That these ideas are widely accepted isn’t surprising- the merits of these ideas are intuitive and the field’s most widely admired companies, publications and pundits talk about them all the time.

What is surprising is how lightly these are applied in practice, even here in Silicon Valley. My observation is that there’s a big ‘knowing-doing gap’ in the area. I’ve been working out why the gap exists and I think there are three main factors:

1. It’s Hard to Do the Right Thing
Great ideas are usually easy to grasp, but every new idea takes work to apply. Enter the fact that most people are filled to the gills with their day to day workload and you start to see why new approaches to product development are easier said than done.

2. It’s Even Harder to Implement Ideas if they Cross Departments
Linking a rigorous customer development process to a successful agile development program requires tight cooperation between the traditional departments of sales, marketing, product management and engineering (at a minimum). Since individuals adn departments naturally tend to measure their efficiency locally (within their own domain), implementing new ideas that cross departmental lines always ups the difficulty.

3. More Disconnects than Connects between Sales/Marketing and Engineering
This is an age old problem- not even worth getting into here in this post.

The interesting question is: Are there any good shortcuts to surmounting these barriers? After all, ‘Eighty percent of success is showing up’, as Woody Allen put it.

Since nailing the practical implementation of all these high tech best practices is what ‘Starting a Tech Business’ is all about, I thought I’d make my own contribution to a shortcutting these three barriers. I created a ready-to-go template in MS Word that links the results of a customer development investigation with a set of audience descriptions and user stories (inputs to an agile development process). Click here for that.

No one’s called to offer me a Pulitzer for this (yet) but simple things like templates can ultimately make a big difference in getting down to the business of actually initiating a best practice and making a habit of it. I know that’s what it took here at Leonid (my company). It removes (or at least relieves) the need for someone to take a few days and define how the organization’s going to apply these new ideas and it provides a ready-made example of what everyone needs to do.

The implementation of customer development and agile are a learning process for everyone and feedback is very welcome. Please feel free to post here or drop me a line at acowan@alexandercowan.com.

The video below provides a layman’s introduction:

This item’s excerpted from ‘Starting a Tech Business‘, which is one way to understand the MVC in more detail.

Introduction and Market Overview

For years VoIP was the next big thing that never happened, but over the last 24 months the market has exploded.  2010 saw 150% growth in the US in SIP trunks (Infonetics Research). Hosted VoIP grew 25% and with cloud adoption in full swing many analysts expect 2012 to be the kickoff of explosive growth in Hosted VoIP (aka cloud-based communications).  At Leonid, with a broad base of customers serving each aspect of this market, we see the evidence of this and concur with the consensus. However, comparing the growth rates of 100+ service providers around the world, it’s clear that this rising tide isn’t raising all boats equally:  service providers that have figured out the formula (and systematized it) are experiencing dramatically faster growth those who are still finding their way.

For those who can take advantage of it, the market opportunity is, to say the least, large; the chart below shows the number of employer business entities in the US by number of employees.  All of them need phone service of some sort, and with a 5-7 year CPE replacement cycle VoIP adoption is now a foregone conclusion whether trunking (which is now defacto for PBXs) or Hosted.  Note that there is an additional very large set of small businesses which are categorized as non-employer businesses – this segment includes north of 20,000,000 entities in the US. These home office based businesses typically buy residential services, but there is some market additional opportunity around the more sophisticated of these businesses for auto-attendant, web-callback, unified communications, and related services, albeit at low price points.  If even 25% of these home offices are reasonable prospects for business service, it doubles the size (in terms of potential accounts) of the addressable market shown below.

Figure 1 – US Small Employer Businesses by Size – US Census Bureau

Given its size and given the difficulty of reaching the very small businesses entities involved, adoption and spending data is notoriously hard to quantify. We know the market is huge, but it’s hard to assess how much has been captured so far.  That said, combining first hand research experience and aggregated published market data, Leonid’s estimate on total market adoption of hosted communications (including voice) by business size is shown below.   As you can see, the lower end of the SMB space is virgin territory for initial adoption, as is the vast majority of the upper end.

Figure 2 – Hosted VoIP Market Penetration by Business Size 2011

Product and Price

Residential voice is pretty much a one size fits all proposition, while enterprise voice is a bespoke solution for each customer.  The challenge of SMBs at the low end is that like enterprise they have varied needs that make it tempting to offer customized solutions, but they spend like a consumer which means the economics don’t lend itself to that. They also tend to have basic infrastructure challenges – as an example, something as simple as the availability of inside wiring to accommodate VoIP handsets  is far from a given and the expense of installing it if it’s not can be a major factor given the price sensitivity of the customer.  And indeed price sensitivity is a major issue – while larger customers make value based spending decisions within a reasonably wide price range, smaller customers are far more apt to make a pure price based decision. In fact, a small customer might hesitate to use a hosted service even if acknowledged as superior if it’s not cheaper than a POTS or trunking solution that still requires additional investment in hardware and support.

So is price all that matters? To find out, product managers will commonly poll customers about what’s important to them (we won’t debate that methodology against the Steve Jobs thesis that you should never ask a customer what’s important in a technology product because they won’t know).  For a business customer, questions might include price, features, pre-sale experience, a quality website (eg enough information to understand value, presented well enough that its not a chore), online reviews and rankings, trusted recommendations, proximity (eg your local provider), and recognized brand.

Having done this for two service providers serving the SMB space revealed some interesting results:

• - For hosted voice, price is indeed ranked as most important, but only by a slight margin over features and the pre-sales experience. For other cloud services (eg web hosting, email, backup, etc.) neither price nor pre-sales support are ranked as particularly important (features are ranked highest).  Yet anyone who has sold voice service to SMB would be tempted to say price is all that matters to them.  Why the disconnect? We believe its product differentiation and sales approach – and we address below it in our three keys to accelerating sales.
• - Brand and location are insignificant.
• - Online reviews aren’t ranked as particularly significant, nor are trusted recommendations. The latter may seem surprising but it’s really not – a trusted recommendation is certainly the most effective way to get in the door (or on the phone) but only you can sell your product.  And remember that this is the SMBs self-ranking their purchase criteria – they may not even realize the effect that a trusted referral has on their purchase.

SMB customers look at hosted VoIP differently than other cloud products. So must the service provider.

There is another element for service providers to consider with hosted VoIP – unusually, the same basic product can serve any size business. The 3 station florist and 5,000 seat enterprise may well use the same desk-sets powered by the same platforms and elements.  While both businesses use essentially the same service, the optimum packaging, sales approach, and delivery are dramatically different.

So while the best approach will vary by the size of the target customer, after examining the key success factors in dozens of the most rapidly growing providers, there are common threads to success. We’ve identified three key principles that apply to all B2B communications from SOHO to Enterprise and that appear to be the key difference between the radically accelerated, hockey stick growth some CSPs are experiencing, versus fits and starts growth spurts and stall periods in others. My next posts will examine these three key principles to sell more VoIP.