Delivery date is another source of conflict between business and tech

In the same that discovery seems to be a source of conflict between business people and product development teams, as I explained in the article Why business people hate discovery, the term delivery date also seems to generate some conflicts. On one side, business people are constantly asking for a delivery date for a product or a feature. On the other side, the product development team has many difficulties setting a delivery date due to many reasons. Let’s better understand both sides:

Why we need a delivery date

There are a number of reasons that makes having a defined delivery date important:

  • Some events don’t change and if the product or feature we are working on is supposed to be used prior to this event, it is very important it is up and running by then. For instance, if we are working on some new features that will improve user e-commerce shopping experience, it is important that it is available a few weeks prior to the Christmas shopping season and, ideally, prior to Black Friday shopping season.
  • There are some regulatory dates that also don’t change. Some examples are IRS tax filing deadline, new invoice layout determined by the government, etc.
  • Company events. For instance, suppose your company has an annual conference for its customers every October which is a perfect date for announcing new releases and new features. Ideally, the product development team should work to deliver the product or feature prior to this date.
  • Marketing campaigns also have set dates to start. If this is a campaign to announce a product or a feature, we definitely need this product or feature ready prior to the campaign launch date.

Certainly there are more reasons why a product or a feature needs to be delivered by a certain date. In all of these cases above it is clear that there are fixed dates that can not be changed and we need to figure out a way to deliver something prior to the fixed date.

Why it is so difficult to set a delivery date

The same way as there are a number of reasons that makes having a defined delivery date important, there are also many reasons why it’s difficult to set a delivery date:

  • The product development team is new or has new members so the product development capacity is still unclear. The team needs to work together for some time in order to better understand its pace. It’s the Tuckman’s stages of team evolution that I mentioned in the article on team structure. And there can be changes in the team also, like people leaving to join other teams or people changing functions. This can also impact the ability to set a delivery date, since the team does not know its product development capacity, and this capacity will change over time as people on the team get know each other and how to work together.
  • The bigger the product or feature to be delivered, the more difficult it is to estimate a delivery date. The team may be able to break down the feature or product into many small chunks that can be easier to estimate a delivery date, which could be a few days or weeks. The smaller the thing that needs to be developed, the easier it is to be more accurate in estimating its delivery date. The issue here is that by breaking down the product or feature into smaller chunks we can better predict what’s closer to be delivered, but things that are more distant are harder to predict a delivery date.
  • Changes of scope are another source of delay and uncertainty on delivery dates. If the scope is increased or, even worse, unrelated work get higher priority, the original delivery will need to be changed.
  • Technical debt can be another source of delays, specially if its unknown or undocumented technical debt. When we encounter a technical debt that prevent us to deliver a feature or a product, we may need to spend extra time to fix that specific technical debt, which will certainly generate delays in the delivery date.

The examples above make it clear that there are a number of factors that can negatively impact the delivery date of a product or feature. Again, this is not an exhaustive list. I’m pretty sure you can list more reasons that impact our capacity to set delivery dates.

There’s a very good article from the team at Apptio with a diagram that maps many things that impact positively (green, like focused work), negatively (red, like multi-tasking) or positively to some extent (yellow, like technical debt).

What impacts development speed? Source: Apptio Blog

Product development speed is a complex matter, that’s why it’s so difficult to estimate delivery dates.

So, what should we do?

On one side, business people are constantly asking for a delivery date for a product or a feature and there are very good reasons to need a delivery date defined. On the other side, the product development is a very complex matter and the team has many reasons why setting a delivery date is so difficult. So what should we do?

The first step is to understand that business people and product development team are parts of the same team and, as such, must have the same objectives, achieving the company goals while solving a problem for its users. For this reason, they should work together to achieve these objetctives.

The second step is to understand that behind every product or feature there’s a result expectation. So, when we discuss about a product or feature delivery date, we are actually thinking about when we will benefit from the expected results that this product or feature is set to generate.

The thing is that more often than not we end up talking so much about the new product or feature and its delivery date that the expected result becomes less discussed and, consequently, forgotten.

I already mentioned that product and features are means to an end, and not the final objective. They are vehicles to achieve the goal of delivering value, and results, for customers and for the company.

So, instead of discussing about product and feature delivery dates, we should be discussing about results delivery dates and how we can get to these results by this date. Sometimes there’s a simpler product or feature to be built that will enable us to achieve that result faster. Sometimes there’s no need to build a product or feature, but a change in a process can yield the expected results.

Looking through the results delivery date perspective, there are two possible situations:

1) if there is any fixed date (Christmas, Black Friday, company event, regulatory date, etc.), the date is already given. And the expected result too. Christmas, Black Friday the expected result is more sales. Company event, normally the expected result is engagement, cross-sell and/or upsell. regulatory date, the expected result is compliance. With this information in hand, we should ask ourselves what can we deliver before the given date to achieve the expected result?

2) if it’s something new, with no specific date, again the conversation revolves around the expected result. What result is expected of this something new? Is there any expected date for us to obtain this expected result? Or the sooner the better? With the answers to these questions above in hand, we should ask ourselves what can we do to achieve this result in this period?

Summing up

  • Delivery date is another source of conflict between business people and the product development team. On one side, business people are constantly asking for a delivery date for a product or a feature and there are very good reasons to need a delivery date defined. On the other side, the product development is a very complex matter and the team has many reasons why setting a delivery date is so difficult.
  • To address this conflict, the first step is to understand that business people and product development team are parts of the same team and, as such, must have the same objectives, achieving the company goals while solving a problem for its users. For this reason, they should work together to achieve these objetctives.
  • The second step is to understand that behind every product or feature there’s a result expectation. So, when we discuss about a product or feature delivery date, we are actually thinking about when we will benefit from the expected results that this product or feature is set to generate.

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What is and how to create the product vision and strategy?

At some point during the growth phase of your product, it may be helpful to create its vision and strategy. These tools will greatly help you in the decisions about what the future of your product will be. For this reason, I will explain in this chapter what is product vision and strategy and how to create them.

What is a product vision and why do we need it?

The same way your kids wants to be something (doctors, lawyers, engineers, etc.) when they grow up, the product vision is what you want your product to be when it grows up. Product vision is how you envision your product in the future. It is the reason why the product exists. It is what should guide all decisions regarding this product. It gives the context for the product development team to make decisions about what to prioritize in relation to the product.

As I mentioned earlier when defining product management as the function responsible for building the connection between the company’s strategic goals and the problems and needs of clients, a product must at the same time meet the strategic objectives that the product owner has for this product while it solves problems and needs of its users. There you have the two elements needed to make your product vision.

Creating the Product Vision

The vision of the product will be created by bringing together these two elements, understanding the objectives of the product owner and the problems and needs of the user of the product. So the first step in creating your product vision is to be clear about what the product owner’s goals are.

For example, a bank creating an internet banking system may have the objective to reduce the need for in-person, face-to-face interactions. A clinical lab that creates an app for users to view their clinical exam results may have as its objective to lower the operational costs of handling and sending results.

Then you need to understand the problems and needs that this product will solve for your users, in which context these problems and needs happen and what motivates these users have to see their problem or need to be solved.

A nice tool to understand the user is the empathy map.

Empathy map

This map helps to focus on the different perceptions that the user may have:

  • See? – What does your user see? How is the environment where it uses the product? What does the market offer?
  • Listen? – What does your user listen to? What do your friends tell you about your product? What does his boss say? What do the influencers say?
  • What do you say and do? – What does your user say and do in relation to your product? What does he talk about with friends and on social networks? What can he do with your product?
  • Think and Feel? – What does your user think and feel when using your product?
  • Pain? – What are the main pains, fears, frustrations, and obstacles that your user encounters?
  • Gain – What are the key winnings, desires, and needs that your user expects to have when using your product?

Another useful tool is the persona, which represents a group of users with similar patterns of behavior, attitudes, and motivations in terms of purchasing decisions, use of technologies or products, lifestyle, etc.
The personas are used to:

  • Know and understand customers and users of products and services;
  • Bring the user to the project focus;
    Make design decisions more human and less abstract.

The following figure shows how to build a persona:

What is needed to create a Persona

The first step is to define a name and some characteristics of that persona. This helps in conversations about the product. In the name, it’s nice to already give a hint of the main characteristic. For example, Maria, the cool girl, or Michelle, the busy one.

