25
Aug 15

Finding and Validating Market Problems – Key Themes

For the past few posts I’ve been beating the drum on “finding and validating market problems” – the most important thing that product managers do if they want to make a lot of money.

I gave you an explanation of why it’s so important, a self-assessment, and I linked to a bunch of techniques you can use.

If you read those articles a set of themes starts to jump out:

You’re Testing A Hypothesis Or Generating Ideas

You need either a hypothesis to test about a market, or an area or domain to investigate. For example, you might have a specific idea for a product. Or you want to try to discover what problems might be unsolved in a particular domain.

In my current job the domain is project management. I believe there are a lot of problems in project management still unsolved. Therefore, I talk to project managers and other people who work on projects to find unsolved problems. My initial research is to figure out where to focus in my next set of research. I’ll start with the hypothesis that “lots of problems in project management don’t have technical solutions yet.” If and when I discover some of those problems, my followup hypothesis will be “problem X of project management is a good candidate for a new technical solution.

You have to talk to a lot of people

To discover these problems, you will have a lot of conversations with people who are familiar with the domain, or working in the domain. There are two key points:

You’re looking for a “weak signal”

Often people won’t have a concrete sense of the problems they have. It might just be a frustration, or something they feel could be better. So you have to talk to a lot of people about their experiences in the domain.

People don’t necessarily know “their biggest problem”

You can’t simply ask your informants “what is your biggest problem?” The questioning has to be more oblique, otherwise you tend to “freeze” people. Ask them about their experience doing the job. Ask about what keeps them up at night. Or about recent challenges. Or when they have an “I suck” feeling in their job. Or, alternatively, what generates an “I rule!” feeling in their jobs, and how often that happens. They you can explore if there are ways to make more I Rule moments and fewer I Suck moments.

Get people talking with open-ended questions about their own experiences

From a technique standpoint, use open-ended questions (that don’t have Yes or No answers). And you can have a mix of provocative and “discovery” questions. Effective provocative questions get the person to think a little differently, to consider other options, to shift their point of view. For example, you might ask someone what features of Facebook should be applied to their domain. The whole tone of a discovery meeting can change in response to a question like that, when your informant says, “I’ve never considered that before,” or “I’ve never thought about that,” or “I didn’t realize that was possible,” or “No one has ever asked me that before.”

(Suffice it to say that the topic of using open questions and provocative questions to discover useful information in an interview needs its own series of blog posts!)

Once a signal starts bubbling up through the noise, you can go to the next phase

How do you know you’ve done enough interviews? You want to hear a lot of people coming up with the same problem. Ideally, people will say they’ve tried to solve this problem, but have been unsuccessful or not fully successful. Even better, they’ve budgeted some money to find a solution to this problem, but haven’t been successful in finding or buying a solution.

By the way, even if you think you already know the problem, and have an idea for a solution, don’t tell people about it at this stage. You’re really trying to find unsolved or badly solved problems, or validate that the problem you’re thinking about is actually important. You’re not pitching.

Use affinity mapping and similar techniques to discover the weak signal

If a problem doesn’t arise obviously from the interviews, you have to do some amplification. Go back through all your interviews (either via transcripts or detailed meeting notes), and pick out the “snippets” that seem to be interesting. You probably won’t find all of them the first time through, and many of the things that might be interesting won’t turn into anything useful in the end, after analysis, but do your best. This also works well collaboratively, because different people will come away with different snippets from the same conversation or notes.

Take all these snippets, from all your conversations, and analyze them. A good way is to use “affinity mapping.” Put the snippets onto post-it notes, or onto a virtual post-it note system, and try to find snippets that go together. Your goal is to tease out a weak signal from everything you’ve heard, and then use affinity mapping to amplify the signal.

For example, in an earlier life I interviewed a lot of product managers about a product idea I had. The product idea didn’t turn out to solve a big enough problem, so I abandoned it. But in the course of these interviews I heard something surprising multiple times – “I go to LinkedIn to find out how to do product management.” This shocked and surprised me – LinkedIn is a place to find out how to do product management? I never would have guessed that, and in fact, the first time I heard it I kind of ignored it. But then, when I heard it again, I realized it might reveal a problem I hadn’t discovered before, or at least a solution that a number of people were trying and which I might be able to either leverage or improve upon.

