at Amazon Web Services, they essentially had a choice. Let me just say, where you fall on these three types is many, many times a choice. I'm sure somebody could think of some corner cases where there's not a choice.
But think about the automobile, what an innovation compared to the carriage, but the positioning of it initially was a resegmentation. A carriage without a horse. It wasn't a new category. It's almost always a choice.
Think about Amazon Web Services for example, EC2, S3 when they first came out. They could have said, we're hosting — we're on demand hosting or something like that. But they didn't. They went with EC2. Even the name specifically referred to this new term that was just emerging called "Cloud Computing." And so they said we're not hosting, we're Cloud Computing. Infrastructure-as-a-service, I think, was more developed by analysts and that sort of thing, but Amazon certainly embraced it and fought it and the market suddenly perceives at least those services, EC2 and S3, as infrastructure-as-a-service.
Gartner publishes the magic quadrant, infrastructure-as-a-service, and puts players and puts Amazon there as the leader and so on. They're clearly perceived as a new category. They did many different things. If we talk about, for example, the target audience. They decided, unlike hosting providers, they went after IT folks. If it's the enterprise or SMB's, technical folks in SMB's and kind of operational folks, they went after developers. It was a huge different target market, and so they created a very different positioning. By the way, this is something to remember:
Always be very, very careful when you're comparing your startup to very large companies because different rules apply to them when it comes to positioning.
Amazon has the ability A, to create a category and B, to not be as focused as it should be. They went after the whole world of developers. Maybe at first, you could say the target market was a technical segmentation of Linux. Later they added Windows and very quickly expanded beyond that.
They also didn't have one clear compelling "this is what we're about." You might say it's on demand. I'm not sure, but they had a whole bunch of things — the API, this and that. But they could afford that. They're a big company with enormous resources and a very long runway to do this stuff. They didn't have to report it on their financials in the beginning. They still don't. They had a lot of room to experiment, to try and go broad and work it that way.
If we look at a different company that you're all familiar with, Heroku. Heroku, it is arguable, did start a new category. It wasn't alone and it was riding a wave. This is an important tip to when it's okay to start a new category. If there is a trend, whenever you're developing positioning, it's never in a vacuum. You always have to look at what are the market trends? What are the analyst is saying? What are the journalists saying? What are the bloggers saying? What are the other company is saying? Thought leaders, etcetera, etcetera, etcetera and does this fit in that?
Sometimes you have the wind in your back and you can do things that you normally can't do, but I would say that it's still sort of a rarity to succeed in creating a new category.
Heroku circa 2009 what was it? I don't think they ever used it on their website. I'm not sure. James, have they ever used the term platform-as-a-service on their website? I think it was called Cloud Application Platform or something like that. People understood it and very quickly put that tag on them. Again, positioning is what it is in the customer's mind, not yours.
James: The very first thing we did was the horseless carriage thing. We said, "Hosting is obsolete." That was our only tagline for the first six months."
I remember that!
James: So, it was not hosting, but replaces hosting.
Right and I remember in the beginning, you were more concerned about being similar to Slicehost than an Engine Yard maybe or something like that. Or maybe stuck between the two. But you could have said they had the wind in their back because already people were writing about platform-as-a-service, categorizing them as it, whether they liked it or not. They were calling themselves hosting, but others were already putting this tag on them.
They had Engine Yard, which was actually ahead of them believe it or not in many ways, in the perception and mind share of the industry and certainly funding, I think, and other things. Arguably, a new category, but I would say generally, yes. Because there was still no dominant mainstream player that owned that space. The key there, they had the wind in their back so it was good.
Twilio is the company I've been involved in since early on and that was a really unusual one. I was just there discussing it today with Linda, their current CMO. They don't really have a category yet, but they're doing quite well. I'd argue they're very much getting there in the mainstream. This is a really unusual one, but they're certainly thinking of "we need to define a category for us if we want to take it to the next level, to be a billion dollar company in revenues, not a 100 million dollar company."
