Few methodologies include the basics of forming a software product strategy. A good process for building software is quite useless if you are building the wrong thing. That's why we included Product Strategy in Part 1 of Joyfully, the book we wrote about our way of working.
I get asked at least once a week what exactly product does. Forming a product strategy and taking everyone on the journey is the most important part.
Why you need a product strategy
Let's be real. Your primary reason aside from serving a worthy purpose should be to increase revenue. Your goal is to achieve and maintain killer product market fit.
A good strategy ensures that your product is solving real and important challenges for your customers. It ensures your new and existing customers love your product, and won't churn.
Most importantly a good strategy ensures your product is unique. And hard (if not impossible) to copy. This avoids a go to market race in your category.
This is a big part of what it means to be product led. Building a great product is a huge challenge. But doing so makes everything else so much easier.
Having an agreed and documented strategy arms your whole team with the information they need to achieve their goals.
It will help marketing know how to position the product. It will help sales convert deals. It will help operations plan and resource the business. And it will help product and engineering to build the best product.
There are 10 important steps to forming a product strategy, which we will cover off next.
1 - Define your ideal customer profile
It can be tricky to form a clear product strategy if you have many different types of customers. The more different they are, the more they need different things from your product.
It's easy to get stuck trying to please two very different types of customers. Often, you end up pleasing neither.
So, what is an ideal customer profile (ICP)? We are a B2B company, which means we sell to other businesses.
An ideal customer profile for us is a description of the type of company that we want as a customer. They are also the company that would get the most value from our product.
We define the ideal customer profile using firmographics, including:
- The average size of the company
- The average company revenue, or average deal size
- The ideal industry or industries
- The ideal locations
Our ideal customer has between 2,500 to 250,000 employees. Particularly large agile organisations in telco, banking, retail and infrastructure. Ideally located in North America, New Zealand or Australia.
In future we will extend into other industries and locations. Having a common view of our ICP now helps ensure we are all focused on the same customer type.
2 - Know your worth
As product leaders, you should know your worth - every which way.
Here are some questions you should be able to answer off the top of your head anytime:
- How many ICP customers do you have?
- How many licensed users do you have?
- What is your average deal size?
- How much revenue have you earned to date?
- How much recurring revenue are you generating?
- How much has it cost you so far?
- What is your burn rate (how much cash are you spending each month)?
If you don't know, find out. To the dollar if possible. And don't just find out today, stay on top of this one every day.
It may feel like some of this is the concern of other parts of the business, such as burn rate. If you are a product leader, you should know.
Do what you can to keep your gross margin as high as possible, 75% is a good target.
3 - Be across your product usage
It is critical that you know how many of your users are actually using your product. It doesn't matter how many licensed users you have if they are not engaged.
So, how do you measure this?
This will depend on your user and your product. Many SaaS companies use a metric called Monthly Active Users (MAU). This is the percentage of users who use your product at least once a month.
We use this metric and we also keep track of a few others that are important to us. Our product initiates weekly conversations with employees. We want employees to answer the question sent from Joyous. After that we want someone from the organisation to respond. We then track the opportunities for change that arise from conversations.
So, there are five metrics we care about:
- Monthly Active Users (MAU)
- Questions Sent
- Questions Answered
- Conversations (when someone else replies)
- Opportunities for Change
Once you can measure, then what?
Not only do we track these metrics, our customers also care about these numbers. They work alongside us to keep them healthy.
Of all the metrics, the most important one to us is Conversations. Why? Hearing back from someone is a key predictor of future engagement. A consistent drop in conversations causes a drop in Questions Answered. And, longer term it also causes a drop in MAU.
From our data we know that if 60% of Questions Answered turn into Conversations we are in a good place. That is enough to maintain the current MAU. And 70% is enough to stimulate an increase in MAU. So, we will be proactive about hitting those numbers with each customer.
There are many tools you can use for standard product analytics, such as mixpanel. Because these numbers matter so much to us, we include them in our reporting to customers.
4 - Gather feedback
It's easy to assume you know what people think, and you know what's best, after all it's your product right? Trust in the fact that you don't, and ask the people who actually know.
The three big questions here are: who do you ask, what do you ask, and how do you ask them?
Let's look at who you should ask.
First ask the people on the ground. The team working on your product will have a raft of good ideas. They will also know the product's limits and weaknesses. For us this includes our product analysts, data analysts, data scientists and engineers.
Your company will have people looking after customer accounts. Your senior leaders are likely in regular contact with your most valuable customers.
They are all getting feedback from customers and even users about your product all the time. Make sure you create a forum and a habit for them to feed it back to you. If you ask them, they'll tell you the uncensored truth.
We recommend you get some internal feedback first. Then use that as fodder to spark conversations with your ICP customers. It could be that only a few customers will engage with you, but they are also likely to be the movers and shakers. The ones who can see the potential and value of your product, and are your advocates.
Next, find out what your biggest prospects think is lacking in your product. Ask your sales team what barriers are preventing prospects from buying.
Prospects can provide insightful feedback. Sometimes as part of an RFP process, which is why your product team should play an active role in large deals.
Okay. So we know who to talk to, next what do we ask them?
There are two approaches to consider. The easiest approach is to keep it simple. Ask people what they think you should be doing. Leave it open ended and see what they come back with.
If they share ideas with you ask them to expand on the challenge they are trying to solve.
