Strategize: Product Strategy & Roadmap for Digital Age PDF

STRATEGIZE Product Strategy and Product Roadmap Practices for the Digital Age ROMAN PICHLER Strategize: Product Strategy and Product Roadmap Practices for the Digital Age Roman Pichler Copyright © 2016 Roman Pichler. All rights reserved. Published by Pichler Consulting. Editors: Rebecca Traeger; Victoria, Bill, and Carma from CreateSpace Design: Ole H. Størksen, Roman Pichler, and Melissa Pichler Cover photo by Ollyy/Shutterstock Many of the designations used by manufacturers and sellers to distinguish their products are claimed as trademarks. Where those designations appear in this book and the publisher was aware of a trademark claim, the designations have been printed with initial capital letters or in all capitals. The author and publisher have taken care in the preparation of this book but make no expressed or implied warranty of any kind and assume no responsibility for errors or omissions. No liability is assumed for incidental or consequential damages in connection with or arising out of the use of the information or programs contained herein. This publication is protected by copyright, and permission must be obtained from the publisher prior to any prohibited reproduction, storage in a retrieval system, or transmission in any form or by any means, electronic, mechanical, photocopying, recording, or likewise. For information regarding permissions, please write to [email protected]. ISBN Print: 978-0-9934992-1-0 ISBN ePUB: 978-0-9934992-2-7 ISBN MOBI: 978-0-9934992-0-3 Digital book(s) (epub and mobi) produced by Booknook.biz. To my children, Leo, Yasmin, and Kai TABLE OF CONTENTS Acknowledgments Preface The Big Picture: Vision, Strategy, Roadmap, and Backlog A Brief Guide to This Book Part 1: Product Strategy Strategy Foundations Understand What a Product Strategy Is Think Big and Describe Your Vision Find Out How Vision, Strategy, and Tactics Relate Let the Business Strategy Guide the Product Strategy Be Clear on Your Innovation Strategy Take Advantage of the Product Life Cycle Model Capture Your Strategy with the Product Vision Board Complement Your Strategy with a Business Model Choose the Right Key Performance Indicators (KPIs) for Your Product Track the Product Performance with a Product Scorecard Complement KPIs with Operational Metrics Engage the Stakeholders Review and Update the Product Strategy Strategy Development Segment the Market Pick the Right Segment Use Personas to Describe the Customers and Users Find an Itch That’s Worth Scratching Clearly State the Value Your Product Creates Make Your Product Stand Out Eliminate Features Offer a Great Customer Experience Build Variants and Unbundle Your Product (Re-) Position Your Product Strategy Validation Iteratively Test and Correct Your Strategy Determine the Necessary Validation Effort Involve the Right People Use Data to Make Decisions Turn Failure into Opportunity Get Out of the Building Identify the Biggest Risk Choose the Right Validation Techniques Directly Observe Customers and Users Carry Out Problem Interviews Create Minimum Viable Products Build Spikes to Assess Technical Feasibility Pivot, Persevere, or Stop Use Agile Techniques to Manage the Validation Work Part 2: Product Roadmap Roadmap Foundations Why You Need a Product Roadmap Be Clear on the Different Types and Formats of Product Roadmaps Choose the Right Roadmapping Approach Understand Who Benefits from Your Roadmap Involve the Stakeholders Get the Relationship between the Roadmap and the Product Backlog Right Avoid These Common Roadmapping Mistakes Roadmap Development Make Your Product Roadmap SMART Take Advantage of Release Goals Capture Your Roadmap with the GO Template Determine the Right Release Contents Get the Features on Your Roadmap Right Identify the Success Factors Determine the Window of Opportunity Take Dependencies into Account Make Your Roadmap Measurable Roadmap Changes Track the Progress Review and Change the Roadmap Portfolio Roadmaps Why You Should Use a Portfolio Roadmap Plan Your Portfolio with the GO Portfolio Roadmap Address These Portfolio Challenges Epilogue About the Author References ACKNOWLEDGMENTS This book would not have been possible without the help and support of many people. I would like to thank the attendees of my product strategy and roadmap workshops, as well as my blog readers, for their feedback, comments, and questions. I would also like to thank the following individuals for reviewing this book: Jock Busuttil, Mike Cohn, Kerry Golding, Steve Johnson, Ben Maynard, Rich Mirnov, Stefan Roock, Jim Siddle, and Caroline Woodhams. Special thanks to Marc Abraham for reviewing and re-reviewing the manuscript as I changed and rewrote sections. Thank you, Geoff Watts, for helping me come to grips with self- publication; and thank you, Ole Størksen, for designing the book cover and turning my sketchy images into proper graphics. I am particularly grateful to my wife, Melissa Pichler, for all her help and support—from reviewing the manuscript and helping me with the graphics to listening to my ideas. PREFACE A journey of a thousand miles begins with a single step. Lao Tzu Developing a successful product is not down to luck, a stroke of genius, or just trying hard enough. While these factors are undoubtedly helpful, product success starts with making the right strategic decisions. The challenge for product managers, product owners, and other product people is that we are often so preoccupied with the tactics—be it dealing with an urgent sales request or writing new user stories to keep the development team busy—that we sometimes no longer see the wood for the trees. In the worst case, we take our product down the wrong path and end up in the wrong forest; we’ve perfectly executed the wrong strategy and are left with a product that underperforms or even bombs. This book will help you play a proactive game, make the right strategic decisions, and use them to guide the tactical work. It explains how to create a winning product strategy and an actionable product roadmap using a wide range of proven techniques and tools. The Big Picture: Vision, Strategy, Roadmap, and Backlog When you look up the meaning of the term strategy, you will probably find it defined as a plan of action to achieve a long-term goal. While this definition makes sense, developing a successful strategy for a product involves two steps: finding the right overall strategy and deciding how best to implement it. To help you focus on each step and deal with its specific challenges, I discuss them separately in this book and distinguish between a product strategy and a product roadmap. The product strategy describes how the long-term goal is attained; it includes the product’s value proposition, market, key features, and business goals. The product roadmap shows how the product strategy is put into action by stating specific releases with dates, goals, and features. Figure 1 illustrates how the product strategy and roadmap relate, along with their connection to the vision and the product backlog. FIGURE 1: Product Strategy and Roadmap in Context In Figure 1, the vision describes the ultimate reason for creating the product, the product strategy states how the vision will be realized, and the product roadmap states how the strategy will be implemented. The product backlog contains the details necessary to develop the product as outlined in the roadmap, such as epics, user stories, and other requirements. Note that the relationships between the elements in Figure 1 work in both directions: the product backlog can cause changes to the roadmap, for instance, which in turn may affect the strategy. For example, if the feedback from the customers and users indicates that the product does not adequately address their needs, or if the development progress is slow, then this may lead to product roadmap changes. Similarly, larger roadmap changes can cause product strategy adjustments. And if you cannot find a valid product strategy—a strategy that helps you realize the vision—then you may have to change the vision or look for a new one. A Brief Guide to This Book This book contains two parts. Part 1 covers product strategy practices, including determining a compelling value proposition, addressing the right segment, and selecting the right key performance indicators (KPIs). Part 2 discusses product roadmapping practices such as choosing the right roadmap format, using the right planning horizon, and reviewing the roadmap. Each practice is described in a section, and related sections are grouped into chapters. I have done my best to write the sections so that they can be read independently rather than requiring you to read the book from the beginning to the end. I have also tried to keep the sections as concise as possible, so you can read and digest them easily. Most of the examples in this book are taken from the consumer space. The reason for this is simple: I have tried to use products that I hope you, the reader, have heard of. But the majority of practices also apply to business-to-business products. While virtually all examples are either digital products or products where software plays a key part, you can apply many of the practices to other products (although you may have to adjust them and ignore the software-specific advice). I have written this book specifically for product executives, product managers, product owners, entrepreneurs, marketers, and others who create and manage products. You will notice, however, that I use the term product manager in the diagrams. My intention is not to exclude anyone who isn’t called a product manager. Instead, I employ the term in a generic sense to refer to the person in charge of the product, no matter what the individual’s actual job title is. While I am aware that product managers aren’t always in charge of the product strategy, I believe that anyone who looks after a product and is accountable for its success should drive the creation of both the strategy and the roadmap. PART 1: PRODUCT STRATEGY Doing the right thing is more important than doing the thing right. Peter Drucker The first part of this book discusses concepts, techniques, and tools that will help you develop a winning product strategy. The practices are grouped into three chapters: strategy foundations, development, and validation. The foundation practices are key to achieving product success, no matter where your product is in its life cycle. The development practices help you create a new product and ensure the continued success of an existing one. They include techniques such as segmenting the market, working with personas, and bundling and unbundling the product, all of which are described in the pages ahead. The validation practices help you test strategy assumptions; they minimize the risk of choosing the wrong product strategy and help you create a strategy that is likely to be successful. While these practices are especially important for new products, they will also benefit an existing product whose strategy needs to change—for instance, to achieve product- market fit (PMF) or to revitalize the product to extend its life cycle. STRATEGY FOUNDATIONS As its name suggests, this chapter lays the foundations for the remainder of the product strategy part. It contains essential strategy concepts, techniques, and tools that will help readers who are new to the topic get up to speed; for seasoned strategy practitioners, they provide the opportunity to brush up their knowledge or close any gaps. Let’s start by discussing what exactly a product strategy is. Understand What a Product Strategy Is What do searching on Google and booking a car on Uber have in common? Both are common technology experiences that require