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Four Laws of Tech Product Economics - Rich Mironov

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Rich Mironov's Four Laws of Tech Product Economics
January 31, 2017

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Four Laws of Tech Product Economics - Rich Mironov

  1. 1. FOUR LAWS OF TECH PRODUCTECONOMICS Rich Mironov ProductCamp Portland 31 January 2017
  2. 2. @richmironov 4 Laws of Tech Product Economics Fact #1 Your development team will never be big enough
  3. 3. Development can never build as fast as we can dream
  4. 4. 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.”
  5. 5. 85% Loading Beats 100% Loading 6 • 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”
  6. 6. #1 Law 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
  7. 7. 4 Laws of Tech Product Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth copy/unit/user
  8. 8. For Software (and Hardware) Fact #2: All of the profits are in the nth copy, unit or subscriber
  9. 9. 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)
  10. 10. Software Tiers/Bundles
  11. 11. There’s nothing more wasteful than brilliantly engineering a product that doesn’t sell.
  12. 12. • 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 13 GrossProfit
  13. 13. Custom Development Repeatable Revenue Products Key Metric Staff Utilization (busy developers) Users (subscribers, licenses, units) Business Model Mark-up on staff hours Re-use of identical tech bits We track... Projects/programs Products/releases Essential skills Sales, business development Segmentation, validation Innovation ownership & risk Client owns IP: we hope they pay and send more projects our way We own IP: we hope target segment pays handsomely for perceived value Graded first on... On time, on budget, on spec Market winner vs. competition Customer wants a one-off? "Great! Here's a change order" "Let me put that (deep) into the backlog." Plan to productize platforms? Always sacrificed when paid projects run late Essential part of product line planning Opposing Management Models Custom Development Key Metric Staff Utilization (busy developers) Business Model Mark-up on staff hours We track... Projects/programs Essential skills Sales, business development Innovation ownership & risk Client owns IP: we hope they pay and send more projects our way Graded first on... On time, on budget, on spec Customer wants a one-off? "Great! Here's a change order" Plan to productize platforms? Always sacrificed when paid projects run late
  14. 14. Art courtesy of Arne Olav Gurvin Fredriksen
  15. 15. #2 Law 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)
  16. 16. 4 Laws of Tech Product Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth copy/unit/user Law of Build Once, Sell Many 3. Technology bits are not the product
  17. 17. Naked without • Deep customer understanding • Positioning, messaging, awareness • Sales & channels • Support, evangelism Tech Bits < Whole Product
  18. 18. Jobs To Be Done
  19. 19. Commercial Product Failure Modes* Undifferentiated or poorly positioned Marketing/sales/ channel failures Late delivery Poor quality Wrong problem, wrong solution *In my personal experience, mostly SW
  20. 20. Most of the success / failure of a product is determined before we pick our first developer or fill out our first story card
  21. 21. #3 Law 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
  22. 22. 4 Laws of Tech Product Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth copy/unit/user Law of Build Once, Sell Many 3. Technology bits are not the product Law of Whole Products 4. You can’t outsource strategy or discovery
  23. 23. 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
  24. 24. • Business value error bars >> engineering error bars • Bottom-up prioritization à ugly products • “We’re one feature away from competitive parity” Strategy > Analytics
  25. 25. • 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)
  26. 26. Kano Model Baseline
  27. 27. “I skate to where the puck is going to be” Strategy Requires Strategy Strategy requires judgment
  28. 28. 4 Laws of Tech Product Economics 1. Your development team will never be big enough Law of Ruthless Prioritization 2. All of the profits are in the nth copy/unit/user Law of Build Once, Sell Many 3. Technology bits are not the product Law of Whole Products 4. You can’t outsource strategy or discovery Law of Judgment
  29. 29. Rich Mironov Mironov Consulting San Francisco, CA, USA www.mironov.com +1-650-315-7394 rich@mironov.com @richmironov

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