Top 5 product factors overlooked by investors
Creating a product from 0 to 1 is tough, it needs a clear vision and understanding of why, coupled with intense execution including rapid learning, constant course correction and thousands of micro decisions. The process of deciding what problems to solve and then delivering a solution that fits the problem is at the heart of product management. In early-stage companies, the product management process is often led by the founder, and more often than not organic with little product process or rigour. A major challenge for many founders is scaling their product decisions as the business grows.
According to an analysis by Blossom Street Ventures, growing and mature SaaS companies spend circa 20% of revenue on product development, while younger companies product development spending might exceed 100% of their revenue. At the series A funding stage, the investment decisions around products are both significant and critical for the future success of the company. The product strategy is normally articulated as a roadmap, frequently as a set of features to be delivered against some vague indication of time. At pre-series A stage there is typically no product leader, so the roadmap has normally been created by the founder. The roadmap is an educated guess showing the current view (which will change) of valuable areas of focus for product investment. Is there a better way to understand the potential of the product and the ability of the team to execute the product strategy?
The relationship between releasing a feature and achieving business goals is very hard to attribute and indirect. A feature release normally impacts the behaviour of a user, sometimes it impacts internal operating costs too. When we consider the value of the feature we have to map the user behaviour to customer value, this is a value assumption.
When I am asked to do product due diligence I look at the typical areas including customer satisfaction, product adoption, speed of onboarding, feature utilisation, discovery delivery process etc. but I also focus on the following 5 critical areas which are frequently missed:
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Identify the relationship between high-level problems the customer has and the business goals. This is normally pretty well understood by the founder or product manager and sometimes is written down as the product strategy. The warning sign we are looking for is a lack of consideration for the return on the product investment.
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Typically the unwritten value assumption is how a feature will create customer value. There might be justification for a feature that will support a customer value, but rarely is the calculus defined. Features when released do little more than modify user behaviours. The easiest way to capture this is to understand the high-level user behaviours that need to be created or modified in order to deliver customer value. The warning sign is a lack of understanding of the customer's problem or very broad user behaviour showing a lack of clear focus.
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Now we have clear value assumptions - key customer problems and desirable user behaviours to overcome the problems - we need to have confidence these assumptions are valid. What evidence has the business collected that informed these value assumptions or is it a gut feeling? Too frequently it is "subject matter expert" opinion, which is great if there is only one opinion in the market but that would be very unusual. The warning sign is a lack of evidence in decision-making, it doesn't need to be overly rigorous but it needs to exist. A lack of evidence in product management decisions will not scale post-funding and rely on the highest-paid person’s opinion making all the decisions (HiPPO).
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By understanding high-level user behaviours we have now articulated the product strategy in terms that can be used to evaluate roadmap items. Normally a few items will pop out as not fitting, at this stage that is normal. The warning signal is a significant disparity between key valuable user behaviours and roadmap items.
See figure 1.0
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When asked how you prioritise, a basic product function will share a framework, it might be something like RICE. Most of these frameworks take some estimation of value and calculate a score against the cost or effort. The key question we need to understand is how value is estimated to include strategic initiatives. Many B2B SaaS companies fall into the trap of operating as an agency in disguise, they often have to spend more money building a feature to close the client than the client is worth. We want to ensure the roadmap is not a list of individual customer requests, resulting in expensive development to please one customer at a time. The warning signal is no consideration of the strategy or iterating towards the vision, it may seem counter-intuitive, but avoid expressing the value only as money.
Figure 1.0
What gaps need to be filled for the product function to scale?
Following these 5 steps will provide a far deeper understanding of how product development resources are allocated and it will normally shine a light on the gaps that exist. Those gaps are not a problem when the company is smaller, but as the business scales, the gaps will need filling. A major challenge is avoiding the product momentum gap. After funding more sales and marketing activity will take place, which likely results in widening the target market. Even a slight change in the target market will introduce nuances in the product market fit, making it a weaker fit and impacting sales cycles and order values. The product function will need the right leadership to support the sales strategy and deliver success. Unfortunately at the same time as this attention is needed the founder will be spread thinner and can no longer be driving all product decisions. Understanding the required product leadership and how to support the founder on the journey of letting go is key to future product-driven success.
We have a white paper that explores the Product Momentum Gap and details the Product Value Creation Plan to help organisations move forward at pace. You can get a copy here.