There are some anomalies. I mean, Twilio did a lot of things that I really do not recommend to do even though, when I worked with them, I did think it was the right idea because there were very unique circumstances. For example, they went very, very broad and horizontal.
Just to make sure everybody understands, Twilio was an API for a service in the Cloud that basically lets developers integrate telephony capabilities, calls, and SMS or texts in their applications via Simple REST API. They run a huge infrastructure in the Cloud and they take care of, as Twilio calls it, all the "telecom goo" for you. You don't need to know anything else, SIP servers and all that stuff. They take care of it and you can make and receive calls, text and do all sorts of cool things.
They went very, very horizontal. They basically released an API. They did not focus on a particular group of developers. Unlike Heroku, for example, that focused on Ruby on Rails originally. I'll talk about that a little more. They just went with it. They just did a really, really good job of getting the word out on what you can do with this thing in the world. They got the word out and they just did a lot of footwork which is not an easy thing to pull off the way they did it.
People do tag some kind of positioning on them. It's not a very clear cut positioning, which is maybe one of the things that is making them nervous. They don't have that box in people's head. They're in a few boxes and they don't completely fill a box and it's a very blurry positioning. That's not a good thing for growth.
When buyers are thinking of buying you, they're thinking about a category. They're thinking about a budget line. They're doing a Google search for something. If you're not coming up in that, if you're not in that budget line, you're going to have a very uphill battle.
There are companies that have obviously succeeded and some that the jury is still out on. A company I worked with called Totango, what they do, and this is even hard to explain, is basically they measure activity in your app and let you do business stuff with it. For example, they let you know which one of your free trials are likely to be bought. So, your sales guys should be giving [them] a call or you should be sending them an automated e-mail saying something, offering them a discount, doing this or that. They can tell you which one of your existing paying customers are at risk of abandonment.
They don't have a category. It's not CRM. It's not marketing automation. It's not any of those things. They are working on developing a category and they've been doing that for a couple of years.
One of the problems is that if you don't have competitors, you don't have a market. You need to pick competitors and start defining the market.
There are other players emerging. I think one of them is called Site Gain(?).
There are a couple of others
where they're starting to call this
They're saying, "Look, you've got CRM and lead capturing and all that. You've got marketing automation for getting your leads to buy after you got them first. Now, you need customer success management. It's the next phase. Now, they're using it. You wanna make them use it more. Not abandon, etcetera, etcetera, etcetera." It kind of makes sense to position it that way, it makes sense for people. "Oh, I understand. I will need that. Yes." Or, "I already do need that." That's one example.
I won't get too much into Takipi although I think it's an interesting one. It doesn't have a category yet. I do want to use Ravello as an example of why it's so difficult to create a new category. How many people over here have heard of Ravello Systems? One, two, maybe three at most. Very few people have heard of them. They've got a category that's called the Cloud Application Virtualization. That's the category they're trying to define for themselves.
They've raised $26 million out of the gate because the two founders and the third guy, that's not exactly a founder but is with them, already had three successful exits. They work with the same VC's, Sequoia, and a couple of others. They have great track records so investors feel very comfortable. They raised $26 million before they had a website or anything else for that matter. No, I think they had some technology already in place and they've spent a lot of it already.
They've been out there for a year or two trying, but still a lot of you haven't heard about it. It's a new category. That one is almost very, very close to being what I would call a true new category. It's very unlike other things. What it does really, in short, is it encapsulates a whole sort of multi-VM app with web server, app server, database server, the networking configuration, the storage configuration and lets you clone it, move it around between Clouds so you could have an app running on VMware in one Cloud and run it on Amazon without touching a thing. It's the same exact thing.
The first use case they came up with is for dev and testing. They did try at least to focus it very much there. It's targeted at developers and the use case they're going after right now is dev testing in the Cloud and then you can bring it on-premise for production, as many enterprises want to do. I'm just telling you they raised a lot of money, have a lot of resources, it has very experienced entrepreneurs and it's very much of an uphill battle for them to try to work in this new category approach.