well-designed products that can handle varying loads, process complex interactions, and manage huge amounts of data. To achieve this, user stories have to be written, design sketches have to be created, and architecture and technology decisions have to be made. While attention to the details is necessary to create a successful product, it is easy to get lost in them. This is where the product strategy comes in: it helps you manage your product proactively by looking at the big picture. A product strategy is a high-level plan that helps you realize your vision or overarching goal. It explains who the product is for, and why people would want to buy and use it; what the product is, and what makes it stands out; and what the business goals are, and why it is worthwhile for your company to invest in it. Figure 2 illustrates the elements of the product strategy. FIGURE 2: The Elements of the Product Strategy Let’s take a look at the three aspects captured in Figure 2: the market and the needs, the key features and differentiators, and the business goals. The market describes the target customers and users of your product: the people who are likely to buy and use it. The needs comprise the main problem your product solves or the primary benefit it provides. Think of a product like Google Search or Bing, which solves the problem of finding information on the Internet, compared with a product like Facebook, which provides the benefit of staying in touch with family and friends. The key features and differentiators are those aspects of your product that are crucial to creating value for the customers and users and that entice people to choose it over competing offerings. Take, for example, the first iPhone and its key features of mobile Internet, an iPod-like digital-music player, and a touch screen; or the Google Chrome browser with its focus on speed, safety, and simplicity. As these two examples show, the point is not to list all product features in your strategy—that’s done in the product backlog—but to focus on the three to five features that influence a person’s decision to buy and use the product.1 The business goals capture how your product is going to benefit your company, and why it is worthwhile for the company to invest in the product. Is it going to generate revenue, help sell another product or service, reduce costs, or increase brand equity? Being clear on the business goals allows you to select the right key performance indicators (KPIs) to measure your product’s performance. Take the iPhone and the Google Chrome browser mentioned earlier. While the iPhone generates the largest portion of Apple’s revenue at the time of writing, the Chrome browser does not earn any money for Google. But it does allow the company to control the way people access the Internet, and it has reduced Google’s dependency on third-party browsers such as Mozilla’s Firefox and Microsoft’s Internet Explorer. Note that a product strategy is not a fixed plan or something you only create for a new product: it changes as your product grows and matures. As a consequence, you should review and adjust your product strategy on a regular basis—at least once a quarter as a rule of thumb. Think Big and Describe Your Vision Because the product strategy is a high-level plan that describes how you intend to realize your vision or overarching goal, it is helpful to begin by capturing that vision. The vision is the ultimate reason for creating your product; it describes the positive change the product should bring about. Why the Vision Matters Having a vision is important, as creating and managing a successful product requires a lot of time and energy. In order to be fully committed, you have to be convinced that what you are doing is right: life is too short to work on products you don’t believe in. On the positive side, if you are enthusiastic about your product, then this will help you do a great job and inspire others. Say I want to create an app that helps people become aware of what, when, and how much they eat. My vision, then, could be to help people live more healthily; the strategy would be to create an app that monitors their food intake in conjunction with a smart watch, fitness band, or smart food scales. Figure 3 illustrates this relationship. FIGURE 3: Vision and Product Strategy Qualities of an Effective Vision An effective vision has four qualities: it is big, shared, inspiring, and concise. A big vision, such as “help people eat healthily,” increases the chances that people will buy into it compared to a narrow one, like “lose weight.” What’s more, it makes it easier to change the strategy (if necessary) while keeping the vision stable. Say that it turns out that my idea of developing a health app is ill conceived. With a big vision in place, I can explore alternatives, such as writing a book on healthy eating or offering mindfulness classes that teach people to become aware of their eating habits. The beauty of a shared vision is that it motivates and unites people: it acts as the product’s true north, facilitates collaboration, and provides continuity in an ever-changing world.2 An inspiring vision resonates with the people working on the product, and it provides motivation and guidance even if the going gets tough. A concise vision, finally, is easy to communicate and understand. To achieve this, I like to capture the vision as a slogan—a short, memorable phrase such as “help people eat healthily.” A powerful exercise is to ask the key stakeholders to formulate their visions for the product and to share them with one another. Then look for common ground and use it to create a big, shared, inspiring, and concise vision. Find Out How Vision, Strategy, and Tactics Relate As powerful as they are, the vision and the product strategy are not enough to create a successful product. What’s missing are the tactics—the details required to develop a great product, including the user stories and the design sketches. Figure 4 shows how the vision guides the product strategy and how the strategy directs the tactics. FIGURE 4: Vision, Strategy, and Tactics Without a valid product strategy—a strategy that has been validated and does not contain any significant risks—you will struggle to discover the right product details; to create the right epics, user stories, story maps, scenarios, design sketches, and mock-ups; and to make the right architecture and technology decisions. If you are not clear on the path, then how can you take the right steps? But it’s not only the strategy that shapes the tactics. The latter also influences the former. As you collect data about how people respond to your product, you learn more about the customer needs and how best to address them. This may require smaller strategy updates, but it could also result in bigger changes, such as pivoting or sun-setting your product: significantly changing your strategy or phasing out the product, respectively. Think of YouTube, which pivoted from a video-dating to a video-sharing site; or take Google Buzz, a social networking, microblogging, and messaging tool, which was taken off the market a year after its introduction in 2010 due to its lack of success. Similarly, if you struggle to find a valid strategy, then this could indicate that your vision is a hazy, unattainable dream that you should wake up from. Vision, strategy, and tactics hence influence one another. Table 1 provides an overview of the three concepts, together with sample artifacts. TABLE 1: Vision, Strategy, and Tactics Level Description Sample Artifacts Vision Describes the positive change the Vision statement or slogan. product should bring about, and answers why the product should exist. Guides the strategy. Strategy States the path for attaining the vision; Product strategy, product roadmap, captures how the vision should be business model. realized; directs the tactics. Tactics Describes the steps along the way, and Product backlog, epics, user stories, the details required to develop a story maps, scenarios, interaction and successful product. May lead to workflow diagrams, design sketches, strategy changes. mock-ups, architecture model. Let the Business Strategy Guide the Product Strategy A product is a means to an end. By benefiting its customers and users, it should create value for your company. It is therefore important that your product strategy supports the overall business strategy. A business strategy describes how your company wants to achieve its overall objectives. It determines, for instance, which new innovation initiatives your company invests in, which markets you target, which role organic growth and acquisitions play, and how your company sets itself apart from the competition. Take Apple and Samsung, two companies that have employed different business strategies in the same marketplace. At the time of writing, Apple releases a few high-end and highly priced products while Samsung focuses on capturing market share with a wide range of offerings. Some companies refer to their business strategy as the company mission. When I worked at Intel in the late 1990s, the company mission was to “be the preeminent building block supplier to the worldwide Internet economy.”3 To ensure that your product helps the company move in the right direction and that your strategy receives the necessary support from management and stakeholders, the business strategy has to direct the product strategy, as Figure 5 shows. Similarly, your overall company vision should influence the vision of your product. FIGURE 5: Business and Product Strategy To put it a different way, the product vision should be in line with the overall company vision, and the product strategy should help implement the business strategy. If your business does not have an overall strategy, or if you are unaware of what it is, then delay formulating a product strategy until a business strategy becomes available—unless you work for a start-up, in which case your business and product strategy are likely to be identical. Be Clear on Your Innovation Strategy Products are value-creating vehicles. In order to generate value, a product has to offer something new; it has to innovate to a greater or lesser extent. Innovations range from small incremental steps, such as improving the user experience for an existing product, to big and bold ones—think of the original iPhone, the Nintendo Wii, or the Uber taxi service. It’s important to understand which innovation strategy your product executes and which innovation type it represents, as this will shape the product strategy. A helpful way to classify innovations is the Innovation Ambition Matrix developed by Bansi Nagji and Geoff Tuff and shown in Figure 6.4 FIGURE 6: The Innovation Ambition Matrix The matrix in Figure 6 considers the newness of the product on the horizontal axis and the newness of the market on the vertical axis. This allows us to distinguish three different innovation types: core, adjacent, and disruptive.5 Core Innovations Core innovations optimize existing products for established markets; they draw on the skills and assets your company already has in place, and they make incremental changes to current products. These initiatives are core to your business, as they generate today’s revenues. Most of your company’s products are likely to belong to this category (unless you work for a start- up). Examples of core innovations include Microsoft’s Windows operating system and the Office suite. Both are major revenue sources for the company. The longer-term growth potential of core products is low, and so is the amount of risk and uncertainty present. Your ability to create a reliable financial forecast or business case is high due to your in-depth knowledge of the market and