Like most conscientious business leaders, CoManage CEO Dave Nelsen knows that solving customer problems is fundamental to his company’s success. But unlike most of his peers, Nelsen doesn’t characterize his company as being customer-driven. In fact, he considers customer-driven business strategies to be bad for the company – any company – and he isn’t afraid to say so. Instead, what drives Nelsen and his Wexford, PA-based company, whose software products improve the quality of his telco clients’ strategic business data, is the concept of being market-driven, a distinction which implies a number of practical as well as philosophical differences in the operation of the firm

Market, si. Customer, non. 

“If you are customer-driven, you’re simply chasing any opportunity you see with a customer,” he said. “You’re chasing the dollars, not knowing whether it’s the best use of your resources or whether going down that path is ultimately leading you to a dead end. Yes, you might get that customer, or that deal. But it might have meant you missed out on five or ten others that you didn’t look at; there are opportunity costs to being customer-driven.”

What makes the difference, and transforms a company from an opportunistic customer-chaser into a strategically focused, market-driven organization, according to Nelsen, is having a formal product management function. “What a product manager does is to look at the overall market, at similar groups of customers, or market segments, and figures out which are the most valuable, easiest-to-address segments,” he said. “So you might have customers or prospects you choose not to go after because they’re in segments that are narrow, or less valuable, or better defended by a competitor. What a product manager does is to figure out where there’s a big market segment, with lots of customers, who have similar buying behaviors and will buy the same product.”

As a result, according to Nelsen, companies that are market-driven are much more profitable and stronger in the competitive marketplace because they’re using their scarce engineering and capital and human resources more efficiently. “Companies that are customer-driven might think they’re doing a great job, but they never know about all the dollars they‘re missing out on,” he said.

Top Job

As a former product manager himself, initially with Bell Labs and later with FORE Systems, Nelsen acquired a deep appreciation for the importance of product management, a role which he assigned a central position at CoManage, where it reports to the company’s CTO and co-founder, Andy Fraley. “I often think of a company as structured with product management on the very top of the pyramid – not the CEO determining what the company does, but the product manager or product management team determining what the company does in terms of resource allocation,” he observed. “I consider it to be the hardest job in corporate America. It’s much harder than heading up engineering; much harder than being a CEO.”

The most tangible of a product manager’s activities, according to Nelsen, are determining the features of the next product release. “You’ve got a certain amount of R&D or engineering people and all the requests and ideas for things you might do – probably ten times more than you’re capable of doing. So the goal of the product manager is to figure out how to do the most important ten percent of what you can do – the ten percent that really matters at this particular time and in this particular competitive environment with these particular existing customer needs and with these particular prospects needs or sales needs,” he said. “Product management really is a resource allocation game: what are you going to allocate the company’s R&D resources to actually building?”

“Product management, done properly, is a formal process. As you’re learning about the market and your opportunities in that market, it’s the process of writing in detail what the requirements are for the product, validating those requirements with stakeholders, and estimating the costs to build those requirements with engineering,” Nelsen observed. “Ultimately, you come up with some predictability: predictability on when you can deliver, on the impact of that delivery, in revenue you realize from having built a certain set of features, on the competitive win rate, or on sales cycle time reduction. It starts to give you predictability so you know what’s going to happen – when it’s going to happen, and what the implications are.”

Not getting it

Of course, not everyone in the business world understands the potential of product management, either in Pittsburgh or anywhere else around the world, he acknowledged. And even many of those who do get it fail to organize the function effectively, or to place the right individuals in that role, or provide them with appropriate training. “Most companies just grow their own product managers,” Nelsen said. “For any company I was running, I would go out and hire somebody who already has a proven ability to do product management. I would never try to grow it internally. It takes too long and invents the wheel over and over again.” But there are training courses available at various places that capture the essence of the discipline and, over a week or two, can give new product managers a leg up, he pointed out.

One of the most serious mistakes in implementing a product management function can occur when the product manager is subordinated to the development function or to sales. “I believe very strongly that companies should not be led by an engineering organization into building whatever it thinks it should build. You really need the product management process to examine the needs of customers, prospects, the market, the competitors, to determine what should be done. Then engineering should execute on that.” 

Another common mistake, according to Nelsen, is to combine product management with marketing communications. “I’ve never seen anyone good at product management who was also good at marketing,” he said. They’re just fundamentally different skills and they pay attention to different things. Product management should be an independent organization and steer the bus.”

Allocation, allocation, allocation.

So exactly what are the skills and character traits that make for a good product manager? “You have to have a tolerance of and comfort with ambiguity,” he replied. “This isn’t like an Excel spreadsheet. You don’t exactly know the implications of delivering a particular feature on your win rate or on the competitive dynamics in the marketplace, and you never will. You’ll never know in detail what all your competitors are doing now, let alone what they are planning to do with their next releases.

“The thing that really makes product management hard is taking this incredibly ambiguous environment, where there are so many unknowns, and translating it into a very specific, concrete plan to build this, at this cost, on this date. So having somebody who is comfortable making decisions without complete information is key. Most people could never do that comfortably.” 

So at the end of the day, how do you measure the value of that function as it relates to the company’s performance? “Ultimately, a company’s profitability is going to relate very heavily to whether it’s doing effective product management or not,” Nelsen said. “Is it deploying its resources or R&D appropriately or not? The problem is that it’s very hard to measure the specific impact of product management. You don’t really know its before-and-after impact, because there are so many variables out there. This is one of those things that you either believe in or you don’t.

“CoManage has one product manager and 30 engineers,” he said. “So if I make even small mistakes in how I allocate my engineering, I’m wasting some fraction of 30 people. That could mean ¼ or ½ or ¾ of the stuff I’m building isn’t needed or wasn’t the most important thing to build. So the incremental use of one product manager to focus full-time on how we’re deploying those 30 engineers is a pretty simple economic case to me; small gains in efficiency or in the value of the decisions we’re making, will more than pay for the salary of the product manager.”

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