The second one, as you can see, is sort of a middle road between going after a completely existing category. Maybe I should just start with that because it's kind of obvious. It's really going after an existing category. Look at AppDynamics for example. There has been application performance monitoring or management, or application monitoring for years. They're just saying, "We're an application performance monitoring thing. We're on premise like the previous generation." There's no particular differentiation in a big way. They're just saying, "We're just better."
You've seen this in many, many things where it's just about performance. Think about razor blades, Gillette ads. First they have one blade, three blades, five blades; they're just saying it's better. It moves better. It does this or that. Computers are faster. Hard disks are bigger. There's not a big leap. If any of you ever read the book, Innovator's Dilemma it gives a very, very famous case study of hard disk sizes. They become bigger and bigger and these players ignored it and then new entrance took it.
You can definitely win by coming up with a better mousetrap, but I'd say it would very, very difficult in this day and age for a startup to do.
Just because if it's an existing category, it's got existing leaders who, if it's a worthwhile market or making a lot of money, have already entrenched themselves in that box, in the buyer's and customer's mind, and they own that box. And it's going to be very, very difficult to rip it away from them.
My prediction about AppDynamics, by the way, is that either they don't succeed or they will reposition themselves as something differentiated — do a resegmentation or do something with what they're targeting, if they're not already. You could argue that they are trying to do that, but they're not doing it in a focused robust, aggressive way. And that's not going to work so they're going to have to change that.
The third category is sort of the middle road as expected. It's resegmentation. You're putting it in relation to an existing category, but you're saying it's different and you should be looked at different because it's different in a very, very fundamental way. The classic example of course is Salesforce.com. They went after a very established category CRM that had a very strong leader, Siebel Systems, later acquired by Oracle. They said, "We're CRM, but we're in the Cloud. We're software-as-a-service." They started explaining to people why "you don't want on-premise software."
Siebel may be the greatest product CRM in the world with the greatest functionality features. It has huge companies using it. It has a support organization. It's got an ecosystem around it. All that's great, but it's on-premise. It's yesterday's news and on-premise fundamentally is wrong. "You want to go for this new approach that's in the Cloud." When that happened, there was this wave of Cloud. We've seen that happen in almost every software category. I dare you to find a software category where it hasn't happened except for nuclear plant management software or something.
New Relic is the same thing. New Relic started about the same time as AppDynamics. They all came from Wily Technology, which is the old generation of enterprise APM and they took very different approaches. New Relic made their whole story about [that]. By the way, they also like Heroku, focused initially on a very focused target segment. They also went after the Ruby and Rails market — I should say Ruby, right James, because it doesn't necessarily have to be Rails, I think, in Heroku at least. They did those two things. They resegmented the category and they went after a very focused target.
Sauce Labs is another company — similar idea except with a slightly different situation, which I want to talk about because it's very, very common. Which is another thing you will see a lot, this is happening in CI as we speak. Sauce Labs does functional testing or cross browser testing in the Cloud. They have a Cloud where you can run your, specifically, selenium tests.
Selenium had become a very common practice in large and small companies to do browser testing with or functional testing with and everybody was doing it on-premise. Selenium is a free open source framework. There was no commercial player to be seen in that space. They basically said the same Cloud story. "Yeah, that's great. But if you do it on-premise, it's a big headache. Hardware, software installation, configuration, management, doing all that. You want to do it in the Cloud, we'll do it for you. Just send it to us."
What's notable about this is that there wasn't a commercial play in on-premises software. It was an open source play. It's a very common thing. I'm sure you can all think of a couple of other examples for this. CI is one — I put CircleCI here, where that's happening right now. There was Jenkins/Hudson, a very, very dominant and kind of the on-premise open source stuff. Now, there's this big shift to the Cloud. I'm going to get back to CI later because it's an interesting case.
Garantia Data is another company I worked with. They have Redis Cloud. Even though that is already a Cloud and it's based on open source, when they got in, it was already an existing category. Probably Redis To Go is what everyone is the most familiar with. They really think, and they have a lot of technological chops to prove it, that they have a superior product, that it's fundamentally more reliable, that it's faster, that it's cheaper because of how their technology works. But it's going after an existing market with incremental differentiations. They're just saying, "We're faster, but we're the same thing. We're just faster, more reliable, etcetera."
