Here’s why your GTM strategy should dictate product innovation bets
Your company’s Go-To-Market (GTM) channel is a powerful conduit to potential customers. GTM channels (Direct Sales, Channel Sales or Online Sales) are typically built over several years and cannot be changed overnight. These days with cloud technologies, virtually anyone can build the innovation quickly, but scaling GTM channels requires time, effort and money. Therefore, product innovation bets must be dictated by your company’s GTM strategy.
Teece Model for profitability from innovation
In 1986, David J. Teece - one of my favourite innovation strategists - came up with the following matrix which predicts who will profit the most from new Innovation. Is it the innovator, or the company that holds the GTM channel to the target customer? I have customized this matrix for the software technology industry.
From the matrix it is clear that if the new innovation is easy to copy, profits will go to the company which has a dominance over the GTM channel.
Let’s take the case of Slack vs Microsoft Teams.
While Slack had an early lead in the enterprise messenger market with a competitive product, Microsoft Teams has quickly surpassed Slack in terms of active users (see graphic below).
The reason Microsoft Teams has been so successful in such a short span of time, is not because its product is far superior, but because its product can flood through Office distribution channels pretty quickly. Slack had to scale up its distribution which meant that its growth has been slower. With SAAS, replicating products becomes easier for competitors, hence the ones who control distribution have a higher chance of winning the race.
Product-GTM Matrix
I have developed the following framework to quickly figure out what kind of GTM channels are required for a new innovation to be successful.
Products that require integration and customization are classified as requiring “High Touch Onboarding” in the figure above. Enterprise customers are “High Value per account” whereas SMBs (Small-Medium Businesses) are “Low Value per account”. As you can see from the matrix above, Enterprise sales require either direct selling (for low-touch products like Slack) or system integrators (for high-touch products like CRM systems). Similarly, SMB products require resellers (for high-touch products like accounting systems) and direct sales (for low-touch products like Wix)
Enterprise messenger products like Slack and Microsoft Teams fall in the top-left quadrant in the matrix above since the products are sold to large enterprises (high value accounts) and require minimal integrations to setup and onboard customers.
So, after figuring out the optimal GTM strategy required for a new innovation, product leaders must figure out if their company has that GTM channel already enabled. For example, does Microsoft have direct sales to enterprises? If the answer is yes, they can target that segment with their new innovation. If the answer is no, perhaps they should rethink which innovations they ought to invest in. It is very unlikely that your company will be able to build distribution channels faster than your competitors who only have to copy your product and not your GTM.
Evaluating the success of Tech M&As
In the past, I have used the Product-GTM matrix outlined above to evaluate product acquisitions. How do you know whether a new innovation you are acquiring will succeed in your organization? One of the most important factors to consider in a technology acquisition is to evaluate if the new innovation requires the same GTM strategies that your company is already good at.
For example, consider Microsoft’s acquisition of Nokia. Unlike Apple, which is good at selling to consumers via Apple stores and direct marketing, Microsoft as an organization is more used to enterprise sales. It would take a lot of effort and time for Microsoft to pivot itself to sell smartphones directly to consumers.
For M&A deals to be successful, the technology being acquired must fall in the same quadrant that the acquiring company is already good at (this is not the case in the example above). Acquiring a company for both the innovation and distribution is doubly hard and requires changing the way of doing business.
Conclusion
GTM strategy is very important for making product decisions. All product investments must align with your company’s GTM strategy. Use the Product-GTM matrix to ensure all product investments and acquisition decisions align with your company’s GTM strategy.
Disclaimer: The views expressed in this blog are my own.
