FOUR LAWSOF TECH PRODUCTECONOMICS

Rich MironovProductCamp Portland

31 January 2017

@richmironov

4 Laws of Tech Product Economics

Fact #1Your development team will never be big enough

Development can never build as fast as we can dream

Magical Thinking

“CEO says it’s really important.”“We already promised it to a big prospect.”“How hard could it be? Probably only 10 lines of code.”“We’ve been talking about this for months.”“We’ve gone agile, which gives us infinite capacity...”“My neighbor’s kid could do this in an hour.”

85% Loading Beats 100% Loading

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• At 120% loading, even less gets done

• Stretch goals usually counter-productive for Engineering

• Stable whole teams twice as productive as pooled resources

• “Busy” vs. “effective”

#1Law of Ruthless Prioritization

• AND requests but EXCLUSIVE-OR decisions• We succeed by finishing a few critical things

Executive’s Job• Make hard trade-offs• Battle magical thinking and one-offs

4 Laws of Tech Product Economics

1. Your development team will never be big enoughLaw of Ruthless Prioritization

2. All of the profits are in the nth copy/unit/user

For Software (and Hardware)

Fact #2: All of the profits are in the nth copy, unit or subscriber

Revenue Implications

Goal is not to minimize costs but to maximize revenue

• Your development team of 6 costs…• Implied revenue commitment…• Incremental cost per user…

$1M/year$6M/year< 3% (SW)< 20% (HW)

Software Tiers/Bundles

There’s nothing more wasteful than brilliantly engineering a product that doesn’t sell.

• Professional Services rewarded for more hours, more customization. Priced for effort.

• Product rewarded for large numbers of frictionless, self-onboarding subscribers. Priced for value.

Conflicting Metrics & Models

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Gro

ss P

rofit

CustomDevelopment RepeatableRevenueProducts

KeyMetric StaffUtilization(busydevelopers) Users(subscribers,licenses,units)

BusinessModel Mark-uponstaffhours Re-useofidenticaltech bits

Wetrack... Projects/programs Products/releases

Essentialskills Sales,businessdevelopment Segmentation,validation

Innovationownership&risk

ClientownsIP:wehopetheypayandsendmoreprojectsourway

WeownIP:wehopetargetsegmentpayshandsomelyforperceivedvalue

Gradedfirston... Ontime,onbudget,onspec Marketwinnervs.competition

Customerwantsaone-off?

"Great!Here'sachangeorder" "Letmeputthat(deep)intothebacklog."

Plantoproductizeplatforms?

Alwayssacrificedwhenpaidprojectsrunlate

Essentialpartofproductlineplanning

Opposing Management ModelsCustomDevelopment

KeyMetric StaffUtilization(busydevelopers)

BusinessModel Mark-uponstaffhours

Wetrack... Projects/programs

Essentialskills Sales,businessdevelopment

Innovationownership&risk

ClientownsIP:wehopetheypayandsendmoreprojectsourway

Gradedfirston... Ontime,onbudget,onspec

Customerwantsaone-off?

"Great!Here'sachangeorder"

Plantoproductizeplatforms?

Alwayssacrificedwhenpaidprojectsrunlate

Art courtesy of Arne Olav Gurvin Fredriksen

#2Law of Build Once, Sell Many

• Segmentation: strategic art of choosing customers who want the same solution

Executive’s Job• Focus on segments, not deals

(or become a professional services firm)

4 Laws of Tech Product Economics

1. Your development team will never be big enoughLaw of Ruthless Prioritization

2. All of the profits are in the nth copy/unit/userLaw of Build Once, Sell Many

3. Technology bits are not the product

Naked without• Deep customer understanding• Positioning, messaging, awareness • Sales & channels• Support, evangelism

Tech Bits < Whole Product

Jobs To Be Done

Commercial Product Failure Modes*

Undifferentiated or poorly positioned

Marketing/sales/ channel failures

Late deliveryPoor quality

Wrong problem, wrong solution

*In my personal experience, mostly SW

Most of the success / failure of a product is determined before we pick our first developer or fill out our first story card

#3Law of Whole Products

• Customers buy solutions (which may include software/hardware)• Mean-Time-To-Joy

Executive’s Job• Focus on end customer satisfaction• Watch for organizational silos

4 Laws of Tech Product Economics

1. Your development team will never be big enoughLaw of Ruthless Prioritization

2. All of the profits are in the nth copy/unit/userLaw of Build Once, Sell Many

3. Technology bits are not the productLaw of Whole Products

4. You can’t outsource strategy or discovery

Decisions > Input

• Voice of Customer/CAB• Showcase customers• Surveys• Crowdsourced feature

ranking• Industry analysts• Competitor data sheets

• Smartest customers• Smartest developers• Executive Survey-of-One• Investment banker• Your mother-in-law• Inflight magazine

• Business value error bars >> engineering error bars

• Bottom-up prioritization àugly products

• “We’re one feature away from competitive parity”

Strategy > Analytics

• Markets are complex, surprising• Your best ideas are half wrong• Need 16 (or 22 or 35) in-depth

interviews to see patterns, outliers• Be there yourself to spot details,

emotions, connections, subtlety

Discovery (Validation)

Kano Model

Baseline

“I skate to where the puck is going to be”

Strategy Requires StrategyStrategy requires judgment

4 Laws of Tech Product Economics

1. Your development team will never be big enoughLaw of Ruthless Prioritization

2. All of the profits are in the nth copy/unit/userLaw of Build Once, Sell Many

3. Technology bits are not the productLaw of Whole Products

4. You can’t outsource strategy or discoveryLaw of Judgment

Rich Mironov

Mironov ConsultingSan Francisco, CA, USAwww.mironov.com+1-650-315-7394rich@mironov.com@richmironov