In case you’re not familiar with The Three Horizons Model of portfolio management, and how it maps to the Growth/Materiality Matrix, here’s a crash course:
- Horizon 1 refers to current businesses that generate today’s cash flow; investments made here are expected to delivery returns in 0 to 12 months
- Horizon 2 refers to high growth businesses of tomorrow; investments today are expected to generate significant returns in the 12- to 36-month range
- Horizon 3 refers to long-term growth businesses, for which returns are more than 36 months away
Horizon 2 is a tricky beast. In Escape Velocity (click on the link to read my book report, complete with diagrams), Geoffrey Moore says: “Horizon 2 investments are expected to pay back significantly, but not in the year of their market launch. Typically they are fast growing from birth but come off a small base and need time to reach a material size. Moreover, because market adoption is rarely linear, there are often fits and starts before they catch fire. In the meantime, however, they are making material demands on go-to-market resources in the current year without generating corresponding material returns, and so they demand patience.”
Sure, you can sell stuff today to pay the bills, but your growth is expected to come from Horizon 2; consequently, they’re a crucial part of your business’ strategy.
So why do Horizon 2 efforts often end in disaster?
In this post, I share some of my own experiences working with Horizon 2, and intersperse with more insights from Mr. Moore, in the hopes that it’ll help you out in your own product endeavours.
OK, so years ago, while I was running Product Marketing at Sandvine, I worked with a product called OutReach. It was built in-house and allowed communications service providers (CSPs) – basically mobile data providers, ISPs – to interact in a personalized way with their customer base through a variety of communications channels. In particular, OutReach was a great way to deliver notifications (e.g., “You’re getting near your data limit.”) to subscribers in a timely and effective manner; linked with our quota measurement and management system, it really ‘closed the loop’ with subscribers and helped them stay informed about their data consumption.
For a while, OutReach had a fairly limited feature set, really only delivering notifications through an in-browser overlay, but that was still enough to pique the interest of some major customers and win a few sales.
OutReach was attractive to us because it helped diversify our revenue stream, both by getting us buyers in different customer departments (stickiness!) and by helping us introduce more recurring revenue through a subscription license.
But we knew that there was much more that OutReach could do, and needed to do to fulfill the potential and meet customer expectations. We faced the classic build vs. buy decision. Ultimately, we went the latter route.
We faced the classic build vs. buy decision. Ultimately, we went the latter route.
In August 2015, we beefed up OutReach significantly though an acquisition of a Dutch company, MoMac; the new capabilities allowed OutReach to address far more use cases across a much wider range of communications channels (e.g., SMS, in-app, in-browser, etc.), and made managing the deployed solution much better.
BOOM, ready to take the world by storm.
OutReach was very much a Horizon 2 product, for at least a few reasons:
- Many communications service providers were looking to transition themselves into “digital service providers”, but the transition would be slow, before accelerating
- The product still needed development effort to fully integrate the new capabilities, so investments made today wouldn’t contribute meaningfully to revenue for a little while
- A few customers were really interested, some were pretty interested, but many just hadn’t looked at these types of solutions yet…again, the expectations that things would start slow and steady before accelerating
- Our sales team traditionally worked with engineering and operations departments, but OutReach was more of a marketing and customer service tool…so it’d take time to build those relationships
All the market intelligence we gathered, both through primary and secondary research, showed significant potential.
Nevertheless, all the market intelligence we gathered, both through primary and secondary research, showed significant potential – certainly when compared to our relatively paltry investments so far.
On August 5th, we issued our press release announcing the acquisition. This press release was followed one minute later by an email to customers and a separate communication internally. Importantly, the launch was accompanied by a complete set of sales and marketing material, including:
- Product brochure
- Comprehensive web material
- Demo videos
- Solution and use case content
- Sales presentations
Whoa, really? That’s right!
I’d flown to Rotterdam a few days beforehand to learn everything about MoMac the company, their products, their technologies, their customers, etc. Working with our Marcom team back in Waterloo, we’d completely built the new sales and marketing kit in just a couple of days in time for launch. It was a great team effort, and a career highlight for me. Go team! (It really was a remarkable achievement, and one that I keep meaning to write about on this blog.)
Working with our Marcom team back in Waterloo, we’d completely built the new sales and marketing kit in just a couple of days in time for launch.
Since the whole thing had been a reasonably well-guarded secret, we also conducted an internal sales knowledge transfer / training session, which included information on how to speak to customers and prospects, a demo of the new capabilities, a walk-through of the new sales material, guidance on how to field questions, and the contact info of subject matter experts.