Will they pay for a solution?

Finding a problem is merely step one. The next step is to make sure there is a market for a solution. We’ll talk about that more in the future.


19
Jun 15

What’s the Business Value of PM? Podcast Episode 7

In this podcast I go into a bit more detail about a topic I covered a few weeks ago in The Astonishing Financial Benefits of Improving PM Effectiveness, namely, the “business value” of product management. (By the way, I was happy to see this concept mentioned in Janna Bastow’s post on ProdPad this week – How Much is a Product Manager Worth? Setting Product Management KPIs.)

There’s a very big number involved – $41,000 per day. Or $10 million per year. In the podcast I talk about the implications of that number. If you can improve your performance against this number, the results go almost straight to the bottom line. ([tweetthis hidden_hashtags=”#prodmgmt”]When u improve your performance as a #prodmgr the results go straight to the bottom line -[/tweetthis])

And I set out some guidance on how to use the number to assess your product management organization and analyze your performance. I describe an action plan to hit that giant number, some of the key steps of which are:

  1. Find big market problems by doing constant discovery.
  2. Dozens or hundreds of conversations yield a handful of insights.
  3. You need a “market problem” pipeline – just like the sales pipeline.

(By the way, you’re not going to have time to write a lot of user stories.)

Once you’ve found and validated important market problems to solve, and selected the best one or few to focus on, then you need to guide the creation of excellent solutions to those problems. And you need to prepare sales and marketing to go out and find and close the people who have those problems.

Summary

  • Product managers have a number.
  • You can use the number for assessment, analysis, and guidance.
  • Becoming more effective goes straight to the bottom line.
  • Being more effective is mostly about the problem, not the solution.
  • Better problem leads to more revenue.

A PM’s stock in trade is important market problems that people will pay to solve. If that’s not what we’re working on, we’re probably not going to hit that big number.

Solves-a-Market-Problem-vs-Doesn’tAnd to whet your appetite for some upcoming topics, here’s a chart I created recently. Not all market problems are the same. The ones you come up with on your own are worth, generally, a lot less than the ones you discover. But discovering real big market problems requires a lot of listening for very “weak signals” – that will be a topic for an upcoming podcast.

If you like this podcast, please subscribe via iTunes (search for “responsibility authority” to find the listing) or your favorite subscription method via this feed. And please consider rating and reviewing the podcast on iTunes. The feedback is very helpful for me.


13
Apr 15

The Astonishing Financial Benefits of Improving PM Effectiveness

Image of man holding hand-lettered cardboard sign saying "Give Me One Million Dollars"

Give Me One Million Dollars (by Klaus M, CC licensed)

What if you could increase your company’s revenues by $1 million simply by changing what you do? Not by adding any new employees, or buying a business software package. Just by doing things a little differently. What would $1 million more on your top line mean for your bottom line?

That’s the kind of return you can get by improving your product management operation – per product manager!

A Massive ROI

The business value of a product manager is about $10 million in revenue, based on standard industry ratios. A 10% improvement in product management effectiveness is therefore worth about $1 million more revenue. (10% of $10 million.) And if you gain that improvement simply by changing behavior, by doing things differently, that new revenue is going to flow all the way to the bottom line.

That sounds pretty good, doesn’t it? So, how do you do it? How do you increase product management effectiveness by 10%? Do you just increase the hours a PM works? Or can you get them to put in 10% more effort? Unlikely.

Instead, a 10% improvement is going to come from doing things differently. (And everywhere I say “PM” in this discussion, I also mean “the PM organization” or “the PM function within your company.”)

How To Be A More Effective Product Manager

What are the levers we have to increase PM effectiveness? At a very high level:

  1. We can do a better job of discovering important market problems.
  2. We can do a better job of creating solutions to those problems.
  3. We can do a better job of taking those solutions to market.

For example, let’s say I want to do a better job of discovering important market problems. This is often the highest leverage I have. No one will buy my solution, no matter how good it is, if it doesn’t solve an important problem! Therefore, step 1 is to focus more of my time on market discovery. If I’m not spending much time finding problems, I’ll have to reprioritize my work to spend more time on that activity.

