Oy. Product managers create business cases and business plans all the time. The Cranky PM has created and seen a bajillion of them in her day. Lots.
But, cripes, so many of them suck. In particular, so many business cases use a device that is a major peeve of the Cranky Product Manager. Oh yes, you know it. You’ve probably done it yourself. It’s the “one percent of the market” argument. It usually goes something like this: “The total market is $X. If we manage to garner just 1% of that total market, we will have $Z in revenue per year. $Z is a lot of money! Ergo, fund my project.”
Gack.
This argument seems wise and safe…. conservative even. After all, it is no major achievement to acquire a paltry 1% of a market… OR IS IT?
It is. Trust the Cranky Product Manager, this argument is WICKED WEAK. It ignores the dynamics of how competitive markets work, especially in the software industry.
In the beginning of a new market’s life, sure, there are lots and lots of competitors. Enough that many players might achieve 1% of the market. That’s what markets look like when they are immature and stupid. But soon enough, the market’s childhood is over and you have an adolescent market on your hands.
And in an adolescent market, a 1% position is completely unsustainable. Because as that market starts sprouting the accouterments of puberty — the appearance of chest hair, voluptuous hips, or the first contrarian articles in the press (a la “this technology is not quite the shizz that was promised”) – the number of players shrinks big-time, as the small-time players — the ONE PERCENT players — all die or get acquired. And voila! You end up with about 5 players. And you better believe they all have more than one percent of the market.
And then, our frisky little teenager of a market grows up more and becomes a fuddy-duddy adult, with only 2 or 3 players — the smallest of which will almost certainly have at least a 15% market share. And that is likely that way it will stay until the market is wheeled off in a casket, or at least put into an assisted living facility.
Anyway, all this rambling about puberty was the Cranky Product Manager’s way of saying that aiming for 1% market share is basically aiming for failure. You can’t sustain that. You’ll either be a success and have a MUCH bigger market share, or you will fail and not exist. And do the Cranky PM a solid….DON’T show her any business cases where you are aiming for failure, okay? And don’t show a business plan that only applies during the market’s childhood years. Show her your plan to become one of the top two or three players in the market’s adulthood – preferably the NUMBER ONE PLAYER — with a hell of a lot more market share than 1%. Either that, or GO HOME.
OK, don’t go home. Your spouse doesn’t want you there either. Go take up residence in the local Starbucks while you work on the next draft of your oh-so awesome business plan. Get back to the Cranky Product Manager after you fix it.
{ 19 comments… read them below or add one }
Awesome!
The only thing worse than the “one percent solution” is when they not only have that, but can’t articulate a plan to achieve even that.
OK, there is one thing worse that I’ve seen – “No one offers EXACTLY what we plan to offer, therefore, we have NO COMPETITION.”
feh.
Great rant, welcome back
Cranky, I get where you’re going with this. But I think it confuses two things:
1. The total size of the potential market. That’s the big number that founders love to throw around to attract VCs. That’s when the 1% comes in handy.
2. The number of customers using your product, of all customers using products in the category (your share of the current base). This is the bigger percentage, but may still be a pretty small slice of the potential market. Gotta figure out the overall penetration rate in the category, and figure out just how much upside is left to grow into.
In every market, there are users who adopt soon, and users who adopt later, and users who adopt almost never (ref: TALC).
Sure, we all want a 38% share of “the market”. But which market are we talking about?
RT @Jim_Holland: "Go Big or Go Home – 1% of the total market doesn't cut it" by @crankypm http://bit.ly/2Duhe0 #startup #prodmktg
http://bit.ly/107WeE i've been loving the crank product manager for a while now :-O
http://bit.ly/107WeE i've been loving the cranky product manager for a while now! :-O
Go big or go home – great business case lessons for from the crankypm http://bit.ly/XC0Py
Great rant!
I heard a VP of Sales for Bharti Airtel (Telecom Operator) who said repetedly, we are not here to each your lunch (compete with the carriers) but the only thing I heard… We are not settling for 1% =)
When I hear “one percent” I like to ask – what is your strategy, that will be effective for one percent, but not for two percent?
Who exactly is in the market segment made up of 1/100th of the market, what makes them different (so that they will value your solution over others) and why do the other 99/100 customers prefer other solutions?
I also like to ask “when do you get the one percent?”