I just want to clarify this point because I thought this might be confusing:
What happens to markets is that they continuously resegment categories. Categories split and split and split and split.
Think of automobiles it splits to sedans, and sedans then splits to prestige and affordable. Then it splits to young and old, and it splits too. It keeps splitting and splitting and splitting, or fragmenting. And this happens in every category.
Think about software categories that you're familiar with. Think about CRM, another classic example. There was on-premise CRM, then there's Cloud, and on-premise. Then Cloud splits into SMB's — 37signals, Highrise. They said, "Salesforce is for enterprise, we're for SMB. We're a much different approach." Then you had a whole slew of companies trying to do SMB, CRM. Now, you have social CRM.
People keep reinventing these sub-segments or these subcategories in order to own them and so, that's the nature of any industry.
Just think soft drinks. Think whatever you want. That's what happens and then people start measuring you. You're not a soft drink. People measure colas. People measure energy drinks. People measure this and that. And the industry keeps splitting into these subcategories. But, you always hear that industries actually consolidate over time.
Just to be clear, the vendors consolidate. The players in the industry consolidate. The categories fragment. Inevitable.
The second thing is choosing the target and, again, that push and pull between being very focused versus having to go after a large market. About this, I want to say that for startups this is a very, very easy choice. You can almost never err on the side of focus. Again, a startup with very limited resources but they have to do it. It sounds easy, but I found this is the most difficult thing to achieve when I'm working with companies. Especially their founders and their boards and investors. This is one of the most difficult things to achieve.
What's the good of it? It focuses everything in the company with limited resources. It focuses your product development. It focuses your go-to-market, your sales marketing. It makes life very, very easy. You know after who you're going after, what conferences you're going to, what publications, what keywords you're buying, and what features you're developing and all that. What platforms you're supporting. It just makes life easy. It's the only way for a startup to enter.
Many startups even if they don't explicitly make that choice available as a message on their website, they do make those choices. They should make them explicit though. Their lives would be easier.
What's the problem though? I'm going to pin it on VCs, but it's really not just their fault. A lot of times it's the founders' egos too. The problem is that a lot of companies in these early stages when they need to start defining their positioning are also raising money. When you are raising money, this big ball or circle is the vision and the addressable market you're explaining and showing and demonstrating are to investors that you're going after. Especially top tier investors who expect at least a potential of a billion dollar company, over 300 million+ exit, etcetera.
You start getting into this mode that this is what people expect to hear from you and that anything else is not enough. That's a trap because actually in order to succeed in a successful go-to-market you need to focus on all those things that I talked about before. That's what you need to be looking at. It's a very tempting and difficult situation. Also, you need to put yourselves in two completely frames of mind. You actually have to believe both things, which is hard.
When you're developing a focused positioning, you need to be obsessed with: If this doesn't fall in our positioning, it's not our target audience, it's not the category we're playing in, it's not what differentiates us, then we shouldn't be doing it. But then when you're actually going fundraising, you say, "Yeah, yeah, yeah! That's just a tactic we're doing for now. Here's what we're going to be doing."
You really have to put yourself in that frame of mind of: Wait, what could this be? And forget: I don't have resources, forget: There's a long wait. There's a million reasons why this could fail. We won't execute and all that. But, if we do all those things, that's great. What's it going to look like?
It's really difficult to be in both those frames of mind. It reminds me of another quote I like by the late prime minister of Israel Rabin, who was assassinated later, but nevermind. He said at the time:
"We should negotiate peace as if there's no terrorism, and we should fight terrorism as if there's no peace negotiation."
It's a very difficult thing for a country to be in that kind of frame of mind. How can you negotiate with the guys when the other guys are killing you? It's a similar thing.
The last point I talked about is kind of this push and pull. When I go with companies through these exercises, sometimes this becomes very, very different. "What is that one message that we want to say which makes us different?" It's extremely difficult to do a lot of times, especially, when engineers are involved and they're thinking features and technology. By the way, it's okay that maybe the differentiator is technology.
