I was recently reading Todd Berkowitz’s blog, “Overcoming the Sunk Cost Fallacy When Selling Applications”. According to Todd, Research Vice President focusing on B2B technology marketing and sales at Gartner, the Sunk Cost Fallacy is the justification of increased investment, based on the cumulative prior investment, despite new evidence suggesting that the cost, beginning immediately, of continuing the decision outweighs the expected benefit.
If you think about it, the topic is pretty interesting from a product manager’s perspective. Most product managers will agree with me, that we [product managers] find ourselves in situations where, despite all indications of the product being a failure or not adding value to the customer and the business, investment is continued with the hope that the product will improve over time and that customers will receive value. And if you are starting out as a Product Manager or find yourself in this situation for the first time, how do you deal with it?
Let’s face it, at some point in your product management career, you will have to kill a product or set of products, or as most product managers call it, sunsetting a product. And when that happens, you’re probably not going to be very happy. After all, this is not what you signed up for as a product manager. You expect to be on the cutting edge of investing in growth products that have cool functionalities that continue to make your customers happy and excited. But who wants to spend the time in winding down products and potentially face the wrath of customers that are not going to be happy with the final decision?
If you step back and think about it, sunsetting products supports a growth strategy. You are freeing up resources and money to invest in products and initiatives that matter. Still, many companies do not want to start the process partly because they are afraid of what they uncover in their product, process, or cost of development. Or perhaps because product and sales leadership knows that some customers are not going to be happy about it. So, instead of dealing with it, they don’t even start the process and most likely kick the can down the road and hope to deal with it later. But this can backfire because the true reason to sunset the product can continue to impact the business long-term and a company may find it even more painful to do it later.
In any case, if you’ve been given the responsibility to figure out all the details, where do you begin? How do you rally the troops? How do you convince the rest of the organization, especially sales and customer success teams that have to potentially deal with unhappy customers? Or with the engineering organization that has favored the product because they have poured their heart and soul to keep the product alive. While it’s not an easy task, it can certainly be very rewarding. If done right, you will sunset the product(s) for the right reason. Based on my experience of having sunset a few solutions at IBM, Sabre, and SAVO, that eventually paved the way for other growth products and profitable businesses, here are a few of my recommendations.
- Check Your Emotions At The Door: Never start the project or process of sunsetting by just following your gut. Sometimes these projects are initiated by others and their hunch for sunsetting products. But as a leader, you may have to deal with emotions of other organizations that will react unfavorably to the decision to sunset. Information and data is the most effective way to get Sales, Engineering, Customer Success, and Marketing to be aligned with you.
- Market Perspective Is Critical: It is important to talk to the market to understand the impact of sunsetting. If there are Industry Analysts, like Gartner or Forrester, that cover your specific market segment, it might be beneficial to get their perspective. But most importantly, it is necessary to understand how customers are affected. How do they use the product today? How is their business impacted by the decision to sunset the product? Customer Advisory Councils are a good way to engage customers and get their initial feedback.
- Base Everything On Data: It is your job as a product manager to collect the necessary data and analyze it; doesn’t matter if you are a startup or an enterprise software company. Data from finance, customer contracts, CRM, and competition is necessary to help answer the following questions:
- How many customers will be impacted by the decision?
- Relative to all customers, how important are they?
- What’s their ACV or MRR? What does that do to your financials?
- What is your customer’s lifetime value?
- Have they bought other products from your company that might be affected by the decision?
- What are the contract legalities of not supporting the product(s)?
- What is the development and operational cost of maintaining the product(s)
- What is the customer risk and what’s the revenue exposure?
- Focus On The Customer Not Just The Financials: Good product managers always know their numbers well but the great ones know their customers better.
- While it is easy to make decisions purely based on the financials of the business, it is more important to run the business to keep the customers happy. For example, even if the operational and maintenance cost of running the product on an old technology is fractional of the new tech stack, it may not be possible to move the customers to the new stack. In such a situation, sunsetting the old product(s) may not be a wise idea and the company may want to incur the cost of maintaining the old stack.
- What will your customer’s experience be? What migration path are you providing them? Are there other products or solutions in your product line that the customer might be willing to take in lieu of the sunset product(s)
- Communicate, Communicate, Communicate: It is amazing to me, after all these years, that organizations still underestimate the time and resources needed to inform their customers as well all internal organizations. This is critical because customers need to get consistent information from the company, be it from Product Management, Marketing, Sales, Customers Success, Support, and Professional Services. The best way to do that is to involve Marketing and Legal to create a FAQ that highlights the most important questions, such as:
- How long after the sunset will the product be supported? What operations are in place to ensure customers get the support they need?
- What is the rationale for sunsetting the product? It is perfectly ok to be open to customers and let them know that sunsetting a particular product will result in investments to other products and business areas.
- What actions should Sales, Customer Support, and Customer Success take as a result of the sunset?
- What are some ways the customers be impacted and what steps are in place to ensure customer satisfaction is not negatively impacted.
- If available, what alternative products can impacted customers buy? Are there any incentives put in place to influence a customer to move off the product or perhaps buy another product?
- From a sales perspective, what to do if a customer believes that the company is in breach of a contract?
- What is the communication plan to the customer? Do the customers understand the rationale and the impact to their business?
- Do not forget your competitors. Sunsetting a product can introduce the risk of your competition taking advantage and introduce FUD (Fear Uncertainty Doubt). What steps are you going to take to counter that?
Sunsetting a product doesn’t always have to be about stopping support for it. You can explore creative options and still preserve the value customers receive from your solutions. Maintaining the customer base and a good relationship is sometimes more important than just sunsetting. Therefore, try to find an option to package and sell the product line to a willing party. While it may not be in your company’s best interest to continue to invest, you could find a 3rd party that is willing to continue to invest in this, meet the customer expectations, and may even offer a premium to take this off your books.
There is no running away from the fact that sunsetting a product will most likely result in some customer churn and may leave with some customer dissatisfaction. However, if you stay true to the real reason you decided to sunset the product, which was to invest in other parts of the business to make it stronger and execute against that promise, most of the customers will benefit from your decision.