If you are making a product for Michelle, the busy, and want to insert a new feature, one question that comes to mind is: “Will Michelle, the busy one, be able to use this feature? Will she find it useful enough to find time to learn how to use it?”

Beyond the name and basic characteristics, it is also important to describe your behaviors and your problems. The following examples will make the concept of persona clearer.

Mary, the cool girl
Michelle, the busy one

Maria, the cool girl is one of the personas that we used at Locaweb. Given the different products that we have in our portfolio, we ended up building eight personas. However, for each product in our portfolio, we had no more than 4 personas, being one of them the primary persona for that product, i.e, for whom all decisions about the product were taken.

As part of understanding the problem or need that your user expects to be solved by your product, it is very important that you map out the alternatives that exist today for her to have that problem or need to be solved. In the case of commercial products, they are the competitors. In the case of products that are systems without clear revenue objectives, such as internet banking or the clinical lab system for result visualization, the alternatives are going in person to the bank or the lab, calling the bank by phone, and receiving results by mail, etc.

This alternative mapping is very important to understand how your user deals with her problem or need without your product. How these alternatives are better and in which ones they are worse than the product you manage.

Empathy map, persona, and alternative mapping can and should be created in conjunction with UX, engineering, and product marketing people.

Okay, you already have all the elements to create the vision of your product:

  • The objectives of the owner of the product you manage;
  • Who the users are and what problems and needs these users expect to solve with your product. Useful tools for this are empathy map, persona, and alternative map.

Remember that to get these elements, the product manager will have to use a lot of empathy to talk to the owner of the product she manages and understand their goals, and to talk to the product users and understand them.

With these elements in hand, you are ready to create your vision, which is nothing more than to make clear these elements. Simple, right? It would be something like this:

(name of software owner) has decided to have this software for (objectives of the software owner to have such software). This software is used by (description of the people who will use the software) that, when using this software, expects to solve (problem or need that the user expects to solve) in a better way than (existing alternatives).

(Include more information about the problem or need, including context and motivation to have it solved).

Please do not copy + paste this text! Create your own product vision, which does not have to be text. It can be a presentation or a video, remembering that the vision of the product is the reason why the product exists. It is what should guide all decisions in relation to it.

As you get your product vision clearer, it is important to circulate it within your company to get input, feedback, and questions. By doing this, you’ll have a chance to complete the product vision as well as get the alignment and buy-in from all stakeholders.

Product Vision examples

Internet banking

Here’s an example of a bank where the owner decided to create an internet banking app so they could decrease the cost of building, staffing, and maintaining physical bank branches:

XYZ Bank has decided to have an internet banking app to reduce the operating costs of bank branches.

This software is used by bank account holders who, when using this software, expect to solve their banking needs (see account balance and report, pay bills, make investments, etc.) in a better way than when they visit the bank’s agencies.

Locaweb’s Email product

During my time at Locaweb we put together the following product vision for Locaweb’s Email product:

Locaweb’s Email product will be the most complete and flexible email solution of the Brazilian market.

Conta Azul’s product vision

We built Conta Azul’s product vision as an image because with the image it was easier to explain all the elements of what we saw as the future of Conta Azul product.

Conta Azul product vision

Gympass Product Vision

Again, we preferred an image instead of words. The saying a picture is worth a thousand words has a reason to exist.

Gympass product vision

Product Strategy

Once you have defined the product vision, you’ll be probably thinking something along the lines of: “Hum, I think my product is still far from this vision.” Then comes the question “how do I get my product closer to this vision?”. This is where the product strategy comes in, i.e., what steps will be taken to bring the product closer to the vision.

A good tool to help build product strategy is the SWOT analysis, to help you and your team analyze Strengths, Weaknesses, Opportunities, and Threats to your product.

SWOT

Strengths and weaknesses are internal items (from your product development team, or your company) that you, your team, or your company have some control over, that help or hinder your product from reaching your vision.

Opportunities and threats are external elements to the organization over which the organization has no or minimum control, and which can influence positively or negatively the attainment of the vision of the product.

Filling the SWOT should also be a team effort. The product manager must have one or more sessions together with UX, engineering, and marketing people to build your product SWOT. It is likely that your organization has also done a SWOT analysis for the organization as a whole, which can be a great input for your product SWOT.

SWOT analysis can be tricky, especially in the weaknesses quadrant. It tends to be a big list of items your product doesn’t have yet. My suggestion is to limit all quadrants to 3 items. Having this discipline, you’ll be able to prioritize what are the 3 more important items in each quadrant. Since we have 4 quadrants, you will have a list of 12 items to take care of.

In order to build a more comprehensive SWOT analysis, it is very important to have a good market analysis available. This market analysis should include:

  • Competitors: a good view of your product competitors is very important to help you build your product SWOT. Don’t forget to think also about indirect competitors. For instance, an email product has the telephone as an indirect competitor.
  • Potential and addressable market: ultimately your product could have the total global population as users or the total number of companies worldwide in a B2B product. However, you most likely designed your product for a subset of these users – or companies. For instance, you designed a delivery product for people who sell things and since it is a delivery product, it is limited to a certain region. This is the potential market. The addressable market is the size of this market that you believe you can reach.
  • Market growth: as important as it is to know the size of the market is to know the growth of this market. For instance, the number of landline telephones is close to 1 billion, but this is a shrinking market since there’s a clear movement toward mobile telephones.
  • Disruptors: as important as it is to know your competitors is to know what can disrupt your product. For instance, at Locaweb we were seeing a decline in email usage, possibly due to the migration of a part of the communication, which was normally carried out through email, being made by other means such as WhatsApp and Slack. Anyone managing a riding or a delivery product such as Uber, Rappi, and others should be already discussing the impact of autonomous vehicles on their product and business.

Having the SWOT filled up, it’s time to draw the strategy of your product. Product strategy is nothing more than a short, medium, and long-term roadmap.

Long term?

You are certainly thinking that as you use agile methodologies in the product development team, it makes no sense to have a long-term roadmap, not even a medium-term roadmap makes that much sense. In fact, it does, but not in the classic sense of roadmap as a list of features, but instead using the roadmap as a priority list, a list of focus points that must be tackled in a specific order to make the product gets closer to the product vision.

With your product SWOT analysis completed, you should look at each of the items in each of the quadrants, along with the team (UX, engineering and product marketing), and evaluate what impact each item has on the product vision you have created. Are there strengths to be strengthened? If so, which ones should be strengthened first? Are there weaknesses to be tackled? If so, which ones should be tackled first? Are there opportunities to be taken advantage of? If so, which ones should be looked into first? Are there threats to be fought? If so, which ones should be tackled first?

This analysis will help you define the motivations and goals, i.e., the macro themes of your roadmap. Remembering that roadmap = motivation + metrics, which is being popularized with the acronym OKR (Objectives and Key Results). This analysis will help you define what to focus on now and what to leave for later, always aiming ultimately to get closer to your product vision. And that’s the product strategy, the path that you and the product development team will go through to get to the product vision.

Your product evolves, and your vision and strategy too!

An important point is that your product evolves as the team works on it. A lot is learned about the users of the product, their problems, and their needs. New alternatives may appear to help your user solve their problems and needs. The software owner can also revisit their strategic objectives and, consequently, revisit the defined goals for the digital product.

In addition, strengths and weaknesses may change over time, and opportunities and threats may appear or disappear. So, it’s important to understand that neither the vision nor the strategy of the product is written in stone. They can and should be revisited periodically.

My suggestion is that they be revisited annually, or when a relevant event happens, such as when there is a change in the strategic objectives of the company, or when there’s an alternative that solves the problem or need of the user in a different way from the one of its product.

Summing up

With this chapter, we are almost closing the theme of the growth phase of the software product lifecycle. In the next chapter, we will put it all together. Vision, strategy, roadmap, and OKRs.

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More on NPS

My latest article on NPS sparkled some interesting conversations on this metric that I believe are worth sharing:

NPS has or has not the % sign?

From a strictly mathematical point of view, we should use the percentage sign because when we subtract two percentage numbers, the result must be represented as a percentage or as a fraction number. For example, if we have 50% promoters and 30% detractors, the NPS calculation will be 50% – 30% = 0.5 – 0.3 = 0.2. That is, the NPS is 0.2 or 20%. From a mathematical point of view, saying that the NPS is 20 is not correct, because 0.5 – 0.3 is not equal to 20, is equal to 0.2, or 20%.