Make sure you understand:
- The importance of the challenge
- The impact it is having today
- How they are solving it at the moment
- What a good outcome would be. The outcome should be measurable, not simply a new feature.
The alternative to an open ended discussion is to create a series of targeted questions. Or present an initial early roadmap.
For the targeted questions:
- What's working well for them?
- What do they like about the product?
- What's not going so well for them?
- What challenges are they facing?
- How would they rate the usability, stability, and performance of the product?
For each question give them an opportunity to supply suggestions and specifics. When showing an early roadmap encourage them to share their ideas too.
Next it's time to think about how you might ask.
In person (or on a video call) will always yield the best results. Run interviews if you are doing a one-on-one, or run focus groups if you need to gather feedback from many people.
If you can watch people using your product you should. Especially if you can sit beside them and allow them to ask you questions as they go.
Another way to ask for feedback is using an online survey. Google forms is pretty easy to get up and running (plus it's free).
5 - Understand the competition
Find out what your competitors are doing. Do a gap analysis of functionality across five of your biggest competitors. If you don't have direct competitors then find comparable companies.
Don't just learn about their features, find out about their strengths and weaknesses. Read reviews about them, talk to their customers, talk to people in the industry.
Figure out what industries they are most successful in, and what their market share is. This might help you uncover a potential key differentiator or industry to target.
We are not a competitor to apps like Messenger, Whatsapp, MS Teams or Slack. Yet we are a conversational tool. So, we analysed this category too. This helps ensure our user experience meets the norms everyone has come to expect.
6 - Watch out for emerging trends
Once you start gaining traction it's all too easy to become complacent. You should never take your eyes off what's happening in your industry.
You should also stay close to what is happening in your customers' industry. Some lighthouse prospects might have created their own internal solution. Use your network to see if you can arrange a call to understand more about what they have done, and why.
Finally, keep across the technological advances of your platform. Occasionally there are big shifts that you cannot ignore, and it pays to stay ahead of them.
7 - Do a SWOT analysis
If you've made your way through steps one to six you should now be in possession of bucketloads of data. It's time to analyse it.
We see no need to reinvent the wheel, simply compile what you have into a SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. Arrange the items in each from highest to lowest impact.
You should have many correlating data points on some items. Play close attention to those and place them at the top.
You might discover at this point that a product strategy consists of more than just a set of features. Awareness, perception, marketing, resourcing, and other factors may also be worth considering.
The SWOT informs and validates your product strategy.
Experienced product leaders and industry experts will also have excellent intuition. If the information is validating your intuition, then go with it.
8 - Understand your market potential
As mentioned earlier our ICP consists of large organisations. In time we will expand out to all industries, and locations.
This means our total addressable market (TAM) is enormous. We use the stats from https://stats.oecd.org/ to determine how many potential users we could have within large organisations in the OECD. Then we multiply that by our average price per user per year.
Consider how much of the market you currently have. Ensure your product strategy gives you a real shot at gaining a solid chunk of your TAM.
9 - Define your vision, goals and objectives
At this point you should be ready to articulate your product strategy. Next you need to get ready to present it.
If you are a product team worth your salt you should be good at doing presentations. If you are not, get someone to help you. Make something beautiful to back your vision.
A product vision should be a short and concise statement of what you are trying to achieve. This is the appropriate time to be ambitious rather than cautious.
The purpose of Joyous is to make life better for people at work. The internal product vision for 2021 is to make life better for people at work - at scale.
Your goals should specific and measurable.
Avoid vague statements like:
- Increase revenue
- Get more customers
- Simplify data integrations
Instead be specific:
- Increase recurring revenue to $50 mil in 2021.
- Add 3 million new users by 2023.
- Reduce manual data integration effort by 80%.
You get the idea.
With goals like these everyone understands exactly what you are working towards. And you can measure and track your progress.
Now you need to get to grips with the objectives you need to undertake to achieve those goals.
Double back to the insight you gained in the preceding steps and summarise them at a high level.
Turns out there are three big things we need to do:
- Drive long term engagement through human conversations.
- Support flexible conversations - ask any cohort anything, on any frequency.
- Make it easy to self-manage campaigns across many cohorts at scale.
The product vision, goals and objectives all go into your product strategy deck.
Include a few choice quotes, and trends of product usage over time. We also use high fidelity prototypes to help people see our vision.
Make the presentation as concise yet compelling as possible.
10 - Present your product strategy
It's time to present the strategy. First present it to your team. They will give you good feedback. Update your strategy accordingly. Rinse and repeat this exercise until you've spoken to all internal stakeholders.
It's okay to be confident at this point. You have enough data to back up the plan. You are not asking for permission to make a success out of your product, it's your job to do so.
Next go back to those customers who gave you feedback and present it to them. They will give you good feedback, and guess what? You'll adapt the strategy accordingly. Rinse and repeat until you've worked your way through all your key customers.
Connect with industry experts and present the vision to them. They gave us the most thought provoking feedback. And even at this late stage we continued to update our strategy.
By the end of this you should have a clear product vision - along with the buy in of your team and customers.
Never stop validating the strategy
Creating your initial strategy, while it's a huge undertaking, is only the first step. You should be re-evaluating and validating the strategy, at least every quarter. Never be afraid to change
direction if you find a good reason.
If you are leading a product, then you simply must develop a product strategy. You are the brave game changers, the innovators, the voice of your customers. You are the funnel that can filter out the muck that isn't adding value.
Be open to change and be bold in embracing it.