Just a quick post to plug my appearance on a podcast hosted by PMM Hive, a product marketing community that was recently launched by my old friend and colleague Crispin Read, and that’s already loaded with some superb product marketing content. Check it out.
I’m excited about this session both because it’s one of my favorite topics and because Crispin is one of my favorite marketers. The topic is critical because too many marketers (and CEOs) hit rewind/play on their last successful experience without considering their situation and the marketing strategy that should support it. Crispin’s great because he’s world-class at messaging and positioning, sharp as a tack, enjoys what we’ll call “spirited debate,” and has a dry English sense of humor that keeps things not only interesting, but fun.
I’ve worked with several startups that fell into the following pattern:
Selling a SaaS application at a healthy price (e.g., $100K to $200K ARR)
With low, fixed-cost implementation packages (e.g., $25K)
But a product that actually takes maybe $50K to $75K to successfully deploy
Resulting in an unprofitable professional services business (and wrecking the market for partner services)
High adoption failure
And, depending on the initial contract duration, high customer churn 
For example, one company had a CAC of 4.0, churn of 25%, and services margins of negative 66% when I started working with them . Ouch.
Before proceeding, let me say that if you have a low-touch, high-velocity, easy-adoption business model — and the product to go with it — then you don’t need to read this post . If you don’t, and any of the above problems sound familiar, then let’s figure out what’s going on here and fix it.
The problem is the company is not charging the appropriate price for the services needed. Perhaps this is because of a zero-sum fallacy between ARR and services. Or perhaps they feel that customers “just won’t pay” that much for implementation services. Or perhaps their product takes more work to deploy than the competition and they feel forced to match price on services .
This under-pricing usually triggers a number of other problems:
In order to work within the self-created, low-cost implementation services model, the company “hires cheap” when it comes to implementation consultants, preferring junior staff and/or staff in offshore locations.
The company’s “implementation consultants” are overloaded, working on too many projects in parallel, and are largely focused more on “getting onto the next one” than getting customers successfully implemented.
Once a certain number of hours are clocked on any given project, the consultants go from “in a hurry” to “in a big hurry” to finish up and move on.
Customers are left high-and-dry with failed or partial implementations that, if left unfinished, will likely lead to churn.
Customer success, whose job is to prevent churn, is left holding the bag and is pulled away from its primary mission of adoption, renewal, and expansion into the implementation-completion business, potentially changing its hiring profile from more sales-oriented to more product-oriented and/or complementing CSMs with customer success architects (CSAs) or technical account managers (TAMs) to try and fill the implementation void.
I sometimes consider fixing this corporate chiropractor work, because one maladjustment results in the whole organization being twisted out of shape . The good news is that, as with chiropractors, one adjustment can pop the whole system back into alignment.
Now, before we move onto fixing this, there’s one more problem we haven’t discussed yet — and give yourself ten pats on the back if you figured out before I got here:
Who ever said the customer defined success as getting the software implemented?
Oh shit. We were so tied up trying to deliver a $25K services package that costs $40K to deliver that we forgot about the customer. What customer equates implementation with success? None. Zero. Nobody.
“Hey, it’s all set up now, you can login, gotta go!” is not the credo of a success-oriented consultant.
But what do we call our consultants again? Implementation consultants.
What do implementation consultants think they do? Well, implementations.
When an implementation consultant reads their own business card, what does it tell them they their job is? Implementations.
Are implementations what customers want? No.
So why do we have implementation consultants again? I have no idea.
What do customers what? Overall they want success, but what’s a good proxy? How about attaining their first business objective? If you sell:
A recruiting app, running your first recruiting campaign
A financial planning app, it’s making your first plan
A demandgen marketing app, it’s running your first demandgen campaign
A customer service app, it’s your first day running the call center
A deflection app, it’s deflecting your first cases
A sales enablement app, it’s training your first reps
An IT support app, it’s handing your first tickets
So, what’s the fix here? While not all of this will be possible or recommended in all situations, here’s the long list:
Re-frame services as in the success business, not the implementation business
Eliminate the job title implementation consultant in favor of consultant
Get services to make plans that end not with implementation, but with the achievement of an agreed-to first business objective.
Hire more experienced consultants who can better make customers successful and don’t be afraid to charge more for them. (They’re worth it.)