Source: https://xkcd.com/435/

However, a bit of caution is required. If your NPS is 20%, that doesn’t necessarily mean that 20% of the interviewed customers are promoters. It means that at least 20% are promoters. It can be:

  • 20% promoters + 0% detractors + 80% neutral
  • 23% promoters + 3% detractors + 74% neutral
  • 60% promoters + 40% detractors + 0% neutral
  • any other combination

The same goes for a negative NPS. A -16% NPS means that at least 16% of the interviewed customers are detractors. It can be:

  • 16% detractors + 0% promoters + 84% neutral
  • 19% detractors + 3% promoters + 78% neutral
  • 58% detractors + 42% promoters + 0% neutral
  • any other combination

In the article The One Number You Need to Grow by Fred Reichheld where the concept of net promoters and its correlation to business growth was first presented in December 2003, all charts show net promoters as percentages, not integers.

Most recently many NPS reports from Bain & Company, Satmetrix Systems, and even from Fred Reichheld, who conjointly own the NPS trademark, present the metric as integers and not as percentages.

So I believe we can safely say that it doesn’t matter if we use or don’t use a % sign when presenting the NPS number. However, regardless of whether or not we use the % symbol, what really matters the most is understanding why promoters, detractors, and neutrals gave us this rating.

How to manage NPS?

During my coaching sessions, one metric my coachees normally bring to discuss is NPS. How to measure? How to manage it? It is common to see targets and KRs set for NPS, like “we will have an NPS of 20 (or 20%) by the end of the quarter”. I advise against using NPS as a target because:

  • NPS is a lagging indicator: as I explained earlier, there are two types of metrics, lagging indicators, which are indicators that denote consequences (revenue, profit, churn, number of customers, NPS), and leading indicators, which are indicators that denote causes. A good example of a leading indicator is the customer’s engagement with a product, which is the cause of a lower churn and a higher NPS. So, instead of having a target for NPS or churn, we should aim for a customer engagement target.
  • NPS is an induced and subjective metric: in order to measure NPS, you need to disrupt your customer’s journey to ask her if she would refer you/your product to a friend. The simple fact that you are disrupting her journey already interferes with the measurement. To add to this, this is a very subjective question. I may refer to this friend, because I know he likes this kind of product, but not to this other friend because the product doesn’t make sense to her.

That doesn’t mean we should not measure NPS. We should because the act of measuring and discussing it provides many useful insights to help us improve our product.

Summing up

  • When presenting the NPS metric, it doesn’t matter if we use the % symbol or not. What really matters the most is understanding why promoters, detractors, and neutrals gave us this rating.
  • NPS is not a metric to be set as a target because it is a lagging indicator and it is an induced and subjective metric.
  • We should measure NPS because the act of measuring and discussing it provides many useful insights to help us improve our product.

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You can also acquire the books individually, by clicking on their titles above.

Growth: the loyalty metric

The financial outcome must always be used as one of the metrics that indicate that the company is being successful and that it is reaching its goal. However, it must not be considered in isolation, because there is good revenue and bad revenue.

Bad revenue is all revenue that comes at the expense of the relationship with the customer. For instance, a company that hinders their clients’ cancellation button when they want to cancel or when it sells something overpriced taking advantage of their needs, such as the price of a bottle of water in a hotel.

Good revenue is all revenue that comes from deals where we can make our customers happy, where they feel we’ve solved their problem. It’s revenue we can build on by getting even more businesses from loyal customers, who typically recommend our product or service to their friends.

The bad revenue may help the company in the short run; however, in the long run, clients will get tired of this behavior and will seek alternatives. That is, bad revenue can eventually kill your company in the long run.

It is not possible to differentiate the good from the bad revenue in a financial report, in which all you can see is revenue numbers without any information on the client’ satisfaction grade. Because of this, it is necessary to listen to your customers, measure their satisfaction, and correlate it with the financial results.

NPS – Net Promoter Score

There are many ways of measuring clients’ satisfaction. I really like one called NPS (short for Net Promoter Score). This metric has come up for the first time in 2003, in a Harvard Business Review article written by Fred Reichheld, consultant at Bain & Company, a renowned American company. In 2006, Reichheld wrote a book called The Ultimate Question [^nps] that had a second edition published in 2011, containing the lessons learned through the years.

[^nps]: The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven World by Fred Reichheld and Rob Markey, Harvard Business Review Press; Rev Exp edition (2011)

NPS is calculated based on a single question you should ask your client:

The NPS main question:

In a scale from 0 to 10, how likely would you tell a friend or colleague about us?

Zero means absolutely not, and 10 meaning absolutely yes. People who evaluated from zero to 6 must be classified as detractors; the ones who graded 7 or 8 must be classified as neutral, and the ones who graded 9 or 10 are promoters.

The NPS calculation is very simple, just subtract the detractors’ percentage from the promoters’ percentage. The result is a number varying from -100% to 100%. A negative number means that you have more detractors than promoters, and a positive number means the opposite, that is, you have more promoters than detractors.

NPS

Of course, it’s better to have more promoters than detractors, mainly if we think about the word-of-mouth marketing that comes from both detractors and promoters. Aside from talking about your company and services to their friends, the promoters buy more and are customers for longer. That is, they like your product or service, and will always give you ideas and suggestions that are important to your business.

Several companies use NPS to measure their clients’ satisfaction and loyalty. Some examples are Apple, Zappos, Rackspace, Microsoft, Intuit, and Facebook.

However, how often should you measure NPS? Once a year? Every semester? Every month? Every week? The book recommends measuring it every day, continuously. That can be done in the following way: every day you ask the NPS question to clients who are celebrating the X months or X years anniversary that day.

For instance, you can ask your clients when they complete 1 month since they have become your clients, then you can pick up some onboarding issues. You can also ask your 6-months clients and, from thereon, at each 1-year anniversary at the company. This way you can get NPS reports per time the client is your client, then you will know if you’re treating well both new and old clients. To check if your NPS is evolving, you take the moving average from the last 30 days.

Closing the loop: from information to action

The big problem here is that a number doesn’t solve much. We need to know where to improve, what to do so the promoters continue to promote our company and services, and what motivated the detractors to give us a low score. To get this information, Fred Reichheld recommends adding one more question to the survey:

The NPS second question:

What is the main reason you gave us that grade?

There you go. With these answers in your hands, you have what it takes to go from information to action. While reading the comments of the promoters, you will understand what motivated them to give you a high score and keep these actions. From the comments on the low scores, you have the first input to take action. It is very important to talk with the detractors to listen to more details on their dissatisfaction.

From the moment they see you care, their perception of your company will start to improve. To seek for understanding the detractors’ motivation and act to solve the problems that got them unsatisfied is the only safe way to increase the NPS and, consequently, the loyalty of your clients.

Maybe you are asking yourself when is the time for this feedback. The answer is quite simple and direct: the sooner, the better. In his book, Fred Reichheld advises getting in touch with the detractors in a maximum of 48 hours. Speed is important to show you read and care about your client’s feedback.

Tip: internal NPS

An interesting suggestion in the book is to measure the employees’ NPS, that is, on a scale from 0 to 10, how much this employee would recommend your company for a friend to work there. This questionnaire would have to be anonymous to make the employees comfortable while making comments on any problem they have within the company.

Following the path of NPS clients, you can run this NPS by seasons, that is, 1 month, 6 months, and each one-year anniversary at the company. This way you will be able to find out if employees had a good process for entering the company, and if they are still motivated after a few years.

So, we saw several types of metrics, began with the conversion funnel and talked about engagement, churn, global and individual financial metrics, revenue churn, and the “Holy Grail” of subscription products — the negative churn. Now, we will finish the topic by talking about the loyalty metrics — the NPS. In the next chapters, I’ll make my final considerations on the metrics theme.

Mentoring and advice on digital product development

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You can also acquire the books individually, by clicking on their titles above.

Growth: financial metrics

When I talked about the importance of being a data geek in the previous chapter, I explained the conversion funnel, which is formed by a set of data that we can consider short-termed, because within a few days (or even hours) you can notice trends, take conclusions, create hypotheses and validate them, whether talking to your users or making experiments and measuring the results.

I also talked about engagement metrics, which show how your users interact with your product, and about churn, both from the client and revenue. That will help you to understand how many clients are no longer clients, why they gave up, and what is the impact of it on your revenue.