There's always this approach, if any of you are Mad Men fans you may have seen the episode, this famous story in advertising and marketing where in the 50's all the cigarettes were trying to vie for attention and differentiate themselves, but people really didn't see a difference between them. Then Lucky Strikes said in all their ads, in huge letters, "It's toasted." All the cigarettes were toasted. All tobacco was toasted, but they said it in their ads. So people thought, "Wow, it's toasted! That's a difference." You can do that.
Companies do it all the time, where they make up something in the manufacturing process that everybody uses, but they say "ours is this or that" and consumers think it sounds cool or different or good.
My little tip here — and I'm skimming through the topic, unfortunately, otherwise we'd have to spend months here — is that if you're having a hard time finding one, I would argue, but I sometimes give up in these positioning development sessions, maybe two of these differentiators that you're completely focused on as your primary message everywhere, then you need to go back to defining your category and choosing your target market. You haven't done a good job of that. You have to go back up there.
If you see, there's sort of a balance here that if you choose a very targeted market wisely, like Heroku did Ruby on Rails, you could get away with a lot of other things. Because you're looking at a very tight knit community that you have a lot of say in, that you can become the leader in, that you can go to their conferences, you know their talk, you know all this stuff. You have a lot of credibility there, and you can get away with a lot of the other things.
I'll end with implementation. I talked through a lot of this. Once you finish the positioning exercise, you then take that and you start building your marketing materials and your go-to-market plan with it. First, your messaging. You define what the features are, benefits, the problem statement, differentiator versus different competitor categories, because there is not always just one competitor category.
Again, just to give Heroku as an example, on one hand they had Engine Yard, which is sort of also a platform-as-a-service. On the other hand they have Slicehost, which is a kind of a Ruby-focused low-end hosting thing and then they had Rackspace and they had all sorts.
What's the positioning differentiation versus the different categories? These are sort of the more advanced messaging things you have to derive after you're done with the key positioning stuff.
And your value proposition. If any of you have read Jeff Morris' Crossing the Chasm, a very, very classic format that has served me well over the years. It's classic and for good reason. We basically take everything we learned from that whole process that I described and we're saying in the end: It's for our target customer. Java developers who are dissatisfied with current gateway app servers. Our product is a Java platform-as-a-service that provides instant deployment or auto-scalability unlike etcetera, etcetera.
So, that again then forces you to focus. It's almost a result of the whole thing. It's not as easy as it looks on this page to come up with. Of course, like I mentioned before, from that you derive your branding. And by the way, I don't know if this is confusing sometimes for people between branding and positioning.
Branding is the look and feel and the tone of your company or brand. It's not just the design.
Is it playful or professional? Is it old or young? It's those kinds of things which is of course, derived from your positioning. If you're going after a developer demographic, it means certain things for your brand that you need to think about. Even different groups of Java developers are different from Ruby developers or Python developers.
But the nice thing about it is it lets you live a very, very focused life as a marketing and sales person because you know exactly which conferences to go to, which publications to pitch to, which keywords to buy, what sale structure you need, what pricing, what's the general gist of your pricing. All those things. The partnerships and channels. That's a really important one that we could devote several hours talking just on that.
The final thing I want to do is show you, for example, a category — and I'm sorry I'm going to do it to the CircleCI guys because they're here — that I think right now is influx and undefined and needs to be shaken up, is the CI category. If you look at the CI market right now, it's very, very fragmented. First of all, there is still a significant portion of companies who don't use CI servers. But let's say that's shrinking quickly. Those who do, it's very dominated by sort of Hudson/Jenkins, which is the old school, open free, open source stuff. A lot like Selenium was for Sauce as a market. There's no dominant commercial player in that category. In fact, in any category.
There's old school versus new school, even in the on-premise stuff and there are Cloud players now that are saying, "Yeah, why do CI on-premise?" Blah, blah, blah. Same old Cloud story or as-a-service story. There are multiple developer communities that are leaning towards different products. Not necessarily for good technical reasons, but you know how it is. Sometimes it's just word-of-mouth. A friend brings a friend and somehow all the Ruby guys end up using this one or that one. And the whole thing is influx. You keep seeing new players popping up.
