Business Case Secrets at PMEC


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Presented at AIPMM's Product Management Education Conference in November 2009. This 50-minute presentation discusses:
- What executives do and don’t want to see in a business case presentation
- How to align business cases with company strategic and financial objectives
- How to construct a defensible financial forecast.
For more info, see resources at the end.

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  • Business Case Secrets PMEC MK: Key points: Enthusiastic welcome Today is all about helping you build your career by participating at a more strategic level – preparing the business cases for new project proposals. Explain how the course logistics will run: while we only have an hour with you today, we’ll do our best to keep it interactive. Feel free to chime in with questions as they come up! Transition comment: So who are we, and what are the overall goals for the course?
  • Business Case Secrets PMEC 10/23/09 © 2009 Pivotal Product Management, LLC All rights reserved. Our company offers Product Management training , coaching and strategic consulting, as well as hands-on product management resources. We work with clients in many industries, both in the US and internationally . And in today’s workshop we’ll share the best of what we have learned in our combined 40 years ’ experience of developing and marketing successful products. Here’s a little more information about us. In addition to our own consulting and training practice, we also are very involved in running the University of Washington’s product management certificate program and the Seattle-based Product Management Consortium . We’ve been honored to receive two Excellence in Product Management Education awards from AIPMM, and to be listed among the top 100 women in the Seattle Tech industry this year. But perhaps most importantly, we continue to be practicing product managers. And w e’re here today because of you…
  • Business Case Secrets PMEC Key Points: Find out who’s in the room… introductions if 10 or less Review agenda items Let’s hear from you (take a few questions/objectives and whiteboard) Transition: Now let’s work on a quick exercise, to get our best thinking started…
  • Business Case Secrets PMEC (Our feedback in the discussion is to mention any items in the list that people didn’t think of.) Transition: Here’s what we see as the key elements in a business case.
  • Business Case Secrets PMEC Key Points: You can think of the business case presentation as incorporating three main components – The market ( or problem ) analysis, the financial analysis, and the “Ask”. You won’t succeed without covering all three. Transition: Some thoughts on presenting…
  • Business Case Secrets PMEC Key Points: This next part of this hour we have with you is to give you new tools to play at a more strategic level on your team. This is all about giving you a “helicopter view” of the opportunity and tools to verbalize that with your coworkers and executive decision-makers, whether or not you are the one to present a business case.
  • L: 1. The very first criteria that an executive will think about when hearing about your idea is… how does it support what we’re trying to achieve? Is it within the boundaries of our chosen strategy? Do we have the means to pull it off? They apply and answer those questions at several levels: within the department, within the division, within the company. You need to answer these questions first. Transition: Creating this alignment shows how this proposal answers your company’s problem. But then it’s time to switch to the customers’ problem that this product will solve. 11/4/09 (c) 2009 Box One, Inc. and Pivotal Product Management LLC. All rights reserved. Business Case Secrets PMEC
  • Business Case Secrets PMEC L: 1. Technologists can come up with hundreds of great ideas…. 2. But we need some indication that this is a real problem that real customers will PAY to solve. Defining this early is critical to the next few steps in the process, so we want to make sure we establish the ‘problem statement’ as a foundation. Here’s an easy template (Tell SPM student story about adding problem statements to his product proposals and getting instant buy-in from his boss) Transition: Notice that we can’t talk about the problem without identifying the target customer. And once we’ve done that, the next logical question is this: how many of them are there? Transition: Let’s look at an easy way to craft a problem statement. 11/4/09 (c) 2009 Box One, Inc. and Pivotal Product Management LLC. All rights reserved.
  • Business Case Secrets PMEC M: 1. Here’s the definition of a target market. [review the slide] 2. Further, most markets can be divided into segments: subgroups that respond differently to SOME of the elements of the offering – maybe different product forms, price points, purchase channels. 3. And it’s also important that the members of each subgroup talk to each other: to leverage the ‘word of mouth’ effect. Transition: We use research to help us define markets and segments. And we use the results to begin building a revenue forecast. 11/4/09 (c) 2009 Box One, Inc. and Pivotal Product Management LLC. All rights reserved.