the product. Because core products leverage existing assets, a conservative attitude is appropriate. You should aim to protect the product, focus on operational excellence, avoid mistakes, optimize the existing business model, and use proven technologies—unless you decide to make a bigger change to your product, such as taking it to a new market, which would turn it into an adjacent innovation. Adjacent Innovations Adjacent innovations involve leveraging something your company does well into a new space—for example, taking an existing product to a market that’s new to the company or creating a new product for an existing market. Examples of the former include Microsoft entering the server market with Windows NT in 1993 and Facebook moving into the online payment space with its Messenger application.6 Examples of the latter include the Apple TV and Google’s Chrome browser. Both companies entered an existing market (TV set-top boxes and web browsers, respectively) with a new product. Adjacent innovations allow you to open up new revenue sources, but they require fresh insights into customer needs, demand trends, market structure, competitive dynamics, technologies, and other market variables. You may also have to acquire new skills, use new technologies, and adapt an existing business model. The amount of risk and uncertainty present is therefore considerably higher than in core innovations. It consequently requires more time to develop a valid product strategy, and it becomes difficult to create a reliable financial forecast. To succeed with adjacent innovation, you should adopt an inquisitive attitude, be willing to take informed risks, and have the ability to make mistakes and fail. You will benefit from having a dedicated, collocated product team that is loosely coupled to the rest of the organization and that applies agile and lean product development practices. Disruptive Innovations Core and adjacent innovations provide you with the benefit of leveraging existing skills and assets, both intellectual and material. This makes the challenge of innovating successfully manageable.7 Unfortunately, such innovations also share a significant disadvantage: they address an existing market, and their growth prospects are limited by your ability to grow the market and capture more market share—that is, to attract more customers and users. In order to experience higher long-term growth, your company should invest in disruptive innovations. Apple, for instance, disrupted the mobile-phone market with the iPhone by offering a product with superior usability, as well as better design and better mobile Internet; Nintendo disrupted the games-console market with its Wii, which could be used without a traditional control or keyboard and was offered at a lower price; Amazon disrupted the retail book market with its online platform, making it easier and more convenient for consumers to shop, and offering greater choice and lower prices. While disruptive products often use disruptive technologies—for example, the touch screen in the case of the iPhone, and the Internet in the case of Amazon—a disruptive technology does not necessarily create a disruptive innovation. Instead, a disruptive innovation typically solves a customer problem in a better, more convenient, or cheaper way than existing alternatives. A disruptive product also creates a new market by addressing nonconsumption: it attracts people who did not take advantage of similar products. But as the disruptive product matures, it makes inroads into an established market, reconstructs market boundaries, and disrupts the market. Take the iPhone as an example. The incumbents, including Nokia and BlackBerry, did not perceive the original iPhone to be a threat; its business features, such as e-mail integration, were too weak. But as the iPhone improved and offered an increasing range of business and productivity apps, more and more people began to use the product, and the market share of Nokia and BlackBerry phones started to decline. The first iPhone also removed the traditional distinction between business and consumer segments, thereby changing the market boundaries. While disruptive innovations are crucial for enabling future growth and securing the long-term prosperity of your business, most established companies struggle to leverage such innovations effectively. To achieve disruption and to do different things, a company has to do things differently and therefore disrupt itself—at least to a certain extent. It has to discontinue some of the practices that have helped it succeed in its established markets, acquire new skills, find new business models, and often embrace—and in some cases develop—new technologies, such as the touch screen for the iPhone and the motion controller for the Wii. The effort to create a valid product strategy is significantly higher than for adjacent innovations; it may take you several months to find a product that is beneficial, technically feasible, and economically viable. Succeeding with disruptive innovations requires an entrepreneurial mind-set and the ability to experiment, to make mistakes, and to fail. You will benefit from using an incubator: a new, temporary business unit that provides the necessary autonomy to think outside the box, break with traditions, and to iterate and fail quickly. Having a small, collocated team with full-time members is a must, as is employing agile and lean product development practices. Be aware that creating a reliable financial forecast is impossible for disruptive innovations. Requiring a solid business case can prevent you from creating disruptive products. It’s often better to use the risk of inaction—the danger of not investing in a disruptive product and therefore losing out on future revenue and profits.8 Summary Table 2 summarizes the three innovation types; it shows that you should adopt different practices and manage products differently depending on their innovation types. Note that over time, successful disruptive and adjacent products turn into core ones. A good example is the iPhone. While the first version was a disruptive innovation, it has become a major revenue source for Apple. But you can also move a core product into the adjacent space by taking it to a new market. Think of the iPhone 5C, which was aimed at a younger audience and emergent markets. The bottom line is: to grow organically, companies have to continually look for new growth opportunities and invest in adjacent and disruptive products—the products that generate tomorrow’s cash. TABLE 2: The Three Innovation Types and Their Impact Areas Core Innovation Adjacent Innovation Disruptive Innovation Product Optimize an existing Create a new product for Create both a new product for an an existing market, or product and a new established market. take an existing product market. to a market that’s new to the company. Growth Low Medium High Potential and Risk Attitude Conservative—protect Inquisitive—take Entrepreneurial—create existing assets, focus on informed risks; look for new assets, develop new operational excellence; new growth skills, and find a valid avoid mistakes; optimize opportunities while business model. Mistakes existing business models. leveraging existing skills, and failure are assets, and business unavoidable. models. Organization Business as usual; matrix Dedicated, collocated Incubator with a small, organization. product team that is full-time product team loosely coupled to the that is autonomous and rest of the organization. collocated. Technologies Proven technologies; New technologies may New, disruptive changes usually result in be necessary to gain a technologies are likely to incremental competitive advantage. be required. improvements. Research Low (hours to days) Medium (weeks) High (months) and Validation Effort Reliable Possible Difficult to create Impossible to create Financial Forecast Take Advantage of the Product Life Cycle Model The purpose of the product strategy is to maximize the chances of achieving product success: to ensure that your product grows and prospers. A helpful model to understand how products develop over time is the product life cycle. The idea behind the life cycle model is simple. Like a living being, a product is born or launched; it then develops, grows, and matures. At some point it declines, and eventually the product dies and is taken off the market, as Figure 7 shows.9 The product life cycle model in Figure 7 presents five stages: development, introduction, growth, maturity, and decline. I have also added three important events in the life of a product: launch, when the product first becomes available; achieving product-market fit (PMF), when your product is ready to serve the mainstream market; and end of life, when you decide to discontinue your product. Of the five stages, growth and maturity are the most attractive ones, as they provide you with the biggest business benefits. For revenue-generating products, your product should become profitable around PMF, and it should offer the highest profit margin in maturity. You should therefore aim to get your product into the growth stage quickly, and to keep it there for as long as you can. FIGURE 7: The Product Life Cycle Model While the curve in Figure 7 is roughly bell-shaped, your product’s actual trajectory may differ significantly: it may be steeper or flatter. This demonstrates that the life cycle model is not a predictive tool that forecasts the business benefits your product will generate. Instead, it is a sense- making model that helps you reflect on how your product is doing so you can make the right strategic decisions. In order to leverage the product life cycle model, you have to define the business benefits your product delivers and then track them over time. For revenue-generating products, for example, revenue is commonly used, but if your product exists to sell another product or service, then the number of active users might be the appropriate metric to track. As an example let’s take a look at a sample product life cycle curve. Figure 8 illustrates the life cycle of the iPod family by showing iPod sales per year. FIGURE 8: The Life Cycle of the iPod Family10 As Figure 8 shows, the iPod was launched in 2001 as Apple’s first consumer music gadget. The company was a new entrant in the digital- music-player market, which at the time was dominated by products like the Nomad Jukebox from Creative Labs. In 2002, the iPod became Windows- compatible, and sales subsequently reached 600,000 units. In the following year, Apple launched iTunes, which helped sell more than 900,000 units in 2003 and nearly 4.5 million in 2004. The iPod had entered the growth stage and become the dominant digital-music player in the United States. To sustain growth, Apple enhanced the product and added new features, for instance, the ability to show photos and videos. The company also introduced new product variants, such as the iPod Nano and iPod shuffle in 2005 and the iPod Touch in 2007. Additionally, Apple issued a number of limited iPod editions, including a black-and-red U2 special edition. Sales of the iPod reached their peak in 2008, which also marked the product’s maturity stage. In 2009, iPod sales started to decline. As a consequence, Apple discontinued the original iPod, now called the iPod Classic, in 2014. Development Let’s now look at the individual life cycle stages and how they influence the product strategy. Before the launch your primary goal is to find a valid product strategy—a strategy that results in a product that is beneficial, feasible, and economically viable.11 In this period you are likely to carry out some research and validation work, and you may have to pivot—that is, to significantly