Response was positive: everyone was excited, they had the tools they needed to knock on new doors, the announcement was generating widespread positive coverage – we couldn’t have asked for anything better!
Now to sit back and wait for the deals to roll in.
The Waiting Game
We had a few account teams embrace the new OutReach, either because they saw the strategic value and/or because their customers had already showed interest or had responded positively to our news; however, for the most part, things were pretty lukewarm after the initial excitement had worn off.
We couldn’t have done anything better… OutReach was a useful strategic part of our portfolio, it had real value for our customers, and we had material for the entire sales funnel – from increasing awareness, to creating demand, to helping customers evaluate the solution, to justifying their decision.
So why wasn’t the needle moving?
The Realities of Horizon 2
“Simply put, it takes many more resources to generate a dollar of revenue in Horizon 2 than it does in Horizon 1. Category demand and company reputation are not yet established, so the skids have not yet been greased.”
Moore says that, “Simply put, it takes many more resources to generate a dollar of revenue in Horizon 2 than it does in Horizon 1. Category demand and company reputation are not yet established, so the skids have not yet been greased.”
This issue was part of our problem, albeit a small one. We knew from direct conversations and from competitive intelligence that category demand was there, if only among early adopters, and we had a solid reputation within the industry – not with the exact buyers we were targeting, but with folks who’d be willing to introduce us.
“Horizon 2 offers are immature and thus, as end-to-end solutions, incomplete. To fulfill the promise they make to the customer, they must be complemented with professional services to complete the whole offer.”
Moore adds that, “Horizon 2 offers are immature and thus, as end-to-end solutions, incomplete. To fulfill the promise they make to the customer, they must be complemented with professional services to complete the whole offer. These services must be discounted because, in effect, they are backfilling for things the customer has already been promised. Moreover, building out the whole offer for the first time is iffy work and tends to be underspecified.”
This description is accurate of our situation with OutReach: it had never been deployed in full before, and our customers and our sales team knew this fact. We tried to address it with plenty of internal training and demos that showed the whole thing working. So this problem played a role, but wasn’t the major culprit.
What was the real reason why OutReach was struggling?
Internally, there was lots of discussion as to why OutReach wasn’t bringing in the numbers we’d anticipated, despite having a number of very large customers quite interested – any one of which would’ve helped us hit our targets.
A number of suggestions were put forward: incomplete product, poor marketing, lack of enablement activities for the sales team…all the usual suspects when people want to point fingers.
But I am a man of facts and data, damnit. Plus, I was starting to get a bit pissed that people were suggesting the sales team didn’t have enough support, when they’d had a complete sales kit since, literally, day one, as well as monthly updates and training sessions. That said, I was open to the possibility that there was more I or my team could do – to be clear, I am 100% happy to find out that I can help solve a problem, even if it points to some responsibility or accountability on my part.
Based on what I knew at that point, my thinking was that our marketing material was perfectly sufficient, and in fact pretty damn good, so my concern was that any further investments along those lines would be inefficient use of our limited resources.
But I wanted to take informed action, rather than just engage in wasteful stabs in the dark, so I did what any person in my position should do: I gathered information.
I wanted to take informed action, rather than just engage in wasteful stabs in the dark, so I did what any person in my position should do: I gathered information.
Working with two members of my team – the current and past product marketing owners of OutReach – we surveyed the sales organization. Basically, the three of us went into a meeting room and fantasy-drafted 30 people from our sales team by taking turns writing down the name of someone we’d contact. In doing so, we made sure to cover:
- the entire hierarchy of the sales organization, to get a comprehensive view of tactical and strategic input
- the entire geographic global coverage of the sales organization, to make sure we weren’t basing conclusions on a geographically unrepresentative sample
- all roles within the sales organization (e.g., sales, sales engineering, and a few others), both technical and non-technical, to help isolate any issues
- supporters and skeptics, so we didn’t just get warm, fuzzy answers
Over the next week, the three of us had real live voice conversations with each of the ten people we’d drafted. The conversation framework was three open questions:
- What are your thoughts about OutReach?
- Are there any tools / is there any information that would help you?
- Anything else?
We’d save our conclusions until all the data came in.
A week later, the three of us got back together in a meeting room and combined our detailed notes/transcriptions. When we did so, a number of patterns emerged that created clarity.