  • This is called a “market capacity model” or a “top down forecast”. It’s good for when you are entering a new market and have no historical performance data to rely on. When you estimate a target market, you use assumptions – either your own, or the assumptions of data providers. For example, market growth rates are projected by industry analyst firms, which tend to be optimistic. Any government-provided data you use tends to be several years old, and can under-represent an opportunity. You need to document your assumptions; make them easy to adjust in your spreadsheet so you can show what happens when they change. Also be sure to document your sources. Let’s walk through this model. You begin with facts from reputable sources. CLICK We have obesity population numbers from CDC; and the penetration of SmartPhones from an industry analyst. We’ve actually used less optimistic numbers for penetration than the analysts projected. Then you do some math to find out how many people *could* be customers. CLICK CLICK Then we divide the possible market into Wally’s and non-Wally’s customers. We can calculate those percentages based on our membership and general population figures – AND we assume that the figures hold true across the obese and smartphone segments! We do some more math to come up with the number of customers in each of the sub-segments. CLICK CLICK The hard part is coming up with market penetration assumptions. If there’s a similar product for which you have actual penetration rates, you can use that as a basis. Otherwise, you’ll just need to pick some numbers based on: Competitor market shares, which are available from analyst reports. Strength of brand, channel partners, sales force Marketing and promotional funds available Product uniqueness This section of your model will be subject to the toughest scrutiny, so be prepared with best-case/worst-case scenarios. This gives us a unit forecast, but executives are usually more concerned with the revenue. To get there, we need pricing, but there are a couple of steps we need to take before we’re ready for that. The first is competitive research. *** The % of market available line factors in adding support for additional mobile platforms in subsequent years. It starts out w/Symbian, RIM, and iPhone, and adds Windows Mobile, Linux, Palm, and Android later. 11/4/09 (c) 2009 Box One, Inc. and Pivotal Product Management LLC. All rights reserved. Business Case Secrets PMEC
  • Product Management Intensive L: 1. Competition takes many forms: direct, current alternatives, and your biggest competitor: resistance to change! You’ll need to understand each competitor’s unique strengths, major features, and pricing for your business case. But you’ll also need to understand a bit about your competitors’ strategy. Analysis on the strategic level is the only way to get ahead and stay ahead. This includes understanding your competitors’ company, product, and sales & marketing strategies. As Michael Porter recommends, find your “sustainable advantage” in order to compete successfully. If your proposal strengthens your company’s sustainable advantage, it should stand out from the others. Transition: The next step in our progress toward pricing is to refine the value proposition.
  • Business Case Secrets PMEC M: You tapped into the value proposition in crafting your problem statement. 2. If you can quantify the value proposition, you’re in a much stronger position. Clearly identifying the Value prop at this stage gives you a good start on the business model, the pricing, and the messaging. Doing it before you do your competitive research is a good idea, but you’ll need to revisit it again to make sure your value prop is compelling when compared to alternatives. With the value proposition identified, we’re ready to move on to Positioning. Positioning gets to the heart of “why they will care about this product”. 2. It wraps up the problem statement, target customer, value proposition, and the unique strengths of your product compared to the alternatives. 3. This positioning statement is for internal use only. You can hand this off to your marketing communication team as a basis for their work – they’ll put great words and images with it, and communicate it to the right people. Here’s an example positioning statement for a Prius. Transition: the positioning statement follows a straightforward template.
  • Business Case Secrets PMEC M: We first saw this in Geoffrey Moore’s Crossing the Chasm. [Walk thru the template. ] The left side tells you what to fill in on the right side. How many are using this or a similar template for positioning? Also called USP: unique selling proposition. Transition: With these pieces in place, we can approach the pricing challenge.
  • Business Case Secrets PMEC Unless you’re at a later stage in the decision process, you probably won’t need an exact, final price for your business case. However, you will need a range of prices, a price assumption, and a pricing MODEL. The model indicates how value will be exchanged; and your value proposition helps you identify potential models. Transition: Let’s look at some typical pricing models. There’s the basic method of exchange: units, subscription, transaction, etc. Then there is also the product mix to consider – exactly what will you be selling? [refer to contents of slide] Transition: This gives you an idea of some approaches, and maybe one or more will stand out. There are many more factors in determining the right price. However, we want to just review a couple of important ones now: pricing drives, and pricing strategies.
  • Business Case Secrets PMEC These are three basic strategies for pricing. Transition: Once you have your pricing set, or a good pricing assumption, then you can continue building out your revenue forecast.