Agree to an ARR price before negotiating the services price; refuse to trade one off against the other.
Involve your services team in the sale well before the contract is signed so they propose the right prix fixe package (e.g., small, medium, large) or create an appropriately-sized bespoke statement of work.
Modify your product so it is not at a competitive disadvantage on required implementation work.
# # #
 With one-year contracts, a failed implementation that takes 6-9 months to fail typically results in churn, whereas with three-year contracts, you will often get another swing at the problem.
 These horrific unit economics result in an LTV/CAC of 1.0 and make the company totally uninvestable. The CAC would be even higher if hard-ass investor added the services losses back into the CAC on the theory they were subsidizing sales.
 Product-led growth business models are great, but when companies that are not designed for them try to emulate pieces of the business model, they can get into trouble. Implementation is an area that quickly goes awry when companies not built for PLG attempt bottom-up, try-and-buy, viral go-to market strategies.
 In which case, an obvious solution is to reduce the deployment workload requirements of the product.
 Put differently, the sales bone is connected to the services bone, and the services bone is connected to the customer success bone.
I was talking to an old friend the other day who’s marketing chief at a successful infrastructure startup. “Congratulations,” I said, “I know it was a long slog, but after about a decade of groundwork it looks like things have really kicked in. I hear your company’s name all the time, I’m told business is doing great, and Gartner literally can’t stop talking about your technology and category.”
“Yes, we’ve successfully created a category,” he said, “But I have one question. Now what?”
It reminded me, just for a minute, of the ending of The Candidate.
While it’s definitely a high-class problem, it’s certainly a great question and one you don’t hear very often. These days a lot of very clever people are out dispensing advice on how to create a category — including some wise folks who first dissuade you from doing so — but nobody’s saying much about what to do once you’ve created one. That’s the topic of this post.
Bad Fates That Can Befall Category Creators
Let’s start with the inverse. Once you’ve created a category, what bad things can happen to it?
It can be superannuated. Technology advances such that it’s not needed any more. Think: buggy whips or record cleaners .
You can lose it to someone else. Lotus lost spreadsheets to Microsoft. IBM lost databases to Oracle . Through a more oblique attack, Siebel lost SFA to Salesforce. Great categories attract new entrants, often big ones.
It can be enveloped, either as a feature by a product or as a sub-product by a suite. Spellcheckers were enveloped as features by word processing products, which were in turn enveloped by office suites. See the death of WordPerfect .
Given that we don’t want any of these things to happen to your category, what should we do about it? I’ll answer that after a quick aside on my views on categories.
My Principles of Categories
Here are my principles of enterprise software categories:
Companies don’t name categories, analysts do. Companies might influence analysts in naming a new category, but in the end analysts name categories, not vendors .
Categories sometimes converge, but not always. Before the SaaS era, enterprise software categories almost always converged because IT was all-powerful and saw its role as entropy minimization . SaaS empowered line of business buyers to end-run IT because they could simply buy an app without much IT support or approval . This is turn led to category proliferation and serious “riches in the niches” where specific, detailed apps like account reconciliation have born multi-billion-dollar companies.
Category convergence is about buyers. Analysts like predicting category convergence so much they get it wrong sometimes. For example, while the analyst prediction that BI and Planning apps would converge  served as the face that launched 1000 ships for vendor consolidation , the reality was that BI was purchased by the VP of Analytics while Planning was purchased by the VP of FP&A. You could put Brio and Hyperion under one roof via acquisition, but real consolidation never happened  . Beware analyst-driven shotgun weddings between categories sold to different buyers. They won’t result in lasting marriages.
In category definition, the buyer is inseparable from the category. Each category is a two-sided coin that defines the buyer on one side and the software category on the other . For example, when categories converge it’s either because the buyer stayed the same and decided to purchase more broadly or the buyer changed and what they wanted to buy changed along with it. But if there is no buyer, there is no category.
What’s a Category Creator To Do? Lead!
Having contemplated the bad things that can happen to your category and reviewed some basic principles of categories, there is one primary answer to the question: lead.
