Why GTM, Strategic Finance and Product Development NEED To Be In Sync To Scale
Lessons learnt around how a misalignment amongst these functional areas compromises growth and introduces material risk
Issue #19
People often systematically underestimate the need to put in place effective information structures and lines of communication to make sure that GTM strategy, strategic finance and product development cycles are kept in sync to ensure that the “right” type of scaling occurs for software or tech enabled companies.
Software and tech enabled companies are complex beasts where you are building your revenue base by satisfying an ever increasing number of customer pain points that continually need surfacing, understanding and then converted into products and solutions. It’s a bit like a factory that keeps changing and growing.
As these types of companies grow and scale, there are invariably huge decisions that need to be made around which types of customer categories should be serviced at that particular point in time, what kind of product features need to be created and what kind of overall burn you need to run at (which involves decision making around optimizing both gross and operating margins, as well as working capital).
Here are 2 key examples from my observations and experiences over the years as well as how to deal with the issues that come with these decisions.
Example 1: Product Development Cycles
Effective product development for any kind of software based product has to short-circuit the entire process of prioritising which features to develop at a given point in time. At the same time, there could be a knock on impact to the technology organisation if there needs to be a change in the underlying architecture or tech stack to execute new product priorities. If the wrong choices are made, it costs a lot of time to course correct. In order to prevent these kinds of mistakes from happening, it is imperative that there are defined cadences that are in place between product and sales to make sure there is alignment in terms of clients expectations and the willing to pay for those. These need to follow a particular structure which captures the following:
A clear sense of exactly how suggested features line up with business value that they are driving. Sales and product should be jointly responsible for creating that. There needs to be a clear framework that captures this and leads to actual decision making in terms of prioritizing which features actually get built.
Sales to participate in feature “show and tells” that are the most highly prioritized directly link back to revenue generation.
Dedicated product strategy sessions set up with a group of clients that form an “Advisory Council” type of structure, that can meet on a periodic basis where overall product strategy can be debated. Leadership from each functional area should attend.
This applies at all levels of scale - I’ve seen the consequences of not having a structured approach to this. With the exception of the 3rd bullet point, this can’t just be sales leadership participating in these cadences. You need to arrive at a mechanism that empowers sales managers to be involved (without over-burdening them). One such mechanism is to put your best sales people in these cadences and use it as a career advancement tool.
If you are interested in collaborating directly with me to you prioritize to grow Revenues please…
Example 2: Strategic Finance Involvement
Similarly, Strategic Finance needs to be involved in all major product and sales and marketing decisions. For example, from a sales and marketing perspective, there could be a need to spend a lot of money on performance marketing strategies when launching a new customer value proposition. Or from a financing perspective, certain types of customer value propositions may require a lot more working capital than initially anticipated, especially as they continue to scale. This is especially the case if you are working with strategies that require you to purchase physical goods, such as rewards programs for physical gifts.
From a technology perspective, not mapping out the critical finance elements of the business (such as how sales invoices are created, structured, followed up on and ultimately converted to cashflow, together with elements such as deal pricing and structure) means that fundamental processes do not get the attention from the technology organization that they deserve. The cost of rectifying this in the future is incredibly painful and can slow down the overall growth and progress of the company.
As per the solution to Example 1, the general approach to solving for the issues in Example 2 is similar - a focus on structuring the right types of cadences, having the right type of information framework to capture issues, decisions and outcomes and making sure the right people are in the room. The difference here vis a vis Example 1 is that these cadences need to be frontloaded into the actual design of the strategy or strategic change that is taking place, whereas in Example 1, the cadences need to happen with more regularity.
Therefore, the consequences of not having strategic finance involved at the earliest stages of formulating business and sales strategy is to systematically increase the risk associated with the smooth functioning of the overall company.
These are particularly hard lessons learnt in coordination and organizational design. The most effective companies spend a disproportionate amount of time on this.