change your strategy and choose a different path for attaining your vision. Take, for example, the idea mentioned earlier of creating a healthy-eating app. If it turns out that building an app is not a valid approach, I could pivot and choose to write a book on healthy eating instead. Don’t make the mistake of trying to launch the perfect product. No product is impeccable from day one. Even iconic products like the iPhone had a comparatively humble start. Think of all the things the very first iPhone could not do: no videos, no copy and paste, and no third-party apps —just to name just a few. The trick is therefore to launch a good-enough product, a product that does a good job of meeting the primary customer need, and to subsequently adapt and enhance it. How good your initial product has to be is closely linked with its innovation type. The initial version of a disruptive product can be comparatively basic, like the original iPhone. An adjacent product, however, faces higher customer expectations, as it addresses an established market where the customers have viable alternatives to choose from. Take the Google Chrome browser as an example. When the product was launched in 2008, the company entered an existing market with a number of established products, including Internet Explorer, Firefox, Opera, and Safari. In order to succeed, Google had to offer a product that was faster, more secure, and simpler to use than the competing browsers. The company also heavily advertised its product, for instance by using poster ads at train stations in London. Introduction After the launch your objective is to achieve PMF and to experience growth as quickly as possible. How long this is likely to take you and how much effort it will require, depends on your product’s innovation type. Building an initial customer base and finding out if and how people use the product is particularly important for disruptive innovations. Take Twitter as an example. The company had to discover how people used the product to decide how to move it forward, as Twitter’s cofounder Ev Williams explains: “With Twitter, it wasn’t clear what it was…Twitter actually changed from what we thought it was in the beginning, which we described as status updates and a social utility. The insight we eventually came to was [that] Twitter was really more of an information network than it is a social network. That led to all kinds of design decisions, such as the inclusion of search and hash tags and the way retweets work” (Lapowsky 2013). Adjacent products, however, tend to require a shorter introduction stage, as they address an existing market and compete with established products. You can therefore usually learn about the customer and user needs and how best to address them during the research and validation work you do in the development stage. With both disruptive and adjacent products, make sure you track the product performance and monitor how your product’s business benefits develop. If they are flat or rise only slowly, then you should investigate why the uptake is poor. Consider changing your product, or even killing it. The former may entail enhancing or adding features, or it can require a more drastic change, such as pivoting or unbundling the product. Flickr, for example, changed from an online role-playing game to a photo-sharing website; YouTube evolved from a video-dating site to a video-sharing product (Love 2011). While killing your product may sound rather drastic, it frees up resources and avoids investing time, money, and energy on a product that is not going to be successful. Take, for instance, Google Wave, a product that combined e-mail, instant messaging, and wikis. Due to its lack of success, Wave was discontinued at the introduction stage about a year after its launch in 2009.12 Remember that failure is part and parcel of the innovation process; there is no guarantee that your product will make it to the growth stage and become a success. If you see a positive market response to your newly launched product, then don’t make the mistake of overoptimizing your product for the early market. The initial customers and users of a new tech product are usually happy to put up with a few teething issues as long as they will gain an advantage from using it. To get into the mainstream market, you have to satisfy much higher expectations; you have to provide a product that works flawlessly and is easy to obtain, install, and update. As a consequence, the transition to the growth stage may not be a small, incremental step. Instead, your product may face a gap or chasm between the early and the mainstream market that you have to overcome (Moore 2006). Figure 9 shows the product life cycle with such a chasm between the introduction and the growth stage. FIGURE 9: The Product Life Cycle with Chasm To bridge the chasm, you have to adapt and improve your product. This may include enhancing the user experience, adding or improving features, or refactoring the architecture to increase performance and stability.13 In addition, you may have to adjust the business model and revisit, for example, the cost of acquiring customers and the marketing and sales channels you use. The size of the chasm is influenced by your product’s innovation type. While the initial version of a disruptive product can be simpler and more basic than an adjacent one, it tends to require more time and effort to achieve PMF and experience growth. An adjacent product usually faces a smaller gap between the introduction and the growth stage, as the initial expectations for the product are typically higher. Growth Once you start to experience significant growth, you have achieved PMF. You should now have a product that fits the market and does a good job of creating value for the mainstream customers and users and for your business.14 For a revenue-generating product, you should have reached the break-even point by now and should be benefiting from a positive cash flow. Your strategy now needs to focus on penetrating the market, sustaining the growth, and fending off competitors. Therefore, you have to find ways to attract more customers and users and clearly differentiate your product, since competitors may start to copy some of its features. At the same time, you have to manage the growth and deal with a product that serves an ever-growing audience, is becoming increasingly feature-rich, and requires more and more people to develop it. You may want to start unbundling your product and promote features to products in their own right, or you could employ product variants. (I explain both techniques later in this part.) Maturity, Life Cycle Extension, and Decline As your product matures, growth will eventually start to stagnate. When this happens, you face an important strategic inflection point. One option is to accept your product’s trajectory, let it continue to mature, and keep it at this stage for as long as possible by, for instance, defending its market share and reducing cost. Alternatively, you can move the product back into the growth stage thereby extending its life cycle, as Figure 10 shows.15 FIGURE 10: Extending the Product Life Cycle A number of techniques can help you make an aging product attractive again including enhancing its capabilities and adding new features. Take the iPod Classic mentioned earlier. Apple made considerable changes to the product throughout its life cycle: it decreased its weight, extended the battery life, and added the ability to view photos and watch videos, to name just a few. Sometimes, though, the opposite strategy is more appropriate, and instead of adding you may want to remove features and declutter your product. Microsoft Word is another example. Microsoft has made significant efforts to simplify the application in recent years, thereby improving the user experience and making it easier for people to use the product. Another way to stimulate growth is to take your product to a new market or market segment, thereby turning it into an adjacent innovation. Apple, for example, introduced the iPhone 5C in 2013 to target a younger audience and emerging markets. Finally, you might consider bundling your product with other offerings to increase its attractiveness. For instance, mobile operators in the United Kingdom have started to offer free streaming subscriptions when customers purchase higher-priced contracts. Despite your best efforts, your product will one day reach the decline stage. During this stage, you want to milk it for long as you can while minimizing the investment that goes into the product. As the profits it generates start dropping, you should consider discontinuing it—just as Apple did with the iPod Classic in 2014. Summary Table 3 summarizes how the life cycle stages shape the product strategy. TABLE 3: The Product Life Cycle and the Product Strategy Life Cycle Stage Strategy Development Develop a valid strategy: a strategy that results in a product that is beneficial, feasible, and economically viable. Introduction Adapt and improve your product to achieve product-market fit (PMF). This may require incremental changes such as improving the customer experience, adding new features, and refactoring the architecture. But it may also make a more drastic change or pivot necessary. Aim to achieve the break-even point for a revenue-generating product by the end of this stage. Ensure that your business model is scalable. Growth Sustain the growth by penetrating the market and fending off competitors. Keep your product attractive, and refine it. Manage the growth by unbundling your product or by creating variants, for instance. Ensure that your product is profitable (if it is meant to generate revenue). Maturity As growth stagnates, extend the life cycle and revive growth by taking the product to a new market, for example, or bundling it with another product or service. Alternatively, milk your product by serving the late majority. Defend its market share and focus on profitability for revenue- generating products. Decline Reduce cost to keep the product profitable for as long as possible, then start phasing it out. As Table 3 shows, the strategy for a new product should first help you get to launch, then to achieve PMF, and then to sustain the growth. Once the growth starts to stagnate, you have reached an important strategic inflection point: You either revitalize your product, for instance, by taking it to a new market, or you let it mature and eventually decline and die. As you have probably noticed, the strategic work does not end until you discontinue your product. You should therefore regularly assess your product’s performance and adjust your strategy accordingly. Strategy and execution go hand in hand for digital products. They are two sides of the same coin. Capture Your Strategy with the Product Vision Board Even the best strategy is useless if you can’t communicate it effectively. The Product Vision Board is a simple yet powerful tool that helps you with this. I have designed it to describe, communicate, test, correct, and refine the product strategy. The Product Vision Board consists of the five sections shown in Figure 11. The top section captures the vision; the bottom four sections describe the product strategy. FIGURE 11: The Product Vision Board The top section in Figure 11 is called Vision. It captures your overarching goal, which is expressed as a brief vision statement or slogan. The leftmost bottom section is called Target Group. It describes your market or market segment, the customers, and the users. The next section is called Needs, which states the value the product creates for your target group, the problem that the product solves, or the benefit it provides. The Product section captures the actual