In the particular context the world is facing, characterized by more difficult access to capital, Software players are compelled to adjust their efforts. Gone are the days of unlimited spending and expansive development teams producing features without restraint. Today, the technology industry confronts a rigorous economic landscape, making each investment in development and every feature launch a calculated move to ensure growth and profitability.
Simultaneously, the software industry is infamous for its high project failure rates. According to the Standish Group’s Chaos Report, only 29% of software projects succeed, while 52% face challenges, and 19% are considered complete failures. Reasons range from misalignment between R&D and business goals to ineffective pricing strategies. Now more than ever, software companies need a disciplined approach to product development—one that prioritizes a deep understanding of the market, meticulous feature selection, and strategic alignment with fundamental business objectives. This article explores the criticality of this refined focus, guiding software companies in optimizing value creation in an era where efficiency and value creation are not just valued but essential.
1. Pitfall #1: Lack of alignment between market expectations and product strategy
Companies often dive into product development without adequate market research, risking resource wastage, missed opportunities, and potential failure. Despite enthusiasm and a desire for innovation, this approach is risky. To improve success and ensure informed decisions, companies must prioritize a thorough and accurate understanding of the needs of the target market.
This task can be complex and may require advanced research to understand value, build the product accordingly, and ensure profitability. “Empirical Software Engineering – A comprehensive overview of software product management challenges” reveals that over 70% of companies face this challenge throughout the product lifecycle, from market introduction to end-of-life.
Alarmingly, CB Insights reports that 42% of startups fail due to the inability to address a real market need.
Solution #1 – Market alignment and feature prioritization (Solving problems, not just implementing features):
A product roadmap provides vision and direction. A study by the Pragmatic Institute found that companies without a well-defined roadmap are 1.7 times more likely to experience project delays.
Define the target market, create a business canvas, and identify value propositions. Transform this into a roadmap with prioritized revenue-generating features, considering both customer willingness to pay and complexity for quick results. Different frameworks for prioritization, such as the Kano model or Lean prioritization matrix, can be employed.
George S. Day (marketing professor and co-director of the Mack Institute for Innovation Management at the Wharton School, University of Pennsylvania) stated in his studies that market-oriented companies exhibit a 20% higher customer satisfaction level. At the same time, these companies are 31% more profitable than those motivated by other factors. The most significant result of his studies is that market-oriented companies are 50% faster than those driven by other factors.
We can also observe that having a clear focus, identity, and value proposition brings resilience in performance and faster results. In the latest SaaS benchmark report of 2023, we can read that despite the difficulty in achieving growth, the top performers in terms of growth in 2023 are native AI SaaS and those who have launched and “monetized AI.” However, AI features can also hinder sales performance by creating a slower sales process, as software buyers will need to involve legal teams and consider security constraints. Therefore, we strongly recommend not opting for AI if there is no real value to be found for your product.
2. Pitfall #2: Lack of alignment between product strategy and engineering
In many cases, research and development (R&D) teams place excessive emphasis on the technical specifications of their projects, often at the expense of considering the alignment of these efforts with broader business goals and the creation of tangible value for customers. This tendency to prioritize technical aspects in isolation can lead to misalignment between R&D activities, the company’s overall strategic roadmap, and the real needs and expectations of the customer base.
A common problem (69.3%) is when teams work in silos divided by skills rather than being multidisciplinary. This concerns the organizational structure of product and development teams. It leads to communication problems and requires longer, more tedious synchronization between teams, which is problematic for the software product manager.
This problem becomes more visible with AI trends and its integration into products: the top SaaS performers in growth in 2023 had AI as the foundation of their success, but these performers are not simply sprinkling AI into their products haphazardly. They are either natively AI or actively monetizing AI judiciously, and on this latter point, only 15% of surveyed companies that incorporated AI into their product were able to succeed in its monetization.
Solution #2: Strategic alignment (Products are defined and designed collaboratively, rather than sequentially)
To foster success and drive innovation that truly benefits the organization, R&D teams must adopt a more holistic approach. This means not only focusing on the technical aspects of their work but also ensuring that these efforts are perfectly synchronized with the company’s strategic goals and tailored to bring meaningful value to end users.
Technology-focused companies like Amazon, which consistently incorporate disruptive innovations and have demonstrated the ability to do so at scale, use some core techniques to build their products. One of them is the backward work process, starting the effort with a press release (and if the product/feature is developed and the product manager needs to frame the communication to customers). Another technique is from Walker Lockhart (formerly of Amazon) at Nordstrom, which is “the letter to the CEO from a highly satisfied customer.” This latter technique requires truly putting oneself in the customer’s shoes and expressing what the features and products “would bring” as a very positive experience.
3. Pitfall #3: Over-engineering
Effective software development relies on standardizing the technical stack, continuously evolving technologies, and establishing best practices for quality and scalability. There are two types of pitfalls:
At the technical level: this includes inconsistent standardization leading to compatibility issues, technological stagnation hindering adaptability, neglect of scalability considerations, inconsistent application of best practices causing maintenance challenges, and failure to adapt to changing needs.
At the functional level: this involves overloading delivery to meet a need with unnecessary features, complicating and impacting the user experience, and delivering “nice-to-have” features that no one wants to pay for.
If you’ve never heard of ScaleFactor, Transpose, or Fast, it’s probably because these companies delivered products that neither met technical expectations nor succeeded in monetizing their products, despite their very promising positioning.
Solution #3: Standardization and KISS Principle (Keep It Simple, Stupid)
In the context of standardizing the technical stack, evolving technologies in use, and defining best practices for product quality and scalability, the KISS Principle, which stands for “Keep It Simple, Stupid,” plays a significant role. It is a guiding philosophy in software development that emphasizes simplicity and clarity in design and implementation. Here’s how it can be implemented:
1. Standardization of the technical stack: By adhering to the KISS Principle, you encourage the selection of simple and straightforward technologies. This minimizes complexity and reduces the chances of introducing unnecessary components or tools into your technical stack.
2. Evolution of technologies used: When evaluating the adoption of new technologies or upgrading existing ones, the KISS Principle encourages you to prioritize solutions that simplify rather than complicate your technical stack.
3. Best practices for product quality and scalability: In the context of defining best practices, the KISS Principle advocates for clean and simple solutions. Simplicity in code, architecture, and processes facilitates the assurance of product quality and scalability.
4. Best practices for staying focused on outcomes rather than output: Adopt a user-centric approach to product development. This involves iterative testing with real users to ensure that developed features are not only technically sound but also provide real value. By leveraging methodologies mentioned earlier, such as Agile and Lean Startup, companies can focus on creating minimum viable products (MVPs) that address essential user needs without unnecessary features. Regular feedback loops with customers can help refine and prioritize features that truly solve user problems and are worth the investment.
In conclusion, the complexities of product development and pricing in the software industry require a comprehensive analysis that goes beyond the scope of a single article. A more in-depth exploration of these topics would provide a broader understanding of the strategies needed for value creation and avoiding common pitfalls.
For more information, please contact the authors directly.
Ekaterina Malyavina
Expert in product development and R&D processes
MIT alumni
Lyas Driad
Uniprice Consulting
Founder and CEO
