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

1. FOUR LAWS
OF TECH PRODUCTECONOMICS
Rich Mironov
ProductCamp Portland
31 January 2017

3. @richmironov
4 Laws of Tech Product
Economics
Fact #1
Your development team will never
be big enough

4. Development can
never build as fast
as we can dream

5. 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.”

6. 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”

7. #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

8. 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

9. For Software (and Hardware)
Fact #2: All of the
profits are in the
nth copy, unit or
subscriber

10. 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)

11. Software Tiers/Bundles

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

13. • 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

14. 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

15. Art courtesy of Arne Olav Gurvin Fredriksen

16. #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)

17. 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

18. Naked without
• Deep customer understanding
• Positioning, messaging, awareness
• Sales & channels
• Support, evangelism
Tech Bits < Whole Product

19. Jobs To Be Done

20. 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

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

22. #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

23. 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

24. 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

25. • Business value error bars >>
engineering error bars
• Bottom-up prioritization à
ugly products
• “We’re one feature away from
competitive parity”
Strategy > Analytics

26. • 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)

27. Kano Model
Baseline

28. “I skate to where the puck is going to
be”
Strategy Requires Strategy
Strategy requires judgment

29. 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

30. Rich Mironov
Mironov Consulting
San Francisco, CA, USA
www.mironov.com
+1-650-315-7394
rich@mironov.com
@richmironov