Henri Hämäläinen's presentation from the Tulevaisuuden Tuotekehitys (Future of Product Development) -seminar 27.10.2016. www.tulevaisuudentuotekehitys.com

1. Twitter: #TuTe2016
Understanding Product
Development Economics –
Why it matters?
Henri Hämäläinen, Contribyte

2. Leading Expert in
Product Development
Optimization
Since 2006 we have helped over 300 companies on improving their software based
product development through processes, tools and organizational models. We are
located in Finland and work globally based on the customers needs.

3. Introduction - Henri Hämäläinen
• Principal Consultant, CEO of
Contribyte
• Helped tens of companies on building
more productive Product
Development
• Inventor of Tulevaisuuden
Tuotekehitys™ -series
My Public References

4. Twitter: #TuTe2016
Product Development
Economics

5. Shipping container was not adopted by logistic
companies, because it seemed to ruin their business..
and it eventually did.

6. The same way, companies don’t want to
change their business models due to
software, because it will ruin their business.

7. So, let’s get back to basic product
development economics

8. Product
Development
Cash Flows
ProfitCost Sales Revenue
Operating Profit
Net Profit
Break-even time
Investment (incl. maint)

9. Profitability of Product
ProfitCost
Operative efficiency determines
when the curve turns
Slope of the curve comes from
Business capabilities
Subjective and Objective
Quality tells the product
longer term success

10. Business Agility needs to have
Operative
Efficiency
Subjective
& Objective
Quality
Business
Capabilities
Operative Efficiency
• Agile working methods
• Building Quality In
• Smaller Patch Size
• Continuous Deployment
• Lean SW & Lean Manufacturing
Business Capabilities
• Understanding Market
& Customer Problems
and Needs
• Marketing Innovation
and Efficiency
• Suitable Sales Models
• Service Design methods
• Lean Startup
Quality
• Usability and Customer
Experience
• Good working methods
• Craftsmanship attitude
• Customer Focus

11. In organizational level
the same laws apply as a result
of multiple products or
features

12. Many companies solely focus on
operative efficiency!
..or zero defects as quality focus!

13. Business nowadays can come from so many
other factors: new business models,
surprising customer value, customer
experience or many other

14. no sales, easy to start for teams with small investment
• Atlassian does not have a traditional sales team. All prices,
information about products, documentation, support
requests, and training materials on its website
• They don’t offer discounts
• Licensing starting at $10 for 10 licenses

15. Why PayPal succeeded and all
the others failed?
• Was it the email money approach?
• Was is it 3rd party API’s and tools
• Was it the idea?
• Was it the simplicity?
• Was it eBay?
• Was it because the understood the internet
technology rather than payment business
The percentage represents the number of websites using given technology
divided by the total number of websites using any of the technologies
- Datanyze 10/2016
There are as many explanations as there are articles. Product development economics are not easy.

16. BTW..
Have you ever heard of a successful software
company tell, that the reason for their success is
that they are so good at coding quickly.

17. Twitter: #TuTe2016
What has changed?

18. From Gaussian world to Paretian world

19. Normal Distribution Power Law
Small wins available for everyone Winner takes it all
History and statistic based Try and learn
Well defined business cases Value vision
Predictable Hard to predict

20. In Paretian world unlikely success happens

21. With software one product or product
feature can create 1000x more value than
something else.
Product development economics
optimization is all about probability and
risk handling

22. What about the long tail?
Same logic applies in there.

23. Twitter: #TuTe2016
Why this is important?

24. Iterative development is forgotten.
Sprints are just readymade planning
intervals, without much room for aiming
for better.

25. Large Agile initiatives are run with a
project plans called agile release trains

26. Production line Kanban is used for
developing non-linear creative solutions

27. Lean is misunderstood for, only cutting
down the waste for fastest possible
release.

28. If we ever want to start creating great
products again..

29. We need to fix this..

30. We need start understanding our
business much better..

31. ..and our customers

32. The only way to get these right, is to
work together. Business, development,
quality, sales and marketing create value
together. Organize your future around
that.

33. Product Owners and Product Managers
play huge role in product businesses of
companies..
And most of them suck at
understanding the economics

34. Create great balance
between these.
Challenge your
people to
understand these!
Operative
Efficiency
Subjective
& Objective
Quality
Business
Capabilities

35. And then you can create
products that are successful
for their full lifecycle!
ProfitCost
Operative efficiency determines
when the curve turns
Slope of the curve comes rom
Business capabilities
Subjective and Objective
Quality tells the product
longer term success

36. Thank you!
Henri Hämäläinen
CEO, Principal Consultant, Contribyte
www.contribyte.com
+358 50 487 3291
henri.hamalainen@contribyte.fi
fi.linkedin.com/in/henkkahamalainen

37. www.contribyte.fi