Every product bought by a business, meets one or more needs within the organisation. Founders who understand this hierarchy of needs make faster progress towards PMF in a B2B/SaaS context.
I’ve found it useful to consider how a specific B2B product fits within an buying orgs hierarchy of needs, extrapolating how the buying behaviour changes based on where it is in the hierarchy. This is a simplified view most useful in the very early stages of PMF, positioning, segmenting.
Let’s take a look at the buying business’s hierarchy of needs.
Any business must first get their regulatory ducks in line. CPA, CS, Accounting, finance, environment, approvals: governments extract their pound of compliance early. If you’re selling a product that addresses this need, you’re usually looking at low competition, mostly cookie-cutter software. This appears to be commodity, and is usually dictated by your functional personnel — i.e. your CPA will choose the accounting software. Every geography, every industry has specific regulatory needs that are ever-changing, and must be met. Making software that helps in regulation means always playing catchup to government. Market shifts like Sales Tax -> VAT -> GST might trigger upheavals in moribund markets.
In many markets, business runs on pen & paper. In some they’ve graduated to Excel sheets. In very few they’ve moved to software, and in even fewer to SaaS workflow software. The workflow SaaS of choice needs to be easy to adopt, comprehensive for their use cases, provide higher productivity than plain software (or excel or pen/paper), and become a tool they use all-day, every-day. As with most technology, enterprises have adopted SaaS/software, before mid-market, and many SMBs are yet to adopt any software.
In markets where there is time-valued-as-money, where employees know their ‘hourly wage’, and managers are careful about how their team spends time, workflow productivity software sells well. In recent years, employee productivity gain has gone into increased stock prices, rather than wages. So companies which are human capital intensive are desperately seeking to improve work force productivity. At the high end, in a Google where developers cost $200K/yr, i.e. $100/hr => saving an hour a month per employee, for 100 employees in a division, is $10,000/month. A team lead in that situation who can understand the productivity gain is very likely to pay for it!
In fast-growth markets, topline increase is the key driver. Net profits are still critical, but cost attribution is hard, and the number of moving parts, and growth in the org make improving bottomline much less predictable. Compare practically any segment in India — with zero effort, the topline grows 10–15% YoY, because the entire market is growing 20–30% YoY. Many markets are growing even faster, meaning that a lack of investment in growth will lead to loss in market share to competition. Compare Oil&Gas vs Fintech. O&G has highly regulated predictable low/slowing growth. Fintech has new expanding markets — like online P2P lending or “income sharing”. In the former bottomline is king, in the latter the exploding topline means very low control on actual bottomline. Any product that fetches more topline is prioritized.
Bottomline aka Profits
As an organization matures and growth slows or becomes predictable, net profit is what investors and stakeholders demand. In the example above, in Oil & Gas, their growth is limited, costs are well modeled and understood. Increasing topline is nearly impossible, but improvements in their cost structure will show up on the bottomline.
Give me the PE ratio, give me the dividends, show me your return on invested capital (RoIC), the cry goes. And products which have a demonstrable bottomline return on investment (RoI) are prized. While this is company wide in a slow growth market, this is also true for groups that are cost-centers. Groups that are profit-centers will tend to prioritize topline growth over bottomline growth, unless they have clear mandates to focus on the bottomline.
Brand, Innovation, and other intangibles
What’s left after you’ve made profit & growth? Investing in the future.
Brand is an investment in the future. Improving the brand gives a business future returns in customer stickiness, reduced acquisition costs, and increased ARPU. Traditionally only large enterprises invested in brands, since the return is very long-term and unpredictable. Selling a product that improves a customer’s brand image has it’s own uncertainty. This year’s priority might not be there next year.
Innovation is another similar intangible. It’s hard to pin down a return to investing in innovation, and yet it is necessary. If you get a buy in from VP Strategy, or VP Innovation, great! But beware shifting strategies and changing winds of innovation. Managing workflows for these teams over multiple years, can be a good niche.
Selling productivity to a small business that’s growing super fast or in survival mode. Pure productivity increase is unlikely to appeal to these buyers, unless the time saved can be better spent on increasing topline or bottomline.
Selling productivity to a cost center is likely to be harder than selling bottomline improvement. Not all productivity increase translates to bottomline improvement, so attribution and closing-the-loop are important.
Selling topline/bottomline to an individual/team. Most teams are cost centers, and talking to them about revenue impact may be above their paygrade. Individuals care about their own productivity, manager’s care about their team productivity.
Your Product & their hierarchy
The exact same functional product can meet one or more of the needs above, and your choice, as a founder, of the segment, positioning, makes a huge difference. This can be captured by a framework called Jobs-to-be-done.
Consider Documentum vs SharePoint. Functionally similar. Documentum goes after markets where regulation is key — Pharma, Legal. Sharepoint goes after team productivity. Their tickets sizes vary widely based on this positioning, and the downstream integrations & features are substantially different. But at the end of the day, they both store documents.
Or learning management systems. Within that MindTickle helps increase revenue through sales training, and an Adobe Captivate aims at regulation (mandatory trainings).
For an SMB, where survival is at stake, clear topline increase is critical — it is oxygen. For an enterprise where long term planned predictable growth is important, workflow productivity, bottomline, topline, all become important — but in different groups. The sales team may look for increased topline. A team owning an entire P&L may look for topline. A cost-center, say finance, IT, or manufacturing, may look for improved savings (bottomline). And individual teams may look for productivity improvements to their own workflows, making their own lives easier, and giving them more time to achieve their KPIs.
Mature businesses, buying products that help bottomline (profit) makes more sense than buying products that might help topline. Selling productivity is easier at low ticket sizes but harder at high ticket sizes-you will need to sell to more customers to get the same total revenue. Regulatory sells itself — if you have credibility and the right channel partnerships to reach the end users.
- When you’re iterating the problem you’re solving for a business, figure out where in the hierarchy the problem you’re solving fits. Ask your stakeholder which KPI is improved using your product.
- See if the same problem delivers different values to different stakeholders within the org.
- Find out which level of the hierarchy is critical for the customers business this month, quarter, year. Think about the same for the entire market you’re addressing.
- If your target audience doesn’t appreciate the value you’re selling, your sales cycle will suck. Either change your positioning, the problem you’re solving, or your buyer.
Touch the spot in the hierarchy that best matches the problem you’re solving, your buyer, and the positioning, and you might just hit product-market-fit faster.