product; it explains what makes your product special and why it stands out. It also asks whether it is feasible for your organization to develop the product. The last section, titled Business Goals, captures the desired business benefits—the value the product should create for your company. Examples include opening up a new revenue source, achieving a profitability target, reducing cost, or being able to provide a service or sell another product. There is also an extended version of the Product Vision Board with additional sections to capture the business model, which I discuss below. When you create your Product Vision Board, start with your vision, and then describe your strategy by filling in the bottom sections. You can use the Product Vision Board to describe the vision and strategy for a brand- new product or for an existing one. In the latter case, you may want to invite the stakeholders and ask them to create their personal Product Vision Boards. Then compare the results and see whether there is a shared vision and a shared product strategy; if not, determine where the main differences are and decide how to address them. You can download the Product Vision Board template from my website, www.romanpichler.com, where you can also find more information about the tool. Alternatively, you may choose to re-create it using your favorite tool—be it an electronic spreadsheet or a whiteboard. A number of other tools are also available to capture the product strategy, of course, including the Lean Canvas (Maurya 2012) and the Business Model Canvas (Osterwalder and Pigneur 2010). Choose the one that works best for you. Complement Your Strategy with a Business Model It’s great to determine the market segment, the value proposition, and the business goals of your product. But you should also understand how to reach the desired business benefits stated in your strategy, and how you can monetize your product—be it by selling it or by using it to sell another product or service. In other words, you should complement your product strategy with a business model. Common Business Models Common business models for digital products include subscription, freemium, advertising, and bait and hook. A subscription business model requires customers to pay a subscription price to access the product, as is the case for Microsoft Office and Adobe Photoshop. Freemium means giving away a basic version for free but charging for premium features, as Spotify and Skype do. Advertising generates revenue from in-app or online ads—a business model employed, for example, by YouTube, Facebook, and many news websites. Bait and hook provides a free or discounted product and generates revenue from selling another product or service that locks in the customer. Take, for instance, iTunes: while the product itself is free, it is only truly useful when combined with a comparatively expensive iPod, iPhone, or iPad. Once you have started using Apple products, you are locked into the Apple ecosystem. Capturing the Business Model For some products, the business model already exists, as in the case of iTunes. The product was created to execute an existing business model and to help sell iPods. But for other products, such as Facebook and Twitter, the product and the business model are created together. Among the various tools available to describe your business model, the Business Model Canvas (Osterwalder and Pigneur 2010) is probably the most well known. But if the Product Vision Board described earlier resonates with you, then you can simply extend the board and describe your business model alongside the vision and the product strategy, as Figure 12 shows. I find this option especially attractive when the product and business model are developed together. FIGURE 12: The Extended Product Vision Board The first and second rows of the board in Figure 12 are identical to the standard Product Vision Board. The business model is captured in the bottom row, which is inspired by the Business Model Canvas and provides the following four sections: Competitors describes the strengths and weaknesses of the competition and their products. It uses your insights from performing a competitor analysis and helps ensure that your product stands out. Revenue Sources captures the way your product generates money: for instance, by selling licenses, subscriptions, or online or in-app ads, or by charging for premium features. Cost Factors states the cost incurred by developing, marketing, selling, and supporting your product. This includes the cost of acquiring users and customers, purchasing third-party components, and paying for the services and products provided by partners and suppliers. Channels are the ways you will contact your users and customers to inform them about your product and to sell and deliver the product. The latter can range from implementing the requirements of an online app store to working with retailers to get some shelf space for a shrink- wrapped product. Consider if the appropriate sales and marketing channels already exist, or if you have to create or acquire them. You can download the Extended Vision Board for free from my website, where more information on the tool is available. Business Model vs. Business Case The business model explains how the product is monetized, but it does not quantify the revenue generated or the cost incurred. That’s done by a business case, which forecasts the product’s financial performance, typically over the next two to three years. This allows you to judge if developing and providing the product is an attractive investment, and it helps you anticipate the cash flow. Depending on your product’s innovation type, a realistic business case can be challenging to create, as discussed earlier. For core products, creating such a business case is usually feasible; for adjacent products, it can be very hard; for disruptive products, it is impossible, as the market for your product does not exist yet. For adjacent and particularly disruptive products, you should consider using the business model to justify the investment, together with the inaction risk—that is, for example, the loss that would materialize if the product were not developed and the related business benefits were not realized. Choose the Right Key Performance Indicators (KPIs) for Your Product Key performance indicators (KPIs) are metrics that measure your product’s performance. They help you understand if the product is meetings its business goals, and if the product strategy is working. Without KPIs, you end up guessing how well your product is performing. It’s like driving with your vision blurred: You can’t see if you are heading in the right direction or getting closer to your destination. You may have a hunch or intuition, but how can you tell that it’s right? Using KPIs and collecting the right data helps you balance opinions, beliefs, and gut feelings with empirical evidence, which increases the chances of making the right decisions and providing a successful product. This section helps you choose the right indicators for your product. Making the Business Goals Measurable In order to choose the right KPIs, use the business goals stated in the product strategy. For example, if your product directly generates revenue, then revenue is likely to be a key indicator. But knowing the business goals is not enough. To effectively apply the indicators, analyze the data you collect, and take the right actions, the goals must be measurable. Say my company decided to invest in creating a healthy-eating app mentioned earlier, with the goal of diversifying the business and opening up a new revenue source. While this might be a good idea, the goal is not specific enough. I can’t tell if the product is making enough revenue and meeting its business goal; there is no target and no time frame stated that I can use to measure progress against. The challenge is to establish a measurable goal that’s also realistic, particularly for brand-new and young products, whose business benefits are difficult to correctly quantify. One helpful technique for addressing this challenge is to work with ratios and ranges (Croll and Yoskovitz 2013). Instead of stating that the new product should create x amount of revenue per year, I could say, for instance, that the product should increase the company’s revenue by 5 to 10 percent within one year after its launch, for instance. While this goal might still be unrealistic, I have at least drawn a line in the sand that progress can be measured against. If it turns out that the goal is too ambitious, you should recognize this, move the line, and adjust your target. The good news is that the longer you work with your product and the more stable it becomes, the easier it gets to come up with measurable goals that can actually be met. With measurable business goals in place, follow the tips below to find the right performance indicators for your product. Choosing Relevant Indicators Avoid vanity metrics, which are measures that make your product look good but don’t add value (Ries 2009). Take the number of downloads for my healthy-eating app as an example. While a fair number of people might download the app, this tells me little about how successful it is. Instead, it indicates the effectiveness of my marketing efforts. Rather than measuring downloads, I should choose a relevant and helpful metric, such as daily active usage or referral rate. Whenever you select an indicator, check if the indicator actually measures performance or just makes your product look good. Don’t measure everything that can be measured, and don’t blindly trust an analytics tool to collect the right data. Instead, use the business goals to choose a small number of metrics that truly help you understand how your product performs. Otherwise, you take the risk of wasting time and effort analyzing data that provides little or no value. In the worst case, you act on irrelevant data and make the wrong decisions. Think of driving a car. A small number of indicators are helpful for getting to your destination, including speed, fuel consumption, and revolutions per minute. If the car dashboard always showed other data, such as oil pressure or battery status, it would be harder to take in the relevant information. In addition, be aware that some metrics are sensitive to the product life cycle. You usually cannot measure profit, for example, before your products enters the growth stage.16 And tracking adoption rate and referrals is very useful in the introduction and growth stages, but it is less so in the maturity and decline stages. Quantitative and Qualitative KPIs As their name suggests, quantitative indicators, such as daily active users or revenue, measure the quantity of something rather than its quality. This has the benefit of collecting “hard” and statistically representative data. Qualitative indicators, such as user feedback, help you understand why something has happened—for instance, why users aren’t as satisfied with the product as expected. Combining the two types gives you a balanced outlook on how your product is doing. Doing so reduces the risk of losing sight of the most important success factor: the people behind the numbers— that is, the individuals who buy and use the product. Lagging and Leading Indicators Lagging indicators, such as revenue, profit, and cost, are backward-focused and tell you about the outcome of past actions. Leading indicators, in contrast, help you understand how likely it is that your product will meet a goal in the future. Take product quality as an example. If the code is becoming increasingly complex, then adding new features will become more expensive, and meeting a profit target will become harder. Using both backward- and