  • In this section, we take the unit forecast and extend it by the price to get a revenue forecast. However, there are a couple of tricks along the way so we’ll walk through it. We begin with the forecasted units. CLICK This is what we calculated based on our penetration assumptions. Then you’ll notice that the rest of the spreadsheet is structured by sales channel – OEM, distributor, and direct. Raise your hand if you know what those terms mean. Here’s why we break out the revenue forecast by channel: because the price that we sell to each of those channels is generally different. OEM, where our product gets incorporated into someone else’s product, is generally the lowest price. When we sell to distributors, we sell for a discount off the Suggested Retail price so the distributor can mark up their purchase price and make a profit. When we sell direct, we generally sell at Suggested Retail Price so that our distributors, if any, don’t have to compete with us on price. If you only sell direct, this might be the discounting you expect to provide to close deals. CLICK CLICK So we need to make assumptions about how many units we’ll sell through each channel. For Health Monitor, we’ve assumed mostly direct, but some distributor, and no OEM. CLICK CLICK In this next section, we state our pricing assumptions by channel, each channel’s discount off the SRP, and compute the Average Revenue per Unit. CLICK CLICK Then, we multiply the units and ARPU by channel to get revenue per channel. Do the math… bingo, your revenue forecast is ready! Transition: Any questions about what we’ve covered so far? Of course from here, you’ll need to also forecast operating costs and complete a cash flow statement.
  • Business Case Secrets PMEC Key Points: Make sure a cost-benefit analysis has been completed. But then step back and determine how the benefits of your proposal impact the company’s financials. Work with your Finance team. They’ll help you determine just where the impact will show up. Ideally, you’ll want to show how this proposal will impact gross margin (revenue less cost of goods sold). That should put your proposal closer to the top of the list. Your finance team can also help you compute other key metrics that will allow the decision makers to see which proposals have the best chance of strong return on investment. Transition: Let’s move into the final section. Here are some tips on presenting your case.
  • Business Case Secrets PMEC Transition: Now that we’ve covered the major Financial and Market components of the business case, let’s talk about how to present it.
  • In addition to alignment with company, division, and product line strategy, there’s one more level we need to align with: the individuals who will be making the decision. We think of sales people, and executives, as ‘coin operated’ – they’ll go along with your proposal if they can see how it will help them achieve their MBOs and their bonus. Ideally, you’ll have an executive sponsor who can view a dry run and point out issues to fix. Also, you’ll ideally have developed a relationship with most/all of the likely audience for your pitch, so you can anticipate their point of view and questions and be better prepared. Transition: But more seriously than that… what factors will boost your chances of a successful presentation?
  • Make it clear that you’ve done the homework, thought through this from the executive perspective, socialized the concept, surfaced the issues, gotten the buy-in. Don’t start with the detail – it’s the fastest way to lose an executive’s attention. Don’t present dense slides – keep it visual, focus on the key points. Make sure you can get your point across in 10 minutes. You might have longer… but then again, you might not. Don’t assume anything. Execs are busy and have thought about thousands of things since you last talked with them about this concept. Provide context at a high level before you dive in. Anticipate the tough questions and have prepared answers. Transition: What are some elements of the context?
  • Business Case Secrets PMEC Business case presentations are risky for you, whether or not you’re presenting Do your homework, and sanity-check the idea, to reduce the likelihood of surprise questions that you don’t want to answer. Speak up if you believe the business case is not strategically aligned or viable, but be ready to stand behind your work, whether the case is approved or not. Transition: To recap…
  • Business Case Secrets PMEC Key Points:
  • Business Case Secrets PMEC Key Points: Reference to the importance of doing this well when budgets are tight and companies are conservative.
  • Thanks for your time!
  • Business Case Secrets at PMEC

    1. 1. Business Case Secrets For Product Managers PMEC November 2009 © 2009 Pivotal Product Management, LLC All rights reserved.
    2. 2. About Pivotal Product Management © 2009 Pivotal Product Management, LLC All rights reserved. Improving product success through product management training, coaching, and process improvement Linda Merrick, CPM <ul><ul><li>Active product managers </li></ul></ul><ul><ul><li>AIPMM’s Excellence in PM Education award </li></ul></ul><ul><ul><li>(2006, 2007) </li></ul></ul>Mara Krieps, CPM Clients include: Amazon, Amex, AT&T, Bank of Bermuda, Cisco,, Getty Images, Google, IDX, Microsoft, Railinc, Real Networks, Russell Investment Group, Thermo Fisher, T-Mobile <ul><ul><li>“ Top100 Women in Seattle Tech” (2009) </li></ul></ul>
    3. 3. Learning Objectives <ul><li>What executives do and don’t want to see in a business case presentation </li></ul><ul><li>How to align business cases with company strategic and financial objectives </li></ul><ul><li>How to construct a defensible financial forecast </li></ul><ul><li>Plus… </li></ul><ul><li>Your questions and learning objectives </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    4. 4. What’s In A Business Case Presentation? <ul><li>What is the most important information to include in a business case presentation? </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    5. 5. Key Elements of the Business Case <ul><li>Market analysis </li></ul><ul><li>Corporate objectives alignment </li></ul><ul><li>Customer problem </li></ul><ul><li>Positioning vs. competition </li></ul><ul><li>Customer feedback </li></ul><ul><li>Intellectual property </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved. <ul><li>Financial analysis </li></ul><ul><li>Cost/Benefit </li></ul><ul><li>Wall Street analysis </li></ul><ul><li>Risks </li></ul><ul><li>Exit strategies </li></ul><ul><li>The “Ask” </li></ul><ul><li>Conclusions </li></ul><ul><li>Request and specific actions needed </li></ul>
    6. 6. DEFINE THE OPPORTUNITY © 2009 Pivotal Product Management, LLC All rights reserved.