This is a very, very partial list. Actually, I looked up Wikipedia. Somebody wrote an article that compares CI systems. There is, I think, 42 or something like that and it's probably not completely updated because I found others that weren't on there. If you just look at the players who are Cloud CI players, you could see how fragmented this market is. With very few exceptions, it's very, very difficult to understand what the difference is between them. What box do they occupy, what are they expecting me to remember after I visit the website or try their product? What is different about them?
You see some attempts and one that I would say is fairly differentiated is CloudBees. CloudBees basically say the classic story. "Hey, you are using Jenkins on-premise. Why use it on-premise? We've got a Cloud for you. We solve all those on-premise problems that people have. No software, no configuration, no hardware, no this, no that." We all know the advantages of Cloud — easy pitch, easy differentiations.
Positioning as I said, is what's in the customer's mind, not yours. You have to make a credible positioning statement. To give themselves credibility, they hired the lead Jenkins developers and all that, and they're sort of positioning themselves as the Jenkins Company. Easy for people to understand and remember.
Then you have a new generation of guys like Travis, like Circle, like Wercker, Codeship IO, which have a little bit of a differentiation nuance in that they're building themselves as continuous deployment versus continuous integration. I'm not sure how significant that is or what it means for that matter, and I'm not sure the customers they're targeting understand what it means. If anything, it may be confusing.
There's this whole new generation that is very, very difficult to find differentiation between them.
At some point, Travis called themselves GitHub for CI or something like that. But in what way are they GitHub for CI? What does that mean exactly? It was when they went after Open Source,just like GitHub went after Open Source in the beginning. Okay, great. That's not good positioning to make customers want to understand how you're different and want to buy your product. Which customers? Who are the target? Open source guys — okay, they'll succeed at that, they already have. If anything, it actually could be detrimental to them.
Other than that, when they started becoming more commercial, if you look at the website, you'll see it's not clear at all. They make some claims about GitHub, so does Circle. It makes some claims about integration to platform they can deploy to, the types of tests they can run, all that. There's very little difference between the players there. I think one of the reasons that's happening is because they're doing exactly that thing I said was very, very difficult to do, which is decide what you're sacrificing.
In my opinion, in order to succeed in this space, these guys are going to have to decide, I am going after this target market or this is my key differentiator. Even though I do 10 other things, I think better than Travis or better than Circle, this is the one thing that matters to people that makes me different. Or targeting a particular developer group or a particular use case or something. If you look at their website, you could see all the things they are trying to say, the important features. It's probably coming from one of those categories. Either it's the platforms they deploy, doing the kinds of tests they run, the developer segment they're going after, that sort of thing. It'll be interesting to see how this plays out.
The reason I'm not saying that CloudBees isn't one of the possibilities was that CloudBees is already the leader. I don't think they are. I don't think, and I don't know this for sure, but I don't think. And "leader" means that a lot of people think they're the leader. I don't think that's the case at all. Plus, they're for a certain group. It's true that it's very Silicon Valley oriented and cutting edge stuff, but Jenkins is very old school stuff, complicated, unfriendly, not cool stuff. There's definitely an opportunity here to, in the same swoop, say, yeah you need a Cloud CI service and you need one that is modern, fresh, simple, easy to use, fun, cool, whatever. Interesting to see how that plays out.
I just want to give you a thought exercise for you to think about. What would you do if you were one of these players? And I know Paul and the guys are actually going through that thought exercise a lot.
I'm also going to leave you with one last quote that I like. One of the things you have to remember about positioning is it's not in a vacuum, you have a plan but there's competitors and there's what customers actually start thinking and saying about you. My last quote to leave you with before the Q&A is this one from Mike Tyson which is really one of my favorite quotes. And he knows a lot about this:
"We all have a plan until we get punched in the mouth."
So that's it. That is to make the point that you want to revisit it, be very aware and listen to what's going on. Is the positioning you think you have a fantasy in your head? What are your competitors doing? They're not going to stay lying down.