forward-focused indicators tells you if you have met the business goals and helps you anticipate if the product is likely to meet future goals. Looking beyond Financial and Customer Indicators Financial indicators, such as revenue and profit, and customer metrics, like engagement and referral rates, are the two most common indicator types in my experience. While these metrics are undoubtedly important, they are not sufficient. Say your product is meeting its revenue and profit goals, and customer engagement and referral rates are high. This suggests that your product is doing well; there is no reason to worry. But if at the same time the team motivation is low or the code quality is deteriorating, you should still be concerned. These indicators suggest that achieving product success will be much harder in the future. You should therefore look beyond financial and customer indicators and also use the relevant product, process, and people indicators. This creates a holistic outlook on the product performance, and it reduces the risk that you miss important warning signs.17 Leveraging Trends Compare the data you analyze to other time periods, for example, user groups, competitors, and cancellation rates from quarter to quarter, or revenue growth over the last six weeks. This helps you spot trends—for instance, if revenue is increasing, staying flat, or declining. Trends allow you to better understand what’s happening and to take the right actions. If a decline in revenue is a one-off occurrence, for instance, there is probably no reason to be overly worried. But if it is a trend, then you should investigate how you can stop and reverse it—unless you are about to sunset your product. Sample KPIs To conclude our discussion, let’s take a look at some sample KPIs. The measurements in Table 4 are grouped into four perspectives: financial, customer, product and process, and people. The groups are inspired by David Norton and Robert Kaplan’s work on balanced scorecards, and I explain in the next section how the groups help you create a product scorecard to effectively track product performance.18 Please note that the list of indicators is not intended to be complete; it may not contain all the metrics you need, and some measures may not be applicable to your product. Let me stress again that you should only choose those indicators that measure the performance of your product against the business goals. TABLE 4: Sample Key Performance Indicators Perspective Sample KPIs Brief Description Financial Revenue How much revenue is your product generating? Cost What is the cost of developing and launching major releases or product versions? Cost of acquisition How much does it cost to acquire a customer? Profit How much profit is the product making? Note that you may want to track different profit types, including net and gross profit. Customer lifetime value How much profit do individual customers create across the entire future relationship? Cash flow Is the cash flow positive or negative? If negative, when do you expect to reach the break-even point? Customer Market share How big is your market share compared to the competition? Adoption rate Is your product gaining traction in the marketplace? If so, how quickly? Engagement How engaged are the users? How many active daily users does the product have? Retention How many customers are coming back? Customer Net promoter score and How likely is it that people will recommend the referrals product? How many people are actually recommending it? Cancellation rate How many contracts are cancelled? Complaints and support How many customer complaints and support queries requests do you receive? How severe are they? Conversation rate How well are inquiries and evaluations translated into sales? Customer and user Do the customers and users have a positive, neutral, feedback or negative attitude toward your product? What reviews are they providing, what feedback do they submit, and what do they tell you when you talk to them? Product User interaction What are the most and least common user journeys? and Process Where do most drop-offs occur? What are the most and least used features? Product quality Is it easy to change and extend the product? How high are the code complexity and the refactoring potential? How high is the test coverage? How many bugs are found and closed? Development process How effective is the development process? Does it support the work of the team? Does the team have the right environment and the right tools? Schedule variances Do new product versions and major releases meet their objectives? Are they deployed on time and on budget? People Team motivation Is the development team motivated to work on the product? How high are turnover rates and absenteeism? Team knowledge and skills Does the team have the necessary knowledge to do a good job? Does it improve its skills and acquire new knowledge? Stakeholder engagement Do the stakeholders regularly participate in strategy and roadmap reviews and in sprint review meetings? Management sponsorship Do you have the right management sponsor? Is the sponsor interested in the product and its performance? Track the Product Performance with a Product Scorecard Once you have selected the right KPIs for your product, you should collect the relevant data and regularly analyze it. A product scorecard or dashboard can help you with this. I like to work with a balanced product scorecard that considers the four perspectives listed in Table 4: financial, customer, product and process, and people. This ensures that you take a holistic approach to determining the product performance, and it reduces the risk of overlooking important trends. Figure 13 shows a balanced product scorecard. FIGURE 13: Balanced Product Scorecard The scorecard in Figure 13 is inspired by the work of Norton and Kaplan (1996) on balanced scorecards, which are a business-performance management tool. It states the business goals at the top and the four perspectives underneath. As mentioned in the last section, you should be clear on the business goals your product serves. Prioritize them and ensure that they are measurable. Select only relevant indicators that will help you determine if you are meeting the business goals. If you find the product scorecard in Figure 13 helpful, then download it from my website, where you can find more information about the tool.19 Note that the frequency at which the relevant data above becomes available, and how much effort is required to collect it, will vary. Revenue and engagement data, for example, may be collected automatically by your analytics tool, and you may be able to spot relevant changes from one day to the next. But some of the people, product, and process data are not as readily available, and are harder to collect. Take team motivation, for example. If you use the sprint retrospective to gather feedback from the development team to find out how motivated the team members are, the data is collected manually, and it becomes available only once every few weeks. You may therefore find yourself updating the finance and customer perspectives of the product scorecard more often than the other two. Complement KPIs with Operational Metrics While KPIs are great for measuring the overall product performance, they are usually not enough. You should consider using additional metrics that complement the KPIs and help you understand how well you are meeting specific product goals—for instance, increasing retention and enhancing the user experience, or making it easier to add new features. I recommend capturing these goals on the product roadmap together with the relevant metrics for measuring when a goal is met (described in more detail in Part 2). In an agile context, product goals are delivered in a stepwise fashion by a number of sprints, which should have their own goals and success criteria. This results in the three-tier goals-and-metrics approach described in Figure 14. FIGURE 14: Goals and Metrics As Figure 14 shows, the business goals captured in the product strategy provide the context to identify the right product goals. The latter describe the specific benefits major releases should provide. For example, the goal for the first public release of a new product could be to acquire customers and build a user community (product goals) to eventually generate revenue (business goal). The goals in the roadmap do a similar job for the sprint goals; they help you determine the right objectives of the iterations that build the actual product. The goal of your first sprint could be to test ideas about user interaction or the user interface design. Higher-level goals are therefore progressively broken down into tactical ones, and KPIs are complemented by release and sprint-specific metrics. If this sounds confusing, then a different example might help. As an avid cyclist, I might choose win an amateur race as my overall goal. After selecting the race, I would identify the training goals required to win the race, for example, increasing my climbing or my sprinting abilities. Next I would break down my training goals into weekly progress goals, such as doing three sessions of interval training. This leads to three different goal levels that are derived from one another but measured individually. Note that the relationship between the levels in Figure 14 is bidirectional, as the feedback or data generated in a sprint can change the product roadmap. This may in turn have an impact on the product strategy. To build on the cycling example, if my training progress indicates that I cannot win the race, I have to revise my overall goal, select a different race, or be content with a less ambitious result. Engage the Stakeholders As brilliant as it may be, your product strategy is useless if the other people involved in making the product a success don’t support it. Working with a shared strategy is therefore paramount. To achieve this, you should secure the support and buy-in of the stakeholders. Stakeholder Identification A stakeholder is anyone who has a stake in your product—anyone who is affected by it or shows an interest in it. While this definition includes customers and users, I use it to refer to the internal stakeholders, such as marketing and sales. In order to identify the stakeholders, ask yourself whose help you need to develop, release, and provide the product. The answer to this question will be specific to your product and company. For a commercial product, the group is likely to include representatives from marketing, sales, support, and management. But it might also comprise people from legal, finance, and human resources. For an in-house product, your stakeholders may be the affected business units, operations, and management. Stakeholder Analysis and Engagement Once you have identified the stakeholders, you need to determine how to best engage the individuals. A tool that helps you with this challenge is the Power-Interest Grid, described in Eden and Ackermann (2011). As its name suggests, the grid analyzes the stakeholders by taking into account their power and their interest; it assumes that stakeholders take a low or high interest in your product and have low or high power. This results in four stakeholder groups: players, subjects, context setters, and the crowd, as Figure 15 shows. To find out if a stakeholder is likely to be interested in your product, consider if the person will be affected by it; and to understand if a stakeholder has high power, ask yourself if the individual can influence, or even veto, product decisions. FIGURE 15: The Power-Interest Grid Stakeholders with high interest and high power are called players. These individuals are important partners for you; they help you