Aside from these data, there are other ones that take more time to be established and start to show some tendency, but that should be monitored from your product’s first month. These are the financial metrics, that can be categorized in global numbers (revenue and costs) and individual numbers: CAC (Customer Acquisition Cost), LT (Lifetime), and LTV (Lifetime Value).

Global numbers: revenue and costs

Revenue is the money you get when people use your product. Cost is any money that has to be spent or given up in order to get your product going. Basically, this revenue will be used to pay for your costs. When you can afford to pay for your monthly costs, the surplus will be used to offset the investment of the months when the monthly revenue doesn’t cover the costs.

Both revenue and costs should be checked out month over month. It is important to categorize your costs, so it can help you to understand where you are spending the most and where you can save. I use to put costs under 3 categories:

  • Infrastructure: it’s all the necessary costs to keep the service running. In this category, I include website and app hosting costs, domain register, tools for e-mail marketing, SEO, A/B tests, online chat system, etc. Usually, these costs are recurrent; therefore, they require a lot of attention every time you hire a new service like the above.
  • Development: here are all the costs to develop and implement new features in your website or application, including programming, interface development, visual design, logo design, etc.
  • Marketing: every investment you do to attract clients, such as AdWords, Facebook ads, ads on websites, magazines, newspapers, and TV. We should also include here the costs of flyer printing and distribution, coupons, folders, etc. In the beginning, you will very likely need to invest time in free tools to attract clients who, in spite of being long-termed, will help through the months to save on marketing expenses or, if you decide to continue to invest in paid publicity, will help you to increase your revenue.

In order to have a profitable product, the monthly income should be higher than the monthly expenses. It is as simple as that. However, it is easier said than done.

Individual numbers: CAC, LT, and LTV

The revenue and the costs are global indicators of your web product’s health. It is important to have individual indicators, that is, one for each client of yours.

There are three very important indicators:

  • CAC: is the Customer Acquisition Cost. It is the sum of the associated costs with finding and getting the attention of potential clients, bringing them to your site, converting them into users of your web product, and later, into paying users. For example, imagine that you have only invested on Google AdWords and, on a given month, you have spent $1,000 and got 10 new clients in that month. Dividing $1,000 per 10, you’ll have a CAC of $100. That is, your cost for getting each client is $100.
  • LT: it’s the Lifetime of your client. That is, how long on average a client is your client. This number only makes sense when you have a recurrent revenue stream. Using the previous example, let’s imagine that the LT of clients you have acquired is 20 months.
  • LTV: it’s the Lifetime Value, or the value of a client while he stays as your client. It’s the revenue this client generates while still your client. Following the previous example, let’s imagine this client generates monthly revenue of $8. Multiplying the LT of 20 months by the $8 per month gives us an LTV of $160.

In these definitions, it’s easy to see that your product will be as profitable as higher is the LT and the LTV and that you need your LTV higher than your CAC.

In this example, we have an LTV of $160 and a CAC of $100, which shows that we have a profitable situation. It is necessary to follow up closely on these numbers, month by month. If in a given month the LTV continues at $160 and the CAC goes up to more than $160, it’s necessary to review the client acquisition efforts. Also, you should study ways to increase the LTV, augment the LT, and/or augment the monthly value.

Revenue churn

Revenue churn is a measure of the lost revenue for a business model based on subscriptions, calculated in terms of client churn and the total revenue over a period.

You can calculate it as follows:

Monthly revenue churn = revenue from clients who canceled on the month / total revenue of the month.

In order for your product to grow, it is necessary to have an increase in the monthly revenue higher than your monthly revenue churn.

There is an important difference between revenue churn and client churn. Client churn will always be a positive number, but the revenue churn can end up being negative. How? The revenue growth from your existent clients must be higher than the revenue churn from clients who are canceling the service on that month, without considering the revenue from new clients on that given month.

Client churn is the number of clients who are no longer users or clients. It is important to know how many are they, and the reasons why that happened, because you need this data to improve your product, to reduce the churn.

See in the following picture the difference between client churn and revenue churn:

Negative churn

How is it possible to have negative churn?

The negative churn occurs when your existing clients use more of your software product and they have to pay for it, and revenue gain exceeds revenue loss from existing customers who purchase less over time, including clients churn. For example, when clients upgrade a service plan with more features, when they hire additional services, when they pay for additional use, or when they buy more access accounts.

This will make your product grow more than the number of new sales per month, because with a negative churn, even if you don’t have any new sales, your revenue will grow due to the revenue increase from existing clients. That’s why negative churn is considered the “Holy Grail” of products that have a business model based on subscriptions.

In the next chapter, we’ll see the best metrics of all, in my opinion: the loyalty metrics.

Mentoring and advice on digital product development

I’ve been helping several companies extract more value and results from their digital products. Check here how I can help you and your company.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Growth: Engagement and churn

Once you get to bring in users (free or paid) to use your product, your next concern is related to the engagement from these users, that is, are they using the product? Are they solving the problem that the product is supposed to solve? How many times a day (or a week, or a month) your product is being used? For how long? How is it being used?

Engagement

It is very important to find metrics to measure engagement. For instance, for a product to send e-mail marketing, some engagement and usage metrics are:

  • how many times per day does the person access his/her inbox,
  • how many campaigns go off per month,
  • how many clicks this campaign had,
  • how many messages were sent with the incorrect e-mail address,
  • how many messages generated complaints.

Note that each product has different engagement and usage metrics. Each product manager must select metrics to track his/her specific product.

Have you ever stopped and thought about how many times a day you use your cell phone? What do you use to access it? WhatsApp? Facebook? Instagram? Can you tell that you are deeply engaged with these applications?

Promoting engagement should be one of the concerns of the product manager. In 2013, Nir Eyal launched his book called Hooked: How to Build Habit-Forming Products, in which he explains the theory behind these products that just end up entering our daily lives. It is a great book to understand more about this theme.

There are some strategies that can help you to increase your product’s engagement and usage. These techniques are called lock-in.

  • APIs: Short for Application Programming Interface, API is a way of giving access to your product, to the data that are stored and to the routines it executes to other software. When someone creates a new software using the APIs of your product, there’s a great chance of increasing the engagement with it.
  • Incentive to use: you can do promotions to incentive the use of your product. For instance, if your product has usage quota, you can increase this quota as the time goes by. be one of the concerns of the product manager. In 2013, Nir Eyal launched his book called Hooked: How to Build Habit-Forming Products [^hooked], in which he explains the theory behind these products that just end up entering our daily lives. It is a great book to understand more about this theme.
Churn example

Despite the fact that churn was greater than 20% every month, growth in the year was 73 new customers.

Why is it possible to grow even with a high monthly churn?

There are two reasons. The first, which I have already mentioned, is that it is necessary to have a greater inflow of customers than the amount that goes out.

The second is that churn varies based on the age of the customer. It is common to have cases where churn is high in the first month, because the customer did not like the service and decided to cancel right away. Or in the third or sixth month if your billing is quarterly or semi-annually. Some people call it premature churn.

Premature churn, despite being common, is something that can and should be reduced. You do this:

  • Aligning the customer’s expectations that you created in them by promoting your product with what they will find when they start using it.
  • Ensuring that the first experiences of using your product are very good and that your customer can achieve their goals in these first experiences.
  • Keeping your product useful to your customer over the months and years, investing in understanding your customer and their problems, and updating your product so it continues to solve your customer’s problems.

The concepts of churn and engagement go hand in hand, because the more engaged a user is, the less likely they are to cancel the service. So, a good way to predict the churn of a given customer is to track their engagement.

For example, if you’ve launched a distance learning product and track the usage of that product, you’ll likely see that the churn rate is higher for customers who have never attended the class. Review the previous lock-in thread for tactics to increase engagement and decrease churn.

Data science, machine learning, and product management

In recent years, the terms data science, machine learning, and artificial intelligence have appeared recurrently and abundantly. These terms are quite important for product managers. No wonder I dedicate 5 chapters of the book to subjects related to data and metrics.

As I mentioned in the previous chapter, the product manager must be a data geek, that is, a person who is always thinking about how to learn more from data. What is a person’s behavior in the months and days before unsubscribing to your product? And the behavior of a person who upgrades? What is the behavior of a user who says he is satisfied with your product? And what do you say very satisfied? If your product has multiple features, which is the most popular? Which generates greater satisfaction? What is the typical usage pattern for your product? If an atypical usage pattern appears, what does it mean? These are examples of some questions that the product manager can ask and that will have their answers in the product metrics. And with each new answer obtained, it is very likely that the product manager will want to ask more questions.