A week later, the three of us got back together in a meeting room and combined our detailed notes/transcriptions. When we did so, a number of patterns emerged that created clarity:
- People loved the marketing material; they couldn’t suggest a single thing that was missing or that could be improved
- Moreover, they thought the marketing team had done a great job with our regular training sessions; they felt very informed
- Salespeople were worried that the product wasn’t ready for primetime – they knew some integration work was still needed – and they didn’t want their customer to be the large-scale test case
- Salespeople were working on other deals that had more potential to deliver more revenue in a shorter timeframe; consequently, they didn’t want to spend time promoting OutReach, which required them building new relationships with a new customer department
- Salespeople lacked the confidence to pitch OutReach; they knew they’d often only get one shot to do so, and didn’t feel ready
These results were helpful, I suppose, but worrisome. They let me hammer a nail in the coffin of the “marketing needs to do more” argument, which was great. Now, whenever anyone came to me with a suggestion to do something with the OutReach marketing portfolio, I could simply point to those results and ask how the suggestion applied.
Unfortunately, the results also pointed to some serious issues that I couldn’t control. I prefer when things fall under my control, ’cause then I can fix them; in this case, all I could do was use the data to highlight major issues up the chain of command and hope that the folks with control over those areas could do something.
“The field sales personnel are not as familiar with the new product, nor are their established customer and prospect contacts likely to be the targeted buyers for it.”
Here’s what Moore had to say on the subject, and you can see how it captured my own experience to an eerily accurate degree: “The field sales personnel are not as familiar with the new product, nor are their established customer and prospect contacts likely to be the targeted buyers for it.”
“Horizon 2 initiatives are doomed from birth; they will never reach the materiality needed to earn Horizon 1 status. Here is the key point. This is not due to lack of innovation. It is not due to weak R&D. It is not due to bad product. It is not due to lack of customer interest. It is not even due to ‘corporate antibodies,’ although that gets closer to it.”
Moore continues, again capturing the situation perfectly: “Horizon 2 initiatives are doomed from birth; they will never reach the materiality needed to earn Horizon 1 status. Here is the key point. This is not due to lack of innovation. It is not due to weak R&D. It is not due to bad product. It is not due to lack of customer interest. It is not even due to ‘corporate antibodies,’ although that gets closer to it. It is instead due to a complete disconnect between, on the one hand, a field-facing management team driven by a Horizon 1 charter and compensation plan, and on the other, a covey of needy product and market managers with a Horizon 2 set of market development requirements. When these two forces collide, it is no contest: Horizon 1 prevails, hands down. Hence the prevalence of what we have come to call the Horizon 2 gap, a primary symptom of enterprises experiencing Christensen’s innovator’s dilemma.”
I mean, shit, I could dive into every sentence of that quote…it’s amazing and terrible and accurate and devastating all at once.
So it’s not about marketing, or product, or customers; the problem is simply that there’s a massive disconnect between company strategy (invest in future growth) and sales execution (sell existing stuff today).
For months, we endured speculation and wasted effort, and we put ourselves through the ringer entertaining all manner of uninformed opinion, until our data-driven interview process made the whole thing crystal clear: our salespeople just didn’t want to sell OutReach.
Sure, they knew they should sell it, they knew it was good for the company if everyone else sold it…but they, personally, as individuals, had different ways to spend their time on things that better aligned with their compensation model.
Tweaking Moore’s quote: there was a complete disconnect between, on the one hand, a field-facing sales management team driven by a charter to sell our traditional solutions using a compensation plan that offered no special incentive to sell OutReach, and on the other, a covey of needy product and market managers trying to adhere to the company strategy of creating demand for OutReach. When these two forces collided, it was no contest: salespeople rationally chose to make their quotas by selling what they already knew to people they already knew in departments they already knew, in a shorter timeframe.
By the time we finally introduced special compensation plans to encourage salespeople to sell OutReach, it was already too late – despite some significant strategic wins with OutReach, the wait-and-see approach had let too many of them to conclude that the slow sales were an indictment of the product, rather than being due to a lack of widespread effort (again, some salespeople did quite well with it).
“Doomed from birth”, in Moore’s words.
So, what can be learned from this saga, and how can we apply Moore’s insights in our own endeavours?
Most importantly, it’s crucial that you know when you’re working with Horizon 2. It’s a whole different ballgame from Horizon 1, so different rules apply.
With that understanding, you can set yourself up for some success by ensuring organizational alignment: make sure every part of your organization – and especially your sales team – is legitimately executing on real company strategies, and hold people accountable.
And I don’t mean pointless lip service about alignment. I mean sales compensation plans that, from day one, give them a reason to take the massive perceived risk of selling Horizon 2 products. I mean culling the ranks of people who don’t support the initiatives, whether it’s an engineering manager who’s roadblocking the integration or a salesperson who refuses to learn and deliver the message.
Also, just because you know the reality of Horizon 2 doesn’t mean that others do, so make sure everyone’s in the loop.