create, validate, and review the product strategy and ideally continue to work with you on the product roadmap. Aim to secure their buy-in, leverage their ideas and knowledge, and establish a close and trustful relationship with them. You should also ensure that these individuals are involved with the product continuously to avoid loss of knowledge and handoffs. It is undesirable, for instance, to have the marketing group send a new representative every time a strategy workshop takes place. Instead, one marketer should represent the group. How closely you should collaborate with the players is influenced by the life cycle stage of your product. I find that close collaboration is particularly important to develop a valid and shared product strategy. Be aware that collaboration requires leadership. As the person in charge of the product, you should be open and collaborative but decisive at the same time. Aim to build consensus with the players, but don’t shy away from difficult conversations. Don’t settle for the smallest common denominator. Have the courage to make a decision if no agreement can be achieved. Great products are not built on weak compromises. As the saying goes, “A camel is a horse designed by committee.” Subjects are individuals with high interest but low power—for example, product managers and development teams who work on related products. These individuals feel affected by the product and are keen to influence it, but they can’t veto or change decisions. Subjects can make great allies who can help you secure understanding and buy-in for your product across the business. Keep them involved by inviting them to bigger strategy-review meetings, for instance, or by sharing ideas with them and asking for their feedback. People with low interest but high power are called context setters. They affect the product’s context, but they take little interest in the product itself. Context setters are often powerful senior and executive managers who can make your life difficult if they are not on your side. Regularly consult them to ensure that their opinions are heard—for instance, by having one-on-one meetings. But don’t let the context setters intimidate you, and don’t allow them to dictate decisions. Be strong and have the courage to say no. Use data and empirical evidence to back up your arguments and convince the context setters. Everyone else is part of the crowd. As these individuals are not particularly interested in your product and don’t have the power to influence the product strategy or other product decisions, it’s usually sufficient to keep them informed; give them access to the product’s wiki website, for instance, or update them on significant strategy changes. Collaborative Strategy Workshop Running a collaborative strategy workshop is a great way to create an initial product strategy—be it for a new product or a significant change of an existing one. Invite the players, including members of the development team, to the workshop and consider involving selected subjects, such as product managers of related products. Encourage the workshop attendees to actively contribute to the strategy. Use a tool like the Product Vision Board discussed earlier to structure the conversation and to capture and visualize your ideas. Be aware that the workshop is the first step toward a valid product strategy. The objective is not to create a definitive and correct plan of action, but to establish a shared initial strategy. Consider asking the ScrumMaster or a qualified facilitator to set the right tone, establish a trustful and collaborative atmosphere, and facilitate the workshop. Review and Update the Product Strategy While a working strategy is key to creating a winning product, it would be a mistake to blindly execute it and assume it will always stay valid. As your product develops and grows, and as the market and the technologies evolve, the product strategy has to change, too. You should therefore regularly review and adjust it. As Winston Churchill put it: “However beautiful the strategy, you should occasionally look at the results.” I find four factors to be useful to take into account when reviewing the product strategy: the product performance, the competition, the trends, and the company goals and capabilities. Figure 16 illustrates these factors. FIGURE 16: Factors Affecting the Strategy Reflecting on the product’s performance using KPIs should help you understand how successful the product is and if the product is meeting its business goals. Considering what the competition is doing allows you to understand if your product is still adequately differentiated, or if competitors have caught up and are imitating some of its features. Reviewing technology trends and regulatory changes will help you discover opportunities to enhance and future-proof your product. Looking at your company and any changes in its business strategy will help you understand if the business goals captured in the product strategy are still valid. Adapt your strategy appropriately. Be aware that this may not only mean smaller adjustments but more drastic changes, including pivoting or even killing the product. How often you assess the strategy depends on the product maturity and the market volatility. For younger products and dynamic markets, I recommend reviewing the product strategy once per month; for more mature products and markets, perform a strategy check every quarter. Involve the stakeholders—particularly the players—in the review to keep them up-to-date, leverage their knowledge, and secure their buy-in. Align the review of the product strategy with the evaluation of your product roadmap. Any issues in executing the roadmap can indicate that your strategy is no longer valid. Strategy and execution are interconnected; they form the two sides of the same coin. STRATEGY DEVELOPMENT Creating a winning product and ensuring its sustained success is not a matter of luck. It is based on making the right strategic decisions. This chapter discusses a range of product strategy practices to help you make the right choices, such as finding the right audience for your product, making sure your product stands out from the crowd, and bundling and unbundling the product. Let’s start with techniques to segment the market and select the right target group. Segment the Market Segmenting the market means dividing the potential customers and users into distinct groups. It’s like eating cake. Instead of trying to eat the whole cake at once and possibly creating a mess or choking on it, we cut out a neat slice. This allows you to create a focused product with a compelling value proposition and a great user experience. Your segments should be clear-cut so they do not overlap. To put it differently, you should be able to tell who belongs to a segment and who does not. What’s more, each segment should be homogenous, and the people within it should respond to your product in the same way.20 Take my healthy-eating app mentioned earlier. A large group of people could benefit from it, including individuals who want to lose weight and people who have a medical condition like diabetes. Trying to please everyone would not only be challenging but would also result in a feature-rich product that might not satisfy anyone. Note that segmentation is not only beneficial for developing new products; it also helps you derive variants from an existing product. Segmenting by Customer Properties and Benefits How you segment the market is important. The segments not only define who the customers and users are, but they also influence many product decisions. While there are different ways to divide up the market, you face two basic choices. You can form segments that are based on the customer properties, or on the benefits that your product provides. Common customer properties include demographics such as age, gender, marital status, occupation, education, and income; psychographics, including lifestyle, social class, and personality; behavioral attributes like usage patterns, attitudes, and brand loyalty; geographic regions such as Europe, Middle East and Africa (EMEA), and Asia-Pacific (APAC); industries or verticals—for instance, automotive, education, finance, and health care for business markets, also called business-to-business or B2B; and company size, such as small and medium-size enterprises (SMEs) for B2B products. While the attributes listed above differ, they have something important in common—they all concentrate on the customer, be it a consumer or a business. Let’s use my healthy-eating app again. In order to segment the market, I could choose demographic and psychographic attributes and define my target group as men aged 20–30 who are single, work long hours, don’t exercise much, and eat out frequently. An alternative approach is to divide the market using the benefit the product provides or the problem it addresses (Christensen and Raynor 2013). This suggests that you first and foremost consider people’s needs. For example, if the main benefit of my healthy-eating app is to help people better understand how much they eat, then there are two groups who may benefit from it: people who would like to lose weight and people who want to better way to determine their calorie intake, such as athletes and people with diabetes. While the first group could contain single men aged 20–30 with poor eating habits, it could equally include married women with young children who want to lose weight but don’t have the time or energy to follow a strict diet or exercise regularly. Focusing on the needs and benefits can therefore result in different segments, and consequently a different product. Choosing the Right Segmentation Approach But how can you tell which segmentation approach is preferable? Should you segment primarily by customer or by benefit? My answer is simple: look at the innovation type your product represents. Whenever you create an adjacent or disruptive product, segment first by benefit. Once you have created your initial benefit-based segments, you can refine them by using appropriate customer properties. In contrast, when your product is a core innovation, divide the market by customer properties, as Figure 17 illustrates. FIGURE 17: Innovation Strategy and Segmentation Approach21 The great thing about benefit-based segmentation is that it reduces the risk of overlooking people who are likely to take advantage of your product; it also offers you the opportunity to reconstruct the market boundaries. Take the Nintendo Wii game console, for instance, which was released in November 2006. Rather than using behavior-based segments such as hard-core and casual gamers and trying to determine how the company could compete in these segments against the likes of Sony PlayStation and Microsoft Xbox, Nintendo looked to the gaming industry’s noncustomers and investigated what prevented people from playing video games. This allowed the company to redefine the market boundaries and to connect with older people and young children: two groups that share few demographic and psychographic attributes. The end result was an innovative console that people could interact with in novel ways—through motion control and a magic wand rather than a keyboard or a specialized controller. Whichever way you segment the market, avoid the following two mistakes: First, don’t blindly follow predefined segments. I have seen product managers cling to existing customer-based segments while trying to create new, innovative products. Unsurprisingly, the outcomes were rather poor. Second, don’t discard an idea because it does not fit into predefined segments. You may miss opportunities to create a new product or to discover new markets. Take the first iPhone, which launched in 