It’s Time to Build Your Product Management Department

I have finally seen the light!

Product management is a strategic function that needs to stand on its own as a department within the early stage software company. The department needs to be headed by a professional product manager who reports to the CEO and sits on the senior management table as a peer to the CTO.

I first tackled this topic a couple of weeks ago when I wrote “It’s Time to Let Your Baby Go.” The concept is brilliantly tackled by Marty Cagan in his book Inspired.

The Need for a Standalone Product Management Function

The need for a standalone PM function is significant in B2B software companies. B2C software companies tend to understand the critical importance of a formal product management function. They absolutely must be market- and customer-driven. Their prospect customers tend to be in the millions, which forces them to start with precise market segmentation, persona development, needs-based requirements development, user experience development, and all the other key components of product management.

In the startup phase, B2B software companies tend to have a lesser need to be so market/customer driven, mainly because their target markets tend to be less diverse and less complex. B2B software developers tend to start with a business process and either redesign or find a way to eliminate it. The buyers of B2B software tend to be less diverse, not as people but as buyers (i.e. every marketing director is unique as a person, but a marketing director is a marketing director when it comes to buying a marketing software solutions.)

This perceived homogeneity of the buyer lulls the B2B startup into a false sense of security about the need for sophisticated market segmentation and buyer/user personas.

Crossing the Chasm

In my role mentoring software CEOs, I have lived through some of my portfolio companies’ failed attempts to cross the chasm. These companies all have their own reasons for needing to cross the chasm, and each had its own manifestation of the chasm. Yet in all cases, they needed to cross the chasm because they no longer were able to maintain their early stage growth or distribution economics, or both. 

Crossing the chasm is an exceptionally difficult thing to do. It requires a software company to narrow its focus onto a smaller portion of its market (segmentation); to more sharply identify the characteristics of buyers within that portion (persona and pain point); to develop tailored business solutions that more precisely address the segments needs (segment/market driven requirements); to distribute the solution to the customer the way the customers wants it to (pricing and distribution strategies); and the list goes on. 

Now you may argue that every software company already does all that I listed above. True. But very few of them narrow their focus on one or two segments of the market that they can own and use that beachhead to expand into other segments.

Let’s examine some examples:

• Facebook first focused on the university student. Now it caters to everyone.
• Apple first focused on the education and designer segments. Now it caters to everyone.
• Saleforce.com first focused on sales people. Now it caters to every business user.

For the handful of portfolio companies that I mentored over the last couple of years, I found that preaching segmentation, and focus, fell on deaf ears. And even when the CEO/CTO agreed, they couldn’t steer the ship to a narrower focal point. 

We finally gave up when we realized that each company does not have the person who represents the customer, owns the product AND is senior enough to be at the senior leadership team’s table. The founding CTOs were just not able to be both development and product managers. And so we are now actively recruiting senior product managers, having them report to the CEO, as peers to the CTO, and giving them ownership of their respective products.