    7. 7. Strategic Alignment <ul><li>Company/Division: </li></ul><ul><ul><li>objectives </li></ul></ul><ul><ul><li>strategy </li></ul></ul><ul><ul><li>resources </li></ul></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    8. 8. Problem Statements <ul><li>Ideas are great, but what’s ‘THE PROBLEM’? </li></ul><ul><li>Is this a problem for a REAL and PAYING customer? </li></ul><ul><li>The problem definition… </li></ul><ul><ul><li>leads to the “value proposition” – how beneficial the solution is </li></ul></ul><ul><ul><li>helps uncover all of the solution elements – beyond the simple “product” </li></ul></ul>© 2009 Pivotal Product Management, LLC All rights reserved. State the person’s role in business or life I am a… Describe just the problem This is my problem… List the benefits of solving the problem If I could solve this problem, this is how my life would be better…
    9. 9. Analyzing the Target Market <ul><li>What’s a ‘Market?’ </li></ul><ul><ul><li>A set of actual or potential customers </li></ul></ul><ul><ul><li>For a given set of products or services </li></ul></ul><ul><ul><li>Who have a common set of needs or wants </li></ul></ul><ul><ul><li>Can be reached through affordable means </li></ul></ul><ul><li>Market Segment: </li></ul><ul><ul><li>All of the above, AND </li></ul></ul><ul><ul><li>Respond differently to some of the elements of the offering </li></ul></ul><ul><ul><li>Who reference each other when making buying decisions </li></ul></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    10. 10. Market Penetration © 2009 Pivotal Product Management, LLC All rights reserved. (enter data in shaded cells only) 2010 2011 2012 2013 Segment Data         Total overweight or obese in USA 150,738,611 152,709,050 154,236,141 155,778,502 Smartphone penetration 12% 14% 17% 20% Total overweight or obese AND own a smartphone 18,088,633 21,806,852 26,209,656 31,501,385           Total Wally's Customers 2% 2% 2% 2% Total Non-Wally's Customers 98% 98% 98% 98%   100% 100% 100% 100% Total Market (units)         Total Wally's Customers 419,656 505,919 608,064 730,832 Total Non-Wally's Customers 17,726,861 21,370,715 25,685,463 30,871,358         % of market available 77% 90% 93% 93% Adjusted Total Market (units) 13,964,425 19,626,167 24,374,980 29,296,288 Expected Penetration of Wally's customers 5% 6% 9% 14% Expected Penetration of Non-Wally's customers 0.5% 1.5% 2.5% 4% Total Wally's Customers penetration 16,199 28,458 53,016 95,579 Total Non-Wally's Customers penetration 68,426 288,505 597,187 1,148,415
    11. 11. Competitive Analysis <ul><li>Who/what are competitors? </li></ul><ul><ul><li>Don’t forget alternatives – what do customers do now to solve the problem? </li></ul></ul><ul><li>Feature comparisons </li></ul><ul><li>Strategic comparisons </li></ul><ul><li>BE OBJECTIVE </li></ul>Goal: Find key differentiators for your products and your company © 2009 Pivotal Product Management, LLC All rights reserved.
    12. 12. Value Proposition & Positioning <ul><li>Value Proposition </li></ul><ul><li>Tells how the customer will benefit </li></ul><ul><ul><li>Helps you identify the drivers of value </li></ul></ul><ul><ul><li>Suggests the metrics of measuring value </li></ul></ul><ul><li>Leads to a business model </li></ul><ul><li>Positioning </li></ul><ul><li>“ Elevator statement” that includes: </li></ul><ul><ul><li>Target customer statement </li></ul></ul><ul><ul><li>Pain/problem statement </li></ul></ul><ul><ul><li>Value proposition </li></ul></ul><ul><ul><li>Competitive differentiation/vision </li></ul></ul>“ If I could lose weight, I’d look better and feel better. I’d save money on clothes, food, and doctor bills. I might even get a better job! ” © 2009 Pivotal Product Management, LLC All rights reserved.