To find the answers to your questions, it is important that the product manager knows data science techniques and knows how to extract the answers to his questions himself, whether through data extraction and visualization tools or by running SQL in the product database. If the product manager does not have this independence and needs other people to extract the data for him, this can hinder the evolution of the product.

As this learning from the data takes place, it is likely that the product manager will begin to see opportunities to embed these learnings into the product. For example, a product manager of a CRM software may notice, after analyzing the usage and engagement data of the product, that customers end up canceling less when they are using the commercial proposal generation functionality. Once that discovery is made, he can make a change to his product to make it easier and more immediate to use this functionality and, in doing so, decrease customer churn by making them more engaged. This is a way to infuse data science into your product.

Machine learning, which is nothing more than a way of implementing artificial intelligence, is when we program machines to learn from data, and the more data the machine has in its hand, the more it will learn. In other words, it’s a way to insert data science into the product to make it better. The more you use a particular product, the more data is available to the team that develops the product to get to know your user and how they use that product. For example, the more purchases you make at an online store, the more it learns about your shopping habits and the easier it is for the store’s software to make recommendations that interest you. The same goes for Netflix and Spotify suggestions. In these cases, it is common for the store to compare its use with the use of people who show similar behavior to make suggestions such as “whoever bought this item also bought these other items”.

That’s why the product manager and the entire team that develops the product must know and know how to use data science, machine learning, and artificial intelligence in their daily lives. They are powerful tools to help you increase your chances of building a successful product.

In the next chapter, we will continue with the topic of metrics, focusing on financial and long-term metrics. Let’s also understand the concept of negative churn, the “Holy Grail” of products with a subscription-based business model.

Mentoring and advice on digital product development

I’ve been helping several companies to get more value and results from their digital products. Check here how I can help you and your company.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Another example of an MVD – Minimum Viable Discovery

Lopes is the biggest real estate company in Brazil, where I’m leading the digital transformation efforts. A new hire who came from an e-commerce site mentioned that app push notifications generated more leads and had greater conversion rates than SMS and email marketing. We got interested in testing this hypothesis, but always with the MVD – Minimum Viable Discovery mindset that I explained earlier.

How could we test this hypothesis as fast and cheaply as possible? Building an entire native app with all the features of our existing website would take months. Even if we scoped it down a lot, with the minimum to deliver some value to the user, it still would take many weeks.

Since our website is responsive, we devise a simple solution to test the hypothesis. We decided to create a webview app, a simpler solution than building a native app, eve if we scoped it to a minimum.

By the way, this is how Facebook and Linkedin launched their first mobile apps as well. Only when they the results generated by a mobile app, and proved that a native version would bring even more results, they decided to invest in building their native apps.

Here’s Lopes’ mobile app:

With this mobile app we were able to confirm that push notification generated more leads and had greater conversion rates than SMS and email marketing. We launched this app in early 2021.

I already heard that MVP doesn’t scale, it is just to test a solution hypothesis and then, if the solution hypothesis, we should work on delivering the solution in a scalable manner. As with everything related to product management, it depends! In our case, untill now we haven’t had the need to build a native version of this mobile app. The webview version is working quite fine for our needs and users seem to be ok with it as well. Maybe in the future we’ll have the need to build a native app but, at least for now, after more than one year that we launched our webview mobile app, there’s still no need to build the native mobile app.

You cantry Lopes App for Android or iOS.

Summing up

  • MVD – Minimal Viable Discovery mindset is essential to deliver results as fast as possible. For instance, why building a native mobile app to test some hypothesis if a webview is enough to test it?
  • The “MVP doesn’t scale” affirmation is not necessarily true. As everything related to product management, it depends. In our case, after more than a year after launching the MVP we created to test our Discovery Solution hypothesis, our webview app, we haven’t had the need to build a native app.

Mentoring and advice on digital product development

I’ve been helping several companies extract more value and results from their digital products. Check here how I can help you and your company.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Why business people hate discovery

There are basically two reasons, one of them has to do with mindset and the other one has to do with the discovery process.

The one that has to do with mindset is clear when we hear phrases like “Why do you want to do a discovery? I’m the business person so I’m the person that understands the most about our business problems/needs and how to solve them. You just have to implement what I say”.

Sometimes this aversion is rooted in the “business demands => technology implements” mindset that I mentioned earlier. This was how things were made in the past, without any need for discovery, because “business people are the ones interacting with customers so they always know what is best for the customers”.

However, most frequently this aversion to the discovery process is motivated by the business person’s past experiences where the discovery process was too long. The business person needs the solution to his problems implemented as quickly as possible, so she can benefit from the results that this demand may generate. The business person can’t afford lengthy discovery processes.

It’s very difficult, but not impossible to change this mindset. It requires patience and repetition:

  • Ask why: by asking why the business person is demanding the implementation of a certain feature, we have the opportunity to show this person a very simple discovery tactic that helps both the product manager and the business person to find other solutions hypotheses to the problem. We change to a discovery mode without using the word discovery. After a few times applying this tactic, we can mention to the person that understanding the why of a certain demand, generating solution hypotheses, and testing these solution hypotheses is the process of discovery and it’s based on the product manager and the product development team needs to find the easiest and quick to implement the solution.
  • Learn about the business: sometimes the business person believes that she knows more about the business than the product manager. This normally happens when a new product manager joins a company and still doesn’t know much about its business. To solve this perception from the business person, the product manager needs to find ways to learn about the business as quickly as possible. Talk to business people, talk to customers, read about the business, attend short-term courses about the business, and go to conferences about the business topic. Product managers need to understand the business in order to discuss business issues with the business person.
  • Shorten the discovery process: sometimes discoveries take quite long. A few weeks, one month, more than one month. Meanwhile, the business person has a problem that needs a solution as quickly as possible so she can benefit from the expected outcome that the solution of the problem may generate. This happens especially when the discovery process is focused only on the problem discovery. If the product manager is able to cycle fast between problem discovery and solution discovery, the business person may see the product development team working sooner rather than later on a solution hypothesis for the problem and may have her expectations for a solution calmed down.

MVD – Minimal Viable Discovery

Unfortunately, this third reason, the lengthy discovery process, happens quite often and this is our fault, especially when we aim to understand everything about a problem prior to testing solutions.

As I mentioned earlier, the discovery process has two sides, problem discovery, and solution discovery. We don’t need to know everything about a problem prior to testing, i.e., discovering solutions. The solution discovery is a powerful tool for us to understand more about the problem. For this reason, we need to cycle as quickly as possible between problem discovery and solution discovery. The faster we do so, the faster we understand the problem and the faster we discover a solution for the problem.

Also, if we do a complete problem discovery to understand everything about the problem, we may end up with so many sub-problems that will make the solution discovery process also very lengthy and the delivery will take a lot of time to be completed.

The product development community talks a lot about MVP, the minimal viable product, but we cannot forget this is not only about fast delivery of a minimal product, but also a lean discovery process. It’s time to adopt an MVD – Minimal Viable Discovery mindset, i.e., what’s the minimal problem discovery we need to make in order to test the minimal solution hypotheses and deliver the one that works and actually solves the problem?

Lopes’ broker app

A good example to illustrate this is the Lopes’ broker app. Lopes is the biggest real estate company in Brazil, where I’m leading the digital transformation efforts. When I joined the company the team was working on an “MVP” of this app. I put in quotes because it was under development for 5 months and there were still 2 to 3 months to go. When I dig a bit deeper into the process and why it was taking so long, I’ve learned a few things:

  • The discovery process took anywhere between 7 to 10 months!
  • The discovery process was focused only on the problem discovery.
  • The discovery process was internal, i.e., demand gathering from business areas and benchmarking with other broker apps available in the market.
  • The “MVP” was scoped as having 58 requirements/features and there were already 90 requirements/features scoped for future releases.
  • The main pain point was based on a hypothesis that, if the broker received the lead, i.e., a potential customer interested in a property, the faster she received this lead and interacted with the customer, the greater the chances of closing a deal.
  • Then, the team analyzed the broker journey and realized that when a lead arrives, the broker needs to search Lopes potential customers database to check if the potential customer is already in our database and if it is not, register the user data in our database.
  • And then, from this broker journey analysis they realized that, if the broker was able to send a few other property options to the potential customer, it would potentially increase the chances of closing a deal.
  • This created the scope to be implemented that took 7 to 10 months of discovery plus 7 to 8 months of delivery to build the app “MVP”.