You need to lead in three ways:
Grow like a weed. Now is the time to invest in driving growth. Nothing attracts competition like fallow land in a new category. You created a category, you’re presumably the market share leader in the category, and now your job is to make sure you stay that way. Now is the time to raise lots of VC and spend up to $1.70 to purchase each new dollar of ARR [13A].
Market your category leadership. Tech buyers love to buy from leaders because buying from leaders is safe. Reinforce your position as the category leader until you’re tired of hearing it. Then do it again. Never get bored with your own marketing.
Lead the evolution of your category by talking about your vision and your plan to realize it. This makes you a safe choice because customers know you’re not resting on your laurels. It also forces your would-be competitors to shoot at a moving target.
The vision for category evolution typically takes one of three forms:
Double down. Make your thing the best thing in the market. Stay incredibly close to your customers. Understand and cater to their precise needs. Your strategy is thus category defense via customer intimacy. You simply know the buyer better. Large companies can’t put their best people on everything, so this works when your best people are better than their average ones, they don’t put a massive investment in the space (instead preferring a good-enough solution), and the buyer cares enough to want to buy the best and can continue to do so .
Build out (i.e., lateral expansion). Move into adjacent categories, ideally sold to your existing buyer, giving yourself economies of scale in go-to-market and your buyer the ability to buy multiple products on one platform . GainSight’s move into product analytics is one example. Another is Salesforce’s systematic move across buyers, from VP of Sales to VP of Service to VP of Marketing. This strategy works when you can afford to build or acquire into the adjacent category and, if the category involves a different buyer, that you can afford to invest in the major transition from being a single-buyer to a multi-buyer firm .
Build up (i.e., vertical expansion) . Build up from your platform to create one or more applications atop it. An ancient example would be Oracle expanding from databases into applications  which was first attempted via in-house development. Anaplan is a contemporary example. They first launched a multidimensional planning platform, had trouble selling the raw engine in finance (a more saturated market with more mature competition), shifted to build sales planning applications atop their platform, and successfully used sales planning as their beachhead market. Once that vertical (i.e., upward) move from platform to application was successful, they then bridged (now laterally) into finance and later into supply chain applications.
What If You Can’t Afford to Lead?
But say you can’t afford any of those strategies. Suppose you’re not a particularly well-funded company and your market is being attacked on all sides, by startups and megavendors alike. What if staving off those attacks is not a viable strategy. Then what?
If you’re at risk losing leadership in your category, then your strategy needs to be segment. Pick a segment of the market you created and lead it. That segment could be on several dimensions.
Size, by focusing on SMB, mid-market, or enterprise customers only — this works when requirements (or business model) vary significantly with size.
Vertical, by focusing on one or two vertical industries — ideally those with idiosyncratic requirements that can serve as entry barriers to horizontal players.
Use-case, by focusing on a specific use-case of a platform that supports multiple use-cases. For example, what if Ingres, instead of focusing on appdev tools after placing 4th round I of the RDBMS market, instead had focused on data warehousing, a distinct use-case and one to which the technology was well-suited?
If you’re reading this because you’ve created a category, congratulations. You’ve done an incredibly difficult thing. Hopefully, this post helps you think about your most important question going forward: now what?
# # #
 I struggle to find software examples of this because the far more common fate is envelopment, typically into a feature — e.g., spellchecker. I suspect it happens more in hardware as the underlying components get smarter, they eliminate the need for higher-level controllers and caches.
 Software industry evolution led to the SaaS model, which then put huge importance on renewals which in turn led to the creation of the VP of Customer Success role which created both the demand for and buyer of Customer Success software.
 And either way, a great company. (I know both the founder and the CEO, so see my disclaimer. I can say I’ve also been a customer and a happy one.)
 To reduce the degree of disorder in a company’s software stack, IT had a strong tendency to prefer one-stop-shop value propositions over best-of-breed. Ergo, vendors incented by economies of scale in go-to-market, were naturally aligned with buyers who wanted to buy more from fewer vendors. Both forces pushed towards developing suites, either in-house or through acquisition.
 As I did in the early 2000s when I was CMO of a $1B company and the CIO said I needed to wait 4 years for lead management in Europe during our CRM deployment. “That’s funny,” I thought, “we have leads today and if I wait 4 years for lead management, I can assure you of only two things: I won’t be CMO anymore and the CIO will be the only person coming to my going-away party.” That’s when I bought Salesforce.