This means I won’t be able to do some other things – they’ll fall off my plate. I might not be able to babysit customer enhancement requests. I might not have as much time to write detailed user stories for developers. Spending time discovering market problems to solve is almost always a higher payoff activity than spending time decomposing requirements.

More Effective Means More Successful, Higher Quality Products, Faster

This is because when I understand the market problem well, I can do a better job of prioritizing the work of the product team. Whether it’s choosing between different features, or choosing between different products to invest in. Prioritization is a complex subject in itself, but having good market intelligence is the most critical part.

If you have more market intelligence you can write better features. You can tie the feature more explicitly to specific market needs. The feature will be worth more (versus “this seems like a good idea”). And the developers will be more motivated – they’re solving a real validated market problem! So you get a higher quality solution.

Finally, better problem discovery gets us to market faster! We don’t get more efficient or code faster. We simply make better decisions and create less waste. A feature that doesn’t really solve a problem, or that’s incomplete, or is implemented in a less valuable way is waste. And waste is always a drag on revenue and profits. By being a more effective product manager you’re eliminating waste from the product development process.

When Japan innovated their manufacturing systems in the ’70’s, their great efficiencies were not the result of working faster. (Although they also developed techniques for working faster, analogous to unit testing and code templates.) They focused on eliminating the waste of doing work that was bad or incorrect or unnecessary. Not only did their efficiency skyrocket, but so did their quality. Now we in product management have the same opportunity.

Three things you can do today to start being a more effective product manager:

  1. Calculate how much time you’re spending today finding market problems. This means talking to customers, prospects, the customers of competitors, and lost prospects – outside the context of sales – to understand their most important problems.
  2. Plan how you’ll start spending more time on market discovery.
  3. Practice your market discovery skills such as asking open-ended questions, putting yourself in your customers’ shoes, and “asking Why? five times.”

By the way, Justin Wilcox has a great resource on how to do a market discovery interview. If you start doing a few of these every month, you’ll learn a lot about how to offer more value to your market, and thereby start creating more revenue for your company!


18
Sep 14

What Is The Business Value Of A Product Manager?

I have not been able to find an answer to the question “what is the business value of a product manager?”

So, I did some arithmetic, and here’s what I came up with:

A product manager is worth between $5 and $10 million of annual product revenue. ([tweetthis]A product manager should be worth between $5 and $10M of annual product revenue[/tweetthis].)

That’s an educated guess, a stake in the ground, a challenge to you.

Simple Ratios

I arrived at that value working bottom up using familiar financial ratios from software product companies:

  • The normal ratio of development resources to revenue is roughly one developer per $1 million in revenue.
  • The normal ratio of product management to development resources is one product manager per 5-10 developers.

Combining those ratios results in one product manager for every $5-10 million in revenue.

I’ve taken a leap and assigned this as the business value of the PM – if you hire a product manager, then you are looking toward increasing your revenue by $5-$10 million annually. ([tweetthis]If you hire a #prodmgr, then you are hoping to increase your revenue by $5-$10 million annually[/tweetthis])

Raises Questions

Once you put a stake in the ground about the business value of a product manager, you can ask interesting questions.

If you are a product manager, you can ask:

  • How well am I doing? Is what I’m doing going to result in $5-10 million a year in new revenue?
  • How much would it be worth to the company if I got 10% better at my job (answer: maybe as much as $1 million).

If you manage product managers, you might ask:

  • What’s the return on investment if I help my product managers become 10% more effective, and it costs $10,000 per product manager? (Answer: pretty high!) ([tweetthis]Q: What’s the ROI if it costs $10k per #prodmgr to make my PMs 10% more effective? A: Pretty high![/tweetthis])

And here are two questions for you:

  • Does this analysis make sense to you and is it valuable?
  • Do you have a top-down analysis – to go with my bottom up calculation – for the value of a product manager?

I’m curious to see how this conversation ends up. I believe that putting software product management on a concrete business value foundation could be transformative for the profession.

What is your take on the business value of a product manager? Does this concept make sense to you? Do you think my figure is correct? Way off? Unmeasurable? Let me know.