“Nothing we do seems to make a difference. I wonder if we sized the market wrongly.”
I was on a Zoom call with two cofounders of a high-growth e-commerce startup. This defining statement from one of them tragically punctuated everything that was going wrong with their target market. I was meeting with them to understand why the monetization strategy they picked wasn’t bearing the fruits they hoped it would and whether the problem was intrinsic (product-market fit errors), extrinsic (market sizing errors), or both. My gut feeling was that they probably set their revenue goals and projections too high in the current economic environment. On deeper inspection, however, I realized the issues were rooted in shaky monetization.
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Before we proceed further though, a little bit about me. I am Bryan Dsouza, and I currently head up product marketing at Berkshire Grey, a high-growth AI robotics startup based in Boston, Massachusetts. Before Berkshire Grey, I led product marketing at Grammarly, focusing on our B2B product offerings (Grammarly Business). And prior to Grammarly, I held multiple product management and product marketing roles at Microsoft in the productivity, cloud, and AI/ML product segments.
In the scope of all my experiences, past and present, I have developed and delivered countless strategic initiatives ranging from market sizing (TAM/SAM/SOM), monetization, competitive intelligence, and customer segmentation to ideal customer profile (ICP) development, positioning, messaging, sales enablement, and GTM strategies. But throughout my career, I have stayed in close touch with the startup community (in Seattle, Boston, and beyond), advising and mentoring founders/cofounders/aspiring entrepreneurs alike in helping them build viable and sustainable businesses around their products.
In many ways, my experiences working with startups have further sharpened my perspective on how strategies are built, tested, rebuilt, deployed, and run in various economic environments. So, although the current economic environment may have caught many by surprise (not because it happened but because of how badly it has hit the tech industry), many startups I speak with are pouring a ton of good thought into how they approach (or rethink) their monetization strategy and business model.
You might wonder why monetization matters. I highly doubt you would, but if you do, let’s first understand what monetization is.
Monetization is all about the money, right? Wrong. Monetization is how you quantify the value you place on your product and find where that value intersects the customer’s willingness to pay for it. So, in my opinion, monetization is not all about money. It’s all about value and, particularly, “value perception” (or “perceived value,” depending on which business school you attended).
When a customer identifies a need and wants to solve it, they typically assess every potential solution to meet that need via a five-step thought process:
PS: I say “typically assess” because this is based on when economic conditions are normal, not in free fall.
Not all buying behaviors may follow this simplified five-step process, but the general principles almost always apply. The end goal of a monetization strategy, and why this business function can often be found deep within product marketing in startups, is to ensure the target customer reaches step five.
This isn’t the first time the world is seeing an economic downturn. Almost everyone currently in the workforce can share their battle scars by rattling off the many times the economy has hurt their businesses. This time, though, the compounding effect of a pandemic that is here/not here/maybe still here, coupled with a global cash crunch, has caused many startups in the tech industry to undertake layoffs or slow down hiring.
But as a startup CEO, you can’t decide to stick your head in the sand and wait for the chaos to blow over. Not just that, you can’t afford to get any of the five steps outlined above wrong because doing so may cost you precious time, resources, and ultimately, your business. Your main goal as a CEO, among the many other goals you have pinned on you, is to ensure your business model reflects the right value perception of your product to the target customer profile you have identified (provided you sized the market correctly).
Let’s look at how the same five steps may evolve in an economic downturn rather than in typical times.
Again, this is a highly generalized version of the thought process a customer would go through when evaluating a product or solution, but the general principles would be, by and large, the same anywhere.
As you can see, the role that monetization plays in a startup during an economic downturn becomes even more magnified because of the acute and stringent focus on quantified value perception (or willingness to pay) by the customer. In times like the ones we’re in now, startups need to assess or reassess the strategic intrinsic (business models) and extrinsic (market sizing) factors to ensure they resonate with their target customers.
As a startup, and especially while navigating through an economic downturn, you’ll have to go through each of these five steps and test your business model based on the following principles:
Here’s the moral of the story: An economic downturn will force you to focus on defining and articulating your product’s value perception even more. You will have to run conjoint analyses and willingness-to-pay research studies to determine the right permutation and combination of features to build the value perception you want for your product — and attach the right price tag to it.
Deploy the business model that not only makes sense for your business goals but also resonates with your customers so that your product offering doesn’t seem like something out of left field. In an economic downturn, the human tendency to run to something known and familiar is high. Find innovative ways to offer your product that alleviates the stress of the unknown for your customer as much as possible before they put any money down (for example, a freemium model).
Your customer is looking to get as complete a picture of the value perception of your product as possible before spending a dime on it. Your job is to create clear and transparent offers that articulate what the customer is getting for the price you’re offering and also what they are not (especially for freemium models). If you are employing product-led growth (PLG) motions in your startup, don’t get pushy, but add connective value veins throughout your customer experience so that customers realize the value and are informed of new value on an ongoing basis. Do this in parallel if possible.
During my time at Microsoft and Grammarly, we continually assessed the perceived value of the product and tested it against the customer willingness to pay to ensure we were in the margins we wanted to be across a wide set of ideal customer profiles (ICP). We did this through a series of research studies (conjoint analyses, market sizing exercises), competitive analyses (SWOT grids), focus groups (customer experience), and other such methodologies to position our products appropriately. At some points, we would test pricing in different markets based on a few standard ICP characteristics to assess the geographic impact on our business models. We worked closely with finance, sales, product management, business planning, and the rest of the marketing org to ensure we were aligned with our target market (again, provided we sized the market correctly).
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Monetization does not have to be scary while navigating through an economic downturn. Stay true to the principles outlined in this article, and you will be alright. You will see the current economic environment as an opportunity to get laser-focused on your customer’s value perception and build a foundation that will translate into higher customer lifetime value (LTV).
Don’t be greedy. Don’t be rash. Don’t get complicated.
Simplify your offerings. Articulate your value. Focus on your opportunities.
Deliver. Learn. Deliver again.
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“Nothing we do seems to make a difference. I wonder if we sized the market wrongly.”