Read post from @crankypm – go big or go home. "1% of the mkt" is fiction when mkt matures. http://bit.ly/1pV268 #prodmgmt
I think a market share model is simply the wrong concept for cases of emerging or “1.0″ technologies. Which is where business cases get used most often. After all, there often isn’t (yet) a market to measure. I’d rather focus on tangible customer pain, and have faith that a solution to a big enough pain can find its own customer budget.
For those markets that do exist, any business plan is probably about serving the market in a different way. There are lots of “2.0″ market entrant examples, sort of along the lines of Christianson’s (sic) “Innovators Dilemma”. And in those cases, current markets are also poor measures, since the business model is meant to be disruptive and defies comparison with present market models.
Funny thing – after I moved out of the Bay Area, I stopped meeting so many dipwads who spew exactly these sort of “business plans” for totally inane product ideas.
Actually, my first stop after the Bay Area was LA, and there you just replace “business plan” with “screenplay” and the concentration of dipwads with dumb ideas is comparable to the Bay Area.
Part of the problem I think we have in the software industry (and I mean the royal we) is that we produce products and/or services that require very little in the way of big capital expenditures for labor, manufacturing facilities, etc. When entering an industry requires you to sink tens of millions of $$ into fixed costs right off the bat to get a company started, the 1% argument won’t get you a loan from a bank. Hell, banks even screen out people with genuinely good business plans :)
But the software industry is perversely self-deluding:
Do you need a factory? Nope.
Do you need boxcars full of raw materials? No.
Do you need to hire hundreds of laborers? Nuh-uh.
Do you need CAD designs and pre-production prototypes to pass through numerous regulatory agencies? Hellz no.
Do you need tens of millions of dollars in initial investments before you can ship and sell the very first unit of your product? Of course not.
In fact, here’s the checklist for most self-styled interweb entrepreneus who believe they’re going to launch the greatest, most killerest (I just made that word up) app ever made:
Got an Amex card? Yep.
Got two friends who talk like they're super hardcore software hackers? Check.
Got enough room in your Mom's basement to setup a couple more desktop computers and another X-Box for Halo 3 breaks? Yes.
It’s GO-TIME melon farmers!
Hey Linda, Sure…. the Cranky Product Manager sees your point about not confusing the Total one-day Potential Market with the Total Market using the product today. It doesn’t really matter to the the thesis of this post, though, which is “don’t make 1% market share arguments because 1% is unsustainable and a failure position”. Doesn’t matter whether you are talking 1% of the Total Potential Market or the Total Market TODAY.
@paco – Wow. What a great post. I just left the world of hardware where all the factors you describe are crucial to planning and success, and entered the world of enterprise SW. Of course, I joined a mature organization with an established track record, so the idealists are not in charge, but the mentality of PM’s from the SW world that I interviewed when i was seeking PM’s for my hardware world match your comments exactly.
Also, my wife writes screenplays (only one sold to date, but the dreck that keeps getting produced keeps her hopes alive), and you pegged the LA scene too.
Even being in a startup, it would be hard for me as a marketer, let alone as a PM to think that I would ever pitch 1% as a goal.
Great post CPM, as always.
Geoff
RT @AgileProductMgr: "Go Big or Go Home – 1% of the total market doesn't cut it" by @crankypm http://bit.ly/2Duhe0 #startup #prodmktg
The Cranky Product Manager is back with good advice. Go big or go home! http://bit.ly/2rbGkq
The Cranky Product Manager: The Cranky Product Manager Sez Go Big or Go Home http://tinyurl.com/yj6x6lv
Anyone that's done a napkin business case, this will be a good laugh http://bit.ly/107WeE
The idea of grabbing (or creating) 1% market share is a long tail tactic to market entry dependent on a niche opportunity. As long as the cost of entry is low, finding a niche on the long tail is a low risk approach: just do it. Hopefully it sustains itself, or better, with a little feeding of additional capital, it grows.
But what’s the point? Do you deliver a business case just to show you “can” do it? The real question is SHOULD you do it? What are the opportunity costs? What’s the value of that 1% share? Could the niche become disruptive enough to move up the tail and deliver more return?
It seems to me an objective of 1% is more a milestone than a goal. It needs a growth strategy.
Continuing my #startup theme, I agree with @crankypm. If you don't swing for the fences, don't bother #lame #metaphor http://bit.ly/2N03xl
{ 1 trackback }