 That was the initial use of the category name enterprise performance management (EPM), which later evolved before eventually, and only of late, being retired. A key point here is that while these categories organ-rejected each other, that took place literally over the course of decades. Thus, paradoxically, you likely would have been “dead right” as a BI vendor if you rejected the inclusion of financial planning in 2003 .
 Cognos acquiring Adaytum, Business Objects acquiring SRC and Cartesys, and Hyperion acquiring Brio, among others.
 Meaning you could ask someone who worked in the organization “which side” they worked on, and they would answer without hesitation. You can’t sell financial planning systems without significant domain expertise that the BI side lacked, and that was more about DNA than training. (For example, most EPM sales consultants had years of experience working in corporate finance departments before changing careers.) It was more conglomeration than consolidation.
 Amazingly, this pattern repeated itself within EPM in the past decade. EPM was redefined as the convergence of financial planning with financial consolidation, both within the finance department, but again sold to different buyers. Planning is sold to the VP of FP&A, Consolidation to the Corporate Controller. While both report to the CFO, they are two different roles, typically staffed with two very different people. Again, the shotgun wedding ended in divorce.
 Each category has one primary buyer. A given buyer may buy in several different categories. As a marketer, the former statement is 10x more important than the latter.
[13A] See my post on the CAC ratio. Data source, the KeyBanc 2019 SaaS survey, shows median of $1.14 with mid 50-percentile range of $0.77 to $1.71.
 The tension here is between letting, e.g., the VP FP&A purchase their own best-of-breed Planning product versus a good-enough Planning module subsumed into a broader ERP suite decided upon by the CFO. This is a real example because Planning exists on both sides today; there remain several successful SaaS planning vendors selling best-of-breed outside the context of a financial suite while most ERP vendors bundle good-enough Planning into their suite.
 When accomplished via M&A, the single-platform benefits are typically limited to pre-defined integration but can hopefully over time — sometimes a long time (think Oracle Fusion) — become realized.
 Typically this means creating product-line general managers along with specialized overlay sales and sales consultants, product management, product marketing, and consulting teams. It also means the more difficult task of going to market with products at differing levels of maturity, something very hard to master in my experience. Finally, in apps at least, the more you are multi-buyer, the more IT needs to get involved, and the firm must master not only the art of the sale to the various business buyers, but to IT as well. Salesforce has done this masterfully.
 Vertical in the sense of up, i.e., atop your platform; not vertical in the sense of focusing on vertical markets.
 Which, for ancient software historians, was the failed strategy that Oracle gave a mighty try before giving up and acquiring PeopleSoft in 2005, the first in a long series of applications acquisitions.
I’m Dave Kellogg, advisor, director, consultant, angel investor, and blogger focused on enterprise software startups. I am an executive-in-residence (EIR) at Balderton Capital and principal of my own eponymous consulting business.
I bring an uncommon perspective to startup challenges having 10 years’ experience at each of the CEO, CMO, and independent director levels across 10+ companies ranging in size from zero to over $1B in revenues.
From 2012 to 2018, I was CEO of cloud EPM vendor Host Analytics, where we quintupled ARR while halving customer acquisition costs in a competitive market, ultimately selling the company in a private equity transaction.
Previously, I was SVP/GM of the $500M Service Cloud business at Salesforce; CEO of NoSQL database provider MarkLogic, which we grew from zero to $80M over 6 years; and CMO at Business Objects for nearly a decade as we grew from $30M to over $1B in revenues. I started my career in technical and product marketing positions at Ingres and Versant.
I love disruption, startups, and Silicon Valley and have had the pleasure of working in varied capacities with companies including Bluecore, FloQast, GainSight, Hex, MongoDB, Pigment, Recorded Future, and Tableau.
I currently serve on the boards of Cyber Guru (cybersecurity training), Jiminny (conversation intelligence), and Scoro (work management).
I previously served on the boards of Alation (data intelligence), Aster Data (big data), Granular (agtech), Nuxeo (content services), Profisee (MDM), and SMA Technologies (workload automation).
I periodically speak to strategy and entrepreneurship classes at the Haas School of Business (UC Berkeley) and Hautes Études Commerciales de Paris (HEC).