Ready for 2013? – Budget Planning Fundamentals
We are writing these posts with the ambitious software company in mind; more specifically, software companies with aspirations of becoming global market leaders in their respective segments. Such a journey requires a tremendous amount of energy and dedication on a road that is winding, bumpy, steep and unmapped. In blog post 3, we explained how you can achieve alignment ensuring that all energy is focused on pulling in the same direction. Alignment directs the energy of the organization in the same direction. But, which direction and how to do it? Describing the direction, the playing field and “the way we do things” in your company (so that everybody is on the same page) requires that 4-6 fundamental frameworks are in place:
- Customer Value Proposition
- Value Chain
- Ideal Customer Profile
- Go-To-Market plan
If you are operating a major portion of your value chain though “partners” you will also need:
- Partner Value Proposition
- Partner Program
Customer Value Proposition
The concept of a Customer Value Proposition is not new. But how do we define, test, maintain and document the Customer Value Proposition?
We recommend using the NABC approach.
The NABC approach was developed by Stanford Research Institute and is well documented in the book “Innovation: The Five Disciplines for Creating What Customers Want”by Curtis Carlson & William Wilmot.
The NABC approach provides a pragmatic definition framework and a process.
|N||Need||An attractive Customer Value Proposition must address compelling and critical customer pains for which the customer is prepared to allocate resources. Identifying needs involves industry and/or domain segmentation, understanding the purchasing process and buying center identification, where such needs are easily related to the value proposition. Because these needs differ significantly depending on customer characteristics, this framework element also assists with market segmentation. An important component of the needs definition is the identification of the “Ideal Customer Profile”.|
|A||Approach||A Customer Value Proposition must define the solution components addressing the “whole product” challenge as well as two major parts of the value chain: the sales process and the delivery process. Thus the definition of the Value Chain is a part of the approach definition. When the value chain involves third parties participating in the sales or the implementation process we must also develop a distinct Value Proposition for these players.|
|B||Benefit||A Customer Value Proposition must explain how the benefits of the solution delivered exceed the total cost involved with migrating to and/or utilizing the solution. The more tangible and specific the benefit/cost ratio is defined, the more impact it will have on the market. If we are bringing a new product to the market and/or if we ourselves are a new player in the market, we must consider the risk mitigation issue. The customer will consider our “newness” an additional risk = additional cost, for which we must compensate if we are to win the deal.|
|C||Competition||The Customer Value Proposition must explain why and how the solution is superior to competitive alternatives available to the clients.|
The Value Chain is a “by-product” of the NABC. However, we recommend being extremely precise about defining, testing and documenting the steps required to find, win, make and keep happy customers.
A sample Value Chain is illustrated below:
Download the Value Chain FactSheet to learn more about the concept and how to use it.
Ideal Customer profile
The concept of the Ideal Customer Profile is applied to narrow our marketing efforts on those customers for which we can prove maximum value of our offering. Applying the Ideal Customer Profile concept is very painful for many software companies. At first glance it appears as if we are making our market smaller. How can ignoring certain segments of the market work to our benefit?
Only the market leader can afford to expand outside of his core market! The rest of us must focus on achieving a RECOGNIZED leading position in a segment of the market first.
The Go-To-Market plan
The Go-To-Market plan is your customer acquisition roadmap. It explains the HOW. How you will find, win, make and keep your customers happy. Your 2013 plan will be the practical implementation of your Go-To-Market plan.
Read more about Go-To-Market planning in the whitepaper Designing Successful International Go-To-Market Strategies.
Partner Value Proposition
Using a channel of independent companies to resell, implement and/or service your customers has a long tradition in the history of the software industry. For some software companies, the channel has been a major contributor to global success, but for most software companies making it work is a depressing constant struggle.
A channel partner has his own DNA. The DNA of a channel partner is very different from the DNA of an Independent Software Vendor. The channel partner is running a different type of business, with a different Customer Value Proposition and a different set of management priorities than the ISV.
You can read more about the partner/ISV challenge in the whitepaper “Designing Successful International Go-To-Market Strategies“.
Working through a channel does not make market penetration easy and fast! Working through a channel is an ADDITIONAL complicating factor. Only by facing this fact can you master the channel. When you master the channel then you have a formidable multiplication capacity.
The Partner Value Proposition is addressing the needs of the channel partner. You can use the NABC approach only this time you are focusing on the partner. Your Customer Value Proposition now serves as a subset of your Partner Value Proposition. You can read more about the Partner Value Proposition in the whitepaper “Growth through partners”
The Partner Program is the headline for the tools and services you provide your partners AND the corresponding requirements you ask the partners to fulfill. There are basically two approaches to channel development:
A: Recruit as many as you can and see who survives
B: Be very selective and invest in the partnerships
We would say that “B” works best when you are building a channel. “A” may work when you are expanding your channel. However, poor performing partners may be a drain on your resources and at the same time damage your market reputation. Be careful with this approach until you have consolidated your market position!
You can find more about building Partner Program in the FactSheet “Partner Channel Recruitment”.
Is it really necessary to work with all these concepts and frameworks?
If you are small company where you know each other very well, you are located in the same building and you control all the processes to/with your customers, then you can probably run a business without any of these frameworks. You simply attend to the issues as they appear. You make quick decisions and change them when they prove wrong. We actually believe that most businesses are taking this approach.
The issue is that such businesses are not scalable.
If you have the ambition of growing your business and becoming the global market leader in your segment you must have the basic frameworks in place. So what do you do if you have the growth ambitions, but none of the concepts are in place?
- Start with the alignment & identification check! It can be done in less than a week and ensures that you are all looking in the same general direction.
- Then build your Customer Value Proposition. Bring together your key people and get something down on paper. Spend 1-2 weeks on the effort – not more. Then go and test it with your current and your potential customers. All the other frameworks will automatically flow from the Customer Value Proposition.
Getting in front of customers as soon as possible (and remaining there ever after) is probably the most important element of any framework development. Defining the frameworks is not an academic exercise. It is a process where we document how we are doing things and testing that it actually works. We do so for three main reasons:
- We all work according to the same concepts. We waste no time discussing every single business issue all the time. From time to time we meet and improve the frameworks.
- We shorten the learning curve of new staff members and new partners. We don’t need to reinvent the wheel over and over again and we ensure that every one is telling the same story.
- We stay aligned – all energy is driving in the same direction.
You can only manage what you can measure. You can only measure what you can describe. You can only describe what you can understand.
Other posts in this “Ready for 2013? – Lean Planning & Budgeting” series:
The objective of the blog posts is to outline a 2013 “preparation process” where you end up having a plan and a budget, which is a stepping stone to a position as a the global market leader in the future and where the stakeholders are 100% aligned and committed to execute the plan and deliver the numbers for 2013
#1: Perform an Alignment Check before Planning and Budgeting
#2: Get the Key People Involved up Front
#3: How to do an Alignment and Identification Check
#4: The Revenue Challenge
#5: Planning Fundamentals
#6: Mitigating risk and exploiting opportunity
#7: Mission/Vision and the 3-5 Year Perspective
#8: What Comes First, the Plan or the Budget?
#9: Defining Key Performance Indicators for Plan and Budget Follow-up
#10: The People on the Bus