7 Minute Read
Product professional and instructor Will Scott talks about product innovation, B2B innovation, and how companies can balance the need to innovate with the need to grow.
in·no·vate
/ˈinəˌvāt/
verb
- make changes in something established, especially by introducing new methods, ideas, or products. “the company’s failure to diversify and innovate competitively”
- introduce (something new, especially a product). “innovating new products, developing existing ones”
I was teaching a class the other day and ended up in an engrossing conversation about the expansive topic of innovation. This got me thinking more about the nature of innovation, specifically how the innovation paths that a company chooses to follow are intimately related to how that company intends to grow.
A company’s growth strategy, which outlines its plans for expansion and market dominance, doesn’t operate in isolation. It is also deeply intertwined with its product innovation strategy, its blueprint for creating and driving adoption of its novel solutions.
As B2B companies chart their path forward, the choices they make in pursuit of growth invariably shape the way they approach product innovation, and vice versa. There is an intricate relationship between expansion and innovation strategies. The drive for expansion shapes and sometimes constrains innovation strategies, while disruptive innovation ideas can open new avenues for growth.
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Finding Alignment Between Expansion and Invention
How a B2B company chooses to go to market and grow its market share is of course a strategic decision based on the investment hypothesis behind a company and its capabilities. In fact, I would say that growth strategies precede innovation strategies. Looking at the most common growth strategies I see the following innovation vectors that are most aligned with a particular growth strategy.
We should note here that we live in the real world of grey where bright lines are the stuff of theory and academia. We also live in a world where it’s not a matter of “either/or” but that of “both/and”. So with this premise in mind, the following are by no means mutually exclusive. Indeed, upon closer inspection many precedents, antecedents and complimentary connections reveal themselves.
Platform-led Growth
Platform-led growth is a strategy where a company offers a foundational platform for other businesses to build their products and services. This approach allows these businesses to reach their end customers more effectively.
Examples of Platform-led Growth
Notion: By offering a versatile workspace platform, Notion enables businesses and individuals to customize and build upon its features. This leads to wider adoption and increased reliance on its platform.
Salesforce: As a leading CRM platform, Salesforce allows third-party developers to create applications within its ecosystem. This expands its reach and solidifies its central role in business operations.
Strengths of Platform-led Growth
Customers tend to become more loyal and engaged due to the integrated solutions provided by the platform. This enhances its overall stickiness in the market.
In the realm of platform-led growth, the expansion of the ecosystem is a significant strength, paving the way for a diverse range of services and offerings. This growth strategy often enjoys the benefit of recurring revenue streams, thanks to third-party developers who build upon the platform. Furthermore, customers tend to become more loyal and engaged. This is due to the integrated solutions provided by the platform, enhancing its overall stickiness in the market.
Weaknesses of Platform-led Growth
This approach to growth is not without its challenges. Relying on third-party developers can sometimes result in inconsistent quality across the platform’s offerings. Maintaining the platform and ensuring compatibility with a myriad of third-party solutions can also pose significant risks. A poor experience with an application built on a platform will often reflect poorly on the platform vendors themselves.
Available Innovation Vectors
A modular architecture becomes indispensable, allowing for a wide variety of integrations. To thrive in a platform-led growth environment, certain product innovations are crucial. Open APIs are essential as they facilitate the development efforts of third parties. A modular architecture becomes indispensable, allowing for a wide variety of integrations. Lastly, to provide users with a smooth and cohesive experience, robust integration capabilities are a must.
Sales-led Growth
Sales-led growth is a well-trodden path for the B2B companies. This strategy emphasizes direct sales efforts, often using a dedicated sales team to approach potential clients, especially in the enterprise software domain.
Examples of Sales-led Growth
Oracle: Oracle’s vast suite of enterprise solutions is primarily driven into the market through its robust sales teams. This ensures deep penetration into businesses for Oracle solutions.
