Spring Cleaning = Revenue

Although we are only a few days from summer, it is not too late for “spring cleaning”  The Wikipedia entry for “spring cleaning” reads:

The most common usage of spring-cleaning refers to the yearly act of cleaning a house from top to bottom which would take place in the first warm days of the year typically in spring, hence the name. However it has also come to be synonymous with any kind of heavy duty cleaning or organizing enterprise. A person who gets their affairs in order before an audit or inspection could be said to be doing some spring-cleaning.

In today’s economy, almost all hardware and software companies can benefit from spring-cleaning. The focus should be on those products that are in the last stage of their life cycle. Many companies are loath to “sunset” products, often for a variety of reasons; the CEO cut his teeth on that product; one major customer continues to buy it; it was our flagship 5 years ago, we will lose out identity if we sunset it, etc. etc.

However, by critically examining the product(s), especially in the harsh light of today’s economy, an astute Product Manager may find that demand has fallen off dramatically, that the margins once generated are no longer there, or that the product is no longer competitive.

If the decision is to do spring cleaning, what actions are appropriate? Underlying all decisions is the need to recognize that if action is appropriate today, it will be imperative six months from now. So fast, aggressive action must be taken today.

For chosen hardware products:

1. Immediately stop production and stop the purchase of all unique parts. Take inventory and determine the value of unique parts in stock. Based on finished goods inventory and projected demand (which will probably be high) make a determination on whether to build out inventory or not.

2. Determine if promoting and selling the chosen products will cannibalize growth products. If yes, seek an alternative disposal process. If no, move quickly to clear the inventory. The best way to clear inventory is to increase the value of the transaction. This can be by lowering the price, or by tying the sale into some other value, i.e., free installation, extended warranty.

3. If the promotion of the chosen product(s) will cannibalize growth products, consider:

a. Contacting the main customer(s) and working with him/them on taking the inventory at a reduced value,

b. Finding a geography that is not as mature as your main market, and moving the product(s) through that geography,

c. Focusing on a well defined vertical, and re-position the chosen product(s) in that vertical with some added features/benefits. Make sure that this solution does not overlap into your mainstream market.

d. Scraping the inventory.

For software products:

1. Announce the end of life (support) for the chosen release.

2. Announce the quarter in which the next release will be made.

3. Offer inducements to the installed based to purchase the current release, with a well-defined path for upgrading to the new release. (Assuming that it is not a forklift upgrade.)

4. Stop all promotion/selling of the chosen release.

Clear direction to the sales channels regarding the discontinued products is a critical part of any spring-cleaning. Specifically, instructions on how to handle on-going sales to existing customers, defined migration paths, length and breadth of warranties, etc, for each product must be finalized prior to any announcement.

Taking action now may preclude having to set aside a “reserve” next January, after your auditor has reviewed your sales forecasts and inventory.  Usually such reserves are a charge against profitability, which may already be slim this year.

Is spring-cleaning in order?

RHM 6/18/2009

1 comment to Spring Cleaning = Revenue

  • Great post Bob!

    Sunsetting products often reminds me of the stock market. People hate to sell a stock at a loss. In my experience, management teams are even more reluctant to kill an under performing product. I wonder how many companies have guidelines to help/force them to decide that they’re throwing good money after bad…

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