By the way, I called this presentation the battle for the customer with developers in mind. It is a battle. Make no mistake about it. People will be aggressive. They will badmouth, not in a vulgar way, but they will very explicitly say why they think their product is better, a better approach, better technology, better this, better that. You're not going to avoid that. It is a battle. You're going to get punched in the mouth at some point or another. So, good luck.
I guess we'll open it to questions now.
Q: For startups, is there an order of importance regarding your six rules of position?
A: Well, as I said, and I'll just go back to that really quickly. The six rules aren't really rules. They're sort of six things you're trying to do in your positioning statement and they're pulling you in different directions. Again, to recap it really briefly. In the category decision, are you going highly differentiated? Or strong existing needs? You're actually going in the middle. That was the resegmenting of an existing category. You want to relate it to people's existing need, but say it's fundamentally different in this way. There you're in the middle.
The second issue of a target audience or target market, target customer, you're going very extreme to the left as an early startup.
As I said, I'd rather err to the left being too focused than err to the right of going after too broad a market because you're limited in resources or nobody has heard of you. You need to be very focused in product development and your go-to-market and do that.
The last issue as I said on choosing that one or two things you want to say. One thing you want to say to the market: "This is why I'm better than that other guy that's like me. This is what makes me different or better. This is why you need me."
If you can't find that one thing, you haven't chosen your category and target well. You need to make those better.
Q: Where do companies struggle the most with a go-to-market strategy?
A: The focus thing. As I said, the pressure. A lot of it is from VC's but a lot of it is founder ego. If you start telling them, "You guys should really focus on this as your go-to-market," and it sounds petty and uninteresting to them and not something that will change the world. They're probably right that if that was it, that's where it's going to be.
Again, look at Heroku started as focused on Ruby, became a polyglot PaaS. Same thing with New Relic. Same thing with Salesforce. Even in the name. Look at Salesforce's pick of a name. A. horrible name in the long run, but in the short term, extremely focused on Salesforce automation. It wasn't even CRM. And now, Salesforce does a whole broad range of things and so on.
You have to start with that focus. That's where people have the most difficulty. It's hard for them to digest that they need to do something that narrow in the beginning.
They get feedback from investors and others that they shouldn't be doing that. That it's too small.
Q: How do you know when your positioning is too narrow?
A: That is looking at a situation case by case. It's really difficult to get actual data on markets and all that. Also, that data is usually very unreliable. You can't do surveys because you probably won't do them scientifically and they suck anyway and people don't know what they want.
Even if you look at something simple. Let's say you want to target by a particular type of developer, by programming language, you have some data on that. You don't want to go after a very obscure programming language that nobody uses. If you're going after a job or something like that, that's probably not the way to narrow it down. You probably need to do a couple of other things to focus the Java market.
I'm working with a startup that I actually put on the slide, but I didn't get into what they do so much, called Takipi. Look them up. Their product can actually work with Java and they decided to go after Scala as their initial, just because of all of those reasons that I mentioned. It just makes their life very, very easy and targeted. They know where to find those guys. There are not a lot of them but enough to start getting feedback, getting signups, doing all that stuff. They can start seeing enough traction with that, but it lets them focus on everything else they're doing.
Q: Should we try to position our business toward a larger market to gain new customers?
A: I'd say so. Do you see a larger vision for it?
Do you agree by the way that what you're doing now is not going to be a big business? A hundred million dollar company in revenues?
Audience: I think we can hit a hundred million with the current product.
What's that? I can't hear you well enough.
Audience: I think we can hit a hundred plus with the current product.
With just what you're doing, it's probably true by the way. But would that mean, you would have to have 100% market share or something like that?
Yeah, that's unlikely. Like I said before, a top tier VC that's looking for a certain return, or at least a potential for a certain return — that's why they invest for those few potentials or those few actuals, but they invest in a lot of potentials. If you're not even a potential to be that big, then it's not interesting. I probably think you do need a bigger vision.
Frankly, realistically, you probably won't touch it for three years. You probably need a bigger vision.
