Over the past 8 months, I've conducted about 20 sales and marketing workshops with hosting providers all over the world.  During each session, I ask the product management team what business problems their offerings solve.  Most of the providers cannot answer this question with any degree of certainity.  My next question is how do you determine what services you are going to offer if you don't know the business problem your offering addresses.  The typical answer I hear is that offerings are defined based on what the hosting provider believes will sell based on internal opinion or gut feel.  If there outside input, it usually comes from sales, vendors, and/or third party research. 

While product managers should consider all those inputs, they should not be the primary input.  We all know how guarded small businesses (not only small businesses, but any business) become during the sales process making it difficult to learn about the business problems they face.  Vendors obviously are trying to convince the hosting provider to resell their product.  As a result their market data may be skewed.  Third party research data is a good validation tool, but in my mind should not be the primary input for new product offerings.

Nothing is more valuable than a product manager spending 30 minutes with a small business in a non-sales mode trying to understand the day-to-day challenges these businesses face.  Product managers need to GET OUT OF OFFICE and meet with 2 - 3 businesses a week documenting the results of their meeting.  Product managers should meet with current customers, potential customers, their competitors customers and the most interesting group is "non customers" which are businesses that typically would not consider using the hosting providers service.  Non customers could become customers if hosting providers had the right offering and/or right marketing message creating a blue ocean relatively free of competition.

The objective of these one-on-one meetings is to obtain the following information:

- What are the common business problems small business are facing and what is the profile of businesses that have this problem?

- How do businesses address the problem today or do they just accept it?

- How much would a business pay to solve the problem?

- What resources to businesses use to find solutions to their problems (e.g. trade shows, colleagues, trade magazines, online search, etc.)? 

I believe hosting providers willing to adopt this product management practice will have a significant advantage over their competition.  I would like to hear your opinion on this topic.  

John,

I could not agree more with your thoughts on this.  Having spent the last 11 years consulting to various different types or Online Services, I am constantly amazed by the "glass house" method of Product Management.  It is an imperative to discover as much information on your target market as possible and this is best done in person rather than in surveys or broad groups.  If given the opportunity businesses, especially small businesses will be happy to share with you their pains and requirements however there is one HUGE caveat. 

You must differentiate between what they want and WHAT THEY WILL PAY FOR!

There is no better way then to ask the question. 

In addition there are other important questions to ask

- How would you want the application served to you?

- What level of management of the application are you willing/require to own?

- Is leveraging an alternative access method with additional credentials like USERID and password acceptable?

- Off the top of your head what would a service like "x" be worth to you? How much do you spend now on it?

These are just off the top of my head questions, but thinking through this dialogue and what you want to get out of it is crucial.

In the upcoming days I will be focusing a blog article on this topic but if you would like to way in please do so

Great post John and you've hit the nail on the head - hosting companies are still relying on and focusing on those customers and industries which they know most about - techies, web designers, resellers of webhosting - it's proof that the majority are never seen trying out new ideas or new publications both above and below the line. When was the last time you saw an advert in ok magazine for a bit of webspace? The truth is until they open their eyes and begin to question what there products can be used for and what consumers and business' actually need to make their lives more productive the hosting industry will fast become something like what the broadband bloodbath is today....all focus on price.

It is always a challenge to find out what a small business will pay for a service, if anything.  One method I like to use is understand what they are doing today and what is the cost of the alternative.  An alternative does not necessarily need to be software, it could be paper and pen.  Paper and pen is not free if a lot of time is spent filing and finding information, it is hard to read, gets lost, etc. 

 
Also if the decision-maker experiences the pain, a small business is more likely to pay for a service.  Be leery of creating solutions that address needs for people that aren't decision-makers.  You never know if a small business is willing to pay for such a service.

Many small business owners tend to work in their business during the day and on their business at night.  What I mean by that is small business owners tend to wear many hats during the day including sales, collections, inventory management, etc. and after hours they tend to do their paperwork.  As a result, most of these people spend a lot of time at work and don't get to spend much time with their families.  SaaS gives these people an opportunity to do most of their "paperwork" from home after the kids go to bed.  Business owners tend to use desktop computers making it difficult to manage their business anywhere but the office. 

Brian, your post got me thinking.  The ideal place to reach a small business owner is during the conceptual phase of their problem solving.

Reaching them when they're thinking "My business is growing" is a cheaper time to reach a business owner than when they've typed "premium email" or "shared folders" into Google.com.