The Business of Product
How our products deliver business value
Things are looking good for our good friend John Doe at ProductNation. He has been continuously raising the bar for his product, Net Promoter Score has remained high, and customers have been providing feedback and kudos to the team.
Stakeholders and management feel confident that ProductNation will continue to excel in the market thanks to the Scrum Team’s outstanding work. Leadership is excited about John’s contribution to the product’s success and has requested him to work more closely with the business!
John is excited and nervous to talk about the business value of his product with leadership. He has enough information but lacks experience presenting strategic and tactical numbers to senior executives.
- What does leadership expect of the product?
- Are there any opportunities to grow the business?
- Are there any risks?
- What about other products and services?
Don’t worry John; Take a deep breath. You can begin by investigating ProductNation’s current business state. So let’s get our financial calculator and graph paper!
Financial indicators
There are many financial indicators that John can use to determine the company and product’s business state. As Product Owner, he is accountable for maximizing the value of the product resulting from the work of the Scrum Team. For him to succeed, he’ll need to consider the following:
Net Present Value
NPV is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. It’s a method of calculating the expected net monetary gain or loss from a project. If NPV is positive, accept the project.
NPV = Present values of the expected monetary gains —Present value of the costs
Return on Investment
ROI is a performance measure used to evaluate the efficiency or profitability of an investment or to compare the efficiency of a number of different investments. Projects with higher ROI are preferred.
ROI = (Projected benefits — Costs) / Costs
Total Cost of Ownership
TOC is the purchase price of an asset plus the cost of operation. Projects with lower costs of ownership are preferred.
Internal Rate of Return
IRR shows the interest rate at which the NPV becomes zero. Projects with higher IRR are preferred.
Payback Period
Payback period is the amount of time taken to regain the net amount invested in a project, in the form of net cash inflows. Projects with short payback periods are preferred.
Profit & Loss
P&L is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period. It provides information about a company’s ability or inability to generate profit by increasing revenue, reducing costs or both.
John can reach out to finance and his stakeholders for more information. Leveraging connections and promoting the Product Vision will help him and ProductNation meet their business goals. Also, don’t worry too much about impressing leadership. Being transparent about your current state will cause a better impression.
You got some mathematical operations to run on excel and some contacts to call John. Good luck with your presentation!
Mary Jane is also working more closely with the business at WeAreProducts. Her CEO asked for her thoughts on new business opportunities starting next quarter, something she was already looking into for some time.
After a product launch and improvement phase, there is always the intention to launch a second version or new product all together. Mary is thinking about expanding to other markets. She has been researching and working on a proposal.
As Product Manager, she is well versed in business and market negotiations. Her experience with product discovery and growth has helped WeAreProducts reach its current position. She is eager to continue growing her product and organization, for which she prepares to answer the following questions.
- What business opportunities have we identified?
- How can we capitalize and execute them?
- How can we mitigate risks and evaluate their viability?
- What process can we use for developing our next business initiative?
Mary used a couple of tools and techniques in her investigation. So let’s get our stickies and pens ready. We’re going to the drawing board!
Business Model Canvas
The business model canvas is a tool for conceptualizing and structuring a business idea. It was developed in 2005 by Alexander Osterwalder based on his earlier work on business model ontology. It provides nine building blocks where the business can create, deliver and capture value.
1. Customer segments
List the top three customer segments. Look for the ones that provide the most revenue. Mary selected the same customer segments for her current product: Mobile users (iPhone & Android), Web users, and companies who need advertisements.
2. Value proposition
What are your products and services? What is the job you get done for your customer? Mary envisions a WeAreProducts catalog that includes social networking via a mobile app, website, and advertisements for third-party vendors.
3. Revenue streams
List your top three revenue streams. If you do things for free, add them here too. WeAreProducts’ catalog has a free account that includes ads, a paid subscription that removes ads, and company advertisements.
4. Customer relationships
How does your product deliver value, and how do you maintain the relationship? How often do you interact with your customers? WeAreProducts’ catalog relies on its social networking and advertisement portal.
5. Channels
How do you communicate with your customer? How do you deliver the value proposition? WeAreProducts’ catalog has its mobile apps, website, and advertisement portal.
These first five blocks focus on value creation. The next four blocks describe how the organization delivers value.
6. Key activities
What do you do every day to run your business model? WeAreProducts’ catalog core business relies on advertisement sales and customer subscriptions.
7. Key resources
The people, knowledge, means, and money you need to run your business. WeAreProducts’ catalog has a development, sales, and marketing team.
8. Key partners
List the partners that you can’t do business without (not suppliers). WeAreProducts’ catalog relies on app stores (app store & play store) and online payment partners.
9. Cost structure
List your top costs for activities and resources. WeAreProducts’ catalog pays salaries, marketing, and sales.
Mary likes using the Business Model Canvas due to its simplicity and high visualization value. It can be shared and explained easily among stakeholders and business partners. It also allows her to conceptualize and draft her initial ideas.
BMCs are not the only tool she uses. When more tactical detail is needed, a Balanced Scorecard helps to develop further her business ideas.
Balanced Scorecard
The Balanced Scorecard is a framework to implement and manage strategy. It does so by linking a vision to strategic objectives, measures, targets, and initiatives. It also balances financial metrics with performance and objectives related to the entire organization. It’s a popular business performance management tool.
When a business idea catches sponsor and stakeholder attention, the next discussion is about implementing and managing it. Mary knows her business audience, so she prepares several supporting materials like a Balanced Scorecard, diagrams, and financial data to justify her business proposal.
She knows that business people appreciate a secure and convincing story backed up with facts and numbers. They expect her to have done her homework by analyzing the company’s current situation, assessed risks, benefits and prepared an honest opinion on why they should approve her initiative.
The board will meet next week. We wish you the best of lucks Madam!
Final thoughts
Our good friends are working on their next product initiatives. Naturally, both their companies asked them to participate in the discovery and design of new business opportunities.
John analyzed financial data and explained how his product delivers business value to ProductNation. His meeting went out well. He didn’t just get valuable insights from leadership about the upcoming business plans, but he also got invited to continue participating in business meetings related to potential new developments!
Mary is considered one of WeAreProducts’ market experts. Her opinion is respected and sought for when it’s time to make business decisions. Her last proposal made most stakeholders and sponsors excited to explore new markets. The final decision needs to be reviewed by legal and local partners before getting approved. We are confident that Mary will be celebrating a new milestone in her Product Manager career soon.
Product Management has three dimensions; UX, business, and technology. A great Product Manager can navigate through all three of them. This time our friends shared their experiences with the business side of Product. With every goal met, new opportunities arise. Business viability is usually the justification for taking on new endeavors, and talking to the right people in the right way can help our ideas become a reality.