There are a few points to highlight from the process above:

  • The discovery process was too long, which created a huge list of problems to be solved.
  • The solution discovery phase was not performed. The team went from problem discovery directly to delivery, without any opportunity to test some solution hypotheses.
  • The huge list of problems to be solved impacted directly the delivery process making it very long too.
  • If the solution discovery was used as soon as the main problem was discovered, the hypothesis that the faster she received this lead and interacted with the customer, the greater the chances of closing a deal, probably the team would be able to devise a simpler solution, that probably would take days, not months to be implemented.

Regarding this last point, after a few discussions, we thought about an app with only a push notification for each lead and the broker could continue the tasks as she already did them. And it could be even simpler to test the solution hypotheses by not to even building an app, but by sending an SMS or a WhatsApp message to the broker. An A/B test could be made to compare the closing rates of the brokers who received SMS notifications versus the closing rates of brokers that didn’t receive them.

We actually ended up implementing the SMS notification, it took us 10 days to implement, and right after that, we were able to test the hypothesis that the faster a broker received a lead and interacted with the customer, the greater the chances of closing a deal.

The best discovery method is called delivery

I already mentioned that one of the reasons to deliver early and often is that the moment of truth for your product is when a product is in front of its users, being used in the context where it is supposed to be used. It doesn’t matter how much research, interviews, and prototypes you do, the moment of truth, that is, the moment when you will know if your product is, in fact, the solution to a problem of a group of people, is when the product is in your customers’ hands, in the context where they need the product.

So the best way to discover if a solution hypothesis works is actually implementing it and presenting it to potential users that may have the problem that you discovered during the problem discovery.

For many solution hypotheses, we don’t need to build a complete product to test. Today there are many low-code and no-code tools that allow us to build simple solutions. And some of these tools exist for quite a while, like presentations and forms. At Gympass we tested some solution hypotheses that we had to solve the problem we discovered of bringing new options to people that didn’t want to go to the gym but wanted to pursue a healthier lifestyle.

The solution hypothesis was to partner with wellness apps and provide this app to our users for a monthly subscription fee. This new idea had two main hypotheses that we needed to test:

  • Application providers willingness to partner. Application providers, like gyms, are used to the recurring monthly revenue model. Would they accept to be paid per day of use?
  • Our user base willingness to pay. Is our user base interested in paying a monthly fee to access the applications?

To test our first hypothesis, we built a deck with the value proposition that we planned to deliver to the partners and talked to some potential partners. We presented the opportunity to 8 potential partners, of whom 6 showed interest and 4 decided to join our proof of concept. NEOU, a workout app, 8fit, a workout and nutrition app, Tecnonutri, a nutrition app, and ZenApp a meditation app.

Okay, our first hypothesis was validated with just a simple slide deck. No product was built. Now we needed to validate the second hypothesis, the willingness to subscribe. Is our user willing to pay to access these applications through Gympass?

To test our second hypothesis, we built a simple form, where we described the product and asked for the user’s name, email, and company. After the user provided this information, he was directed to a Paypal subscription page, where he had to provide his credit card details to subscribe to the service. The user would receive an email with the activation link for each application. There was no real product, no logged-in area, just a form to test interest and an email with links to the applications.

The first version of Gympass Wellness

So use the no-code or low-code tools options available to build your solution hypothesis to make it easier and faster to go through the solution discovery. As a side-effect, business people will start to understand, appreciate and even want to participate in your next discoveries.

Summing up

  • Business people dislike discoveries because of 3 main reasons. (1) They believe they know more about the business, the clients, and what they need. (2) They may have had past experiences where the discovery took too long. (3) They are used to a “business demands => technology implements” model.
  • Changing this mindset requires patience and repetition. Three things a product manager should do continuously to help change this mindset. (1) Ask why the person is asking to implement the demanded feature. (2) Learn about the business. (3) Shorten the discovery process.
  • In order to shorten the discovery process, we should think in terms of an MVD mindset, i.e., minimal viable discovery, where we discover enough about the problem in order to generate and test the solution hypothesis as fast as possible.
  • The best discovery method is called delivery. The moment of truth of any solution hypothesis is when we are able to present it to the potential user in her own context where she faces the problem we want to solve. Today we have many low-code and no-code solutions that help us build our solution hypothesis to make it easier and faster to go through the solution discovery.
  • As a side-effect, business people will start to understand, appreciate and even want to participate in your next discoveries.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Mentoring and advice on digital product development

I’ve been helping several companies extract more value and results from their digital products. Check here how I can help you and your company.

Growth: be a “data geek”

Take a close look at the data that your product generates! Aside from talking to your users and hearing their feedback, a mandatory way of knowing your product and how your users interact with it is through data. To take advantage of these data you must become a data geek, a person who knows in depth the data generated by the application and their meaning.

In God we trust. All others bring data. — W. E. Deming

William Edwards Deming is an American engineer, statistician, and professor known for his work in Japan right after World War II when he taught about statistic management of quality and helped the Japanese to become the second larger economy in the world in only 10 years. It’s all about collecting and trusting valuable customer data.

Which data is important?

Every data is important, but depending on your goal, some are more important than others. Knowing your data is a continuous task because at each new information you acquire, new questions appear that are going to need more data to understand it.

One of the first pieces of information that you will want to know is how many visits you get to your product’s website. To know these numbers, you can use some statistic reports that your hosting provider offers. Another very common option is Google Analytics.

With a report like that in hand, you get some important information, such as the number of visits, amount of unique visitors, amount of page views, among others. Depending on the statistical system you are using, you will also check:

  • what is the first and the last page visited during the access to your website;
  • where (which country and city) your visitors come from;
  • if they accessed your website due to a Google AdWords or Facebook campaign;
  • or some other online campaign that you are running;
  • or if they found your website organically, that is, typing the address directly;
  • or searching for something in some search system.

It is good to remember that it is important to hold these reports not only for your website but also for your entire software product.

Be careful. Many of the visiting report systems show a great amount of information, and it is easy to get lost in this sea of data.

Along with the number of visits and access that your website holds, other important data you must know about your web product is:

  • Amount of people who discover your product: it is possible to differentiate the way people discover your product by dividing them into two categories, paid and free. The paid ones are those which you have to invest some money, such as on Google AdWords, Facebook ads, ads on content websites (preferably those linked to the theme of your product), and ads on magazines (also preferably linked to the theme of your product). The free ones are those in which you invest time and work to get to be known, such as creating relevant content on the theme of your website, interacting on blogs related to the theme of your product, making it easier for people to recommend your product to others, etc. The return in this case comes slower but holds the advantage of not having any financial cost, only time and work.
  • Amount of clicks generated by ads or other sources: this is information a little more difficult to obtain because depending on the strategy to attract people to your website, it will not be available. The online ad systems such as Google AdWords, Facebook ads, and ads on content sites usually have that information available, and the price they will charge usually will be set on a price per click.
  • Amount of unique visitors: they are the new visitors that your website gets. It is different from the number of visits: one single person can visit your site more than once until he/she decides to buy anything.
  • Amount of visitors who become users: from these unique visitors, some will register to become a user of your system. If you offer a free trial period or a free version with no expiration date, this number can be reasonably big.
  • Amount of users who become clients: by the end of the trial period, some of your users will want to become a client, that is, will want to pay to use your service. If you are offering a free version of your product, with no expiration date, you must have a paid version that pushes your users to leave the free version and pay for using your product.

Conversion funnel

Napoleon Bonaparte, a French political leader and military officer known for the Napoleonic Wars — through which he was responsible for establishing the French supremacy over the major part of Europe at the beginning of the 19th century –, had a great defeat in 1812, in the Russian Campaign. This campaign was a huge military operation designed by the French and their allies that had a great impact on the Napoleonic Wars, setting the beginning of the decay of the First French Empire. In this campaign, Napoleon brought 580,000 soldiers, but only 22,000 survived, and the rest perished in the way from France to Moscow due to the difficulties found on the way (cold, rain, rivers, etc.).

Russia’s campaign

This image resembles very much a conversion funnel of a website, which can be built with the data we discussed previously. The conversion funnel shows us how many potential clients we are losing on the way of attracting people to the site until the point someone pays to become your client:

Conversion funnel

The funnel displays several opportunities for you to better understand how your users interact with your product. Each part of the funnel has its specific characteristics and can be expanded in different ways. Focus on one piece at a time and test it. In the worst-case scenario, if the test goes bad, you can always come back to the previous situation. For a data geek, the funnel must be the very first data focus to be collected and analyzed.