    13. 13. Positioning Template Geoffrey Moore, Crossing the Chasm © 2009 Pivotal Product Management, LLC All rights reserved. Identify a target market and their primary need For environmentally-conscious drivers who want to help reduce greenhouse gasses, Name the category Our product, the Toyota Prius, is a hybrid car Define how we solve the problem That delivers 2-3x the mpg of standard gas-only sedans. Name primary alternative and biggest differentiators Unlike other hybrids, our product i s engineered for the lowest environmental impact in both operation and at end of life.
    14. 14. Pricing for Early-Stage Business Cases <ul><li>Pricing model </li></ul><ul><li>Pricing strategy </li></ul><ul><li>High, low, and assumed price </li></ul><ul><li>Pricing Models </li></ul><ul><li>Unit </li></ul><ul><li>Subscription </li></ul><ul><ul><li>Per user </li></ul></ul><ul><ul><li>Per time period </li></ul></ul><ul><li>Transaction </li></ul><ul><li>Product line </li></ul><ul><ul><li>Good/better/best </li></ul></ul><ul><li>Optional features </li></ul><ul><li>All-inclusive </li></ul><ul><li>Base plus variable </li></ul><ul><ul><li>Captive product (razors/blades) </li></ul></ul><ul><li>Bundles </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    15. 15. Typical Pricing Strategies <ul><li>Skimming </li></ul><ul><ul><li>Start high with early adopters, reduce slowly </li></ul></ul><ul><ul><li>Recoup costs faster </li></ul></ul><ul><ul><li>Attracts competitors </li></ul></ul><ul><li>Penetration </li></ul><ul><ul><li>Start low to build volume/share </li></ul></ul><ul><ul><li>Not a guarantee that you’ll keep customers </li></ul></ul><ul><li>Neutral </li></ul><ul><ul><li>Price doesn’t lead in the market mix strategy </li></ul></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    16. 16. Revenue Forecast © 2009 Pivotal Product Management, LLC All rights reserved.
    17. 17. Analyze Financial Impact <ul><li>Work with Finance to: </li></ul><ul><li>Understand how your proposal impacts company/division financials </li></ul><ul><ul><li>Greatest strategic impact = Gross Margin </li></ul></ul><ul><li>Calculate Time to Break Even, IRR, and NPV </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved. For more info on this topic, join us for the Business Case Secrets Distance Learning Series Year 1 Year 2 Year 3 Year 4 Year 5 Revenue Gross Margin Operating Costs
    18. 18. PRESENTING YOUR CASE © 2009 Pivotal Product Management, LLC All rights reserved.
    19. 19. Q: What does your boss want to see in a business case? <ul><li>A: Whatever helps achieve his/her bonus </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    20. 20. Presenting Your Case: Top Success Factors <ul><li>Do the Decision Maker’s job </li></ul><ul><li>Start with the big picture and let them drill down </li></ul><ul><li>Keep it at a grade-school level </li></ul><ul><li>Keep it brief </li></ul><ul><li>State the obvious </li></ul><ul><li>Get a sample of a past success </li></ul><ul><li>Know their information processing style (top down, bottom up) </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    21. 21. Why Is the Business Case So Important? It’s Your Reputation <ul><li>Every project that you put your name on becomes part of your reputation </li></ul><ul><li>Sanity-check the business case proposal for strategic fit and viability; if not, speak up </li></ul><ul><li>If it goes forward and you’ve done sloppy work... </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    22. 22. Learning Objectives <ul><li>What executives do and don’t want to see in a business case presentation </li></ul><ul><li>How to align business cases with company strategic and financial objectives </li></ul><ul><li>How to construct a defensible financial forecast </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    23. 23. Resources <ul><li>Business Case Secrets 3-part Distance Learning starts Feb. 24, 2010 – see to register </li></ul><ul><li>Business Case Presentation Template – </li></ul><ul><li>The Pivot Point Newsletter – give us your business card or sign up at </li></ul><ul><li>Contact us at </li></ul>© 2009 Pivotal Product Management, LLC All rights reserved.
    24. 24. Business Case Secrets Contact Pivotal Product Management 866-647-5397 © 2009 Pivotal Product Management, LLC All rights reserved.