“Price before Product, Period.” – Madhavan Ramanujam, author of Monetizing Innovation
“You’re trying to kill this project!”
They were visibly frustrated with me. Uncharacteristically so. We were both inside a corporate venture studio. They were leading a venture. I was assessing if it had enough traction to continue. Or not.
While the full-time, three-person team, including this product owner, were very excited about their venture, they also had $30k/mn burn rate, a revenue model based on affiliate fees, and an ambivalent customer base. Hundreds of sales every month were needed just to break even and it wasn’t obvious where the pipeline would come from.
The math wasn’t math-ing.
“Every plumber, electrician, and building trade company needs this.”
A successful CEO in residential construction was convinced his new back office process was valuable to every other firm in his industry. He was also concerned they’d would steal the idea. So, he quietly hired a team and invested in productizing his custom process without asking a single customer if it was compelling. A year of development. Hundreds of thousands of dollars invested.
When the 2-person product team finally started talking to beta customers, two barriers surfaced immediately.
- The product opportunity only existed because of the unique way the founder/CEO ran his business. Other companies with different operational models, didn’t have the same frustration.
- The combination of required training, systems implementation, substantially lower value proposition dramatically lowered the customer willingness to pay.
The math, again, didn’t math.
The world is littered with products that shouldn’t exist. Not because the ideas were bad. Because they were over-invested in. Nobody ran the math before assembling the team and charging full speed ahead.
This current generation of vibe-coding tools and programming copilots dramatically lowers the investment needed to create new digital products. I’ve written about this elsewhere.
Creating a new internal tool in a week to scratch a persistent frustration is energizing and satisfying. This efficiency gain doesn’t inherently translate to commercial success.
Four Questions to Critically Ask of a New Product Idea:
- What will customers pay for this?
Yes, you can ask them. Yes, even if you don’t ask them directly, we can triangulate from all the other information they provide. I’m continually surprised at how few features – relative to the fully mature product – customers will pay for today. Added benefit: we know exactly what to build and exactly what will sell. - Do we want to deliver for that price?
One of my favorite examples from Madhavan Ramanujam’s, Monetizing Innovation book, is the Porsche Cayenne case study. Porsche asked previous Porsche buyers what they’d pay for a Porsche SUV. Then, they designed the entire vehicle against the customers’ pre-declared willingness to pay.
As I mentioned in the opening, this isn’t always an easy answer. Sometimes internal cost structures, opportunity costs, and near-term revenue expectations kill the idea immediately. Honestly, this is most likely the case. - What does this cost to run for 36 months with zero attributable revenue?
It’s going to take a while for the demand to grow and revenue to both occur and recur. Too often we only become aware of wildly successful companies once they’re wildly successful. Not the first 5 years of struggle (**cough** Hubspot**cough**)
I remember one founder once told me, “I was sure we’d be profitable 18 months from launch”. Instead, they shuttered in 21.
If your organization can’t commit to that number without flinching, the answer is already no. - Can the owner commit to founder-led sales for the first 36 months?This is the key question.
Not “someone on the team handle sales.”
The owner/CEO.
Personally. Consistently.
Ten customer conversations a month for 36 months, regardless of what’s happening in the established business.It’s easy for CEOs to forget just how much of an all-consuming grind initial sales are for a brand new business.
If:
- The product isn’t 10x better than what customers are using today
- The product isn’t 10x more valuable to customers than it costs to build and maintain
- The CEO is uncomfortable running for 36 months with $0 revenue
- The CEO isn’t comfortable focusing on selling for the next 36 months
The suggested price for this new product: $0.