In the next chapter, we will see two other metrics that are the natural consequence of the conversion funnel: engagement, which shows how the user utilizes your product; and churn, which shows how many users are not using it anymore, helping to identify why this happens.

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Mentoring and advice on digital product development

I’ve been helping several companies extract more value and results from their digital products. Check here how I can help you and your company.

Growth: how to prioritize the roadmap?

This is a frequent question from every product manager. Whether is a new product that’s is being created now, or a fully operating product full of suggestions from clients and users, how to prioritize, that is, how to decide what to do first?

There is a great number of techniques. I’ll talk about a few here and, in the end, I’ll tell which one is the best. I only ask you not to jump to the end of this chapter so you won’t ruin the surprise… 😛

Value versus effort

One of the simpler ways of prioritizing a roadmap is making an analysis of all items, seeking for estimating: the value (benefit) of each one for the business and for the users, and the cost of implementing each item. With these data in your hands, it is possible to even build a graph with two axes and put each and every one of the items in it based on the value and on the cost. The idea is to always prioritize what has the bigger value and lower cost, for the benefit will be obtained more quickly.

Value versus cost chart

Kano Model Analysis

Kano Model was created by professor Noriaki Kano, from Tokyo University, to classify the items of a product based also on two dimensions, the need of an item and the excitement that it provides to clients. With this, it is possible to classify the items into three types: basic; satisfies, and delighters.

Kano Model Chart

For instance, in a car, the wheel is a basic item, for there is no car without wheels. The sunroof is a satisfier item if your client does not consider it valuable. Being very silent is an item that delights a client that appreciates it. The recommendation is to have all basic items, some satisfiers, but do not leave some delighters out if you want to positively impress your client.

RICE

When I arrived at ContaAzul, I came across another prioritization method adopted by the product team, RICE. RICE stands for Reach, Impact, Confidence, and Effort. The first three items of the matrix are scored and, in the end, divided by the last.

Reach refers to how many people that task will reach over a given period of time, which should be the same for all features being compared. Impact estimates how many people will be impacted (use 3 for a massive impact, 2 for a large impact, 1 for a medium impact, 0.5 for a small impact, and 0.25 for a minimal impact). Confidence addresses how confident you are about your estimates (choose from 100% for high confidence, 80% for medium, and 50% for low). In Effort, enter how many person-months the task will take to complete with a minimum of 0.5, ie one person per half month.

The mathematical calculation is very simple:

RICE = (Reach x Impact x Confidence) / Effort

Feature Sequencer

Feature Sequencer was created by Paulo Caroli, from ThoughtWorks, to plan a product based on deliverables and its features. The sequencer rules, such as three cards per line, foster the prioritization conversation.

According to the Lean Inception: How to Align People and Build the Right Product book, the Feature Sequencer helps you organize and visualize the features and their relation to the deliverables. The sequencer organizes and plans the product releases beyond the first deliverable. Typically, teams using the feature sequencer will dazzle the product evolution via a clear understanding of the features contained by each deliverable, and the release order.

Sample feature sequencer

The previous image has a sample feature sequencer; each feature is represented by an index card. The post-its on the right-hand side represent the deliverables.

Product tree

The idea is kind of like the Kano analysis: classifying items of the roadmap according to the parts of a tree. Roots are the infrastructure; the stalk provides support; the branches are the different paths in which you can put your product in; the leaves are the features themselves, and the flowers and the fruits are the features that are going to delight the customer. Every product has to have roots, stalk, and some branches with their respective leaves, but it’s important to always add on some flowers and fruits in order to make your product delightful.

Example of product tree

Buy your features

In this technique, you make everyone play a game. You show all the items in your roadmap and set a value for each one based on how much is going to cost to build it. Then, invite some clients and tell them they have X to spend. This X must be substantially less than the sum of the value of all your items.

With this X, each client has to buy the most important features and, as the money is limited, everyone is forced to make choices such as “Do I take these two features or trade them for this more expensive one?”. It is a very interesting exercise and provides good knowledge of client behavior.

UserVoice

UserVoice is a suggestion system that you can put in your product. With this, your user will be able to make suggestions about it, and will also be able to vote for suggestions from other users. You can still limit the number of votes, forcing them to make choices, like in the previous method.

Example of suggestion in UserVoice

The one you remember first

Jason Fried, the founder of 37signals, now renamed as Basecamp, said in his book Getting Real[ that in his company the option was to prioritize based on remembrance. They receive several suggestions every day and simply decided not to write them down so they won’t spend time counting and classifying them.

As suggestions come up every day, they hear them every day. From time to time, they get together and discuss the suggestions they remember, and these are the ones that are approached and eventually prioritized in the product’s roadmap.

The best prioritization technique

As you can see, there are many ways of prioritizing a roadmap, all very useful. In other words, what we can conclude is that if there are so many ways of prioritizing a roadmap and if all prioritizing ways can be useful, it means that prioritizing a roadmap is not an exact science.

We are eager to find a prioritization method that justifies our choices. However, every time this method fails in a certain item that we are sure it is best to do it before (or after) then the method tells us to do, we end up tempted to follow our certainty, ignoring and not following the method.

However, there are several roadmap prioritization techniques and methods, and the best method is common sense. That is, the ability the product managers have of analyzing the available options and, by using their empathy, they prioritize these options taking into account the company’s goals and the users’ needs.

What to do with special requests?

During the lifecycle of your product, you will certainly meet requests of new features coming from clients (or the commercial team) that, explicitly or not, come with a threat that if you don’t build this feature you will lose them. On the other hand, if you meet this demand to the detriment of all roadmap planning already made, you are risking to delay the delivery of important features to the rest of the clients and to the strategic goals of the software product owner.

What to do?

The answer to this question depends a lot on your product and your client base. I’ll explain this answer with an example.

At Locaweb, we have two e-mail marketing products. One of them is called ** Locaweb’s E-mail Marketing** (very original name, hum?), and the other one is the All-In Mail. To understand the dimension of each product and the type of client that each one of them attends, here are some figures.

Comparative table of different e-mail marketing product offers from Locaweb

In this table, we can see that although the E-mail Marketing from Locaweb has 75 times more clients than the All In Mail, it sends only 16,7% of the total messages sent with All In Mail. In other words, Locaweb’s E-mail Marketing holds much more clients than All In Mail, but they are small clients that use the product very little compared to All In Mail’s clients.

For that reason, the product manager of Locaweb’s E-mail Marketing cannot afford to attend to special requests. The manager cannot favor the request of one single client to the detriment of the other 29,999. The product manager in this case must be concerned with implementing features that attend to as many clients as possible. And the product manager of All In Mail not only can but must pay full attention to special requests. There are a few clients, but all of them are special and demand customized attention.

The problem of saying yes to everything

When we talk about prioritizing a roadmap, one thing that happens is that we end up answering to every request, from everyone. That is, everything is important because everything is added to the roadmap, and then the less important things are postponed. The person who requested has the confidence that “it’s in the roadmap”, although it was pushed upfront on the line, and has good chances of being pushed even further if some more important item comes up.

Why does this happen?

