In today’s Software as a Service world where revenue is king, I see many product managers and company executives make the fundamental mistake of focusing product development efforts on the immediate next customer instead of defining a longer multi-year product strategy for product evolution and growth. This often arises due to the temptation of a “unicorn” customer with well lined pockets, and has the danger to detract from your product roadmap and put you behind the rest of your industry. I explain below how this could occur, the risks when it occurs, and ways to move forward from it.
How it Happens — The Unicorn Customer
Every so often the sales team will arrive at the weekly management meeting with the “unicorn” customer — somebody that will pay us a lot of money, is the kind of customer that will be a great cheerleader for our product, a “strategic fit to our long term strategy”, and are overall a good bunch of people. Perfect match? Mostly, except they require a number of feature additions that our product doesn’t support, and an integration with their enterprise software tool would be nice at some point too.
In a sales orientated management team, the temptation to close the deal with this sort of customer will be immense. They tick most of the boxes, are aligned with your future goals, and present a significant injection of baseline revenue that will propel both your organization and its growth plans forward. The elephant in the room is of-course the custom feature requests, which should be red flags for all product managers. However, they may receive the following justifications:
“Everyone else will want this too”
Sometimes this phrase is spoken by the customer, often it’s spoken by your own sales team, and almost always this phrase is untrue. The source of this is generally innocent rather than malicious — customers can genuinely believe they run their business better than anyone else, and an eager sales team can sometimes be swayed by a well oiled customer operation. The problem is this can masquerade as a wider product feature rather than the reality — a custom feature request. Every company has slightly different processes, and in the case of unicorn customer, it can be very easy to justify building something that’s believed to benefit all, when in reality other customers may not find it flexible enough for their business, or worse, have no need for it. This leads to one of the most dangerous scenarios of product management, a feature only used by one customer.
The only thing worse than a feature used by no customers, is a feature used by only one customer.
“The revenue from this can propel our main product”
The immediate and recurring revenue from building these custom feature requests to win the customer will provide sufficient cash-flow to go and hire more tech people, sales, product managers, and ops people for our company, thus growing the pie for everyone.
This is true, the revenue contribution will be significant — but at what cost? Is the disruption to your roadmap worth it? What about the time spent with this one customer that could have been used for features for your wider customer base?
There is also the overlooked cost of losing first mover advantage to your competitors. Assume your company (Y) and Company Z are equal in every respect, and you decide to build custom features for unicorn customer and delay your roadmap by 3 months, what would happen? Don’t forget it takes time to hire, train, and deploy development resources from unicorn customer revenue. As this graph illustrates, you will fall behind Company Z by some months and they will gain first mover advantage.
“This is guaranteed revenue, our future features are not”
Predicting the future is extremely hard, and future revenue is no different. If a salesperson or product manager can accurately predict future product revenue, they’d better be promoted to Chief Financial Officer promptly. That said, it is possible to forecast a future revenue range — an estimate of how well, or how badly a product could potentially perform.
Today, we have a range of tools that can help us perform market segmentation and commercial analysis. In a data driven world, the initial and ongoing revenue from the custom feature requests should be overlapped with the potential future revenue of your product pipeline. Often the initial revenue boost will be immediate and significant, but due to its single customer usage, may not scale as well as your main product stream, which has the opportunity to generate revenue from a range of sources, at scale, perpetually.
Revenue predictions are an internal mindset, driven by a desire for immediacy. It can lead to skewed decisions that could negatively impact the company long term.
Ways Forward
Become or add a Professional Services Company
There’s plenty to be gained by signing the unicorn customer, and I encourage it if, and only if:
- You treat the custom feature requests like a professional services company.
- You don’t let them distract from your roadmap.
You either deliver products, or you deliver professional Services. The two can co-exist within the same organization, but they should never overlap. Their commercial models, operating models, and revenue sources are all different, and both are geared for different purposes.
Your company might be a product company, but you may recognize that our customers have additional requirements to use our products in a suitable and unique way that we are best catered to provide for. Providing professional services that build on top of the core product platform provides a way forward where you’re consistently getting custom feature requests in the sales process or from customer success feedback. Remember that the commercial and operational model is different for professional services — you must charge like a development shop, and ensure the new team does not cannibalize or interfere with your main product stream.
Define your North Star
Easier stated than done, yet vital to long term success, your company needs to have a long term goal and stick to it. Of-course the future is uncertain and there can be an evolution of the goal, but having a evolving goal is better than none at all (i.e. basing your product roadmap on the needs of your next customer). The North Star represents more than just your company aspirations, it provides guidance to your product teams, filters for your sales teams, and a code to live by when the boardroom meet to discuss unicorn customer X.
Should we turn down or take unicorn customer?
This is the final decision, and ultimately nobody can answer this question except for your product and management teams. Every organisation is different, and what may work for one company, may not work for yours. It’s important to understand the strengths and risks of accepting a unicorn customer with special requirements, and determine if the unicorn is really in your best interests.
