Comparing Product Development with Sales Pipeline
When you’re a contractor, you typically bill a lot more money than what really costs the job. This is not a scam; it is because you need to cover hidden costs: for instance marketing to create brand awareness or sales to find customers and to close contracts. All this work isn’t about getting the job done. They are about getting some job to do. We like to call these positions support departments of the production departments.
Yet you can’t get away without paying them. You need them — how would you get customers, otherwise? Hence when you bill for a job, you bill more than the cost of production: you need to cover these costs too. (and also slip some margin in there, you know)
And these costs can seem to be huge. Still in the contractor world, it is very common that 20% or more of the bill does not go to the one doing the job.
But are they really that huge? In a sales pipeline you just have to go through incredible loss rates at many steps before actually signing a contract, that is before getting some job to be done. You have to find leads, to qualify them, to understand what is needed, to draft a proposal, to be selected, to negotiate rates…
Now, all of this is work, too. You happen to visit customers and assess their needs. Maybe do some demo. Maybe do some preliminary work for them. At some point the frontier is very thin (and blurry) between working to win a job and doing part of the actual job for free. Yes, for free. But that’s fine, again, because in the end you will bill enough to cover this preliminary work.
Why am I talking about all of this? (excepted that being a freelance made me build much more respect for sales and marketing, admitting that indeed their work is producing a lot of value — sorry, former engineer speaking here, showing a clichéd disdain for non-engineering work)
I want to make the connection with product development.
TK what’s below should be start of interesting stuff and actually needs to be thought about, probably
Proper product management is led by experimentation. You just have to discover what delights users and makes them become paying customers. Like sales and marketing work, we could say that doing this is working for free, as it is not growing the product per se. However, like sales and marketing work, that does not make it any less critical: you just can’t afford to build the wrong product.
We could also talk about estimates — the equivalent of billing in my analogy. What do you include in your estimates? Do you only include building the feature? Or do you also include finding the good feature to build? That’s the 20+% tax paid to sales and marketing, that we’re glad to pay because we know that without sales and marketing, there is nothing to work on. It’s the same: you have to pay the experiment tax to know what must be built, and you should be glad to pay for it because you’d know that without it you would build the wrong thing.