"But this is just the beginning. Once we're in there and this group of people are using us, here are all the other things that want to be using with us, and dealing with us, and here's additional ways we can make revenue." You need to think about that vision.
Q: When building a positioning map, how do you pick the axis?
A: That's a pretty long discussion, but I'm going to sum it up with something that may not be particularly helpful because you need to look at it case by case. What do we think matters to people?
On the one hand, trying to sense what is it that customers are looking for and that distinguishes different buyers. We're going to have to do first the segmentation exercise of what different customer groups look like.
Sometimes it's easy if you're an industry that analysts sometimes cover it and define a lot of these things, but I wouldn't count on that too much. And in the end, that's a tough one. That is definitely a tough one, but you'll see also how your competitors start aligning themselves. You'll start seeing these guys think it's important to... I'll give you an example from Sauce Labs, for example.
Everybody in that testing space, is getting into mobile. Functional browser testing. Everybody is getting into mobile. You could see people taking different approaches of mobile. You actually can't put that one a two-by-two. That one has to be what's called a multidimensional chart that you can also do. There's a technique for that. But a lot of people are saying, you can only do mobile testing with actual physical devices. Some people say you could do emulators. And some people are saying you need to do what's called "in the wild" or actual people walking around with the devices testing them.
You start seeing there's a dimension there. Technically, this one is a tougher one to put on an actual matrix because it's not exactly a continuum. Well, you could put it in a matrix actually, to be clear about that, but you can't do a two-by-two thing. You're starting to see there we started differentiating. This is specifically, by the way, for their mobile stuff. They have other things.
But who are the folks that are doing different kinds of mobile? Cloud, on-premise, that's a sort of categorization. Now, we want to be the leader of, let's say for the sake of this discussion, the leaders in automated testing in the Cloud. Therefore, it's emulators. It's automation, not manual. Cloud, emulators. That's our positioning. We're going to own that space. We're going to own that box.
Q: What tactics can you employ to change your positioning when it's already entrenched in the consumer's mind?
A: I'd say what they're doing and what auto car companies are doing. Look at Toyota. Toyota was considered an affordable, budget brand or affordable middle of the road, not necessarily the cheapest but they created a new brand called Lexus. That's the same company that sells a lot of the same car, by the way, for a much higher price.
That's a branding thing. Big companies do that and they have multiple brands. The most famous branding company is Procter & Gamble that have dozens and dozens of product with a completely different name and you have no idea it's Procter & Gamble and they're all positioned in all sorts of niches of the market. I think that's also guys like Samsung and all that.
But companies can go upstream and change themselves and that sort of thing, and that happens all the time. By the way, sometimes they mess themselves up by doing that. I barely remember this, I was a kid. In the '80s there were the cola wars, the Coke versus Pepsi.
Coke started saying, "we are the real thing" or "the original cola." Then Pepsi used that strength against them and said, "Well, because you're old. We're the drink of the new generation." Pepsi is the new generation and they started that war. Then Coke ended up doing a whole new Coke thing in the end trying to rebrand itself, and only hurt itself. That's one of the most famous stories in the history of this stuff. Companies mess that up all the time.
By the way, for example, you could start to see Volvo, they're really losing. That's why I said I think that chart is a little out of date because Volvo is already losing their clear "safe, prestige" car positioning. They're not there anymore because they've got convertibles and they've got all these things now. It's really confusing people because they're trying to go younger. But companies do do it and sometimes they do it by changing names, rebranding and all that. Sometimes they can pull it off.
One of the most difficult things to do is reposition yourself in a lot of those perception maps for people. Companies do it, but it's much more the mature companies that are really established.
A lot of what we're talking about amongst startups when we're saying pivots, nobody gives a shit. You don't have a position yet. You could pivot a lot at the very early stage of a startup because nobody pays attention. Maybe a few people, it sounds like a lot to you, but in the broader market context, nobody notices that little move. That's why early-stage startup is a good time to learn quickly and pivot quickly and not worry about it too much because you haven't spent a lot on establishing your position.