2007, as an example. Apple disregarded the traditional distinction between consumer and business smartphones. Instead, the company created a product that offered “the Internet in your pocket”22 and appealed to consumers and business users alike. Pick the Right Segment Segmenting the market often results in several groups that your product could serve. In the case of my healthy-eating app, I could focus on people who live with diabetes and have to watch what they eat, busy mothers who would like to shed a few pounds, or athletes who would like to improve their performance. Addressing all three segments at the same time would be overwhelming. It’s therefore a good idea to choose one of them. But which one should I pick? To select the right segment, evaluate the different groups and opt for the most promising one. A great tool to do this is the GE/McKinsey matrix (Coyne 2008). While the matrix was originally developed to assess a business portfolio, it can also be applied to market segments. It encourages you to assess your segments according to their attractiveness and the strength of your business, as Figure 18 shows. FIGURE 18: GE/McKinsey Matrix The GE/McKinsey matrix states the attractiveness of the market segment on the vertical axis, and the strength of the business on the horizontal one. It ranks five sample segments according to the two dimensions. The most promising one is S4: it is fairly attractive, and the business has the ability to serve it. S1 and S2 are more attractive than S4, but the business strength is significantly lower. The remaining two segments are less attractive. While the matrix offers a great way to evaluate the segments, the devil is in the details. The effectiveness of the matrix depends on your ability to define what attractiveness and business strength mean. Several criteria may be used to determine how attractive a segment is, including the following: Need: How strong is the need, and how much does the group benefit from the product? Segment size: How big is it? Growth rate: Does it show signs of growth? Competitors: Who are the main competitors, and how fierce is the competition? Entry barriers: Are there any barriers for entering the segment—for example, high switching or high setup costs? In order to understand the business strength, investigate your ability to serve the segment. Do you have the necessary skills, knowledge, and expertise to do so? If not, can you acquire them? How difficult and expensive is it to acquire customers? Do you have the right marketing and sales channels in place? If not, what will it take to establish them? You could spend months collecting the relevant data if you wanted to precisely determine the attractiveness and the business strengths of your product; and if you reconstruct the market boundaries and attempt to disrupt a market, then you cannot gather the relevant information at all. “Markets that don’t exist can’t be analyzed,” as Clayton Christensen put it (1997, p. xxi). I therefore recommend qualitatively evaluating the segments. Perform a quick assessment; spend hours rather than weeks or months and test if you are indeed addressing the right people as part of the strategy-validation effort (explain in more detail later). If it turns out that you have picked the wrong target group, then select and test the next segment. Say that I decide to first address the athlete segment with my shiny new healthy-eating app. I would then validate the segment and carry out some direct observation, problem interviews, and competitor analysis, for instance. If it turns out that the athlete segment does not benefit enough from a dedicated app, I would select and test the next segment—for example, the people with diabetes or the moms who want to lose weight—until I find an attractive segment or decide to pivot. Use Personas to Describe the Customers and Users A helpful technique to describe the customers and the users of your product is the use of personas.23 Personas are fictional characters that usually consist of a name and a picture; relevant characteristics, behaviors, and attitudes; and a goal. The goal is the benefit the persona wants to achieve, or the problem the character wants to see solved. Different personas can have different goals. For instance, I could create a persona for my healthy- eating app who wants to lose weight, and another persona who wants to experience fewer digestive problems. Understanding the personas’ goals allows you to create a product that does a great job at creating value for the customers and users. It avoids the fallacy of a solution-centric approach: worrying more about the product and its features and technologies than the reason people would want to buy and use it in the first place. Persona Tips Any persona description should be based on knowledge gained from direct interaction with the target customers and users. Before you create your personas, you should therefore get to know your audience, for example, by observing how they currently get a job done and by interviewing them. Otherwise, your characters may not accurately represent your target group. In the worst case, they are based on ideas and speculation, not real people. Put aside any ideas about the desired user experience and the product features when you develop your personas. Describe the characters according to your market insights. Do not make them fit your ideas and assumptions! Distinguish between customer or buyer personas and user personas, as their goals and characteristics may significantly differ. This is particularly helpful for B2B products like enterprise software or health-care equipment. Take a medical device like an X-ray machine. While the radiologists who use the machine will want to create accurate diagnoses, a hospital trust that purchases the machine is likely to have a different goal: a low total cost of ownership. Once you have created a cast of characters, select a primary persona. This is the persona you mainly develop the product for. Working with a primary persona creates focus and facilitates decision making: the goal of the primary persona should largely determine the user experience (UX) and the product’s functionality. If you find it difficult to choose one primary persona, this may indicate that your target market is too large and heterogeneous, or that your product has become too big and complex. If that’s the case, then resegment the market, unbundle your product, or introduce product variants. Finally, visualize your personas. Put them on the office wall so they are visible to the development team. Some of my clients even print out personas on life-size cardboard sheets. Seeing the personas reminds the development-team members who they are designing and building the software for, and it avoids a solution-centric mind-set. A Persona Template To help you create your persona descriptions, I have developed a simple but powerful template that you can download from my website. The persona template consists of three sections: a picture and a name, the details, and the goal of the persona, as Figure 19 shows. Unlike traditional persona descriptions, which are fully fledged, detail-rich user models, my template encourages you to start with simple, provisional personas that capture the essence of the character. FIGURE 19: A Persona Template The section on the left of the template in Figure 19 captures the picture and the name of the persona. This makes it easier to develop empathy for the character and to refer to it. The latter comes in handy when you design the product and create scenarios, user stories, and other artifacts. I like to reuse the persona names in my user stories, for instance. The middle section lists the relevant characteristics, attitudes, and behaviors of the persona. This can include demographics, job-related information, and hobbies. Don’t make the mistake of listing everything that might be relevant, but focus on the details that are important in order to understand the persona. If a demographic attribute such as age or job role is not helpful, for example, then leave it out. Don’t clutter your persona descriptions, and make sure that they are easy to understand. As a rule of thumb, your persona description should fit onto an A4 sheet of paper. The section on the right states the problem that the persona wants to overcome, the benefit the character wants to gain, or the job it wants to get done. Make sure you describe the goal from the persona’s perspective. Don’t formulate it based on what you think your product should do, or what it can do today. Make the goal specific and state it clearly. While it’s fine to list more than one problem or benefit, I recommend that you identify the main or primary reason for the persona to buy or use your product and state it at the top of the section. This creates focus and helps you make the right decisions. When applying the persona template, start with the persona goal whenever you create something new, be it an adjacent or a disruptive product. Then consider the details and choose an appropriate name and picture. This avoids the risk of overlooking people who will benefit from your product, as I describe in more detail in the section “Segment the Market.” Find an Itch That’s Worth Scratching To create a successful product, you must understand why people would want to buy and use it. You must know which problem it solves, which pain or discomfort it removes, and which benefit or gain it provides. What’s more, if the itch is not strong enough, your product is unlikely to be a success. Finding a problem that people want to have solved, or a benefit that people would no longer want to miss once they experienced it, is the most important step to achieving product success. Let’s look at the example of Sonos, a hi-fi system that consists of wireless speakers and audio components. It allows people to enjoy music by providing easy access to their digital music collection and to a range of streaming services from any device, while still offering a decent sound quality. It’s simple and convenient to use. You no longer have to put a handheld device into a cradle or try to find a CD, switch on the amplifier, and look for the remote control. While the Sonos system does not solve a pressing issue, it is a product that is sticky. After starting to use it, I wouldn’t want to miss it anymore. Products like the Sonos hi-fi system are sometimes called vitamins, as they don’t solve a pain or an urgent need. They rather provide a nice-to- have benefit, similar to vitamin supplements. Products that address a problem are referred to as painkillers. An Internet search engine like Bing or Google Search is a painkiller, as it solves the problem of finding information on the Internet. While the distinction between a vitamin and a painkiller is somewhat subjective, it shows that a product doesn’t necessarily have to address a problem that people currently experience. Before I purchased the Sonos speakers, for instance, I wasn’t aware of how cumbersome it is to listen to music using a traditional hi-fi system. But no matter if it’s a vitamin or a painkiller, your product must create a tangible benefit that is larger than the cost or hassle involved in obtaining and using the product. If the benefit is weak or the barrier to employing the product is high, then people are unlikely to buy and use your product. Let’s take another look at Sonos. People who own traditional hi-fi components such as amplifiers and speakers are likely to find purchasing Sonos speakers unattractive, as this would render their stereo system obsolete. To address the issue, the company has created a product called Connect that allows individuals to reuse their ex

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