EMC: EMC’s growth in storage solutions was propelled by its direct sales force, establishing strong relationships with enterprise clients
Strengths of Sales-led Growth
Sales-led growth allows for tailored pitches to potential clients, fostering deep relationships and ensuring that the product meets specific client needs. This approach often results in high deal sizes, especially in the enterprise space.
Weaknesses of Sales-led Growth
Growth rate might be limited by the scalability of the sales team, and it can be slower to adapt to market changes than more agile strategies. It is also resource-intensive, requiring significant investment in and dependence on sales personnel and training. Moreover, the growth rate might be limited by the scalability of the sales team. It can also be slower to adapt to market changes than more agile strategies.
Available Innovation Vectors
For sales-led growth, a significant direction in product innovation should pivot towards customization or the illusion of customization through configuration. By closely listening to direct feedback from the sales team, businesses can develop features or modules tailored to the unique needs of specific clients.
Another critical avenue is the integration of products with other enterprise solutions. Such integrations can be a compelling selling point, enhancing the product’s appeal during sales pitches. Lastly, this innovation strategy should emphasize investments in sales enablement tools, such as advanced CRM systems, insightful sales analytics and interactive product demos, to further empower and equip the sales team.
Product-led Growth
When it comes to product-led growth, the product itself is the primary driver of the B2B company’s growth. Its ability to get the job done and user experience lead to organic adoption and customer retention. With product-led growth, the user often gets an initial experience in limited free functionality, teasing them with the promise of exponential utility through moving to incremental tiers of (paid) offerings.
Examples of Product-led Growth
Zoom: The simplicity and reliability of Zoom’s video conferencing tool led to widespread organic adoption, especially during the remote work surge.
Trello: Trello’s intuitive board-based task management system attracts teams and individuals, promoting natural growth through its utility.
Strengths of Product-led Growth
The product-centric growth strategy allows for organic expansion due to its inherent utility and user experience. This often reduces the cost of customer acquisition and leads to higher customer loyalty.
Weaknesses of Product-led Growth
It’s highly reliant on the product’s quality and continuous improvement. If competitors offer a better product or if the user’s needs change, adoption rates can decrease quickly. This is especially true if the real and perceived switching costs are seen as minimal.
Available Innovation Vectors
For a product-centric growth strategy, a relentless focus on iterative improvements is crucial, enabling the product to adapt to usage data and shifting market dynamics.
Furthermore, a thoughtful approach toward establishing integrations with complementary products and fostering an ecosystem can significantly enhance the core product’s utility. This makes a product even more indispensable to its users.
Finally, an explicit intention to create affinity by increasing those perceived switching costs can minimize the rate at which customers churn to other competing alternatives.
Partner-led Growth
Partner-led growth is a strategy that leverages partnerships and a network of value-add resellers to expand market reach.
Examples of Partner-led Growth
Cisco: Cisco’s extensive partner network, including resellers and integrators, amplifies its reach in the networking and tech industry.
SAP: SAP’s ecosystem of partners ensures that its enterprise solutions are integrated and adopted across various industries and scales.
Strengths of Partner-led Growth
Partner-led growth capitalizes on the strengths and market reach of partners. This allows for rapid scale and penetration into new markets without significant upfront investments.
Weaknesses of Partner-led Growth
There’s a dependency on partners for growth, which can sometimes result in reduced control over the customer experience. Additionally, revenue splits or partner incentives can erode profit margins.
Product Innovation Vectors
In the realm of Partner-Led Growth, it’s essential to invest in creating scalable and user-friendly integration tools. These tools enable partners to seamlessly integrate and offer the product to their existing customer base. Additionally, B2B companies should prioritize the development of comprehensive training materials and certification programs, ensuring that partners have the expertise to represent the product accurately and effectively. A focus on collaborative marketing strategies can also be fruitful, co-developing go-to-market strategies and promotional campaigns with partners to harness their local insights and reach.
Balancing innovation and expansion is crucial for sustained growth in B2B companies. By aligning product innovation with strategic goals, companies can drive growth while continuously meeting evolving customer needs.