The product manager ends up saying yes to requests he/she gets for several reasons:

  • Needs to please everyone: this is a very common problem of product managers, the need of pleasing everyone. When product managers see that the answer “I’ll put it in the backlog” calms down people who are requesting something, they start to use this answer indiscriminately. Then, the roadmap will become huge and very complex to manage. In addition to that, when people realize that being in the backlog doesn’t guarantee that it will be done soon, they won’t be happy… :-/
  • The data show that we must do: more and more I see companies focused on making decisions exclusively based on data. Therefore, soon we can be replaced by algorithms that will make all decisions, since it is enough to make them all based on data. It happens that data are not always correct. They can be insufficient, or even wrong. Another problem of decisions based in data is the risk of falling in a great place. The suggestion is to use data as one of the inputs to make a decision, but not forgetting the qualitative data, your intuition and your judgment.
  • But it is such a small feature: every feature, as small as it is, will imply in more code and more interaction. More code means code complexity; as the code gets more complex, it is more difficult to maintain it. More interaction means more complexity for its user to work with, that is, more chances of offering a bad experience to the user. No feature is so small for not bringing code and interaction complexity, so think carefully if this additional complexity will bring benefits for your user and for the software owner.
  • The client requested and, if we don’t build it, he’ll leave: this is the moment of making tough decisions. If you want to please all your clients, you’ll end up pleasing none of them. You have to choose to whom you are building your product. A product cannot have more than two or three primary personas. By the way, the recommendation is to have only one primary persona; having two or three will be quite difficult to manage. If the client’s request does not attend your primary persona, you have to have the courage to say no.
  • We can always turn this new feature into one more option in the configuration: one more time, we are creating pointless complexity. As we said, every feature implies in code and interaction complexity. Putting all new features as options to be configured in a set up screen will turn this screen into something very difficult to its user.
Set up screen of a software
  • Our competitors already have it: this is a very common mistake, to base yourself on competition and not on your client/user. Remember: a product manager has to worry about making the software meet the goals of the company that owns it, at the same time he/she solves a problem or fulfil a need of the clients. It is important to know what the competitor is doing, but if it has nothing to do with your company’s goals, nor the problems or needs of your client, then you don’t have to do the same.
  • The boss wants: there are bosses and bosses. If your boss is extremely up to date regarding the clients, it is important to listen. But if your boss wants a certain feature just because he/she saw it in some competitor, or someone told him/her to do so, you should remind him/her of the company’s goals and the problems and needs of your clients that you are trying to meet with your software product.

Learning how to say NO!

In spite of all the reasons we saw here, in order to say yes to each and every feature request, a product manager has to learn how to say NO.

Saying NO seems difficult, but not if you have your product goals very clear, that is, which company goals your product must reach, who is your main client and what is the problem of this client you are trying to solve, you’ll have the necessary arguments to say NO to certain demands.

Be kind to the person who is bringing the demand and say something like:

How to say no

Your suggestion is interesting and I can see why you are giving them. However, let me show you what we have already planned in our roadmap, and which are the goals of each item in it. For this reason, we will not be able to pay due attention to your request right now. Remind me in the future so we can talk about this again, ok?

Pass on the responsibility for remembering the conversation again in the future for the person who is requesting the new feature. If he/she does not remember, it is because his/her request was not that important. If he/she remembers, evaluate the request again and, if necessary, say NO again.

Dealing with B2B customers’ special requests

I mentioned earlier that if you have a B2B product focused on bigger customers, the product manager “must pay full attention to special requests. There are few customers, but all of them are special and demand customized attention. The product manager must be careful and not implement features that will be used by only one customer. However, requests from one customer, especially the bigger ones, will always be a priority in this scenario.”

How to manage these special requests

So this means that the product manager should do everything that big customers demand?

The short answer is *NO! You are still managing a product, so two important aspects of product management still apply:

  • Demand normally comes in the shape of solutions, and big customers can be quite incisive describing the solution they want. It’s the product manager’s job to understand what’s the underlying problem that made the customer request that specific solution. Quick tip: ask why the customer needs that solution and what she will do as soon as she gets that solution. This will give you lots of insights on the customer’s problem.
  • You are managing a product, not a tailor-made software. If you implement each and every feature request from customers, you’ll be building a tailor-made software for each customer or, what’s even worse, a “frankenstein software” product.

The longer answer is no, but you’ll still have to manage the special requests. There are some techniques that can help you deal with these special requests:

  • Modularization: if you are able to build your product as modules that work together in different combinations to deliver different types of solutions, this will enable your sales team to mix and match the modules to fit the needs of your customers. And whenever a new feature request comes, and you figure out the underlying problem and decide to build a solution for that problem, you can build it as a separate module. You can even charge this customer for the development of this new module. Charging a customer for the development of a new solution, even considering that this new solution can be offered to other customers, is a good way to test the real need of this customer. If he is willing to pay you to deliver this solution, he really needs this solution and trust you to build it. SAP is a good example of modular solutions.
  • Advanced configuration: another way to customize your product without making look like a “frankenstein software” product is through advanced configuration. For instance, for a certain customer, feature X can be delivered as the sequence of step A, step B and step C. For another customer, that doesn’t want feature X, but needs feature Y, it can be delivered by the sequence of step C, then step E, and you turn off feature X for this customer. Depending on the complexity, it is possible also to deliver this advanced configuration through programming languages. Some examples are, again SAP, with its ABAP (Advanced Business Application Programming) and Salesforce with Apex, which enables developers to add business logic to most Salesforce system events, including button clicks, related record updates, and Visualforce pages.
  • Integration: another common need from big companies is to have your product integrated with other products they already use. For instance, let’s imagine your company provides ecommerce solutions. Your customer hired your ecommerce product and they will have all of their product catalog, and also data on customers and their purchases in your ecommerce product. This big customer will certainly ask you to integrate your ecommerce solution into their ERP, so they can invoice customers and manage their inventory. This integration can be done in many ways, completely manual through re-typing of data, through file exchange or using an API integration. The best solution is through API, since it provides an error-free and real-time solution for the data integration between systems. For this reason, it is very important that your product has APIs with the endpoints needed to connect with other systems.

Technical Sales (or Sales Engineering)

New special requests come up during the sales process. Each of these special requests will take time from the product manager as well as the product development team. The team needs to understand the special request, the underlying problem and design solution options that can be used with other customers. This will take time from the product manager and the team.

At a certain point, the team will use the above-described techniques to cope with the special requests in a scalable way. As soon as the team starts using these techniques, the need to interact with customers for each request will probably persist or even increase. The sales team will ask the product manager to have meetings with the customer and help them show the customer what are the technical options available in order to address the request.

The first step is to train the sales team. However, this won’t be enough. The product manager will continue to be asked to join meetings to answer technical questions. To help with this issue, we should create a new role, the technical sales, also known as a sales engineer or pre-sales, someone with a technical background who will engage in technical discussions with the customer during the sales process.

Sometimes this role, since it has the sales word in it, is placed under the sales leadership. It’s a possibility but can lead to misalignment of incentives. Under sales leadership, the incentive is the number of sales. So, if a tech seller is taking too long to design the solution, and other requests get delayed, a new tech seller is hired, increasing headcount and, consequently, the cost of selling. An alternative is to place this position under product management leadership so the focus is on sales enablement, i.e., to provide the sales team with the needed tools to conduct sales without the need for a tech seller.

Professional Services

Supposing everything goes well with the negotiation and the customer decides to buy your product, if there are customizations to be made, additional work is required, no matter if it will be through modules, through advanced configuration, and/or through integration. This work may end up falling into the product development team backlog, which is not ideal since this work is specific to address a certain customer request, while the product development team should be working on things that could be used by the majority of customers.

To help with this issue, we should create a second role, called professional services. A person with this role works on this type of project, setting up a new customer using the customization techniques from the product (modules, advanced configuration, and/or integration). They should be people with technical skills able to do the customization work needed to set up the new company. Professional services can be done by a team within the company that offers the product and/or by third parties. For instance, to implement SAP, Salesforce, or Zendesk, you can choose to use professional services from them or from certified third parties that have knowledge and experience in implementing and customizing their software in many customers. This work is normally billed as a setup fee.

Summing up

We saw many techniques to prioritize a roadmap. Prioritizing a roadmap is not an exact science and we learned that the best way to prioritize a roadmap is pure and simple common sense, i.e., building a roadmap that aligns the company’s goals and objectives while solving a problem or fulfilling a need of clients and users. We also learned how to say no to prioritization requests and what is and how to deal with special requests.

Dealing with special requests may be a need of your market, especially if you are in the B2B space with bigger customers. It is possible to build a product that fits these special requests without building a “frankenstein software” product. In order to do that, the product manager and product development team should use one or more of the known techniques to deal with special requests, modularization, advanced configuration, and integration. Having these techniques in place won’t probably be enough, since the sales team will still need help in order to present the options to the customer and, after the sale, to implement them. Then two new roles come up, that should be close to product management: technical sales – or sales engineer – and professional services, which could be internal, could be done by third parties or both.

Next topic: Data!

Digital Product Management Books

Do you work with digital products? Do you want to know more about how to manage a digital product to increase its chances of success, solve its user’s problems and achieve the company objectives? Check out my Digital Product Management bundle with my 3 books where I share what I learned during my 30+ years of experience in creating and managing digital products:

You can also acquire the books individually, by clicking on their titles above.

Mentoring and advice on digital product development

I’ve been helping several companies extract more value and results from their digital products. Check here how I can help you and your company.